mya: climate friendly agribusiness value chains sector project2 table 1: selected national economic...

Climate-Friendly Agribusiness Value Chains Sector Project (RRP MYA 48409-003)

Detailed Economic and Financial Analysis

August 2018

MYA: Climate–Friendly Agribusiness Value Chains Sector Project

http://www.adb.org/Documents/RRPs/?id=48409-003-3

http://www.adb.org/Documents/RRPs/?id=48409-003-3

A. INTRODUCTION

1. The Asian Development Bank (ADB) supported the preparation of the Climate–friendly Agribusiness Value Chains (CFAVC) Sector Project (the project) which is to be funded by an ADB loan. The project, which is targeted to three regions (Magway, Mandalay, and Sagaing) in the central dry zone (CDZ) will support the development of agribusiness through enhanced value chains by improving agricultural production infrastructure and the efficiency and technologies used in post–harvest practices and processing for rice, pulses and beans, and sesame, especially for export.

2. The project1 will support the implementation of the Agriculture Development Strategy2 and the National Export Strategy.3 The project will (i) improve productive infrastructure, productivity, and product quality of government and private quality seed farms; (ii) promote linkages of farmers and processors to more lucrative markets; (iii) improve the climate resilience of critical agricultural production and post–harvest infrastructure; and (iv) promote efficient technologies used in post–harvest practices and processing of the targeted value chains. The project will also support various agribusiness policies aimed at improving the quality of agricultural inputs, in developing codes of practices and standards applied to various agribusiness activities, and in creating an enabling environment for agribusinesses to conduct business more efficiently and profitably.

B. MACROECONOMIC ENVIRONMENT

3. Myanmar is emerging from decades of isolation, as the civilian government which took office in April 2016 is committed to reform and transform to a more open and market–orientated economy. The economy is one of the fastest growing in Asia with expected gross domestic product (GDP) growth of 5.9% in 2016. Total GDP was $59.5 billion in 2015, down from almost $75 billion in 2011 as the combined result of the supply shock from impact of cyclones and flooding, a slowdown in investment during the election year, and a more challenging external environment including falling commodity prices which affected Myanmar’s exports. Between 1994 and 2015, the average deficit is 3.50% of GDP. The government has an objective to keep the deficit at less than 5% of GDP.

4. Myanmar remains one of the poorest countries in the region with GDP per capita of $1,134 for a population of 53.9 million in 2015.4 About 26% of the population lives under poverty. In rural areas, the poverty ratio is about twice the national average. 70% of the rural population lives with high levels of unemployment and are vulnerable to climatic and economic shocks. Selected economic indicators are presented in Table 1.

1 ADB provided project preparation technical assistance (TA) for the Climate-Friendly Agribusiness Value Chains

Sector Project (TA 8897-REG). 2 Republic of the Union of Myanmar. 2017. Agriculture Development Strategy (2017-2021). Naypyitaw. 3 Republic of the Union of Myanmar. 2014. National Export Strategy (2015-19). Naypyitaw. 4 Myanmar is one of the poorest nations in Asia; ranking 149th among 186 nations rated in the 2013 Human

Development Report of the United Nations Development Programme.

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Table 1: Selected National Economic Indicators

Fiscal Year

Indicator 2012–2013

2013–2014

2014–2015

2015–2016

2016–2017a

GDP ($ billion, current) 59.82 60.15 65.59 59.46 63.31 GDP per capita ($, current) 1,138 1,135 1,262 1,134 1,196 GDP growth (%, constant prices) 7.3 8.4 8.0 7.0 5.9 Agriculture 1.7 3.6 2.8 3.4 (0.4) Industry 8.0 11.4 12.1 8.3 8.9 Services 12.0 10.3 9.1 8.7 8.0 CPI (annual % change) 2.8 5.7 5.9 11.4 6.8 Export growth (annual % change) 1.1 8.9 11.2 (11.11) (2.0) ( ) = negative, CPI = consumer price index, GDP = gross domestic product. a estimates Sources: ADB Key Indicators (2017).

5. Between 2012 and 2017, Myanmar’s GDP grew at the range of 5.9 to 8.4%. Growth in the non–renewable natural resources and agriculture sector however registered much slower or even mildly negative growth. Its growth never exceeded 3.6%, while the industry and services sectors consistently grew at no less than 8.0% per annum. Exports experienced strong growth between 2013 and 2015, but declined considerably in 2016, in part as a result of climate impacts that affected agricultural production and falling commodity prices. The main export earner by value is the export of natural gas to Thailand. Sales of gems and precious stones is also an important income source. The main agricultural exports are rice, beans and pulses, timber, and fish. There is significant unregulated and unreported export between Myanmar and its neighboring countries.

1. The Central Dry Zone

6. The project is in the CDZ which covers more than 54,000 square kilometer, in the center of the country encompassing 58 townships, spanning from the lower Sagaing region, to the western and central parts of Mandalay region and most of Magway region. Approximately 13.5 million people or one–quarter of the country’s population live in the CDZ, and about half of the total cattle, sheep, and goat population are raised here. Situated in the shadow of the Rakhine mountain range, the CDZ receives limited rains compared to country averages. The CDZ is particularly affected by food security issues. Much of the population live near the poverty line and are vulnerable to climate or economic shocks.

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7. Situated in the shadow of the Rakhine mountain range, the CDZ receives limited rains compared to country averages. However, the climate is not homogenous across the area, with conditions ranging from semi–arid (and even arid) in certain areas to semi–humid in others. Dry spells during the rainy season are frequent, but their intensities vary geographically and over time. Insufficient rain is not the only potential hazard, however, as decreasing forest coverage and soil erosion put communities at greater risk of localized flash floods during times of heavy rain. The CDZ is particularly affected by food security issues and much of the population live near the poverty line and are sensitive to economy–wide shocks. Figure 1 shows the extent of the dry zone.

8. The CDZ produced an estimated 7.36 million tons of paddy, which is about 25% of the total national production. Of the 7.36 million tons, 5.9 million tons is produced during the wet season and 1.45 million tons during the dry season. The CDZ also accounted for 83% of the national production of sesame, over 90% of pigeon and chickpeas, and almost 50% of green gram.

C. DEMAND ANALYSIS

9. Up to 25% of Myanmar’s population of 58 million, (around 13.5 million people) live within the CDZ and many are reliant on rainfed agriculture and the production of sesame, and beans and pulses as the major means of support to their livelihood. Historically these crops have always been important, able to be grown where other crops fail. The CDZ supplies the production than feeds the export. Although Myanmar is the world’s leader in the production of sesame, producing 50% more than the next biggest producer, its share of the global trade is less than 3% and it is facing increasing competition from other producers supplying higher quality exports. Myanmar has also been a significant player in the supply of beans and pulses to the world, ranking around fifth in the export market, the majority of which are exported to India. Black gram (matpe), green mung bean (green gram), pigeon pea, and chickpea comprise over 90% of the total export value of pulses and beans. Myanmar’s products are generally of lower quality, and like the sesame industry they face increasing competition from other countries with higher quality product.

10. There is a need to support value chain to increase production and improve the quality and reputation of Myanmar’s exports, and to allow the penetration of new markets such as the European Union, Japan and United States that demand higher quality and quality assurance. Without investment in improved seeds, production facilities and post–harvest processing, storage and quality standards, and certification, the CDZ will not be able to take full advantage of these opportunities.

11. Shwebo District in the CDZ is the center of production of Shwebo Paw San rice, a unique aromatic variety that has potential for branding as being restricted to Shwebo as its origin, and to be marketed internationally as a special rice, commanding a higher price. To capture this

Figure 1: Central Dry Zone

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advantage, it is necessary to register Shwebo Paw San’s geographical indication to brand this high value rice as a geographic indicated product under the World Trade Organization rules.

D. PROJECT RATIONALE

12. Agriculture accounts for 32% of GDP, 56% of employment, and 21% of exports (CSO, 2012). Rice is the staple food and a major export. In 2012–2013, the total harvested rice area was 7.24 million hectares (ha) (MOALI, 2013), that is, about 43% of a total cultivated area of 17 million ha. Myanmar’s pulses, beans and oilseeds sectors are also important because of its employment generation, contribution to GDP, and contribution to exports. It has long played a key role in both the national food chain and international trade, accounting for a large portion of household income and expenditure as well as over 10% of Myanmar’s total exports. As noted above, the CDZ contributes around 25% to national rice production and dominates production of sesame, and beans and pulses.

13. Myanmar has strong comparative advantages in the production of food crops but is currently constrained by low levels of competitive advantage resulting in low and uncertain margins and inadequate investment. Also, the competitive advantage of these crops is declining. Despite high total production levels, crop yields are remarkably low. When Myanmar is benchmarked against regional and global yields, the yield gaps are substantial.

14. Total factor productivity in agriculture is also low by global standards. The low productivity is a result of poor water access and management, lack of access to quality seed, use of poor quality inputs, absence of farm labor, lack of farm mechanization, land tenure problems, and lack of access to adequate crop financing. New weather patterns in Myanmar, the second most vulnerable country in the world to the effects of climate change,5 are putting farmers under stress, while precipitation has been more or less the same for the past 20 years, the rainy season has become shorter, meaning more rain over a shorter time and, subsequently, more flooding.6 Temperatures are also on the rise, and, with that, Myanmar faces more extreme weather events as temperatures rise, including more cyclones, more storms, more floods, and more droughts. The combination of high temperatures, light shallow soils, and the extended dry period has resulted in the creation of, essentially, a semi–arid environment within the CDZ adding substantial risk to agricultural areas where there are little or no irrigation facilities.

15. Post–harvest and primary processing activities within the CDZ are, typically, unable to maintain the quality of the raw product purchased from the farmers. The essential post–harvest cleaning, drying, grading, sorting, and de–stoning processes are not being done efficiently and consistently until the product has already reached far down the value chain, nearer the end processor. Post–harvest losses in handling, drying, and cleaning agricultural commodities average over 20%. Moreover, this lack of product quality control coupled with poor price signals along the upstream and middle levels of the value chain results in relatively weak value chains and relatively low returns to farmers and primary processors. Most exported commodities also are characterized by relatively low value compared to the higher prices they could be attracting. Only the large traders and exporters have the technical and financial resources to take advantage of some of the higher value-added export opportunities.

16. The rational for the project design is that it: (i) reflects the most climate–friendly and appropriate sub–outputs and subprojects that strengthen the value chains from production to

5 Germanwatch. 2016. Global Climate Risk Index. 6 International Water Management Institute. Water Resource Assessment of the Dry Zone of Myanmar (2012-2013).

Myanmar.

http://www.mmtimes.com/index.php/national-news/17986-myanmar-in-top-three-for-extreme-weather-risk.html

http://www.mmtimes.com/index.php/national-news/17986-myanmar-in-top-three-for-extreme-weather-risk.html

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export marketing; (ii) recognizes the frailty and lack of nutrients of much of the CDZ soils while dealing with the highly variable weather patterns; (iii) attends to the production risks by integrating adaptive and mitigating measures; (iv) utilizes and builds on functioning value chains that have potential to expand and strengthen; (v) integrates both local and national processing capacities to gain synergies and efficiencies in product development; and (vi) includes diverse and inclusive approaches to build broad–based capacity in and trust among private and public value chain stakeholders.

17. The project will support the implementation of the Second Five-Year Short-Term Plan7 of increasing crop productivity, improving the quality of crops, and enhancing farmers’ incomes through the direct and indirect stakeholder participation in the development of targeted commodity value chains and in the widespread practice of climate smart agriculture (CSA). It will support the National Export Strategy and the NDIC by improving agricultural production infrastructure and the efficiency and technologies used in post–harvest practices and processing for rice, pulses and beans, and sesame. It will also support various agribusiness policies aimed at improving the quality of agricultural inputs, in developing codes of practices and standards applied to various agribusiness activities, and in creating an enabling environment for agribusinesses to conduct business more efficiently and profitably. The project is consistent with the ADB midterm strategy of poverty reduction and economic growth particularly in rural areas, addressing climate change through climate resilience infrastructure development, CSA, and in conformity with the ADB Country Partnership Strategy (2014–2018) with outcomes to increase crop production and formal employment opportunities which are all inclusive. There will be direct synergies with other ADB investment projects and programs, including the (i) Irrigated Agriculture Inclusive Project; (ii) Core Agriculture Support Program, Phase II; and (iii) Global Agriculture and Food Security Program, and with Japan International Cooperation Agency and World Bank projects in the CDZ.

E. PROJECT DESCRIPTION

1. Background

18. The project will focus on the CDZ, which accounts for about 48% of Myanmar’s sown area with a cropping intensity of 1.89 compared to a national intensity of 1.60 times, and for nearly 90% of the total Myanmar oilseed planting, 41% of pulses and beans, and 26% of cereals of which the majority is irrigated rice. The project is targeted to three regions in the CDZ8 (Magway, Mandalay, and Sagaing) and concentrates support to selected commodities that have most potential for value added through the value chain and increased export value: sesame, green gram, chickpeas, and pigeon pea.

