Documentof The WorldBank

FOROFFICIAL USE ONLY

1-Al Z;P3 8 il Public Disclosure Authorized

Report No. 6668-BR Public Disclosure Authorized

STAFF APPRAISALREPORT

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - Public Disclosure Authorized

May 26, .987 Public Disclosure Authorized

ProjectsDepartment Latin America and the Caribbean Regional Office

This documentbs a restricted distributionand may be used by recipientsonly in the performanceof their officia duties. Its otents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS

CurrencyUnit - Cruzado(Cz$) US$1.00 Cz$ 14.20 1/ US$1.00 - Cz$ 31.00 2/ Cz$ 1.00 US$0.0323

WEIGHTSAND MEASURES

The metric system is used throughoutthe report.

FISCALYEARS

Government of Brazil = January 1 to December 31 Northeast Rural DevelopmentProgram April 1 to March 31 Project = April 1 to March 31

1/ Exchangerate at time of appraisal(December 1986). TI Exchangerate as of May 20, 1987. FOXOFF IAUL UW ONLY

GLOSSARYOF ACRONYMS

BNDES BancoNacional de Desenvolvimento Economico e Social (NationalBank for Economicand SocialDevelopment)

CEASA-AL Centralde Abastecimentoda AlagoasS.A. (CentralMarketing Organization of Alagoas)

CEPA-AL FundacaoEstadual de PlanejamentoAgricola de Alagoas (StateFoundation for AgriculturalPlanning Alagoas)

CIDAL Companhiade DesenvolvimentoAgropecuaria de Alagoas (StateCompany for AgriculturalDevelopment-Alagoas)

CODEVASF Companhiade Desenvolvimentodo Vale do Sao Francisco (Sao FranciscoRiver ValleyDevelopment Company)

CPATSA Centro de Pesquisa Agropecuaria do Tropico Semi-Arido (Center of Agricultural Research for the Semi-Arid Tropics)

EDRN-AL Empresade RecursosNaturais do Estadode Alagoas (StateCompany for Developmentof NaturalResources)

EMATER-AL Empresade AssistenciaTecnica e ExtensaoRural de Alagoas (StateTechnical Assistance and RuralExtension Company)

ENERAPA EmpresaBrasileira de PesquisaAgropecuaria (BrazilianAgricultural Research Company)

EMBRATER EmpresaBrasileira de AssistenciaTecnica e ExtensaoRural (BrazilianTechnical Assistance and Rural Extension Company)

EPEAL Empresade PesquisaAgropecuaria do Estadode AlagoasS.A. (AlagoasAgricultural Research Company)

FIBGE FundacaoInstituto Brasileiro de Geografiae Estatistica (BrazilianInstitute of Geographyand Statistics)

FINSOCIAL Fundo de InvestimentoSocial (SocialInvestment Fund)

IC ComissaoInterministerial Para o Nordeste (InterministerialCommission for the Northeast)

ICM ImpostoSobre a Circulacaode Mercadorias (ValueAdded Tax on ProductCirculation)

INCRA InstitutoNacional de Colonizacsoe ReformaAgraria (NationalInstitute for Colonizationand Agrarian Reform)

Thb documenthas a restricteddistdbution a may beused by rcipientsonly in the performance oftheir offki duties, Itscontents may not otheebo be discloed without World Bank authworlon. INTERAL Institutode Terra do Estadode Alagoas (AlagoasState Land Institute)

MINTER Ministeriodo Interior (Ministryof the Interior)

MIRAD Ministerlode ReformaAgraria e DesenvolvimentoAgricola (Ministryof AgrarianReform and Development)

NRDP NortheastRural DevelopmentProgram

LDP (LocalDevelopment Project)

POLONORDESTE Programade Desenvolvimentode Areas Integradasdo Nordeste (DevelopmentProgram for IntegratedAreas of the Northeast)

PROHIDRO Programade RecursosHidricos (WaterResources Program)

RDC Conselhode DesenvolvimentoRural Regional (RegionalRural DevelopmentCouncil)

SCC (StateCoordinating Commission)

SERTANEJO ProgramaEspecial de Apoio do Desenvolvimentoda Regiao Semi-Aridado Nordaste (SpecialProgram of Supportfor the Developmentof the Semi-AridRegion of the Northeast)

SIMA Sistemade Informacaode MercadoAgricola (AgriculturalMarketing and InformationSystem)

SRDC ConselhoEstadual de DesenvolvimentoRural (StateRural DevelopmentCouncil)

SUDENE Superintendenciade Desenvolvimentodo X^rdeste (Superintendencyfor the Developmentfor the Northeast)

SSRC (Supportto Small Rural Communities) BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Table of Contents

Page

I. LCANAND PROJECT SUMMARY 1

II. THE AGRICULTURAL SECTOR ...... 3

Agriculturein the NationalEconomy 3 The RuralNortheast ...... *... 3 GovernmentDevelopment Strategy for the Rural Northeast ...... 4 Experiencewith Past Bank Lending 4 The State of Alagoas...... o...... 5 Locationand NaturalFeatures 5 Economicand SocialConditions 6 Land Use, Tenureand Production 6 AgriculturalServices 6 Rural Developmentin Alagoas 6

III. THE PROJECT .... 7

Rationalefor Bank Involvementand Origin 7 ProjectArea 7 ProjectObjectives and Description 8 WaterResource Development 8 AgriculturalResearch and Basic Seed Production 8 RuralExtension 9 Rural InvestmentCredit ...... 9 MarketingServices ...... 10 Supportto Small Rural Communities 10 ProjectAdministration and Training 11 Land TenureImprovement 11 ProjectOrganization and Implementationo...... 11 Federaland RegionalLevels 11 State and Local Levels 12 Annual Planningand Budgetinge...... 12 Accountsand Auditing 12 OperatingAgreements 13 Monitoringand Evaluation 13 ProjectCost 13 FinancingPlan ...... o 13 Procurement 14 Disbursements 15 ProjectBenefits and Justification.. *...... 15 Production,Benefits and Farm Incomes 15 Cost Recoveryand Fiscal Impact o...... oo...... 16 EconomicAnalysis ...... o...... -. 16 ProjectRisks 16

This report is based on theefindings of an appraisalmission which visited Brazil during necember 1986. The mission comprised Messrs. H. von Pogrell (m4ea4^" 1ao A- -- Al i_] x__s " -^s Table of Contents(Continued) Page

IV. SUMMARYOF AGREEMENTSREACHED AND RECOMMENDATION...... 17

ANNEX 1 - PROJECTDESCRIPTION AND DETAILEDFEATURES.*..****.. **** 20 Table 1.1 Structureof Land Holdingsin the ProjectArea Table 1.2 Evolutionof State AgriculturalProduction.. 26 Table 1.3 ProjectPriority Areas and Beneficiary Distribution.*000****oe* *...... e e.....27 Table 1.4 List of Municipalitiesin the ProjectArea.... 29 Table 1.5 AnnualCost Phasingof ProjectActivities..... 30 Table 1.6 EstimatedSchedule of Bank Disbursements...... *31 Table 1.7 Allocationof Loan Proceeds*...... 32 Table 1.8 FinancingPlan...... 33

ANNEX 2 - PROJECTORGANIZATION AND MANAGEMENT...... 34

Table 2.1 List of Executingand CollaboratingAgencies.. 37 Chart 1 ProjectCoordination and ManagementChart..... 38 Chart 2 ImplementationSchedule...... 39

ANNEX 3 - FINANCIALAND ECONOMICBENEFITS ...... 40

Table 3.1 Total AnnualArea, MarketableProduction and Value of Major Crops and Livestock...... 42 Table 3.2 Characteristicsof IllustrativeFarm Models Used in Financialand EconomicAnalyses...... 43 Table 3.3 EstimatedYields and Areas of Major Crops at Farm Level...... 44 Table 3.4 EconomicAnalysis...... 48 Table 3.5 PrincipalPrices Used for Financial and EconomicAnalyses...... e .. 49 Table 3.6 ProjectSensitivity Analysis ..... 50

ANNEX 4 - DOCUMENTSAVAILABLE IN THE PROJECTFILE...... 51

Maps: IBRD 18686-R- Yearly Land AdjudicationOperati-ns IBRD 20354 - ProjectArea IBRD 20397 - AgriculturalPotential Defined by DependableRainfall BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT ALAGOAS

DRAFTSTAFF APPRAISALREPORT

I. LOANAND PROJECT SUMMARY

Borrower: FederativeRepublic of Brazil

Executing The State Foundationfor AgriculturalPlanning (CEPA-AL) Agency:, linked to Secretariat of Agriculture of the State of Alagoas.

Amount: US$42.0million equivalent.

Terms: Repayablein 15 years on a fixed amortizationschedule, including3 years of grace,at the Bank'sstandard variable interestrate.

Beneficiaries: Some 32,400low-income families operating farms of up to 50 ha in 49 municipalities(100'ha in the eleven municipalitiesin the driestareas) of the State of Alagoaswould be directbeneficiaries of farm improvement components. An estimatedadditional 7,600 familieswould also benefitfrom the supportto small rural communities.

Project Description: The proposedproiect is one of a seriesof projectswithin the new NortheastRural DevelopmentProgram (NRDP). The projectobjectives are to: (a) increaseagricultural productionand productivity;(b) generateincome and employmentopportunities for low-incomerural families; (c) promote water resource development and technology generationand diffusionto decreasesmall farmers' vulnerabilityto recurringdroughts and pest outbreaks; (d) increasecommunity participation in all phases of the developmentprocess; and (e) strengthenthe State of Alagoas'capacity to provideefficient agricultural servicesto small farmers. In order to meet its objectives,the projectwould supportwater resource developmentfor agriculturaland domesticuse, agriculturalresearch, agricultural extension, rural iestment credit,marketing services, funding for communitysubprojects and projectadministration and training.

Risks: Projectrisks include:(a) insecureland tenure; (b) inefficientdelivery of projectservices; (c) lack of sufficientinteriustitutional cooperation; (d) recurring droughts and pest outbreaks (boll weevil) on the major cash crop, cotton; and (e) delays and shortfalls in counterpart funding and credit. The project has been designed so as to minimise these risks* Progress will be closely followed up by Bank staff through review of annual - 2 -

operatingplans and improvedsupervision, monitoring and evaluation.Implementation of the NortheastRegion Land Tenure Improvement Project and the Government's agrarian reform would Increase land tenure security. Streamlined administrativeprocedures, measures for institutional strengtheningand technicalassistance for selected agencieswould improveefficiency and project coordination.Crop diversificationand intensified technologygeneration and diffusionwould make farmers less vulnerableto droughtand pest outbreaks.The Governmentadopted new measuresin 1986 to ensurethe timelyavailability of counterpartfunds and credit. In addition,the regionalscope of the NortheastProgram and the supportthe Programenjoys among governmentand local leadersshould help secureadequate funding and satisfactoryimplementation of the proposedproject.

EstimatedProject Costs: - - - - US$ Millions- - - - Local Foreign Total

A. Water ResourceDevelopment 1.2 0.3 1.5 B. AgriculturalResearch and Basic Seed Production 4.2 0.5 4.7 C. AgriculturalExtension 19.7 0.6 20.3 D. Rural InvestmentCredit 29.2 5.2 34.4 E. MarketingServices 0.3 - 0.3 F. Supportto SmallRural Communities 10.6 1.5 12.1 G. State ProjectAdministration and Training 8.2 0.7 8.9

TOTAL BASELINECOSTS 73.4 8.8 82.2 PhysicalContingencies 0.7 0.2 0.9 Price Contingencies 3.1 0.2 3.3

TOTAL PROJECTCOSTS 77.2 9.2 86.4 1/

FinancialPlan:

Government 44.4 - 44.4 2/ IBRD 32.8 9.2 42.0

TOTAL 77.2 9.2 86.4 __-_ _

EstimatedDisbursements:

Bank FY: 1988 1989 1990 1991 1992 1993 1994 1995

Annual 3.4 2/ 3.3 5.9 6.3 7.1 6.8 4.2 3.4 Cumulative 3.4 6.7 12.6 18.9 26.0 32.8 37.0 40.4

Rate of Return: 14%

Mbps: IBRD 18686-R,20354 and 20397 1/ Includingabout US$1.9million of local taxes. 2/ Includinginitial deposit of US$2.0million into the SpecialAccount. - 3 -

II. THE AGRICULTURALSECTOR

Agriculturein the NationalEconomy

2.01 Agriculturein Brazilhas traditionallybeen the main sourceof exportsand employment,though a tentativelysmall contributorto GDP. In 1970, agricultureaccounted for 12% of GDP, 44% of the economicallyactive populationand 67% of total exports. In 1985, these figureswere 13%, 30% and 31%, respectively.Throughout the 19709,there was rapid expansionIn Brazil'sagriculture (5% per annum);during the recessionin the early 1980s,output and investmentstagnated and then recoveredin 1984 and 1985.

2.02 The performanceof the sectorin the 19709masked sharply disparaterates of growthbetween regions, farm types and individual crops. The most dynamicexpansion was with productsthat rely on heavy capitalinvestment or high levelsof inputs,such as soybeans,citrus, tobacco,cocoa and sugarcane,on large commercialfarms in centraland southernBrazil. Much slowergrowth rates and, in some cases,declines were recordedfor such staplefood crops as rice, maize,wheat, beans, maniocand potatoes.

2.03 These trendsin agriculturaloutput were reflectedin agriculturaltrade. In the 19709,the rapid growth in agriculturalexports dependedheavily on soy products,orange juice, cocoa,tobacco and sugar. In 1970 these five crops accountedfor only 15% of the total agricultural exportsof US$2.09billion. By 1980, they accountedfor over 50% of Brazil'sUS$9.43 billion of agriculturalexports. After 1980, the value of agriculturalexports hardly grew at all, except in 1984,when coffeeand orangejuice were aided by highly favorableprice movements.

The Rural Northeast

2.04 The Northeastis comprisedof the Statesof Maranhao,Piaui, Ceara,Rio Grandedo Norte, Paraiba,Pernambuco, Alagoas, Sergipe, Bahia, the northernportion of the State of Minas Gerais,and the islandof Fernandode Noronha. The regioncovers a total area of over 1.5 million km2 (18% of the country'stotal area).

