ASIAN DEVELOPMENT BANK PPA: PRC 23156

PROJECT PERFORMANCE AUDIT REPORT

ON THE

GUANGDONG TROPICAL CROPS DEVELOPMENT PROJECT (Loan 1175–PRC)

IN THE

PEOPLE’S REPUBLIC OF CHINA

May 2002

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion At Operations Evaluation (June 2002) (May 1999) (November 2001)

CNY1.00 = $0.1831 $0.1205 $0.1208 $1.00 = CNY5.4621 CNY8.3000 CNY8.2767

ABBREVIATIONS

ADB – Asian Development Bank EIRR – economic internal rate of return FIRR – financial internal rate of return ha – hectare IDC – interest during construction m2 – square meter NPV – net present value OEM – operations evaluation mission PCR – project completion report PPAR – project performance audit report PRC – People’s Republic of China t – ton TA – technical assistance WTO – World Trade Organization

NOTE In this report, “$” refers to US dollars.

Operations Evaluation Department, PE–592

CONTENTS

Page BASIC DATA ii EXECUTIVE SUMMARY iii OVERVIEW vi MAP viii I. BACKGROUND 8 A. Rationale 8 B. Formulation 8

C. Objectives and Scope 8 D. Cost, Financing, and Executing Arrangements 9 E. Completion and Self-Evaluation 9 F. Operations Evaluation 10

II. PLANNING AND IMPLEMENTATION PERFORMANCE 11

A. Formulation and Design 11 B. Achievement of Outputs 12 C. Cost and Scheduling 13 D. Procurement and Construction 14 E. Organization and Management 14

III. ACHIEVEMENT OF PROJECT PURPOSE 16

A. Operational Performance 16 B. Performance of the Operating Entity 16 C. Financial and Economic Reevaluation 18 D. Sustainability 19

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 21

A. Socioeconomic Impact 21 B. Environmental Impact 21 C. Impact on Institutions and Policy 21 D. Overall Assessment 22 E. Overall Project Rating 24 F. Assessment of ADB and Borrower Performance 24

V. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 25 A. Key Issues for the Future 25

B. Lessons Learned 25 C. Follow-up Actions 26

APPENDIXES 1. Summary of Achievement of Outputs 18 2. Project Cost 20 3. Summary of the General Bureau’s Financial Statements 21 4. Project Economic Analysis 22 5. Project Organization Chart 45

BASIC DATA

Loan 1175-PRC: Guangdong Tropical Crops Development Project

Project Preparation/Institution Building

TA No.

Project Name Type Person-Months

Amount ($) Approval Date

1504 Tropical Crops Development PPTA 35.0 420,000 11 April 1991 1740 Policy Studies and Institutional

Strengthening for the Ministry of Agriculture

ADTA 16.5 800,000 13 August 1992

Key Project Data ($ million)

As per ADB Loan Documents

Actual

Total Project Cost 109.70 139.70 Foreign Exchange Cost 55.00 55.90 Local Currency Cost 54.70 83.80 ADB Loan Amount/Utilization 55.00 55.00 ADB Loan Amount/Cancelation 0.00 Key Dates

Expected

Actual

Appraisal 9–23 April 1992 Loan Negotiations 8–10 July 1992 Board Approval 13 August 1992 Loan Agreement 4 September 1992 Loan Effectiveness 14 November 1992 19 November 1992 Loan Closing 31 May 1998 31 May 1998 Project Completion 30 November 1997 31 May 1998 Months (effectiveness to completion) 61 66 Key Performance Indicators (%) Appraisal PCR PPAR Economic Internal Rate of Return 23.2 13.1 10.3 Financial Internal Rate of Return 19.0 17.7 28.4 Borrower People’s Republic of China

Executing Agency General Bureau of Guangdong Land Reclamation and Farm Enterprises

Mission Data Missions Person-Days Type of Mission Appraisal 1 126 Inception 1 18 Project Administration Review 5 119 Project Completion 1 153 Operations Evaluation1 1 63

1 The Mission comprised M. Ozaki, Evaluation Specialist/Mission Leader; A. Webb (international consultant); and

D. Zhixiong (domestic consultant).

EXECUTIVE SUMMARY

After 1978, the Government of the People’s Republic of China (PRC) embarked on major economic reforms to reduce state controls and rely more on market signals to guide the economy. A major policy objective of the Government’s Eighth Five-Year Plan was to strengthen agriculture and the rural economy. The Project was designed in line with the plan and the 1992–1994 country operational program for the PRC of the Asian Development Bank (ADB). ADB’s loan of $55 million and a technical assistance (TA) grant of $800,000 were approved in August 1992. The General Bureau of Guangdong Land Reclamation and Farm Enterprises (General Bureau) was the Executing Agency.

The project objectives were to (i) improve efficiency in tropical crop production and

processing, (ii) increase rural incomes and jobs, and (iii) promote economic reform in the agriculture sector and state farm system. The Project comprised five components: (i) replanting about 8,000 hectares (ha) of rubber trees with high-yielding rubber trees, maintaining about 7,670 ha of young rubber trees, expanding an existing presswood manufacturing factory, and establishing a rubber-based product factory; (ii) rehabilitating about 13,300 ha of sugarcane, expanding an existing sugar mill, and establishing a new sugar mill; (iii) replanting about 2,700 ha of sisal, expanding an existing sisal leaf processing facility, and upgrading the existing sisal yarn processing factory; (iv) planting about 7,670 ha of trees for windbreak forests and industrial tree plantations, expanding an existing chipwood factory, and building a new chipwood factory; and (v) constructing a marketing and trading center. The advisory TA was to help the Government promote market reforms and strengthen the institutional capabilities of the General Bureau.

At appraisal, the total cost of the Project was estimated at $109.7 million equivalent, of which $55.0 million was foreign exchange and $54.7 million equivalent, local currency. The ADB loan from ordinary capital resources was to finance the entire foreign exchange cost, excluding $11.5 million of interest during construction, and $11.5 million equivalent of the local currency cost. The actual project cost at completion amounted to $139.7 million, which comprised $55.9 million foreign exchange cost and $83.8 million equivalent local cost. The local cost overrun was attributable to higher-than-expected costs of construction works and equipment, and was covered by domestic bank loans and joint-venture partners.

The Project achieved its major output objectives except for the presswood factory. The rubber and forest tree plantations and the existing chipwood factory were modified due to external factors.

Rubber tree replanting and maintenance were completed ahead of the appraisal schedule. A typhoon in 1995 destroyed about 4,000 ha of newly planted rubber trees, which were replanted with fruit trees. The Project established a rubber-based product factory. The factory supplies rubber parts for cars and electric appliances, and rubber racetrack material for stadiums. The presswood factory, which was to produce doors and doorframes, encountered technical and financial difficulties from the beginning. The enterprise could not attract loans from domestic banks. No companies attended the initial bidding for equipment. The factory was constructed and started test production in 1997, but the quality of the product was inadequate. As the real estate construction market was depressed, the factory management decided to cease production, and the factory was officially closed in 1999.

Sugarcane rehabilitation was completed as planned. The Project supported construction of a new sugar mill and expansion of an existing one. Both factories are operating above their design capacity.

Sisal replanting was completed ahead of schedule. The Project established a sisal leaf processing factory, which is operating above its design capacity. A sisal yarn factory started operating 3 years behind schedule due to a change in production line design.

By the end of 1994, 7,667 ha of tree plantations were established. The 1995 typhoon destroyed about 4,000 ha of the plantation, and the area was replanted with fruit trees. The state farm bureaus and farmers bore the replanting cost. A chipwood factory established in 1991 received retroactive financing under the Project. Although its capacity exceeds the appraisal target, the factory is operating below its capacity due to the low price of chipwood. The Project supported the establishment of another factory to produce chipwood for export. However, the factory was redesigned to produce plywood for the domestic market rather than process chipwood because the planned port facility was never built.

The marketing and trading center was built and is now used as rental office space. About half the total area of 24,000 square meters is occupied. Due to the depressed real estate market, the rest is not expected to be occupied soon.

The Project’s operational performance in increasing crop yield and the output capacity of agroprocessing enterprises against appraisal targets has been satisfactory. Rubber, sugarcane, and sisal production increased due to the high-yielding new varieties and improved crop management. The agroprocessing enterprises, except for the chipwood factory, are operating with production capacity greater than the appraisal target.

The Project created 12,600 jobs. Its preparation and the subsequent advisory TA helped the General Bureau develop staff skills and overall operational capabilities. As provided in the Loan Agreement, all the agroprocessing enterprises were incorporated. However, workers’ shareholding did not increase to the target level, nor did it induce higher productivity.

Since 1999, the General Bureau has been incurring a net loss—CNY210 million in 2001—attributed to social expenses not related to production but to workers’ medical, educational, and housing subsidies, and pensions for retired workers.1 The Project’s agroprocessing enterprises are also financially weak. In 2000, of the Project’s seven agroprocessing enterprises, four incurred losses and three had after-tax profits. As they introduce new products, agroprocessing enterprises producing rubber-based products, sisal yarn, and plywood are expected to become more profitable. Overall, the Project is assessed as sustainable. Rubber replanting and maintenance are expected to be sustainable as the new high-yield variety of rubber makes it more competitive. The sugarcane plantation and sugar mills are financially viable at the domestic price maintained by government control of sugar imports. However, the General Bureau’s sugarcane production cost is significantly higher than that of tropical sugar-producing countries, and the profitability of the sugarcane plantation and mills is susceptible to price changes. The PRC’s accession to the World Trade Organization (WTO) is expected to bring down the price of domestic sugar; the

1 In 1999, the ratio of General Bureau working staff to retired workers was approximately 1 to 2.2, and the General

Bureau was responsible for pensions of 60,000 retired workers. The General Bureau also guarantees the minimum wage for farm and factory workers.

sustainability and resilience of the plantation and mills depend on the General Bureau’s restructuring efforts. The PRC is a major sisal exporter and WTO accession benefits the sisal sector. The sisal-related components are sustainable. Based on their rate of return, forest tree plantations are sustainable. However, the profitability of the chipwood factory is vulnerable to the market and to price changes. The plywood factory is expected to be sustainable if the factory maintains its present profit level from the sale of doors and doorframes. The financial and economic internal rates of return for the whole Project are 28.4% and 10.3%, respectively.

The Project’s rationale to make agriculture and agroprocessing more efficient through

market reforms was and still is relevant. The General Bureau diligently followed the agreed-upon implementation arrangements and achieved most of the physical output objectives. While the plantations achieved sufficient rates of return, the agroprocessing enterprises suffered from the inefficient management system of state-owned enterprises. Overall, the Project is expected to be sustainable due to the General Bureau’s improved rubber yield and comparative advantage in sisal. The General Bureau’s efforts to restructure the plantation and enterprise management system will enhance sustainability. The General Bureau made laudable efforts to transform itself from a Government-subsidized organization into an independent business enterprise. If the Project had not been implemented, this process would have taken longer. The Project is rated successful.

An important lesson is that if a project involves marketing products and services, a conservative demand projection and detailed distribution planning are required. An optimistic market forecast based on a short-term market boom tends to induce overinvestment and may result in business failure. ADB should ensure that project preparatory TA includes market demand forecasts when a project involves commercial marketing activities. Another lesson is that investments in protected sectors will delay restructuring efforts by operating entities, preserve inefficient institutional arrangements, and may eventually lack sustainability. For future agriculture projects, ADB should ensure that feasibility studies include adequate comparative advantage analysis of crops, and assess the effects of policy change such as government protection and subsidies, and the related implications for sustainability and financial viability. When price or trade liberalization is expected, an appropriate impact analysis should be carried out. ADB-financed projects should pursue liberalization and deregulation of the agriculture sector and avoid delaying the restructuring of inefficient sectors.

As a follow-up action, the General Bureau should develop a medium-term operational

plan to ensure financial viability of the plantations and agroprocessing enterprises.

I. BACKGROUND

A. Rationale 1. In 1978, the Government of the People’s Republic of China (PRC) embarked on major economic reforms to reduce state controls and rely more on market signals to guide the economy. The Eighth Five-Year Plan (1991–1995) promoted reforms in enterprise management and price controls, and fostered greater dependence on market forces. Strengthening agriculture and the rural economy, a major policy objective of the plan, was to be achieved by (i) deepening reforms in the contract responsibility system,1 (ii) promoting agricultural, scientific, and technological advances, and (iii) continuing reforms in the agricultural and pricing system. The country operational program for the PRC (1992–1994) of the Asian Development Bank (ADB) supported the plan and recognized the need to raise productivity in agro-industries and reform enterprises. The Project was designed to make tropical crop production and processing more efficient, increase rural incomes and jobs, and support economic reform policies. B. Formulation

2. ADB approved a project preparatory technical assistance (TA) to increase the production of natural rubber and expand processing capacity under the General Bureau of Guangdong Land Reclamation and Farm Enterprises (General Bureau) in the southern province of Guangdong in 1991.2 The original project proposal comprised rubber cultivation and processing. During the July 1990 Reconnaissance Mission, the project scope was expanded to include sugar, sisal, and forest trees. The feasibility study started in August 1991 and was completed in January 1992. The TA consultants carried out a socioeconomic survey and environmental studies, the results of which were incorporated into the project design. Loan appraisal was conducted in April 1992. ADB’s loan of $55 million and an advisory TA grant3 of $800,000 were approved in August 1992. The Borrower was the PRC. C. Objectives and Scope 3. The project objectives were to (i) improve efficiency in tropical crop production and processing, (ii) increase rural incomes and jobs, and (iii) promote economic reform policies in the agriculture sector and state farm system. The Project also aimed to reduce poverty by creating jobs in farm and processing enterprises, and providing income-generating opportunities.4 4. The project scope included (i) replanting about 8,000 hectares (ha) of rubber trees with high-yielding rubber trees, maintaining about 7,670 ha of young rubber trees, expanding an existing presswood manufacturing factory, and establishing a rubber-based product factory; (ii) rehabilitating about 13,300 ha of sugarcane, expanding an existing sugar mill, and establishing a new sugar mill; (iii) replanting about 2,700 ha of sisal, expanding an existing sisal leaf processing facility, and upgrading an existing sisal yarn processing factory; (iv) planting about 7,670 ha of trees for windbreak forests and industrial tree plantations, expanding an existing

1 After 1979, the state farm system moved from collective production to family farming based on a responsibility

contract. 2 ADB. 1991. Technical Assistance to the People's Republic of China for the Tropical Crops Development. Manila. 3 ADB. 1992. Technical Assistance to the People's Republic of China for Policy Studies and Institutional

Strengthening for the Ministry of Agriculture. Manila. 4 Specifically, the Project aimed to reduce poverty in counties where annual average per capita income was less

than CNY800 at the 1991 price levels: Lianjiang, Huazhou, Xinyi, Yangdong, Puning, Lufeng, and Jieyang.

