Document of The World Bank JZI' FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 4159-CHA STAFF APPRAISAL REPORT Public Disclosure Authorized CHINA HEILONGJIANG LAND RECLAMATION PROJECT Public Disclosure Authorized March 31, 1983 Projects Department Regional Office Public Disclosure Authorized East Asia and Pacific 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. CURRENCYEQUIVALENTS Currency Unit - Yuan (Y) US$1.00 = Y 1.75 (at time of appraisal) Y 1.00 = US$0.59 WEIGHTS AND MEASURES (METRIC SYSTEM) 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles 1 hectare (ha) = 2.47 acres 1 million cubic meters = 810 acre-feet 1 ton = 1,000 kilograms (kg) = 2,205 pounds 1 kilogram (kg) = 2.2 pounds ABBREVIATIONS MAAF - Ministry of Agriculture, Animal Husbandry and Fishery CGB - Central General Bureau of State Farms and Land Reclamation HGB - Heilongjiang General Bureau of State Farms FIMO - Foreign Investment Management Office hp - horsepower kw - kilowatt. kV - kilovolt kVA - kilovolt-amps FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY CHINA HEILONGJIANG LAND RECLAMATION PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. BACKGROUND .... 1 Introduction .1... I The Agricultural Sector. 1 Sector Development Issues and Strategy . 3 State Farms. 4 Project Formulation. 6 Bank Group Lending for Agriculture . 7 II. THE PROJECT AREA . 8 Location . 8 Climate 8 Topography, Soils and Drainage.9 Population .10 Infrastructure .10 Agriculture .11 Mechanization .12 III. THE PROJECT .13 Project Description .13 Project Works .14 Agricultural Machinery . 16 Construction Machinery .17 Seed Processing Equipment. 17 Technical Assistance . 18 Status of Engineering. 19 Implementation Schedule. 19 Cost Estimates .20 Financing . 21 Procurement .21 Disbursements . 21 Accounts and Audits .22 Environmental Effects . 22 This report is based on the findings of a pre-appraisal mission comprising T.E. Daves and T.B. Wiens (Bank), D.A.N. Hopkins, W.R. Johnston and J.K. Wang (consultants) in February 1982; and an appraisal mission comprising T.E. Daves and T.B. Wiens (Bank), L.J. Clarke, R.C. McGinnis, and L.S. Tay (consultants) in May/June 1982. 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. - il - Page No. IV. ORGANIZATION AND MANAGEMENT General Bureau of State Farms and Land Reclamation . 22 Financial Management . 24 Project Management and Execution . .. 26 Monitoring and Evaluation. .27 Agricultural Support Services. 27 Consulting Services . 30 V. AGRICULTURAL PRODUCTION . 30 Cropping Patterns ................. 30 Farming Practices . 30 Yields and Production . 31 Drying, Storage and Processing . 32 Subsidiary Production . 32 VI. MARKETS, PRICES, FARM INCOMES AND COST RECOVERY . 33 Market Prospects . 33 Prices .. ..... 33 Farm Incomes . ..... 34 Cost Recovery ...... 35 VII. BENEFITS, JUSTIFICATION AND RISKS . 37 VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION . 40 TABLES IN TEXT 2.1 Agricultural Machinery Use . 12 2.1 Degree of Mechanization by Operation . 13 3.1 Drain Dimensions . 15 3.2 Cost Summary.0 . 4.1 Receipt of Government Funds by State Farms, 1980 . 24 4.2 Profits and (Losses) of the State Farms . 25 4.3 Disposition of Profits in 1980 . 26 6.1 Crop and Input Farmgate Prices . 34 6.2 Rent and Cost Recovery . 36 ANNEXES 1. Project Land Development 2. Project Costs 3. Prices and Crop Budgets 4. Economic Analysis 5. Related Documents and Data Available in Project File - iii - LIST OF FIGURES 3.1 Implementation Schedule 4.1 Organizational Structure - Ministry of Agriculture, Husbandry and Fisheries Animal 4.2 Organizational Structure 4.3 - General Bureau Organizational Structure of State Fanns - General Bureau Heilongjiang Province at Jiamusi, 4.4 Typical State Farm Organization 5.1 Chart Proposed Cropping Calendar MAP IBRD 16545R - Reclamation Areas CHINA HEILONGJIANG LAND RECLAMATION PROJECT I. BACKGROUND Introduction 1.01 The Government of China has requested Bank Group assistance in financing the Heilongjiang Grain Base Project in Northeastern China. The project would develop some 200,000 ha of virgin lands in Heilongjiang Province for production of wheat, maize and soybeans, and be implemented by the General Bureau of State Farms and Land Reclamation in the Ministry of Agriculture, Animal Husbandry and Fishery. The primary objectives of the project would be to help reduce China's growing foodgrain deficit and to increase the supply of marketable surplus grain for sale to the urban population. It would also provide experience in upgrading mechanized crop production which would be applicable to about 2 million hectares now cultivated by state farms in Heilongjiang and would serve as a model for the development of other uncultivated land in the province. Principal features of the project would be the drainage works needed to bring the land into cultivation; agricultural machinery for full mechanization of farming operations; additions to the existing fleet of construction