2.05 The Northeasthas been the nation'sforemost problem region since the late 1800s becauseof drought,uncertain rainfall, skewed land distribution,and limitedemployment opportunities. These problems resultedin high levelsof povertyand underemployment.From 1970 to 1983, 3.3 millionpeople migrated from the region,partially in responseto a five-yeardrought (1979-1983). In 1985, the Northeasthad a total populationof 39 million (about29% of the country'stotal), growing at 2.3% per annum with a populationdensity of 25 inhabitantsper square kilometer. Half the populationlives in rural areas and over 50% of the work force is engagedin agriculture.Land ownershipis highly concentrated:farm-1 under 10 ha (70% of all farms)occupy less than 6% of the farm area; farms over 500 ha (1% of all farms)occupy more than 40% of the farm area. Rural incomesare low. In 1985, about half of the Northeastrural populationearned one quarteror less of the official minimumwage (aboutUS$600) as against10% for the nationalfigure. - 4 -

2.06 The Northeastcontributes about one-fIfthof the total value of Braziliancrop production;many regionallyproduced commodities (cotton, sisal,cassava and sugar)represent significant shares of national production. The zona da mata, a narrow,fertile coastal strip, contains one-thirdof of the regionalpopulation and a major proportionof industry and plantationagriculture. The agreste,a transitionalzone contiguous with semi-aridareas, is dominatedby mixed farming,as well as the raising of cattle. The sparselypopulated, semi-arid sertao, where cattleraising and cottoncultivation are predominant,is the largestof the subregions and the most vulnerableto periodicdroughts.

GovernmentDevelopment Strategy for the Rural Northeast

2.07 Until the 1950smost Governmentefforts to assist in the rural Northeastwere limitedto droughtrelief works, emergency programs and incentivesfor exportcrops. The slow pace of socioeconomicdevelopment and the need for improvedregional planning led to the creationin 1959 of the Superintendencyfor the Developmentof the Northeast(SUDENE). SUDENE was originallyresponsible for coordinationof public investment,drought emergencymeasures, and powerfulfiscal and creditincentives to attract privateinvestment. The initiativefor regionalpolicy formulation was transferredto variousFederal agencies in the 1970swith SUDENEcontinuing to play an importantrole in the coordinationof federally-fundedspecial rural programs.

2.08 The specialrural programshave followedtwo approaches.The first was based on the integrateddevelopment of selectedsubregions. It includedthe DevelopmentProgram for IntegratedAreas of the Northeast (POLONORDESTE),the SpecialProgram of Supportfor the Developmentof the Semi-AridRegion of the Northeast(SERTANEJO), and the SpecialProgram of Supportfor Small Sugar Cane Growers(PROCANOR). The secondapproach was concernedwith alleviatingthe effectsof drought. It includedseveral parallelprograms, such as the Water ResourcesUse Program(PROHIDRO), the AgriculturalResearch Program for the Semi-AridTropics and the Drought EmergencyRelief Program, as well as large federalpublic irrigation projects.

2.09 Planningfor a major new developmentinitiative tegan in 1982, stimulatedby the recognitionthat the aggregatecontribution of the first two approachesin alleviatingrural povertyand increasingagricultural productionhad been limited. The new initiativeis being implemented througha seriesof sectoralprojects in such areas as land tenure,federal irrigation,health, education and integratedrural development.The NortheastRural DevelopmentProgram (NRDP), simpler in designthan previous effortssupported by the Bank, is a 15-yearprogram which focuseson eliminatingkey constraints(land tenureinsecurity, drought vulnerability and limitedaccess to creditand use of modern technology)on small farm development. It is based on a comprehensiveregional policy framework, multiyearstate rural investmentplans and the integrationof all current rural specialprograms. NRDP regionalguidelines establish unified and streamlinedfunding and administrativeprocedures and mechanismsfor increasedbeneficiary participation and improvedinstitutional performance. - 5.

Egperiencewith Past Bank Lending

2.10 The Bank has made 41 loans,totalling US$3,268.6 million, for agriculturaland ruraldevelopment in Brazil. These Includeone agriculturalcredit and export loan for US$303.0million; one creditand marketingreform loan for US$500.0million; supplemental financing for US$30.5million, under the SpecialAction Program;three loans for US$519.2 millionfor agroindustries;two for US$60.5million for livestock;one for US$18.2million for grain storage;two for US$100million for agricultural research;two for US$255million for agriculturalextension; one for US$100 millionfor land tenureimprovement; and 27, totallingUS$1,382.2 million, for varioussettlement, irrigation and rural developmentprojects in the Northeast,l/in Minas Gerais,and in the North and Northwest.

2.11 Ten of the Bank-financedprojects were POLONORDESTErural developmentprojects located in eight Northeaststates. Approvedfrom 1976 to 1983, three of these projectsare still being executedand the other seven have been substantiallycompleted. Implementationof all the POLONORDESTEprojects generally improved over the years,especially in projectplanning and agencycoordination. The combinedProject Completion Reportfor the Rio Grandedo Norte and SergipeRural DevelopmentProjects (Loans1195 and 1714-BR)showed that, despitelower than expectedrates of returnin both projects,adopting farmers' incomes increased substantially.However, those two projects,similar to the others, experiencedimplementation and disbursementdelays mainly because of the unusuallysevere 1979-83drought, delays in providinglocal funds,limited executioncapacity for carryingout small-scaleirrigation activities and initiallags in the generationof drought-resistanttechnology for small farmers. The CompletionReport concludedthat fundamentaldevelopment constraints,such as insecureland tenure,or uncertainwater availability, shouldreceive priority treatment in futureproject design and investment. These problemsand prioritieswere addressedduring the preparationof the NRDP.

The State of Alagoas

2.12 Locationand NaturalFeatures. With a total area of about 27,730 kmin,Alagoas, is the secondsmallest state in the Northeast. It is borderedon the southeastby the AtlanticOcean, on the southwestby the Sao Francisco River and on the north by the State of Pernambuco (Map IBRD 20354). Average annual rainfall ranges from about 1,500 mm in the coastal area (zona da mata) to about 700 to 900 mm in the agreste area, which covers about two-thirds of the State'sland area (Map IBRD 20397). The wide range of soil types near the San Francisco River are fertile, whereas latosolsoils in the agrestearea are generallyless productive.

1/ A preliminaryevaluation of impactis providedin the World Bank CountryStudy, Brazil: An InterimAssessment of Rural Development Programs for the Northeast,Washington, D.C., 1983. 2.13 Economicand SocialConditions. The States populationis nearly 1.9 millionand is growingat an estimatedannual rate of 2.2%. Population densityis 68 persons/km2, over double the averagefor the Northeast. About 48% of the populationlives in urban centers,of which Maceio,the state capital,is the largest. Averageper capitaincome in the rural areas is below the relativepoverty level of about US$330. Living conditionsfor most of the populationare still poor: infantmortality is high, and accessto treatedwater and seweragefacilities is limit'.1d.

2.14 Land Use, Tenure and Production. Agriculturalland comprises about 2.4 millionha, of which 52% are suitablefor annualor perennial cropping,35% for grazingland, and 13% for forestor bushland. Land ownershipis skewed:about 75% of all farms are less than 10 ha and account for only 10% of the total fat.aarea, whereas3% of farms (thoseover 100 ha) occupyalmost 62% of total agriculturalland. Agriculturalproduction in Alagoasis dominatedby sugarcane(65% of cultivatedland) producedin the zona da mata on large estates. Anotherimportant crop is tobacco, which, togetherwith subsistencecrops of maize, beans,rice and cassava, is mainly producedby small holders. Agriculturalland in the agresteis mainlyused for extensivegrazing.

AgriculturalServices

2.15 Becauseof previousrural investmentsin Alagoas,there are a numberof agenciesand a core of trainedtechnicians with agricultural developmentand projectmanagement experience. The State Foundationfor AgriculturalPlanning (CEPA-AL) linked to the Secretariatof Agricultureis responsiblefor planningand coordinationof all specialrural programsin the state and has alreadygained some experiencethrough coordinating federally-fundedrural developmentprograms. Land regularizationand redistributionare entrustedto the State Land Institute(ITERAL) which has implementedland activitiesfinanced by the Inter-AmericanDevelopment Bank. The State'sAgricultural Research Company (EPEAL) is operatingseven experimentalstations located throughout the state,however, with littleor no generationof new technology. Agriculturalextension is providedwith mixed resultsby the State'sTechnical Assistance and Rural Extension Company(EMATER-AL) through a networkin the projectarea of three regional and 49 local (municipal)offices. Successfulextension has been hampered by inadequateplanning, supervision and trainingof local extension agents. The State Companyfor the Developmentof NaturalResources (EDRN) foundedin 1979, has been mainly involvedin well drilling,but also has the technicalcapability for constructingcommunal water supplysystems. Three major publicbanks (the Bank of Brazil,the Bank of the Northeastof Braziland the State Bank of Alagoas)provide rural creditthrough a generallyadequate branch network. However,demand for officialcredit is far greaterthan supply. The FederalFood Company(COBAL) is active in food wholesalingand retailingin the urban area of Maceio. The State Companyfor AgriculturalDevelopment (CIDAL) provides some input supply throughoutthe State,but is generallynot as efficientas the private sectorand some cooperatives.Public agriculturalmarketing is handledby AlagoasState MarketingOrganization (CEASA-AL). - 7 -

2.16 R'lralDevelopment in Alagoas. The increasein rural out-migrat and the worseningsituation in the agriculturalsector during the last decadehave caused the Governmentto focus on the needs of small farmers. Rural developmentactivities in Alagoasstarted in 1976 with federally-fundedspecial programs such as POLONORDESTEand SERTANEJO (para.2.08). Achievementsunder these specialprograms were modestsince their implementationwas hamperedby chronicdelays and shortagesin funding.

III. THE PROJECT

Rationalefor Bank Involvementand Origin

3.01 The Bank'slending strategy in Brazil aims to promoteand assist structuralreform, to developand maintainessential infrastructure, and to improveproductivity and living conditionsof the rural and urban poor. The Governmentof Brazilattaches high priorityto decreasingregional disparities. Incomesin Northeastrural areas are less than 35% of the nationalaverage. The NRDP, of which the proposedproject is a part, forms a centralpart of the Government'cinvestment strategy to narrowthe gap betweenthe Northeastregion and the rest of the countryand to alleviate rural poverty.

3.02 In August 1982,the Governmentasked the Bank to assist SUDENEin preparingthe NRDP, which is comprisedof ten state projectsand a regional land tenureimprovement project. In April 1985, as part of the program, the Bank approvedthe NortheastRural Developmentprojects for the States of Sergipeand Rio Grandedo Norte (Loans2523-BR and 2524-BR, respectively).In additionto supportingthe SergipeRural Development Plan, the first projectestablished the structuraland operatingprocedures for regionalprogram planning, coordination and researchto supportall ten Northeaststate rural developmentplans. In June 1985,the Bank approved the NortheastRegion Land Tenure ImprovementProject (Loan 2593-BR)which financescadastral activities in all ten Northeasternstates (Map IBRD 18686-R). The NRDP projectfor the State of Pernambucowas approvedin June 1986, and projectsfor the Statesof Bahia,Piaui and Cearawere approvedin October 1986. Projectsfor the three remainingStates (Maranhao,Minas Geraisand Paraiba)are being presentedto the Executive Directorssimultaneously with this proposedproject. While is is still early on in the implementationof the NRDP, initialexperiences, particularlywith respectto federaland regionalmanagement, counterpart funding,and beneficiaryparticipation, are encouraging.

3.03 The projectwas appraisedby the Bank in December1986, and negotiationstook place in Washingtonin April/May,1987. The Brazilian delegationwas led by Ms. Stael MartinsBaltar of the FederalMinistry of Finance.

ProjectArea

3.04 The State selectedthree planningregions - AgresteI, Agreste II and Mata Norte - as priorityareas for development(Map IBRD 20354). - 8 -

These priorityareas include49 municipalities(of a total of 96 in the state)and have a generallyhigh concentrationof small farmerswith less than 50 ha (86,200farm families)and a potentialfor crop diversification and increasedlivestock production. The selectedpriority areas also coincidewith those in which cadastraland land regularizationoperations will be carriedout under the NortheastRegion Land Tenure Improvement Project.

ProjectObjectives and Description

3.05 The main objectivesof the proposedproject would be to: (a) increaseagricultural productivity and productionin the centerand northeastregion of the State of Alagoas;(b) generateemployment opportunitiesfor low-incomerural families;(c) promotewater resource developmentand technologygeneration aud diffusionto decreasesmall farmers'vulnerability to recurringdroughts; (d) increase community participationin all phasesof the developmentprocess; and (e) strengthen the State of Alagoas'capacity to provideefficient agricultural services to small farmers. The projectwould directlybenefit an estimated32,400 small farm familiesfarming less than 50 ha (100 ha in the eleven municipalitiesin the driestareas). An estimatedadditional 7,600 familieswould also benefitfrom the communitydevelopment component. The projectcomponents are describedbriefly below (with,in parentheses,the relativepercentages of total projectcosts) and in Annex 1.

3.06 Water ResourceDevelopment (2%). This componentwould consistof the constructionof 30 simplewater supplysystems with bore-holedwells, 17 small systemsusing hand-dugwells (pocosamazonas) and 120 systems using surfacewater and cisternsfor capturingrainwater. In addition,an estimated2,400 ha of privateirrigation would be financedunder the rural itwestmentcredit component (para. 3.09). The water supplysubcomponent would benefitabout 3,800 families. It is expectedthat tbis activfty would be financedfor the first two years only, as it would later be funded by the NortheastRural Water Supplyand SanitationProject, currently under preparationfor possibleBank financing. Each simplewater supplysystem vauld includea deep or shallowwell or surfacesource of water,pumping equipment,a transmissionline, a storagetank, laundryfacilities and one or more standpipesthat would serve from 10 to 50 families.

3.07 AgriculturalResearch and Basic Seed Production(6%). Applied researchwould be directedtoward simpletechnology to make farmingsystems more productiveand resistantto possibledrought and would include:(a) three agroecologicaland naturalresource studies to assistin future researchplanning; (b) 180 short-and medium-termapplied research trials at experimentstations to improveexisting production technology; (c) about 12 farm-levelobservation units to test and adapt integratedfarm productionsystems; (d) annual basic seed productionfrom about 100 hectaresof maize,beans, cotton,rice and sorghumto improveavailable plantingmaterial; and (e) a breedingstock improvementprogram for goats. EPEAL would developits adaptiveresearch program in cooperationwith both farmersand extensionofficers and evaluateboth technicaland economic resultsfrom its farm-levelobservation units. The basic seeds producedby EPEAL would be sold to cooperativesfor multiplicationand processing;they would then be marketedthrough the cooperatives'existing network. -9-

3.08 RuralExtension (26%). The componentwould include: (a) furnitureaand office equipmentfor 11 EMATER-ALlocal offices; (b) establishmentand maintenanceof annuallyup to 150 demonstrationplots on farmers'fields; (c) financing,on a decliningbasis, salaries and relatedoperating costs for about 180 agriculturaland socialextension agents,about 30 subject-matterspecialist and supervisorypersonnel, and related70 administrativestaff; and (d) productionof about 2.0 million tree seedlingsfor fodder,fuelwood and fruit trees. EMATER-ALwould, throughits farmergroups' visits and demonstrationplots, encourage adoptionof simple,proven practices which would improvecrop yields, preservesoil fertility,expand the cultivatedarea and increaselivestock production. Specialistsfrom the FederalCompany for TechnicalAssistance and Rural Extension(EMBRATER) would superviseEMATER-AL activities at least once a month. Extensionistswould closelycooperate with staff from EPEAL in implementingthe on-farmlevel observationunits (para.3.07). During negotiations,the State Governmentprovided assurances that EMATER-ALand EPEAL would coordinatewith the Secretariatof Agricultureto ensure that their annualwork programsmeet the requirementsof the Federal Programfor the Controlof the CottonPest (para.4.03 (a)).

