Climate Change and Disaster-Resilient Water Resources Sector Project (RRP KGZ 51081-001)

DETAILED ECONOMIC ANALYSIS

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A. Introduction

1. The proposed project will enhance agricultural and rural economic productivity through increased efficiency of irrigation systems and improved management of water resources in subproject areas and also in the wider irrigation and water resources economy. Improving productivity and managing irrigation systems and water resources are among major thrusts of the government's most recent national strategies and programs.1

2. Although the relative importance of the agriculture sector has declined as industry and services have expanded rapidly, the sector remains important to the Kyrgyz economy. It accounts for 14% of GDP and 48% of employment.2 This great differential highlights the relative poverty of the agricultural sector with around one sixth of the contribution to GDP per worker compared to all other sectors combined. Improvement in agricultural productivity will be key to reducing or at least maintaining this differential.

3. Water is a key input to agricultural production, productivity increase and economic growth. Due to the continental climate, rainfall distribution and river discharges have significant seasonal variability in Kyrgyz Republic, thus adversely affecting sustained agricultural production and increasing vulnerability. Timely availability of water and its efficient management is of prime importance to agriculture productivity. However, water flows in the Pravaya Vetka canal in summer are currently insufficient to fully irrigate the planted areas of key summer crops – cotton and corn.

4. This supplementary document summarizes the expected economic performance of the representative irrigation subproject designed under project preparation – the Pravaya Vetka irrigation system (PVIS) in Jalal-Abad oblast. The irrigation area is located 250 km southwest of Bishkek, though around 650 km by road due to the mountainous terrain. The Pravaya Vetka system is the only subproject being designed in detail during project preparation. Other subprojects will be designed and implemented during implementation of the sector project.

5. The document includes most of the content from the Summary Economic Analysis linked document. This supplementary document is intended to provide a template for the project implementation consultant to follow when undertaking feasibility studies for additional subprojects during project implementation. Thus, it is anticipated that the consultant will primarily need to update subproject capital expenditure (Capex tab in the accompanying Excel workbook), the financial gross margins at the top of the Crop GMs tab, and the percentage utilization of the irrigation area. The workbook supporting this document allows budgeting of five crops without and with project. If six or more crops are to be included, a structural change to the workbook would be required. The workbook contains information intended to assist in development, operation and updating of the worksheets which is intended to allow its adaptation to assess subsequent subprojects.

6. The project executing agencies will be: (i) the Department of Water Resources and Melioration (DWR) with responsibility for implementation of outputs 1 and 2 (the irrigation

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National Sustainable Development Strategy for 2013-2017. National Council for Sustainable Development of the Kyrgyz Republic. January 2013; Program of the Government of the Kyrgyz Republic "Trust and Unity" approved by the Resolution of the Jogorku Kenesh of the Kyrgyz Republic of November 9, 2016 No. 1053-VI; The Decree of the Government of the Kyrgyz Republic "On approval of the State Program for the Development of Irrigation of the Kyrgyz Republic for 2017-2026" from 21.06.2017 #440.

2 CIA World Factbook 2017 accessed 2 July 2018. https://www.cia.gov/library/publications/the-world-

factbook/geos/kg.html

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component); and (ii) the Ministry of Emergency Situations (MOES) with responsibility for implementation of output 3 (the disaster risk management component). A project implementation unit (PIU) within DWR will be established to implement the project on behalf of DWR and MOES, supported by a project implementation consultant firm led by international specialists.

B. Methodology

7. Economic analysis was undertaken for the representative irrigation subproject, comprising part of the command area irrigated from the Pravaya Vekta canal west of Jalal-Abad in southern Kyrgyz Republic. Benefits and costs are examined in order to assess the viability of the subproject as well as identify its expected impact on various sectors of the local society, including the poor. For this analysis the costs and benefits within the subproject irrigation command area are calculated “with” and “without” project. The intent is to identify the incremental value of production attributable to the project (over its expected useful life) and compare this value to the incremental cost of implementing the subproject and of operating and maintaining the new infrastructure over time.

8. Construction period is taken as two years (2021-22), when “with” and “without” project crop production is assumed to be the same. Full with-project crop areas and yields are assumed to be achieved over the subsequent nine years. Although in practice, peak yield at least may take a bit longer to evolve, the impact on economic return would be negligible. It is assumed that whatever changes occur in the future (e.g., to the economy or climate) will affect the “with” and “without” project scenarios roughly equally, maintaining the incremental differences in benefits and costs associated with project implementation.

9. To develop a model for the analysis, certain assumptions were made regarding future practice and about the valuation of inputs and outputs. These include:

• Project capital costs include the cost of three mudflow crossings and the upgrading of primary and secondary canals under MOA. At the WUA/farmer level, a contract will be let by each WUA for the upgrading of tertiary and quaternary infrastructure, and an allowance is made for the economic cost of farmer labor in addition to the contract.

• MOES cost of disaster management machinery is also added to capital cost, on the basis of 50% of the cost of equipment budgeted to be supplied to the Southern Disaster Management Center. Although this equipment will be used in a far wider area than just the irrigation subproject, and it is anyway difficult to allocate economic benefits to the use of the equipment, ADB modelling requires the cost to be included in the economic analysis, even if economic benefit assessment is limited to gains in irrigation efficiency.

• Project life is assumed to be 25 years. Adequate maintenance estimated to cost 2% of civil works cost should allow the irrigation system to maintain its expected benefits for 25 years before another major renovation may be required. However, intermediate renovations are

included in the project cashflow, at a rate of 10% of subproject cost every 10 years.3 A residual value of 40% is considered in sensitivity testing.

• “Without” project assumes that present cultivation patterns and technology continue for the life of the project. Yields and real costs are budgeted to continue at 2018 levels.

• “With” the project, the full command area is expected to continue to be adequately irrigated throughout the life of the project. However, in the base case, a reduction of 20% in cotton and corn area is budgeted, which should result in increased production per hectare.

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The project does not comprise full rehabilitation of the irrigation system, and budgeted O&M costs therefore relate to the additional costs associated with project investments. Additional costs will be incurred by existing infrastructure maintenance but should be the same with and without project.

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Negotiation with WUAs and farmers would be required if summer cropping area is to be reduced. It is anticipated that in parallel to this, increased areas of winter wheat would be grown to utilize the reduced summer crop area.

• Some agricultural outputs will be consumed by farm households but are valued as if sold.

• Some agricultural inputs such as farm labor are provided by the farm household but are valued at the market rate as if hired.

• Values are expressed in constant 2018 prices and exclude inflation.

10. Financial prices used in this analysis were obtained from WUA reports (Table 1 below and Annex Table A.1). In order to assess the project’s contributions to the economy of Kyrgyz Republic, it is necessary to convert financial values into their economic equivalents. Economic valuations exclude transfers from one section of society to another (i.e., taxes and subsidies) and compare project benefits and real opportunity costs to the economy by translating all prices into a common, undistorted value. Additional basic assumptions used in the economic analysis include:

• The analysis uses the domestic price numeraire with the US$ used as the unit of account as the dollar is in common usage in Kyrgyzstan. There are no significant import or export taxes that affect the project apart from the 12% value added tax. ADB estimates a shadow exchange rate factor (SERF) of 1.03 for Kyrgyz Republic in 20164 and this level has been included in subproject models. Almost all cotton produced under the project is expected to be exported, mainly to Russia, and application of a SERF increases economic cotton price. Kyrgyz Republic imports wheat from Kazakhstan and economic border price is increased by the SERF as are the import prices of fertilizers, chemicals and other imported agricultural inputs.

• Wheat, cotton, corn and fertilizer prices were calculated based on World Bank’s Pink Sheet projections.5 The price projections in constant dollars are used to define the expected price trends over the period to 2030. Thereafter prices and gross margins are assumed to remain constant in real terms.

