Document of

The World Bank

FOR OFFICIAL USE ONLY F

Report No. 2358-BR

STAFF APPRAISAL REPORT

NORTHEAST BRAZIL

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

May 15, 1979

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Brazilian Cruzeiro (Cr$)US$1 Cr$ 22.58 (Selling Rate, March 1979)*Cr$ I = US$0.0443Cr$ 1 million = US$44,287

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet1 kilometer (km) = 0.62 miles

1 hectare (ha) = 10,000 m2 = 2.47 acresI square kilometer (km2) = 100 ha = 247.1 acres = 0.386 square milesI cubic meter (m2 ) = 1.31 cubic yards = 264.2 US gallons1 kilogram (kg) = 2.2 pounds1 ton = 1,000 kg = 2,205 pounds

GLOSSARY OF ABBREVIATIONS

(see next page)

GOVERNMENT OF BRAZIL FISCAL YEAR

January 1 to December 31

POLONORDESTE PROGRAM FISCAL YEAR

April 1 to March 31

*Average Exchange Rates (Selling):Sept.

1975 1976 1977 1978

US$ = Cr$ 8.128 10.786 14.138 18.750

FOR OFCIAL USE ONLY

GLOSSARY OF ABBREVIATIONS

ARC = Agricultural Research CenterBB = Banco do Brasil (Bank of Brazil)BNB = lanco do Nordeste do Brasil (Bank of Northeast of Brazil)

BNCC = Banco Nacienal de Credito Cooperativo(National Cooperative Credit Bank)

CLC = Community Learning Center

CEASA = ompania Estadual de Abastecimento (State Supply Company)

CEPA-SE = Comissao Estadual de Planejamento Agricola - Sergipe

(Sergipe Agricultural Planning Commission)

COB A = Comnania ATrasileira de Alimento (Brazilian Food Company)

DER-SE = Oepartamento de Estradas de Rodagem de Sergipe(Sergipe Highways Department)

EMATER-SE = Empresa de Assistencia Tecnica e Extensao Rural - Sergipe(Sergipe Technical Assistance and Rural Extension Enterprise)

EMBRAPA = Empresa Brasileira de Pesquisa Agropecuaria(Brazilian Agricultural Research Enterprise)

EMSETUR = Empresa Sergipana de Turismo (Sergipe Tourism Enterprise)

FSESP = Fundacao Servico Especial de Saude Publica(Foundation for Public Health Services)

FUNRURAL = Fundo de Assistencia ao Trabalhador Rural(Assistance Fund for Rural Workers)

IAA = Instituto do Acucar e do Alcool (Sugar and Alcohol Institute)

IBC = Instituto Brasileiro do Cafe (Brazilian Coffee Institute)

INAN = Instituto Nacional de Alimentacao e Nutricao

(National Food and Nutrition Institute)INCRA = Instituto Nacional de Colonizacao e Reforma Agraria

(National Institute of Colonization and Agrarian Reform)

ITR = Inposto Territorial Rural (Rural Land Levy)

MEB = Movimento de Educacao de Base (Movement for Basic Education)

NCC = National Commodity CenterPOLONORDESTE = Programa de Desenvolvimento de Areas Integradas do Nordeste

(Development Program for Integrated Areas in the Northeast)

SEC = Secretaria da Educacao e Cultura do Estado de Sergipe

(Education and Culture Secretariat of Sergipe)

SENAC = Servico Nacional de Aprendizado Comercial(National Commercial Apprenticeship Service)

SES = Secretaria de Saude de Sergipe(Secretariat of Health of Sergipe)

SUDENE = Superintendencia de Desenvolvimento do Nordeste

(Northeast Development Superintendency)SUDAP = Superintendencia da Agricultura e da Producao

(Superintendency for Agriculture and Production)

UFS = Universidade Federal de Sergipe (Federal University of Sergipe)

This documennt has a restricted distribution and may be used by recipients only in the performanceof their oflial dutia. Its contents may not otherwise be disciosed without World Bank authorization.

NORTHEAST BRAZIL

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. THE AGRICULTURAL SECTOR .......................... 1

A. The Sector in the Economy .... ................ 1

B. Government Agricultural Policies ............. 1

C. Agriculture in Northeast Brazil .... .......... 2

D. Bank Involvement in the Agricultural Sector .. 3

II. THE STATE OF SERGIPE AND THE PROJECT AREA ........ 3

A. The State .............-.-.- . 3

Location and Natural Features .... .......... 3

Socioeconomic Conditions .... ............... 4

Agricultural Production .... ................ 4

Development Strategy ........... I ........... 4

B. The Project Area ..... ................ 5

Location and Natural Features .... .......... 5

Socioeconomic Conditions ................... 6

Land Tenure .................. 6

Agricultural Production .................... 7

Agricultural Services .... .............. 8

Social Services ..... ................ 8

Physical Infrastructure .................... 9

III. THE EXECUTING AGENCIES ........................... 9

Institutions to be Engaged in the Project 9

State Framework for Executing the POLONORDESTE

Program .................................... 9

IV. THE PROJECT ...................................... 10

A. Origin ...................... ................. 10

B. Brief Description .............. .. ............ 10

C. Detailed Features ............................ 12

Agricultural Services ........................ 12

Agricultural Extension ..................... 12

Agricultural Experimentation .... ........... 12

Land Surveying and Titling .... ............. 13

The report is based on the findings of an appraisal mission in September 1978,

composed of Messrs. G. Ashkenazi, C. Vidalon, P. Ram, Y. Tencalla, P. Morris,

(Bank), and Messrs. E. Velez-Koppel, L. Herrmann, E. Ricci, and E. Calderon

(consultants).

Table of Contents (Cont'd)

Page No.

Credit ....... ............... ................. 14Colonization ................................. 15Social Infrastructure ............ .. .......... 16

Education and Vocational Training ......... . 16Health and Sanitation ........... .. ......... 18

Physical Infrastructure ........... .. ......... 19Feeder and Access Roads .......... .. ........ 19Marketing Facilities ............ .. ......... 20

Project Management .............. .. ........... 21Activities Planned Parallel to the Project ... 21

Cooperative Society Development ............ 21Input Supply and Mechanization Services .... 22Storage .................................... 22

V. PROJECT COSTS AND FINANCING ...................... 23

Cost Estimates ................ .. ............. 23Financing ...... .............. ................ 23Procurement ................. .. ............... 25Disbursement ................. .. .............. 25

VI. PROJECT IMPLEMENTATION ........................... 25

Organization and Management ......... ......... 25Operating Agreements and Procedures .......... 27Implementation Schedule ........... .. ......... 28Project Evaluation .............. .. ........... 28Accounts and Auditing ..... ................... 29

VII. PRODUCTION, DEMAND, PRICES, AND MARKETING ........ 29

Production ...... .............. ............... 29Demand, Prices and Markets .......... ......... 30Marketing ...... ............... ............... 31

VIII. FINANCIAL ANALYSIS ............................... 31

Illustrative Farm Types ............. .. ........ 31On-farm Operations .............. .. ........... 32Producer Income ............... .. ............. 33

IX. ECONOMIC BENEFITS AND JUSTIFICATIONS .... ......... 34

Economic Rate of Return ............ .. ........ 34Employment ...... .............. ............... 36Project Risks ................ .. .............. 36Fiscal Impact ................ .. .............. 37

X. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION 38

Table of Contents (Cont'd)

Page No.

ANNEX 1: Design Standards for Municipal Roads .... ........ 42ANNEX 2: List of Collector Roads Planned Parallel

to Project ................. .. ................. 42ANNEX 3: Annual Phasing of Project Costs ................ . 43ANNEX 4: Estimated Schedule of Bank Disbursements ....... 44ANNEX 5: List of Executing Agencies .......... ............ 45ANNEX 6: Organization Chart of Project Administration Unit 46ANNEX 7: Implementation Schedule ........... .. ............ 47ANNEX 8: Financial Analysis of Illustrative Farm Models .. 48

Table 1: Present and Projected Input and OutputCoefficient Per Hectare ........... . 49

Table 2: Farm Type Two, Cropping Pattern,Financial Analysis, Debt Serviceand Cash Flow Projections .......... 50

Table 3: Farm Type Six, Cropping Pattern,Financial Analysis, Debt Service andCash Flow Projections .............. 55

Table 4: Farm Type Eight, Cropping Pattern,Financial Analysis, Debt Serviceand Cash Flow Projections .... ...... 60

ANNEX 9: Cost and Benefit Streams for Economic Analysis .... 65ANNEX 10: Related Documents Available in Project File ....... 66

MAPS: Project Area (IBRD 13975)Soil Types, Potential Land Use and Rainfall (IBRD 13976)

NORTHEAST BRAZIL

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

STAFF APPRAISAL REPORT

I. THE AGRICULTURAL SECTOR

A. The Sector in the Economy

1.01 Although agricultural production in Brazil has been growing at alower rate than the GDP as a whole, agriculture continues to be an importantsector in the economy. The national agricultural work force numbers 12.8million, or 39.5% of the economically active p2pulation, and 43.1 million ha(out of a national territory of 8.5 nLlion km ) are in agricultural use.About 56% of agricultural merchandise exports account for more than 50% ofthe country's export earnings. Brazil is the world's largest exporter ofcoffee and orange juice, the largest producer of cane sugar, and the thirdlargest producer of soybeans. It is also a major supplier of cotton, peanuts,cocoa, caster oil and sisal. In 1976, the value of Brazil's exported agri-cultural products was the third highest in the world.

1.02 The most important products for the domestic market include cassava,maize, rice, wheat, beans, potatoes, vegetables, bananas, citrus fruit,dairy products, poultry, beef and pork; coffee, sugar, soybeans, cotton,and cocoa are also important for the domestic market. With the exceptionof wheat, Brazil is largely self-sufficient in basic food production, althoughsome staples such as beans are imported seasonally. More than half of thewheat consumed in Brazil is still imported.

1.03 From 1967 to 1974, the agricultural sector performed well in meetingdomestic demand for food and fiber as well as in supplying a rising volumeof export commodities, with output growing at 5.7% annually despite adverseweather conditions in three of the seven years. Farm output increased 4.2%over 1975/76, an increase due more to productivity gains with livestock(12.2%) than with crops (0.4%, though 9% if coffee is excluded!) lntil1977, the value of agricultural output increased steadily, more as a resultof an expansion of production area than of improved productivity. Despiteincreased attention to productivity and increasing market integration, sub-sistence and semi-commercial production and use of rudimentary technologiescontinue to be widespread, particularly in the Northeast, North and Center-West. Because of the large rural population (para 1.05), the agriculturalsector remains a substantial source of labor for the other sectors of theeconomy.

B. Government Agricultural Policies

1.04 The agricultural development strategy of Brazil's Second NationalDevelopment Plan (1975-79) aims at more efficient exploitation of the country'sagricultural potential by increasing agricultural output by 40% in real terms.

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This goal reflects the Government's intention to encourage production ofan increasing share of Brazil's growing domestic requirements for foodand fibers as well as to increase agricultural exports. In addition,the Government has acknowledged the gravity of the country's incomedistribution problems. Important measures to increase agriculturaloutput have included: (a) utilization of substantial public resourcesto incorporate new areas into production; (b) significant expansion inthe supply of agricultural credit, most of it at subsidized rates;(c) strengthening of research and extension services; and (d) specialregional programs, such as the Development Program for Integrated Areasin the Northeast (POLONORDESTE), that focus on poorer regions and smallerscale farmers.

C. Agriculture in Northeast Brazil

1.05 The nine states of Northeast Brazil have a population of about 35million, two-thirds of whom live in rural areas. The population is growing ata net rate of 800,000 inhabitants per year. Much of the region has a semi-aridclimate with periodic serious droughts and extensive areas of poor soils. None-theless, the Northeast is a significant agricultural region, with 40% of the agri°culturally employed population of Brazil usually accounting for 20% of Brazil'sagricultural production and a major share of the national production of cocoa,cotton, manioc, beans and sugar. In 1977, about 30% of the area harvested inBrazil was in the Northeast. Throughout the region, most food and industrialcrops are produced by small farmers. Their technology is unsophisticated andyields are poor. The difficulties facing them include lack of credit forworking capital or investment, limited agricultural extension services,market isolation and weak linkages with the regional economy, insecurity ofland titles and, in some areas, a difficult physical environment. Theseproblems are compounded by a highly skewed pattern of land ownership. Forinstance less than 1% of the total number of farm establishments account for40% of the area, whereas in some areas up to 80% of the rural labor force ownsno land at all. Among northeastern states, the proportion of land holderswho own less than 10 ha ranges from 49% in Ceara to 87.6% in Maranhao.

1.06 Various Government programs have been directed at speeding economicdevelopment in the Northeast. The Government operates a special agency,the Northeast Development Superintendency (SUDENE), and a special developmentbank for the Northeast, Bank of the Northeast of Brazil (BNB). Substantialfiscal and monetary incentives have been made available over the past two decadesfor both industry and agriculture. Programs to generate jobs in the industrialsector have not however kept pace with population increases, and continuousimmigration from rural to urban areas has been coupled with considerable move-ment to the more industrialized Center-South and Center-West of Brazil. PastGovernment programs directed to the rural population of the Northeast haveconcentrated on public works, with substantial efforts in drought-prone areasto develop dams and ponds. The present administration has however also startedto strengthen the institutions offering the support services required to de-velop more productive farming systems, particularly under the POLONORDESTEprogram (in which the Bank is involved).

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D. Bank Involvement in the Agricultural Sector

1.07 The Bank has so far made 14 loans, totalling US$517.4 million, foragriculture and rural development in Brazil. These include two, amounting toUS$60.5 million, for livestock development; two, amounting to US$137 million,for agro-industries; one for US$18.2 million for grain storage; one for US$40million for agricultural research; one, of US$100 million, to improve agri-culture extension services; and seven, totalling US$161.7 million, for varioussettlement, irrigation and rural development projects, six of which arelocated in the Northeast. Additional agricultural and rural developmentprojects and a rural education project, all in the Northeast, are underconsideration for possible future Bank financing. Completion reports forthree projects have been issued: the grain storage and the two livestockdevelopment projects.

II. THE STATE OF SERGIPE AND THE PROJECT AREA

A. The State

Location and Natural Features

2.01 Sergipe, which is ihe smallest state in Northeast Brazil with aland area of about 22,000 km (only 1.4% of the Northeast), has five distinctphysiographical zones:

(a) the Litoral Zone, is located in the humid coastal regionfrom the northeast to the south up to about 50 km inland.Climatic conditions are favorable to agriculture, with anannual average precipitation of over 1,100 mm and one to fivedry months. The main crops are coconuts, grown along thecoastal belt, and oranges grown further inland;

(b) the Central Zone is located in the central part of the state,northwest to the Litoral Zone. Climatic and soil conditions aresuitable for agriculture, with an annual average precipitationwhich ranges from about 750 mm to 1,000 mm and three to fivedry months. The production of sugarcane and beef cattle arethe main economic activities of the Central Zone; however,traditional subsistence crops, including beans, corn, maniocare also important, as is cotton;

(c) the Lower Sao Francisco Zone is located in the northeasternportion of the state, along the Sao Francisco river. Annualprecipitation is somewhat over 950 mm, with three to six drymonths. The main agricultural activities are rice productionon the lower lands and some natural pasture on the more elevatedlands;

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(d) the Sertao Zone of Sao Francisco is located in the northernpart of the state along the Sao Francisco river and is aridto semi-arid. Annual average precipitation is below 500 mmwith between five to nine dry months. The main agriculturalactivities are cotton production and cattle ranching; and

(e) the Western Zone covers the western portion of the state.Climate conditions are varied within the zone and theannual average rainfall ranges from less than 700 mm toover 1,000 mm, with three to six dry months. Extensivecattle raising and cotton, maize, beans and tobaccogrowing are the main commercial activities.

Socioeconomic Conditions

2.02 Precise data on socioeconomic conditions are unavailable in Sergipe,but most of the rural population is below Brazil's rural relative povertycut-off point of about US$330 per capita 1/. The traditional industriesinclude textiles, sugar production and coconut processing and contribute about10% of the state's internal income. The more recent petroleum and gas indus-tries, which represent about 17% of Brazil's total production, are beginningto have positive but still unmeasured impact on the local economy. However,traditional agriculture is still the main economic activity in Sergipe.Of the total population of 1.05 million, as estimated in 1978, about 49% livein the rural areas, down from 62% in 1960.

Agricultural Production

2.03 Oranges, tobacco, coconuts and sugarcane represent the bulk of thecrops sold in out-of-state markets, while cotton, rice, beans, manioc andcorn are produced mainly for the local markets. Sergipe is the largestproducer of oranges among the Northeast states, whereas cattle raising is arelatively minor economic activity. Although the area under cultivationcontinues to increase (33% increase during 1960-70), the relative importanceof the agricultural sector is declining from 43% of the value of gross productin 1960, to 38% in 1969 (only 20% in 1970 due to drought). Despite someimprovements in agricultural productivity, the overall agriculture performancein Sergipe is characterized by low levels of technical skills; insufficientapplication of farm inputs (such as fertilizers, pesticides and farm machineryservices); limited development of infrastructure or supporting services(including marketing, storage capacity, farm credit and other facilities);insufficient and sometimes primitive processing facilities; inequalities inresource distribution; and a history of rural emigration.

Development Strategy

2.04 The current state administration has established a four-year plan(1976-79) for social and economic development. In addition to general develop-ment objectives, specific objectives have been set for each sector of the

1/ The poverty cut-off point chosen is equivalent to two Rio de Janeirominimum wages per family, i.e., US$1,650 per family, or US$330 percapita.

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economy. The main thrusts of the development plan rests on 14 individualprojects 1/, with 64% of the total four-year development budget devoted tosuch projects. Although agriculture is playing a lesser role than beforein development, it is still important in overall growth, the chief newdirections being: (a) special emphasis on particular areas (as in thePOLONORDESTE Program), (b) setting up of improved physical and other serviceinfrastructure to serve the sector, (c) improved production methods forexisting crops and the introduction of new crops such as passion fruit andcoffee, and (d) expansion of existing successful crops such as oranges.

B. The Project Area

Location and Natural Features

2.05 The 6,024-km2 project area (about 27% of the state's total land area)comprises 15 municipalities, of which 11 are located in the southern part ofthe Litoral Zone and the other four in the southeastern part of the WesternZone. Based on physical characteristics, land use and environmental conditions,the project area is further subdivided into three distinct sub-areas: theLitoral (coastal) zone, the Cerrado Central (central woodland) zone, andTabule ros e Vales (plateaus and valleys) zone. The Litoral covers an area of585 km (9.7% of the project area), with more than 1,250 mm precipitation. Dueto relatively poor soils, the main agricultural activity is limited to coconutproduction and the growing of subsistence crops and ex ensive beef cattleraising. The Cerrado Central extends over some 821 km (13.6% of the projectarea), with average annual precipitation of over 1,250 mm. The area is sparselypopulated which can probably be explained by the low fertility of the local soils.However, some areas of fertile soil do exist and there coconuts, manioc, sub-sistence crops and beef cattle are raised.2 The Tabuleiros e Vales is the majorproject sub-area, with an area of 4,618 km (76.7% of the project area), a greatpart of which is a plateau with altitudes varying between 100 and 200 m abovesea level. Average annual precipitation is around 1,000 mm, the heavier rainfalling in the east and less (750 mm) in the west. Agricultural developmentduring the last ten years has centered mainly on citrus, passion fruit, tobacco,and subsistence crops. This sub-area contains a relatively high percentage of

1/ Individual projects in the four-year development plan, include:eight in the chemical and petrochemical industries (potash, magnesium,salt ammonia/urea, sodium, chlorine, chloride polyvinyl), and two agri-cultural projects (Lower Sao Francisco Development Project and thePOLONORDESTE Program). The overall government budget is Cr$ 15.2billion, of which Cr$ 9.8 billion has been allocated to these individualprojects.

