Wulian Apple Grower s Development Assistance Project, Wulian County, Shandong Province, PRC

Wulian Apple Grower s Development Assistance Project, Wulian County, Shandong Province, PRC Section 5: Monitoring and Evaluation Results and Interpretation Prepared by: Peter Jarvis, Landcare Research NZ Ltd. Client: New Zealand Ministry of Foreign Affairs and Trade. April 2001 0

Contents 1.0 Introduction... 2 2.0 Year 2000 Data: Average Results Over All Monitored Households... 4 2.1 Income by source of income... 4 2.2 Operating expenses by type of expenditure... 5 2.3 Other expenses by type of expenditure... 5 2.4 Key household indicators... 8 2.5 Net profit per adult labour unit and net household surplus per adult equivalent... 9 2.6 Apple variety and tree crop enterprise budgets (2000 - mean over yielding orchards)... 9 2.7 Enterprise budgets for orchards at full production (6 years of age or more).... 9 2.8 Enterprise budgets for mono cropping (2000)... 12 2.9 Enterprise budgets for inter-cropping (2000)... 12 2.11 Total income by source of income disaggregated by project activity... 16 2.12 Summary of key household indicators by project activity (2000 data)... 17 3.0 Time Series Data (1997 to 2000)... 20 3.1 Comparison of key household indicators by project activity... 20 3.2 Nominal (Actual) values for the series:... 21 3.2.1 Gross farm income... 21 3.2.2 Gross Profit... 23 3.2.3 Net Profit... 23 3.2.4 Net Farm Surplus... 23 3.2.5 Net Household surplus... 24 3.3 Whole household data converted to real 2000 values... 25 3.4 Performance of apple varieties 6 year of age and over: comparison across years (1997 to 2000) Nominal values... 25 4.0 Recommendations for future monitoring systems... 28 Reference:... 29 Appendices:... 29 1

1.0 Introduction This is the fourth and final economic monitoring report for the project. The results are discussed for the 2000 data set (for all monitor farms aggregated and by project activity); then, the whole household and apple variety budgets are compared over the four-year period (1997 through 2000). No economic data is available for 1996 because the monitoring was not implemented in the first year of the project. There are 60 monitored farms on the project. The number of farms by project activity is shown in table 5.0. Whilst there are 15 non project farmers, who are not targeted as part of the project extension activities, these farmers have, to a greater or lesser extent, adopted orchard improvements of grafting, new planting and improved management. Table 5.0 Distribution of monitoring farmers by project activity Activity Number of farmers Grafters 15 Improved 13 management New Planters 17 Non-project farmers 15 Total 60 Note: New planters include one persimmon grower and one peach grower. Definitions and terms The meanings of the terms used in this report are best described by reference to the budget format used for the aggregation of the whole household data (Table 5.1). Gross farm income is the total gross revenue from all farm enterprises (fruit trees, crops and livestock) as well as any farm related income from non-enterprise activities (such as the sale of forage which is not otherwise allocated in crop income or income from the rental of farm equipment). Gross farm income includes income from cash sales (from quota or sale in the market) as well as non-cash income, which is produce consumed on the farm by the farm household or by livestock. Farm operating expenses include all expenditure items directly related to the running of the farm. These include all enterprises expenses (such as fertilisers, chemicals, packing materials, animal feed, hired labour, and the value of animal manure used on crops) as well as overhead costs not readily allocated to enterprises such as fuel and electricity, rent, and repairs and maintenance. Gross margin (as presented in the enterprise budgets) is gross revenue for the enterprise less the direct operating expenditure for that enterprise (but exclusive of the overhead costs). Other expenses, not specific to the operation of the farm enterprises, are taxation, debt servicing costs (interest and principal), cash family living costs, and capital purchase or development expenditure (which is a capital cost). There may also be income earned off the 2

farm and off farm expenditure (such income and costs may be related to running a small business or for off-farm work). Gross profit is calculated after deducting farm operating expenditure but before the costs of interest and taxation. Net profit is the profit after interest and taxation costs. Net farm surplus (or deficit) records the cash and total worth situation for the farm after allowing for family cash living costs and the consumption of farm produce by the farm household, principal repayments on loans, new capital purchases and new development. Net household surplus is calculated after adding off-farm income and deducting off-farm expenses. New borrowing is recorded only after calculating net household surplus but of course adds to the cash surplus available to the farm household. Generally, any negative cash household surplus must be financed by new borrowing or from drawing on savings. Table 5.1: Definition of whole farm budget and key household indicators Cash Non-cash Total Comment worth i ii i + ii Gross Farm Income Volume of enterprise output times price or value Less: Operating Expenses Enterprise expenses (fertiliser, chemicals, animal feed, hired labour, value of animal manure used on crops), fuel/electricity, rent and repairs and maintenance Equals: Gross Profit Less: Interest Interest on loans Tax Equals: Net Profit Less: Family living costs Principal repayments Capital repayments for loans Capital purchases Capital development Equals: Net Farm Surplus Less: Off-farm expenses Plus: Off-farm income Equals: Net Household Surplus 3

2.0 Year 2000 Data: Average Results Over All Monitored Households 2.1 Income by source of income Fruit trees contribute the largest component of cash income (35.8%, up from 29.80% last year). 86% of the income from fruit tress is from the sale of apples, 14% from the sale of other fruit tree crops. Fruit trees provide a smaller percentage of total worth (cash and non cash income) (29%, up from 22.3% last year) (Table 5.2, Figure 5.1). This is a change from last year, when food crops comprised the largest proportion of total income; fruit tree income is now the largest component of total income. Income from apples alone is now similar to the total income from food crops (cash and non-cash). Arable crops are the second largest component of total income (24.5%) and 56 % of this income is in the form of consumption on the farm by the household or by livestock; 44% of crop income results from sales in the cash market. Livestock income comprises 17.3% of total worth of income (down from last year) and 13.4% of cash income. 61% of total livestock income is from cash sales and 39% in the form of consumption on the farm or in the form of animal manure used as inputs for cropping enterprises. 20.4% of total cash income is from off-farm sources (Table 5.2). This year there is very little new borrowing (which is now only 0.6% of total cash income, compared to almost 4.9% last year). 4

