Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 3160-MA MALAYSIA Public Disclosure Authorized ROMPIN-ENDAU AREA DEVELOPMENTPROJECT STAFF APPRAISAL REPORT Public Disclosure Authorized February 20, 1981 Public Disclosure Authorized Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT US$1.00 M$2.15 M$1.00 = US$0.46 M$1 million = US$465,000 WEIGHTS AND MEASURES 1 hectare (ha) 2.47 acres 1 kilometer (km) 0.62 mile 1 meter (m) = 3.28 feet 1 square meter (sq m) 10.76 square feet 1 cubic meter (cu m) 35.31 cubic feet = 1.308 cubic yards 1 kilogram (kg) 2.2 pounds ABBREVIATIONS AA - Agricultural Assistant AAO - Assistant Agricultural Officer AO - Agricultural Officer AT - Agricultural Technician BPM - Bank Pertanian Malaysia DARA - Pahang Tenggara Development Authority DID - Drainage and Irrigation Department DOA - Department of Agriculture DOAA - Department of Orang Asli Affairs DOF - Department of. Fisheries DOVS - Department of Veterinary Services FAMA - Federal Agricultural Marketing Authority FDC - Farmers' Development Center FELCRA- Federal Land Consolidation and Rehabilitation Authority FELDA - Federal Land Development Authority FOA - Farmers' Organization Authority LCC - Local Credit Center LPN - Lembaga Padi dan Beras Negara - National Padi and Rice Authority MARDI - Malaysia Agricultural Research and Development Institute MOA - Ministry of Agriculture MOHA - Ministry of Home Affairs NEB - National Electricity Board NPV - Net Present Value O&M - Operation and Maintenance PPAR - Project Performance Audit Report PWD - Public Works Department SEDC - State Economic Development Corporation SMEC - Snowy Mountains Engineering Corporation T&V - Training and Visit Extension System GOVERNMENTOF MALAYSIA FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY MALAYSIA: APPRAISAL OF THE ROMPIN-ENDAU AREA DEVELOPMENTPROJECT Table of Contents Page No. 1. BACKGROUND .... 1 Introduction .I... I The Agricultural Sector 1 Government Strategies for Agricultural Development . 2 Irrigation Development .... 3 Project Formulation .... 4 2. THE PROJECT AREA .... 6 The State of Pahang .... 6 The Rompin-Endau Region. 6 Climate and Hydrology. 7 Topography and Soils. 9 Population . 9 Agriculture .... 10 3. THE PROJECT .1.0... l0 Project Description . 10 Project Works .11 Water Demand, Supply and Quality . 15 Design Standards . 16 Status of Engineering .18 Project Implementation. 19 Cost Estimate .19 Financing . 21 Procurement . 21 Disbursements . 22 Accounts and Audits .22 Environmental Effects . 22 4. ORGANIZATION AND MANAGEMENT . 23 Project Coordination .23 Settler Selection and Administration . 24 Agencies and Agency Responsibilities . 25 Consulting Services .31 Land Acquisition .32 Operation and Maintenance . 32 Safety of Dams .33 This document has a restricted distribution and may be used by recipients only in the performance of | their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -2- Page No. 5. AGRICULTURAL PRODUCTION . 33 Land Use and Production . 33 Farm Size . 34 Crop Management ... ..... 34 Drying, Storage and Processing . 37 6. MARKETS, PRICES, FARM INCOMES AND COST RECOVERY . 37 Markets . 37 Prices . 38 Farm Incomes . 40 Cost Recovery . 40 7. BENEFITS, JUSTIFICATION AND RISKS . 42 8. AGREEMENTSREACHED AND RECOMMENDATION . 46 LIST OF TABLES IN THE MAIN TEXT 2.1 Climatic Data 3.1 Net Irrigable Area 3.2 Road Widths 3.3 Cost Summary 3.4 Schedule of Construction Contracts 5.1 Present and Projected Harvested Area, Yields and Production 6.1 Rice Price Structure 6.2 Summary Budgets for 2.4 Ha Padi Farms With Alternative Supplementary Enterprises ANNEXES 1. Crop Water Requirements 2. Cost Estimates, Expenditures, Disbursements and Allocation of Loan Funds 3. Production Coefficients and Farm Budgets 4. Economic Analysis 5. Schedule of Critical Events 6. Related Documents and Data Available in the Project File LIST OF FIGURES 3.1 Implementation Schedule 3.2 Implementation Schedule 4.1 Project Organization 5.1 Proposed Padi Cropping Calendar MAP IBRD 15104 Rompin-Endau Area Development Project MALAYSIA APPRAISAL OF THE ROMPIN-ENDAU AREA DEVELOPMENT PROJECT 1. BACKGROUND Introduction 1.01 The Government of tIalaysia has requested Bank assistance in finan- cing the Rompin-Endau Area Development Project, which would provide for the development of about 11,400 ha of new land for irrigated rice cultivation in Pahang State. The proposed project would provide 4,750 settler families with 2.4 ha each of irrigated rice land. They would also be provided with a 0.17 ha housing lot, housing, community infrastructure, and agricultural support services. The project focuses on one of the major identifiable groups in rural poverty, the rice smallholders, and addresses two of the major constraints to achieving an income above poverty level - the small size of holding and low land productivity. The proposed project would open up one of the few remaining areas in Peninsular Malaysia suitable for large-scale irrigation of rice and would contribute to the country's goal of self-sufficiency in rice production. 