Climate-Friendly Agribusiness Value Chains Sector Project (RRP CAM 48409-002)

Project Number: 48409-002 May 2018

Kingdom of Cambodia: Climate-friendly Agribusiness Value Chains Project

Detailed Economic and Financial Analysis

CURRENCY EQUIVALENTS (as of 15 May 2018)

Currency unit - riel/s (KR) KR1.00 = $0.00025

$1.00 = KR4,052.18

ABBREVIATIONS

CAMGAP - Cambodia Good Agricultural Practice CCSP - Climate Change Strategic Plan CEDAC - Centre d’Etudes et de Devéloppement Agricole du Cambodge CSA - climate smart agriculture EIRR - economic internal rate of return FWUC - farmer water user community GDP - gross domestic product GMO - genetically modified organism GNI - gross national income HDI - human development index LMO - living modified organism MAFF - Ministry of Agriculture, Forestry and Fisheries MFI - micro-finance institutions MOWRAM - Ministry of Water Resources and Meteorology MRD - Ministry of Rural Development NBP - National Bio-digester Program NPV - net present value O&M - operations and maintenance PPP - public-private partnership SCF - standard conversion factor SERF - shadow exchange rate factor SRP - sustainable rice platform SWRF - shadow wage rate factor

NOTE

In this report, "$" refers to United States dollars.

CONTENTS

I. INTRODUCTION 1

II. MACROECONOMIC CONTEXT 1

III. SECTOR CONTEXT 2

IV. SECTOR DEVELOPMENT PLANS 4

V. GOVERNMENT IMPLEMENTATION CAPACITY 5

VI. PROJECT INTERVENTIONS 6

A. Output 1: Critical agribusiness value chain infrastructure improved and made climate resilient 6

B. Output 2: Climate smart agriculture and agribusiness promoted 10 C. Output 3: Enabling environment for climate friendly agribusiness enhanced 12

VII. ECONOMIC RATIONALE FOR THE PROJECT 14

VIII. ANALYSIS FOR SAMPLE SUBPROJECTS 15

A. Key Assumptions 15 B. Subproject Costs 16 C. Roads 18

IX. TRAPAING RUN IRRIGATION REHABILITATION 18

A. Background 18 B. With- and Without-Project Scenarios 19 C. Economic Analysis 21 D. Financial Analysis 25 E. Subproject Sustainability 26

X. MANGO DRIP IRRIGATION DEMONSTRATION 27

A. Background 27 B. With- and Without-Project Scenarios 28 C. Economic Analysis 30 D. Financial Analysis 33 E. Subproject Sustainability 34

XI. SEDA SEANCHEY COOPERATIVE CASSAVA STORAGE FACILITY 34

A. Background 34 B. With- and Without-Project Scenarios 35 C. Economic Analysis 39 D. Financial Analysis 41 E. Subproject Sustainability 43

Annexes

1. Financial and Economic Prices of Agricutlural Inputs and Outputs 44

2. Detailed Finanical and Econoimc Resource Flow Statement for Trapaing Run Irrigation Subproject 47

3. O&M Budget Data for Rural Roads and O&M Estimate by Project Completion. 50

4. Detailed Finanical and Economic Resource Flow Statement for Mango Drip Irrigation Demonstration Subproject 52

5. Detailed Finanical and Econoimc Resource Flow Statement for Seda Seanchey Cooperative Cassava Storage Subproject 55

I. INTRODUCTION

1. The project will support the implementation of the Agriculture Sector Strategic Development Plan through support for increasing agricultural production and crop quality and enhancing rural incomes by strengthening of value chain infrastructure and the linkages among participants along value key value chains.1 The project will also support the Industrial Development Policy by improving relevant infrastructure for the intensification and commercialization of the production base for rice, maize, cassava and mango.2

2. The impact of the project will be increased productivity and rural household incomes through the development of climate friendly agribusiness value chains and the outcome will be climate friendly value chains for inclusive and environmentally sustainable economic growth. Output 1 of the project will provide improved critical climate agribusiness value chain infrastructure and made climate resilient, Output 2 will promote climate smart agriculture (CSA) and agribusiness for key value chains, and Output 3 will enhance enabling environment for climate smart agribusiness.

II. MACROECONOMIC CONTEXT

3. Supported by improved financial management and macroeconomic stability, the Cambodian economy has experienced strong growth over the last two decades, with an average growth rate for the period of 7.7% per year and it is about to join the ranks of lower middle-income countries. Integration with the global economy has increased in line with overall growth.3 In recent years economic progress has been driven by the industrial and services sectors, with agriculture growing much more slowly.

Table 1: Some Key Economic Indicators

Item 2011 2012 2013 2014 2015

GDP growth % 1 7.1 7.3 7.4 7.1 7.0P

GNI / per capita2 810 880 950 1,020

GNI / per capita (PPP adjusted) 2 2,520 2,700 2,880 3,080

Inflation % (CPI, average) 5.5 2.9 3.0 3.9 1.1P

Fiscal surplus/deficit (% GDP) (7.5) (6.3) (5.8) (4.2) (4.6)

Balance of trade (% GDP) (16.7) (17.8) (21.1) (20.2) (19.8)

Current account ($ million) (1,303) (1,547) (1,880) (2.027) (1,971)

CPI = consumer price index, GDP = gross domestic product, GNI = gross national income, P = projected, PPP = purchasing power parity. 1 Constant market prices. 2 On current prices. Source: Asian Development Bank, International Monetary Fund, and World Bank.

4. The relative contribution of the agricultural sector to the economy has declined gradually over the last 15 and more years as the industrial and services sectors have grown more strongly. However, the primary sector still provides 64% of total employment in the economy compared with only 8% and 28% for the secondary and tertiary sectors, respectively. Improvements in the

1 MAFF. 2015. Agriculture Sector Strategic Development Plan (2014-2018). Phnom Penh. 2 Royal Government of Cambodia. 2015. Industrial Development Policy (2015-2025). Phnom Penh. 3 IMF Country Report 15/307 (Article IV Consultation Report, 2015).

2

scope of agricultural production and productivity are therefore still important for improving the welfare of the majority of the population.

5. As the economy grows the industrial and services sectors increase in relative importance. The government’s industrial development policy projects the industrial sector producing 30% of gross domestic product (GDP) in 2025 (excluding net taxes) compared with 26.2% in 2015 and the agricultural sector contribution to GDP falling from 29% to 23% over the same period.4

Table 2: Changing Structure of the Cambodian Economy

Item 2000 2010 2011 2012 2013 2014

Sectoral Structure - % GDP

Agriculture 37.9 36.0 36.7 35.6 33.5 30.4

Industry 23.0 23.3 23.5 24.3 25.6 27.0

Services 39.1 40.7 39.8 40.1 40.8 42.6

Growth % real value added

Agriculture - 4.0 3.1 4.3 1.8 4.7

Industry - 13.6 14.3 9.2 10.5 8.7

Services - 3.3 5.0 8.1 8.4 7.1

GDP = gross domestic product. Source: Asian Development Bank & World Bank

6. Economic growth has substantially reduced poverty and inequality in Cambodia with the poverty rate declining from around 50% in 2004 to 18% in 2012. However, there are many households above the poverty line, but which are vulnerable to economic and other shocks that could easily push them back into poverty, either temporarily or permanently. In rural areas, the poverty rate was about 20% in 2012 and about 80% of all poor households are in rural areas. In urban areas, poverty levels are lower; 16.3% of the population in Phnom Penh and 14.5% in other urban areas in 2012. Economic growth has also been accompanied by improvements in health, education and other aspects of development. The human development index for Cambodia is 0.419 in 2000 and by 2014 had increased to 0.555.5

III. SECTOR CONTEXT

7. The agriculture sector accounts for 30% of GDP. Within the sector, crop production contributes about 60% of sector GDP (of which the greatest part is rice production), followed by 22% for fisheries, 11% for livestock and 7% for forestry. Just over 80% of the rural population are farmers, with 72% having agriculture as their principal source of income. Most farming in Cambodia is subsistence oriented and is rain-fed, with production dependent on the vagaries of the climate.

8. The project will focus on improving the value chains of four crops: rice, maize, cassava and mangoes. These are crops with significant export potential for Cambodia but which currently perform below that potential. Improving value chain infrastructure and the linkages among participants along the value chains will help improve market efficiency and increase security of operation for all participants.

4 Royal Government of Cambodia. Cambodia Industrial Development Policy 2015 – 2025. 2015. Phnom Penh.

(unofficial translation) 5 UNDP. Human Development Report, 2015. New York.

3

9. Cambodia has been a net exporter of rice since 1995. In 2014-2015, total production was 9.3 million tons, of which 7.1 million tons was produced in the wet season and 2.2 million tons in the dry season. Especially because a high proportion of the crop is grown under rainfed conditions, total output from year to year is variable. However, compared with the situation 8 years previously in 2007, the area planted, average yield and total production in 2014-15 were 18.2%, 17.5% and 38.6% higher, respectively. In recent years, it is estimated that about 2 million tons of paddy per year has been traded to Thailand and Viet Nam while official exports of milled rice in 2015 reached 538,396 tons.6 Assuming current growth trends continue, it is expected that total production will reach about 10 million tons per year by 2020 of which about half would be required to meet domestic demand. Cross border trade could reach 3 million tons annually, with official exports of milled rice at about 1 million tons. The potential for expanding official exports would increase if the capacity for milling and processing in Cambodia could be expanded.

10. Maize production has also been increasing, due to increased area planted and improvements in productivity. However, most production is exported to Thailand and Viet Nam and the area planted is sensitive to demand from these two markets. Between 2013 and 2014 there was a 41% reduction in area planted in response to lower prices and reduced demand from Thai and Vietnamese buyers as well as to the import of maize through Viet Nam from India and Brazil. The average on-farm price for maize in 2015 was KR930 per kg ($232 per ton) for grain which was lower than 2014 price of KR1,140 per kg ($285 per ton) for grain. In the short term increased output in Thailand and Viet Nam may affect demand for maize from Cambodia, but in the longer term the growing demand for animal feed is expected to support demand for maize in Cambodia. Southeast Asian feed commodity demand is growing at 7% per year and this may lead to increased production of 20% or more in Cambodia over the next 5 years.7

11. The output of cassava has also been increasing rapidly since 2007 as larger areas have been planted. In 2014, production was more than 11.9 million tons of fresh roots, an increase of 180% over production in 2010, and it is expected to increase to about 14 million tons per year in 2020. Average yields are between 20 and 30 tons/ha., but under the right conditions can reach 45 tons. Cassava is exported to Thailand and Viet Nam as fresh roots or chips for further processing. There are currently three processors operating in Cambodia, but they only process about 1% of production. Since 2013, Cambodian processors have been exporting cassava chips to China, primarily for conversion to ethanol. These exports are expected to reach 200,000 tons in 2016.

12. Based on trader estimates, the total production of mangoes in the country is about 250,000 tons per year. Some of this production is exported to Thailand and Viet Nam, estimated at about 25% of production in 2015, but the volume of these exports depends on production and demand in these countries. Strong demand from Thailand and Viet Nam supports the Cambodian market and results in higher farm gate prices for growers. Cambodia has also recently agreed to a sanitary and phytosanitary protocol with Republic of Korea and exports to that country, and to China, are expected to increase in the coming years.

13. Rural landholdings in Cambodia are mostly small, with some 47% of rural households having less than 1 ha, 45% having between 1 and 4 ha and a further 7% have between 4 and 10 ha. Only just over 1% of households have 10 ha or more.8 In addition, landholdings are frequently fragmented; only 46% of farm households have only a single plot, while over 10% have four or

6 There is no official data on cross border trade to Thailand and Viet Nam. 7 Rabobank, Managing Challenges in the Value Chain, the Demand in Trade for Soya and Feed Grains, April 2015. 8 National Institute of Statistics. December 2015. Census of Agriculture of the Kingdom of Cambodia 2013, National

Report on Final Census Results, 2nd edition, Phnom Penh.

4

more plots. Fragmented holdings complicate crop production and are a constraint to improving production efficiency and yields.

14. A number of important changes are underway in Cambodian agriculture. Increasing the mechanization of tasks is one of these, partly driven by the rising cost of farm labor. Between surveys in 2005 and 2013, agricultural wages grew by an average of 206% compared with an increase of non-farm wages of only 60%. Migration to urban areas to take advantage of employment opportunities has led to relative labor scarcity in rural areas. As a result, mechanization is becoming more significant for both pre- and post-harvest production and there have been significant reductions in the labor inputs used. Mechanization may also contribute to a decline in the role of women in agriculture, since their role has traditionally been focused on harvest and post-harvest activities.9

15. Lack of effective irrigation systems is a major constraint to increasing agricultural production. However, Cambodia is a water rich country with a renewable water resource that in 2008 amounted to 32,695 m3/person/year of which only a very small fraction is actually used. Climate change is making water management a much more important issue than it has been in the past and farmers who manage water efficiently will become more resilient to climate change. While additional water storage and drainage to help manage floods may be needed, more effective irrigation can be achieved at least cost by rehabilitating many existing schemes rather than there constructing new ones.

16. The majority of farmers are restricted to a single annual rainfed crop by the lack of irrigation and poor water management, which constrains the development of more intensive and high value crop production. Only about 15% of the cultivated rice area in Cambodia is irrigated, compared with 28% in Thailand and 33% in Viet Nam. Many existing irrigation schemes are non-functional. A 2008 study from the Centre d’Etudes et de Devélopement Agricole du Cambodge (CEDAC) concluded that only about 7% of 2,000 irrigation schemes reviewed were considered functional, 34% partly functional and the rest were not in operation due to a lack of operation and maintenance systems.

17. Given the rapid increase in the use of farm machinery, the repair and maintenance of this machinery is an important issue and is a major constraint for on-farm production. Maintenance has substantial cost implications with lifetime costs of 20% and 28% of the cost of tractors and power tillers respectively and with only 20% of users being able to maintain their equipment. Furthermore, with limited servicing and repair the machinery is underutilized and owners are often obliged to sell machinery as little as 4 years after purchase. The cost benefit of imported machinery in Cambodia needs to be increased, in part through improving repair and maintenance skills available in rural communities.

IV. SECTOR DEVELOPMENT PLANS

18. The government’s policy for the agriculture sector is set out in the Agriculture Sector Strategic Development Plan 2014-2018.10 The stated policy goal for agricultural development is to increase agricultural growth to around 5% per annum through enhancement of the agricultural productivity, diversification and commercialization and livestock and aquaculture farming by taking into account the consideration of sustainable forestry and fisheries resource management. The policy consists of five programs for (i) enhancement of agricultural productivity, diversification

9 World Bank. 2015. Cambodia Agriculture in Transition: Opportunities and Risks. Washington, D.C. 10 Ministry of Agriculture, Forestry and Fisheries. Agriculture Sector Strategic Development Plan 2014-2018. June 2015.

Phnom Penh. (English translation).

5

and commercialization, (ii) promotion of animal production and animal health, (iii) sustainable fisheries resource management, (iv) sustainable forestry and wildlife resource management, and (v) strengthening institutional capacity, enhancing efficiency of supporting services and human resources development.

19. The objective of the first program is to increase crop production by 10% per annum through improvements to agricultural research, extension, product quality, the capacity of agricultural cooperatives and sustainable agricultural management. Under the program, there are a number of sub-programs focussed on issues directly relevant to the present project. These include the sub-programs to promote rice production, horticultural crops, industrial crop development, to enhance plant protection, sanitary and phyto-sanitary measures, develop the capacities of the National Agricultural Laboratory (NAL) and to promote and enhance agro-industrial development. The policy also includes cross-cutting issues, the most relevant of which for the project is the strategic framework for climate change in the agriculture sector. Objectives under this issue include enhancing the capacity of farmers to adopt technologies for coping with climate change and reducing greenhouse gas (GHG) emissions arising from the loss of forest and forest degradation in part through the promotion of renewable energy sources such as biogas.

20. The strengthening of institutional capacity under the sector development plan is mostly concerned with management and administrative issues. These measures will contribute to improvements in the implementation capacity of the project’s executing and implementation agencies.

21. The Climate Change Strategic Plan (CCSP) for water resources management climate change adaptation activities has objectives that include to: (i) protect, manage and use water resources in an effective, equitable and sustainable manner, protecting them from the negative impacts of climate change; (ii) maximize sustainable water resource contributions to poverty reduction, enhanced livelihoods and equitable economic growth; (iii) adapt to climate change and mitigate its effects on water resource based livelihoods; (iv) create stronger community participation, such as farmer water user communities (FWUC), in water resource management and development; (v) raise awareness and capacity of institutions to enable sustainable development and management of water resources; and (vi) apply modern sustainable management models partner with the private sector to develop sustainable financial systems.

22. The project is consistent with government’s agriculture sector policy and the CCSP and will contribute to the achieving of the sector goals while supporting progress towards achieving climate resilience in the agricultural and water resources sectors. The project is also consistent with the government’s industrial policy.11 The industrial policy promotes, among other subsectors, the development of agricultural processing and has a target for processed agricultural products to make up 12% of all exports by 2025.

V. GOVERNMENT IMPLEMENTATION CAPACITY

23. The Ministry of Agriculture, Forestry and Fisheries (MAFF), Ministry of Water Resources and Meteorology (MOWRAM) and Ministry of Rural Development (MRD) have experience, during the last 20 years, of successfully implementing many projects funded by various multilateral and bilateral donors. For the present project, the existing project implementation capacity will be further strengthened under Output 2 of the project which will focus on strengthening policy and

11 Royal Government of Cambodia. Cambodia Industrial Development Policy 2015 – 2025. 2015. Phnom Penh.

(unofficial translation).