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fertile soils on which a wide range of crops may be developed. Due to thisfact and to other prevailing conditions (climate, population, infrastructureetc), the sub-area has been selected as being a likely main focus for futureagricultural development. The following table presents some of the keycharacteristics of the three project sub-areas:

PopulationSubarea j Population (1976) Density 2

km Inhab. % Rural Inhab./km

Litoral 585 5,716 55.5 9.8Cerrado Central 821 19,384 59.1 23.6Tabuleiros e Vales 4,618 203,603 67.2 44.1

Total Project Area 6,024 228,703 66.2 38.0

There are two principal towns (Lagarto and Estancia) in the project areathat serve as regional centers, but the real urban center is Aracaju, thestate capital, which is located about 10 km from the northern project boundary.

Socioeconomic Conditions

2.06 The project area currently has a population of 229,000 (accordingto 1976 estimates b sed on the 1970 census). Average population density is38.0 persons per km , ranging from 9.8 in the Litoral sub-area (the easternportion along the coastal line), to 44.1 in the Tabuleiros e Vales sub-area.In 1976, 66.2% of the population was rural, compared with 67.3% in 1970,and 73.8% in 1960. The population is youthful, with 46.5% under 15 yearsof age and 29.5% between 15 and 35 years of age. Agriculture, which is thechief economic activity of the region, accounted for 73.6% of the economicallyactive population in 1970, industry for 8.3% and services for 18.1%.(Respective figures for the state as a whole for the same year are 61.0%,11.4%, and 27.6%.) Within the project area, there are variations in thecomposition of employment, with the two main urbarn centers in the area(Lagarto and Estancia) having markedly higher shares of the work forceemployed in industry and services.

Land Tenure

2.07 Distribution of agricultural land by farm size is similar to thepattern found elsewhere in the Northeast. Of the 24,200 farms (of which 4,670are non-owner operated), 22,900 (more than 90%) are under 50 ha. The farmerswho cultivate about 25% of the overall area make up the project's target group,out of which 8,400 farmers are expected to be its direct beneficiaries. Thefollowing table summarizes the size distribution of all farms in the projectarea:

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No. of farmsProject Non- No. of farms by size % of farms by sizeSubarea Owner Owner <10 ha 10-50 ha >50 <10 ha 11-50 ha >50 ha

Litoral 1,082 376 1,152 197 109 79.0 13.5 7.5

Cerrado Central 1,647 422 1,668 262 139 80.6 12.7 6.7

Tabuleiros e Vales 16,810 3,872 16,537 3,088 1,057 80.0 14.9 5.1

Project Area 19,539 4,670 19,357 3,547 1,305 80.0 14.6 5.4

A high percentage of farmers in the project area who consider themselves"owners" of their lands actually have no titles, a serious constraintbecause they are always subject to dispossession and eviction.

Agricultural Production

2.08 Although the project area represents only about 27% of the area of thestate and contains about 23% of the state's population, it contributes a largepart of the total state marketable production of a number of crops. This is areflection on the quality of the land and its development potential. Detailsare as follows:

Value of Quantity of ProductionCrop Area Production Project Area % Sergipe Production

(ha) (Cr$ million) (tons)

Coconuts 13,620 38.1 20,500 36.7Oranges 10,640 102.1 145,000 97.5Manioc 10,860 68.2 144,900 43.2Tobacco (string) 3,950 19.1 3,970 98.0Bananas 460 5.4 377 28.2Other crops 4,480 18.5 n.a. n.a.

44,010 251.4

Although a wide range of crops is grown in the area and there is considerablepotential for further development, standards of husbandry are currently poor.Little fertilizer is used, seeds and propagating material (such as young fruittrees) are of poor quality, and there is little mechanization.

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Agricultural Services

2.09 Three banks, the Bank of Brazil (BB), the Bank of the Northeast ofBrazil (BNB) and the National Cooperative Credit Bank (BNCC), supply ruralcredit to project farmers. In 1975-77, they supplied 90% of the total ruralcredit. Of this about 40% was long term for investment purposes and 60% wasshort-term financing. About 70% of the loans went for crops, 20% for livestock,4% for agro-industrial installations and 6% for miscellaneous needs. Agri-cultural extension services are provided by the state Technical Assistance andRural Extension Enterprise (EMATER-SE). One regional office and seven localoffices are located in the project area, having a total of 48 specialists, butthis staff is insufficient to meet the needs of the farmers. State operatedstorage, mechanization and input supply services are available through a smallnumber of outlets, but their influence is relatively slight. On the other hand,the two well organized cooperative societies which function in the area are in-creasing their activities and are already supplying inputs to some 4,000 of theirmembers and marketing their products.

2.10 There are two small agricultural research stations within the projectarea, one at Boquim and the other in Lagarto. These stations are administeredby the Superintendency for Agriculture and Production (SUDAP). They concentrateon experimental work on citrus, passion fruit, pineapple and other fruit crops.The National Agricultural Research Enterprise (EMBRAPA) does not operate withinthe area but plans are on hand to extend their activities, based on a researchstation at Quissama that is outside the project area. The Federal Universityof Sergipe (UFS), the Sugar and Alcohol Institute (IAA) and the BrazilianCoffee Institute (IBC) are also starting programs that will have an influencein the area.

2.11 Agro-industrial development is just beginning and three processingplants have been established in recent years, one to handle citrus (frozenconcentrate and juices), one to process vegetables and a third to produceindustrial starch from manioc. In this respect the area is more advanced thanmost of the rest of the Northeast. Marketing facilities are also relativelywell developed, both through the cooperatives and through a wide network ofdealers and middlemen.

Social Services

2.12 Health services are poorly developed and those which do exist aremainly available to the urban population. In 1977 the ratio of physiciansto inhabitants was 1:4,330. Most municipalities have a number of healthcenters, but most of them do not function due to lack of equipment and personnel.Two small hospitals operate in the two main towns of the project area. Educa-tional facilities are also more available to the urban population than to therural population. Twelve municipalities have elementary schools from thefirst to eighth grade and another three have schools up to the fourth grade.In the remoted rural areas there are some 570 school units of the lower gradesbut there is a shortage in schools as there are insufficient professionalteachers. In 1976, approximately 42% of children aged 7 to 14 attended schoolin the rural sector of the project area, compared with 82% in the urbansector. Only about 30% of the population over 15 years of age is literate.

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The water supply system is also very unsatisfactory. It is expected howeverthat at the end of 1979, 80% of the urban population will be able to havetheir homes connected to a regular water supply system. This service is notavailable in the rural areas.

Physical Infrastructure

2.13 A system of main roads, secondary roads and access tracks coverseach sub-area, and federal paved highway No. 101 cuts across the entire area.The municipal road network, linking rural settlements with municipal centersand the state and federal highway system, totals 1,560 km, of which about220 km are paved. Not all of the secondary and tertiary roads are wellmaintained, and being without proper drainage they are impassable during therainy season. Some 270 km of railway lines also pass through the projectarea. Postal and telegraph services exist in each municipality, but thetelephone system connects only three towns in the area with Aracaju. Elec-trical transmission lines cross the project area bringing electricity to theurban centers and small towns.

III. THE EXECUTING AGENCIES

Institutions to be Engaged in the Project

3.01 The main agencies involved in rural development in the projectarea are BB, BNB, and BNCC; the State Technical Assistance and EMATER-SE; thestate's agricultural research unit in SUDAP; the Sergipe Fertilizers andAgricultural Materials Company (COMASE); the Marketing Service of theSuperintendency for Agriculture and Production; and the two cooperativesocieties (Treze and Estancia). Other agencies involved in rural developmentinclude the State Secretariats of Education and Culture, Health and theState Highways Department (DER-SE). Although there are numerous agenciesinvolved, their effectiveness has been hampered by both limited resources andthe fact that orientation toward integrated rural development is just emergingin the state.

State Framework for Executing the POLONORDESTE Program

3.02 The POLONORDESTE program which was established by the FederalGovernment in late 1974 is coordinated in SERGIPE by a Management Council(Conselho Director), created in July 1976, to provide policy and generalcoordination for the execution of POLONORDESTE-financed projects. TheCouncil is headed by the Superintendent of Agriculture and Production,but, in practice, the Governor of the State presides at some meetings.Other members of the Council include the State Secretary of Planning, theState Director of the Ministry of Agriculture, representatives from theFederal Ministries of Agriculture and Interior (the latter through SUDENE),and representatives of BB and BNB. Whenever necessary, other Secretariesalso take part in the deliberations. The Council is responsible for settinggeneral directives for POLONORDESTE activities and defining overall prioritiesand strategy; ensuring appropriate participation in the program by executingagencies; approving annual operating plans for specific projects and annualplans of participating executing agencies; and coordinating efforts ofexecuting agencies and resolving problems affecting project implementation.

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3.03 There are two POLONORDESTE projects currently under preparationor under implementation in Sergipe: the Tabuleiros Sul project in whichthe Bank would be involved and the Tabuleiros Norte project in the northernpart of the state. Day-to-day management, supervision, coordination andadministration of these two Tabuleiros projects is provided by an AdministrationTechnical Unit within SUDAP. This management unit is headed by a coordinatorwho answers directly to the Superintendent of Agriculture and Production.

IV. THE PROJECT

A. Origin

4.01 The Tabuleiros area is presently underdeveloped, mainly becauseof the lack of physical or service infrastructure but it has a relativelyhigh population density. However, despite its depressed condition the areahas considerable natural advantages and thus development potential. Theseadvantages can be summarized as follows: (a) the area is close to thestate's major consumption center of Aracaju, the state capital (currentpopulation of nearly 300,000 inhabitants); (b) its road system is, relativeto other parts of the state, more developed; (c) there is potential forcash crops such as fruit trees; and (d) it includes a large number of smallfarmers who have a tradition of small-scale agriculture. Because of itsdevelopment potential, the area was selected as one of two "priority" develop-ment areas in the Government's POLONORDESTE rural development program (para3.03), and in late 1977, the state contacted the Bank office in Recife,requesting collaboration in project preparation and financing. Several Bankpreparation assistance missions followed and the project was appraised inSeptember 1978.

B. Brief Description

4.03 Overall, the project aims at:

(a) increasing productivity and incomes, broadening opportunitiesand generally improving the standard of living of 8,400 smallfarmers and their families, these being the estimated directbeneficiaries of the project;

(b) raising agricultural production in Sergipe to cater for localand export markets;

(c) developing further the technical and administrative capacity ofinstitutions involved in agriculture and rural development inthe state, and, hopefully, encouraging the development of distinctsmall farmer orientation within these institutions; and

(d) serve as a "pilot" operation to benefit small farmersthrough existing cooperative societies.

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4.04 The proposed project would seek to achieve its objectives, over afive-year implementation period, by providing:

(a) agricultural extension, experimentation, and land surveyingand titling services;

(b) credit, to help finance on-farm investment and incrementalworking capital on farms of up to 50 ha in size;

(c) colonization facilities at 23 settlement sites, each for 60farmers;

(d) expansion and improvement of education services and healthfacilities;

(e) improved marketing facilities;

(f) a network of feeder and access roads; and

(g) project management, including administration, monitoringand evaluation.

4.05 The Project Administration Unit (PAU) would be responsible forproject management and monitoring. Individual project components would beexecuted by existing line agencies under the general guidance and coordina-tion of the Project Administration Unit. Federal, state and private agenciesand 15 municipal governments would be involved as direct executors or majorcollaborators in execution. Where implementation/management skills ofexecuting agencies are weak, they would be boosted by the project, theinstitutional strengthening thus having significance beyond the project. Eachexecuting agency would have a project liaison officer responsible for projectmatters and relations with the Project Administration Unit. The details ofthe types of farmer for whom the project has been designed are as follows:

Project Non-ownerSub-area Operators Owner-Operators

>2 ha >10 ha 10-15 ha Sub-total Total

Litoral 115 275 125 400 515Cerrado Central 125 425 155 580 705Tabuleiros e Vales 1,990 3,620 1,570 5,190 7,180

Project Area 2,230 4,320 1,850 6,170 8,400

The project's main objective of increasing the incomes of the 8,400 directbeneficiaries, will be achieved through an increase in productivity, whichwill hopefully follow the provision of improved agricultural services.Assumptions on attainable yield increases are given in Annex 8.

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C. Detailed Features

Agricultural Services

4.06 Agricultural Extension. Since rural extension is essential for thepromotion of improved technology and credit, EMATER-SE, the state technicalassistance and rural extension agency, would be expanded and strengthenedunder the project. The project would finance the salaries, and travel ex-penses of incremental staff; incremental operating costs (transportation,materials and supplies); equipment and vehicles for the expanded staff;establishment and operating costs of demonstration plots on selected farms;staff training costs (pre- and in-service training); and farmers' trainingcosts (short courses). Under the project, the extension staff in the projectarea would expand from 48 to 109 technicians. Total costs would amount toabout US$4.03 million (6.8% of baseline project costs) over the five-yearproject period.

4.07 The project would also include a change in the structure andmethodology of the local extension system. Rather than the principally creditsupervision approach, a specialization of function would be developed. Agri-cultural extensionists (middle level agricultural technicians) would betrained to provide, on a fixed schedule of periodic visits, agronomicadvice to groups of up to 20 project farmers organized around contact farmersand demonstration fields. Through these visits and demonstrations, agri-cultural extensionists would promote the adoption of improved production tech-niques (technical packages) developed by the extension and research services.The agricultural extensionists would be backed by subject matter specialists(higher level agronomists with specialized expertise) who would also superviseand coordinate the diffusion of new production technology. Farm managementand credit extensionists would assist farmers in farm management, and inpreparing and processing credit proposals. Social (home science) extensionistswould also work with contact families in close collaboration with the agri-cultural extensionists, but would focus primarily on nutrition, health, andeducation. The agricultural extension component would be implemented througha regional office in Boquim and nine local offices, a net increase of twolocal offices. Each agricultural extensionist would eventually work witheight to 10 contact farmers, through whom he would contact about 200 farmers;each farm management and credit extensionist would work with about 300 farmers,while each social extensionists would work with about six groups of 50 farmfamilies each, or a total of 300 families.

4.08 Agricultural Experimentation. The proposed project would concen-trate on the testing and adapting, under different farming systems, tech-nological packages and improved agronomic practices generated by the NCCs andARCs 1/. Some of the experiments would be carried out on existing experimentstations, but most would be sited on land owned by cooperating farmers. TheState Research Station in Quissama would carry out experiments with coconutsand manioc, while SUDAP would continue, through its Coordination and Execution

1/ National Commodity Centers and Agricultural Research Centers.

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Unit, to work with citrus, passion fruit, papaya, guava, pineapples and

bananas. In addition, the research agencies would provide technical assist-

ance to EMATER-SE for the planning and implementation of demonstration fields,

would produce high quality plant material for propagation, and would assist

SUDAP in establishing the proposed nursery inspection program (para 7.01).

4.09 The details of the experimentation component have not yet been

fully defined by the local research agencies. Therefore, during negotiations

assurances were received that the state research agencies, together with

EMBRAPA's technical department and the NCCs and ARCs concerned, would

prepare a detailed agricultural experimentation plan to be submitted to the

Bank for comment by November 30, 1979. Items to be financed under the

project include equipment and materials, and incremental salaries and

operating costs for carrying out experimental work. Total costs amount to

about US$0.5 million (0.9% of project's baseline costs).

4.10 Land Surveying and Titling. The proposed land surveying and

titling component would aim at clarifying and legalizing the land tenure

situation of a substantial number of farmers in the project area by providing

land titles to 3,200 farmers, each occupying less than 50 ha. The component

would include the promotion of this service among small farmers, the identi-

fication and listing of target farmers, the measuring and mapping of the

occupied lands, and the undertaking of the legal and administrative steps

necessary to grant titles. For the execution of this component, a special

office and full-time task force would be set up by SUDAP. The task force

would be built up gradually and would eventually be divided up into units,

each consisting of two lawyers, an agronomist, a surveyor, an assistant

surveyor, a draftsman, a driver and a secretary, stationed in Estancia (two

units), Lagarto (one unit), and Boquim (one unit). There would be one

general coordinator responsible for programming and controlling the work of

the various units. The field work should also enable the land titling unit

to advise the Project Administration Unit on problems encountered by the

area's non-landowner farmers in their rental or sharecropping arrangements,

and on possible improvements which the project might subsequently promote,

to help identify potential beneficiaries for the colonization component

(paras 4.16 to 4.19). Items to be funded would include payment of salaries,

services, materials, and equipment. Component costs would total about

US$1.2 million (2.1% of project's baseline costs), an average of US$385 per

farm title.

4.11 Because the land titling activity is new in Sergipe, the task

force has not yet been established. The state representatives brought to

negotiations evidence that personnel have been selected and recruited and

were being trained. Assurances were obtained at negotiations that by

November 30, 1979, a detailed plan of operation for the first year, for the

task force, would be prepared and submitted to the Bank. This plan would

identify criteria for selecting priority working areas, the methodology to

be followed for promotion and execution of the land titling services, a

detailed time schedule of all steps required by a farmer from title appli-

cation to final title issuance, and a system for reporting performance.

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Credit

4.12 The project would provide:

(a) incremental short-term credit (up to one-year) to help covercosts of inputs and other seasonal costs for the productionof short-cycle crops; for the establishment of semi-permanentcrops; and for the maintenance and improvement of establishedpermanent crops. About 8,400 small-scale farmers would beeligible for these loans;

(b) medium and long-term credit (up to eight years for "semi-fixed"and 12 years for fixed investment) to establish permanent crops(about 6,170 farmers); for land clearing and improvement and formaterials for housing (about 1,400 participants of the colonizationscheme); and for on-farm storage facilities, tools and equipment;and

(c) credit for land purchase (up to 20-years) to the approximately1,400 farmers participating in the colonization schemes.

4.13 Those eligible for credit would be farmers owning less than 50 hawithin the 15 municipalities comprising the project area, with prioritybeing given to low-income small farmers falling within the definition ofthe project target groups. It is estimated that about 6,550 (about 80% ofthe credit beneficiaries) would operate farms of less than 10 ha. Virtuallyall expected participants are estimated to now have incomes below the relativepoverty level in Brazil.

4.14 EMATER-SE extension agents, specialized in credit matters, wouldassist farmers in the preparation of subloan applications and in the develop-ment and execution of their farm plans. Funds would be channeled to thefarmers by the two federal banks, BB and BNB, through their existing (six)and planned (two) 1/ branches in the project area and in nearby municipalities.BNCC would also contribute short-term credit to the two cooperative societiesfor working capital. The source of funds would be the Central Bank of Brazil,refinancing through POLONORDESTE, which would maintain credit lines with theparticipating banks to make available the necessary funds to cover all sub-loans. Lending terms and conditions would be the same as those in effectunder the POLONORDESTE program. Credit requirements for the first fiveyears of the project are estimated to be, on an incremental basis, a totalof about US$29.7 million (50.4% of the project's baseline costs).

