ft""Mans-W ~FILE COPYAppraisal of the Bajo Rio San Juanand Bajo Rio Bravo Rehabilitabon ProjectMexicoAprl 16, 1975Latin America and Caribbean Regional Offce

iNot for Public Use

H

Document of the Intaonal Snk for Recantuctn and DevebpmentIntemal Doevepment Assocktlon

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CONFIDNTIAL DRUATINTERNATIONAL BANK FOR RECONSTRUCTION AND DEIIIOHEXT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL REPORT

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PRDJECT

February 14, 1975

Currency Equivalents

Currency Unit = Mexican Peso (Mex$) 1 Mex$ - US$ 0.08US$1 - Mex$ 12.5 Mex$ 1 million - US$ 80,000

Measures

- millimeter (1 mm = 0.039 inch)m = meter (1 m 3.28 feet)km - Kilometer (1 km = 0.62 miles)ha - hectare (1 ha = 10,000 m2 = 2.47 acres)k12 = square kilometer (1 km2 = 247.1 acres = 100 ha - 0.386 square miles)m- = cubic meter (1 m3 = 1.31 cubic yards - 264.2 US gallons)MM3 million m3 (1 Mm3 - 8.11 acre feet)kg - kilogram (1 kg - 2.2 lb)ton - 1,000 kg - 2,205 lb

Abbreviations

BANAGRO - Banco Nacional Agropecuario, S.A.BANEJIDAL - Banco Nacional de Credito Ejidal (official Bank granting

credit to ejidatarios only)BANCO AGRICOLA - Banco Nacional de Credito Agricola, S.A. (official Bank

granting credit to small private holders and colonists)CONASUPO - Compania Nacional de Subsistencias Populares (Government

organization guaranteeing prices and purchases ofsubsistence crops)

DAAC = Departamento de Asuntos Agrarios y Colonizacion (Departmentof Agrarian Affairs and Colonization)

DGEA - Direccion General de Extension AgricolaFONDO - Fondo de Garantia y Fomento para la Agricultura, Ganaderia

y Avicultura (Fund-established by Central Bank toprovide agricultural credit)

IDB = Interamerican Development BankINIA Instituto Nacional de Investigaciones AgricolasINIP - Instituto Nacional de Investigaciones PecuariasPLAMEPA - Plan de Mejoramiento Parcelario (SRH group providing

intensive extension service)SAG - Secretaria de Agricultura y Ganaderia (Ministry of

Agriculture and Livestock)SRH - Secretaria de Recursos Hidraulicos (Ministry of Water Resourses)

Fiscal Year - January 1 - December-31

CENTRAL AMERICA AND CARIBBEAN REGIONAL OFFICE

MEXICO

BAJO RIO BRAVO and BAJO RIO SAN JUAN REHABILITATION PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ............................... i-ii

I. INTRODWUCTION ........... ............................... 1

II. BACKGROUND ............ ................................ 1

General .......... ................................. 1Irrigation Services .* ............................ 4Agricultural Credit .............................. 4Agricultural Education, Research and Extension ... 5

III. THE PROJECT AREA ....................................... 5

Location ............................. 5Soils ............................. 6Climate . ......................................... 6Population and Employment ........................ 6Present Land Use ........ .... ...... ..... ..... ... 7Transportation, Processing and Marketing ........ . 7Land Tenure and Farm Size ....................... . 7Irrigation and Drainage Systems .............. 8Credit ............................. 8

IV. THE PROJECT............................................ 9

Description. 9Construction Schedule ............................ 10Water Supply, Requirements, and Utilization ...... 11Status of Engineering ............................ 12Cost Estimates ......... .......................... 12Financing ............ ............................ 13Procurement ........... ........................... 13Expenditure Schedule ............................. 14Disbursements ... ................................. 14Accounts and Auditing ............................ 15

This report is based on studies prepared by the Secretaria de RecursosHidraulicos (SRH) and its consultants, Estudios y Proyectos, S.A. of MexicoCity, the findings of a Bank appraisal mission in October, and a follow-upmission in December 1974. The appraisal mission was composed of J.C.Douglass, J-J. Schul, E.P. Riezebos, A. Amir, C. Vidalon and J. Vivas.

TABLE OF CONTENTS (Cont'd)

Page No.

V. ORGANIZATION AND MANAGEMENT .15

Administration ................................... 15

Operation and Maintenance ........ ................ 15Technical Assistance ............................. 16

Credit . .................................... 16

VI. PRODUCTION, FARMERS' INCOME, WATERCHARGES, AND MARKETS .................................. 17

Production ................................... 17

Income to Farmers ................................ 17

Water Charges .................................... 18

Repayment of Investment Costs ....... ............. 19

Markets . ................................... 20

VII. BENEFITS AND JUSTIFICATION .20

VIII. RECOMMENDATIONS ................................... 22

ANNEXES

1. Soils and Topography2. Climatic Data

Table 1 -- Rainfall Data -- Rio Bravo(B.R.B-1-1 Station)

Table 2 -- Rainfall Data -- San Juan(SJ-2-18 Station)

Table 3 -- Mean Monthly TemperaturesTable 4 -- Evaporation, Evapotranspiration, Effective

Rainfall and Water Deficits3. Land Tenure and Farm Size

Table 1 -- Land Tenure Pattern4. Project Works

Table 1 -- Work to be done under Project5. Construction Schedule6. Water Availability and Utilization

Table 1 -- Bajo Rio Bravo Water Availabilityand Diverted Flows

Table 2 -- M.R. Gomez Reservoir Inflowsand Extractions

Table 3 Irrigation Water Demand and Supply7. Cost Estimate8. Equipment and Materials

Table 1 -- Operation and Maintenance Equipment9. Expenditure Schedule

10. Schedule of Disbursement

TABLE OF CONTENTS (Cont'd)

11. Operation and MaintenanceTable 1 -- Operation and Maintenance CostsTable 2 -- Expected Operation and Maintenance

Annual Cost12. Agricultural Services

Table 1 -- Agricultural Education and TrainingTable 2 -- Agricultural Research and Extension

Services, Manpower RequirementsTable 3 -- Agricultural Research and Extension

Services, Cost EstimatesTable 4 -- Agricultural Research and Extension

Services, Investment Schedule13. Agricultural Production

Table 1 -- On-farm Production Costs in Mex$/haTable 2 -- Net Income per HectareTable 3 -- Cropping Pattern, Production, Costs and

Net Value of Production Without the ProjectTable 4 -- Cropping Pattern, Production, Costs and Net

Value of Production With the Project14. Farm Budgets

Table 1 -- Farm Budget of a 10 ha Ejido Farm (Model I)Table 2 -- Farm Budget of a 10 ha Ejido Farm

(Model II)Table 3 -- Farm Budget of a 22 ha Small Landowner Farm

(Model III)Table 4 -- Farm Budget of a 13 ha Colono Farm

(Model IV)Table 5 -- 100 ha Cattle Fattening FarmTable 6 -- 40 ha Dairy Cattle Farm

15. Markets and MarketingTable 1 -- Comparision of the Estimated Current National

Production, Projected Demand and Supply andthe Project's Production

16. Economic Rate of ReturnTable 1 -- Economic Cost and Benefit Streams

CHARTS

7434(R) - Organization of SRH9455 - SRH Regional Organization

MAP11389 - Bajo Rio Bravo and Bajo Rio San Juan Rehabilitation Project

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a project for the rehabilitation of two irri-gation districts in Mexico serving 280,000 ha in the State of Tamaulipas onthe right bank of the Rio Bravo along the border with the United States.

ii. In relation to its size, Mexico has only limited agricultural re-sources. Out of a total area of nearly 200 million ha, only 35 million havepotential as cropland and less than half of that area is actually cropped,-withabout 4 million ha under irrigation. Inadequate rainfall or lack of suffi-cient water supplies for irrigation are the main constraints to cropping.Some 21 million of Mexico's 54 million people live in rural areas, and thenumber is estimated to be increasing at a rate close to 2% p.a. Consideringthe limited resources, the Government is faced with serious problems regardingagricultural production and rural employment opportunities. In response, theGovernment has adopted policies that place emphasis on irrigation as one ofthe most effective means of increasing production.

iii. The two irrigation districts involved in the project form one con-tiguous block although they have different sources of water supply. TheBajo Rio San Juan District derives its supply from the Rio San Juan, as regu-lated by the existing Marte R. Gomez reservoir, while the Bajo Rio BravoDistrict utilizes Mexico's share of the waters of the Rio Bravo (also knownas Rio Grande), as regulated by the international reservoirs constructedjointly by Mexico and the USA. The project works are primarily designed toallow Mexico to use this share more effectively for crop production. Thiswould be accomplished by lining the irrigation distribution systems to reducewater losses and leveling project lands to increase efficiency of water useon the farms. The existing drainage system would be enlarged and extendedto provide adequate drainage to project lands. Other facilities would beprovided to bring the districts up to the standards of a modern irrigationproject. An intensive technical assistance program is included in the projectto assist farmers in achieving maximum agricultural benefits.

iv. Total project costs are estimated at US$384 million, including anallowance for physical contingencies and an allowance of US$154 million forprice increases, The proposed Bank loan of US$150 million would finance theforeign exchange component, including a proportionate share of physical andprice contingencies (US$129 million) and 50% of the incremental technicalassistance program, including price contingencies (US$21 million). Thebalance would be financed under Government budget.

- ii -

v. Major civil works contracts would be let under international compet-itive bidding procedures in accordance with Bank guidelines, while land level-ing and certain small civil works contracts aggregating not more than Mex$ 100million would be carried out under standard Government procedures. Disburse-ments under the loan would be made as 45% of the payments to major civil workscontractors, to contractors on land leveling, and to the small civil workscontractors engaged under the Mex$ 100 million aggregate limit. Disbursementsfor the technical assistance would be at the rate of 50% of actual cost.

vi. The Ministry of Water Resources (Secretaria de Recursos Hidraulicos,SRH) would be responsible for constructing, operating and maintaining theproject and for providing the technical assistance program to project farmers.Specialized agencies of the Ministry of Agriculture would, under agreement withSRH, be responsible for implementation of the technical assistance program.Normal banking channels would provide the credit requirements and the privatesector would provide the required marketing and supply facilities.

vii. At full development, about 12 years after the start of the project,the net annual value of production, valued at end 1974 farmgate prices, wouldreach Mex$ 1.7 billion (US$134 million), as compared to Mex$ 0.5 billion(US$44 million) under future conditions without the project. To achieve thisproduction, about 34,000 man-years of employment annually would be required,or about twice the number without the project.

viii. The annual net income of the average ejidatario farmer would increasefrom Mex$ 20,000 to Mex$ 50,000 at full development, while the correspondingincrease for the average private farmer would rise from Mex$ 30,000 toMex$ 75,000. The economic rate of return would be about 19%.

ix. The project is suitable for a Bank loan of US$150 million for aterm of 25 years, with a grace period of seven years. The borrower would beNacional Financiera, S.A., the Government agency empowered to contract forexternal financing. United Mexican States would guarantee the loan and carrythe exchange risk.

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

I. INTRODUCTION

1.01 The Government of Mexico has requested Bank assistance in financingthe rehabilitation and betterment of two irrigation districts serving about280,000 ha in the State of Tamaulipas on the south bank of the Rio Bravo(also known as Rio Grande). The loan would be made to Nacional Financiera,with the United Mexican States as guarantor. In the agricultural sector, sixloans have been made to Mexico for irrigation projects, four for agriculturalcredit and one for integrated rural development. Progress on all of theseloans has been reasonably satisfactory. One of the earlier irrigation loans(336-ME in 1964) included rehabilitation work on the two districts in thisproject. While work was beneficial, the expenditures of approximately US$100per ha (of which the loan amount covered only US$33 per ha) were too limitedand solved only a few of the problems involved in achieving maximum agricul-tural production values from the districts.

II. BACKGROUND

General

2.01 Mexico's impressive economic performance since 1960 has been accom-panied by a sharp reduction in the relative importance of the agriculturalsector, in terms of its share in GDP, employment, and exports. Yet, agricul-ture remains a crucially important sector in the economy, contributing nearly40% to commodity export earnings and employing close to 40% of the labor force.Traditionally, Mexican agriculture has provided for virtually all domesticconsumption, but in the last few years, agricultural imports have dramaticallyincreased, much more so than agricultural exports. This has caused Governmentto increase agriculturets share of public expenditure from 9% in 1971 to 18%in 1974.

2.02 In relation to its size, Mexico has only limited agricultural re-sources. Out of a total area of nearly 200 million ha, only 35 million hais potential cropland, an inadequate water supply being the main constraint.Rainfall is too low in the north where most of the rural population lives,and even in the more humid south a concentration of rainfall in short periodsis one of the factors limiting agricultural development. Thus, only about halfof the potential crop area is actually cropped. Out of this, over 4 millionha are under irrigation and account for about half of total agricultural pro-duction.

2.03 The agricultural population can be divided into three groups:landless peasants, "ejidatarios," and private landowners. The number of land-less laborers has been increasing, despite migration to the urban centers andthey now number over 1 million. Under the various agrarian reform laws, some10 million ha of croplands were distributed between 1915 and 1960 to "ejidos,"or collective land units, in which the individual members, or ejidatarios,receive a plot for their own use or farm conmunally. The ejidatarios nownumber about 1.8 million. Land distribution has continued, but living standarcdshave improved little because of the inadequacy of inputs and poor supportingservices. Only since 1971 have steps been taken to transform the ejidos intoefficient production units.

2.04 Some 10 million ha of cropland are privately owned, but about 90%of the 1.2 million private landowners have less than 10 ha of cropland, andare thus in much the same position as the average ejidatario. Only 1% of ,private farmers (17,000) have more than 100 ha of cropland. Their land totaled7 million ha in 1960, about 30% of the country's total crop area, but part ofthis has since been distributed and more is likely to be distributed in thefuture.

2.05 While the land tenure pattern is thus less uneven than in many otherLatin American countries, there are still large differences in income withinthe sector. In 1969, the last census year, the average rural income perfamily was about US$1,260 equivalent; but 40% of rural families had incomes ofless than US$800 equivalent. However, even the better-off 60% of rural familiesstill have incomes considerably below those of non-rural families.

2.06 In recognition of this situation, the present Government haspledged to improve the lot of the poorer farmers. Among the actions alreadytaken, the following should be noted:

(a) The new Federal Agrarian Reform Law recognizes the legalstatus of the ejidos, which enables them to obtain credit;gives power to the Departmento de Asuntos Agrarios y Coloni-zacion (DAAC) to carry out land reform; determines the maximumand minimum sizes of farms to be held privately; fixes aceiling on taxes to be paid by ejidatarios; provides forredistribution of funds from production taxes paid by privatefarmers; and encourages ejidos to diversify into small-scaleindustries.

(b) The Federal Water Law regulates the distribution of waterand land in Irrigation Districts in a more equitable way.Under this law, the Government can set up new IrrigationDistricts and expropriate, with compensation, land in thenew Districts. The law also stipulates the procedure forfixing water charges, requiring that the social and economicsituation of individual farmers in each district be takeninto consideration when establishing charges.

- 3 -

(c) Supporting services to agriculture have been stepped up.For example, from 1970 to 1974, the number of extensionworkers increased from 770 to 2,750. Proper extensionservices can result in 10% higher rice and soybean yieldsand 25 to 30% higher maize and bean yields as comparedwith the same crops not attended by extension services.

(d) Agricultural credit has increased, partly financed byIBRD loans. In 1955, the Fondo de Garantia, a trustfund in the Bank of Mexico, was set up, and the BancoNacional Agropecuario was subsequently created. The totalagricultural loan portfolio of the banking system has in-creased fourfold since the mid-1960s and there are plans toenhance the efficiency of the banking system by reducingthe number of banks operating in each region.

(e) The public budget for the rural sector has more thandoubled between 1971 and 1975 and amounted to US$1.2 billionequivalent in 1974. About one-third of this goes intoproductive investment, virtually all into irrigation infra-structure, as a result of which the irrigated area has morethan trebled since 1950.

2.07 The Government has two major objectives for agriculture in theyears ahead: to keep pace with the growth of domestic consumption 1/ and toreduce income disparities among the rural population. These objectives arenot mutually exclusive nor do they entirely overlap. Some actions, such asinvestment in social infrastructure, 2/ contribute less to the productionobjective than would investments in large irrigation schemes, but they helpto reduce income inequalities and underemployment. 3/ Since food productionneeds to be increased to cater for an increasing population and rising ex-pectations of consumption, it is apparent that increased agricultural pro-duction must remain a major objective along with the promotion of socialequity. The proposed project is consistent with these objectives.

1/ With population growing at 3.4% p.a. and per capita disposable incomeby roughly 3%, domestic demand for agriculture products is likely togrow by at least 5% p.a.

2/ This category of investment has increased from US$70 million equivalentin 1970 to US$280 million in 1974.

3/ IBRD recently approved a project benefitting the low income areas ofPapaloapan and has another rural development project under consideration.

-4-

Irrigation Services

2.08 The Secretaria de Recursos Hidraulicos (SPIT) was established in1947 as a Federal Ministry, directly responsible to the President of theRepublic, with powers to control and develop the country's water resources.Due to GDvernment emphasis on agriculture and on irrigation as a means toincrease production, SRH grew rapidly, and has now become the main agricul-tural organization in the country. It has, to date, developed over 3 millionha of irrigated land.

2.09 At headquarters there are three subsecretaries concerned with plan-ning, construction, and operation of projects and a Senior Official who directsadministrative activities. Field responsibility lies in regional offices, andthere are one or more irrigation districts within each region. The regionaloffice concerned in the proposed project covers the northern portion of theState of Tamaulipas. It would have direct responsibility for constructionand operation of the project.

2.10 lexican law requires that each irrigation district have a ManagementCommittee (Comite Directivo) to advise and coordinate operations. Thiscommittee is made up of representatives of SRH (chairman), the Secretariade Agricultura y Ganadaria.(SAG) (secretary), the Department responsible foragrarian affairs, credit institutions and private banks, and farmers.Nacional Financiera may have a seat on the committee if it requests. Commit-tee duties include setting up cropping patterns, approving irrigation waterschedules, coordinating credit needs, and fostering crop marketing.

2.11 SRH also has the responsibility and authority to provide technicalassistance to farmers in the irrigation districts. It does this with the Plande Mejoramiento Parcelario (PLAMEPA) program. Results have been satisfactory,particularly with ejidatarios. The Interamerican Development Bank (IDB) hasgranted a US$23 million loan to help finance the first phase of a US$47 mil-lion project intended to extend PLANEPA's activities over about 1 million haof ongoing irrigation projects. Where SRH lacks competence or needs assist-ance, it enters into agreements with other organizations, particularly thoseof the Ministry of Agriculture, for such services.

Agricultural Credit

2.12 Farm credit is provided by both official and private institutions.The Government's Banco Nacional de Credito Ejidal S.A. de C.V. (Banejidal)lends to ejidatarios, the Banco Nacional de Credito Agricola, S.A. (BancoAgricola) concentrates on lending to small-scale farmers, and the BancoNacional Agropecuario (BANAGRO) lends to any farmer who obtains technicalassistance. About 70% of agricultural lending is by these official institu-tions and is short term. Medium- and long-term credit from the Governmenthas become significant only in the last few years through the Fondo deGarantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO), which

- 5 -

is managed by the Bank of Mexico. It has been financed mostly by IBRD, IDBand USAID loans. Until 1972, less than 5% of the most needy farmers hadreceived credit, but the Government has since announced its intention toguarantee at least 60% of the long-term loans made by private financial in-stitutions to groups of ejidatarios or other small farmers. Also, in BankLoan 910-ME, US$25 million has been reserved for lending to low income pro-ducers.

Agricultural Education, Research and Extension

2.13 Agricultural education at university and secondary levels has alreadyreached acceptable standards in both quantity and quality to meet, in the nearfuture, the country's manpower requirements for trained personnel. The Govern-ment is now emphasizing post-secondary, non-university, agricultural educationin order to fill the existing gap between middle level technicians and univer-sity graduates. Training courses for agricultural service staff, farm machin-ery operators, farmers, homemakers and young farmers, are offered in adulttraining centers, agricultural schools and by the extension service. Agri-cultural research, although presently limited due to financial constraintsand lack of qualified personnel, has achieved considerable success, especiallywith irrigated crops.

2.14 The Agricultural Extension Service has been extremely poor in thepast, but since 1970 it has been expanded considerably. In spite of expan-sion, however, it covers only 16% of the cultivated area and 12% of theejidatarios, mainly because of financial and manpower constraints. To com-pensate for this deficiency, official and private banks and farm input sup-pliers provide some technical assistance to their clients.

III. THE PROJECT AREA

Location

3.01 The project covers two separate and distinct but contiguous exist-ing irrigation districts lying in the State of Tamaulipas on the Mexican sideof the Rio Bravo. The Bajo Rio San Juan District (No. 26) derives its waterfrom the San Juan River as regulated by the existing Marte R. Gomez Reservoir.Two main canals, the San Pedro on the left bank and the Rode on the rightbank, distribute irrigation water to the approximate 70,000 ha making up thedistrict. The Bajo Rio Bravo District (No. 25) lies dowinstream and to theeast of the Bajo Rio San Juan District, and gets its water supply from theMexican share of the Rio Bravo which forms the boundary between the UnitedStates and Mexico. For the most part, this share comes from water stored inthe two international dams of Amistad and Falcon located on the Rio Bravo.One main canal, the Anzalduas, carries water diverted at the internationalAnzalduas Diversion Dam to serve approximately 210,000 ha of district lands.

-6-

Both districts include other lands served by pumping either from ground wateror from the river. However, such areas are presently irrigated by individu-ally owned pumps and distribution system and are not therefore included inthe rehabilitation project, which covers only the 280,000 ha served by gravity.

Soils

3.02 Project lands lie between 5 m and 65 m above sea level and slopegently towards the Gulf of Mexico. They are generally flat, with only minorundulations, but some 200,000 ha would benefit from slight to moderate landleveling to smooth out the micro relief. The parent materials are limestoneand sandstone, and the soils were laid down as alluvial clays and clay loamsof medium to heavy textures. The soils are generally fertile with adequat,einternal drainage, although some 40%'of the area, primarily the low-lyingland near the sea, is affected by relatively high water table, low permeabil-ity and, to some extent, salinity. Work accomplished under the Second Re-habilitation Loan (336-ME) arrested the spread of salinity but did not solveall problems. About 54,000 ha are best suited for permanent pastures, butthe balance of the area (about 226,0'00 ha) can grow a wide variety of cropssuch as cotton, maize, sorghum, wheat, beans, and vegetables. Annex 1 givesdetails concerning soils.

Climate

3.03 The climate is dry sub-tropical. Annual precipitation varies be-tween 400 and 700 mm. Rain can occur in any month, although the period fromNovember 1 through March tends to be drier than the summer months. Seventropical hurricanes directly affected the area between 1941 and 1972, most ofthem occurring in September or October. Temperatures vary from a minimum of-10°C to a maximum of 44°C, with the annual average about 23°C. Frosts occuron an average of about five days per year in December and January. Relativehumidity averages about 78% at Matamoros and decreases to about 63% at Reynosa.Pan evaporation averages about 2,200 mm per year. In nearly all months thepotential evapotranspiration exceeds the precipitation, and irrigation isessential if maximum agricultural production is to be achieved. Annex 2provides further climatic details.

Population and Employment

3.04 At the time of the 1970 census the population in the project andadjacent areas was almost 513,000 inhabitants, 25% of whom were classifiedas rural. The average family size is 5.29 persons. Most of the populationis young, with about 55% under the age of 19. About 46% of the active laborforce is in agriculture. While registered -unemployment is only 4.1%, it isestimated, on the basis of the number of active persons earning less thanthe minimum salary level, that actual under-employment is of the order of 33%.