19. Output 1: Critical agribusiness value chain infrastructure improved and made climate-resilient. This output involves infrastructure improvements to increase farm productivity and crop diversification, enhance quality of agricultural products, and increase incomes for value chain stakeholders. By incorporating climate smart technologies, including irrigation and water management investments and supporting seed farms to provide quality climate–resilient seeds, the crop intensity is expected to increase. Investments in enhanced capacity for testing product quality and incorporating food safety measures will protect consumers and increase potential for accessing new markets and increasing exports within and beyond the Greater Mekong Subregion, which will create a premium incentivising investment further up the value chain. Key activities include (i) infrastructure (irrigation, drainage, buildings, farm and post–harvest machinery and

7 Ministry of Agriculture, Livestock and Irrigation. 2015. 8 A drought-prone area which covers about 17% of Myanmar’s land area, and supports 12 million acres that are

cropped, representing about 40% of Myanmar’s total cropping area.

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equipment, seed testing equipment, etc.) improvement in 10 Department of Agriculture (DOA) seed farms (producing registered seeds)9 to enhance access to improved seed, for sale to private producers of certified seeds (eventually benefitting 167,000 farmers); (ii) renovation or upgrading of approximately 134 kilometre (km) of DML2 minor canals, rehabilitation of 15 community ponds and reservoirs, and construction or rehabilitation of 8,000 tubewells linked to drip and sprinkler technologies, to enhance access to water (both for private seed farms producing certified seeds and producers), bringing 13,000 ha of additional area under irrigation; (iii) convert 300 km of farm feeder roads into all–weather roads, enabling mechanisation, and improving farm–to–market access; and (iv) upgrading the equipment and instrumentation of the Plant Protection Division’s (PPD) Pesticide Testing Laboratory (PTL) and its Food Safety Testing Laboratory (FSTLAB), and MOC’s Commodity Testing and Quality Management (CTQM) laboratory10, plus provision of rapid testing kits to DOA and private sector agents in the selected value chains, to enhance the safety and quality testing capability.

20. Output 2: Climate smart agriculture and agribusiness promoted. Output 2 will strengthen technical and institutional capacity of government to integrate climate change concerns into agriculture, and will help farmers and agribusinesses to enhance productivity while addressing climate change impacts. Key activities under this output include the following: (i) improving access to improved inputs, including seeds, agrochemicals and mechanisation. This will be achieved through facilitation (e.g. to ensure a guaranteed market for lead seed growers, they will be given the choice to be integrated under a public–private partnership for seed multiplication being launched by LIFT), as well as access to a pilot Agriculture Digital Finance Service (ADFS) for poor smallholders. New climate-resilient varieties of rice, beans, pulses and oilseeds will also be developed; (ii) capacity building for CSA, which will include training to farmers (including seed growers) on appropriate CSA and good agricultural practices (GAP) – such as appropriate and efficient use of fertilizer, pesticide, and water to promote more diversified and nutrition–sensitive farming systems; strengthening capacity of seed growers and farmer groups, agro–dealers, and regional government staff on CSA and GAP, certified seed production and testing; promoting farm mechanization through information campaigns, farmer field schools (FFSs) and demonstrations; and (iii) capacity building for climate smart agribusiness on (a) business plan development; (b) good manufacturing practices (GMP) and Hazard Analysis Critical Control Points (HACCP) standards; (c) value added processing (including use and troubleshooting of primary and value processing machinery and equipment); and (d) quality and safety improvement.

21. Output 3: Enabling environment for agribusiness enhanced. Output 3 will support an enabling agribusiness policy and/or regulatory development, identification of opportunities for private sector engagement in climate change mitigation and adaptation, provision of information on CSA and resource efficient practices, harmonization of standards, and capacity building for productivity and quality improvement and reduction of post–harvest losses, marketing, potential public-private partnerships (PPPs), and financing options. The output will help in mainstreaming climate change concerns into agribusiness at policy and operational levels and pilot climate risk sharing instruments such as crop insurance. It will include consultant's support and institutional strengthening for subproject preparation, procurement, financial management and safeguards, and diffusion of knowledge and technologies for agribusiness value chains.

9 This complements other donor support to the Department for Agricultural Research (DAR) seed farms producing

foundation seeds. There are 14 DOA seed farms in total but four are being supported by the World Bank Agricultural Development Support Project.

10 Support to CTQM will avoid overlap, if any, with support from other development partners.

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F. PROJECT COSTS

1. Total Project Costs

22. The project investment cost is estimated at $64.92 million including (i) base cost; (ii) embedded taxes and duties; (iii) physical contingency; (iv) price contingency; and (v) financing charges during implementation. For analytical purpose, price contingency is excluded, and the resulting project cost is $54.60 million.11 Table 2 presents the investment costs, both in financial and economic values.

2. Project Benefits

23. The project supports a range of outputs and activities that are related to the rice, beans and pulses value chains. The potential benefits of the project mostly arise from (i) the increase in the productivity and value of the product brought about through the project impact on crop production through the increased use of improved certified seed, development of agricultural infrastructure, especially irrigation facilities, saved production costs through more efficient and cost–effective inputs; (ii) added value post–harvest through the investment in improved facilities for drying, cleaning and storage for seed production on government seed farms and private seed growers and higher coverage with certified seed; (iii) added value post–production through investment and uptake of seed cleaning and quality improvement processes by private sector operators involved in the collection, transport, storage, processing, sale and export of the commodities; and (iv) the overall increase in export returns resulting from improved certification, quality standards, traceability and higher quality export products receiving higher value in new export markets where there is a premium paid for guaranteed quality.

11 Price contingency is estimated to be $9.36 million, due to high inflation forecasts for Myanmar as well as an

implementation period of 7 years.

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Table 2: Project Investment Plan

Financial Value Economic value

Item Base &

Physical Tax

net of tax

tradable non–

tradable skilled unskilled tradable

non–tradable

skilled unskilled total

Conversion factors 1.03 1.00 1.00 0.80

Investment costs

1. Critical agribusiness value chain infrastructure improved and made climate resistant

1.1 Infrastructure for seed production and certification enhanced (10 DOA Seed farms)

4.36 0.24 4.12 1.30 2.82 0.00 0.00 1.34 2.82 0.00 0.00 4.16

1.2 Climate-resilient water management infrastructure

– Tertiary canals rehabilitated 9.61 0.57 9.04 1.81 7.23 0.00 0.00 1.86 7.23 0.00 0.00 9.10

– Community reservoirs and water harvesting ponds rehabilitated

0.52 0.03 0.49 0.10 0.39 0.00 0.00 0.10 0.39 0.00 0.00 0.49

– Tubewell installations for supplementary irrigation commissioned

9.62 0.49 9.13 3.26 5.87 0.00 0.00 3.36 5.87 0.00 0.00 9.23

1.3 Connectivity through resilient rural roads improved 5.26 0.31 4.95 0.99 3.96 0.00 0.00 1.02 3.96 0.00 0.00 4.98 1.4 Agricultural quality and safety infrastructure upgraded 3.35 0.15 3.20 1.57 1.63 0.00 0.00 1.62 1.63 0.00 0.00 3.25 Subtotal 32.72 1.78 30.93 9.03 21.90 0.00 0.00 9.30 21.90 0.00 0.00 31.20 2. Climate smart agriculture and agribusiness promoted

2.1 Climate-resilient varieties developed and disseminated 1.68 0.08 1.60 0.48 1.12 0.00 0.00 0.50 1.12 0.00 0.00 1.62

2.2 Capacity in GAP, GMP, CSA, and farm mechanization strengthened

3.44 0.14 3.30 0.79 2.51 0.00 0.00 0.82 2.51 0.00 0.00 3.32

2.3 Digital finance access for CSA inputs and technologies improved

5.55 0.05 5.50 1.10 4.40 0.00 0.00 1.13 4.40 0.00 0.00 5.54

Subtotal 10.67 0.27 10.40 2.37 8.03 0.00 0.00 2.45 8.03 0.00 0.00 10.48 3. Enabling environment for climate-friendly agribusiness enhanced

3.1 Formulate agribusiness policies and standards 0.78 0.04 0.75 0.15 0.60 0.00 0.00 0.15 0.60 0.00 0.00 0.75 3.2 Training on green finance 0.17 0.01 0.16 0.03 0.13 0.00 0.00 0.03 0.13 0.00 0.00 0.16 3.3 Weather, market and credit information 1.05 0.05 1.00 0.22 0.78 0.00 0.00 0.23 0.78 0.00 0.00 1.01 3.4 Land administration services 1.02 0.05 0.97 0.27 0.70 0.00 0.00 0.28 0.70 0.00 0.00 0.98 3.5 Household nutrition 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.6 Off–farm employment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 3.02 0.14 2.88 0.67 2.21 0.00 0.00 0.69 2.21 0.00 0.00 2.90 4. Project management

Consultants and government staff 5.58 0.28 5.30 2.09 3.20 0.00 0.00 2.15 3.20 0.00 0.00 5.36 Vehicle, equipment and office supplies 2.61 0.15 2.46 0.62 1.84 0.00 0.00 0.64 1.84 0.00 0.00 2.48 Subtotal 8.19 0.43 7.75 2.71 5.04 0.00 0.00 2.80 5.04 0.00 0.00 7.84

Total 54.60 2.62 51.97 14.79 37.19 0.00 0.00 15.23 37.19 0.00 0.00 52.42

CSA = climate smart agriculture, DOA = Department of Agriculture, GAP = good agricultural practice, GMP = good manufacturing practice. Source: Consultants estimates.

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G. ECONOMIC ANALYSIS METHODOLOGY FOR SAMPLE SUBPROJECTS

24. Given the project’s sector modality, economic analyses conducted on three sample subprojects: (i) the DOA Chepa seed farm subproject to support seed production for rice, green gram and black sesame; (ii) the DML2 minor canal rehabilitation subproject; and (iii) tubewell irrigation subproject in Kunn Village, Pakokku, Magway Region. The first subproject falls under sub-output 1.1, infrastructure for seed production and certification enhanced, with a budget allocation of $5.1 million. The two other subprojects fall under sub-output 1.2, climate-resilient water management infrastructure, with a budget allocation $23.8 million. Together, these two sub-outputs represent $28.9 million (or 44% of the total investment of $64.9 million). If the costs of project management and associated activities (which fall under other sub-outputs) are included on a pro-rata basis, which is about $4.1 million, the sample subproject would present about $33.0 million or 50.9% of the investment.

25. The analysis follows the ADB Guidelines for the Economic Analysis of Projects (2017). For each subproject, the cost–benefit analysis compares the with–project scenario against the without–project scenario to derive the incremental costs and benefits of the investments. The economic analysis of the project is based on the following assumptions:

(i) The analytical time frame for the subprojects is for 25 years; (ii) Full subproject benefits will not materialize immediately after construction

completion. Instead, there is ramp-up of benefits reflecting the progressive impact; (iii) Economic costs and benefits are expressed in constant 2018 price and are valued

using the domestic (MMK) price numéraire; (iv) The assumed real exchange rate is MMK 1,360 per $1.00; (v) Taxes and duties, interest and price contingencies are excluded from the economic

cost, however, physical contingencies are included; (vi) Economic prices are derived from financial prices by first subtracting from the latter

any embedded taxes and duties. Secondly, the net of tax financial value is decomposed by its content (tradable, non–tradable, skilled labor and unskilled labor). As the analysis uses domestic price numéraire, the local content need no adjustment. The foreign content is multiplied by the shadow exchange rate factor (SERF). Skilled labor content requires no adjustment, and unskilled labor content is multiplied by the shadow wage rate factor (SWF). Summing the adjusted values for the local, foreign, and unskilled labor content yield the economic price;

(vii) A SERF factor of 1.03 is used for foreign content; (viii) A SWF factor of 0.8 is used for unskilled labor content; and (ix) The economic opportunity cost of capital (EOCC) is 9.0%.

H. CHEPA SEED FARM SUBPROJECT

26. Under sub-output 1.1, infrastructure for seed production and certification enhanced, the project will rehabilitate 10 selected DOA seed farms in CDZ. Key activities include improving the infrastructure (irrigation, drainage, buildings, farm and post–harvest machinery and equipment, seed testing equipment, etc.).

27. For the 10 DOA seed farms, the targets include: increased registered seed productivity by at least 20% during the monsoon season and at least 40% during the winter and summer seasons. From the increased yield, the added registered seed is projected to total about 107 tons more

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registered, climate–resilient, rice seed, 73 tons of sesame, and 97 tons of pulses and beans produced over the project period.

28. At least 375 private seed growers, who will also benefit from improved irrigation infrastructure and who will purchase and grow this registered seed, are projected to produce an additional 305 tons of certified Paw San rice seed, 119 tons of certified green gram seed, and 178 tons of certified sesame seed each year from this additional registered seed made available during the project period. Farmers purchasing this certified seed will produce Paw San rice on about 3,939 ha, green gram on about 2,946 ha, and sesame on about 11,767 ha.