3.09 Rural InvestmentCredit (40%). The projectwould financemedium- and long-termcredit for on-farminvestments for about 10,000farmers (31% of the 32,400direct beneficiaries) including about 1,480 farmersfor irrigation. A greaternumber would receiveshort-term production credit financedby participatingbanks (para 2.15). Farmerswould contributewith their labor to on-farminvestments; however, because of farmers'limited savings,financing would cover up to 100% of goods requiredfor on-farm investments,with a maximumrepayment period of twelveyears and a maximum grace periodof three years. Sugarcaneplantations, irrigation schemes largerthan 4 ha, and automobileswould not be eligible. Financingwould not exceedceilings established for the NRDP creditprogram in the Central Bank'sManual for Rural Credit for individualfarmers; farmers' associationsand cooperativeswould also be eligible,provided that at least 70X of their membersare small farmerswho would directlybenefit from the investments.

3.10 Recently,new officialrural creditterms were establishedfor NortheastBrazil. Under those terms,the interestrate for rural investmentcredit charged to Northeastfarmers (excluding those cultivating sugarcane,cocoa, rubberand coffee,who would be chargeda higherrate) would be 3% per annum,with full monetarycorrection, based on the monthly variation of the value of NationalTreasury Bonds (Obrigacoesdo Tesouro National,OTNs). This compareswith an interestrate of 6X per annumwith full monetary correction on official rural investment credit for all farmers outside of the North and Northeast. To provide low-income small farmers with a strong incentive to invest in the project's technical packages, project beneficiaries would also have a portion of their first investment loan rebated as a grant. The percentage of the grant would be: 50% for investmentloans approvedfrom March 1, 1987 to December 31, 1988; 40% for the periodJanuary 1, 1989 to December31, 1989; and 30% from January1, 1990 onwards. The rebatewould occur at the time the loan funds were releasedto the farmer. While still providinga significantsubsidy, -10-

the new terms would have severaladvantages over previousNRDP credit arrangementswhich resultedin large subsidiesdue to the partialor total absenceof monetarycorrection on the principalof the loan. Under the new agreement,the total amountof subsidywould be known and budgetedin advanceas part of the annualtRDP allocationin the federalfiscal budget. Also, the long-standingpractice of providingcredit subsidies throughthe use of partialmonetary correction would be eliminated,paving the way for futureimprovements in the officialrural creditsystem.

3.11 During negotiations,the FederalGovernment provided assurances that: (a) the CentralBank and the other participatingbanks would carry out this componentin accordancewith the lendingterms and conditions recentlyagreed with the Bank; (b) the CentralBank would provide sufficientfunds to the participatingbanks to carry out the project's investmentcredit component; (c) each of the participatingbanks would providemonthly information to SUDEN3 and CEPA-ALon investmentcredit availability,demand and lendingper bank agency;and (d) prioritywould be given by the participatingbanks to allocations,from their own resources, of short-termproduction credit to their agenciesserving the projectarea in amouatsadequate to financethe working capitalrequirements of project beneficiaries(para. 4.01 (a)).

3.12 MarketingServices (1%). The marketingservices component is designedto increasefarmers' knowledge of productgrading, markets and pricesand improvethe timelyprovision and marketingof agricultural products. In order to achievethese objectivesthe projectwould finance: (a) expansionof the State-runAgricultural Marketing Information System (SIMA);and (b) provisionof four mobileunits for gradingand classificationby four rural servicecenters. Ongoing crop-purchasing schemeswould continuewith Governmentsupport.

3.13 Supportto Small Rural Communities(14%). In order to facilitate communityparticipation in the projectand createjob opportunities,the projectwould (a) createa communitydevelopment (CD) fund of about US$9.6 million to make grantsfor local subprojects;(b) purchaseequipment; and (c) financerecurrent costs and trainingof 18 local communitydevelopment agents. CEPA-ALwould administerthe fund and implementthe component. Farmers'groups would identify,plan and execute subprojects that would finance economic activities (fish ponds, cottage industry), community infrastructure(laundry facilities, small irrigationdrainage schemes and storagefacilities), and relatedtraining for communityleaders. Written proposalsexplaining objectives, benefits, implementation methodology and cost sharingwould be subjectto MunicipalCouncils' approval. During negotiations,the State Governmentprovided assurances that: (a) the CD fund would be establishedand maintainedunder terms and conditions satisfactoryto the Bank; (b) no funds would be releasedto beneficiary groups prior to the signing of the agreement between CEPA-ALand the groups or municipalities (in the case of unincorporated groups); and (c) not later than March 31, 1989, CEPA-ALand the Bank would review economic subproject performance to establish the feasibility of carrying out furtherfunding of subprojects on a loan basis (para. 4.03 (b)). - 11 -

3.14 ProjectAdministration and Trainig (11%). CEPA-ALwould be responsiblefor administering,coordinating a ntegratingall federally-fundedrural programs under the project. All project-related trainingwould also be centrallycoordinated by CEPA-AL. The training programwould includemanagement and technicaltraining for executing agency staff as well as trainingof farmersin all servicesunder the project. The projectwould strengthenCEPA's planningand administrative capabilitiesby financingmanagement consultancy for two years,salaries of 33 higher leveland relatedsupport staff, travel expenses,office equipment,training and other operatingcosts. The currentadministrative organizationof CEPA-ALwould be restructuredto betterfit the management needs of the proposedproject. Strengtheningof CEPA-ALwould be a conditionof effectiveness(para. 4.04 (a)). Duringnegotiations, the State Governmentprovided assurances that the satisfactorystaffing of CEPA-ALwould be maintained(para. 4.03 (c)). Land Tenure Improvement

3.15 Land tenureimprovement, through provision of land titlesor formalusufruct rights to small farmers,is essentialto the successof the proposedproject and would providesmall farmerswith accessto institutionalizedinvestment credit. Land regularizationand redistributionin the 49 municipalitieswould resultfrom the cadastral activitiesinitiated under the NortheastRegion Land TenureImprovement Project(Loan 2593-BR). Redistributiontargets, procedures for land acquisition,allotment, and beneficiaryselection were agreedas conditions for the regionalland project. Land projectimplementation has been delayeddue to organizationalchanges within the NationalInstitute for Colonizationand AgrarianReform (IVCRA)and the Ministryof Agrarian Reformand Development(MIRAD). The Bank, INCRAand other involved ministriesrecently agreed on the measuresneeded to improveproject implementation.They agreedon implementationstrategies, revised targets based on a two-year loan extension to be approved one year at a time based on satisfactory project performance, new managementarrangements and several amendments to the project's legal documents. However, basic projectobjectives and overalltargets did not change. The reaching of these targetsby 1990 would secureaccess to land and creditfor those projectbeneficiaries who are currentlylandless. The Governmenthas recentlysigned these legal amendmentsto the NortheastRegion Land Tenure ImprovementProject, and projectimplementation is expectedto accelerate in the comingmonths. Duringnegotiations, the Federaland State Governmentsprovided assurances that in the projectarea: (a) at least 36,600ha would be availablefor redistributionto projectbeneficiaries by March 31, 1989;and (b) at least an additional30,700 ha would be available by March 31, 1990 (para.4.02 (a)).

ProjectOrganization and Implementation

3.16 Federaland RegionalLevels. An InterministerialCommission (IC), chalredby the Secretary-Generalof the Ministryof the Interior (MINTER)and comprisedof representativesof the Ministriesof Agriculture, Planning,Land Reform,Finance, and Irrigationand the Superintendentof SUDENE,has overallpolicy planning responsibility for the NRDP. As regional coordinator of the NRDP, SUDENE's Directorate for the Program of - 12 -

Supportto Small Farmersreceives policy backingfrom a RegionalRural DevelopmentCouncil (RDC), which meets once a month and includes representativesof federalagencies, the ten Northeasternstates, and beneficiarygroups.

3.17 State and Local Levels. A State Rural DevelopmentCouncil (SRDC),chaired by the Governor,with the Secretaryof Planningas ExecutiveSecretary, and with Secretariesof Agricultureand Financeas memberswould be createdand would provideoverall guidance for project-supportedrural developmentactivities. A State Coordinating Commission(SCC), chaired by the Secretaryof Agricultureand composedof the presidentof CEPA-ALand representativesof SUDENEand all executing agencies,would ensureproper implementation of SRDC guidelinesand integrationof projectactivities. Day-to-dayproject implementation would be carried out by CEPA-AL, which has its own budget,salary structure and administrative personnel procedures. The Bank has been provided with evidence that the planning,budgeting, staffing and administrationof all current federallly-funded rural programs in Alagoas have been unified under the coordinationof CEPA-AL. Because the creationof SRDC is importantfor projectimplementation, a conditionof loan effectivenesswould be the creationof SRDC, chairedby the Governor(para. 4.04 (b)). 3.18 AnnualPlanning and Budgeting. Targetsand costs establishedat appraisalwould be adjustedannually during the eight-yearimplementation Period. Once the FederalGovernment establishes overall funding availability for the NRDPfor the next year, state allocationswould be established by SUDENEin consultation with the RDC. CEPA-ALwould consolidate each executing agency'sdetailed annual operating plans, ensure internal consistency and submit them for approval by SRDCand SUDENE. SUDENEwould consolidate state plans into a regional operating plan to be presented to the RDC and the Interministerial Commission of the !.ortheast (IC) as the basis for the portaria (administrative regulation) signed by the various Ministers involved and legally establishing budget allocations for each state. During negotiations the Federal Government provided assurances that: (a) the regional operating plan would be sent each year to the Bank for commentprior to approval;(b) the portaria,the final regional operating plan and the Alagoas State operating plan would be sent to the Bank not later than the first working day of each project fiscal year; and (c) any proposedchanges in planningand budgetingprocedures would be submittedto the Bank for commentprior to enactment(para. 4.01 (b)).

3.19 Accountsand Auditing. Each participatingagency, including the CentralBank and the participatingbanks, would maintainseparate accounts for projen.t expenditures, to be audited annually by independent, private or public auditors acceptable to the Bank. During negotiations, the Federal and State Governmentsprovided assurances that: (a) the SpecialAccount, the investmentcredit accounts, and the projectaccounts would be maintainedand auditedannually according to practicessatisfactory to the Bank; (b) terms of referencefor the auditorswould include,inter alia, verificationof the Statementsof Expenditurefor the projectaccounts; and (c) copiesof the three audit reportswould be submittedto the Bank within six months of the close of each projectfiscal year (para.4.02 (b)). - 14-

procedureswould be thosedescribed in para. 3.18. Fundswould be channelled from the Treasury through MINTERand SUDENEto a specific project accountin the State for activitiesexecuted by state agencies. Monthly advances of Governmentcounterpart funds would also be made through the Central Bank to cover the estimated Bank share of monthly expenditures. During negotiations, the Federal Government provided assurances that the portaria (administrative regulation)establishing the above funding procedures would not be changed without Bank approval (para. 4.01 (c)).

3.24 In August 1986 the Bank and the Governmentreached an agreement which has improvedthe timelinessand adequacyof counterpartfunds. This agreementincludes: (a) the provisionin the annualFederal Budget of the full amountrequired for the execution of all the Northeast Rural Development projects; (b) the monthlyrelease of these resourcesin accordance with schedules and amounts agreed upon with the Bank; and (c) the simplificationof proceduresfor channelingthe releasedfunds to the project executing units. As a resultof this agreement,counterpart funding has been, and continues to be, satisfactory. Procurement

3.25 Civil works, estimated at US$1.9 million, would be executed by contractsawarded through local competitivebidding procedures acceptable to the Bank. Brazilhas a competitivelocal constructionindustry that is capable of carrying out project works. As individualconstruction works are small and dispersed, foreign contractors are not expected to be interested but would not be excluded from bidding. Some community development civil works would be carriedout by the beneficiariesunder written agreements with CEPA-AL(para. 3.13). Equipment and materials required by the project, estimated at US$0.7 million would be procured by the several executing agencies at various locations over the project implementation period, in accordance with local competitive bidding procedures, which are acceptable to the Bank. Vehicles required by the project (amounting to US$3.7 million) as reservedprocurement items are not included in the project costs and are not financed by the proposed loan. During negotiations, the State Government would provide assurances that vehicles would be procured in a timely manner (para 4.03 (e)). Civilworks contracts estimated to cost more than US$250,000and goods and services contractsfor more than US$100,000would be subject to prior Bank review of procurement documentation (about 30% and 20X of the value of civil works and goods and services, respectively). Management consultants' services totalling some two man-years would be procuredin accordancewith Bank guidelines. During negotiations the Federal and State Governments provided assurances that they would follow the procurement arrangements outlined above and summarized in the following table. (para.4.02 (d)). - 13 -

3.20 OperatingAgreements. Agreementsamong projectcoordinating and executingagencies would be enteredinto between:-(a) the State,through CEPA-AL,and the federalagencies; (b) executingagencies, with the participationof CEPA-ALwhen more than one is involvedin executinga projectcomponent; and (c) the State, throughCEPA-AL, and the concerned municipalityor group prior to implementingeach communitysubproject. These agreementswould includeexecution guidelines and targets,reporting requirements,procedures for inter-agencycollaboration and funding conditionslinked to performancecriteria. Duringnegotiations the Federal and State Governmentsprovided assurances that they would enter into all necessaryagreements referred to in (a) and (b) above not later than six months after loan signing(para. 4.02 (c)).

3.21 Monitoringand Evaluation. Monitoringand evaluation arrangementshave simplifiedreporting requirements and would provide accurate and timely information for project management and annual planning. CEPA-AL would receive from executing agencies monthly reports on key physical and financial indicators and would produce quarterly consolidated monitoring summaries. During negotiations, the State Government provided assurances that: (a) quarterly monitoring reports ,would be sent to the Bank not later than three months after the end of the respective fiscal quarter; and (b) terms of reference and institutional arrangements for evaluationswould be satisfactoryto the Bank (para.4.03 (d)).

ProjectCost

3.22 Total projectcosts are estimatedat US$86.4million, with a direct and indirect foreign exchange component of US$9.2 million, or about 11% (see Loan and Project Summary). The total cost is based on the assumption that all goods and services would be acquired in Brazil, with the exception of some specialized consultant services. The cost estimate includes about US$1.9 million equivalent in applicable local taxes. Physical and price contingencies are equivalent to 1% and 4% of baseline costs, respectively. Physical contingencies were added to baseline costs at 15% for water supply construction; 10% for other construction; and 5% for equipment and furniture. Price contingencies are estimated in US dollar terms, based on international inflation rates estimated at 3.0% for 1987, 1.0% for 1988 to 1990, and 3.5% p.a, thereafter. It was assumed that periodic currency adjustments, estimated on a purchasing power parity basis, would compensate for differences between projected US dollar inflation and local inflation rates.