• Rural labor is generally in short supply in Kyrgyz Republic mainly due to the large migration of labor to Russia. Economic labor cost consequently is similar to its financial cost, particularly through the peak spring and summer irrigation and cropping season. Consequently, no shadow wage rate is applied to unskilled labor.

• Transfer payments such as taxes, notably the 12% value added tax (VAT), and subsidies are excluded in the calculation of economic values. VAT on imported goods is applied at the point of import. In crop budgets, the import parity price for imported goods such as fertilizer is assumed. VAT on construction contracts needs to be deducted. Seed and fertilizer are exempt from VAT.

• Urea and nitram fertilizers attract a 6.5% import duty and agricultural machinery 7.5%.

• To calculate the economic net present value of subproject benefits, a discount rate of 9% is applied to cashflow, representing the opportunity cost of capital invested.

11. In subsequent sections, the representative subproject’s budgeted performance is summarized.

4 Estimated by Economic Analysis and Operation Support Division of Economic and Regional Cooperation Department,

ADB in 2018. In prior years a level of 1.02 was estimated. Data sourced from World Bank World Development Indicators (accessed 16 May 2018).

5 World Bank, Commodity Price Projections http://www.worldbank.org/en/research/commodity-markets

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C. Without Project Situation

12. The Pravaya Vetka canal draws water from the Kara-Unkur Say river, serving eight water user associations (WUAs) in Nooken raion west of Jalal-Abad. The irrigation subproject will supply water to four of the WUAs in the lower part of the system. Key characteristics of the WUAs are listed in Table 1. The main canal and two of its major mudflow crossings are damaged and need repair. At full design discharge, main canal top water levels are too low to fully command their full authorized service areas. Furthermore, main canals are not equipped with cross-regulators to maintain canal water levels during less than full design discharges. In addition, there are not enough main canal offtakes and tertiary canals, many existing tertiary canals are too low and irrigable areas are less than their authorized service areas. Therefore, the present agricultural productivity of water (PoW in $/m3) is low. Despite this, average cropping intensity is reported by the WUAs to be 100% and crop yields are already moderately high by Central Asian standards. Crop yields will need to be better defined during the early years of project implementation.

Table 1: Subproject Area

Secondary canal Nooken Sakaldy Sakaldy Aral

WUA Nooken-K Taymonku

Sakaldy-Suu Aral-Sai

Total 4 WUAs

Level Score 7 4 7 7 Population No 11,926 4,363 4,018 5,770 26,077

Members of WUA No 1,244 226 85 853 2,408

Zones No 31 44 30 64 169

Irrigable area 2017 ha 2,409 1,317 972 2,238 6,936

Area of home gardens ha 409 140 90 160 799

Area of field crops ha 2,000 1,177 882 2,078 6,137

Average crop areas 2016-17 Winter wheat ha 435 139 140 605 1,319

Corn ha 136 169 130 359 793

Cotton ha 999 726 420 750 2,895

Lucerne ha 267 103 116 144 630

Total of 4 crops (ha): ha 1,836 1,137 806 1,858 5,636

Total irrigated area: ha 2,409 1,317 972 2,238 6,936

Crop yields reported (2016-17)

Winter wheat kg/ha 4,055 4,050 4,000 4,000 4,026

Corn kg/ha 7,100 7,100 7,100 7,100 7,100

Cotton kg/ha 3,520 3,635 3,600 3,600 3,589

Lucerne kg/ha 6,400 6,500 6,200 6,800 6,475

PVIS = Pravaya Vetka Irrigation System, WUA = water user association. Source: WUA reports.

13. Total irrigable area is reported by the WUAs to be 6,936 ha of which almost 800 ha are classed as home gardens. Almost the entire irrigable area is single-cropped. Apart from some intensive vegetable crops such as onions, multiple cropping is precluded by climatic factors. Cropped areas for 2017 are given in Annex Table A.1 based on data supplied by the WUAs, including average yield and price. Baseline irrigated area is taken as the average cropped area and cropping pattern for 2016 and 2017. Three of the four WUAs are classed as Level 7 – the highest score attainable relating to overall operation and management capacity. Taymonku is rated 4, or about a median level.

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D. Subproject Costs

14. Subproject financial and economic costs are detailed in Table A.2 in Annex 1 and summarized in Table 2 below. Project cost is estimated based on the upgrading of mud management systems and canals down to the tertiary stage, with tertiary canal upgrading undertaken under community contracts. Support will be provided to the WUAs and the proposed water user groups (WUGs) and the overall irrigation federation (WUF). In addition, all costs for the project management implementation consultant (PMIC) and the project management unit (PMU) are allocated to the irrigation subprojects with the division between the four proposed subprojects and years estimated. In total, 25% of the investment in equipment for MOES is added during the first two project years totalling $4.1 million. Although the equipment will not be used directly for PVIS, for the purpose of the analysis the cost will be spread over the planned total four subprojects that will be completed by the end of the project. Total, irrigation subproject cost is estimated at $11.5 million with an economic cost of $10.3 million. The lower economic cost is mainly due to the removal of value added tax from subproject construction costs. Operation and maintenance cost is budgeted at 2% of capital expenditure. It is noted that the cost base for this estimate is the cost of the modernization works and not of the total system. System rehabilitation is budgeted every 10 years at 10% of the capital cost of the protection and modernization works.

Table 2: PVIS Subproject Financial and Economic Costs by Year

2020 2021 2022 2023 2024 2025 2026 Total

Financial PVIS Civil works cost $'000 2,551 3,826 6,377

PVIS PMIC cost $'000 313 157 470

Community costs $'000 65 144 58 266

PMO costs $'000 91 121 61 30 30 30 8 372

PVIS management cost $'000 469 422 118 30 30 30 8 1,107

MOES cost $'000 2,031 2,031 4,062

Total PVIS cost financial $'000 5,050 6,279 118 30 30 30 8 11,546

Economic PVIS Civil works cost $'000 2,292 3,439 5,731

MOES cost $'000 1,813 1,813 3,627

Total subproject capital cost 4,106 5,252 9,358

PVIS management cost $'000 419 377 106 27 27 27 7 989

Total PVIS cost economic $'000 4,524 5,628 106 27 27 27 7 10,346

MOES = Ministry of Emergency Services, PMIC = project management implementation consultant, PMO = project

management office, PVIS = Pravaya Vetka irrigation system. Source: Asian Development Bank.

E. With Project Situation

15. The proposed improvement to the Pravaya Vetka system will improve the irrigation water supply to the four WUAs drawing water from the lower canal. Flow measurement systems will be installed in canal offtakes to allow improved and equitable water distribution between and within WUAs. Overall yield gains of the order of 15 to 50% are anticipated based on water balance

analysis.6 In summary, the expected areas and yields with and without project are listed in Table 3.

Both without and with project, summer crop areas are budgeted to decline by 5%, with the area taken up by additional winter wheat. Since home gardens comprise most of the irrigable area

6 Pravaya Vetka Irrigation System: Water Balance and Drought Risk Management linked document

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excluding the four main crops, detailed budgeting is not feasible. As a substitute for minor field crops and gardens, a vegetable crop represented by onions is included in the budgets.

16. The improved irrigation efficiency is expected to increase the yields of the main crops grown on the system. Yield gains are primarily based on the analysis of water balance and demand discussed in Pravaya Vetka Irrigation System: Water Balance and Drought Risk Management linked document.7 Although that analysis indicates that higher gains are feasible, this analysis assumes that corn can increase from 7 t/ha to 10.2 t/ha by 2026. Cotton and lucerne are less responsive to increased irrigation supply and improved management than corn, and their yields are based on the relative gains estimated from FAO CropWat analysis (Table A.3). Wheat and vegetables/fruit yields are estimated to increase by 15%.