Table 5.2 Income by source of income n = 60 All farmers at all sites Cash Non cash Total Percent of Cash income Income Income Income total income by source Source () () () % % Apples 3259 87 3346 25.0% 30.9% Other fruit 513 18 531 4.0% 4.9% Crops 1439 1838 3277 24.5% 13.7% Livestock 1416 903 2319 17.3% 13.4% Other farm 1691 n.a. 1691 12.6% 16.1% Borrowings 67 n.a. 67 0.5% 0.6% Off farm 2147 n.a. 2147 16.0% 20.4% Totals () 10532 2847 13378 100.0% 100.0% 2.2 Operating expenses by type of expenditure 42% of gross cash farm income is reinvested in farm expenses of one form or another; 35% in direct operating inputs (Table 5.3). On a total worth basis, 40% of gross farm income (4345 ) is reinvested in direct operating inputs. The total worth of inputs is greatest for livestock; this is because significant amounts of crops grown on the farm are consumed by livestock enterprises. 73% of the value of all livestock inputs is in the form of food crops grown on the farm and only 27% purchased in the cash market (Figure 5.3). Averaged across all monitor farms, 33% of cash operating inputs are for cropping (977 ) and 43% for fruit tree crops (1226, up from 821 last year) (Table 5.3). The noncash worth of inputs into cropping is mainly in the form of animal manure and seed grown on the farm. Other than direct crop and livestock expenses, the most significant item of operating expenditure is for fuel and electricity (167 ); relatively small sums are spent on rent and repairs and maintenance expenditure (Figure 5.2, Table 5.3) although this can vary for individual farmers. 2.3 Other expenses by type of expenditure The largest single item of other expenditure is family living expenses, which have a total worth of 4060 per household or 2554 cash and 1506 non-cash (consumption of produce grown on the farm). Cash family living costs are equivalent to 31% of gross cash farm income (down from 40 % last year). On average, only 79 is spent on loan repayments and no interest is paid; 364 is paid in taxes. 5

Table 5.3 Summary of household budget and key household indicators All farmers at all sites Mean income () Income source Cash Non cash Total Apples 3259 87 3346 Other fruit 513 18 531 Crops 1439 1838 3277 Livestock 1416 903 2319 Other farm 1691 n.a. 1691 Gross farm income: 8318 2847 11165 1165 (a) Less: Operating expenses Apple 1100 78 1178 Other fruit 126 12 138 Crops 977 207 1183 Livestock 445 1211 1656 Fuel/elect. 167 n.a. 167 Rent 10 n.a. 10 R&M 12 n.a. 12 sub total: 2837 1508 4345 (b) Gross profit: 5480 1339 6819 (c ) = (a - b) Less: Interest 0 n.a 0 Tax 364 n.a 364 sub total: 364 0 364 (d) Net profit: 5116 1339 6455 (e) = (c - d) Less Living expenses 2554 1506 4060 Principal repayments 79 n.a 79 Capital purchases 66 n.a 66 Capital development 39 8 47 sub total: 2738 1514 4252 ( f ) Net farm surplus: 2378-175 2203 (g) = (e - f) Less: Off farm expenses 634 n.a. 634 (h) Plus: Off farm income 2147 n.a. 2147 ( i ) Net household surplus: 3891-175 3716 ( j ) = (g - h + i) New borrowing:... 67 6

On average, only 105 is spent on capital purchases and development expenditure (Table 5.3, Figure 5.3). This figure does however vary depending on project activity: Grafters spend on average 91 on capital improvements; improved managers 32 and new planters 262 (Appendix 1); this figure however, is dependent very much on individual farmers within the sample rather than being a consistent figure across farmers. 7

2.4 Key household indicators Gross farm income, over all farms monitored, averages 11165 per farm. 25% of gross farm income is in the form of non-cash items and 75% in the form of cash sales (Table 5.3). The cash component of total income is up from 70% last year (this is due to higher income from fruit trees). Gross profit is 80% of gross income for the cash component and 20% of gross income for the non-cash component of profit (Figure 5.4). Net profit (after tax and interest) is only a little less than gross profit because tax and interest payments are relatively small items of expenditure (Figure 5.4). A significant proportion of net profit, on a total worth basis, is in a non-cash form (production consumed on the farm by the farm household). Across all farms, the cash component of net farm surplus and net household surplus are positive. Farms generate a cash surplus but off-farm income (net of off-farm expenses) contributes substantially to net household cash surplus. Across all farms, net cash farm surplus is 2378 (up from 432 last year) before allowing for off-farm income and expenditure. Significantly, off-farm income (net of off-farm expenses) is 1513 per household or equivalent to 62% of total cash living expenditure. Off-farm income contributes significantly to a net cash household surplus of 3891 per household (up from 1734 last year), before new borrowing. Because non-cash production is similar to non-cash consumption, the total worth for net farm surplus and net household surplus are about the same as the cash figures (Table 5.3). 8

2.5 Net profit per adult labour unit and net household surplus per adult equivalent On average, there were 2.28 adult labour units working on the average farm in 2000 and the farm supported 3.36 adult equivalents. The average Net Profit per adult labour unit was 2831 for the year. Net Household Surplus per adult equivalent supported by the farm was 1106 or 1070 per person. 2.6 Apple variety and tree crop enterprise budgets (2000 - mean over yielding orchards) The price for Fuji apples is significantly higher (1.24 /kg) than most other varieties. By contrast, New Red Star fetched 1.02 per kg, Guoguang 0.50 /kg and John O Gold 0.84 /kg. Fuji is also the highest yielding apple variety. Most farmers grow Fuji; 46 or 77% of monitored farmers grow Fuji whereas only 17 or 28% grow New Red Star, the next most popular variety. Because of the high yield and high price, Fuji also has the highest gross margin. Gross margin for John O Gold apples is a little lower than Fuji (1615 compared to 2013 for Fuji) mainly due to the lower operating expenditure on John O Gold - however, this comparison is between a large number of Fuji growers and a small number of John O Gold growers, who have mature trees (Table 5.4). Based on the available labour requirement data, Fuji is the most profitable apple variety per labour day, followed by John O Gold, and New Red Star. High harvesting labour requirements and a low price make Guoguang the least profitable apple variety per labour day. Of the other tree crops grown on farms, chestnuts appear to be very profitable. Although the income per mu is lower for chestnuts than for the more profitable apple varieties they require less direct crop expenditure and the price per kilogram for chestnuts is five times greater than that for Fuji. Furthermore, the lower labour requirements for chestnuts make them the more profitable tree crop per labour day. However, our sample for chestnut growers is only 4 farmers who had only small areas in chestnuts. 2.7 Enterprise budgets for orchards at full production (6 years of age or more). When analysis is based only on data for orchards 6 years or more of age (mature yielding orchards), Fuji is still the most profitable variety of apple with returns slightly ahead of mature John O Gold. Guoguang is the least profitable with a gross margin per mu about a third of that of Fuji. The yield of Fuji on orchards with trees 6 years of age or more is 25% higher than the yield of Fuji averaged over all orchards regardless of age of trees (3608 kg/mu compared to 2890 kg per mu). On older orchards, John O Gold is almost as profitable per labour day as Fuji (but the number of John O Gold growers is small; only 3 farmers grow John O Gold and have orchards with trees 6 years of age or more so this may be an unreliable comparison). Half the growers of Fuji, in the monitor sample, have trees 6 years of age or older (Table 5.5). 9