6

the implementation capacity of the executing and implementing agencies in areas of relevance. This will include the development of climate smart agribusiness policies and standards, enhancing capacity for the development and release of climate resilient crop varieties and capacity strengthening for climate smart agriculture, agribusiness and farm mechanisation.

VI. PROJECT INTERVENTIONS

24. The following sections outline the key aspects of the proposed project interventions. Detailed descriptions of project interventions are given in the consultants’ Interim Report (July 2016) and in the project administration manual.

A. Output 1: Critical agribusiness value chain infrastructure improved and made climate resilient

25. Rehabilitating water management infrastructure to climate resilient condition. Although Cambodia is a water rich country with renewable water resources in excess of 32,000 m3/person/year crop production is constrained by deficiencies in water management. Activities under the project will address both off farm and on farm water management issues. The project will rehabilitate and improve selected irrigation schemes and implement measures to ensure their subsequent operation and maintenance (O&M) is well managed. Potential improvements in on farm water management will be demonstrated through the implementation of several trial areas for drip irrigation for mango plantations.

26. Traditional rice varieties require about 12,000 m3 over a 4-month period while newer short term crops with a 95 to 105 growing cycle require about 8,000 m3. With climate change delayed on-set of the monsoon or more prolonged dry spells will increase the need for supplementary irrigation during the wet season. This can be addressed through better technology to control water flows, better technology for taking water to fields and stronger institutions to manage the available water. (The development of varieties with lower water needs and production technologies that focus on using less water while maintaining yields and other measures are included under other sub-outputs.)

27. On farm water management for horticultural crops will promote drip irrigation to control the supply of water to plants and to improve the quality of fruit. Ponds will also be developed for individual farmers for surface water catchment and small scale supplementary irrigation as well as for livestock.

28. Although there are many small irrigation schemes in the four project provinces, a high proportion of this infrastructure is not in good condition either because of inadequate maintenance or because the schemes were not well designed in the first place. Many date from the Khmer Rouge period.

29. Expected results of the off farm water management activities, by 2023, are:

(i) 15,900 ha of command area and 25,000 households have new or improved access to year-round water supply to support their rice and other irrigated crops;

(ii) in 60% of cases where there is only 1 seasonal crop per year, farmers are able to add a second crop; and in 30% of cases they are able to add a third crop as a result of the project;

7

(iii) at least 22 existing and new FWUCs are functional and able to collect regular irrigation service fees from farmers to conduct small routine maintenance on schemes; and

(iv) FWUC and selected community members demonstrated increased capacity to sustainably manage a group, conduct group decisions making, raise funds, and operate and maintain irrigation schemes.

30. For on farm water management drip irrigation for mango plantations and ponds, by 2023 there will be:

(i) an increase in mango yields by 30% providing an additional yield of up to 4,500kg/ha;

(ii) uptake of drip irrigation of at least 1,000 ha; (iii) a farmer mango trading group formed with possible establishment of a

packhouse; (iv) PDA staff trained in O&M of drip irrigation systems; and (v) at least 800 climate resilient household ponds constructed.

31. The total cost for water management infrastructure activities, including surface and drip irrigation, household ponds, training and demonstrations is estimated at $44.1 million, including contingencies.

32. Upgrading agricultural cooperative value chain infrastructure. At present, there are 158 registered agricultural cooperatives: Takeo having 88 cooperatives, Kampot 43, Kampong Cham 15 and Tboung Khmum 12. Cooperatives have been promoted as a mechanism for addressing various challenges facing farmers, such as the lack of bargaining power for the purchasing of inputs or selling of crops and to help improve livelihoods in rural areas. Generally, agricultural cooperatives have started by establishing savings and loan schemes with interest rates of 2.5% to 4% per month, which are typically competitive with micro-finance institutions. Later, other businesses are added, including input supply, general retail stores and agricultural commodity trading and some have purchased land to establish to enable the establishment of businesses to market members’ crops, particularly rice, maize and cassava.

33. At present, the post-harvest handling of these crops is rudimentary and inefficient from the point of view of quality, safety and cleanliness. Crops can be affected by high moisture content, discolouring, smoke taint (if wood fuelled driers are used), mould, fungi and other infestations, including aflatoxins. By establishing proper drying and storage facilities for their members’ crops, agricultural cooperatives can add significantly to the value of farm outputs by avoiding these problems and reducing these and other post-harvest losses.

34. To address these issues, drying and storage units will be provided for selected agricultural cooperatives. Registered cooperatives growing rice, maize or cassava will be selected for participation in this sub output based on criteria that will include having existing trading activities or a business plan for the development of a business with potential downstream value chain linkages, available land, an existing reserve fund and the strong commitment of the cooperative management team and members.

35. The project will construct 50 to 200 tons cleaning, drying and storage units for the selected agricultural cooperatives, with the size depending on the crop or the trade that the cooperative deals in. The focus will be to: (i) reduce post-harvest losses; (ii) improve the grain or cassava chip samples and their moisture content; (iii) ensure a better price by delivery flexibility to processors

8

within the value chain; (iv) introduce modern methods of drying and, if possible, green energy technology into the drying and storage systems; and (v) encourage processors and buyers to form closer linkages with such cooperatives to help stabilize supply and demand and therefore the pricing issues relating to the availability and oversupply of the product. The quality of construction and layout will satisfy the Hazard Analysis Critical Control Point standard.

36. A capacity building program operated at provincial level to support the operating and maintenance of the drying and storage units will be provided to participating cooperatives. This will include training in agribusiness, product marketing and trading, accounting and bookkeeping, the preparation of annual reports and business plans and human resource management.

37. To support the development of the cooperative storage and drying facilities, the project will also improve selected roads and tracks within communes to link production areas to the storage units and to link the storage units to all weather or climate resilient roads for market access. This work is likely to include widening and bio-engineering for embankment slopes, structural engineering for critical slopes, improving drainage, using more resilient pavement materials and raising road elevation in lowland flooded areas.

38. It is expected that the results of this sub output, by 2023 will be:

(i) 50 cleaning, drying and storage units established for the storage of seed grain, maize and paddy or cassava chips;

(ii) 50 cooperatives with linkages with downstream value chain players; (iii) volumes traded in excess of 2,000 tons of rice seed, 12,000 tons of paddy and

maize and 20,000 tons of cassava in the final year of the project; (iv) cooperative business networks established for value chain commodities; (v) institutional capacity of targeted cooperatives strengthened so that they are able

to run their businesses effectively; (vi) 100 km of concrete roads (of 20-year durability) and 200 km of laterites roads (of

3-year durability).

39. The estimated cost for the sub-output including stores, driers and rural roads, is $47.9 million including contingencies.

40. Strengthening infrastructure for agricultural quality and safety testing. The purpose of this sub output is to provide support to the Plant Bio-technology Laboratory of the NAL and in the four project provinces to provide capacity building and support the training resources of the Provincial Development Centers, the Agricultural Engineering Workshops and the rapid testing capability for pesticide residues and aflatoxins.

41. Training and extension for improving crop production, introducing climate smart agricultural practices and supporting the increasing mechanization of crop production activities are becoming increasingly important. The facilities available for providing this training are limited in the four provinces and in need of repair and upgrading.

42. The repair and maintenance of machinery is a major constraint with significant cost implications and relatively few users are able to maintain their own equipment. Limited servicing also shortens the useful life of the machines. The project will address these issues by improving the workshop and training facilities available in each province and promote the establishment of local machinery maintenance businesses. The sub-output will provide formal training facilities in conjunction with the mechanization workshops for training farmers and processing operators to

9

maintain their machinery and equipment. Training will also be provided to interested poor and landless people, women and youth to help them to become service providers to farmers and others in the value chains. It is anticipated that machinery related training would be contracted to legitimate and experienced equipment importers and distributors.

43. The capacity of the NAL is limited with regard to crop product testing to satisfy international standards and compliance. There are a number of laboratories in the public and private sectors that provide varying degrees of crop and product testing, but in some cases the samples are sent to laboratories in Singapore, Thailand or Viet Nam. The NAL is in the process of improving its Plant Bio-technology Laboratory, including its units for seed testing and grain quality, bio-fertilizer analysis, genetically modified organisms (GMO) and living modified organism (LMO) analysis. GMO testing is important for Cambodia as these tests are required by many countries for imported food. A high proportion of Cambodia’s official rice exports go to European Union countries for which GMO testing is required, but at present these tests have to be carried out in Germany or Singapore.

44. By 2023 it is expected that the following will have been accomplished:

(i) a training facility and a mechanization workshop has been established in each of the target provinces that has the capacity to train a cross section of value chain players, including farmers, machinery and input suppliers, cooperative management, SME service providers, landless, poor, women and youth;

(ii) more than 50% of owners or operators of agricultural and agro processing machinery will be able to maintain their equipment using the agricultural engineering facilities and the capacity building resources provided under Output 2;

(iii) ten service provision businesses established in each province for machinery repair and maintenance and mechanization contract services;

(iv) two joint venture agreements per province to develop and fabricate agricultural machinery and equipment;

(v) private sector companies will be established to take a lead role in the operation and maintenance training of agricultural machinery;

(vi) the capacity to tissue culture cassava (and banana) established and transfer of that technology to private sector companies; at least 2 enterprises take up the technology with a business venture;

(vii) the testing of organic fertilizers and bio fertilizers is partially sustainable with at least a 50% cost recovery;

(viii) the NAL obtains international ISO 17025 accreditation for the laboratory tests related to the quality of fertilizers, both organic and inorganic;

(ix) the NAL is awarded international ISO 17025 accreditation for GMO testing and NAL Plant Bio-technology Laboratory is mutually recognized thus reducing conformity testing costs for GMOs for Cambodia food exports; and

(x) rapid field testing and bench testing for pesticide residues and aflatoxins respectively are undertaken routinely as part of risk management procedures.

45. The total cost for the activities under this sub-output, including construction of facilities and the purchase of equipment is estimated at $5.2 million, including contingencies.

46. Promoting renewable energy for value chain improvement. Most farmers practice an integrated livestock-rice cultivation system and even though the mechanization of on-farm tasks is increasing, the livestock population remains large. Households that raise at least two large animals, such as cattle or buffaloes, have sufficient manure available to feed the smallest (2m3)

10

bio-digester. A survey carried out for the National Biodigester Program (NBP) in 2015 found that 41% of rural households (about 0.86 million households) have sufficient animal wastes to run a bio-digester. In the four project provinces there are relatively large cattle and pig populations (0.86 and 0.55 million head, respectively). The estimated technical potential for biodigesters is of the order of 260,000.

47. There a number of biodigester initiatives in Cambodia but by far the largest is the MAFF owned NBP. So far, this program has installed over 24,000 biodigesters. NBP promotes, coordinates training, provides quality control, administers subsidies and organizes bio-slurry extension services. At the provincial level, the NBP operations are generally hosted by the Provincial Departments of Agriculture but the actual construction of biodigesters is contracted to bio-digester construction companies, which operate under franchise contracts with NBP.

48. In addition to biogas that can be used for cooking, or lighting where there is no electricity supply, bio-slurry is a by-product of biodigesters. Bio-slurry is a potent organic fertilizer that can be used to improve soil fertility, soil structure and crop productivity. It can also be used in fish ponds for algae and plankton growth on which fish can feed. Bio-slurry can improve crop yields compared with the effects of farm yard manure. Ideally, the water fraction of bio-slurry (more than 80% by volume) is directly applied for vegetable farming around the house while the solid fraction is stored and composted with dry organic material for later use, according to the seasonal demand for fertilizer. The NBP promotes the use of compost huts alongside the investment in the bio-digester in to maximize the benefits from bio-slurry. However, further promotion training on bio-slurry management and storage is needed.

49. To support the promotion and construction of biodigesters in the four selected provinces, the project will:

(i) fund the NBP biogas sector activities in these provinces during the 6 project years; (ii) provide support for the promotion and wider use of bio-slurry; (iii) support the development of national bio-digester standards and the endorsement

of the standards and their implementation; and (iv) provide technical assistance (TA) for bio-slurry related extension and related

capacity building and for the development of bio-digester standards. 50. The estimated cost for the sub-output, including NBP implementation costs, promotion and extension for improving bio-slurry use and subsidies for biodigesters and compost huts, is $13.6 million, including contingencies, of which $3.6 million is beneficiary contributions to the cost of biodigesters and compost huts.

B. Output 2: Climate smart agriculture and agribusiness promoted

51. The focus of Output 2 is on the development of the public and private human resources and institutional capacity and support services to enable climate friendly agribusiness growth and management. This will include (i) adhering to and developing appropriate climate friendly agribusiness policy guidelines and standards that support international compliance; (ii) supporting the delivery of existing and future support services; (iii) capacity building in productivity improvements and resource use efficiency; and (iv) improving and building agribusiness knowledge, enabling agribusiness policy and regulatory development, identification of opportunities for private sector engagement in climate change mitigation and adaptation, provision of information on climate-smart agriculture, harmonization of standards, and capacity

11

building for productivity and quality improvement and reduction of post-harvest losses, marketing, potential public-private partnerships, and financing options.

52. Deploying climate resilient varieties. This sub-output will provide support to the Cambodia Agriculture Research and Development Institute(CARDI) to develop climate resilient varieties of rice and maize able to tolerate conditions such as higher temperatures, saline water, drought, prolonged submergence as well as varieties with shorter cropping cycles. CARDI already has over 200 climate resilient lines that can be trialed.

53. It is expected that the results of the activities under the sub output will be:

(i) at least two climate resilient rice varieties released for commercial production; (ii) one climate resilient glutinous maize variety released for commercial production;

and (iii) CARDI has established a business that provides partial cost recovery in variety

development and foundation seed supply with the corresponding legal framework in place.

54. Strengthening capacity in climate friendly production practices and technologies. This sub output will provide training and capacity building to strengthen standards compliance, agribusiness and accountancy, FWUC organization and management and the operation and maintenance of irrigation systems and the operation and maintenance of farm machinery. It will also demonstrate laser levelling of fields for rice cultivation.

55. Training under this sub output will include CSA for extension workers and farmers. The principles of CSA are to address the challenges of food security and climate change by (i) sustainably increasing agricultural productivity, to support equitable increases in farm incomes, food security and development; (ii) adapting and building resilience of agricultural and food security systems to climate change at multiple levels; and (iii) reducing greenhouse gas emissions from agriculture.

56. The sub output will also prepare manuals for a Standard for Sustainable Rice Cultivation, for the CAMGAP for tropical fruit and for climate smart agriculture. Capacity building for cooperatives, FWUCs and to support business development will be relevant courses on bookkeeping, business plans, roles and responsibilities and operations and maintenance. For farmers and farmer groups training will also take place through field and other on-farm demonstrations.

57. By the end of project implementation in 2023, it is expected that:

(i) 16 trainers from the General Department of Agriculture Department of Industrial Crops and Extension will be certified;

(ii) 40,000 farmers (men and women) will be trained in CSA with productivity increases of at least 15%;

(iii) 20,000 farmers (men and women) will be trained in and compliant with SRP, leading to direct paddy marketing links with millers and traders;

(iv) 500 farmers (men and women) will be trained in and compliant with CAMGAP in tropical fruit;

(v) Golden Daun Keo Mill Cristal Rice Mill and Sek Meas Rice Mill will be participating in the SRP scheme;

12

(vi) 50 provincial input suppliers will have received training in CSA and have the ability to pass on that training to farmers;

(vii) 158 agricultural cooperative management and board members will be able to fulfill management and accounting obligations as specified in the law on agricultural cooperatives;

(viii) 50 cooperatives will have successfully started profitable agribusiness ventures, (not including saving and loan schemes);

(ix) at least 20 FWUCs will be capable of operating and managing their irrigation schemes;

(x) the labor pool of individuals (semi-skilled or skilled, men and women) able to operate and maintain a range of agricultural machinery will have increased significantly; and

(xi) 1,000 ha of laser levelling demonstrated.

58. The costs for this sub-output will include international and national consulting services, training, demonstrations, laser levelling demonstrations and limited equipment. The estimated total cost of proposed activities is $13.1 million, including contingencies.

C. Output 3: Enabling environment for climate friendly agribusiness enhanced

59. Formulating climate friendly agribusiness policies and standards. This sub output will include policy research and analysis, coordination and development with an improved and inclusive policy process with evidence based policy development. The development of knowledge products for agribusiness value chain policy makers and agribusiness enterprises will also be included. There will also be a human resources development program for government staff to build capacity in policy and standards development and elaboration.

60. There is a need for the establishment of standards for agricultural production. At present Cambodia Good Agricultural Practice (CAMGAP) is a production standard that exists only for vegetables. A standard also needs to be developed for tropical fruit, including mangoes. For rice, the sustainable rice platform (SRP) is a global multi-stakeholder alliance with the aim of transforming rice value chains to increase resource efficiency and minimize the environmental, ecosystem, climate change and social impacts of rice production. SRP works at both farm and policy levels working towards the adoption of climate smart sustainable best practice in rice production. SRP Alliance members in Cambodia include MAFF, Golden Rice and Battambang Rice Investment Co.