chipwood factory, and building a new chipwood factory; and (v) constructing a marketing and trading center in Guangzhou City for primary and processed agricultural products. Location of the project components is shown on the Map. 5. The attached advisory TA was to help the Government promote market and pricing policy reforms and strengthen the General Bureau’s institutional capability to implement the Project. The TA activities included (i) a study on pricing, marketing, and trading practice for rubber and sugar; (ii) a study on the establishment of a rubber replanting fund; (iii) development of a corporate action plan for agroprocessing enterprise reform; (iv) consulting services to the General Bureau to introduce commodity marketing and trading and international accounting standards; and (v) training for General Bureau staff on crop management techniques and project management. D. Cost, Financing, and Executing Arrangements 6. At appraisal, the total cost of the Project was estimated at $109.7 million equivalent, of which $55.0 million (50%, including interest during construction [IDC] of $11.5 million) was foreign exchange, and $54.7 million equivalent, local currency. The ADB loan of $55.0 million from ordinary capital resources was to finance the entire foreign exchange cost, excluding $11.5 million of IDC, and $11.5 million equivalent of the local currency cost. The remaining $54.7 million was to be met from the General Bureau’s reserve ($29.3 million), domestic banks ($19.3 million), and agroprocessing enterprise workers’ cash contribution ($6.1 million), which was to be converted to equity capital. The ADB loan was to cover costs of replanting, maintenance, and rehabilitation of crops; factory expansion and construction works; equipment and materials; consulting services; and training. Loan proceeds for local currency costs were to be used to finance labor costs in the crop development component. 7. The ADB loan to the Government was based on ADB’s pool-based variable lending rate system for US-dollar loans, with a fixed amortization period of 25 years, including a grace period of 7 years. The proceeds of the loan were re-lent to the General Bureau on the same conditions as the ADB loan. The interest rate variation and foreign exchange risks were borne by the General Bureau. E. Completion and Self-Evaluation 8. ADB’s Project Completion Review Mission visited the Project in May 1999. Circulated in May 2000, the project completion report (PCR) concluded that the Project attained its major objectives by increasing crop yield, production, and farm income, as well as by advancing agricultural reform.5 The PCR rated the Project generally successful.6 The PCR reported that job creation was under the target level. The distribution effect of the project benefits could not be identified and a follow-up survey was recommended to monitor the Project’s socioeconomic impact. The covenant that workers’ shareholding in the agroprocessing enterprise should increase to 25% was not fully complied with because the sugar mills’ declining profitability discouraged investment. The advisory TA was completed with satisfactory fulfillment of the terms of reference for the policy studies and training. PCR recommendations included a cost recovery plan for the closed presswood factory (para. 14), promotion of the employees’ shareholding scheme, and reduction of the noise level of the chipwood and sisal yarn factories.

5 ADB. 2000. Project Completion Report on the Tropical Crops Development Project in the People's Republic of

China. Manila. 6 Under the then applicable three-category rating system: unsuccessful, partly successful, and generally successful.

In September 2000, a four-category rating system was introduced. It rates projects as unsuccessful, partly successful, successful, or highly successful.

9. The PCR accurately evaluated the Project’s outputs and operational achievements but did not separately assess the TA’s impact on the Government’s reforms in agriculture pricing and trade policies in rubber and sugar. The PCR reevaluated the financial internal rate of return (FIRR) for the various components and the Project as a whole. At appraisal, the FIRR and economic internal rate of return (EIRR) for the whole Project were estimated at 19.0% and 23.2%, respectively. The PCR recalculated them as 17.7% and 13.1%. This was unjustifiably high because (i) none of the agroprocessing enterprises except for the sisal factories had a net profit, and (ii) domestic prices of the Project’s major agricultural crops declined significantly.7 The PCR’s FIRR and EIRR for the rubber and sugar components were not substantiated because when the Project was completed, the rubber-based product factories and sugar mills were incurring losses, and prices of rubber and sugar had declined to below appraisal estimates. Details of the FIRR and EIRR for the sisal leaf processing, sisal yarn processing, plywood factory, and marketing and trading center components were not provided in the PCR. F. Operations Evaluation 10. This project performance audit report (PPAR) is based on the findings of the Operations Evaluation Mission (OEM), which visited the PRC from 15 October to 4 November 2001. Special attention was given to evaluating production efficiency improvement in the agricultural crop and agroprocessing components, and of the income and employment impact on the General Bureau staff workers and outgrowers. The General Bureau’s institutional changes in relation to government reform measures and the impact of the advisory TA were analyzed. The PPAR also takes into account a review of the PCR; the appraisal report and materials in ADB files; additional operational data; and discussions with officials of the General Bureau, other government agencies, farmer representatives, and ADB staff. Comments from the General Bureau and ADB staff concerned were considered in finalizing the PPAR.

7 The PRC’s domestic rubber (dry) price was approximately CNY15,282/ton (t) in 1990 and CNY9,000/t in 1999 at

constant 1999 prices. The major cause of the decline was price deregulation by the Government. The PRC’s domestic sugar price was approximately CNY5,100/t in 1992 and CNY2,600/t in April 1999 at constant 1999 prices. The international prices for rubber and sugar followed a similar trend (Appendix 3, paras. 3 and 4).

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design 11. The original project concept was drawn from a proposal for an integrated agricultural development project produced by the General Bureau in 1989. The project preparatory TA’s focus on three main crops–rubber, sugar, and sisal–reflected the Government’s desire to develop crops with high comparative advantage and high foreign exchange saving and/or earning potential.8 The OEM’s review found the consultants’ recommendations for new crop varieties, field management, and yield estimates in the feasibility study to be appropriate. However, the consultants’ reports did not provide market analysis and demand forecasts for the agroprocessing enterprises’ products. The General Bureau, which had been under a state price administrative system until 1991, had little experience with marketing and pricing. The initial low profitability of the rubber-based product factory (para. 36) and the closure of the presswood factory (para. 14) were partly attributed to the lack of market analysis. Cost-effectiveness analysis for alternative crops and agroprocessing enterprises was not carried out during project formulation. 12. The PRC’s comparative advantage in and the Government's price protection for the Project’s two major crops—sugar and rubber—were raised at the staff review committee meeting, management review meeting, and board meeting. A board member suggested that “the rubber and sugar studies of the attached TA should be undertaken with a view towards satisfying the principles of the General Agreement on Tariffs and Trade9 as well as any understanding that might be forthcoming in the Uruguay Round.” The feasibility study included a comparative advantage analysis of the project crops but not an impact analysis of trade liberalization. The comparative advantage analysis was insufficient to support investment in those two crops. The feasibility study reported that the PRC’s production cost for rubber was approximately 25% higher than in the major producing countries. The PRC’s sugar production cost was lower than that of Indonesia and the Philippines, but other major sugarcane-producing countries such as Brazil and Cuba and were excluded from the comparison. Approval of the Project was based on the expectation, raised by the feasibility study, that the PRC would become more competitive in rubber and sugar production.10 The EIRRs for the rubber and sugar plantation components were over 12%, based on price projections at that time (para. 37). 13. The Project underwent several changes. Two typhoons in 1995 and 1996 destroyed about 4,000 ha out of 8,000 ha of newly planted rubber trees and 4,000 ha of industrial tree plantations. The affected area was replanted with fruit trees (lychee, longan, and green plum) because rubber trees had a longer gestation period (7–8 years) and natural rubber was becoming less profitable.11 Fruits were outside the project scope. The state farm bureaus and farmers bore the replanting cost.

8 In 1990, production of rubber met 48% of domestic consumption, and sugar, 83%. Domestic consumption of both

commodities was expected to increase at the time of appraisal. The PRC is a major exporter of sisal. 9 The basic principle of the General Agreement on Tariffs and Trade was to reinforce the basic tariff obligation

scheduled under Article II to prevent evasion of the tariff obligation by the use of other nontariff barriers. 10 On the difference between domestic and international rubber prices, the appraisal report indicated that the

Government agreed to study pricing and trading policies to develop policy measures for liberalization, which resulted in the marketing and pricing policy study under the attached advisory TA.

11 Fruit production is financially more attractive to farmers than rubber. Lychees, for example, not only have a shorter gestation period (4–5 years), but their net benefit at the General Bureau (revenue minus operation and maintenance expenses) in 2000 was CNY11,250/ha, compared with CNY1,700/ha for rubber.

14. The presswood factory encountered technical and financial difficulties from the very beginning. It could not attract loans from domestic banks, and no companies joined the initial bidding for equipment. The presswood factory was to produce doors and doorframes, but the equipment procured from a German manufacturer through direct purchase was for presswood, not for door production, and the enterprise lacked the technical personnel to follow up the adjustment of the equipment. The factory was constructed and started test production in 1997, but the quality of the product was inadequate. As the real estate market was depressed, factory management decided to cease production. The factory was officially closed in 1999 and the equipment sold or adopted by the state farm bureau. The factory premises were returned to the local government. The proposal for door and doorframe production was based on optimistic market demand because of the construction boom in Guangdong at the time of project formulation. The consultants’ reports did not provide longer-term demand projections or recommendations on product marketing and distribution. By the time the Project was approved and factory construction started, the real estate construction market had slowed and the factory could not attract local investment. 15. The Project included building a factory to produce chipwood for export. However, during implementation, the local government’s plan to build a port facility was canceled. The factory was redesigned to produce plywood for the domestic market, and started operating in 1995 with a joint-venture investment by the General Bureau and a local investor. During the first 5 years, the factory made little profit due to the low price of and limited marketing network for plywood. In 2000, the factory began producing doors and doorframes through self-financed investment and became more profitable (para. 36). 16. The General Bureau used loan proceeds of $7.85 million to establish a transport company with an additional $1.25 million investment from the General Bureau’s own resources and a local bank loan.12 The transport company owns 59 vehicles (43 trucks and 16 dump trucks) and serves mainly the state farm bureaus and agroprocessing enterprises under the General Bureau by transporting primary agricultural products. Until 1999, 70% of the clients were farms under the General Bureau. However, at the end of 1998, the sector was opened for private sector participation, and farms under the General Bureau now have access to cheaper private transport companies. The company became less profitable and has been incurring losses since 2000. The transport company was not part of the original project design. B. Achievement of Outputs 17. The Project achieved its major output objectives except for the presswood factory. Appendix 1 comprises the project outputs with appraisal targets.

1. Rubber Development

18. Rubber tree replanting and maintenance were completed ahead of the appraisal schedule. About 8,000 ha of old rubber trees were replanted with new varieties, and about 7,670 ha of rubber trees were maintained. A typhoon in 1995 destroyed about 4,000 ha of newly planted rubber trees (para. 13). The Project established a rubber-based product factory that supplies rubber parts for cars and electric appliances, and racetrack material for stadiums.

12 Under the original project design, the General Bureau was to procure 166 vehicles for crop development and agro-

industry enterprises with a loan allocation of $2.96 million. The General Bureau requested ADB to reallocate the loan proceeds under various categories to increase the allocation to $7.85 million because the prices of imported vehicles had increased.

2. Sugar Development 19. Sugarcane rehabilitation was completed as planned. The Project supported the construction of a new sugar mill and expansion of an existing one. The new sugar factory, Huafeng Sugar Mill, started operating in 1995 and has a daily processing capacity of 4,000 tons (t) of sugarcane, 2,000 t more than the Project’s design capacity. The Project expanded the production capacity of the already existing Guangfeng Sugar Mill, from 3,500 t/day to 6,500 t/day. In 2001, the factory operated above its design capacity.

3. Sisal Development 20. Sisal replanting was completed ahead of schedule. By the end of 1994, about 2,700 ha of sisal were replanted. A sisal leaf processing factory was established under the Project. The factory’s production capacity is 1,600 t/day, well above the original design capacity of 250 t/day. A sisal yarn processing factory started operating in 1996, 3 years behind schedule, due to a change in production line design. The factory’s production capacity is 3,800 t/year, almost twice the original design capacity of 2,000 t/year.

4. Forest Tree Development 21. The Project supported eucalyptus tree plantations for industrial use. By the end of 1994, 7,667 ha of tree plantations were established but the 1995 typhoon destroyed about 4,000 ha (para.13). A chipwood factory established in 1991 received retroactive financing under the Project. The factory’s original design capacity was 15,000 t/year. The factory processes 20,000 t/year, below its operating capacity of 45,000 t/year, due to the low chipwood price. The Project supported the establishment of another chipwood factory but it was redesigned to produce plywood (para. 15).

5. Marketing and Trading Center 22. The Project supported the construction of a marketing and trading center, which was supposed to provide office space to private and public enterprises, exhibition and conference halls, and a communication and information center for marketing and trading agricultural products. The building, with 24,000 square meters (m2) office space, was built with 50% joint-venture capital from a private company from Hong Kong, China, and is now used as rental office space. In 2000, 11,000 m2 were occupied. Due to the depressed real estate market, the rest is not expected to be occupied soon. The center houses a trading company under the General Bureau, which markets the bureau’s products. C. Cost and Scheduling

23. The actual project cost amounted to $139.7 million, 27% higher than the appraisal estimate of $109.7 million, due to higher-than-expected cost of construction works and equipment (Appendix 2).13 Domestic bank loans and joint-venture partners covered the cost overrun. The actual foreign exchange cost was $55.9 million, less than 2% above the estimate. 24. The Project was completed without major delays. All major components were completed on schedule. The Project’s planned and actual implementation schedules are in Appendix 3 of the PCR (footnote 5). The start of the sisal yarn factory operation was delayed. During implementation, the engineering team found that the production line was underdesigned and

13 The causes of higher-than-expected costs for civil works and equipment procurement were underestimation of

equipment costs, omission of required equipment at appraisal, increase in labor input for civil works, and higher investment cost for the presswood factory due to the direct purchase procurement (para. 14).

revised it to increase production capacity. The construction of the presswood factory was delayed due to difficulties with procurement, and disbursement of local loans (para. 14). The loan closed on 31 May 1998 as stipulated in the Loan Agreement. D. Procurement and Construction 25. Goods and services were procured in accordance with ADB’s Guidelines for Procurement. The summary of actual procurement against appraisal target is in Appendix 5 of the PCR (footnote 5). The equipment for the presswood factory was procured through direct purchase because of lack of response to bidding (para. 14). 26. International consultants were to be hired for 6 person-months to assist in equipment installation, operator training, and environmental management of the sisal yarn processing factory, sugar mills, and rubber-based product factory. The ADB standard recruitment process for international consultants did not dovetail into the start-up of the agroprocessing enterprises, and the General Bureau instead assigned qualified personnel for those tasks. The $200,000 allocated at appraisal for consulting services was reallocated for procurement of production equipment for the agroprocessing enterprises. E. Organization and Management 27. The organization and management structure for the Project proved appropriate. Agreed-upon implementation arrangements were closely followed except for the use of international consultants. Annual financial and audited account statements were submitted promptly and regularly. The General Bureau was expected to carry out a socioeconomic benefit monitoring survey following the format of the 1992 socioeconomic baseline survey of the feasibility study (para. 2), taking into account farm incomes and asset ownership of the project beneficiaries. However, this approach was not followed as the General Bureau collected only number of jobs generated under the Project. The state farm bureaus under the General Bureau lacked the expertise to conduct socioeconomic surveys, and the Project did not help develop these skills. 28. ADB’s support for the Project was satisfactory. ADB conducted annual review missions throughout project implementation. Issues raised by the bureaus were addressed. However, issues related to the presswood factory could have been taken up more promptly. Two signals indicated that the factory was not appropriate for market conditions. In September 1993, the General Bureau advised ADB that no bids were received for the factory equipment.14 In November 1993, ADB expressed concern that the factory had difficulty raising financing from the domestic banks.15 The two incidents implied that the factory design was not technically sound and the factory’s profitability was uncertain. Subsequent ADB loan review missions liaised with domestic banks to raise loans. However, a major reorientation of the component should have been considered. 29. Major covenants were complied with. The Loan Agreement included a clause for the corporation action plan to (i) incorporate the project agroprocessing enterprises into shareholding companies, (ii) convert worker contributions and share ownership into common or preferred shares, (iii) increase agroprocessing enterprise workers’ shareholding participation, and (iv) change the General Bureau’s accounting practices to meet international accounting standards. The clause on implementing the corporation action plan was partly complied with. All the project agroprocessing enterprises were incorporated into shareholding companies. However, the workers’ shareholding ratio has not reached the target 25%. The average ratio

14 Facsimile letter from the deputy director, General Bureau to ADB, 29 September 1993. 15 Facsimile letter from ADB to the director of the International Department, People’s Bank of China, 10 November

1993.

was 8.8% in 2001.16 The workers’ shares are ordinary common shares. The General Bureau’s accounting practice follows the 1999 Accounting Law, which requires transparent accounting and unbiased auditing. The law is not fully compatible with international accounting standards but is closer to them than previous accounting practices.17 The General Bureau was to extend village joint-venture programs to make outgrowers18 contribute land and labor. The General Bureau was to contribute capital, technology, and management assistance. Where the village joint-venture program did not exist, the General Bureau was expected to provide extension services to outgrowers to facilitate their adoption of new technologies. The OEM could not confirm that such village joint ventures and extension services were extended to outgrowers.

