General Model For Optimization and Promotion of Irrigation Agribusiness in The Northeast of Brazil, Volume 3.

GENERAL MODEL FOR
OPTIMIZATION AND PROMOTION

OF IRRIGATION AGRIBUSINESS IN
THE NORTHEAST OF BRAZIL
1
SERIES: POLICIES AND STRATEGIES FOR A NEW MODEL
OF IRRIGATION
V.1 – The Importance of Agribusiness Irrigation for the Development

of the Northeast of Brazil
V.2 – National and International State of the Art Irrigation

Agribusiness 2000
V.3 – General Model for Optimization and Promotion of Irrigation

Agribusiness in the Northeast of Brazil
V.4 – Specific Model for the Optimization and Promotion of the

Salitre Irrigation Project - Juazeiro, State of Bahia - Brazil
2
GENERAL MODEL FOR
OPTIMIZATION AND PROMOTION
OF IRRIGATION AGRIBUSINESS IN
THE NORTHEAST OF BRAZIL
Francisco Mavignier Cavalcante França

Coordinator
BANCO DO NORDESTE
Fortaleza, Brazil – 2002
3
Work published by
Board of Directors
President: Byron Costa de Queiroz
Directors: Ernani José Varela de Melo, Marcelo Pelágio da Costa Bomfim,

Osmundo Rebouças and Raimundo Nonato Carneiro Sobrinho
Internet: http://banconordeste.gov.br
Circulation: 1.000 copies
Information: Consumer Hotline: 0800.783030
E-mail: ren@banconordeste.gov.br
Editorial Coordination: Ademir Costa

Translation: Manoel Antônio Remédios
Bibliographic standardization: Rita de Cássia Alencar
Official Archive in the National Library, under Act 1823 of December 20th, 1907
Copyright © Banco do Nordeste
Banco do Nordeste
B213g General model for optimization and promotion of irrigation
agribusiness in the Northeast of Brazil/ Francisco Mavignier
Cavalcante França, coordinator. - Fortaleza: Banco do Nordeste,
2002.
288 p.
Translation of the volume 3 of the serie policies and strategies
for a new model of irrigation.
1 – Irrigation. 2 – Irrigation-Northeast. 3 – Agribusiness. 4 –
Northeast development. I – França, Francisco Mavignier
Cavalcante. II - Título.
CDD: 631.587
Printed in Brazil
4
General Coordinator of the Study
Francisco Mavignier Cavalcante França
Consulting Firm Consortium Responsible for the Study

Plena Consultoria de Engenharia Agrícola Ltda.
Elias Teixeira Pires (Consortium Coordinator)
Eliseu Andrade Alves
José Luís dos Santos Rufino
Mário Ramos Vilela
Paulo Severino de Rezende
Rui Adebal Rocha Ferrari
Getúlio Vargas Foundation – FGV

Ednéia da Silva Bezerra
Gregory Honczar
Guilherme Soria Bastos Filho
Ignez Guatimosim Vidigal Lopes
Mauro de Rezende Lopes
Nuno Monteiro Casa Santa
Stivilane Domelas
PROJETEC – Projetos Técnicos Ltda.

André Luís da Silva Leitão
Fábio Chaffim Barbosa
Jacó Charcot Rios
João Joaquim Guimarães Recena
Luíz Alberto Teixeira
Banco do Nordeste Technical Team

Cláudio Vasconcelos Frota Francisco Mavignier Cavalcante França
Maurício Teixeira Rodrigues Rubens Sonsol Gondim
Inter-Institutional Management Committee

Rômulo de Macedo Vieira (Coordinator) – National Integration Ministry
Edson Zorzin – Codevasf
Francisco Mavignier Cavalcante França – Banco do Nordeste
Guilherme Lincoln Aguiar Ellery – DNOCS
José Honório Accarini – Ministry of Planning, Budget and Administration (SPI)
Washington Aquino de Mendonça – Ministry of Planning, Budget
and Administration (SEAIN)
5
Inter-Institutional Technical Support Group
Francisco Mavignier Cavalcante França (Coordinator)
Artur Eustáquio R. Saabor – National Integration Ministry
Clésio Jean Almeida Saraiva – DNOCS
Edson Zorzin – Codevasf
Euzébio Medrado da Silva – EMBRAPA
Humberto Leite Freitas Filho – Ministry of Planning, Budget
and Administration (SEAIN)
José Honório Accarini – Ministry of Planning, Budget
and Administration (SPI)
Manfredo Pires Cardoso – Agriculture and Agrarian Reform Secreteriat, State
of Bahia - Brazil
Inter-American Development Bank Team

Francisco Basílio Souza (Coordinator)
Asako Yamamoto
Bernard Damel
Charles Smith
Fausto Medina-Lopez
Juan Luna-Kelser
Myriam Quintero
Valnora Leister
Advisory Council (Independent Consultants)

Alejandro Luís Seminário Duany - Peru Augustín A. Millar - Chile
Francisco de Souza - Brazil Jim Charles Bryon - USA
John Wilkison - Brazil José Cruz Roche - Spain
Juan Sagardoy - Italy Pablo Lalanda Carrobles - Spain
Collaborators:
Aluysio Antônio da Motta Asti, Armando Munguba Cardoso, Carlos Alberto de
Carvalho, Francis Puglise, Frederico Reis de Araújo, Hans Steinbichler, José
Airton Mendonça de Melo, José Bento Corrêa, José Eduardo Borella, José
Olimpio Rabelo de Morais, José Paulo Silveira, José Raimundo Machado dos
Santos, José William Araújo Sousa, Juscelino Antonio de Azevedo, Laudo
Bernardes, Leda Maria Marques Cavalcante, Luís Carlos Ramos de Lima, Luiz
Hildemar Colaço, Maria Lucinete Valente, Otávio Gondim Pereira da Costa,
Ricardo Limar de Medeiros Marques, Roberto Duarte Vidal Silva, Rodrigo
Magalhães Neiva Santos, Valdir Castelo Branco, Yara Januzzi
Translation
Graeme Clive Hodgson – Sky Cursos e Traduções SC Ltda.
6
PRESENTATION
The Brazilian Northeast is known to have the best conditions for the
production of fruits and vegetables in the whole world, which opens great
possibilities for the development of irrigated agriculture in the region. The
strategic relevance of this activity, that stands out for job generation, income
and foreign exchange credits, inspired the creation of the project ‘New
Model of Irrigation’, in the ambit of the program ‘Advance Brazil’, of the
Federal Government.
Of an innovative character, this project seeks, mainly, to stimulate
private investment in all phases of irrigation agribusiness, to guide
production towards market opportunities and to redirect the government's
participation in the activity, prioritizing the roles of induction, orientation,
regulation and promotion. Its goals are also, to generate synergy between
private initiative and governmental spheres, to guarantee efficiency in the use
and in the management of water for irrigation, to identify new sources and
financing models and to propose mechanisms for the control of
environmental and social impacts.
Owing to the importance of the Project, the need for a study of
reference to guide the organisms involved in the implementation of the New
Irrigation Model was identified. Feasibility was accomplished through the
partnership between the Ministry of Planning, Budget and Administration,
the Ministry of the National Integration, the Interamerican Development
Bank (IDB) and the Bank of the Northeast.
Elaborated with the contribution of more than 1.500 national and
international specialists, this work consists of a collection composed of the
following volumes: 1 – the Importance of Irrigation Agribusiness for the
Development of the Northeast, 2 – State of the Art National and International
Irrigation Agribusiness 2000, 3 – General Model for Optimization and
Promotion of Irrigation Agribusiness and 4 – Specific Model for
Optimization and Promotion of the Salitre-Juazeiro Irrigation Project, of the
state of Bahia.
It is with satisfaction, thus, that the Bank of the Northeast makes
public this set of studies, as a form of disseminating, among public and
private agents, the new strategies that will invigorate irrigation agribusiness
in the Region.
Byron Queiroz
President of the Bank of the Northeast
7
8
CONTENTS
PRESENTATION.......................................................................... 7
1 - INTRODUCTION ................................................................... 13
2 - THE IMPORTANCE OF IRRIGATION FOR THE NORTHEAST

AND FOR BRAZIL............................................................... 17
3 - IRRIGATION IN BRAZIL AND IN THE NORTHEAST

TODAY................................................................................... 20
3.1 - Current Irrigation Policy in Brazil .................................... 20
3.1.1 - The prevailing institutional view ................................... 20
3.2 - Current Position of the Public Irrigation Projects
in the Northeast ............................................................... 27
3.2.1 - Focus on project implementation ................................. 27
3.2.2 - Production areas and implementation in progress ..... 29
3.2.3 - Operation and maintenance management ................... 29
3.2.4 - The production process ................................................ 29
3.2.5 - The role of the private sector ........................................ 39
4 - THEORETICAL BENCHMARK ............................................. 42
5 - PROPOSED NATIONAL IRRIGATION POLICY ................... 51

5.1 - Main Guidelines of the New National Irrigation Policy ... 54
5.2 - Current Legal System ....................................................... 55
5.2.1 - Water ownership: who may use it and how ................. 55
5.2.2 - The current irrigation act (nº. 6.662/79) ........................ 56
5.3 - Proposed Judicial Regime .............................................. 57
5.4 - Guidelines for the Implementation of Irrigation
Projects.............................................................................. 60
5.4.1 - The role of the public sector ......................................... 61
5.4.2 - Principles and recommendations ................................. 63
5.4.3 - Procedures for the implementation of irrigation
projects .......................................................................... 67
5.5 - Regulation Structure of the New National Irrigation
Policy ................................................................................ 71
9
6 - THE NEW NATIONAL IRRIGATION POLICY TOOLS ..........77
6.1 - Irrigation Planning.............................................................77
6.1.1 - Basic principles..............................................................77
6.1.2 - Guidelines for the planning process.............................80
6.1.3 - Criteria for choosing implementation areas for public
projects...........................................................................82
6.1.4 - Procedures and technical norms ..................................83
6.1.5 - Monitoring irrigation ......................................................84
6.2 - Management of Policies, Plans, Programs and Irrigation
Projects ..............................................................................85
6.2.1 - Scope of irrigation management ...................................85
6.2.2 - Proposal for a management system applied to the
irrigation management environment ............................89
6.2.3 - Attributions of each public project management
entity ...............................................................................92
6.2.4 - Management systems for irrigation projects..............103
6.3 - Production Systems, Post-Harvest, Distribution and
Market .............................................................................109
6.3.1 - Commercial management system...............................110
6.3.2 - Market strategies..........................................................113
6.3.3 - Market information system ..........................................117
6.3.4 - Technological information system..............................123
6.4 - Support Services.............................................................123
6.4.1 - Information base ..........................................................124
6.4.2 - Technical assistance/production management .........125
6.4.3 - Research and development (R&D) ..............................126
6.4.4 - Management training program ....................................128
6.4.5 - Environmental management services.........................128
6.5 - Economic and Financial Mechanisms ...........................129
6.5.1 - Sources and mechanisms of financing ......................130
6.5.2 - Financing models .........................................................146
6.5.3 - Description of financial risks.......................................147
6.5.4 - Strategies for the mitigation of commercial risks ......156
6.5.5 - Description of internal rates ........................................157
6.5.6 - Guiding premises for the role of the public sector:
federal, state and municipal ........................................157
10
7 - REFERENCES .................................................................... 166
8 - APPENDICES ..................................................................... 171

8.1 - Legislation and Norms Concerning the Irrigation Sub-
Sector in Brazil............................................................... 173
8.2 - Contribution to the New Legal Benchmark for Irrigation
in Brazil........................................................................... 177
8.3 - Commercial Management Systems ............................... 191
8.3.1 - Commercial management system – type 1 ................ 194
8.4 - Financing Models............................................................ 207
8.4.1 - Financing models – type 1 .......................................... 207
8.4.2 - Financing models – type 2 .......................................... 215
8.4.3 - Comparison of financing models types 1 and 2 ........ 223
8.4.4 - Conditions for the viability of proposed financing
models.......................................................................... 226
8.4.5 - General risk characteristics in project companies .... 239
8.4.6 - Final comments............................................................ 242
8.5 - Research and Development in Irrigated Agriculture
in the Northeast of Brazil................................................ 245
8.5.1 - Organizing research efforts in irrigated agriculture in
Northeast Brazil and the North of Minas Gerais State –
determining factors and proposed innovations ........ 246
8.6 - Risks of Production Value Fluctuation in Irrigated
Agriculture...................................................................... 269
8.6.1 - Estimate of the product price fluctuation risk ........... 271
8.6.2 - Fluctuation of internal rates of return......................... 274
8.6.3 - Comments on the study .............................................. 275
8.6.4 - Chapter appendices..................................................... 276
11
12
1 - INTRODUCTION
One of the projects of the Avança Brasil program is the New

