PART 4: THE THAILAND RURAL DEVELOPMENT PROJECT

Introduction
Project Description
Questions to be answered by the Project Analyst
How to use WinDASI for the Analysis of the Project

Introduction

This investment project exercise is designed for those analysts who wish to improve their skills in financial and economic analysis after having completed the NGAMO exercises using WinDASI.

The exercise can be also used in a training course, when the NGAMO exercises have been completed and no field visit is organised to gather data for a practical application of the WinDASI software.

In this case, the trainer might ask the participants to work in groups and to produce a small report on the financial and economic analysis of the project. The report could then be discussed in a plenary session.

The exercise consists of a brief description of the project, a guideline for the structuring of project data and of an appendix with the project data.

The WinDASI file containing the project can be assessed by pressing File Open "Thai" in the exercise's WinDASI sub-directory

Project Description

This Case Study illustrates the use of the WinDASI computer program in the analysis of a rural development project.

The project is situated in a certain hilly region of Thailand. The project area has been divided into the following sub-areas because of its physical characteristics:

At present, the farmers in the project area are growing maize and rainfed rice. By participating in the project, the farmers are expected to increase their cropping intensity and their yield by introducing irrigated rice and using more fertiliser. In addition, new coffee plantations will be introduced on Highland farms.

The number of farms expected to be included in the project is about 19,900. Of these, 16,000 are located in the Upland sub-area and about 3,900 farms are located in the Highland sub-area.

Most of the investments are made at sub-area or project level. These are:

· extension services for the whole project area;
· development costs for each of the two sub-areas;
· costs for road improvement in the Upland sub-area.

Questions to be answered by the Project Analyst

Given the project data provided in the Annex, the project analyst is asked to prepare a report on the financial and economic feasibility of the project and, in particular, to answer to questions such as:

a) farm models:

(i) Once the project is implemented, is there a need for hired labour for each type of farm?

(ii) What is the volume of production of the major crops grown?

(iii) What is the consumption of fertilisers?

(iv) What is the cash flow? And is there a credit requirement for each type of farmer?

b) at project level:

(v) What are the results of the economic analysis of the project area and of the two sub-areas (Upland and Highland)?

How to use WinDASI for the Analysis of the Project

(i) Identification of Commodities
(ii) Identification of Activities
(iii) Identification of Plans
(iv) Identification of Zones
(v) Identification of the Project Components

Step 1: Organisation of the data into the form required by the WinDASI program.

The analysis using WinDASI requires that the data given in the annex be organised in a very specific way, namely Commodities, Investments, Activities, Plans, Zones and Project.

The fact that project data has to be rigorously defined is an advantage, since it brings clarity to a situation which is often confused and characterised by some important data missing, by the existence of excess contradictory data and unspecified hypothesis.

(i) Identification of Commodities

The user has to ensure that all commodities produced and consumed at each level of the project are included. Each commodity must have a financial and economic price. The table that follows can be helpful in this process:

Box A

Questions	Answers	Source of data
What is produced in the project area?	· Rice · Maize · Coffee	Table 55
There is any home-consumed commodity?1	· Rice · Maize	Table 59
What are the inputs required?	· Rice seeds · Maize seeds · Coffee seedlings · Ammonium Sulphate · 15.15.15 Fertiliser · Labour by month	Table 55 Table 56
Any overhead costs or taxes?	· Other costs · Taxes	Table 60
Other costs or benefits?	· Development costs2 · Extension services · Costs for Road improvements · Benefits from road improvements3	Table 62 & 63

¹ The home-consumption information is used for the calculation of the market sales and for the farm cash flows.

² Development costs, extension services and road improvements have been included in the Commodities and not in the Investments, since none of the investment parameters have been given (life duration, maintenance costs, scrap value, etc.).

³ These benefits refer to benefits that other sectors (i.e. trade, handicraft) in the region get from the improvement of the roads made in the project area.

(ii) Identification of Activities

A separate activity has to be defined for each of the crops cultivated in the project. In addition, since the costs of the project have been included as commodities rather than investments, we define a Development activity of the Upland area.

Box B

Questions	Answers	Source of data
Which are the crop activities?	· Rainfed rice · Irrigated rice · Maize · Coffee	Table 56 & 57
Other activities?	· Upland development	Table 62

Two activities are identified for the cultivation of paddy, since two different technologies are used with different inputs and outputs per unit of land. The inputs and outputs of each year of the "Coffee activity" will be according the age of plantation of the coffee plants.

(iii) Identification of Plans

We now define a plan for each farm model of the project.

Box C

Questions	Answers	Source of data
Which are the farm models?	· Upland farms · Highland North farms · Highland South farms	Table 57 & 58
Other plans?	· Road Construction and Development of Uplands · Development of Highlands · Project Extension services	Table 62

The plan of each farm model will contain taxes and general costs as commodities in addition to the activities related to the crops cultivated in each farm.

The Highland farms introduce the cultivation of coffee. For this reason we include in each of the two farm plans the activity of cultivating coffee. This activity will be included using the "phasing mode", which means putting a "C" under the "Mode" column and specifying a figure representing the new area planted to this activity in every year that new planting takes place.

The plans concerning the development of Highlands and Uplands, as well as the plan for the extension service of the project, will contain only Commodities (no Activity or Investment).

(iv) Identification of Zones

We need to define two Zones to aggregate the various farm models and related development costs.

Box D

Questions	Answers	Source of data
Which are two sub-areas (Zones) of the project?	· Upland Zone · Highland Zone	Table 7& 8
Which are the components of Upland Zone?	· Upland farm Plan · Upland development Plan
Which are the components of Highland Zone?	· Highland North farms · Highland South farms · Highland development Plan

In addition we will need a Zone containing the extension service for the project.

(v) Identification of the Project Components

The project will include the two Zones, as identified above, as well as the Zone for the general development cost of the project (extension services).

Step 2: Farm model analysis

For each of the three farm models that we have defined, we compute the physical quantities of the inputs required, including labour, as well as the total quantity of crops produced.

Concerning labour demand, we need to verify that the labour demanded by the plan that we are proposing is feasible with the labour availability on the farm. The analysis is carried out by comparing labour requirement and labour availability month by month. The difference between labour requirement and labour availability is the need for hired labour of each farm.

Then we proceed to the identification of the costs and benefits for the three farm models and to the calculation of the cash flow of the farms participating in the project.

It will be important to quantify the Net Benefits that each type of farm is going to get from the project, keeping in mind that the only investment required to the farms concerns the coffee plantation made on the farm.

Using the costs and benefits of each farm, it will be interesting to compute the Returns to labour and to land and compare these returns with those of the without project (WoP) situation.

Step 3: Project indicators and risk analysis of Upland, Highlands and the project.

At this point we need to aggregate costs and benefits under large categories in order to be able to conduct a meaningful risk analysis.

The guiding principle in making aggregates is to assemble all costs and benefits of the project in about five or six categories, possibly in the same order of magnitude. The aggregates are then defined through the "Aggregate" component. Once this has been completed we proceed for each Zone and for the Project to the calculation of "Net Present Value".

Project indicators will be computed for each zone and for the full project using economic prices. Prices will be adjusted, taxes will not be considered and all the labour will be costed at its opportunity cost while paying attention to avoid double counting.⁴ For each commodity and investment price, one needs to specify its economic price, if different from the financial price (see Table 55).

⁴ The total labour used in the project is given by the monthly labour requirements. This demand of labour is met by the family labour and hired labour.