-7-

Present Land Use

3.05 Out of a total of 307,708 ha in both districts (Bajo Rio Bravo(No. 25) and Bajo Rio San Juan (No. 26)), about 280,964 ha irrigated with sur-face water would be included in the project. This area corresponds to 210,362ha (four out-of six units) in District 25 and 70,602 ha (three out of fiveunits) in District 26. Cropping intensity has averaged 115% over the lastfive years. Cotton, which covered more than 90% of the area in the mid-1950s,has declined progressively as a result of a combination of factors, includinglow prices, disease, and lack of harvesting labor. It has been progressivelyreplaced by maize and sorghum, which, combined, covered 97% of the.area sownin 1970. In 1974, the proportion of these two crops had been reduced to 85%by further diversification into beans, pasture, forage, and vegetables.Although pastures are increasing, the bulk of beef and milk cattle are still1primarily raised on canal and drain embankments and on crop residues. Veg-etables, mainly okra, squash, broccoli and stringbeans, are grown principallyfor export.

Transportation, Processing and Marketing

3.06 The major towns and cities in the project area are linked by pavedhighi-ays as part o- the Ieaxican highway system. Three bridges link the pro=esct are2 with ths United States. Roads within the project area are mes-Ilyof earth ana are largely IL-passable in wet weather. A railroad line passesthrough the project area linking Matamoros and Reynosa to Monterrey and thebalance of the Mexican National Railway system. Air service to Mexico Cityis available at Matamoros and Reynosa.

3.07 Existing capacity to process oil seeds and for ginning cotton isonly partially utilized. Milk processing capacity of 120,000 liters per dayis about one-third utilized under present conditions. Most of the vegetableproduction is trucked to the United States for the frozen food market. Stor-age capacity for corn and sorghum is about 600,000 tons, which is barelyadequate for present production.

3.08 Cotton and feeder cattle have been traditional export commodities,with cotton going to the world market and feeder cattle to the United States.Vegetables surplus to the local market are also exported to the U.S. Otheragricultural production is marketed in Mexico but only partially meets theincreasing demand for such products as sorghum, corn, beans and milk.

Land Tenure and Farm Size

3.09 Among the 18,670 farm families having holdings in the project area,7,440 (40%) are ejidatarios, 7,300 (39%) are small landowners and 3,930 (21%)are settlers (colonos) (Annex 3). The average farm size is 15 ha, with sevenindividual farmers owning more than 100 ha. The average farm size for smalllandowners is 21.7 ha; for ejidatarios, 9.8 ha; and for settlers, 12.6 ha.This land tenure pattern is the result of various earlier land reforms. The

- 8 -

Federal Water Law and Agrarian Reform Law, which define lands which mav beexpropriated, would not be applicable under the project because of the pre-vious land reforms and because it would not involve the creation of a newirrigation district. Thus, the present land tenure pattern would remainunchanged under the project.

3.10 Only about 2.5% of the farmers own more than 50 ha and 12.1% ownmore than 20 ha. Among the 41% of the farmers who own less than 10 ha, abouthalf have additional land outside the irrigation district totalling 110,000ha. On the whole, it is considered that about 80% of the project farmersoccupy farms that are of sufficient size to supoort a family.

Irrigation and Drainage Systems

3.11 The main problem of the irrigation system is water leakage becausethe canals are not lined. This contributes to the low efficiency of use ofirrigation water and aggravates the drainage problem since surface water tendsto build up the ground water. Experience indicates that irrigation service begiven as quickly as possible, using large flows, since the shorter the timewater is in the canals the lower the losses. There are also insufficientstructures to permit the water to be fully controlled, or to allow measurementof quantities of water delivered to individual users.

3.12 The drainage network is quite extensive, and all the major drainoutlets have been constructed or will be constructed before the project com-mences. However, the network of drainage laterals is not sufficient to ade-quately drain all parts of the project, and there are still extensive areaswhere the water table is within 1 meter of the surface.

Credit

3.13 Three Government banks, 1/ as well as several commercial banks andfinancial companies, operate in the project area. In 1974, bank credit tofarmers in the project area amounted to Mex$ 116 million, the breakdown ofwhich by type of bank and term was as follows (in millions of Mex$):

1/ Banco Agricola, Banco Agropecuario and Banejidal.

-9-

Covernment Privatebanks banks Total

Short term 38.2 43.0 81.2Medium and long term 5.4 12.8 18.2

43.6 55.8 99.4 /116.8 /1

Total 116.2

/1 Except for Mex$ 16.8 million, all credit provided by Government andprivate banks was discounted with the Fondo de Garantia.

Interest rates on short-term credit vary between 10 and 11% for private farm-ers and ejidatarios alike. On medium- and long-term credit, the rates rangefrom 10.5 to 12% for private farmers and are 7.6% for ejidatarios. Exceptfor some short-term credit from the Banco Fjidal, lending to ejidatarios hasso far been negligible in the project area. Also, the total amount of lendingin the area is ouite small in proportion to the current valtue of Production(Mex$ 1. billion), and substantially less than the average -pronortion forthe country. 1I/

IV. THE PROJECT

Descrintion

4.01 The proposed project would complete the rehabilitation of the280,000 ha on two existing irrigation districts located in the lower RioBravo basin. The works proposed would increase the water supply availablefor effective irrigation and reduce the problems associated with high watertables and salinity. It would improve the internal road network and communi-cations to assist in achieving operating and production efficiency. Theproject would be in line with the Government's policy to increase food pro-duction in the country. An intensive technical assistance program is alsoincluded.

4.02 Works to be accomplished under the project are summarized asfollows:

1/ Nationally, bank credit covers some 40% of gross value of production.

- 10 -

(a) Irrigation system. Nearly all sections of the main canalsand all the laterals would be lined with concrete to reducewater losses. Structures as necessary would be rehabilitatedor constructed to provide complete control over the irrigationwater and to measure water deliveries.

(b) Drainage system. Certain of the existing drains would beenlarged and some 1,300 km of new drains constructed toincrease capacity and supplement the existing drainagesystem.

(c) Road system. An improved gravel-surfaced road network would beprovided to allow access under all weather conditions.

(d) Land preparation. About 200,000 ha would be leveled to increasethe irrigation efficiency at farm level.

(e) 0 & M facilities. Houses for ditch riders and operating per-sonnel would be rehabilitated or constructed and a radio networkinstalled to link all operating units.

(f) Technical assistance. The technical assistance available toproject farmers would be greatly expanded.

(g) Equipment. Additional equipment for operation and maintenancepurposes would be purchased.

4.03 Annex 4 gives details of the facilities that now exist, the workto be accomplished under the project, and other alternatives considered asa means to increase the water supply.

Construction Schedule

4.04 All works are scheduled to be completed in seven years, by aboutJune 30, 1982. Initial work would concentrate on lining the main canals.Where canals can be taken out of service for at least a six-month period,reshaping and lining would be done on the existing alignment. Where ser-vice cannot be interrupted for long periods, a parallel canal would beconstructed and lined, with appropriate connections made to the existingsystem. Where irrigation cannot be interrupted for long periods and whereright-of-way considerations dictate using the existing alignment, liningwould be placed with the minimum amount of reshaping during brief periodsof no service, even if the most desirable canal section could not therebybe achieved. A construction schedule is given in Annex 5.

4.05 Since all sections of the main canals do not have the same leakagecharacteristics, it would be necessary to determine the magnitude of lossesfor each section to insure that lining was justified before work was under-taken. During negotiations, an assurance was obtained from Government thatit would not issue tender documents for lining sections of the main canals

- 11 -

with a capacity greater than 50 m /sec until studies on that particularsection, based on infiltration tests and water balance analyses, had beenconducted, and the findings indicated water losses sufficient to justify thework.

4.06 Improvements to the irrigation distribution system, drains, roadsand land leveling would be done by irrigation blocks. When a block wasscheduled for rehabilitation, no irrigation service would be provided to itduring the second crop season so that operations could be carried out underdry conditions. There is not enough water at present to irrigate all landsin the districts during the second season so the available water would beutilized on blocks not being rehabilitated.

Water Supply, Requirements, and Utilization

4.07 Use of water by Mexico from the Rio Bravo and its tributaries mustbe consistent with the provisions of the Treaty of 1944 between Mexico andthe United States. The treaty sets out the rules governing the respectiveuses by the two countries. Annex 6 provides a more complete description ofthe provisions of the treaty, the water available to Mexico under the treaty,the requirements for irrigation water, and the utilization of the supply tomeet the requirements.

4.08 Neither country's share of the international water would be affectedby the proposed project works since the total quantity available would remainthe same as it was before the project. Nor would the quality of water suppliedto either country be affected as drain water from the two districts would godirectly to the Gulf of Mexico instead of to the river. Project works would,however, allow more efficient use of Mexico's share of the water. Records ofdiversions and use indicate that only about 28% of the water available fordiversion is effectively used at present, the balance being lost in conveyanceto the farm and in subsequent inefficient use on the farm. By lining thecanals, properly preparing farms for irrigation by land leveling, and pro-viding technical assistance to farmers to improve their irrigation practices,the project would increase this efficiency to around 57%, thus doubling theeffective use of irrigation water. This level of efficiency has been achievedin other highly developed irrigation districts in Mexico.

4.09 Studies discussed in Annex 6 indicate that, for virtually the sameannual cropped area with and without the project, 30 to 40% of the cropwater needs are met by precipitation. Under present overall efficiencies,irrigation increases the water available by about 25% of the water needs toan effective supply of about 60% of the crop's theoretical needs. With theproject, about 85 to 100% of such needs would be met.

4.10 The 1944 treaty (para 4.07) does not preclude either country fromconstructing additional water use projects in the Bravo Basin but the de-pletion of water available to the Bravo caused by such developments reflectsin the share credited to the country making the development. Thus, anyadditional water-depleting developments in Mexico made on the Rio Bravo or

- 12 -

its tributaries would reflect in a diminution of the water available for use

by the proposed project. During negotiations, an assurance was obtained from

the Govermment that it would not allow any future developments in the BravoBasin that would deplete the supply to the project without the specific con-

currence of the Bank.

Status of Engineering

4.11 Preliminary designs adequate for estimating project costs have been

made for all project features, but final designs and tender documents wouldhave to be prepared for all works prior to inviting bids for construction.In addition, the justification for lining specific sections of the main canals

would have to be finalized (para 4.05).

Cost Estimates

4.12 Project cost estimates are detailed in Annex 7 and are summarizedbelow:

Local Foreign Total Local Foreign Total Foreign-- Mex$ Millions ----- --- US$ Millions ----- Exchange

Physical Works

Canals 668 445 1,113 53.4 35.6 89.0 40

Drains 125 83 208 10.0 6.6 16.6 40

Roads 64 43 107 5.1 3.4 8.5 40Staff Houses 10 1 11 0.8 - 0.8 10

Land Leveling 200 200 400 16.0 16.0 32.0 50

Total W4orks 1,067 772 1,839 85.3 61.6 146.9 42Materials 182 - 182 14.6 - 14.6 0

O+M Equipment 18 26 44 1.4 2.1 3.5 60

Radio Telephone 2 4 6 0.2 0.3 0.5 60Engineering and Adminis-

tration 263 - 263 21.0 - 21.0 0

Rights of Way 39 - 39 3.2 - 3.2 0

Technical Assistance 310 - 310 24.8 - 24.8 0

Base Cost of Project 1,881 802 2,683 150.5 64.0 214.5 30

Contingencies

Physical 118 85 203 9.4 6.8 16.2 42Price 1,153 768 1,921 92.4 61.3 153.7 40Total Project Costs 3,152 1,655 4,807 252.3 132.1 384.4 34

4.13 Quantities of work items were estimated on the basis of the pre-liminary designs. Unit costs were based on information provided by theConstruction Division of SRH, which maintains a current list of unit pricesfor all categories of work by geographical area, and represent costs expected

- 13 -

to prevail during the six-month period starting November 1974. Physical con-tingencies have been estimated on the basis of 10% of the cost of projectworks, plus materials such as cement and steel. Mexico adjusted wage scalesand material prices in September 1974, which increased unit costs about 21%over those in effect in 1973 and this increase is reflected in the unit costsused. While it is not possible to accurately project future price contin-gencies over the seven-year construction period, an allowance for a 16% in-crease for 1975, 14% in 1976, 12% annually in 1977-79 and 10% in 1980-82 hasbeen applied on both local and foreign costs. The exchange rate is assumedto remain at its 1974 level. The price increase has been applied to allelements included in the cost estimate. The price contingency is large asa result of the long construction period envisioned. The foreign exchangecomponent of civil works has been estimated on the basis of depreciation ofheavy equipment considered appropriate and used during the period of construction.

Financing

4.14 The proposed Bank loan of US$150 million would finance (see tablepage 15) the total foreign exchange component of base costs, (less that of theitems supplied in bulk by SRH) plus a proportionate share of physical andprice contingencies ($129 million), and 50% of the technical assistance pro-gram (US$21 million). The balance would be financed under Government budgetto SRH. The loan would be made for 25 years, with seven years' grace, at thecurrent Bank rate of interest to Nacional Financiera, S.A., the Governmentagency in charge of handling loans and credits. The United Mexican Stateswould be the guarantor of the loan and would carry the foreign exchange risk.The closing date of the loan would be December 31, 1982.

Procurement

4.15 Contracts for the principal features of construction work would beawarded on the basis of international competitive bidding in accordance withBank guidelines for procurement. Mexico has a well developed and competentcontracting industry, capable of doing all types of civil works at competi-tive prices, and only rarely is a bid submitted from a non-Mexican firm.However, in order to facilitate the participation of international contrac-tors, civil works would, insofar as possible, be grouped into contractshaving a minimum value of Mex$ 20 million (US$1.6 million). An assuranceto this effect was given during negotiations.

4.16 In other projects, SRH has organized local groups of farmers intopartnerships to contract land leveling on small tracts up to 100 ha in size,using their own farm machinery. The work provides income to the farmerspending completion of the rehabilitation work, but, more importantly, ittrains them in proper leveling procedures and prepares them to maintaintheir fields in proper condition for irrigation. SRH provides engineeringservices and supervises such contracts. Since there is already proven meritin this procedure, the Government would award contracts for such activityunder its standard procedures without international bidding. Also, toexpedite the construction of civil works to be performed under internationalbidding, small jobs, which, because of timing or nature of the work, could

- 14 -

be better handled if they were not included in the major contracts, wouldbe contracted out under ordinary Government procedures, which are suitable tothe Bank, up to a maximum value per contract of Mex$ 2 million. The aggregateamount of such contracts, however, would not exceed Mex$ 100 million.

4.17 SRH normally lets contracts under local bidding procedures forthe supply, in bulk, of building materials such as cement and reinforcingsteel. It then furnishes such items to civil works contractors, and theircost is not included in the bids submitted by the contractors. However,other items such as steel shapes and fabricated gates are included in thecivil works contracts on a furnish and install basis and their cost isincluded in the contractor's bid and paid for as a part of the civil workscontract. Annex 8 gives further details on materials and equipment to beacquired by SRH under local bidding. The items to be financed under theloan would exclude equipment and materials purchased under local bidding,but would include payments to civil works contractors on bids let underinternational procedures, plus the payments for land leveling under con-tracts let under local bidding procedures, and for the small jobs noted inparagraph 4.16.

Expenditure Schedule

4.18 Annex 9 gives a schedule of estimated annual expenditures forproject implementation.

Disbursements

4.19 Loan categories, amounts and basis for disbursement are as follows:

Category Total Loan Basis forCost Amount DisbursementUS$ Millions

I. Civil Works

Let under ICB 106.9Small local

contracts 8.0 45% of paymentLand leveling 32.0 to contractorsPrice contingen-cies 106.5 253.4 114

II. Technical Assistance 50% of totalBase price 24.8 cost asPrice contingencies 18.0 42.8 21 certified by

SRH

III. Unallocated 15

Total 150

- 15 -

In the event of higher costs in the first two categories, funds would beshifted from the unallocated category to increase amounts as appropriate.Any funds remaining at the close of disbursement would be cancelled. Anestimated schedule of disbursements is given in Annex 10.

Accounts and Auditing

4.20 SRH would maintain separate project accounts to reflect the finan-cial situation of the project. Such accounts are subject to internal auditsconducted by the Controller General of SRH and by the Direccion de Vigilanciade Valores y Fondos of the Secretaria de Hacienda. During negotiations,assurances were given that the Government would cause annual audits to bemade and promptly make available to the Bank copies of the project accountsas audited under its laws and furnish such other pertinent data as the Bankmay reasonably request.

V. ORGANIZATION AND MANAGEMENT

Administration

5.01 The project would be administered by SRH through its normal channels,with the North Tamaulipas Zone office having direct field responsibility forconstructing, operating and maintaining the completed project and providingtechnical services to farmers. (Chart 7434(R) shows the organization of theMexico City headquarters of SRH, while Chart 9455 illustrates the organizationof the North Tamaulipas Zone office.) The headquarters office in Mexico Citywould prepare and issue the final designs and tender documents. Field super-vision of construction activities would be the direct responsibility of theConstruction Division of the North Tamaulipas Zone office. This Division,however, would be greatly expanded in order to collect all design data, assistin preparing designs and tender documents and supervise construction. Expe-rienced SRH personnel would be transferred from other offices to fill keypositions.

Operation and Maintenance

5.02 While the Gerente General of the North Tamaulipas Zone office hasoverall responsibility for operation and maintenance activities, the directresponsibility rests with the District Managers of the two irrigation districts.Both districts are now staffed with competent personnel and are well equippedto carry out these functions. Annex 11 provides a more complete descriptionof the operation and maintenance arrangements in the two districts. It alsogives annual costs of operation and maintenance for the period 1969 through 1975and compares them with the revenues received from the farmers through chargesfor irrigation service. Also shown is a budget for operation and maintenancecosts under project conditions, which totals Mex$ 80.4 million per year (US$6.4million). It is anticipated that operating costs in the future would be thesame with or without the project. Maintenance costs would decrease on the

- 16 -

irrigation system but this would be offset by an increase in costs for theenlarged drainage system. Equipment required for maintanance would changeslightly in composition but have about the same total value as at present.

Technical Assistance

5.03 Mexico has many schools and institutions devoted to agriculturaleducation and training. These are considered adequate and no special additionaltraining comDonent is included in the project. In addition to PLAMEPA's ongoingirrigation extension activities, SRH would establish a technical assistanceprogram, over a seven-year period, consisting of agricultural research and ex-tension services to ensure good farming practices and to encourage crop diver-sification, including livestock production. This program would provide thefollowing incremental staff: 32 researchers, 32 research assistants, and174 subprofessionals for the research program, and 66 professionals, 180 agro-technicians, 67 rural educators and 12 administrative personnel. This staffwould increase technical know how of the farmers to the level necessary toachieve the average yields assumed under the project and would strengthen SAG'songoing national programs by expanding and improving research and extension pro-grams in the project area. After the seven year project investment period, thisstaff would be progressively slowly reduced to a level consistent with efficientlong-term operation of the district. The project would also provide the necessaryoperational buildings and vehicles for the program. SAG specialized agencies foragricultural research (INIA), livestock research (INIP) and agricultural extension(DGEA), under agreement with SRH, would be responsible for the implementation ofthe program. An assurance was received from Government that within six months ofloan signing, agreements, satisfactorv to the Bank, would be made with the appro-priate national agricultural research and extension institutions. These agree-ments would specify the staff requirements during the project and the subsequentphasing out period. The estimated cost of the initial program at today'sprices is Mex$ 310.0 million (US$24.8 million). Annex 12 gives a comprehensivediscussion on agricultural training, research, and extension as carried outwithin Mexico and in the project area.

Credit

5.04 Under the project, gross production value is expected to reachMex$ 3 billion, which points to short-term credit needs of at least Mex$ 1billion. Of this, about one-fourth would be needed by ejidatarios, and someMex$ 200 million of long-term credit would be required for the anticipatedlivestock operation. Consequently, assurances were obtained that Governmentwould take all measures necessary to ensure that credit,'fertilizers andimproved seeds would be made available in the Project area in the quantitiesand at the time required.

- 17 -

VI. PRODUCTION, FARMERS' INCOME, WATER CHARGES, AND MARKETS

Production

6.01 The project would substantially increase the yields of crops inboth districts by providing a more adequate water supply. At present, twoirrigated cropping seasons are practiced, with the main season extending fromJanuary to June and the second season from July to December. In general, theentire cultivated area is planted during the first season. The Comite Directivoof each District normally meets in May of each year to decide the total areato which irrigation water will be supplied for the late season crop, takinginto account the amount of water remaining in storage for each district andthe prospects of obtaining additional water. Usually only about 20% of thearea is irrigated in the second season. Since the late season correspondswith the period of normally higher rainfall, some farmers may plant a secondcrop although they have no assurance of being able to obtain irrigation water.Because of the normally short water supply and the fact that the full waterrequirements are not met, yields in both cropping seasons are generallv low.

6.02 With the project, the full crop water requirements could be met forone crop on all the irrigated area in normal years. For purposes of evalua-tion of the benefits of the project, it has therefore been assumed that allthe available water supply would be used on one crop under both with and with-out project conditions. The increase in production envisaged is then a func-tion of the better water supply for the main crop and the better farm practicesmade possible by proper land preparation and technical assistance during bothcropping seasons.

6.03 Annex 13 gives details on historic production values, productioncosts by crops and the net value of production with and without the project.The without project condition is taken as the weighted average of historicalproduction for the years 1970-74. Analysis indicates that the net value of -

production would increase from Mex$ 547 million (US$43.7 million) annuallyto Mex$ 1,677 million (US$133 million) under the project. Full developmentshould be reached in about the fifth year after all works were complete orin the twelfth year of project implementation.

Income to Farmers

6.04 Annex 14 gives examples of the financial position of representativefarmers both with and without the project. Two examples' are given for ejidalfarms of 10 ha each (reflecting different cropping patterns), one for anaverage small private landowner of 22 ha and one for a typical colono having13 ha. The results are summarized as follows:

- 18 -

Net IncomeWithout Project With Project

Type of Farm Total Per Ha Total Per Ha--------------------- Mex$ -----------------------

10 ha Ejido 20,900 2,090 52,670 5,26710 ha Ejido 20,900 2,090 48,820 4,88222 ha Small holders 37,400 1,700 94,600 4,3001t ha Colono 28,700 2,200 76,830 5,910

These figures are the residue after all taxes, insurance, interest and pro-duction costs (including labor) have been paid. They also include a smallcomponent for income earned off the farm, since the typical project farmerdoes work for other farmers within the project or for enterprises in the urbanareas. They do not include water charges.

Water Charges

6.05 SRH is at present levying a flat charge of Mex$ 150 per ha per yearfor irrigation service in both districts. This amount was collected in 1974and represents an increase over the level of Mex$ 100 collected in the period1969 through 1973 (Annex 11). The objective of the Government has been to setthe charge at a high enough level to offset the annual costs of operation andmaintenance. The present levy nearly accomplished this objective through 1972but, due to inflationary pressures, costs increased faster than the level ofcharges could be adjusted, and, for 1973 and 1974, even with the higher levyfor 1974, operating deficits were incurred which had to be financed by Govern-ment budgetary allotments. SRH has stated that they will increase the levy,starting in October 1975, to a level sufficient to offset operation andmaintenance costs.

6.06 The new Federal Water Law of 1971 sets out the conditions which newirrigation districts must follow. However, SRH is starting to apply the pro-visions of that law as they concern water charges to existing irrigation dis-tricts in Mexico. This law requires SRH, with the advice of the Ministry ofAgrarian Reform and the Comite Directivo of the individual irrigation district,to carry out socio-economic studies to determine appropriate charges for theservices rendered in each irrigation district. W4ater rates must take intoaccount the recoverable portion of the capital costs of the project and theannual recurrent costs of administration, operation and maintenance. Govern-ment has recently indicated its intentions to change under future regulationsfrom an area to a volumetric charge. The law requires that the water ratesbe reviewed periodically on the basis of data from socio-economic studies.The law states that failure to pay charges is cause for suspending serviceuntil payments are up to date. Compulsory action for collection of outstand-ing charges may be taken.