16 Sugar mill (Guangfeng), 13.3%; sugar mill (Huafeng), 1.0%; presswood factory, 7.2%; sisal yarn factory, 6.1%;

chipwood factory, 6.6%; rubber-based product factory, 12.0%; and plywood factory, 15.0%. 17 The key distinction between the international accounting standards and the Accounting Law is the disclosure policy

of related-party transactions, which include loans, loan guarantees, and raw material purchases. 18 Outgrowers are independent farmers who are not under the contract of the General Bureau.

III. ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance 30. The Project’s operational performance is determined by comparing actual crop yields and agroprocessing enterprises’ output capacity with appraisal targets. 31. Under the Project, the per hectare production of rubber increased by 16%, that of sugarcane by 13%, and that of sisal by 60%, due to new high-yielding varieties and improved crop management.19 Crop yields against appraisal targets are summarized in Table 1.

Table 1: Operational Performance Indicators: Crop Yields

Appraisal Actual Increase Crop Target 1990 Baselinea PPAR (%) Rubber (dry) 1.3–1.4 t/ha 0.93 t/ha 1.08 t/hab 16 Sugarcane 100 t/ha 83.5 t/ha 94.0 t/ha 13 Sisal Fiber 3.4 t/ha 2.7 t/ha 4.3 t/ha 60 Eucalyptus Trees 70 m3/ha — 82 m3/ha — — = no data available, ha = hectare, m3 = cubic meter, PPAR = project performance audit report, t = ton. a Feasibility study, February 1992. b Actual yield of rubber trees, which were 8 years old at the time of the OEM. It will increase to about 2.5 t/ha at

maturity (12–15 years). Source: General Bureau of Guangdong Land Reclamation and Farm Enterprises. 32. The agroprocessing enterprises, except for the presswood and plywood factories (which formerly produced chipwood) as well as the rubber-based product factory, have a production capacity higher than the appraisal targets (Appendix 1). The agroprocessing products are of high quality. The rubber-based product factory sells 50% of its products to three major Japanese manufacturing companies and received an ISO 9002 certificate in 2001. The sugar mills received the Ministry of Agriculture’s acceptance certification for sugar quality. The sisal yarn factory reduced roughness of yarn and improved quality by introducing new equipment. B. Performance of the Operating Entity 33. Appendix 3 summarizes the 1995–1999 financial statements of the General Bureau. The agroprocessing enterprises established under the Project account for only part of the overall financial performance of the General Bureau. Their assets represent 17% of total assets and generate 22% of gross profits. 34. Since 1999, the General Bureau has been incurring a net loss, attributed to social expenses related not to production but to workers’ medical, educational, and housing subsidies, and pensions for retired workers.20 The OEM estimates that approximately 15% of the General Bureau’s total revenue is spent on workers’ welfare.21 The General Bureau is trying to improve its financial position by reducing the number of workers, investing in research and development

19 New varieties adopted under the Project are GT1, IAN873, and 93-114 for rubber; and new Taitang No.1, No.10,

and Yuetang 81/3254 for sugarcane. Newly adopted crop management technologies include terrace building on hill slopes above 3 degrees, deep plough and mulching to keep soil moisture, and use of more fertilizers and organic manure.

20 In 1999, the ratio of working staff to retired workers under the General Bureau was approximately 1 to 2.2, and the General Bureau was responsible for pensions of 60,000 retired workers. The General Bureau also guarantees the minimum wage for farm and factory workers.

21 The OEM could not obtain a separate figure for social expenses of the entire General Bureau. The OEM’s estimate of 15% of the General Bureau's total revenue for social welfare expenses was derived from representative farm bureau budgets.

for higher crop productivity, and entering into new businesses. As a result of these efforts, the net loss was reduced from CNY393 million in 1999 to CNY210 million in 2001. 35. At the time of the PCR, most of the agroprocessing enterprises had not made a profit. The OEM found no significant improvement in financial performance since then. In 2000, the agroprocessing enterprises, except for the sisal and chipwood factories, recorded losses after taxes (Table 2).

Table 2: Financial Performance of Agroprocessing Enterprises for 2000 (CNY million)

Item

Rubber-Based

Product

Guangfeng Sugar Milla

Huafeng

Sugar Millb

Sisal Leaf

Processing

Sisal Yarn Processing

Chipwood

Factory

Plywood Factory

Gross Revenue 14.80 118.88 84.50 45.55 27.23 9.52 3.69 Costs for Raw Materials 10.60 89.30 60.00 23.68 20.87 5.20 2.09 Other Operational Expenditures 5.74 23.59 25.60 7.79 3.87 2.92 1.04 Gross Operating Profitc (1.54) 5.99 (1.10) 14.10 2.49 1.40 0.54 Profit before Tax (1.96) 5.73 (1.10) 3.38 1.96 1.40 (0.21) Profit after Tax (1.96) (3.33) (11.70) 7.32 1.27 0.60 (0.21) Net Fixed Assets 36.98 291.86 160.70 5.60 27.02 2.90 9.27 Long-Term Loans 26.78 91.37 117.30 4.35 20.92 2.60 2.50 Total Assets 63.88 346.85 209.60 6.70 31.02 3.90 19.26 Performance Indicators Operating Expenditure/Revenue (ratio)

1.10 0.95 1.01 0.69 0.93 0.85 0.85

Return on Operating Revenued (%) (13.2) 4.5 (1.3) 7.4 7.2 14.7 (5.7) a Expansion. b New construction. c Before depreciation and loan service costs. d Profit before tax and operating revenue. Source: General Bureau of Guangdong Land Reclamation and Farm Enterprises. 36. The rubber-based product factory had net losses for the first 5 years of operation. Since a new manager was appointed in 1998, the factory diversified its product range and is expected to improve its financial performance. The factory’s estimated profit for 2001 was CNY163 million, of which CNY150 million was to be generated from the rubber racetrack, and CNY13 million from other rubber parts. The two sugar mills incurred losses due to low sugar prices up to 1999. In 2000, the PRC’s domestic sugar price increased and the mills are expecting net profits for 2001.22 At the 2001 price, the sugar mills are financially viable. The viability ratio in terms of operating expenditure to revenue will improve from 0.95 for Guangfeng Sugar Mill and 1.01 for Huafeng Sugar Mill in 2000, to 0.65 and 0.89 in 2001. However, the present higher domestic price is due to Government import controls, which comprise import quotas, tariffs, and state distribution systems. The PRC’s accession to the World Trade Organization (WTO) is expected to gradually reduce the domestic price (para. 40). Sisal leaf processing was profitable in 1996, 1997, and 2000 and a profit was expected in 2001 as well. The sisal yarn factory has been turning a net profit since operations began due to diversified, value-added products such as sisal cloth and carpets. The chipwood factory has been generating a net profit since 1992, but the profit margin is less than CNY1 million, having decreased from CNY820,000 in 1997 to the expected CNY420,000 in 2001. Plywood production turned little profit during the first 5 years. In 2000, the factory introduced the production of doors and doorframes, and the factory

22 The PRC’s domestic sugar price moved from CNY5,100/ton (t) in 1992 to CNY2,600/t in 1999, and to CNY4,100/t

in 2001. The 1999 decline was due to increased supply in the domestic market with smuggled sugar from Viet Nam. At the end of 1999, the Government intensified control over smuggling and raised the domestic sugar price.

became more profitable (para. 15). During the first 3 quarters of 2001, the plywood factory had a net profit of CNY2.4 million. C. Financial and Economic Reevaluation 37. The OEM reestimated the FIRRs and EIRRs (Table 3 and Appendix 4). As some agroprocessing enterprises had only negative net revenue flows, or a revenue flow that was marginal against investment, their FIRRs and EIRRs were not calculated. In addition to the FIRRs and EIRRs, net present value (NPV) at 12% was calculated. The reestimated FIRR for the entire Project is 28.4%, and the EIRR, 10.3%. The reason for the significant difference between the FIRR and the EIRR is that higher domestic prices of dry rubber, sugar and chipwood as a result of the tariffs and import restrictions cause net resource transfer to the producers. All agriculture crop components have positive FIRRs and EIRRs except for sugarcane rehabilitation. The price projections for rubber and sugar for 2002 onward are based on the World Bank commodity price projections, which predict that the price of rubber will increase by 16% by 2015 relative to 2001, and that of sugar by 12% in 2003 relative to 2002. Sensitivity tests were carried out to check the robustness of the FIRRs within the historic and predicted price ranges. Rubber production is relatively competitive as the lowest price during the Project still yields FIRR above 12% due to the new high-yielding variety. The NPV of the sugarcane plantation under with-project and without-project conditions is negative, which implies high labor intensity and production cost (para. 40). 38. The discrepancy between the positive appraisal estimates of the FIRR and EIRR of the agroprocessing enterprises and their negative NPV calculated by the OEM is attributable to underestimation of operation and maintenance costs at appraisal and a more than 50% increase in input costs, including labor costs during implementation. As for the marketing and trading center, the FIRR and EIRR were not calculated at appraisal. The negative NPV for the center reflects the present less-than-half occupancy rate.

Table 3: FIRR and EIRR of the Project Components (%)

Appraisal

PCR

PPAR

Component

Share in Actual Project Costa

FIRR EIRR FIRR EIRR FIRR NPVb EIRR NPV

A. Rubber Development 1. Rubber Replanting

10.4

15

15

14

14

16

8,087

16

8,085

2. Rubber Maintenance 9.9 18 19 16 11 25 21,264 21 15,074 3. Rubber-Based Product Factory

6.2 15 28 8 8 neg. (172) neg. (150)

4. Presswood Factoryc 5.3 57 67 — — — — — — B. Sugar Development 1. Sugarcane Rehabilitation 5.6 19 26 16 10 neg. (8,204) neg. (6,859) 2. Sugar Mill Construction 18.9 13 16 7 8 82 275 neg. (70) 3. Sugar Mill Expansion 12.8 16 22 15 16 146 529 36 110 C. Sisal Development 1. Sisal Replanting 3.1 17 15 9 16 3 (11,633) 23 12,188 2. Sisal Leaf Processing Factory

0.6 13 15 8 20 neg. (19) neg. (14)

3. Sisal Yarn Factory 3.4 23 27 17 33 4 (10) 18 9 D. Forest Tree Development 1. Forest Tree Plantation 8.9 17 19 21 22 33 14,565 22 5,757 2. Chipwood Factory 0.4 16 27 16 19 neg. (22) neg. (36) 3. Plywood Factoryd 1.2 33 38 12 12 neg. (42) 4 (25) E. Marketing and Trading Center 6.1 — — 8 8 neg. (44) neg. (58) — = no data available/not calculated, EIRR = economic internal rate of return, FIRR = financial internal rate of return, neg. = negative, NPV = net present value, PCR = project completion report, PPAR = project performance audit report. Note: Figures in parenthesis are negative. a Excludes transport company (7.2%). b CNY per hectare for plantations and CNY million for agroprocessing enterprises. c Closed down. d Conceptualized as chipwood factory at appraisal; redesigned to produce plywood. Source: Operations Evaluation Mission estimates. D. Sustainability 39. Rubber replanting and maintenance are expected to be sustainable. At the current economic growth levels, demand for industrial crops such as natural rubber will continue to increase. Natural rubber can be harvested for at least 25 years, and terminating production before the end of the rubber trees’ life span would not make sense financially. The PRC agreed to reduce import tariffs on agricultural products from the weighted average of 22.0% to 17.5%. The PRC’s statutory tariff binding for natural rubber is currently 15%. After the elimination of nontariff barriers under the WTO agreement, the de facto tariff rate for rubber is not expected to change significantly. The rubber-based product factory will be sustainable if the new rubber racetrack material is marketed successfully. Guangdong’s economic growth bodes well for the commercial production of rubber. 40. The sugarcane plantation, and the newly constructed and expanded sugar mills are less sustainable. At the current domestic sugar price, the two sugar mills are financially viable, which makes the General Bureau’s sugarcane plantations sustainable because they are the major suppliers for the two mills. However, the domestic price of sugar is expected to decline (para. 36). The General Bureau’s production cost for sugarcane of $22.50/t is substantially higher than

that of competing countries such as Brazil ($4.70/t) and Cuba ($1.80/t),23 Although a sudden domestic price decrease is unlikely, for long-term sustainability the General Bureau should reduce costs by (i) reducing subsidies for farmers’ social welfare, (ii) eliminating farmers’ guaranteed purchasing price, and (iii) planting other high value-added crops. The sustainability prospects for the sugar development component will then improve. 41. The PRC produces over half the sisal leaf in Asia. The PRC’s accession to WTO is an advantage to the General Bureau, and sisal replanting is sustainable. However, the sisal leaf processing factory is too weak financially to be sustainable in the long term. The sisal yarn factory is expected to be sustainable because of its new value-added products and improved profitability since 2000 (para. 36). Overall, the sustainability of the sisal development component is likely. 42. Based on the financial rate of returns, the forest tree plantations are financially viable. The plywood factory is expected to be sustainable if it maintains its present profit level from the sales of doors and doorframes (para. 36). The sustainability of the chipwood factory is less certain if the chipwood price continues to be weak. Overall, the sustainability of the forest tree development component is likely. 43. The sustainability of the marketing and trading center is less likely because of the low occupancy rate and the depressed real estate market (para. 22). 44. Under the attached advisory TA, the Project supported the General Bureau’s institutional development through training in crop management technology, procurement procedures, and equipment operation and maintenance. Skills acquired through training are used appropriately and disseminated within the General Bureau through research and development activities. The institutional development undertaken under the Project is sustainable.