Financing Plan

3.23 The amount of the proposed Bank loan would be US$42.0 million equivalent, which would represent 50% of total estimated cost, net of taxes. The proposed loan would finance 100% of direct and indirect foreign exchange costs and 43% of local costs. The loan would be repayable over 15 years, including 3 years of grace and would bear interest at the Bank's standard variable rate. The loan would be made to the Federative Republic of Brazil, which would carry the foreign exchange risk and provide counterpart funds as necessary to complete the project. Budgeting - 15 -

ProcurementArrangements (US$ million)

Type of Project ProcurementMethod _ Expenditure LCB Other -. A. rotal os8t

Civil Works 1.9 (1.1) 1.9 (1.1) Equipment 0.7 (0,3) 0.7 (0.3) Studiesand Training 1.9 (0.8) 1.9 (0.8) Rural InvestmentCredit 34.4 (17.2) 34.4 (17.2) CommunitySubprojects 9.6 (6.7) 9.6 (6.7) Salariesand Allowances 30.3 (13.8) 30.3 (13.8) Other Operating Expenses 7.6 (2.1) 7.6 (2.1) TOTAL 2.6 (1.4) 1.9 (0.8) 81.9 (39.8) 86.4 (42.0)

Note: Figuresin parenthesesare the estimatedrespective amounts to be financedby the Bank.

Disbursements

3.26 The proceedsof the proposedloan would be disbursedthroughout the eight-yeardisbursement period at a rate of 70% againstproject expendituresmade for water resourcedevelopment and supportto small communities,and at a rate of 50% againstexpenditures made for creditand marketing. Disbursementsfor the remainingcomponents, which have a high rate of recurrentcosts, would be made at a rate of 50% of project expendituresuntil aggregateamounts of US$1.38million for agricultural research,US$6.37 million for extension,US$2.17 million for adminlstration and US$0.5million for traininghave been disbursed. Thereafter, disbursementsfor those categorieswould be made at a rate of 30% of projectexpenditures. To enable projectexecuting agencies to preparefor an early startof projectexecution, project expenditures (except agricultural credit) incurred prior to loan signing, but after December 18, 1986 (end of projectappraisal), would be eligiblefor reimbursementup to US$2.0million equivalent. Disbursementprojections reflect the disbursementprofile for previousrural developmentprojects in Brazil.

3.27 Disbursementsfor all investment,operating and technical assistanceexpenses under US$250,000would be made under Statementsof Expenditureprepared by the various executingagencies and certifiedby the CEPA-AL. Supportingdocumentation would not be submittedto the Bank but would be made available during project supervision. Standard documentation for contracts exceeding US$250,000 would be submitted to the Bank. To reduce Government prefinancing requirements, a Special Account would be opened and thereafter maintained in US dollars in the Central Bank with an initial depositof 2.0 million. Withdrawalsin cruzadosfrom the Special Account,supported by Statementsof Expendituresaindother required documentation,would be made at the exchangerate that prevailedon the date of expenditure.

Project Benefits and Justification

3.28 Production, Benefits and Farm Incomes. The impact of the project on agricultural production would result from increased productivity - 16 -

(throughbetter cultivation practices, including pest and diseasecontrol, increaseduse of animal tractionand irrigation),crop diversificationand expansionof croppedareas. The annualvalue of incrementalmarketable productionat full developmentis estimatedto be US$27 millionat September1986 farmgateprices. Approximately80% of this amountwould come from crops and 20% from livestockproducts. Incrementalproduction is not expectedto lead to marketingconstraints as Alagoas'present productiondoes not meet demand. Productionsurpluses would be marketed throughexisting public and privatechannels. Improvedwater supply systemsand communityactivities would also providesubstantial benefits to the population,especially to women. Expandedagricultural activity would createjobs equivalentto some 8,200 man-yearsannually. Improvedfarming practices,soil and water conservationand plantingof trees would have a beneficialimpact on the environment. The estimatedfinancial rates of return for the nine illustrativefarm models range from 12% to 37%. All projectbeneficiaries belong to the povertygroup. Net annualfarm incomes,which takinginto accountsupplemental incomes from off-farmwork, currentlyvary betweenUS$100 and US$380 per capitawould increase,at full development,to a range betweenUS$200 and US$940in constantterms.

3.29 Cost Recoveryand FiscalImpact. The municipalitieswould cover the costs of operationand maintenanceof the water supply servicesuntil the NortheastRural Water Supply and SanitationProgram begins in 1989; at that time, consumerswould be expectedto pay for the service. During negotiations,the State Governmentprovided assurances that drinkingwater supply chargescovering full operationand maintenancecosts would be chargedto consumersin 1989 (para.4.03 (f)).

3.30 Additionalrecurrent costs to the Governmentof about US$1.2 million to sustainthe projectfollowing the investmentperiod are expected to be offsetby additionalfiscal revenuesof aboutUS$2.7 million generatedby the value added tax on productcirculation (ICM) that would apply to the incrementalmarketable production.

3.31 EconomicAnalysis. The economicrate of returnhas been estimatedat 14%. The cost and benefitstreams are detailedin Annex 3. Sensitivitytests show that when projectbenefits fall by 19% or project costs rise by over 24%, thierate of returnfalls below the estimated11% opportunitycost of capital. A lag of three years in achievingproject benefits,such as might occur duringa severedrought, would resultin a 10% rate of return.

ProjectRisks

3.32 Althoughprojects under NRDP are simplerin designthan previous rural developmentprojects, efficient delivery.of project services and interinscitutionalcooperation would still be importantfor project success. The projectincludes improved monitoring and evaluationto foster a more efficientinstitutional environment. Delays and shortfallsin counterpartfunding and rural creditcould decreasethe proposedproject's impact. Recentchanges in fundingprocedures, the mergingof the rural specialprograms, the regionalscope of the NortheastRural Development Program,of which the projectis a part, and the broad supportwhich the - 17 -

program enjoysamong Governmentand local leadersshould help the project receiveadequate funding. At the farm level,the securityof land tenure is still a problem;implementation of the NortheastRegion Land Tenure ImprovementProject (Loan 2593-BR)and of the Government'sagrarian reform shouldhelp minimizethis risk. Many farmersare dependenton cottonas a main cash crop and as such are vulnerableto pest outbreaks. The project has been designedto minimizethis risk by increasingthe focus on crop diversificationthrough technology generation and diffusionand water-resourcedevelopment.

IV. AGREEMENTSREACHED AND RECOMMENDATION

4.01 During negotiations, the Federal Government provided assurances that:

(a) for rural credit:(i) lendingterms and conditionswould be those recentlyagreed between the Bank and the Government;(ii) the CentralBank would providesufficient funds to the participating banks to carry out the project'sinvestment credit component; (iii) each of the participatingbanks would providemonthly informationto SUDENEand CEPA-ALon investmentcredit availability,demand and lendingper bank agency;and (iv) prioritywould be given by the participatingbanks to allocations from their own resourcesof short-termproduction credit to their agenciesserving the projectarea in amountsadequate to finance the workingcapital requirements of projectbeneficiaries (para. 3.11);

(b) (i) the regionaloperating plan would be sent each year to the Bank for commentprior to approval;(ii) the portaria,the final regionaloperating plan and the State of Alagoas'operating plan would be submittedto the Bank not later than the first working day of each projectfiscal year; and (iii)any proposedchanges in planningand budgetingprocedures would be submittedto the the Bank for commentprior to enactment(para. 3.18); and

(c) the administrativeregulation establishing the currentfunding procedureswould not be changedwithout Bank approval (para.3.23).

4.02 Duringnegotiations, both the Federaland State Governments providedassurances that:

(a) at least 36,600ha by March 31, 1989, and an additional30,700 ha by March 31, 1990, would be availablefor redistributionto projectbeneficiaries in the projectarea (para.3.15);

(b) (i) the SpecialAccount, the investmentcredit accounts, and the projectaccounts would be maintainedand auditedannually accordingto practicessatisfactory to the Bank; (ii) the terms of referencefor the auditorswould includeinter alia, - 18 -

verificationof the Statementsof Expenditurefor the project accounts;and (iii) copies of the three audit reportswould be submittedto the Bank within six months of the close of each fiscalyear (para.3.19);

(c) all necessaryoperating agreements would be enteredinto no later than six months after loan signature(para. 3.20); and

(d) procurementprocedures would be as specifiedin para. 3.25.

4.03 During negotiations,the State Governmentprovided assurances that:

(a) EMATER-ALand EPEAL would coordinatewith the Secretariatof Agricultureto ensure that their annualwork programsmeet the requirementsof the FederalProgram for the Controlof the Cotton Pest (para.3.08);

(b) (i) the communitydevelopment fund would be establishedand maintainedunder terms and conditionssatisfactory to the Bank; (ii) no funds would be releasedto beneficiarygroups prior to the signingof an agreementbetween CEPA-AL and the groupsor municipalities(in the case of unicorporatedgroups); and (Wii) not later than March 31, 1989, the Bank and CEPA-ALwould reviewperformance of the grants for the economicsubprojects to establishthe feasibilityof furthercommunity fund operationson a loan basis (para.3.13);

(c) the satisfactorystaffing of CEPA-ALwould be maintained (para.3.14);

(d) (i) quarterlymonitoring reports would be sent to the Bank not later than three months after the end of the respectivefiscal quarter;and (ii) terms of referenceand institutional arrangementsfor evaluationswould be satisfactoryto the Bank (para.3.21);

(e) the vehiclesnecessary for projectimplementation would be procuredin a timelymanner (para.3.25); and

(f) drinkingwater supply chargescovering full operationand maintenancecosts would begin to be chargedto consumersin 1989 (para.3.29).

4.04 Conditionsof loan effectivenesswould be:

(a) the satisfactorystrengthening of CEPA-AL(para. 3.14); and (b) the creationof the State Rural DevelopmentCouncil, chaired by the Governor(para. 3.17). - 19 -

4.05 Subjectto the above agreementsand conditions,the proposed project would be suitablefor a Bauk loan of US$42.0million equivalent with a term of 15 years, includinga 3-yeargrace period.

May 26, 1987 - 20- PageANNEX 1 1 of6

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

ProjectDescription and DetailedFeatures

A. Land tenureand AgriculturalProduction

1. About 75% of Alagoas'120,000 farms are smallerthan 10 ha, but they accountfor only 10% of the totalfarm area. About 3% of farms (those over 100 ha) occupyalmost 62% of totalagricultural land. Furthermore, about 60% of the small farms (less than 50 ha) are worked by farmers withoutlegal title to their land. More than half of theseproducers work on rainfedfarms that are smallerthan 10 ha; they are, however, responsiblefor approximately60% of the State'sbasic food production (Table1).

2. Alagoashas an overalldeficit of basic food crops and livestock products,such as beans, cassava,maize and meat and milk. It is a net exporterof sugar,cotton, coconut and tobacco. Agriculturalprod-.:tion in Alagoasis dominatedby sugarcane(65% of cultivatedland) concentrated along the coast line in the Zona de Mata (Table 1.2).

B. ProjectArea

3. The State selectedthree planning regions - namely,Agreste I, AgresteII and Mata Norte - as high priorityareas for development Table 1.3). Thesepriority areas include49 municipalities(of a total of 96 in the state)and have a generallyhigh concentrationof small farmers (86,200farm familieswith less than 50 ha) and a potentialfor crop diversificationand increasedlivestock production. The selectedpriority areas (IBRDMap 20354)also coincidewith the areaswhere cadastraland land regularizationoperations will be carriedout under the Northeast RegionLand TenureImprovement Project (Loan 2593-BR)(Table 1.4 of this annex).

C. DetailedFeatures of ProjectComponents

Water ResourceDevelopment

4. The water supplysubcomponent would consistof the construction of: 30 simplewater supplysystems with bore-holedwells, 17 small systems using hand-dugwells (Pocos amazonas)and 120 systemsusing surfacewater and cisternsfor capturingrainwater. The water supplysubcomponent would benefitabout 3,800 families. It is expectedto be financedfor the first two years only as this actionwould later be fundedby the Bank-financed NortheastRura1 Water Supplyand SanitationProject which is currently under preparation.Each simplewater supplysystem would includea deep or shallow well or surfacesource of water,pumping equipment, a transmission ANNEXI - 21 - Page 2 of 6

line, a storagetank, laundryfacilities and one or more standpipesthat would serve from 10 to 50 families. Water supplysystems would be designed for an averageflow of 30 litersper capitaper day; the per capita investmentcost of new systemsare estimatedto vary from US$20 (for the hand-dugwells) to US$25 (for the bore-holedwells).

5. EDRN would be responsiblefor the implementationof the subcomponent,including planning, civil works,supervision and monitoring. The constructionof the water supplysystems would be executedby the implementingagency itself or by small contractorsunder the supervisionof EDRN. Selectioncriteria would includevillage size, per capitainvestment costs,location (preference would be given to areas where population densityis highest)and communitywillingness to graduallyassume responsibilityfor operationand maintenance.During a transitionperiod until the regionalwater supplyand sanitationprogram becomes effective, the municipalitiesand the state would assistthe communitiesin meeting operatingexpenses. EDRN would discussthe locationof the wells and standpipeswith the recipientsand the municipalauthorities before installationof the systems;it would also providetechnical backstopping and trainingto the community.

M&riculturalResearch and Basic Seed Production

6. The state researchprogram has developedduring the past ten years and will continueto developtechnical recommendations to improve agriculturalproductivity. However, there is a recognizedneed to redirect the researchprogram towards improved adaptation of low-costtechnology, prophylacticprograms (for cottonin particular)and crop diversification to make small farmersmore resistantto droughtcycles. The projectwould financefour specificactivities: (a) threenatural resource studies to be completedwithin the first three years of the projectto assistin future researchplanning; (b) about 180 appliedresearch trials to be carriedout at experimentstations to improveproduction technology; (c) installation of about 12 farm-levelobservation units to test improvedtechnology using farmerparticipation; and (d) basic seed production(cotton, maize, beans, rice and sorghum)from about 100 ha annually,and productionand distributionof improvedbreeding goats.

7. The implementingagency would be the State AgriculturalResearch Company(EPEAL). Technicalsupervision, training, coordination with researchprograms in other statesand reviewof annualplans would be the responsibilityof the FederalCenter of AgriculturalResearch for the Semi-AridTropics (CPATSA), which is receivingsupport for these activities under the First NortheastRural DevelopmentProject (Loan 2523-BR). EPEAL would developthe researchin cooperationwith both farmersand extension officersand appraiseboth technicaland economicresults from farm-level observationunits. Cooperatingfarmers who have observationunits on their farms would contributeto the investments(mostly in the form of labor). Once the resultsof theseobservation units have been proven,they would be diffusedamong farmersthrough demonstration plots under the aegis of EMATER-AL. The projectwould financeinvestment costs for sheds, agriculturalequipment and recurrentcosts. The basic seed producedwould be sold to cooperativesfor multiplication.The improvedseeds would be processedby the State Companyfor AgriculturalDevelopment - Alagoas ANNEXI - 22 - Page 3 of 6

(CIDAL)and marketedthrough their existing network or through cooperatives.