1.02 A feasibility study for the project was prepared under the provisions of National Small-Scale Irrigation Project (Loan 1444-MA) by Snowy Mountains Engineering Corporation (SMEC) of Australia in association with International Land Development Consultants (ILACO) of the Netherlands and KPM Khidmat Sdn. Bhd. Malaysia. Planning for the agricultural, fisheries, and livestock support services for the project was done by the Ministry of Agriculture (MOA). This report is based on the findings of an appraisal mission composed of Messrs. R. Qureshi, A. Menkir, T. Daves (Bank) and G. Thorksy (consultant) which visited Malaysia in April 1980. Mr. R. Dy and Ms. K. Hill assisted in the preparation of the report. The Agricultural Sector 1.03 The agricultural sector plays a dominant role in the economy of Malaysia, though its relative importance is declining as the country proceeds toward industrialization. The sector accounts for about 24% of GDP, 40% of export earnings, and 42% of employment. GDP in agriculture grew at an average rate of about 5% p.a. between 1973 and 1979. Based on past investments in tree crops and new land development, and continuing public sector investments, growth is likely to be sustained at 4-5% for the next decade. Agricultural production has been heavily export-oriented since colonial times; however, the composition of exports has changed significantly in the last decade due to the Government-s policy of diversification in the sector. Rubber continues to be the single largest export earner, but its share has dropped from 40% in 1969 to 21% in 1979 as earnings from palm oil, wood products and cocoa have grown. Malaysia is the world's largest producer and exporter of both rubber and palm oil, supplying 42% of the world's natural rubber output and 49% of palm oil production in 1979. Agriculture's share of total employment has gradually declined from 53% in 1970 to 42% in 1979. The government expects the agricultural labor force to grow about 1% per annum for the next decade with industry and services absorbing increasinglylarger percentages of the total labor force. Continued growth in volume and favorable prices in agriculture, along with the expansion of manufacturing and the recent development of Malaysia's oil and gas reserves have enabled the country to maintain a healthy trade surplus, estimated at about US$2.1 billion in 1979. 1.04 Peninsular Malaysia has about 3.2 million ha, or 25% of its area, under cultivation, of which almost 2.3 million are in rubber and oil palms. Nearly two thirds of the tree crop area is in smallholdings. The other major crops are rice, grown on 478,000 ha, of which about half is double cropped, and coconut, with 337,000 ha. Other crops (each occupying below 40,000 ha) are pineapple, cocoa, cassava, sugarcane, tobacco, coffee, pepper and groundnuts. Output has grown rapidly over the past decade; rubber output increased 100% and oil palm by 300%. Output of rice increased by 90%, primarily due to improved and expanded irrigation facilities. Domestic production of rice supplies 85-90% of consumption requirements. With population growing at 2.7% p.a., an additional 45,000 tons of rice are required each year just to maintain the current per capita consumption level. The Government has formulated three basic objectives with regard to rice: (a) to increase the incomes of padi farmers; (b) to achieve self-sufficiency in rice production; and (c) to provide reasonably priced rice to consumers. 1.05 Notwithstanding the impressive overall performance of the Malaysian economy, some 36% of the population had incomes below the official absolute poverty line in 1978. Two thirds of those were in agricultural households, where the incidence is about 55%. Among rice farmers, about 74% have family incomes below the absolute poverty line. There are two main factors responsible for the high incidence of poverty among rice farmers - small size of holdings and low productivity per unit of land. According to a recent Bank report on rural poverty in Malaysia a farmer with no off-farm income needs 2.4-2.8 ha of single cropped rice to achieve a poverty level income; however, the average size holding is 1.2 ha, with over half the holdings being smaller than this and 90% of all holdings less than 2.6 ha. To reach a poverty level income on an average size holding would require either double cropping or supplemental income equivalent to padi income. Government Strategies for Agricultural Development 1.06 Having officially adopted in 1970 the objective of poverty eradication, the Government has employed two basic strategies. The first has been land development to allow the absorption of workers from low income rural occupations to higher productivity employment.