Model of Irrigation Project. As irrigation is nowadays seen as business,
its basis is in the private sector, in the building of infrastructure, in the
implementation and operation of agricultural activities, industrialization
and commercialization, as well as in the search for a dynamic relationship
between the external environment, the productive chain and Government.
The Federal Government, through Banco do Nordeste do Brasil,
following an international bidding process, contracted the consulting
services of the consortium Plena-FGV-Projetec to develop, validate and
establish the structural, conceptual, operational, financial and regulatory
bases of the model, focusing on the Northeast of Brazil.
This study began in May 1999. Its execution was programmed in
two segments which complement one another: the first is composed of 3
reports (antecedents, state-of-the-art in irrigation and proposal of the new
model concept); the second is composed of the fundamental elements
needed for the immediate application of the guidelines defined in the
New Conceptual Model. These four reports form the series Policies and
Strategies for a New Model of Irrigation. This document being Volume 3.
This document proposes the New Conceptual Model which is the
operational definition of the New National Irrigation Policy.
The study was developed by a team of multidisciplinary
consultants, with wide-reaching knowledge of irrigation, regional
development, public administration, commercialization, research and
agricultural development, technical assistance, economics, environment
and the management of public irrigation projects, amongst other themes.
Several members of this team are also entrepreneurs in the irrigated
agriculture sector in the north of Minas Gerais State and in the Northeast.
Dealing with the development of a conceptual model for irrigation
policy, the study embraced the close involvement of several agents in the
chain of irrigated agriculture, of the Northeast and the North of Minas
Gerais State. Between May 1999 and April 2000, several events were
held to discuss proposals for models and harness funds from the various
segments of irrigated agriculture. Most notable were the seminars in
13
irrigation clusters in the Northeast and North of Minas Gerais
(Petrolina/Juazeiro, West Bahia, North of Minas Gerais, Açu/Mossoró,
Lower Jaguaribe and the Higher Piranhas Basin); the February 2000
seminar in Fortaleza, with representatives from Government bodies
involved in the activity, contact with current and potential investors in
irrigated agriculture and, finally, specific meetings with institutions
related to the sector, to discuss the model proposed.
At the same time as the events mentioned, subsidies were also
sought in the National and International Bibliography about themes
related to irrigation (recovery of public investment, water tariffs, business
platforms, market vision, legal and institutional benchmarks, privatization
and public projects etc.). The review of the literature is presented in
Volume 2 “State of the Art in Irrigation”, in which obstacles and
opportunities found and their corresponding causal factors were
identified, together with the paths explored for their resolution and
maintenance, as well as a view of the future, provided by institutions and
entrepreneurs within irrigated agriculture. This analysis covers 11
countries which have vast experience in irrigation, both private and
public. The United States (USA) stands out in private irrigation, in public
participation, and in the transfer of public projects to organizations of
farmers in public projects, and in Mexico, Colombia and another eight
countries and finally Chile, France, Spain, the USA and Israel. These
latter countries use sophisticated technology for irrigation and
commercialization.
The conception of the model, in addition to the subsidies offered
by agents of the irrigation agribusiness chain in the Northeast and North
of Minas Gerais and those obtained from the national and international
bibliography, benefited from visits by some consultants to the USA,
Colombia, Mexico, Chile, Argentina, Spain, France and Israel. The visits
were undertaken in order to acquire knowledge of problems and solutions
encountered with regard to themes such as irrigation, perimeter
management, government policies and the productive chain.
Proposal of a national irrigation policy, based on the New
Irrigation Model Project considers that in the globalized world, the
capacity to compete defines the possibility of survival and market
expansion. Those who master information technology will survive and
14
grow. Symmetrical market coordination receives, processes, disseminates
and uses information, enabling superior competitive strategies.
Irrigation is an important instrument in development, especially for
the Northeast and North of Minas Gerais, due to its capacity for
generating income, stable employment, foreign exchange credits and
expanding the supply of food and fibers.
The proposal of the New National Irrigation Policy is based on the
participation of the private sector in irrigation agribusiness. It is based on
the proposal of changes in the present irrigation legislation (law nº
6.662/79 and its regulations), in guidelines for irrigation implementation
and planning. It supports the management of policies, plans, programs
and projects. It shows what a more modern production, post-harvest
distribution and market system should be like. It establishes the essence
of support services, such as information technology, technical
assistance/production management, research and development,
management training program, environmental management and
economical and financial mechanisms (Appendix 8.2).
If the proposal for changing the present irrigation law is approved,
it will allow for the association of private and public sectors, create
conditions for the private sector to participate, in the form of concessions,
in the implementation of public projects and even finance them. When
the government implements public projects, it can only operate them for a
limited period. In addition to that, the government can either sell or lease
the collective infrastructure.
The proposal of the New Policy shifts the focus of public irrigation
projects only in works for agribusiness. It requires the advertising of the
enterprise, the implementation of an information base (marketing and
management techniques) and their divulgation on a nationwide scale,
aiming at recruiting competent agriculturists and companies. It defends
the organization of producers, aiming at a more symmetrical coordination
in the agribusiness chain. It proposes a financing model for agriculture
which associates rural credit with other types of credit and with business
management.
This document is composed of 6 more chapters, as follows:
15
Chapter 2 – The importance of irrigation for the Northeast and
for Brazil – This chapter covers the importance of irrigation for the
region and for Brazil, as a policy tool which aims at maintaining workers
in rural areas because it generates well paid jobs and also increases
income and food production.
Chapter 3 – Irrigation in Brazil and in the Northeast today – In
this chapter, irrigation policy in Brazil and public irrigation projects in
the Northeast are analyzed, focusing on works, implemented areas and on
production to be implemented, operational and maintenance management,
the production process and participation of the private sector.
Chapter 4 – Theoretical benchmark – The theoretical bases for
the development of the New Model are in this chapter, which focuses on
aspects of competitiveness and coordination of agro-industrial chains.
Chapter 5 – Proposed National Irrigation Policy – This chapter
presents the general guidelines for the new policy, the judicial system, the
guidelines for implementation of irrigation projects and the regulatory
structure.
Chapter 6 – The New National Irrigation Policy Tools – In this
chapter, the tools which allow for the implementation of the new policy
are described. These tools relate to planning, policy management, plans,
programs and irrigation projects, production systems, post-harvest,
market, distribution and support services as well as economic and
financial mechanisms.
Chapter 7 – References
Chapter 8 -– Appendices – In this chapter, the studies presented
in the preceding chapters are complemented, notably in the legal
segment, by economic and financial mechanisms, research and
development, commercial management and risk evaluation.
16
2 - THE IMPORTANCE OF IRRIGATION FOR THE
NORTHEAST AND FOR BRAZIL
Brazilian agriculture will evolve to the level of more developed

countries, which are characterized by employment of a small fraction of
the country’s economically active population (EAP) and will also be
based on an increasingly lower number of farming establishments.
The issue which arises in public administration is how to conduct
this process of adjustment, so as to meet three objectives, which are: (i) to
adequately supply the domestic market; (ii) to expand exports of raw or
processed agricultural products; and (iii) to generate employment in rural
areas and in the city and, thus, reduce the impetus of rural exodus and its
negative effects; amongst which are sub-standard employment and urban
unemployment. As it will be seen below, disorganized rural exodus has
been a striking characteristic of rural-urban migration in Brazil over the
past 40 years.
Agricultural policies which simultaneously meet all three
objectives must be given priority. From amongst these, irrigation should
be paramount because: a) it generates a large number of stable jobs
within the context of agriculture and in cities, or rather, outside the
immediate context (before and after); b) it contributes towards servicing
domestic demand for fruit and vegetables which is increasing at a fast
rate as a result of income-elasticity equal to or superior to 1 and this
applies to all classes of income; and c) it expands exportation, without
causing an increase in domestic prices and, furthermore, has the
additional role of contributing to the solution of specific problems, such
as the supply of beans.
With regard to rural emigration, the problem lies in the Northeast.
In 1996, this region held 45.7% of the entire Brazilian rural population,
that is, 15.6 million people. The Southeast is the second most rural region
in terms of population. In 1996 there were 7.3 million rural inhabitants. If
the Northeast marches towards the same ratio of inhabitants/production
value as the Southeast (which is not exceptional and thus perfectly
possible), its rural population would fall to 3 million inhabitants, as noted
by Alves; Lopes; Contini (1999).
17
These authors estimated the rural exodus, per decade, dating from
1940 and showed that the rural Northeast is losing its population more
rapidly. Thus, in the period 1991/2000, almost half of rural emigration
was from the Northeast, around 4.3 million, compared with the 10.1
million who migrated from rural areas in the whole of Brazil. In the
previous period, 1980/1991, the Northeast and Brazil lost, respectively,
4.1 million and 10.4 million rural inhabitants.
The same authors showed that rural emigration is accelerating in
the Northeast and slowing in the three southern regions. The latter have a
smaller stock of migrants and land and labor productivity rates are at least
4 times those of the Northeast, thus acting as a brake on rural-urban
migration (ALVES; LOPES; CONTINI, 1999).
In that region, there are 2.3 million establishments. This total is
equivalent to 47.5% of the number of establishments in Brazil. However,
on average, only north-eastern farming establishments with more than
200 hectares (except irrigated areas) remunerate a family’s work with one
minimum salary per month or more. It so happens that these
establishments with an area above 200 hectares represent less than 6
percent of all rural establishments in the Northeast. Thus, the vast
majority of farms in that region are unstable, failing to offer remuneration
to each worker even equal to a single minimum salary. They tend,
therefore, to disappear and, thus, cause unemployment of large groups of
family labor and even waged workers.
Family labor and rural wages are very unstable there, with regard
to remaining in the rural environment. Due to the market powers and to
the rural environment in other regions that have been losing population,
the rural workers from the Northeast would rather go to the cities in three
South regions, as had historically been happening. As a second option,
they are going to the cities in the Northeast and the North, worsening the
problems of unemployment and public security, amongst others. It shows
that the Northeast is a priority for all policies keeping population in rural
areas, in order to allow a rural-urban transition with less impact.
However, keeping population in the rural environment and cities
linked to agriculture depends on the viability of paying competitive
salaries in agriculture. Irrigation agriculture offers this condition. Its
employment capacity is multiplied when associated with export, mainly
18
fruit, vegetable, grain and meat exports. Thus, it is a priority for the
Northeast, especially for the semi-arid region, and is very important for
the other sub-regions that also need to keep their population, supply the
country and contribute to expand exports. By irrigating and developing
some of the privileged areas, in terms of ideal characteristics (such as
those in east Bahia, south Maranhão and southeast Piauí), the Northeast is
able to contribute emphatically to the domestic market supply and to
exports, whilst reducing the migratory flow towards cities.
Effectively, in order to face these challenges, irrigation has been a
successful strategy, especially in countries with larger irrigation areas and
mainly in the regions of the globe that have high water deficits, such as
the semi-arid, which includes the Northeast of Brazil. It has the capacity
to reduce technological risk caused by adverse weather conditions,
reducing the agricultural productivity oscillation and increasing
occupation rates and the intensive use of the land. In this way, agriculture
contributes to expanding the supply of food and fibers and, in Brazil, also
the bio-mass for energy purposes. Thus, it increases salaries and earnings
and generates stable occupations in rural areas, as shown by the Northeast
irrigation clusters, implemented in recent decades and therefore more
consolidated.
19
3 - IRRIGATION IN BRAZIL AND IN THE NORTHEAST
TODAY
3.1 - Current Irrigation Policy in Brazil
3.1.1 - The prevailing institutional view
♦ Legal System
Firstly, the study will present a short analysis of the legal system
today relating to the activities inherent to irrigation in Brazil, concerning
the federal constitutional principles and the specific and related infra-
constitutional norms.
The implementation of irrigation projects, be they public or
private, has to obey specific and related legislation, which naturally
concerns not only the water resources but even conservation (in quantity
and quality) and development thereof. It concerns other related
environmental matters, such as: soil use and conservation, flora handling
and conservation, the direct or delegated implementation of public
projects or services, regulation of the water resources and environmental
sector together with arbitration.
In addition to this, as a part of agribusiness, irrigated agriculture,
just like any other activity in a market economy, is guided by a general
group of formal legal norms that offers to its players, either public or
private, the needed legal security on the contract relations. Thus, the
irrigation policy is also established on a broad legal, specific, related and
generic base.
For the study, as explained in the Terms of Reference, it is
important to analyze the first group of legal norms, mentioned in the
second paragraph.
Thus, in Appendix 8.1 the infra-constitutional norms that guide the
use of water resources in irrigation are chronologically listed, as well as
their interaction with other uses and the integrated management of natural
resources, such as soil and flora, and those related to organization of the
irrigation sub-sector.
20
As shown in Appendix 8.1, attention to irrigation has increased in
the Federal Government since 1967, after the passing of Act nº 200. It has
implemented, among others, the Interior Ministry and identified irrigation
as this Ministry’s responsibility, associated with protection enterprises to
face the drought and floods (Item V, Article 39). However, the first
judicial ruling about irrigation in Brazil only happened 12 years later, on
June 25th, 1979, with the passing of Act nº 6662, called the Irrigation
Law, which was about national irrigation policy (BRASIL, 1979).
This law was only regulated by Decree nº 89.496, on March 29th,
1984. Later, it was successively changed by Decrees Nos. 90.309 on
October 16th, 1984, 90.991 on February 26th, 1985 and 93.484 on October
29th, 1984. The latter three were revoked by Decree nº 2.178 on March
17th, 1987 (Appendix 8.1). Later, on May 21st, 1993, Act nº 8.657, which
adds paragraphs to article 27 of the Irrigation Law, was passed (Appendix
8.1).
Act nº 6.662/79, which is still in effect, passed more than 20 years
ago in a different context, reports the economic and political
characteristics of that time. Later, it was replaced in some of its
provisions by the 1988 Constitution. Recently, in January 1997, it was
changed by Act nº 9.433, which “establishes the National Resources
Policy and starts the National Water Resource Management System,
regulates item XXI, article nº 21 of the Federal Constitution and alters the
first article of Act nº 8.001 of March13th, 1990, which had changed Act
nº 7.990 of December 28 th 1989 (BRASIL, 1997).
♦ The Public Sector’s Role in Irrigation
The National Irrigation Policy was built upon principles that
emphasized the social role of irrigation, in particular in the regions
affected by adverse weather events.
Although the Irrigation Law repeatedly mentions the participation of
the State, Federal District, municipalities and the private sector, it places
the main responsibility and authority for the implementation and gestation
of irrigation public projects upon the federal government at that time,
through the Ministry of the Interior and its related bodies. In other words,
not only the planning but also the execution, operation and maintenance of
irrigation projects, beyond the social infrastructures installed as a result
thereof, are under the control of the State (BRASIL, 1979).
21
It is necessary to emphasize that at that time the Ministry of the
Interior could count on regional development bodies, development banks
and other promotion entities, besides execution bodies and related
entities, all focused on the implementation of public irrigation projects.
Nowadays, irrigation in Brazil (estimated at 2,870,000 hectares in
1998) is divided into private and public. The private sector is responsible
for 95 per cent of the entire irrigated area and 67 per cent in the Northeast
(estimated at 495,000 hectares in 1998). Even in the Northeast, 66 per
cent of the irrigation area was implemented by the private sector. On the
newest projects, the soil and irrigation infrastructure properties are
private. In some cases, mainly in the South, the government built dikes
and canals years ago but left their administration to the private sector.
However, the infrastructure ownership is not always clear. In addition to
this, neither formal nor informal mechanisms to allow the association
between government and private sector were developed, in order to have
one capitalist partner. This meant that there were no mixed irrigation
projects.
Public projects are located in the Northeast and in the north of
Minas Gerais. The largest area is in the middle and below the São
Francisco River, under the responsibility of the Companhia de
Desenvolvimento do Vale do São Francisco (Codevasf). The
Departamento Nacional de Obras Contra a Seca (DNOCS) covers the
areas that are not included in the São Francisco River basin. Recently,
some State enterprises have been established in these two regions.
In pioneering public projects, the government has spread irrigation
in the Northeast, taking the risks always present in any new enterprise.
This created opportunities both for commercial irrigation and family
agriculture. Furthermore, it increased knowledge and opened horizons for
a competitive business. Nowadays, efforts aim to expand agriculture
production and the capacity of irrigated industrial clusters.
♦ Irrigation Financing Mechanisms
Subsidized agricultural credit has been the most important
incentive for the private sector in recent years. However, the terms did
not have a close relation to the activity’s results: in some cases the terms
were very generous and, in other situations, at least implicitly, there were
high expectations of estimated results from irrigation.
22
The National Treasury is the main source of financing for irrigation
infrastructure projects, including those of public interest, support projects
and social interests in public projects in the Northeast and north of Minas
Gerais. In Rio Grande do Sul, the National Treasury has financed
infrastructure projects of public interest. Foreign investment provided
resources for the Federal Government and also for some States, which
was used on infrastructure implementation and recovery for public use, in
addition to contributing to technical assistance for small-scale irrigators.
However, this source, as in many other countries, has been reducing
investments since the 90’s.
♦ Recovering Costs and Capital Mechanisms
As the official sources of irrigation financing lose momentum, the
embarrassment created by the irrigation law (Act nº 6.662/79 and its
regulations (BRASIL, 1979)) concerning the economic-financial balance
in public project management becomes more visible.
The most important mechanism is the destination of part of the
water tariff (component K1) because of its impact on project financial
stability. This tariff charges irrigators for total or partial amortization of
public investments in common use irrigation infrastructure projects.
The 3rd paragraph of the 24th article of Act nº 6.662/79 determines:
the irrigation infrastructure will have its investments amortized (the stress
is ours) by the irrigators, totally or partially, as established by the
government. Erroneously, the 25th article of the Law determines that the
irrigation infrastructure on public projects implemented through Federal
Budget financing will be property of the Federal Government (the stress
is ours), represented here by the Ministry of the Interior (BRASIL, 1979).
Thus, after regulating these parts of the Law through Decree No
89.496, of March 29th 1984, the Federal Government established in the
43rd article: the tariff on water use in public irrigation projects described
in these Regulations will be composed by the sum of (BRASIL, 1984):
I – the share of the amortization of public investments on common
use infrastructure irrigation projects, based on up-to-date project value
(the stress is ours), named K1
23
II – the share of annual administration, operation, conservation and
infrastructure maintenance costs, named K2
Under the negative consequences of the Law, concerning public
investment amortization mechanisms in public irrigation projects, this
matter is carefully analyzed here following international procedures using
the concepts of Lease, Depreciation, Maintenance K1 and K2.
- Capital Lease
According to the Law, the irrigation infrastructure for collective
use in public projects is a capital good that belongs to the government.
Being a capital good, serving irrigators, it requires charging, like a lease,
in order to reflect the capital opportunity cost. According to international
long-term standards, this figure varies from 3 per cent to 6 per cent per
year.
However, it is a tradition in public irrigation in Brazil never to
charge this lease. It is as if there is no lease cost for services in this
common use infrastructure.
Some may argue that no lease of this common infrastructure was
formally charged, but as the services are offered to irrigators indeed, it
must be paid-for by those who use it. This payment corresponds to the
infrastructure lease. Of course the capital goods owner can establish no
price for the lease, just as the government has been doing in public
projects in Brazil and like the majority of the 11 countries analyzed. But
if so, it should be explicit and clear.
From the capital goods owner’s point of view, it is necessary to
emphasize that there are only two possible situations: he can either sell or
lease (even to himself, as an entrepreneur) the capital good. There is no
other possibility.
Suppose that capital goods owner is also the owner of the company
which implemented the irrigation project. In this case, he is the capitalist
and the entrepreneur at the same time. He leases capital to the company
and charges for it. As an entrepreneur, he produces and pays for all
production phases, including the capital lease, depreciation etc. After
combining production value and costs what remains is the entrepreneurial
income. In other words, the capitalist income corresponds to production
factors’ lease in his property.
24
To summarize, this lease pays for capital services, and thus may
reflect the capital opportunity costs. Considering a free market and a
long-term point of view, it is equal to the capital opportunity costs at an
international level.
Thus, public administration must formalize lease of public use
infrastructure to irrigators, through irrigation districts. This value can
even be used to cover bank loan commitments. If the capitalist decides
not to charge for common use infrastructure services (lease = zero) this
must be clearly noted.
- Depreciation
Use brings about wear and tear on every capital good. This loss
leads to depreciation. Another kind of loss occurs when the capital good
becomes obsolete due to new technologies. In this case, the company
must substitute the capital good, otherwise it will become less
competitive and unable to remain in the market.
There are innumerous depreciation methods and the most widely
used is linear. It is based on the following assumptions:
a) the capital good continues producing, at the same productivity
level, during its useful life, if it receives appropriate
maintenances;
b) the capital good wears-out continuously and proportionally as
the years go by;
c) the capital good disappears on the last day of its useful life and
may leave a residual value that should be correctly deduced
from the depreciation. This value is higher in the case of
obsolescence.
Thus, the depreciation value should be charged and kept in a specific
account, in order to substitute capital items when they cease working, and
never to amortize them as predicted by current Irrigation Law.
Indeed, this account should only receive depreciation values and
pay for item substitution. It can not be used for any other aim, such as
fulfilling bank commitments or investment amortization etc.
25
Some procedures for common use infrastructure depreciation must
be explained. Depreciation is linear and calculated per item. For each
one, the annual depreciation is its own value, as if it were new, divided by
the number of years it is supposed to be used. Once calculated, this value
remains the same over the years, except for inflation update. If an item is
substituted by a higher quality one (because of its obsolescence), the new
item depreciation will be calculated by the same procedure, taking care to
discount the former item’s value from annual depreciation. The same
procedure is used for new investments and obsolete or old items
substituted. In other words, the substituted item should be taken out of
depreciation and, if necessary, the new item should be entered, under its
value and validity. The total depreciation value is the sum of all
depreciation items.
- Maintenance
The capital good’s useful life is estimated in years. To keep on
working properly during the estimated years, the capital good requires
maintenance, which leads to expenses.
In the case of public irrigation projects, when added to operation
maintenance expenses (related to common use irrigation infrastructures)
and administration (of irrigated perimeter), the resulting expenses
comprise component water tariff K2 (as determined by Act nº 6.662/79 in
article 25, paragraph two). The administration, operation, conservation
and infrastructure maintenance expenses, mentioned in this article caput
(irrigation infrastructure, in public projects, implemented with Federal
budget resources) will be proportionally shared between irrigators, in the
form settled by Government. Decree nº 89.476, of March 29 th 1984, in
article 43, regulated this matter as follows: the tariff on water use in
public irrigation projects, which relates to this Regulation, will be
composed of the sum of administrative, operation, conservation and
infrastructure maintenance annual expenses (BRASIL, 1984).
Thus, the value collected from the irrigators to cover maintenance
expenses should be accumulated in a Maintenance Sub-account (in the
Administration, Operation and Irrigated Perimeter Maintenance Account)
in order to cover the related expenses.
The removal of legal impediment, caused by the amortization
determined in irrigation law, is imperative. Moreover, to break the
26
negative habit described here: the low level of water tariff payments
observed in many projects world-wide leads to a low quality service
which, in turn, stimulates debt.
Thus, development is implicated by not giving the K1 water tariff
component the right destination – the common use asset depreciation
(and consequently the immediate substitution of obsolete and old
components). Moreover, this mistaken amortization leads the irrigators to
lose faith in the administration, since it means low quality services or
higher water distribution costs for irrigated areas.
That is why entrepreneurs look for public irrigation perimeters
where K1 and water tariffs are not linked, because it maintains
management transparency. But this is not enough. Irrigation Law must
change.
3.2 - Current Position of the Public Irrigation Projects in the