6 07 Under the project, SRH, in conjunction with other agencies, wouldcarry out the required socio-economic studies and set charges sufficient tocver all operation and maintenance costs and as much of the capital invest-ment as appeared reasonable in light of the socio-economic studies. The

- 19 -

announced intention of the Government is to raise the water charges throughoutthe country and to attempt to recover the capital investments in irrigationprojects in as short a time as possible. During negotiations, an assurancewas given that the Government would: (1) carry out a socio-economic studyin each irrigation unit as soon as the works are completed in that unit todetermine the ability of water users to pay for the cost of irrigation andthat all such socio-economic studies would be completed by not later thanJune 30, 1982 or such other date as may be agreed upon between the Governmentand the Bank; (2) periodically review such study with a view to revising suchcharges; (3) collect such charges as would be necessary to recover all oper-ation and maintenance costs of the irrigation facilities and, starting notlater than five months after completion of the socio-economic studies, asmuch as practicable of the investment cost giving due regard to the abilityof the water users to pay and the need to maintain an incentive to make thebest use of land and water; and, (4) give the Bank a reasonable opportunityto comment on the conclusions and recommendations of the socio-economicstudies.

6.08 The new Federal Water Law was passed in December 1971 and publishedin the official diary in January 1972, but regulations concerning implementa-tion of the law have not yet been issued. During negotiations, an assurancewas given that the regulations required to establish and collect water chargeswould be issued within seven months of signing the agreement.

Repayment of Investment Costs

6.09 The assurance outlined in paragraph 6.07 would require that waterusers pay all operation and maintenance costs, estimated to average aboutMex$ 300 per ha per year, and as much as practicable of the investment cost,with due regard to ability of the water users to pay. Mexican law allowswater charges to be varied on the basis of area, volume of water or crops butrequires that the same basis be applied to all users. The actual chargeswould be finally determined only after completion of the detailed socio-economic studies as prescribed by law. Furthermore, the degree of recoveryof the project investment costs cannot be estimated with accuracy until thestudies are completed and the ability to pay established. The ability to paytowards investment depends on (a) the farmer's net income after meeting allcrop production costs, taxes and project operation and maintenance charges,less (b) the amount he needs to cover his family living costs (approximatelyMex$ 20,000 per year), and (c) have a reasonable incentive to continue irri-gated farming. Items under (a) and (b) can be calculated, but those under(c) are matters of judgment. The Government has indicated its intention torecover investment costs, if possible, in not over 25 years and to reviewand update the pertinent socio-economic studies every two years.

6.10 The net income per ejidatario and his family shown in paragraph 6.04for the without project condition barely reaches the subsistence requirement.Under the project, the first call for payment would be the operation andmaintenance costs, estimated at Mex$ 300 per ha. This would leave aboutMes$ 4,540 net per ha available for raising the standard of living of thewater users and for paying a water charge to be applied to amortization of

- 20 -

project investment costs. To recover the investment cost for project infra-structure of approximately Mex$ 2,500 million in ]974 prices, over a totalperiod of 25 years, an investment charge of Mex$ 550 per ha would need to beassessed. If project costs and revenues are discounted at ]0% (the estimatedopportunity cost of capital in Mexico), these charges would recover 30% ofinvestment costs. Including incremental taxes--in the form of lump sum pay-ment after completion of works, an annual land tax surcharge and additionalproduction taxes--in the recovery charges, this percentage increases to 50.If, as an indicative upper limit, it is assumed that 25 percent of the incre-mental income from the project was levied as water charges, the respectiverecovery index would be 45 percent excluding and 70 percent including incre-mental government revenues.

Markets

6.11 The proposed cropping pattern is consistent with market prospects.It includes commodities in which Mexico faces growing deficits such as, milk,oil seeds, grains, and traditional exports such as cotton, live cattle andvegetables. The project represents Mexico's most important single effort tonarrow a projected supply/demand gap. Also, the project is sufficientlyversatile to allow production to be altered to meet changing demand.

6.12 No important problems are expected with regard to the marketinginfrastructure in the project area. Storage capacity is currently fullyutilized for corn and sorghum; with crop diversification under the project,the existing capacity should be sufficient for the smaller quantities ofcrops requiring storage. Processing capacity for oil seeds, cotton and milkare currently under-utilized; at full development, however, additional facili-ties for cotton and milk would be required and can be expected to be addedby the private sector if and when needed. Annex 15 describes the market andmarketing prospects of the project.

VII. BENEFITS AND JUSTIFICATION

7.01 At full development, about 12 years after the start of the project,the project's net value of production, valued at farmgate prices at end 1974,would reach Mex$ 1.7 billion (US$134 million) per annum, compared to Mex8 0.5billion (US$44 million) under future conditions without the project. Theinvestment involved in the project would amount to some Mex$ 2.68 billion(US$214 million) in end-1974 prices, 1/ virtually all of which would be inirrigation facilities. With adequate maintenance, the useful life of those

1/ Excluding physical and price contingencies.

- 21 -

facilities would be indefinite, but for calculation of the project's economicreturn, it has been assumed at 40 years. Over this period, the economic rateof return would be about 19%.

7.02 The sensitivity of the project's economic justification to devia-tions from anticipated circumstances has been considered as follows:

Alternative Assumption Economic Rate of Return

(a) Irrigation investment costs increased byan additional 10% 1/ 18,%

(b) Two-year time lag in build-up of benefitsinstead of one year 17%

(c) Benefits lowered by 20% 16%

(d) Farm labor costs valued at official minimumwage, instead of being shadow-pricedat 70% 1PR

(e) Combination of (a), (b) and (c) 14%

The above-mentioned results show that, within a reasonable range of circun-stances, there is no risk of not achieving an acceptable rate of return.Annex 16 gives details on the inputs used for the rate of return calculations.

7.03 About 19,000 farm families would benefit from the project, of whichejidatarios and private owners would each represent 40% and the rest would becolonos (settlers).

7.04 The project would generate about 17,000 man-years of additionalemployment annually. The annual net of tax income of the average ejidatariofarm would increase from about Mex$ 20,000 to Mex$ 50,000 at full development,while the expected corresponding increase for the average private farm wouldbe from Mex$ 30,000 to Mex$ 95,000.

7.05 Revenues from federal and state taxes would increase from Mex$ 38million under without project conditions to Miex$ 74 million with the project.

7.06 Additional employment and value-added resulting from crop marketingand processing and other related activities, as well as secondarv benefitsdue to the acceleration of the general economic activity in the region as aresult of the project construction and operation, were not quantified, and,consequently, have not been included in the economic analysis. They would,however, be substantial.

1/ Irrigation investment costs used in the economic analysis alreadyinclude 10% physical contingencies.

- 22 -

7.07 There are no known water-borne diseases such as bilharzia in theproject areas. Increased use of fertilizers and pesticides as part of thefarming operation could result in some increase of residual quantities ofsuch chemicals in downstream flows, but it is believed that these would notexceed acceptable limits.

VIII. RECOITENDATIONS

8.01 During negotiations, assurances were given by Government that itwould:

(a) not issue tender documents for lining a section of maincanal until studies on that particular section had been con-ducted and findings indicat-ed water losses sufficient tojustify the work (para 4.05);

(b) not allow any future developments to be made in the BravoBasin that would deplete the water supply to the projectwithout the specific concurrence of the Bank (para 4.10);

(c) group civil works, insofar as possible, into contracts havinga minimum value of Mex$ 20 million (US$1.6 million) (para 4.15);

(d) make promptly available to the Bank all project accounts asaudited under its laws and furnish such other pertinentinformation as the Bank may reasonably request (para 4.20);

(e) SRH would complete arrangements, satisfactory to the Bank,with its national agricultural research and extensionagencies within six months of loan signing to provide atechnical assistance program for farmers to ensure goodfarming practices and encourage crop diversification,including livestock production (para 5.03);

(f) make available promptly the credit needs of the project asthey are required (para 5.04);

(g) assess and collect water charges sufficient to pay totaloperation and maintenance costs plus as much as practicableof project investment costs on the basis of the abilityof water users to pay and the need to maintain an incentive tomake best use of land and water; carry out the socio-economicstudies by June 30, 1982 or at a later date agreed with theBank; review such studies periodically for possible revisionof charges; and give the Bank an opportunity to comment onconclusions and recommendations of such studies as each iscompleted (para 6.07); and

- 23 -

(h) issue the regulations required to establish and collectwater charges within seven months of signing the agreement(para 6.08).

8.02 With the above assurances, the project is suitable for a Bank loanof US$150 million for a term of 25 years, including a seven-year grace period.

April 15, 1975

ANNEX IPage 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REI1ABILITATION PROJECT

Soils and Topography

1. The soils of the project area are predominantly medium to heavyalluvial deposits. Their parent materials are limestone and sandstone.Soils are generally deep, with good internal drainage and a low level ofsalinity. They are fertile and well adapted to cultivation of a widerange of crops. There are areas, however, where soils present deficien-cies due to heavy texture, poor structure, salinity and impeded drainage.Approximately 25% of the Bajo Rio Bravo area and 13% of the Bajo Rio San Juanarea are affected by various degrees of salinity and poor internal drain-age.

2. Project lands lie between 5 m and 65 m above the sea level, witha very gentle slope toward the sea. The topography is predominantly flat,but the relief in some areas is variably undulating and approximately 70%of the project area requires slight to moderate land leveling for optimumwater usage. Because of the topography and soil characteristics, surfacedrainage is relatively slow. In general, the water table remains deep mostof the year, but the lowest areas are inundated during heavy rains, or whenhurricane conditions are present and high water tables remain in other areasdue to excess irrigation water or seepage from canals and reservoirs.Approximately 40% of the project area is affected by relatively high watertables.

3. Soil studies in the project area include a detailed soil survey ona scale of 1:5,000 in the Bajo Rio San Juan area (1936-42); two semi-detailedsoil surveys on scales of 1:10,000 and 1:20,000 in the Bajo Rio Bravo area(1940-44); extensive soil texture and salinity analyses during 1964-68 and1971; monthly water table determinations since 1971; and a detailed studyof nine representative soil profiles in 1973. Taking into account such data,and on the basis of U.S. Bureau of Reclamation guidelines, the project landsare classified as follows:

ANNEX 1Page 2

Land Class Bajo Rio San Juan Bajo Rio Bravo Total Percentage

---- (ha) ------------- (%)

1 8,882 3,934 12,816 5

2 31,078 115,694 146,772 52

3 12,246 55,211 67,457 24

4 18,396 35,523 53,919 19

Total 70,602 210,362 280,964 100

Percentage 25 75 100

4. The soil texture and salinity analyses carried out between 1964and 1968 and again in 1971 showed the beneficial effects of RehabilitationLoan No. 336-ME which was completed in 1971. Under that loan, certain sec-tions of canal were lined and some 2,000 km of drains were constructed orimproved. As a result large areas of lands affected with various degreesof salinity and/or alkalinity were reclaimed -- 46,116 ha in the Bajo RioBravo District and 7,265 ha in the Bajo Rio San Juan District. The extent ofthe affected areas is shown below:

Bajo RioSan Juan Bajo Rio Bravo

(ha) (%) (ha) (%)

Gross Areas

Total 71,356 100 238,740 100Affected 1/

1964 n.a. - 108,168 451966 16,637 23 76,187 321967 16,075 22 78,737 331968 9,372 13 62,052 26

1/ Soils with more than 3 mmhos/cm EC of saturation extract ormore than 10% exchangeable sodium.

5. Despite the above mentioned works, over 40% of the project areais still affected by one or more deficiencies of soil, topography or drain-age. However, the main deficiencies are related to soil salinity and drain-age, as stated in paragraphs 1 and 2 above. Class 3 lands (24% of the area)are at present cultivated, but their productivity is low. With the project,

ANNEX 1Page 3

these lands would easily be improved to higher categories and would be suit-able for cultivating a wide variety of crops such as cotton, corn, sorghum,wheat, beans, vegetables, and the like. Class 4 lands (19% of the area)are, in general, more severely affected by salinity and drainage problems.Some are cultivated but yields are very low, and others are not used at allat present. With the project, these lands would all become irrigable, butcertain basic limitations would remain because salinity and drainage prob-lems are associated with flat, level lands and heavy textured soils. Class4 lands could however be utilized for permanent pastures.

January 1975

ANNEX 2Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Climatic Data

1. The project is located between parallels 25°30' and 26°30' N andis thus subject to seasonal variations in temperature and daylight hours.The climate is semi-tropical.

Rainfall

2. Table 1 gives monthly rainfall records for a representative sta-tion of the Bajo Rio Bravo District and Table 2 for the Bajo Rio San JuanDistrict. Comparison of the two indicates considerable disparity, both bymonths and by years. The annual averages for the period of record shownare 577 mm for Bajo Rio Bravo and 641 mm for Bajo Rio San Juan, with theextremes ranging from 241 mm to 1,056 mm. Rainfall can be expected in anymonth but it is apt to be highest in September, with the period Novemberthrough April the driest. Hurrieanes occasionally reach the project areaand accoulnt for the periods of maximum rainfall. Major storms, such as"Beulah" in September 1967, caused widespread flooding in the project area.

Temperature

3. Table 3 shows mean monthly temperatures at a representative sta-tion in each of the two districts. Absolute maximum is 44°C in July orAugust and minimum -10'C in December or January. There are, on average,about five days per year when frosts are experienced.

Evaporation, Effective Precipitation and Evapotranspiration

4. Table 4 gives data for the two districts on pan evaporation froma Class A Weather Bureau pan. Effective precipitation is shown as 80% ofthe mean monthly precipitation. The mean evapotranspiration is approximatedas 70% of the pan evaporation. The deficiency is shown as the differencebetween the mean evapotranspiration and effective precipitation. This isthe quantity of water which would have to be artificially supplied to sup-plement the rainfall if the evapotranspiration requirements are to be met.A deficiency occurs, on average, each month of the year and totals about1,000 mm for the year. This reflects the approximate irrigation water re-quirement for a crop growing all 12 months of the year.

January 1975

MEXICO

EMBJO EUQBR ANIlBAJO EIO SAN JUAM REHABILITATIOI- PROJECT

8 - Rainfall Data -- Rio Bra-vo B.R.B-l-l Station), m/monthYEAR JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. TOTAL

1960 25.4 38.7 14.2 12.3 10.9 16.3 10.4 90.3 101.3 44.6 47.2 58.8 470.4

~1961 26.8 4.5 o.5 39.8 18.8 60.9 0.3 75.9 163.9 9.4 32.1 6.7 439.64tr- 1962 16.0 1.2 45.3 23.9 7.5 51.7 0 27.4 63.3 44.3 8.1 56.8 345.5

1963 6.2 13.1 0.5 1.8 74.4 54.0 45.0 0.8 159.5 38.4 18.2 56.4 468.31964 10.3 15.4 7.3 19.4 147.3 35.4 1.6 1.5 51.3 15.5 30.2 22.3 357.51965 0.8 30.2 26.5 27.9 114.4 4.8 4.8 4.3 192.3 31.0 33.8 111.1 581.9

1966 60.2 34.5 18.7 70.4 192.6 182.3 10.1 7.0 12.2 103.8 0.5 0 692.31967 43.5 13.7 8.0 75.0 27.0 23.6 41.5 162.0 292.9 37.0 93.5 21.5 839.21968 40.0 19.5 23.5 59.2 95.8 68.0 30.0 132.5 58.5 80.5 10.0 2.4 619.91969 6.3 24.3 17.2 15.9 48.8 60.0 36.5 127.9 17.4 39.0 34.6 13.9 441.81970 73.2 25.4 5.2 35.0 120.9 112.6 45.7 40.3 138.7 31.1 3.0 2.1 633.2

1971 7.5 16.5 0 11.7 54.0 45.5 31.5 60.8 206.3 145.9 1.7 17.5 598.91972 22.5 19.8 18.8 68.5 97.4 90.7 86.2 10.7 56.1 3.7 39.9 3.0 527.31973 88.9 97.1 2.2 9.1 57.6 250.0 9.8 96.3 228.4 173.9 0 43.0 1,056.3

Average 31 25 14 34 76 76 25 60 124 57 25 30 577

I93

X0 B(D S

MEXICO

BAJO PTO PRAVO AND BAJO RIO SAN:JULAN IEHABIITATIONT PROJECTRainfall DUta -- Son Juan ( J-2-lb Station), mm/month

YEAR JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. TOTAL

1953 0.0 19.3 13.0 11.0 6.0 0.0 0.0 90.5 8.0 66.5 10.0 12.0 241.31954 4.0 0.0 7.5 138.0 66.0 82.5 10.5 82.5 216.5 0.0 40.5 0.0 648.01955 26.0 21.5 3.5 0.0 20.5 0.0 86.5 86.5 241.5 65.0 31.0 0.0 581.5

1956 0.0 12.5 3.0 69.5 9.0 101.5 11.0 1.0 74.0 32.0 10.5 5.5 329.51957 0.0 50.0 47.5 37.0 40.0 178.0 0.0 9.5 28.5 2.0 73.5 52.0 518.01958 109.5 138.0 8.0 3.5 49.5 45.o 22.5 o.5 260.5 178.5 52.5 28.0 896.01959 51.5 57.0 9.5 28.0 88.0 80.5 95.5 42.0 6.0 80.0 25.0 9.5 572.51960 6.5 38.0 22.5 122.0 21.5 28.0 2.0 109.0 149.0 67.5 32.0 64.o 662.0

1961 21.5 12.0 0.0 97.0 4.5 139.0 58.5 67.5 240.0 23.0 35.5 10.5 709.01962 21.5 0.0 11.0 29.5 23.5 104.0 0.0 35.0 39.0 4.0 36.0 39.0 342.51963 4.0 17.0 0.0 23.0 197.5 56.o 50.0 17.0 101.0 133.0 40.0 64.5 703.01964 3.5 -40.0 3.0 50.o 220.0 43.0 18.0 o.0 71.0 6.o 16.o 48.5 519.01965 6.0 22.0 2.0 1.0 18.5 21.0 61.0 62.5 138.5 24.0 84.0 99.0 539.5

1966 114.0 19.0 24.0 38.0 129.5 143.0 21.5 130.5 35.o 172.0 6.o 0.0 832.51967 32.5 23.0 41.0 0.0 48.o 30.0 35.5 150.5 312.5 85.0 37.0 38.0 833.01968 110.5 '28.0 28.0 48.0 48.0 133.0 28.6 34.3 62.8 83.0 14.9 6.9 626.01969 6.6 66.9 18.7 7.7 80.4 10.3 8.6 171.8 298.5 21.4 40.0 0.0 730.91970 80.7 17.3 1.8 42.1 45.3 64.5 100.2 43.4 231.1 114.1 0.4 0.3 741.2

1971 1.1 20.6 0.0 75.4 52.2 86.6 46.2 61.1 332.8 64.0 2.6 27.0 769.61972 5.2 23.5 21.4 38.5 174.1 294.9 72.8 68.6 101.3 27.2 23.7 2.4 853.61973 83.7 120.2 5.1 11.6 121.9 163.8 19.1 97.4 68.8 59.5 55.4 9.2 815.71974 (25.4) (1.0) (55.0) (46.6) (40.7) (66.2) (54.4) (12.0) (86.9) (387.2)

Average 32.8 35.5 12.9 41.3 69.7 85.9 35.6 64.8 143.6 62.3 31.7 24.8 641.2

I D(D X

ANNEX 2Table 3

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Mean Monthly Temperatures

Bajo Rio Bravo Bajo Rio San Juanco F° C0 F0

January 14 57 15 59February 16 61 18 64March 19 66 21 70April 24 75 26 79May 26 79 28 82June 28 82 29 84

July 29 84 31 88August 29 84 31 88September 27 81 28 82October 25 77 24 75November 20 68 20 68December 16 61 16 61

January 9, 1975

MEXICO

c-s ]3AJO RIO BRAVO AN'lD BAJO RIO SAN JUAIN REHABILITATION PROJECT

Evaporation, Evapotranspiration, Effective Rainfall and Water Deficits

(mm)Bajo Rio Bravo Bajo Rio San JuanEffective Effective

Evapo- Precipi- Evapotran- Evapo- Precipi- Evapotran-tN ration tation 1/ spiration2/ Deficiency ration tation 1/ spiration2/ Deficiency

Jan. 95 25 67 42 100 26 70 44Feb. 111 20 78 58 103 29 72 43Mar. 179 11 125 114 164 10 115 105Apr. 224 27 157 130 206 33 144 111May 253 61 177 116 221 56 155 99June 275 61 193 132 232 69 162 93

July 320 20 224 204 257 29 180 151Aug. 299 48 209 161 250 52 175 123Sept. 221 99 155 56 186 115 130 15Oct. 175 46 123 77 154 50 108 58Nov. 119 20 83 63 116 26 81 55Dec. 90 2)4 63 39 84 20 59 39

2,361 462 1,653 1,192 2,073 513 1,451 936

1/ Effective precipitation = 0.8 total monthly precipitation2/ Taken as 0.7 of pan evaporation.

H CDCD

ANNEX 3Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Land Tenure and Farm Size

1. There are about 21,390 farm families in the project area, of whom2,720 (13%) are landless. The remaining 18,670 are either ejidatarios,private landowners, or settlers (colenos).

2. The ejido system was officially established as a tenure system bythe Agrarian Reform Law of 1915. The ejido, as the community, is the legalproprietor of the land, but it cannot transfer, rent, or mortgage it. Theejido may operate as a communal farr, with the members pooling their landunder arrangements that make them similar to shareholders in a corporation,or it can elect to parcel its land to members on a pro rata basis, witheach individual working the land separately or in association with othermembers. In such cases, individual members pool their input requests toobtain credit, but do not pool their land. In some ejidos, all three meth-ods coexist. Thus an individual ejidatario may cultivate his land on hisown, participate in a communal group, or work in association with otherson all or part of his land. However, he cannot mortgage, sell or rent hisland. This prohibition against mortgaging land was the major obstacle tothe ejidatario's access to the main sources of agricultural credit, but withthe creation of the Fondo de Garantia y Fomento para la Agricultura,Ganaderia y Avicultura (FONDO) this obstacle has been removed.

3. The colonos were settled under a program, now discontinued, forcolonization of federal lands. The individual colono obtains title to hisallotment of land after he has made full payment to the Government underthe colonization agreement. In general, the colonos living in the projectarea have discharged their repayment obligation and now have title. Theytherefore have the same status as private landowners.

4. In Mexico, two recent laws -- the Agrarian Reform Law and theFederal Water Law -- define lands which may be expropriated by the Govern-ment for agrarian reform purposes. However, the Federal Water Law is ap-plicable only in new irrigation districts and not in existing districtswhich are rehabilitated, such as would be the case under the proposed pro-ject. The only land affected in the area is that of private landowners whodo not use it or are unable to pay their debts to the Banco Agricola. Suchland is either turned over to existing ejidos or is used to establish newones. These transactions, however, involve only small areas.

ANNEX 3Page 2

5. The overall land tenure pattern for the project area is shown in

Table 1; the main features of the pattern in districts 25 and 26 are shownseparately in the summary table below: -

Rio Bravo District 25 Rio San Juan District 26Number Average Number Average

Area of Farm Size Area of Farm Sizein Ha Z Farmers % in Ha in Ha % Farmers % in Ha

Ejido 59,431 28 6,086 42 9.77 13,385 19 1,356 33 9.87

PrivateLandowners 121,225 58 5,874 40 20.64 37,396 53 1,427 35 26.21

Colonos 29,706 14 2,642 18 11.24 19,821 28 1,283 32 15.45

210,362 100 14,602 100 14.41 70,602 100 4,066 100 17.36

On average, ejidatarios command slightly less than 10 ha of irrigable land,while the colonos have an average of 12.6 ha and the private landowners,21.7 ha. The average farm size in the area is 15 ha. These figures, how-ever, provide only the land tenure pattern within the boundaries of the twodistricts. Some ejidos also command land outside the districts, estimatedat 20-25% of the area within the district. Because of the low and erraticrainfall, however, such land is used either for extensive livestock or sor-ghum production and produces marginal returns. Under the project, theseareas could be used more effectively for such activities as breeding cattlefor subsequent fattening in the project area. Benefits from these surround-ing lands are indirect rather than direct so they have not been taken intoconsideration in assessing project benefits.