4.15 Bearing in mind Brazil's inflation rate (an average of 42% for thelast three years), the interest rates 2/ adopted by the Government forPOLONORDESTE projects are negative in real terms and the Government is stillreluctant to reduce the subsidy further for small farmer programs such asPOLONORDESTE. How ever since the beneficiaries of the proposed project would

1/ To start operating next year.

2/ 10% for seasonal and supervised investment credit and 12% for landpurchase credit.

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be mainly in the lower income classes and since the possibility of mis-allocations of resources is greatly reduced by the proposed agriculturalextension and monitoring activities, the Bank should be prepared to agree

with the Government's position. During negotiations, assurances were receivedfrom the Government that it would maintain agreements with the participating

banks to ensure their continued active collaboration in execution of theproject; that project credit would be extended to the small-scale farmers atPOLONORDESTE terms and conditions; and that the Bank would be promptly

informed of any changes in POLONORDESTE terms and conditions. Also, to help

ensure that project credit would be available to as large a number of

farmers as possible and that the focus on smaller scale operations would be

achieved, Bank disbursements would be limited to subloans to farmers whose

total debt (investment and working capital) outstanding under the programwas 100 MVR 1/ or less (about US$6,000). Since repayments of seasonal crop

production short-term subloans would, on average, be repaid in one year,assurance were received during negotiations that the Government would make

these funds available each subsequent year for reapplication under theproject credit component. Bank disbursements for seasonal crop credit inPOLONORDESTE fiscal year 19.79 (April 1979-March 1980) would begin only after

aggregate project working capital credit exceeded the comparable amount

extended under POLONORDESTE in the project area in fiscal 1978. 2/ In eachfollowing year, disbursements for seasonal crop credit would be made onlyagainst credit in excess of the amount extended by the project during the

previous year. During negotiations assurances were received that a ProjectCredit Statistics and Monitoring System would be set up by December 31, 1979

by the Project Administration Unit, and that the Project Evaluation Unitwould, on a yearly basis, evaluate the implementation of the credit component.

Colonization

4.16 The proposed component would consist of 23 settlements of about60 families each (1,400 families in all), on 8-ha farm units, covering atotal area of 11,200 ha. Because no less than 20% of the farm area (1.6 ha)would be kept as a forest reserve (in compliance with existing regulations)and since about 15% more is needed for roads, housing, and such, the netcultivable area would be about 5.2 ha per farm. Individual settlers areexpected to develop 85% of this area, or about 4.5 ha, during the projectimplementation period. Specific lands for colonization have not yet been

selected and, consequently, particular settlement schemes have not beenidentified. However, general settlement policies have been agreed uponand some prototype settlement schemes are already in existence. The project

would finance the purchase of the land (entirely with local funds); salaries,operating costs, equipment and vehicles for settlement design, coordination

and supervision by the state CEPA staff; and, under the project credit

1/ The "Maximum Reference Value" (MRV) is a periodically adjusted measure

equivalent to about US$60.00 in September 1978.

2/ The incremental credit baseline for 1977 was estimated at Cr$ 75 million,

representing seasonal credit granted to farmers with less than 50 ha.

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component (para 4.12), investment credit for on-farm development (includingland clearing costs and purchase of light farm equipment and materials forhousing). An electrification program, not part of the project thoughfinanced by POLONORDESTE, would support the colonization component, aswould project-financed access roads, health and sanitation, and educationcomponents. Total component costs would amount to about US$7.3 million(12.4% of the project's baseline costs).

4.17 Presently, the cooperative societies purchase selected landsthrough the Cooperative Development Fund maintained by SUDAP. Once thesettlement scheme is approved by the National Institute of Colonizationand Agrarian Reform (INCRA), land purchase credit for individual farmers topurchase their respective plots as well as other colonization credit, isarranged by the cooperative through local banks. The proceeds of the landpurchase credit are used to reimburse SUDAP special rotating fund, and theindividual farmers repay the local banks at standard POLONORDESTE Creditterms. During negotiations assurances were received that sufficient resources(about Cr$ 30.4 million during the five-year project period) would be madeavailable by POLONORDESTE to SUDAP to maintain such a rotating fund duringproject implementation.

4.18 The colonization program requires the participation of severalinstitutions such as SUDAP, the Sergipe Agricultural Planning Commission(CEPA-SE), INCRA, the cooperative societies in the project area and EMATER-SE.To avoid delays during the planning process, the participating institutionshave agreed on individual responsibilities and procedures. The draft detailsof these agreements, including criteria for the selection of settlers, wereprovided to the Bank at negotiations. A condition for disbursement underthe colonization component would be that the Bank had been provided with theagreements signed by all parties concerned.

4.19 Overall coordination and supervision of the settlement schemewould be done by SUDAP through its unit for Coordination of the Execution ofCooperative Projects and Matters (COPAC). The detailed planning and designwould be the responsibility of a colonization team within the state CEPA andthe coordination with other project components and supervision of implemen-tation would be done by the Project Administration Unit. The present settle-ment planning and design team in CEPA would be strengthened to a point whereit would be able to prepare up to six settlement sites per year. An orga-nizational plan for the team, including number and qualifications of staffand their functions, was submitted to the Bank during loan negotiations.Because the execution of the colonization component would be the respon-sibility of the existing cooperative societies, a Colonization CoordinationUnit would be established in each cooperative. Assurances were received atnegotiations that the organizational arrangements for these units, includingthe qualifications of the personnel and their duties, responsibilities andwork procedures, would be submitted to the Bank by December 31, 1979.

Social Infrastructure

4.20 Education and Vocational Training. The project would expand andimprove basic education facilities in the project area, hopefully increasing

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the literacy rate. Execution of the overall component would be managed by the

Education and Culture Secretariat of Sergipe (SEC). The component would

include: (a) construction, furnishing and equipping of 45 rural primaryschools (including 20 primary schools in the new settlements), with each

school providing about 70 student places (two classrooms), for a total of6,300 student places, double shift; (b) construction, furnishing and equipping

of three Community Learning Centers (CLC), with each center providing about105 student places for formal primary education and 120 places for adult

activities; (c) qualitative improvement of primary education by revising therural lower level primary curriculum (grades 1-4), organizing acceleratededucation programs for overage students, and introducing new teaching guides

and materials; (d) training and/or upgrading of about 725 teachers, 65school guidance counsellors, and 150 supervisors active in the project area;(e) provision of training in community development for about 6,200 adults;(f) provision of occupational training through the Sergipe Tourism Enterprise(EMSETUR) and the National Commercial Apprenticeship Service (SENAC) for

about 6,300 adults; (g) the carrying out by SEC, under agreements with the

Federal Universities of Sergipe and Bahia, of studies on the social andeconomic characteristics and training requirements of the target population,

and projections of employment to be generated by the project in the project

area; (h) the building up of an education evaluation capacity by SEC; and(i) the strengthening of SEC's administrative and supervisory capacity for the

overall project component.

4.21 The project would finance design, civil works, equipment and

furnishings for the primary schools and CLCs; consultancy fees and printingcosts for the development of new teaching guides and materials; costs of

the teachers' school guidance counsellors' and supervisors' upgrading program;

costs of the education and training services contracted with the Movement for

Basic Education (MEB), EMSETUR and SENAC; costs of the studies contractedwith the Federal Universities of Sergipe and Bahia; and salaries and operatingcosts of project implementation personnel within SEC during the component

execution period. Direct beneficiaries of the education and training componentwould include some 31,000 primary students, 280 colonization scheme families,

930 teachers, school guidance counsellors and supervisors, and 12,000 adults.

Component costs would amount to about US$2.76 million (4.7% of the project's

baseline costs) over the five-year project period.

4.22 The rural primary schools would be constructed according to

prototype plans, satisfactory to the Bank, and would be located where the

population is at least 1,160 within a catchment area of about 28 km2,

where existing insufficient or inadequate facilities result in pupilswalking more than 3 km to reach the school, and where there is year-roundaccess. The siting of the primary schools to be located in colonizationschemes would be determined once the colonization areas are defined. Thelocation of the CLCs has already been defined and is satisfactory. SECsubmitted to the Bank during negotiations: (a) prototype plans for the

three CLCs and the rural primary schools to be built under the project; and(b) the terms of reference for the instructors' and project participants'training programs and for the studies to be carried out by the FederalUniversities of Sergipe and Bahia. During negotiations, assurances were

received from the state that SEC would (a) select the coordinators

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of the CLCs before initiating the construction of these centers; (b) byNovember 30 each year, send to the Bank for approval details of the com-ponent work program for the following year and the site plans for theschools to be built in each respective year, including the justificationfor the location according to the agreed criteria; and (c) by March 31,1980, submit to the Bank an acceptable final draft of the revised primarycurriculum and training for introduction of the new curriculum, and thecurriculum and an acceptable plan for the implementation of the acceleratedprogram. Conditions for disbursements under the education and trainingcomponent would be that: (a) additional personnel had been contracted tothe Planning Department of SEC; (b) the Bank had been provided with satis-factory evidence of the acquisition of the respective sites; and (c) theBank had been provided with agreements between the state and agenciesparticipating in the component (MEB, EMSETUR, SENAC, and the Federal Univer-sities of Sergipe and Bahia).

4.23 Health and Sanitation. The health component would provide a widecoverage low cost health delivery system to serve, at full development,about 65,000 people -- 100% of the project beneficiaries and 30% of theremaining rural population living within the influence area of the project.The health component would be administered by the Secretariat of Health ofSergipe (SES) and would include the following: (a) the construction andequipment of 25 rural health posts (supplementing another 24 to be builtunder other Government programs); (b) the cost of preinvestment studies forconstructing village water supply systems, identifying water sources,potentiality of deep wells, quality of water and alternative solutions; (c)the construction of 33 water supply systems (complementing another 32systems that will be financed under other programs); (d) the construction of1,400 family pit latrines in the 23 settlements to be implemented under thecolonization scheme; (e) the training of 50 rural attendants, some ninesanitation auxiliaries and 15 water supply operators and nine supervisoryauxiliary nurses and the carrying out of refresher courses for all ruralstaff and three regional seminars for evaluating progress of the health andsanitation component; and (f) 12 months of technical assistance in healthadministration to help identify constraints of the regional health system,elaborate and implement proposals for developing such a system, and trainrequired personnel. The project would finance construction and equipmentcosts; participants travel and boarding; material costs of the trainingprogram; salary complements; technical assistance; and equipment and operat-ing costs for health component supervision. Total component costs duringthe five-year project period would amount to US$1.27 million (2.2% of theproject's baseline costs).

4.24 SES would manage the health component (organization of rural healthposts, staff training, and technical assistance) and the construction of pitlatrines. However, the foundation for Public Health Services (FSESP) wouldcontinue to manage health services in the municipalities in which it operates.Execution of the health component would build upon a significant communityorganization and promotion effort by the social extensionists of EMATER-SE(para 4.07), who would assist in the formation of village health societies.

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These societies would contribute materials and/or labor to health postconstruction and possibly offset a small part of the maintenance costsof health facilities through modest fees; contribute to the financingand managing of village water supply systems (para 4.25); and, in somecases, provide a basis for greater community involvement in other projectdevelopment activities. Each local health post would be staffed with a paidhealth attendant. Local health services would be simple, focusing on theprovision of pre-natal care, vaccinations, health and nutrition education,and selected curative treatments. The health post would also provide avaluable mechanism for executing parallel Government endemic disease andnuitrition programs. Similarly, the project health centers would also serveas channels for food supplement activities financed by the National Food andNutrition Institute (INAN). Project training would be directed toward therural health attendants, regional health service supervisors, and healthcenter attendants.

4.25 The proposed health activities would also provide for the study,design and construction of about 33 village water supply system (23 of whichwould be in new settlements), providing potable water to some 10,000 people,and the training of village' water system operators. This subcomponent wouldalso be built upon community organizations; therefore, one of the key projectactivities would be the EMATER-SE community organization effort, whichwould, hopefully, involve most of the population. The State's Company forSanitation would operate and maintain all collective systems financed bythe project and would construct water supply systems in the already existingvillages; while the cooperatives would be responsible for constructionof such systems in the planned settlements. Operation costs of the 33collective water systems to be set up under the project in existing villagesand in new settlements would be financed by the municipalities, the StateCompany for Sanitation and contributions from the cooperative societies andthe users. Assurances were received during negotiations that detailedproposals for executing the health and sanitation component would be pre-sented by December 31, 1979 to the Bank for its approval. Conditions ofdisbursement against health and sanitation costs would be that a detailedprogram had been approved by the Bank, and that appropriate participationagreements had been signed by the executing agencies.

Physical Infrastructure

4.26 Feeder and Access Roads. The project would finance engineeringdesign and construction or upgrading of about 560 km of low cost feeder andaccess roads, and the purchase of road maintenance equipment and spare parts(para. 4.27). Total costs of this component would amount to about US$10.05million (17.1% of the project's baseline costs) over the five-year period.The roads would include: (a) about 151 km of improved earth roads (4.5 mwide), costing an average of US$9,100 per km; (b) 245 km of gravel-surfacedroads (5.0 m wide), costing an average of US$16,300 per km; (c) 31 km ofgravel-surfaced roads (6.0 m wide), costing an average of US$22,900 per km;and (d) about 133 km of yet unspecified all weather roads (4.5 m or 5.0 m wide),costing an average of US$12,100 per km. The design standards for the threeroad types (Annex 1) would be finalized during negotiations. DER-SE would beresponsible for execution of the works. DER-SE has a competant design staff,

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under its Technical Directorate, and supervises construction through itsfour Regional Residencies, of which two are located in the project area.Detailed design for the project roads would be partly carried out by DER-SE,and partly by consultants (para. 4.28).

4.27 Maintenance of municipal roads is the responsibility of eachmunicipality. DER-SE provides some assistance by renting motorgraders fromits Regional Residencies to municipalities and charges at least for fuelconsumption. However because of the small amount of funds that the muni-cipalities receive from the national road fund and municipalities taxes,only a few roads receive any care. Therefore, the project would financepurchase of road maintenance equipment and spare parts, totalling aboutUS$1.0 million, over the five-year project period. During negotiationsassurances were received from the state that all equipment procured underthe project would be operated and maintained by DER-SE and be used solely afor maintenance of municipal roads in the project area. The state wouldenter into contractual arrangements with the municipalities before construc-tion began whereby such municipalities would undertake to make available theright-of-way for the roads and would allocate sufficient funding and manpowerto assist DER-SE in maintaining the constructed roads.

4.28 In Sergipe, DER-SE requires strengthening to perform its mainten-ance duties and to provide assistance to all municipalities in the state.Therefore, two experienced civil engineers would be hired by the ProjectAdministration Unit and assigned to the two DER-SE Regional Residencies atLagarto and Estancia. They would be responsible, under the Chief Engineer,for programming and supervising construction of the project roads and formaintenance assistance to the municipalities in the project area. Assurancewere received at negotiations that terms and conditions of employment of thetwo engineers would be satisfactory to the Bank. During negotiations,assurances were also received from the state that, by November 30, 1979, itwould provide for Bank comment a study indicating equipment, personnel andfunding requirements for DER-SE and the municipalities for maintainingmunicipal roads in the project area, and by December 31, 1981, it wouldprepare and furnish to the Bank its program for strengthening the capacityof DER-SE to maintain all roads and highways, to provide maintenance assistanceto the municipalities and to support highway policing and vehicle weight controlon state roads and highways. The contracting of the two afore-mentionedengineers would be a condition of disbursement for the feeder and access roadscomponent. The state and federal highways in the project area are generallyadequate, although construction of of three collector roads, totalling about41 km (Annex 2), has been programmed by the state. Since these roads areneeded to support the project, assurances were received from the state duringnegotiations that it would build the three collector roads by December 31,1981.

4.29 Marketing Facilities. The project would finance the constructionand equipping of a farmer's market at Umbauba by the State Supply Company(CEASA). The market would be constructed in the second year of the project.It would have cement floors and a roof of sheet metal or local tile and wouldcost about US$0.22 million. The market would be technically and administra-tively dependent of the existing market at Boquim. It would be operated and

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maintained by CEASA. Marketing fees would be paid by users to cover full

operating, maintenance and capital recovery costs. During negotiations,

assurances were received that the Brazilian Food Company (COBAL) wouldagree that CEASA would contract the construction and would operate, maintain

and finance operating costs of the market. The presentation of this agree-ment to the Bank would be a condition for disbursement against marketing

facilities costs.

Project Management

4.30 The existing Administration Technical Unit in SUDAP, which is

responsible for the implementation of the POLONORDESTE projects in Sergipe,

would be in charge of the planning, implementation, monitoring and control

of the Tabuleiros Sul project through a Project Administration Unit (para6.02). This nine person unit would include headquarters staff in Aracaju and

a field project coordinator. The majority of the staff will be recruited bySUDAP before negotiations and trained. A separate Evaluation Unit (paras6.09 and 6.10) answering to the state's POLONORDESTE Management Council, would

be set up in CEPA-SE. The project would cover the costs of equipping, staffing

and providing necessary materials and contract services to maintain the twounits during the five-year project period. Arrangements have been made that

the state would identify, hire and train qualified key personnel for theProject Administration Unit and CEPA's Evaluation Unit. The ProjectAdministration Unit is already operative. Assurances were received during

negotiations that the terms and conditions of employment of consultants, whichwill be contracted for various studies on either technical or evaluation

issues, would be satisfactory to the Bank. Total component costs wouldamount to about US$1.80 million or 3% of project baseline costs.

Activities Planned Parallel to the Project 1/

4.31 Cooperative Society Development. The two cooperatives existing in

the project area (Estancia and Treze) are already playing, and will continueto play, important roles in agricultural development in the project area.Since the two cooperatives are already reasonably well developed, the projectdoes not include a specific component to directly finance any of their programs.

However, the expansion of their activities and strengthening of their organiza-tion would be necessary and will be carried out with their own resources and

with lines of credit available to cooperatives, especially in the area ofcolonization, processing, and marketing of products. Onlending production

and investment credit to member farmers has been an important contributionof the cooperatives to widening credit coverage among small farmers and tolowering its costs. Every year each cooperative would prepare, with the

assistance of the Project Credit Coordinator, annual plans of its creditrequirements, as well as annual progress reports on its performance.

1/ These activities are not financed under the project, but are

complementary to it.

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4.32 The cooperatives would also make use of the Cooperative DevelopmentFund to finance the purchase of members' marketable produce. This fund wouldinitially provide a total of Cr$ 15 million in the first two years of theproject, thereby strengthening considerably the cooperatives' bargainingposition with respect to competing middlemen. The project management wouldalso, with the collaboration of the cooperatives and CEPA-SE, identify inadvance and help plan the marketing of products such as oranges, passionfruit, papayas, and pineapples to the local processing factories or tofactories outside the project area.