29. The aim is to improve cleaning and drying of the quality seed and reduce post–harvest losses from more than 20% to less than 5%. The project will facilitate the investment by at least 375 seed growers associated with 176 registered farmer groups, seed growers associations, agricultural cooperatives, and/or organizations registered with the Small–Scale Industries Department of the Ministry of Agriculture, Livestock and Irrigation (MOALI) in model cleaning, drying, and storage facilities.

1. Subproject Costs

30. Capital costs. The capital investment costs for the Chepa seed farm are $595,610 including a 10% contingency (Table 3), plus an additional $658,592 for the associated support for smallholder seed producers and farmers through a range of training and capacity development activities (Table 4), making a total of $1.254 million. Cost of associated activities is going to be spread equally over three years starting from the year when initial investment takes place.

Table 3: Investment Cost in Financial and Economic Prices ($) – Chepa Seed Farm Subproject

Fin. value

Decomposition (%)

Econ. Item Tradable

Non-Tradable

Skilled labor

Unskilled labor

Survey, design, bidding process and construction supervision 33,000 0% 40% 60% 0% 30,841 Rehabilitation of irrigation system Main canal lining (2,486 ft, 758 m) 14,606 11% 60% 9% 20% 13,149 Distributary canal lining (4,739 ft, 1,445 m) 14,124 11% 60% 9% 20% 12,716 Cross–drainage structures (19) 3,390 11% 60% 9% 20% 3,052 Pipe outlets (11) 762 11% 60% 9% 20% 686 Buildings Warehouses and seed storage (2) 68,939 20% 40% 20% 20% 62,238 Seed laboratory 77,299 24% 50% 13% 13% 70,884 Machinery garage (2) 47,391 26% 50% 12% 12% 43,620 Drying ground 25,742 25% 45% 10% 20% 23,276 Training centre 13,401 25% 42% 15% 18% 12,167 Perimeter fence 40,963 16% 50% 17% 17% 37,165 Bridge 5,009 13% 42% 20% 25% 4,466 Machinery and equipment Farm machinery & equipment 69,135 75% 25% 0% 0% 67,324 Seed processing equipment 91,579 75% 25% 0% 0% 89,181 Office equipment & topo survey 21,615 70% 25% 5% 0% 21,018 Farm road 14,509 10% 50% 10% 30% 13,030

Base cost 541,464 504,814 Physical contingencies 54,146 50,481 Total capital cost 595,610 555,295

Econ. = economic, Fin. = financial. Source: Consultants’ estimates.

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Table 4: Costs of Associated Activities in Financial and Economic Prices ($) – Chepa Seed Farm Subproject

Fin. value

Decomposition (%) Econ. Value

Item Tradable

Non-Tradable

Skilled labor

Unskilled labor

Ten seed cleaners, dryers, storages with Manager & hired labor, hydraulic lifts, hermetic bags, test kits, MRL tests 512,000 75% 25% 0% 0% 498,590 Training in Seed Production and Certification for seed growers (2 groups of seed growers – training costs from standards section training in Interim report) 26,200 15% 85% 0% 0% 26,057 Training in Codes of Practice for Drying and Storage (2 groups) 26,200 15% 85% 0% 0% 26,057 Training on Seed Certification (1 group of farmers) 35,000 15% 85% 0% 0% 34,809 Establish and conduct on–farm demonstrations 5,000 15% 85% 0% 0% 4,973 Training on GAP and CSA 3,000 15% 85% 0% 0% 2,984 Training on Water Use Efficiency Technologies, Post–Harvest Technologies 4,830 15% 85% 0% 0% 4,804 Organize Seed Grower Associations 10,000 15% 85% 0% 0% 9,946 Conduct impact assessment 5,000 15% 85% 0% 0% 4,973

Base cost 627,230 613,193 Physical contingencies 31,362 30,660 Total associated initiatives cost 658,592 643,853

CSA = climate smart agriculture, Econ. = economic, Fin. = financial, GAP = good agricultural practice, MRL = xxx. Source: Consultants’ estimates.

31. In addition to direct investment costs, the project will incur expenses on project management activities. Since these indirect project management are not directly attributable to a sample subproject, they are prorated and included as an indirect investment costs. Prorated project management per dollar of direct investment are presented in Table 5. The total budget allocation for output 1.1 is $4.36 million, and that for output 1.2 is $19.75 million.12 On average, every dollar spent on the sample subprojects will incur a cost of $0.5522 (or of MMK 750.8) for project management and capacity building activities. For the Chepa Seed Farm subproject, the prorated cost is $328,896 ($595,610 x 0.5522), or MMK 599.1 million (MMK 798.1 million x 750.8) in financial value. In economic value, the prorated cost is MMK 575.1 million.

12 Derivation of the prorated project management costs is presented in Appendix 2.

12

Table 5: Prorated Project Management and Associated Costs ($)

Fin.

Value Tax

Fin. value (net of tax)

Decomposition (%) Econ. value Tradable

Non-tradable

Skilled labor

Unskilled labor

Conversion factors 1.03 1.00 1.00 0.80 Output 1. Critical agribusiness value chain infrastructure improved and made climate resistant

1.1 Infrastructure for seed production and certification enhanced 4.36 0.24 4.12 1.30 2.82 0.00 0.00 4.16

1.2 Climate-resilient water management infrastructure

- Tertiary canals rehabilitated 9.61 0.57 9.04 1.81 7.23 0.00 0.00 9.10

- Community reservoirs and water harvesting ponds rehabilitated 0.52 0.03 0.49 0.10 0.39 0.00 0.00 0.49

- Tubewell Installations for supplementary irrigation commissioned 9.62 0.49 9.13 3.26 5.87 0.00 0.00 9.23

Subtotal (A) 24.11 1.32 22.79 6.47 16.32 0.00 0.00 ### Output 2. Climate smart agriculture and agribusiness promoted

2.1 Climate-resilient varieties developed and disseminated 1.68 0.08 1.60 0.48 1.12 0.00 0.00 1.62

2.2 Capacity in GAP, GMP, CSA, and farm mechanization strengthened 3.44 0.14 3.30 0.79 2.51 0.00 0.00 3.32

Subtotal (B) 5.12 0.22 4.90 1.27 3.63 0.00 0.00 4.94 Project management and support (C) Consultants and government staff 5.58 0.28 5.30 2.09 3.20 0.00 0.00 5.36

Vehicle, equipment and office supplies 2.61 0.15 2.46 0.62 1.84 0.00 0.00 2.48 Subtotal (C) 8.19 0.43 7.75 2.71 5.04 0.00 0.00 7.84

PM and related output cost allocation

Project costs to be prorated to sample subprojects (D=B+C) 13.31 0.65 12.66 3.99 8.67 0.00 0.00 ###

Prorated PM per dollar of direct investment cost (F=D/A)

$ 0.5520

MMMK (1360 MMMK/$) 750.77 ### 713.93 ### 488.98 0.00 0.00 ###

CSA = climate smart agriculture, Econ. = economic, Fin. = financial, GAP = good agricultural practice, GMP = good manufacturing practice. Source: Consultants’ estimates.

13

32. Operation and maintenance costs. Operation and maintenance costs are calculated as $33,142 which is estimated at 2.5% of irrigation infrastructure and road, 1.5% of buildings, 10% of machinery and equipment, and 1% of total associated activities.

2. Subproject Benefits

33. Projected changes in Chepa Seed Farm’s cropping pattern and crop yields of the Chepa Seed Farm are summarized in Table 6. While the change in cropping intensity is minor, from 190% (53.8 ha) to 200% (56.7 ha), crop yield is expected to increase substantially. In addition, during the winter-summer season, the farm will switch from Sin Akari rice to green gram and black sesame seeds production. Crop yield for the certified seed growers in Shwebo District, who use the seed farm’s registered seeds, is also provided in Table 6.

Table 6: Cropping Pattern and Yield – Chepa Seed Farm Subproject

Chepa Seed Farm Shwebo District

Cropping pattern Yield Yield

W/O W/P W/O W/P W/O W/P Change W/O W/P % % ha ha kg/ha kg/ha % kg/ha kg/ha

Cultivation area 28.33 28.33 Monsoon (Jun–Oct) Paw San rice 87% 87% 24.65 24.65 2,490 3,000 20% 3,615 3,615 Sin Akari rice 13% 13% 3.68 3.68 3,100 4,030 30% 4,132 4,132 Subtotal 100% 100% 28.33 28.33 5,590 7,030 7,747 7,747

Winter – Summer (Nov–Jun) Sin Akari rice 90% 0% 25.50 0.00 3,100 4,030 30% 4,132 4,132 Green gram 0% 50% 0.01 14.17 475 808 70% 808 808 Black sesame 0% 50% 0.00 14.17 445 605 36% 605 605 Subtotal 90% 100% 25.51 28.33 4,020 5,443 5,545 5,545

Total 190% 200% 53.84 56.66 9,610 12,473 13,292 13,292

W/O = without–project, W/P = with–project. Source: Consultants’ estimates.

34. Table 7 presents the projected increased production of registered seeds from Chepa Seed Farm. Note that the incremental registered seeds are computed by first multiplying the yield and cultivation area for the two scenarios, as presented in Table 7, and secondly by taking the difference between the products.

Table 7: Increase in Registered Seed from Chipar Seed Farm

RS production (ton/year) Seed cleaning and storage loss

(%) Net RS

(ton/year) Product W/O W/P Incremental

Paw San rice 61.37 73.94 12.57 15% 10.68 Sin Akari rice (monsoon) 11.42 14.84 3.43 15% 2.91 Sin Akari rice (winter-summer) 79.04 0.00 -79.04 15% -67.18 Green gram 0.01 11.45 11.44 15% 9.72 Black sesame 0.00 8.57 8.57 15% 7.28

W/O = without-project, W/P = with-project, RS = Registered seeds Source: Consultants’ estimates.

35. Registered seeds from Chepa seed farm will be sold to certified seed growers for multiplication. The seed growers will produce and sell certified seeds to ordinary farmers who produce grains for trade and consumption. Increased supply of registered seeds will increase the production of certified seeds. However, the use of regisgered seeds will not necessarily increase yield of certified seeds, which depend on other factors, such as fertilizer application, availability of irrigation, and water management. The use of purer registered seeds however will result in a

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more homogenous variety being cultivated. The produce will be of more consistent grain quality (uniform grain size, color, etc.) and contain less contamination of weed, rogue strains, and red rice grain.

36. Similarly, purer certified seeds command a premium as they produce purer grains, which also command a premium for ordinary farmers as they require less screening or processing efforts by traders and processors. At the ordinary farmer’s level, the use of purer certified seeds, instead of own seed or non-certified seeds, may well result in a higher yield through lesser weed competition. Better quality seed may encourage farmers to pay more attention to crop husbandry.

37. While there will be benefits at the ordinary farmer’s level, the analysis only considers the registered seeds’ secondary impact, at the certified seed grower’s level, and not that of ordinary farmers which is one-stage downstream. Furthermore, it is assumed that there is no increase in the yield of certified seeds.

38. The yield estimates are presented in the last panel of Table 6, and are constant with or without the project. Instead, the economic price of certified seeds is assumed to increase by 5%. This benefit is assumed to build–up over several years. The percentage of seed passing the certification test for germination, purity, weed seed contamination is assumed to be 72%. Post-harvest loss due to drying, cleaning, and storage losses is assumed to be 15%. The resulting increase in certified seeds per year produced by the smallholder seed growers is summarized in Table 8.

Table 8: Incremental Increase in Certified Seeds from Registered Seed Growers

Product ton/year

Paw San rice 305.1 Sin Akari rice (monsoon) 95.0 Sin Akari rice (winter-summer) -2098.0 Green gram 119.0 Black sesame 178.1

Source: Consultants’ estimates.

39. Impact on certified seed growers. The incremental increase in certified seeds would in turn result in an increased area of crop grown from certified seed and the resultant production. Based on the normal seeding rates for rice, sesame and green gram the increased area that could be grown from the certified seeds is summarized in Table9.

Table 9: Increased Crop Area Grown from Certified Seed by Farmers

Product Incremental

CS Seed rate Incremental cultivation area

(ton) (kg/ha) (ha)

Paw San rice 305.1 77.47 3,939 Sin Akari rice (monsoon) 95.0 77.47 1,227 Sin Akari rice (winter-summer) –2,193.0 77.47 –28,308 Green gram 119.0 40.4 2,946 Black sesame 178.1 15.14 11,766

CS = certified seeds. Source: Consultants’ estimates.

40. Detailed crop budget for Chepa seed farm and Shwebo District certified seed growers are provided in Appendix 1. A summary of incremental net benefits in thousand MMK per ha is shown in Table 10 below which is calculated as difference in the net crop income between the with- and without-project scenarios. To allow for the reduction in the supply of certified Sin Akari rice seed resulting from the change in seed production for Chepa seed farm from this crop to green gram

15

and black sesame, a loss of value equal to half of the incremental benefit for improved Sin Akari seed was assumed.

