ASIAN DEVELOPMENT BANK

PPA: PRC 23156

PROJECT PERFORMANCE AUDIT REPORT ON THE GUANGDONG TROPICAL CROPS DEVELOPMENT PROJECT (Loan 1175PRC) IN THE PEOPLES REPUBLIC OF CHINA

May 2002

CURRENCY EQUIVALENTS Currency Unit yuan (CNY) At Appraisal (June 2002) $0.1831 CNY5.4621 At Project Completion (May 1999) $0.1205 CNY8.3000 At Operations Evaluation (November 2001) $0.1208 CNY8.2767

CNY1.00 $1.00

= =

ABBREVIATIONS ADB EIRR FIRR ha IDC m2 NPV OEM PCR PPAR PRC t TA WTO Asian Development Bank economic internal rate of return financial internal rate of return hectare interest during construction square meter net present value operations evaluation mission project completion report project performance audit report Peoples Republic of China ton technical assistance World Trade Organization NOTE In this report, $ refers to US dollars.

Operations Evaluation Department, PE592

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY OVERVIEW MAP I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Objectives and Scope Cost, Financing, and Executing Arrangements Completion and Self-Evaluation Operations Evaluation ii iii vi viii 8 8 8 8 9 9 10 11 11 12 13 14 14 16 16 16 18 19 21 21 21 21 22 24 24 25 25 25 26 18 20 21 22 45

PLANNING AND IMPLEMENTATION PERFORMANCE A. B. C. D. E. Formulation and Design Achievement of Outputs Cost and Scheduling Procurement and Construction Organization and Management

III.

ACHIEVEMENT OF PROJECT PURPOSE A. B. C. D. Operational Performance Performance of the Operating Entity Financial and Economic Reevaluation Sustainability

IV.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. B. C. D. E. F. Socioeconomic Impact Environmental Impact Impact on Institutions and Policy Overall Assessment Overall Project Rating Assessment of ADB and Borrower Performance

V.

ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. B. C. Key Issues for the Future Lessons Learned Follow-up Actions

APPENDIXES 1. Summary of Achievement of Outputs 2. Project Cost 3. Summary of the General Bureaus Financial Statements 4. Project Economic Analysis 5. Project Organization Chart

BASIC DATA Loan 1175-PRC: Guangdong Tropical Crops Development Project Project Preparation/Institution Building TA No. 1504 1740 Project Name Tropical Crops Development Policy Studies and Institutional Strengthening for the Ministry of Agriculture Type PPTA ADTA PersonMonths 35.0 16.5 Amount ($) 420,000 800,000 Approval Date 11 April 1991 13 August 1992 Actual 139.70 55.90 83.80 55.00 0.00 Actual 923 April 1992 810 July 1992 13 August 1992 4 September 1992 19 November 1992 31 May 1998 31 May 1998 66 PCR 13.1 17.7 PPAR 10.3 28.4

Key Project Data ($ million) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancelation Key Dates Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness Loan Closing Project Completion Months (effectiveness to completion) Key Performance Indicators (%) Economic Internal Rate of Return Financial Internal Rate of Return Borrower Executing Agency Mission Data Type of Mission Appraisal Inception Project Administration Review Project Completion Operations Evaluation1

As per ADB Loan Documents 109.70 55.00 54.70 55.00 Expected

14 November 1992 31 May 1998 30 November 1997 61 Appraisal 23.2 19.0

Peoples Republic of China General Bureau of Guangdong Land Reclamation and Farm Enterprises Missions 1 1 5 1 1 Person-Days 126 18 119 153 63

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 Peoples 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 Governments Eighth Five-Year Plan was to strengthen agriculture and the rural economy. The Project was designed in line with the plan and the 19921994 country operational program for the PRC of the Asian Development Bank (ADB). ADBs 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 Projects 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 lossCNY210 million in 2001attributed to social expenses not related to production but to workers medical, educational, and housing subsidies, and pensions for retired workers.1 The Projects agroprocessing enterprises are also financially weak. In 2000, of the Projects 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 Bureaus 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 PRCs 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 Bureaus 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 Projects rationale to make agriculture and agroprocessing more efficient through market reforms was and still is relevant. The General Bureau diligently followed the agreedupon 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 Bureaus improved rubber yield and comparative advantage in sisal. The General Bureaus 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. A. Rationale

BACKGROUND

1. In 1978, the Government of the Peoples 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 (19911995) 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 (19921994) 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. ADBs 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 2 3 4

After 1979, the state farm system moved from collective production to family farming based on a responsibility contract. ADB. 1991. Technical Assistance to the People's Republic of China for the Tropical Crops Development. Manila. ADB. 1992. Technical Assistance to the People's Republic of China for Policy Studies and Institutional Strengthening for the Ministry of Agriculture. Manila. 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 Bureaus 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 Bureaus 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 ADBs 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. ADBs 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 Projects 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 6

ADB. 2000. Project Completion Report on the Tropical Crops Development Project in the People's Republic of China. Manila. 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 Projects outputs and operational achievements but did not separately assess the TAs impact on the Governments 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 Projects major agricultural crops declined significantly.7 The PCRs 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 Bureaus 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.

The PRCs 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 PRCs 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. A.

PLANNING AND IMPLEMENTATION PERFORMANCE

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 TAs focus on three main cropsrubber, sugar, and sisalreflected the Governments desire to develop crops with high comparative advantage and high foreign exchange saving and/or earning potential.8 The OEMs 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 PRCs comparative advantage in and the Government's price protection for the Projects two major cropssugar and rubberwere 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 PRCs production cost for rubber was approximately 25% higher than in the major producing countries. The PRCs 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 (78 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.

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 (45 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 governments 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 Bureaus 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 agroindustry 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 Projects 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 factorys 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 factorys 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 factorys 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% jointventure 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 bureaus 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 Projects 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 ADBs 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. Agreedupon 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. ADBs 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 factorys 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 Bureaus 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 15

Facsimile letter from the deputy director, General Bureau to ADB, 29 September 1993. Facsimile letter from ADB to the director of the International Department, Peoples Bank of China, 10 November 1993.

was 8.8% in 2001.16 The workers shares are ordinary common shares. The General Bureaus 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. A.

ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance

30. The Projects 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 Crop Rubber (dry) Sugarcane Sisal Fiber Eucalyptus Trees Appraisal Target 1.31.4 t/ha 100 t/ha 3.4 t/ha 70 m3/ha Actual 1990 Baselinea 0.93 t/ha 83.5 t/ha 2.7 t/ha PPAR 1.08 t/hab 94.0 t/ha 4.3 t/ha 82 m3/ha Increase (%) 16 13 60

= 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 (1215 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 Agricultures 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 19951999 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 Bureaus 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 OEMs 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)
Huafeng Sisal Leaf Guangfeng Item Sugar Millb Processing Sugar Milla Gross Revenue 118.88 84.50 45.55 Costs for Raw Materials 89.30 60.00 23.68 Other Operational Expenditures 23.59 25.60 7.79 Gross Operating Profitc 5.99 (1.10) 14.10 Profit before Tax 5.73 (1.10) 3.38 Profit after Tax (3.33) (11.70) 7.32 Net Fixed Assets 291.86 160.70 5.60 Long-Term Loans 91.37 117.30 4.35 Total Assets 346.85 209.60 6.70 Performance Indicators Operating Expenditure/Revenue 1.10 0.95 1.01 0.69 (ratio) Return on Operating Revenued (%) (13.2) 4.5 (1.3) 7.4 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. RubberBased Product 14.80 10.60 5.74 (1.54) (1.96) (1.96) 36.98 26.78 63.88 Sisal Yarn Processing 27.23 20.87 3.87 2.49 1.96 1.27 27.02 20.92 31.02 0.93 7.2 Chipwood Factory 9.52 5.20 2.92 1.40 1.40 0.60 2.90 2.60 3.90 0.85 14.7 Plywood Factory 3.69 2.09 1.04 0.54 (0.21) (0.21) 9.27 2.50 19.26 0.85 (5.7)

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 factorys 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 PRCs 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 PRCs 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 PRCs 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 (%)

Share in Actual Project Costa

NPV Component 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 6.2 15 28 8 8 neg. (172) neg. (150) Factory c 5.3 57 67 4. Presswood Factory B. Sugar Development 5.6 19 26 16 10 neg. (8,204) neg. (6,859) 1. Sugarcane Rehabilitation 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 3.1 17 15 9 16 3 (11,633) 23 12,188 1. Sisal Replanting 2. Sisal Leaf Processing 0.6 13 15 8 20 neg. (19) neg. (14) Factory 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 0.4 16 27 16 19 neg. (22) neg. (36) 2. Chipwood Factory 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.

Appraisal FIRR EIRR

PCR FIRR EIRR

FIRR

PPAR NPVb EIRR

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 PRCs 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. Guangdongs 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 Bureaus 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 Bureaus 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 PRCs 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 Bureaus 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. A.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

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 incomegenerating 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 Projects separate income impact as data on the income level of outgrower farmers among the project beneficiaries was insufficient. However, the OEMs 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 bureaus 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 Bureaus 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 PRCs 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 Governments 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 Governments agricultural strategy. Its effect on the Governments 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 ADBs strategy of promoting agricultural technology, improving productivity, and supporting market reforms (para. 1). The design of the agroprocessing components was also relevant to ADBs operational strategy (19921994) for agro-industry in the PRC, which included (i) market-based pricing of project outputs, (ii) elimination of subsidies, (iii) promotion of
25

During MarchAugust 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 Projects 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 Governments reform models. Overall, the Projects 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 19902005. In reality, international prices of rubber and sugar declined by 42% and 32%, respectively, during 19902001 (Appendix 4, paras. 3 and 4).

E.

Overall Project Rating

60. The Projects 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 Bureaus further efforts to restructure its plantation and enterprise management system will enhance sustainability. The General Bureau made laudable efforts to transform itself from a Governmentsubsidized 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 Borrowers 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. ADBs performance is also considered satisfactory. ADBs 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, ADBs 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. A.

ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future

62. Incorporation of Agroprocessing Enterprises into Shareholding Companies. The Projects 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 Projects 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 incomegenerating 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 PRCs 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 Bureaus 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. 65. (i) (ii) (iii) (iv) Lessons Learned The Project provides the following lessons: The lack of realistic market demand projections for commercial operations led, in some cases, to overinvestment and lower returns. 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. Income-generating opportunities were not equitably distributed when the financial viability of an operating entity itself was at stake. 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 end2002 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 incomegenerating activities for farmers; and (vi) in the longer term, spinning off noncore, nonprofitable business operations such as hospitals.

Appendix 1

SUMMARY OF ACHIEVEMENT OF OUTPUTS

Appraisal Component/Item Output Target 1. Rubber Development a. Rubber Replanting Replanting 8,000 hectares (ha) of old rubber with highyielding varieties Maintaining 7,670 ha of young rubber Setting up a rubber-based product factory with a capacity of 500 tons (t)/year Expanding an existing presswood factory to produce 198,000 flameretardant doors and doorframes June 1997 8,000 ha of rubber trees replanted 7,670 ha of rubber trees maintained Factory established and operating with 450t/year production capacity. Production line built, but closed in 1999 December 1994 Completion Time Target Actual Capacity Actual Completion Actual

b. Rubber Maintenance c. Rubber-Based Product Factory

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

December 1995 November 1995 (construction) January 1997 (start of operation) December 1996 (construction)

d. Presswood Factory

2.