Northeast
This chapter presents a brief evaluation of public projects under the

guidelines already described. It focuses on operation and maintenance,
main support services (particularly technical assistance, research and
rural credit) and private sector participation, as it occurs today.
3.2.1 - Focus on project implementation
Aspects of engineering projects in public irrigation projects were

emphasized by the executors. There is no doubt that state-of-the-art
technology was developed, not only in studies and projects but also in
civil/hydraulic projects. Thus, the projects’ image reflected on kilometers
of canals, on dikes and pump station capacity, on water main extension
and, finally, on the available irrigation area.
Several times, the project objective, that is, agricultural production
(which generates employment, income and local development, as well as
assuring return on investments) did not encounter the same interest and
resources.
In the name of agricultural production, agribusiness as a whole is
being emphasized: rural credit, technical assistance, production and
27
producers’ associations, research, sanitary and quality control, market and
trade affairs, transport structure (roads, ports, airports) etc.
Since agribusiness actions received more attention, benefits started
to appear for society and producers, as seen in the whole Valley and
particularly in Petrolina/Juazeiro project areas.
Although engineering was the main focus of public irrigation
projects, more recently, from the mid-80’s, greater attention has been
given to operation, maintenance and production, such as in the case of
Codevasf. This took place in a non-systematic way but helped to improve
support for the agribusiness process. Nowadays, irrigation project
management contains representatives both from engineering and
organization branches, well defined in Codevasf projects, as follows:
FIGURE 1
PUBLIC PROJECTS
ENGINEERING ORGANIZATION
Viability Project
O&M PRODUCTION
Basic Project
District • Vertical
Executive Project coordination
• R&D
Implementation • Technical
assistance
• Market
information
• Phytosanitary
Defense
• Standardization
SOURCE: Codevasf.
28
3.2.2 - Production areas and implementation in progress
According to information from representative institutions, in 1998

public projects covered an area of 169,055 hectares available for
irrigation. Of this area, 107,493 hectares are indeed producing. The
remaining area is undergoing a bidding process in order to sell even
unused areas due to irrigators’ low debt capacity (which does not allow
them to get credit), low level of resources to finance enterprises,
speculation and so on. There are at least 60,000 more about to be
implemented which will be integrated to the production process in the
next 2-3 years.
3.2.3 - Operation and maintenance management
North-eastern public irrigation project operation and maintenance

encompasses the following forms:
- The executor, either federal or state, implements projects and
does not hire other agents to execute them
- The projects are delegated to producers’ associations such as
district, co-operative society or any other form of producers’
association
From the mid-80’s, Codevasf led the beginning of a process of
Project Organization and Method (O&M) delegation to users, through
irrigation districts. That represented a significant advance but it was not
followed by DNOCS. This delegation, as in the majority of countries, is
not a fast process and its response is always better when irrigation
systems are in perfect conditions. Otherwise, a recovery program is
necessary. Moreover, it supposes users’ capacity to take-on the resulting
responsibilities.
3.2.4 - The production process
a) Technical Assistance
For small producers associated with Codevasf, there is a guideline