23 Food and Agriculture Organization (FAO). 2001. FAOSTAT. Available: http://apps.fao.org. Sugarcane producer

cost for the PRC in 1995 was $19.30. The data for the General Bureau state farms was the average production cost in 1998.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact 45. The Project was expected to benefit 25,000 existing farm families under the General Bureau and create incremental employment opportunities for 11,400 farmers and 3,200 agroprocessing enterprise workers. In addition, the Project was to create marketing and income-generating opportunities to about 22,000 outgrower farm families through village joint-venture programs, with extension services provided by the state farm bureaus under the General Bureau. 46. At completion, the Project created 12,600 jobs (10,900 on plantations and 1,700 at agroprocessing enterprises), or 86% of the target, of which 6,600 are on the state farms and 6,000 for outgrowers. The latter are mostly temporary and seasonal. The job creation was generally gender-neutral: 55% for males and 45% for females. 47. The average per capita income under the General Bureau increased from CNY1,195 in 1992 to CNY3,183 in 1999, as income increased in the agriculture sector in Guangdong as a whole, from CNY1,308 in 1992 to CNY3,629 in 1999, or about 70% above inflation.24 The OEM could not confirm the Project’s separate income impact as data on the income level of outgrower farmers among the project beneficiaries was insufficient. However, the OEM’s field inquiry confirmed that the income of outgrower farmers in the project area was equivalent to the provincial average income in 1999. B. Environmental Impact 48. The Project has no major environmental impact. Rubber effluent, which is produced when latex is processed into dry rubber, is treated in a pond at each farm bureau’s latex processing factory. The factories strictly follow the PRC National Environmental Standard. Some farm bureaus use the treated effluent to irrigate sugarcane fields. The agroprocessing enterprises, except for the sisal factories, produce no substantial waste. The sisal factories, which produce liquid and solid waste, have proper waste management and recycling systems; fiber waste is used as fertilizer, and sisal juice is condensed and sold as chemical input. 49. The PCR recommended that the General Bureau reduce the noise and promote worker safety at sisal leaf processing, sisal yarn, and chipwood factories. Apart from providing earplugs to workers, the factories have not taken any additional measures for noise reduction as major equipment replacement and significant financial commitment would be required. The factories conduct annual medical assessments for workers and have found no noise-related health problems among them. To increase safety, ear muffs, gloves, and goggles were provided to the workers at the chipwood factory. However, the rule requiring the wearing of safety gear is not strictly enforced. C. Impact on Institutions and Policy 50. The Project supported institutional development of the General Bureau through the project preparatory and advisory TAs. The General Bureau benefited from both of them, and improved its staff skills. The recommendations made in the consultants’ reports were appropriate. The selected personnel from the General Bureau worked with the consultants throughout the Project.

24 Guangdong Yearbook of Statistics. 1993 and 2000.

51. The advisory TA aimed to help the Government develop project-related reform models and strengthen the General Bureau’s institutional capacity for project implementation. Its pricing and marketing study recommendations were adopted by the General Bureau and helped make crop and factory management more efficient. The recommendations included (i) introducing quality payment schemes for sugarcane and sugar beet; (ii) establishing a rubber replanting fund; and (iii) establishing marketing and market information systems. The recommendation for a quality payment scheme for sugarcane was adopted by the sugar mills under the Project and provided incentives to the state farms to produce sugarcane with high sugar content. The General Bureau is establishing an information network system to provide daily price statistics to farmers. The General Bureau has been receiving budgetary support for rubber replanting from the Ministry of Agriculture but a rubber replanting fund has not yet been established. 52. The Project contributed to the institutional change of the General Bureau by exposing it to commercial operation practices. During implementation, the General Bureau carried out significant reforms. Its decision-making authority was decentralized. The farm and agroprocessing enterprises operate independently and are responsible for their profit and loss. For new investment, farm bureaus and enterprises are expected to raise their own resources, either through self-financing or local loans. The General Bureau is forming joint-venture companies with foreign investors. Agro-enterprise management is appointed based on merit, not on seniority. The General Bureau promptly replaces enterprise managers if their performance is not satisfactory. For example, until the General Bureau found the present qualified factory manager for the rubber-based product factory in 1998, the position was filled four times during the first 2 years as the managers did not generate net profits. The organization chart of the General Bureau is in Appendix 5. 53. The General Bureau appreciated and adopted all training programs under the advisory TA, which provided 55 person-months of training. Project staff training programs are listed in Appendix 4 of the PCR. All trainees have remained at the General Bureau and work in production or research. The procurement seminar at ADB in 1994 was perceived as especially useful. 54. The advisory TA made some policy-related recommendations to the Government:25 (i) reform and restructure rubber enterprises to improve product quality and meet market demand; (ii) enforce the rubber import tariff system more effectively; and (iii) rationalize sugar mills. Inefficient sugar mills have been closed in Guangdong. Rubber imports are still subject to distribution by government-licensed trading companies. However, the PRC’s accession to WTO will restrict the effect of the state-designated trading in raising prices of imported commodities above the level of agreed-upon tariffs (para. 40). Given the Government’s ongoing reform policies, the reforms that have occurred for the last decade in the rubber and sugar sector cannot be attributed to the advisory TA alone. However, the TA was relevant to the Government’s agricultural strategy. Its effect on the Government’s rubber and sugar sector policy is considered moderate. D. Overall Assessment 55. Relevance. The Project was relevant and in line with the Government's Eighth Five-Year Plan as well as ADB’s strategy of promoting agricultural technology, improving productivity, and supporting market reforms (para. 1). The design of the agroprocessing components was also relevant to ADB’s operational strategy (1992–1994) for agro-industry in the PRC, which included (i) market-based pricing of project outputs, (ii) elimination of subsidies, (iii) promotion of

25 During March–August 1993, the TA consultants conducted a study on the pricing, marketing, and trading of rubber

and sugar. A seminar on the study recommendations was held in Beijing in October 1993 with the participation of representatives of ministries and government agencies concerned.

enterprise autonomy through the shareholding system, and (iv) encouragement of competition. The rubber and sugar plantations were supported despite Government import restrictions and tariffs because (i) gradual liberalization and efficiency improvement of the sectors was expected; (ii) crops under the Project were primarily for the domestic market; and (iii) at the time of appraisal, international prices of the two crops were predicted to rise, which resulted in high EIRR estimates.26 However, the comparative advantage of the two crops, especially sugar, could have been examined more rigorously. Investing in more competitive crops could have helped the General Bureau reduce plantation management costs. Overall, the Project is assessed as relevant. 56. Efficacy. The Project achieved most of the operational objectives and, in particular, increased tropical crop production. The agroprocessing enterprises generally exceeded appraisal targets of output capacity. The Project’s socioeconomic impact was positive as it created jobs for farmers and factory workers. However, the OEM did not find income differences between farm households under and outside the Project. The Project is assessed as efficacious in achieving its objectives. 57. Efficiency. Based on the total net benefits of the various components, the Project has an FIRR of 28.4% and an EIRR of 10.3%. The rubber and forest tree plantations achieved FIRRs and EIRRs above 12%. The negative NPV of the sugarcane plantations reflects the high sugarcane production cost of the General Bureau. Among the seven agroprocessing enterprises, two have FIRRs above 12%, and two have EIRRs above 12%. Overall, the Project is assessed as efficient. 58. Sustainability. The rubber components will most likely be sustainable. The sustainability of the sugar components is likely if the General Bureau continues its cost reduction efforts for the sugarcane plantation. The General Bureau has comparative advantage in producing sisal, and the PRC is the main exporter of the crop. The sisal plantations are sustainable. However, the sisal leaf processing and yarn factories should reduce their costs to ensure long-term sustainability. The tree plantations are financially viable, but the chipwood and plywood factories are vulnerable to market demand and price changes. The marketing and trading center has little prospect of recovering its investment cost, and its sustainability is less likely. Overall, the sustainability of the Project is assessed as likely. 59. Institutional Development. The training component of the advisory TA contributed to the skill and institutional development of the General Bureau, helping it meet operational requirements following the reforms. The General Bureau is now responsive to market price signals and continues to reduce costs through labor-saving production, and research and development. The General Bureau has promoted the reforms by decentralizing management decision making and making it more flexible. The expected corporatization of the agroprocessing enterprises was partly achieved. The TA study on rubber and sugar pricing policies had a moderate impact on the Government’s reform models. Overall, the Project’s institutional development impact is rated significant.

26 The appraisal EIRR calculations were based on February 1992 World Bank commodity price projections for 1995–

2005, which predicted that the prices of rubber and sugar would increase by 30% and 6%, respectively, during 1990–2005. In reality, international prices of rubber and sugar declined by 42% and 32%, respectively, during 1990–2001 (Appendix 4, paras. 3 and 4).

E. Overall Project Rating 60. The Project’s goal to increase the production efficiency of agriculture and agroprocessing through market reforms was and still is relevant, although the comparative advantage analysis for agricultural crops could have been more rigorous. The General Bureau diligently followed the agreed-upon implementation arrangements and achieved most of the physical output objectives. The Project as a whole achieved an FIRR of 28.4% and an EIRR of 10.3%. While the plantations achieved sufficient rates of return, the agroprocessing enterprises’ rates of return were lower due to the inefficient management systems of state-owned enterprises. Overall, the Project is expected to be sustainable. The General Bureau’s further efforts to restructure its plantation and enterprise management system will enhance sustainability. The General Bureau made laudable efforts to transform itself from a Government-subsidized organization to an independent business enterprise. If the Project had not been implemented, this reform would have taken longer. Based on the five evaluation criteria, the Project is rated successful. G. Assessment of ADB and Borrower Performance

61. The Borrower’s performance was satisfactory. The submission of a financial audit statement was timely and prompt. The major loan covenants were complied with. The Project was implemented without any major delay. ADB’s performance is also considered satisfactory. ADB’s communication and interaction with the General Bureau was prompt and responsive to requests such as the design change of a chipwood factory. For two reasons, ADB’s performance was short of highly satisfactory. First, although institutional support of trade policy was outside of the project scope, ADB could have been more alert at appraisal in anticipating the effect of trade liberalization on the project crops and their comparative advantage.27 Second, the issue of the presswood factory could have been addressed earlier.

27 The impact of trade liberalization or change in comparative advantage is often unforeseeable. However, for this

Project, the feasibility study stated: “Sugar may be at a disadvantage (for farmers) with respect to rice which is the main staple food and accordingly given higher priority and to fruits and vegetables which are financially more lucrative” (ADB. 1991. Technical Assistance for Tropical Crops Development Project. Manila).

V. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

62. Incorporation of Agroprocessing Enterprises into Shareholding Companies. The Project’s incorporation of agroprocessing enterprises into shareholding companies to increase efficiency was ineffective. The Project introduced incorporation and workers’ shareholding participation as a reform measure. The target level of workers’ share ownership was not achieved. Incorporation did not lead to increased efficiency because the General Bureau itself is still under state ownership, and the guaranteed wage system for workers gave no incentives to managers and workers to be more productive. Successful incorporation and/or privatization of state-owned enterprises requires broader policy framework changes, including the setting up of legal and regulatory systems, supervising authorities, and information disclosure. State-owned enterprise reform is an unsolved, ongoing issue because it implies broad social and economic restructuring, including reform of the social safety net, taxation, and government administration. The Project’s approach to incorporation was ambitious and should have been done step by step, emphasizing making the enterprises more efficient, for example, by spinning off social welfare activities unrelated to production to establish financially viable operations. 63. Poverty Impact. While it attempted to reduce poverty by creating jobs and income-generating opportunities for outgrowers, the Project lacked the appropriate instruments and institutional arrangements to do so. The village joint ventures were expected to improve income and transfer technology to outgrowers through the General Bureau. However, as a commercially oriented entity, the General Bureau had little incentive to engage in poverty-focused activities, which have high transaction costs and are not financially justifiable. Agriculture sector incomes will improve when project executing and/or implementing agencies provide beneficiaries with productive assets such as land, capital, and new technology. Often, initial investments for such an activity are not financially viable. A commercial organization such as the General Bureau is not suited to make such an investment. 64. Investment in Sugar Production. Sugar production in the PRC is inefficient because of government protection. The comparative advantage of sugar production was questioned from the initial stages of project processing. The basis for approval was that the PRC’s ongoing reform would create a more competitive environment for domestic sugar producers. The advisory TA was expected to contribute to the commercialization of the General Bureau’s operations. The Project increased sugar production. The combined tariff, quota and state distribution systems keep sugar highly protected. The lack of a cost-efficient analysis of alternative crops such as fruit meant that the General Bureau missed an opportunity to invest in more competitive sectors. B. Lessons Learned

65. The Project provides the following lessons:

(i) The lack of realistic market demand projections for commercial operations led, in some cases, to overinvestment and lower returns.

(ii) Privatization measures to improve efficiency were ineffective where workers’ shareholding participation was not accompanied by incentives for higher productivity, or where enterprises were not financially viable.

(iii) Income-generating opportunities were not equitably distributed when the financial viability of an operating entity itself was at stake.

(iv) Investment in protected sectors delayed restructuring by operating entities and preserved inefficient institutional arrangements.

66. When a project involves commercial operations such as marketing products and services, a realistic market-demand projection should be prepared as part of the project preparatory TA to avoid overinvestment (para. 11). 67. For state-owned enterprise restructuring to improve efficiency, the sequence of measures should be thought through. For example, cost recovery should first be achieved before incorporation (para. 62). 68. When projects involve poverty reduction interventions, appropriate intermediaries should be selected that have the incentives, capabilities, and resources to carry out such interventions. ADB should recognize that investment in poverty reduction activities often cannot be justified on the basis of financial viability and, if an executing and/or implementing agency is a commercial entity, poverty reduction is likely to be sidelined (paras. 29 and 63). 69. ADB should ensure that feasibility studies include adequate comparative advantage analysis of crops, and a full assessment of the effects of policy changes such as government protection and subsidies, and the related implications for sustainability and financial viability. When price or trade liberalization is anticipated, an appropriate impact analysis should be carried out. ADB-financed projects should pursue liberalization and deregulation of the agriculture sector and avoid delaying restructuring of inefficient sectors (para. 12). C. Follow-up Actions 70. The General Bureau, in consultation with the Government, should develop medium-term operational plans by end–2002 to keep the farm and enterprise bureaus financially viable, The plans should consider (i) restructuring the pension system for retired General Bureau workers; (ii) initiating the revision of social welfare provision under the household responsibility system; (iii) developing marketing and distribution systems for fruit and other perishable crops; (iv) increasing the proportion of temporary labor; (v) introducing alternative crops or income-generating activities for farmers; and (vi) in the longer term, spinning off noncore, nonprofitable business operations such as hospitals.