Table 5.4 Apple variety and tree crop enterprise budgets All trees regardless of age 2000 Apple varieties: Other tree crops: n = 46 6 17 4 4 12 4 New Red John O' ShanZha Per mu Fuji Guoguang Star Gold Chestnut Peach (Hawthorn) Yield kg 2890 2090 1103 2664 278 2769 1500 Price / kg 1.24 0.50 1.02 0.84 6.28 1.07 0.53 Fertiliser kg 178 76 92 183 21 145 100 231 38 112 145 10 186 108 Animal manure kg 4707 1833 971 1125 0 975 1500 Chemicals 266 72 93 189 4 281 150 Income Cash sales 3460 1005 1029 2204 1746 2799 750 H.Hold consumption 125 42 92 33 0 163 42 Gross income 3585 1047 1121 2237 1746 2962 792 Variable costs Cash items (a) 1469 214 279 542 153 866 393 1 / Non cash items (b) 103 21 51 80 0 84 75 Total worth inputs (a + b) 1572 235 329 622 153 949 468 Gross margin per mu Cash margin 1991 790 751 1662 1593 1934 358 Total margin (incl. crop worth) 2013 812 791 1615 1593 2013 325 Gross margin per labour day Cash margin 35.46 17.40 20.63 30.76 72.42 n.a. n.a. Total margin (incl. crop worth) 35.86 17.88 21.75 29.89 72.42 n.a. n.a. 1 / Mainly animal manure. Excludes family labour Note: The per unit area data (per mu) for Guoguang has been adjusted to equate to 30 trees per mu and the Chestnut data to 25 trees per mu. The raw data overestimated number of trees per mu. 10

Table 5.5 Apple variety and tree crop enterprise budgets for trees 6 years or more of age 2000 Apple varieties: Other tree crops: n = 23 6 8 3 4 2 4 New Red John O' ShanZha Per mu Fuji Guoguang Star Gold Chestnut Peach (Hawthorn) Yield kg 3608 2090 1321 3458 278 3625 1500 Price / kg 1.00 0.50 0.92 3458 6.28 1.28 0.53 Fertiliser kg 211 76 108 217 21 180 100 234 38 113 183 10 239 108 Animal manure kg 3370 1833 500 1167 0 1000 1500 Chemicals 332 72 78 225 4 310 150 Income Cash sales 3474 1005 1148 2856 1746 4525 750 H.Hold consumption 147 42 73 40 0 120 42 Gross income 3621 1047 1220 2896 1746 4645 792 Variable costs Cash items (a) 1210 214 294 673 153 844 393 1 / Non cash items (b) 107 21 18 100 0 88 75 Total worth inputs (a + b) 1317 235 312 773 153 932 468 Gross margin per mu Cash margin 2264 790 854 2183 1593 3681 358 Total margin (incl. crop worth) 2304 812 908 2123 1593 3714 325 Gross margin per labour day Cash margin 36.95 17.40 22.51 36.57 72.42 n.a. n.a. Total margin (incl. crop worth) 37.60 17.88 23.94 35.57 72.42 n.a. n.a. 1 / Mainly animal manure. Excludes family labour 11

Although there are 2 monitor farmers with peaches 6 years or more of age, the data suggests that peaches may be more profitable than many of the apple varieties (table 5.5). 2.8 Enterprise budgets for mono cropping (2000) The most commonly grown field crops are wheat, peanuts, maize, sweet potato and soya beans. The most profitable of these crops in 2000 is peanuts (gross margin 475 per mu) followed by soya beans (GM 419 per mu), sweet potato (GM 358 per mu), maize (GM 252 per mu) and wheat (GM 225 per mu) (Table 5.6). On a cash basis, peanuts are the major cash crop grown primarily for sale in the market. The cash gross margin from peanuts is 274 per mu compared to 59 per mu for soya beans and negative cash gross margins for maize, sweet potato and wheat. Maize, soybean, sweet potato and wheat are grown mainly for consumption on the farm by the household or by livestock. Based on the labour data, it would appear that soyabean (returning 28 per labour day) give a better return to labour than other crops (including peanuts). The return per labour day for the less profitable field crops is around 12 per day, which is similar to the daily rural wage rate (Table 5.6). 2.9 Enterprise budgets for inter-cropping (2000) There are three major inter-cropping systems. Sweet potato with soya beans, sweet potato with maize and maize with soya beans. The sweet potato/soya bean and maize/soya bean crops are grown primarily for the cash market (60% of gross income worth is from cash sales) with the sweet potato and maize being the crops sold in the cash market. In contrast, sweet potato/maize is grown mainly for consumption on the farm (particularly by animals) with only about 17% (mainly sweet potato) being sold for cash (Table 5.7). Based on a limited number of growers (only 2 growers of maize/soyabean), the most profitable per mu inter-crop system in 2000 was sweet potato with maize with a gross margin of 365 per mu. Maize/soyabean (Table 5.7) has a gross margin of 178 per mu, and the gross margin for sweet potato with soya beans is 148 per mu. 12