Table 10: Summary of Incremental Certified Seed Crop Income

Crops Incremental Net Benefit (MMK’000/ha/crop)

Paw San rice 88.99 Sin Akari rice (monsoon) 53.20 Sin Akari rice (winter-summer) 26.60 Green gram 50.89 Black sesame 50.88


41. The incremental benefit at full development is MMK411.377 million per year. Crop budgets are provided for all four crops in Appendix 1 for with- and without-project scenarios. Input and output prices used to calculate the net benefits are also given in Appendix 1 both in financial and economic terms.

42. This benefit will build up relatively quickly after the increased supply certified seed becomes available and as the value of a superior product is recognized by the traders and exporters. The quantified benefits are based on the use of first generation certified seeds only. In actual practice, farmers will use the subsequent F1 and F2 generation seed as well with a similar but reducing the benefit.

3. Analysis Results

43. Financial analysis and sustainability analysis. Table 11 presents a summary financial cash flow statement at the subproject level, inclusive of incremental income accrued to seed growers who produce certified seeds. While cash flow at the subproject is consistently positive, it is anticipated that the Chepa seed farm is only able to achieve partial cost recovery, and requires budgetary support of about MMK6.3 million ($4,629) in constant prices each year to cover the shortfall. The cash flow statement at the Chepa seed farm level is presented in Appendix 1. Operation and maintenance (O&M) responsibility of the DOA seed farms and other public infrastructure falls on the government. A comparison of the O&M requirement and historical budgets indicates that the incremental O&M required will not cause excessive fiscal burden on the government (Appendix 4).

Table 11: Summary Financial Cash Flow Statement (MMK’000) – Chepa Seed Farm Subproject

Year Incremental net revenue

Capital costs

Subsequent investment

cost

Prorated PM costs

Associated initiatives

O&M costs

Net resource

flow

2019 0 798,059 0 599,162 294,149 0 -1,606,755 2020 399,395 0 0 0 289,802 47,116 56,906 2021 399,395 0 0 0 285,519 47,116 61,093 2022 399,395 0 0 0 0 47,116 340,223 2023 399,395 0 0 0 0 47,116 340,223 2024 399,395 0 0 0 0 47,116 340,223 2025 399,395 0 0 0 0 47,116 340,223 2026 399,395 0 0 0 0 47,116 340,223 2027 399,395 0 0 0 0 47,116 340,223 2028 399,395 0 0 0 0 47,116 340,223 2029 399,395 0 0 0 0 47,116 340,223 2030 399,395 0 0 0 0 47,116 340,223 2031 399,395 0 0 0 0 47,116 340,223

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Capital costs


cost

Prorated PM costs


O&M costs

Net resource

flow

2032 399,395 0 0 0 0 47,116 340,223 2033 399,395 0 0 0 0 47,116 340,223 2034 399,395 0 0 0 0 47,116 340,223 2035 399,395 0 211,770 0 0 47,116 134,831 2036 399,395 0 0 0 0 47,116 340,223 2037 399,395 0 0 0 0 47,116 340,223 2038 399,395 0 0 0 0 47,116 340,223 2039 399,395 0 0 0 0 47,116 340,223 2040 399,395 0 0 0 0 47,116 340,223 2041 399,395 0 0 0 0 47,116 340,223 2042 399,395 0 0 0 0 47,116 340,223 2043 399,395 0 0 0 0 47,116 340,223 2044 399,395 0 0 0 0 47,116 340,223


44. Economic analysis. The economic performance of the support to Chepa seed farm and the associated seed producers and farmers indicates an economic internal rate of return (EIRR) of 16.0%, which is a high return resulting from the cascading and multiplier effect of superior seed entering the supply chain and being taken up by the farming population. Economic net present value (ENPV) at 9.0% discount rate is MMK 1,188.5 million. The summary economic resource flow statement is provided in Table 12. Detailed resource flow statement is provided in Appendix 1.

Table 12: Summary Economic Resource Flow Statement (MMK’000) – Chepa Seed Farm Subproject


Capital costs


cost

Prorated PM costs

Associated activities

O&M costs with

associated activities

Net resource

flow

2019 0 744,041 0 575,148 287,566 0 -1,606,755 2020 385,551 0 0 0 283,317 45,328 56,906 2021 385,551 0 0 0 279,130 45,328 61,093 2022 385,551 0 0 0 0 45,328 340,223 2023 385,551 0 0 0 0 45,328 340,223 2024 385,551 0 0 0 0 45,328 340,223 2025 385,551 0 0 0 0 45,328 340,223 2026 385,551 0 0 0 0 45,328 340,223 2027 385,551 0 0 0 0 45,328 340,223 2028 385,551 0 0 0 0 45,328 340,223 2029 385,551 0 0 0 0 45,328 340,223 2030 385,551 0 0 0 0 45,328 340,223 2031 385,551 0 0 0 0 45,328 340,223 2032 385,551 0 0 0 0 45,328 340,223 2033 385,551 0 0 0 0 45,328 340,223 2034 385,551 0 0 0 0 45,328 340,223 2035 385,551 0 205,392 0 0 45,328 134,831 2036 385,551 0 0 0 0 45,328 340,223 2037 385,551 0 0 0 0 45,328 340,223 2038 385,551 0 0 0 0 45,328 340,223 2039 385,551 0 0 0 0 45,328 340,223 2040 385,551 0 0 0 0 45,328 340,223 2041 385,551 0 0 0 0 45,328 340,223 2042 385,551 0 0 0 0 45,328 340,223 2043 385,551 0 0 0 0 45,328 340,223 2044 385,551 0 0 0 0 45,328 340,223

ENPV 3,787,107 744,041 51,732 575,148 782,428 445,241 1,188,519 EIRR 16.0%

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EIRR = economic internal rate of return, ENPV = economic net present value, O&M = operation and maintenance. Source: Consultants’ estimates.

45. Sensitivity analysis. The results of the sensitivity analysis show that the economic performance is robust to changes in the main parameters, as shown in Table 13. Investment costs, cost of associated activities, and O&M costs are not a risk factor for the project outcomes. The project outcome is relatively sensitive to selling price of the crops:31.4% decrease in prices will lead to ENPV equal to zero.

Table 13: Sensitivity Analysis – Chepa Seed Farm Subproject

Sensitivity Test ENPVa

(MMK'000) EIRR (%)

SIb SVc (%)

Base Case 1,188,519 16.0%

+10% investment cost 1,015,894 14.6% -1.45 68.8% +10% cost of associated activities 1,101,285 15.4% -0.73 136.2% +10% O&M costs 1,143,995 15.7% -0.37 266.9% –10% selling price of crops 809,808 13.8% 3.19 -31.4%

EIRR = economic internal rate of return, ENPV = economic net present value, FIRR = financial internal rate of return, O&M = operation and maintenance, SI = sensitivity indicator, SV = switching value. a Discounted at economic opportunity cost of capital of 9.0%. b Ratio of % change in ENPV to % change in a variable. c Percentage change in a variable to reduce the ENPV to 0. Source: Consultant’s estimates.

46. Stakeholder analysis. Table 14 presents the distribution of the subproject costs and benefits to various stakeholders.

Table 14: Stakeholder Analysis – Chepa Seed Farm Subproject Fin. Econ. Ext. Gov't Labor Farmer

Incremental income Paw San rice mil MKK 3,342.6 1,680.7 -1,661.9 0.0 0.0 1,680.7 Sin Akari rice (monsoon) mil MKK 622.3 497.9 -124.5 0.0 0.0 497.9 Sin Akari rice (summer) mil MKK -7,180.9 -5,744.7 1,436.2 0.0 0.0 -5,744.7 Green gram mil MKK 1,429.8 1,472.7 42.9 0.0 0.0 1,472.7 Black sesame mil MKK 5,709.3 5,880.6 171.3 0.0 0.0 5,880.6 Total incremental income mil MKK 3,923.1 3,787.1 -136.0 0.0 0.0 3,787.1 Capital costs Survey, design, bidding process and construction supervision mil MKK 44.2 41.3 -2.9 41.3 0.0 0.0 Rehabilitation of irrigation system mil MKK 44.1 39.7 -4.4 40.5 -0.9 0.0 Buildings mil MKK 373.5 340.1 -33.4 346.1 -6.0 0.0 Machinery and equipment mil MKK 244.3 237.9 -6.4 237.9 0.0 0.0 Farm road mil MKK 19.4 17.5 -2.0 18.1 -0.6 0.0 Physical contingencies mil MKK 72.6 67.6 -4.9 68.3 -0.7 0.0 Total capital cost mil MKK 798.1 744.0 -54.0 752.2 -8.1 0.0 Subsequent investment cost Machinery and equipment mil MKK 48.5 47.2 -1.3 47.2 0.0 0.0 Physical contingencies mil MKK 4.8 4.5 -0.3 4.6 0.0 0.0 Total subsequent investment cost mil MKK 53.3 51.7 -1.6 51.8 0.0 0.0 Prorated PM costs mil MKK 599.2 575.1 -24.0 575.1 0.0 0.0

Associated initiatives mil MKK 800.3 782.4 -17.9 782.4 0.0 0.0

O&M costs with associated initiatives mil MKK 462.8 445.2 -17.6 445.2 0.0 0.0

Net resource flow mil MKK 1,209.4 1,188.5 -20.9 -2,606.7 8.2 3,787.1

Econ. = economic, Ext = externality, Fin. = financial, Gov’t = government Source: Consultant’s estimates.

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I. DML2 MINOR CANAL REHABILITATION SUBPROJECT

47. Under sub-output 1.2, there are three types of irrigation infrastructure improvement: (i) rehabilitation of DML2 minor canals that irrigate; (ii) rehabilitation of community reservoirs and water harvesting ponds; and (iii) installation of tubewell for supplementary irrigation. Exclusive of price contingency, the total investment amounts to $19.75 million in financial prices (Table 2).

1. Subproject Costs

48. Capital costs. The capital investment costs for the DML2 minor canal rehabilitation subproject are $21,337 including a 10% contingency (Table 15), plus an additional $39,442 for the associated support for farmers through a range of training and capacity development (Table 16), making a total of $60,779. Cost of associated activities is going to be spread equally over 4 years starting from the year when initial investment takes place.

Table 15: Investment Cost in Financial and Economic Prices ($) – DML2 Minor Canal Rehabilitation Subproject

Item Fin. value

Decomposition (%) Econ. value Tradable Non-Tradable

Skilled labor

Unskilled labor

Survey, design, bidding process and construction supervision

2,078 0% 40% 60% 0% 1,942

Construction of DML2

PCC lining 11,060 18% 52% 10% 20% 9,979 Check Structure (2) 264 18% 52% 10% 20% 238 Outlets (11) 4,041 18% 52% 10% 20% 3,646 Foot Bridge (2) 1,954 18% 52% 10% 20% 1,763

Base cost 19,397 17,568 Physical contingencies 1,940 1,757 Total capital cost 21,337 19,325

Econ. = economic, Fin. = financial, PCC = xxx. Source: Consultants’ estimates.

Table 16: Cost of Associated Activities ($) – DML2 Minor Canal Rehabilitation Subproject

Item Fin. value

Decomposition (%) Econ. value Tradable

Non-Tradable

Skilled labor

Unskilled labor

Training in seed production and certification 4,734 5% 20% 75% 0% 4,515 Establish and conduct farmer field school 10,000 5% 20% 75% 0% 9,538 Establish and conduct on–farm demonstrations

5,000 5% 25% 65% 5% 4,721

Training on GAP and CSA 3,000 5% 20% 75% 0% 2,861 Establish WUA and provide training on water use efficiency technologies

4,830 5% 20% 75% 0% 4,607

Establish and operate a contract farming model

10,000 5% 25% 60% 10% 9,348

Base cost 37,564 35,591 Physical contingencies 1,878 1,780 Total associated activities cost 39,442 37,370

CSA = climate smart agriculture, Econ. = economic, Fin. = financial, GAP = good agricultural practice, WUA = water user assoications. Source: Consultants’ estimates.

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49. Operation and maintenance costs. O&M costs are calculated as $2,719 which is estimated as 3.5% of total capital costs and 5% of total associated activities.


50. Cropping pattern and crop yield. The cropping pattern and crop yields for the command area for the with- and without-project scenarios are shown in Table 17. The subproject will enable the cultivation of a summer crop, taken to be sesame, between March and June. Overall, the cropping intensity is expected to increase from 160% (51.0 ha) to 240% (76.5 ha) at full development. The winter season from November to February, chickpeas will replace rice as an alternate crop choice. In addition, crop yield also increases modestly by 9.0% for black sesame, and by 10.0% for other crops: rice, green gram, and chickpeas.