4.33 Since the cooperatives are providing various services, and since afarmer may simultaneously have several business transactions with thecooperative (i.e., land purchase credit, production and investment credit,supply of inputs, sale of product), it is important to have a centralizedand efficient accounting and reporting system for each farmer. The coopera-tives, in coordination with the project management, expect to enter intoworking agreements with BNCC to obtain technical assistance in this area.During negotiations, assurances were received from the state that, byMarch 31, 1980, a plan of action for improving farmer accounts and reportingsystems has been developed.

4.34 Input Supply and Mechanization Services. Agricultural developmentactivities under the project should result in increased demand for inputsupplies, especially fertilizers, pesticides and improved disease-free plantingmaterial for various fruit crops. Moreover, mechanization services would berequired, especially in the case of colonization schemes, for land clearingand preparation. Under the project, the two cooperatives and the State'sInput Supply Company (COMASE) would supply inputs and mechanization services.COMASE has five outlets in the project area but does not monopolize (nor is itlikely to) the provision of farm inputs and mechanization services. Itspresence is viewed by the state as an important means to assure that at leastthe inputs and mechanization services required for state-supported developmentefforts are available when and where needed and that, where there are othersuppliers, prices remain competitive. The state policy is for COMASE tooperate, insofar as possible, as a self-financing entity, and, since thecooperatives also have funds and sufficient sources of short-term credit, tofinance procurement of any inputs, it has been agreed that the Bank would notfinance these items.

4.35 The proposed agricultural development plan contemplates intensivecropping patterns. For this, and for the rest of the agricultural develop-Tnent program, existing machinery (124 chain tractors and 411 wheel tractors)in the project area would be sufficient. However, to assure prompt service,the Project Administration Unit, with the Colonization Units in the coopera-tives (para 4.19) would review annually the machinery requirements and wouldset up a schedule of monthly works to be done. This advance planning wouldbe issued to enable, whenever necessary, competitive bidding for contractsfor land clearing and other mechanized works.

4.36 Storage. Surplus crop production would not require off-farmstorage facilities, except in the case of tobacco, the storage for whichis already provided for by cooperative warehousing. However, the financingof small on-farm installations to serve as places to house implements,inputs and marketable or home-consumption farm produce may be necessary.

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V. PROJECT COSTS AND FINANCING

Cost Estimates

5.01 Total project costs over the five-year project period (April

1979 to March 1984) are estimated at US$76.0 million, which includes the

equivalent of roughly US$1.5 million in state and federal taxes, physical

contingencies equivalent to 5.4% of baseline costs, and price contingencies

equivalent to 23.7% of baseline costs. Physical contingencies of 7% have

been added to the agricultural extension and experimentation, land titling,

marketing facilities, and project administration components; 10% to coloni-

zation, feeder roads (in addition to 10% physical contingencies included

in baseline costs), and education components; and 15% to the health and

sanitation component. Price contingencies have been calculated in US dollar

terms as follows: for civil works, 7.5% in 1979 and 7% per year thereafter;

for equipment, 6.5% in 1979 and 6% per year thereafter; for other materials

and supplies, credit, salaries, and such, 7% in 1979 and per year thereafter.

Annual phasing of project costs is shown in Annex 3.

Financing

5.02 The proposed Bank loan of US$26.0 million to the Federative

Republic of Brazil would finance 35% of project costs net of taxes (34% of

total project costs). The balance would be provided by the Federal Govern-

ment through its POLONORDESTE program, and financing plans for the recurrent

costs to be funded by local funds would have to be made. During negotiations,

assurances were received from the Government that adequate funds would be

made available promptly for the purpose of effective and timely execution of

the project, and adequate operation and maintenance of the facilities and

services provided under the project. Assurances were received from the

state that it would arrange for the timely acquisition and necessary financing

of any additional land or rights-of-way which are needed for project works.

The loan would be for 15 years, including three years of grace, and would

cover the project's full foreign exchange costs of US$13.5 million equivalent,

as well as US$12.5 million of the local costs.

5.03 Since Brazil is making a vigorous effort to mobilize domesticresources, it would be appropriate for the Bank to give assistance in financing

some of the local currency expenditures in projects such as the proposed, which

have a high priority and yet have a relatively low foreign exchange content

(in this case). The situation typically arises in agriculture and rural

development projects in Brazil in view of the high capability of the Brazilian

economy to produce of the inputs required for investments of the type involved.

If the Bank is to be effective in supporting a project of this kind, it seems

reasonable for it to finance at least 35% of the costs even though this

entails financing some local currency expenditures.

5.04 To help assure a prompt start of the project, various activities

will commence during the first half of 1979, such as the recruitment and train-

ing of staff for the project unit and extension service, engineering design of

feeder roads, the initiation of on-farm investments and provision of credit.

For this reason, retroactive financing of up to US$750,000 equivalent isproposed to help cover eligible expenditures after March 31, 1979, but before

the loan is signed.

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NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Total Project Costs(U.S.$ 000')

% of Total %Baseline Foreign

1. Agricultural Services Local Foreign Total Costs Exchange

Extension 3,549 484 4,033 6.8 12Experimentation 451 50 501 0.9 10Land Titling and Surveying 1,074 147 1,221 2.1 12

Subtotal 5,074 681 5,755 9.8 12

2. Credit

Investment Credit 16,819 2,968 19,787 33.6 15Incremental Working Capital 4,674 825 5,499 9.3 15Credit

Land Clearing and On-farmDevelopment in Settlements 2,878 1,549 4,425 7.5 35

Subtotal 24,371 5,342 29,711 50.4 18

3. Colonization

Land Purchase 5,973 - 5,973 10.1 -Colonization Planning andImplementation 1,134 200 1,334 2.3 15

Subtotal 7,107 200 7,307 12.4 3

4. Social Infrastructure

Education and VocationalTraining 2,348 414 2,762 4.7 15

Health and Sanitation 1,082 191 1,273 2.2 15

Subtotal 3,430 605 4,035 6.9 15

5. Physical Infrastructure

Feeder and Access Roads 6,734 3,316 10,050 17.1 33Marketing Facilities 176 44 220 0.4 20

Subtotal 6,910 3,360 10,270 17.5 33

6. Project Management

Administration and MDnitoring 1,278 142 1,420 2.4 10Evaluation and Studies 342 38 380 0.6 10

Subtotal 1,620 180 1,800 3.0 10

Total Baseline Costs 48,499 10,379 58,878 100.0 18

Physical Contingencies 2,616 574 3,190 5.4 18Prices Contingencies 11,439 2,511 13,950 23.7 18

Total Project Costs 62,554 13,464 76,018 129.1 18

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Procurement

5.05 The numerous miscellaneous farm inputs to be procured by indivi-dual farmers and financed through the credit component (totalling more thanUS$25.0 million) would be purchased through local trade channels. The

equipment, materials and vehicles required over the project execution period

by the numerous agencies responsible for the different project components(totalling about US$5.0 million) are locally produced and readily available.Such items would be procured in accordance with local procurement and

bidding procedures, which are acceptable. Construction works (totallingUS$8.6 million without contingencies) for the feeder roads would be divided

into construction lots. The Bank would review the standard constructionbidding and contract documents before the first round of bidding, but awardswould be reviewed on an ex-post basis. Contracts for these works and for

the civil works required for the marketing, colonization, and educationfacilities (an additional US$4.2 million) would be awarded to prequalifiedbidders on the basis of competitive bidding advertised locally and in

accordance with procedures which are satisfactory. Brazil has a competitivelocal construction industry capable of carrying out the project works.

Since the individual construction works are relatively small and quitedispersed, foreign contractors are not expected to be interested, thoughthey would not be excluded from bidding. All of the other construction

works included in the project (for health posts, village water supply, and

the like, totalling some US$0.7 million) would be small and of varied designas well as geographically dispersed. Consequently, they would be carried

out through a combination of self-help, force account and local bidding.Consultancy services, most of which are expected to be local, would have a

total cost of approximately US$1.0 million equivalent (about US$2,200/man-month).

Disbursements

5.06 The proceeds of the Bank loan would be disbursed against 38%of expenditures for each project component other than for goods and services

for Part A.1 (Agricultural Extension) of the project for which the disburse-ment rate would be 27%. No loan disbursements would be made for land purchase.

Disbursements would be made to the Central Bank of Brazil, the fiscal agent

for the POLONORDESTE program, against withdrawal applications covering state-ments of expenditures initiated by the various implementing agencies under the

project and certified by the Project Administration Unit. Supporting documen-

tation for credit, salaries, administrative expenses and minor constructionunder force account would not be submitted to the Bank but would be retained

by the Project Administration Unit and made available for inspection by theBank during the course of project supervision missions. Standard documentation

covering civil works, vehicles and equipment and technical assistance would be

submitted to the Bank. Details of the documents required were reviewed during

negotiations. Disbursements are expected to occur over about five years. The

estimated disbursement schedule is given in Annex 4.

VI. PROJECT IMPLEMENTATION

Organization and Management

6.01 The various components of the proposed project, with the exception

of land titling and overall project administration, would be executed by

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existing agencies traditionally responsible for the respective activity -- e.g.,EMATER-SE for extension, the SEC for education and the such. A detailed listof these agencies is given, by project component, in Annex 5. To coordinateand guide development activities under all its POLONORDESTE projects, thestate of Sergipe has already created a POLONORDESTE Management Council(Conselho Diretor, para 3.02) composed of representatives of the principalexecutive agencies and headed by the State Superintendent of Agricultureand Production. The Management Council would therefore guide and coordinateall activities under the Tabuleiros Sul Project, while day-to-day coordination,administration and monitoring of the project would be undertaken by a ProjectAdministration Unit (PAU). The present administrative organization of thePOLONORDESTE program in Sergipe is likely to remain in effect over at leastthe medium term. Assurances were received from the state during negotiationsthat it would maintain, for the implementation period of the project, the PAUwith appropriate staff and resources and would fully support other stateagencies participating in the project.

6.02 An Administration Technical Unit for POLONORDESTE projects wasestablished in 1977 within SUDAP and this would be in charge of the PAU forthe Tabuleiros Sul Project. The PAU would have two sections, one responsiblefor field operations and the other responsible for monitoring. To deal withproject execution, the PAU would, however, require considerable strengthening.PAU staff would comprise, at full development, an executive coordinator, seventechnical specialists, two part-time student interns, an administrative supportstaff in Aracaju headquarters, and a "field project coordinator" of technicalspecialist standing. An organization chart of the PAU is provided in Annex 6.The proposed staff, allocation of staff responsibilities and managementorganization structure would be such that headquarters technical staff wouldnot be overburdened with administrative tasks at the expense of more valuabletrouble-shooting, decision-making and innovative activities in the field.

6.03 Operations staff would coordinate implementation activities ofthe numerous executing agencies. To achieve this, there would be fouroperational functions within the PAU: agricultural development (agricul-tural extension, agricultural research, input supply and mechanizationservices); production support (on-farm and land purchase credit, landsurveying and titling services, cooperative societies support, colonizationand marketing), social infrastructure (education and training, health andsanitation), and physical infrastructure (roads). Operations staff would beassigned to the four operational functions. The staff asigned to eachfunction would assist the relevant executing agencies to prepare detailedannual project operating plans and would work with the agencies in coordi-nating project activities and supervising the progress of each component.In order to provide administrative continuity and a communication linkbetween the PAU, the executing agencies, and beneficiaries, and to ensurespeed and efficiency in project execution, a project field coordinator wouldbe a part of the operations staff. His role as a two-way communicationchannel should provide "grass-roots" feedback to project administration andexecuting agencies on implementation progress and problems.

6.04 Monitoring/planning staff would deal with monitoring, long-termplanning and special studies under the direction of a monitoring and planning

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coordinator. The section would include, initially, two technical specialists(including the coordinator), two student interns, and administrative auxiliaries.The unit would have two main tasks. Firstly, staff would monitor the resultsof each component and advise the project executive coordinator of short-fallsin project achievements relative to expectations. Standardized forms would becompleted quarterly by executing agencies and forwarded to the monitoring groupfor synthesis into quarterly project reports that would be forwarded to projectmanagement, the State POLONORDESTE Management Council, Regional and FederalPOLONORDESTE officials and the Bank. Assurance were received during negotia-tions that: (a) the Project Administration Unit would standardize data require-ments among participating agencies and establish coding and analysis proceduresand provide a report on the recommended procedures to the Bank for reviewand comment prior to their implementation; and (b) the quarterly projectreports would be provided to the Bank promptly upon their completion.

6.05 The second main task of the monitoring sub-unit would be to organize,administer, process, and analyze in the first, third and fifth project years,a farm productivity survey. The farm survey would cover a small sample(probably less than 350) of participant and non-participant farmers in theproject area. It would be conducted with a fixed format, pre-coded question-naire centered on production technology, farm inputs, institutional contactand support, and produce marketing. The PAU would require initial assistancein this work. Therefore, assurances were received during negotiations thatthe PAU would contract consultants on terms and conditions satisfactory tothe Bank to assist in survey preparation and to establish data processingand analysis procedures, the recommended survey design and analysis pro-cedures to be communicated to the Bank, for review and comment prior toimplementation.

Operating Agreements and Procedures

6.06 Since the project covers a broad range of related activities,and since the timing and scope of some would undoubtedly require adjustmentas experience is gained, flexibility in project execution would need to bemaintained. For this reason, and to help assure continued timely budgetarysupport, each participating agency would prepare jointly with the PAUan annual plan detailing the activities and expected expenditures underthe project for the next year. The annual plans would coincide withPOLONORDESTE's April 1 to March 31 fiscal year. The integrated package ofannual plans, as reviewed and approved by the state POLONORDESTE ManagementCouncil would be submitted to the regional and federal POLONORDESTE coordi-nating groups as a basis for yearly budget allocations. Assurances werereceived during negotiations that the annual plans would be submitted to theBank by November 30 each year for review and comment. Assurance were alsoreceived that the annual plans would receive the prompt review of theregional POLONORDESTE coordinating group (so as to avoid delays in budgetapprovals) and that the Bank would be advised of the approved plan byJanuary 31 each year.

6.07 Consistent with a commonly used system in Brazil, the state Govern-ment would enter into written agreements (convenios) with certain of theexecuting agencies to specify their respective responsibilities under the

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project and help assure timely project completion. Such agreements arenormally employed in POLONORDESTE projects when: (a) the executing entityconcerned is not directly part of, or responsible to, the Ministry ofAgriculture or the State Government, the principal channels for POLONORDESTEfunding other than credit; (b) the executing agency is largely autonomous;or (c) special responsibilities (e.g., counterpart funding, adoption of newprocedures) need to be spelled out. In the proposed project, convenioswould be particularly useful in assuring adequate participation of, andcoordination among, the agencies involved in colonization, education andtraining, sanitation and health, feeder and access roads, and producemarketing. Draft convenios required for the execution of these componentswere prepared and reviewed by the Bank. During negotiations, assuranceswere received from the state that it would enter into and maintain duringthe project execution period all such agreements as are necessary to assureactive cooperation of the various agencies participating in the above-mentioned components. Receipt by the Bank of the respective signed agree-ments would be a condition of disbursement for each of these components(paras 4.18, 4.22, 4.25, and 4.29).

Implementation Schedule

6.08 A chronogram of the main project activities is given in Annex 7.

Project Evaluation

6.09 Overall responsibility for project evaluation would lie with anevaluation unit separate from the PAU, but funded by the project and locatedin CEPA-SE. This unit would be established by November 30, 1979. It wouldbe directly responsible to the Management Council and would carry outon-going and post facto evaluation of the project. Staff of the evaluationgroup would comprise one professional and administrative support, assistedby consultants where necessary. Evaluation would complement the monitoringactivities of the PAU and would involve a continuous advising of projectmanagement of the extent and quality of project progress and implementationdifficulties. On-going evaluation "products" would comprise reports oftopic-specific evaluation studies, evaluations of PAU monitoring and farmsurvey results, and a major mid-project evaluation report (during projectyear 3). The evaluation team would also prepare a post facto evaluationreport on the project to serve partly as a project completion report.Assurance were received during negotiations that the project completionreport would be provided to the Bank within six months of project completion,and that the evaluation team would be maintained after project completionand until its functions are assumed by SUDAP.

6.10 Because the project evaluation strategy and work program are notyet fully defined, the evaluation team would contract a consultant, onterms and conditions satisfactory to the Bank, to assist in establishingthe project detailed evaluation stragegy and work program. Assurances thatthe consultant would be hired and the Bank would be provided with the draftterms of reference for this consultant's review were received from thestate during negotiations. Assurance were also received during negotiationsthat the detailed evaluation plans would be provided to the Bank for commentby December 31, 1979.

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Accounts and Auditing

6.11 Each of the participating agencies would maintain accounts of itsproject expenditures, which would be audited annually by Government auditorsaccording to standard Government practice for POLONORDESTE projects which issatisfactory. Both BB and BNB are audited by the Central Bank's auditing unitand BNB is also audited by satisfactory independent auditors. The PAU wouldmaintain accounts of its own project expenditures as well as statements ofexpenditures by each participating agency. Assurances were received thatcopies of the audited statements of project accounts of the various partici-pating agencies and of the audited statements of the participating banks andof their lending under the project would be provided to the Bank through thePAU within six months of the end of their fiscal year. Assurances were alsoreceived that these reports would include a specific mention stating thatthe adequacy of internal control systems of the participating agencies andbanks was checked.

VII. PRODUCTION, DEMAND, PRICES, AND MARKETING

Production

7.01 By full development (about year 10), there should be substantialincreases in crop production among project participants. At estimated 1978farmgate prices, incremental annual production is estimated, at full develop-ment, to amount to about Cr$ 586.9 million, or US$31.3 million equivalent.The average value of production per hectare is estimated to increase byabout 118% from Cr$ 9,718 to Cr$ 21, 149, (US$518 to US$1,128 equivalent)at full development. Approximately a third of incremental production (byvalue) would come from oranges, a quarter from coffee, a quarter from coconutsand miscellaneous fruit crops and the rest from tobacco, peanuts, corn andbeans. Thus, the relative importance of the different crops would change withproject implementation. Estimated production figures are detailed below.

EstimatedProject Participants Estimated Production Sergipe Production

Crop Without Project With Project Incremental in 1977 (tons)__------------------(tons)…------------------

Avocadoes - 24,470 24,470 1,685Beans, string 439 779 459 16,000 /1Coconuts 1,850 7,510 5,660 49,595Coffee - 5,680 5,680 55 /2Corn 730 5,540 4,810 36,535Manioc 29,855 60,865 31,010 461,760Oranges 66,640 211,480 144,840 187,920Passion Fruit 4,150 32,620 28,470 2,000Peanuts 865 4,910 4,045 1,275Tobacco 3,150 4,445 1,295 6,995

/1 Estimates from IBGE data on per capita consumption./2 Data for 1974, latest published estimate.

Source: IBGE, compiled by CEPA/SE except as noted.

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Because of the importance of the fruit production and the prevailing condi-tions in project area, it was agreed that a nursery inspection program and apest control coordination program would be set-up by SUDAP. During negotia-tions assurances were received that a special commission would be createdby December 31, 1979 by SUDAP, which would enter and maintain any agreementsnecessary to assure the implementation of the programs of fruit saplinginspection and pest control coordination in the project area.