Table 5.6 Enterprise budgets for monocropping (Mean results over all sample households) 2000 Maize Peanuts Soya Beans Sweet Potato Wheat Number of farms growing crop 48 49 4 41 59 Per mu Yield kg 364 207 261 582 359 Fertiliser kg 103 81 46 65 87 70 119 83 83 100 Animal manure kg 357 733 1540 1039 1207 Chemicals 3.40 9.66 3.18 1.14 2.58 Income Crop: Cash sales 79.49 501.98 209.18 104.40 90.89 H.Hold consumption 285.65 217.03 413.46 383.03 325.16 By product: Cash sales 0.00 1.13 0.00 0.00 0.00 H.Hold consumption 4.15 36.65 2.50 45.32 2.73 Gross income 369.28 756.80 625.14 532.74 418.78 Variable costs Cash items (a) 110.47 228.72 149.77 131.30 142.74 1 / Non cash items (b) 6.81 53.00 56.06 42.74 50.28 Total worth in(a + b) 117.27 281.72 205.84 174.04 193.02 Gross margin per mu Cash margin -30.98 274.40 59.41-26.90-51.85 Total margin (incl. crop worth) 252.01 475.08 419.31 358.70 225.76 Gross margin per labour day Cash margin -1.41 11.43 3.96-0.94-2.88 Total margin (incl. crop worth) 11.45 19.80 27.95 12.59 12.54 1 / Mainly animal manure and own seed. Excludes family labour 13

Table 5.7 Enterprise budgets for intercropping (Mean results over sampled households) 2000 Sweet Potato with Soya Bean Maize with soya Bean Sweet potato with maize Number of farms growing crop 15 2 7 Per mu Per mu Per mu Maincrop Companion Maincrop Companion Maincrop Companion Yield kg 255 33 288 69 580 134 Fertiliser kg 50 3 50 0 77 34 61.56 4.49 69.38 0.00 87.70 40.42 Animal manure kg 622 22 1000 0 0 0 Chemicals 3.99 0.56 11.25 6.25 4.60 0.00 Income Maincrop Companion Total Maincrop Companion Total Maincrop Companion Total Cash sales 152.17 29.86 182.03 212.00 73.50 285.50 97.72 10.89 108.62 H.Hold consumption 58.75 34.49 93.25 92.75 65.00 157.75 319.97 122.38 442.35 BP Cash sales 2.89 0.33 3.22 0.00 0.00 0.00 0.00 0.00 0.00 BP Own use 41.96 0.36 42.32 0.00 4.25 4.25 66.68 14.80 81.47 Gross income 255.77 65.05 320.82 304.75 142.75 447.50 484.37 148.07 632.44 Variable costs Cash items (a) 105.65 8.03 113.68 214.88 44.25 259.13 191.94 58.42 250.36 1 / Non cash items (b) 52.58 6.77 59.35 10.00 0.00 10.00 16.46 0.00 16.46 Total worth inpu (a + b) 158.23 14.80 173.03 224.88 44.25 269.13 208.40 58.42 266.82 Gross margin per mu Cash margin 49.41 22.16 71.57-2.88 29.25 26.38-94.22-47.53-141.74 Total margin (incl. crop worth) 97.54 50.24 147.79 79.88 98.50 178.38 275.97 89.65 365.62 Gross margin per labour day Cash margin 1.98 11.98 2.67-0.17 7.80 1.30-4.37-10.80-5.46 Total margin (incl. crop worth) 3.90 27.16 5.51 4.84 26.27 8.81 12.79 20.37 14.07 1 / Mainly animal manure. Excludes family labour 14

Table 5.8 Summary of livestock gross margins (Mean over all sampled households) Stock reconciliation and trading account for the year: 1 Jan to 31 Dec 2000 Pigs Goats Buffalo Chickens Ducks Number of farmers with n = 56 19 10 43 8 type of livestock Total Nos. Total Nos. Total Nos. Total Nos. Total Nos. Opening Nos. Jan-00 1.0 2.0 0.9 7.5 3.3 Purchases 1.8 0.5 0.2 4.2 0.5 Gifted in 0.0 0.0 0.0 0.0 0.0 Births 0.5 3.2 0.3 0.0 0.3 Totals: 3.3 5.7 1.4 11.7 4.0 Opening value 268 237 1280 123 36 Closing value 182 273 1455 103 30 Change in livestock value () -86 35 175-20 -6 (closing - opening) Income Cash sales 1218 420 488 28 13 Consumed 0 6 0 14 0 Eggs (est.) Cash sales 0 0 0 14 25 Own use 0 0 0 122 63 1 / Worth of manure 178 45 177 10 3 Change in valuation -86 35 175-20 -6 Total income: 1310 507 840 168 97 1 / Worth of manure used on crops Expenses Livestock purchases 238 38 225 6 1 Feed Purchased feed 80 17 0 2 6 Own feed (non-cash) 241 44 21 35 21 Medicines 12 1 6 2 0 Labour 0 0 0 0 0 Transport 1 0 0 0 0 Other Cash 70 0 10 1 0 Non-cash 266 56 102 10 2 Totals: 908 155 363 56 30 Gross margin Cash 817 365 247 31 31 2 / Total margin 402 352 477 111 67 Feed purchased (kg) 59 0 0 0 0 Feed grown on farm (kg) 617 568 30 37 16 Labour per household enterprise days/year days/year days/year days/year days/year 23 15 11 6 6 G. margin/labour day Cash 35.54 24.33 22.44 5.14 5.08 2 / Total margin 17.49 23.45 43.34 18.54 11.15 Note: 2 / Includes value of non-cash income and non-cash inputs 15