61. Although there is an Industrial Development Policy for the period 2015–2025, there is no policy specifically for agribusiness. An agribusiness national policy is required, aimed at developing a strong and dynamic market driven private agribusiness sector. The country needs a clear agribusiness policy in order that all stakeholders are aware of their responsibilities and obligations within the sector in which the public and private sectors play complementary roles. Any agribusiness policy must provide stability in the sector to encourage investment and growth, taking into consideration environmental and social best practices. The policy will include (i) the removal of barriers that impede private sector investment and the promotion of investment in agribusiness; (ii) identifying key investment strategies for public resources to enhance agribusiness growth; (iii) promoting the development of good infrastructure to support a comparative and competitive advantage with its regional rivals; and (iv) develop institutional and legal framework conducive to supporting and assisting agribusiness, particularly with respect to the regulations, taxes, registration and licensing in order to improve efficiency.

13

62. It is expected that the results of the activities under the sub-output will be:

(iv) agribusiness policy drafted and reviewed by MOC and MAFF and jointly endorsed by both ministries;

(v) CAMGAP for tropical fruit standard drafted and becomes a Cambodia standard with Cambodia standard mark;

(vi) organic fertilizer standard developed and becomes a Cambodia standard; (vii) SRP becomes more widely utilized with eight of the largest Cambodian millers or

exporters being part of the alliance; and (viii) Industrial development policy implementation strategies relating to agribusiness

developed.

63. Promoting green finance and risk sharing mechanisms. This sub-output includes activities for green finance and for promoting public-private partnerships (PPP) in agribusiness.

64. For PPP, the sub-output will involve developing recommendations for (i) an enabling environment for PPPs in agribusiness particularly with respect to the roles and responsibilities of the public and private sectors; (ii) the identification of incentives for private sector participation in agribusiness particularly improving the private sector´s access to green finance and ways to reduce the risk aversion of commercial banks; and (iii) reduce climate change risk of the raw material production base through the use of crop insurance.

65. PPP is a generic term for the relationships formed between the private sector and public bodies and consists of collaborative ventures built on the expertise of each partner that best meets clearly defined goals through the appropriate allocation of resources, risks and rewards. Many PPP partnerships are developed through dialogue and information exchange among diverse public and private sector stakeholders at the national level. To bring the PPP partners together to discuss and agree on PPP priorities, a joint forum for each value chain will be held twice a year. Each forum would have a defined set of objectives so that the prioritized PPPs for discussion can be agreed and the next steps decided. To augment the discussions at the forums, guest speakers would be invited to add their professional views on the proposed PPPs. Follow up actions would include review by an inter-ministerial committee, preparation of reports and documentation. Study tours to other ASEAN countries to study how PPPs work would be included in the program.

66. The PPP initiatives outcomes will be:

(i) Government ministries joint efforts to form and manage an inter-ministerial committee;

(ii) Inter-ministerial committee and crop centric meetings conducted for four value chains, with closer linkages are achieved within the selected value chains;

(iii) Government facilitation leads to improvements in efficiency and cost effectiveness in the value chains, monitoring and compliance efforts in the PPPs completed and enforced, respectively, and incentives provided and realized in the PPPs by the private partners;

(iv) Over 30 PPPs implemented based on PPP feasibility studies; and (v) Any legal framework requirements will be subject to regulatory impact

assessments. 67. For green finance, TA will be provided to build the capacity of the financial sector to promote bank and micro-finance institution (MFI) lending for climate friendly investments in both the agroforestry and sustainable agriculture sector and the renewable and low emission energy

14

sector. The project will build on the self-regulatory momentum undertaken under the Mekong Sustainable Finance Working Group and the MFI Client Protection Principle to help banks develop environmental and climate screening criteria and tools to guide their lending activities. This TA will build the capacity of lenders to evaluate climate risk and recognize lending opportunities. It will also strengthen linkages between lenders, borrowers, and input and services providers regarding climate friendly investment opportunities.

68. The ADB supported rice commercialization project is sponsoring a feasibility study on how best to approach and implement crop insurance activities. The three major components of any crop insurance scheme are (i) accurate and reliable weather and satellite remote sensing data; (ii) yields assessments and projections based on varieties soils, agronomic practices, harvest operations, etc; and (iii) financial data including input supplies, preparation, credit and other financing costs in order to calculate the potential level of loss per farmer across the area covered by the index. Insurance company products utilize this weather, yield and financial data to develop insurance premiums and claims.

69. There are currently two pilot projects underway, managed by Forte Insurance in Battambang and by CEDAC in Takeo, Kampong Speu and Kampong Chhnang. Both pilots have focused on rice crop insurance, although Forte has also experimented with rubber, cassava and corn.

70. The project will also help expand newly tested crop insurance models to all project provinces and project crops. It is expected that CEDAC will prepare a new generation of insurance products incorporating lessons learned from the first pilot. The project will then help expand the service to Tboung Khmum and Kampong Cham and also look into adding cassava and maize to rice as the portfolio of insurable crops. The project will build the linkage with the crop insurance work done by the ADB Rice Commercialization Project to inform the design of the next generation of crop insurance products. The project will couple this effort with examining what financial and regulatory constraints there are to develop the market and provide support to overcome those.

71. A TA to build upon current efforts to promote climate-friendly investments in both the agroforestry and sustainable agriculture sector and the renewable and low-emission energy sector will:

(i) Build the capacity of the financial sector to evaluate climate risk and recognize lending opportunities for bank/MFI lending for climate friendly investments in the sustainable agriculture sector and the renewable and low-emission energy sector;

(ii) Build on the self-regulatory momentum undertaken under the Mekong Sustainable Finance Working Group (USAID project) and the MFI Client Protection Principles; and

(iii) Strengthen linkages, trust and shared understanding between lenders, borrowers, and input and services providers regarding climate friendly investment opportunities.

72. The costs for this sub-output, including consulting services, training, meetings, workshops and other activities is $7.3 million, including contingencies.

VII. ECONOMIC RATIONALE FOR THE PROJECT

73. The project has two main parts. Firstly, investment in infrastructure focussed on enhancing value chains for key crops, either directly as for irrigation and drying and storage facilities or

15

indirectly as in facilities for household biogas production or for training that will help improve skills and efficiency along the value chains. Secondly, the project will invest in training and policy development as well as in essential laboratory services and agricultural research aimed at providing farmers with more climate resilient varieties.

74. The rehabilitation of mostly small-scale irrigation infrastructure and roads are clear public sector responsibilities. Project investment in the proposed drying and storage facilities for cooperatives will demonstrate the financial and economic feasibility and benefits of this type of investment to government, cooperatives and the private sector. It is intended, to attract future investment in similar facilities from cooperatives on their own account or in partnership with private sector players. Project investments in drip irrigation for mangoes will serve the same purpose of demonstrating to mango orchard owners the benefits of such facilities and thereby encourage their investing in this technology for themselves.

75. Investment in training for the agricultural sector and in laboratory and agricultural research has traditionally been provided in Cambodia by the public sector. Investment in these activities by the private sector is not likely until the legal, institutional and economic conditions are in place to enable private sector participation and ensure the possibility of a return on investment. For the time being, the responsibility for investment in these activities remains with the government.

VIII. ANALYSIS FOR SAMPLE SUBPROJECTS

76. Three feasibility studies of sample subprojects have been conducted. The following provides a brief description of these three subprojects. The detailed economic analysis of each is presented in the Sections IX to XI, respectively.

(i) Trapaing Run irrigation subproject is a rehabilitation project of existing irrigation scheme. Therefore, the analysis is based on a comparison of the cost and benefit streams in the with- and without-project scenarios. The difference in the two scenarios are the incremental costs and benefits.

(ii) Mango drip irrigation demonstration subproject demonstrates the drip irrigation and related cultivation technologies using solar power to pump ground water into either distribution tanks or directly to the system. The objectives are to improve fruit quality, increase yields, and make possible the scheduling of cropping through floral manipulation.

(iii) Seda Seanchey cooperative cassava storage subproject will provide a 200-ton capacity cassava storage facility and an associated drying floor. Cooperative members will be enabled to store and sell cassava out of season when price is higher.

A. Key Assumptions

77. The key assumptions used for the economic analyses are as follow:

(i) The project life is 20 years, including construction; the salvage value at the end of the project life is zero;

(ii) Implementation period for the Trapaing Run irrigation subproject is 2 years, and 1 year for the mango drip irrigation and cassava storage subprojects. The benefit flows are expected to start from the year following construction completion;

(iii) Costs and benefits are expressed in constant 2017 price level and are valued using the foreign (US dollars) price numéraire;

16

(iv) A standard conversion factor (SCF) of 0.90 is used for local component; (v) A shadow wage rate factor (SWF) of 0.90 is used for unskilled labor; (vi) Taxes and duties, interest and price contingencies are excluded from the economic

cost; physical contingencies are included;

(vii) Economic prices are derived from financial prices by first subtracting from the later any embedded taxes and duties. Secondly, the net of tax financial value is decomposed by its content (local, foreign and unskilled labor). The local content is multiplied by the SCF. The foreign content need no adjustment. The local unskilled labor component is multiplied by both the SCF and SWF. Summing the adjusted values for the local, foreign and unskilled labor content yield the economic price;

and (viii) The economic opportunity cost of capital (EOCC) is taken to be 9%.

B. Subproject Costs

78. In addition to the direct investment costs, a pro-rata share of overall project management and training costs is included as costs in the Trapaing Run irrigation and Seda Seanchey cooperative cassava storage subprojects. For the mango drip irrigation demonstration subproject, training will be provided by equipment supplier and the associated cost is already included in the overall equipment costs. Therefore, no training costs will be prorated to the drip irrigation subproject. The following paragraphs outline the method used to estimate each subproject’s share of project management and training costs.

1. Project Management Costs

79. The costs of project management are an essential part of the costs of implementing project interventions. To assign the relevant proportion of project management costs to each subproject, direct project management costs per thousand dollars of project investment costs (i.e. total project costs exclusive of project management costs) was calculated and then the relevant portion of project management costs added to the costs for each of the sample subprojects (see Table 3). Project management costs included the direct costs of the PMU plus the cost of implementation consultants and amount to $56.29 per thousand dollars of subproject investment costs in financial prices and $56.64 in economic prices.

2. Training costs

80. The project will provide training to different beneficiary groups on the use, operation, and maintenance of public infrastructure. It will also provide training to cooperatives to improve their business and financial skills. Total training costs have been estimated for apportioning to the respective subprojects.12

12 In addition, the project will construct new training centers and mechanization workshops, or renovate existing ones

in the four project provinces. These facilities will be used generally for Provincial Agricultural Development Center training activities in each province and will benefit many more farmers than the direct beneficiaries of the three sample subprojects. These training infrastructure costs are therefore not included in the analysis.

17

Table 3: Project Management and Training Costs

Unit Total costs ($ million)

Cost component Financial Economic

A. Total project cost - 73.69 65.37

Infrastructure interventions

B. Water resources, excluding ponds and drip - 15.11 12.67

C. ponds - 5.61 4.85

D. Cooperative Storage Units - 3.44 3.02

E. Roads - 18.01 15.52

Project management, technical support & capacity strengthening

F. Project Management Unit - 1.98 1.53

G. Technical support1) (H+I) - 3.71 3.76

H. project management - 1.94 1.98

I. other - 1.77 1.78

J. Capacity strengthening and training2) - 2.95 2.73

Total (F+G+J) - 8.64 8.02

Project Management Costs

Project management per $1000 ((F+H)/(A-F-H))*1000 $/’000$ invt 56.29 56.64

Training costs3)

K. Total training costs (I+J) - 4.72 4.52

L. Training costs for irrigation systems (K*B)/(B+C+D) - 2.95 2.79

M. Training costs for cooperatives (K*D)/(B+C+D) - 0.67 0.66

N. Number of surface irrigation subprojects - 22.00

O. Number of cooperative storage units - 50.00

Training costs per subproject (L+M)/(N+O) $/subproject 50,306 47,917

Notes: 1) Excludes technical support for energy, green finance and the National Agriculture Laboratory 2) Standards compliance training and laser levelling demonstrations excluded. 3) Costs of training centre and mechanization workshop construction or renovation not included.

Source: PPTA Consultants' estimates.

81. Training costs to be allocated to subprojects include the direct costs of training and institutional strengthening activities under Output 2.2 (Capacity in climate friendly production practices and technologies enhanced) and the technical support inputs directly related to these activities. For these estimates, the direct costs of training for renewable energy for value chain improvement and the green finance activities, which are effectively stand-alone activities, have not been included. Technical support for the NAL is also excluded.

82. Total training costs for water resources and cooperative infrastructure comes to $4.72 million ($4.52 million in economic prices). These costs refer to the upgrading and rehabilitation of surface water irrigation systems, the development of farm ponds and the development of cooperative storage units and their associated agribusiness activities. The total is prorated among these interventions in proportion to the estimated total investment in each. The training cost for the irrigation systems plus the cooperative storage facilities (excluding the farm ponds) sum to $3.62 million ($3.45 million in economic prices). Since there is overlap between training activities and some training will be relevant for irrigation systems and cooperatives, this training cost has been divided by the total number of units (irrigation systems plus cooperatives) to arrive at a training cost for each of the subprojects. The training cost per subproject amounts to $50,306 ($47,917 in economic prices).

18

C. Roads

83. The improvement of rural roads to complement the development of cooperative storage units was only added to the project at the Interim Workshop early in June 2016, without any provision of additional financial or staff resources to carry out any technical or economic surveys and analysis. The intention was, rather, that the specific road sections to be included would be identified during project implementation. For these reasons, no economic analysis has been carried out for roads.

84. It is proposed that 100 km of concrete roads will be constructed and 200 km of laterite roads upgraded. This is an average of 2 km of concrete and 4km of laterite roads per storage unit. The actual lengths upgraded for each storage unit will vary as roads will be upgraded where the need is greatest. The objective will be to improve transport conditions between members’ farms and the store, thereby saving time and effort, and to ensure good access from the cooperative store to the nearest sealed road to facilitate access to local, regional and international markets. While the roads upgraded may not benefit all cooperative members directly, overall, they will save transportation times from field to storage unit and reduce overall transport costs for the cooperatives and those whom they are supplying. Actual savings in each case will depend on the type and length of roads upgraded.

85. The Ministry of Rural Development has implemented various rural roads projects with ADB and other donors. These roads usually provide immediate benefits for the communities they serve, providing better access to urban areas and markets, stimulating increases in agricultural production and outputs and providing improved access to social services, notably for education and health. In one recent road project, the assessment of roads proposed for upgrading on five islands in the Mekong River had individual economic internal rate of returns (EIRRs) between 12.1% and 37.5% and for the whole project of 31.8%, using the usual methodology for the assessing of economic returns for roads.13 For these sorts of roads very low EIRRs may occur for individual sections where the population is low coupled with the necessity of constructing relatively expensive items of infrastructure, such as bridges. For the aforementioned road project, the overall EIRR for the whole project is satisfactory. There is no reason to suppose that the overall EIRR for the upgrading of rural road sections under the present project would differ significantly from this general pattern.

IX. TRAPAING RUN IRRIGATION REHABILITATION

A. Background

86. Trapaing Run Reservoir and irrigation system is in Tani commune of Angkor Chey district of Kampot province and is about 10 km from national road no.3 and about 17 km from the provincial town of Kampot. The reservoir and its command area are shared among three villages with 185 of 708 households expected to benefit directly from the rehabilitation of the system. The system was constructed during the Khmer Rouge regime between 1975 and 1978 and since then has had very little maintenance.

87. The provincial government supports the economic development of the province and has taken measures to improve the enabling environment to encourage business investment. It strongly supports the development of agribusiness in the province which will supported by the

13 ADB. 2013. Technical Assistance Report: Kingdom of Cambodia: Mekong River Island Connectivity Output. Manila.

19

development of a new port in Teak Chhou District and the good conditions for agriculture, with generally good soils and sufficient water, in the lowland plains of Kampot.

88. The rehabilitation of the Trapaing Run irrigation system fits within provincial development objectives and aims to improve the resilience of farmers in the Trapaing Run community to climate change effects through increasing water availability and providing efficient irrigation and water management infrastructures.

B. With- and Without-Project Scenarios

1. Present Status of the Infrastructure and Irrigation

89. The subproject area is comprised of three villages: Trapaing Run, Trapeang Raing and Ta Pream with a total population of 3,191 of which 1,711 are female. There are 708 households of which 111 are headed by women. Most households are relatively poor with limited productive resources. Landholdings average about 1.5 ha, equally divided between rice land and upland where other crops may be grown. There are 80 classified poor households in the commune, some of which are in the subproject villages. Out-migration for work is common with the result that labor for on farm work is scarce, especially during peak crop production periods.

90. The existing infrastructure consists of an embankment of 1.4 km which is equipped with three outlets and three distribution canals measuring in total a length of 1.5 km. The reservoir is shallow and silted with limited water catchment and it dries up during the dry season, especially in drought years. All three outlet structures are in the poor condition and are unable to hold water in the reservoir. The largest of the three structures was designed for a dual role as head regulator when there is irrigation demand at its downstream canal, and spillway when there a risk of the reservoir overflowing. Three main canals run from the outlet structures into the command area. Main canals no.1 and no.3 are very short, about 250 m each, but Main canal no.2, from the head regulator is about 1 km in length and is both irrigation and drainage canal. The command area of the system is about 100 ha.