Rural Extension

8. EMATER-ALis alreadyproviding technical assistance to some 12,000(out of a total targetgroup of 86,300)small farmersin the project area. Under the proposedproject, the extensionservice would be expanded to reach about 32,400farm familiesat full development.This would representabout 30% of the small farmers. The projectwould finance: (a) equipmentand officesupplies for 11 localoffices; (b) establishment and maintenanceof up to about 150 demonstrationplots on farmersfields annually;(c) recurrentcosts for 180 agriculturaland socialextension agents (two agriculturalagents for every socialextension agent), 33 subject-matterspecialists and supervisorypersonnel and about 65 administrativestaff; (d) the productionof about two millionseedlings of algaroba,sabia and fruittrees to plant about 2,500ha; and (e) project-relatedequipment, training and operatingcosts.

9. EMATER-ALfield staff is organizedinto one head office in Maceio,3 regionaloffices and 49 localoffices. Most supervisory personneland subject-matterspecialists are locatedin regionaloffices (or in Maceio)and wouledtravel 50% of the time to superviselocal extensionagents. The State is relativelysmall, and with good road infrastructuremost placescan be reachedfrom Maceiowithin two to three hours. At field level,each extensionagent would assiston a fixed schedulesix to eight groupsof 25-30farmers organized around contact farmersand demonstrationplots. The ratio of extensionagents to farm familieswould declinefrom 1:120 in Year 1 to 1:272 by Year 8. Social extensionworkers, cooperating in teamswith agriculturalextensionists, would work with farm familiesto improvesanitation, child care, family nutrition,small animalhusbandry and vegetablegardening. Specialists from the BrazilianTechnical Assistance and Rural ExtensionCompany (EMBRATER)would superviseEMATER-AL at least once a month. In-service trainingfor extensionstaff would includeassistance from EPEAL and EMBRAPAthrough CPATSA.

10. Extensionactivities would encourageadoption of simple,low-cost practicesthat would improvecrop yields,preserve soil fertility,expand the cultivatedarea and increaselivestock production. Many practicesto reach these objectivesare alreadyproven, such as: (a) increaseduse of animaltraction to improveland preparationand labor productivity;(b) increaseduse of improvedseeds; (c) contourploughing and more appropriate crop rotationsto improvewater and soil conservation;(d) improvedweed, and pest and diseasecontrol (particularly cotton); (e) increaseduse of drought-resistantand perennialcrops; (f) improvedanimal husbandry; and (g) improvedpastures and cultivatedforage crops.

11. Agriculturalextension agents would also be responsiblefor the implementationof the forestryactivities aimed at producingsome two millionseedlings for farmersto plantfor fuelwood,fodder and fruit trees. Small nurserieswould be installedat villageand farm level. EMATER-ALtechnical staff would be specificallytrained in seedling production,distribution, and wood lot management. - 23 - ANNX I Page 4 of 6

Rural InvestmentCredit

12. The projectwould financemedium- and long-termcredit for on-farminvestments for about 10,000farmers (31% of the 32,400direct beneficiaries)including about 1,480 farmerswith irrigation.A greater numberwould receiveshort-term production credit financed by participating banks (para 2.15). Farmerswould contributewith their labor to on-farm investments;however, because of farmers'limited savings, financing would cover up to 100% of goods requiredfor on-farminvestments, with a maximum repaymentperiod of twelveyears and a maximumgrace periodof three years. Sugarcaneplantations, irrigation schemes larger than 4 ha, and automobileswould not be eligible. Financingwould not exceed ceilings establishedfor the NRDP creditprogram in the CentralBank's Manual for Rural Credit for individualfarmers, farmer associations andt cooperatives would also be eligible,provided that at least 70% of their membersare small farmerswho would directlybenefit from the investments.Details on on-lendingterms and conditionsare outlinedin paras.3.10 and 3.11.

MarketingServices

13. The marketingcomponent is designedto increasefarmers' knowledgeof marketsand prices,and to assist in improvingthe timely provisionof agriculturalInputs. A MarketingFund groupingongoing Governmentscheme, such as the MinimumPrice Scheme(CEP) and the Advance Purchaseof Farmers'Surpluses (CAP), would be establishedparallel to the projectand withoutBank financing.

14. The MarketingInformation Service (SIMA). The servicewould be implementedby CEASA. It providesfarmers with timelyadvice on local and regionalprices, storage facilities, transport, and sellingoptions. The projectwould financethe operationand maintenanceof two SIMA agenciesin Palmeiradoe Indiosand Santanade Ipanema. Each officewould have two marketingtechnicians and a clerk. Data would be collectedat marketsand disseminatedby radio and printedbulletin.

15. GradingEquipment. The projectwould financefour mobileunits (threein Year 1 and one in Year 2) each consistingof one vehicleand equipmentto developa crop classificationand gradingsystem for small farmers'production. The headquartersof the four mobile units would be Palmeirados Indios,Santana de Ipanema, and Agua Branca. CIDAL would be responsiblefor the operation.

16. Seed Production. Productionand distributionof certifiedseed would be handledby CIDAL once the basic seed is producedby EPEAL through the existingseed plant and put at the disposalof CIDAL.CIDAL would selecta numberof farmerswho would be in chargeof seed multiplication under supervisionof the State Secretariatof Agriculture. Certifiedseed would be so14 by farmersin the multiplicationscheme back to CIDAL which would pay the minimumGovernment established price plus a 15% bonus. CIDAL would be responsiblefor the transportof seed to the processingplant and after processing,packing and transportto its own storesfor distribution to its shops or to cooperatives.Details of the operationalprocedures would require the signing of a formal agreement between EPEAL, CIDAL, EMATER,participating farmers and the Secretariat of Agriculture no later than six months after Loan Signature. - 24 - ANNEXPage 51 of 6

17. MarketingFund. The marketingfund would be entirelyfinanced by the Governmentparallel to the projectand would include:

(a) the advancepurchase of farmers'surpluses (CAP) program (about US$0.8 million)for about 3,500 producers,or 10% of the project beneficiaries,to be executedunder the responsibilityof the cooperativesin the projectarea.

(b) the minimumprice scheme (CEP)program (aboutUS$2.2 million) for about 10,000farmers, to be executedunder the responsibilityof CIDAL togetherwith a numberof cooperatives.

18. Training. Under the guidanceof CEPA-ALtraining courses for extensionagents would be organized. The courseswould includeproduct marketingsystems, marketing margins, product classification, market preferences,processing, handling and crop storage.

Supportto Small Rural Communities(SSRC)

19. The objectivesof the SSRC componentis to help formaland informalgroups of farmersparticipate in their own developmentby: (a) providingthem with a systemwhereby they select,plan, implement,manage and monitor local developmentprojects suited to their own needs; (b) safeguardingtheir own intereststhrough group representation;and (c) enablingthem to improvetheir economicbase throughorganizing joint resourcesfor increasedproduction. In order to carry out these objectives,the componentwould include:(a) creationof a communitygrant fund of US$9.6million to financelocal developmentprojects; (b) purchase of equipment;and (c) trainingand recurrentcosts for about 18 community developmentagents (including 15 field staff). Most of the 32,000project beneficiarieswould benefitdirectly as a resultof the local development projects(LDP).

20. The communitydevelopment (CD) fund would financethree categoriesof LDPs: (a) economicallybased LDPs (representingin total at least 60% of the fund) such as cottageindustries, building of fish ponds and small animalproduction schemes; (b) communityinfrastructural LDPs (representingat least 25% of the fund),such as constructionof communal laundryfacilities, small irrigationand drainageschemes, and repairof small access roads;and (c) communityorganization LDPs (representingnot more than 15% of the fund),such traininggroup leadersand givinglegal assistancefor land tenurematters. Guidelineshave been establishedto help selectLDPs:

(a) LDPs would be submittedin writingto MunicipalCouncils and would includeobjectives, justification, expected benefits, method of implementation,cost sharing(groups would participate with about 15% of cost) and monitoringand evaluation;

(b) the fund would not financesubprojects funded by other project componentsnor the constructionof schools,health posts, roads or rural electrification; ANNEXI -25 - Page 6of6

(c) the fund would not financerecurrent costs of LDPs; and

(d) the group would be solelyresponsible for the managementand administrationof the LDPs that should attemptto benefitthe communityand eventuallybecome self-sustaining.

21. CEPA-ALwould be responsiblefor the implementationof the SSRC component. It would recruit,mainly from within its own staff, 18 full-timeCD agentswho would be universitygraduates, of which three would be retainedat the centrallevel. These agents,each one coveringthree municipalities,would stimulatecommunity organization and assistin the formulationof group requestsfor LDPs. Group requestswould then be submittedto MunicipalCouncils for discussion,analysis, evaluation and approval. MunicipalCouncil members would be electedby the villagesand each villagewould send two representativesto the Council. The relevant CD agent and regionalcoordinators from CEPA-ALand EMATER-ALwould also participatein the analysisand evaluationof group requests. CEPA-AL could reversethe MunicipalCouncil recommendation if it does not conform with the statedguidelines, or postponefunding if funds have been exhaustedfor the currentfiscal year.

22. Disbursementswould be made by installmentsand progressin implementationwould be supervisedby the CD agent. In the case of a legallyregistered association or group,disbursements would be made directlyto the group througha bank account. In the case of an unincorporatedgroup, the agreementwould be signed by the municipalityon behalfof the group, and fundswould be channelledthrough the municipality.At presentall funds would be disbursedon a grant basis; but by March 31, 1989, CEPA-ALand the Bank would reviewthe experienceto date on the economicallybased LDPs to study the possibilityof carrying out furtherCD fund operationson a loan basis.

23. Monitoringand evaluationof the LDCs would be extremely importantto both the groups themselvesand the developmentof the SSRC componentitself. Duringthe preparationof a group request,the CD agent and the group would determinethe proceduresrequired for participatory monitoringand evaluation. - 26 -

Am I

tsrAM NL OMMORMPElur - AL4 St e of wa In the Ptolct kA

- ST.~~~~~ AR3 t 000 is) F-ADS

- I -A n m ML A I U t 1 LMM Ls thn 10 to 53.4 126.6 19.8 199.8 22,530 42,621 6,981 72,132 10-5) 55.9 223.0 27.8 306.7 2,718 10,109 1,334 14,161 5D-100 23.9 121.5 16.6 162.0 343 1,730 238 2,311 Mre tbh 100ba 66.9 453.2 94.8 614.9 233 1,506 30B 2047 TWta1 20.1 924.3 159.0 1,283.4 25,824 55,966 8,861 90,651

swrce: F ms 1980. - 27 -

Table 1.2

BRAZIL

NORTHEASTRURAL DamLOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMRNT PROJECT - ALAGOAS Evolution of State Agricultural Production Major Crops 1974 end 1984

Average 1973-1974 Average 1983-1984 Area a/ Yield Productlon Area 17 Yield Production Crop ('000haT (to/ha) ('000tons) ('000haT (to/ha) ('000 tons) Sugarcane 188.3 46.4 8,737.1 443.1 48.9 21,667.6 Beans 136.1 0.5 68.6 79.7 0.4 33.3 Maize 126.4 0.5 64.9 46.3 0.5 22.4 Cassava(Roots) 52.6 10.2 536.5 17.3 9.2 159.2 Cotton(Seed) 110.5 0.3 32.4 52.2 0.3 13.5 Rice (Paddy) 13.4 2.2 29.3 5.9 2.1 12.4 Bananas 2.5 21.9 54.7 8.2 17.1 140.0 Coconuts 23.8 4.4 104.9 21.9 4.7 103.8 Tobacco(Leaves) 25.5 0.9 23.5 31.6 9.7 30.7 Pineapples 0.7 13.4 9.3 0.5 13.6 6.8

I/ Harvested. - 28 - ANNEX 1 Table 1.3

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

ProjectPriority Areas and BeneficiaryDistribution

Rural EstimatedNo. Planning No. of Land Families No. of Region Municipalities Area (0-50 ha) Beneficiaries (sq. km.)

Agreste I 10 2,447 25,200 7,500 AgresterI 31 11,185 52,700 22,500 Mata Norte 8 1,373 8,300 2,400

Total ProjectArea 49 15,005 86,200 32,400

State of Alagoas 96 27,731 120,000 - 29 - ANNEX1 Table 1.4 BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT ALAGOAS

List of Municipalties in the Project Area Accordingto PlanningRegions

AgresteI AgresteII

1 Arapiraca 21 Ouro Branco* 2 Campo Grande 22 Palestina* 3 Coite do Noia 23 Palmeirados Indios 4 Craibas 24 Pao de Acucar* 5 25 Piranhas* 6 26 Poco das Trincheiras 7 27 8 28 Santanado Ipanema 9 Limoeirode Anadia 29 Sao Jose da Tapera 10 30 SenadorRui Palmeira 31 AgresteII Mata Norte 1 Agua Branca* 2 Batalha 1 Belem 3 * 2 Cha Preta 4 3 Mar Vermnelho 5 * 4 Paulo Jacinto 6 5 Santana do Mundau 7 DelmiroGouveia* 6 TanqueD'Arca 8 7 Uniao dos Palmares 9 * 8 Vicosa 10 Jacaredos Homens 11 Jaramatala 12 13 14 * 15 Minadordo Negrao 16 Monteiropolis 17 Olho d'aguado Casado* 18 Olho d'aguadas Flores 19 Olho d'aguaGrande Z0 Olivenca

*Municipalitieswhere farmerswith farms up to 100 ha would be eligibleas project beneficiaries. - 30 -

A' X I Table 1.5

BRAZIL

NORTHEASTRURAL DEVELOPHENT PROGRAM NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Annual Cost Phasinag of Project Activities

Total$Sme ii, It

a. 3*11611IISOtCS KVt1t1ttU

sub neltimiii ...... 6_t831.2 ol.8...... -...... - . . .. . -- ...... 0. hloSa*t 161861161951 WWIIUU 631.2 59.8*- . - is...t *. aptCustom stOIa ...... @13imtiu1 ? Wttl6tw 681.9 301.9 292.1 201.6 351.1 2tt.9 214 8 277. 2.10. 8 onr us,. o nouu st 306.9 20t.6 114.9 223.6 244.6 236.? 244.1 253.1 1.083.7 S1116tt1t11 PI0 sII 30.1i Ii. M17 12.1 13.2 10.9 - 89.1 *S&IC icuittttat $1119111ts M.2 121.2 62.5 - - - 429...... --- ...... ------...... Wtetal MIt ttwl Kno0 1.241.2 646.6 581.1 533.3 608, 5t.5 531.7 3t -I 1,1J3.6 C. _61 111185106