6. Because of the general lack of access to credit and technicalassistance, small landowners, colonos and even ejidatarios, despite thelegal implications (para 2), are resorting to renting out their land orsharecropping to increase their income. There are various formulas: oneis to rent out the land at Mex$ 500 to Mex$ 1,000 per ha per year;others involve various sharecropping arrangements under which the farmerreceives between half and one-third of the net income. It is estimatedthat, in the area, 37,800 ha, or 13.4% of the land, owned by 12.5% of thefarmers is cropped under one of these systems. Of this area, about 30%is owned by farmers with less than 10 ha, mainly small landowners (47%),colonos (36%), and ejidos (17%).

7. As shown in the following table, the number of agricultural workersincreased by 25% from 1960 to 1970. The number of ejidatarios has growncommensurately with the growth of the agricultural population, while theshare of small landowners and colonos has decreased proportionately to theincrease in agricultural workers. The changes are the result of the rapidgrowth in population.

ANNEX 3Page 3

Movements of the Active Population in Agriculture (%)

1960 1970 Difference

Total 100.0 100.0 --Daily workers 43.1 68.2 +25.1Ejidatarios 9.8 9.6 -0.2Small landholders and colonos 47.1 22.2 -24.9

January 1975

Annex 3Table 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Land Tenure Pattern

Area Number of Average Areain Ha _ Farmers % per Farmer in Ha

158,621 56.5 7,301 39.1 21.73

Less than 5.0 2,086 0.7 584 3.1 3.575.1- 10.0 17,006 6.1 1,933 10.4 8.8010.1- 20.0 45,972 16.4 2,721 14.6 16.9020.1- 50.0 53,818 19.1 1,587 8.5 33.9150.1-100.0 38,990 13.9 470 2.5 82.96100.1 or more 7h9 0.3 6 - 12b.83

Ejidatarios 72,816 25.9 7,h42 39.9 9.78

Less than- 5.0 2,903 1.0 810 4.3 3.585.1- 10.0 26,148 9.3 3,020 16.2 8.6610.1- 20.0 42,962 15.3 3,600 19.3 11.9320.1- 50.0 231 0.1 6 0.1 38.5050.1-100.0 422 0.2 5 - 84.40100.1 or more 150 - 1 - 150.00

Settlers L9.526 17.6 3,925 21.0 12.62

Less than 5.0 981 0.3 273 1.5 3.605.1- 10.0 8,356 3.0 972 5.2 8.6010.1- 20.0 35,574 12.7 2,h83 13.3 14.3320.1- 50.0 4,615 1.6 197 1.0 -23.4350.1-100.0100.1 or more

TOTAL 280,963 100.0 18,668 100.0 15.05

Source: SRH District Headquarters (District No. 25 and 26)

January 24, 1975

ANNEX 4Page 1

MEXICO

BAJO RIO BRAVO AXND BAJO RIO SAN JUAN REliABILITATION PROJECT

Project Works

Background

1. Development of irrigation in the two district areas started shortlyafter the turn of the century under a private company that had concessionsto nearly all the lands along the Rio Bravo. After the Mexican Revolution,and in the 1930s, Government assumed responsibility for flood protectionand constructed the Retamal canal; the three shallow reservoirs of ElCulebron, Cardenas and Palito Blanco; and a flood channel to the coastallagoons. About 20,000 ha were brought under irrigation at that time.

2. The real development of irrigation did not come until after theinternational treaty was concluded between the U.S.A. and lIexico in 1944,which permitted the construction of the international dam at Falcon and thediversion dam at Anzalduas. The Bajo Rio Bravo Irrigation District wasofficially established in August 1953.

3. Studies were started in 1927 on a possible irrigation scheme onthe Rio San Juan. Construction of Marte R. Gomez dam was initiated in 1936and completed in 1946, and the irrigation system was completed in 1954.The irrigation district was established in April 1939 and modified in July1952.

4. In April 1963, a Bank loan was made to Mexico for rehabilitationand improvement of the irrigation and drainage system of the two districts.The work was completed in 1971. Most of the construction effort centeredon the following activities 1/:

1/ Supervision Report dated May 31, 1971.

ANNEX 4Page 2

Bajo BajoItem Rio Bravo Rio San Juan Total

_____________ ----- In-I ---------------

Drains

Construction of New 739 67 806Rehabilitation Existing 1,047 345 1,392

Canals

New Canals 48 0 48Rehabilitation Existing 153 52 205Canal Lining 77 113 191

Approximately Mex$ 315 million (US$25 million) was spent on project worksunder this loan, and, although highly beneficial, they solved only a fewof the problems involved in achieving maximum agricultural production inthe project area.

Existing Works

5. The Bajo Rio San Juan district derives all of its water supplyfrom the San Juan River, as regulated by Marte R. Gomez reservoir. Thisreservoir is formed by two dams, one across the San Juan River and a secondacross a low area on the north rim of the reservoir. There are two irri-gation outlets. The San Pedro main canal serves the 5,009 ha area on the'left bank of the San Juan River and has its heading in the north dam, whilethe Rode canal, with an initial capacity of 70 m3 /sec, serves the 65,593 haon the right bank of the San Juan River and heads in the right abutment ofthe main dam. Laterals and sub-laterals distribute water to the lands.The first 25 km of the Rlode canal were lined under Loan 336-ME and 151 kmof the canals and laterals are also lined. Right bank lands are served bythe Morello drain, which originally entered the Rio Bravo just aboveAnzalduas dam. However, facilities have been installed so that drain watercan be pumped into a lined bypass channel leading to a draiyn in the BajoRio Bravo District. From there it can be discharged to the Gulf of Mlexicowithout adding its salt load to the Rio Bravo.

6. The Bajo Rio Bravo district obtains its water from the Rio Bravoand utilizes Mexico's share of the water allocated under the internationaltreaty. Two storage dams and two diversion dams have been constructed onthe Rio Bravo by the international commission created to jointly serve theneeds of both countries. Amistad Storage reservoir is the-farthest upstreamand is located near Piedras Negras, Mexico. This reservoir, completed andplaced in operation in 1968, serves mainly to augment the storage capacityof Falcon and reduce the spills from that reservoir. Falcon is the secondof the international storage dams and is located on the Rio Bravo a shortdistance above Roma, Texas, and above the confluence of the Rio Alamo with

ANNEX 4Page 3

the Bravo in Mexico. It was placed in service in 1953. The normal capa-city for irrigation use by the two countries is 2,590 Mm3. Anzalduas diver-sion dam (completed about 1956) is about 8 km upstream of the city of Reynosaand some 178 km downstream of Falcon. This structure serves as the maindiversion point for water used by the Bajo Rio Bravo District. The Anzalduasmain canal heads on the right side of the diversion dam, which also hasheadworks on the U.S. side that allow diversions to be made into a floodbypass channel in the United States. El Retamal diversion dam is the far-thest downstream of the international structures and was completed in 1974.It replaced an existing structure which served as the diversion point forthe original El Retamal canal. Although it is possible under certain flowconditions to effect diversions from the Rio Bravo into the canal system ofthe irrigation district, it is not normally used for that purpose. Its mainfunction is to serve as a diversion point for flood waters into a bypasschannel on the MIexican side leading to the three shallow reservoirs and arecently completed floodway discharging into the Laguna Madre.

7. The irrigation system for the district starts at the Anzalduasdiversion dam where the Anzalduas main canal originates. The initial cap-acity of this canal is 250 m3/sec to km 19+684. At that point, the ElCulebron lateral takes off with a capacity of 80 m3/sec. The Anzalduascanal continues, with a capacity of 170 m3/sec, to km 37+600, at whichpoint the Palito Blanco lateral, with a capacity of 70 n3/sec, starts.The main canal then continues at 100 m3/sec capacity to km 75+000, where itdrops to 50 m3/sec and ultimately to 20 m3/sec at km 89+000 where it term-inates. Laterals and sub-laterals serve to distribute the water.

8. Three shallow reservoirs, Culebron, Cardenas and Palito Blanco,were constructed as part of the original irrigation system in the 1920s andhave a combined capacity of 264 Mm3. Because of their large areas (highevaporation losses), shallowness and the contribution they make to groundwater (which aggravates the drainage problem), these reservoirs are notused for operational purposes any more than necessary. They are mainly in-tended to serve when rain temporarily reduces the immediate irrigation de-mand, where water is in transit through the system from Falcon, and whenresumption of irrigation is foreseen in a very short time. In such periods,the water in transit is stored temporarily until it can be used.

9. The Rio Bravo District irrigation area is divided into six units.The first four, totaling 210,362 ha, obtain their water through the Anzalduassystem; the fifth near the city of Rio Bravo, is served by ground water; andthe sixth is supplied by pumps located to draw directly from the Rio Bravo.Only the first four units are included in the rehabilitation project. Drain-age from the first four units is collected into four main d-rains, each ofwhich is extended to an outlet in the Laguna Madre. A fifth main dtain(drain marginal) is under construction as part of the current bettermentprogram.

ANNEX 4Page 4

10. The main existing infrastructure in the two districts can besummarized as follows:

Bajo BajoItem Rio Bravo Rio San Juan Total

Storage Dams, No. 2 1 3Diversion Dams, No. 2 - 2

Irrigation SystemMain Canals, km 394 225 619Secondary Canals, km 2,274 850 3,124Structures, No. 5,0b2 4,173 9,175Lined Canals, km (77) (151) (228)

DrainsMain Drains, km 334 - 334Secondary Drains, km 1,721 703 2,424Structures, No. 5,730 1,667 7,397

RoadsPaved, km 310 185 495Surfaced, km 54 313 367Dirt, km 2,284 1,834 4,118Structures, No. 414 523 937

Telephone System 1 system 1 system 2 systemsHouses for Ditch Riders, No. 186 69 255

Project Works

11. All works to be accomplished under the project would be confinedto irrigation zones. Nothing would be done on any of the existing storageor river diversion facilities.

12. Irrigation System. It is recognized tiat all reaches of the canalsystems do not have the same leakage characteriitics. Therefore, for themain canals, the Secretaria de Recursos Hidraulicos (SRH) will conductstudies, based on infiltration tests. and'wVater balance analyses, to makespecific findings on the magnitude of losses so that determination can bemade as to whether there is justification for lining the reach. It isanticipated, from available data, that all of the Rode canal and at least80% of the Anzalduas canal and main laterals will need lining. However,since it is not possible at this time to define specifically what partscan be eliminated, it is assumed for purposes of a cost estimate that allmain canals and main laterals would be concrete lined. All of the sub-laterals down to a size serving approximately 60-ha blocks would also be

ANNEX 4Page 5

lined with concrete, the thickness varying between 5 and 10 cm, dependingon the size of the canal. On reaches that could be taken out of servicelong enough to allow the work to be done, lining would be carried out onthe existing alignment. In other instances, a new lined canal would beconstructed parallel to the old canal after which the old canal would beabandoned or reclaimed as irrigable land.

13. To the extent possible, existing structures would be used afterrehabilitation, but many would need complete reconstruction. A precisedetermination of which structures must be rehabilitated and which recon-structed would be made as details were prepared for each set of tenderdocuments. Additional structures would be constructed to give virtuallycomplete control of water and allow measurement of the water deliveriesto all parts of the system.

14. Drainage System. The existing drainage system is extensive, butthere are many areas which still experience high water tables of less than1 m depth. The extent of the areas so affected varies year by year (be-tween about 40,000 ha to 120,000 ha), primarily depending on the rainfallpattern for the particular year. Use of subsurface tile drainage is notcontemplated. All new drains would be open types, with depths of at least2 meters. The criteria for location and design of the additional drainsis based largely on many years of observation of the specific drainage prob-lems and experience with the existing drainage system.

15. In general, the main outfall drains leading to the Laguna Madreare adequate. The one exception is the drain marginal, which is now underconstruction parallel to the lower end of the main Anzalduas canal. Thisdrain will pick up drain water from the extreme southeast portion of theBajo Rio San Juan District, storm runoff from the non-irrigated area westof the Anzalduas canal and water from certain lateral drains of the BajoRio Bravo District and carry it to the Laguna Madre. This main drain isabout 60% complete and work would be finished outside of the project.Structures as required for inlets and crossings would be built in the newdrains, and measuring stations would also be installed to allow measure-ment of drain flows.

16. Roads. Main roads that are part of the highway system of Mexicoare paved and developed to adequate standards. The secondary and tertiaryroads serving the project areas are located mainly on canal or drain banksand most are made only of earth, while minor roads serving portions of theproject area are little more than tracks. The earth roads are generallyimpassable in wet weather. The project would rebuild or improve roads towhere they would be useable as all-weather roads. Surfacing would be agravely caliche material available near Reynosa, and widths would varyfrom 4 m to 10 m, depending on their use. Road work would be an integralpart of the canal and drain rehabilitation program.

ANNEX 4Page 6

17. Buildings. The existing buildings used to house canal operatingpersonnel are old and inadequate. The project would rehabilitate or con-struct new houses for all personnel required to live in the irrigationareas.

18. Communications. A two-wire telephone system now provides com-munication to key operating points. This system is getting old and is un-reliable in bad weather. The project would replace the system with modernradio communications.

19. Land Leveling. The need to level project lands to aid in dis-tribution of irrigation water has been reviewed and results show that abouttwo-thirds of the land would require some degree of leveling.

20. Resume of Quantities. Table 1 gives estimates of the quantitiesof work under the project.

Alternatives Considered

21. The three main problems of the two districts are an inadequatewater supply, insufficient drainage and poor road network. The projectseeks to correct all these deficiencies. To do this, several alternativeswere considered, primarily related to increasing the water supply. Allwere rejected, as discussed below.

22. Raising Operating Level of Marte R. Gomez Reservoir. The dam wasoriginally designed for a gated spillway. However, because constructionwas proceeding during the Second World War when steel was difficult to ob-tain, the spillway was completed using a concrete overflow crest. It hasalways been thought that gates could be installed which would then allow aportion of the dam freeboard, now needed to provide head for operation ofthe overflow spillway, to be converted into useful conservation capacity.The operating level could thus be raised about 3 m, providing about 320 Mm3of additional space. Temporary flashboards have been installed on the per-manent concrete crest which effectively utilize 1 m of the potential 3 mincrease.

23. The existing dam has a maximum height of 49 m. However, for mostof its length, the height is much less and questions have been raised asto whether dam construction was adequate to accept another 3 m permanentwater head. This question is still not resolved but is being studied bySRH's consulting group. However, a review of operating reeords of thereservoir indicate that the increased capacity would do little to helpsupply more water to the Bajo Rio San Juan District. Additional storablewater would occur only in years when the reservoir had spilled, but in suchyears, no shortage of water occurs. In any case, the amount of water thatcould be carried over from a previous abundant period is so small that theincrease of supply available in critical years would be minimal. For thisreason and because of the questionable structural capability of the dam toaccept the higher head, this work has not been included in the project.

ANNIEX 4Page 7

24. Las Blancas Dam on Rio Alamo. All flows of the Rio Alamo areallotted to Mexican use under the international treaty. At present thereis no storage reservoir on the stream and the flows enter the Rio Bravocompletely unregulated. The average annual flow is about 110 Mm3 and isvery intermittent. A site has been identified that could provide a capa-city of 350 Mm3 to regulate the flows, but a study of the times of flowindicate that the bulk can be utilized as diversions to the Anzulduas canal.Only the short duration, high flood peak flows could not normally be util-ized. However, since only between 10 and 20 Mm3 could be reasonably anddependably added to the Anzalduas canal flows if the Alamo River werecompletely regulated, it is concluded that a dam and reservoir would be anuneconomic investment because of the high construction costs involved.

25. Lining Materials. Various types of lining were considered forthe canals, and soil cement in favorable locations was found to be the mostcompetitive with the concrete lining adopted. However, it appears that onlyin isolated cases could the local natural material be used to mix the soilcement, and, since larger quantities of aggregate would have to be trans-ported to make the thicker lining required, this alternative was eliminatedas a basis for estimating costs. This does not completely rule out soilcement, but it would be considered for use only in those locations whereconditions were highly favorable for preparing it.

January 1975

Annex 4

Table 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Work To Be Done Under Project

Bajo BajoItem Unit Rio Bravo Rio San Juan Total

Irrigation System

Lined Canals km 2,291 924 3,215Structures No. 2,573 709 3,282Water Measurement Stations No. 4,200 1,200 5,4oo

Drainage System

New Drains ign 1,015 253 1,298Structures No. ,74!1 LL8 l4,189Drain Irmprovement km. 358 358Structures No. 837 - 837Flow Measurement Station No. 50 20 70

Roads

Surfaced Ikn 1,829 357 2,186Reconstruction km 295 12L bi9Structures No. 168 20 188

Houses for Ditch Riders

New Construction No. 33 15 L8I.provement No. ilL 69 183

Communication Systems Stations 152 101 253

Land Preparation

Leveling ha 1hL,300 55,700 200,000

MEXICOBAJO RIO BRAVO AND BAJO RIO SAN JUAN

REHABILITATION PROJECTCONSTRUCTION SCHEDULE

1975 1976 1977 1978 1979 1980 1981 1982

Calendar Year

Main conduction ca-nals and roads

Anzalduas 0- 27 Km I - - - - -27 -72--72 -92 -

- Culebron 0 - 17 Km - Retamal 0 - 22m - -- Palito Blanco 0 - 23- - -- San Pedro 0 - 23-Rode 25 -194 - - - m - -

Main drainage ca-nals and roads- Colector 0 - 27km - - -- Las Blancas 0 - 20- Guadalupe 0 - 31 -

Irrigation Units - Secon-dary and tettiary canals,

drainage, roads and land leveling

Bajo Rio Bravo J - - -_- lrst Unit 59.000 HaI I I T

- 2nd " 61,000- - -- -- 3rd " 54,000- 4th ". 36,000- - - - -

Bajo Rio San Juan- 1st & 2nd Units 27,000 Ha - - -_- 3rd Unit 44,000- m

Buildings- Canal-rider's houses _ - - _ _ _ - - - '5

World Bank-9426

ANNEX 6Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Water Availability and Utilization

Treaty of 1944

1. The project water supply would come from the Rio Bravo and itstributaries. The Rio Bravo is an international stream which demarcates theboundary between the United States and Mexico from Ciudad Juarez to itsmouth. To avoid controversy over use of its waters and other streams ofcommon interest to the two countries, a treaty governing such use was enteredinto in 1944 by Mexico and the United States. The provisions as they concernthe Rio Bravo specified that:

(a) The International Boundary Commission established in 1889would become the International Boundary and Water Commission,with reaffirmed powers and additional responsibilities grantedto study and construct dams and other works to ensure con-tinuance of present uses and the development of the greatestnumber of feasible projects within the limits of water allot-ments specified.

(b) The channel of the Rio Bravo can be used by either countryto convey water belonging to it.

(c) Either country could divert water belonging to it andconstruct the necessary works for such diversion at anypoint on the main channel from Fort Quitman, Texas, to theGulf of Mexico.

(d) The Commission shall keep a record of the waters belongingto each country.

(e) The watersof the Rio Bravo are allotted as follows:

(i) To Mexico

(1) All waters reaching the main channel of the Rio Bravofrom the San Juan and Alamo Rivers;

(2) One-half of the flow in the main channel below thelowest major international storage dam so far asthe flow is not specifically allocated to eithercountry;

ANNEX 6Page 2

(3) Two-thirds of the flow reaching the main channel ofthe Rio Bravo from the Conchos, San Diego,San Rodrigo, Escondido and Salado Rivers andthe Las Vacas Arroyo, subject to the rights ofthe United States as defined below; and

(4) One-half of all other flows not specificallyallotted under the treaty occurring between FortQuitman, Texas, and the lowest internationalstorage dam.

(ii) To the United States

(1) All waters reaching the main channel of the RioBravo from the Pecos and Devils River, GoodenoughSpring and Alamito, Terlingua, San Felipe and Pintocreeks;

(2) One-half of the flow in the main channel of the RioBravo below the lowest major international storagedam so far as the flow is not allocated to eithercountry;

(3) One-third of the flow reaching the main channel ofthe Rio Bravo from the Conchos, San Diego, San Rodrigo,Escondido and Salado Rivers and the Las Vacas Arroyo,provided thit this third shall not be less than431,721 M m annually as an average in cycles of fiveconsecutive years; and

(4) One-half of all other flows not specifically allocatedoccurring in the main channel between Fort Quitmanand the lowest international storage dam.

2. The treaty thus gives a basis for accounting for all water flows.Inflows to the international reservoirs can be credited on a daily or othertime period basis. Releases from storage are charged to the country request-ing the release, and losses incurred in conveyance or evaporation fromreservoirs are charged to either country in proportion to the water conveyedor in storage.

3. The Bajo Rio San Juan District derives its supply from.the whollyMexican San Juan River tributary. Therefore, Mexico is entitled to allflow of this stream, including reuse of return flows from irrigation. Onthe other hand, the Bajo Rio Bravo District utilizes water stored in theinternational storage dams of Amistad and Falcon, as accounted for under thetreaty, plus flows of the Rio Alamo, any residual flow of the San Juan River,plus one-half of the gains or losses in the river reach from Falcon toAnzalduas. Nor is Mexico's share of the international stream all available

ANNEX 6Page 3

for use on Bajo Rio Bravo as there are three small irrigation districts whichtake part of the country's allotment. Their portion is reflected in theaccounting of inflows to the storage reservoir. Additionally, the areasserved by river pumps in both Bajo Rio San Juan and Bajo Rio Bravo Districtsuse some of the Mexican allocation.

4. For purposes of cost-sharing of joint facilities constructed inthe two international storage reservoirs, a division was made of the avail-able share according to each country's expected use. The shares allottedare as follows:

Amistad Falcon

Mexico 43.5% 41.4%

USA 56.5% 58.6%

Each country, however, has the right to use the storage space belonging tothe other country if such space cannot be used by the owning country. Theabove allocations are also used in the event of reservoir spills to deter-mine water remaining to each country's credit.

Water Availability

5. -Table 1 gives an analysis by years for the period 1956 through 1972of the Falcon dam releases made on Mexico's request, the amounts availablefrom Mexico's share of inflows below Falcon dam, and the diversions made atthe Anzalduas canal heading for use on BajS Rio Bravo lands. The averageannual diversion for 17 years is 1,090 M m , which represents the net amountavailable for project use. Table 2 gives an analysis of operation of theMarte R. Gomez reserv9 ir for the period 1956 through 1972 and shows thatapproximately 440 M m is available annually for use on the Bajo Rio San JuanDistrict.

6. The above amounts are a function of the accounting proceduresfollowed under the treaty and reflect the residual historical amounts avail-able to Mexico for project use. In the case of Bajo Rio Bravo, slightlymore water would probably have been available to Mexico prior to 1968 sinceAmistad reservoir did not go into operation until that time. However, anygains that might have been realized from Amistad would probably be offset byMexico's current upstream depletions, which, of course, were not reflectedin the historical records. On balance, therefore, it is believed the recordreasonably represents the amount that can be used for the project. Thediversions at Anzalduas also reflect withdrawals from the Rio Bravo on theMexican side to the areas served by pumps (para 3). Project works wouldallow better use to be made of the water.

ANNEX 6Page 4

Water Requirements

7. The following table gives data on the areas claimed to have beenirrigated in 1971, 1972 and 73:

(Ha '000)

Bajo Rio Bajo RioBravo San JuanSeason Season

Early Late Early Late Total

1971 204 32 68 5 3091972 210 36 67 9 3221973 210 65 67 12 354

Long-RangeAverage 205 43 67 10 325

8. Computations of consumptive use requirements for individual cropshave been made with the following results:

Vege- Consumptive Usetative (mm)Period Bajo Rio Bajo Rio

Crop Months Bravo San Juan

Fibers 5 600 630Forage 5 500 520Grains 4 500 520Vegetables 2.5 500 520Oil Seeds 4 550 570Pasture 12 1300 1320

The consumptive use reflects the water theoretically required under theprevailing climatic conditions to provide a full water supply to the crop.Studies indicated that between 30% and 40% of the consumptive use requirementsof various crops are supplied by rainfall.