Demand, Prices and Markets

7.02 Oranges. Sergipe's orange production, which was about 188,000 tonsin 1977, shall eventually reach about 400,000 tons per annum when all theplantings under the project reach maturity. Of this it is believed that bythen 80,000 tons will be absorbed as fresh fruit within the state and thatthere will be a market for about 180,000 tons as fresh fruit in other statesof the Northeast (compared to 118,000 tons in 1977). This will leave about140,000 tons for processing (juices and concentrates). It is believed thatmarket prospects for such a volume are reasonable since orange is a commoditywith a growing international market, even though prices on such markets maywell drop 10-15% below current levels. From the point of view of farmers inthe project area, such a reduction in price would probably not pose a sub-stantial problem because they could be more than offset by increases in yield,the potential for which is high. Also, processing facilities which alreadyexist, could be expanded as production increases.

7.03 Tropical and Sub-Tropical Fruit Crops. Such fruit crops may bedivided into short-cycle fruit trees, represented by passion fruit, andlong-cycle fruit trees such as avocadoes, mangoes and guavas. Althoughpassion fruit would constitute the major crop of the short-cycle fruitcrops, pineapples, papayas and bananas are expected to share the areaearmarked in the agricultural plans for passion fruit. Production ofpassion fruit in 1978 is forecast at 2,000 tons in Sergipe and about20,000 tons for the three other crops. Presently, state production ofpineapples, papayas and bananas is below current consumption while thedemand for passion fruit for juice is expected to continue. It is there-fore probable that the future incremental production of these crops, esti-mated at about 11,000 tons at full production, could be absorbed by exist-ing internal and/or external markets without perceptible effects on pricesto producers. Production of avocadoes, mangoes and guavas in Sergipe isabout 15,000 tons a year and the incremental production of the project isestimated to be about 24,000 tons. No major price effects are expected fromthe incremental production.

7.04 Coconuts production was estimated, in 1978, at 66,000 tons,while incremental production under the project is estimated at about 6,000tons. It is probable that there is sufficient excess capacity left in existingprocessing facilities to absorb the incremental production without perceptibleeffects on prices to producers.

7.05 Coffee production in recent years in Sergipe has been insignificantbut the crop is to be introduced to the project area in line with the Brazilian

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Coffee Institute's (IBC) new policies of expanding Robusta coffee productionin frost-free areas. This introduction is not in addition to coffee areas inother states but is replacing coffee currently growing in frost-prone areas.Production with the project is expected to be about 5,700 tons at full de-velopment. There may be a shortage of skills and facilities required toprepare a crop of this size for market, but otherwise, marketing requirementsare relatively simple and such a volume should have no appreciable effect onprices.

7.06 Field Crops. A part of the planned incremental production of maniocin the project area (about 31,000 tons at full development) would compensatethe losses in production which have occurred in Sergipe in the last few years,while the remainder could be processed by the already existing starch manu-facturing plant. Thus, the incremental production should be absorbed withoutperceptible effects on farmgate prices. The planned production of peanuts wouldbe about 4,900 tons. In Sergipe, the price of peanuts in the between-harvestseason is above that in Bahia, while during the harvest season the Sergipeprice falls below that in Bahia. Peanuts can therefore either be shippedduring the harvest season for processing at an oilseed crushing plant at Feirade Santana, where there is excess capacity, or be stored for household consump-tion. It is therefore expected that the incremental production will not havenegative effects on prices to producers. The planned increase of corn productionin the project area is 4,800 tons, or about 12% of the expected 1978 pro-duction in the state. This increase undoubtedly can be marketed with existingfacilities and without perceptible effects on prices. The demand for stringtobacco is thought to be declining, but the cooperatives have already begunto establish alternative arrangements with tobacco processing companies andthe prospects look good. Therefore, the incremental production of about 1,300tons is likely to be absorbed without negative efforts on prices to farmers.

Marketing

7.07 Marketing of agricultural production in the project area is nowcharacterized by minimal government involvement. Existing institutions,industries and marketing channels are adequate for most marketing needs,and, given information about better methods and continuing investment,there could be increasing efficiency. Therefore, no major changes in thepresent marketing system are foreseen for the marketing of project pro-duction. During the project period, marketing options open to producersare expected to expand, due mainly to the establishment of a producers'market in Umbauba as a satellite to the present market at Boquim. Therural roads component would also benefit producers, both lowering trans-port costs and by improving access.

VIII. FINANCIAL ANALYSIS

Illustrative Farm Types

8.01 Given the current ecological and physical conditions (population,marketing facilities etc) the project area is suited for a wide range ofcrops and cropping patterns. Nevertheless, based on field surveys and

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information gathered by INCRA, EMATER-SE and CEPA, eight illustrative farmtypes have been assumed for the 8,400 project participants. They are:(a) four coconut farm types for the Litoral and Cerrado Central sub-areas;(b) one farm type without a permanent crop, typical of non-owner producers;and (c) three fruit farm types for the Tabuleiros e Vales sub-area. Theassumed distribution of representative farm types and their cropped areasfor the "pre-project" and "with project" situations as well as the project!part½iPa.ts alt cropped areas in both situations, are as follows:

Cropped Area Total Cropped___per Farm Area

Farm Size (ha) Number (ha)SUB AREA (ha) Farm Type Pre-Prol. With Proj1. of Farms Pre-Proj. With Pro¾,

Litoral >10 I 2.2 4.5 275 610 1,24010-50 II 10.8 13.8 125 1,350 1,730

Cerrado Central >10 III 1.85 3.7 425 790 1,57010-50 Iv 5.85 9.25 155 910 1,430

Tabuleiros e Vales - V 1/ 1.1 3.2 830 910 2,660>10 VI 2.6 4.1 3,620 9,410 14,840

10-50 VII 3.7 6.6 1,570 5,810 10,360- VIII 2/ 1.2 4.5 1,400 1.680 6,160

Total 8,400 21,470 39,990 3/

On-farm Operations

8.02 It is estimated that the financial rates of return to the farmersparticipating in the project could range from about 22% to over 45%. Theseestimates appear high but it is worth mentioning that the cropping patternsinclude highly profitable crops such as fruit trees, for which good pros-pective markets exist (paras 7.02 to 7.06). The details of the agrotechnicalassumptions for the eight farm models, as well as the farm operating resultsand cash flows of three representative examples of the farm types, areprovided in Annex 8.

8.03 Considered as costs in all the analyses are the on-farm investments(initial soil preparation, establishment of permanent tree crops and purchaseof minor tools and equipment) and the expected operating costs of farmingactivities. Prices for inputs, labor (both hired and family) and production

sold were assumed generally to be those prevailing on the local market.Expected financial rates of return are summarized as follows:

1/ Non-owner operators farm type with farm sizes from 1.0 -3.0 ha.

2/ Colonization farm type with up to 5.2 ha cultivable area.3/ Including some 2,380 ha interplanted.

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Farm FinancialProject Sub-area Farm Type Description Farm Size Type Rate of Return

1. Litoral Mainly coconuts 1/, with manioc up to 10 ha I 42.0and subsistence crops 10-50 ha II 46.0

2. Cerrado Coconuts 1/, some other fruit up to 10 ha III 42.0Central crops, manioc and subsistence 10-50 ha IV 30.0

crops

3. Tabuleiros Field crops only, such as up to 3 2/ ha V > 100.0e Vales tobacco, manioc, peanuts and

subsistence crops

Mainly fruit trees such as up to 10 ha VI 22.0oranges, avocadoes, passion 10-50 ha VII 29.0fruit and other crops such 5.2 ha 3/ VIII 30.0as tobacco, manioc and sub-sistence crops.

1/ The high level of financial rates of return to farmers producing coconutsreflects the importance of the improved production technologies to beintroduced in these farm types.

2/ Non-owner operator farm type.

3/ Colonization farm type.

Producer Income

8.04 As a result of the project, the estimated income from agriculturalactivities could increase from a weighted average of about US$990 equivalentper family before the project to about US$3,715 equivalent at full developmentor within roughly eight to 12 years. All of the expected participants areestimated to have incomes currently below the rural relative poverty cut-offline in Brazil, that is, about US$330 per capita, or US$1,650 per family.However, the income estimates cover only the principal activity of the farmoperation and represent averages by farm type and size; obviously, somefarmers in each type or size group will have incomes above the average. Also,some of the smaller scale farmers in particular are likely to have someadditional income from share-cropping or renting or laboring on other farms,mainly before the project and much less after project inception. It is likelythat because these additional incomes could not be measured and therefore werenot taken into consideration, the difference in estimated incomes between the"before project" and "full development" situations and the financial rates ofreturn of the smaller scale farmers are overestimated. Furthermore, theestimated income increases projected under the project could be underestimatedto the extent that the real debt service burden to the farmer would be deflatedsince credit would not be indexed to offset inflation. It should be stressedthat the cases analyzed are purely illustrative examples used to help estimateproject costs and return.

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8.05 "Before project" and "full development" income levels, includingthe assumed value of family labor and value of on-farm consumption, aresummarized as follows:

Estimated Income Expected ParticipantsBefore At Full

Sub-area Farm Type Project Development Number % of Total(US$ Equivalent Rounded)

Litoral I 190 1,390 275 3.3II 1,325 4,420 125 1.5

Cerrado Central III 240 2,315 425 5.0IV 730 4,235 155 1.8

Tabuleiros e Vales V 640 1,855 830 9.9VI 1,115 3,360 3,620 43.1VII 1,370 5,415 1,570 18.7VIII 665 4,595 1,400 16.7

Weighted Averagesand Total 990 3,715 8,400 100.0

IX. ECONOMIC BENEFITS AND JUSTIFICATIONS

Economic Rate of Return

9.01 The economic rate of return for the project components was calculated,taking into account the cost stream (para 9.02) and direct production benefits,and has been estimated at about 27%. However, as various aspects of theproject, such as improved health and sanitation and education and trainingcomponents would have significant benefits which are not readily quantifiable(para 9.06), no economic rate of return on these parts are calculated. Thedetails of the cost and benefit streams are given in Annex 9. Other detailsof the economic analysis are available in the Project File.

9.02 The cost stream includes all on-farm investment and incrementaloperating costs (based on the phased aggregate of the different types ofparticipants); the other project investment costs related directly to theagricultural program; and a share of the continued operating costs (after thefive-year project execution period) of certain project-developed services(such as extension and road maintenance) which would be necessary to sustainthe projected development. Overall, about 85% of total project costs wereincluded in the cost stream (Annex 9).

9.03 It should be noted that some of the project investments would havesignificant benefits not measured by the incremental production of the 8,400direct project participants. For example, the extension and researchactivities are certain to have demonstration effects on other farmers in the

- 35 -

project area, particularly since the direct participants represent only apart of the total farmers in the project area and are located in over 60scattered communities, thereby multiplying the chances of diffusion ofsuccessful new production techniques. Additionally, project roads couldbe expected to benefit, not only other farmers, but also other economicactivity in the area and lead to better access to improved social services.The roads would also have an impact on production by helping improve thepenetration of extension services, the farmers' access to credit andproduction inputs, and, hence, the likelihood of adoption of improvedfarming techniques. Perhaps more important, moreover, the roads wouldassure improved access to markets (para 7.08).

9.04 An explicit effort was made in the rate of return analysis to reflectthese various circumstances. The benefit stream included all of the incrementalcrop production of the project participants, such estimates being derivedfrom the aggregate of the phased incorporation into the project, over fiveyears, of the various participant farmers and phased increase in productionby the different types of participants. The prices used in the economicanalysis were based on projected farm-gate prices set to reflect, amongother things, the impact of project transport investments. These projectedfarm-gate prices were compared to border prices (discounted to take intoaccount transport, handling and insurance costs) and were adjusted in thecase of oranges, peanuts, corn, tobacco and coffee. In the case of labor,since there does not appear to be much underemployment in the project area,particularly among beneficiary families, labor was not shadow priced. Theforeign exchange costs and benefits were adjusted upward by 30% to reflecttrade-distracting tariffs, subsidies, advance import deposits, export taxesand quantitative restrictions. Of the products produced under the project,Brazil is a net exporter of tobacco, peanuts, corn, citrus and coffee.

9.05 The estimated economic rate of return was found to be about 27%.However, to measure the impact of possible changes in the economic environmenton the project's stream of costs and benefits, several sensivity tests weremade, the results of which are as follows:

Internal Economic Rate of Return

(%)

Best Estimate: 27 Costs up by 20% andCost up by 20% 24 benefits down by 20%: 21Benefit down by 20%: 24 Delay of one year in farmers'Cost up by 10% and participation: 24benefit down by 20% 22 Inclusion of demonstration benefits: 29

This high value of the best estimate of the internal rate of return is explainedby the high level of export earnings of the project. Brazil is a net exporterof corn, peanuts, tobacco, oranges and coffee and it is expected that inthe years of project maturity the incremental annual value of these productswill be about 74% of the total incremental product value of the entire projectarea. On the other hand, the foreign exchange component of all project inputsis relatively small. The magnitude of the effect of the shadow rate on the

- 36 -

internal economic rate of return is noticed when compared to the internal

economic rate of return calculated with only domestic prices of inputs and

benefits; it would then be 19% (about 8% lower than the best estimated

when shadow prices were used). Even if costs were increased and benefits were

reduced, each by 20%, the level of the internal economic rate of return is at

an acceptable level of 22%. The results are highly improved in the last

sensitivity test, where demonstration benefits were included and added to the

direct project benefits. Here, an assumed incremental production, derived

indirectly from demonstration effects and use of the project-improved services

and infrastructure by farmers other than the "direct participants," were taken

into account. This indirect benefit was conservatively estimated as beginning

only in the third year of project execution and being equivalent to about a

3% increase annually, accumulating for a total of five years but stabilizing

thereafter. Hence, by year 7 and from year 7 onward, it was assumed that the

indirect production benefits would be equivalent to roughly 15% of that of

the 8,400 direct participants (e.g., equivalent to another 1,250 to 1,500

full participants).

9.06 In addition to direct benefits accruing to the 8,400 project parti-

cipants and to demonstration benefits (para 9.05), the benefits of the social

infrastructure components (education and training and health and sanitation

services) which would have a wide coverage and which would accrue to some

65,000 of the rural population living in the micro-regions selected for

project activities are difficult to quantify. However, it can be assumed that

the training activities would play a significant part, not only in helping

achieve the project production targets, but also in improving the income

prospects and social welfare of the area's population. With respect to the

improved health and sanitation services, it is apparent that they too will

contribute to social welfare as well as be highly complementary to the directly

productive investments of the project.

Employment

9.07 The expected expansion of agricultural activities by the 8,400 par-

ticipating farmers should increase family employment and improve subsistence

as well as increase cash revenue from marketed production. Taking into

account the proposed development pattern, the project should generate increased

agricultural employment opportunities equivalent to some 6,800 worker-years

annually. Of this amount, about 99% would be met by family labor.

Project Risks

9.08 Timely implementation of a wide variety of investments and activities

in various sectors by numerous agencies is a prerequisite for project success.

The risk of not achieving adequate coordination and active participation should

however, be lessened by the arrangements being made by the state to use exist-

ing agencies for project implementation, to involve directly high level

officials of the principal participating agencies in the state's POLONORDESTE

Management Council and to establish a special Project Administration Unit.

Another type of risk lies in the fact that the experience of the participating

agencies (such as extension services and banks) in carrying out programs

- 37 -

directed specifically and intensively at small-scale farmers are relatively

recent. Hence, it is possible that, for example, the steps proposed to

achieve greater extension and credit coverage would not prove to be fully

appropriate. The preparation and review of detailed annual work plans with

each participating agency and the carrying out of project monitoring and

evaluation should help resolve problems which might arise in this regard.

There is also a price risk on the high value crops included in the agri-

cultural development plan devised for the project area as there is a possi-

bility that some products might encounter marketing problems. There is

also, for some crops, the additional risk that expected yields (and hence

expected producers' incomes) would not be attained because of unusually

adverse natural conditions or unforeseen technical problems. However, the

highly diversified agricultural plans, the various alternative farm types, the

project experimentation and extension services, and the marketing arrangements

made should help alleviate risks and resolve problems of these types. Overall,

the potential of the project to benefit some 65,000 lower income people with

its directly productive components, as well as with improved health or education

services, and the steps being taken to strengthen the project-execution capacity

of executing institutions make the risks acceptable.

Fiscal Impact

9.09 According to existing Government agricultural development policies,

low-income farmers are not expected to pay for investment costs in agricultural

services or social infrastructure, though villages often do contribute to the

maintenance of such facilities once infrastructure is developed. The costs of

the roads are recovered indirectly through various taxes and licence fees on

road users. The majority of project costs--i.e., on-farm development, land

purchase, land clearing and development for the colonization schemes, which

combined amount for more than 50% of project costs--would be recovered from

farmers through the credit system. The extent to which these costs will

be recovered in real terms is difficult to estimate because of the current

inflationary environment in Brazil and the Government's policy of providing

unindexed agricultural credit. Assuming a continuing inflation rate somewhat

similar to the average of the last three years, 1/ real recovery of on-farm

project costs could well be low. Although the increased production of the

beneficiaries of the project would probably enable them to bear the burden of

positive real interest rates for credit received, the Government has so far

chosen, particularly in view of the relatively low incomes of the target

beneficiaries for programs such as POLONORDESTE, to maintain a considerable

subsidy element in the agricultural credit component. On the other hand,

either a more rapid decline in inflation and/or a continuation of the gradual

reduction in the size of agricultural credit subsidies--linked to a gradual

dismantling of control over agricultural prices--would result in higher real

cost recovery.

1/ Annual average, 41.6%.

- 38 -

9.10 Following the project disbursement period, project investments would

give rise to additional recurrent costs to the Government in the order of

about US$2.1 million per annum. These expenses would be incurred principally

for agricultural extension and experimentation, but would aso include some

residual project administration costs as well as the continued operating costs

of the improved health system and the training and formal education facilities.

The additional recurrent expenditures are expected, however, to be totally

offset by additional revenues of roughly US$3.0 million annually generated as

a result of a value added tax, the Levy on Products Circulation (ICM), the

Assistance Fund for Rural Workers (FUNRURAL) and the Rural Land Levy (ITR)

taxes, which would apply to incremental production from direct participants in

the agricultural components of the project.

X. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION

10.01 During negotiations, assurances were received from the Federal

Government that:

(a) it would maintain agreements with participating banks to continue

active collaboration in the execution of the project; it would

make funds available for the credit component (including land

purchase and rotating marketing funds); project credit would

be lent under POLONORDESTE terms and conditions and the Govern-

ment would advise the Bank promptly of any changes in such

lending terms (paras 4.15, 4.17, and 4.32);

(b) consultants for assisting in the engineering design and super-

vision of feeder roads (para 4.28), the health and sanitation,

the education and training, and the project administration and

evaluation components would be contracted on terms and conditions

satisfactory to the Bank (paras 4.22, 4.23, 4.30, 6.05, and 6.10);

(c) by December 31, 1979, the Bank would be provided, for approval,

detailed proposals for executing the health and sanitation

component (para 4.25);

(d) project feeder roads would be constructed according to

design specifications agreed with the Bank (para 4.26);

(e) it would provide adequate funding to assure timely and effective

execution of the project and adequate operation and maintenance

of the facilities and services developed under the project

(para 5.02);

(f) by November 30 each year, it would provide the Bank for review

and comment, the project work program for the following year

and would assure timely review of the plan by the regional

POLONORDESTE group, and that the Bank would be advised of the

approved plan by January 31 each year (para 6.06);

- 39 -

(g) it would provide the Bank with quarterly project progress reports,a mid-project evaluation report and a project completion report(paras 6.04 and 6.09); and

(h) it would provide appropriate periodic audit statements satis-factory to the Bank within six months of the end of the fiscalyear (para 6.11);

10.02 During negotiations, assurances were received from the Governmentof Sergipe that:

(a) by November 30, 1979 an overall agricultural experimentationplan should be submitted to the Bank for comments (para 4.09);

(b) by November 30, 1979, a detailed plan of operation for the firstyear for the land surveying and titling services would be preparedand submitted to the Bank (para 4.11);

(c) by December 31, 1979, a credit statistics and monitoring systemwould be set up by the Project Administration Unit and the ProjectEvaluation Unit would, on a yearly basis evaluate the implementa-tion of the credit component (para 4.15);

(d) by December 31, 1979, the organizational arrangements of theColonization Coordination Units to be established in the coopera-tive societies, including the qualification of personnel, theirduties, responsibilities and work procedures, would be submittedto the Bank (para 4.19);

(e) SEC would select the coordinators of the CLCs before initiatingthe construction of these centers (para 4.22);

(f) by November 30 each year, SEC would send to the Bank for approval,the site plans for the schools to be built in each respectiveyear, including the justification for the location accordingto the agreed criteria (para 4.22);

(g) by March 31, 1980, SEC would submit to the Bank an acceptablefinal draft of the revised primary curriculum and trainingfor introduction of new curriculum; and the curriculum andan acceptable plan for the implementation of the acceleratedprogram (para 4.22);

(h) all roads maintenance equipment procured under the projectwould be run and maintained by DER-SE and used solely formaintenance of municipal roads in the project area (para 4.27);

(i) three collector roads would be built by December 31, 1981(para 4.28);

(j) a study indicating equipment, personnel and funds requirementsfor DER-SE and the municipalities for maintaining municipal roadsin the project area would be prepared and furnished to the Bankby November 30, 1979 (para 4.28);

- 40 -

(k) a program to strengthen the capacity of DER-SE to maintain all

roads and highways, to provide maintenance assistance to munici-

palities and to support highway policing and vehicle weight control

on state roads and highways would be prepared and furnished to the

Bank by December 31, 1981 (para 4.28);

(1) an agreement would be signed with the Brazilian Food Company

(COBAL) allowing the State Supply Company (CEASA) to contract

the construction and operate, maintain and finance operating

costs of the satellite producers' market (para 4.29);

(m) a program geared toward improving cooperative societies member

accounts and reporting systems would be developed by M4arch 31,

1980 (para 4.33);

(n) it would arrange for timely acquisition and necessary financing

of any additional land or rights-of-way needed for project works

(para 5.02);

(o) it would adequately maintain the Project Administration and

support the other state agencies participating in the project

(para 6.01);

(p) it would provide the Bank, for review and comment, the details

of monitoring/data analysis and farm survey plans prior to

their implementation (paras 6.04 and 6.05);

(q) it would enter into and maintain all such special agreements

as are necessary to assure full and active cooperation of the

various agencies participating in the colonization, health and

sanitation, education and training and marketing facilities

components (para 6.07).

(r) it would maintain the Project Evaluation Unit after project

completion and until its f'unctions are assumed by SUDAP

(para 6.09);

(s) it would provide the Bank with the detailed project and

components evaluation work programs by December 31, 1979

(para 6.10); and

(t) a special commission would be created by December 31, 1979 by

SUDAP and would enter into and maintain any special agreements

necessary to assure implementation of the program of inspection

of fruit sapling production and pest control coordination in

the project area (para 7.0)1).

- 41 -

10.03 Conditions of disbursement for the health and sanitation componentwould be the presentation to the Bank and it approval of detailed proposals

for executing this component (para 4.25); for the feeder and access roads

component, the contracting of two specialized engineers (para 4.28); and forthe education and training component, the contracting of additional personnel

for the Planning Department and the provision to the Bank of satisfactoryevidence of the acquisition of the respective sites (para 4.22). Conditionsof disbursement for the colonization, education and training, health and

sanitation and marketing facilities components would also be the provisionto the Bank of the agreements between the state and agencies participatingin the respective component (paras 4.18, 4.22, 4.25, and 4.29).

10.04 With the above assurances and conditions the project is suitable

for a Bank loan of US$26.0 million for a term of 15 years with a grace periodof three years.

May 15, 1979

-42 -ANNEX 1

NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Design Standards for Municipal Roads

A B C

Approximate traffic levels Over 40 v.p.d. 20-40 v.p.d. Up to 20 v.p.d.

Pavement width 1/ 6.00 m 5.00 m 4.50 m 2/

Maximumi gradient 3/ 12% (14%) 12% (14%) 12% (14%)

Desirable maximum gradient length 300 m 300 m 300 m

Cross-slope and maximum super-elevation 5% 5% 5%

Gravel thickness 0.15 m 0.10 m Spot

Minimum curve radius 50 m (30 m) 30 m (25 m) None

Minimum sight stopping distance 70 m (50 m) 40 m 40 m

Minimum culvert diameter 0.80 m 0.80 m 0.80 m

Bridge characteristics Single lane Single lane Single lane

Bridge design loading Class 36 Class 36 Class 36

ANNEX 2

NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

List of Collector Roads Planned Parallel to Project

LENGTH

ROAD LOCATION Km

SE 426 BR101 - Tomar do Geru 15.0

SE 310 Tomar do Geru - Itabanianinha 12.0

EV-S/N BR101 - Agrovila 14.0

1/ Net of widening in curves, and gutters.2/ Maximum width; passing bays are to be- provided where needed.3/ Figures in brackets indicate absolute limits which may be used in exceptional

cases. For grades steeper than 8% special attention shall be given to drainageand surfacing.

SOURCE: DER-SE and mission.

September 1978.

-43-

NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABUEIROS SUL ANNEX 3

Annual Phasing of Project Costs(U.S.$ 000) -

Baseline ForeignI/ Costs Exchange1. Agricultural Services Year 1 Year II Year III Year IV Year V Total Co ts xch

Extension 419 603 854 1,030 1,127 4,033 6.8 12Experimentation 141 95 95 88 82 501 0.9 10Land Titling and Surveying 99 147 339 269 367 1.221 2.1 12

Subtotal 659 845 1,288 1.387 1,576 5,755 9.8 122. Credit

Investment Credit 1,396 2,629 4,387 5,546 5,829 19,787 33.6 1SInc. Working Capital Credit - - 882 2.707 1.910 5.499 9.3 15Land Clearing, On-farm develop-ment (including housing andstorage) 380 569 1,138 1,138 1,200 4,425 7.5 35

Subtotal 1,776 3,198 6,407 9,391 8,939 29,711 50.4 18

3. Colonization

Land Purchase 653 821 1,510 1,478 1,511 5,973 10.1 -Planning & Implementation 228 292 373 367 74 1,334 2.3 15

Subtotal 881 1,113 1,883 1,845 1,585 7,307 12.4 3

4. Social Infrastructure

Education & Vocational Train. 340 833 679 492 418 2,762 4.7 1SHealth and Sanitation 36 356 372 353 156 1,273 2.2 15

Subtotal 376 1,189 1,051 845 574 4,035 6.9 15

5. Physical Infrastructure

Feeder & Access Roads 1,810 2,050 2,530 2,420 1,240 10,050 17.1 33Marketing Facilities - 220 - - - 220 0.4 20

Subtotal 1,810 2,270 2,530 2,420 1,240 10,270 17.5 33

6. Project Management

Adminis. & Monitoring 311 278 277 277 277 1,420 2.4 10Evaluation & Studies 76 76 76 76 76 380 0.6 10Subtotal 387 354 353 353 353 1,800 3.0 10

Total Baseline Costs 2/ 5,889 8,969 13,512 16,241 14,267 58,878 100 18

Physical Contingencies 3/ 420 609 794 764 603 3.190 5.4 18Prices Contingencies 4R_ 421 1,105 2,677 4,532 5,215 13,950 23.7 18

Subtotal 841 1,714 3,471 5,296 5,818 17,140 29.1 18

Total Project Costs 6,730 10,6S3 16,983 21,537 20,085 76,018 129.1 18

1/ Year 1 of the project, for purposes of these cost estimates, corresponds to the full 1979 fiscal yearof POLONORDESTE (April 1, 1979, March 31, 1980), with each subsequent project year corresponding tothe respective POLONORDESTE fiscal year.

2/ In prices at the time of appraisal (September 1978) converted to USS at the rate of Cr$18.75 - US$1.0.3/ Physical contingencies of 7% were added to the agricultural extension and experimentation, land titling,

marketing facilities, and project administration components; 10% to colonization, feeder roads, andeducation components; and 15% to the health and sanitation component. The physical contingencies wereestablished to reflect, by component, the extent to which adjustments may prove necessary in physicalquantities.

4/ Price contingencies calculated in US$ terms as follows: for civil works, 7.5% in 1979 and 7% per yearthereafter; for equipment, 6_5% in 1979 and 6% per year thereafter; for other materials and supplies,credit, salaries, etc., 7% in 1979 and per year thereafter.

-44- ANNEX 4

NORTHEAST BRAZIL

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Estimated Schedule of Bank Disbursements(US$ millions)

Cumulative

Quarter Disbursed Amount Balance of

Bank Fiscal Year Ending During Quarter Disbursed Loan

1980 Sept. 30 0.0 0.0 26.0

Dec. 31 0.0 0.0 26.0

March 31 0.5 0.5 25.5

June 30 0.3 0.8 25.2

1981 Sept. 30 0.4 1.2 24.8

Dec. 31 0.4 1.6 24.4

March 31 0.8 2.4 23.6

June 30 0.8 3.2 22.8

1982 Sept. 30 0.9 4.1 21.9

Dec. 31 1.0 5.1 20.9

March 31 1.3 6.4 19.6

June 30 1.4 7.8 18.2

1983 Sept. 30 1.6 9.4 16.6

Dec. 31 1.6 11.0 15.0

March 31 1.9 12.9 13.1

June 30 1.9 14.8 11.2

1984 Sept. 30 2.0 16.8 9.2

Dec. 31 2.0 18.8 7.2

March 31 1.8 20.6 5.4

June 30 1.8 22.4 3.6

1985 Sept. 30 1.8 24.2 1.8

Dec. 31 1.8 26.0 0.0

-45-

ANNEX 5

NORTHEAST BRAZILSERGIPE RUPAL DEVELOPMENT PROJECT - TABULEIROS SUL

List of Executing and Collaborating Agencies

Main Collaborating

Component Executing Agencies Agency

1. Agricultural Development

Agricultural Extension E2fATER-SE

Agricultural Experimentation SUDAP EMBRAPA

2. Production Support

Agricultural Credit BB, BNB, BNCC EMATER-SE

Land Surveying and Titling SUDAP

Marketizg Facilities CEASA, -OBAL

3. Colonization

Planning CEPA-SE INCRA, SUDAP

Implementation COOPERATIVE SOCIETIES EMATER-SE

4. Social Infrastructure

Education and Training SEC, EMSETUR, SENAC, MEB MUNICIPALITIES

Health and Sanitation SES, DESO EMATER-SE

5. Physical Infrastructure

Feeder and Access Roads DER-SE MLNICIPALITIES

6. Project Administration

Administration and Monitoring PAU in SUDAP

Evaluation EVALUATION UNIT in

CEPA-SE

Note: A glossary of abbreviations and acronyms is provided inside the

front cover of this report.

ANNEX 6

NORTHEAST 8R1\;: LSERG(;IPE RURA T)EVELOPMENT PROJECT - TABULEIROS SUL

Or:;inization Chart gf Project Admriinfittration Unit

S U D A P

EVALUATION UNIT , POLONORDESTE

| ADMINISTRATIVE L PROJECT ADM INISTRATION > FIELD COORDINATOR| SERVICES OFFIfCE

MONITORING [AGRICULTURAL PRODUCTION SOCIAL PHYSICALPLANNING SEVICES SUPPORT INFRA. _INFRA_

Monitoring, Agric. Ex- Land Tit - Education Roads,Long Term tcnsion, ling, Mar- & Training Electrif.Planning & Credit, keting, Health & & MarketingSpecial Input Coloniza- Sanitatiot FacilitiesStudies Supply and tion and

Experimen- Coop. Dev.j . ,ationC

CY%

-47-

AMNEX 7

NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS

Implementation Schedule

rROJECT liEAR

COMPONFNT/LCT__VITY ' t! _ IV v

1. ACRICULTURAL SERVICES

AGRlCU1.'.1FAL EXTFNSloON_

- Provision of extension services- Training of extension agents

and farmers

Aericultvlral Experiwcntation _

Expertriomtation_- EstaDliShment of observation

site6 on farmers lands

Land Surveying and Tileing

- Establishument of field andcentral units _

- Surveying and granting of titles

3. Colonizatlon

- Land Purchase _ - Plannir.g and implementation

2. Credit

- Provision of investmenit andscasonal credit for on-fan--d evelopment

- Provision of land purchase credit _ _

6. SOCIAL I NFRASTPUCTURE

Education I Vocational Training

- Construction and equipping ofschoels and CLC's _ =

- Development_of curricutlum- Training and upgrading of personnel _- Studies

Health and Sonitation

- Upgrading and construction ofphysical infrastructure

- Training of personnel

5. PHYSICAL INFRASTRUCTURE

_arketing Facilities

- Establishment of satellite market- Provision of marketing services

Roads

- Planning- Building and constructing _ _

6. PROJECT ADMINISTRATION

Project Administration

- Setting up of adninistration unit- Supervision and monitoring of

irplewen tation- Carrying out of planning and

monitoring of studi'a

Pro!i _LE%valust ion

- Carrying out of cvgluatlon ututdies- Carrylrg out of mid-term anxd poat-

ploject cvall:tion

-48- ANNEX 8Page 1

NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Technical Coefficients and Illustrative Farm Models

l. The eight different representative t:arm models devised for the TabuleirosSui project may be broadly assigned to three main groups: (i) four coconut growingfarm types; (ii) one field crop farm type; and (iii) three fruit trees growingfarm types. Recommendations on production techniques for the eight farm typesaforementioned for each of the major crops have been prepared, including citrus,coconuts, guava, papaya, passion fruit, pineapple, avocado, mango, banana, manioc,corn, peanuts, beans and tobacco. Details of the production input and yieldassumptions for the various crops are available in the Project File in a Supple-mentary Staff Working Paper (No. 11 Agricultural Development and ProductionTechnology) and a orolect preparation document "Desenvolvimento Agricola".These assumptions which are viewed as preliminary averages (see summary in Table 1),are based on the best available data from local farm surveys, experimentationresults and extensionists' observations of productive farmers' practices.During project implementation, these recommendations would be improved on the basisof project experimentation results. In addition, efforts will be made to improvegradually the selection of crop combinations and the production techniques(including plant spacing, the timing of sowing and harvesting, as well as selectionof varieties and inputs). Also, since a wide variety of crops are likely to begrown, a considerable flexibility will have to be retained regarding the eightillustrative farm types selected and the relative importance of each crop.

2. Here it is worth mentioning that in order to achieve yield increases itis very important to use high quality saplings and avoid bringing infested plantsfrom other regions. It was therefore found necessary to establish a program ofinspection of budwood, and saplings' production in the project area. On theother hand, efficient pest control, especially in plantations, is reached easierwhen the growers in the same area unite to control existing pests. This isparticularly important for certain pests (like fruit flies), which are difficultto control, and which may effect heavily the citrus and other plantations of theproject area. It was therefore agreed that SUDAP would create before December 31,1979, a special commission which will supervise, in agreement with the FederalMinistry of Agriculture, the quality of budwood as well as the production ofsapplings in the project area. This commission will also coordinate the efforts,and assist the cooDeratives in establishing a regional pest control program forfruit trees.

3. The financial rate of return as well as the debt service and cash flow pro-jections of three representative farm types are given in the following. Farm Type Two,represents the coconut growing farms, has presently about 10.8 ha of cropped area(10.4 ha area under cultivation), and would eventually reach 13.8 ha of cropped areaon 13.0 ha under cultivation. Farm Type Six, represents the citrus growing farmtypes, has presently about 2.6 ha of cropped area (2.2 ha under cultivation), andwould eventually reach about 4.1 ha of cropped area on 3.8 ha under cultivation.Farm Type Eight, was devised for thecolQnization schemes, will have an area ofabout 5.2 ha of which 4.1 ha would be under cultivation, thus reaching a cropped areaof 4.5 ha in year five of implementation.

i4u.::: - l;iAZILU-ILU; i jlJUL bYDLa.4JT LIJ.. -_ TAdULlID i SUL.

Present and ProJected Input end Output Coefficient. Per Hectar.

Coconuts P3s.ioq Fruit .vocadoes Oranges Coffee Manioc Peanuts Beans Corn Tobacco

Pr.- Full Pr.- Ful Pr,- Full Pro- Full Pr.- Full Pr.- Full Pre- Full Pre- Full Pra- Full Pre- FulI__ Unit 1o Dev Proj. Dea Proj 0 D.. Proj Dev Proj Do. Proj Dae Proj De. Proj. DOT. Proj. Dev. Proj. rov.

Labor Xandays 45 57 53 75 -- 75 79 96 __ 78 60 70 41 44 32 40 25 41 118 134

Se.o _ Kg. _ - -- - -- - - -30 .30 25 25 1 1

Cut:nges 100Nuo±ts 4_4_ - - -- -- -- -- …1 _-- -- -- --

Urva Kg. 20 100 100 150 __ 300 100 300 -- 350 -- 100 20 70 18 40 -- 65 Bo dO

Supe#rPospbate Kg. -- 200 200 400 -- 200 100 250 -- 200 -- 200 50 150 21 50 -- 100 180 180

Potasui=a Chloride Kg. 30 110 75 100 __ 150 70 170 __ 250 -- 75 15 40 10 20 -- 30 140 a0

Dol2mits Kg. 250 500 -- 250 -_ __ 200 400 -- 400 _ 400 -- - -- -- -

MA.0 * Kg. -- 500 -- -- -- - - -- -- -- -- -- --- -- …500 7,0

Fngicides kg/l 1 4 2 2 - 3 1 3 - 2 _- -- 1 1 -- - - - 1 1 >

Lone,ticidse Kg/l 2 3 8 12 -- 11 10 20 -- 4 5 14 2 2 -- 3 - 2 2 2

Ferbicides Kg/l -- -- 2 2 - 3 -- 3 -- 2 __ -- -- 1 -_ -- _ _ 1 1

Farm F.AchineryW. Hour 2 15 -- -- 5 15 6 __ 6 -- 7 - 4 -- -- -- 7

Sacxc/aox Vunit -- -- 50 50 -- 200 100 200 -_ 20 -- -- 12 24 8 8 __ 20 -- -

yield 2I Ton 0.65 2.41 4.0 7.0 -- 12.0 8.0 17.3 -- 1.2 9.6 16..8 1.0 2.0 0.4 O.8 0.7 2.0 1.0 1.1S

1/ f3tassium Sulphate.i/ !.% new plantations, at 1ull developmnt--labor 114 sAndeYg Nuperpboepbat*, 300 K; potassium cbloride, 200 4g) fuAgioidee, 6 kg; and 225 boxes.

j/ f.Id (as inputs, will gradually reb a full developent leveis over a period of fiva ear;*I.ghb%ed avera3es at-meen existing and now plantations.