IIIN51111111W 23153.13 2,402.4 .482.0 2 2. 2 2. 71.p 3.012.1 3S.13. 3,260.9 22. 153.5 5ttt1t ost"11t it.? 64.0 64.6 32.6 44.3 45.8 46.1 44.3 3561 So.-8total6 A tt111116 2.35.J 2.466.4 2.548.6 2.651.6 2,021.3 3.018S 3, It.4 3,301.2 22.51I.6

tl611ltt11l16i1111116 6 40.0 31.9 36.3 3A6. 39 40.1 42.3 43.8 321.4 1191 5MY 1lm 8.3 3.1 - - - - 11.4 cl "$I tttelkl _...... __._._._...... 48.3 41.0 J3.3 38.7 31.5 40.9 42.3 43.6 332.8 Je1t4o6 16111111 2.46 .J 4,01lt5 4.785.'t 8 511.4 1,019.4 4355. 2 3. 2. 5 460.6 34.396.1 t. N1M0lO67t7561 6et CO4U13tfS 646O.3 6.06.4 1.2%84 1.6". I 1.,01.4 l.171.8 t. 20.I 1,.0 12.419.3 0.1.SM PIOdIC?Nt ot $Mltl4I06Illation. "M IWNITOSIISG1tGtl M"ttZl 111119816 ...... 181.5 166.6 194.3 603.6 812.? 831.9 861.3 904.4 6,116.6I N1CIOIt1* 148.7 t40.5 18.4 1189 182.9 189.3 195.9 202. 1 428.4

Sb-lotal NOJICTCOUISIIL 6. t1061160M Iv6g&ttMl 919. 6 922.4 960.7 962.4 995.2 t.021.3 1.083.2 I. 101.2 1,91.H5

- *1 3..56..0 321.4 328. 298.8 215.2 18t.4 130.9 14.2 1.923.2

Sib-tot*l 7681116 356 0 321.4 328.3 229.8 285.2 t1864 t30.9 14.2 1.923,2 t1.6612.810.330.6 10,4NI.5 t3061.O5 13.S7. 0 10.9609. 5 6.0681.9 1. 451.4 U. 437.0

...... 6 h81t dltS:to::*: -31- ANNEX1 Table 1.6 BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Estimated Schedule of Bank Disbursements (US$ million)

Bank Year Quarter DisbursedDuring Cumulative Balance Fiscal Ending Quarter Disbursement of Loan Amount Z of Total

1988 Sept. 30, 1987 - - 42.0 Dec. 31, 1987 2.0 1/ 2.0 4 40.0 March31, 1988 0.7 2.7 39.3 June 30, 1988 0.7 3.4 8 38.6 1989 Sept.30, 1988 0.6 4.0 38.0 Dec. 31, 1988 0.6 4.6 11 37.4 March31, 1989 1.0 5.6 36.4 June 30, 1989 1.1 6.7 16 35.3 1990 Sept30, 1989 1.2 7.9 34.1 Dec. 31, 1989 1.3 9.2 22 32.8 March31, 1990 1.7 10.9 31.1 June 30, 1990 1.7 12.6 30 29.4

1991 Sept.30, 1990 1.5 14.1 27.9 Dec. 31, 1990 1.4 15.5 37 26.5 March31, 1991 1.7 17.2 24.8 June 30, 1991 1.7 18.9 45 23.1 1992 Sept.30, 1991 1.7 20.6 21.4 Dec. 31, 1991 1.7 22.3 53 19.7 March 31, 1992 1.8 24.1 17.9 June 30, 1992 1.9 26.0 62 16.0 1993 Sept.30, 1992 1.9 27.9 14.1 Dec. 31, 1992 1.9 29.8 71 12.2 March31, 1993 1.5 31.3 10.7 June 30, 1993 1.5 32.8 78 9.2

1994 Sept. 30, 1993 1.1 33.9 8.1 Dec.31, 1993 1.0 34.9 83 7.1 March31, 1994 1.1 36.0 6.0 June 30, 1994 1.0 37.0 88 5.0

1995 Sept.30, 1994 1.0 38.0 4.0 Dec. 31, 1994 1.0 39.0 93 3.0 March 31, 1995 0.7 39.7 2.3 June 30, 1995 0.7 40.4 96 1.6

1996 Sept.30,.1995 0.6 41.0 1.0 Dec. 31, 1995 0.6 41.6 99 0.4 March31, 1996 0.4 42.0 100 -

1 Initial depoostof US$2.0dillion into the SpecialAccount. ANNEX1 - 32 - Table 1.7

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Allocation of Loan Proceeds

Categorv Item Amount (US$)

(1) Water ResourcesDevelopment 900,000 70% of expenditure.

(2) AgriculturalResearch 1,800,000 50% of expenditureup to an aggregate disbursementunder this categoryof US$1.38 millionand 30% thereafter.

(3) Rural Extension 8*200,000 50% of expenditureup to an aggregate disbursementunder this categoryof US$6.37 millionand 30% thereafter.

(4) Credit 15,500,000 50% of expenditure.

(5) Marketing 140,000 50% of expenditure.

(6) Supportto small communities 7,700,000 70% of expenditure.

(7) Administration 2,900,000 50% of expenditureup to an aggregatedisbursement under this categoryof US$2.17million and 30% thereafter.

(8) Training 660,000 50% of expendituresup to an aggregatedisbursement under this categoryof US$500,000and 30% thereafter.

(9) Unallocated. 4,200,000

42,000,000 -33- ANNEX I Table 1.8

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

FinanclnaPlan -Cin'000 us$)

Amountsto be Financed by Government Government and IBRD Only 1/ TOTAL

A. Water ResourcesDevelopment Domestic Water Supply 1,689 26 1,715

B. AgriculturalResearch Generationof Technology 2,761 451 3,212 Diffusionof Technology 1,894 202 2,096 Basic Seed Production 89 149 238 Basic Agricultural Studies 430 90 520 Subtotal (B) 5,174 iii 6,066

C. Rural Extension Rural Extension 22,154 2,732 24,886 Social Forestry 358 - 358 Subtotal (C) 22,512 2,732 25,244

D. Marketing MarketingInformation 322 11 333 Classification 11 55 66 Input Supplyincr. workingcapital - 3,800 3,800 Incr.Mark. Fund (CAP/CEP) - 3,020 3,020 Subtotal(D) 333 6,886 7,219

E. Rural InvestmentCredit 34,398 34,398

F. Supportto SmallRural Comm. CommunityFund 9,591 9,591 Fund Administration 2 820 226 3.046 Subtotal(F) 12 41 226 12,637

G. ProJectCoordination, H. & E. Headquarters 6,571 238 6,809 Regions 1,426 113 1.539 Subtotal(G) 7,997 351 8,348

H. Training 1,923 - 1923

TOTAL 86,437 11,113 97,550

I/ Excluding seasonal credit. 34- ANNEX 2 Page 1 of 3

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Project Organizationand Management

A. InstitutionalAspects

Federaland RegionalLevels

1. An InterministerialCommission (IC) for the Northeastaural DevelopmentProgram (NRDP), chaired by the Secretary-Generalof -he Ministryof Interior,and comprisedof representativesfrom the Ministries of Finance,Planning, Land Reformand Agricultureand the Superintendentof SUDENE,has overallpolicy and planningresponsibility for the NRDP. The Directorfor the Programof Supportto Small Farmerswithin SUDENE would be the regionalcoordinator of the NRDP of which the proposedproject is a part. The Directoratewould receivepolicy backing for its work throughthe RegionalRural DevelopmentCouncil (RDC) linkedto SUDENE's DeliberativeCouncil, which includesall of the NortheastState Governors. The RDC would consistof the Superintendentof SUDENE,senior management of the Directorate,representatives of the involvedfederal Ministries and banks and the NortheastState Secretariesresponsible for program

State and Local Levels

2. The State Rural DevelopmentCouncil (SRDC) chaired by the Governorwith the Secretaryof Planningas ExecutiveSecretary and the Secretariesof Agricultureand Financeas memberswould provideoverall guidancefor rural developmentactivities in the State. A State CoordinatingCommission (SCC), chaired by the Secretaryof Agricultureand composedof the presidentof CEPA-ALand representativesof all executing agenciesoperating within the project,would ensureproper implementation of SRDC guidelinesand integrationof projectactivities. The SRDC would meet monthlyto plan, superviseand evaluatethe implementationof the annualwork plans to ensure their compatibilitywith overallproject goals and methodology.

3. CEPA-AL,a foundationwith its own budget,salary structure and personneladministration procedures, located within the Secretariatof Agriculture,would be the agencyresponsible for administeringand coordinatingall federally-fundedrural programsand for fully integrating them under the project. It would be responsiblefor: (a) consolidating annualoperating plans draftedby the executingagencies (Table 2.1); (b) supervisingproject performance and advisingthe SRDC on institutionalor technicaldifficulties; (c) monitoringprogress and preparingreimbursement requests;(d) evaluatingongoing projects; (e) administeringtraining activitiesand the communitydevelopment fund. ANNEX 2 - 35 - Page 2 of 3

4. The organizationof CEPA-ALis outlinedin Chart 1. Its headquartersin Maceiowould have a staff of 28 higher level staff and 25 supportstaff workingexclusively for the projectand would be dividedinto two departments.There would be one departmentfor planningconsisting of three divisionsfor studiesand research,programming and trainingand a seconddepartment for operation,including three divisionsfor administration,finance and technicalsupport. The latterone would providethe backstoppingfor technicalfield staff. A monitoringand evaluationunit would be directlyresponsible to the presidentof CEPA-AL. Staff in the four regionalfield officesin DelmiroGoveia, Santana de Ipanema,Arapiraca and Zona de Mata would consistof 20 techniciansand 10 administrativepersonnel. Each officewould typicallybe composedof one regionalcoordinator, four officersand two or three administrativestaff.

5. To avoid duplicationand conflictingstrategies among State agencies,all trainingprograms would be emphasizedand would be centrally coordinatedand administeredby CEPA-ALPlanning Division. The five types of trainingwould be:

(a) InductionTraining. The objectivewould be to give an initial orientationfor staff,farmers and communityleaders as to the basic projectconcepts, components expectations and the underlyingstrategy of "participation'in the implementationof projectactivities. It would be given by CEPA-AL.

(b) Project-RelatedTraining. The objectivewould be to provide technicaltraining by componentfor projectstaff. Responsibilityfor assessingthe needs and undertakingthe executionof the trainingprogram would remainwith the implementingagencies, but the CEPA-ALHuman ResourceDivision would have to give its clearancebefore releasing project funds;

(c) ManagementTraining. The objectivewould be to improveboth CEPA-AL'sown managerialskills (both at centraland regional level)as well as those of the implementingagencies. Though organizedby CEPA-AL,the coursesthemselves would be given by consultants;

(d) Trainingof Trainers. CEPA-ALin cooperationwith SUDENEwould train trainersusually with the assistanceof consultants;and

(e) FarmerTraining. Farmerswould receivetraining on specific components,such as credit,marketing and communitydevelopment. In each case, the respectiveimplementing agency would be responsiblefor the training.

C. Monitoringand Evaluation

6. Monitoringand evaluationarrangements have been designedto simplifyreporting requirements and to provideaccurate and timely informationfor projectmanagement and annualplanning. CEPA-ALwould receivefrom executingagencies monthly reports on key physicaland ANNEX 2 - 36 - Page 3 of 3 financialindicators (Chart 2). In addition,the monitoringand evaluationdivision would be strengthenedto coordinatemonitoring and evaluationand assistregional offices to carry out ongoingevaluation of projectactivities including agricultural production. Evaluation activitiesof the M & E unit under the proposedproject would comprise: (a) a baselinesurvey; (b) ongoingevaluation and specialstudies of selectedtopics; (c) mid-termevaluation; and (d) post-projectevaluation. - 37 - ANNEX 2 Table 2.1 BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROWECT - ALAGOAS

List of Executingand CollaboratingAgencies

main Executing ProjectActivity Agency Main CollaboratingAgencies

Water ResourceDevelopment EMATER

- Rural communitywater supply EDRN PrivateContractors

State AgriculturalResearch

- Studies,trials, observation units EPEAL EMBRAPA-CPATSA - Basic seed production EPEAL EMATER-AL

Rural Extension

- Agricultural Extension EMATER-AL EMBRATER-EMBRAPA - Social Forestry EMATER-AL CEPA-AL

Rural InvestmentCredit BB, BNB, BA EMATER-AL

MarketingServices

- Marketing information CEASA - Gradingshops CIDAL - Seed Multiplication CIDAL Cooperatives

Supportto Small Rural Communities

- Communityactivities Community CEPA-AL/EMATER-AL groups - Training and technical assistance CEPA-AL EMATER-AL

State ProjectAdministration

- M & E CEPA-AL SUDENE - Training and Executing Agencies It 1e1' H1'S 1 i I

------i - 39 - ANNEX2 Chart 2

*~umum *

-1s11uuuuuuuuin

w 11w01111E11I -I| sQS X -ii-uiuuuuuuininuuig11g11g11*uuEhEhI l 1 a;XIii__1f1f 1 1

2¢ R =ZiZ.oZ..-',Z'I Z2t Smiuiuuiimuimul stiSu uumuuumuimu iSW-.CIII.IIEhI.IEh-| SE!t~~~f EIU0'00:0:l

is _-_-1|-11|11_-l~ity zEsI iiIni jillll1-II 8ig~-.-R ,jZIlijI-_g1111g11g11-1g1|il 3 tiiiiiiiiii - 40 - ANNEX3 Page 1 of 2

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Financial and EconomicBenefits

FinancialBenefits

1. The estimatedincrease in crop and livestockproduction was derivedfrom nine illustrativefarm models (Table3.3). The farm models take into accountthe presentlow level of productionand the assumption that only simpleon-farm investments will be made by the farmer. The financialrates of returnrange from 12% to 37% with a weightedaverage rate of 24%. The impactof the projecton agriculturalproduction would be achievedthrough a combinationof increasedproductivity and expansionof the croppedarea by about 20%. The projectedincreases in crop yieldsare shown in Table 3.3. The expansionof the croppedarea would be possible due to the increaseduse of irrigatedland and animaltraction. Increased productivityin the range from 15 to 33% would resultmainly from increasingthe croppingintensity through intercropping, more widespread use of improvedseeds, and bettercultivation practices. Croppingpatterns are not expectedto changedramatically, however. In the rainfedareas more drought-resistantcrops, such as short-cyclemaize and grain sorghum, would be introduced;the latterwould also begin to substitutefor cotton infestedby the boll-weevil. In areas benefitingfrom privateirrigation, farmersare expectedto increasethe proportionof more profitablecash crops,such as yams and vegetables.Expansion of both cattleand goat herds (for both milk and meat production)would occur mainly from improved animalhusbandry and betterfeeding resulting from increaseduse of artificialpastures (such as buffelgrass), cactus and legume foddertrees (algaroba).At full development(Year 13) the annual incremental productiongenerated by the projectis estimatedto be US$26.9million (in December1986 farm-gate prices), with 80% of the incrementalvalue of productionresulting from crops (of which 40% fromfood crops and 40% from tobacco,fruit and algaroba)and 20% fromanimal products. Incremental productionis not expectedto leadto marketingconstraints as Alagoas' presentproduction does not meetdemand. 2. The increasedproduction would raise incomes substantially and wouldgive greater food security as the effectsof droughtswould have been reduced.Net annualfamily farm benefits, which, taking into account supplementalincome from off-farm work, currently vary betweenUS$100 and US380per capita,would increase at fulldevelopment to a rangeof US$200 to US$940,in constantterms. The expansionof agriculturalactivities alsowould create new on-farmemployment opportunities equivalent to about 8,200man-years annually. Most of thisdemand would be for unskilledlabor thatwould be met withfamily labor. Many smallrural community subprojectswould also generate demand for localemployment, possibly of a semi-skillednature. -41- ANNEX 3 Page 2 of 2

EconomicAnalysis and Sensitivity

3. The overallrate of returnof the projectis estimatedto be 14% with a 20-yearanalysis (Table 3.4). The cost streamfor the economic analysisis based on four elements:(a) all of Alagoas'project costs, except those relatedto water supplysystems, marketing fund and the communitydevelopment component or 84% of total state projectcosts (includingvehicles); (b) 10% of regionaladministration costs financed under the NortheastRural DevelopmentI Project(Loan 2523-BR);(c) 7% of regionalresearch costs financedunder NortheastRural DevelopmentProjects for Sergipeand Bahia (this percentageis equal to the proportionof Alagoas'rural populationwithin the Northeast'srural population);(d) 80% of Alagoas'share of cadastralactivity costs financedunder Loan 2593-BR; and (e) recurrentcosts on a decliningbasis from Years 9 to 11 and 25% of Year 8 costs duringYears 12 to 20.