Sugar Development a. Sugarcane Rehabilitation Improving the 13,333 ha of low-yielding sugarcane plantations Building a new 2,000 t/day factory January 1993 (start of cultivation) July 1994 (construction) January 1994 (start of operation) June 1994 (mill expansion) January 1994 (start of operation) 10,000 ha of sugarcane rehabilitated and 3,000 ha of sugarcane planted Factory built and operating with 4,000 t/day processing capacity Factory capacity was increased to 6,500 t/day of sugarcane January 1992 (start of cultivation) November 1994 (construction) January 1995 (start of operation) November 1994 (expansion of production line) October 1993 (start of operation)

b. Sugar Mill Construction

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

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

Continued Appraisal Component/Item Output Target 3. Sisal Development a. Sisal Replanting Replanting 2,670 ha of sisal Building a leaf processing line with daily processing capacity of 250 t Building a sisal yarn processing line to increase production capacity from 1,200 to 2,000 t/year July 1997 2,700 ha of sisal were replanted Factory built and operating with capacity of 1,600 t/day Factory built and operating with 3,800 t/year production capacity December 1994 Completion Time Target Actual Output Actual Completion Actual

b. Sisal Leaf Processing Factory

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

July 1995 (construction) November 1995 (start of operation) December 1994 (construction) January 1996 (start of operation)

c. Sisal Yarn Factory

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 Production line expanded and operating with processing capacity of 45,000 t/year Factory redesigned to produce plywood; produces 50,000 door and doorframes/year 24,000 m center built and rented as office space
2

December 1994

b. Chipwood Factory

Expanding an existing chipwood factory

December 1992 (expansion) January 1993 (start of operation) July 1993 (construction) March 1995 (start of operation) June 1994 (construction) July 1994 (start of operation)

December 1993 (expansion) January 1994 (start of operation) December 1995 (construction) July 1996 (start of operation) Appendix 1 March 1998 (construction) October 1997

c. Plywood Factory

Building a chipwood factory with a capacity of 30,000 t

5. Marketing and Trading Center

Building a marketing and trading center

Appendix 2

PROJECT COST ($ million)

Appraisal Local Currency 26.3 11.3 7.9 2.7 4.5 16.2 3.2 6.7 6.4 Actual Local Currency 32.1 11.7 11.1 4.9 4.5 29.7 5.7 15.8 8.1

Item I. Rubber Development A. Rubber Replanting B. Rubber Maintenance C. Rubber Products Factory D. Presswood Factory II. Sugar Development A. Sugarcane Rehabilitation B. Sugar Mill Construction C. Sugar Mill Expansion

Foreign Exchange 9.9 2.7 2.5 2.8 2.0 18.8 2.5 8.0 8.3

Total 36.2 14.0 10.3 5.5 6.4 35.0 5.6 14.6 14.7

Foreign Exchange 8.4 1.6 1.5 3.1 2.3 17.8 1.4 8.2 8.1

Total 40.6 13.3 12.6 7.9 6.8 47.4 7.1 24.0 16.3

III. Sisal Development A. Sisal Replanting B. Sisal Leaf Processing Factory C. Fine Yarn Processing Factory IV. Forest Development A. Industrial Tree Plantation B. Chipwood Factory C. Tongluohu Plywood V. Marketing and Trading Center VI. Equipment and Vehicles VII. Consulting Services/Training Interest During Construction Total

5.8 2.3 0.6 3.0 3.3 2.2 0.4 0.6 2.1 3.4 0.2 11.5 55.0

6.0 4.4 0.3 1.2 4.2 3.6 0.3 0.4 1.1 0.8 0.0 0.0 54.7

11.8 6.7 0.9 4.2 7.5 5.8 0.7 1.0 3.2 4.2 0.2 11.5 109.7

4.8 1.3 0.5 3.0 2.4 1.4 0.3 0.7 2.3 7.9 0.0 12.4 55.9

4.3 2.7 0.3 1.3 11.0 9.9 0.2 0.9 5.5 1.3 0.0 0.0 83.8

9.0 3.9 0.8 4.3 13.3 11.3 0.5 1.5 7.8 9.1 0.0 12.4 139.7

Appendix 3 SUMMARY OF THE GENERAL BUREAUS FINANCIAL STATEMENTS (CNY million)

Item Gross Sales Revenue Tax Net Profit Gross Fixed Assets Net Fixed Assets Fixed Assets Investment

1995 1,217.0 159.5 235.2 2,133.2 1,684.5 741.6

1996 1,287.2 140.7 100.0 3,233.5 2,395.2 581.9

1998 1,440.6 133.6 45.2 3,872.2 2,803.4 436.9

1999 1,384.1 135.4 (393.0) 4,009.8 2,819.9 358.2

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 Projects 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 (19922021). For the rubber-based product, sisal yarn, and plywood factories, the period was shortened due to the delay in their operations. All calculations of project economic benefits and costs were expressed in constant 2001 prices. Project investments were adjusted using the World Banks 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). Economic prices of internationally traded commodities such as sugar and rubber were derived from the World Banks 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. 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. 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.

(ii)

(iii)

(iv)

(v)

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 2

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. 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 costsincurred in the past with no consequence to the future stream of costs and benefits associated with the Projectand 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 19952009. 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 19902001. The price projection of natural dry rubber for the FIRR and EIRR of the Project Performance Audit Report (PPAR) (Tables A4.4A4.6) 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 Governments 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 A4.7A4.10), 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 Peoples 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 19801989, 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 A4.11A4.13). 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

Table A4.1: Assumptions Used in Calculating Project Costs

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
a

Annual Exchange Average Rate Ratio: Exchange 2001 to Rate Current (CNY:$1) Year 5.51 5.76 8.62 8.35 8.31 8.30 8.28 8.28 8.28 8.28
a

GDP Implicit Price Index

MUV Index

(1978=100) 351.4 398.8 449.3 496.5 544.1 592.2 638.5 684.1 738.8 792.7

(2001=100) 44.3 50.3 56.7 62.6 68.6 74.7 80.5 86.3 93.2 100.0
b

(1990=100) (2001 = 100) 106.64 106.33 110.21 119.21 113.99 108.38 104.19 103.56 106.15 108.80 98.01 97.73 101.30 109.57 104.77 99.61 95.76 95.18 97.56 100.00

1.50 1.44 0.96 0.99 1.00 1.00 1.00 1.00 1.00 1.00

GDP = gross domestic product, MUV = manufactures' unit value. 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 A4.2: Derivation of Main Output Economic Prices