91. There has been little or no O&M over the years and the system hardly functions. The embankment is damaged at certain points and as the three outlets are not properly functional the reservoir cannot hold sufficient water to supply the command area. Repairing the embankment and its structures will reactivate the Trapaing Run reservoir and increase its storage capacity. The reservoir also has a secondary role as one source of water supply for the community’s domestic use and its livestock.

92. Given the present limited functionality of the system, crop production is basically rainfed with, at best, limited supplementary water available from the system. Crops in the command area face water shortages which can occur during the early wet season, between late July and early August or later in the rainy season. These water shortages sometimes lead to considerable reductions in crop yield or sometimes to total crop loss. At the end of the wet season and during the dry season, residual moisture in the soils can be low. From November to April the rainfall is low while the evaporation increases. This restricts both the area that can be cropped and the yields of those crops. Modernization and rehabilitation of the reservoir and its supply system will provide for supplementary irrigation for rice, particularly during the dry spells in the wet season, and water to supplement residual soil moisture which will allow farmers to grow significantly more dry season crops.

20

2. Present Crop Production and Cropping Patterns

93. There are three cropping seasons during which farmers in the command area may grow crops. An early wet season non-photosensitive rice crop planted in May can be grown, but at present this is only on a very small area due to the variability of rain during this season. The main wet season crop of photosensitive varieties is planted in August or September, with harvesting in December or January. This crop is grown in the whole command area but mostly as a rainfed crop. The system as it exists at present can only provide very limited water, which must be pumped, if available, from canals and drains into fields. This crop may be followed by a vegetable crop or maize based on residual moisture in the fields, but the area of these dry season crops is also very limited.

94. It is estimated that the present cropping intensity is about 10% for early season rice, almost 100% for the main wet season rice, and 25% for dry season crops. The cropping intensity naturally varies year to year depending on the strength of the monsoon.

95. The analysis assumes that, without the project, climate change will lead to a gradual reduction in agricultural output over time. This could be the result of reduced yields due to increased climate variability and increased occurrence of extreme events, or reduced area cultivated, or a combination of both. In the analysis an annual decline of 1% is assumed for the without project scenario starting from the third project year.

3. Demand for Outputs

96. A high proportion of the rice produced in the command area is for farming households own consumption. Any surpluses can easily be sold to rice collectors who sell either to central Cambodian markets or to Vietnamese buyers. Surplus rice from Kampot is often exported, informally, to Viet Nam.

97. Dry season vegetable crops are sold in local markets or to collectors supplying to markets further afield. The current levels of production, as well as the increased production expected after rehabilitation of the system are extremely small compared with overall regional and will easily be absorbed by local and national demand without impact on prices.

4. Subproject Interventions

98. The subproject will replace the existing outlet structures no.1 and no.3 and will replace outlet no.2 with a spillway for the release of surplus water. Breaches in the embankment will be backfilled using material from borrow pits in the reservoir, but the final crest level of the embankment will only be determined during detailed design. The reservoir will be deepened by about 1.5 m over an area about 20 m wide along the embankment, but the extent of deepening and the final storage capacity of the reservoir will only be known once detailed design has been completed.

99. Two new main canals of about 1,000 meters each will be constructed from outlets no.1 and no.3 and the existing canal from outlet no.2 will be converted for drainage. The distribution system will be developed with the construction of new secondary canals totaling an estimate 1,560 meters. The main and secondary canals will be of reinforced concrete. These will take less space than the existing canals, will reduce water losses (especially in view of the limited storage capacity of the reservoir) and will be more efficient than the original system.

21

100. The design and location of canals was dictated by the need to minimize the impact on landholdings as there was a potential for canals, if not carefully designed and located, to severely affect the holdings and farm incomes of some households. The agreed design of the main and secondary canals minimizes the space occupied and avoids encroaching on cultivated land.

101. Training will also be provided to help farmers in the command area to set up and run a FWUC which will assume responsibility for the operation and maintenance of the scheme once rehabilitation is complete.

C. Economic Analysis

1. Subproject Benefits

102. The project will generate two streams of benefits: (i) increase in yield and (ii) increase in cropping intensity owing to irrigation system rehabilitation.

103. With rehabilitation of the irrigation system, supplementary irrigation for the main wet season rice crop will be available to ensure the crop does not suffer from water shortages during dry periods. This will increase average yields and give farmers the confidence to invest more in this crop. The early wet season rice crop is also expected to benefit. The area and average yield of this crop will increase, but the total area that could be safely planted will still be quite limited. The more reliable supply of water during the main wet season will result in higher levels of residual moisture after harvest to support dry season vegetable and other crops and some supplementary irrigation will also normally be available from the reservoir. This crop season will benefit significantly from the rehabilitation of the system. Dry season crops typical of the area include mung bean, watermelon, cucumber, pumpkin and various other minor vegetable crops.

104. For early wet season rice, the present average yield is around 2.0 tons/ha, which is expected to increase to about 2.5 tons/ha, which is still well below the national average yields of 2.8 to 3.0 tons/ha. Main season rice currently gives yields of around 2.7 tons/ha and given better water supply, input levels and some adjustment in varieties planted is expected to increase to around 3.5 tons/ha. For dry season crops, farmers in the area currently achieve yields of about 0.5 tons/ha for mung bean, which is well below the national average yield of 1.115 tons and 6 tons/ha for watermelon. With more moisture available for the crop and some supplementary irrigation, yield is assumed to increase to around 850 kg/ha with the project. With the improved growing conditions, watermelon yields are expected to reach an average of 7.5 tons.14 Yield increases are expected to occur over 2 years following completion of the system rehabilitation. With- and without- project cropping intensities and yield estimates for each of these crops are shown in Table 4. -

105. With the project, cropping intensity is expected to increase, with the early wet season rice crop increasing to about 25% of the command area and dry season crops increasing to about 70%. The latter is justified by the expected significant increase in the level of residual moisture available for crops after the main rice harvest. Increases in crop areas and yields are assumed to occur during the two years following completion of the subproject works.

14 For watermelon no data is available on average yields in the region or across the country.

22

Table 4: With- and Without-Project Cropping Intensities and Yield Estimates Without project With project

Crops

Price ($/ton)

Yield (ton/ha)

Cropping intensity

(%)

Effective cultivation area (ha)

Yield (ton/ha)

Cropping intensity

(%)

Effective cultivation area (ha)

Yield improvement

(%)

Dry season

Mung bean 1,000 0.50 10% 10 0.85 25% 25 70%

Watermelon 320 6.00 15% 15 7.50 45% 45 25%

Wet season

Early season rice 246 2.00 10% 10 2.50 25% 25 25%

Main season rice 246 2.70 100% 100 3.51 100% 100 30%

Notes: 1) Subproject command area is 100 ha. 2) Present (without-project) data from farmer informants. 3) Mung bean and water melon are representative dry season crops.

106. Rehabilitation of the reservoir may also improve the accessibility to water for at least some of the village livestock and could also result in an increase in fish production. In addition, the formation of a FWUC to manage, maintain and operate the irrigation system may have secondary benefits beyond its primary purpose - in terms of farmers working together and cooperating on marketing. These and other secondary benefits are not included in the analysis. These potential benefits are not quantified.

107. The beneficiaries of the subproject will be all those households with land in the system command area. This is 185 households with an estimated 832 family members. Indirect beneficiaries will include other households who have improved availability of water from the reservoir for livestock or for domestic use. Rice traders may also benefit from increased surpluses produced in the command area. Input supplies may also benefit from increased demand.

2. Prices

108. The financial prices used for the analysis are 2017 prices. For crop outputs, they are the current farm gate prices reported by Trapaing Run villagers. The financial prices of agricultural inputs and outputs are converted to their economic values using appropriate conversion factors. Labor is treated as surplus for estimation of its economic value. The prices used in the analysis are given in Table A1.1 of Annex 1. Major traded commodities economic price derivations are provided in Tables A1.2 to A1.5.

3. Subproject Costs

109. The total project costs consist of three categories: (i) initial investment costs, (ii) recurring O&M costs, and (iii) incremental crop budget costs. Investment costs include civil works and equipment costs, FWUC establishment costs, and project management and training costs. In financial cost for the infrastructure rehabilitation costs is $522,200. FWUC establishment costs is $6,500. Prorated project management and training costs sum to $79,699. The total subproject cost is $608,399. The economic value of each item is derived by first removing taxes from the financial prices, and then decomposing the net of tax financial values according to three input component (tradable, non-tradable, surplus labor), and converting the financial values of each component into economic values using appropriate conversion factors. In economic prices, subproject costs are $557,773. The annual O&M cost is $50 per ha in financial prices. The financial and economic values of these costs are presented in Table 5.

23

Table 5: Subproject Financial and Economic Costs ($)

Financial Cost

Decomposition (%) Economic

Cost Item Non-

tradable Tradable

Unskilled labor

Capital expenditures

1. Civil Works and Equipment 522,200

476,376

Excavation for deepening of reservoir 75,000 95.00% 5.00% 0.00% 68,561

Backfill and compaction on embankment 3,000 95.00% 5.00% 0.00% 2,742

Spillway construction 65,000 50.00% 30.00% 20.00% 60,942

Head regulators (two units) 70,000 30.00% 0.00% 70.00% 63,191

Main and secondary canals 269,200 25.00% 5.00% 70.00% 244,374

Excavation for main drain 40,000 95.00% 5.00% 0.00% 36,566

2. FWUC establishment 6,500

6,500

3. Training and Project Management 79,699

74,897

Training 50,306 80.00% 20.00% 0.00% 47,917

Management 29,393 75.00% 25.00% 0.00% 26,980

Total capital expenditures 608,399 557,773

Recurrent costs

4. O&M costs

Per ha per year 50.00 47.50

FWUC = farmers water user committee, O&M = operations and maintenance. Note: To compute economic costs, estimated taxes embedded in the financial prices are removed. The net of tax value

is then decomposed by its content (local, foreign and unskilled labor). The local content is multiplied by the SCF of 0.90. The foreign content need no adjustment. The local unskilled labor component is multiplied by both the SCF of 0.90 and SWF of 0.9. Summing the adjusted value for the three components yield the economic price.

Source: PPTA consultants’ estimates.

110. The per hectare financial production costs of different agricultural inputs for early wet and main wet season rice and mung bean and water melon to represent the various crops grown during the dry season are presented in Table 6. The crop budgets are based on information provided by farmers in the subproject area on present crop inputs and outputs. The per-hectare crop budgets are developed for the with- and without-project scenarios.

Table 6: Crop Cultivation Production Cost Budget by Season (financial prices, $/ha) Without project With project

Dry season Wet season (WS)

Dry season Wet season (WS)

Production costs

Mung bean

Water melon

Early WS rice

Main WS rice

Mung bean

Water melon

Early WS rice

Main WS rice

1. Seed 30.0 60.0 13.8 13.8 30.0 60.0 13.8 13.8

2. Fertilizersa 54.5 86.1 71.0 82.1 104.0 111.9 88.7 105.8

a. Urea 46-0-0 15.6 28.1 25.0 31.3 31.3 34.4 35.0 40.6

b. DAP 18-46-0 23.9 43.0 31.0 35.8 47.7 52.5 38.7 50.1

c. Manure 15.0 15.0 15.0 15.0 25.0 25.0 15.0 15.0

3. Herbicide / Pesticides 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0

4. Water costb 25.0 25.0 25.0 25.0 0.0 0.0 0.0 0.0

5. Labora 75.0 125.0 75.0 75.0 100.0 150.0 75.0 75.0

6. Rental toolsa 157.5 157.5 237.5 262.5 237.5 237.5 237.5 262.5

24

Without project With project Dry season Wet season

(WS) Dry season Wet season

(WS)

Production costs

Mung bean

Water melon

Early WS rice

Main WS rice

Mung bean

Water melon

Early WS rice

Main WS rice

a. Tractor hire (land preparation - ploughing)

37.5 37.5 150.0 150.0 37.5 37.5 150.0 150.0

b. Tractor hire (post harvest)a,c

Harvesterb,d

120.0 120.0 87.5 112.5 200.0 200.0 87.5 112.5

Total Production Costs 372.0 483.6 452.3 488.3 501.5 589.4 444.9 487.0

Notes: a Marked inputs are variable costs and are adjusted to crop intensity and yield improvement, mainly for dry season crops.

b In the with-project scenario, water costs are incorporated into overall O&M costs, which will amount about $25 per ha per year.

c Post harvest transportation cost for dry season crops. d Machine harvesting cost for rice.

4. Economic Analysis and Sensitivity Analysis

111. The combined effect of increased cropping intensity and yield improvement will result in incremental revenue generation. Overall, the economic internal rate of return (EIRR) is 13.13%, and the economic net present value (ENPV) at 9% discount rate is $183,767. Table 7 presents a summary economic resources flow statement, based on a comparison of the with-and without-project scenario. Detailed derivations of the with- and without-project scenarios, as well as the incremental cost and benefits streams are presented in Annex 2.

Table 7: Economic Analysis for Trapaing Run Irrigation Subproject ($) Year Investment

costs Maintenance

costs Incremental farm

input costsa Incremental farm incomea

Incremental net farm income

Net benefit

1 270,900 0 0 0 0 -270,900 2 270,900 0 0 0 0 -270,900 3 15,972 4,750 25,701 74,540 48,839 28,116 4 0 4,750 27,359 103,777 76,417 71,667 5 0 4,750 33,886 133,002 99,116 94,366 6 0 4,750 34,469 134,109 99,639 94,889 7 0 4,750 35,046 135,204 100,157 95,407 8 0 4,750 35,618 136,288 100,671 95,921 9 0 4,750 36,183 137,362 101,178 96,428 10 0 4,750 36,743 138,425 101,681 96,931 11 0 4,750 37,298 139,477 102,179 97,429 12 0 4,750 37,846 140,518 102,672 97,922 13 0 4,750 38,390 141,550 103,160 98,410 14 0 4,750 38,928 142,571 103,643 98,893 15 0 4,750 39,460 143,581 104,121 99,371 16 0 4,750 39,987 144,582 104,595 99,845 17 0 4,750 40,509 145,573 105,063 100,313 18 0 4,750 41,026 146,553 105,527 100,777 19 0 4,750 41,538 147,524 105,987 101,237 20 0 4,750 42,044 148,485 106,441 101,691

ENPV = 488,878 35,005 257,656 950,132 692,476 183,767 EIRR = 13.13%

ENPV = economic net present value, EIRR = economic internal rate of return, O&M = operation and maintenance Notes: a Incremental input costs (farm income) are computed by taking the difference between the costs (farm income)

25

in the with- and without-project scenario. The analysis assumes that the cultivated area in the without-project scenario would be declining at 1% per year starting from third year, resulting in declining farm inputs costs and farm income. This accounts for the changes in the incremental input costs and farm income.

Source: PPTA consultants’ estimates.

112. The sensitivity tests show that the result is sensitive to crop yields and, to a lesser extent, to cropping area. A 10% reduction in either variable would reduce the EIRR to 9.44% and 11.46%, respectively. The project outcome is less sensitive to other variables, such as increase in capital costs, O&M costs and crop input costs. They have limited impact on the economic viability of the subproject.

Table 8: Sensitivity Analysis of Key Variables

Sensitivity Test ENPV

($) EIRR (%)

SI SV (%)

Base Case 183,767 13.13%

-10% With project yields 17,971 9.44% 9.02 -11.08% +10% Capital costs 134,886 11.85% -2.66 37.60% +10% O&M costs 179,951 13.05% -0.21 481.63% +10% Capital, +10% O&M costs 131,071 11.77% -2.87 34.87% +10% Crop input costs 155,683 12.54% -1.53 65.43% +20% Crop input costs 127,598 11.93% - - -10% With project crop area 106,757 11.46% 4.19 -23.86% No reduction of cultivated area in without-project scenario 153,721 12.55% - -

EIRR = economic internal rate of return, ENPV = economic net present value, SI = sensitivity indicator (ratio of % change in ENPV to % change in a variable), SV = switching value (% change in a variable to reduce the ENPV to 0). Note: a Same % change in both variables. Source: PPTA consultants’ estimates.

113. The base case includes the assumption that, due to the impact of climate change, the area planted in the future without project scenario will gradually decline due to the greater variability in rainfall. Without project cropping area is assumed to decline by 1% per year. If this assumption is not made – i.e. the cropping area in the without-project scenario remains constant – the EIRR would become 12.55%.

D. Financial Analysis

114. Table 9 presents a summary financial cash flow statement at the project level. At project completion, the net incremental revenue is positive throughout project life.