Table 17: Cropping Pattern and Crop Yield – DML2 Minor Canal Rehabilitation Subproject

Cropping pattern Yield

W/O W/P W/O W/P W/O W/P Yield improvement % % ha ha kg/ha kg/ha %

Cultivation area 31.89 31.89 Monsoon (Jun – Oct) Rice (HYV) 100% 100% 31.89 31.89 3,500 3,850 10.0% Black sesame 0% 0% 0 0 1,000 1,090 9.0% Green gram 0% 0% 0 0 1,131 1,244 10.0% Chickpeas 0% 0% 0 0 1,164 1,280 10.0% Subtotal 100% 100% 31.89 31.89

Winter (Nov – Feb) Rice (HYV) 60% 0% 19.13 0 3,500 3,850 10.0% Black sesame 0% 0% 0 0 1,000 1,090 9.0% Green gram 0% 0% 0 0 1,131 1,244 10.0% Chickpeas 0% 80% 0 25.51 1,164 1,280 10.0% Subtotal 60% 80% 19.13 25.51

Summer (Mar – Jun) Rice (HYV) 0% 0% 0 0 3,500 3,850 10.0% Black sesame 0% 60% 0 19.13 1,000 1,090 9.0% Green gram 0% 0% 0 0 1,131 1,244 10.0% Chickpeas 0% 0% 0 0 1,164 1,280 10.0% Subtotal 0% 60% 0 19.13 Total 160% 240% 51.02 76.54

HYV = high yielding variety, W/O = without project, W/P = with project. Source: Consultants’ estimates.

51. Crop budget and input-output prices used in the analysis are presented in Appendix 2. Combining the cropping pattern (Table 17) with the crop budgets (Appendix 2) produces the incremental benefits of MMK 24.627 million per year (Table 18). It is assumed that project will reach only 80% of these incremental benefits and will reach it gradually: starting at 30% of these benefits at first year of operation and increasing at 5% per year.

Table 18: Incremental Farm Income

Crop Incremental benefits (MMK'000/year)

Rice (high yielding variety) -13,413 Black sesame 25,007 Green gram 0 Chickpeas 22,485 Total 34,079


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3. Analysis Results

52. Financial analysis and sustainability analysis. Table 19 presents a summary financial cash flow statement at the subproject level. O&M shared responsibility will be shared between the government (for periodic maintenance) and (for routine maintenance). The subproject’s net operating cash flow consistently remains positive at project completion. This indicates that the subprojects will generate sufficient revenue to cover all operating costs, including periodic and routine O&M.

Table 19: Summary Financial Cash Flow Statement (MMK’000) – DML2 Minor Canal Rehabilitation Subproject

Year Incremental

revenue Incremental input costs

Capital costs


Prorated PM

costs

O&M costs

Net resource

flow

2019 0 0 28,590 13,212 21,464 0 -63,266 2020 6,046 269 0 13,017 0 3,865 -11,105 2021 7,718 343 0 12,825 0 3,865 -9,314 2022 9,853 438 0 12,635 0 3,865 -7,085 2023 12,579 559 0 0 0 3,865 8,155 2024 16,059 713 0 0 0 3,865 11,480 2025 20,501 911 0 0 0 3,865 15,725 2026 26,173 1,162 0 0 0 3,865 21,145 2027 26,173 1,162 0 0 0 3,865 21,145 2028 26,173 1,162 0 0 0 3,865 21,145 2029 26,173 1,162 0 0 0 3,865 21,145 2030 26,173 1,162 0 0 0 3,865 21,145 2031 26,173 1,162 0 0 0 3,865 21,145 2032 26,173 1,162 0 0 0 3,865 21,145 2033 26,173 1,162 0 0 0 3,865 21,145 2034 26,173 1,162 0 0 0 3,865 21,145 2035 26,173 1,162 0 0 0 3,865 21,145 2036 26,173 1,162 0 0 0 3,865 21,145 2037 26,173 1,162 0 0 0 3,865 21,145 2038 26,173 1,162 0 0 0 3,865 21,145 2039 26,173 1,162 0 0 0 3,865 21,145 2040 26,173 1,162 0 0 0 3,865 21,145 2041 26,173 1,162 0 0 0 3,865 21,145 2042 26,173 1,162 0 0 0 3,865 21,145 2043 26,173 1,162 0 0 0 3,865 21,145 2044 26,173 1,162 0 0 0 3,865 21,145


53. Economic analysis. The summary economic resource flow statement is presented in Table 20. DML2 Minor canal rehabilitation has an EIRR of 14.2%, and the ENPV at 9.0% discount rate is MMK 53.5 million. Detailed resource flow statement is provided in Appendix 2.

Table 20: Summary Economic Resource Flow Statement (MMK’000) – DML2 Minor Canal Rehabilitation Subproject

Year Incremental


Capital costs

Associated activities

Prorated PM costs

O&M costs with

associated activities

Net resource

flow

2019 0 0 25,894 12,518 20,604 0 -59,016 2020 5,904 276 0 12,333 0 3,501 -10,206 2021 7,537 352 0 12,151 0 3,501 -8,466 2022 9,622 449 0 11,971 0 3,501 -6,299 2023 12,284 574 0 0 0 3,501 8,210 2024 15,682 732 0 0 0 3,501 11,449 2025 20,021 935 0 0 0 3,501 15,585

21

2026 25,559 1,194 0 0 0 3,501 20,865 2027 25,559 1,194 0 0 0 3,501 20,865 2028 25,559 1,194 0 0 0 3,501 20,865 2029 25,559 1,194 0 0 0 3,501 20,865 2030 25,559 1,194 0 0 0 3,501 20,865 2031 25,559 1,194 0 0 0 3,501 20,865 2032 25,559 1,194 0 0 0 3,501 20,865 2033 25,559 1,194 0 0 0 3,501 20,865 2034 25,559 1,194 0 0 0 3,501 20,865 2035 25,559 1,194 0 0 0 3,501 20,865 2036 25,559 1,194 0 0 0 3,501 20,865 2037 25,559 1,194 0 0 0 3,501 20,865 2038 25,559 1,194 0 0 0 3,501 20,865 2039 25,559 1,194 0 0 0 3,501 20,865 2040 25,559 1,194 0 0 0 3,501 20,865 2041 25,559 1,194 0 0 0 3,501 20,865 2042 25,559 1,194 0 0 0 3,501 20,865 2043 25,559 1,194 0 0 0 3,501 20,865 2044 25,559 1,194 0 0 0 3,501 20,865

ENPV 186,423 8,705 25,894 43,304 20,604 34,387 53,529 EIRR 14.2%


54. Sensitivity analysis. Sensitivity analysis indicates that the economic performance is robust to changes in the main parameters, as shown in Table 21. Investment costs, cost of associated activities, O&M costs, and cost of inputs are not a risk factor for the project outcomes. The project outcome is relatively sensitive to selling price of the crops: 28.7% decrease in crop prices will lead to ENPV equal to zero.

Table 21: Sensitivity Analysis – DLM2 Minor Canal Rehabilitation Subproject


(MMK'000) EIRR (%)

SIb SVc (%)

Base Case 53,529 14.2%

+10% investment cost 47,935 13.5% -1.05 95.69% +10% cost of associated activities 46,704 13.4% -1.27 78.44% +10% O&M costs 50,090 13.9% -0.64 155.67% +10% cost of inputs 52,659 14.1% -0.16 614.90% –10% selling price of crops 34,887 12.5% 3.48 -28.71%

EIRR = economic internal rate of return, ENPV = economic net present value, FIRR = financial internal rate of return, SI = sensitivity indicator, SV = switching value, O&M = operation and maintenance. a Discounted at economic opportunity cost of capital of 9.0%. b Ratio of percentage change in ENPV to percentage change in a variable. c Percentage change in a variable to reduce the ENPV to 0. Source: Consultant’s estimates.

55. As a minor canal, DLM2 relies on irrigation pumped from the Ayeyarwady River by the Kyi Ywa Pump Irrigation scheme. There is a risk that if this pumping scheme stopped operating, or operated at a lower capacity, this would jeopardize the benefits of the subproject. Although the irrigation scheme is planned to be rehabilitated under the ADB funded Intensive Agriculture Inclusive Project, there is a risk that the pump scheme will not always operate without interruption. However, if for example the water supply from the Kyo Ywa Pump scheme discontinued after 10 years this would only have a negligible effect on canal rehabilitation’s economic viability.


22

Table 22: Stakeholder Analysis – DLM2 Minor Canal Rehabilitation Subproject

Fin. Econ. Ext. Gov't Labor Farmer

Incremental revenue

Rice (HYV) mil MKK -61.3 -73.4 -12.0 0.0 0.0 -73.4

Black sesame mil MKK 132.8 136.8 4.0 0.0 0.0 136.8

Green gram mil MKK 0.0 0.0 0.0 0.0 0.0 0.0

Chickpeas mil MKK 119.4 123.0 3.6 0.0 0.0 123.0

Total incremental revenue mil MKK 190.9 186.4 -4.5 0.0 0.0 186.4 Incremental input costs mil MKK 8.5 8.7 0.2 0.0 0.0 8.7 Capital costs

Survey, design, bidding process and construction supervision mil MKK 2.8 2.6 -0.2 2.6 0.0

0.0

Construction of DML2 mil MKK 23.2 20.9 -2.3 21.4 -0.5 0.0

Physical contingencies mil MKK 2.6 2.4 -0.2 2.4 0.0 0.0

Total capital cost mil MKK 28.6 25.9 -2.7 26.4 -0.5 0.0 Associated initiatives mil MKK 45.7 43.3 -2.4 43.4 -0.1 0.0 Prorated PM costs mil MKK 21.5 20.6 -0.9 20.6 0.0 0.0 O&M costs without associated initiatives mil MKK 38.0 34.4 -3.6 34.4 0.0 0.0

Net resource flow mil MKK 48.7 53.5 4.8 -124.7 0.5 177.7


J. TUBEWELL IRRIGATION SUBPRTOJECT

57. The overall objective of the subproject is to increase the productivity of certified (high yielding variety) HYV rice seed and HYV paddy during the monsoon season and of certified seed and marketable grains of pulses, beans, and sesame during the winter and summer seasons.

58. Associated initiatives to the subproject will include: (i) investing in DOA seed farms and private seed growers in improved irrigation infrastructure, modern farm machinery, and post-harvest equipment that will lead to an increase in the supply of registered seed available to seed growers involved in this subproject; (ii) training of seed growers in GAP, rouging, seed cleaning and drying, all the type of activities that will increase the value of the seed; (iii) training the farmers in CSA and in techniques that improve water use efficiency; (iv) facilitating the private seed growers, associations, and farmer groups in establishing cleaning, drying, and storage facilities that follow codes of practice in their operations; and (v) linking, through supply contract or contract farming, the farmers in farmer groups, associations, and/or cooperatives to seed companies and to primary and secondary processing plants of pulses, beans, and sesame to stimulate the production of these high-value crops.

1. Subproject Costs

59. Capital costs. This subproject falls under Sub-output 1.2c, tubewell installations for supplementary irrigation commissioned. Altogether, about 8,000 to 10,000 tubewell units will be installed, subject to hydrologist assessment of groundwater sustainability in six to seven potential townships. The total budget, exclusive of price contingency, is $9.32 million. (Table 2). On a per unit basis, the capital investment costs for the tubewell irrigation subproject is $847, including a 10% contingency (Table 23). The analysis is first conducted for one sample tubewell unit, and then scale up to the average number of units to be installed per village tract, which is assumed to be one hundred units.

23

Table 23: Per Unit Investment Cost in Financial and Economic Prices ($) – Tubewell Irrigation Subproject

Item Fin.

value

Decomposition (%) Econ. value

Tradable Non-

Tradable Skilled labor

Unskilled labor

Civil works 70 20% 50% 10% 20% 63 Bore hole and lining 300 50% 25% 15% 10% 279 Petrol pump and distribution system 400 70% 15% 10% 5% 378

Base cost 770 720 Physical contingencies 77 72 Total capital cost 847 792

Econ. = economic, Fin. = financial. Source: Consultants’ estimates.

60. Operation and maintenance costs. O&M are assumed to be 20% of the investment costs and it amounts to $169.4 per year per unit.


61. Cropping pattern and crop yield. The cropping pattern and crop yields for the command area for both with- and without-project scenarios are shown in Table 24. In with project scenario the cropping intensity is assumed to increase from 154% (0.62 ha) to 240% (0.97 ha) at full development.