2/ decl .ed avera2as betweea the Litoral and Tabuoliros a Vales subareas.

OQ OIZI 0

-50-ANNEX 8

Table 2Page 1

NORTHEAST BRAZIL

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Farm Type TwoCropping Pattern

(ha)

DEVELOPMENT YEARS

CROPS Base Year 1 2 3 4 5-25

Coconuts 01oi 0 0.5 0.5 0.5 1.0 1.0

Manioc 1.5 1.75 2.0 2.25 2.5 2.5

Peanuts 2/ 0.4 0.4 0.6 0.8 1.0 1.0

Beans 2/ 0.2 0.3 0.3 0.3 0.3 0.3

Corn 2/ 0.2 0.3 0.4 0.5 0.5 0.5

3/Coconuts 03- 8.5 8.5 8.5 8.5 8.5 8.5

Total CroppedArea 4/ 10.8 11.75 12.3 12.85 13.8 13.8

1/ New plantations to be introduced under the project.

2/ Crops grown in consortia.3/ Existing plantations. -

4/ Cropped area is higher than area under cultivation due to consortium.

BRAZIL-NORlhEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAI. FARM BUDGETFARM TYPE TWO

(IN CR$)

---------------------------------------------------------------------------------- CALENDAR --------------- …_---------------------

1978 1979 1980 1981 1982 1983 1988 1993 1998 2003(BASE YR)

…---------------------------------------------------------------------- __---- __- _- _- _ _--- - - _- _- _ _-_- _ __-_ __-_ __ __ _ _ _ _ ___-…_ -----

WITHOUT PROJECT

GROSS VALUE 34,315 35,798 37,281 38,764 40,247 41,731 41,731 41,731 41,731 41,731

G TOTAL INFLOW 34,315 35,798 37,281 38,764 40,247 41,731 41,731 41,731 41,731 41,731

- ON-FADM CONSUMPTION 6,885.7 6,885.7 6,885.7 6,8a5.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7

NET INFLOW 27,429 28,912 30,396 31,879 33,362 34,845 34,845 34,845 34,845 34,845

DIRECT PRODUCTION COST 9,121.7 9,123.4 9,125.2 9,126.9 9,128.7 9,130.4 9,130.4 9,130.4 9,130.4 9,130.4HIRED LABOR COST 390.00 390.00 390.00 390.00 390.00 390.00 390.00 390.00 390.00 390.00

- TOTAL OUTFLOW 9,511.7 9,513.4 9,515.2 9,516.9 9,518.7 9,520.4 9,520.4 9,520.4 9,520.4 9,520.4

= NET FARM CASH FLOW 17,918 19,399 20,880 22,362 23,843 25,324 25,324 25,324 25,324 25,324

ON-FARM CONSUMPTION 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7+ NON-PRODUCTION OUTFLOW 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7

- LESS IMPUTED FAMILY LABOR COST 24,625 24,625 24,625 24,625 24,625 24,625 24,625 24,625 24,625 24,625

* NET FARM BENEFIT 178.4 1,659.7 3,141.1 4,622.4 6,103.8 7,585.2 7,585.2 7,585.2 7,585.2 7,585.2,

E T m

**CONTINUED* TABLE FBG.004 11/13/78 21:38:48

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE TWO

(IN CR$)

---------------------------------------------------------------------------------- CALENDAR -------------____-_-____------1978 1979 1980 1981 1982 1983 1988 1993 1998 2003

(BASE YR)

WITH PROJECT

GROSS VALUE 34,315 45,233 62,846 82,816 97,793 107,014 125,23B 128,813 123,813 128,813= TOTAL INFLCW 34,315 45,233 62,846 82,816 97,793 107,014 125,238 128,813 128,813 128,813

- ON-FARM CONSUMPTION 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 7,616.9 7,616.9 7,616.9 7,616.9

* NET INFLOW 27,429 38,348 55,961 75,930 90,908 100,129 117,621 121,196 121,196 121,196

DIRECT PRODUCTION COST 9,121,7 33,608 34,361 38,168 36,813 36,981 41,881 41,881 41,881 41,881HIRED LABOR COST 390.0 412.5 700.0 1,277.5 2,200.0 2,275.0 4,000.0 4,000.0 4,000.0 4,000.0INVESTMENTS .0 8,602.0 5,785.0 5,785.0 8,260.0 5,440.0 .0 .0 .0 .0

- TOTAL OUTFLOW 9,511.7 42,623 40,846 45,231 47,273 44,696 45,881 45,881 45,881 45,881

u NET FARM CASH FLOW 17,918 -4,275 15,115 30,699 43,635 55,433 71,740 75,315 75,315 75,315

ON-FARM CONSUMPTION 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 7,616.9 7,616.9 7,616.9 7,616.9+ NON-PRODUCTION OUTFLOW 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 6,885.7 7,616.9 7,616.9 7,616.9 7,616.9

- LESS IMPUTED FAMILY LABOR COST 24,625 26,163 26,800 28,703 29,400 29,425 30,550 30,550 30,550 30,550

* NET FARM BENEFIT 178.4 -23,552 -4,800 8,882 21,121 32,893 48,807 52,382 52,382 52,382

tD>1

**CONTINUED* TABLE FBG.005 11/13/78 21:34:26

A C

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE TWO

(IN CR$)

---------------------------------------------------------------------------------- CALENDAR -------- _______-_-______-…_

1978 1979 1980 1981 1982 1983 1988 1993 1998 2003(BASE YR)

…------------------------------------------------------------------__--------__--____- -…-- ---------------- - ---------------- - -----

INCREMENTAL

GROSS VALUE 0 9,435 25,565 44,051 57.546 65,284 83,507 87,082 87,082 67,082

= TOTAL INFLOW 0 9,435 25,565 44,051 57,546 65,284 83,507 87,082 87,082 87,082

- ON-FARM CONSUMPTION .00 .00 .00 .00 .00 .00 731.25 731.25 731.25 731.25

NET INFLOW 0 9,435 25,565 44,051 57,546 65,284 82,776 86,351 86,351 86,351

DIRECT PRODUCTION COST 0 24,485 25,236 29,041 27,684 27,850 32,750 32,750 32,750 32,750HIRED LABOR COST .0 22.5 310.0 887.5 1,810.0 1,885.0 3,610.0 3,610.0 3,610.0 3,610.0INVESTMENTS .0 8,602.0 5,785.0 5,785.0 8,260.0 5,440.0 .0 .0 .0 .0

- TOTAL OUTFLOW 0 33,109 31,331 35,714 37,754 35,175 36,360 36,360 36,360 36,360

5 NET FARM CASH FLOW 0 -23,674 -5,766 8,337 19,792 30,108 46,415 49,990 49,990 49,990

ON-FARM CONSUMPTION .00 .00 .00 .00 .00 .00 731.25 731.25 731.25 731.25+ NON-PRODUCTION OUTFLOW .00 .00 .00 .00 .00 .00 731.25 731.25 731.25 731.25

- LESS IMPUTED FAMILY LABOR COST .0 1,537.5 2,175.0 4,077.5 4,775.0 4,800.0 5,925.0 5,925.0 5,925.0 5,925.0

= NET FARM BENEFIT 0 -25,211 -7,941 4,260 15,017 25,308 41,222 44,797 44,797 44,797

NET PRESENT VALUE AT 10.00 % EQUALS 239 THOUSAND CRSNET PRESENT VALUE AT 15.00 % EQUALS 140 THOUSAND CR$NET PRESENT VALUE AT 20.00 % EQUALS 85253 CR$

INTERNAL RATE OF RETURN 45.56 %.

----- _-___----------------------------------__----------- -------- …--… ------ …

TABLE FBG.006 11/13/78 21:34:26

NURTHFEA:i BRAZIL

SERGiIPE RURAL DELVELOFMENT FROJELT-1ABULEIROS

FARM 7YF'LE !'WODEB'1i SERVICE AN!' CASH FLOW PROJEC:TION

(IN CR$000)

___ _ ____-----------------EA---------------------------------------------

0 1 2 3 4 5 6 7 8 9 10 12

- --.- . ---..…±. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - -- - - ---- -- - - ---- - - - - -- - - - - ----

(I) CASH INFLOW:

I VALUE OF PRODLJL.IION 27.4 38.3 55.9 76.0 90.9 100.1 106.6 113.2 114.7 115-3 117.6 1'20.52 INV9f'SMENT LOAN (100% OF 5) 0 El.6 5.8 5.8 8.3 5.4 5.4 2.7 2.7 2.7 0 03 SHOUT TERM LCAN (6) . 9.5 34.0 35.1 39.4 39.0 39.3 39.3 39.3 45.9 45.9 45.9 45.94 ro.1AL INFLOW (1+243) 36.9 81.0 96.7 121.2 138.2 144.8 151.3 *155.1 163.2 163.9 163.5 166.4

wII1) A':A:11 OUFFLOW:

' lNV1L1MENl C(I':l 0 t.6 5.8 5.8 8.3 5.4 5.4 2.7 2.7 2.7 0 06 OPE(-ArING COST 9.5 34.0 35.1 39.4 39.0 39.3 39.3 39.3 45.9 45.9 45.9 45.9 1/ I'IAL OUTFLOW (516) 9.5 42.6 40.8 45.2 47.3 44.7 44.7 41.9 48.5 48.5 45.9 45.9

(III) NET CASH FLOW:

U NC! CeASH F'LOW (4-7) 27.4 38.3 55.9 76.0 90.9 100.1 106.6 113.2 114.7 115.3 117.6 120.5

(IV) DLIEr SERVICLS:-

I9 IDOV ST. LOAN PRINCIPAL PMT. 0 0 0 0 0 .8 1.3 2.0 2.9 3.7 4.S 5.9

10 lN';ESlthNTr L8AN £tlIE,'iESI 0 .4 1.1 1.7 2.4 3.1 3.6 3.9 3.9 3.9 3.7 2.7'11 SHl!:T TERM I?.ON III rEST .4 1.3 1.3 1.5 1.5 1.5 1.5 1.5 1.7 1.7 1.7 1.712 SH0,!1T-T1. LOAN FRINCIIAL PM'T. 9.5 34.0 35.1 39.4 39.0 39.3 39.3 39.3 45.9 45-9 45.9 45.91.3 rfAAL DEeDf SRlVICE (9 10 12) 9.9 35.7 37.5 42.7 42.9 44.6 45.6 46.5 54.4 55.2 55.8 56.2

(V!) CASH EBIALA4CE:

11 CAS8 BFILANCE (8-13) 17.6 2.6 18.4 33.3 48.0 55.5 61.0 66.6 60.3 60.2 61.9 64.3 @-

- - - - - - - - - - - -- - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NORTHEAST BRAZIL

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Farm Type SixCropping Pattern

(ha)

DEVELOPMENT YEARS_

CROPS Base Year 1 2 3 4 5-25

Oranges 01 1 . 0.0 0.0 0.5 0.5 0).5

Avocadoes 0.0 0.0 0.3 0.3 0.3 0.3

Oianioc 0.4 0.3 0.3 0.3 0.3 0.3

Dassion Fruit 0.21 0.4 0.4 0.5 0).5 0.5

Peanuts 2/ 0.1 0.2 0.2 0.3 0.3 0.3

Tobacco 0.5 0.5 0.5 0.5 0.5 0.5

Beans 2/ 0.2 0.1 0.1 0.1 0.1 0.1

Corn 2/0.2 1.1 1.4 1.6 1.4 0.7.1!

Coffee 0.0 0.0 0.4 0.4 0.4 0.4

Oranges 1.0 1.0 1.0 1.0 1.0 0 7-

Total Cropped Area-/ 2.t6 3.6 4.6 5.5 5.2 4.6

1/ New orange groves to be introduced under the project.

2/ Crops grown in consortia3/ Grown partly as intercropping in new plantations,

area will be

reduced gradually and reach 0.2 ha at full development of plantations.

4/ Existing orange groves.5/ Cropped area is higher than area under cultivation

due to inter-

cropping and consortium.(D F-~ M

LOx

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE SIX

(IN CR$)

…--------------------------------------------------------------…--------------- CALENDAR -------------- _-___________ - …--------1978 1979 1980 1981 1982 1983 1988 1993 1998 2003

(BASE YR)

WITHOUT PROJECT

GROSS VALUE 28,215 29,449 30,683 31,917 33,152 34,386 34,386 34,386 34,386 34,386* TOTAL INFLOW 28,215 29,449 30,683 31,917 33,152 34,386 34,386 34,386 34,386 34,386

- ON-FARM CONSUMPTION 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3

* NET INFLOW 19,353 20,587 21,821 23,055 24,289 25',523 25,523 25,523 25,523 25,523

DIRECT PRODUCTION COST 7,299.5 7,301.2 7,396.7 7,492.2 7,587.7 7,683.2 7,683.2 7,683.2 7,683.2 7,683.2- TOTAL OUTFLOW 7,299.5 7,301.2 7,396.7 7,492.2 7,587.7 7,683.2 7,683.2 7,683.2 7,683.2 7,683.2

3 NET FARM CASH FLOW 12,053 13,286 14,424 15,563 16,702 17,840 17,840 17,840 17,840 17,840

ON-FARlii CONSUMPTION 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 L+ NON-PRODUCTION OUTFLOW 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 8,862.3 l

- LESS IMPUTED FAMILY LABOR COST 9,405.0 9,405.0 9,405.0 9,405.0 9,405.0 9,405.0 9,405.0 9,405.0 9,405.0 9,405.0

* NET FARM BENEFIT 11,510 12,743 13,882 15,020 16,159 17,298 17,298 17,298 17,298 17,298

011

----------------------------------------- - ------------------------------- ____-- __--------- - ---------------- - ---------- - ---- - --- ___

**CONTINUED* TABLE FBG.016 11/13/78 21:38:48

1o S

BRAZI L-NORTHZAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE SIX

(IN CRS)

---------------------------------------------------------------------------------- CALENDAR ------------- …-

1978 1979 1980 1981 1982 1983 1988 1993 1998 2003(BASE YR)

WITH PROJECTGS AE25 ,6 ,9 ,0 ,7 ,8 ,9 ,9 ,9 ,

GROSS VALUE 28,215 34,646 44,329 57,800 68,627 63,968 86,069 89,169 92,269 92,269TOTAL INFLOW 28,215 34,646 44,329 57,800 68,627 63,968 86,069 89,169 92,269 92,269

- ON-FARM CONSUMPTION 8,862.3 9,326 9,326 9,326 11,081 11,229 11,229 11,229 11,229 11,229

NET INFLOW 19,353 25,321 35,003 48,475 57,546 52,739 74,840 77,940 81,040 81,040

DIRECT PRODUCTION COST 7,299.5 12,729 16,442 19,214 21,843 25,656 29,285 29,285 29,285 29,285INVESTMIENTS 0 11,600 15,360 17,360 6,360 13,425 0 2,150 0 0

- TOTAL OUTFLOW 7,299.5 24,329 31,802 36,574 28,203 39,081 29,285 31,435 29,285 29,285uL

* NET FARM CASH FLOW 12,053 992 3,201 11,900 29,343 13,658 45,555 46,505 51,755 51,755

ON-FARM CONSUMPTION 8,862.3 9,326 9,326 9,326 11,081 11,229 11,229 11,229 11,229 11,229+ NON-PRODUCTION OUTFLOW 8,862.3 9,326 9,326 9,326 11,081 11,229 11,229 11,229 11,229 11,229

- LESS IMPUTED FAMILY LABOR COST 9,405.0 12,055 13,115 16,255 17,210 18,355 17,880 17,880 17,880 17,880

* NET FARM BENEFIT 11,510 -1,738 -588 4,971 23,213 6,532 38,904 39,854 45,104 45,104

…--------ABLE---G.017-6---------------- --- …**CONTINUED* TABLE FBG.017 11/13/78 21:34:26

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMIENT PROUECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE SIX

(IN CR$)

…--------------------------------------------------------------------------------- CALENDAR ---------------------------------------1978 1979 1980 1961 1982 1983 1988 1993 1998 2003

(BASE YR)---------------- __-_____-_-----_______-----_____-_____-_______----------__----__-----------------------------__--_-_______----_____

INCREMENTAL_______________________

GROSS VALUE 0 5,197 13,646 25,6S3 35,475 29,582 51,683 54,783 57,883 57,883TOTAL INFLOW C 5,197 13,646 25,883 35,475 29,582 51,683 54,783 57,883 57,863

- ON-FARM CONSUMPTION .00 463.3 463.3 .463.3 2,218.3 2,366.8 2,366.8 2,366.8 2,366-8 2,366.8

NET INFLOW 0 4,734 13,182 25,419 33,257 27,215 49,316 52,416 55,516 55,516

DIRECT PRODUCTION COST 0 5,428 9,045 11,722 14,256 17,972 21,602 21,602 21,602 21,602INVESTMENTS .0 11,600 15,360 17,360 6,360 13,425 0 2,150 0 0

- TOTAL OUTFLOW .0 17,028 24,405 29,082 20,616 31,397 21,602 23,752 21,602 21,602 1ODNET FARM CASH FLOW 0 -12,294 -11,223 -3,663 12,641 -4,182 27,714 28,664 33,914 33,914

ON-FARM CONSUMPTION -CO 463.3 463.3 463.3 2,218.3 2,366.8 2,366.8 2,366.8 2,366-8 2,366.8+ NON-PRODUCTION OUTFLOW .00 453.3 463.3 463.3 2,218.3 2,366.8 2,366.8 2,366.8 2,366-8 2,366.8

- LESS IMPUTED FAMILY LABOR COST .0 2,650.0 3,710.0 6,850.0 7,805.0 8,950.0 8,475.0 8,475.0 8,475.0 8,475.0

NET FARM BENEFIT 0 -14,481 -14,470 -10,049 7,054 -10,765 21,606 22,556 27,806 27,806

NET PRESENT VALUE AT 10.00 % EQUALS 68264 CR$NET PRESENT VALUE AT 15.00 % EQUALS 26139 CR$NET PRESENT VALUE AT 20.00 % EQUALS 4314 CR$

INTERNAL RATE OF RETURN 21.48 %.