and strategy program which directs the search for results. DNOCS areas
are not considered.
29
Concerning medium and large-scale irrigators, either in public or
private projects, technical assistance is the responsibility of private
companies or independent professionals.
The provision of technical assistance, particularly in public
projects, lies within the aims of this study and should therefore be
commented on.
During the 60’s and 70’s, the principles which guided development
policies, rural public policies and agricultural production policies resulted
in the implementation of many public irrigation projects and defined
operational strategy. For each one, a co-operative society was formed.
Their own promoting bodies, official technical assistance and rural
extension entities or cooperative societies were the responsibility of
technical assistance, financed by public administration.
Until the mid-80’s, State intervention in irrigated agriculture
strategy, besides the form and means used to stimulate self management
and the emancipation of perimeters proved to be inefficient, as was the
case with technical assistance actions.
After the mid-80’s, public project promoters gave priority to
investments in cooperative societies’ business structure in order to reach
expected performance. At the beginning, results were stimulating. But
problems soon arose, mainly due to lack of entrepreneurial and
associative spirit which led to the failure of cooperatives.
In the last 15 years, Codevasf accelerated emancipation, stimulating
the debate on co-management strategies emphasizing production. The
technical assistance crew had an important role in its execution.
In the early 90’s, DNOCS joined Codevasf in guiding technical
assistance but abandoned these procedures in the mid-90’s.
Both in public perimeters (small, medium or big irrigators) and
private properties, it is noted that technical assistance has been
emphasizing production inside the property, not getting involved in
agribusiness as a whole, as in France, Chile and other countries.
Both in public and private irrigated areas, there are various forms
of technical assistance. They depend on management and financing
sources, as explained in the Report on the State of the Art.
30
b) Research and development in the semi-arid Northeast
Despite the advance of irrigated agriculture during the last twenty
years, agriculture research lacked focus on irrigation, either on irrigation
techniques, water management and cultural practices or development of
new varieties. Recently, due to pressure from irrigation clusters, this
posture has changed. But change is slow. By way of a substitute, in the
short term, imported technologies and international technical assistance
grows fast.
As information comes slowly, mainly in the fruit-farming segment,
the benefits to producers are only possible in the medium or long term,
while imported technology is not available.
Nevertheless, there are already results from some products and
practices, mainly for those with a shorter cycle.
However, there is a gap between irrigated agriculture growth and
technological information supply. It is worse in research areas such as
cultivation, irrigation management and fertilizing irrigation, plant health,
weed control, harvest and post-harvest. The problems are less relevant in
countries which invest heavily in research, such as France, the United
States and others.
In the North-eastern irrigation clusters area, there are some
agricultural research units which undertake research with various
resources or integrated to the Avança Brasil program, as well as those
supported by Banco do Nordeste Scientific and Technological
Development Fund (Fundeci).
c) Producers Organization
As seen in the countries analyzed, in the implementation of large
public irrigation projects a huge time gap usually separates identification,
project design, building and political-institutional-financial affairs phases,
which are essential for effective implementation, from the final
implementation phase. Due to financial resources involved, the macro-
economic situation, priorities and sponsor governments’ changes in
modus operandi always lead to discontinuation. Not only does it delay
the physical implementation but it also plagues agriculturists and their
organizations with insecurity.
31
In North-eastern irrigation clusters (Petrolina/Juazeiro, West Bahia,
Lower Jaguaribe, Higher Piranhas, Açu-Mossoró and North Minas)
projects successfully overcome these factors due to intervention of
government agencies, irrigators and their representatives. The delay
represented a significant cost for both agriculturists and public finance.
The agriculturists did not collect tariffs and taxes and the return on
investment to public finance was much lower than expected.
Concerning organization of producers in these clusters, we
observed the following:
a) The first phase was entirely led by the agency in charge,
concerning irrigator selection and establishment and any kind of
producers’ organization initiatives (economic, social) after their
integration to the project. At that phase, only small-scale non-
landowning agriculturists were allowed to participate, most
from the project region, with little or no experience in
commercial agriculture and irrigated agriculture. That caused a
government bias towards welfare and a focus on engineering.
b) The second phase was the admission of other categories of
irrigators, whether small, medium or large-scale entrepreneurs.
Here the aim was to transfer infrastructures in common use and
social administration to producers’ organizations. Focus
changed towards irrigated agriculture promotion as the key to
development in project areas (such as Codevasf’s perimeter, in
Petrolina/Juazeiro and North Minas region). Thus, the
government agency has intensified its actions, in association
with producers’ organizations and other public institutions, with
Banco do Nordeste support (in management training and credit
areas). The focus has been on updating of agriculture, industry
and commercial practices. Irrigation systems and project
draining and expansion received investments in order to be
complemented, recovered and updated. That allows and
motivates technical assistance services and rural extensions
through private companies, which also leads to planning rural
credit under the approval of official financial agents. They keep
very active in irrigation agriculturist selection and
implementation in the new integrated areas. They are also in
search of increasing involvement and co-ordination in
32
government bodies, including State and municipal, for
supplying essential public infrastructure to benefit settled
families. This infrastructure is also crucial to external opinion
on which the sustainable competitive differential depends.
c) Still in the second phase, there are plenty of mutual efforts
towards technical and financial assistance, besides mobilization
within institutions for training of irrigation producers as well as
their organizations. These actions seek to enable both irrigated
agriculture and economic activity, the main business in the
clusters. In other words, by their own organization agriculturists
take full responsibility for the irrigation project management
process, for their interactions (political, social or economic)
with the external environment and for local development
promotion.
Thus, producers’ associations related to hydraulic blocks arise.
Without government intervention, co-operative production
societies arise and actively involve themselves in trade of
products and raw materials. Some of them are credit
associations within the scope of financial brokers, such as
Frucoop and Credivag, CAJ, Coopefruta. They are leaving
behind an unsuccessful history (of organizations forced to
emerge) and creating public irrigation projects in the semi-arid
areas of Brazil. At the same time, highly advanced forms of
mobilization and representation arise, such as the Central
Association of Fruit Growers in North Minas (Abanorte), whose
mission is “to promote high quality fruit farming, by
strengthening associative work and integrating public and
private interests in the search for local socio-economic
development.” Another example is Valexport
(Petrolina/Juazeiro), which promotes São Francisco Valley
products in Brazil and foreign countries and also helps
agriculturists to improve product quality.
d) Finally, the third phase is under way. Here the government does
not participate in routine irrigation projects. It only participates
occasionally in Irrigation District Administration Boards with
the right to refuse decisions but not voting for them. The
government uses its time and entrepreneurial skill to identify
33
and promote new businesses in the Northeast of Brazil
(including irrigation clusters), maintaining efforts to consolidate
projects already implemented with technical, financial and
political support. After overcoming natural resistance and
difficulties of transferring irrigated areas common use
infrastructure operation and maintenance responsibilities,
consequently giving back power to water users, a new form of
public involvement in irrigation arises, especially in the
Northeast of Brazil. As a result, regional and sectorial
government agencies act as enterprise promoters and harness
new financial resources. They also act as huge infrastructure
project global managers, which means involving the private
sector in all decisions and investments needed for project
viability.
d) Chain structure and organization
This section summarizes organization forms in “chains” which
encompasses market organizations and their main functions in the
aforementioned clusters. The models are, of course, simplified cluster
trading systems. They are classified into 4 systems:
System 1
PRODUCER
RURAL DISTRIBUTOR
DESTINATION WHOLESALER
RETAILERS:
- SUPERMARKETS
- STREET MARKETS, FAIRS ETC.
Main characteristics:
• Wholesalers are usually at Ceasas
34
• The “Distributor” is usually associated with the wholesaler and
takes responsibility for preparing loads, defines the purchase
system with the producer: quantities, harvest period, payment
conditions, price etc.
• Daily prices
• Freight is almost always paid by wholesaler
• Sometimes, wholesalers do the classification and packaging, as
with cargoes of lemons, papayas, mangoes, onions etc. That is
one of the market co-ordination activities
• Whenever justified, wholesalers have a stocking structure,
refrigerating chamber and climate chamber
This coordination model represents around 60-65% of business as
a whole, involving the main cluster products such as bananas, onions,
mangoes, lemons, carrots and grapes.
If the producer has enough quantity, he distributes directly to the
wholesaler without involving the rural distributor who, in fact, only a
proxy of the wholesaler in carrying out small functions that do not add
much value to the product.
There is an informal “agreement or contract” between
producer/rural distributor or producer/wholesaler in which sale price,
conditions and payment conditions (usually equal to or over 40 days) are
defined.
System 2
PRODUCER
RETAILERS:
- SUPERMARKETS
- GROCERY MARKETS
FAIRS, HOTELS
AGRIBUSINESS INDUSTRIES
35
• Producer has enough quantity, pre-determined frequency and
quality
• There may be an informal contract to guarantee purchase at the
same price for a pre-determined period
• This kind of sale may take place at Ceasas, in a place especially
designated for producers and association business meetings. In
this case, the sale will be according to the prevailing daily
conditions.
• Having a business meeting place does not guarantee a fair price
and, because of that, the sale may take some days to be
consolidated
• System 2 covers approximately 5% to 10% of businesses as a
whole, with products like bananas, onions, lemons, guava,
mangoes and grapes.
• Producer is liable for all process risks
System 3
PRODUCER
AGRIBUSINESS INDUSTRY
SUPERMARKETS
OTHER RETAILERS
• Agribusiness industry signs a formal contract which determines
quantity and product price for every harvest.
36
• Agribusiness industry supports production process with
technical assistance, part of the raw material and helps in
securing credit
• When producer decides to cultivate, he will immediately know
the price, quality and quantity conditions. His return will only
depend on his effectiveness
System 3 represents today around 5% of the production of the
irrigation clusters. The most common products in this system are:
industrial tomatoes, industrial peppers, grapes, mangoes and coconuts.
System 4
PRODUCER
PROCESSING AND TRADING COMPANY
WHOLESALERS
SUPERMARKETS
INTERNATIONAL MARKETS
INDUSTRIES / HOTELS
• The company signs a formal contract, also informal, for every
harvest of the year, determining quantity, quality, price,
delivery period and place.
• The company receives the product, processes it, gives it a
manufacturer’s stamp, specifies quality etc.
• The company provides technical assistance
• Sometimes, financial support is given through credit or raw
material supply
• The company may have its own production (from 20% to 40%).
37
System 4 represents today around 10-15% of the irrigation clusters.
The production, covering mangoes, grapes, melons, guava, lemons and
bananas.
A variety of system 4 is producers’ associations or companies
specialized in trading only, mainly to foreign markets.
In fact, the four systems described also exist in other countries.
Systems 3 and 4 are mostly found in more traditional countries.
Some service companies should be outlined:
1. Trading Companies, that link Brazilian producers to foreign
buyers, establish contacts with international distributors, resolve
customs issues and keep in contact with national companies.
They depend on a good refrigeration infrastructure (also in
ports), transport, port services and communication.
2. Distribution systems, which supply purchase and sale agent
services on sale or return, without sharing risks. This results in
economy of scale in trading, makes association easier between
producers, wholesalers distributors and bulk buyers. It depends
on product standardization and the will of the producers to work
together and supply higher quality products.
e) Rural Credit
Considering rural credit as an important tool for development, this
chapter presents a concise view about the subject, covering credit lines
and remarks by irrigation agriculture chain agents from interviews and
seminars.
During recent years, Banco do Nordeste has been the market leader
in fund releases and credit applications in the Northeast of Brazil and
north Minas, also in irrigated agriculture. In addition to this, it enables
training in management and production techniques from a local
development point of view and a development cluster based on
agribusiness. In this case, Banco do Nordeste is different from other
official financial agents that only provide rural credit. Another of Banco
do Nordeste’s differentials, the Constitutional Fund for the Northeast
(FNE) guarantees stable resources to finance local development. Thus,
38
Banco do Nordeste is not a mere fund operator but is also able to
establish principles and application norms, respecting Fund rules.
Several Banco do Nordeste programs cover irrigated agriculture in
closely monitored activities within the region studied. However, credit
users made comments on the program and other issues were identified
during seminars in the clusters or interviews with leaders, producers and
traders. The most frequent were:
• Some credit lines were found to have financing conditions
inappropriate to the technical characteristics of production
• Low finance level that does not allow adoption of high
technology
• Low fund supply for defrayal
• Restrictions in funding for infrastructure improvement
activities, storage and transport logistics (e.g.: packing house,
refrigerated trucks)
• Delay in loan release, considering time elapsed between
request, authorization and approval
• Credit release without checking favorable cultivation period, in
many cases
• Financing terms sometimes disproportionate to the useful life of
capital goods, return rates and activity risk
On the other hand, in many cases the producers themselves are
responsible for not accessing credit or delaying it, mainly because of:
delay in document submission, badly elaborated projects, official
registration restrictions, lack of own resources, inadequate guarantee
conditions, low management skill, amongst others.
3.2.5 - The role of the private sector
This chapter analyses the role of public and private irrigation

enterprises. This is one of the foundations of the new model. The analysis
considered diagnosis of six clusters (Petrolina/Juazeiro, west Bahia,
39
Lower Jaguaribe, Higher Piranhas, Açu-Mossoró, north Minas) and
presents the Report on the State of the Art in Irrigation.
Until 1998, irrigation infrastructure was built by the private sector
in 49.8% of the total irrigated area of these clusters (197,816 hectares).
The public share was 50.9% of the same area. Apparently, there are two
different conclusions to be drawn:
1) The private sector has a larger share than expected
2) In public irrigation, all infrastructure belongs to the government
Most of the private irrigated areas are near water sources and were
stimulated by rural credit, under subsidized interests. On the other hand,
in public projects, dikes or reservoirs with capacity to distribute water in
areas very far from the source had to be built, not only because of the size
and type chosen for these projects but also in order to serve political
aims.
In the past 10-15 years, these situations have been found in public
perimeters:
1. The Government invests in water infrastructure for common use
and afterwards keeps on investing (on a larger or smaller scale)
in operation and maintenance.
2. Agricultural production does not happen as fast as expected due
to factors related to producers’ low debt capacity, restrictions
on rural credit concerning quantity and opportunity and
inadequate selection of small scale irrigators and businessmen.
3. Concerning partial infrastructure investment (irrigation,
housing, packing house etc.):
- irrigation infrastructure for small irrigators is provided by
the government and its cost added to soil value and paid for
according to the Law. The remaining infrastructure is the
responsibility of irrigators such as: housing, warehouses etc.
- permanent cultivation areas under the responsibility of
irrigators and implemented with their own funds or
financing
40
4. In the public sphere, there is a significant share of the private
sector because irrigation projects are common use water
systems combined with a complex agricultural process that uses
the tool of applied irrigation technology. In the last 10-15 years,
in order to obtain agricultural production in public projects,
US$ 8,500 to 11,000/hectare have been invested. The private
sector’s share varies from 64% to 68%, as follows:
TABLE 1
PUBLIC AND PRIVATE SECTOR SHARE IN PUBLIC PROJECTS
Cost Discrimination Value (US$)
Water infrastructure for common use ......................................... 3,000 to 3,500/ha
Partial irrigation infrastructure ................................................. 1,500 to 2,000/ha
Partial support infrastructure (housing, warehouse, packing-house
etc.) ................................................................................. 700 to 1,000/ha
Formation of permanent cultivation ........................................... 3,000 to 4,000/ha
Soil value........................................................................... 300 to 500/ha
Total project investments .......................................................8,500 to 11,000/ha
Public share (only in Water infrastructure for common use) ............ 35.3 to 31.82%
Private share ....................................................................... 64.7 to 68.18%
SOURCE: Plena Consultoria de Engenharia Agrícola Ltda.
Public project costs vary from US$ 4,500 to 5,500/hectare when

considering water infrastructure for common use and partial irrigation
infrastructure of small enterprises.
Some erroneously included roads, electricity, houses, schools etc.
as part of public project costs. Thus, public project value reaches US$
7,000 to 8,000/hectare. However, these items are at the service of society,
not only in irrigation but in any other situation.
According to the Law, public sphere irrigation projects will
amortize the cost of water infrastructure for common use in 50 years.
Nevertheless, there will be no property rights afterwards. As mentioned
before, theoretically, the funds should be used to reform the old water
infrastructure, but this only occurs in part.
41
4 - THEORETICAL BENCHMARK
Bearing in mind the study’s concern with proposing a new

structure for the irrigation business, an attempt was made to present the
theoretical benchmark based on competition and agribusiness industry
chains coordination literature. Here the institutional, organizational and
competitive environments of irrigation business will be discussed.
Competitiveness encompasses two dimensions usually separated in
the analytical focus of industrial organization theory, but which
determine one another and can hardly be isolated when identified in the
real world: conduct and performance (FARINA; AZEVEDO; SAES,
1997). As performance, competitiveness is expressed as capacity for
survival and expansion in national and international markets. In this
context, the indicator of market share is the most representative. The
conduct dimension refers to the process of competition itself. The
agribusiness of irrigated agriculture should serve both these criteria /
dimensions.
Thus, from the perspective of theories of competitiveness, the latter
may be defined as capacity for survival and, preferably, growth in current
or new markets, as is supposed to happen with irrigation in the future.
According to this definition, competitiveness is the performance of
individual firms. However, this performance depends on systemic
relations, since entrepreneurial strategies can be troubled by bottlenecks
in vertical or logistical coordination.
According to Porter (1990), an applicable concept of
competitiveness must be more all-encompassing than the one based on
production costs. It must include possibilities to associate
competitiveness with an efficient internal organization and with the
communication systems and coordination activities between firms.
Strategic actions are also nominated in literature as the basis for a
firm’s competitive success. Here, two different points of view in strategic
action focus are highlighted:
• Ferraz; Kupfer; Haguenauer (1996) emphasize strategies as a
basis for dynamic competitiveness and define them as the set of
expenses with management, human resources, production and
42
innovation in an attempt to expand and recreate the enterprise’s
capacity in dimensions demanded by today’s market
competition standards. Thus, strategies depend on a competitive
environment where competition standards are defined.
• Best (1990), on the other hand, defines strategic action as the
enterprise’s ability, individually or in a group, to change
competitive environmental characteristics for their own
purposes, such as market structure and competition standards.
Thus, there is an important difference between the concept of
Ferraz; Kupfer; Haguenauer (1996) and that of Best (1990) concerning
strategic capacity as the basis for competitiveness. According to Best
(1990), this is related to a deliberate intervention in the competitive
environment. It is valid for production chains of food, vegetable, fruit and
fibers, whether irrigated or not, even in those marked by commodities as
the main products, as long as an important space for strategic actions
exists, like new markets arising and segmentation of today markets, for
example. According to Ferraz; Kupfer; Haguenauer (1996), strategic
actions can transform the competitive environment but both are
previously set by competition standards.
Both concepts are important and complement each other in
dynamic competitiveness analysis. However, both need to explain their
co-ordination capacity in productive chains in which companies develop
their strategies. A market segmentation strategy based on product quality
may demand raw material use under more rigid specifications. If the
company can not get this specification from the suppliers, it will have to
produce by itself, through vertical growing integration or it will have to
convince a supplier to do it, under required specifications, involving
dedicated investments. It is a matter of administrating vertical
transactions to make horizontal competition strategy work. It perhaps is
not the case of irrigated vegetables and fruit growing which has a stable
supply of appropriate raw material.
Transaction administration means encouraging desirable behavior
and being able to monitor it at the same time. It can be attained by a
pricing system when the desirable product is less specific and is
manufactured by several producers. Otherwise, appropriate
administration may require contracts in which incentive and control
43
instruments are previously defined, such as penalties, auditor reports and
performance-based awards.
Competitive strategies depend on appropriate administration
structures to be successful. As a result, vertical co-ordination ability
becomes an element both of static and dynamic competition. This
coordination allows the company to receive, process, disseminate and use
information in order to define and guide competitive strategies, react to
environmental changes or take advantage of profit opportunities.
The relations between competitive environment, strategies and
administration and competitiveness administration structures are
illustrated as follows in Figure 2.
44
FIGURE 2
INSTITUTIONAL, ORGANIZATIONAL AND COMPETITIVE
ENVIRONMENTS
PANEL 1 PANEL 2 PANEL 3
ORGANIZATIONAL INSTITUTIONAL TECHNOLOGICAL
ENVIRONMENT ENVIRONMENT ENVIRONMENT
- Corporate Organizations - Legal system - Technological