Table 24: Per Unit Cropping Pattern and Crop Yield – Tubewell Irrigation Subproject

Cropping pattern Yield

W/O W/P W/O W/P W/O W/P Yield

improvement % % ha ha kg/ha kg/ha %

Net cultivable area 0.40 0.40 Monsoon (Jun – Oct) Rice (HYV) 100% 100% 0.40 0.40 3500 3850 10.0% Black sesame 0% 0% 0 0 Green gram 0% 0% 0 0 1131 1244 10.0% Chickpeas 0% 0% 0 0 1164 1280 10.0% Subtotal 100% 100% 0.40 0.40

Winter (Nov – Feb) Rice (HYV) 0% 0% 0.00 0.00 5164 5681 10.0% Black sesame 0% 0% 0 0 Green gram 0% 0% 0 0 1131 1244 0.0% Chickpeas 54% 80% 0.22 0.32 1164 1280 10.0% Subtotal 54% 80% 0.22 0.32

Summer (Mar – Jun) Rice (HYV) 0% 0% 0 0 4648 4750 2.2% Black sesame 0% 60% 0.00 0.24 1000 1090 9.0% Green gram 0% 0% 0 0 Chickpeas 0% 0% 0 0 Subtotal 0% 60% 0.00 0.24 Total 154% 240% 0.62 0.97

HYV = high yielding variety, W/O = without project, W/P = with project. Source: Consultants’ estimates.

62. Crop budget and input-output prices used in the analysis are the same as for DML2 minor canal rehabilitation subproject and presented in Appendix 2. Combining the cropping pattern with the crop budget produce the incremental benefits of MMK558,000 per year for the tubewell irrigation subproject (Table 25).

24

Table 25: Per Unit Incremental Crop Income

Crop Incremental benefits (MMK'000/year)

Rice (high yielding variety) 34 Black sesame 453 Green gram 0 Chickpeas 157

Total 645


3. Analysis Results

63. Financial analysis and sustainability analysis. Table 26 presents a summary financial cash flow statement at the subproject level. O&M shared responsibility will be shared between the government (for periodic maintenance) and (for routine maintenance). The subproject’s net operating cash flow consistently remains positive at project completion. This indicates that the subprojects will generate sufficient revenue to cover all operating costs, including periodic and routine O&M.

Table 26: Summary Financial Cash Flow Statement (MMK’000) – Tubewell Irrigation Subproject

Year Incremental


Capital costs


costs

Prorated PM costs

O&M costs

Net resource

flow

2019 0 0 113,490 0 85,205 0 -198,695 2020 38,019 8,115 0 0 0 26,491 3,413 2021 39,886 8,115 0 0 0 26,491 5,280 2022 41,845 8,115 0 0 0 26,491 7,239 2023 43,900 8,115 0 0 0 26,491 9,294 2024 46,056 8,115 0 0 0 26,491 11,450 2025 48,318 8,115 0 0 0 26,491 13,712 2026 50,691 8,115 0 0 0 26,491 16,085 2027 50,691 8,115 0 0 0 26,491 16,085 2028 50,691 8,115 0 0 0 26,491 16,085 2029 50,691 8,115 0 0 0 26,491 16,085 2030 50,691 8,115 0 0 0 26,491 16,085 2031 50,691 8,115 0 0 0 26,491 16,085 2032 50,691 8,115 0 0 0 26,491 16,085 2033 50,691 8,115 0 0 0 26,491 16,085 2034 50,691 8,115 0 0 0 26,491 16,085 2035 50,691 8,115 0 81,303 0 26,491 -65,218 2036 50,691 8,115 0 0 0 26,491 16,085 2037 50,691 8,115 0 0 0 26,491 16,085 2038 50,691 8,115 0 0 0 26,491 16,085 2039 50,691 8,115 0 0 0 26,491 16,085 2040 50,691 8,115 0 0 0 26,491 16,085 2041 50,691 8,115 0 0 0 26,491 16,085 2042 50,691 8,115 0 0 0 26,491 16,085 2043 50,691 8,115 0 0 0 26,491 16,085 2044 50,691 8,115 0 0 0 26,491 16,085


64. Economic analysis. Based on the above information, a financial cash flow statement and an economic resource flow statement were constructed for one tubewell installation. The yearly figures are then multiplied by 100 units to present the findings at the village tract level. The results of the economic analysis are shown in Table 27. Overall, tubewell irrigation subproject has an

25

EIRR of 15.3%, and the ENPV at 9.0% discount rate is MMK 95.5 million. Detailed resource flow statement is provided in Appendix 3.

Table 27: Summary Economic Resource Flow Statement (MMK’000) – Tubewell Irrigation Subproject

Year Incremental


Capital costs


costs

Prorated PM costs

O&M costs Net

resource flow

2019 0 0 106,137 0 81,790 0 -187,927 2020 64,483 8,902 0 0 0 24,774 30,806 2021 64,483 8,902 0 0 0 24,774 30,806 2022 64,483 8,902 0 0 0 24,774 30,806 2023 64,483 8,902 0 0 0 24,774 30,806 2024 64,483 8,902 0 0 0 24,774 30,806 2025 64,483 8,902 0 0 0 24,774 30,806 2026 64,483 8,902 0 0 0 24,774 30,806 2027 64,483 8,902 0 0 0 24,774 30,806 2028 64,483 8,902 0 0 0 24,774 30,806 2029 64,483 8,902 0 0 0 24,774 30,806 2030 64,483 8,902 0 0 0 24,774 30,806 2031 64,483 8,902 0 0 0 24,774 30,806 2032 64,483 8,902 0 0 0 24,774 30,806 2033 64,483 8,902 0 0 0 24,774 30,806 2034 64,483 8,902 0 0 0 24,774 30,806 2035 64,483 8,902 0 76,275 0 24,774 -45,469 2036 64,483 8,902 0 0 0 24,774 30,806 2037 64,483 8,902 0 0 0 24,774 30,806 2038 64,483 8,902 0 0 0 24,774 30,806 2039 64,483 8,902 0 0 0 24,774 30,806 2040 64,483 8,902 0 0 0 24,774 30,806 2041 64,483 8,902 0 0 0 24,774 30,806 2042 64,483 8,902 0 0 0 24,774 30,806 2043 64,483 8,902 0 0 0 24,774 30,806 2044 64,483 8,902 0 0 0 24,774 30,806

ENPV 633,385 87,440 106,137 19,211 81,790 243,349 95,458 EIRR 15.3%


65. Sensitivity analysis. Sensitivity analysis indicates that the economic performance is robust to changes in the main parameters, as shown in Table 28. O&M costs and cost of inputs are not a risk factor for the project outcomes. The project outcome is relatively sensitive to selling price of the crops and to the investment costs: 15.1% decrease in crop prices and 21.2% increase in investment costs will lead to ENPV equal to zero.

Table 28: Sensitivity Analysis – Tubewell Irrigation Subproject


(MMK'000) EIRR (%)

SIb SVc (%)

Base Case 95,458 15.3%

+10% investment cost 50,409 12.1% -4.72 21.2% +10% O&M costs 71,123 13.8% -2.55 39.2% +10% cost of inputs 86,714 14.7% -0.92 109.2% –10% selling price of crops 32,119 11.2% 6.64 -15.1%

EIRR = economic internal rate of return, ENPV = economic net present value, FIRR = financial internal rate of return, SI = sensitivity indicator, SV = switching value, O&M = operation and maintenance. a Discounted at economic opportunity cost of capital of 9.0%. b Ratio of percentage change in ENPV to percentage change in a variable. c Percentage change in a variable to reduce the ENPV to 0. Source: Consultant’s estimates.

26


Table 29: Stakeholder Analysis – Tubewell Irrigation Subproject

Fin. Econ. Ext. Gov't Labor Farmer

Incremental revenue

Rice (HYV) mil MKK 16.2 33.4 17.3 0.0 0.0 33.4

Black sesame mil MKK 175.0 445.3 270.3 0.0 0.0 445.3

Green gram mil MKK 0.0 0.0 0.0 0.0 0.0 0.0

Chickpeas mil MKK 60.8 154.6 93.9 0.0 0.0 154.6

Total incremental revenue mil MKK 252.0 633.4 381.4 0.0 0.0 633.4 Incremental input costs 79.7 87.4 7.7 0.0 0.0 87.4 Capital costs

Civil works mil MKK 9.4 8.5 -0.9 8.7 -0.2 0.0

Borehole and lining mil MKK 40.2 37.4 -2.8 37.7 -0.3 0.0

Petrol pump and distribution system mil MKK 53.6 50.6 -3.0 50.8 -0.1 0.0

Physical contingencies mil MKK 10.3 9.6 -0.7 9.7 -0.1 0.0

Total capital cost mil MKK 113.5 106.1 -7.4 106.8 -0.7 0.0 Subsequent investment

Petrol pump and distribution system mil MKK 10.6 10.1 -0.6 10.1 0.0 0.0

Borehole and lining mil MKK 8.0 7.4 -0.6 7.5 -0.1 0.0

Physical contingencies mil MKK 1.9 1.7 -0.1 1.8 0.0 0.0

Total subsequent investment cost mil MKK 20.5 19.2 -1.3 19.3 -0.1 0.0 Prorated PM costs mil MKK 85.2 81.8 -3.4 81.8 0.0 0.0 O&M costs mil MKK 260.2 243.3 -16.9 243.3 0.0 0.0 Net resource flow mil MKK -307.1 95.5 402.6 -451.3 0.8 545.9


Appendix 1 27

Appendix 1 – Chepa Seed Farm Subproject

Table A1.1: Summary Crop Budgets – Chepa Seed Farm Subproject

Sin Akari rice Paw San rice Green gram Black sesame Items W/O W/P W/O W/P W/O W/P W/O W/P

Seed rate kg 77.47 77.47 77.47 77.47 40.4 40.4 15.14 15.14 Fertilizer Urea kg/ha 125 135 125 135 30 35 30 35 Compound kg/ha 125 135 125 135 125 130 125 130 Manure & rice husk ash load/ha 4 4 4 4 0 0 0 0 Agrochemicals Pesticide kg/ha 2.5 2.5 2.5 2.5 1.25 1.25 1.25 1.25 Herbicide kg/ha 12 12 12 12 0 0 0 0 Fungicide kg/ha 0 0 0 0 10 10 10 10 Mechanization & Operations Plowing (tractor) #/ha 1 0.8 1 0.8 0.5 0.4 0.5 0.4 Plowing (hand tractor) #/ha 1 1 1 1 0 0 0 0 Levelling (bullock) #/ha 1 1 1 1 0 0 0 0 Preparing plot boundary #/ha 1 1 1 1 0 0 0 0 Cultivation/harrowing #/ha 1 0.8 1 0.8 1 0.8 1 0.8 Line up and cover #/ha 0 0 0 0 1 1 1 1 Thinning (animal) #/ha 0 0 0 0 1 1 1 1 Mounting (animal) #/ha 0 0 0 0 1 1 1 1 Uprooting seedlings #/ha 1 1 1 1 0 0 0 0 Transplanting #/ha 1 0.5 1 0.5 0 0 0 0 Water management #/ha 1 1 1 1 0 0 0 0 Harvesting & threshing #/ha 1 1.2 1 1.2 0 0 0 0 Transport, drying & cleaning #/ha 1 1.2 1 1.2 0 0 0 0 Other Bags (107 lt) #/ton/ha 19 19 19 19 12 12 16 16 Tools & equipment lumpsum/ha 1 1 1 1 0.25 0.25 0.25 0.25 Labor input Land preparation workdays/ha 5 4 5 4 5 4 5 4 Planting/seedling preparation workdays/ha 6 5 6 5 3.75 3 3.75 3 Fertilizer application workdays/ha 3 2 3 2 2.5 2 2.5 2 Agrochemical spraying workdays/ha 1 0.5 1 0.5 1.25 1 1.25 1 Manure/other application workdays/ha 2.5 2 2.5 2 0 0 0 0 Thinning workdays/ha 0 0 0 0 2.5 2.5 2.5 2.5 Weeding workdays/ha 25 25 25 25 5 5 5 5 Rouging workdays/ha 62.5 62.5 62.5 62.5 15 15 15 15 Harvest workdays/ha 0 0 0 0 10 12 10 12 Threshing workdays/ha 0 0 0 0 2.5 2 2.5 2 Drying workdays/ha 0 0 0 0 2.5 2.5 2.5 2.5 Water management workdays/ha 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Total labor workdays/ha 107.5 103.5 107.5 103.5 52.5 51.5 52.5 51.5 Percentage of hired labor % 100% 100% 100% 100% 100% 100% 100% 100% Hired labor workdays/ha 107.5 103.5 107.5 103.5 52.5 51.5 52.5 51.5 Contingency % 5% 5% 5% 5% 5% 5% 5% 5%

W/O = without-project, W/P = with-project Source: Field data and consultants’ estimates.