A. Import Parity for Rubber a (Latex) Item 1992 1993 850 808 163 971 8,679 153 51 25 15,606 8,908 1994 1,112 1,056 163 1,219 10,898 153 51 25 26,455 11,127 1995 1,442 1,370 163 1,533 13,704 153 51 25 23,962 13,933 1996 1,331 1,264 163 1,427 12,757 153 51 25 21,866 12,986 1997 1,017 966 163 1,129 10,094 153 51 25 20,080 10,323 1998 754 716 163 879 7,861 153 51 25 11,180 8,090 1999 661 628 163 791 7,070 153 51 25 10,429 7,299 2000 708 673 163 836 7,473 153 51 25 9,657 7,702 2001 612 581 163 744 6,655 153 51 25 8,200 6,884 2002 639 607 163 770 6,884 153 51 25 8,282 7,113 2003 728 692 163 855 7,640 153 51 25 9,359 7,869 2005 772 733 163 896 8,014 153 51 25 9,499 8,243 2010 880 836 163 999 8,931 153 51 25 9,499 9,160 2015 951 903 163 1,066 9,534 153 51 25 9,499 9,763 $/mt 879 Less: Quality adjustment 5%b 835 Freight, Singapore-Guangzhou (+) 163 CIF prices, Guangzhou, $ 998 g ($=CNY8.94) CIF prices, Guangzhou, CNY 8,923 Port handling and margin (+) 153 Local transport (+) 51 Factory (+) 25 Financial Price c 17,720 Economic Price d 9,152 CIF = cost, insurance, and freight. Note: The PRC is a net importer of rubber.
a b

Rubber (RSS No. 1) spot, Singapore. PRC price: 5% less quality adjustment. c Financial price: 1992-2001 project actual; projections for 2002 onwards are based on trends from 1990 to 2001. 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. Import Parity for Sugar a Item 1992 1993 226 51 277 2,478 153 51 25 8,151 2,707 1994 264 51 315 2,812 153 51 25 7,231 3,041 1995 267 51 318 2,845 153 51 25 6,550 3,074 1996 252 51 303 2,705 153 51 25 5,977 2,934 1997 252 51 303 2,705 153 51 25 5,489 2,934 1998 205 51 256 2,292 153 51 25 5,093 2,521 1999 140 51 191 1,706 153 51 25 3,013 1,935 2000 185 51 236 2,109 153 51 25 2,790 2,338 2001 188 51 239 2,137 153 51 25 4,100 2,366 2002 168 51 219 1,953 153 51 25 3,649 2,182 2003 187 51 238 2,128 153 51 25 4,087 2,357 2005 220 51 271 2,423 153 51 25 4,087 2,652 2010 240 51 291 2,602 153 51 25 4,087 2,831 2015 260 51 311 2,780 153 51 25 4,087 3,009 Appendix 4 $/mt 204 Freight, Bangkok-Guangzhou (+) 51 CIF prices, Guangzhou, $ 255 g ($=CNY8.94) CIF prices, Guangzhou, CNY 2,277 Port handling and margin (+) 153 Local transport (+) 51 Factory (+) 25 Financial Price b 9,255 Economic Price c 2,506 Note: The PRC is a net importer of sugar.
a b

International Sugar Agreement daily price, raw, free on board (FOB) and stowed at greater Caribbean ports. Financial: 1992-2001 project actual; projections for 2002 onwards are based on trends from 1992 to 2001. 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.

Appendix 4

C. Import Parity for Sisal a Item 1992 1993 596 596 1994 612 612 1995 574 574 1996 668 668 1997 793 793 1998 857 857 1999 727 727 2000 572 572 2001 632 632 2002 705 705 2003 710 710 2005 720 720 2010 730 730 2015 740 740 $/mt 594 594 FOB prices, Guangzhou, $ Shadow exchange rate ($=CNY8.94) FOB prices, Guangzhou, CNY 5,309 Processing (-) 51 Transport and handling (-) 153 Financial Price b 8,126 Economic Price b 5,105 Note: The PRC is a net importer of sisal.
a

5,324 51 153 7,157 5,120

5,472 51 153 6,173 5,268

5,132 51 153 5,591 4,928

5,973 51 153 5,394 5,769

7,090 51 153 4,953 6,886

7,663 51 153 4,969 7,459

6,495 51 153 4,635 6,291

5,116 51 153 4,721 4,912

5,648 51 153 4,400 5,444

6,303 51 153 4,400 6,099

6,347 51 153 3,900 6,143

6,437 51 153 4,000 6,233

6,526 51 153 4,100 6,322

6,616 51 153 4,200 6,412

Sisal: East African, CIF UK. Sisal: long fiber, first grade. 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. Sources: World Bank Commodity Price Data (Pink Sheet, various issues) and Global Commodity Price Prospects (January 2002).

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

A. Urea a Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 132 26 158 1,409 71 31 1,034 1,511 2010 126 26 152 1,362 71 31 992 1,464 2015 122 26 148 1,319 71 31 955 1,421 $/ton 133 134 129 114 119 120 125 121 118 113 114 119 Bulk freight and handling 26 26 26 26 26 26 26 26 26 26 26 26 CIF price, Guangzhou, $ 159 160 155 140 145 146 151 147 144 139 140 145 Shadow 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 Port handling and margin (+) 71 71 71 71 71 71 71 71 71 71 71 71 Local transport (+) 31 31 31 31 31 31 31 31 31 31 31 31 Retail price (CNY/ton) b Financial 2,318 2,041 1,811 1,569 1,432 1,262 1,171 1,047 969 890 894 934 Economic b 1,527 1,530 1,488 1,354 1,401 1,411 1,455 1,415 1,388 1,347 1,352 1,397 CIF = cost, insurance, and freight. Note: The PRC is a net importer of urea. a Urea (Black Sea), bagged FOB Black Sea. 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. Triple Superphosphate (TSP) Item
a

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2005 130 46 84 749 71 31 966 647

2010 126 46 80 718 71 31 940 616

2015 134 46 88 784 71 31 995 682

$/ton 134 135 136 126 130 136 144 147 145 135 130 126 Bulk freight and handling (-) 46 46 46 46 46 46 46 46 46 46 46 46 CIF value, Guangzhou 88 89 90 80 84 90 98 101 99 89 84 80 Shadow exchange rate ($=Y8.94) CIF price, Guangzhou, CNY 791 794 807 715 749 800 877 904 884 791 755 714 Port handling and margin (-) 71 71 71 71 71 71 71 71 71 71 71 71 Local transport (-) 31 31 31 31 31 31 31 31 31 31 31 31 Retail price (CNY/ton) b Financial 2,214 1,950 1,812 1,641 1,476 1,345 1,276 1,207 1,129 1,001 971 937 Economic b 689 692 705 613 647 698 775 802 782 689 653 612 Note: The PRC is a net exporter of TSP. a TSP, bulk, spot, FOB, US Gulf. b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on the World Bank Global Commodity Price Prospects (January 2002). C. Muriate of Potash (MOP) Item
a