9. Table 3 illustrates the critical nature of the irrigation watersupply problem. It shows that for the cropping pattern given in Annex 13about 35% of the crop water requirement on Bajo Rio Bravo and 37% on theBajo Rio San Juan is met by effective rainfall, leaving 65% and 63%, respec-tively, to be furnished by irrigation.

ANNEX 6Page 5

Water Utilization

10. Records of historical water diversions and deliveries indicatethat only about 40% to 50% of the water taken in at the head of the maincanals is delivered to the farm turnouts. With an estimated 65% efficiencyof use of irrigation water on the farm, this means that only about 27% to30% of the water initially diverted is available for plant use. The balanceis lost, largely to infiltrate the ground water, and shows up as increaseddrain outflow.

11. With the project, and virtually complete lining of the irrigationsystem, the conveyance losses would be greatly reduced, to the point that atleast 80% of the water diverted at the head of the canal would be deliveredat the farm turnout. With proper land preparation by leveling and goodirrigation practices, efficiency of use of water on the farm should increaseto at least 70%. Thus some 55% to 60% of the water diverted could then beeffectively used for plant growth.

12. Table 3 indicates that without the project, in average years, theirrigation water plus the effective rainfall supplies 56% of crop waterrequirements on Bajo Rio Bravo and 67% on Bajo Rio San Juan. With the project,and the higher efficiency in use of water, 85% of the crop water requirementswould be supplied on Bajo Rio Bravo and 98% on Bajo Rio San Juan.

13. The physical area included in the project is that served by gravitywater supplies in the two irrigation districts. Available water in normalyears will permit the irrigation of only one crop and a certain proportionof permanent pastures in the entire area. Second cropping will be underrainfed conditions. It can be argued that the physical area originallyincluded when the districts were formed was larger than the irrigation wateravailable could support. While this is true, it would not be possible forMexico, due to political and social reasons, to reduce the total area nowincluded in the project.

14. While the above picture on adequacy of the irrigation water supplyto meet requirements does not portray ideal conditions, it illustrates thatthe farmers will be far better off with than without the project. It furtherillustrates that careful use of water is still mandatory in order to makethe very best use of the limited supply. Further, whi.le it is not practicableto retire blocks of land from the project area, it is possible in years ofwater deficiency to pro-rate the supplies to each individual so a portionof his land would not be irrigated. These factors have been recognized inprojecting yields under project conditions.

15. The project benefits would be reflected largely by crop diversifi-cation and increased yields. It is not possible at present to greatlydiversify the cropping pattern as irrigation deliveries are made to largeblocks of land in as short a time as possible to minimize water losses. With

ANNEX 6Page 6

a lined system, water can be kept in the canals for long periods withoutincreasing the losses drastically. This will allow water deliveries to bemade over longer periods of time and in rhythm with the water needs of avariety of crops.

Water Quality

16. While the quality of water is not ideal, it has been successfullyused for irrigation, both in the United States and Mexico, for many yearsand would continue to be suitable for use. Total salts average about 1,000ppm but the percentage of sodium falls within acceptable limits.

Alternatives

17. The fact that large losses are presently incurred from the irriga-tion system and, in turn, contribute to the ground water supply and increasethe drainage problem, immediately suggests that ground water pumping or reuseof drain water should be considered as a means of increasing the water supply.However, extensive sampling and testing has shown conclusively that, undermost of the area, the ground water is too saline for irrigation use. It isonly in Unit 5 of the Bajo Rio Bravo, in the vicinity of the town of RioBravo, that any amount of useable ground water exists. Present extractionthere is in the order of 40 M m per year and while this could possibly beincreased, studies indicate that the potential is limited as far as goodquality water is concerned. SRH has installed three new wells in this areaand may, if results are favorable, drill other wells, but such work is notincluded in the proposed project.

18. The flows found in the drains originate from the ground water,and the quality reflects that of the ground water. At no point, however,in either district have such flows been found to be of a quality suitablefor reuse on the project.

January 1975

ANNEX 6Table 1

MEICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Ba.o Rio Bravo Water Availabilit yand Diverted Flows(Millions of m3/year)

Availability DiversionFalccn Alamo San Juan An zalduas

Year Dam River River Total % of Availa-Releases Discharges Dischargeu Other Availabili % ofAit a

1956 -*16 21 38 -,264

1957 927 113 27 25 1,092 1,642 -1958 26,419r* 442 1,300* -* 28,161* 904 -1959 1,299 43 90 _> 1,432 637 4141960 1,121 83 -* -. 1,204 1,157 961961 1,195 61 18 67 1,341 1,113 831962 1,228 57 33 55 1,373 1,229 901963 821 125 13 18 977 984 1011964 616 131 25 30 812 812 1001965 1,313 31 21 48 1,1413 1,464 1041966 1,030 103 214 46 1,393 696 501967 1,134 728 347 3,186* 5,395* 1,178 -1968 728 126 816 71 1,741 715 h41969 1,128 48 50 62 1,288 1,221 951970 502 44 118 69 733 740 1011971 2,577 326 994 42 3,939 1,567 401972 988 165 558 233 1,944 1,282 66

Average 1,107 155 244 62 1,477 1,094

* Ignored for averages.

ANNEX 6Table 2

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Bajo Rio San Juan District

M.R. Gomez Reservoir Inflows and Extractions

'(Millions of m3 )

Evapo-ration

Total andYears Inflow Losses Spills Extraction

1956 77 133 5011957 870 160 3751958 2,518 163 1,300 hO61959 324 253 90 4391960 772 162 547

1961 506 218 5341962 398 149 5081963 554 117 2781964 604 208 3101965 666 194 456

1966 940 256 182 3261967 3,903 282 3,273 5051968 1,204 281 731 3141969 828 275 13 6091970 714 272 76 505

1971 1,573 255 822 5371972 1,304 262 492 701

Averages 1,044 208 410 144

NOTE: 1956 initial storage 795 Mm31973 initial storage 1,032 mm3

January 9, 1975

ANNEX 6Table 3

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATICN PROJECT

Irrigation Water Demand and Supply(Nonmal year--Millions cubic meters)(With proposed agricultural pattern)

Bajo Rio Bravo Bajo Rio San Juan% of Theo- % of Theo-

Gross Net retical Gross Net retical

Average consumptiveuse requirement - 1,240 100 - 430 100

Effective rainfall - 2/ 43 35 -2 160 37Irrigation demand 1.44C0- 810 65 4802/ 270 63

Without the projectWater supply 1,000/ 270 22 4402/ 130 30Total water to plants - 700 56 - 290 67

With the project 2 2Water supply 1,1/ 620 50 602/260 60Total water to plants 1,050 85 - 420 98

1/ Overall efficiencies froma 27 to 29%._ 'Overall efficiency 56%.

January 17, 1975

ANNEX 7

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Cost Estimate

Mex$ Million US$ MillionBajo Rio Bajo Rio Percent

Project Works Bravo San Juan Total Local Foreign Total Local Foreign Foreign Exchange- Canal Lining 727.49 273.63 1,001.12

- Structures andGauging Stations 97.16 14.78 111.94

824.65 288.41 1,113.06 667.84 445.22 89.04 53.42 35.62 40

- Drains- New 75.17 12.52 87.69- Improvements 17.84 - 17.84- Structures and Gauging

Stations 91.25 11.28 102.53184.26 23,80 208.06 124.84 83.22 16.64 9.99 6.65 4C

- Roads- Sturfacing 78.84 12.54 91.38- Embankments 6.54 4.52 11.06- Structures 3.69 .49 4.18

69.07 17.55 106.62 63.97 42.65 8.53 5.12 3.41 40- Canal Riders' Houses

- New 4.35 1.24 5.59- Improvements 3.18 1.74 4.92

7.53 2.98 10.51 9.46 1.C5 .84 .76 .08 .0

On Farm Works- Leveling 277.25 123.66 400.91 200.45 200.46 32.07 16.04 16.03 50

Total 1,382.76 456.40 1,839.16 1,066.56 772.60 147.13 85.32 61.81 42

Engineering and Administration- Project works 124.19 38.42 162.61 162.61 - 13.01 13.01 -

-Leveling 69.32 30.91 100.23 100.23 - 8.02 8.02 - _193.51 69.33 262.84 262.84 - 21.03 21.03 - -

Right-of-Way 29.04 10.29 39.33 39.33 - 3.15 3.15 -Materials

- Cement 126.67 47.09 173.76 173.76 - 13.90 13.90 -

- Steel 6.23 2.12 8.35 8.35 _ 0.67 0.67Equipment 132.90 49.21 S2 18 1 182.11 - 14.57 14.57

- Machinery for 0 & M 33.01 10.83 43.84 17.54 26.30 3.51 1.41 2.10 60- Radio-Telephone 3.47 2.29 5.76 2.30 3.46 .46 .18 .28 60

36.48 13.12 49.60 19.84 29.76 3.97 1.59 2.38 60

Extension Program 232.50 77.50 310.00 310.00 - 24.80 24.80 - -Physical Contingencies 151.91 50.79 202.70 117.55 85.13 16.21 9.40 6.81 42Base Cost and Physical Contcy 2,159.10 726.64 2,885.74 1,998.25 887.49 230.86 159.86 71.00 33Price Contingencies 1,437.39 483.74 1.921.13 1.152.68 768.45 153.69 92.21 61.48 40Base Cost, Physical and

Price Contingencies 3,596.49 1,210.38 4,806.87 3,150.53 1,655.94 384.55 252.07 132.48 34

January 8, 1975

ANNEX 8Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Equipment and Materials

General

1. SRH has traditionally purchased building materials such as cementand reinforcing steel in bulk orders and furnished them to the contractorsfor use on SRH works. Relatively small items such as structural steel shapes,culverts and gates are included in the civil works contracts on a furnishand install basis. Large special equipment is purchased by SRH under separateinternational bidding documents and furnished to the civil works contractorsfor installation. Equipment and materials available in Mexico cannot beimported by SRH and would not be financed under the loan, except insofar asit would be a part of a civil works contract let under international bidding.

Materials Furnished by SRH

2. The following items would be purchased by SRH under local biddingprocedures and furnished to the contractors for use on the project. Theseare excluded from Bank financing.

Bajo Rio Bravo Bajo Rio San Juan Total… ------- Mex$ Millions --------------

Cement 126.67 47.09 173.76

Steel 6.23 2.12 8.35

132.90 49.21 182.11

Operation and Maintenance Equipment

3. Certain equipment would be purchased to supplement or replace thatpresently available to operate and maintain the project. This equipmentcould be obtained in Mexico and would be purchased under local bidding pro-cedures. It would be excluded from Bank financing. Table 1 indicates theequipment involved.

Imported Equipment

4. There are no items of equipment or material required on the projectthat would be purchased under international bidding.

January 1975

Annex 8

Table 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Operation-and Maintenance Equipment

No. Bajo Rio Bravo Bajo San Juan Total______--- Mex$ Millions--------

Draglines (crawler) 5 5.38 1.26 6.64Draglines (wheeler) 3 2.00 1.00 3.00Backhoe 7 4.85 .50 5.35Tractors 7 3.50 1.40 h.90Trencher 1 .75 - .75Scrapers 8 4.98 1.66 6.64Graders 5 1.50 1.00 2.50Tractors (wheeler) 9 4.69 1.34 6.03Sand blast unit 2 .38 .38 .76Rollers 5 1.14 .76 1.90Sprayers 4 .39 .13 .52Trailer truck 1 .70 - .70Dump truck 15 1.25 .63 1.88Tank truck 6 .55 .27 .82Mechanics shop 2 1.00 .50 1.50

33.01 10.83 43.84

Radio telephone network 253 3.47 2.29 5.76

36-.8 13.12 49.60

January 9, 1975

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAI REHABILITATION PROJECT

Expenditure Schedule

(Millions Mex$)

YearsProject Works 1 2 3 4 5 6 7 TotalCanal lining and drainage 69147 328.18 249.142 184.04 184.04 184.00 121.97 1,321.12Roads and houses 9.23 30.42 21.73 18.22 15.48 15.04 7.01 117.13Leveling 3.90 66.32 66.32 61.37 58.90 58.90 55.20 1400.91

Total works 112.60 1424.92 337.47 263.63 258.42 257.94 1814.18 1,839.16

Engneering and Administration 17.38 57.22 47.42 38.10 37.20 37.15 28-37 262.84

Riht-of Jay 3.92 7.35 7.87 7.87 7.87 4.45 -- 39.33

Equipment and MaterialsCement and steel 10.34 45.03 34.23 25.26 25.26 25.25 16.74 182.110 & M Equipment -- 2.76 3.00 15.56 13.147 11.28 3.53 49.60Extension Program 25.52 39.97 51.56 48.24 48.24 148.24 48.23 310.00Physical Contingencies 12.29 47.27 37.47 2d.89 28.37 28.32 20.09 202.70

Base cost and physicalBcosntingencies 182.05 624.52 519.02 427.55 418.83 412.63 301.14 2,885.714

Price contingencies 59.53 163.52 249.81 295.28 354.53 395.42 403.04 1,921.13

Base cost, physical and pricecontingencies 241.58 788.04 768.83 722.83 773.36 808.05 704.18 4,8o6.8

Ixo

ANNEX 10

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Schedule of Disbursement

Millions of US$

Fiscal Yearand Semester

1976

Dec. 31, 1975 -June 30, 1976 3.8

1977Dec. 31, 1976 7.5June 30, 1977 19.9

1978Dec. 31, 1977 32.2June 30, 1978 44.1

1979Dec. 31, 1978 56.oJune 30, 1979 67.1

1980Dec. 31, 1979 78.2June 30, 1980 90.1

1981Rec. 31, 1980 102.1June 30, 1981 11h.8

1982Dec. 31, 1981 127.3June 30, 1982 138.5

1983Dec. 31, 1982 150.0

April 14, 1975

ANNEX 11Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Operation and Maintenance

Responsibilities

1. SRH, with its headquarters in Mexico City, would have full respon-sibility for implementing all phases of the project, including the operationand maintenance of completed facilities. Overall responsibility for carryingout the operation and maintenance function would rest with the Gerente Generalof the North Zone of Tamaulipas State with offices in the city of Rio Bravo.However, this function is largely delegated to the managers of the individualirrigation districts. I

2. Both the Bajo Rio Bravo and Bajo Rio San Juan districts have beenfunctioning efficiently for many years. They are well organized and equippedfor carrying out operation and maintenance activities. Each district hastwo divisions, one concerned with water distribution within the district andthe other with maintenance of the system and providing minor betterments.

Operation

3. Each district is divided into irrigation units, which are, in turn,divided into zones and these again into sections. Generally, each sectionrepresents an area of about 1,800 ha, or 120 farms, and is attended by acanalero (ditch rider). Farmers give requests for irrigation water deliveriesto the canalero who forwards it through the zone to the Irrigation Unit head-quarters where it is given to the district headquarters. Requests fordeliveries are consolidated as they are passed through administrative channels.In the case of Bajo Rio Bravo, the consolidated request is given to theInternational Boundary and Water Commission, which then makes the releasefrom Falcon Reservoir as requested. It takes 72 hours for a change in releaseat Falcon to be effective at Anzalduas. In the case of Bajo Rio San Juan,the water requests are consolidated in the district headquarters and thenpassed on as appropriate orders to the gate tenders at Marte R. Gomez Dam.Releases from the dam can reach any part of the district within 24 hours.Irrigation water deliveries follow a reverse procedure, with the waterultimately reaching the canalero,who adjusts gates according to the schedule.

Maintenance

4. Maintenance activities are organized along similar lines, withappropriate groups responsible for maintenance by Units, Zones and Sections.Major equipment is dispatched from district headquarters.

ANNEX 11Page 2

Costs

5. Table 1 shows the cost of operation and maintenance as charged for1969 through 1974 and the budget for 1975. These total costs are comparedwith the water charges levied on users for this purpose for the same years.Individual per ha irrigation charges were at the rate of Mex$ 100 per hathrough 1973 and were raised to Mex$ 150 per ha for 1974 and 1975. It isevident that the big increases in costs caused by inflation in 1973 and1974 were not covered by the charges made. Depreciation on major equipmentis absorbed at SRH headquarters in Mexico City and is not charged to thedistricts.

6. Table 2 gives an estimate of annual operation and maintenance costsexpected under the project, which total Mex$ 80.4 million (US$6.4 million).This is equivalent to US$23 per ha per year. SRH is in the process ofinstalling a computer in the Mexico City headquarters with terminals in theheadquarters of major irrigation districts. This will allow each districtto have computer capability available for accounting purposes and forscheduling operation and maintenance activities. A cost is shown in thebudget for this service. Although not presently charged to the district,an item is also shown for annual depreciation of heavy equipment. A listof major equipment for operation and maintenance purposes is given in Annex 8.

7. The two districts are adequately staffed to handle operation andmaintenance activities. Under the project, with good communication facili-ties available, operation should be more efficient but the operating personnellevel would remain the same. Maintenance of the lined irrigation systemshould be less costly than it is for the present system. However, thedrainage system would be extended and costs for additional drain maintenancewould offset savings in irrigation system maintenance. Equipment requiredfor maintenance would change slightly in composition but the total valuewould remain about the same. It is concluded that annual operation andmaintenance costs would remain the same under with and without projectconditions.

January 1975

Annex 11Table 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Operation and Maintenance Costs(Millions of Mex$)

Ba.jo Rio Bravo 1969 1970 1971 1972 1973 1974 1975

Water Charges 19.757 22.356 22.003 22.143 20.886 28.500 29.750c1/% increase: year - 0 -1.6 +o.6 -5.7 +36.5 +4.7

Actual Cost 18.642 23.650 22.170 26.002 29.614 45.161 53.500% increase: year - 0 -6.3 +17.3 +13.9 +52.5 +18.5

Ba.jo Rio San Juan

Water Charges 7.6h14 7.500 7.500 7.418 8.554 10.877-2/% increase: year 0 -1.9 0 -1.1 +15.3 +27.2

Actual cost 8.444 8.500 10.046 13.726 14.069 18.697*% interest: year 0 +0.7 +18.2 +36.6 +2.5 +32.9

* Estimated Expenditure1/ 195,000 ha irrigated by gravity @ $150/ha $29,250,000

12,500 ha irrigated by pumping @ $40/ha 500,000$29,750,000

2/ 67,500 ha @ $150/ha $10,125,0006,500 ha @ $ 35/ha 227,5001,000 ha @ $ 85/ha 170,000Others 355,000

Total Revenue $10,877,500

Note: Depreciation of equipment is not included

January 13, 1975

Annex 11Table 2

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Expected Operation and Maintenance

Annual CostMNEx$ Millions)

Rio Bravo San Juan TotalActivity District No.25 District No.26 $Million %

Maintenance 23.389 8.831 32.220 40

Operation 13.848 6.078 19.926 25

Irrigation anddrainage Engr. 3.363 1.105 4.468 6

Various 2.402 .253 2.655 3

Administration 10.498 2.430 12.928 16

Sub-total 53.500 18.697 72.197

Computer terminal .750 1

Equipment 7.4401/ 9

Total Annual Cost,Mex$ Million 80.387 100

1/ Annual depreciation on 1,500 h/year.

January 13, 1975

ANNEX 12Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Agricultural Services

Services at National Level

1. Mexican agricultural services are reputed to be among the best inLatin America. They have had an important bearing on Mexico's relativelyrapid agricultural development. They are, however, still insufficient tocope with the growing needs of the country, but they do offer a sound basisfor expansion.

2. Education and Training (Table 1). At the university level, agri-cultural education has steadily grown during the last 10 years and nowMexico has 28 undergraduate schools -- 17 schools of agriculture and relatedsciences and 11 schools of veterinary science. The total enrollment isabout 13,500 students -- 9,500 in agriculture and 4,000 in veterinary -- withan annual output of about 2,000 graduates -- 1,300 agriculturists and 700veterinarians. At present, there are approximately 12,000 agriculture andveterinary graduates practicing their profession in Mexico, but the totalrequirements of the country were estimated in 1970 at 35,000 graduates.Five agricultural schools offer graduate programs, with a total enrollmentof 460 students of which about 160 graduate annually. The National Schoolof Agriculture, Chapingo -- under the Secretary of Agriculture (SAG) -- hasthe biggest and oldest graduate program leading to the MS degree in ninemajor fields (Botany, Agricultural Extension, Agricultural Economics,Entomology, Statistics, Plant Pathology, Genetics, Irrigation and Drainage,and Soils), and the Ph D degree in four major fields (Botany, Plant Pathology,Genetics and Soils).

3. Agricultural education at lower levels is offered in schools admin-istered by, or under the control of, the Secretary of Education (SEP). Atthe sub-professional, post-secondary level, four schools offer a two-yearprogram leading to the "Agronomo" degree (high level technician). Thisbeing a relatively new program, the current enrollment of 74 students willgraduate approximately 47, but it will be greatly expanded to fill the gapbetween middle-level technicians (Tecnicos Agropecuarios) and universitygraduates (Ingenieros Agronomos).

4. At the upper secondary level, 56 schools offer a three-year programleading to the "Tecnico Agropecuario" diploma. Some of these schools (15)are part of the universities and the others (41) are run by SEP. Over 7,000students are currently enrolled and about 800 technicians are graduated peryear. Also at this level of education, an agricultural teacher trainingschool offers a four-year program to train agricultural teachers for thelower secondary schools.

ANNEX 12Page 2

5. At the lower secondary level, 445 schools (with a total presentenrollment of 67,476 students and estimated output of 12,400) offer a three-year pre-vocational program in agriculture. Schools of this type are rapidlybeing expanded in rural villages of 5,000 population or less. They areintended to provide the students with basic knowledge on farming, animal'nusbandry, farm machinery and rural industries, so that the school leaverswho are unable to continue their educations can enter the rural working force.

6. Agricultural training in Mexico is offered in a number of institu-tions. SEP has so far established 12 adult training centers in connectionwith some lower secondary schools. In these centers, three- to 12-monthcourses are offered for training adults on specific subjects. More adulttraining centers are expected to be established in the near future. In theagricultural sector, the National School of Agriculture, Chapingo and theDirectorate General of Agricultural Extension (DGEA), SAG, have continuingagricultural training courses. These are: (a) pre-service and in-servicetraining courses for staff members of the various agricultural institutions;(b) three-month courses for farm machinery operators; and (c) short coursesfor farmers, homemakers and young farmers.

7. Research. Agricultural research in Mexico is based on two mainnational institutions: Instituto Nacional de Investigaciones Agricolas(INIA) and Instituto Nacional de Investigaciones Pecuarias (INIP). Admin-istratively, both belong to SAG but there is little coordination between them.Mexico is also the home of the International Research Center for Maize andWheat (CIMMYT) 1/ where some of the high yielding varieties of wheat and cornhave been developed and are being exported to other countries as a part ofthe so-called "Green Revolution." Other Types of research are carried outby specialized institutions such as the Mexican Institute of TechnologicalResearch of Monterrey, the Institute for Improvement of Sugar Production, theNational Forestry Service, the Secretary of Hydraulic Resources (SRH) onhydrologic research, the Mexican Coffee Institute, the Center of AgrarianResearch, the Association for Animal Production and Improvement, the Fruti-culture National Commission, the Horticulture National Commission, theNational Union of Cotton Growers, the Universities, and the Latin AmericanAssociation for Animal Production, which has its headquarters in Mexico.

8. INIA, the biggest agricultural research institution in Mexico, hasits headquarters in Chapingo where it, together with the National School ofAgriculture and DGEA, constitutes the National Center for Agricultural Educa-tion, Research and Extension. INIA is organized in 14 departments -- eightfor specific crops (cotton, cereals, pasture, fruits, vegetables, legumes,

1/ Centro Internacional de Mejoramiento de Maiz y Trigo.