4. The evaluationof incrementalnet benefitsincluded two elements: (a) benefitsfrom 10,000farmers expected to use investmentcredit (1,480 irrigatedfarms and 8,250 rainfedfarms) equivalent to 30% of the 32,400 farmersin the projectarea; and (b) an estimatefor the incremental benefitsaccruing to the remainingfarmers who would be reachedby the extensionservice and who would adopt improvedfarming practices without using institutionalcredit (6,300or 28% of the remaining22,400 farmers).

5. Economicprices (Table3.5) at the farm-gatewere derivedfor the main tradedgoods includingmaize, rice, and chemicalfertilizers, taking into accountinternational trading prices, freight, insurance, processing and handlingcosts with price trendsprojected according to those estimated by the Bank'sEconomic Analysis and ProjectionsDepartment at 1986 constant prices. Cassava,beans, sorghum and beef were valuedat financial farm-gateprices. All other outputsand inputs (includinglabor) were adjustedby the standardconversion factor (0.83) to accountfor domestic price distortions.

6. Sensitivitytests (Table3.6) showed that the rate of returnis moderatelysensitive to possiblevariations in costs and benefits. If benefitsfall by 19% or projectcosts rise by 24%, the rate of returnwould fall below the estimated11% opportunitycost of capital. A lag of three years in achievingproject results, such as might occur during a severe drought,would resultin a 10% rate of return. Also, a lag of two years in fundingproductive investments combined with a declineof 20% in project benefits,such as might resultfrom chronicdelays in counterpartfunding, would result in a 10% rate of return. - 42 -

AMI 3 T*3.1 BR2L , IL W? M

tAM IrMNALmvNatw I80DC - AUJM5

1a A1m Ar.1&dmta n,&ctm ad Vsdu of Cho SW. ad Lt_

WLent)~Projec At Youpeghg ' Atm pfo&um Arm prfttlmd Am rN o g ad twk (ba) (W (h ) (Owm) (ha) (°°.fh m m

)bliN - 2D,100 - 2,s40 - 8,300 810.8 lbn.. - 20,3Q0 - 23,650 - 3,350 1,40D.3 0aava 4,420 42,800 14,060 164,650 9,640 2,850 3,03.0 O-qm - 282 - 11,450 - 11,170 3,930.6 Mae 240 600 600 3,600 360 3,000 502.8 Ottm - 4,090 - 1,310 - (2,710) (877.8) sor*ia - - 12,780 19,170 12,780 19,170 1,62).0 Tobam - 4,950 - 10,8w - 5,890 7,862.6 :huapple 260 5,03o 380 10,450 12 5,42D 545.1 480 5760 630 10,030 150 4,270 426.0 YaM 640 6,400 1,150 18,460 510 12,060 2972

Fbr~ ~cba 5,800 - 13,450 - 7,650 - .ibards I - - 10,000 - 10,000 - 1,912.3 D of Past= 17,400 - 34,2D - 16,800 - - dIiffi cmrcs 560 - 1,(2D - 460 - - Go.t14 - 90 - 1,42D - 1,330 1,267.4 -}.fISt - 1,410 - 3,640 - 2,230 2,791.4 Cw MIlk (000 It) - 7,390 - 18,040 - 10,650 1 381.7

Wm FlCN 26,873.4

/m c tta tWhIII fmdiw , pod Ad ftwod. - 43 -

-M 3

LUMM UW NOW - M Oinas d ZJugn Vsfi N2 in EIa1u m lamc AmbwIs#

Xs redly. b1s. */ in w lb" tvtbtib UAM -Sim km -- dn cum" N0 Didh. M. * 1m lt

A1l11 3& 36 -d Vef I Xw-*d X," I' 4 y Alftw 2 1.310 7.2 bl" -o I SSd-o 1,570 2,01D0 4 * 1n

31 AlmA 2,30 14.3 bssSonpas. U sd-" 5 1,140 475 3 ftm4 ^0 43 Im"n amm m 253 1.000 ES M

5 1,640 314 hfWd bIzU7 Jate U hd1mf 1,'M 4,7) 2,610 7 25 iam 6 300 7.2 MAMd - is a. IUdI" 90 2,49d 1,'m 4 iS

A15am7 1,110 is hit" - lm & Mm 8mt-&d 73 1,210 30D 4 3X

30 dAlM 40 3.3 b1rD d nout 300 u 1 S"-*d M 1,810 t,in) 4

Titai51 16i,300D DTOWflmIq

4~~~I4r

td - 44- ANNEX3 Table 3.3 BRAZIL Page 1 of 4

NORTHEASTRURALDEVELOPMENT PROGRAM NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

EstimatedYields and Areas of Maoor Cropsat Farm Level

Yields(kg/ha) Increase Area

PlanningRegon Without With Without With Project Proiect x Project Project (at full AGRESTE1 development) ALFARM1 Tobaccoand Cotton Tobacco 780 960 23 0.6 0.7 Cotton 300 400 33 Tobaccoand Cow Peas 0.4 2.0 Tobacco 780 960 23 Cow Peas 350 450 28 Maize-Beans Maize 540 - - 0.2 Beans 480 - Tobacco 900 -- - 0.1 -- Cassava 10,000 - 0.1 - Cassavaand Cow Peas - - 0.8 Cassava - 10,000

Cowpeas (1 year) - 450 Uncultivated 0.1 - Homestead 0.1 0.1 TotalFarms 1.6 3.6 (LandPurchase 2 ha)

ALFARM2 Tobaccoand Cotton 1.4 1.0 Tobacco 780 960 23 Cotton 300 400 33 Tobaccoand Cowpeas 0.5 1.5 Tobacco 780 960 23 Cowpeas 350 450 28 Cassava & Cowpeas - 1.5 Cassava - 10,000 Cowpeas (1 yr.) 450 Pineapple& Beans 0.3 Pineapple - 18,000 Beans - 360 Maize & Beans 1.0 0.5 Maize 500 600 20 Beans 330 380 15 Tobacco 900 - - O.3 - Cassava 10,000 - 1.0 Pineapple 15,000 0.2 - ImprovedPasture 0.6 1.2 Uncultivated 1.6 0.5 Homestead 0.6 0.7 TotalFarm t.2 772T ANNEX 3 Table 3.3 Page 2 of 4

PlanningRegon Without With Without With Project Project 2 Project Project

(at full AGRESTEII development) ALFARM3 & 3A Maize & 8eans & Cotton 0.8 - Maize 450 - Beans 300 - Cotton 200 - Maize & Beans 3.0 3.0 Maize 400 480 20 Beans 450 550 22 Cassava 9,500 - 0.2 - Sorghum & Cowpeas - 1.0 Sorghum - 1,500 - Covpeas - 400 - Cassava& Cowpeas - 1.0 Cassava 13,000 - Coiwp.as 400 - NativePasture 0.2 2.0 ImprovedPasture 1.5 3.0 ForageCactus 0.2 1.0 Algaroba Cactus 1.0 Uncultivated 1.0 1.3 Homestead 0.4 1.0 Total Farm 7.3 14.3 (Laud Purchase - 7 ha)

ALFARM4 Maize & leans & Cotton 1.5 - Maize 450 Beans. 300 _ Cotton 200 - Maize and Beans 3.0 2.0 Maize 400 480 20 Beans 450 540 20 Maize & Beans Irrigated - 1.0 Maize - 700 Beans - - 700 Sorghum and Cowpeas - 1.0 Sorghum - 1,500 - cowpeas 400 - Cotton(Coherb 4) 450 - - 042 - Cassava 9,500 - - 0.3 - Cassava& Cowpeas - 1.0 Cassava - 13,000 Cowpeas - 400 NativePasture 2.5 1.5 ImprovedPasture 1.5 2.5 ForageCactus 0.7 1.0 Algaroba/Cactus - 1.0 Uncultivated 3.6 2.3 Homestead 1.0 1.0 Total Farm 14.3 14.3 - 46 - ANNEX3 Table 3.3 Page 3 of 4

PlanningRegon Without With Without With Project Project X Project Project

ALFARM 5 Maize & Beans & Cotton 3.5 Maize 450

Beans 300 -- Cotton 200 -- Beans (5) 600 1.0 -- Cassava 9,500 - 0.2 Maize & Beans (3) 3.5 2.5 Maize 400 480 20 Beans 450 540 20 Cassava& Cowpeas 0.5

Cassava - 10,000 - Cowpeas - 450 Maize & Beans Irrigated - 2.0 Maize - 4,000 Beans - 1,800 Sorghum& Cowpeas(3) 2.5 Sorghum - 1,500 Cowpeas -- 400 ImprovedPasture 2.5 5.0 NativePasture 8.0 5.0 lorageCactus 2.0 3.0 Algaroba & Cactus - 1.0 Uncultivated 9.2 8.4 Homestead 1.5 1*5 Total Farm 31.4 31.4 ALFARM6 Rice 2,500 6,000 1/ 140 0.8 2.0 Maize & Beans .& Cotton 1.5 Maize 450 - Beans 300 cotton 200 - Maize & Beans 0.8 1.0 Maize 400 480 20 leans 450 550 22 Sorghum & Cowpeas - 1.0 Sorghum 1,500 Cowpeas - 400 Native Pasture 2.0 0.5 ImprovedPasture 0.7 Forage Cactus 0.5 Uncultivated 1.1 0.5 Homestead 1.0 1.0 TotalFarm 7.2 7.2

1/ With Irrigationdouble cropping. - 47 - ANNUX3 ^b1 3.3 Page 4 of 4

Planning lagon. Without With without With Project Project I ?Toject Project

ZONADE ATA ALPARN7 (Rainfed) Bananas )2,000 16,000 33 0.3 0.3 Maiso & Beans 0.5 0.4 Haise 480 550 15 Beans 480 600 25 Yam 10,000 - 0.4 - Cassava 9,500 - 0.4- Yam & Beans - 0.6 Yam 13,000 Beans 360 CassavaA Cowpeas(8) - 0.4 Cassava 16,000 Coupes" 700 NativePasture 0.3 - Capin Cameron - 0.3 .mprovod Pasture 1.2 1.2 Uncultivated 0.2 0.1 Homestead 0.2 0.2 TotalFarm 3.5 3.5

ALFAR 8 (Rainfed/Irrigated) Bana-n"a 12,000 16,000 33 0.3 0.6 Malse& Beans 0.5 - maize 480 S50 15 Beans 480 600 25 Yam 10,000 - 0.4 Cassava 9,500 - 0.4 - tam & Beans (Irrigated) - 1.0 yoa 20,000 Beans 800 Cassa,a & Cowpeas - 0.2 Cassava 16,000 Cowpe.. 700 Capim Cameron 1.2 1.4 ImprovedPasture 0.3 0.1 Uncultivated 0.2 - Homestead 0.2 0.2 TotalFarm TS T3T n~~~~~~~~~~~~~~~~~~~~

RMWMMM - I - fLflM . S~~~~w

1 2 3 4 5 6 7 8 9 10 11 12 Ua 4 Is 1 17

O H3 FMm -496f9.0-5191M.0 -5170 -35m.0 -43 2304 W A0177M1 60293 6.021 39. 011. 19 363 0 1 20 16. 07304 =0 "-.