17. Based on cropping data provided by the WUAs, yields of wheat, cotton and corn have been increasing rapidly over the period since 2011, at an average of around 4.5% per year. This appears to have been due to the measurement of soil moisture and linkage to irrigation frequency. While there is no certainty about future trends, it is unlikely that this rate of gain could be sustained under a climate change scenario in the absence of the project and modified cropping patterns. Some increase is however feasible, and a level of 1%/year is assumed. The economic value of incremental crop production is estimated based on the increased crop production moving from the “without project” to the “with project” situation over the seven years 2020 to 2026.

Table 3: Without and with Project Expected Areas and Yields

Without project With project

Areas Wheat Cotton Corn Luc- erne

Veg & HG

Wheat Cotton Corn Luc- erne

Veg & HG

Planted Oct Mar Mar Mar Oct Mar Mar Mar

ha ha ha ha ha ha ha ha ha ha 2020-21 Construction 1,223 3,057 842 507 1,307 1,223 3,057 842 507 1,307 2022 1,280 3,026 834 502 1,294 1,280 3,026 834 502 1,294 2023 1,337 2,996 825 497 1,281 1,337 2,996 825 497 1,281 2024 1,394 2,965 817 492 1,268 1,394 2,965 817 492 1,268 2025 1,452 2,935 808 487 1,255 1,452 2,935 808 487 1,255 2026 1,509 2,904 800 482 1,242 1,509 2,904 800 482 1,242 2027 1,509 2,904 800 482 1,242 1,509 2,904 800 482 1,242 2028 1,509 2,904 800 482 1,242 1,509 2,904 800 482 1,242 2029 1,509 2,904 800 482 1,242 1,509 2,904 800 482 1,242 2030 1,509 2,904 800 482 1,242 1,509 2,904 800 482 1,242 Yields kg/ha kg/ha kg/ha kg/ha kg/ha kg/ha kg/ha kg/ha kg/ha kg/ha 2020-21 Construction 4,000 3,600 7,000 6,000 19,700 4,000 3,600 7,000 6,000 19,700 2022 4,060 3,654 7,105 6,090 19,996 4,120 3,815 7,640 6,475 20,291 2023 4,121 3,709 7,212 6,181 20,295 4,240 4,030 8,280 6,951 20,882 2024 4,183 3,764 7,320 6,274 20,600 4,360 4,245 8,920 7,426 21,473 2025 4,245 3,821 7,430 6,368 20,909 4,480 4,460 9,560 7,902 22,064 2026 4,309 3,878 7,541 6,464 21,222 4,600 4,674 10,200 8,377 22,655 2027 4,309 3,878 7,541 6,464 21,222 4,600 4,674 10,200 8,377 22,655 2028 4,309 3,878 7,541 6,464 21,222 4,600 4,674 10,200 8,377 22,655 2029 4,309 3,878 7,541 6,464 21,222 4,600 4,674 10,200 8,377 22,655 2030 4,309 3,878 7,541 6,464 21,222 4,600 4,674 10,200 8,377 22,655

HG = home gardens (799 ha) Source: Asian Development Bank.

18. Economic crop prices are derived in Table A.4, based on the export parity price of cotton, and the import price of wheat (from Kazakhstan). The Kyrgyz shadow exchange rate factor (SERF)

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During analysis, FAO’s Irrigation and Drainage Paper No 33 "Yield Response to Water" was reviewed as a potential source of yield response to increased irrigation water availability. Relevant yield gains are summarized in Table A.3.

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of 1.03 is added to both export crops (cotton) and imported crops (wheat). Domestic prices are used for the non-traded products – corn and lucerne (hay) since financial and economic prices are the same. Economic fertilizer prices are in Table A.5. Only urea is used among the three main fertilizers analysed by World Bank. However, potassium chloride (KCl) and diammonium phosphate are also included in the table. Nitram (ammonium nitrate) price is estimated as a proportion of urea price, based on the relative domestic market prices.

F. Farm Performance

19. The proposed subproject will improve water supply to the irrigable area through increasing the number of tertiaries and improving off-takes. The main crops grown are expected to be similar to the present, with cotton, wheat, corn and lucerne dominant. Several minor crops will be grown including a range of vegetable and oilseed crops. Potential crops include onions, sunflower, and vegetables. The analysis includes almost 800 ha of home gardens, which are mainly used for growing fruit and vegetables and providing nutrition for livestock. This area totalling around 1,040 ha at present is budgeted under the name “Veg & HG” based on the expected performance of an onion enterprise.

20. Crop financial gross margins are estimated in Table A.6 and economic margins in Table A.7. In summary, expected budgeted cropping pattern and crop financial and economic performance are summarized in Table 4. This indicates that based on the yield and cost assumptions used, it should be feasible to increase average per hectare gross margin by at least 20% by project year 7 (2026) when peak yield is obtained, allowing 2 years for construction until with-project cropping patterns commence.

Table 4: Financial and Economic Gross Margins With and Without Project (2030)

Without project With project

Wheat Cotton Corn Luc-

erne Veg &

HG Wheat Cotton Corn Luc-

erne Veg &

HG

Area 2022 ha 1,223 3,057 842 507 1,307 1,223 3,057 842 507 1,307 Area 2026 ha 1,509 2,904 800 482 1,242 1,509 2,904 800 482 1,242 Yield (main crop) kg/ha 4,309 3,878 7,541 6,464 21,222 4,600 4,674 10,200 8,377 22,655 Financial Price $/t 167 633 212 220 294 172 633 212 221 294 Output $/ha 1,153 2,554 2,300 1,422 6,242 1,254 3,078 3,111 1,848 6,663 Total cost per ha $/ha 590 867 794 727 1,638 598 932 901 771 1,711 Financial gross margin $/ha 563 1,687 1,506 695 4,604 657 2,146 2,210 1,077 4,952 Economic Price $/t 172 652 212 220 294 172 652 212 221 294 Output $/ha 1,175 2,628 2,300 1,422 6,242 1,254 3,167 3,111 1,848 6,663 Total cost per ha $/ha 592 866 795 738 1,639 599 931 902 783 1,712 Economic gross margin $/ha 583 1,761 1,505 684 4,602 655 2,236 2,209 1,065 4,952

Veg & HG = vegetables and home gardens Source: Asian Development Bank.

21. The with and without project cropping patterns have been costed over the period 2022 to 2030. The tables are too large to include in the annex. However, as an example, the with-project economic budget for project cotton is included as Table A.8. Translated into the cropping patterns from Table 3 above, the overall performance of the subproject for the period 2023 to 2030 is summarized in Table 5 and detailed in Table A.9. This indicates an economic margin gain of around $2.7 million from 2026 onwards.

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Table 5: Overall Summary of Changes in Annual Economic Gross Margins

2022 2023 2024 2025 2026 2027 2028 2029 2030

Without project Value of crop production $'000 19,639 19,732 19,832 19,922 20,012 19,924 19,844 19,759 19,678 Costs without project $'000 6,455 6,445 6,435 6,425 6,416 6,421 6,426 6,430 6,435 Gross margin without project $'000 13,184 13,287 13,397 13,497 13,596 13,503 13,418 13,329 13,243 With project Value of crop production $'000 20,317 21,057 21,784 22,477 23,150 23,035 22,940 22,838 22,741 Costs with project $'000 6,740 6,780 6,825 6,875 6,813 6,815 6,821 6,826 6,831 Gross margin with project $'000 13,577 14,277 14,959 15,602 16,337 16,220 16,119 16,012 15,910 Increase in value with project $'000 678 1,325 1,952 2,555 3,138 3,111 3,096 3,079 3,063 Increase in economic margin $'000 392 990 1,562 2,105 2,741 2,717 2,701 2,683 2,667

Source: Asian Development Bank.