Table 9: Financial Analysis for Trapaing Run Irrigation Subproject ($) Year Investment

costs Maintenance

costs Incremental farm

input costsa Incremental farm incomea

Incremental net farm income

Net benefit

1 295,815 0 0 0 0 (295,815) 2 295,815 0 0 0 0 (295,815) 3 16,769 5,000 27,515 73,540 46,025 24,256 4 0 5,000 29,557 101,269 71,713 66,713 5 0 5,000 36,467 128,988 92,522 87,522 6 0 5,000 37,091 130,009 92,918 87,918 7 0 5,000 37,709 131,020 93,311 88,311 8 0 5,000 38,321 132,021 93,700 88,700 9 0 5,000 38,926 133,011 94,085 89,085 10 0 5,000 39,526 133,992 94,466 89,466 11 0 5,000 40,120 134,963 94,843 89,843

26

12 0 5,000 40,707 135,924 95,217 90,217 13 0 5,000 41,289 136,876 95,587 90,587 14 0 5,000 41,865 137,818 95,953 90,953 15 0 5,000 42,435 138,750 96,315 91,315 16 0 5,000 43,000 139,673 96,674 91,674 17 0 5,000 43,558 140,588 97,029 92,029 18 0 5,000 44,112 141,492 97,381 92,381 19 0 5,000 44,659 142,388 97,729 92,729 20 0 5,000 45,202 143,275 98,074 93,074

O&M = operations and maintenance Note: a Incremental input costs (farm income) are computed by taking the difference between the costs (farm income)

in the with- and without-project scenario. The analysis assumes that the cultivated area in the without-project scenario would be declining at 1% per year starting from third year, resulting in declining farm inputs costs and farm income. This accounts for the changes in the incremental input costs and farm income.

Source: PPTA consultants’ estimates.

115. Crop budgets will not change much for wet season rice, but it would increase for dry season crops for the farmers. Yet, the farmers will have the financial incentive to participate in this subproject as it would increase the crop yields and cropping intensity that would lead to incremental income for farmers.

116. Average landholdings for households in the subproject area are about 1.5 ha, about equally divided between rice land and upland areas for other crops. Within the command area holdings vary in size, but with 185 households reported holding land in the area this gives an average of 0.54 ha per household (apart from any land they may also have outside the command area). Farmers would get an incremental net income of $500 ($92,522/185) per household starting from year 5 when the full benefits of the subproject are realized, for a total of $92,522 (Table 9). The subproject will generate sufficient net income to defray the annual O&M costs of $5,000.

117. Rehabilitation of the subproject irrigation infrastructure, which at present is barely functional, will have a significant impact on the potential for crop production in the command area, leading to increases in both yields and cropping intensities. Because land preparation for all crops and harvesting for rice are mechanized, labor inputs are relatively low and within the capacity of households for most activities, the value of labor inputs accrue mostly to households rather than to hired labor.

E. Subproject Sustainability

118. There are three types of infrastructure maintenance: (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; (iii) emergency maintenance involves urgently needed, and generally significant, repairs in response to disastrous event. Due to its rare occurrence, emergency maintenance is not considered in this discussion. 119. For the irrigation subprojects, routine maintenance will be performed by the beneficiary communities. FWUCs will either be established or strengthened through training to enhance their capacity O&M planning and execution. The O&M plans will clearly define the roles and

27

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. The number of completed subprojects that have O&M plans in place and the number of subprojects that are functional and used by communities a year after completion will be monitored.15

120. It is expected the FWUCs will collect limited fees from farmers for routine O&M. As for periodic maintenance, starting in 2015, the Ministry of Economy and Finance (MEF) established an annual O&M budget of about $10 million for all types of public infrastructure. In 2016, the budget was increased to $15 million. Funding are allocated by quest request. Currently, the amount is limited, but MEF plans to increase O&M budget gradually. The Ministry of Water Resources and Meteorology (MOWRAM) as supervising ministries for the public water resources (irrigation canals and ponds), as well as the Ministry of Rural Development for the road infrastructure, are encouraged to tap into the MEF fund for periodic O&M.

121. Table 10 presents MEF’s total O&M budget allocated to MOWRAM for public water resources infrastructure. Although the amount required exceeds the amount actually allocated, the trend indicate a stronger governmental commitment on the O&M of public infrastructure.16

Table 10: Ministry of Water Resources and Meteorology O&M Budgets for O&M for Water

Resources Infrastructure unit 2014 2015 2016 2017a

O&M budget required by MOWRAM Budget million KHR n.a. 332,532 138,000 118,820 Number of irrigation scheme to be supported scheme 13 131 261 180 Number of FWUCs to be supported FWUC n.a. n.a. 141 51 O&M budget allocated by MEF Budget million KHR 19,100 30,000 40,000 57,000 O&M budget utilized by MOWRAM

Budget million KHR 15,227 29,951 39,604 n.a. Number of irrigation scheme supported scheme n.a. n.a. 156 190 Number of FWUCs supported FWUC n.a. n.a. 43 66 FWUC = farmers water user committee, MEF = Ministry of Economy and Finance, MOWRAM = Ministry of Water

Resources and Meteorology, O&M = operations and maintenance. a As of July 2017.

Source: MOWRAM and MEF.

X. MANGO DRIP IRRIGATION DEMONSTRATION

A. Background

122. Takeo province plans to develop its economy and achieve sustainable economic development through the promotion of agricultural production, the development of small industries and the expansion of tourism in its coastal areas. Its natural resource sector development is being promoted through a 5-year provincial development plan. Key elements of relevance to the subproject include (i) the improvement of soil nutrient and crop protection to improve the quantity

15 The project design and monitoring framework (DMF) sets a target that at least 27 FWUCs will develop capacity to

operate and maintain their irrigation schemes. 16 Annex 3 presents a similar table on the historical O&M budget requirement, allocation, and utilization for rural roads,

as well as an estimation of the total annual O&M expenditure that requires governmental budgetary support (about $3.1 million per year by project completion).

28

and quality of yield; (ii) the development of water resources through irrigation development; (iii) the strengthening of farmer cooperatives to enhance their business capacity in agribusiness value chain and access to technical support services and good quality of inputs; (iv) to improve food safety in the province; (vi) the enhancement of road maintenance and the rehabilitation of communications throughout the Province; (vii) to extend the rural road network to the more remote locations; and (ix) adopt improved land management practices to ensure sustainability of the resources for the future.

123. The objective of the subproject is to demonstrate drip irrigation on orchards of 3 years of age or more, to improve the quality of the fruit, increase yields, schedule cropping and address climate change issues being experienced in the province relating to late onset of rains and extended drought periods. Higher than normal temperatures will reduce flower fertility and irrigation will reduce orchard ambient temperature. Altogether, drip irrigation systems will be installed in 15 mango orchards as demonstration sites.

124. There is scope for improving and expanding mango production in Kampot, particularly in areas of the province bordering Kampong Speu (as in the case for the pilot subproject) as it is the largest mango producing area in the country.

B. With- and Without-Project Scenarios

1. Present Status of the Mango Orchard

125. This subproject is a demonstration pilot for the introduction of drip irrigation in mango orchards. Mangoes are considered drought resistant, but with extended drought periods and more erratic rainfall patterns, the trees can suffer stress and fruit quantity and quality suffer. The aim of drip irrigation is to ensure that the mango trees have adequate moisture throughout the year and are not subject to excessive drought stress. Irrigation for mangoes increases yields, improves the overall quality of fruit produced and enhances the provision of floral manipulation.

126. The mango orchard for the pilot is in Prey Kdouch village, Trapang Kranhoung commune and Tram Kok district of Takeo province. It is about 52 km on road no. 130A form Takeo provincial town. The orchard is 2.5 ha in area, is in its fifth season and has produced fruit in the last 2 years. The farm is owned and managed by a local farmer who lives in the community where the farm is located. He is willing to let the project equip his farm with an irrigation system, and has volunteered to let the project use it as a demonstration site during the project implementation.

127. Currently, the farmer relies on a small pond for supplementary irrigation, but the water is insufficient for producing a higher percentage of grade A fruit, nor for floral manipulation which can produces fruit out of season. The mango variety grown is Keon Romeat which lends itself to floral manipulation. The orchard started to produce fruit three years after planting with a single crop yield of 1.5 tons per ha. From the sixth or seventh year, the yield is likely to increase to about 7 tons per ha, although the number of crop remains at one.

128. With or without drip irrigation, floral manipulation can result in two crops of mangoes per year, almost doubling output. However, floral manipulation is more successful in irrigated orchards which, if properly managed, will give higher yields for both crops. Installing drip irrigation will allow proper amounts of water to be delivered to the trees exactly when needed. Yields for both crops will be an estimated 30% higher than without irrigation.

29

129. Furthermore, with the ability to manage the supply of water to the trees that drip irrigation provides, the average quality of fruit harvested will be higher and the proportion of higher grades A and B fruit will be higher than without irrigation. This is a major benefit of the irrigation system. The impact of the drip irrigation on orchard production is summarized in Table 10.

130. The subproject is a pilot drip irrigation demonstration. Once the demonstration is established, farmer field days and related activities will encourage other farmers to adopt the new technology, combining drip irrigation with floral manipulation. This will make the industry more efficient and enable famers to respond to market demands by scheduling cropping. At present there is no mango producers association. Site demonstrations may encourage cooperation and exchange of information among like-minded farmers to exploit market opportunities.

131. While the investment cost of drip irrigation is relatively high, it is water efficient and provides precise control of water supply when needed. The system proposed for the subproject includes providing a ground water source and a climate friendly solar powered pump system which will have minimal operating costs.

2. Demand for Outputs

132. Mangoes grown in Cambodia supply both domestic and international markets and growers in Takeo province can benefit from good road access to and the proximity of the market for mangoes in southern Viet Nam. The demand for this popular fruit is strong but prices received by growers, especially during the main mango season, are driven by seasonal factors and the size of the crops in Thailand and Viet Nam, which are important markets for Cambodian mangoes, as well as in Cambodia. Prices may therefore vary significantly from year to year. The annual production of mangoes in Cambodia was estimated at 255,000 tons in 2014.

133. There has been a drive to plant more mangoes as an investment strategy in recent years, boosted by buoyant prices in the last two seasons. It is estimated that there are now more than 7,000 ha in Tram Kak district of Takeo province, bordering Kampong Speu, which is the main mango producing province. However, technical support for mango farmers to enable them to improve the overall quality of their production to take advantage of the demand and higher prices for the best fruit is still limited and needs to be made more readily available. The subproject addresses this issue through the provision of technical information and training from drip irrigation suppliers and the contractors who apply most of the floral manipulation treatments and who will be contracted to provide the training and run the demonstrations with the farmer owner’s assistance.

134. Demand for Cambodian mangoes in markets further afield is also growing. The government is actively looking for new international markets for fresh mangoes, particularly the richer Asian countries of Japan and ROK. For example, an MOU related to a mango sanitary and phytosanitary protocol with the Government of ROK was signed on 9 December 2015 which will enable export to ROK, but Cambodian mangoes still need to satisfy ROK's quality standards to enter the market.

135. The subproject itself will not add significantly to the local output of mangoes but widespread adoption of the technology by growers has the potential to increase output and improve quality, which will facilitate increased volume of Cambodian mangoes in international markets.

30

136. The direct beneficiaries of the subproject are the orchard owner and his or her household. Workers employed on the orchard may also benefit as more labor inputs are likely to be required, for harvesting.

C. Economic Analysis

1. Subproject Benefits

137. The project will generate two streams of benefits: (i) increase in yield and (ii) increase in the average quality of fruit, as reflected by the increased proportion of higher grades A and B fruit. Floral manipulation results in the trees producing two crops of mangoes per year. The yields for both crops will be an estimated 30% higher than without irrigation. Furthermore, with the ability to manage the supply of water to the trees that drip irrigation provides, the average quality of fruit harvested will be higher and the proportion of higher grades A and B fruit will be higher than without irrigation. Mango yield and grade composition are presented in Table for with- and without-project scenarios. The analysis takes the second column (without irrigation but with floral manipulation) as the without-project scenario. In the with-project scenario, both drip irrigation and floral manipulation will be practiced.

Table 11: Mango Yields and Grade Composition Without irrigation With irrigation W/O Floral

Manipulation W/ Floral

Manipulation W/ Floral

Manipulation % Change

Yield

First crop (ton/ha) 7.0 7.0 9.1 30% Second crop (ton/ha) - 6.0 7.8 30%

Yield composition

Grade A (%) 20% 30% 40% - Grade B (%) 30% 30% 40% - Grade C (%) 50% 30% 20% -

Note: With project, drip irrigation is installed in year 3. Full production is from year 6 onwards. Source: Mango farmers & traders.

2. Prices

138. The financial prices used in the analysis are valid for 2017 and are based on information provided by mango orchards owners, orchard managers, buyers and others active agents in the production and marketing of mangoes. Price quotes for the drip irrigation and solar pump systems are provided by local suppliers. Input prices used in the analysis are given in Table A1.1 in Appendix 1.

139. The farm gate sale prices for mangoes are based on the average prices for grade A, B and C fruit for 2011 to 2016. The price used in the analysis for each grade is a weighted average of buying prices during the peak season (March – April) and the remainder of each year. This procedure was used to smooth annual price fluctuations. The prices used for Grade A, B and C fruit are $590, $330 and $200 per ton, respectively. These prices are applied to all fruit of the respective grades, regardless of the time of year of production. (see Table A1.6 in Annex1)

3. Subproject Costs

140. The total project costs consist of three categories: (i) initial investment costs, (ii) orchard O&M costs, and (iii) drip irrigation system O&M costs. Investment costs for the subproject are the

31

costs of the drip irrigation system, the solar powered pump and related equipment and the drilling of the tubewell as well as the cost of training the farmer to operate and maintain the system. In addition, the pump and emitters will need to be replaced every five years at a cost of $2,000. This is the periodic O&M cost. Routine O&M cost for the irrigation system is estimated to be $40 per ha per year in financial prices.

141. Detailed cost breakdown for a 2.5 ha orchard is presented in Table 12. In financial cost for the infrastructure costs is $16,375. Training costs is $500, and prorated project management is $922. The total subproject cost is $17,797. The economic value of each item is derived by first removing taxes from the financial prices, and then decomposing the net of tax financial values according to three input components (tradable, non-tradable, surplus labor), and converting the financial values of each component into economic values using appropriate conversion factors. In economic prices, subproject costs are $17,945.

Table 12: Subproject's Investment and O&M Costs by Outputs ($)

Financial cost Decomposition (%)

Economic Cost Item Non-tradable

Tradable Unskilled

Labor

Capital expenditures

1. Civil Works and Equipment 16,375

16,510 Solar pump 1,000 0 100 0 1,010 Inverter 1,000 0 100 0 1,010 4.5 kW array PV panels 4,000 0 100 0 4,040 Installation, control box,

cables, & miscellaneous items for solar system

3,000 100 0 0 3,000

Drip irrigation system 3,875 0 100 0 3,914 Tubewell 3,500 0 100 0 3,535

2. Training in O&M for farmer 500

500 3. Project Management 922 75 25 0 935

Total capital expenditures 17,797 17,945

Recurrent costs

4. Drip irrigation O&M costs

Per ha per year 100 100 O&M = operations and maintenance, PV = photovoltaics. Note: To compute economic costs, estimated taxes embedded in the financial prices are removed. The net of tax value

is then decomposed by its content (local, foreign and unskilled labor). The local content is multiplied by the SCF of 0.90. The foreign content need no adjustment. The local unskilled labor component is multiplied by both the SCF of 0.90 and SWF of 0.9. Summing the adjusted value for the three components yield the economic price.

Source: PPTA consultants’ estimates

142. The project plans to introduce drip irrigation to 15 pilot orchards in the project provinces. Most of these pilots are expected to be larger than the 2.5 ha orchard selected for the analysis. For larger orchard, the total cost is slightly higher due to the increased area to be covered by the drip irrigation system. Costs for tubewell, pump, solar panels and inverter remain unchanged for any orchard up to at least 5 ha. The irrigation cost per ha is hence lower for larger orchards, which will increase the financial returns to owners.

143. The per hectare financial production costs of different agricultural inputs for orchard operation are presented in Table 13. The orchard O&M cost budgets are based on information provided by orchard owners in the subproject area. The per hectare orchard O&M cost budgets are developed for the with- and without-project scenarios.

32

Table 13: Mango Orchard O&M Cost Budget ($/ha) Costs Without project With project

1. Orchard establishment1 1,905 1,905 2. Fertilizers2

Urea 131 158 DAP 138 166 MOP 120 144

3. Floral manipulation 1,050 1,050 4. Pesticides 100 100 5. Labour 1,700 1,700 6. Other costs 150 150

Total production costs 3,389 3,467

Notes: 1 Orchard establishment costs incurs in year 1 only. 2 From year 3, fertilizers delivered through drip system; cost is 20% premium over cost for

non-irrigated orchard.

4. Economic Analysis and Sensitivity Analysis

144. The EIRR for the subproject is 22.46%, and the ENPV is $18,243. Table 14 presents a summary economic resources flow statement, based on a comparison of the with-and without-project scenario. Detailed derivations of the with- and without-project scenarios, as well as the incremental cost and benefits streams are presented in Annex 3.

Table 14: Economic Analysis for Mango Drip Irrigation Demonstration Subproject ($)

Year Investment

costs Routine

maintenance cost Incremental orchard

O&M costs Incremental farm income

Incremental net income

Net benefit

1 0 0 0 0 0 0 2 0 0 0 0 0 0 3 17,945 0 83 654 571 -17,374 4 0 250 97 1,744 1,397 1,397 5 0 250 195 3,924 3,479 3,479 6 0 250 195 5,668 5,223 5,223 7 0 250 195 5,668 5,223 5,223 8 2,020 250 195 5,668 5,223 3,203 9 0 250 195 5,668 5,223 5,223 10 0 250 195 5,668 5,223 5,223 11 0 250 195 5,668 5,223 5,223 12 0 250 195 5,668 5,223 5,223 13 2,020 250 195 5,668 5,223 3,203 14 0 250 195 5,668 5,223 5,223 15 0 250 195 5,668 5,223 5,223 16 0 250 195 5,668 5,223 5,223 17 0 250 195 5,668 5,223 5,223 18 2,020 250 195 5,668 5,223 3,203 19 0 250 195 5,668 5,223 5,223 20 0 250 195 5,668 5,223 5,223 21 0 250 195 5,668 5,223 5,223 22 0 250 195 5,668 5,223 5,223

ENPV = 17,394 1,883 1,462 38,983 35,638 18,243 EIRR = 22.46%

EIRR = economic internal rate of return, ENPV = economic net present value, O&M = operations and maintenance.