SUMMARY OF ACHIEVEMENT OF OUTPUTS Component/Item

Appraisal Actual

Output Target Completion Time Target

Actual Capacity Actual Completion

1. Rubber Development

a. Rubber Replanting Replanting 8,000 hectares (ha) of old rubber with high-yielding varieties

June 1997 8,000 ha of rubber trees replanted

December 1994

b. Rubber Maintenance Maintaining 7,670 ha of young rubber

December 1996 7,670 ha of rubber trees maintained

December 1995

c. Rubber-Based Product Factory Setting up a rubber-based product factory with a capacity of 500 tons (t)/year

June 1994 (construction) January 1994 (start of operation)a

Factory established and operating with 450t/year production capacity.

November 1995 (construction) January 1997 (start of operation)

d. Presswood Factory Expanding an existing presswood factory to produce 198,000 flame-retardant doors and doorframes

June 1994 (construction) January 1994 (start of operation)

Production line built, but closed in 1999

December 1996 (construction)

2. Sugar Development

a. Sugarcane Rehabilitation Improving the 13,333 ha of low-yielding sugarcane plantations

January 1993 (start of cultivation)

10,000 ha of sugarcane rehabilitated and 3,000 ha of sugarcane planted

January 1992 (start of cultivation)

b. Sugar Mill Construction Building a new 2,000 t/day factory

July 1994 (construction) January 1994 (start of operation)

Factory built and operating with 4,000 t/day processing capacity

November 1994 (construction) January 1995 (start of operation)

c. Sugar Mill Expansion Increasing the daily capacity of an existing sugar mill from 3,500 t/day to 6,000 t/day of sugarcane

June 1994 (mill expansion) January 1994 (start of operation)

Factory capacity was increased to 6,500 t/day of sugarcane

November 1994 (expansion of production line) October 1993 (start of operation)

a Production line started operating before the full completion of construction. Source: Operations Evaluation Mission.

Appendix 1

Continued Appraisal Actual Component/Item

Output Target Completion Time Target

Actual Output Actual Completion

3. Sisal Development

a. Sisal Replanting Replanting 2,670 ha of sisal

July 1997 2,700 ha of sisal were replanted

December 1994

b. Sisal Leaf Processing Factory Building a leaf processing line with daily processing capacity of 250 t

December 1993 (construction) January 1993 (start of operation)

Factory built and operating with capacity of 1,600 t/day

July 1995 (construction) November 1995 (start of operation)

c. Sisal Yarn Factory Building a sisal yarn processing line to increase production capacity from 1,200 to 2,000 t/year

June 1993 (construction) January 1993 (start of operation)

Factory built and operating with 3,800 t/year production capacity

December 1994 (construction) January 1996 (start of operation)

4. Forest Development

a. Forest Tree Plantation Planting 7,670 ha of windbreak forests and industrial tree plantations

August 1997 7,667 ha of forest plantations completed; 4,000 ha of forest plantations destroyed by 1995 typhoon

December 1994

b. Chipwood Factory Expanding an existing chipwood factory

December 1992 (expansion) January 1993 (start of operation)

Production line expanded and operating with processing capacity of 45,000 t/year

December 1993 (expansion) January 1994 (start of operation)

c. Plywood Factory Building a chipwood factory with a capacity of 30,000 t

July 1993 (construction) March 1995 (start of operation)

Factory redesigned to produce plywood; produces 50,000 door and doorframes/year

December 1995 (construction) July 1996 (start of operation)

5. Marketing and Trading Center Building a marketing and trading center

June 1994 (construction) July 1994 (start of operation)

24,000 m2 center built and rented as office space

March 1998 (construction) October 1997

Appendix 1

Appendix 2

Item

I. Rubber Development 9.9 26.3 36.2 8.4 32.1 40.6A. Rubber Replanting 2.7 11.3 14.0 1.6 11.7 13.3B. Rubber Maintenance 2.5 7.9 10.3 1.5 11.1 12.6C. Rubber Products Factory 2.8 2.7 5.5 3.1 4.9 7.9D. Presswood Factory 2.0 4.5 6.4 2.3 4.5 6.8

II. Sugar Development 18.8 16.2 35.0 17.8 29.7 47.4A. Sugarcane Rehabilitation 2.5 3.2 5.6 1.4 5.7 7.1B. Sugar Mill Construction 8.0 6.7 14.6 8.2 15.8 24.0C. Sugar Mill Expansion 8.3 6.4 14.7 8.1 8.1 16.3

III. Sisal Development 5.8 6.0 11.8 4.8 4.3 9.0A. Sisal Replanting 2.3 4.4 6.7 1.3 2.7 3.9B. Sisal Leaf Processing Factory 0.6 0.3 0.9 0.5 0.3 0.8C. Fine Yarn Processing Factory 3.0 1.2 4.2 3.0 1.3 4.3

IV. Forest Development 3.3 4.2 7.5 2.4 11.0 13.3A. Industrial Tree Plantation 2.2 3.6 5.8 1.4 9.9 11.3B. Chipwood Factory 0.4 0.3 0.7 0.3 0.2 0.5C. Tongluohu Plywood 0.6 0.4 1.0 0.7 0.9 1.5

V. Marketing and Trading Center 2.1 1.1 3.2 2.3 5.5 7.8

VI. Equipment and Vehicles 3.4 0.8 4.2 7.9 1.3 9.1

VII. Consulting Services/Training 0.2 0.0 0.2 0.0 0.0 0.0

Interest During Construction 11.5 0.0 11.5 12.4 0.0 12.4

Total 55.0 54.7 109.7 55.9 83.8 139.7

PROJECT COST($ million)

Foreign Exchange

Local Currency Total

Foreign Exchange

Local Currency Total

Appraisal Actual

Appendix 3

SUMMARY OF THE GENERAL BUREAU’S FINANCIAL STATEMENTS

(CNY million)

Item 1995 1996

1998 1999

Gross Sales Revenue

1,217.0 1,287.2

1,440.6 1,384.1

Tax 159.5 140.7 133.6 135.4Net Profit 235.2 100.0 45.2 (393.0)Gross Fixed Assets 2,133.2 3,233.5 3,872.2 4,009.8Net Fixed Assets 1,684.5 2,395.2 2,803.4 2,819.9Fixed Assets Investment 741.6 581.9 436.9 358.2

Note: Comparable data was not available for 2000 and 2001 at the time of the Operations Evaluation Mission. Source: Rural Statistical Yearbook of Guangdong. 2000.

Appendix 4

PROJECT ECONOMIC ANALYSIS A. Methodology and Assumptions 1. The methodology used in the Project’s economic analysis follows Guidelines for the Economic Analysis of Projects of the Asian Development Bank (ADB). The economic internal rate of return (EIRR) is estimated by project component: (i) rubber replanting, (ii) rubber maintenance, (iii) rubber-based product factory, (iv) sugar rehabilitation, (v) sugar mill expansion, (vi) sugar mill construction, (vii) sisal replanting, (viii) sisal leaf processing factory construction, (ix) sisal yarn factory construction, (x) forest tree plantation, (xi) chipwood factory expansion, (xii) plywood factory, and (xiii) marketing and trading center. The major assumptions underlying EIRR estimation follow:

(i) The economic analysis covered 30 years (1992–2021). For the rubber-based product, sisal yarn, and plywood factories, the period was shortened due to the delay in their operations.

(ii) All calculations of project economic benefits and costs were expressed in

constant 2001 prices. Project investments were adjusted using the World Bank’s January 2001 manufacturers’ unit value index for foreign exchange items. Local benefits and costs were adjusted to reflect the 2001 prices using gross domestic product deflator (Table A4.1).

(iii) Economic prices of internationally traded commodities such as sugar and rubber were derived from the World Bank’s commodity prices and price projections.1 The border prices for main outputs are computed on the basis that sugar and rubber are not incremental outputs and that sisal and chipwood are. The calculations of farm-gate economic prices are in Table A4.2.

(iv) All economic values were estimated using domestic price numeraire. A shadow exchange rate factor of 1.08 was used to adjust traded goods and international cost components of the Project to economic costs and benefits. The conversion factor for unskilled labor was 0.75.

(v) Project investment costs used in the economic analysis include the actual costs of civil works construction, equipment, and other inputs. The investment costs included in the economic analysis are exclusive of transfer payments such as duties and taxes.

A. Estimation of Project Benefits 2. Only direct economic benefits were included in estimating the EIRR. These were the net incremental economic benefits derived from a comparison between the “with Project” and “without Project” scenarios. Benefits were derived from incremental project crops and agroprocessing enterprise productions developed under the Project. The financial internal rate of return (FIRR) and EIRR for rubber replanting, sugar rehabilitation, sisal replanting, and forest tree development are calculated in CNY per hectare to eliminate the effect of the typhoons.2 1 World Bank (WB). Commodity Price Data. November 2001; Commodity Price Outlook. November 1996, May 1997,

February 1998, and April 2000; and Global Economic Prospects. January 2002. 2 The investment portions in the rubber replanting, rubber maintenance, and forest tree plantation components,

which were destroyed by typhoons and replanted with fruit trees outside of the Project, were treated as sunk costs—incurred in the past with no consequence to the future stream of costs and benefits associated with the Project—and excluded from FIRR and EIRR calculations.

Appendix 4

1. Rubber Development

3. In the appraisal report, the FIRR and EIRR of the rubber replanting component were calculated as 15.5% and 15.1%, respectively. The appraisal estimates were based on the World Bank commodity price projections for 1995–2009. The World Bank expected the natural rubber prices to rise from $1,060/ton (t) in 1990 to $1,380/t in 1995-2000, but the price of natural rubber declined by 42% in 1990–2001. The price projection of natural dry rubber for the FIRR and EIRR of the Project Performance Audit Report (PPAR) (Tables A4.4–A4.6) is based on the World Bank commodity price projection, which predicts that real prices will increase 16% by 2015 relative to 2001. The state purchase and Government’s budgetary support for rubber producers were abolished in 1992. However, natural rubber is still imported from only a few countries under the barter trade agreement and controlled by licensed foreign trade corporations. Thus, the effective tariff rate of natural rubber is higher than the present preferential tariff rate of 15%.

2. Sugar Development 4. The appraisal report estimated the FIRR for sugar rehabilitation as 18.6%, and the EIRR as 26.2%, based on the World Bank commodity price projections. The World Bank predicted the sugar price would increase from $283/ton (t) in 1990 to $300/t in 2005 in constant 1991 price. During the Project, the international sugar price declined from $288.00/t in 1990 to $194.50/t in constant 2001 price. For the PPAR FIRR and EIRR (Tables A4.7–A4.10), the price projection of sugar for 2002 onward is based on the World Bank commodity price projection, which predicts that sugar prices will increase 12% in 2003 relative to 2002, and remain low for the next several years. With sugar trade and distribution handled by licensed foreign trade corporations, and import tariffs, the People’s Republic of China (PRC) has kept the domestic sugar price at almost twice the international price. However, during the Project, the PRC was flooded with smuggled sugar from Viet Nam, and the domestic sugar price declined to close to the international level. Because the Government has recently controlled smuggling, the domestic sugar price rose to around $500/t in 2000-2001.

3. Sisal Development 5. At appraisal, the international price of sisal was not available. The appraisal report estimated the price based on that in 1980–1989, when sisal was on average 70% more expensive than jute fiber. For the PPAR, the international price of sisal leaf was obtained from World Bank commodity price data (Tables A4.11–A4.13). B. Sensitivity Analysis 6. Sensitivity analysis was conducted at PPAR by the project components which have positive net present value (NPV). Because of the large price fluctuations of rubber and sugar during the Project, the rates of return of the rubber replanting, rubber maintenance, sugar mill construction, and sugar expansion components were tested for the lowest and highest commodity prices. All the other components were tested for a 10% decrease in commodity or product prices. A 10% decrease in yields or factory utilization was also tested for all components. The results of the sensitivity analysis are in Table A4.19.

Appendix 4

Year

1992 5.51 1.50 351.4 44.3 106.64 98.01

1993 5.76 1.44 398.8 50.3 106.33 97.73

1994 8.62 0.96 449.3 56.7 110.21 101.30

1995 8.35 0.99 496.5 62.6 119.21 109.57

1996 8.31 1.00 544.1 68.6 113.99 104.77

1997 8.30 1.00 592.2 74.7 108.38 99.61

1998 8.28 1.00 638.5 80.5 104.19 95.76

1999 8.28 1.00 684.1 86.3 103.56 95.18

2000 8.28 1.00 738.8 93.2 106.15 97.56

2001 8.28a 1.00 792.7 100.0 b 108.80 100.00

GDP = gross domestic product, MUV = manufactures' unit value.a The 2001 exchange rate is the average from January-November 2001.b The 2001 price index is an estimate from 1998/1999 and 1999/2000 indixes.Source: Operations Evaluation Mission estimates.

Table A4.1: Assumptions Used in Calculating Project Costs

Annual Average

Exchange Rate

(CNY:$1)

Exchange Rate Ratio:

2001 to Current

Year

GDP Implicit Price Index MUV Index

(1978=100) (2001=100) (1990=100) (2001 = 100)

A. Import Parity for Rubber a

(Latex)Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/mt 879 850 1,112 1,442 1,331 1,017 754 661 708 612 639 728 772 880 951Less: Quality adjustment 5%b 835 808 1,056 1,370 1,264 966 716 628 673 581 607 692 733 836 903Freight, Singapore-Guangzhou (+) 163 163 163 163 163 163 163 163 163 163 163 163 163 163 163CIF prices, Guangzhou, $ 998 971 1,219 1,533 1,427 1,129 879 791 836 744 770 855 896 999 1,066g($=CNY8.94)CIF prices, Guangzhou, CNY 8,923 8,679 10,898 13,704 12,757 10,094 7,861 7,070 7,473 6,655 6,884 7,640 8,014 8,931 9,534Port handling and margin (+) 153 153 153 153 153 153 153 153 153 153 153 153 153 153 153Local transport (+) 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51Factory (+) 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25Financial Price c 17,720 15,606 26,455 23,962 21,866 20,080 11,180 10,429 9,657 8,200 8,282 9,359 9,499 9,499 9,499Economic Price d 9,152 8,908 11,127 13,933 12,986 10,323 8,090 7,299 7,702 6,884 7,113 7,869 8,243 9,160 9,763CIF = cost, insurance, and freight.Note: The PRC is a net importer of rubber.a Rubber (RSS No. 1) spot, Singapore.

B. Import Parity for Sugar a

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/mt 204 226 264 267 252 252 205 140 185 188 168 187 220 240 260Freight, Bangkok-Guangzhou (+) 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51CIF prices, Guangzhou, $ 255 277 315 318 303 303 256 191 236 239 219 238 271 291 311g($=CNY8.94)CIF prices, Guangzhou, CNY 2,277 2,478 2,812 2,845 2,705 2,705 2,292 1,706 2,109 2,137 1,953 2,128 2,423 2,602 2,780Port handling and margin (+) 153 153 153 153 153 153 153 153 153 153 153 153 153 153 153Local transport (+) 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51Factory (+) 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25Financial Price b 9,255 8,151 7,231 6,550 5,977 5,489 5,093 3,013 2,790 4,100 3,649 4,087 4,087 4,087 4,087Economic Price c 2,506 2,707 3,041 3,074 2,934 2,934 2,521 1,935 2,338 2,366 2,182 2,357 2,652 2,831 3,009Note: The PRC is a net importer of sugar.

c Economic price: 1992-2001 actual; projections for 2002 onwards are based on the World Bank projection that the agricultural raw material commodity price will rise 17% by 2015 relative to 2001.