G. Cashflow

22. Subproject construction costs are allocated to the two years 2020-21, with proportions of 40% and 60% in each year. Over the construction years, the “with” and “without” performance of irrigation is assumed to be the same. There may be some yield gains during these years, but they are assumed offset by the disruption caused by construction, although the project must make efforts to minimize this. Applying the calculated gross margins for the period 2022 to 2030 and assuming margins thereafter remain the same, the cashflow summarized in Table A.10 is generated, indicating an economic internal rate of return (EIRR) of 16.1% and net present value of $7.4 million.

23. Sensitivity testing was undertaken in relation to capital cost gains and paddy price declines, with a 10% increase in costs or decline in economic crop price reducing EIRR to 14.7% and 14.3% respectively (Table 6). If only 12.5% of MOES equipment costs are allocated to PVIS (rather than 25% in the base case), EIRR would increase to 18.9%. Productivity of water analysis (SD29) indicates that corn yield with project could increase further, to an average of 11.7 t/ha, which would increase EIRR to 22.6% if other crops responded proportionately. Capital cost would need to increase by 70% or crop price to decline by 36% to reduce EIRR to 9% referred to as the switching value – i.e., at which the project would become uneconomic.

Table 6: EIRR, Sensitivities and Switching Values

Capital cost EIRR NPV 9%

$'000 $'000

Cost, EIRR & NPV 9,358 16.1% 7,379 Sensitivity Capital cost increased by 10% 14.7% 6,176 Crop price falls by 10% 14.3% 5,317 Residual value of 40% 16.2% 7,645

Corn yield with project 11.7 t/ha 22.6% 16,068 Contribution to MOES costs 12.5% 18.9% 8,974 Switching value for 9% EIRR Capital cost increase 70% Crop price decline 36%

EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank.

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H. Impact on Poverty

24. The extent of poverty in PVIS WUAs was assessed and reported in the supplementary document on Poverty, Social and Gender Analysis (available on request). These data are summarized by WUA in Table 7.

Table 7: Poverty Incidence in PVIS Subproject Area

WUA name Population Households Proportion

of poor households

Farmers

Proportion of farm

households

Irrigable land owner-

ship (ha)

Average irrigable land/

household (ha)

Aral-Sai 5,912 981 33.0% 853 87% 2,238 2.28 Sakaldy-Suu 8,454 1,506 24.5% 192 13% 972 4.80 Taimonku 3,430 611 27.0% 226 37% 1,317 5.80 Nooken-K 8,418 1,489 26.0% 1,242 83% 2,109 2.00 Total PVIS 26,214 4,587 27.1% 2,513 55% 6,636 2.64

Source: Poverty, Social and Gender Analysis linked document (available on request)

25. Overall poverty incidence averages 27% across the four WUAs with a maximum of 33% in Aral-Sai, where 87% of households own land, and a minimum of 24.5% in Sakaldy-Suu with only 13% of farm households. Household size averages 5.7. Based on a poverty line reported as Som2,631/month8 or $464 per person ($2,650 for an average size household) it is estimated that a household would need to own 1.39 ha of irrigable land to achieve a gross margin of this order, applying a baseline gross margin of $1,900/ha. A further factor is that farm labor is costed into the crop gross margins. Thus, if all manual work is undertaken by the family, their margin would be higher.

26. With project, average gross margin is expected to increase by around $270/ha by 2026, which will allow a proportion of farm households to move out of poverty.

27. No information is available on the proportion of female-headed households. However, as reported by the project’s Poverty, Social and Gender Analysis, for the Kyrgyz Republic as a whole, on the proportion of female-headed households below the poverty line (13%) is substantially below male-headed (20%). Although the percentage of poor households in PVIS is above the national average, it would be expected that a similar gender balance to the national average applies.

28. In addition to poor farm households, many landless households in subproject villages will be classed as poor, particularly if they lack substantial employment or business opportunities. These households and a proportion of small farmers will be able gain employment working for larger farms. Other households, particularly those with young men surplus to farm labor needs, will earn income by the men seasonally (normally in summer) or permanently going to work in cities or large towns, or internationally – to Russia or Kazakhstan. In much of Central Asia, rural labor is in short supply over the summer period for this reason – which is also a key reason why production has moved rapidly to a high degree of mechanization.

Poverty Impact Ratio

29. The poverty impact of the subproject will be approximately the increase in gross margin earned by poor farmers under the subproject related to total benefits. Across the four WUAs 27%

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Reported in Annex A of the project’s Poverty, Social and Gender Analysis. Middle-poor earn less than $1530/year and extreme poor less than $920 for an average size household.

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of households in the subproject area are reported to be poor and 55% of households are reported to own agricultural land (Table 7). However, the percentage of poor farm households is not known.

30. Subproject economic analysis has calculated with and without gross margins per hectare. It is likely that margins will be similar between small and large farms. Various factors affect this, such as small farmers' capacity to pay for inputs or borrow cash, and their ability to provide a higher proportion of family labor inputs or work for larger farmers or local businesses. These factors are likely to approximately balance. However, information is not available on the actual size distribution of farms.

31. The poverty cut off is approximately $2,650 per household per year (paragraph 25 above) and based on the calculated without project GM, the size cut-off would be around 1.39 ha or 54% of the average farm size (2.6 ha). If 27% of farm households are in this bracket, and their average farm size is 1.0 ha, then the area occupied by poor households would be 680 ha or 10% of the PVIS area. If project benefits are proportional to farm area as suggested, then the poverty impact ratio would be 10%. i.e., around 10% of project benefits would flow to the poor.

32. It is noted that in practice, the land-poor can also compensate by renting in or renting out land, keeping livestock, selling home garden produce or undertaking paid employment so these estimates are only approximate. The budgeted 21% increase in real gross margin should lift a significant proportion of the farm poor out of poverty.

33. Based on ADB’s economic analysis guidelines, poverty impact analysis can also look at the impact of construction activities, with the distribution of benefits to employed labor. However, no data are available on the proportion workers sourced from poor families. However, particularly for the contracts relating to the improvement of tertiary and quaternary infrastructure, the proportion of unskilled labor would be likely to be quite high, many of whom would come from poor rural families. This would tend to increase the PIR to marginally above the 10% estimated above.

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Annex 1: Irrigation Subproject Tables

Table A.1: Cropping Patterns 2017

WUA Name of crop

Nooken-K

Tay-monku

Sakaldy-Suu Aral-Sai

Total 4 WUAs

Whole PVIS

1 Winter wheat ha 370 108 140 605 1223 2296

Yield, kg/ha 4100 4100 4000 4000 4050 3912

Market price $/t 188 188 188 188 188 187 2 Spring wheat

3 Barley 4 Corn for grain ha 203 150 130 359 842 2202

Yield kg/ha 6900 7100 7100 7100 7050 6812

Market price $/t 188 188 188 188 188 197

5 Rice ha 42 42 92

Yield kg/ha 4900 4900 3950

Market price $/t 725 725 3623 6 Kidney bean

7 Cotton ha 1075 812 420 750 3057 4660

Yield kg/ha 3540 3670 3600 3600 3603 3506

Market price $/t 696 609 609 609 630 652 8 Sugar beat 9 Tobacco

10 Oil seeds ha 23 23 128

Yield kg/ha 900 225 1950

Market price $/t 435 109 417

11 Potato 12 Vegetables ha 119 60 39 107 325 475

Yield kg/ha 36900 42600 33100 33000 36400 34675

Market price $/t 362 362 362 362 362 353

13 Watermelons ha 16 50 66 74

Yield kg/ha 34600 36000 17650 28533

Market price $/t 362 362 181 338

14 Perennial grass (hay) ha 200 47 116 144 507 1896

Yield kg/ha 6900 6800 6200 6800 6675 7550

Market price $/t 59 59 59 59 59 65 15 Perennial grass (haylage) 16 Perennial grass (seeds) 17 Maize for silage 18 Other feed crops 19 Fallow

20 Fruit trees ha 10 21 21 52 99

Yield kg/ha 7790 6900 7100 5448 7498

Market price $/t 362 362 181 362 21 Berries 22 House gardens ha 409 140 90 160 799 1448 23 Other ha 24 Total ha 2409 1317 972 2238 6936 14924

Total of 4 crops ha 1848 1117 806 1858 5629 11054 Total ex house gardens ha 2000 1177 882 2078 6137 11922

PVIS = Pravaya Vetka irrigation system, WUA = water user association. Note: the 1554 ha area is in Kanesh Suu WUA which is irrigated from another canal. Source: WUA reports.