ANNEX 12Page 3

maize and sorghum, and oil seeds) and six for specific disciplines (soils,entomology, plant pathology, agricultural economics, weed control and communi-cations). All departments carry out their activities through eight regionalresearch centers and 40 experiment fields. However, 75% of the researchwork in the field is carried out in cooperating farms. In its headquarters,regional centers and experiment fields, INIA has at present 489 full-timeresearchers (35 with PhD degrees, 104 with MS degrees and 350 with BS orequivalent degrees) who are assisted by 1,250 research assistants andadministrative staff. Research programs are interdisciplinary in nature and,in general, emphasize food production -- especially maize, wheat, rice, beansand oil seeds. Due to financial constraints and limited number of qualifiedresearchers, however, INIA is unable to cover completely the different ecolo-gical areas of Mexico and the main crops of each area.

9. INIP, the major livestock research institution, has its headquartersin Mexico City. Like INIA, it is organized in departments comprising majoranimals (beef cattle and dairy cattle), minor animals (poultry and others --swine, sheep, goats), animal nutrition and management, forage and pasturemanagement, and animal pathology and serology, including vaccine production.INIP currently has a professional staff of about 130, including five with PhDdegrees and 15 with MS degrees. In addition to the main Palo Alto laboratoriesin Mexico City, field facilities are provided for livestock research in mostof the major animal production areas in the country. Although INIP's budgetexpanded significantly in the last decade, it falls short of meeting thelivestock research needs of the country. Furthermore, INIP's programs areoriented mainly to the fields of preventive medicine and vaccine production,and little has been done on animal production and management problems.

10. Extension. Organized agricultural extension services in Mexico areprovided by DGEA, PLAMEPA, 1/ State Governments, banking institutions andprivate organizations. In addition, some 25 agencies, mainly in SAG, carryout in one way or another some kind of extension work.

11. DGEA, the biggest of all extension services, has its headquartersin Chapingo as a constituent of the National Center for Agricultural Education,Research and Extension. At the national level, it is organized in eightregions which are the same as the agricultural research regions. DGEA hasat present 3,087 staff members -- 1,390 university graduates, 862 agriculturaltechnicians, 500 rural family educators and 335 administiative staff. DGEAhas considerably expanded from 1970 to 1974, as shown below:

1/ Plan de Mejoramiento Parcelario, SRH.

ANNEX 12Page 4

1970 1971 1972 1973 1974

Technical Staff (No) 768 1,091 1,480 2,404 2,752

Vehicles (No) 113 311 904 1,274 1,724

Budget (Mex$ million) 49 60 100 190 280

Area Assisted (ha '000) 604 860 1,320 1,577 2,910

Despite this expansion, DGEA covers only 16% of the cultivated area and 12%of the ejidatarios, mainly because of financial and manpower constraints.However, in view of the increased number of agricultural schools, DGEA expectsto engage 250 university graduates and 400 technicians annually through 1980,plus a number of rural family educators whose type of training is expectedto be reoriented towards home economics.

12. Being aware of the need for coordination and cooperation, DGEAis increasingly seeking the participation of other institutions for carryingout its extension programs, To this end, it has placed its regional super-visors and extension specialists in the INIA research regional centers and,for specific purposes, it has entered into different forms of agreementswith other institutions and agencies concerned with credit (BANEJIDAL 1/ andFONDO 2/), seeds (PRONASE 3/), fertilizers (Guanos y Fertilizantes de Mexico,S.A.), pest control (Direccion General de Sanidad Vegetal, SAG), storage(CONASUPO 4/), insurance (ANAGSA 5/) and irrigation (PLAMEPA, SRH and PlanPresidencial "Benito Juarez," SAG). DGEA is also connected with CIMMYT andreceives financial support, for specific programs, from state governments,official and private banks, SRH, agricultural credit unions, research asso-ciations, service clubs, and private companies dealing with agricultural in-puts.

13. In the irrigation districts, SRH has set up its PLAMEPA to directefforts aimed at improving water use on farms that fall below the averageefficiency of a particular district. In doing this, PLAMEPA also provides"prescriptions" to the farmers, recommending specific irrigation practicesas well as seed varieties, cultivation practices, use of fertilizers andpesticides, and the like. Results of this program have so far been satis-factory, particularly with ejidatarios. The Inter-American Development Bank

1/ Banco Nacional de Credito Ejidal, S.A. de C.V.

2/ Fondo de Garantia y Fomento para la Agricultura, Ganaderia y'Avicultura.

3/ Productora Nacional de Semillas.

4/ Compania Nacional de Subsistencias Populares.

5/ Aseguradora Nacional Agricola y Ganadera, S.A.

A!NEX 12Page 5

(IDB) has granted a US$23 million loan to help finance the first phase(1973-76) of a US$47 million project aimed at extending PLAMEPA's activitiesover about 1 million ha of on-going irrigation projects.

14. Official and private banks, and farm input suppliers also providetheir own technical assistance to clients. Some 125 professionals in privatebanks and 300 in official banks coordinate their technical assistance activi-ties with 500 professionals under a special technical assistance serviceestablished by the Fondo de Garantia to support the Mexican agricultural creditsystem. This type of technical assistance is, of course, limited to the creditusers and to the supervision of specific loans.

Services in the Project Area

15. Education and Training. In the state of Tamaulipas, where theproject area is located, the state university has a Faculty of Agriculture,with two schools, one in Ciudad Victoria and one in Ciudad Mante, and a Facultyof Veterinary Medicine and Animal Husbandry in Ciudad Victoria. In addition,there are in the State: (a) a post-secondary agricultural institute inTampico; (b) two upper secondary agricultural schools, in Tampico and inCiudad Victoria; and (c) 25 lower secondary agricultural schools -- one inthe city of Rio Bravo. These institutions would supply, annually, about 50professionals and 70 agricultural technicians to the State agriculturalinstitutions, which appear sufficient to meet the local requirements, espe-cially considering that the most specialized personnel come from other states.

16. Research. The Tamaulipas Agricultural Research Center, CIAT, 1/in Rio Bravo, covers -- through its experimental station and four agricul-tural fields -- the State of Tamaulipas and part of the neighboring states ofSan Luis Potosi, Veracruz and Nuevo Leon. CIAT research programs are carriedout by 19 researchers and are now emphasizing cotton, corn, sorghum, oil seeds,legumes and pasture production. However, these programs would be insufficientto support agricultural development under the proposed project. Changes incropping pattern, including substantial expansion of irrigated pasture (dairyand beef cattle) and vegetable areas, will require more research activitiesthan are currently carried out. New research programs would therefore beestablished as part of the proposed technical assistance program to investigateadaptability of new crop varieties and animal breeds, use of fertilizers,and pest and weed control methods under the project area conditions. Alivestock research program (nonexistent at present) would also be establishedby INIP.

17. Extension. DGEA agricultural extension programs in the projectarea are very weak. They are carried out by 23 agricultural extension officersand five rural family educators, which, in 1974, assisted only 4,450 farmers,

1/ Centro de Investigaciones Agricolas de Tamaulipas.

ANNEX 12Page 6

covering 22,600 ha. In order to insure adequate agricultural development underthe project, the extension service would be substantially strengthened andexpanded as part of the proposed technical assistance program.

18. On the other hand, the SRH irrigation extension program in theproject area is well under way. Nine PLAMEPA teams are currently in opera-tion -- six in Bajo Rio Bravo and three in Bajo Rio San Juan -- each team con-sisting of one agricultural graduate, three agricultural technicians, onesurveyor, one draftsman, part-time secretary and four workers. These teamsprovide technical assistance to the farmers on land leveling design and irriga-tion practices. In addition, the PLAMEPA-IDB project includes: (a) hydrometricand climatologic studies; (b) canal lining; (c) experiments on irrigationmethods and practices; (d) test and demonstration fields; and (e) staff train-ing, both professional and technician. The total cost of the PLAMEPA-IDB 'project is about Mex$ 67 million (Mex$ 36.3, IDB loan) -- Mex$ 44.6 millionduring the first phase and Mex$ 22.4 million during the second. The PLAMEPAtechnical assistance program is expected to cover 110,000 ha by the end ofthe IDB project in 1979, and it will probably continue effectively beyondthat date; a total of 200,000 ha could be covered by 1985. In order toaccelerate the process and cover the whole area by the end of the proposedproject, SRH intends to strengthen the PLAMEPA teams with three additionalagricultural technicians.

19. Official and private banks provide some technical assistance totheir clients in the project area through 18 professionals and 33 inspectors.Although most of them are concerned with supervision of specific loans, some(currently performing extension work under DGEA coordination) would be incor-porated into the proposed technical assistance program under DGEA.

Technical Assistance Program Under the Project

20. As stated in paragraphs 16 and 17 above, agricultural research andextension services are at present inadequate to support successfully theagricultural development under the project. A technical assistance programwould therefore be implemented as an integral part of the proposed project.It would consist of strengthening and expanding CIAT research programs andDGEA extension programs and establishing new INIP research programs in theproject area. All programs would emphasize soil-plant-water relations; pestand disease control; cotton, maize, sorghum, pasture and vegetable production;and dairy and beef cattle production. To this end, research and extensionstaff would be substantially increased as shown in Table 2; and new physicalfacilities and equipment would be provided. The kind of facilities and costestimates of the proposed program are presented in Table 3. The correspond-ing investment schedule, which includes operational expenditures during theproject implementation period (seven years), amounting to Mex$ 310 million,is presented in Table 4. According to the program, the extension officerswould be able to assist all the farmers of the project area, each officer(professional or technician) assisting approximately 70 farmers and covering1,000 ha.

ANNEX 12Page 7

21. Implementation of the technical assistance program would be an SRHresponsibility, but each of the research and extension programs would becarried out by the SAG agencies concerned. To this purpose, SRH should enterinto contractual arrangements with the appropriate agencies.

Credit

22. Agricultural credit to meet the needs of a complex farming communitycomposed of about three million farmers and producers in Mexico is providedby the official banks and private credit institutions.

23. Official banks are those organized or created by Government. Toserve the agricultural sector, Mexico has three official banks:

- Banco Nacional de Credito Ejidal S.A. de C.V. (BANEJIDAL),which lends only to ejidatarios;

- Banco Nacional de.Credito Agricola (BANAGRICOLA) whichconcentrates on lending to smallholders and colonistas(colonos); and

- Banco Nacional Agropecuario (BANAGRO), which lends to anytechnically assisted type of farmer.

In addition, the Fondo de Garantia y Fomento para la Agricultura, Ganaderiay Avicultura (FONDO) was established in 1955 as a trust fund in the CentralBank of Mexico (BANXICO) to carry out a program which provides financialsupport and agricultural technical services to official and private banksactive in agriculture. Financial support to the banking system is providedthrough a rediscounting mechanism. 1/

24. Private credit institutions dealing with agricultural credit arecommercial banks and "Financieras." These have technical departments staffedby loan officers who normally coordinate with FONDO technicians in mattersrelated to preparation and appraisal of farm development plans. Governmenthas announced its intention to guarantee at least 60% of the amount of long-term loans made by private financial institutions to ejidetarios and smallfarmers.

January 1975

1/ More complete and extensive information concerning the credit systemis given in the Appraisal Report of the Fourth Livestock and AgriculturalDevelopment Project 133a-ME dated May 25, 1973.

ANNEX 1?Table 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REABThTTAT TON PROJECT

Agricultural Education and Training

(1974)

Level of Education Institutions Teachers Enrollment Output

Universitiy l/Graduate (2-4 yrs) n.a. 4Cc 1CUndergraduate (5-7 yrs) 28 967 13,5Cc 2,00CAgriculture 2/ 17 ••2 9,0oa 1,30oVeterinary Science 11 415 4 °000 700.

Post SecondaITA 37 Sub-profess-ional (2 yrs) 4 85 74 47

Upper SeondaryCETA 4/ Technician (3 yrs) 56 n.a. 7,349 836

University Schools l n.a. 1,235 '15Government Schools 41 181 6,114 321

ENAMACTA 5/ TeacherTraining (4 yrs) 1 &3 732 129

Lower SecondaryETA 6/-Pre-Voca-tional (3 yrs) 445 3,573 67,476 12,400

Non-FormalCECATA 7/(3-12 months) 12 7 2,800 8/ -

1/ Mission estimate based on Mexican Association of Universities data for 1970-1971.2/ Includes: Agronomy, Animal Husbandry, Irrigation and Drainage, Forestry,

and Agricultural Economics.

3/ Instituto Tecnologico Agropecuario.I&/ Centro de Estudios Tecnologicos Agropecuarios.§/ Escuela Nacional de Maestros para la Capacitacion en el Trabajo-Agropecuario.

Escuela Tecnologica Agropecuaria.7/ Centro de Capaaitacion para el Trabajo Agropecuario.8/ Number of Places.

Source: Secretary of Public Education, 1974.

December 16, 1974

ANNEX 12Table 2

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT-

Agricultural Research and Extension Services

Manpower Requirements

Existing New Total

Agricultural Research (INIA-CIAT)Researchers 19 3/ 25 4/ 44Research Assistants 17 25 42Other 1/ n.a. 135 n.a.

Livestock Research (INIP)Researchers - 7 5/ 7Research Assistants - 7 7Other _/ - 39 39

Agricultural Extension (fm EA)Extension Officers 2/

Professionals 23 66 89Ag. Technicians - 180 180

Rural Family Educators 2/ 5 67 72Other 1/ 2 12 1

1/ Administrative personnel, machine operators and skilled workers.

2/ Include coordinator and supervisors.

3/ Research Programs: Entomology, Plant Pathology, Weed Control,Agricultural Economics, Soils, Water Management, Communications, CottonMaize and Sorghum, Oil Seeds, Legumes, Pasture.

4/ To strengthen the above programs , plus: Horticulture, Cereals, BiologicPest Control and Grain Conservation.

5/ Research Programs: Cattle Breeding and Management (Beef and Dairy),Animal Nutrition, Animal Pathology.

December 16, 1974

ANNEX 12Table 3

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Agricultural Research and Extension Services

Cost Estimates

Agricultural livestock Agricultural TotalResearch Research Extension…----------- e------ TMex$'000O _________ -…_

Construction 2,341.5 1,186.5 - 3,528.0Offices 1,350.0 216.0 - 1,56.0Laboratories 504.0 144.0 - 648.oStorage 487.5 90.0 - 577.5Farm Structures-/ - 496.5 - 496.5Housing - 24o.o - 240.0

Ecuipment 7,727. 8 4 14,216.7Office 12T928.1 28079 715-0Laboratory 4,400.0 720.0 - 5,120.0Farm 1,659.9 524.4 4,015.6 6,199.9Vehicles 1,522.5 499.3 160.0 2,181.8

Furniture 239.4 74.8 986.4 1,300.6

Livestock _ 824.0 - 824.0

Land - 700.0 - 700.0

Recurrent Costs 10 441.9 3.098.9 34,697.7 48,238.5Salaries 2,700.7 2b,3bl.4 40,450.7Office Rent - - 864.0 864.oOperation 670.8 207.7 4,398.3 2t 5,276.8Maintenance 235.0 91.0 91.0 o417.0Materials 167.5 99.5 963.0 1 230.0

Total 20.750.6 7,9_17O 40140.2 68___07.8

1/ Includes site development and utilities.

#/ Includes rent of vehicles.

Decenber 11, 1974

MEXICO

1 AJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

\.n. Agricultural Research and Extension Services

Investment Schedule

Year Year Year Year Year Year Year Total1 2 3 I Mex$'003i 6 7

--7ex$ '005Construction 2,140.0 1.388.0 - - 3,528.

Offices 1,000.0 566.o- - -_1,566.0Laboratories 350.0 298.0 - - - - _ 648.0Storage 300.0 277.5 - - - - - 577.5Farm Structures 250.0 246.5 - - - - 4 496.5Housing 240.0 - - - - - - 240.0

Equipment 5,6oo.0 5,296.8 3,319-9 - - - 14,216.7Office L[00.0 315.0 - - - - - 71 .0Laboratory 1,700.0 1,800.0 1,620.0 - _ _ 5,120.0Farm 2,000.0 2,500.0 1,699.9 - - - - 6,199.9Vehicles 1,500.0 681.8 - - - - - 2,181.8

Furniture 700.0 600.6 - - - - - 1,300.6

Livestock 300.0 524.0 - - - - - 824.0

Land 700.0 - - - 700.0

Recurrent Costs 16,079.3 32,158.9 48238.5 45 448238 48,238.5 289,430.7Salaries 13,4T 3.5 26;967.2 40,450.7 40,4550.7 40,450.7 242,704.2Office Rent 288.0 576.0 864.0 864.0 864.0 864.0 864.o 5,184.0Operation 1,758.8 3,517.7 5,276.8 5,276.8 5,276.8 5,276.8 5,276.8 31,660.5 a CMaintenance 139.0 278.0 417.0 417.0 417.0 417.0 417.0 2,502.0Materials 410.0 820.0 1,230.0 1,230.0 1,230.0 1,230.0 .230.0 7,380.0 N.)

TOTAL 25,519.3 39,968.3 51,558.4 48 285 48.5 48,238.5 LL8,238.5 310,000.0

ANNEX 13Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Agricultural Production

Cotton

1. Until the mid-1960s, cotton was the most important crop, coveringmore than 90% of the entire area of both districts, but it almost disappearedfrom the cropping pattern between 1966 and 1969/70. Diseases (Pudricion Texana(Phymatotrichum omnivorum) and Heliothis) spread as a result of the continuouscultivation of the crop, but the increasing cost of control measures and laborwas not reflected in cotton prices, which remained stable. However, moreresistant varieties became available in 1971 and prices increased substantially(more than two-fold); consequently, the area planted to cotton grew to 20,000ha in 1973/74. Under the project, the area so used would continue to increaseto an estimated 48,000 ha.

Grains

2. Maize, sorghum and beans are planted in the project area. Afterthe drastic reduction in cotton, maize and sorghum production increased rapid-ly, covering 97% of the total area planted in 1970. Diversification intohigher value crops - cotton, beans, vegetables -- and livestock has resultedin increases in production value. Spurred by high Government prices, theharvested area of beans increased spectacularly from about 1,500 ha in 1973 to27,000 ha in 1974.

Vegetables

3. While a large variety of vegetables is grown in the area, the dom-inant ones are okra, squash, stringbeans, broccoli and onions. The total areaplanted with horticulture crops has been increasing rapidly and reached about5,000 ha in 1974. Under the project, it would increase further to 28,000 haover 10 years.

Livestock

4. The expansion of pasture and forage production is also a recentdevelopment. Since 1970 the area devoted to pasture and forage increased by30% to cover 1% of the total area planted (about 3,000 ha) in 1974. Livestock,however, both for fattening and dairy production in heterogenous herds, is, toa large extent, still grazed on canal, drain and river banks and on cropresidues. Hence, production levels are low, as shown in the following table:

ANNEX 13Page 2

Bajo Rio Bajo RioBravo San Juan Total

1. Dairy ProductionCows (No.) 9,478 3,041 12,519Daily milk production (1/cow) 2.8 4.4 -Total milk production (1) 26,538 13,380 39,918

Farmers (No.) 1,292 245 1,537

2. Fattening CattleCows 2,702 1,096 3,798

Bulls 286 147 433

Calves 1,661 725 2,386

Total 4,649 1,968 6,617Farmers (No.) 280 48 328

Source: SRH, 1972.

In 1972, there were also about 13,000 swine and 4,000 sheep and goats in

the area.

5. A few small landowners and ejidatarios have begun organizing efforts

to exploit fattening or dairy cattle. Fattening cattle are usually bought from

traditional breeding areas (Chihuahua, Coahuila) or the surrounding "temporal"

areas, and, instead of being shipped to the USA for fattening, they are kept

about 200 days on irrigated land in Mexico, where they are expected to gainabout 100 kg/animal before exportation. The project area is still within the

coastal areas affected by foot and mouth disease, but an eradication campaign,

started in 1973, is expected to eliminate the disease withing three or four

years. Milk cattle are mainly Holstein, imported from the USA or Canada.

Up to 12 liters per day are obtained, both by private landowners and by a

few progressive ejidatarios who work either individually or in communal

enterprises. Until October 1974, the low milk price (Mex$ 2.25/1 at the

farm) barely covered the production cost of an intensive dairy operation but

the new price of Mex$ 3/liter for refrigerated milk is more satisfactory and

would provide adequate incentive for the proposed expansion. Another limit-

ing factor to milk production is the lack of basic technical knowledge since

no research has been conducted in the area on the adaptability of breeds or

optimum feeding conditions. The project would provide for the initiation of

a research program covering these problems (Annex 12).

Fertilization

6. Fertilization has increased rapidly in both districts. In 1966/67,

fertilizers were used on about 40% of the area in Bajo Rio Bravo and 47% in

Bajo Rio San Juan. During the first crop cycle of 1973, these percentages had

ANNEX 13Page 3

increased to 82% and 85%. 1/ Fertilization is still largely confined tocrops planted during the first crop cycle because water availablity duringthe second season is too uncertain to warrant the risk.

Mechanization

7. The number of tractors 2/ and agricultural equipment has remainedstable over the years because of the lack of long- and medium-term credit.This has led to a situation wherein much of the machinery is obsolescent.It has also been conducive to a general reorganization of the farm machineryfleet, which has been maintained by the farmers who have sufficiently largeholdings to justify the ownership of their own equipment. On average, thereis about one tractor for 40 ha in the project area.

Future Without Project Situation -

8. The future without the project is projected on the basis ofaverage 1970-74 areas and yields. Unless the project is carried out andwater efficiency increased, there would be no changes in the effectivewater supply available from that experienced historically, and chronicwater shortages would prevail. It has been argued that, unless the drainageis improved, there would be a continued degradation of the project lands.However, the conservative assumption is made that the drainage problemswould remain at their present level in the absence of the project. Whilethere was an increase in production values in the project area in 1973 and1974, this is due to a better-than-average water supply and does not re-flect an average condition that would prevail without the project.

Production Costs and Net Value of Production

9. - Table 1 shows production costs with the project and Table 2, thenet value of production per ha by crops.

Net Value of Production With and Without Project.

10. Tables 3 and 4 show the existing and proposed cropping pattern inthe project area. Because of continuing crop diversification since 1971,the cropping pattern, yields and production, without the project, reflect the1970-74 weighted average. With the project, the crop diversification pro-cess would be accelerated, and, at full development, the areas of cotton,beans, vegetables and pastures would be substantially increased. The

1/ 245,199 ha were fertilized in 1972 (189,306 ha in District 25 and 55,893ha in District 26) and 245,352 ha in 1973 (187,004 ha in District 25and 58,348 in District 26).

2/ District 25: 5,019 tractors in 1972 and 4,922 in 1973.District 26: 2,126 tractors in 1972 and 2,152 in 1973.

ANNEX 13Page 4

cropping intensity would drop from 115% to 108% due to the increase ofperennial pasture (which would be irrigated throughout the year) and theshortage of irrigation water for a second crop. The second seasonal croppedarea would thus be reduced from 50,000 ha to about 20,000 ha. With theproject, due to increased supply of irrigation water, drainage, land level-ing and improved farming, crop yields would increase by 50% to 70%, depend-ing on the crop, during the main cropping season (irrigated). During thesecond season, however, when crops would receive only a supplementaryirrigation, if any, yields would remain extremely low as at present be-cause of serious problems and risks (i.e., water shortage, poor drainageand erratic rainstorms), which prevent and will continue to prevent ade-quate use of farm inputs. Nonetheless, some yield increases are expecteddue to the improved farming. As a result of crop diversification andincreased yields, the annual crop production would increase under the pro-ject from about 844,000 tons to 979,000 tons, that is, by 16%. In addition,annual milk production would increase from 14.6 million liters to 90 mil-lion liters, and beef production, from 1,300 tons to 43,000 tons.