- Public and private - Tradition and habits paradigm
offices - Political system
- Syndicates - Political and macro- - Technological
- Research Institutions economic rules trajectory phase
- Private branch policies - Official branch policies
PANEL 4
COMPETITIVE
ENVIRONMENT
Strategic
- Industry life cycle
Groups
- Industry structure
- Competition Standards
- Consumption
characteristics
PANEL 5
INDIVIDUAL Transaction
STRATEGIES Attributes
- Price / Cost
- Segmentation
- Differentiation
- Innovation POWER
- Internal Growth STRUCTURE
Strategic
- Growth from merger
SYSTEMIC
RELATIONS
PANEL 6
PERFORMANCE
(Competitiveness) STRATEGIC
- Survival SUBSYSTEMS
- Growth
SOURCE: Farina, Azevedo & Saes (1997).
45
The competitive environment is composed of a relevant market
structure (concentration, economy of scale and target, product
differentiation level, technical bounds of entrance and exit) for today’s
competition standards (price and overprice competition, strategic groups’
share, mobility bounds etc) of consumer/client characteristics, which
opens market segmentation possibilities, and also of the industry’s life
cycle, which helps to define competition standards (Farina; Azevedo;
Saes, 1997).
Competition standards form competition rules, in other words, the
key alternatives for the company to compete in a certain market (price,
manufacturer mark, quality attributes, delivery stability, trust reputation,
continuous product or process innovation etc). All these alternatives, as
well as its hierarchy, form the competition standard for an agribusiness
industry or strategic group inside the same industry, such as irrigated
vegetable and fruit growing.
In order to have these instruments, it is necessary to invest in
specific assets such as: manufacturer’s brand development and
consolidation among clients and consumers, dedicated equipment, supply
and distribution logistic, human resources with specific training etc. They
are intangible assets essential to irrigated agriculture. In general, it
represents an investment amount in specific assets associated to a certain
competition standard. If there are two or more company groups in the
same industry, distinguished by competition standard adopted and by
specific assets available, each one of these groups is called a strategic
group – of strategic investors – as described in Oster (1994). The strategic
investors group will be essential to the enterprise-project proposed in this
study.
Strategic groups are defined as clusters inside the industry, using
the same specific assets and the same competition alternatives (price,
manufacturer’s brand, product line, new product launching, propaganda
etc.). Strategic groups are distinguished by different competitive
strategies (Oster,1994) Propaganda cumulative effects may become
obstacles to entering the industrial brand segment but do not affect
entrance to the commodity segment. On the other hand, firms in the
commodity branch have to face limits to their mobility within the branded
segment (FARINA; AZEVEDO; SAES, 1997).
46
Industrial organization literature has systematically shown there is
no simple one-way causal relation between market structure, firms’
conduct (strategy) and market performance. However, this theoretical and
practical complexity does not make this kind of analysis useless to
competitiveness issues or public policy identification.
If it were the case that, acting upon a certain market structure
would lead to a desired performance, it would be enough to act on this
structure. It would be the “Bliss” point not only for industrial policy but
also for competition defense agencies (FARINA; AZEVEDO; SAES,
1997). The market structure, competition standards and demand
characteristics have integrated the competitive environment with this aim,
because all of the above shape the competitive environment in which
companies works.
A competitive environment concerns the external environment,
where there are rivals, clients and suppliers. Porter (1990) analyses these
five powers (competitive rivalry, clients’ power, suppliers’ power, the
threat of substitute products and the threat of new competitors) in an
attempt to identify threats to a company’s profit (performance).
Both structure concept and competition standard area relate to a
market which is said to be relevant for analysis. This relevant market
includes a group of substitute products and competitors’ geographic area
(effective rivals). If geographic market is global, it is obvious that the
relevant competition standard is international.
However, by mentioning public policies and specific agribusiness
industry competitive systems, the reference is national because this is
where policies are supposed to be suggested and implemented. In
addition to this, competition standards in domestic markets are important
to local individual strategies. Finally, national reference may include
cooperative solutions aiming to compete in other markets.
Companies boast a set of productive resources (physical, human,
financial etc.) which must be adjusted to meet competition rules.
Fragmented markets where products are very similar (structure data) tend
to have competition standards in which cost leadership is the best
competitive advantage. That is why the main competitive differential is
price, margins are low and there must be high commercial exchange. In
47
this case, economies of scale and scope steer operations in leading
companies (BEST,1990).
In case of technological or institutional changes able to transform
this competition standard, competitive advantages based on cost
leadership are no longer enough to keep competitiveness. This situation is
extremely relevant to identify factors which sustain dynamic
competitiveness.
Competition standards change as time goes by, responding to
institutional changes (market liberalization, intellectual property
protection etc.), technological changes (like biotechnology which made
chemical-pharmaceutics industries and seeds industries converge),
competitive environment changes, including competitive standards
themselves (industrial restructure, consumer habit changes) and changes
in companies’ individual strategies in search of asymmetry. When
successful, this asymmetry can be copied by competitors and transform
competition standards (FARINA; AZEVEDO; SAES, 1997).
The biggest difficulty in dealing with this competition dimension is
its intrinsically qualitative nature. It is difficult to find indicators of
appropriate coordination, although this may be analyzed by aligning
transaction attributes within productive process phases and administration
structures adopted (WILLIAMSON, 1985).
Typical examples of inefficient coordination are found in situations
where product standardization systems (grain, for example) no longer
respond to what consumers and clients value, due to changes in process
techniques of new products. This brings discordance between supply and
demand.
The success of individual strategies also depends on providing
public and private goods over which the company has no control
individually. Logistics, for example, since it depends on transport
infrastructure, ports etc. For commodity companies, where cost
leadership defines competition standard, the impact may be fatal.
However, even to firms strategically positioned with different products,
logistics may eliminate or optimize its competitive advantages (FARINA;
AZEVEDO; SAES, 1997).
48
Strategic action capacity, associated with systemic
competitiveness, includes articulating cooperative actions between rivals,
suppliers, distributors, private and public research institutes. It assumes
capacity to change competition rules for its own purposes or even to the
institutional environment, for example: actions intended to approve
intellectual property protection laws, official branch policies etc.
Providing public and common use goods which depend on State or
private organizations, such as producers’ associations, irrigation districts,
syndicates etc., called organizational environment, may be essential to
competitiveness. Market information systems, consumer trends,
innovation monitoring and new technology dissemination, competitors’
strategic actions follow up in other regions or countries are necessary for
individual competitiveness. However, its non-rivalry or non-excluded
characteristics admit a “ride”. This requires sub-investments in provision
of goods or the same investment in individual firms resulting in resource
waste and inefficiency. Thus, organizational environment is very
important in competitiveness analysis (FARINA; AZEVEDO; SAES,
1997; BEST, 1990; STREEK & SCHMITTER, 1985).
Strategies and competitiveness also depend on institutional
environment. There are legal systems to resolve disagreements,
macroeconomic, tariff, fiscal, commercial and branch policies of local
government as well as other countries’ governments, commercial partners
and competitors. One notes the increasing importance of non-tariff
bounds and phyto-sanitary control, the trade retaliation tools and, in a
larger context, the rise of economic blocs and enterprise’s transnational
operations.
The definition of agribusiness industrial chains (concerning
irrigated agriculture), as a contract link from farm to consumers, allows
for taking responsibility for all organizational possibilities that respond to
technological, institutional and strategic determinants. It allows one to
understand not only organization via market but also vertical integration
and contracts with suppliers and distributors. It also explains the direction
of organizational changes demanded by changed alternatives of firms’
competitive environments. Thus, it is a conceptual display particularly
suited to discussing competitiveness (FARINA; AZEVEDO; SAES,
1997).
49
Thus, company, productive chain, branch organizations and
regulation determine competitiveness, since they are at the base of the
ability to respond to business opportunities. This ability depends on
production and distribution coordination capacity, in other words, the
ability to disseminate information, incentives and controls in the
productive chain as a whole in order to respond to competitive
environment changes.
50
5 - PROPOSED NATIONAL IRRIGATION POLICY
Irrigation state-of-the-art analysis, in Brazil and another 11

countries selected, which in 1990 answered for 36 per cent of the whole
irrigated area world-wide, definitely shows that irrigated area
maintenance and expansion demands an increasing involvement of the
private sector, for several different reasons. Not only in management of
projects implemented but also in financing new projects, as well as
market strategy improvement which demands changes in the public way
of doing things in order to modernize its activities.
There are plenty of reasons to believe in the success of changes.
Past evaluations prove that service quality remained the same after going
to the private sector and also private funding grew, not only in operation
and irrigation maintenance systems but also in new investments.
Obstacles to sustainability of public irrigation project extension led
most countries – with huge irrigated areas integrated with the productive
process, like Brazil – to seek answers to the following questions:
i) How can investments, depreciation, maintenance and operation
of common use irrigation infrastructures, with significant public
share, be financed?
ii) Who is responsible for water collection services, transport,
intermediate systems and delivery in each parcel or irrigated
area?
iii) Are irrigation producers interested in supplying these services?
Can they afford this when it is necessary to recover operation
and maintenance costs as well as fixed investments?
iv) How can the price system, via water tariffs, be an appropriate
tool to attain more efficient levels of water allocation and water
use, from the perspective of apparent lack of this strategic raw
material?
v) Which organizational agreements may contribute to the primary
productive sector, developed by irrigation, obtaining a more
competitive position, by lower costs, exclusive products and
51
economies of scale in commerce, achieving more power in the
market?
Concerning investments and irrigation project management with
strong public involvement, what matters are the results of evaluation
already done in public projects financed by World Bank worldwide
(JONES, 1995). They identified general problems in operation and
maintenance, cost recovery and user groups. The first ones are the most
important because they have a direct impact on project benefits. The
evaluations concluded that groups that take advantage of irrigation may
be valuable partners in the undertaking of direct activities just because
their members are identified with enterprise. In contrast, lack of
participation usually reduces project benefits and brings implementation
problems. Thus, the best way of improving operation and maintenance
performance is to give responsibilities to beneficiaries providing them
with technical support.
Cost recovery and consequent financial sustainability of
investments depend on two factors: firstly, on forms of ownership (the
type of contract) and law. Secondly, the capacity of each organizational
arrangement to meet quality and performance standards.
Concerning the productive process and its insertion in a
competitive market (domestic or foreign) one notes the difference
between Brazil and other countries where agribusiness, based on irrigated
agriculture, is more developed.
In countries with modern irrigated agriculture (USA, Israel,
France, Spain and Chile, for example), the irrigation policy has outlived
the pioneering phase. It changed focus from engineering projects to
irrigated agriculture as a business. The production activities inside each
irrigated parcel and those activities before and after production are
essential to economic sustainability for maintaining irrigated agriculture
and for all irrigation projects.
This differential comes from irrigation agriculturists’ advances in
search of new production technologies and new methods of organizing
and managing their business. It also comes from the positioning of the
public sector (Executive and Legislative Branches) with strong interest in
agriculture. As it is more exposed to competition, near perfect
52
competition conditions, it requires appropriate attention from the public
sector in order to face huge market imperfections.
As engineering project implementation gives way to production
and trade activities, which demand higher interaction with official
agencies providing several public goods, the synchronization and
coordination of public actions supporting irrigated agriculture becomes
more complex. Moreover, the government agencies are specialized in
public irrigation project implementation and act vertically. However, they
cannot find space to maintain this action due to specialization (in public
services) and following public budget pulverization which is common in
modern nations. Within Brazil, this modernity is already found in
municipalities.
It has been shown that irrigated agriculture’s needs, despite
irrigation project demands, are much bigger. Thus, competitive insertion
requires opportunities in terms of what and how to achieve this through
private enterprise and also through public actions that stimulate and
support it. From the international experience studied, the concept which
best describes these exclusive needs is that of the BUSINESS
INFORMATION PLATFORM. It focuses not only on project building
but on agribusiness, as well as the fact that the public sector has been
dealing with this in France, Chile, the USA and Spain.
This platform is based on basic information blocks such as area
and production statistics, available technology, packing conditions,
product quality description, export process and market intelligence. In
fact, this information includes important tools for guiding and separate
public and private investments as well as methods and processes that
cover potential knowledge and market demands, production activity and
distribution logistics, in an attempt to properly meet identified demand.
It is obvious that for end products from agriculturists to reach the
public sector a wide and varied network of bodies and governmental
agencies is involved. They are linked to different ministries or State
departments where mission details were observed during the assembly of
this legal-institutional benchmark that represents the new irrigation
policy.
53
5.1 - Main Guidelines of the New National Irrigation Policy
This study aims to “develop, validate and establish structural,