13

Table A.2 Capital Costs ($’000)

Financial cost Cost breakdown Economic

Ex VAT Inc VAT

Foreign Component

Local costs cost

Irrigation subproject

costs

Materials Skilled labor

Unskilled labor

1. Civil Works $'000 $'000 $'000 $'000 $'000 $'000 $'000

3 mudflow crossings, main & secondary canal lining 1986 2224 356 1490 111 267 1996

Main canal modernization 1500 1680 269 1126 84 202 1507

Contingencies 330 369 59 247 18 44 331

Total 3816 4274 684 2863 214 513 3834

2. On-farm facilities

Tertiary and on-farm facilities contracts 1220 1366 137 615 273 342 1235

Contingencies 110 123 12 55 25 31 111

Farmer and WUA labor ($100/ha) 614 614 31 123 184 276 551

Total 1943 2103 180 793 482 648 1897

Total irrigation subproject cost including contingencies 5759 6377 5731

Source: Asian Development Bank.

Table A.3: FAO Estimates of Yield Change with Less Restricted Water Supply

Description: Crop yield response

factor

Reduced irrigation

deficit

Relative yield

increase e

Without project

With project

Yield Without project

Yield WiP

WiP-WoP

Formulae: ky 1-(ETp/ETf)

1-(Yp/Yf)

ETp ETf Yp/Yf Yp Yf Increment %

Note: _/1 _/2

_/3 _/4

_/5 _/6

Explanation: (Yf-Yp) (Yf-Yp)/Yp

Units: - % % m3/ha m3/ha % tons tons tons %

CROP

W-wheat 1.0 9.1% 9.1% 2752 3027 90.9% 3.4 3.7 0.3 10.0%

Maize (g) 1.3 9.1% 11.4% 3200 3520 88.6% 4.2 4.7 0.5 12.8%

Lucerne 1.1 9.1% 10.0% 5120 5632 90.0% 4.8 5.3 0.5 11.1%

Cotton 0.9 9.1% 7.7% 7200 7920 92.3% 2.8 3.0 0.2 8.4%

Vegetables 1.1 9.1% 10.0% 3360 3696 90.0% 11.0 12.2 1.2 11.1%

Oilseeds 0.9 9.1% 8.0% 3520 3872 92.0% 1.2 1.3 0.1 8.7%

NOTE 1: The yield response factor (ky) relates crop yield increase with additional irrigation water applied in-field. NOTE 2: The irrigation deficit is expressed as 1-(ETa/ETm) (equivalent to 1-ETp/ETf).

NOTE 3: ETp is the actual water applied to the crop Without Project (WoP).

NOTE 4: ETf is the water applied With-Project (WiP).

NOTE 5: Yp is the present crop yield WoP.

NOTE 6: Yf is the estimated yield WiP.

NOTE 7: The relationship between yield depression and water deficit is valid only between 50% up to 100% of the water matching crop needs = "Norm". NOTE 8: Crop yield responses can be more pronounced at certain times in the growing season. Source: FAO Irrigation and Drainage Paper No 33. "Yield Response to Water"

14

Table A.4: Economic Crop Prices Jalal-Abad

Cotton (export parity) (Cotton Outlook "Cotlook A index"), middling 1-3/32 inch, traded in Far East Item 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

interpolated

Cotton A Index current $ $/kg 1.55 1.64 1.84 1.95 1.97 1.99 2.01 2.03 2.05 2.07 2.09 2.11 2.13 2.16 2.18 2.20

Cotton A Index constant 2010 $ $/kg 1.59 1.74 1.89 2.02 2.00 1.99 1.97 1.96 1.95 1.93 1.92 1.91 1.89 1.88 1.86 1.85

Soybean meal price (as base for cottonseed price) $/t 403 404 369 440 434 428 423 418 413 408 403 398 393 387 382 377

MUV (2010 = 100) b 2010 98 94 95 97 99 101 103 105 107 109 111 113 115 117 119 121

MUV (2018 = 100) b 2018 100.4 96.5 97.4 100.0 102.1 104.1 106.1 108.0 109.9 111.8 113.8 116.0 118.1 120.3 122.5 124.7

Cotton price (constant 2018 prices) $/kg 1.54 1.70 1.89 1.95 1.93 1.91 1.89 1.88 1.87 1.85 1.84 1.82 1.81 1.79 1.78 1.76

$/t 1544 1699 1889 1950 1930 1911 1895 1879 1866 1851 1837 1821 1806 1792 1778 1764

Less international transport and insurance $/t 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 101

Less 4.5% charge for port fees, handling & documents $/t 69 76 85 88 87 86 85 85 84 83 83 82 81 81 80 79

At port price $/t 1374 1523 1704 1762 1743 1725 1710 1695 1682 1668 1654 1639 1625 1611 1598 1584

Less 10% grading system lossa/ $/t 137 152 170 176 174 173 171 169 168 167 165 164 162 161 160 158

Price net of discounts to international buyers $/t 1237 1371 1533 1586 1569 1553 1539 1525 1514 1501 1489 1475 1462 1450 1438 1426

Adjustment for shadow exchange rate (x1.03) $/t 1274 1412 1579 1634 1616 1599 1585 1571 1559 1546 1533 1520 1506 1494 1481 1468

Less transport & handling from gin to port $/t 140 140 140 140 140 140 140 140 140 140 140 140 140 140 140 140

Less ginning costs (per mt of fiber) $/t 185 185 185 185 185 185 185 185 185 185 185 185 185 185 185 185

Ex-ginnery price of cotton fiber $/t 947 1085 1252 1307 1289 1273 1258 1244 1232 1219 1207 1193 1179 1167 1154 1141

Less low quality of ginning discount ($40/t for 70%) $/t 28 28 28 28 28 28 28 28 28 28 28 28 28 28 28 28

Less delay in ginning discount ($30/t for 40%) $/t 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12

Plus tax component in ginning, transport & handling $/t 72 72 72 72 72 72 72 72 72 72 72 72 72 72 72 72

$/t 979 1117 1284 1339 1321 1305 1290 1276 1264 1251 1239 1225 1211 1199 1186 1173 Processing ratio 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345 0.345

Cotton fiber value per metric ton of seed cotton $/t 338 385 443 462 456 450 445 440 436 432 427 423 418 414 409 405

By-product value per mt of seed cotton $/t 405 371 338 404 398 393 388 383 379 374 370 365 360 355 351 346

Ginnery door value of raw cotton $/t 742 756 782 865 854 843 833 824 815 806 797 787 778 769 760 751

Less transport from farm to gin $/t 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10

Less 10% waste $/t 74 76 78 87 85 84 83 82 81 81 80 79 78 77 76 75

Farm gate value of raw cotton $/t 658 670 693 769 759 748 740 731 723 715 707 699 690 682 674 666

On farm economic value of raw cotton $/kg 0.68 0.75 0.74 0.73 0.72 0.72 0.71 0.70 0.69 0.68 0.68 0.67 0.66 0.65

Financial price based on 2017 WUA price $/kg 0.66 0.73 0.72 0.71 0.70 0.70 0.69 0.68 0.67 0.66 0.66 0.65 0.64 0.63

MUV = manufactures unit value. Source: World Bank commodity price projections and Asian Development Bank.