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2005

2010

2015

$/mt 100.09 100.38 96.84 100.39 104.99 115.45 120.09 126.08 128.95 128.00 124.20 120.40 117.50 110.60 105.30 Bulk freight and handling (+) 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 26.00 CIF value, Guangzhou 126.09 126.38 122.84 126.39 130.99 141.45 146.09 152.08 154.95 154.00 150.20 146.40 143.50 136.60 131.30 Shadow exchange rate ($=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 1,173.82 Port 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 71.00 Local 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 31.00 Retail price (CNY/mt) b Financial 1,465.08 1,290.32 1,144.67 1,162.56 1,060.87 1,018.53 945.14 919.95 893.02 846.85 821.71 796.57 777.38 731.73 696.66 Economic b 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 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

Appendix 4

D. Phosphate Item

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2005 40 26 66 594 71 31 371 696

2010 40 26 66 591 71 31 368 693

2015 39 26 65 580 71 31 357 682

$/ton 41 41 40 38 40 42 47 47 46 45 42 42 Bulk freight and handling (+) 26 26 26 26 26 26 26 26 26 26 26 26 CIF price, Guangzhou, $ 67 67 66 64 66 68 73 73 72 71 68 68 Shadow exchange rate ($ =CNY8.94) CIF prices, Guangzhou, CNY 602 603 590 575 591 609 652 654 644 634 611 604 Port handling and margin (+) 71 71 71 71 71 71 71 71 71 71 71 71 Local transport (+) 31 31 31 31 31 31 31 31 31 31 31 31 Retail price (CNY/ton) Financialb 839 739 656 616 562 516 512 478 442 412 389 382 Economic b 704 705 692 677 693 711 754 756 746 736 713 706 Note: The PRC is a net importer of phosphate. a Phosphate rock (Moroccan) 70% BPL. b Financial and economic prices: 1992-2001 actual; projections for 2002 onwards are based on the World Bank Global Commodity Price Prospects (January 2002). Source: Operations Evaluation Mission estimates.

Table A4.4: Estimates of FIRR & EIRR Rubber Replanting (CNY/hectare) Net Financial Benefits Costs Operation & b Maintenance Total Benefit 6,201 2,990 3,408 3,335 3,333 3,259 3,217 3,752 6,283 6,612 6,888 7,121 7,358 7,512 7,668 7,923 7,923 7,923 7,902 7,902 7,888 7,888 7,902 7,898 7,898 7,898 7,898 7,884 7,884 7,884 0 0 0 0 0 0 6,386 7,446 7,097 6,719 9,250 12,390 13,513 15,397 17,281 18,206 20,106 22,955 22,957 22,957 22,959 22,009 21,058 18,208 16,308 14,409 12,509 9,660 7,761 7,286 FIRR = NPV = Net Economic Benefits Costs Operation & b Total Maintenance Benefit 5,299 2,566 2,835 2,815 2,946 2,960 2,985 3,570 5,796 6,143 6,417 6,649 6,889 7,043 7,199 7,455 7,455 7,455 7,429 7,429 7,415 7,415 7,429 7,425 7,425 7,425 7,425 7,411 7,411 7,411 0 0 0 0 0 0 4,854 5,474 6,161 6,196 8,536 11,017 12,364 14,013 15,661 16,486 18,134 20,607 22,900 22,900 22,900 21,984 21,068 19,526 17,574 15,621 13,668 10,739 8,787 8,299 EIRR = NPV =

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & a Development 6,201 2,990 3,408 3,335 3,333 3,259

Net Benefit (6,201) (2,990) (3,408) (3,335) (3,333) (3,259) 3,169 3,694 814 107 2,361 5,269 6,155 7,886 9,613 10,283 12,182 15,032 15,055 15,055 15,071 14,121 13,156 10,310 8,410 6,510 4,610 1,776 (124) (599) 15.5% 8,087

Construction & a Development 5,299 2,566 2,835 2,815 2,946 2,960

Net Benefit (5,299) (2,566) (2,835) (2,815) (2,946) (2,960) 1,868 1,904 366 52 2,119 4,368 5,475 6,970 8,462 9,031 10,680 13,152 15,471 15,471 15,485 14,569 13,639 12,101 10,149 8,196 6,243 3,329 1,376 888 15.7% 8,085 Appendix 4

3,217 3,752 6,283 6,612 6,888 7,121 7,358 7,512 7,668 7,923 7,923 7,923 7,902 7,902 7,888 7,888 7,902 7,898 7,898 7,898 7,898 7,884 7,884 7,884

2,985 3,570 5,796 6,143 6,417 6,649 6,889 7,043 7,199 7,455 7,455 7,455 7,429 7,429 7,415 7,415 7,429 7,425 7,425 7,425 7,425 7,411 7,411 7,411

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

Appendix 4

Table A4.5: Estimates of FIRR & EIRR Rubber Maintenance

(CNY/hectare) Costb 3,098 3,387 3,309 3,349 3,291 3,230 3,191 3,732 6,354 6,639 6,919 7,157 7,387 7,540 7,697 7,952 7,952 7,952 7,933 7,933 7,919 7,919 7,933 7,917 7,917 7,917 7,917 7,903 7,903 7,903 Financial Net Benefits Benefit Net Benefitc 0 0 0 0 0 12,048 8,216 8,132 8,466 9,587 11,257 13,645 15,726 17,570 18,463 20,335 23,129 23,044 23,044 23,044 22,094 21,172 18,351 16,535 14,692 12,848 10,055 8,240 7,821 7,360 FIRR = NPV = (3,098) (3,387) (3,309) (3,349) (3,291) 8,818 5,025 4,399 2,112 2,948 4,338 6,488 8,340 10,029 10,767 12,383 15,177 15,092 15,111 15,111 14,175 13,254 10,418 8,619 6,775 4,932 2,138 337 (82) (543) 24.5% 21,264 Costb 2,691 2,974 2,959 3,010 3,030 3,045 3,065 3,650 5,976 6,282 6,561 6,798 7,030 7,184 7,340 7,596 7,596 7,596 7,572 7,572 7,558 7,558 7,572 7,552 7,552 7,552 7,552 7,538 7,538 7,538