equipment and provision of roads, housing and supporting infrastructure. Training in equipment operation and maintenance and in construction techniques would be provided. The project would also include technical assistance in the fields of planning, training, equipment maintenance, construction operations and seed production. The Agricultural Sector /1 1.02 Agriculture in China, including crops, livestock, forestry and fisheries, provides sustenance to nearly 1 billion people, is the source of income for some 290 million agricultural workers and their dependents, and accounts for about 30% of the country's GDP. China produces about 40% of the world's annual rice harvest, 14% of the wheat, 10% of the maize and 16% of the cotton and the tea. It also accounts for 40% of the world's swine herd. Among the developing economies, China accounts for more than 30% of the total farming population. The production organization for Chinese agriculture includes collective units under the commune system (89% of cropland and 80% of rural income), state farms (4% and 4%) and private plots assigned to families on communes and state farms (7% and 16%). /1 For details on China's agricultural sector see "Annex C: Agricultural Development" in China: Socialist Economic Development, Report No. 3391-CHA. 1.03 The agricultural sector is dominated by grain production, which accounts for some 60% of total agricultural output, and 80% of cropland. Of the country's 960 million ha, only about 10.4% or 100 million ha are arable lands available for sustained cropping. The ratio of population to arable land is just under 10 persons per ha. Slightly less than half of China's arable land is irrigated. In global terms, China's agricultural sector accounts for less than 8% of the world's arable land but provides enough food for about 22% of the world's population. This is possible because of the generally high standards of crop production. Paddy yields, about 4 tons per ha, are nearly 50% higher than the average for all developing countries. Maize yields are up to 50% higher than those in Thailand and three times those in the Philippines. Sugarcane yields approach those reported for developed countries. The national average cropping intensity is about 150%. 1.04 Agriculture has been a high priority sector of the Chinese economy for more than 30 years, with special attention given to grain production in efforts to attain self-sufficiency. Investment in agriculture has averaged about 20% of total national investment, and this proportion has increased in recent years. In general, China's efforts to develop agriculture have been broadly successful. Growth in food production has more than kept pace with population growth and almost all Chinese now have access to adequate quan- tities of food. Imports of agricultural products and production inputs have been limited to only about 25% of all imports, and exports of raw and processed agricultural products have contributed about 80% of all foreign exchange earnings. 1.05 The Government controls the marketing and pricing of agricultural products and inputs. It fixes production quotas for the major crops: grains, oilseeds, cotton and sugar, which are purchased and distributed by state-managed procurement agencies at predetermined prices. A portion of the production in excess of the quotas, the amount of which is determined before each harvest according to projected yields, is sold to the Government at above-quota prices which are also pre-determined. The rest of the sur- plus production can be sold to the Government at negotiated prices or on the free market. Production quotas are also established for a range of cash crops and livestock products. Minor crops, such as vegetables and other products grown in household plots, are sold in rural markets at prices regulated either by the provinces or counties. This marketing and pricing system has been maintained since the 1950s, although the importance and scope of free markets have varied over time. Policy reforms since 1976 have expanded the operation of free markets. The two most important marketing agencies for agriculture are the Bureau of Foodgrains of the Ministry of Commerce, which procures and distributes grain and oilseed crops, and the All China Federation of Supply and Marketing Cooperatives, which purchases most cash crops and distributes some agricultural inputs and tools, and consumer goods in the rural areas. Some products, such as sugar, rubber and pigs for slaughter, are purchased by specialized branches of the Ministry of Commerce. - 3- Sector Development Issues and Strategy 1.06 A major task in the agricultural sector is to reduce imports of grains and cotton. The gap between domestic supply and demand for food and fiber appears to be widening. Net imports of grains, including soybeans, reached 13.2 million tons in 1981, slightly more than in 1980, 3.3 million tons more than in 1979 and 8.5 million tons over the 1976-78 average.