conceptual, regulatory, operational and financial bases, focusing on the
Northeast of Brazil, which allows the implementation of the New
Irrigation Model in Brazil.” Thus, the main guidelines of this new
irrigation policy were observed, as follows:
• The new national irrigation policy concerning the Northeast and
north Minas Gerais must stimulate a stronger involvement of
the private sector in developing irrigated agriculture in these
regions, including investments in common use irrigation
infrastructure implementation on projects of larger scale or
higher complexity. Thus, it must include other instruments or
alternative mechanisms of financing, besides the traditional
ones, in order to enable expansion of the irrigated area, on a
sustainable basis and longer term horizons.
• It must also contribute to bringing needed information in order
to facilitate decisions by public or private agents following a
productive chain view. In other words, encompassing all project
phases, from planning the common use irrigation infrastructure
until the final product’s distribution. It must also include
production support systems and observe demands inherent to
environmental conservation.
• The new irrigation policy must guide irrigated agriculture
development based on opportunities and demands for domestic
and foreign markets, according to agribusiness competitive
parameters.
• It must allow the government to restructure its policy in this
sub-sector emphasizing the role of the modern State
(orientation, regulation and promotion, among others), also
empowering partnerships between the private sector and the
government in its three scopes: federal, state and municipal.
• Finally, the aforementioned policy must stimulate the
implementation of irrigation monitoring systems and tariff
policies in irrigated areas, suitable to the Northeast and north
54
Minas Gerais, aiming at rational water use considering
environmental, economic and social sustainability.
5.2 - Current Legal System
5.2.1 - Water ownership: who may use it and how
The national constitution of 1988 says that practically all water is

public, belonging to the Federal Union, States and Federal District. (art.
26, I), there being no provision for common, private and municipal water
(BRASIL, 1998).
Under administrative concession, granted by the title owner, water
resources may be used by private enterprises for irrigation. The exception
is “Inlets, reservoirs and pools considered insignificant which are
independent from the granting of concession by Public Administration”
(BRASIL, 1997).
Administrative concession assumes “subjugation in the exercising
of a public service” and, the use concession consists of “granting special
rights of usage for public property or goods”. This leads to recognition
that the term “concession” to which article 43 of the Water Code alludes,
implemented by Decree nº 24.643 of 10/07/1934, provides for the
possibility of such occurrences, both in the concession of public services
(as in the case of environmental sanitation), and in the concession of
rights of use of public water (with regard to irrigation) (BRASIL, 1934).
It is reiterated that based on the Federal Constitution of 1988, all national
waters are of public ownership.
When, according to the law, the party granting rights to use of
water resources is responsible for providing public services, for which
water of public origin is to be used, the concession of public service
rights will occur, that is, “temporary or revocable transfer by a public or
private official body, of the powers invested therein, to another individual
or group, public or private, in order that the latter may undertake services
of general interest, but at their own cost and risk” (BRASIL, 1934).
Obviously, if the end use of the water resource is not subject to the legal
responsibility of the granting body, there is concession of rights of use of
public goods – water resources in this case.
55
Here, there will be granting of special rights of use with regard to
these public goods as provided for in article 14 of Federal Law 9.433/97:
The concession will occur by determination of the authority responsible
under Federal, State or Federal District jurisdiction. Item #1 of this same
article states “Federal Law may delegate to the States and Federal District
responsibility for granting concession of rights of use of water resources
belonging to the Union” (BRASIL, 1997).
5.2.2 - The current irrigation act (nº 6.662/79)
Under current legislation, dictated by the Irrigation Law (nº

6.662/79 and its regulations), public irrigation projects are constructed (or
acquired) by public administration, which becomes the owner of
irrigation infrastructure for collective use. This body is also responsible
for the administration thereof, although it is possible to delegate it to
associations of irrigators (irrigation district etc.) (BRASIL, 1979).
The prevailing Irrigation Law determines restitution of public
investment in irrigation infrastructure of collective use. In fact, the water
tariff covers only the depreciation and maintenance of infrastructure for
collective use, in addition to its operation and administration. Repayment
of public investment, in the form determined by the law, does not occur
as it prevents sale of the project to irrigators or to any other private entity,
when irrigation infrastructure for collective use is claimed to be public
property.
Current legislation, however, permits public administration to
delegate administration of the project to an association of irrigators
(irrigation district etc.). Note that administration is performed on behalf
of and in the place of public administration. Transfer does not occur and
because of it no lease is charged.
In summary, the prevailing concept in Brazil is to consider public
projects as being those built or acquired by government, which remain
with ownership of irrigation infrastructure for collective use and where
the government is responsible for its administration, although it can be
delegated to a user’s association. Under current legislation, public
projects cannot be transferred or sold. Thus, water tariff covers only
depreciation and the expenses with maintenance and operation of
56
irrigation infrastructure for collective use with administration of these
services.
5.3 - Proposed Judicial Regime
As discussed above, the new irrigation policy requires some

changes in current irrigation law (Law nº 6.662/79 and its regulations), in
order to create an appropriate environment concerning institutional
infrastructure. There must also be appropriate legal support which allows
contract implementation, under the water resources sector regulation
structure, definition of which is in an advanced stage within the
Legislative Branch. The new irrigation law must essentially provide legal
security to the public sector and encourage irrigators-agriculturists and
other private entrepreneurs to invest further in irrigated agriculture.
Bill nº 229/95, which is in the Senate, deals with “National
Irrigation Policy and Other Steps.” In this Bill, as determined by the
contractor, the Consortium has anticipated the study and prepared a
preliminary draft of the irrigation law which was already presented to
Banco do Nordeste. The anticipation was requested by Banco do
Nordeste to the Integration Ministry (MI), aiming to aid the eminent
Senator Osmar Dias as reporter in the substitutive Bill 229/95
organization.
In March 2000, following the study, a consolidated version of the
preliminary draft was sent by the eminent reporter to the Ministry. That
was the result of a widespread discussion at the Ministry, which included
Technical Assistance, related bodies and also Northeastern State
Departments. Several meetings and a specific seminar were held by
Banco do Nordeste in Brasília in October 1999. The consolidated version
is available in Appendix 8.2 of this report.
Thus, in order to solve the problems mentioned, the proposal
updates and improves current law (Law 6.662/79), correcting the
conceptual mistake related to investment amortization in irrigation
infrastructure for collective use in public projects. It also encourages and
expands liability to the private sector in managing and expanding
irrigation investments, as assured by many devices such as:
57
- Article 1, paragraph 3 establishes potential market and private
sector participation. It represents a relevant impulse and
government support for irrigated agriculture project
development.
- Article 2, concerning the aims of National Irrigation Policy,
where item V stimulates private and public agents’ operation in
irrigated agriculture, in previously defined areas, selected
according to technical, cultural, social, economic and
environmental criteria.
- Afterwards, item XVII of article 3 defines the lease as a return
value paid by the irrigator concerning irrigation infrastructure
use and collective use draining systems. Furthermore, item
XVIII defines the ideal share of irrigation infrastructure for
collective use, property of irrigator by achievement or building
co-responsibility. This quote is an essential and indivisible part
of title deed ownership of the area.
- The same article 3 has already identified, in item I – Public
Irrigation Project – those implemented by government and its
irrigation and drainage infrastructure for collective use, to be
initially its property, available to be transferred or leased.
Paragraph 1 says: public irrigation projects must originate from
Federal, State, Municipal and Federal District governments.
- Thus, article 9 establishes in its paragraph 2 that government
may transfer its concession to the public irrigation project users,
once they are organized into irrigation districts or any other
self-management entity.
- In item II –Private Irrigation Project is one implemented by the
private sector or purchased from government under current law.
- In item III – Mixed Irrigation Project is one implemented by
both public and private sectors in partnership.
- Item VII of article 3 leaves no doubt about economic
importance and destination of water tariff, defining it as a value
paid by irrigator for using the water and the collective use
irrigation infrastructure.
58
- Article 24 establishes that irrigation infrastructure for collective
use in public and mixed projects must be administered, operated
and maintained by organized irrigators preferably in irrigation
districts.
Paragraph 1 – Government must support an Irrigation District or
another self-managed entity for a year after the first irrigator’s
operation.
Paragraph 2 – Expenses concerning administration, operation and
maintenance of irrigation collective use infrastructure will be
shared between its users, in tariffs, as regulation establishes
Paragraph 3 – Water tariff will be charged automatically by
government on every irrigator, irrigation district or another
concessionaire. Its value shall be enough to cover administration,
operation and maintenance expenses.
Paragraph 4 – In public irrigation projects, government shall pay
for operation costs increasing concerning potential irrigated areas
not yet occupied.
Paragraph 5 – Government can directly hire the irrigation district to
build infrastructure under legal requirements.
Article 25 – Government is allowed to acquire the infrastructure
building from project irrigators, for collective use, through
Irrigation District without a bidding process. The payment term
shall be up to fifty years.
Paragraph 1 – Social infrastructure built in the project will not be
part of the cost value covered by this article.
Paragraph 2 – The share of irrigation infrastructure for collective
use for each irrigator will be proportional to his area and cannot be
separated through legal registration.
At the same time as this current study seeking a New Irrigation
Model, the Legislative Branch intensified the debate over management
regulation and water resource development with the approval of Bill nº
1.617/99 in the Congressional Chamber, on January 18th, 2000. The Bill
deals with “the creation of a National Water Agency (ANA), federal
59
entity for National Water Resources Policy implementation and National
Water Resources Management System and other devices”, which is now
in the Senate (BRASIL, 2000).
The New Irrigation Policy proposed (Appendix 8.1 of this report)
is considered essential to institutionalize the guidelines for the New
Irrigation Model, especially for those related to increasing the private
sector share in irrigation. These are described in the following devices of
this Bill: article 1 paragraph 3; article 2 items X and XI; article 3; article
5; article 8; article 9; article 10; article 12 paragraph 3; article 14
paragraph 5; article 21; article 24; article 25; article 30; article 31 and
article 32, among others.
If approved by Congress, the new policy will indeed encourage
significant improvement to National Irrigation Policy, synchronizing it
with the needs and demands of the Northeast in particular, in perfect
agreement with the interests of other regions and the country.
It is necessary to clarify that the proposal presented does not
represent a radical change in current modus operandi but is a result of its
evolution observed both in Brazil and most countries where irrigation is
an agribusiness tool for local development, food security, employment
and incomes, export expansion and reduction of regional disparities.
Over the last 40 years, Brazil underwent a huge evolution in
irrigated agriculture both conceptually and operationally. Today the
Northeast has very capable irrigators-agriculturists and technical crew.
The most difficult part is done. With no legal restrictions, public
investments will have high return rates.
5.4 - Guidelines for the Implementation of Irrigation Projects
If approved by the Legislative Branch, the proposed irrigation law

will encourage guidelines for irrigation project implementation of
undoubted value, as follows (Appendix 8.2):
i) To be implemented, a public irrigation project must show
economic-financial sustainability, compatibility with national
and local priorities, environmental rules and water resources,
capacity to increase employment and develop family
enterprises.
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ii) Government may build irrigation projects in the Northeast but
must organize a producers’ association (irrigation district etc) in
the first year of the project. It must also have a shared
administration with irrigation district and, afterwards, transfer
the finished project to the association which will be responsible
for its operation and maintenance. If the association resigns, the
project will be transferred to a private company.
iii) Government will always have the option of selling any public
project to the private sector. This means that the producers
installed in these projects will have prior rights.
iv) Mixed irrigation projects are allowed but the government must
always have minority interests.
5.4.1 - The role of the public sector
The law highlights the new role of the public sector and presents
the basis on which action is developed. Thus, an important role for the
public sector is to supply good quality public goods and services and not
to concentrate on solitary supply (unshared) of private goods and services
as in the pioneer phase of irrigation here and world-wide. The new
government posture, as described in the new model, will bring substance
and sustainability to irrigation because it is based on modern concepts
and the accumulated experience of Brazil and many other countries.
Essentially, the new law emphasizes the public sector’s role in
creating conditions for, and removing restrictions upon, private irrigation
development, including being associated with it under minority interest in
irrigation projects. It must also develop public irrigation projects, with the
government or delegated to public sector, in the Northeast and north
Minas Gerais. But the project administration will always be delegated to
an irrigation district or private initiative via transfer. The Public sector
will always have the option to sell any public project to the private sector.
Thus, it is assured to irrigators-agriculturists by the means of the
irrigation district or any other producers’ association priority to undertake
or lease public projects.
Thus, there are public sector attributions to establish priorities,
incentives, restrictions, to create administration instances and operate
them aiming to resolve doubts and conflicts between irrigators, irrigation
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districts or private companies. It is also public sector responsibility to
define water tariffs, as well as control and supervise public and mixed
irrigation projects.
Specifically in the Northeast, the government has the following
tasks:
a) Determine irrigation clusters and define projects for viability
studies, in order to establish priorities;
b) Build irrigation projects, organize irrigation districts (or other
self managed entity) during one year after the first irrigator
operation, share the project management with the irrigation
district during this period, and after the first year of operation to
lease the finished project to the irrigation district, which will be
responsible for its operation and maintenance;
c) Lease the project to the private sector when the option of
irrigation district fails;
d) Sell the public project preferably to irrigation district members
or, if they resign, to a private company;
e) Make an association with the private sector, in minority interest,
in mixed project implementation up to 49% share. It aims to
purchase areas for family entrepreneurs. The mixed irrigation
project management belongs to a board; the government
participation at this board is proportional to the capital invested;
f) Establish incentives suitable to the Northeast. The incentives
are separated in the following blocks: (i) to irrigators or
companies which will purchase or lease public projects; (ii) to
the companies which will build mixed irrigation projects; (iii) to
irrigators in order to implement partial infrastructure and
permanent cultivation; (iv) to cover costs; (v) to irrigated
agricultural product industrialization and finally (vi) for
domestic and foreign trade development;
g) When the incentives consist of rural credit, there will be no
economic subsidy, in other words, the interest rates must be
equal to other competing countries, under client risk analysis.
The terms must be compatible to return rates, the grace period
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must entail enough time for the financed enterprise operation; it
must be added to the usual bank requirements and those related
to entrepreneurial capacity to accomplish what is agreed in loan
contract.
In other regions, projects are private or mixed. It is also
government responsibility, in all regions, to:
h) establish incentives and restrictions;
i) overcome administrative conflicts between irrigators, irrigation
districts or companies;
j) control and supervise irrigation district;
k) establish guidelines, to support, control and monitor irrigated
agriculture activities;
l) support technical training, research and technology
dissemination;
m) establish priorities concerning irrigation clusters;
n) develop studies and, in some cases, reach a finished project for
bidding processes;
o) distribute water rights; and
p) create, every four years, the National Irrigation and Drainage
System Plan valid for the next four years, setting priorities,
resources and incentives. Every year, the ministry concerned
will create the annual plan describing the following actions,
who is in charge thereof and how to do it; defining funds,
sources and incentives. The Four Year Plan is submitted to
Congress by Government; the Annual Plan is submitted to the
Budget and Management Ministry; the required funds will be
included in the budget proposal.
5.4.2 - Principles and recommendations
The new law (Appendix 8.2) establishes operation benchmarks for