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Economic Net Benefits Benefit Net Benefit 0 0 0 0 0 6,194 6,067 5,839 6,931 8,261 9,959 11,804 14,013 15,661 16,486 18,134 20,607 20,607 22,900 22,900 21,984 21,068 18,320 17,098 15,198 13,299 10,449 8,549 8,074 7,599 EIRR = NPV = (2,691) (2,974) (2,959) (3,010) (3,030) 3,149 3,003 2,189 955 1,979 3,398 5,006 6,983 8,477 9,145 10,539 13,011 13,011 15,328 15,328 14,426 13,510 10,748 9,546 7,646 5,746 2,897 1,011 536 61 20.8% 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 A4.6: Estimates of FIRR & EIRR Rubber-Based Product Factory

(CNY million) Net Financial Benefits Costs Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Construction & a Development 37 9 17 17 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 Operation & b Maintenance Total 37 9 17 17 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 Benefit 0 0 0 0 0 7 25 9 12 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 Net Benefit (37) (9) (17) (17) (36) (29) (10) (27) (24) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) Construction & a Development 38 9 17 17 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 Net Economic Benefits Costs Operation & b Maintenance Total 38 9 17 17 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 Benefit 0 0 0 0 0 9 32 11 15 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 EIRR = NPV = Net Benefit (38) (9) (17) (17) (35) (26) (3) (24) (20) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) (13) undefined (150)

Appendix 4

FIRR = undefined (172) NPV =

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

Table A4.7: Costs and Benefits of Sugarcane Rehabilitation

(CNY/hectare)
Item A. With Project Cost Labor Planting material Plastic cover Urea Triple superphosphate Muriate of potash Organic manure Transport Mechanical operation Management fee Common production cost Total cost Gross returns (yield x price) Net return B. Without Project Cost Labor Planting material Plastic cover Urea Triple superphosphate Muriate of potash Organic manure Transport Mechanical operation Management fee Common production cost Total cost Gross returns (yield x price) Net return Incremental net return Unit Unit Price Financial Quantity Cost Unit Price Economic Quantity Cost Financial Quantity Cost Economic Quantity Cost

Appendix 4

manday ton kg kg kg kg ton

11.7 315.0 16.9 1.1 0.6 1.3 45.1 0.0 5.5 0.0 0.0

300 7 40 705 1,500 600 30 0 180 0 0

3,510 2,126 676 790 840 774 1,353 845 990 1,543 1,029 14,475 20,090 5,614

8.8 315.0 16.9 1.2 0.6 1.4 45.1 0.0 5.5 0.0 0.0

300 7 40 705 1,500 600 30 0 180 0 0

2,634 2,126 676 825 915 834 1,353 845 990 1,543 1,029 13,770 21,044 7,274

210 2 0 705 1,125 600 0 0 50 0 0

2,457 473 0 790 630 774 0 0 275 0 0 5,398 20,090 14,692

210 2 0 705 1,125 600 0 0 50 0 0

1,844 473 0 825 686 834 0 0 275 0 0 4,936 21,044 16,107

11.7 315.0 0.0 1.1 0.6 1.3 45.1 0.0 5.5 0.0 0.0

270 7 0 525 1,125 450 15 0 180 0 0

3,159 2,126 0 588 630 581 677 845 990 1,390 924 11,909 17,846 5,937 (323)

8.8 315.0 0.0 1.2 0.6 1.4 45.1 0.0 5.5 0.0 0.0

270 7 0 525 1,125 450 15 0 180 0 0

2,371 2,126 0 614 686 626 677 845 990 1,390 924 11,248 18,654 7,406 (132)

2 0 525 750 350 0 0 50 0 0

473 0 588 420 452 0 0 275 0 0 4,313 17,846 13,533 1,159

2 0 525 750 350 0 0 50 0 0

473 0 614 458 487 0 0 275 0 0 3,886 18,654 14,768 1,340

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.

Table A4.8: Estimates of FIRR & EIRR Sugarcane Rehabilitation

(CNY/hectare) Net Financial Benefits Costs Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Construction & Development a 11,432 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 Operation & Maintenance b Total 11,432 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 1,139 2,694 Benefit 0 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 2,244 Net Benefit (11,432) (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) 1,105 (450) Construction & Development a 11,432 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 Net Economic Benefits Costs Operation & Maintenance b Total 11,432 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 1,103 2,648 Benefit 0 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 2,390 Net Benefit (11,432) (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258) 1,287 (258)

Appendix 4

negative negative FIRR = EIRR = (8,204) (6,859) NPV = NPV = 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 A4.9: Estimates of FIRR & EIRR Sugar Mill Construction (CNY million) Net Financial Benefits Costs Operation & Benefit Maintenance b Total 28 82 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 0 0 230 208 190 174 161 95 88 130 115 129 129 129 129 129 129 129 129 129 129 129 129 129 129 129 129 129 129 129 FIRR = NPV = Net Economic Benefits Costs Operation & Total Benefit Maintenance b 28 85 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 0 0 122 123 117 117 101 77 94 95 87 94 106 113 120 91 91 91 101 101 101 101 109 109 109 109 109 109 109 109 EIRR = NPV =

Appendix 4

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 28 82

Net Benefit (28) (82) 133 111 93 77 64 (2) (9) 33 18 32 32 32 32 32 32 32 32 32 32 32 32 32 32 32 32 32 32 32 81.9% 275

Construction & Developmenta 28 85

Net Benefit (28.49) (85.42) 19.31 20.61 15.03 15.02 (1.49) (24.94) (8.82) (7.72) (15.05) (8.07) 3.73 10.88 18.03 (10.87) (10.87) (10.87) (1.73) (1.73) (1.73) (1.73) 6.32 6.32 6.32 6.32 6.32 6.32 6.32 6.32 negative (70)

97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97 97

102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102 102

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

Table A4.10: Estimates of FIRR & EIRR Sugar Mill Expansion

(CNY million)