33

145. Table 15 presents the sensitivity analysis results. A failure to achieve the anticipated with-project yield in combination with an unexpectedly low mango prices or higher capital costs would affect the project outcome relatively more than any other risk variables. The project outcome is not vulnerable to the individual risk factors. Overall, the EIRR remains well above the 9% threshold level.

Table 15: Sensitivity Analysis of Key Variables

Sensitivity Test ENPV

($) EIRR (%)

SI SV (%)

Base Case 18,243 22.46%

-10% With project yields 15,507 20.66% 1.50 -66.68% +10% Capital costs 16,504 20.34% -0.95 104.88% +10% Orchard operating costs 18,097 22.36% -0.08 1247.94% -12.5% Grade A % with project (35% of grade composition)a)

13,521 19.32% 2.07 -48.29%

-10% Mango prices 14,345 19.88% 2.14 -46.80% -10% Mango prices, -10% with project yieldsb) 11,883 18.19% 3.49 -28.68% +10% Capital costs, -10% with project yieldsb) 13,768 18.64% 2.45 -40.76% EIRR = economic internal rate of return, ENPV = economic net present value, SI = sensitivity indicator (ratio of % change in ENPV to % change in a variable), SV = switching value (% change in a variable to reduce the ENPV to 0). Note: a The base case for grade A fruit with the project is 40%. Changes in grade A percentage is

equally distributed between grades B and C. b Same % change in both variables.

D. Financial Analysis

146. Table 16 presents a summary financial cash flow statement at the project level. At project completion, the net incremental revenue is positive throughout project life.

Table 16: Financial Analysis for Mango Drip Irrigation Demonstration Subproject ($) Year

Investment costs

Routine maintenance

cost

Incremental orchard

O&M costs

Incremental orchard income

Incremental net income

Net benefit

1 0 0 0 0 0 0 2 0 0 0 0 0 0 3 17,797 0 83 654 571 -17,226 4 0 250 97 1,744 1,397 1,397 5 0 250 195 3,924 3,479 3,479 6 0 250 195 5,668 5,223 5,223 7 0 250 195 5,668 5,223 5,223 8 2,000 250 195 5,668 5,223 3,223 9 0 250 195 5,668 5,223 5,223 10 0 250 195 5,668 5,223 5,223 11 0 250 195 5,668 5,223 5,223 12 0 250 195 5,668 5,223 5,223 13 2,000 250 195 5,668 5,223 3,223 14 0 250 195 5,668 5,223 5,223 15 0 250 195 5,668 5,223 5,223 16 0 250 195 5,668 5,223 5,223 17 0 250 195 5,668 5,223 5,223 18 2,000 250 195 5,668 5,223 3,223 19 0 250 195 5,668 5,223 5,223 20 0 250 195 5,668 5,223 5,223 21 0 250 195 5,668 5,223 5,223

34

22 0 250 195 5,668 5,223 5,223 O&M = operations and maintenance Source: PPTA consultants’ estimates.

147. Introducing drip irrigation to a mango orchard leads to higher yields and better quality, with an increase of Grade A fruit. For a 2.5 ha orchard, its owner would get an incremental net income of $5,223 starting from year 6 when the full benefits of drip irrigation are realized.

E. Subproject Sustainability

148. As the drip irrigation system is a private goods, orchard owners will take responsibility for periodic and routine O&M. To enhance owners’ operations capacity at project completion, training will be provided to owners on O&M, budgeted at $500 per demonstration site (Table 12).

149. Since the subproject is profitable as indicated by the high FIRR, orchard owners will have a financial incentive to properly maintain the drip irrigation system. In addition, the orchard’s net operating cash flow consistently remains positive at project completion, in the range of $3,400 to $5,300 (Table 15). This indicates that the subprojects will generate sufficient revenue to cover all operating costs, including periodic and routine O&M. It is unlikely that orchard owners will experience liquidity problem in which they cannot mobilize sufficient resources for O&M during the project life.

XI. SEDA SEANCHEY COOPERATIVE CASSAVA STORAGE FACILITY

A. Background

150. Agricultural cooperatives are established under the Royal Decree on the Establishment and Functioning of Agricultural Cooperative (2001) and the subsequent Law on Agricultural Cooperatives (2013). Most cooperatives start with developing savings and loan schemes, which in general are competitive with microfinance institutions. Other businesses are developed later and typically include input supply, retail shops and agricultural commodity trading. A number have already or are planning to purchase land to develop agribusiness enterprises primarily to market crop commodities, primarily rice, maize and cassava.

151. At present, the post-harvest drying of these crops takes place on the ground on tarpaulins or on concrete. The storage facilities if any are rudimentary. Post-harvest losses is high and affect the efficiencies of the value chain from both quality and food safety viewpoints:

(i) Rice: Post-harvest losses is between 15% and 20% of total paddy production in Cambodia. High moisture content affects the storability of paddy, reduces seed viability, increases the percentage of broken grains and leads to molds, fungi and insect infestations.

(ii) Maize: The crop is usually rainfed and as such drying to 13-14.5% moisture content can prove difficult. Storage traders tend to on-dry the crop, but usually use wood fueled driers producing smoke. The tainted and discolored grain is often rejected by feed processors. Poor drying practices and storage conditions also lead to mold, fungi and disease infestations as well as block spotted grains.

(iii) Cassava chips: A stable product is attained when the moisture content is below 14%. Above 14%, the product will degrade and develop black spot and molds. The

35

starch percentage in cassava is also affected by lack of or poor storage. Gravel and dirt is problematic for traders and processors and this needs to be addressed.

152. The sub output rationale is to support the establishment of drying and storage units for agricultural cooperatives with parallel capacity development to support agribusiness activities and develop management and operations expertise. This will enhance rural household incomes and agricultural competitiveness by (i) providing improved critical post-harvest infrastructure; (ii) securing the supply chain through linkages to traders or processor; (iii) reducing energy costs by promoting bio-energy; and (iv) improving market connectivity.

153. The subproject assesses the technical, social, environmental and economic viability of a drying and storage unit for a cassava producing agricultural cooperative in Tboung Khmum province.

B. With- and Without-Project Scenarios

1. Present Cassava Production and Marketing

154. Cassava is the main crop in Seda commune and is the principal cash income source for cooperative members. Most of the cassava grown in the district is sold to buyers representing Vietnamese processors either as fresh root or dried chips. There is one cassava flour processor (Song Heng Processing) in Tboung Khmum province located just outside Suon City but it is approximately 50 km from Seda and is not considered a market outlet.

155. Seda Seanchey Agricultural Cooperative, located in Seda Commune, Tambae District of Tboung Khmum province, was established as a cooperative with the support of CEDAC, primarily to develop a savings and loan scheme, in 2012. The nongovernmental organization provided training to support the development and growth of the savings scheme and also worked with farmers to provide agricultural technical training on ecofriendly agricultural practices in rice production, animal production and soil fertility improvement, as well as training on collective community business and investment. The cooperative has also benefited from Caritas supported activities in the commune, primarily related to book keeping and business activities, which were completed by 30 June 2016

156. The cooperative initially had 50 members, but this has grown to 98 members from 51 households.

157. Cooperative members mostly have 1 to 3 ha of land for cassava, but a few have up to 10ha. Due to lack of technical capacity and limited soil maintenance and improvement activities, the average yield is as low as 18 tons/ha, although some farmers can achieve 28 – 30 tons/ha. This compares with a national average of about 24 tons/ha and potential yields for cassava of up to about 40 tons/ha. Relatively low prices for cassava in the last few years has been discouraging for growers. If the cooperative is able to expand its activities into the storage and trading of cassava chips, this will provide opportunities for members to gain a better return on their crop and incentives for increasing production.

158. Cassava can be cut for chips either manually or by machine. In Tboung Khmum all cassava is cut manually and then sun dried on tarpaulin or plastic as Vietnamese buyers prefer hand cut cassava chips to maintain starch percentages. Hand cutting requires about 1.5 to 1.65 days cutting one ton. In the western provinces hand cutting is less common as Thai traders do not have a preference for the hand cut product.

36

2. Marketing of Cassava

159. The market price for cassava in Cambodia fluctuates and is strongly influenced by the demand from neighboring countries. Approximately 90% of the cassava produced in Cambodia is exported to Thailand and Viet Nam with the remaining 10% sold for domestic starch processing and the export of cassava chips to China. During 2015, Cambodia exported 150,000 tons of the dry cassava chips and 27,034 tons of starch to China with increased exports expected in 2016. According to official data from MAFF, exports of chips to Thailand and Viet Nam in 2015 were 1.79 million tons and 330,874 tons, and exports of fresh roots were 106,500 tons and 464,020 tons, respectively.

160. The main sources of demand for cassava and cassava chips are for processing into starch (for various food and industrial uses), as an input for livestock feeds and for biofuel production. The latter two provide a large and growing international demand for cassava.

161. The average farmgate price for dry cassava chips in 2015 was KR756 per kg ($189/ton) and for fresh cassava was KR270 per kg ($67/ton). The conversion ratio from fresh to chips is 53%. Prices vary seasonally, and towards the end of the 2015/16 season the prices for fresh cassava were depressed further to KR120 – KR280. Traders usually assess quality by touch and visually and quality price variations can be between KR50 and KR100 per kg for chips. The changing prices for fresh cassava and chips for 2011 to 2015 are shown in Figure 1.

162. There is no official data available for cross border trade to Thailand and Viet Nam although these are the most important markets for Cambodia cassava and are expected to remain for the future. However, the Chinese market is also becoming important. Local processing is still relatively small but it is expected that with the right economic environment that national processing will increase because of high domestic demand for the product. It is estimated that in the next 5 years that Cambodia cassava production will increase by about 20% with production reaching about 15 million tons due to improving soil nutrition, improved germplasm and increased productivity. By 2020, domestic demand is estimated to be 800,000 tons in fresh roots and exports in dried chips to China will increase to 350,000 tons, with the remainder still being exported to Thailand and Viet Nam.

Figure 1: Farmgate Prices for Cassava 2011-2015 (KR/kg)

Source: MAFF, Traders 2016

0

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014 2015

Dry Fresh

37

Table 17: Estimated Cassava Production and Sources of Demand (‘000 tons)

Description 2012 2013 2014 2015 2020

Production (fresh) 7,614 7,933 11,943 13,298 15,000

Domestic demand (fresh) 150 200 250 600 800

Cross Border trade (fresh & dry chips) 7,000 7,200 9,000 11,767 13,000

Official exports (dry chips) N/A 71 101 200 350

Source: MAFF, Traders 2016

3. Other Aspects

163. One female member of the cooperative owns two storage units for fresh and chipped cassava storage, with an estimated total capacity of 500 tons. She has established links with Vietnamese buyers and processors and receives a stock credit from the buyers who pay 20% deposit advance for her holding of the stock until it is required by them. The experience and links of this member have encouraged the cooperative to plan to begin cassava storage and trading and her experience will be valuable for the cooperative’s new business operations.

4. Subproject Interventions

164. The subproject will provide a 200 ton capacity cassava storage facility and an associated drying floor. The store will allow the cooperative to consolidate the product in sufficient quantities to facilitate the formation of close linkages with processors and or traders. The drying area will be used by cooperative members and will provide for quality and uniform product through the introduction of sound selection, processing, drying and storage techniques.

165. To support the subproject provision of physical infrastructure, cooperative members will participate in project level initiatives to provide and improve training and capacity building available at provincial level in accounting, agribusiness, cooperative management and operation and maintenance of storage units.

166. The cooperative will also be able to take advantage of the project’s CSA training and capacity building program to help agriculture undergo significant transformation to meet climate change challenges. CSA includes (i) soil and nutrient management; (ii) improved water harvesting and retention; (iii) pest control management; and (iv) encouraging resilient ecosystems which includes variety climatic adaptation and (v) improving efficiencies in post-harvest management practices to reduce losses. The project will also support the development of tissue culture methods for cleaning up cassava planting material stocks, in order to improve varietal characteristics and achieve virus elimination and the invitro production of pathogen free plants and the rapid multiplication of plants that have good climate resilient characteristics. The adoption of these improved practices and inputs by cooperative members will have the potential for them to achieve yields of 40 tons/ha or more.

5. Subproject Benefits

167. The direct, quantified benefits of the subproject come from the trading margins from the management and operation of the storage facility. This is a benefit that accrues from the service of buying and storing cassava chips until they are needed by traders and processors further down the value chain. Only these benefits are included in the economic analysis.

38

168. Indirectly, the subproject will benefit cooperative members who grow cassava, and perhaps other cassava growers in their immediate area, who are provided with an incentive to improve cassava growing methods to increase yields and to undertake the cutting and drying of some of their own production to take advantage of the significantly greater returns on the sale of chips compared with fresh cassava. This would be a change for cooperative members and others as at present most growers in the area choose to sell only fresh cassava.

169. The common constraint for selling fresh cassava rather storing it as chips is that cash is required by most farmers immediately after harvest to repay debts and satisfy creditors. However, the ability to store increases the returns for the crop as the prices received out of season typically improve by 10-20% depending on demand. In addition, losses of starch content (due to high moisture) and chip deterioration will not occur for up to 6 months, provided the correct insect proofing and storage conditions are provided.

6. Beneficiaries

170. The direct beneficiaries of the project will be the 91 members of the Seda agricultural cooperative. Other households in the commune may also benefit from the increased economic activity generated by improved output and profitability of the cooperative and its members. Cassava traders in the area may also benefit from increased volume and quality of locally available cassava chips.

7. Subproject Costs

171. The total project costs consist of three categories: (i) initial investment costs;(ii) the storage facility O&M costs (as percentage of civil works and equipment); and (iii) storage costs. Investment costs include civil work and equipment costs, land cost, and project management and training costs. In financial cost for the infrastructure rehabilitation costs is $82,519. Imputed land cost is $3,000, and prorated project management and training costs sum to $54,951. The total subproject cost is $140,470.

172. The construction period for the store and associated facilities is 4 months. At construction completion the storage is fully operational. The economic value of each item is derived by first removing taxes from the financial prices, and then decomposing the net of tax financial values according to three input components (tradable, non-tradable, surplus labor), and converting the financial values of each component into economic values using appropriate conversion factors. In economic prices, subproject costs are $132,460. The storage costs per year at project maturity amount to $7300 in financial prices. The storage facility annual O&M cost is estimated as 1% of Civil work and Equipment which amounts to $825 per year in financial prices. The financial and economic values of these costs are presented in Table 18.

Table 18: Subproject's Investment and O&M Costs by Outputs ($)

Item Financial cost

Decomposition (%)

Economic Cost1 Non-tradable

Tradable Unskilled

Labor

Capital expenditures

1. Civil Work and Equipment 82,519

77,172 Foundation 14,169 83% 8% 10% 12,975 Structure 39,444 62% 30% 8% 37,025 Masonry works 7,848 84% 5% 11% 7,166 Finishing works 857 50% 30% 20% 803 Doors and windows 1,591 40% 60% 0% 1,543

39

Miscellaneous 14,681 50% 50% 0% 14,088 Construction supervision 3,929 100% 0% 0% 3,572 2. Land 2 3,000

3,000

3. Training and Project Management 54,951

52,288 Training 50,306 80% 20% 0% 47,917 Management 4,645 75% 25% 0% 4,371 Total capital expenditures 140,470 132,460

Recurrent costs

4. O&M costs

Storage costs per year at project maturity

7,300

6,840

Storage facility O&M (as % of Civil Works and Equipment)

1%

Storage facility O&M per year at project maturity

825 772

Notes: 1 To compute economic costs, estimated taxes embedded in the financial prices are removed. The net of tax value is then decomposed by its content (local, foreign and unskilled labor). The local content is multiplied by the SCF of 0.90. The foreign content need no adjustment. The local unskilled labor component is multiplied by both the SCF of 0.90 and SWF of 0.9. Summing the adjusted value for the three components yield the economic price.

2 The cooperative buys land (1,000 m2) for the facility. Source: PPTA consultants' estimates.

C. Economic Analysis

1. Assumptions

173. The economic analysis is for the cassava drying and storage facility assumes that the cooperative purchases cassava chips from members, and possibly form other growers and sells to (mainly) Vietnamese buyers. The facility accumulates up to 200 tons at any one time enabling it to supply in bulk to buyers when it is needed. From the point of the view of the cooperative members, it provides selling power that will enable them to benefit from higher prices for their product than they would otherwise obtain.

174. For simplicity, it is assumed that the drying floor attached to the storage facility may be used by cooperative members to dry their own cassava, which they then sell to the cooperative but that the cooperative itself does not carry out cutting and drying of cassava. Eventually the cooperative may extend activities to include purchasing of fresh cassava and cutting and drying on its own account, which would allow it to capture the profits of this operation as well as the benefits purely of the accumulation, storage and trading of chips.

175. O&M costs for the facility infrastructure will be low for many years and is expected to be zero for the first few years. O&M costs at 1% of capital costs are assumed from the fourth year.