28 Appendix 1

Table A1.2: Summary of Crop Budgets for Shwebo District – Chepa Seed Farm Subproject

Sin Akari rice Paw San rice Green gram Black

sesame Items W/O W/P W/O W/P W/O W/P W/O W/P

Seed rate kg 77.47 77.47 77.47 77.47 40.4 40.4 15.14 15.14 Fertilizer Urea kg 100 100 100 100 20 20 20 20 Compound kg 100 100 100 100 50 50 50 50 Agrochemicals Pesticide kg 2 2 2 2 1 1 1 1 Herbicide kg 0 0 0 0 0 0 0 0 Fungicide kg 0 0 0 0 2 2 2 2 Mechanization Plowing (tractor) # 1 1 1 1 0.5 0.5 0.5 0.5 Cultivation # 1 1 1 1 1 1 1 1 Harvesting & threshing # 1 1 1 1 0 0 0 0 Transport, drying & cleaning # 1 1 1 1 0.25 0.25 0.25 0.25 Other Bags (107 lt) #/ton 19 19 19 19 12 12 16 16 Tools & equipment lumpsum 1 1 1 1 0.25 0.25 0.25 0.25 Labor Land preparation workdays 5 5 5 5 3 3 3 3 Planting/seedling preparation workdays 5 5 5 5 2 2 2 2 Fertilizer application workdays 3 3 3 3 1 1 1 1 Agrochemical spraying workdays 1 1 1 1 1 1 1 1 Manure/other application workdays 2 2 2 2 0 0 0 0 Weeding/ roughing workdays 15 15 15 15 3 3 3 3 Harvesting workdays 15 15 15 15 10 10 10 10 Threshing workdays 5 5 5 5 2 2 2 2 Drying workdays 5 5 5 5 2 2 2 2 Transport to farmgate workdays 2 2 2 2 1 1 1 1 Canal maintenance workdays 1 1 1 1 0 0 0 0 Total labor workdays 59 59 59 59 25 25 25 25 Percentage of hired labor % 50% 50% 50% 50% 50% 50% 50% 50% Hired labor workdays 29.5 29.5 29.5 29.5 12.5 12.5 12.5 12.5 Contingency % 5% 5% 5% 5% 5% 5% 5% 5%


Appendix 1 29

Table A1.3: Summary of Input and Output Prices – Chepa Seed Farm Subproject

Fin.

Value Econ. Value

Outputs Sin Akari rice MMK/kg 250 258 Paw San rice MMK/kg 478 492 Green gram MMK/kg 1,223 1,260 Black sesame MMK/kg 1,633 1,682 Non–tradable inputs Seed Sin Akari rice MMK/kg 478 478 Paw San rice MMK/kg 718 718 Green gram MMK/kg 1,716 1,716 Black sesame MMK/kg 2,941 2,941 Fertilizer Manure & rice husk ash cart 10,000 10,000 Mechanization Plowing (tractor) MMK/ha 39,536 39,536 Plowing (hand tractor) MMK/ha 19,760 19,760 Levelling (bullock) MMK/ha 14,820 14,820 Preparing plot boundary MMK/ha 14,820 14,820 Cultivation/harrowing MMK/ha 19,760 19,760 Line up and cover MMK/ha 9,880 9,880 Thinning (animal) MMK/ha 7,410 7,410 Mounting (animal) MMK/ha 7,410 7,410 Uprooting seedlings MMK/ha 37,050 37,050 Transplanting MMK/ha 86,450 86,450 Water management MMK/ha 17,290 17,290 Harvesting & threshing MMK/ha 86,450 86,450 Transport, drying & cleaning MMK/ha 37,050 37,050 Tradables Fertilizers Urea MMK/kg 375 400 Compound MMK/kg 675 720 Agrochemicals Pesticide MMK/kg 14,068 15,000 Herbicide MMK/kg 2,345 2,500 Fungicide MMK/kg 2,345 2,500 Other Bags (107 lt) MMK/each 94 100 Tools & equipment MMK/set 9,379 10,000 Labor MMK/workday 3,200 4,000

Fin. = financial, Econ. = economic Source: Field data. World Bank price projections.

30 Appendix 1

Table A1.4: Chepa Seed Farm Level Financial Cash Flow Statement (MMK’000) – Chepa Seed Farm Subproject (financial, real)

2019 2020 2021 2022-2034 2035 2036-2044

Incremental revenue 0 15,090 15,090 15,090 15,090 15,090

Incremental input costs 0 -16,367 -16,367 -16,367 -16,367 -16,367

Capital costs

Survey, design, bidding process and construction supervision 44,217 0 0 0 0 0

Rehabilitation of irrigation system 44,059 0 0 0 0 0

Buildings 373,489 0 0 0 0 0

Machinery and equipment 244,303 0 0 0 0 0

Farm road 19,441 0 0 0 0 0

Physical contingencies 72,551 0 0 0 0 0

Total capital cost 798,059 0 0 0 0 0

Subsequent investment cost

Machinery and equipment 0 0 0 0 192,518 0

Physical contingencies 0 0 0 0 19,252 0

Total subsequent investment cost 0 0 0 0 211,770 0

Prorated PM costs 599,162 0 0 0 0 0

O&M costs with associated initiatives 0 37,753 37,753 37,753 37,753 37,753

Net cash flow before financing -1,397,222 -6,296 -6,296 -6,296 -218,066 -6,296


Appendix 1 31

Table A1.5: Subproject Level Financial Cash Flow Statement (MMK’000) – Chepa Seed Farm Subproject (financial, real)

2019 2020 2021 2022-2034 2035 2036-2044

Incremental net revenue Sin Akari rice (summer) 86.4 MK'000/ha 3,939 ha 0 340,294 340,294 340,294 340,294 340,294 Sin Akari rice (monsoon) 51.7 MK'000/ha 1,227 ha 0 63,359 63,359 63,359 63,359 63,359 Paw San rice 25.8 MK'000/ha -28,308 ha 0 -731,063 -731,063 -731,063 -731,063 -731,063 Green gram 49.4 MK'000/ha 2,946 ha 0 145,563 145,563 145,563 145,563 145,563 Black sesame 49.4 MK'000/ha 11,766 ha 0 581,243 581,243 581,243 581,243 581,243 Total 0 399,395 399,395 399,395 399,395 399,395 Capital costs Survey, design, bidding process and construction supervision $33,000 44,217 0 0 0 0 0 Rehabilitation of irrigation system $32,882 44,059 0 0 0 0 0 Buildings $278,744 373,489 0 0 0 0 0 Machinery and equipment $182,329 244,303 0 0 0 0 0 Farm road $14,509 19,441 0 0 0 0 0 Physical contingencies 10% 72,551 0 0 0 0 0 Total capital cost 798,059 0 0 0 0 0 Subsequent investment cost Machinery and equipment $182,329 0 0 0 0 192,518 0 Physical contingencies 10% 0 0 0 0 19,252 0 Total subsequent investment cost 0 0 0 0 211,770 0 Prorated PM costs $751 599,162 0 0 0 0 0 Associated activities $658,592 294,149 289,802 285,519 0 0 0 O&M costs with associated activities $33,142/year 0 47,116 47,116 47,116 47,116 47,116 Net cash flow before financing -1,691,371 62,477 66,760 352,279 140,509 352,279


32 Appendix 1

Table A1.6: Subproject Economic Resource Flow Statement (MMK’000) – Chepa Seed Farm Subproject (economic, real)

2019 2020 2021 2022-2034 2035 2036-2044

Incremental net revenue Sin Akari rice (summer) 43.4 MK'000/ha 3,939 ha 0 171,105 171,105 171,105 171,105 171,105 Sin Akari rice (monsoon) 41.3 MK'000/ha 1,227 ha 0 50,687 50,687 50,687 50,687 50,687 Paw San rice 20.7 MK'000/ha -28,308 ha 0 -584,850 -584,850 -584,850 -584,850 -584,850 Green gram 50.9 MK'000/ha 2,946 ha 0 149,930 149,930 149,930 149,930 149,930 Black sesame 50.9 MK'000/ha 11,766 ha 0 598,680 598,680 598,680 598,680 598,680 Total 0 385,551 385,551 385,551 385,551 385,551 Capital costs Survey, design, bidding process and construction supervision $30,841 41,324 0 0 0 0 0 Rehabilitation of irrigation system $29,603 39,665 0 0 0 0 0 Buildings $253,816 340,089 0 0 0 0 0 Machinery and equipment $177,523 237,863 0 0 0 0 0 Farm road $13,030 17,460 0 0 0 0 0 Physical contingencies 10% 67,640 0 0 0 0 0 Total capital cost 744,041 0 0 0 0 0 Subsequent investment cost Machinery and equipment $177,523 0 0 0 0 187,444 0 Physical contingencies 10% 0 0 0 0 17,949 0 Total subsequent investment cost 0 0 0 0 205,392 0 Prorated PM costs $751 575,148 0 0 0 0 0 Associated activities $643,853 287,566 283,317 279,130 0 0 0 O&M costs with associated activities $31,885/year 0 45,328 45,328 45,328 45,328 45,328 Net resource flow -1,606,755 56,906 61,093 340,223 134,831 340,223

ENPV at 9.0% 1,188,519 EIRR 16.0%


Appendix 2 33

Appendix 2 – DML2 Minor Canal Rehabilitation Subproject

Table A2.1: Summary of Input and output Prices – DML2 Minor Canal Rehabilitation Subproject

Fin.

Price Econ. Price

Non–tradable Seed Rice (HYV) MMK/kg 287 287 Black sesame MMK/kg 2,941 2,941 Green gram MMK/kg 1,716 1,716 Chickpeas MMK/kg 1,274 1,274 Mechanization Plowing MMK/ha 86,485 86,485 Cultivation MMK/ha 86,450 86,450 Harvesting MMK/ha 86,450 86,450 Water charge MMK/ha 2,950 2,950 Tradables Fertilizers Urea MMK/kg 400 375 Superphosphate (TSP) MMK/kg 700 657 Agrochemicals Pesticide MMK/kg 15,000 14,068 Herbicide MMK/kg 2,500 2,345 Fungicide MMK/kg 12,000 11,255 Other Bags (107 lt) MMK/each 100 94 Tools & equipment MMK/set 10,000 9,379 Labor MMK/wokday 4,000 3,200 Output prices Rice (HYV) MMK/kg 201 207 Black sesame MMK/kg 1,164 1,199 Green gram MMK/kg 856 882 Chickpeas MMK/kg 669 689

Source: Field data. World Bank price projections.

.

34 Appendix 2

Table A2.2: Summary of Crop Budgets – DML2 Minor Canal Rehabilitation Subproject

Rice (HYV) Black sesame Green gram Chickpeas Items W/O W/P W/O W/P W/O W/P W/O W/P

Seed rate kg 77.47 77.47 15.14 15.14 40.4 40.4 77.6 77.6 Fertilizer Urea kg 200 200 30 30 30 30 30 30 Superphosphate (TSP) kg 100 100 10 10 10 10 10 10 Agrochemicals Pesticide kg 2 2 1 1 1 1 1 1 Herbicide kg 0 0 0 0 0 0 0 0 Fungicide kg 0 0 0 0 0 0 0 0 Mechanization Plowing # 1 1 0 0 0 0 0 0 Cultivation # 1 1 1 1 1 1 1 1 Harvesting # 0 0 0 0 0 0 0 0 Other Bags (107 lt) #/ton 19 19 16 16 12 12 12 12 Tools & equipment lumpsum 1 1 0.25 0.25 0.25 0.25 0.25 0.25 Water use 0 0 0 0 0 0 0 0 Labor input Land preparation workdays 2 2 2 2 2 2 2 2 Planting/seedling preparation workdays 5 5 1 1 1 1 2 2 Fertilizer application workdays 3 3 1 1 1 1 1 1 Agrochemical spraying workdays 3 3 1 1 2 2 2 2 Manure/other application workdays 2 2 0 0 0 0 0 0 Weeding workdays 2 2 2 2 3 3 3 3 Harvesting workdays 15 15 5 5 5 5 7 7 Threshing workdays 2 2 0 0 0 0 0 0 Post-harvest processing workdays 0 0 0 0 0 0 0 0 Drying workdays 5 5 1 1 1 1 2 2 Transport to farmgate workdays 2 2 1 1 1 1 1 1 Transport to factory workdays 0 0 0 0 0 0 0 0 Irrigating – pump workdays 0 0 0 0 0 0 0 0 Irrigating – gravity workdays 3 3 2 2 2 2 2 2 Canal maintenance workdays 1 1 0 0 0 0 0 0 Total labor workdays 45 45 16 16 18 18 22 22 Percentage of hired labor % 50% 50% 50% 50% 50% 50% 50% 50% Contingency % 5% 5% 5% 5% 5% 5% 5% 5%


Appendix 2 35

Table A2.3: Crop Budgets (Economic prices, MMK'000) – DML2 Minor Canal Rehabilitation

Subproject

Crop Rice (HYV) Black sesame Green gram Chickpeas W/O, W/P W/O W/P W/O W/P W/O W/P W/O W/P Season Unit price mon, winter mon, winter summer summer winter winter winter winter