Table A4.2: Derivation of Main Output Economic Prices

a International Sugar Agreement daily price, raw, free on board (FOB) and stowed at greater Caribbean ports.

b PRC price: 5% less quality adjustment.

Appendix 4

d Economic price: 1992-2001 actual; projections for 2002 onwards is based on the World Bank projection that the agricultural raw material commodity price will rise 17% by 2015 relative to 2001.

b Financial: 1992-2001 project actual; projections for 2002 onwards are based on trends from 1992 to 2001.

c Financial price: 1992-2001 project actual; projections for 2002 onwards are based on trends from 1990 to 2001.

C. Import Parity for Sisal a

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/mt 594 596 612 574 668 793 857 727 572 632 705 710 720 730 740FOB prices, Guangzhou, $ 594 596 612 574 668 793 857 727 572 632 705 710 720 730 740Shadow exchange rate ($=CNY8.94)FOB prices, Guangzhou, CNY 5,309 5,324 5,472 5,132 5,973 7,090 7,663 6,495 5,116 5,648 6,303 6,347 6,437 6,526 6,616Processing (-) 51 51 51 51 51 51 51 51 51 51 51 51 51 51 51Transport and handling (-) 153 153 153 153 153 153 153 153 153 153 153 153 153 153 153Financial Price b 8,126 7,157 6,173 5,591 5,394 4,953 4,969 4,635 4,721 4,400 4,400 3,900 4,000 4,100 4,200Economic Price b 5,105 5,120 5,268 4,928 5,769 6,886 7,459 6,291 4,912 5,444 6,099 6,143 6,233 6,322 6,412Note: The PRC is a net importer of sisal.Sisal: East African, CIF UK.a Sisal: long fiber, first grade.

Sources: World Bank Commodity Price Data (Pink Sheet, various issues) and Global Commodity Price Prospects (January 2002).

b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on World Bank projection that price of agricultural raw material will rise by 17% by 2015 relative to 2001.

Appendix 4

A. Urea a

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/ton 133 134 129 114 119 120 125 121 118 113 114 119 132 126 122Bulk freight and handling 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26CIF price, Guangzhou, $ 159 160 155 140 145 146 151 147 144 139 140 145 158 152 148Shadow exchange rate ($ =CNY8.94) CIF price, Guangzhou, CNY 1,425 1,428 1,386 1,252 1,299 1,309 1,353 1,313 1,286 1,245 1,250 1,295 1,409 1,362 1,319Port handling and margin (+) 71 71 71 71 71 71 71 71 71 71 71 71 71 71 71Local transport (+) 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31Retail price (CNY/ton)Financialb 2,318 2,041 1,811 1,569 1,432 1,262 1,171 1,047 969 890 894 934 1,034 992 955Economicb 1,527 1,530 1,488 1,354 1,401 1,411 1,455 1,415 1,388 1,347 1,352 1,397 1,511 1,464 1,421CIF = cost, insurance, and freight.

B. Triple Superphosphate (TSP) a

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/ton 134 135 136 126 130 136 144 147 145 135 130 126 130 126 134Bulk freight and handling (-) 46 46 46 46 46 46 46 46 46 46 46 46 46 46 46CIF value, Guangzhou 88 89 90 80 84 90 98 101 99 89 84 80 84 80 88Shadow exchange rate ($=Y8.94)CIF price, Guangzhou, CNY 791 794 807 715 749 800 877 904 884 791 755 714 749 718 784Port handling and margin (-) 71 71 71 71 71 71 71 71 71 71 71 71 71 71 71Local transport (-) 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31Retail price (CNY/ton)Financialb 2,214 1,950 1,812 1,641 1,476 1,345 1,276 1,207 1,129 1,001 971 937 966 940 995Economicb 689 692 705 613 647 698 775 802 782 689 653 612 647 616 682

C. Muriate of Potash (MOP) a

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/mt 100.09 100.38 96.84 100.39 104.99 115.45 120.09 126.08 128.95 128.00 124.20 120.40 117.50 110.60 105.30Bulk freight and handling (+) 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00CIF value, Guangzhou 126.09 126.38 122.84 126.39 130.99 141.45 146.09 152.08 154.95 154.00 150.20 146.40 143.50 136.60 131.30Shadow exchange rate ($=Y8.94)CIF price, Guangzhou, CNY 1,127.26 1,129.82 1,098.20 1,129.95 1,171.07 1,264.57 1,306.06 1,359.57 1,385.22 1,376.76 1,342.79 1,308.82 1,282.89 1,221.20 1,173.82Port handling and margin (+) 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00 71.00Local transport (+) 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00 31.00Retail price (CNY/mt)Financialb 1,465.08 1,290.32 1,144.67 1,162.56 1,060.87 1,018.53 945.14 919.95 893.02 846.85 821.71 796.57 777.38 731.73 696.66Economicb 1,229.26 1,231.82 1,200.20 1,231.95 1,273.07 1,366.57 1,408.06 1,461.57 1,487.22 1,478.76 1,444.79 1,410.82 1,384.89 1,323.20 1,275.82

a Urea (Black Sea), bagged FOB Black Sea.

a TSP, bulk, spot, FOB, US Gulf.

Note: The PRC is a net importer of MOP.a MOP, spot, FOB Vancouver.b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on the World Bank Global Commodity Price Prospects (January 2002).

Appendix 4

Table A4.3: Derivation of Economic Prices of Main Inputs

b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on the World Bank Global Commodity Price Prospects (January 2002).

b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on the World Bank Global Commodity Price Prospects (January 2002).

Note: The PRC is a net importer of urea.

Note: The PRC is a net exporter of TSP.

D. Phosphate a

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2010 2015$/ton 41 41 40 38 40 42 47 47 46 45 42 42 40 40 39Bulk freight and handling (+) 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26CIF price, Guangzhou, $ 67 67 66 64 66 68 73 73 72 71 68 68 66 66 65

CIF prices, Guangzhou, CNY 602 603 590 575 591 609 652 654 644 634 611 604 594 591 580Port handling and margin (+) 71 71 71 71 71 71 71 71 71 71 71 71 71 71 71Local transport (+) 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31Retail price (CNY/ton)Financialb 839 739 656 616 562 516 512 478 442 412 389 382 371 368 357Economicb 704 705 692 677 693 711 754 756 746 736 713 706 696 693 682

Source: Operations Evaluation Mission estimates.

Note: The PRC is a net importer of phosphate.a Phosphate rock (Moroccan) 70% BPL.

Appendix 4

Shadow exchange rate ($ =CNY8.94)

b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on the World Bank Global Commodity Price Prospects (January 2002).

Year Total Total

1992 6,201 6,201 0 (6,201) 5,299 5,299 0 (5,299)1993 2,990 2,990 0 (2,990) 2,566 2,566 0 (2,566)1994 3,408 3,408 0 (3,408) 2,835 2,835 0 (2,835)1995 3,335 3,335 0 (3,335) 2,815 2,815 0 (2,815)1996 3,333 3,333 0 (3,333) 2,946 2,946 0 (2,946)1997 3,259 3,259 0 (3,259) 2,960 2,960 0 (2,960)1998 3,217 3,217 6,386 3,169 2,985 2,985 4,854 1,8681999 3,752 3,752 7,446 3,694 3,570 3,570 5,474 1,9042000 6,283 6,283 7,097 814 5,796 5,796 6,161 3662001 6,612 6,612 6,719 107 6,143 6,143 6,196 522002 6,888 6,888 9,250 2,361 6,417 6,417 8,536 2,1192003 7,121 7,121 12,390 5,269 6,649 6,649 11,017 4,3682004 7,358 7,358 13,513 6,155 6,889 6,889 12,364 5,4752005 7,512 7,512 15,397 7,886 7,043 7,043 14,013 6,9702006 7,668 7,668 17,281 9,613 7,199 7,199 15,661 8,4622007 7,923 7,923 18,206 10,283 7,455 7,455 16,486 9,0312008 7,923 7,923 20,106 12,182 7,455 7,455 18,134 10,6802009 7,923 7,923 22,955 15,032 7,455 7,455 20,607 13,1522010 7,902 7,902 22,957 15,055 7,429 7,429 22,900 15,4712011 7,902 7,902 22,957 15,055 7,429 7,429 22,900 15,4712012 7,888 7,888 22,959 15,071 7,415 7,415 22,900 15,4852013 7,888 7,888 22,009 14,121 7,415 7,415 21,984 14,5692014 7,902 7,902 21,058 13,156 7,429 7,429 21,068 13,6392015 7,898 7,898 18,208 10,310 7,425 7,425 19,526 12,1012016 7,898 7,898 16,308 8,410 7,425 7,425 17,574 10,1492017 7,898 7,898 14,409 6,510 7,425 7,425 15,621 8,1962018 7,898 7,898 12,509 4,610 7,425 7,425 13,668 6,2432019 7,884 7,884 9,660 1,776 7,411 7,411 10,739 3,3292020 7,884 7,884 7,761 (124) 7,411 7,411 8,787 1,3762021 7,884 7,884 7,286 (599) 7,411 7,411 8,299 888

15.5%

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.

Notes:1. Fertilizer application is based on the fertilizer program for clonal rubber in Guangdong. At planting, the following types of fertilizer are applied on a per hectare basis: 6 tons (t) of manure, 30 kilograms (kg) of urea, 90 kg of TSP, and 17 kg of MOP. During year 1, 6 t of manure, 90 kg of urea, 60 kg of TSP, and 25 kg of MOP. During years 2 and 3, 6 t of manure, 208 kg of urea, 180 kg of TSP, and 42 kg of MOP. From years 4 to 8, 6 t of manure, 312 kg of urea, 120 kg of TSP, and 42 kg of MOP. From year 9 onwards, 6 t of manure, 235 kg of urea, 180 kg of TSP, and 120 kg of MOP.2. The economic price of rubber is based on the international dry rubber RSSI (Malaysia) less 5% for quality adjustment.Source: Operations Evaluation Mission estimates.

EIRR =

Net Financial Benefits

FIRR =

CostsNet Economic Benefits

Costs

15.7%

Appendix 4

Construction & Developmenta

b Cost items for operation and maintenance include labor, chemical fertilizer, organic fertilizer, stimulant, pesticide, tools and facility, transportation and equipment, and management per hectare.

Net Benefit

8,087NPV = NPV =

a Cost items for construction and development include labor, planting material, organic fertilizer, chemical fertilizer, pesticide, tools and facility, and management per hectare during gestation period.

8,085

Table A4.4: Estimates of FIRR & EIRR – Rubber Replanting(CNY/hectare)

Construction & Developmenta

Operation & Maintenanceb Benefit

Operation & Maintenanceb Net BenefitBenefit

Appendix 4

Year

1992 3,098 0 (3,098) 2,691 0 (2,691)1993 3,387 0 (3,387) 2,974 0 (2,974)1994 3,309 0 (3,309) 2,959 0 (2,959)1995 3,349 0 (3,349) 3,010 0 (3,010)1996 3,291 0 (3,291) 3,030 0 (3,030)1997 3,230 12,048 8,818 3,045 6,194 3,1491998 3,191 8,216 5,025 3,065 6,067 3,0031999 3,732 8,132 4,399 3,650 5,839 2,1892000 6,354 8,466 2,112 5,976 6,931 9552001 6,639 9,587 2,948 6,282 8,261 1,9792002 6,919 11,257 4,338 6,561 9,959 3,3982003 7,157 13,645 6,488 6,798 11,804 5,0062004 7,387 15,726 8,340 7,030 14,013 6,9832005 7,540 17,570 10,029 7,184 15,661 8,4772006 7,697 18,463 10,767 7,340 16,486 9,1452007 7,952 20,335 12,383 7,596 18,134 10,5392008 7,952 23,129 15,177 7,596 20,607 13,0112009 7,952 23,044 15,092 7,596 20,607 13,0112010 7,933 23,044 15,111 7,572 22,900 15,3282011 7,933 23,044 15,111 7,572 22,900 15,3282012 7,919 22,094 14,175 7,558 21,984 14,4262013 7,919 21,172 13,254 7,558 21,068 13,5102014 7,933 18,351 10,418 7,572 18,320 10,7482015 7,917 16,535 8,619 7,552 17,098 9,5462016 7,917 14,692 6,775 7,552 15,198 7,6462017 7,917 12,848 4,932 7,552 13,299 5,7462018 7,917 10,055 2,138 7,552 10,449 2,8972019 7,903 8,240 337 7,538 8,549 1,0112020 7,903 7,821 (82) 7,538 8,074 5362021 7,903 7,360 (543) 7,538 7,599 61

FIRR = 24.5% EIRR = 20.8%NPV = 21,264 NPV = 15,074

EIRR = economic internal rate of return; FIRR = financial internal rate of return; NPV = net present value.Note: The economic price of rubber is based on the international dry rubber RSSI (Malaysia) less 5% for quality adjustment.a The rubber maintenance subcomponent involves an additional application of chemical fertilizers.b Cost items for operation and maintenance include labor, chemical fertilizer, organic fertilizer, stimulant, pesticide, tools and facility, transportation and equipment, and management.c FIRR net benefit is net of sales and production tax (10%).Source: Operations Evaluation Mission estimates.

Table A4.5: Estimates of FIRR & EIRR – Rubber Maintenancea

(CNY/hectare)

Benefit Net BenefitFinancial Net Benefits Economic Net Benefits

Costb Benefit Net Benefitc Costb

Year

1992 37 37 0 (37) 38 38 0 (38)1993 9 9 0 (9) 9 9 0 (9)1994 17 17 0 (17) 17 17 0 (17)1995 17 17 0 (17) 17 17 0 (17)1996 36 36 0 (36) 35 35 0 (35)1997 36 36 7 (29) 35 35 9 (26)1998 36 36 25 (10) 35 35 32 (3)1999 36 36 9 (27) 35 35 11 (24)2000 36 36 12 (24) 35 35 15 (20)2001 36 36 18 (18) 35 35 23 (13)2002 36 36 18 (18) 35 35 23 (13)2003 36 36 18 (18) 35 35 23 (13)2004 36 36 18 (18) 35 35 23 (13)2005 36 36 18 (18) 35 35 23 (13)2006 36 36 18 (18) 35 35 23 (13)2007 36 36 18 (18) 35 35 23 (13)2008 36 36 18 (18) 35 35 23 (13)2009 36 36 18 (18) 35 35 23 (13)2010 36 36 18 (18) 35 35 23 (13)2011 36 36 18 (18) 35 35 23 (13)2012 36 36 18 (18) 35 35 23 (13)2013 36 36 18 (18) 35 35 23 (13)2014 36 36 18 (18) 35 35 23 (13)2015 36 36 18 (18) 35 35 23 (13)2016 36 36 18 (18) 35 35 23 (13)2017 36 36 18 (18) 35 35 23 (13)2018 36 36 18 (18) 35 35 23 (13)2019 36 36 18 (18) 35 35 23 (13)2020 36 36 18 (18) 35 35 23 (13)2021 36 36 18 (18) 35 35 23 (13)

undefined(172)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include building and equipment (foreign and local).b Cost items for operation and maintenance include raw materials, fuel and power, labor, maintenance, and waste treatment.Source: Operations Evaluation Mission estimates.