176. The capacity of the facility will be 200 tons and since cassava can be harvested almost throughout of the year (except during the wet season), the facility is expected to operate for most, if not all the year, with product cycling through the store. For estimation purposes, the average storage period is assumed to be 3 to 4 months with, once the management is fully operational, 3.5 complete cycles per year (i.e. total throughput of 700 tons of cassava chips). This may underestimate the volume handled since with efficient management and well-established linkages to growers in the area (in addition to cooperative members) and to buyers, shorter average storage times could easily be achieved and the annual output could significantly exceed this amount. However, for the purposes of this analysis, the conservative assumption of 3.5 cycles per year is maintained. Since those responsible for the management of the facility will have to

40

learn to manage it effectively as well as building up and downstream market linkages, it is assumed that this level of activity is only achieved in year 5, after starting with a volume of 100 tons in the first 12-month period.

2. Prices

177. The prices used in the analysis are shown in Table A1.1 of Annex 1. The financial prices are 2017 prices. Prices for fresh cassava and cassava chips are those advised by cooperative members and traders buying and selling in Tboung Khmum and nearby provinces.

3. Economic Analysis and Sensitivity Analysis

178. Cassava storage facility yields an EIRR of 18.76% and the ENPV of $58,007. Table 19 presents a summary economic resources flow statement, based on a comparison of the with-and without-project scenario. Detailed derivations of the with- and without-project scenarios, as well as the incremental cost and benefits streams are presented in Annex 4.

179. This analysis considers only the use of the facility for accumulating cassava chips purchased from local growers (including cooperative members) and storing them until they can be sold. The storage facility allows volumes to be accumulated, stored and sold at better prices than could be achieved by individual growers.

Table 19: Economic Analysis for Seda Seanchey Cooperative Cassava Storage Facility Subproject ($)

Year Investment

costs Routine

maintenance cost Storage

costs Cassava chips purchase costs

Total revenue

Net benefit

Financial 100,516 0 3,669 36,400 46,550 -94,034 15,972 0 4,303 54,600 69,825 -5,050

1 15,972 0 5,254 81,900 104,738 1,611 2 0 772 6,206 109,200 139,650 23,472 3 0 772 6,840 127,400 162,925 27,913 4 0 772 6,840 127,400 162,925 27,913 5 0 772 6,840 127,400 162,925 27,913 6 0 772 6,840 127,400 162,925 27,913 7 0 772 6,840 127,400 162,925 27,913 8 0 772 6,840 127,400 162,925 27,913 9 0 772 6,840 127,400 162,925 27,913 10 0 772 6,840 127,400 162,925 27,913 11 0 772 6,840 127,400 162,925 27,913 12 0 772 6,840 127,400 162,925 27,913 13 0 772 6,840 127,400 162,925 27,913 14 0 772 6,840 127,400 162,925 27,913 15 0 772 6,840 127,400 162,925 27,913 16 0 772 6,840 127,400 162,925 27,913 17 0 772 6,840 127,400 162,925 27,913 18 0 772 6,840 127,400 162,925 27,913

ENPV = 128,613 5,549 60,737 1,057,505 1,352,387 99,982 EIRR = 18.76%

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

180. The facility includes a drying floor that, for the purposes of this analysis, is assumed to be used by cooperative members for drying cassava, but not by the cooperative itself. The

41

cooperative could buy fresh cassava for cutting and drying, but to do this would mean assuming the additional management and financial burden. If, and when, the cooperative might start to undertake the cutting and drying of cassava chips on its own account, there would be additional financial benefit from this activity.

181. The results of the sensitivity analysis are given in Table9. The EIRR is not significantly affected by changes in individual risk factors. A 1 year delay in achieving benefits would reduce the EIRR to close to 12.99%, but the likelihood of occurrence is low, since once the facility is completed there should be no reason for its not being put to use. A reduction in cassava prices would reduce the EIRR to 16.05%.

182. The greatest risk, which cannot be modelled in the analysis, are as follows: (i) ineffective management by storage staff or (ii) failure to develop successful linkages with potential buyers. These risks will be mitigated by provisions of training on business development and management to cooperative members, especially to those involved in the management of the storage facility, through project supported programs at the provincial level.

Table 20: Sensitivity Analysis of Key Variables

Sensitivity Test ENPV

($) EIRR (%)

SI SV (%)

Base Case 99,982 18.76% - - +10% Storage costs 93,908 18.19% -0.61 164.61% +10% Capital costs 90,973 17.42% -0.90 110.98% +100% O&M costs (2% of the capital costs per year)

94,432 18.31% -0.06 1801.65%

Benefits delayed one year 43,699 12.99% - - Reduced storage cycle from 3.5 to 3.0 at year 5 71,478 16.47% -1.99 50.16% -10% Cassava chip prices 70,494 16.05% 2.95 -33.91% -10% Cassava chip prices, Reduced storage cycle from 3.5 to 3.0 at year 5

45,247 13.84% - -

EIRR = economic internal rate of return, ENPV = economic net present value, SI=Sensitivity Indicator (ratio of % change in ENPV to % change in a variable), SV=Switching Value (% change in a variable to reduce the ENPV to 0). Notes: a) Purchase and sale price of chips varying by same percentage.

b) Capital excluding training and project management costs.

D. Financial Analysis

1. Seda Senchey Cooperative

183. An indicative cash flow has been carried out for the storage facility.17 For Seda Senchey Cooperative the financial benefits of the facility become apparent within a relatively short time frame. (See Table A1.7 of Annex 1.)

184. This analysis is based on the following assumptions:

(i) the cooperative uses $10,000 from its reserve fund (which stood at $15,875 at the end of 2015) as working capital to fund the purchase of cassava chips from members or other growers in the immediate area; these funds accrue interest at 2.5% per month, the same as if lent out as micro-finance loans;

17 The cooperative is responsible for providing land for the facility. This cost ($3,000) is not included in this financial

(cash flow) analysis.

42

(ii) buyers pay a 20% advance on purchase in order to secure future supplies;18 (iii) any additional financing requirements are obtained from a commercial bank at 12%

per annum; (iv) operating costs include the purchase of cassava chips, labor, the services of the

manager and transport to the Viet Nam border (or to the purchaser if in Cambodia). In addition, storage losses are incurred which are estimated at 5% of volume, based on information from operators of similar facilities in the region;

(v) revenues are only from the sale of cassava chips from the store; and (vi) the net profit on operations is divided: 50% is allocated to dividend funds for

cooperative members and 50% is reinvested in the business. According to the Law on Agricultural Cooperatives, only 20% of the profits of cooperative activities is required to be placed in the cooperative reserve fund (and 3% must be earmarked for training), but for this facility it is hoped that members will agree to reinvesting the higher percentage, at least in the early years, to build up working capital and facilitate the expansion of activities.

185. In the analysis, the interest on the cooperative’s savings and loan funds and the portion of gross profit allocated for reinvestment are added to the cooperative funds at the beginning of the next cycle and as these funds increase, the loan from the commercial bank is reduced correspondingly. Under this assumption and with the relatively slow build up in volume assumed, bank funding ceases after the first cycle in year 4 and thereafter the operation is entirely internally funded. A faster build up in activity would require more bank financing and some bank financing could be retained, or increased, to facilitate alternative uses of the cooperative’s funds, such as expanding the storage business or investing in a new agribusiness.

186. With these assumptions, funds would be available from the end of year 5 onwards to repay the original loan. If the storage is well managed and enters into contractual agreements with buyers, the storage facility can be a productive and profitable business activity for the cooperative.

187. Table 21 presents a summary financial cash flow statement at the project level. At project completion, the net incremental revenue is positive throughout project life.

Table 21: Financial Analysis for Seda Seanchey Cooperative Cassava Storage Facility Subproject ($)

Year Investment

costs Routine

maintenance cost Storage

costs Cassava chips purchase costs

Total revenue

Net benefit

1 106,932 0 3,800 36,400 46,550 -100,582 2 16,769 0 4,500 54,600 69,825 -6,044 3 16,769 0 5,550 81,900 104,738 519 4 0 825 6,600 109,200 139,650 23,025 5 0 825 7,300 127,400 162,925 27,400 6 0 825 7,300 127,400 162,925 27,400 7 0 825 7,300 127,400 162,925 27,400 8 0 825 7,300 127,400 162,925 27,400 9 0 825 7,300 127,400 162,925 27,400 10 0 825 7,300 127,400 162,925 27,400 11 0 825 7,300 127,400 162,925 27,400 12 0 825 7,300 127,400 162,925 27,400 13 0 825 7,300 127,400 162,925 27,400

18 This will typically be the case once good relationships are established with buyers. For this subproject this is assumed

from the beginning of operations because of the established relationships with Vietnamese buyers that one member of the cooperative already has on her own account.

43

14 0 825 7,300 127,400 162,925 27,400 15 0 825 7,300 127,400 162,925 27,400 16 0 825 7,300 127,400 162,925 27,400 17 0 825 7,300 127,400 162,925 27,400 18 0 825 7,300 127,400 162,925 27,400 19 0 825 7,300 127,400 162,925 27,400 20 0 825 7,300 127,400 162,925 27,400

O&M = operations and maintenance Source: PPTA consultants’ estimates.

2. Cooperative Member Households

188. Cooperative members benefit directly benefit from the project and subproject in two ways: first, from increased dividends accruing from the cooperatives new business, and second through improved cassava production and the opportunity to cut and dry all or part of their freshly harvested cassava to supply to the cooperative storage facility. Member households will be able to take advantage of training provided under the project to help improve their cassava yields and will also have the incentive of improved market opportunities through the cooperative.

189. Cooperative members may be constrained to sell part of their cassava harvest fresh to meet financial obligations, but with the new facility can also opt to sell part of the harvest fresh and process the remaining part into chips. At present, the average yield obtained in the area is 18 to 20 tons per ha, although some farmers in the area achieve 28 to 30 tons per ha. This cooperative average can be increased to around the national average of 24 tons per ha. If an average for cooperative members of 25 tons per ha is assumed in year 5 of the project, then the net benefit to farmer households would be $418 per ha ($16.7 per ton) if the cassava is sold fresh, but $62.4 for every ton of fresh cassava processed by themselves into chips.

190. In addition, there would be increased dividends from the cooperative based on the analysis; the funds available for incremental dividend payments to members would increase from $2,305 in the first year to about $4,032 in the sixth year.

E. Subproject Sustainability

191. As the storage facility is a communal private goods, cooperative members will take collective responsibility for periodic and routine O&M. To enhance cooperative members’ operations capacity at project completion, an approximate budget of $50,306 per site is allocated for training to cooperative members, covering storage operations, marketing business development, and O&M (Table 18). Similar to FWUCs, the cooperatives will be trained in 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.

192. Since the subproject is profitable as indicated by the high FIRR, cooperative members will have a financial incentive to properly maintain the storage. In addition, the orchard’s net operating cash flow consistently remains positive at project completion, in the range of $27,000 per year (Table 20). This indicates that the subprojects will generate sufficient revenue to cover all operating costs, including periodic and routine O&M. It is unlikely that the cooperatives will experience liquidity problem in which they cannot mobilize sufficient resources for O&M during the project life.

44 Annex 1

ANNEX 1: FINANCIAL AND ECONOMIC PRICES OF AGRICUTLURAL INPUTS AND OUTPUTS

Table A1.1: Prices Used ($) Unit Financial price Economic price

Outputs

Rice $/ton 246.26 276.64 Cassava $/ton 37.50 41.67 Cassava chips (ex farm) $/ton 182.00 182.00 Cassava chips (ex store) $/ton 245.00 272.22 Mungbean $/ton 1,000.00 1,000.00 Water melon $/ton 320.00 320.00 Inputs

Rice seed $/kg 0.28 0.25 Mungbean seed $/kg 1.50 1.36 Water melon seed $/kg 30.00 27.27 Cassava plants (planting material) $/bundle 0.88 0.80 Tractor hire - miscellaneous use $/day/job 40.00 36.36 Tractor Hire / land preparation $/ha 37.50 34.09 Harvester (water in field or lodging) $/ha 112.50 102.27 Harvester (dry field) $/ha 87.50 79.55 Transport to Viet Nam border $/ton 5.00 4.55 Water charge $/ha/crop 25.00 25.00 Manure $/ton 5.00 5.00 Pesticides (mangoes) $/ha 100.00 101.01 Herbicides / pesticides $/ha 30.00 30.30 Nitrogen (urea) $/kg 0.31 0.31 Di-ammonium phosphate (DAP) $/kg 0.48 0.48 Potassium chloride (KCl) $/kg 0.40 0.40 Labour $/day 5.00 4.50 Floral manipulation $/ha 1,050.00 945.00 Annual O&M for irrigation scheme1) $/ha 50.00 47.50

Note: Estimated O&M cost per ha per year, includes FWUC members' own labour costs and the water costs. Water costs amount to $25 per ha per year.

Table A1.2: Derivation of Economic Price for Rice

Note: World Bank Commodity Price Data (Pink Sheet), July 2016.

Exportable project output Fin. Price CF for NT Services Econ. Value

World market price, constant 2016$: Thai 5% broken a) USD/ton 423 423.00

Quality differential -5% -21.15

Equivalent value of Cambodian product USD/ton 401.85

Freight and Insurance Cost to Cambodian port 0 0.00

CIF value at Cambodian port USD/ton 401.85 446.50

Port handling charges, storage, and losses 5% 20.09 0.91 18.27

Internal handling/ transport charges USD/ton 0 0.00 0.91 0.00

Value at wholesale market USD/ton 421.94 464.77

Transport costs: miller to wholesale market USD/ton 0 0.00 0.91 0.00

Dealer handling & processing costs USD/ton 20 20.00 0.91 18.18

Value at local market/mill USD/ton 401.94 446.58

Conversion to unmilled rice 65% 261.26 290.28

Milling cost USD/ton 10 10.00 0.91 9.09

Transport cost: farmgate to local miller USD/ton 5 5.00 0.91 4.55

Value at farmgate USD/ton 246.26 276.64

CF at the project site 1.12

Annex 1 45

Table A1.3:Derivation of Economic Price for Urea

Note: World Bank Commodity Price Data (Pink Sheet), July 2016.

Table A1.4: Derivation of Economic Price for Diammonium Phosphate

Note: World Bank Commodity Price Data (Pink Sheet), July 2016.

Table A1.5: Derivation of Economic Price for Potassium Chloride

Note: World Bank Commodity Price Data (Pink Sheet), July 2016.

Importable project input Fin. Price CF for NT Services Econ. Value

World market price, 46% N a) USD/ton 198.3 198.30

Quality differential % 0% 0.00

Equivalent value of Cambodian product USD/ton 198.30

Freight and insurance cost to Cambodian port 55 55.00

CIF value at Cambodian port USD/ton 253.30 281.44

tariff % 0% 0.00

VAT % 10% 25.33

Price at the port USD/ton 278.63 281.44

port charges % 5% 13.93 0.91 12.67

handling, bagging & transport port to project USD/ton 20 20.00 0.91 18.18

Project-site price USD/ton 312.56 312.29

Project-site price USD/kg 0.313 0.312

CF at the project site 0.999

Importable project input Fin. Price CF for NT Services Econ. Value

World market price, 18-20-0 N-P-K a) USD/ton 351 351.00

Quality differential % 0% 0.00

Equivalent value of Cambodian product USD/ton 351.00

Freight and insurance cost to Cambodian port 45 45.00

CIF value at Cambodian port USD/ton 396.00 440.00

tariff % 0% 0.00

VAT % 10% 39.60

Price at the port USD/ton 435.60 440.00

port charges % 5% 21.78 0.91 19.80

handling, bagging & transport port to project USD/ton 20 20.00 0.91 18.18

Project-site price USD/ton 477.38 477.98

Project-site price USD/kg 0.477 0.478

CF at the project site 1.001

Importable project input Fin. Price CF for NT Services Econ. Value

World market price, 60% K a) USD/ton 283 283.00

Quality differential % 0% 0.00

Equivalent value of Cambodian product USD/ton 283.00

Freight and insurance cost to Cambodian port 45 45.00

CIF value at Cambodian port USD/ton 328.00 364.44

tariff % 0% 0.00

VAT % 10% 32.80

Price at the port USD/ton 360.80 364.44

port charges % 5% 18.04 0.91 16.40

handling, bagging & transport port to project USD/ton 20 20.00 0.91 18.18

Project-site price USD/ton 398.84 399.03

Project-site price USD/kg 0.399 0.399

CF at the project site 1.000

46 Annex 1

Table A1.6: Drip Irrigation Demonstration - Derivation of Mango Selling Prices

Notes: a) Rounded to nearest $10.

b) Weighted average for each estimated using 2 x peak season price + 10 x off peak price. All years weighted equally for the overall average.

Source: Mango traders.