2.10 Summary of livestock gross margins (2000) Because livestock are not grazed on an area of land developed for forage production, no per mu profitability figures can be calculated for livestock enterprises. In situations where livestock numbers are sufficient to form a herd or flock, it is usual to calculate a gross margin per breeding female or per standard stock unit; this allows the profitability of different enterprises to be compared. However, when numbers of animals are small, as is the case for farmers on the Wulian apple project, calculations of this type are not feasible. In this situation, the only way in which enterprises can be compared are per labour day or per dollar of investment capital. Whilst we present per enterprise and per labour day gross margins, the labour input figures are only best estimates. Pigs and goats are enterprises carried mainly as a source of cash income, although pigs also utilise a significant amount of food crops grown on the farm. Buffalo are used as draught animals although, if they are females, they may produce cash income from the sale of progeny. Animal enterprises also produce animal manure that is valuable for cropping enterprises. Pigs are the most significant cash livestock enterprise for Wulian farmers, 93% of farmers monitored have pigs. The gross income net of livestock valuation readjustment is 1300, mostly from the cash sale of livestock (Table 5.8). By contrast chickens, ducks and geese are mainly carried for the domestic consumption, including eggs consumed on the farm (Table 5.8). Goats are mainly sold for cash income, although there is some farm household consumption. Over 90% of farmers have pigs, 72% have chickens, 32% have goats and 17% have at least one buffalo. The figures for other direct inputs in the livestock budgets for pigs and buffalo are high because they include some by-products such as maize stalk and wheat stalk for buffalo; and maize, sweet potato, sweet potato vine, soy bean cake for pigs (Appendix 4). 2.11 Total income by source of income disaggregated by project activity On average, project farmers have gross farm incomes 40% higher than non-project farmers (Table 5.9). Table 5.9: Gross Farm Income by Project Activity Project activity Total farm income Percentage above non-project (cash and non-cash) farmers Grafters 11699 37% Improved 13736 60% management New planters 11021 29% Non-project farmers 8565 n.a. All project farmers 12031 40% 16

Total farm income is greatest for improved management (13736 ), followed by grafters (11699 ) and new planters, 11021. Non-project farmers have a gross income of 8565 (Table 5.9). Project farmers have a much higher income from apples than non-project farmers, and with the exception of new planters (who still have young trees) a higher percentage of total income is from apple production. New planters have an apple income about 1000 (68%) higher than non-project farmers. Grafters and improved management have apple incomes substantially greater, more than double the apple income of non-project farmers (Table 5.10). New planters have a significantly lower income from arable cropping than do grafters and improved managers, and their cropping income is similar to the non-project farmers. Non-project farmers are more reliant on off-farm income than grafters or improved management farmers. New planters are also more dependent on off-farm income, suggesting that off-farm earnings may be required to replace apple income lost during the period of new orchard development. Improved management and new planters have the highest livestock income off all the project activity groups (Table 5.10). 2.12 Summary of key household indicators by project activity (2000 data) Cash farm income is significantly higher for improved management 10523 (up from 8833 last year); compared to 8742 for grafters (up from 6323 last year) and 8140 (up from 4320 last year) for new planters. By contrast cash income for non-project farmers is only 6185. The gross value of all income (cash and non-cash) is also significantly higher for project farmers compared to non-project farmers (Table 5.11). New planters have increased their income significantly in the last year compared to other project farmers as their apple crops come on-stream. New planters can be expected to have lower incomes at the start of the project because they are replacing mature yielding trees with new varieties, which will not immediately bear crops. Across project activities, net cash farm surplus is positive for all groups of farmers, but is significantly higher for project, than non-project, farmers (Table 5.11). Net off-farm income (off-farm income less off-farm expenditure) is greatest for non-project farmers and for new planters. The data suggests that farmers use off-farm earnings to meet their minimum income needs; farmers with the lowest net cash farm surplus have the highest net off-farm earnings. After taking into account off-farm earnings, the net cash household surplus is similar across all project activity groups of farmers but lower for non-project farmers (Table 5.12). 17

Table 5.10 Total income by source of income disaggregated by apple activity Apple activity: Improved New Grafters management plantings Non-project Source % % % % Apples 3941 30.3% 5121 32.3% 2896 20.8% 1724 15.7% Other fruit 1037 8.0% 156 1.0% 445 3.2% 447 4.1% Crops 3592 27.6% 3865 24.4% 2817 20.2% 2973 27.1% Livestock 1687 13.0% 2882 18.2% 2680 19.2% 2054 18.7% Other farm 1441 11.1% 1712 10.8% 2182 15.7% 1367 12.5% Borrowings 0 0.0% 0 0.0% 235 1.7% 0 0.0% Off farm 1318 10.1% 2105 13.3% 2687 19.3% 2401 21.9% Totals () 13017 100.0% 15841 100.0% 13943 100.0% 10966 100.0% 18

Table 5.11 Summary of Key household indicators by project activity All data in Grafters Mean over all farmers n = 15 Grafters Cash Non cash Totals Gross farm income 8742 2957 11699 Gross profit (before tax & interest) 6055 1817 7872 Net profit (for living & reinvestment) 5721 1817 7538 Net farm surplus 3402 139 3541 Net household surplus 4020 139 4159 Improved management Mean over all farmers n = 13 Cash Non cash Totals Gross farm income 10523 3214 13736 Gross profit (before tax & interest) 6683 1288 7972 Net profit (for living & reinvestment) 6359 1288 7647 Net farm surplus 3030-237 2793 Net household surplus 4289-237 4051 New plantings Mean over all farmers n = 17 Cash Non cash Totals Gross farm income 8140 2881 11021 Gross profit (before tax & interest) 5337 1332 6669 Net profit (for living & reinvestment) 4914 1332 6246 Net farm surplus 2027-137 1889 Net household surplus 4127-137 3989 Non-project farmers Mean over all farmers n = 15 Cash Non cash Totals Gross farm income 6185 2380 8565 Gross profit (before tax & interest) 4026 912 4938 Net profit (for living & reinvestment) 3665 912 4577 Net farm surplus 1188-474 714 Net household surplus 3151-474 2677 Total monitor farmers 60 19