TABLE FBG.018 11/13/78 21:34:26

, t M

NORTrHLAST BRAZIL

SE'RF;IFE RUR,AL DEVELOPMENT PFROJECT-TABULEIROS

FARM YFTE SIXIEBIT SERVICE AND CASH FLOW FROJECTION

(IN CR$000)

...... .... .. ... - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --…

0 1 2 3 4 5 6 7 a8 9 10 2

(L) CASH i.LQ;:

wiLLii OF PFFODUCTION 19.4 25.3 35.0 48.5 57.5 52.7 52.3 68.2 77.7 70.7 74.8 81.0-1'!:-irELHr LOAN (100% OF 5) 0 11.6 15.4 17.4- 6.4 13.4 3.7 2.2 0 8.6 0 0

3 ''t l rLLRM LOAN (6) 7.3 12.7 16.4 19.2 21.8 25.7 28.1 28.5 29.0 26.2 29.3 29.34 ruFAL 1NFLOW L1+2t3) 26.7 49.7 66.8 85.0 85.7 91.8 84.1 9S.8 106.8 105.5' 104.1 110.3 @

II; CAS.1 OUTrF LOW:

Sf[lVES?MLN1 COST 0 11.6 15.4 17.4 6.4 13.4 3.7 2.2 0 8.6 0 06 OPERATING COSl 7.3 12.7 16.4 19.2 21.8 25.7 28.1 28.5 29.0 26.2 29.3 29.3

.'FOAL OUTF'LOW (5+6) 7.3 24.3 31-8 36.6 28.2 39.1 31.8 30.6 29,0 34.8 29-3 29.3

'III) Naf CASH FLOW:

d NE:i CASH FLOW (4-7) 19.4 25.3 35.0 48.5 57.5 52.7 52.3 68.2 77.7 70.7 74.8 81.0

kIV) fDEBY SERVICES:

9 INVE:ST. LOAN FRINCIPAL PMT, 0 0 0 0 0 1.0 2.5 4.2 5.2 6.9 7,9 9.8

10 INVESTMENT LOAN INTEREST 0 .6 1.9 3-6 4,7 5.7 6.5 6.5 6.2 6.1 5.9 4.411 ShURr TERM LOAN INTEREST .3 .5 .6 .7 .8 1.0 1.1 1.1 1.1 1.0 1.1 1.112 SHORF-T. LOAN PRINCIPAL PMT. 7.3 12-7 16.4 19.2 21.8 25.7 28.i 28.5 29.0 26.2 29.3 29.313 TOTAL DEBT SERVICE (9 TO 12) 7.6 13.8 19.0 23.5 27.4 33.4 38.1 40.3 41.5 40.2 44.2 44.6 mImI

(V) CASH BALANCE:

14 SASIH BALANCE (8-13) 11.8 11.5 16.0 25.0 30.1 19.4 14.2 27.9 36.2 30.5 30.7 36.5

NORTHEAST BRAZIL,SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Farm TyPe Eight

Cropping Pattern(ha)

DEVELOPMENT YEARS

CROPS Base Year 1 2 3 4 5-25

Oranges oil/ 0.0 1.0 1.5 1.5 1.5 1.5Tobacco 0.6 0.5 0.5 0.5 0.5 0.5Manioc 0.2 0.2 0.4 0.4 0.4 0.4 1Passion Fruit 0.0 0.0 0.5 0.5 0.5 0.5 0Peanuts 2/ 0.2 1.0 0.8 0.7 0.6 0.2Corn 2/ 0.1 0.2 0.2 0.6 0.9 1.1 3/Beans 2/ 0.1 0.1 0.5 0.4 0.3 0.J 3Coffee 0.0 0.0 0.0 0.5 1.0 1.0

Total Cropped Area 1.2 3.0 4.4 5.1 5.7 5.5

1/ New plantations to be introduced under the project.2/ Crops grown in consortia.3/ Grown partly as intercropping in new plantations, area will be

gradually reduced and reach 0.2 ha of corn and 0.1 ha of beansat full development of plantations.

0| |g.. I

(DIx

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE EIGHT

(IN CR$)

…--------------------------------------------… -------------------------------- CALENDAR --------------- …-…--------------------

1978 1979 1980 1981 1982 1983 1988 1993 1998 2003(BASE YR)

WITHOUT PROJECT

GROSS VALUE 14,499 15,079 15,659 16,239 16,819 17,399 17,399 17,399 17,399 17,399u TOTAL INFLOW 14,499 15,079 15,659 16,239 16,819 17,399 17,399 17,399 17,399 17,399

- ON-FAPM CONSUMPTION 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8

' NET INFLOW 7,181 7,761 8,341 8,921 9,501 id,o8o 10,080 10,080 10,080 10,080

DIRECT PRODUCTION COST 2,031.3 2,032.2 2,033.0 2,033.9 2,034.8 2,035.7 2,035.7 2,035.7 2,035.7 2,035.7- TOTAL OUTFLOW 2,031.3 2,032.2 2,033.0 2,033.9 2,034.8 2,035.7 2,035.7 2,035.7 2,035.7 2,035.7

* NET FARM CASH FLOW 5,149.3 5,728.4 6,307.5 6,886.6 7,465.7 8,044.8 8,044.8 8,044.8 8,044.8 8,044.8

ON-FARM CONSUMPTION 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8+ NON-PRODUCTION OUTFLOW 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8 7,318.8

- LESS IMPUTED FAMILY LABOR COST 4,835.0 4,835.0 4,835.0 4,835.0 4,835.0 4,835.0 4,835.0 4,835.0 4,835.0 4,835.0

* NET FARM BENEFIT 7,633 8,212 8,791 9,370 9,950 10,529 10,529 10,529 10,529 10,529

'm I

OD

_________---…---------------------…--

**CONTINUED* TABLE F2C.022 11/13/78 21:38:48

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE EIGHT

(IN CR$)

…-------------------------------------------------------------------------------- CALENDAR ---------------…-…--------------------1978 1979 1980 1981 1982 1983 1988 1993 1998 2003

(BASE YR)…------------------------------------------------------------------ _ -------- __---------- - ----- ____- __-…-- - ---------------- - -----

WITH PROJECTGS A14 18_6 43 67 58 12 15 1,_,

GROSS VALUE 14,499 18,848 37,666 46,338 63,774 65,689 112,425 115,525 118,625 119,625*TOTAL INFLOW 14,499 18,848 37,666 46,338 63,774 65,689 112,425 115,525 118,625 118,625

- ON-FARM CONSUMPTION 7,318.8 9,102 9,102 9,102 10,857 11,005 11,005 11,005 11,005 11,005

* NET INFLOW 7,181 9,746 28,564 37,236 52,917 54,1684 101,420 104,520 107,620 107,620

DIRECT PRODUCTION COST 2,031.3 5,016 10,133 11,036 16,554 26,657 32,483 32,483 32,483 32,483HIRED LABOR COST .00 .00 .00 .00 -. 00 185.00 .00 .00 .00 .00INVESTMENTS 0 19,750 28,400 20,385 21,575 8,095 10,750 0 0 0

- TOTAL OUTFLOW 2,031.3 24,766 38,533 31,421 38,129 34,937 43,233 32,483 32,483 32,483

* NET FARM CASH FLOW 5,149.3 -15,020 -9,969 5,815 14,788 19,747 58,186 72,036 75,136 75,136

ON-FARM CONSUMPTION 7,318.8 9,102 9,102 9,102 10,857 11,005 11,005 11,005 11,005 11,005+ NON-PRODUCTION OUTFLOW 7,318.8 9,102 9,102 9,102 10,857 11,005 11,005 11,005 11,005 11,005

- LESS IMPUTED FAMILY LABOR COST 4,835.0 6,505 9,590 12,225 14,460 22,645 21,750 21,750 21,750 21,750

U NET FARM BENEFIT 7,633 -12,423 -10,457 2,692 11,185 8,107 47,442 61,292 64,392 64,392

…-- - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - ------- …- - ------ …---

**CONTINUED* TABLE FBG.023 11/13/78 21:34:26

BRAZIL-NORTHEAST

SERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

FINANCIAL , ANNUAL FARM BUDGETFARM TYPE EIGHT

(IN CR5)

…----------------------------------------------------…------------------------- CALENDAR ---------------- …---------------------

1978 1979 1980 1981 1982 1983 1988 1993 1998 2003(BASE YR)

INCREMENTAL

GROSS VALUE 0 3,769 22,006 30,099 46,954 48,290 95,026 98,126 101,226 101,226* TOTAL INFLOW 0 3,769 22,006 30,099 46,954 48,290 95,026 986126 101,226 101,226

- ON-FARM CONSUMPTION .00 1,783.1 1.783.1 1,783.1 3,538.1 3,686.6 3,686.6 3,686.6 3,686.6 3,686.6

- NET INFLOW 0 1,986 20,223 28,316 43,416 44,603 91,339 94,439 97,539 97,539

DIRECT PRODUCTION COST o 2,984 8,100 9,003 14,519 24,621 30,447 30,447 30,447 30,447HIRED LABOR COST .0 .00 .00 .00 .00 185.00 .00 .00 .00 .00INVESTMENTS .0 19,750 28,400 20,385 21,575 8,095 10,750 0 0 0

- TOTAL OUTFLOW C 22,734 36,500 29,388 36,094 32,901 41,197 30,447 30,447 30,447

* NET FARM CASH FLOW 0 -20,748 -16,276 -1,072 7,322 11,702 50,142 63,992 67,092 67,092 .

ON-FARM CONSUMPTION oo 1,783.1 1,783.1 1,783.1 3,538.1 3,686.6 3,686.6 3,686.6 3,686.6 3,686.6NON-PRODUCTION OUTFLOW .00 1,783.1 1,783.1 1,783.1 3,538.1 3,686.6 3,686.6 3,686.6 3,686.6 3,686.6

- LESS IMPUTED FAMILY LABOR COST 0 1,670 4,755 7,390 9,625 17,810 16,915 16,915 16,915 16,915

* NET FARM BENEFIT 0 -20,635 -19,248 -6,679 1,235 -2,422 36,913 50,763 53,863 53,863

NET PRESENT VALUE AT 10.00 X EQUALS 190 THOUSAND CRSNET PRESENT VALUE AT 15.00 X EQUALS 94381 CR5NET PRESENT VALUE AT 20.00 % EQUALS 43931 CR5

INTERNAL RATE OF RETURN 29.47 X.

10I

-------------------------------- _-_-- ---- _---_-------_-------- - --

TABLE FBG.024 11/13/78 21:34:26

NORTHEAST 8RAZIL

SERGIF'E RURAL DEVELOPMENT PROJECT--TABWLEIROS

FARM rYPE EIGH-'TDEBT SERVICE AND CASH FLOW PROJECTION

(IN CR$000)

…--------------------------------------------------------------…YEAR---------

0 t 2 3 4 5 6 7 8 9 10 12

(I) CASH INFLOW'

I VALUE OF PRODUCTION 7.2 9.7 28.6 37.2 52.9 54.7 65.0 84.0 99.5 95.2 1(>1.4 107,.6

2 INVESTMENT LOAN (100% OF 5) 0 19.7 28.4 20.4. 21.6 8.1 12.8 0 0 0 10.8 0

3 SHORT TERM LOAN (6) 2.0 5.0 10.1 11.0 16.6 26.8 29.5 30.2 31.7 29.1 32.5 32,54 TOTAL INFLOW (1+2+3) .9.2 34.5 67.1 68.7 91.0 89.6 107.3 114.2 131.2 124.3 141.7 140-,

(II) CASH OUTFLOW:;

5 INVESTMENT COST, 0 19.7 28.4 20.4 21.6 8.1 12.8 0 0 0 10.8 '

6 OF'ERATING COST ' 2.0 5.0 10'.1 11-0 16.6 26.8 29.5 30.2 31.7 .29.1 ;2.5 32.5

7 TOTAL OUTFLOW (5+6) 2.0 24.8 38.5 31.4 38.1 34.9 42.3 .;0.2 31.7 29.1 43.2 32.5

(III) NET CASH FLOW:_

8 NET CASH FLOW (4-7) 7.2 9.7 28.6 37.2 52-9 54.7 65.0 94.0 99.5 95.2 101.4 107.6

(IV)- DEBT SERVICES:-

9 INVEST. LOAN PRINCIPAL PMT. 0 0 0 0 0 1.7 4.4 6.6 9.2 10.8 13.0 15.710 INVESTMENT LOAN INTEREST 0 1.0 3.4 5.8 7.9 9.4 10.3 10.5 9.8 9.9 S.4 6.'2

11 SHORT TERM LOAN INTEREST .1 .2 .4 .4 .6 1.0 1.1 1.1 1.2 1.1 1.2 1.212 SHORT-T. LOAN PRINCIPAL PMT. 2.0 5.0 10.1 11.0 16.6 26.8 29.5 30.2 31.7 29.1 32.5 32.:13 TOTAL DEBT SERVICE (9 TO 12) 2.1 6.2 13.9 17.3 25.1 39.0 45.3 48.41 51.9 49.9 55.0 5S.6

(V) CASH BALANCE:

14 CASH BALANCE (e-13) 5.1 3-6 14.7 20.0 27.8 15.7 19.7 35-6 47.6 45.3 46.4 52.0

--------------- ! ----------------------------------------------------------------------------------- - --- -- -- -1- -

I.

NORTHEAST BRAZILSERGIPE RIRIAL DEVELOPMENT PROJECT - TABULEIROS SUL

Cost and Benefit Streams for Econmic Analysis(in efficiency prices and Cr$ 000)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15-25

Benefit Strem

Net F.s B.nefit -49,900 -56,800 -53,800 -16,900 27,500 93,200 160,800 217,S00 236,700 255,500 274,400 293,300 312,200 331,000 349,.'0'3

Adlustme.t for foreign exchange 2.800 8,700 19,400 38,600 52,200 73,300 94,800 116,200 137,700 148,800 154,900 164,000 173.100 179.300 179.330

Shadcw PriceTotal Net Farm Benefit -47,100 -48,100 -34,40 21,700 79,700 166,500 255,600 334,000 374,400 404,300 429,300 457,300 485,300 510,300 529,200

Cost Stream

Agricultural Extersion Service 7,564 10,880 15,413 18,603 20,344 14,241 14,241 14,241 14,241 14,241 8,138 8,138 8,138 8,138 8,138

Akricultural Experimentation 2,828 1,897 1,904 1,763 1,642 985 985 985 985 985 0 0 0 0 0

Lacd Titling *nd S&r.eyi.g 1,980 2,946 6.808 5,404 7,366 0 0 0 0 0 0 0 0 0 0

Colonization 25,999 34,700 62,301 61,516 57,450 0 0 0 0 0 0 0 0 0 0

Feeder and Access Roads 37,332 42,282 52,182 49,913 25,575 2,558 2,558 2,558 2,558 2,358 2,558 2,558 2,558 2,558 2,558

Marketing Facilities 0 4,419 0 0 0 0 0 0 0 0 0 0 0 0 0

Adninistration and monitoring 4,361 3,894 3,894 3,894 3,894 3,505 3,115 2,336 1,558 779 0 0 0 0 0

Evaluation and Studies 764 764 764 764 764 688 611 458 306 153 0 0 0 0 0

Subtotal Cost Strem 80,828 101,782 143,266 141,857 117,035 21,977 21,510 20,578 19,648 18,716 10,696 10,696 10,696 10,696 10,6596

Adjust.ent fer Foreign Exchange 7,647 9,685 14,475 14,212 11,519 919 906 870 850 823 546 546 546 546 5415

Shadow Price

Total Cost Stream- 88,475 111,467 157,741 156,069 128,554 22,896 22,416 21,448 20,498 19,539 11,242 11,242 11,242 11,242 11,242

Net lenefit Strem -135,575 -159,567 -192,141 -134,369 -48,854 143,604 233,184 312,552 353,902 384,761 418,058 446,058 474,058 499,058 517,955

Internal Rate of Return 27X.

It Cost stream includes 100% of the project coats (base-line pls. physical contingencies) fer the colonixetiDn.

agriculturae experimentation, land titling, marketing and feeder road components; 90% of the agricultural

extensier service costs (at least 10% of these cests being directly or indirectly related to social extension,

health, ed.c.tion and community development activities for which benefits are not easily quantifiable); 70%

of oerall project costs for administration and monitoring (at least 302 of these costs being related to project

social doeelopment activities); and 50% of the costs of the project evaluation (because evaluation wuld cover

bcth pr.id,ction ard social components and many of the lessons learned would benefit aainly subsesqirt projects).

2/ Not adusted for state and federal taxes which, at a roghly estimated 2n, are nagligible and would not change the eutisted own.-d mate of retur.

-66- ANNEX 10

NORTHEAST BRAZILSERGIPE RURAL DEVELOPMENT PROJECT - TABULEIROS SUL

Related Documents and Data Availablein Project Files

A. SUPPLEMENTARY STAFF WORKING PAPERS

1. Project Area Summary Data2. Agricultural Extension3. Agricultural Experimentation4. Land Surveying and Titling5. Agricultural Credit6. Input Supply and Storage7. Cooperative Societies8. Education and Community Training9. Feeder and Access Roads10. Health and Sanitation11. Agricultural Development and Production Technology12. Markets, Prices and Marketing13. Colonization Schemes14. Marketing Facilities15. Economic Analysis16. Producer Income and Employment17. Project Administration

B. DOCUMENTS PREPARED BY STATE

1. 0 Estado e a Area do Projeto2. Desenvolvimento Agricola3. Assistencia Tecnica e Extensao Rural4. Pesquisa Agricola5. Titulac,o de Terras6. Credito7. Comercializapao Agricola8. Apoio ao Cooperativismo9. Colonizaqao10. Organiza,co e Administracao11. EducaSao e Forma,co de Mao de Obra

BRAZILSTATE OF SERGIPE

TABULEIROS SUL RURAL DEVELOPMENT PROJECTPROJECT AREA

-ID'~~~~~~~~~1 >QL 00000

TO ~ ~ ~ ~ ~ T 0'E 0ACf[ LR 1J 'ORt

¢'J~~~ ~~~~~ ~ ~ ~~~~~~ SUDA Ev-o Sw-

X) l E\-NO \ \ t-

21S :R;'T /f/ /, %f3Rf bJdrt

PHYK)GAPHKT~,pT SUBloREAo

BRAZIL~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~tDRLR-D

,, | A i F F 5/ Cf i > * jJ 8w- Ae;tho eoM i sJ / 8 16 14~~~~~1, f2T000 4 040 3 110 -/ -s 3 oSTATE BOADS

A IvI F 'pi/ r To1= 0 P

________6___ ____4__

IBRD 1397637.130' 337° DECEMBER 1978

BRAZI L10'30' STATE OF SERGIPE SOILS

TABULEIROS SUL RURAL DEVELOPMENT PROJECT CROPS

SOIL TYPES, POTENTIAL LAND USE, AND RAINFALL POTENTIAL USE TYPE SUITABILITY:

Temporary (Field) and GoodPermanent (Fruit) Crops , Fair

IoX,lTABAIANA ( *0~->+ttlL,--- RestrictedArtificial Pastures I Fair

SIMAO DIAS < ° °Natural Forests and Pastures L Fair

Natural Forests only | l -

PHYSIOGRAPHIC SUB-AREAS

Litoral Z~~~~~~~~R' ~~~~~~~~~~~~~~~~~~Cerrado Central

PK:S'4 ~ Tabuleiros e Vales

Rainfall (Annual Average) 750

Federal Roads

State Roads

UW ~~~~~~~~~~~~~State Boundairies - __

< .' s;X9m>*r1i-;l i w it ~~~~~~~~~~~~~~~~B R A Z I L)BRAZILBRAIL

,3s 0 4 F 12 16 20 SOn e

KILOMETERSMEi%/6' o .y Z /D rpfthateaJersoteheretJorThins rmp ht beea prepared by the World Vark's neff exclusiv for the TLANTIC

s-a A / ,r, thisnnapdnot ,nPlt. onpart of the Wedd Sankiand do OCEANV liates, anysudgpoent on the legal status of dry territory or any osdorsootent orso 7 1 A 37o3wz a dcceptance of such brudafies l ;;. ;-; . :-5 , 1dl.