Table A4.6: Estimates of FIRR & EIRR – Rubber-Based Product Factory(CNY million)

CostsNet Financial Benefits

CostsNet Economic Benefits

Construction & Developmenta Benefit

Operation & Maintenanceb Net BenefitTotal

Construction & Developmenta Benefit Net Benefit

Operation & Maintenanceb Total

NPV =EIRR =NPV = (150)

Appendix 4

undefinedFIRR =

Financial EconomicItem Unit Quantity Cost Quantity Cost

A. With ProjectCostLabor manday 11.7 300 3,510 8.8 300 2,634 210 2,457 210 1,844Planting material ton 315.0 7 2,126 315.0 7 2,126 2 473 2 473Plastic cover kg 16.9 40 676 16.9 40 676 0 0 0 0Urea kg 1.1 705 790 1.2 705 825 705 790 705 825Triple superphosphate kg 0.6 1,500 840 0.6 1,500 915 1,125 630 1,125 686Muriate of potash kg 1.3 600 774 1.4 600 834 600 774 600 834Organic manure ton 45.1 30 1,353 45.1 30 1,353 0 0 0 0Transport 0.0 0 845 0.0 0 845 0 0 0 0Mechanical operation 5.5 180 990 5.5 180 990 50 275 50 275Management fee 0.0 0 1,543 0.0 0 1,543 0 0 0 0Common production cost 0.0 0 1,029 0.0 0 1,029 0 0 0 0Total cost 14,475 13,770 5,398 4,936

Gross returns (yield x price) 20,090 21,044 20,090 21,044

Net return 5,614 7,274 14,692 16,107

B. Without ProjectCost 2 473 2 473Labor 11.7 270 3,159 8.8 270 2,371 0 0 0 0Planting material 315.0 7 2,126 315.0 7 2,126 525 588 525 614Plastic cover 0.0 0 0 0.0 0 0 750 420 750 458Urea 1.1 525 588 1.2 525 614 350 452 350 487Triple superphosphate 0.6 1,125 630 0.6 1,125 686 0 0 0 0Muriate of potash 1.3 450 581 1.4 450 626 0 0 0 0Organic manure 45.1 15 677 45.1 15 677 50 275 50 275Transport 0.0 0 845 0.0 0 845 0 0 0 0Mechanical operation 5.5 180 990 5.5 180 990 0 0 0 0Management fee 0.0 0 1,390 0.0 0 1,390 4,313 3,886Common production cost 0.0 0 924 0.0 0 924Total cost 11,909 11,248 17,846 18,654

Gross returns (yield x price) 17,846 18,654 13,533 14,768

Net return 5,937 7,406 1,159 1,340Incremental net return (323) (132)Notes:1. Sugarcane yield with project: 2001 actual, 94 tons/hectare (t/ha). Sugarcane yield without project: 1990 baseline, 83.5 t/ha. Sugarcane is considered a nontradable and incremental output. To estimate the consumers' willingness to pay, the average price between the General Bureau's purchase price from the bureau farmers and that from the outgrowers was taken.2. Unlike other major cane-growing areas such as Australia and Hawaii, the practice in the project area is to maintain only one ratoon crop. The General Bureau replants after the first ratoon because subsequent ratoon crops suffer from drastic decline in yield.Source: Operations Evaluation Mission estimates.

Financial EconomicQuantity Cost

Appendix 4

Table A4.7: Costs and Benefits of Sugarcane Rehabilitation (CNY/hectare)

Unit Price Quantity Cost Unit Price

Year

1992 11,432 11,432 0 (11,432) 11,432 11,432 0 (11,432)1993 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)1994 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2871995 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)1996 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2871997 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)1998 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2871999 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2000 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872001 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2002 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872003 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2004 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872005 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2006 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872007 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2008 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872009 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2010 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872011 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2012 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872013 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2014 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872015 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2016 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872017 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2018 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872019 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)2020 1,139 1,139 2,244 1,105 1,103 1,103 2,390 1,2872021 2,694 2,694 2,244 (450) 2,648 2,648 2,390 (258)

negative negative(8,204) (6,859)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include land improvement and rehabilitation.b Cost items for operation and maintenance include labor, planting materials, plastic cover, chemical fertilizer, organic fertilizer, transportation, equipment, and management fee, and common production cost.Source: Operations Evaluation Mission estimates.

Table A4.8: Estimates of FIRR & EIRR – Sugarcane Rehabilitation(CNY/hectare)

Appendix 4

Construction & Developmenta

Operation & Maintenanceb Total Net Benefit

Costs

FIRR =NPV =

EIRR =NPV =

Net Financial BenefitsCosts

Net Economic Benefits

BenefitConstruction & Developmenta

Operation & Maintenanceb Total Net BenefitBenefit

Year

1992 28 28 0 (28) 28 28 0 (28.49)1993 82 82 0 (82) 85 85 0 (85.42)1994 97 97 230 133 102 102 122 19.311995 97 97 208 111 102 102 123 20.611996 97 97 190 93 102 102 117 15.031997 97 97 174 77 102 102 117 15.021998 97 97 161 64 102 102 101 (1.49)1999 97 97 95 (2) 102 102 77 (24.94)2000 97 97 88 (9) 102 102 94 (8.82)2001 97 97 130 33 102 102 95 (7.72)2002 97 97 115 18 102 102 87 (15.05)2003 97 97 129 32 102 102 94 (8.07)2004 97 97 129 32 102 102 106 3.732005 97 97 129 32 102 102 113 10.882006 97 97 129 32 102 102 120 18.032007 97 97 129 32 102 102 91 (10.87)2008 97 97 129 32 102 102 91 (10.87)2009 97 97 129 32 102 102 91 (10.87)2010 97 97 129 32 102 102 101 (1.73)2011 97 97 129 32 102 102 101 (1.73)2012 97 97 129 32 102 102 101 (1.73)2013 97 97 129 32 102 102 101 (1.73)2014 97 97 129 32 102 102 109 6.322015 97 97 129 32 102 102 109 6.322016 97 97 129 32 102 102 109 6.322017 97 97 129 32 102 102 109 6.322018 97 97 129 32 102 102 109 6.322019 97 97 129 32 102 102 109 6.322020 97 97 129 32 102 102 109 6.322021 97 97 129 32 102 102 109 6.32

81.9%275

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include building and equipment.b Cost items for operation and maintenance include raw materials, fuel and power, labor, and other operating costs and maintenance.Source: Operations Evaluation Mission estimates.

Net Economic Benefits

Construction & Developmenta

Operation & Maintenanceb BenefitTotal

Costs

negativeNPV =

Total Benefit Net Benefit

EIRR =

Net Benefit

(70)NPV =

Appendix 4

FIRR =

Costs

Table A4.9: Estimates of FIRR & EIRR – Sugar Mill Construction(CNY million)

Net Financial Benefits

Construction & Developmenta

Operation & Maintenanceb

Year Benefit1992 24 24 0 (24) 25 25 0 (25)1993 68 68 0 (68) 71 71 0 (71)1994 136 136 343 207 146 146 198 521995 136 136 311 174 146 146 200 541996 136 136 284 147 146 146 191 451997 136 136 260 124 146 146 191 451998 136 136 242 105 146 146 164 181999 136 136 143 7 146 146 126 (20)2000 136 136 132 (4) 146 146 152 62001 136 136 195 58 146 146 154 82002 136 136 173 37 146 146 142 (4)2003 136 136 194 58 146 146 153 82004 136 136 194 58 146 146 172 272005 136 136 194 58 146 146 172 272006 136 136 194 58 146 146 172 272007 136 136 194 58 146 146 172 272008 136 136 194 58 146 146 172 272009 136 136 194 58 146 146 172 272010 136 136 194 58 146 146 184 382011 136 136 194 58 146 146 184 382012 136 136 194 58 146 146 184 382013 136 136 194 58 146 146 184 382014 136 136 194 58 146 146 184 382015 136 136 194 58 146 146 196 502016 136 136 194 58 146 146 196 502017 136 136 194 58 146 146 196 502018 136 136 194 58 146 146 196 502019 136 136 194 58 146 146 196 502020 136 136 194 58 146 146 196 502021 136 136 194 58 146 146 196 50

145.8% 35.8%529 110

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include building and equipment.b Cost items for operation and maintenance include raw materials, fuel and power, labor, and other operating cost and maintenance.Source: Operations Evaluation Mission estimates.

Table A4.10: Estimates of FIRR & EIRR – Sugar Mill Expansion(CNY million)

Appendix 4

EIRR =

Net Financial Benefits

NPV =FIRR =NPV =

Costs CostsConstruction & Developmenta Benefit Net BenefitTotal Total

Operation & Maintenanceb

Net Economic Benefits

Construction & Developmenta

Operation & Maintenanceb Net Benefit

Year1992 11,515 11,515 0 (11,515) 9,778 9,778 0 (9,778) 1993 7,825 7,825 0 (7,825) 4,206 4,206 0 (4,206) 1994 7,230 7,230 0 (7,230) 2,878 2,878 0 (2,878) 1995 8,345 8,345 10,925 2,580 4,136 4,136 10,773 6,637 1996 7,967 7,967 10,925 2,958 4,154 4,154 10,773 6,619 1997 7,629 7,629 10,925 3,296 4,163 4,163 10,773 6,610 1998 7,414 7,414 10,925 3,511 4,188 4,188 10,773 6,585 1999 7,172 7,172 10,925 3,753 4,178 4,178 10,773 6,595 2000 6,989 6,989 10,925 3,936 4,167 4,167 10,773 6,606 2001 6,787 6,787 10,925 4,138 4,153 4,153 10,773 6,620 2002 6,731 6,731 10,925 4,194 4,147 4,147 10,773 6,626 2003 12,417 12,417 0 (12,417) 9,448 9,448 0 (9,448) 2004 5,525 5,525 0 (5,525) 4,490 4,490 0 (4,490) 2005 5,370 5,370 0 (5,370) 2,886 2,886 0 (2,886) 2006 6,837 6,837 10,925 4,088 4,185 4,185 10,773 6,588 2007 6,837 6,837 10,925 4,088 4,185 4,185 10,773 6,588 2008 6,837 6,837 10,925 4,088 4,185 4,185 10,773 6,588 2009 6,837 6,837 10,925 4,088 4,185 4,185 10,773 6,588 2010 6,723 6,723 10,925 4,202 4,171 4,171 10,773 6,602 2011 6,723 6,723 10,925 4,202 4,171 4,171 10,773 6,602 2012 6,723 6,723 10,925 4,202 4,171 4,171 10,773 6,602 2013 6,723 6,723 10,925 4,202 4,171 4,171 10,773 6,602 2014 12,248 12,248 0 (12,248) 9,244 9,244 0 (9,244) 2015 6,076 6,076 0 (6,076) 4,169 4,169 0 (4,169) 2016 6,076 6,076 0 (6,076) 2,857 2,857 0 (2,857) 2017 6,616 6,616 10,925 4,309 4,156 4,156 10,773 6,617 2018 5,688 5,688 10,925 5,237 4,156 4,156 10,773 6,617 2019 5,688 5,688 10,925 5,237 4,156 4,156 10,773 6,617 2020 6,616 6,616 10,925 4,309 4,156 4,156 10,773 6,617 2021 6,616 6,616 10,925 4,309 4,156 4,156 10,773 6,617

2.5% EIRR = 23.4%(11,633) NPV = 12,188

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.Note: Sisal is replanted and harvested in an 11-year cycle.a Cost items for construction and development include labor, planting material, chemical fertilizer, tools, transportation and equipment, and management.b Cost items for operation and maintenance include labor, chemical fertilizer, pesticide, tools, transportation, equipment, and management.Source: Operations Evaluation Mission estimates.

FIRR =NPV =

Operation & Maintenanceb TotalBenefit

Appendix 4

Benefit Net BenefitNet BenefitConstruction & Developmenta

Construction & Developmenta

Operation & Maintenanceb Total

Table A4.11: Estimates of FIRR & EIRR – Sisal Replanting(CNY/hectare)

CostsNet Financial Benefits

CostsNet Economic Benefits

Year

1992 9 9 (9) 9 9 (9)1993 2 2 1 (1) 2 2 1 (1)1994 3 3 1 (2) 3 3 1 (2)1995 5 5 3 (3) 6 6 3 (3)1996 6 6 5 (1) 6 6 6 (1)1997 6 6 5 (1) 7 7 6 01998 9 9 7 (2) 10 10 8 (1)1999 11 11 10 (1) 11 11 11 02000 10 10 9 0 10 10 11 12001 8 8 8 0 8 8 9 12002 9 9 8 (2) 10 10 9 (1)2003 9 9 8 (2) 10 10 9 (1)2004 9 9 8 (2) 10 10 9 (1)2005 9 9 8 (2) 10 10 9 (1)2006 9 9 8 (2) 10 10 9 (1)2007 9 9 8 (2) 10 10 9 (1)2008 9 9 8 (2) 10 10 9 (1)2009 9 9 8 (2) 10 10 9 (1)2010 9 9 8 (2) 10 10 9 (1)2011 9 9 8 (2) 10 10 9 (1)2012 9 9 8 (2) 10 10 9 (1)2013 9 9 8 (2) 10 10 9 (1)2014 9 9 8 (2) 10 10 9 (1)2015 9 9 8 (2) 10 10 9 (1)2016 9 9 8 (2) 10 10 9 (1)2017 9 9 8 (2) 10 10 9 (1)2018 9 9 8 (2) 10 10 9 (1)2019 9 9 8 (2) 10 10 9 (1)2020 9 9 8 (2) 10 10 9 (1)2021 9 9 8 (2) 10 10 9 (1)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include building and equipment.b Cost items for operation and maintenance include raw materials, fuel and power, labor, transportation, and management.Source: Operations Evaluation Mission estimates.

Benefit

EIRR =

Net Financial BenefitsCosts

Net Economic Benefits

FIRR = negative(19)

Appendix 4

NPV =

Benefit Net BenefitNet BenefitConstruction & Developmenta

Operation & Maintenanceb Total

negative(14)

Table A4.12: Estimates of FIRR & EIRR – Sisal Leaf Processing Factory (at constant 2000 prices)(CNY million)

Construction & Developmenta

Operation & Maintenanceb Total

Costs

NPV =

Year1995 17 17 (17) 18 18 (18)1996 6 6 (6) 6 6 (6)1997 36 36 39 4 37 37 46 81998 27 27 29 2 28 28 34 61999 26 26 28 2 27 27 33 62000 28 28 27 (1) 29 29 32 22001 25 25 26 1 26 26 31 42002 25 25 26 1 26 26 31 42003 25 25 26 1 26 26 31 42004 25 25 26 1 26 26 31 42005 25 25 26 1 26 26 31 42006 25 25 26 1 26 26 31 42007 25 25 26 1 26 26 31 42008 25 25 26 1 26 26 31 42009 25 25 26 1 26 26 31 42010 25 25 26 1 26 26 31 42011 25 25 26 1 26 26 31 42012 25 25 26 1 26 26 31 42013 25 25 26 1 26 26 31 42014 25 25 26 1 26 26 31 42015 25 25 26 1 26 26 31 42016 25 25 26 1 26 26 31 42017 25 25 26 1 26 26 31 42018 25 25 26 1 26 26 31 42019 25 25 26 1 26 26 31 42020 25 25 26 1 26 26 31 42021 25 25 26 1 26 26 31 4

3.6% 18.0%(10) 9

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include building and equipment.b Cost items for operation and maintenance include raw materials, fuel and power, labor, transportation, and management.Source: Operations Evaluation Mission estimates.