15

Wheat (import parity) Wheat Price FOB US Gulf Ports 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

interpolated

US Gulf Port (current $) $/t 204 167 174 190 194 198 201 205 209 214 218 222 227 231 236 240

US Gulf Port (constant 2010 $) a $/t 209 177 179 197 197 197 198 198 199 199 200 200 200 201 201 201

MUV (2010 = 100) 2010 98 94 95 97 99 101 103 105 107 109 111 113 115 117 119 121

MUV (2018 = 100) 2018 100.4 96.5 97.4 100.0 102.1 104.1 106.1 108.0 109.9 111.8 113.8 116.0 118.1 120.3 122.5 124.7

Wheat FOB Gulf Ports (constant 2018 $) $/t 203 173 179 190 190 190 189 190 190 191 192 192 192 192 192 192

Kyrgyz import price a/ current $ 184 171 174

2018 $ 184 177 182 174 174 174 173 174 174 175 175 176 176 176 176 176

Adjustment for shadow exchange rate (x1.03) $/t 189 182 188 179 179 179 179 179 179 180 181 181 181 181 181 181

Train to Bishkek (240 km) + border costs $/t 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

CIF Bishkek $/t 209 202 208 199 199 199 199 199 199 200 201 201 201 201 201 201

Less transport from PVIS to Bishkek (600 km) $/t 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26

Project Area Wholesale Value $/t 183 176 182 173 173 173 173 173 173 174 175 175 175 175 175 175

Less cost of local transport $/t 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Economic Farmgate Price $/kg 0.18 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17

Financial Farmgate Price $/kg 0.17 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.17 0.17 0.17 0.17

Maize (est domestic price)

Maize (current $) $/mt 170 159 155 159 162 166 170 174 178 183 187 192 196 201 205 210

Maize (constant 2010 $) $/mt 174 170 164 163 164 164 165 166 167 168 169 170 171 171 172 173

MUV (2010 = 100) 2010 98 94 95 97 99 101 103 105 107 109 111 113 115 117 119 121

MUV (2018 = 100) 2018 98.0 94.0 95.0 100.0 99.0 101.0 103.0 105.0 107.0 109.0 111.0 113.0 115.0 117.0 119.0 121.0

Corn US Gulf (constant 2018 $) $/t 173 169 163 159 164 164 165 166 166 168 168 170 170 172 172 174

Estimated economic & financial price PVIS (constant 2018 $)

$/kg 0.20 0.19 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.21 0.21 0.21 0.21 0.21

a/ Kazakhstan export values from FAO Agristat data. CIF = cost insurance and freight, MUV = manufacturing unit value, PVIS = Pravaya Vetka irrigation system. Source: World Bank, Commodity Price Projections (used to derive price changes over time) and local reported prices in PVIS.

16

Table A.5: Economic Fertilizer Prices PVIS 2015 to 2030

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Urea

Eastern Europe (current $) a $/t 273 199 216 215 221 227 234 240 247 254 261 269 277 284 292 300

Eastern Europe (constant 2010 $) a $/t 284 277 270 264 258 253 247 241 236 230 225 229 234 238 243 247

MUV (2010 = 1.0) b 2010 98 94 95 97 99 101 103 105 107 109 111 113 115 117 119 121

MUV (2015 = 1.0) b 2018 100.4 96.5 97.4 100.0 102.1 104.1 106.1 108.0 109.9 111.8 113.8 116.0 118.1 120.3 122.5 124.7

Urea FOB Eastern Europe (constant 2018 $) $/t 272 206 222 215 217 218 221 222 225 227 229 232 234 236 239 241

Freight, insurance, etc. to Bandar Abas $/t 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30

CIF Bandar Abas $/t 302 236 252 245 247 248 251 252 255 257 259 262 264 266 269 271

Freight & handling Bandar to Kyrgyz border $/t 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80

CIF price 382 316 332 325 327 328 331 332 335 337 339 342 344 346 349 351

Import duty (6.5%) 25 21 22 21 21 21 21 22 22 22 22 22 22 23 23 23

Freight border to Jalal Abad 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Handling and transport to farmgate c $/t 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

Financial farmgate price per ton including $/t 433 363 379 372 374 375 378 380 383 385 387 390 392 395 397 399

Economic farmgate price per kg $/kg 0.42 0.35 0.37 0.36 0.36 0.36 0.36 0.37 0.37 0.37 0.37 0.38 0.38 0.38 0.38 0.38

Estimated financial price of nitram $/kg 0.40 0.34 0.35 0.35 0.35 0.35 0.35 0.35 0.36 0.36 0.36 0.36 0.37 0.37 0.37 0.37

Estimated economic price of nitram $/kg 0.39 0.33 0.34 0.33 0.34 0.34 0.34 0.34 0.34 0.35 0.35 0.35 0.35 0.35 0.36 0.36

CIF = cost insurance and freight, MUV = manufacturing unit value, PVIS = Pravaya Vetka irrigation system. Source: World Bank, Commodity Price Projections (used to derive price changes over time) and local reported prices in PVIS.

17

Table A.6: Crop Financial Gross Margins 2030

Without project With project

Wheat Cotton Corn Luc- erne

Veg & HG

Wheat Cotton Corn Luc- erne

Veg & HG

Units/ha

1 Seed kg/ha 250 50 20 16 5 250 50 20 16 5 2 Urea (46%) kg/ha 100 300 100 100 100 418 139 120 3 Nitram kg/ha 200 200 400 200 278 480 4 Pesticides L/ha 3.5

10 3.5 10 5 Bags (50 kg) number

394 438

6 Watering times 3 5 4 5 6 3 5 4 5 6 7 Machinery operations number 4 7 6 1 6 4 7 6 1 6 8 Diesel L/ha 90 90 90 90 90 90

9 Oil L/ha 10 10 10 10 10 10

10 Harvesting/mowing times 1 1 4 1 1 1 4 1 11 Baling straw/hay bales 201 397 215 553

12 Transport tonnes 7.3 5.1 13.2 6.5 21.2 7.8 7.1 18.4 9.0 22.7 13 Manual labor days 10 10 25 10 10 25 14 Harvesting labor days 21 10 20 29 14 22

Unit costs

1 Seed $/kg 0.40 1.18 2.65 4.41 73.53 0.40 1.18 2.65 4.41 73.53 2 Urea (46%) $/kg 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 3 Nitram $/kg 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 4 Pesticides $/spray 9.52 10.29 9.52 10.29 5 Bags (50 kg) $/kg 0.15 0.15 6 Watering on arable land $/ha 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 7 Machinery operations $/ha/op 18.75 25.42 22.30 14.71 22.30 18.75 25.42 22.30 14.71 22.30 8 Diesel $/L 0.63 0.63 0.63 0.63 0.63 0.63 0.63 0.63 9 Oil $/L 1.47 1.47 1.47 1.47 1.47 1.47 1.47 1.47

10 Manual labor $/day 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 11 Chemical treatment $/ha 29.41 58.82 29.41 58.82 12 Harvesting labor $/day 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 13 Harvesting/mowing $/ha 66.18 66.18 97.06 66.18 66.18 66.18 97.06 66.18 14 Baling straw/hay $/bale 0.24 0.24 0.24 0.24 0.24 0.24 0.24 0.24 15 Transport $/t 8.82 8.82 8.82 8.82 8.82 8.82 8.82 8.82 8.82 8.82