Table 5.12: Net Cash Surplus, Net Household Surplus and Net Off-farm income by project activity Project Activity Net cash farm surplus Net cash household surplus Net household worth (cash and non cash) Off-farm income (net of expenses) New borrowing Grafters 3402 4020 4159 618 0 Improved Management 3030 4289 4051 1259 0 New Planting 2027 4127 3989 2100 235 Non-project farmers 1188 3151 2677 1962 0 The value of consumption on the farm by the farm household is worth between 1400 and 1700, with the lower figure being for non-project farmers. Net worth of Household Surplus (cash and non-cash) is around 1400 lower for non-project farmers compared to project farmers (Table 5.12). 3.0 Time Series Data (1997 to 2000) 3.1 Comparison of key household indicators by project activity The data in each of the four years is presented firstly in nominal terms (the actual data recorded in each year) and then, for the key indicators, adjusted to real 2000 financial values. Over the period of the project, there had been an overall deflationary trend; so that the real value of one in 2000 is worth more than one would have been worth in 1997 (this is the opposite to the inflationary trend that has occurred in western market economies). The deflation values are based on the Consumer Price Index for Shandong Province (Table 5.13). One additional adjustment to the data has been made in order to compare the series in the final year of the project. Because the samples are quite small, for individual project activities, it sometimes happens that one or two farmers have some extraordinary expenditure in one year. The data is adjusted because large capital expenditure items can significantly distort the net farm surplus and the net household surplus calculated as an average over the sample of farms. In another situation, for example, two farmers paid large sums (in the off-farm expenditure account) to obtain citizen status in a township. When these sums are large, the expenditure incurred by one, or a few farmers, can cause large peturbances in the yearly data for small samples. Typically, our sample size, within an activity is 15 farmers. In order to make the data more comparable between years, the data is standardised by removing the large, atypical, expenditure items so that the residual figure is more typical of an average for the sample. These adjustments for extraordinary expenditure have been made to both the 20

nominal data and the real 2000 values presented here. The raw, unadjusted, data is included in appendix 5. Table 5.13: Consumer Price Index and deflation rates for Shandong Province (1997 to 2000) 1996 1997 1998 1999 2000 Consumer Price Index 109.6 102.8 99.4 98.9 / 1 100.4 / 2 Deflation % -6.8% -6.2-3.3-0.5 1.52 Source: www.sd.cninfo.net / 1 Derived from all-china rate and the trend in recent years for Shandong to mirror the all- China trend in rates. / 2 Estimated, based on 7 months data and all-china rate. 3.2 Nominal (Actual) values for the series: 3.2.1 Gross farm income Between 1997 and 2000, gross income increased most, in percentage terms, for new planters (38% increase) followed by grafters (31%) and improved management (15%). Non-project farmers increased gross income by 12% over the same period. However, whilst improved managers only increased their gross income by 15% (compared to 12% for non project farmers) the value of their gross income was a lot higher than non-project farmers in 1997 and in 2000. The gross income for improved managers was 10666 in 1997 (a year after the project start) compared to 8565 for non-project farmers in 2000. Improved managers had the highest gross farm income off all activity groups at the end of the project, 13736, on average, per farmer (Table 5.14). Over the 4-year period, improved managers increased the nominal value of their apple income by 85% (from 2761 to 5121 ). The largest percentage increase in apple income was for new planters, a 308% increase from 1997 to 2000 but from a low base of 941 to 2896 (57% of the gross value when compared to the apple income of improved managers). Grafters increased the nominal value of apple income by 203% (from 1940 to 3941 ). By contrast non-project farmers increased the value of apple income by only 29%, from 1334 to 1724 (Table 5.15). 21

Table 5.14 Key household indicators by project activity for 1998 and 1999 After adjustments for extraordinary items of expenditure Grafters Improved New Non-project management Planters 1977 1998 1999 2000 1977 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 Gross income () 8942 9744 9092 11699 10666 12390 11530 13736 7998 7715 6429 11021 7629 7768 7185 8565 Gross profit 5487 5491 5706 7872 5025 7472 6998 7972 3728 3952 3623 6669 4075 3994 4277 4938 Net profit 5331 5303 5416 7538 4831 7248 6656 7647 3563 3715 3266 6246 3929 3770 3960 4577 Net farm surplus 833 977 1523 3541 (130) 2918 2263 2793-520 -395-774 1889 28 3-19 714 Net household surplus 1641 1107 2136 4159 852 4030 3052 4051 481 659 879 3989 653 772 2016 2677 Value of changes in since 1997 Grafters Improved New Non-project management Planters 1977 1998 1999 2000 1977 1998 1999 2000 1977 1998 1999 2000 1977 1998 1999 2000 Gross income () 802 151 2757 1724 863 3070-283 -1569 3022 139-444 936 Gross profit 4 219 2385 2447 1973 2947 224-106 2941-81 202 862 Net profit -28 85 2207 2417 1824 2816 152-297 2683-159 31 648 Net farm surplus 145 690 2709 3048 2393 2923 126-254 2410-25 -47 686 Net household surplus -534 495 2518 3178 2200 3200 178 398 3508 119 1363 2024 Percentage change compared to 1997 Grafters Improved New Non-project management Planters 1977 1998 1999 2000 1977 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 Gross income () 9% 2% 31% 16% 8% 29% -4% -20% 38% 2% -6% 12% Gross profit 0% 4% 43% 49% 39% 59% 6% -3% 79% -2% 5% 21% Net profit -1% 2% 41% 50% 38% 58% 4% -8% 75% -4% 1% 17% Net farm surplus - not calculated because large percentage changes result - not calculated because large percentage changes result Net household surplus from small changes in the values from small changes in the values Percentage difference compared to non-project farmers Grafters Improved New Non-project management Planters 1977 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 Gross income () 17% 25% 27% 37% 40% 60% 60% 60% 5% -1% -11% 29% 0% 0% 0% 0% Gross profit 35% 37% 33% 59% 23% 87% 64% 61% -9% -1% -15% 35% 0% 0% 0% 0% Net profit 36% 41% 37% 65% 23% 92% 68% 67% -9% -1% -18% 36% 0% 0% 0% 0% Net farm surplus - not calculated because large percentage changes result - not calculated because large percentage changes result Net household surplus from small changes in the values from small changes in the values 22