11. The labor component of farm production costs shown in Table 1averages 34% of total production costs. Without the project (Table 3),production cost estimates for the early irrigated season are adjusted forlower yields under current farming practices and, on average, are 20% lower.During the late season, because of still lower yields and very little use offarm inputs, production costs are estimated to be 40% to 70% lower, depend-ing on the crop. Late season production costs with the project (Table 4)are estimated to be 30% to 60% lower than the early irrigation season, dueto lower yields and less use of farm inputs. All estimates include costincreases from June to December 1974.

12. Table 2 shows the net income per ha by crops with the project.Tables 3 and 4 show the net production values without the project and withthe project, respectively. The net annual production value would increasefrom Mex$ 547.1 million without the project to Mex$ 1,677.1 million withthe project, an incremental value of Mex$ 1,130 million, or 207%.

January 1975

a'i MEXICOCD

X BAJO RIO BRAVO AND BAJO RIO SAN JUAN REAILTATI0LP PR0JECT¶L

On-farm Production Costs in Mex$Aa

Machinery / Labor. Materials\0 /2 Ferti- Pesti- pub-

Tqtal jCropping Harvesting_Cropping Harvesting Seed lizer cides _'Total

Cotton 5,1471 1,264 72 1,425 1,220 180 110 1,200 1,490Grains: 6310 10 25 6 oMaize 2,747 653 595 844 150 180 265 60 505

Sorghum 2,493 722 648 688 - 120 265 50 435Wheat 2,378 650 567 405 - 330 360 66 756Beans 2,646 882 120 588 256 600 150 50 800

Forages:Sorghum or Maize 3,568 660 788 936 504 300 300 80 680Oats 2,990 660 657 840 102 242 165 324 731

Colza 3,287 820 788 888 122 53 407 209 669Guar 3,276 820 153 809 86 792 407 209 1,408

Horticulture CropsOkra 9,807 1,042 760 1,215 6,520 44 132 94 270Squash 3,506 582 314 952 821 254 517 66 837Stringbeans 4,426 660 580 826 1,025 938 324 73 1,335Broccoli 3,548 936 140 1,081 836 93 407 55 555Onions 4,726 989 768 1,108 585 814 407 55 1,276

Oil SeedsSesame 2,233 660 326 812 72 26 145 192 363Groundnuts 3,060 939 286 970 392 165 308 - 473Flax Seed/Stmflower 2,809 992 224 662 54 198 484 195 877

Sorghum Escobero 2,603 660 152 831 448 132 300 80 512

1/ Includes a 20% cost increase - June to end 1974. 9!7/ Includes transportation to point of delivery.3/ Includes herbicides.

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Net Income per Hectare

Yields Prod. Price Gross Income Prod. Costs NIBT1/ Taxes NIAT?/ Crop Ins. NIBWC 2Ton/ha Mex$/ton Mex$/ha Hex$/ha Mex$/a Mex$/ha Mex$/ha Mex$/ha Mex$/ha

Cotton 2.5 5,200 13,000 5,471 7,529 361 7,168 562 6,606

GrainsSorghum 4.5 1,200 5,400 2,493 2,907 168 2,739 137 2,602Maize 4.5 1,500 6,750 2,747 4,003 202 3,801 175 3,626Beans 1.5 6,000 9,000 2,646 6,354 252 6,102 175 5,927

Forages:Sorghum and Maize 35.0- 200 7,000 3,568 3,432 .199 3,233 _ 3,233Oats 25.0 350 8,750 2,990 5,760 242 5,518 - 5,518Colza 35.0 150 5,250 3,287 1,963 155 1,80 - 1,808Guar 1.5 3,000 4,500 3,276 1,224 136 1,088 - 1,088

Horticultural CropsOkra 8.0 2,200 17,600 9,807 7,793 481 7,312 - 7,312Squash 10.0 1,500 15,000 3,506 11,494 420 11,074 - 11,074String Beans 5.01 3,600 18,000 4,426 13,574 484 13,090 - 13,090Broccoli 4.0 3,500 14,000 3,548 10,452 382 10,070 - 10,070Onions 8.0 1,500 12,000 4,726 7,274 341 6,933 - 6,933

oil SeedsSesame 1.0 6,ooo 6,000 2,233 3,767 176 3,591 175 3,416Groundnuts 2.0 5,000 10,000 3,060 6,940 278 6,662 - 6,662Flax Seed 2.0 3,000 6,ooo 2,809 3,191 178 3,013 - 3,013

Sorghum Escobero 2.5 3,000 7,500 2,603 4,897 216 4,681 4,681

2 Net income before taxes.I Net income after taxes./ Net income before water charges.

MEXICO

BAJ0 RIO BRAVO AND BAJO RIO SAN JUAN REHIABILITATION PROJECT

Cropping Pattern, Production, Costs and Net Value of Production

Without the Project jj

Gross Pro- Production Costs Net Value ofcrops Area Yields Production Prices duction Value Labor Other Production

(ha) (ton/ha) (ton'000) (Mex$/ton)- - -(Mex$ million)-'-

A. IrrigatedSeasonal

Cotton 10,000 1.47 14.75 5,200 76.70 21.86 23.35 31.49Maize 82,360 2.99 246.25 1,500 369.38 67.65 119.31 182.42Sorghum 171,500 2.99 513.58 1,200 616.30 97.50 255.83 262.97Wheat 30 1.67 0.05 1,500 0.08 - 0.05 0.03Beans 320 0.84 0.27 6,000 1.62 0.22 0.48 0.92Forage_2/ 574 17.72 10.17 350 0.50.3/ 0.10 0.20 0,20Okra 2,010 4.70 9.45 2,200 20.79 3.10 3.44 14.25Squash 540 2.44 1.32 1,500 1.98 0.80 0.78 0.40Stringbeans 65 3.38 0.22 3,600 0.79 0.10 0.C9 0.60Various Vegetables 45 6.00, 0.27 2,500 0.68 0.07 0.07 0.54Groundnuts 9 1.50 0.02 5,000 0.10 0.01 0.02 0.07Sorghum Escobero 251 1.38 0.35 3,000 1.05 0.27 0.28 0.50

Subtotal 267,704 796.70 1,089.97 191.68 403.90 494.39

PerennialPasture 2,160 milk 14.60 A 3.00 N 43.80 10.00 22.12 11.68

beef 4.68Subtotal 2,160 16.36

Total Irrigated 269,864 510.75

B. Dry-FarmingSeasonal

Maize 37,275 0.90 33.46 1,500 50.19 11.12 19.60 19.47Sorghum 7,950 1.28 10.20 1,200 12.24 1.64 4.30 6.30Beans 4,892 0.56 2.76 6,000 16.56 2.34 5.00 9.22Squash 215 1.63 0.35 1,500 0.53 0.22 0.22 0.09Broccoli 5 2.00 0.01 3,500 0.04 0.01 0.01 0.02Various 402 1.59 0.64 2,500 1,60 0.20 0.20 1.20

Total Dry-Farming 50,739 47.42 81.16 15.53 29.33 36.30

Grand Total 320,603 547.05

1' 1970-1974 weightei average., Mainly maize and sorghum but also colza, guar and oats./ 1,430 tonts of oats only; the rest is included in beef and milk produotion value./ Millions of liters.

B/ Mex$/l.Sale of 4,231 cows and bulls at net income of Mex$ 965 each and 2,386 calves at net income of Mex$ 250 each.

w

C. MEXICOc

BAJO RIO BRAVO ANtD BAJO RIO SAN JUAN REHABILITATION PROJECT

Cropping Pattern. Production, Costs and Net Value of Production

With the Project

Gross Produc- Production Costs Net ValueCrops Area Yields Production Prices tion Value Labor Other of Production(ha) ( ton/ha) (ton '000) (Mex$/ton) - -(Mex$ million)- - - - - - -

A. IrrigatedSeaso nal

Cotton 48,000 2.5 120.0 5,200 624.00 126.96 135.65 361.39Maize 55,000 4.5 247.5 1,500 371.25 54.67 96.42 220.16Sorghum 78,000 4.5 351.0 1,200 421.20 53.66 140.79 226.75Beans 23,000 1.5 34.5 6,000 207.00 19.41 41.45 146.14Okra 5,000 8.0 40.0 2,200 88.00 38.67 10.36 38.97Squash 4,000 10.0 40.0 1,500 60.00 7.09 6.93 45.98Stringbeans 12,000 5.0 60.0 3,600 216.00 22.21 30.90 162.89Various Vegetables jj 2,500 6.7 16.7 2,500 41.75 8.09 5.74 27.92Sesame 7,000 1.0 7.0 6,000 42.00 6.19 9.44 26.37Groundnuts 11,000 2.0 22.0 5,000 110.00 14.98 18.68 76.34Flaxseed 2.500 2.0 5.0 3,000 15.00 1.79 5.23 7.98

Subtotal 248,000 943.7 2,196.20 353.72 501.59 1,340.89

Perennial 9Pasture-Dairy 1/ 10,000 90

.O00I 296.52 36.42 116.57 143.53Pasture-Beef i/ 22.000 43.01 516.14 34.98 326.48 154.68

Subtotal 32,000 812.66 71.40 443.05 298.21

Total Irrigated 280,000 3,008.86 425.12 944.64 1,639.10

B. Dry-FarmingSeasonal

Maize 5,000 1.2 6.00 1,500 9.00 1.99 3.51 3.50Sorghum 6,500 1.7 11.05 1,200 13.26 1.79 4.69 6.78Beans 4,000 0.8 3.20 6,000 19.20 2.36 5.05 11.79Squash 2,200 2.2 4.84 1,500 7.26 2.73 2.67 1.86Broccoli 1,200 2.6 3.12 3,500 10.92 1.61 1.37 7.94Onions 1,200 4.0 4,80 1,500 7.20 1.42 2.55 3.23Various 1.100 2.0 2.20 2,500 5.50 1.20 1.43 2.87

Total Dry-Farming 21,200 35.21 72.34 13.10 21.27 37.97

Grand Total 301,200 3,081.20 438.22 965.91 1,677.07

1/ Weighted average of okra, squash and stringbeans.1/ 250 units of 40 ha ep,h wiL:h 30 ha pasture. For details on production value and costs, see Annex 14, Table 63! 220 units of 100 ha each. For details on production values and costs see Annex 14, Table 5._ / Millions of liters.

41

ANNEX 14Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Farm Budgets

Farm Models

1. The four farm models shown in Tables 1 through 4 give the net incomefor the following farms:

Model Type Area Crops

I Ejido 10 ha Cotton, maize, sorghum, beans, vegetables.

II Ejido 10 ha As in Model I, but with pasture for dairy.

III Small Cotton, maize, sorghum, beans, groundnuts,Landowner 22 ha okra, broccoli and pasture for fattening.

IV Colono 13 ha Cotton, maize, sorghum, beans, stringbeans,groundnuts, pasture for dairy.

2. The areas represent the average farm size for each farm type (Annex3, Table 1). Cotton, maize, sorghum, and beans are the main crops in allcropping patterns, with representative minor crops added for purposes of themodel. Because of the constant core of main crops, the results to be obtainedusing various other minor crops would not significantly differ from thoseshown in the tables. Yields, prices, and production costs used in the farmbudget calculations are shown in Annex 13, Tables 1 and 2.

3. Production costs include all labor costs for skilled and unskilledhelp, the latter being supplied generally by family memb4rs. This portion ofthe cost has been estimated, on average, for all crops, at one-half of totallabor cost, and the income to the family from such work has been accountedfor under the item, "other incomes from labor on the farm." Since somefamily members on small ejido and colono farms would not find sufficientemployment opportunities at home, they would be employed outside the farm forabout 65 mandays per year. While the project would help increase the on-farmfamily labor requirements, prevailing under-employment conditions in the areawould prevent a significant increase of hired labor. This element has there-fore been maintained at the current level of 65 mandays per year.

ANNEX 14Page 2

Livestock Operations

4. Fattening and dairy cattle farms, about 100 ha and 40 ha in size,respectively, would be formed by grouping plots having marginal soils forcrops other than pasture and owned by several farmers. These enterpriseswould be operated as communal farms or through farmers' associations(Annex 13). Both types of groupings are currently operating satisfactorily inthe area and dairy farm associations are also operating successfully in theLagunera project. In Farm Models II, III and IV, farmers have been assumedto participate with a portion of their land in an association or communalenterprise. The net income per farm of the livestock operations is given inTables 5 and 6. The area under pasture for each group of farmers is limitedby the water availability (Annex 6).

Taxation and Insurance

5. Several types of taxes are levied:

(a) a federal tax of Mex$ 2.20 per ton of any product (exceptcotton on which the tax is Mex$ 4.85 per ton);

(b) a state tax of Mex$ 23.50 per hectare per year; and

(c) an income tax of 2.5Z of gross production value.

Crop insurance premiums are paid on cotton (Mex$ 562 per ha), maize, beansand sesame (Mex$ 175 per ha) and sorghum (Mex$ 137 per ha).

January 1975

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Farm Budget of a 10 ha Elido Farm (Model I)

Without the Project With the ProjectGross. Production Net Gross Production Net

Area Yield Income Costs Income Area Yield Income Costs Income Farmgate Price(ha) (ton/ha) - - - - (Nex$)- (ha) (ton/ha) _ e- (Mex$/ton)

Field Operations

A- First SeasonCotton 0.5 1.47 3,822 2,261 1,561 1.5 2.5 19,500 8,206 11,294 5,200Maize 3.4 2.99 15,249 7,718 7,531 3.5 4.5 23,625 9,615 14,010 1,500Sorghum 5.5 2.99 19,734 11,331 8,403 3.0 4.5 16,200 7,479 8,721 1,200Beans 0.5 0.84 2,520 1,094 1,426 1.0 1.5 9,000 2,646 6,354 6,000Vegetables 0.1 4.20 1,050 318 732 1.0 6.7 16,750 5,532 11.218 2,500

Subtotal 10.0 42,375 22,722 19,653 10.0 85,075 33,478 51,597

8. Second SeasonMaize 0.7 0.90 945 577 368 0.4 1.2 720 400 320 1,500Sorghum 0.2 1.28 307 149 158 0.3 1.7 612 299 313 1,200Beans 0.3 0.56 1,008 450 558 0.4 0.8 1,920 741 1,179 6,000Vegetables 0.1 1.64 410 209 201 0.2 2.8 1.400 537 863 2,500

Subtotal 1.3 2.670 1.385 1.285 1.3 4.652 1.977 2,675

C. Total 11.3 45,045 24,107 20,938 11.3 89,727 35,455 54,272

Overhead Costs

Administration (10X of fields costs) 2,411 3,546Interest (7.5. in 6 months) 1.808

Subtotal 4,219 6,-205

Net Income after Overhead Charges 16,719 48,067

Other Incomes: Labor-on the farm / 4,098 6,027Labor outside the farm (65 days) 3.,380 3.380

Subtotal 7,478 - 9,407

Taxes and Insurance 3,347 4.806

Net Income before Water Charges 20,850 52,668

.j/ Estimated as half of the labor component (Annex 13, Table 1). The other half is skilled labor.

411

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN RFHABILITATION PROJECT

Farm Budget of a 10 ha Elido Farm (Model II)

Without the Project With the ProjectGross Production Net Gross Production Net Farmgate

Area Yield Income Costs Income Area Yield Income Costs Income Price(ha) (ton/ha) - - - - (Mex$) - - - - - - (ha) (ton/ha) -- - - - (Mex$/ton)

Field Operations

A. First SeasonCotton 0.5 1.47 3,822 2,261 1,561 0.7 2.5 9,100 3,830 5,270 5,200Maize 3.4 2.99 15,249 7,718 7,531 3.5 4.5 23,625 9,615 14,010 1,500Sorghum 5.5 2.99 19,734 11,331 8,403 3.5 4.5 18,900 8,726 10,174 1,200Beans 0.5 0.84 2,520 1,094 1,426 1.0 1.5 9,000 2,646 6,354 6,000Vegetables 0.1 1,050 318 732 - - - - - 2,500Pasture 1/ - - _ _ - 1.3 38548 19,890 18.658 (Table 6)

Subtotal 10.0 42,375 22,722 19,653 10.0 99,173 44,707 54,466

B. Second SeasonMaize 0.7 0.90 945 577 368 - - - - 1,500Sorghum 0.2 1.28 307 149 158 - - - 1,200Beans 0.3 0.56 1,008 450 558 - - - 6,000Vegetables 0.1 1.64 410 209 201 - - 2,500Pasture I / - - - 1.3 - _ _

Subtotal 1.3 2,670 1.385 1.285 1.3 _ - _

C. Total 11.3 45,045 24,107 20,938 11.3 99,173 44,707 54,466

Overhead CostsAdministration (10% of field costs) 2,411 2,482 XInterest- seasonal credit 1,808 1,861

-diary farm debt payments - 8.710

Subtotal 4,219 13,053

Net Income after Overhead Charges 16,719 41,413

other Income-labor on the farm 2/ 4,098 7,600-labor outside the farm (65 days) 3.380 3,380

Subtotal 7,478 10,980

Taxes and Insurance 3,347 3,57b

Net Income before Water Charges 20,850 48,819

_L/ As part of an association of about 30 members in a 40 ha-dairy farm.2/ Estimated as half of the labor component (Annex 13, Table 1). The other half is skilled labor.. Less administration already accounted for on the dairy farm.

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Farm Budget of a 22 ha Small Landowner Farm (Model III)

Po

Without the Project With the ProiectGross Production Net Gross Production Net Farngate

Area Yield Income Costs Income Area Yield Income Costs Income Price(ha) (ton/ha) - - - - aMex$)-(ha) (ton/ha) - - - - (Mex$) - - -(Mex$/ton)

Field Operations

A. First SeasonCotton 1.0 1.47 7,644 4,521 3,123 4.0 2.5 52,000 21,884 30,116 5,200Maize 6.5 2.99 29,152 14,755 14,397 4.0 4.5 27,000 10,988 16,012 1,500Sorghum 14.0 2.99 50,232 28,843 21,389 7.6 4.5 41,040 18,947 22,093 1,200Beans - - - - - 2.0 1.5 18,000 5,292 12,708 6,000Groundnuts - - - - 1.0 2.0 10,000 3,060 6,940 5,000Okra 0.5 4.70 5,170 1,557 3,613 0.6 8.0 10,560 5,884 4,676 2,200Pasture _/ (fattening cattle) - - - - 2.8 - 65,691 46,010 19.681 (Table 5)

Subtotal 22.0 92,198 49,676 42,522 22.0 224,291 112,065 112,226

B. Second SeasonMaize 1.7 0.90 2,295 1,400 895 1,500Sorghum 0.7 1.28 1,075 523 552 1,200Beans 0.3 0.56 1,008 450 558 6,000Broccoli 0.1 2.00 700 400 300 3,500Pasture - - _ 2.8 - - - - _

Subtotal 2.8 5.078 2.773 2,305 2.8 - - -

C. Total 24.8 97,276 52,449 44,827 24.8 224,291 112,065 112,226

Overhead Costs

Administration (10°h of.field costs) 5,245 6,606 2/Interest payments-seasonal credit (7.5% in 6 months) 3,934 4,954

-livestock debt charge 4.950

Subtotal 9,179 16,510

Net Income After.Overhead Charges 35,648 95,716

Other lncome - Labor on the Farm -3 8,916 8,916

Taxes and Insurance 7.163 10.029

Net Income before Water Charges 37,401 94,603_/ As part of an association of about 36 members in a 100-ha cattle fattening farm./ Less administration already accounted for on the cattle fattening farm.2 Estimated as half of the labor component (Annex 13, Table 1). The other half is skilled labor.

a Qw 3

MEXICO

BAJO RI0 MAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

FarW Budget of a 13 ha Coloeo Farm (Model IV)

Without the Project With the ProjectVI Groga Production Net Gross Production Net Farugate

Area Yield Tncome Costs Income Area Yield Income Costs Income Price(ha) (ton/ha) ( - - - - hex$)-(ha) (ton/ha) - - - - (Mex$)-- (Mex$/ton)

Field Operatiots*

A. First SeasonCotton - - - - - 2.0 2.5 26,000 10,942 15,058 5,200Maize 5.5 2.99 24,660 12,485 12,175 2.5 4.5 16,875 6,868 10,007 1,500Sorghum 6.5 2.99 23,322 13,391 9,931 3.0 4.5 16,200 7,479 8,721 1,200Beans 0.5 0.84 2,520 1,094 1,426 1.8 1.5 16,200 4,763 11,437 6,000Stringbeans 0.5 3.38 6,084 1,461 4,623 1.0 5.0 18,000 4,426 13,574 3,600Groundnuts - - - - - 1.0 2.0 10,000 3,060 6,940 5,000Pasture -/ - _ - - 1.7 - 50,409 26,010 24,399 (Table 6)

Subtotal 13.0 56,586 28,431 28,155 13.0 153,684 63,548 90,136

B. Second SeasonMaixe 0.7 0.90 945 577 368 -Sorghum 0.8 1.28 1,229 598 631 -Beans 0.2 0.56 672 300 372Pasture J/ - - - - . - 1.7 - - - -

Subtotal 1.7 2.846 1,475 1.371 1 7 - _ -

C. Total 14.7 59,432 29,906 29,526 14.7 153,684 63,548 90,136

Overhead CostsAdministration (107, of field costs) 2,991 3,754 2!Interest Payments (seasonal credit) 2,243 2,815Debt Charges for Livestock

11.390

Subtotal 5,234 17,959

Net Income after Overhead Charges 24,292 72,177

Other Income: Labor on the Farm 3/. 5,084 7,467Labor Outside the Farm (65 days) 3,380 3,380

Subtotal 8,464 10,847

Taxes and Insurance 4.086 6.193

Income after Taxes 28,670 76,831

v As part of an association of about 24 members in a 40-ha dairy farm.1 Less administration already accounted for on the dairy farm.3/Estimated as half of the labor component (Annex 13, Table 1.). The other half is skilled labor.

ANNEX 14Table 5Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

100 ha Cattle Fattening Farm

Investment Costs

1. Pasture Establishment

Machinery Labor Materials /1 Total…--H(Mex$/ha)--------------- -

Bermuda Cruza - 1 635 490 623 1,748Estrella Africana 635 490 813 1,938

Average 635 490 718 1,843

In 100 ha Mex$ 184,300

2. Installation Cost for a 100 ha Farm

Fencing at Mex$ 7,000/km for 6/km 42,000 -Corral (20 x 20 m) 20,000Pump and portable watering tank 11,700Horse and saddle 9,000Miscellaneous (salt distributors, scale, etc) 4,000 86,700

Total investment cost per farm of 100 ha: Mex$ 271,000

For larger farms, economies of scale would be minimal and the costof this model would be extrapolated, proportionately to size.

1/ Fertilizers: both 425.Seed: Bermuda, 198; Estrella, 390.

ANNEX 14Table 5Page 2

Operating Costs

Unit Costs

1. Pasture Maintenance Mex$/ha

Fertilizer: 6 applications of 150 kg urea at Mex$ 1,450/ton 1,305Irrigation Labor 1,290

2,595

- Pasture renewal every 5 to 6 years at Mex$ 350/ha as from year 3.