Per hectare performance

Yield

Base yield (2020/21) kg/ha 4000 3600 7000 6000 19700 4000 3600 7000 6000 19700 Yield 2026-30 kg/ha 4309 3878 7541 6464 21222 4600 4674 10200 8377 22655 Straw/stems kg/ha 3016 1193 5656 3220 1438 7650 Price Production $/kg 0.17 0.63 0.21 0.22 0.29 0.17 0.63 0.21 0.22 0.29 Straw/stems $/kg 0.14 0.08 0.12 0.14 0.08 0.12 Gross income $/ha 1153.3 2553.9 2300.0 1422.0 6241.9 1254.2 3078.2 3111.0 1847.9 6663.2 Costs/ha

1 Seed $/ha 101.00 58.80 52.94 70.59 367.65 101.00 58.80 52.94 70.59 367.65 2 Urea (46%) $/ha 39.94 119.81 39.94 39.94 39.94 144.41 54.02 47.93 3 Nitram $/ha 74.55 74.55 149.10 74.55 100.84 178.92 4 Pesticides $/ha 33.33 102.90 33.33 102.90 5 Bags (50 kg) $/ha 57.73 64.14 6 Watering $/ha 35.30 58.83 47.06 58.83 70.62 35.30 58.83 47.06 58.83 70.62 7 Machinery operation $/ha 75.00 177.94 133.82 14.71 133.82 75.00 177.94 133.82 14.71 133.82 8 Diesel $/ha 56.88 56.88 56.88 56.88 56.88 56.88 9 Oil $/ha 14.71 14.71 14.71 14.71 14.71 14.71

10 Labor $/ha 14.71 147.06 117.65 44.12 316.18 14.71 147.06 117.65 44.12 316.18 11 Chemical treatment $/ha 29.41 58.82 29.41 58.82 12 Harvesting labor $/ha 125.00 73.53 88.18 156.70 99.46 104.51 13 Harvesting/mowing $/ha 66.18 66.18 388.24 66.18 66.18 66.18 388.24 66.18 14 Baling straw/hay $/ha 47.26 93.27 50.45 120.88 15 Transport $/ha 64.64 44.75 116.45 57.04 187.18 69.00 53.94 157.51 73.92 199.82

Total direct costs $/ha 590.2 866.5 793.7 726.8 1638.3 597.7 932.0 901.1 771.3 1711.5 Financial gross margin $/ha 563.1 1687.4 1506.3 695.2 4603.6 656.5 2146.2 2209.9 1076.6 4951.7

18

Source: Asian Development Bank.

Table A.7: Crop Economic Gross Margins 2030

without project with project

Wheat Cotton Corn Luc-

erne Veg &

HG Wheat Cotton Corn Luc-

erne Veg &

HG Units/ha

1 Seed kg/ha 250 50 20 16 5 250 50 20 16 5 2 Urea (46%) kg/ha 100 300 100 100 100 418 139 120 3 Nitram kg/ha 200 200 400 200 278.48 480 4 Pesticides L/ha 3.5 10 3.5 10 5 Bags (50 kg) number 394 438 6 Watering unit 3 5 4 5 6 3 5 4 5 6 7 Machinery operations number 4 7 6 1 6 4 7 6 1 6 8 Diesel L/ha 90 90 90 90 90 90 9 Oil L/ha 10 10 10 10 10 10

10 Harvesting/mowing times 1 1 4 1 1 1 4 1 11 Baling of hay bales 201 397 215 553 12 Transport tonnes 7.3 5.1 13.2 6.5 21.2 7.8 7 18 9 23 13 Manual labor days 10 10 25 10 10 25 14 Harvesting labor days 21 10 20 29 14 22

Unit costs

1 Seed $/kg 0.40 1.18 2.65 4.41 73.53 0.40 1.18 2.65 4.41 73.53 2 Urea (46%) $/kg 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 3 Nitram $/kg 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 0.36 4 Pesticides $/kg 9.81 10.60 9.81 10.60 5 Bags (50 kg) $/kg 0.15 0.15 6 Watering on arable land $/ha 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 7 Machinery operations $/ha/op 19.13 25.93 22.75 15.00 22.75 19.13 25.93 22.75 15.00 22.75 8 Diesel $/L 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 9 Oil $/L 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52

10 Manual labor $/day 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 11 Chemical treatment $/ha 30.29 60.58 30.29 60.58 12 Harvesting labor $/day 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 13 Harvesting/mowing $/ha 67.50 67.50 99.00 67.50 67.50 67.50 99.00 67.50 14 Baling of hay $/bale 0.24 0.24 0.24 0.24 0.24 0.24 0.24 0.24 15 Transport $/t 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00

Per hectare performance

Yield

Base yield (2020/21) kg/ha 4000 3600 7000 6000 19700 4000 3600 7000 6000 19700 Production kg/ha 4309 3878 7541 6464 21222 4600 4674 10200 8377 22655

Straw/stems kg/ha 3016 1193 5656 3220 1438 7650 Price

Production $/kg 0.17 0.65 0.21 0.22 0.29 0.17 0.65 0.21 0.22 0.29

Straw/stems $/kg 0.14 0.08 0.12 0.14 0.08 0.12 Gross income $/ha 1174.9 2627.5 2300.0 1422.0 6241.9 1254.2 3167.0 3111.0 1847.9 6663.2

Costs/ha

1 Seed $/ha 101.00 58.80 52.94 70.59 367.65 101.00 58.80 52.94 70.59 367.65 2 Urea (46%) $/ha 38.46 115.39 38.46 38.46 38.46 139.08 52.02 46.16 3 Nitram $/ha 71.80 71.80 143.59 71.80 97.11 172.31 4 Pesticides $/ha 34.33 105.99 34.33 105.99 5 Bags (50 kg) $/ha 57.73 64.14 6 Watering $/ha 35.30 58.83 47.06 58.83 70.62 35.30 58.83 47.06 58.83 70.62 7 Machinery operation $/ha 75.00 177.94 133.82 14.71 133.82 75.00 177.94 133.82 14.71 133.82 8 Diesel $/ha 58.59 58.59 58.59 58.59 58.59 58.59

9 Oil $/ha 15.15 15.15 15.15 15.15 15.15 15.15

10 Labor $/ha 14.71 147.06 117.65 44.12 316.18 14.71 147.06 117.65 44.12 316.18 11 Chemical treatment $/ha 29.41 58.82 29.41 58.82 12 Harvesting labor $/ha 125.00 73.53 88.18 156.70 99.46 104.51 13 Harvesting/mowing $/ha 67.50 67.50 396.00 67.50 67.50 67.50 396.00 67.50 14 Baling straw/hay $/ha 48.20 95.14 51.46 123.30

15 Transport $/ha 65.93 45.65 118.78 58.18 190.93 70.38 55.02 160.66 75.40 203.81 Total direct costs $/ha 591.6 866.1 795.3 737.6 1639.5 599.3 930.9 902.0 782.9 1711.5

19

Economic gross margin $/ha 583.3 1761.4 1504.7 684.5 4602.4 654.9 2236.1 2209.0 1064.9 4951.7

Source: Asian Development Bank.