Table 5.15: Nominal value of apple production by project activity and year Activity 1997 1998 1999 2000 Grafters Apple income 1940 2627 2789 3941 % change (from 1997) - 35% 44% 203% % of gross farm income 22% 27% 31% 34% Improved management Apple income 2761 3795 3960 5121 % change (from 1997) - 37% 43% 85% % of gross farm income 23% 29% 32% 37% New planters Apple income 941 773 1088 2896 % change (from 1997) - -18% 16% 308% % of gross farm income 12% 10% 17% 26% Non-project farmers Apple income 1334 1180 936 1724 % change (from 1997) - -12% -30% 29% % of gross farm income 17% 15% 13% 20% 3.2.2 Gross Profit Over the 4 years, improved managers and new planters increased the value of their gross profit (gross income less farm operating expenses) by 73% and 79% respectively. Gross profit for grafters increased by 43%. By contrast gross profit increase for non-project farmers increased by only 21% (Table 5.14). Operating expenses remained at similar levels between 1997 and 2000 for all activity groups with the exception of improved managers who actually decreased their operating expenditure. This group of farmers reduced their expenditure on livestock operating costs but increased their expenditure on apple operating expenditure, but by a lesser amount. 3.2.3 Net Profit Increases in net profit mirrors the increase in gross profit because the only items deducted from gross profit to give net profit are interest and tax. Interest payments are minimal for all farmers and the increase in tax was similar for all activity groups from about 160 in 1997 to 360 in 2000. 3.2.4 Net Farm Surplus Net farm surplus is calculated after deducting family living costs, capital purchases and development expenditure and any principal payments. Farmers who plant new trees do not bear the capital cost of this development themselves so the costs of orchard development are not shown in the budgets for new planters. The township takes responsibility for the planting of the new trees and, when the tress start to bear fruit, the bearing trees are allocated to farmers. In addition, farmers have received some inputs from the project credit fund for which they have made no payments; these sums are relatively insignificant when averaged across farmers in the various activities in each year. Typical values for the free inputs are shown in table 5.16. If farmers had had to pay for these inputs the value of farm surplus for 23

the typical average farmer in each activity would be reduced by the amounts shown in the table. Table 5.16: Value of inputs provide free to farmers from project funds by project activity and year (average per farm) 1997 1998 1999 2000 Grafters 300 400 350 400 Improved Management 200 400 350 400 New Planters 500 400 350 400 Between 1997 and 2000, the values for Net farm surplus have increased most for improved managers (by 2923 ), by 2709 for grafters and by 2410 for new planters. By contrast non-project farmers have increased the value of net farm surplus by only 686 (Table 5.14). Net farm surplus was 2793 for improved managers in 2000 (up from 545 in 1997), 3541 for grafters (up from 1685 in 1997), and 1889 for new planters (up from 861 in 1997). Non-project farmers had a net farm surplus of 714 in 2000; a 686 increase on the figure for 1997. Cash living expenses have remained fairly similar amongst all activity groups over the period, but given the reduction in real cost, this still represents an increase in living standard. Living costs are slightly higher for project than for non-project framers and the highest living cost is incurred by improved managers (average 2800 over the series), the most profitable farmers. 3.2.5 Net Household surplus Net household surplus is calculated after adding off-farm income and deducting off-farm expenses. Over the period of the data, off farm income has been more significant for the new planters and non-project farmers than for grafters and improved managers. This suggests that farm households make up any shortfall in income by increasing the amount of off farm work they do. Given the large differences in gross farm income, the difference between project activity groups in net household surplus is not great. For all project activities net household surplus averages 4067 per household in 2000. The figure for non-project farmers is 2677 (Table 5.14 after adjustment for extraordinary items). For the non-project farmers, the major increase contributing in the better net household surplus came from off-farm earnings rather than an increase in farm income. Over the period, net off-farm earnings increased for non-project farmers by 300% whereas net farm surplus increased by only 57%. 24

3.3 Whole household data converted to real 2000 values Deflating the data to 2000 values increases the relative rate of increase in net profit (and other key indicators) over the period of the project; this is because one in 1997 was worth less than one in 2000, in real terms. The key project impact on farm income is best described by the effect on net profit because this indicator is not affected by the peturbances caused by variations in capital expenditure, family living costs or in off-farm income and off-farm expenditure. The graphs in figures 5.5 (a, b, c, and d) show the deflation adjusted data by project activity. The project impact of increasing net profit is clearly shown, as is the relatively better performance of project farmers compared to non-project farmers. The graphs also show the lag of improvement for the new planters who have had to forgo income benefits until new trees start to bear crops. 3.4 Performance of apple varieties 6 year of age and over: comparison across years (1997 to 2000) Nominal values Table 5.17 shows the change in fruit tree crop performance over the 4-year period for varieties where the sample size is reasonable, for orchards with trees 6 years or more of age. As an average over the monitored farms, Fuji have increased in yield from 1745 kg per mu in 1997 to 3608 kg per mu in 2000. However, the price has fallen from 1.29 per kg in 1997 to 1.00 per kg in 2000. The gross margin over the same period has increased from 1562 per mu to 2304 per mu despite the fall in price per kg. The yield of New Red Star apples remained similar in 1997 and 2000, although in 1998 and 1999 the average yield was lower than in the first and final years in the series. Price per kilogram has dropped slightly from 1.01 per kg in 1997 to 0.92 per kg in 2000. In 2000, the gross margin for New Red Star apples reflected the fall in price, being 908 per mu in 2000 compared to 1162 per mu in 1997. The number of Guoguang apple growers has fallen from 27 in the sample of 60 monitor farms in 1997 to only 6 growers in 2000. Based on data adjusted to equate to 30 trees per mu, Guoguang yield has increased from 901 kg per mu in 1997 to 2090 kg per mu in 2000; but because there are a lot fewer growers of Guoguang in 2000, the performance of varieties may not be comparable. For example, the Guoguang grower sample is small and the remaining growers may have the best orchards. In 2000, there were only a few farmers with Chestnuts, Peaches and Hawthorn (ShanZha); so it is unlikely that the data can be considered typical and reliable for comparison. However, Peaches may be more profitable than Fuji apples. Chestnuts may be more profitable than New Red Star and Guoguang apples. 25