the public sector, institutionalizes guidelines and procedures that must be
63
observed in public irrigation project implementation. It aims to assure
project success, including its transfer to the private sector.
During guideline definition and indication of procedures the
historical experience was considered and some recommendations were
accepted in order to solve problems, as seen in Brazilian and international
experiences related to a deeper involvement of the private sector in public
irrigation projects. As highlighted in the following pronouncements
(Appendix 8.2):
I) “act under a clear and consistent policy of irrigation
management transference”;
II) transferring is a slow process and regression is possible if the
efforts are not deliberated and continuous by the sponsor
government. Thus, basic lines of transfer policy must remain
unchanged in the long term in order to obtain a favorable
response;
III) total cost returns (for invested capital and working capital)
must not be required at onset of transfer. In other words, it is
necessary to consider the transfer benefits as time passes by in
order to establish a cost return policy. A short term view on
costs return will lead to a huge increase of agriculturists’
expenses with irrigation services before they experience the
extent of benefits. This may lead to several political protests
especially in cases when agriculture is not covered by
macroeconomic policy. Establishing crossed subsidies to
service costs of water supply for irrigation and ways of
achieving alternative fund sources, such as energy supply,
human supply in villages and cities or fish farming are options
to combine short and long term until the full return on costs;
IV) the financial autonomy of the managerial entity must be
required and respected. This is essential to the success of
transfer both in developed and developing countries.
V) enough income to cover system operation costs provides an
essential set of feedback liaisons which are necessary to make
management more reliable in the eyes of irrigation district
members. When public incentive is necessary, it may be
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specified in order to avoid exaggerated and automatic
operation and budget maintained because it can lead irrigators
to lose their notion of responsibility in paying these expenses.
The terms of the subsidy must be clearly specified;
VI) organizations like the irrigation district must be allowed to
negotiate contracts, secure funds and apply penalties to its
own members;
VII) establish a responsible, well-specified and long term system of
water use, that shall also be transferred in order to guarantee
investments of time and money;
VIII) ensure funds and investment to build standard physical
infrastructure or superior. Experience shows that the most
successful programs are those which combine physical
infrastructure upgrading (if necessary) with transfer.
IX) set up a professional, efficient, independent and transparent
external audit system, and ensure its use by organization
management. It can be established by public or private sectors
under careful regulations in order to guarantee its integrity;
and finally
X) set up new activities, occupation, employment or
compensation for the people displaced due to transfer.”
In the latest Brazilian experience, the most successful cases of
irrigators involved in irrigation project management had:
“An essential project conclusion in satisfactory operational
conditions, the management and operational training of
users and staff before taking-on financial and technical
responsibility for irrigation projects, and the continuous
supervision of operations by the concession institution. The
users’ involvement was intensified since the late 80’s in the
São Francisco River Valley, by Codevasf, very similar to
the international experience. (BANDARAGODA, 1998).
XI) “the physical elements and basic operation rules of irrigation
systems also are a relevant part of transfer context”
(BANDARAGODA, 1998). Thus, the following must be
observed:
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Ø 1st The system must guarantee water supply with reliable
quantity and time.
Ø 2nd The water allocation must be handled with competence,
based on a previously agreed demand (in consent) before and
after transfer. It assures agriculturists enough flexibility and
capacity to respond to market conditions upon choosing crops
and crop standards.
Ø 3rd There must be clear definition of responsibilities and control
upon which water quantities are agreed under a wide agreement
and based on tough rules, including payment rules. The water
supply to irrigators associations (such as irrigation districts) or
to irrigated portions are contractual obligations. This way, water
is considered an economic good and not a social right.
Ø 4th Physical facilities will be previously recovered or improved
as part of transfer agreement. When received by districts, they
must be in good working condition. Thus, the matter is not a
mere transfer of a ruined public good but the concession of
valuable and productive assets. In addition to this, technical
expertise is needed to operate the system and must be
transferred by concession organization to irrigation districts”
(SVENDSEN and VERMILLION, 1995).
It is no surprise that in countries analyzed and named in the State-
of-the-Art Irrigation Report, the most successful cases have a common
component: the election of an efficacy goal for financial resources and
water use. In other words, the countries clearly identified that the
financial sustainability of investments and projects as a whole depends on
a clear definition of the expected level of economic efficiency of financial
and water resources of the project.
The water tariff in irrigation projects plays a relevant role as the
mechanism (price) to guide decisions for optimization in the right
direction: the economy of sparing resources.
The return on investment and subsequent guarantee of financial
sustainability of management depend on two essential factors: first of all,
on the kind of organization to manage a contractual instance (ownership
and operational forms and the accomplishment of regulations concerning
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each model); in second place, on organization capacity to respond to
quality and high performance standards established in agreement. All of
the above, naturally in a macroeconomic environment which does not
discriminate against agriculture.
5.4.3 - Procedures for the implementation of irrigation projects
With irrigation project implementation under the proposed policy,

some procedures must be observed, properly described in the Bill, as
follows:
a) the public project will only be built after all possibilities of a
mixed project are dismissed;
b) even when the option for a public project fails, it is necessary
to calculate the chance of sharing it in order to have some
parts able to become mixed or private;
c) government will not manage the irrigation project alone. The
proposed Law will fix a maximum period for sharing
management with an irrigation district. After this period, the
irrigation district takes full responsibility for management.
d) Irrespective of irrigation district, government may lease the
project to the private sector if deemed convenient. If 66% of
district irrigators agree, government may sell the project to
interested companies through a bidding process;
e) government will only build irrigation infrastructure for
collective use and social infrastructure. That parcel is the
responsibility of irrigators;
f) irrigators will be selected by bidding processes, reserving part
of the project for family entrepreneurs also selected by
bidding processes. The share for family entrepreneurs will
vary on each project.
g) government is interested in expanding private sector
participation within one year, at most, from the
implementation date. The public sector will give the final
ownership document to all irrigators without a clause denying
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the right to confiscate it. The debt is the responsibility of
whomsoever purchases it. The purchase candidate presented
by irrigation district will have priority, in case of equal
conditions.
h) the public sector will use special procedures to finance
construction of partial infrastructure of family entrepreneurs;
i) as a lease of public irrigation project, the minimum value
proposed by government will cover capital opportunity costs.
In case the irrigation district does not agree with the minimum
value, the project lease should start a bidding process, the best
proposal prevailing;
j) the sale value does not include social infrastructure. In case of
sale to private companies there should be a bidding process,
following the usual procedures as specified by law;
k) if the irrigation district does not agree with the price and
conditions of sale determined by government, it can require
another bidding process and will have priority of purchase in
case of equal conditions;
l) to nominate itself for purchase, the irrigation district must
prove that irrigators have sufficient economic resources, as
they will indeed be project owners;
m) once possibilities of selling the project are proven, terms and
conditions of sale must be flexible in order to facilitate the
sale and allow government to regain the capital invested;
n) the irrigation district is responsible for the calculation of the
irrigation tariff in public projects. The tariff is approved
during a special administration board meeting. The calculation
history is part of the documentation which will be submitted
for the board’s appreciation and decision. Government may
reject the proposed tariff wherever it proves it is exaggerated
or not enough to cover the costs. Tariffs will never have
subsidies. Government may bear part of the water tariff for
family irrigation enterprises under an agreement with the
irrigation district or another organization described in a
specific contract, including payment conditions, terms and
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other details. In mixed projects, it may be agreed with the
board;
o) the water tariff for public irrigation projects does not include
capital opportunity cost or social infrastructure. The lease
covers capital opportunity cost. The water tariff is divided into
two portions: depreciation and maintenance. Depreciation is
linear and by items. For each item, depreciation is its annual
value when it was new, divided by the number of years that it
is expected to last. Once calculated, it will not change every
year while the good lasts, unless its value must be updated due
to inflation rates. If an item is substituted by another with
higher quality, the depreciation for the new item will be
calculated under the same procedure, discounting the old item
value from annual depreciation. The same procedure is used
for new investments and obsolete or old items that were
substituted. In other words, the item substituted because of
depreciation is discounted and, if necessary, a new item is
included considering its value and duration. Total depreciation
value is the sum of the depreciation of the items ;
p) mixed project tariff is approved by the board. Its presentation
must include a detailed calculation history;
q) in case of water tariff conflicts, the administrative court is the
relevant body directly supported by Ministry representatives
especially designated by the Minister;
r) bidding processes for public project areas will include clauses
concerning irrigation infrastructure implementation schedule,
as well as agricultural activities. All phases must be strictly
defined. Wherever a phase is not accomplished there will be a
penalty to the irrigator equal to this phase’s investment for
each month of delay considering the date previously fixed.
The area manager must require a schedule change, with
reasonable justification. To be valid, it must be approved by a
simple majority of the irrigation district or the board, in the
case of mixed projects. In the case of area resale, the penalty
value must be paid before another irrigator starts operations or
signs the ownership document. The substitute irrigator will
69
have to follow current planning or get the approval of district
or board to a new schedule;
s) bidding process documents will include irrigation
infrastructure implementation terms and penalties that may be
charged in the case of failure to meet the schedule. It must
also include clauses for title deeds, including those related to
sell-back system;
t) title deeds must have detailed clauses for back sale system.
Government will delegate the document signing to irrigation
district or the Board, as well as the right to cancel it;
u) if the penalties are not paid, the irrigation district will cancel
the title deeds after six months from the date of the first
penalty;
v) irrigator will sign a contract with irrigation district or the
board which specifies its obligations and penalties in the case
of failure to meet them. One of the obligations is payment of
the water tariff. The irrigation district or the board will release
a written warning to every irrigator delaying payment of the
irrigation tariff for one month. A three-month delay – in
sequence or not – leads to automatic suspension of water
supply to the lot;
w) if government detects poor administration in an irrigation
district, it has the right to require a general assembly meeting
to dismiss current managers. At the same meeting new
managers will be elected. In case irrigator refuses a competent
management, government will cancel the lease contract and
start a new bidding process to project lease to the private
sector. If it is proved that sale is the best option, upon the
approval of 66% of irrigators, the project will be sold under a
bidding process to mixed irrigation projects. Government will
hold an incentive auction that must be forseen in the irrigation
and drainage annual planning and project business planning.
The chapter related to Irrigation Project Management describes
specific guidelines, clearly defining the role and responsibilities of each
manager involved, under the strict rules of proposed law.
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5.5 - Regulation Structure of the New National Irrigation Policy
As explained in this Report, the proposed irrigation law establishes

benchmarks for public sector participation. If approved, it will
institutionalize guidelines and procedures for the relationship between the
key players involved in public or private irrigation projects. The
regulation manages (harmonizes) strategic decision interface (both in
policy definition and planning programs and definition of irrigation
programs) and tactical-operational project implementation phases, as well
as irrigation area management.
From the point of view of a State which provides less and is
instead a more efficient regulator, efficient tools for control and executive
coordination become even more necessary, in order to guarantee that
conduct norms and agreed priorities will be properly observed. This does
not affect water consumers’ rights in irrigation and each user’s rights in
their relationship with irrigated area management. This relates
particularly to the social control on project’s water supply and all the
water uses in the river basin where the project is located, whether the
final operators are public or private.
Concerning irrigation, regulation involves inter-branch and inter-
government articulation systems, as well as widespread responsibility for
social control.
Modern institutional architecture considers the peculiarity of water
used in irrigated agriculture, which has hydrological cycles that require
support in its management and development, both in quantity and quality,
in order to enable sustainable exploitation. It considers that in most of the
countries there is a strong trend towards subsidiary action by government
concerning exclusivity instead of complementary behavior. The actions
are shared within many government levels and interest groups of private
sector and beneficiary communities or those affected by irrigation
projects. Sharing activities is not limited to internal structure of a branch
organism and one government level. It covers the whole management
system in strategic, tactical and operational levels of irrigation sub-sector.
Under these circumstances, the most appropriate institutional
environment for successful implementation of irrigation policy is
determined by a contractual instance which is not limited to legal
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instruments or regulation institutions. It also covers agreement or consent
possibilities between partners, either public or private. Another
characteristic is the existence of a macroeconomic environment that
stimulates irrigated agriculture. Strictly from the point of view of
irrigation sub-sector regulation, the law efforts in the last 12 years, from
the 1998 Constitution, is full of consequences for the irrigation sub-
sector. These efforts led to the environmental and water resources law.
The legislative debate over the creation of the National Water
Agency (ANA) is still in progress, as well as the discussion at the Senate
over Bill nº 229/95 – Irrigation Law. This Law will keep its modernity if
the suggestions included in the substitute version presented to its reporter
at the Senate by the National Integration Ministry are approved. It
provides the legal liability needed for development of sustainable
irrigation.
Moreover, the legal-institutional arsenal allows for correcting
deviations or deviation risks that the private management model induces
for several players, by using prevention or correction mechanisms. Thus,
institutional regulation tools are necessary to assure stability for the
proposed planning, bringing necessary flexibility to suit the evolution of
Brazilian society.
One notes the intention to create an official agency to deal with
irrigation interests. However, it still needs justification as the current Law
nº 9.433, dated January 8 th 1997 is still to have many of its devices
regulated. The Law already offers provisions necessary for regulation of
water resource uses, including irrigation, as well as being complemented
by other provisions of general environmental law.
Current law supports water use when the sources are property of
the country or the majority of Northeastern States and Minas Gerais
because they are covered by the water resources law, also updated.
As the discussion over Bill nº 1.617-E 1999 goes on – after
approved by Congress, in October 18th 2000 and now under Senate
appreciation – the idea of a National Water Agency (ANA) grows. It will
be another regulatory body for water resources also reaching into the
electricity sector, which is already served by the National Electricity
Agency (ANEEL).
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Law 9.433/97 already regulates what is essential in water use for
irrigation, that is, public water ownership; priorities for granting rights of
water use; form and destination of its concession; use restrictions; the role
of the public sector and water resource management systems (integrated
and shared); breaches of norms of use and following penalties (BRASIL,
1997).
Other institutes, such as Concession Law or Bidding Law, CADE,
environmental law, agriculture law, mineral and forest law as well as
many others mentioned in the chapter related to legal benchmarks, all
compose the legal basis for public and private partners in their
relationships concerning public irrigation projects.
Public investment amortization and the prohibition of selling its
assets are the only items that still remain without regulation, besides the
non-availability of mixed project alternatives. If this is not removed from
the New Irrigation Model, it will represent a significant obstacle to
expanding investments in irrigation, making financing of implemented
public projects more difficult and frustrating its purposes.
Upon analysis of a regulation system the following questions arise:
- what are the systemic integration processes between public
sector, private sector and final users that require regulation?
- to what extent are auto-regulation mechanisms trustworthy? Do
they cover non-institutional elements such as regulation by
market or civil society participation?
The proposed irrigation law establishes benchmarks for public and
private sector operations. If approved, they will institutionalize guidelines
and procedures for the relationship between the main players, whether
public or private, involved in irrigation projects.
It is necessary to emphasize that due to current national law, which
made water resources public (article 21, Item XIX of 1998 Constitution),
the right to water use for irrigation became a sine qua non condition for
an irrigation project, regardless of the water’s source, scale or size
(except those with insignificant water use) and its nature (public, private
or mixed).
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That is the reason why the irrigation law proposed in Chapter VII,
article 14 paragraph 3, establishes that water use is an indivisible part of
areas purchased under bidding processes, in quantities previously and
officially specified (Appendix 8.2).
By regulating the aforementioned Constitutional provisions, water
resource law (Law nº 9.433/97) established that the following water
resources depend on government, to be found in Chapter IV, Section III –
Granting Rights to Water Resource Use, article 12 (BRASIL, 1997).
Article 3 of the same Law determines that every concession must
respond to use priorities established in water resources planning and also
respect water source classification and the appropriate maintenance
conditions in case of waterway transport. Its single paragraph adds that
water resource concession must maintain its multiple uses (BRASIL,
1997).
Article 14 says that concession will be given subject to
authorization of government, either Federal, State or by the Federal
District. Article 35, Item X of Law n 9.433/97 establishes rights to the
National Water Resources Board to define general criteria to concession
of rights to water use and its cost (BRASIL, 1997).
The same Law determines in article 34 that the National Water
Resources Board is composed of (BRASIL, 1997):
I - representatives from Ministries and Presidential Departments
involved in water resources management;
II - representatives suggested by State Water Resources Boards
III - representatives of water resources users (the emphasis is ours)
IV - representatives of water resources civil organizations
Its single paragraph determines that the number of Federal
Government representatives cannot be more than half plus one of the total
members in the National Water Resources Board.
Article 15 of the same Law establishes that concession of rights to
water use may be partially or totally suspended, permanently or during a
given time, under the following circumstances (BRASIL, 1997):
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I - non-fulfillment of concession rules;
II - non-use for three consecutive years;
III - primary need of water to alleviate calamity situations,
including those caused by adverse weather conditions (the
emphasis is ours);
IV - need to prevent or revert deep environmental degradation;
V - need to serve priority uses, of collective interest, that do not
count on alternative sources;
VI - need to keep navigability characteristics of water course.
Aiming at regulating this Law devices, Bill nº 1.617-E/1999, in its
final version approved by Congress on October 18th, 2000 which is now
under Senate appreciation, establishes (BRASIL, 2000):
Article 5: In concession of rights for water use under Federal
control, the following time limits, from the publishing date of its
corresponding administrative authorization documents must be obeyed:
I - up to two years for the mentioned enterprise implementation
II - up to six years for finishing the enterprise
III - up to 35 years to use rights validity
Paragraph 1 - The validity of the use rights of water resources will
be based on the nature and scale of the enterprise, considering investment
return when necessary.
Paragraph 2 - The terms mentioned in items I and II must be
expanded whenever the scale or social-economic importance of the
enterprise justifies it, after consulting the National Water Resources
Board.
Paragraph 3 - The term mentioned in item III may be deferred by
ANA, following the priorities established by water resources planning.
The analysis of these legal rules shows how important it would be
to focus on water use rights in irrigation projects (public, mixed or
private) as it is no longer an Irrigation Minister decision, as it used to be
75
under Law nº 6.662/79. In fact, it now is a National Board decision
(concerning rivers of Federal domain) and State Water Resources Board
(in case of rivers of State or Federal District domain). These decisions are
available to water users, among others.
In addition to this, as water is a public good, the concession does
not mean property but only permission for its use, which is clearly
delimited, and can be reassigned in situations previously defined by Law
whenever necessary.
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6 - THE NEW NATIONAL IRRIGATION POLICY TOOLS
As mentioned before, new irrigation policy implementation will