UK 4 ImEIW El 511 -496. -51.0 -71m.0t -34. -43. 2.46WZ7 177714 m3o 39.0 11. 10.0 160.o 13W10 MM xxota~ .MA" i1m. m MMCO ax tami nam m - r

MiNm . 01E 15. 9. 590.168 7.9 7 9 51414 5A. FM &06416 4 .6 A490. 410.6 49. 4MA0 490 3A 414 ll t 3 3 240.3 27441 214.5 3142.0 3600 3152J.13131.7 31U M 31 WIE 7 M1 l 31=7 31 7 353.7 I.7 3a?7 27545.1 34 7947 YU.? 1013 1 4 0 A 09. MA 09. S29. 423.0 M*0 09.0 09.0 FM= CMI nT1r uuiN 0W 09.0 8 LUSTtM 134.3 1569.3 213.0 19.5 215.. 113 J89 V35 191 1 .5 1t9.1 114 ML 19.S 1ia X397.8 1t t"L 1M9.5 3. 3592*1 3.1 302.I1 193.4 1#9. 135.3 I. 13 15U3 133 35 13 U53 IIEI_ MAW 1 3 373L 41930 ------I I 3. E 1 - - 152.0 112.20 ------omim a 1i MA.o 704.o 0.3 w.A 6 0# ------mumlLu _M 3EC 11.t9 7239 70 .9 7 ------iNMUIUt 1 33c1 16143.9 13.1 12"4 133S.112150.2 1=&2 66. 46WA 4WL. 4.1 445. 467. 4413 4.1 4431 assm~=X=m 4.1 671 465. N .. om =mmn anm Cm o=R m m m man~ 1ML. T lmEltIl U EF1I S-21145.9-151. -1732.L -141S1.2 -13760.2-33.8M 4 A44517I .9 51439 1# 395 t 14511.9. A141 9S11 10612.9 _ - _ _ m II2 -49 - t3 M.5

MHUfr UMEivAiwr nowr - AUM

Principal Prims Used In Finecl an Bo,noId Analye

(in Constant Septuae 1986 Prim)

Faruuate Pricesm C Selected Prducts Ufnt Fi-nca Uc

1986 1986 1987 1990 1995

- ExPOt and t t Products

,tton1 kg 2.00 3.37 4.51 5.97 7.47 Hmaw kg 1.40 2.58 2.22 2.76 2.8D Rice (paddy) is 2.30 1.90 2.91 3.26 3.31 SoW = lg 1.2D 2.38 2.18 2.71 2.72

- Ncn'Tedd Products

Osa (frebh rot) ton 350.00 ------350.00 ------BMWs 1kg 6.00 ------6.00------f 17.00 ------17.00 ------

,R:E InA

Urea (45%) 51 2.03 3.18 3.28 4.63 4.43 Triple &SperFhspbata (45Xp9O) kg 2.80 3.25 3.17 3.60 3.94 Pot ssdiuciloride (60%k2 O) kg 2.38 2.52 2.48 2.77 2.94

-. Al Otbe t/Cpus Finnca Price x.83 1/

97 factor

ScRwc: Batk MLssionand r' Projects (Jamzay 1987) MM 3 - 50 Table 3.6

NMWrS MMMZ?=PU

Ms MM iEVM P! - ALAS

Project Suwsitlvit Aiulse

PRESENTVALUES OF NET STREAMSAT A DISCOUNTRATE OF 11%

D.TOT UPlot UP202 IPSl 10111A102Ullll M 50Z LASI VA LAO2YFJLABI 3 TM

C.OTT 175.067.926480.4 354M,.2 62431.2 051X53 -4757.4 -274.495.3 859653 5P692.7 -6625.0 UP101 102.662.1 192,574#7282P487.4 552t225#3 12,49.4 -77s163.2-346.9012 13559.4 -6,13.2 -139.030.9 UP20Z 30.256.2 120#168.9 210,081.5 4790819.5-59t66.4 -14995694 -41943070 -6.846.4 -139.119.0 -211W367 1W502 -186.961.4 -97,048.7 -7.136.1 262601.9 -276*874.0-36670867 -636524*6 -276.064.0 -356.336.6 -42654.3 MM1102 247.473,8 337,386.4427t29.1 697,0370 157561.1 67,40.5 -20206*5 15,371.2 78,096.5 5,710.8 111120X 3199879.6409,72. 499.704,9 769442.9 229,967,0 140054.3-129,03#6 230M7770158,504.4 78,186.7 WA 502 5379097.262740099 71622,5 96,6604 447.184.,635727?1.9 8i5340 47994.6 3467M.9 2404#.3 LAGI YEAR - - -I7,718.8 77446.2 5.18,5 LAB2 Y------14209.1 69.m7,4 LA3IY120008.2 ------

INTERNALRATE OF RETURNOF NET STREAMS

3.TOT UP10t UP202 UPt5 B_102 WAu202 WM50 LABI YEMLAB2 YEARSIB L 3 ERS C.TOT 13I969 15.254 16.415 19.328 12.533 10.909 4.141 12.378 11.087 10.024 UP10t 12.671 13.969 15.143 18,096 11.220 9.578 2*672 11.208 10.027 9.057 UP202 11.474 12.705 13.969 16,9S5 10.009 8.340 1,278 10.133 9.054 s.1 It5SO 8,348 9.694 10.909 13.969 6,837 5.110 -2.675 7.336 6.530 5.076 lOINla0 15.389 16.656 17.8D3 20,667 13.969 12.363 5.714 13.661 12.253 11.069 DDU202 16,955 18,204 19.320 22.129 15555 13.969 7.426 15.084 13.549 124275 noN 54X 22*914 24.049 25.059 27.522 2t.626 20.151 13.969 20.603 18.632 16.956 LAB1 YEAR ------13.969 12.378 11.087 LAB2 YEARS ------13.969 12.378 LAt3 YEARS ------13.969

SWITCHINGVALUES AT 112

WPRIAIS. SIITCNINBPERCENTAGE STREAK VALUE VALUE DM101

BLTOT 099.126.48 724.058,56 -19.472 C#TOT 724,05B.56 899,126.48 24.182

Mt Pmeiot V1us at OOC11 175,067.9 Intemd Rat of Return* 142 CowunEouivalnt Rat, of Returna 14.12 - 51 - ANNEX 4

BRAZIL

NORTHEASTRURAL DEVELOPMENT PROGRAM

NORTHEASTRURAL DEVELOPMENT PROJECT - ALAGOAS

Documents Availablein the ProjectFile

1. Selected Bank Reports and Studies on Northeast Brazil:

- World Bank Report 3938-BR, "Rural Development Programs for Brazil'sNortheast: An InterimAssessment," February 7, 1985. - World Bank Report5360-BR, "Northeast Region Land Tenure ImprovementProject," May 31, 1985. - World Bank Reports5350-BR, 5349-BR, 5709-BR, 6117-BR,6135-BR, and 6118-BRNortheast Rural DevelopmentProjects for Sergipe,Rio Grande do Norte,April 1985, Bahia,Piaui, and Ceara,September 1986, and Pernambuco,May 1986. - World Bank CombinedCompletion Report for Loans 1195 and 1714-BR.

2. State Foundationfor AgriculturalPlanning/CEPA - Alagoas(1984)

- Document I - Program Summary (1 volume) - Document II - Global Economic Situation of the State (5 volumes) - Document III - Land Tenure Improvement (1 volume) - Document IV - Public Irrigation (3 volumes) - Document V - Research (1 volume) - Document VI - AgriculturalExtension (1 volume) - Document VII - Rural Credit (1 volume) - DocumentVIII- Marketing(1 volume) - Document IX - Support Small Communities (1 volume) - Document X - Administration (4 volumes) - Document XI - Production Plans (3 volumes)

3. State Foundation for Agricultural PlanningCEPA-AL, December 1986, DocumentsIII - XI updatedand revisedreports.

4. IBRD, SUDENEand State Governmentof AlagoasPreappraisal "Minutes of Understanding,"October 1986.

5. IBRD, SUDENEand State Government of Alagoas "Minutes of Understanding,"December 1986.

6. WorkingPapers

1. Researchand Extension 2. Supportto Small Communities 3. Marketing 4. Administrationand Training 5. ProjectCosts and EconomicAnalyses 6. FARMOD documents n~~~~ef W I j

l~~li _S1l i{Ei

,~~~i I HW101M BRAZIL NORTHEASTRURAL DEVELOPMENT PROGRAM NORTHEASTRURAL DEVELOPMENT PROJECT (ALAGOAS) Implementation Schedule

Implemen"I Yeaw PFC$ectComponentImeenigI14 ~~~~~~~~~~~~~~~FIscal -- - ~~~AgenicV '1988 '1989 1I990 '1991 j 192 '1993 1991995 '1996

WaoterResource Development ~~I Agr.Research EPEALII Agr. Research& BasicSeed Production JI BasicAgroecological Studies ResearchTrials Cbservation Unit 'I II I- -IIII1J

AgriculturalExtension EMAii AL DemonstraionUnits rr -, - '3T Social ForestryNurseties RuralInvestm-ent Credit Banks ______MarketingII I ' T IIIIIIIIIIII 7 7 H III Marketing WnomTTationService SIMA MI IIT I I I ... Tr r-r- T-r -r--T-T* I L Grading and Classifcotion CIDAL fl-'I T MarketingFund 4i* I I IIIIIII T T Supportto SmallRural Communities Trainingof CD Agents CEPA-AL CommunityActMties EMATER-AL i m m mu u r .U E EU U EK uUU ProjectAdministration & Training CEPAAl.I Management& TechnicalTraining* nwru. .U Monitoring& Ongoing Evaluartion Mid-TermRevilew Completion Revew I +

Leged WouldBank-31045:2 gessmanPreparatio Actlvrtle Implementaftin BRAZIL s NATIONAL LAND ADMNISTRATION PROGRAM NORTHEASTREGION LAND TENURE j OT-1-11 IMPROVEMENTPtOJECT ( BR A Z I L PA RA YEARLYLAND AJUDICATION OPERATIONS

South America

OC-16~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

<'i I mt - RiOGRANDE *

0Parol''T DO '"

4~ ~ ~ ~ ~ ~ ~~~IU Ky .P=; a

p~~ ~~~~*j~~ -8 Sa o iodoP . 1 ERNAMBUCO -o FE

,7-~~~~~~~~~~~~~-7 G,1

0 -~~~~ ~ ~ ~~~ t'*ze'o~~~~~~~~Po,,o Afon, Q ' CCJ \ gWg = ; s<; \ NS i ab ~~~~~ALAGOAS

0Sen,hodo So4~.f~L 5 ~ / X r J .:.: Ribetrod°PbmN - V < s SERGIPE

Bonny// / / tobre 7 ,ARACAJU 0

~ : B A A AIoAg.,nh, ?2 0 °F e.r de Soft*o f? 0 ,n"eno' Q I~~~~oabo,obo

StA ~~Mnjc~~~~~~vbo&S. Am. de Jeso ~~~~SALVADOR

ovceN, Project Boundary GOIA'SGOIAS S Moe dVt6rio Landadjudication:

0° ne.mdo T- Year 0 Year I Year 2 (-. o m fCob*6- 0 0mN*At,s N >-.. ~~~~~~~~~~~~~~~~~~~~~~~~~~~Yeatr3

- 4>Land ojar4 odjudica*ion s a7P . Szaunder S ~OJy-C other projects F F.|nv D a Nuclei Centers 0@.®BRAs!L State Capitals lo ! r COWN. ~S5/ cSc|1>Rivers State Boundaries = nh nS,. . \, . a Ck - Iv,T tl.wwnC. of 0VW veadws .,d a .kav to,tC If* Wrw unrntsesof rho Wor) InternotionalBoundaries S t t ftI-.-w F-- , Com"*n Thedenon,, /IS MINAtERA w 1'rn,ft. do notr7pl. ontel_q 100 200 300 KILOMETERS: C P,*v ofrho powSW* SWepoat, 0 > any jooOan 4,Fte SoeQ.lor JlC. ,1rs, I < of *ny fento,v ~any 200 MILES _ ndomw,mMlf or ftvvtn of ESPiRITO 100 z < ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SANT >c 40 36I . co 48' 44 380 3SrS 37'W

.a.,V ~~~~~~~~~~~~~~~~~~~BR A Z I L NORTHEASTRURAL DEVELOPME Northeast Rural Development P Plannina Regions: 750- Agreste I Agreste11 Mata Norte ImplementingAgencies: 0 ..3A BankingOffces _za LocalbEtenslon Offices U8* DORegional Etenslon Offices : \ i)RegionalCEPA Offices -\0t MarketingPosts V /Research Stations

NAM B0

o>~~~~~~~~~~~~~~~~~~ITom

iolw~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~d

6~~~ * ~ o X ~~~~~~~~SE R G P E B A H I A.. '

h~~~~~~~~~~~ _ -

I o o 20 30 40 50 o Ti ft ft.d& SW a*.**ww X (WOm carowwfcsOffd

No"we of TNS W

V"d Cabofzr Fe Ga do

wrsowor of

_ * (37'30' - ~~~~~~38W 3 IBRD20354 ~63O 36W w530S

9T PROGRAM :ject - AJagoas sohyetsin milimeters laved Roads loved Roadsunder Construction . tollroods Aunicipol Capitals ktcrteCapital Aunicipal Boundarles t R S tate Boundaries Comm

laHono)Capital *O Ju itemaflonal Boundades -

0

*~~~~~~~~~~~~~~~~~~~~~d1u m mtw m Quor 10 Mu\ 3I

S LulsdoS fti

;/X~~~~~~~~~~~~~~~~~~~~~~~~ T A l I-\ ; \

-tg. . >a ,;Co|

rano7 1.0 /C 7 A N - - A N

~~~~ds_ I_-{1\ . >s~~~~~~~~Cmo\ 5Ccu Raer ko A

4 1X~~~~~~ ; J-.; . (.4 ..

t / \ ~~~~~~~~~~~~~~~~~BR A Z I L

j~~~~~D k i ,_g @'~~~~~~~~~~~~~~~~~~~~~~Brasil#a

JANLAkRY1987 38@00' 37 30 370W BRAZIL NORTHEASTRURAL DEVELOPI NortheastRural Development AGRICULTURALPOTENTIAL DEFINED B

4aOrgrevet1974)

Ctassfiticallon. DescriDbon

S VerVarid ANotslted ff roainedagriculture

Arid ILted suflblity forrain-fed agiculture

I Semi-and ProducDonpossble forcroPs requiing a 3 to 4 monlts growdingseason / -\ _ Wet- Dry Produlffonpossibb forcrops requitinga good to Plomstr\ \iel ~ of~d rnoosture adequacy during5 or maore ~~~~~on*.~~ ~ ~ ~ ~~~~~nofi

> g This><,,2classificallion i not found in Ajagoas

i* . , i ; 1

/ { vo/aG=> >~mco Ouro tot°Ouns

NN A M

Daknifo SaWft RW~~~~~~~~~~~~~~~~~d rs

Sao~ ~ ~ 'Srtaad Dos aimino

oo lapm~~~~~~~~~~~~~l t)\00 SERGIPE 5 o~~~~~co

BAt350#3 bOehd H*533 31IA f S RGI

0 10 20 TNt Ie.Ahnbe wi-' \ttby *Wm m \ 30 40 5(0 to TN fltl 8a*zne ofIVWhal iUnII ,*&W-Ve ro#.Ckw* la fte

CAhdow( f , W , ft

W8f*5 MM. 8 and 3731Y ~~ ~ ~ ~37N0 ~ raq #*,,ratnie Fgtile CO.pcSWA3

at Of *cemax*

1 0 10 20 30 40 50 ^° i , _ ~~~~~~~~~~~~~~~~~~~~~IND203 36'3W 360 IMENTPROGRAM t Project- Alagoas Y DEPENDABLERAINFALL

7.50 IsohyetsIn millmeters Paved Roads - Paved Roadsunder Construction = C--'- Railroads o MunicipalCapitals @State Capital to fir1 -~Municipal Boundaries StateBoundaries t l-eo

* NationalCapital - *-Intemnatlonoi Boundaries 9argoj

IB U Pa. C)o ~~~~CulmlnantG~~~~~~~~toPrto

to Gomiunhu J7-

'-4~ ~~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~9w

I-.,- ~~ ~ ~ ~ ~ ~ B=CeSa g

* -;I---**~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~w ~~~~~~.~ ~'-. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~#IIF-Q

A A ~~-'.'-~~~-~~ - 35.30' 360'~~~4 - ~ t ______A___

BRAZIL AAO

PERU~ ---- ~~~~ A BOIMADsef

AW7\2

A 103Q (~~~~~6' -~~--~ so- 360o- ______MQCH l