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 24 68

Net Financial Benefits Costs Operation & Maintenanceb Total Benefit 24 68 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 0 0 343 311 284 260 242 143 132 195 173 194 194 194 194 194 194 194 194 194 194 194 194 194 194 194 194 194 194 194

Net Benefit (24) (68) 207 174 147 124 105 7 (4) 58 37 58 58 58 58 58 58 58 58 58 58 58 58 58 58 58 58 58 58 58

Construction & Developmenta 25 71

Net Economic Benefits Costs Operation & Maintenanceb Total Benefit 25 71 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 0 0 198 200 191 191 164 126 152 154 142 153 172 172 172 172 172 172 184 184 184 184 184 196 196 196 196 196 196 196 EIRR = NPV =

Net Benefit (25) (71) 52 54 45 45 18 (20) 6 8 (4) 8 27 27 27 27 27 27 38 38 38 38 38 50 50 50 50 50 50 50 35.8% 110

136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136 136

146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146 146

Appendix 4

FIRR = 145.8% NPV = 529

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

Table A4.11: Estimates of FIRR & EIRR Sisal Replanting

(CNY/hectare)

Appendix 4

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 11,515

Net Financial Benefits Costs Operation & Maintenanceb Total 7,825 7,230 8,345 7,967 7,629 7,414 7,172 6,989 6,787 6,731 11,515 7,825 7,230 8,345 7,967 7,629 7,414 7,172 6,989 6,787 6,731 12,417 5,525 5,370 6,837 6,837 6,837 6,837 6,723 6,723 6,723 6,723 12,248 6,076 6,076 6,616 5,688 5,688 6,616 6,616

Benefit 0 0 0 10,925 10,925 10,925 10,925 10,925 10,925 10,925 10,925 0 0 0 10,925 10,925 10,925 10,925 10,925 10,925 10,925 10,925 0 0 0 10,925 10,925 10,925 10,925 10,925

Net Benefit (11,515) (7,825) (7,230) 2,580 2,958 3,296 3,511 3,753 3,936 4,138 4,194 (12,417) (5,525) (5,370) 4,088 4,088 4,088 4,088 4,202 4,202 4,202 4,202 (12,248) (6,076) (6,076) 4,309 5,237 5,237 4,309 4,309

Construction & Developmenta 9,778

Net Economic Benefits Costs Operation & Maintenanceb Total Benefit 4,206 2,878 4,136 4,154 4,163 4,188 4,178 4,167 4,153 4,147 9,778 4,206 2,878 4,136 4,154 4,163 4,188 4,178 4,167 4,153 4,147 9,448 4,490 2,886 4,185 4,185 4,185 4,185 4,171 4,171 4,171 4,171 9,244 4,169 2,857 4,156 4,156 4,156 4,156 4,156 0 0 0 10,773 10,773 10,773 10,773 10,773 10,773 10,773 10,773 0 0 0 10,773 10,773 10,773 10,773 10,773 10,773 10,773 10,773 0 0 0 10,773 10,773 10,773 10,773 10,773 EIRR = NPV =

Net Benefit (9,778) (4,206) (2,878) 6,637 6,619 6,610 6,585 6,595 6,606 6,620 6,626 (9,448) (4,490) (2,886) 6,588 6,588 6,588 6,588 6,602 6,602 6,602 6,602 (9,244) (4,169) (2,857) 6,617 6,617 6,617 6,617 6,617 23.4% 12,188

12,417 5,525 5,370 6,837 6,837 6,837 6,837 6,723 6,723 6,723 6,723 12,248 6,076 6,076 6,616 5,688 5,688 6,616 6,616

9,448 4,490 2,886 4,185 4,185 4,185 4,185 4,171 4,171 4,171 4,171 9,244 4,169 2,857 4,156 4,156 4,156 4,156 4,156

FIRR = 2.5% NPV = (11,633)

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.

Table A4.12: Estimates of FIRR & EIRR Sisal Leaf Processing Factory (at constant 2000 prices) (CNY million) Net Financial Benefits Costs Operation & Maintenance b Total Benefit 9 2 3 5 6 6 9 11 10 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 Net Economic Benefits Costs Operation & Maintenance b Total Benefit 9 2 3 6 6 7 10 11 10 8 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 9

Net Benefit (9) (1) (2) (3) (1) (1) (2) (1) 0 0 (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) negative (19)

Construction & Developmenta 9

Net Benefit (9) (1) (2) (3) (1) 0 (1) 0 1 1 (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)

2 3 5 6 6 9 11 10 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9

1 1 3 5 5 7 10 9 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 FIRR = NPV =

2 3 6 6 7 10 11 10 8 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10

1 1 3 6 6 8 11 11 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 EIRR = NPV =

Appendix 4

negative (14)

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

Table A4.13: Estimates of FIRR & EIRR Sisal Yarn Processing Factory (CNY million) Appendix 4 Net Financial Benefits Costs Operation & Maintenanceb Total Benefit 17 6 36 27 26 28 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 Net Economic Benefits Costs Operation & Maintenanceb Benefit Total 18 6 37 28 27 29 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 17 6

Net Benefit (17) (6) 4 2 2 (1) 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Construction & Developmenta 18 6

Net Benefit (18) (6) 8 6 6 2 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

36 27 26 28 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25

39 29 28 27 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26

37 28 27 29 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26

46 34 33 32 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31

FIRR = 3.6% NPV = (10)

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

EIRR = 18.0% 9 NPV =

Appendix 4

Table A4.14: Estimates of FIRR & EIRR Forest Tree Plantation

(CNY/hectare) Financial Net Benefits Benefit Net Benefit (4,538) (1,413) (1,345) 0 0 24,193 (1,932) (1,170) (1,150) 0 0 24,193 (1,846) (1,134) (1,134) 0 0 24,193 (1,977) (2,198) (1,121) 0 0 24,193 (1,831) (1,108) (1,108) 0 0 26,858 32.9% 14,565 Economic Net Benefits Benefit Net Benefit (4,359) (1,320) (1,307) 0 0 15,462 (2,122) (1,344) (1,342) 0 0 15,462 (2,131) (1,344) (1,344) 0 0 15,462 (2,249) (2,400) (1,323) 0 0 15,462 (2,088) (1,308) (1,308) 0 0 20,377 22.2% 5,757