2. Other Operating Costs

- Vaccinations and animal health: Mex$ 6 per animal purchased- Supplementary feeding: 50 grams of salt per day per animal at

Mex$ 1.2/kg for dressing during the last 7 days atMex$ 0.4/kg

- Transportation from farm to border: Mex$ 10 per animal sold- Labor: 2 Vaqueros per farm of 100 ha at Mex$ 15,000 each- Organization and overhead for 100-ha farm, Mex$25,000- Taxes for cattle: Mex$ 50/animal sold- for land: Mex$ 23.35/ha

For a 100-ha Farm

1. Gross Income for 100-ha Farm

Years 1 2 3 and thereafter… ------------ …ex$ '000 … ------------

Number of animals 500 600 700Weight gained over 210 days

kg/animal 84 94 105Weight at sale kg/animal 264 274 285Mortality ratio (X) 4 3 2Animals sold 480 582 686Gross income at Mex$ 12/kg in

Mex$ '000 1,520 1,913 2,346

ANNEX 14Table 5Page 3

--------- Mex$ '000 --------

2. Total Operating Costs for 100-ha Farm

Pasture maintenance and replacement 259.6 259.6 294.6Purchase of animals of 180 kg at

Mex$ 10/kg 1/ 900.0 1,080.0 1,260.0Vaccination and feeding 18.8 22.7 26.7Vaqueros and overheads 55.0 55.0 55.0Transportation 4.8 5.8 6.9

1,238.2 1,423.1 1,643.2

3. Net Income Before Taxes andDebt Repayment 282.4 490.5 702.9

4. Interest on Seasonal Credit (Items 1-4)1.2% interest per month 93.6 109.9 125.9

Long-term credit -- 50.9 50.9Subtotal 93.6 160.8 176.8

5. Net Income Before Taxes 188.8 329.7 526.5

6. Taxes: Mex$ 50/animal sold andMex$ 23.35/ha 26.3 31.4 36.6

7. Net Income After Taxes 162.5 298.3 489.5

or Mex$ 4,895/ha

1/ Over nine years at 12% per year.

ANNEX 14Table 6Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

40 ha Dairy Cattle Farm

Mex$/ha

1. Pasture Establishment:

Bermuda Cruza: 1 Machinery (only operating costs) 635Labor 490Materials 623

1,748

Over 30 ha 52,440

2. Constructions:

Stable, house, silos, water distribution system,fencing 265,500

Equipment: milking, refrigeration tanks, andtools and electrification 250,000

iSubtotal: 515,500

3. Animals:

60 cows at Mex$ 8,000 each 480,000

Total Initial Investment: 1,047,940

4. Unit Costs of Operation:

a) Silage production (colza and maize): average of Mex$ 2,200/hawith half the labor requirements provided for by on-farm employees.

b) Pasture Maintenance: Mex$ 2,500/hac) Employees: total for 40 ha: Mex$ 107,000/year

1. Foreman Mex$ 30,000/year2. Cattleman " 54,000/year3. Workman I 23,000/year

Subtotal Mex$ 107,000/year

ANNEX 14Table 6Page 2

d) Maintenance of construction (5%)machinery (10%) Mex$ 38,275/year

e) Cost of electricity: Mex$ 6,400/yearf) Animal feeding and care:

Concentrates and salt: 3.6 kg/day per animal at Mex$ 1.65/kg; Mex$ 5.94/animal/day orMex$ 1,782/animal for 300 days oflactation

Alimentation:

- During the lactation period: about 1,025 kg dry weight ofconcentrates per 45.4 kg oE animal liveweight 1/ or 10.8kg/day/animal

- During the remaining period: about 0.68 kg/day per 45.4 kgof animal weight or 7.2 kg/day/animal

- Thus, on average, one animal needs 3.7 tons of dry materialper year or 18.5 tons of green material (at 80% water content)

Farm Production:

- Pasture producing on 30 ha at 65 tons/ha - 1,950

- Forage (colza and maize) on 10 ha at 35 tons/ha - 350 tons

TOTAL 2,300 tons

This would feed an adult herd of about 125 animals

Veterinary services:

- Vaccination and care (Mex$ 530/animal, including that ofcalves)

- Insemination: Mex$ 250/cow

1/ Animals of 480 kg on average.

January 1975

ANNEX 14Table 6Page 3

Dairy Cattle Program--Herd Build-up (number of animals)

Years 1 2 3 4 5 6 and thereafter

Animals

Milk cow purchases 40 20 -- -- -- -- --Milk cows,total , 4 58 62 75 95 116 125

Mortality rates (%)

Adults 5 4 3 2 2 2 2Calves 5 5 5 5 5 5 5

Birth rates 70 80 80 80 80 80 80

Calves,females (No.) 14 23 2h 30 38 h6 50Calves,males (No.) 14 23 25 30 38 46 50Calves, heifers--1 year (No.) -- 13 22 23 28 36 24

2 year (No.)-- -- 6 10 10 13 12

Sales,males (No.) 13 21 23 29 36 44 48Sales,-females (No.) -- -- -- -- -- 23 25Old cows (No.) -- -- -- -- -- -- 24Fattening cattle

(animal/ha) (5)102 (6)96 (7)106 (7)82 (7)50 (7)15 --

Production of forage (ton)at 35 tons/ha 350 350 350 350 350 350 350

Requirements forMilk cattle 120 162 174 213 266 321 350Fattening cattle 36 34 37 2 18 5 _

Sub-total -19 189 211 350

Sales 194 154 139 108 66 24 --

Production of milk

1/animal/day 10 11 12 12 12 12 12Total '000 1/year 96.0 153.0 178.6 218.9 273.8 334.0 360.0

December 18, 1974

ANNEX 14Table 6Pag e 4

Dairy Cattle Program--Annual Income from a 40-ha Farm(Mex$ '000)

Years 1 2 3 4 5 6 7 andthereafter

1. Gross Income

Net sales of- Fattening animals l/- at Mex$ 3,h20/animal 154.8 149.0 164.5 127.2 77.6 23.3 --- Milk at Mex$ 3/liter 288.0 459.0 535.8 656.7 821.4 100.2 1,080.0- Old cows at Mex$ 3,400 81.6- Calves: Males,Mex$ 250 3.0 5.2 5.8 7.2 9.0 11.0 12.0

Females,Mex$ 500 -- _- __ __ -- 11.5 12.5

Sales of forage 67.9 68.6 48.6 37.8 23.1 8.4 --

Total Gross Income 513.7 681.8 754.7 828.9 931.1 1,056.2 1,186.1

2., Operating Costs

Pasture maintenance andreplacement 77.9 77.9 77.9 77.9 77.9 77.9 77.9

Forage cultivation 22.2 22.2 22.2 22.2 22.2 22.2 22.2Concentrates

Fattening cattle 25.7 24.2 26.7 20.7 12.6 3.8 __Milk cattle 57.0 82.7 88.4 108.3 135.4 165.4 178.2

Medical servicesMilk cattle 21.2 30.7 32.9 39.8 50.4 61.5 66.2Fattening cattle 0.6 0.6 0.6 0.5 0.3 0.1 --

Inmmintio4 Mex$ 250kU.k cow 10.0 14.5 15.5 19.0 24.0 29.0 31.2Salaries 107.0Electrical energy,

building maintenance 45.2Administration and Misc. 55.0

Subtotal 207.2 207.2 207.2 207.2 207.2 207.2 207.2Fattened cattle transpor-

tation, Mex$ 10 1.0 1.0 1.1 0.8 0.5 0.2 --Contingencies, 5% 21.1 23.1 23.6 24.8 26.5 28.4 29.1

Subtotal,Operating Costs 443.9 484.1 496.1 521.2 557.0 595.7 612.0

Net Income from Operations 69.8 197.7 258.6 307.7 374.1 460.5 574.1

1/ Including decreasing mortality ratio of 3% the first year and 2% thereafter, purchasesat 180 kg at Mex$ 10/kg, and resale at 285 k-gat Mex$ 12/kg.

December 18, 1974

ANNEX 14Table 6Page 5

Dairy Cattle Program--Annual Net Income from a 40-ha Farm(Mex$ '000)

Year 1 2 a L 6 7 andthereafter

Net income fromOperation (page 4) 69.8 197.7 258.6 307.7 374.1 460.5 574.1

Net Insurance Payments 21.3 23.1 25.2 23.7 21.8 19.6 18.8

Net Income Before DebtPayment 48.5 174.6 233.4 784.0 352.3 440.9 555.3

Debt Paymentsl/ Long term 152.4 171.6 171.6 268.0 268.0 268.0

Net Income Before Credit 48.5 22.2 61.8 112.4 84.3 172.9 287.3

Taxes 6.6 6.6 7.2 6.2 4.9 3.4 2.8

Net Income After Taxes 41.9 15.6 54.6 106.2 79.4 169.5 2

1/ Includes first year of operations (half of costs) at 12%/year interest charges andthree years' grace on capital.

December 18, 1974

Annex 15Page 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Markets and Marketing

Markets

1. The project would give rise to increased production of cattle,milk, vegetables, cotton, beans and oilseeds as against a reduction in theoutput of sorghum and corn from the area. This would be consistent withmarket prospects. As a result of rapid population growth and rising incomies,Mexico is facing growing deficits in major staples (grains, oilseeds, dairyproducts). Present trends in demand are likely to continue for several dec-ades, with overall demand for food growing by at least 5% p.a. However, aslarge segments of the population still suffer from malnutrition, 1/ demandfor livestock and livestock-related commodities (beef, milk, feed grains) maywell grow faster. Table 1 shows current production levels, projected demand,and production to be generated by the project.

2. Cotton and feeder cattle are traditionally export commodities.The market outlook for Mexican cotton was reviewed in great detail in theappraisal report of the 1973 Panuco Irrigation Project (300-ME) (Annex 18),and it was concluded that Mexico's medium and long cotton had a well estab-lished position on the world market. As to feeder cattle, many U.S. ranchersacross the Rio Grande have become dependent on import of animals for finish-ing. Between 500,000 and 1 million head have been exported annually to theU.S. for many years. Efforts to stem this flow and export beef instead haveled to somewhat lower numbers lately. Long-term world projections showfavorable prospects for cattle producers.

3. The project area's location on the border with the U.S. and thelarge wage differential for unskilled labor between the two countries (roughly1:4) gives it a substantial comparative advantage in the production of suchlabor-intensive vegetables as okra, stringbeans and squash. 2/ Althoughproduction of these and other vegetables for the U.S. market has been goingon for several years, it takes place on an incidental basis, mainly for theU.S. fresh market when U.S. production areas are affected by adverse climaticconditions. For three years, however, subsidiaries of major U.S. frozen food

1/ cf. IBRD, The Economy of Mexico, Vol. III, para. 363.

2/ Other vegetables such as broccoli, onions, and cauliflower are alsogrown in the area, but their development is expected to remain modest.

ANNEX 15Page 2

companies established on the Texas side of the border have relied on Mexican

supplies of the vegetables mentioned. This trade occurs under contracts

made before each planting season. U.S. production is expected to drop fur-

ther, due to the labor requirements in cultivation and harvesting, and theU.S. market to grow moderately. Marketing prospects for vegetables are

therefore quite favorable, at least for the quantities envisaged in thisreport. These quantities also take account of rising domestic demand in theproject area and surroundings.

4. In general, market demand for production to be generated under the

project is likely to be assured. If actual demand were to deviate from

projected demand, the versatility of production in the project area is such

that an adjustment could be made easily.

Marketing

5. Favorable prospects for market demand for the commodities to be

produced in the project area must be seen in combination with (a) a national

price policy for the main crops under which the Government Marketing Agency,

CONASUPO, intervenes as a residual buyer when market prices drop to a level

announced before each planting season, and (b) satisfactory marketing arrange-ments in the project area.

6. Transport. The project area has adequate road and rail connectionswith Monterrey, Tampico and Mexico City. Three bridges cross the Rio Bravo

to connect the area with the U.S. road system.

7. Storage. Storage capacity in the project area is 600,000 tons,

virtually all of which is currently used for storage of corn and sorghum, the

predominant crops. Under the envisaged crop diversification, storage require-

ments would be more evenly spread over the year and the existing capacity

would become more than adequate. If for one reason or another, additionalcapacity had to be added, the private sector could be expected to do this.

If not, the Government's on-going construction program would take care of

the situation, although in that eventuality additional capacity would not be

constructed in the project area itself, but further inland where climaticconditions are better for storage.

8. Processing. For the major products requiring processing--cotton,oil seeds, milk, and vegetables-the situation is as follows:

(a) For a number of years, until several years ago, the project areawas almost entirely under cotton, and in 1959 there were over 100ginneries. With the drastic drop in cotton cultivation; most ofthese have fallen into disuse and currently only seven facilitiesare still operating, with a total qapacity of some 40,000 bales perseason. Virtually none of this was used in the 1970/71 and 1971/72

ANNEX 15Page 3

season, and 17,000 bales were processed in 1972/73. Present cottonacreage is expected to double under the project, which would requirea ginning capacity of some 100,000 bales. Consequently, additionalginning capacity would need to be re-installed.

(b) The capacity to process oil seeds is about 40,000 tons per season.Less than 10% of this is used now, but, under the project, utiliza-tion would probably rise to 30%.

(c) Existing milk processing capacity is 120,000 liters per day, ofwhich one-third is used. Under the project, milk production isenvisaged to increase to about 250,000 liters per day, but as theincrease would be gradual and as additional processing can be addedquickly, it should not be of major concern. In Mexico's Laguneraproject, milk output increased manyfold in a few years without anyproblems regarding processing.

(d) Vegetables for the U.S. frozen food market are now trucked by pro-ducers to three plants across the border, all three subsidiariesof different companies and all three working well under capacity.If output is to grow along the lines envisaged, additional capacitywould be required in four to six years' time. In view of presentcustom regulations, processing would continue to be done on theU.S. side of the border.

January 1975

Annex 15Table 1

MEXICO

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Comparison of Current National Production,Projected Demand and the Project's Production

Estimated ProjectedProductior T~qtal Demand Project Production

1973Y- 1 976zL/ 20003/ at Full Develooment

------------------ 1000 metric tons -------------'------

Cotton fibers 3902/ 47 97/- 4Maize 9,800 11,700 22O,500 250

Sorghum 2,9002/ 4,300/ 13,700- 360Beans 900 1,200./ 3,300Y/ 38Cotton seed 640 n-.a. n.a. 80Sesame 165 250 850 7Groundnuts 802/ n.a. n.a. 5Vegetables 1,5002/8/ n.a. n.a. 17709/Beef 5407Or 7001/ 2,3007/ 40Milk n.a. 7,100 n.a. 90

1/ Sources: IBRD - The Economy of Mexico, June 27, 1973 and CONASUPO.2/ 19713/ Source: IBRD - The Economy of Mexico, June 27, 1973.T:/ Including export demand of 200,000 tons and 250,000 tons,respectively.§/ Including export demand of 600,000 tons and 1,600,000 tons,respectively.6/ Including export demand of 100,000 tons and 200,000 tons,respectively.7/ Including export demand of 100,000 tons and 400,000 tons,respectively.8/ Includes only seven main types of vegetables.9/ Value of projecis exports would be in the order of Mex$ 400 million (US$

(US$32 million) as compared with 1972 national vegetable exports ofabout Mex$ 2 billion (US$160 million).

January 31, 1975

Annex 16Page 1

MEXICO

BAJO RIO BRAVO and BAJO RIO SAN JUAN REHABILITATION PROJECT

Economic Rate of Return

1. The rate of return from the project to the economy has been calcu-lated on the following assumptions:

(a) Output Prices. Projections of international prices have been usedfor those commodities for which such price projections are made byIBRD's Commodity and Export-Projections Division. 1/ After calcd-lating the equivalent FOB or CIF prices, allowances were made forlocal port expenses, transportation costs and processing costs inorder to arrive at the economic farmgate price. For commoditiesfor which IBRD has not made projections, farmgate prices prevailingin December 1974 have been considered the best available estimates.2/The following table shows the farmgate prices used in the calculationof both the economic rate of return and farm budgets:

Commodity Price Assumption For

Farm Budget Economic Rate of Return-------------Mex$/ton-------

Cotton 5,200 4,800Maize 1,500 900Sorghum 1,200 1,200Groundnuts 5,000 5,250Sesame 6,000 4,450Live cattle 12,000 14,300Milk ('000 liters) 3,000 1,900Beans 6,000Stringbeans 3,600Squash 1,500Okra 2,200Broccoli 3,500Onions 1,500Various vegetables 2,500Flaxseed 3,000

1/ The projections made for 1980 (in 1974 constant terms) have been assumedto apply to the entire project life.

2/ In some cases, such as vegetables, prices of output as delivered by thefarmer rather than farmgate prices have been used. In these cases, theadditional costs have been included under production costs.

ANNEX 16Page 2

(b) Labor Costs In view of the considerable underemployment existingin Mexico's rural sector, official wage rates are considered to be-higher than the opportunity cost of labor. For this reason a shadowprice of 70X of the official wage rate for farm labor (which wasMex$ 52 per day by the end of 1974, among the highest rates in thecountry) was used in the economic rate of return calculation. 1/

(c) Development Schedule. Rehabilitation of the irrigated area wouldfollow the schedule presented in Annex 5. Agricultural benefitswould start to accrue with a one-year time lag following this sched-ule, and it would take, on average, 5 years to reach full developmentin each area. This would result in the following build-up oftotal incremental benefits.

Project year % of total incremental benefits

1234 0.25 1.96 9.47 24.18 42.89 62.610 80.911 93.412 98.713 100.0

(d) ProJect Costs. The investments and their timing are shown in Annex9. For the rate of return calculation, the items for land acquisi-tion and price contingencies have been excluded.

(e) Project Life. For economic analysis purposes, the project life hasbeen taken as 40 years, although with proper maintenance, the use-ful life of the project is indefinite.

2. Calculated on the basis of the assumptions detailed above, theeconomic rate of return is estimated to be 19%. The cost and benefit streamsinvolved in this calculation are shown in Table 1.

3. To test the sensitivity of this result to deviations from theassumptions, the following tests were made:

ANNEX 16Page 3

Alternative Assumption Economic Rate of Return

(a) Irrigation investment costs increased 18%by an additional 10% 1/

(b) Two-year time lag in build-up of ben- 17%efits instead of one year

(c) Benefits lowered by 20% 16%

(d) Farm labor costs valued at official 18%minimum wage, instead of beingshadow-priced at 70%.

(e) Combination of (a), (b) and (c) 14%

These results show that, within a reasonable range of circumstances, thereis no risk of not achieving an acceptable rate of return on the project.

January 1975

1/ Irrigation investment used in economic analysis already includes 10%for physical contingencies.

M E X I C O

BAJO RIO BRAVO AND BAJO RIO SAN JUAN REHABILITATION PROJECT

Economic Cost and Benefit Streams

(Mex$ million)

---- - -- - -- - -- - -- -- - -- - -- - -- - - - ---------- Project Years------ -- - - - - - - - - - - - - - -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20-401/

Net Value of Production 423.3 423.3 423.3 425.7 445.4 531.6 701.0 917.2 1,195.4 1,356.2 1,500.6 1,569.0 1,576.5 1,576.5 1,576.5 1,576.5 1,576.5 1,576.5 1,576.5 1,576.5(with project)

Net Value of Production7 421.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3 423.3(without project) _ _ _ ___

Project Benefits - - - 2.4 22.1 108.3 277.7 493.9 772.1 932.9 1,077.3 1,138.7 1,153.2 1,153.2 1,153.2 1,153.2 1,153.2 1,153.2 1,153.2 1,153.2

2/Irrigation Investment 152.6 577.2 459.6 371.4 362.7 359.9 252.9 - - - - - - - - - - - - -

Extension Program - Investment-3/ 8.7 7.8 3.3 - - 6.3 5.9 3.33 -- -' 3.3- Current Cost- 16.1 32.2 48.2 48.2 48.2 48.2 48.2 48.2 48.2 48.2 48.2 48.2 24.1 12.0 6.0 3.0 - - -

Livestock Investment-/ - - - 0.6 5.4 24.1 47.2 60.4 63.7 58.8 40.3 17.2 4.0 - 0.3 1.5 2.9 3.7 4.2 1O.5

Project Costs 177.4 617.2 511.1 420.2 416.3 438.5 354.2 111.9 111.9 107.0 94.8 71.3 31.4 12.0 6.3 4.5 2.9 3.7 4.2 10.5

1/ Gross value of production minus current production costs (excluding taxes and insurance premiums).Source: Figures of Annex 13, Tables 3 and 4, adjusted for international price projections and shadow price of labor.

2/ Source: Annex 9: adjusted for cost of land acquisition and price contingencies.

3/ Source: Annex 12: Extension program is assumed to phase out after year 12, when full agricultural development is reached; equipment, vehicles and furniture renewable after five years.

4/ IncludesHex$19.1 million (renewable every 10 years) and Mex$40.5 million (once and for all)for beef production.Mex$.128.9 million(renewable every 15 years) andMex$ 133.1 million (once and for all) for milk production.

5/ Average for years 20 to 40.

IE

MEXICOORGANIZATION OF SRH

THE PRESIDENT OF THE REPUBLIC

SECRETARY OF THE WATER RESOURCES

THE COMMISSION OF PAPALOAPAN

THE COMM1SSION OF THE SALSAS RIIVER _ |AIR TRANSPORTATION TECHNICAL SECRETARTEE COMMISSION OF THE SALRAS RIVER

| RE COMMISSION OF OAF FUERTE RIVER __ INTERNAL COMMISH1ON OF THE1

THE COMMISSION OF GRIJALVA

WATER COMMISSION OF THE BASIN OF MEXICO VALLEY DIRECTOR OF THE PRESS COMMISSION OF PUBLICI n I R~~~~~~~~~ELATIONSO

THE COMMISSION OF THE STUDIES OF THE PANUCO RIVER

THE COMMISSION OF THE UTILIZATION OF SALINE WATER

S- ENERAL COMPTROLLER

OSURS-ECRETARY OF | | SUBSECRETARY OF | OUR-SUECRETARY OF I I 1 1

|RIAT TECICA PRIVATE TECHNICA PRIVATE TECHNICA PRIVATE TECHNCL;SECRETARY ASSISTANT SECRETARY _ _ ASSISTANT |SECRETARVY ASSISTANT SECRETARY _ ASSISTANT

TEsO~,.I TE*M TEO,,IY.Sl~ f.S.ER, OS ITe~~,

t;~~~~~~~~~~~~~~~~~~~HmO fe~ Stf, HIOfaHElt.O m Hfk

RHaSEl ~ ~ ~ ~ ~ ~ ~ |@ 5U-ITI S|G HIr Hoff SteFe IGRed I,ASI.Aon8 9bC§,e r EI U-OF

AdministrativeServices

No. 25 Bajo RioBravo

No. 50 Acu?ia Fal-con

OperationofWS& sewageSstm

O m

r =~~~~~~~~~~~~~~~~~~~~~~~~~~~C

0

,--~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

I Dm 0Residence W.S. & S. - Zz>Rio BravoN

00

01

Residence W.S. & S. .Z

Matamoros N

Geol,droiogy andArid Zones O

l Jl 1i1 * 1i C)n0

Water Use andPollution Control -n

Hydraulic WorksDevelopment

E ~~~Constuio

co

I l W ~~~Acuaculture

(51(Si

IBRD 11389f7T 9'. J~~~~~~~~~~~0 ANUARYT 1973

MEX I CO

IBAJO RIO BRAVO AND BAJO RIO SAN JUAN. uREHABILITATION PROJECT

n t <_ f^ Moiri "rgation canals

Main drunnage canals r-~~~~~~~~~~~~~~~~~ ~~~~~~~~irrigOteo areas

Manroopdo-J gt °< ai X ~ ~ ~ .- Risivrs 2 ;u : D

-'---i--- RIoi troods <'t Z7t ',$erntiowal boatisdary ''t ½i

> \o 20 20 4 05 '0s' '"

N FolovKLO1TI

Nueva Ciudod Guerrer /Dam

i -> ~ ~~ ~ ~ ~~Ci u d Rk[ Grande W/ 2\0 v &4L4~~~~~~i

Ciudad~~~~~~

N ~~~~~~~~~~~~~~~~~~~~~~~Rilo Bravo Pols

I -- M E X I C O \ \ n I-VolEnDISTR 6-

7 - > 8rawvsvilla~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r

~~~0 oov 1 0 1~~~~~~~~~~el 0 ~ ~ ~ ~ ~~~~ ~ Matamoo0Wsign

"*0~~~~~~~~~~~~

M F X I C 0 N .1~~~~~~~~Ng \Herrnoso j a\K

* U\,, S. A. BAJO R RIO BR; R_

LAo of atpI/f f 0 V

MEXICO 25. 5

o-of

L. - -4,cl~oa,o 0".