20

Table A.8 Example of 9-year Economic Gross Margin Projection for Cotton with Project

2022 2023 2024 2025 2026 2027 2028 2029 2030 Units/ha

1 Seed kg/ha 50 50 50 50 50 50 50 50 50 2 Urea (46%) kg/ha 300 333 370 410 362 362 362 362 362 3 Nitram kg/ha 4 Pesticides L/ha 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 5 Boxes number 6 Watering unit 5 5 5 5 5 5 5 5 5 7 Machinery operations number 7 7 7 7 7 7 7 7 7 8 Diesel L/ha 90 90 90 90 90 90 90 90 90 9 Oil L/ha 10 10 10 10 10 10 10 10 10

10 Harvesting/mowing times 11 Baling of hay bales 12 Transport tonnes 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 13 Manual labor days 10 10 10 10 10 10 10 10 10 14 Harvesting labor days 25 25 25 25 25 25 25 25 25

Unit costs

1 Seed $/kg 1.18 1.18 1.18 1.18 1.18 1.18 1.18 1.18 1.18 2 Urea (46%) $/kg 0.37 0.37 0.37 0.37 0.38 0.38 0.38 0.38 0.38 3 Nitram $/kg 0.34 0.34 0.35 0.35 0.35 0.35 0.35 0.36 0.36 4 Pesticides $/kg 9.81 9.81 9.81 9.81 9.81 9.81 9.81 9.81 9.81 5 Bags $/kg 6 Watering on arable land $/ha 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 11.77 7 Machinery operations $/ha/op 25.93 25.93 25.93 25.93 25.93 25.93 25.93 25.93 25.93 8 Diesel $/L 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 9 Oil $/L 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52

10 Manual labor $/day 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 11 Chemical treatment $/ha 30.29 30.29 30.29 30.29 30.29 30.29 30.29 30.29 30.29 12 Harvesting labor $/day 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 7.35 13 Harvesting/mowing $/ha 14 Baling of hay $/bale 0.24 0.24 0.24 0.24 0.24 0.24 0.24 0.24 0.24 15 Transport $/t 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00

Per hectare performance

Yield

Production kg/ha 3815 4030 4245 4460 4674 4674 4674 4674 4674

Straw/stems kg/ha 1174 1240 1306 1372 1438 1438 1438 1438 1438 Price

Production $/kg 0.72 0.71 0.70 0.69 0.68 0.68 0.67 0.66 0.65

Straw/stems $/kg 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 Gross income $/ha 2830 2959 3082 3203 3318 3280 3242 3205 3167 Costs/ha

1 Seed $/ha 58.80 58.80 58.80 58.80 58.80 58.80 58.80 58.80 58.80 2 Urea (46%) $/ha 109.72 122.69 137.06 153.09 135.81 136.67 137.50 138.31 139.08 3 Nitram $/ha

4 Pesticides $/ha 34.33 34.33 34.33 34.33 34.33 34.33 34.33 34.33 34.33 5 Bags $/ha

6 Watering $/ha 58.83 58.83 58.83 58.83 58.83 58.83 58.83 58.83 58.83 7 Machinery operation $/ha 177.94 177.94 177.94 177.94 177.94 177.94 177.94 177.94 177.94 8 Diesel $/ha 58.59 58.59 58.59 58.59 58.59 58.59 58.59 58.59 58.59 9 Oil $/ha 15.15 15.15 15.15 15.15 15.15 15.15 15.15 15.15 15.15

10 Labor $/ha 147.06 147.06 147.06 147.06 147.06 147.06 147.06 147.06 147.06 11 Chemical treatment $/ha 29.41 12 Harvesting labor $/ha 186.12 186.12 186.12 186.12 186.12 186.12 186.12 186.12 156.70 13 Harvesting/mowing $/ha

14 Baling straw/hay $/ha

15 Transport $/ha 55.02 55.02 55.02 55.02 55.02 55.02 55.02 55.02 55.02 Total direct costs $/ha 901.6 914.5 928.9 944.9 927.6 928.5 929.3 930.1 930.9 Gross margin $/ha 1928.5 2044.1 2153.5 2258.4 2390.8 2351.4 2312.7 2274.7 2236.07

Source: Asian Development Bank.

21

Table A.9: Overall Summary of Changes in Annual Economic Gross Margins

Crop production 2022 2023 2024 2025 2026 2027 2028 2029 2030

Area Without project Wheat ha 1280 1337 1394 1452 1509 1509 1509 1509 1509 Cotton ha 3026 2996 2965 2935 2904 2904 2904 2904 2904 Corn ha 834 825 817 808 800 800 800 800 800 Lucerne ha 502 497 492 487 482 482 482 482 482 Veg & home gardens ha 1294 1281 1268 1255 1242 1242 1242 1242 1242 With project Wheat ha 1280 1337 1394 1452 1509 1509 1509 1509 1509 Cotton ha 3026 2996 2965 2935 2904 2904 2904 2904 2904 Corn ha 834 825 817 808 800 800 800 800 800 Lucerne ha 507 502 497 492 487 482 482 482 482 Veg & home gardens ha 1294 1281 1268 1255 1242 1242 1242 1242 1242 Main crop production Without project Wheat t 5197 5511 5832 6162 6501 6501 6501 6501 6501 Cotton t 11059 11111 11163 11213 11263 11263 11263 11263 11263 Corn t 5923 5951 5978 6005 6032 6032 6032 6032 6032 Lucerne t 3057 3071 3086 3100 3113 3113 3113 3113 3113 Veg & home gardens t 25873 25996 26116 26235 26351 26351 26351 26351 26351 With project Wheat t 5274 5670 6080 6503 6940 6940 6940 6940 6940 Cotton t 11546 12073 12587 13088 13575 13575 13575 13575 13575 Corn t 6369 6832 7285 7728 8159 8159 8159 8159 8159 Lucerne t 3283 3489 3690 3886 4077 4035 4035 4035 4035 Veg & home gardens t 26255 26747 27223 27684 28130 28130 28130 28130 28130

Change in economic margin Without project Value of crop production $'000 19,639 19,732 19,832 19,922 20,012 19,924 19,844 19,759 19,678 Costs without project $'000 6,455 6,445 6,435 6,425 6,416 6,421 6,426 6,430 6,435 Gross margin without project $'000 13,184 13,287 13,397 13,497 13,596 13,503 13,418 13,329 13,243 With project Value of crop production with project $'000 20,317 21,057 21,784 22,477 23,150 23,035 22,940 22,838 22,741 Costs with project $'000 6,740 6,780 6,825 6,875 6,813 6,815 6,821 6,826 6,831 Gross margin with project $'000 13,577 14,277 14,959 15,602 16,337 16,220 16,119 16,012 15,910 Increase in value with project $'000 678 1,325 1,952 2,555 3,138 3,111 3,096 3,079 3,063 Increase in economic margin $'000 392 990 1,562 2,105 2,741 2,717 2,701 2,683 2,667

Source: Asian Development Bank.

22

Table A.10: PVIS Subproject Economic Internal Rate of Return (EIRR) ($’000)

Year Capital

cost Subproject

Management O&M + rehab

Gross margin

Cashflow

2020 1 4106 419 -4524

2021 2 5252 377 -5628

2022 3 106 115 392 172

2023 4 27 115 990 849

2024 5 27 115 1562 1420

2025 6 27 115 2105 1963

2026 7 7 115 2741 2619

2027 8 115 2717 2602

2028 9 115 2701 2586

2029 10 115 2683 2568

2030 11 115 2667 2552

2031 12 115 2667 2552

2032 13 688 2667 1979

2033 14 115 2667 2552

2034 15 115 2667 2552

2035 16 115 2667 2552

2036 17 115 2667 2552

2037 18 115 2667 2552

2038 19 115 2667 2552

2039 20 115 2667 2552

2040 21 115 2667 2552

2041 22 115 2667 2552

2042 23 688 2667 1979

2043 24 115 2667 2552

2044 25 115 2667 2552

EIRR 16.1%

ENPV 9% 7379

EPNV = economic net present value at 9% discount rate, O&M = operation & maintenance, PVIS = Pravaya Vetka irrigation system. Source: Asian Development Bank.