Appendix 4

FIRR =NPV =

EIRR =NPV =

Table A4.13: Estimates of FIRR & EIRR – Sisal Yarn Processing Factory(CNY million)

Net Financial Benefits

Total Benefit Net Benefit

CostsNet Economic Benefits

TotalConstruction & Developmenta

Operation & Maintenanceb

Costs

Benefit Net BenefitConstruction & Developmenta

Operation & Maintenanceb

Appendix 4

Year

1992 4,538 (4,538) 4,359 (4,359)1993 1,413 (1,413) 1,320 (1,320)1994 1,345 (1,345) 1,307 (1,307)1995 0 0 0 01996 0 0 0 01997 2,666 26,858 24,193 4,914 20,377 15,4621998 1,932 (1,932) 2,122 (2,122)1999 1,170 (1,170) 1,344 (1,344)2000 1,150 (1,150) 1,342 (1,342)2001 0 0 0 02002 0 0 0 02003 2,666 26,858 24,193 4,914 20,377 15,4622004 1,846 (1,846) 2,131 (2,131)2005 1,134 (1,134) 1,344 (1,344)2006 1,134 (1,134) 1,344 (1,344)2007 0 0 0 02008 0 0 0 02009 2,666 26,858 24,193 4,914 20,377 15,4622010 1,977 (1,977) 2,249 (2,249)2011 2,198 (2,198) 2,400 (2,400)2012 1,121 (1,121) 1,323 (1,323)2013 0 0 0 02014 0 0 0 02015 2,666 26,858 24,193 4,914 20,377 15,4622016 1,831 (1,831) 2,088 (2,088)2017 1,108 (1,108) 1,308 (1,308)2018 1,108 (1,108) 1,308 (1,308)2019 0 0 0 02020 0 0 0 02021 0 26,858 26,858 0 20,377 20,377

32.9% 22.2%14,565 5,757

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.Note: Investment costs for 2020 and 2021 were not included because benefits from these investments will occur only after 2024. Eucalyptus trees are planted and harvested in a 6-year cycle. Cost items include labor, planting materials, chemical fertilizer, organic fertilizer, tools and facility, transportation and equipment, and management.Source: Operations Evaluation Mission estimates.

Table A4.14: Estimates of FIRR & EIRR – Forest Tree Plantation(CNY/hectare)

FIRR =NPV =

EIRR =NPV =

Financial Net Benefits Economic Net BenefitsCosts Benefit Net Benefit Costs Benefit Net Benefit

Year1995 7 7 0 (7) 7 7 0 (7)1996 11 11 11 0 11 11 13 21997 28 28 30 1 28 28 33 61998 88 88 14 (74) 87 87 15 (72)1999 17 17 19 2 16 16 21 52000 4 4 3 0 3 3 4 02001 14 14 17 2 14 14 19 52002 14 14 17 2 14 14 19 52003 14 14 17 2 14 14 19 52004 14 14 17 2 14 14 19 52005 14 14 17 2 14 14 19 52006 14 14 17 2 14 14 19 52007 14 14 17 2 14 14 19 52008 14 14 17 2 14 14 19 52009 14 14 17 2 14 14 19 52010 14 14 17 2 14 14 19 52011 14 14 17 2 14 14 19 52012 14 14 17 2 14 14 19 52013 14 14 17 2 14 14 19 52014 14 14 17 2 14 14 19 52015 14 14 17 2 14 14 19 52016 14 14 17 2 14 14 19 52017 14 14 17 2 14 14 19 52018 14 14 17 2 14 14 19 52019 14 14 17 2 14 14 19 52020 14 14 17 2 14 14 19 52021 14 14 17 2 14 14 19 5

3.6%(25)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.Note: The declining operating costs between 1998 and 2000 was due to the production adjustment because of low profitability of plywood sales.a Cost items for construction and development include building and equipment.b Cost items for operation and maintenance include raw materials, fuel and power, labor, transportation, and management.Source: Operations Evaluation Mission estimates.

(CNY million)

Total Total

CostsNet Financial Benefits

CostsNet Economic Benefits

Construction & Developmenta

FIRR = EIRR =negativeNPV =NPV = (42)

Appendix 4

Construction & Developmenta

Operation & Maintenanceb Net BenefitBenefit

Operation & Maintenanceb Benefit Net Benefit

Table A4.15: Estimates of FIRR & EIRR – Plywood Factory

Year1991 7 7 (7) 7 7 (7)1992 6 6 7 1 6 6 6 01993 19 19 3 (16) 18 18 2 (16)1994 5 5 5 0 5 5 4 (1)1995 40 40 32 (8) 39 39 26 (13)1996 18 18 20 3 17 17 17 01997 20 20 21 1 19 19 17 (2)1998 19 19 19 1 18 18 16 (2)1999 13 13 14 1 13 13 12 (1)2000 9 9 10 1 9 9 8 (1)2001 9 9 9 0 9 9 8 (1)2002 11 11 9 (2) 11 11 8 (3)2003 11 11 9 (2) 11 11 8 (3)2004 11 11 9 (2) 11 11 8 (3)2005 11 11 9 (2) 11 11 8 (3)2006 11 11 9 (2) 11 11 8 (3)2007 11 11 9 (2) 11 11 8 (3)2008 11 11 9 (2) 11 11 8 (3)2009 11 11 9 (2) 11 11 8 (3)2010 11 11 9 (2) 11 11 8 (3)2011 11 11 9 (2) 11 11 8 (3)2012 11 11 9 (2) 11 11 8 (3)2013 11 11 9 (2) 11 11 8 (3)2014 11 11 9 (2) 11 11 8 (3)2015 11 11 9 (2) 11 11 8 (3)2016 11 11 9 (2) 11 11 8 (3)2017 11 11 9 (2) 11 11 8 (3)2018 11 11 9 (2) 11 11 8 (3)2019 11 11 9 (2) 11 11 8 (3)2020 11 11 9 (2) 11 11 8 (3)2021 11 11 9 (2) 11 11 8 (3)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a Cost items for construction and development include building and equipment.b Cost items for operation and maintenance include raw materials, fuel and power, labor, transportation, and management.Source: Operations Evaluation Mission estimates.

Operation & Maintenanceb

undefined

Costs

Total Total

EIRR =

CostsNet Financial Benefits

Construction & Developmenta

FIRR =

Net Economic Benefits

Appendix 4 (36)NPV =negative

(22) NPV =

Benefit

Table A4.16: Estimates of FIRR & EIRR – Chipwood Factory(CNY million)

Operation & Maintenanceb Benefit Net Benefit Net Benefit

Construction & Developmenta

Appendix 4

Year

1997 45.66 (45.66) 45.66 (45.66)1998 2.88 0.43 (2.44) 2.88 0.36 (2.52)1999 2.88 1.00 (1.88) 2.88 0.36 (2.52)2000 2.88 1.71 (1.17) 2.88 0.36 (2.52)2001 2.88 3.07 0.20 2.88 0.36 (2.52)2002 2.88 3.07 0.20 2.88 0.36 (2.52)2003 2.88 3.07 0.20 2.88 0.36 (2.52)2004 2.88 3.07 0.20 2.88 0.36 (2.52)2005 2.88 3.07 0.20 2.88 0.36 (2.52)2006 2.88 3.07 0.20 2.88 0.36 (2.52)2007 2.88 3.07 0.20 2.88 0.36 (2.52)2008 2.88 3.07 0.20 2.88 0.36 (2.52)2009 2.88 3.07 0.20 2.88 0.36 (2.52)2010 2.88 3.07 0.20 2.88 0.36 (2.52)2011 2.88 3.07 0.20 2.88 0.36 (2.52)2012 2.88 3.07 0.20 2.88 0.36 (2.52)2013 2.88 3.07 0.20 2.88 0.36 (2.52)2014 2.88 3.07 0.20 2.88 0.36 (2.52)2015 2.88 3.07 0.20 2.88 0.36 (2.52)2016 2.88 3.07 0.20 2.88 0.36 (2.52)2017 2.88 3.07 0.20 2.88 0.36 (2.52)2018 2.88 3.07 0.20 2.88 0.36 (2.52)2019 2.88 3.07 0.20 2.88 0.36 (2.52)2020 2.88 3.07 0.20 2.88 0.36 (2.52)2021 2.88 3.07 0.20 2.88 0.36 (2.52)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.a The revenue from office space rental is treated as nontradable. Economic price of rent is derived from the consumers' willingness to pay, which in this case is approximately 20% lower than the actual rent to reflect that all spaces of the center are not occupied.Source: Operations Evaluation Mission estimates.

Table A4.17: Estimates of FIRR & EIRR – Marketing and Trading Center(CNY million)

undefined(58)

FIRR =NPV =

EIRR =NPV =

negative(44)

Net Financial Benefits Net Economic BenefitsCost Benefit Net Benefit Cost Benefita Net Benefit

Appendix 4

Year Total Benefit

1991 7 0 (7) 7 0 (7)1992 353 7 (346) 343 6 (337)1993 280 34 (246) 270 36 (234)1994 337 608 271 335 356 211995 418 613 195 416 413 (3)1996 385 569 184 385 405 201997 417 787 370 519 603 841998 494 646 152 498 498 (1)1999 442 470 28 447 419 (28)2000 434 436 2 438 454 162001 459 564 105 462 486 242002 446 551 106 449 489 412003 494 686 192 504 577 732004 455 608 154 463 556 932005 474 630 156 478 582 1042006 459 674 215 463 631 1692007 479 692 213 481 618 1372008 458 721 263 461 644 1832009 488 830 342 499 729 2292010 465 731 267 469 701 2332011 486 731 245 490 701 2112012 461 724 263 465 694 2292013 478 713 235 481 684 2032014 472 658 186 474 638 1642015 486 732 246 499 709 2102016 462 611 149 464 611 1472017 482 619 137 486 618 1332018 458 590 132 465 589 1242019 475 565 90 481 562 822020 457 554 97 460 551 912021 477 647 170 481 620 139

FIRR = 28.4% EIRR = 10.3%NPV = 608 NPV = (87)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV = net present value.Source: Operations Evaluation Mission estimates.

Table A4.18: Summary of Costs and Benefits of the Project(CNY million)

Total Net BenefitEconomicFinancial

Total Cost Total Net Benefit Total Cost Total Benefit

IRR (%)

NPVb Change(%)

IRR (%)

NPVb Switching Value (%)

Change(%)

IRR (%)

NPVb Switching Value (%)

A. Financial1. Rubber Development Rubber Replanting 16 8,087 10 13 2,858 1547 18 13 2,894 28 Rubber Maintenance 25 21,264 10 22 15,065 3430 18 23 15,933 72

2. Sugar Development Sugar Mill Construction 82 275 10 70 234 6707 28 80 262 592 Sugar Mill Expansion 146 529 10 133 468 8672 28 141 496 449

4. Forest Tree Development Forest Tree Plantation 33 14,565 10 30 11,603 4917 10 30 11,899 55

B. Economic1. Rubber Development Rubber Replanting 16 8,085 10 14 3,502 1764 18 12 2,822 28 Rubber Maintenance 21 15,074 10 18 9,910 2919 18 18 9,694 50

2. Sugar Develpoment Sugar Mill Expansion 36 110 10 31 91 5789 28 28 89 147

3. Sisal Development Sisal Replanting 23 12,188 10 19 7,055 2375 10 19 7,055 24

4. Forest Tree Development Forest Tree Plantation 22 5,757 10 22 5,757 — 10% 22 5,757 —

— = undefined, IRR = internal rate of return, NPV = net present value.a Senstivity tests were conducted for the components with positive NPV at base case. Senstivity tests are not applicable for negative NPVs. Due to the large price fluctuation for sugar and rubber, the components under rubber and sugar development are set at the lowest and highest commodity prices experienced during that period. For all other components, sensitivity is tested to 10% increase and decrease in commodity prices. b NPV for the plantation components is in CNY per hectare. For the agroprocessing enterprises, NPV is in million CNY using constant 2001 prices.Source: Operations Evaluation Mission estimates.

Table A4.19: Sensitivity Test by Componenta

Appendix 4 Item

Base Case Decrease in Yield or Factory Utilization Decrease in Commodity/Product Pricea

PROJECT ORGANIZATION CHART

General Bureau of Guangdong Land Reclamation and Farm Enterprises

Project Management Committee

Project Management Office

Yangjiang State Farms Bureau

Project Management Committee

Project Office

Project Unit

Farm Enterprises 1. Sanye 2. Zhilong 3. Hongshiyue 4. Hongwuyue 5. Pinggang 6. Jishan

Project Management Committee

Zhanjiang State Farms Bureau

Project Office

Farm Enterprises 1. Yongshi 2. Huahai Sugar Co Ltd 3. Nanhua 4. Youhua 5. Hongxing 6. Nanguang 7. Zhanjiang Sisal Grp

Co Ltd 8. Shouhuo 9. Xingfu 10. Qianjin 11. Huguang 12. Hongjiang 13. Chenguang 14. Honghu 15. Wuyi 16. Huoju 17. Dongfanghong 18. Liming 19. Dongsheng

Agro Enterprises 1. Guangqian Sugar

Factory 2. Guanfeng Sugar

Factory 3. Zhanjiang Presswood

Factory 4. Dongfanghong Sisal

Maoming State Farms Bureau

Project Management Committee

Project Unit

Project Office

Farm Enterprises 1. Xinhua 2. Xinshidai 3. Heping 4. Hongyang 5. Hongfeng 6. Jianshe 7. Shengli 8. Tuanjie 9. Huoxing 10. Hongqi 11. Shuifeng 12. Shuguang

Jieyang State Farms Bureau

Project Management Committee

Project Office

Project Unit

Farm Enterprises 1. Daping 2. Ma'anshan 3. Sashiling 4. Dachi 5. Dongpu 6. Kuitan

Shanwei State FarmsBureau

Project ManagementCommittee

Project Unit

Project Office

Farm Enterprises 1. Tongluohu 2. Da'an Agro-Enterprise Tongluohu Plywood Factory

Guangzhou Agribusiness Corp.

Headquarters

Taitong Transport Company

Rubber-Based Product Factory

Yan Tang Enterprise General Co. Ltd.

Marketing & Trading Center

Appendix 5

Source: General Bureau.