KR/kg USD/ton

Off season (10 months)

Grade A KR/kg 2,000 2,500 1,500 2,500 3,500 3,500 2,583 650

Grade B KR/kg 1,500 1,500 1,000 1,200 1,500 2,000 1,450 370

Grade C KR/kg 800 1,000 500 800 1,000 1,000 850 220

Peak harvest season (2 months)

Grade A KR/kg 1,200 1,200 1,200 1,500 1,500 1,500 1,350 340

Grade B KR/kg 500 500 500 1,000 1,000 1,000 750 190

Grade C KR/kg 500 500 500 500 500 500 500 130

Weighted yearly average

Grade A KR/kg 1,867 2,283 1,450 2,333 3,167 3,167 2,378 590

Grade B KR/kg 1,333 1,333 917 1,167 1,417 1,833 1,333 330

Grade C KR/kg 750 917 500 750 917 917 792 200

Historical mango price 20166-year average

2011 2012 2013 2014 2015

47 Annex 2

ANNEX 2: DETAILED FINANICAL AND ECONOIMC RESOURCE FLOW STATEMENT FOR TRAPAING RUN IRRIGATION SUBPROJECT

Table A2.1: Incremental Economic Resource Flow Statement for Trapaing Run Irrigation Subproject

Unit Unit cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 - 20

Total revenue

- - 187,426 215,534 243,642 243,642

Dry season - mung bean $/ton 1,000 - - 12,500 16,875 21,250 21,250

Dry season - watermelon $/ton 320 - - 86,400 97,200 108,000 108,000

Early wet season rice $/ton 276.6 - - 13,832 15,561 17,290 17,290

Main wet season rice $/ton 276.6 - - 74,694 85,898 97,102 97,102

Incremental farm income

- - 74,540 103,777 133,002 134,109

Input costs

Land preparation $/ha 38 0 0 19,432 19,432 19,432 19,432

Seed $/kg 1.36a)/27.27b)/0.25c) 0 0 4,699 4,699 4,699 4,699

Urea 46-0-0 $/kg 0.312 0 0 5,403 6,332 7,261 7,261

DAP 18-46-0 $/kg 0.478 0 0 6,895 8,221 9,548 9,548

Manure $/ton 5 0 0 2,925 3,275 3,625 3,625

Herbicide / Pesticides $/ha 30 0 0 5,909 5,909 5,909 5,909

Water cost $/ha/crop 25 0 0 4,875 0 0 0

Labour $/day 4.5 0 0 15,188 15,975 16,763 16,763

Tractor for transportd)/Machine harvesting costf) $/day/job

36.36f)/79.55g)/102.27h)

0 0 19,852 22,398 24,943 24,943

Total input costs

0 0 85,177 86,240 92,179 92,179

Incremental input costs

0 0 25,701 27,359 33,886 34,469

Investment cost

Total infrastructure

476,376 238,188 238,188 0 0 0 0

FWUC establishment

6,500 3,250 3,250 0 0 0 0

Project management costs (per $1000 investment) $'000

56.64 13,490 13,490 0 0 0 0

Training costs (per unit, over 3 years)

47,917 15,972 15,972 15,972 0 0 0

O&M costs $/ha 47.50 0 0 4,750 4,750 4,750 4,750

Net revenue

-270,900 -270,900 81,526 124,543 146,713 146,713

Incremental net revenue (INR) -270,900 -270,900 28,116 71,667 94,366 94,889

ENPV 183,767

EIRR 13.13%

48 Annex 2

Notes: a) mung bean b) water melon c) rice d) for dry season crops e) for rice f) tractor cost for transportation for dry season crops g) harvester cost for rice (dry field) h) harvester cost for rice (water in field or lodging). 1) Incremental benefits, incremental input costs, and incremental net revenue would be all increasing over time as in without the project case it is assumed that the cultivated area would be declining at 1% per year starting from third year.

Table A2.2: Incremental Financial Resource Flow Statement for Trapaing Run Irrigation Subproject

Unit Unit cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 - 20

Total revenue

0 0 177,704 204,392 231,080 231,080

Dry season - mung bean $/ton 1,000 - - 12,500 16,875 21,250 21,250

Dry season - water melon $/ton 320 - - 86,400 97,200 108,000 108,000

Early wet season rice $/ton 246.3 - - 12,313 13,852 15,391 15,391

Main wet season rice $/ton 246.3 - - 66,491 76,465 86,438 86,438

Incremental farm income

- - 73,540 101,269 128,988 130,009

Input costs

Land preparation $/ha 37.5 0 0 21,375 21,375 21,375 21,375

Seed $/kg 1.5a)/30b)/0.28c) 0 0 5,169 5,169 5,169 5,169

Urea 46-0-0 $/kg 0.3 0 0 5,407 6,337 7,267 7,267

DAP 18-46-0 $/kg 0.5 0 0 6,886 8,211 9,536 9,536

Manure $/ton 5.0 0 0 2,925 3,275 3,625 3,625

Herbicide / Pesticides $/ha 30.0 0 0 5,850 5,850 5,850 5,850

Water cost $/ha/crop 25.0 0 0 4,875 0 0 0

Labor $/day 5.0 0 0 16,875 17,750 18,625 18,625

Tractor for transportd)/Machine harvesting costf) $/day/job

40f)/87.5g)/112.5h)

0 0 21,838 24,638 27,438 27,438

Total input costs

0 0 91,200 92,604 98,884 98,884

Incremental input costs

0 0 27,515 29,557 36,467 37,091

Investment cost

Total infrastructure

522,200 261,100 261,100 0 0 0 0

FWUC establishment

6,500 3,250 3,250 0 0 0 0

Project management costs (per $1000 investment) $'000

56.29 14,696 14,696 0 0 0 0

Training costs (per unit, over 3 years)

50,306 16,769 16,769 16,769 0 0 0

O&M costs $/ha 50 0 0 5,000 5,000 5,000 5,000

Net revenue

-295,815 -295,815 64,736 106,787 127,196 127,196

Incremental net revenue (INR)

-295,815 -295,815 24,256 66,713 87,522 87,918

INR per ha

-2,958 -2,958 243 667 875 879

Annex 2 49

INR per household -1,599 -1,599 131 361 473 475

FNPV 80,514

FIRR 10.74%

Notes: a) mung bean b) watermelon c) rice d) for dry season crops e) for rice f) tractor cost for transportation for dry season crops g) harvester cost for rice (dry field) h) harvester cost for rice (water in field or lodging). 1) Incremental benefits, incremental input costs, and incremental net revenue would be all increasing over time as in without the project case it is assumed that the cultivated area would be declining at 1% per year starting from third year.

Annex 3 50

ANNEX 3: O&M BUDGET DATA FOR RURAL ROADS AND O&M ESTIMATE BY PROJECT COMPLETION.

1. Table A3.1 presents the historical O&M data for rural roads. Similar to irrigation canals, the budget requirement exceeds the actual allocation, but the amount has been increasing, reflect government’s stronger commitment on O&M. Both MOWRAM and MRD will be encouraged to tap into the MEF fund for periodic O&M.

Table A3.1: Ministry of Water Resources and Meteorology O&M Budgets for Rural Roads

unit 2014 2015 2016 2017a

O&M budget required by MRD

Budget million KHR 129,596 110,130 231,069 276,851 Coverage km 2,658 2,778 7,340 5,620 O&M budget allocated by MEF

Budget million KHR 46,019 59,452 71,000 78,100 O&M budget utilized by MRD

Budget million KHR 45,890 59,610 70,605 n.a. Coverage km 853 840 1,503 2,180 MEF = Ministry of Economy and Finance, MRD = Ministry of Rural Development, O&M = operations and maintenance. Notes: a As of July 2017. Source: MOWRAM and MEF.

2. Table A3.2 presents the civil work costs of all project sub-output under Output 1: Critical agribusiness value chain infrastructure improved and made climate resilient. The total O&M expenditure that requires government’s budgetary support is $3.2 million per year. This is a higher estimate as farmers water user committees, training centers and test laboratories are likely to defray a share of the O&M costs for irrigation canals, training centers and laboratory.

Table A3.2: Total O&M Estimate by Project Completion

Project investmenta

(US$ '000)

O&M requirement O&M responsibility

Gov't budgetary support (%) (US$ '000)

Civil Worksb Water & Irrigation 41,447 4.0% 1,657.9 Government - MORAM 1,657.9 Rural Connector Roads 37,350 4.0% 1,494.0 Government - MRD 1,494.0 Storage Warehouses 5,763 4.0% 230.5 Farmers cooperatives 0 Other Infrastructure 1,445 2.0% 28.9 Training centers and testing laboratoriesc 28.9 Biogas Plants 9,276 6.0% 556.6 Beneficiary households 0 Total 95,280.2 3,180.8 MOWRAM = Ministry of Water Resources and Meteorology, MRD = Ministry of Rural Development

Annex 3 51

Notes

a Inclusive of physical and price contingency b Costs figures are by expenditure categories, not by project output categories which include other cost categories such as consulting services (for engineering design and training). The O&M estimates is based only on the investment on civil work. c Revenue generating, partially cost recovering.

Annex 4 52

ANNEX 4: DETAILED FINANICAL AND ECONOMIC RESOURCE FLOW STATEMENT FOR MANGO DRIP IRRIGATION DEMONSTRATION SUBPROJECT

Table A4.1: Incremental Economic Resource Flow Statement for Mango Drip Irrigation Demonstration Subproject

Unit Unit cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 - 22

Revenue

Grade A $/ton 590 0 0 460 1,227 2,761 3,988

Grade B $/ton 330 0 0 257 686 1,544 2,231

Grade C $/ton 200 0 0 78 208 468 676

Total revenue

per ha

0 0 796 2,122 4,774 6,895

per 2.5 ha

0 0 1,989 5,304 11,934 17,238

Orchard operating costs

Orchard establishment $/ha 1,905 1,905 0 0 0 0 0

Urea kg/ha 0.312 0 16 56 79 157 157

DAP kg/ha 0.478 0 14 86 83 166 166

MOP kg/ha 0.399 0 12 57 72 144 144

Floral manipulation kg/ha 945 0 0 0 0 945 945

Pesticides kg/ha 101 0 101 101 101 101 101

Labor days/ha 4.5 0 360 540 990 1,350 1,530

Other costs lump sum 150 150 150 150 150 150 150

Total orchard operating costs

per ha

2,055 653 991 1,475 3,013 3,193

per 2.5 ha

5,138 1,632 2,477 3,687 7,533 7,983

Investment costs

Solar pump $ 1,010 0 0 1,010 0 0 0

Inverter $ 1,010 0 0 1,010 0 0 0

4.5 kW array PV panels $ 4,040 0 0 4,040 0 0 0

Installation, control box, cables, & miscellaneous items for solar system $

3,000 0 0 3,000 0 0 0

Supply & installation of drip irrigation system $

3,914 0 0 3,914 0 0 0

Annex 4 53

Tubewell (dia. 0.15m, depth 80 - 100m) $

3,535 0 0 3,535 0 0 0

Training in O&M for farmer $ 500 0 0 500 0 0 0

Project management $ per $'000 investment

56.64 0 0 935 0 0 0

Drip irrigation O&M costs

0 0 0 250 250 250

Net revenue for 2.5 ha

-5,138 -1,632 -18,433 1,367 4,151 9,005

Incremental net revenue for 2.5 ha 0 0 -17,374 1,397 3,479 5,223

EIRR 22.46%

ENPV 18,243

Notes:

1) Drip irrigation installed in 3 year old plantations - i.e. first year of production

2) Floral manipulation from 3rd year of irrigation - i.e. when trees are 5 years old. From this year there are two crops per year.

3) Inverter and panels replaced every 5 years

4) From year 3, fertiliser delivered through drip system; cost is 20% premium over cost for non-irrigated orchard.

5) Most of this cost is related to the floral manipulation processes; mechanical spraying, includes labour

6) Two workers are employed full time for 7 months of the year. Labor for harvesting is supplied by the buyers.

Table A4.2: Incremental Financial Resource Flow Statement for Mango Drip Irrigation Demonstration Subproject

Unit Unit cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 - 22

Revenue

Grade A $/ton 590 0 0 460 1,227 2,761 3,988

Grade B $/ton 330 0 0 257 686 1,544 2,231

Grade C $/ton 200 0 0 78 208 468 676

Total revenue

per ha

0 0 796 2,122 4,774 6,895

per 2.5 ha

0 0 1,989 5,304 11,934 17,238

Orchard operating costs

Orchard establishment $/ha 1,905 1,905 0 0 0 0 0

Urea kg/ha 0.313 0 16 56 79 158 158

DAP kg/ha 0.477 0 14 86 83 166 166

MOP kg/ha 0.399 0 12 57 72 144 144

Floral manipulation kg/ha 1,050 0 0 0 0 1,050 1,050

Pesticides kg/ha 100 0 100 100 100 100 100

54 Annex 4

Labour days/ha 5.0 0 400 600 1,100 1,500 1,700

Other costs lump sum 150 150 150 150 150 150 150

Total orchard operating costs

per ha

2,055 692 1,050 1,584 3,267 3,467

per 2.5 ha

5,138 1,730 2,624 3,959 8,168 8,668

Investment costs

Solar pump $ 1,000 0 0 1,000 0 0 0

Inverter $ 1,000 0 0 1,000 0 0 0

4.5 kW array PV panels $ 4,000 0 0 4,000 0 0 0

Installation, control box, cables, & miscellaneous items for solar system $

3,000 0 0 3,000 0 0 0

Supply & installation of drip irrigation system $

3,875 0 0 3,875 0 0 0

Tubewell (dia. 0.15m, depth 80 - 100m) $

3,500 0 0 3,500 0 0 0

Training in O&M for farmer $ 500 0 0 500 0 0 0

Project management $ per $'000 investment

56.29 0 0 922 0 0 0

Drip irrigation O&M costs

0 0 0 250 250 250

Net revenue for 2.5 ha

-5,138 -1,730 -18,432 1,095 3,516 8,320

Incremental net revenue for 2.5 ha 0 0 -17,226 1,397 3,479 5,223

FIRR 22.66%

FNPV 18,392

Notes:

1) Drip irrigation installed in 3 year old plantations - i.e. first year of production

2) Floral manipulation from 3rd year of irrigation - i.e. when trees are 5 years old. From this year there are two crops per year.

3) Inverter and panels replaced every 5 years

4) From year 3, fertilizer delivered through drip system; cost is 20% premium over cost for non-irrigated orchard.

5) Most of this cost is related to the floral manipulation processes; mechanical spraying, includes labor

6) Two workers are employed full time for 7 months of the year. Labor for harvesting is supplied by the buyers.

55 Annex 5

ANNEX 5: DETAILED FINANICAL AND ECONOIMC RESOURCE FLOW STATEMENT FOR SEDA SEANCHEY COOPERATIVE CASSAVA STORAGE SUBPROJECT

Table A5.1: Incremental Economic Resource Flow Statement for Seda Seanchey Cooperative Cassava Storage Facility

Subproject

Unit Unit cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 - 20

Investment costs

Drying & Storage facility $ 77,172 77,172 0 0 0 0 0

Purchase of land $ 3,000 3,000 0 0 0 0 0

Project management costs (per $1000 investment) $ '000

57 4,371 0 0 0 0 0

Training costs (per storage unit, over 3 years)

$/storage unit

47,917 15,972 15,972 15,972 0 0 0

Storage facility O&M % 0 0 0 0 772 772 772

Storage costs

Storage cycles per year

1 2 2 3 4 4

Cassava chips purchased

200 300 450 600 700 700

Cost of chips $/ton 182 36,400 54,600 81,900 109,200 127,400 127,400

Losses during storage % 0 10 15 23 30 35 35

Available for sale

190 285 428 570 665 665

Transport to Vietnam border $/ton 5 864 1,295 1,943 2,591 3,023 3,023

Storage unit labor costs $/day 5 405 608 911 1,215 1,418 1,418

Storage unit manager $/month 200 2,400 2,400 2,400 2,400 2,400 2,400

Storage costs

3,669 4,303 5,254 6,206 6,840 6,840

Sale of cassava chips $/ton 245 46,550 69,825 104,738 139,650 162,925 162,925

Net revenue for cooperative

6,481 10,922 17,583 24,244 28,685 28,685

Net benefits -94,034 -5,050 1,611 23,472 27,913 27,913

ENPV 99,982

EIRR 18.76%

56 Annex 4

Table A5.2: Incremental Financial Resource Flow Statement for Seda Seanchey Cooperative Cassava Storage Facility

Subproject

Unit Unit cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 - 20

Investment costs

Drying & Storage facility $ 82,519 82,519 0 0 0 0 0

Purchase of land $ 3,000 3,000 0 0 0 0 0

Project management costs (per $1000 investment) $ '000

56 4,645 0 0 0 0 0

Training costs (per storage unit, over 3 years)

$/storage unit

50,306 16,769 16,769 16,769 0 0 0

Storage facility O&M % 1% 0 0 0 825 825 825

Storage costs

Storage cycles per year

1 2 2 3 4 4

Cassava chips purchased

200 300 450 600 700 700

Cost of chips $/ton 182 36,400 54,600 81,900 109,200 127,400 127,400

Losses during storage % 5% 10 15 23 30 35 35

Available for sale

190 285 428 570 665 665

Transport to Vietnam border $/ton 5 950 1,425 2,138 2,850 3,325 3,325

Storage unit labor costs $/day 5 450 675 1,013 1,350 1,575 1,575

Storage unit manager $/month 200 2,400 2,400 2,400 2,400 2,400 2,400

Storage costs

3,800 4,500 5,550 6,600 7,300 7,300

Sale of cassava chips $/ton 245 46,550 69,825 104,738 139,650 162,925 162,925

Net revenue for cooperative

6,350 10,725 17,288 23,850 28,225 28,225

Net benefits -100,582 -6,044 519 23,025 27,400 27,400

FNPV 87,963

FIRR 17.21%