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Costs 4,538 1,413 1,345 0 0 2,666 1,932 1,170 1,150 0 0 2,666 1,846 1,134 1,134 0 0 2,666 1,977 2,198 1,121 0 0 2,666 1,831 1,108 1,108 0 0 0

Costs 4,359 1,320 1,307 0 0 4,914 2,122 1,344 1,342 0 0 4,914 2,131 1,344 1,344 0 0 4,914 2,249 2,400 1,323 0 0 4,914 2,088 1,308 1,308 0 0 0

26,858

20,377

26,858

20,377

26,858

20,377

26,858

20,377

26,858 FIRR = NPV =

20,377 EIRR = NPV =

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 A4.15: Estimates of FIRR & EIRR Plywood Factory

(CNY million) Appendix 4 Net Financial Benefits Costs Operation & Total Maintenance b Benefit 11 28 88 17 4 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 7 11 28 88 17 4 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 0 11 30 14 19 3 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 FIRR = NPV = Net Economic Benefits Costs Operation & Total Maintenance b Benefit 11 28 87 16 3 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 7 11 28 87 16 3 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 14 0 13 33 15 21 4 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 7

Net Benefit (7) 0 1 (74) 2 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 negative (42)

Construction & Developmenta 7

Net Benefit (7) 2 6 (72) 5 0 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

EIRR = 3.6% NPV = (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.

Table A4.16: Estimates of FIRR & EIRR Chipwood Factory

(CNY million) Net Financial Benefits Costs Operation & Benefit Maintenanceb Total 6 19 5 40 18 20 19 13 9 9 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 7 6 19 5 40 18 20 19 13 9 9 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 7 3 5 32 20 21 19 14 10 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 Net Economic Benefits Costs Operation & Maintenanceb Total Benefit 6 18 5 39 17 19 18 13 9 9 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 7 6 18 5 39 17 19 18 13 9 9 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 6 2 4 26 17 17 16 12 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 EIRR = NPV =

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Construction & Developmenta 7

Net Benefit (7) 1 (16) 0 (8) 3 1 1 1 1 0 (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2)

Construction & Developmenta 7

Net Benefit (7) 0 (16) (1) (13) 0 (2) (2) (1) (1) (1) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) undefined (36)

Appendix 4

FIRR = negative NPV = (22) 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

Table A4.17: Estimates of FIRR & EIRR Marketing and Trading Center
(CNY million) Net Financial Benefits Benefit Net Benefit (45.66) (2.44) (1.88) (1.17) 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 negative (44) Net Economic Benefits a Net Benefit Cost Benefit 45.66 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 (45.66) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) (2.52) undefined (58)

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Cost

45.66 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88

0.43 1.00 1.71 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07 FIRR = NPV =

0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 EIRR = NPV =

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

Appendix 4

Table A4.18: Summary of Costs and Benefits of the Project

(CNY million) Financial Total Benefit 0 7 34 608 613 569 787 646 470 436 564 551 686 608 630 674 692 721 830 731 731 724 713 658 732 611 619 590 565 554 647 FIRR = NPV = Economic Total Benefit 0 6 36 356 413 405 603 498 419 454 486 489 577 556 582 631 618 644 729 701 701 694 684 638 709 611 618 589 562 551 620 EIRR = NPV =

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total Cost 7 353 280 337 418 385 417 494 442 434 459 446 494 455 474 459 479 458 488 465 486 461 478 472 486 462 482 458 475 457 477

Total Net Benefit (7) (346) (246) 271 195 184 370 152 28 2 105 106 192 154 156 215 213 263 342 267 245 263 235 186 246 149 137 132 90 97 170 28.4% 608

Total Cost 7 343 270 335 416 385 519 498 447 438 462 449 504 463 478 463 481 461 499 469 490 465 481 474 499 464 486 465 481 460 481

Total Net Benefit (7) (337) (234) 21 (3) 20 84 (1) (28) 16 24 41 73 93 104 169 137 183 229 233 211 229 203 164 210 147 133 124 82 91 139 10.3% (87)

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

Table A4.19: Sensitivity Test by Componenta

Appendix 4
Base Case b IRR NPV (%) Decrease in Yield or Factory Utilization b Change IRR Switching NPV (%) (%) Value (%) Decrease in Commodity/Product Price b Change IRR Switching NPV (%) (%) Value (%)
a

Item A. Financial 1. Rubber Development Rubber Replanting Rubber Maintenance 2. Sugar Development Sugar Mill Construction Sugar Mill Expansion 4. Forest Tree Development Forest Tree Plantation B. Economic 1. Rubber Development Rubber Replanting Rubber Maintenance 2. Sugar Develpoment Sugar Mill Expansion 3. Sisal Development Sisal Replanting 4. Forest Tree Development Forest Tree Plantation
a

16 25 82 146

8,087 21,264 275 529

10 10 10 10

13 22 70 133

2,858 15,065 234 468

1547 3430 6707 8672

18 18 28 28

13 23 80 141

2,894 15,933 262 496

28 72 592 449

33

14,565

10

30

11,603

4917

10

30

11,899

55

16 21 36 23 22

8,085 15,074 110 12,188 5,757

10 10 10 10 10

14 18 31 19 22

3,502 9,910 91 7,055 5,757

1764 2919 5789 2375

18 18 28 10 10%

12 18 28 19 22

2,822 9,694 89 7,055 5,757

28 50 147 24

= undefined, IRR = internal rate of return, NPV = net present value. 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.

PROJECT ORGANIZATION CHART

General Bureau of Guangdong Land Reclamation and Farm Enterprises Project Management Committee Project Management Office

Yangjiang State Farms Bureau

Zhanjiang State Farms Bureau

Maoming State Farms Bureau

Jieyang State Farms Bureau

Shanwei State Farms Bureau

Guangzhou Agribusiness Corp. Headquarters

Yan Tang Enterprise General Co. Ltd.

Project Management Committee Project Office

Project Management Committee Project Office

Project Management Committee Project Office Project Unit

Project Management Committee Project Office Project Unit

Project Management Committee Project Office Project Unit Rubber-Based Product Factory

Marketing & Trading Center

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

Source: General Bureau.

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

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

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

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

Taitong Transport Company

Appendix 5