Cultivated area 51.02 31.89 0.00 19.13 0.00 0.00 0.00 25.51 Revenue Rice (HYV) 240 42,922 29,509 0 0 0 0 0 0 Black sesame 1,199 0 0 0 25,007 0 0 0 0 Green gram 882 0 0 0 0 0 0 0 0 Chickpeas 689 0 0 0 0 0 0 0 22,485 Total revenue 42,922 29,509 0 25,007 0 0 0 22,485 Incremental revenue -13,413 25,007 0 22,485 Input costs Seeds & planting material Rice (HYV) 240 950 594 Black sesame 2,941 0 852 Green gram 1,716 0 0 Chickpeas 1,274 0 2,522 Total 950 594 0 852 0 0 0 2,522 Fertilizer Urea 487 4,966 3,104 0 279 0 0 0 372 Superphosphate (TSP) 579 2,955 1,847 0 111 0 0 0 148 Agrochemicals Pesticide 14,068 1,436 897 0 269 0 0 0 359 Herbicide 2,345 0 0 0 0 0 0 0 0 Fungicide 11,255 0 0 0 0 0 0 0 0 Mechanization & Operations Plowing 86,485 4,413 2,758 0 0 0 0 0 0 Cultivation 86,450 4,411 2,757 0 1,654 0 0 0 2,206 Harvesting 86,450 0 0 0 0 0 0 0 0 Other Bags (107 lt) 94 310 213 0 31 0 0 0 38 Tools & equipment 9,379 479 299 0 45 0 0 0 60 Water charge 2,950 0 0 0 0 0 0 0 0 Labor Family 3,200 3,674 2,296 0 490 0 0 0 898 Hired 3,200 3,674 2,296 0 490 0 0 0 898 Contingency 1,363 853 0 211 0 0 0 375 Total input costs 28,630 17,914 0 4,432 0 0 0 7,875 Incremental input costs -10,716 4,432 0 7,875

Total incremental input costs 1,591

36 Appendix 2

Table A2.4: Financial Cash Flow Statement (MMK'000) – DML2 Minor Canal Rehabilitation Subproject (financial, real)

2019 2020 2021 2022 2023 2024 2025 2026-2044

Benefit ramp-up profile 17% 22% 28% 36% 46% 59% 75% Incremental revenue Rice (HYV) -11212 MK'000/ha 0 -1,942 -2,480 -3,166 -4,041 -5,159 -6,587 -8,409 Black sesame 24279 MK'000/ha 0 4,206 5,370 6,855 8,752 11,172 14,263 18,209 Green gram 0 MK'000/ha 0 0 0 0 0 0 0 0 Chickpeas 21830 MK'000/ha 0 3,782 4,828 6,164 7,869 10,046 12,825 16,373 Total 0 6,046 7,718 9,853 12,579 16,059 20,501 26,173 Incremental input costs 1550 MK'000 0 269 343 438 559 713 911 1,162 Capital costs 0 0 0 0 0 0 0 0 Survey, design, bidding process and construction supervision $2,078 2,784 0 0 0 0 0 0 0 Construction of DML2 $17,319 23,206 0 0 0 0 0 0 0 Physical contingencies 10% 2,599 0 0 0 0 0 0 0 Total capital cost 28,590 0 0 0 0 0 0 0 Associated initiatives $39,442 13,212 13,017 12,825 12,635 0 0 0 0 Prorated PM costs $751 21,464 0 0 0 0 0 0 0 O&M costs $2,719 0 3,865 3,865 3,865 3,865 3,865 3,865 3,865 Net cash flow before financing -63,266 -11,105 -9,314 -7,085 8,155 11,480 15,725 21,145


Appendix 2 37

Table A2.5: Economic Resource Flow Statement (MMK'000) – DML2 Minor Canal Rehabilitation Subproject (economic, real)

2019 2020 2021 2022 2023 2024 2025 2026-2044

Benefit ramp-up profile 17% 22% 28% 36% 46% 59% 75% Incremental revenue a Rice (HYV) -13413 MK'000 0 -2,324 -2,967 -3,787 -4,835 -6,172 -7,880 -10,060 Black sesame 25007 MK'000 0 4,332 5,531 7,061 9,014 11,508 14,691 18,755 Green gram MK'000 0 0 0 0 0 0 0 0 Chickpeas 22485 MK'000 0 3,895 4,973 6,349 8,105 10,347 13,210 16,864 Total 0 5,904 7,537 9,622 12,284 15,682 20,021 25,559 Incremental input costs 1591 MK'000 0 276 352 449 574 732 935 1,194 Capital costs CF Survey, design, bidding process and construction supervision 0.93 2,602 0 0 0 0 0 0 0 Construction of DML2 0.90 20,938 0 0 0 0 0 0 0 Physical contingencies 0.91 2,354 0 0 0 0 0 0 0 Total capital cost 25,894 0 0 0 0 0 0 0 Associated initiatives 0.95 12,518 12,333 12,151 11,971 0 0 0 0 Prorated PM costs 0.96 20,604 0 0 0 0 0 0 0 O&M costs 0.91 0 3,501 3,501 3,501 3,501 3,501 3,501 3,501 Net resource flow -59,016 -10,206 -8,466 -6,299 8,210 11,449 15,585 20,865

ENPV at 9% 53,529 EIRR 14.20%

Source: Consultants’ estimates. Notes: a Incremental revenue is computed by taking the difference in revenue between the without- and with-scenarios, which are presented in Table A2.3. For example, for Rice (HVY), the incremental revenue of 13,41 million MMK is the difference between 42.92 million MMK (without-project scenario) and 29.51 million MMK (with-project scenario).

38 Appendix 3

Appendix 3 – Tubewell Irrigation Subproject

Table A3.1: Financial Cash Flow Statement (MMK'000) – Tubewell Irrigation Subproject (financial, real)

2019 2020-2034 2035 2036-2044

Cultivation area (100 tubewell units) 40 ha Incremental revenue Rice (HYV) 41 MK'000 0 24 33 33 Black sesame 440 MK'000 0 264 352 352 Green gram MK'000 0 0 0 0 Chickpeas 153 MK'000 0 92 122 122 Total 0 380 507 507 Incremental input costs 81 MK'000 0 81 81 81 Capital costs Civil works $70 94 0 0 0 Borehole and lining $300 402 0 0 0 Petrol pump and distribution system $400 536 0 0 0 Physical contingencies 10% 103 0 0 0 Total capital cost 1,135 0 0 0 Subsequent investment Petrol pump and distribution system $400 0 0 422 0 Borehole and lining $300 0 0 317 0 Physical contingencies 0 0 74 0 Total subsequent investment cost 0 0 813 0 Prorated PM costs $751 852 0 0 0 O&M costs $186 0 265 265 265 Net cash flow before financing -1,987 34 -652 161


Appendix 3 39

Table A3.2: Economic Resource Flow Statement (MMK'000) – Tubewell Irrigation Subproject (economic, real)

2019 2020-2034 2035 2036-2044

Cultivation area (100 tubewell units) 40 ha Incremental revenue Rice (HYV) 34 MK'000 0 3,404 3,404 3,404 Black sesame 453 MK'000 0 45,334 45,334 45,334 Green gram MK'000 0 0 0 0 Chickpeas 157 MK'000 0 15,744 15,744 15,744 Total 0 64,483 64,483 64,483 Incremental input costs 89 MK'000 0 8,902 8,902 8,902 Capital costs CF Civil works 0.90 8,468 0 0 0 Borehole and lining 0.93 37,379 0 0 0 Petrol pump and distribution system 0.94 50,641 0 0 0 Physical contingencies 0.94 9,649 0 0 0 Total capital cost 106,137 0 0 0 Subsequent investment Petrol pump and distribution system 0.94 0 0 39,906 0 Borehole and lining 0.93 0 0 29,456 0 Physical contingencies 0.94 0 0 6,912 0 Total subsequent investment cost 0 0 76,275 0 Prorated PM costs 0.96 81,790 0 0 0 O&M costs 0.94 0 24,774 24,774 24,774 Net resource flow -187,927 30,806 -45,469 30,806

ENPV at 9% 95,458 EIRR 15.29%


40 Appendix 4

Appendix 4: Civil Work and Equipment Operations and Maintenance Cost Estimates by Project Sub-Outputs

1. There are three types of infrastructure maintenance for public infrastructure investments: (i) routine or preventive maintenance is required on a regular basis to keep the infrastructure in good working condition. If performed correctly and regularly, it can reduce the need for periodic maintenance, and sustain the life of the infrastructure; (ii) periodic maintenance covers more significant activities that are carried out once every few years. Periodic maintenance is generally technically complex and costly, and require resources, specialized equipment and skills beyond the command of beneficiary communities; and (iii) emergency maintenance involves urgently needed, and generally significant, repairs in response to disastrous event. Emergency maintenance is not considered in this discussion. 2. The Chepa seed farm subproject falls under sub-Outputs1.1 (infrastructure for seed production and certification enhanced), while DML2 minor canal rehabilitation subproject and the tubewell irrigation subproject fall under sub-Output 1.2 (climate-resilient water management infrastructure). Since the Chepa seed farm will sell registered seeds to certified seed growers, this subproject is partially cost recovering. Department of Agriculture (DOA) may need to provide about 30% of O&M requirement to cover the shortfall.

3. As for the DML2 minor canal rehabilitation and the tubewell subproject, beneficiary farmer are expected to perform routine O&M. Between 2007 and 2008, the government enacted a water tax law, which established a tax rate of 2,000 MMK/acre/season for paddy and 1,000 MMK/acre/season for other crops, to be collected from beneficiary farmers for O&M. However, admittedly law enforcement is less than effective, as arrears or non-payments are frequent, especially during bad harvests.

4. The project will train and strengthen farmer groups’ capacity on O&M planning and execution. The O&M plans will clearly define the roles and responsibilities of different stakeholders, include a schedule of routine maintenance activities, initial user tariffs (wherever applicable), and collection mechanisms, as well as estimated O&M costs for the lifespan of the infrastructure. Readiness and commitment to assume routine O&M responsibility is a site selection criterion for these public infrastructure subprojects.

5. Periodic O&M of the canal is primarily the government’s responsibility. At project completion, about $4.7 million will be spent on public infrastructure under sub-output 1.1 and $23.0 under sub-output 1.2. The total annual O&M budgetary support required for O&M is estimated to be around $0.57 million (Table A4.1) at project completion (around 2025).

6. About 44% of the $0.57 million O&M budget requirement is for irrigation schemes, estimated to be $0.25 million. The Irrigation Water Utilization and Management Department (IWUMD), the department responsible for irrigation schemes, has an average O&M budget of $21.1 million on public water resources infrastructure (Table A4.2). The $0.25 incremental O&M requirement is insignificant and should not create excessive fiscal burden at project completion.

Appendix 4 41

Table A4.1: Incremental Civil Work Maintenance Cost Estimates by Project Sub-Outputs

Project

investment a, b Total O&M

requirement O&M responsibility Budgetary

support (million $) (%) (million$) (million $)

Output 1.1: Infrastructure for seed production and certification enhanced 4.66 4.0% 0.19 DOA (30%) 0.06 Output 1.2: Climate-resilient water management infrastructure – Tertiary canals rehabilitated c

11.23 3.0% 0.34 Beneficiary farmers (30%),

IWUMD (70%) Beneficiary farmers (30%), IWUMD (70%)

0.24

– Community reservoirs and water harvesting ponds rehabilitated 0.59 3.0% 0.02 0.01

– Tubewell Installations for supplementary irrigation commissioned 11.20 3.0% 0.34 Beneficiary farmers (100%) 0.00 Subtotal 23.02 0.25 Output 1.3: Connectivity through resilient rural roads improved 6.17 4.0% 0.25 DRD and DRRD (100%) 0.25 Output 1.4: Agricultural quality and safety infrastructure upgraded 2.36 3.0% 0.07 DOA (30%),

Service users (70%) 0.02

Total 36.21 0.57

DOA = Department of Agriculture, DRD = Department of Rural Development (under MOALI), DRRD = Department of Rural Road Development (under Ministry of Construction), IWUMD = Irrigation Water Utilization and Management Department a Inclusive of physical and price contingencies b Cost figures include only civil work and equipment expenditure categories c Farmers will assume primary responsibilities as these are tertiary canals Source: ADB estimates.

42 Appendix 4

Table A4.2: Ministry of Agriculture, Livestock, and Irrigation (MOALI) O&M Budget Allocation by Department (2014/15 to 2016/17)

Departments million MMMK million $ a million $ p.a.

Agricultural Mechanization Department 1,744 1.55 0.52 Department of Agricultural Planning 58 0.05 0.02 Department of Agricultural Research 372 0.33 0.11 Department of Agriculture (and Industrial Crops) 3,614 3.21 1.07 Irrigation Water Utilization and Management Department 71,367 63.32 21.11 Department of Land Management and Statistics 300 0.27 0.09 Yezin Agriculture University 508 0.45 0.15 Department of Fisheries 144 0.13 0.04 Livestock Breeding and Veterinary Department 372 0.33 0.11 University of Veterinary Sciences 80 0.07 0.02 All Cooperative Departments 158 0.14 0.05 Minister Office 84 0.07 0.02 Total 78,801 69.92 23.31

p.a. = per annum a Average exchange rate between 2014 and 2016 is 1,127 MMMK/$