Table 5.17 Performance of apple varieties 6 years or more of age: Comparison between years (1997-2000) Variety of apple 1997 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 n = 16 23 44 46 16 15 12 17 27 24 10 6 Changes between years New Red Changes between years Changes between years Per mu Fuji 97 to 98 98 to 99 99 to 00 Star 97 to 98 98 to 99 99 to 00 Guoguang 97 to 98 98 to 99 99 to 00 Yield kg 1745 1151 1250 3608-594 99 2359 1310 787 751 1321-523 -36 571 901 685 1796 2090-216 1111 294 Price / kg 1.29 1.80 1.04 1.00 0.51-0.76-0.04 1.01 0.85 1.07 0.92-0.16 0.22-0.14 0.50 0.54 0.62 0.50 0.04 0.08-0.12 Fertiliser kg 140 98 69 211-42 -29 142 59 72 68 108 13-4 40 38 59 86 76 21 27-10 143 116 89 234-27 -27 145 63 67 129 113 4 62-16 49 39 51 38-10 12-13 Animal manure kg 759 1115 1688 3370 356 573 1682 329 882 333 500 553-549 167 476 604 1800 1833 128 1196 33 Chemicals 69 112 151 332 43 39 181 11 38 66 78 27 28 13 42 99 103 72 57 4-31 Income 0 0 Cash sales 2193 1919 1255 3474-274 -664 2219 1277 612 703 1148-665 91 444 436 360 1051 1005-76 691-46 H.Hold consumption 66 155 51 147 89-104 96 49 55 99 73 6 44-26 12 13 59 42 1 46-17 Gross income 2259 2074 1305 3621-185 -769 2315 1327 667 802 1220-660 135 418 448 372 1110 1047-76 738-63 Variable costs Cash items (a) 649 503 421 1210-146 -82 789 159 166 256 294 7 90 38 175 210 281 214 35 71-67 1 / Non cash items (b) 48 49 48 107 1-1 59 5 12 12 18 7 0 6 19 21 33 21 2 12-12 Total worth inputs (a + b) 697 552 469 1317-145 -83 849 165 178 268 312 13 90 44 194 231 314 235 37 83-79 Gross margin per mu Cash margin 1544 1416 834 2264-128 -582 1430 1118 446 448 854-672 2 406 261 150 770 790-111 620 20 Total margin (incl. crop worth) 1562 1522 837 2304-40 -685 1467 1162 489 534 908-673 45 374 253 142 796 812-111 654 16 1 / Mainly animal manure. Excludes family labour 26

Table 5.17 (continued ) Performance of other tree crops 6 years or more of age: Comparison between years (1998-2000) Other tree crops: 1998 1999 2000 1998 1999 2000 1998 1999 2000 n = 9 5 4 5 3 2 11 4 4 Changes between years Changes between years ShanZha Changes between years Per mu Chestnut 97 to 98 98 to 99 99 to 00 Peach 97 to 98 98 to 99 99 to 00 (Hawthorn) 97 to 98 98 to 99 99 to 00 Yield kg 57 159 278Insufficient 102 119 1558 1570 3625Insufficient 12 2055 472 506 1500Insufficient 34 994 Price / kg 4.50 5.54 6.28 data 1.04 0.74 0.67 0.89 1.28 data 0.22 0.39 0.39 0.75 0.53 data 0.36-0.23 Fertiliser kg 3 7 21 4 14 115 37 180-78 143 40 53 100 13 48 2 3 10 1 7 123 97 239-26 142 21 58 108 37 50 Animal manure kg 0 0 0 0 0 502 600 1000 98 400 88 1000 1500 912 500 Chemicals 9 12 4 3-8 56 97 310 41 213 46 78 150 32 73 Income Cash sales 230 847 1746 617 899 1004 1368 4525 364 3157 174 356 750 182 395 H.Hold consumption 26 32 0 6-32 41 32 120-9 88 11 26 42 15 16 Gross income 256 879 1746 623 867 1046 1400 4645 354 3245 185 381 792 196 411 Variable costs Cash items (a) 79 178 153 99-25 293 376 844 83 468 95 193 393 98 200 1 / Non cash items (b) 0 0 0 0 0 56 30 88-26 58 4 11 75 7 64 Total worth inputs (a + b) 79 178 153 99-25 349 405 932 56 526 99 204 468 105 264 Gross margin per mu Cash margin 150 669 1593 519 924 711 993 3681 282 2688 79 163 358 84 195 Total margin (incl. crop worth) 177 701 1593 524 892 697 995 3714 298 2718 86 177 325 91 147 1 / Mainly animal manure. Excludes family labour 27

4.0 Recommendations for future monitoring systems Although the project began in 1996, we only have 4 years of monitoring data. It would have been helpful to have initiated the economic monitoring at the very start of the project and collected baseline data. The first visit of the monitoring specialist was mid way through 1997, when the data collection forms were designed and the survey implemented over a 2-week field visit. Statistical data is available on household incomes at the village and county level for 1995, and presumably for subsequent years. However, this data may not be comparable to the monitoring sample because project farmers rely more heavily on income from apple production than do other farmers. For example, in 1995, apple income comprised 4.2% of family farm income in the county and 5% in the project area (Smith, 1996); whereas, in 1997, apple income comprised 17% of farm income for non-project farmers, and between 12% and 23% for project farmers by 1997. Project monitor farmers may have had higher average incomes than the average, across all farmers, at the start of the project. Because the forms needed to be designed during the first visit, more field time would have been desirable during that first visit to train the technicians responsible for collecting the data and to allow the consultant to participate in the collection of the first year s data. Alternatively, a second field visit by the consultant during the first year would have allowed more supervision in the collection of data, and for training. In the first year in particular, there were problems in aggregating the data into data tables suitable for data analysis. This occurred because PMO staff entered the data into spreadsheets that looked like the survey sheets rather than into data tables where the columns contain the variable names and the rows the individual farmer records. It is unclear who gave instructions for data entry to proceed in this manner, but it occurred without discussion with or the agreement of the monitoring specialist. This led to additional work for the monitoring specialist in collating and aggregating the data and to some inaccuracies in the data, initially at least. This problem persisted in the second year and has resulted in data entry inefficiencies subsequently. It is important to ensure continuity in the supervision of the monitoring programme and to make sure procedures are agreed by the monitoring specialist before implementation. In the second and third year of the data analysis, non-cash family living costs were treated inconsistently in the presentation of the data by project activity. In the first year, non-cash family living costs (consumption of farm produce by the farm family) were included as a non-cash expense, whereas, in the second and third year, this expenditure was part of the calculated net farm and net household surplus. In this report, this figure is itemised as a separate non-cash item in the whole household budget and included as part of total family living costs in the totals for comparison across years. To limit the resources required to collect the data, only 60 farmers in all were sampled. This allowed for the collection of data from 15 farmers in each of the three project activity groups and from 15 non-project farmers. The non-project farmers consisted of apple growers who practiced one or more of the project activities of grafting, improved orchard management and new planting. 28