demand several tools to promote and facilitate irrigation planning,
planning management, programs, projects, support services and
economic-financial mechanisms, among others. This will be discussed as
follows.
6.1 - Irrigation Planning
This section contains an irrigation planning proposal according to

the guidelines of the new irrigation policy. The public irrigation project
“architecture” can no longer be linked only to engineering and
organization sectors, as shown in chapter 3 item 3.2.1 of this report. It is
necessary to include the promotion sector in search of a competent
definition of a business plan for the enterprise.
6.1.1 - Basic principles
Irrigation must be implemented through plans, programs and

projects which must:
a) pay special attention to areas with adverse hydrological
conditions which are may be reverted, allowing agricultural use
in a competitive, economic way;
b) be reasonable in exploiting water and soil resources;
c) make branch plans and programs compatible with other;
d) integrate with Federal, State and Municipal governments;
e) observe technical, cultural, social and economical criteria;
f) respect the environment.
While planning irrigation, demands and responses to today’s
challenges to other agricultural branches must be observed. Among them
are environmental care, competitiveness in a global market, autonomy of
each productive sector, planning decentralization, private sector
77
leadership, demographic and urban pressure on soil and consumption
expansion.
Competition in available soil will oblige irrigated agriculture to
show capacity to optimize economical and social results, reducing
negative impacts, including those which have been ruining the activity’s
reputation such as soil destruction by crystallization.
Concerning water availability, there is a global trend of growing
competition between its various uses already noted in some basins in
Brazil. Thus, irrigation development in Brazil depends on improving
planning and water resource management, the responsibility of
governmental agencies and basin committees. Thus, irrigation planning
must be associated with efforts towards improvement of management as
well as water location and availability.
In order to consolidate itself as a development tool, irrigation must
respect principles and trends concerning water resources:
a) water must be seen as an economic good and its use must be
charged for;
b) water demand keeps growing, increasing the possibility of
conflicts over its use;
c) irrigation must show efficiency in water use, both in output and
quality preservation;
d) productivity preservation of the areas used and irrigation area
expansion demands a careful agricultural draining system and
soil crystallization;
e) irrigation system success will depend on adopting technologies
to allow for better water control;
f) systems operation must predict the location of flows which
reach the drains, in order to ensure that water quality does not
compromise re-use, including discharge for environmental
purposes; and
g) irrigation’s future will depend on flexibility and efficiency of
the water allocation system, both for this activity and for other
uses.
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Thus, it is noted that irrigated agriculture’s financial results and its
sustainable development are linked in terms of:
a) water availability and its cost;
b) water resource policies concerning rights and charges for water
use;
c) general development of agricultural economy and market
behavior concerning agricultural products;
d) comparative advantages of irrigation compared to dry
agriculture, such as the low production variability each year,
harvest success guarantee, better quality production and
capacity to overcome seasonal constraints;
e) evolution of management efficiency in irrigation and drainage
supported by adoption of new technologies;
f) evolution of raw material costs, including labor costs,
electricity, capital and other items involved in production and
trade phases, in comparison to conventional agricultural
production; and
g) environmental demands.
Concerning technology, the focus must not be only on large scale
components (dikes and water distribution systems), but also on the
challenge of optimizing modular consumption.
Project designers must choose methods for their efficiency and also
consider crops to be cultivated, soil topography, texture and speed of soil
infiltration, water availability and cost, equipment and operation cost etc.
Whenever possible, located irrigation methods must have priority because
of high levels of efficiency in irrigation water use.
Irrigation projects, its agricultural planning, schedules and crop
selection must pay special attention to water consumption reduction in
the future.
Along with infrastructure building, the optimization of operation
and management must be taken as a priority. It has been proven that a
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project with operation in progress, with up-to-date technology, can reduce
water use by 50%.
During irrigation planning phases, this potential must be used for
the following reasons:
a) irrigated agriculture is a development tool and, for that reason,
must be stimulated by Federal, State and Municipal
governments, as has been done with industry;
b) irrigated agriculture, when duly supported, is an economic
activity which is capable of generating the same profits as any
other;
c) The Government is interested in increasing private sector
participation in irrigated agribusiness in the Northeast as well;
d) governmental agencies must plan the development of new
irrigation areas considering that the private sector must be
stimulated to intensify its investments;
e) irrigation produces a very positive impact on social
development, mainly those focused on vegetable and fruit
growing, by increasing stable employment and incomes;
f) the Northeastern rural population is the poorest and most
vulnerable, due to lack of factors and services and that causes a
tendency towards migration to urban areas under
disadvantageous conditions.
6.1.2 - Guidelines for the planning process
In order to have a successful planning process:

a) it is necessary to keep an updated data base where potential
areas for irrigation in the Northeast will be registered;
b) these areas must be included in the data base under recognized
technical criteria such as: i) water availability and ii) soil
aptitude;
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c) afterwards, these areas must be submitted to a second
classification considering their vocation for individual or
collective exploitation;
Areas for individual exploitation are those which require fewer
investments in water infrastructure, usually located on the banks
of rivers or lakes.
Areas for collective exploitation are those which require greater
investment and may be reserved for public or mixed projects.
Government agencies must plan the development of new
irrigation areas considering that the private sector must be
stimulated to intensify its investments.
d) areas where common infrastructure will be implemented by the
public sector must be classified as must those that will be
offered to mixed or private exploitation.
e) an information system about water availability and soil
qualification must be implemented, offering indicators to help
irrigation and drainage policy execution and to support either
public or private decisions.
f) indicators must also guide entities with activities related to
irrigated agriculture in order to stimulate integrated work which
will improve the irrigation planning process.
g) information systems must embrace debates over the irrigation
planning process. The access must be open to consultant
companies, scientific and technological entities, normative
entities (Banco do Nordeste, American Society of Agricultural
Engineers (Asae), International Standard Organization (Iso),
European Norms) as well as International Commission on
Irrigation on Drainage (Icid), Associação Brasileira de Irrigação
e Drenagem (Abid), agriculturists, equipment manufacturers
and components test and certification institutes.
h) irrigation planning must consider project risks concerning
several aspects, especially water availability, productivity
reduction and post-harvest difficulties.
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6.1.3 - Criteria for choosing implementation areas for public
projects
The selection of implementation areas for public projects must
consider the following criteria:
- Climate: public irrigation projects must be implemented in
semi-arid regions of Brazil (limited to 800 mm/year), areas
where water balance deficits last 7 or more months, or strategic
areas of national interest.
- Soil: soil must be apt for irrigation, following the criteria of the
Empresa Brasileira de Pesquisa Agropecuária (EMBRAPA)
and observing recommendations of the manual of land
classification for irrigation published by the US Bureau of
Reclamation, published in Portuguese by the Irrigation Sector
of the Ministry of Local Integration in 1993.
- Drainage: If technical analyses show potential drainage
shortage (underground) and water quality favorable to
crystallization, project must include specific studies, drainage
projects and management recommendations. Drainage project
implementation (underground) must occur based on
observations and behavior of agriculture.
- Water: areas must show, through specific hydrologic studies,
time and quantity of water available, quality and should also be
compatible with water basin’s needs. The management agent
for the water basin’s resources must approve the use of water
for irrigation in that area.
- Integration1: Priority should be given to areas inserted in local
development programs in order to allow irrigation projects to
facilitate development. There must be a protocol of intentions
between Federal, State and Municipal governments, describing
the responsibilities of each of them in the future project.
- Land ownership situation: areas must have their legal
ownership clearly defined and in order.
1
Activities of this nature have been undertaken by Banco do Nordeste in
integrated development clusters in the Northeast.
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- Competitiveness: business plans must be presented with the
greatest possibility of success, lowest associated risks and
conditions for market structuring.
6.1.4 - Procedures and technical norms
Procedures and technical norms for basic, executive, pre-viability

and viability studies must follow rules established in manuals provided
by the Local Integration Ministry – Irrigation Secretariat in 1993, in its
Irrigation Manual:
- Manual of General Planning for Irrigation Projects;
- Manual of Land Irrigation Classification for Irrigation;
- Manual of Economic and Financial Analysis in Irrigation
Projects;
- Manual of Standard Specification Techniques;
- Manual of Elaboration of Irrigation Projects.
As these manuals were released in 1993, they must be revised and
updated according to new irrigation policy in Brazil.
In addition to the aforementioned studies in the pre-viability phase,
specialists must develop a promotion plan (business plan) for the future.
The plan aims to identify agribusiness potential and conditions for its
operation. It will highlight competitiveness factors, restriction factors,
infrastructure support (roads, ports, electricity, schools, health, leisure
etc.), and agronomic potential (culture, costs, profitability). The risks
concerning credit availability (quantity, conditions etc.), business profit
expectations, labor quality and availability will be characterized. The plan
also describes raw material supply structure, phyto-sanitary outlook,
areas free from adverse conditions concerning phyto-sanitation and
agribusiness potential. It also identifies commercial companies, processor
companies and strategies to attract private investments and promote sale
of lots. The business plan must indicate and show private sector
leadership in the agribusiness business.
Promotion of the enterprise must start immediately after viability
studies.
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6.1.5 - Monitoring irrigation
The biggest water consumption in irrigation projects is in fact at
the modular level (90-95% of total consumption).
Exceeding water use in irrigation leads to soil saturation, ground
water formation, crystallization and waste of money. Some cases require
implementation of a drainage system in order to recover soil productive
capacity.
One way to use water in irrigation properly is monitoring, aiming
to determine the right moment and quantity of water needed for each
crop. Several methods and practices are available but they are rarely used
in Brazil. Main factors that interfere are:
• lack of local parameters to indicate economic need of water for
each crop.
• lack of incentive policies for rational and economic use of water
in production process.
In an attempt to reduce these influences and considering the
importance of water in local development the suggestion is:
• each public perimeter should have a weather station composed
of scientific sensors, able to provide information about the
reading interval and accurate measurement of temperature,
relative humidity, radiation, wind, rain, humidity, in loco
reading system, usage system;
• coordinated by Embrapa and in accordance with current
conditions of use and frequency (provided by local technicians),
local irrigation guides must be prepared defining many water
courses for different conditions and crops. These parameters
must be disseminated in each region, as well as the management
orientation versus station information;
• set an incentive policy including different water taxes X
efficiency in modular water use in each perimeter, for example;
• set, execute and disseminate a local research program for
optimizing water use in irrigation for different crops. It will also
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indicate the best relation between water management X soil X
plant in the medium term.
6.2 - Management of Policies, Plans, Programs and Irrigation

Projects
6.2.1 - Scope of irrigation management
Irrigation project management is based on norms of irrigation

policy, plans and programs. These norms establish incentives, constraints,
priorities, goals and resources, as well as ensuring conditions for
administration by indicating operation limits for each public or private
agent.
Management is consolidated in four environments (decision
bodies) and levels (or decision categories), as follows:
1st The responsibility for determining irrigation sub-sector policy
(with its principles, guidelines and orientation tools for its use and
implementation). Political and strategic decisions prevail,
constantly related to political-institutional affairs and inevitably
conditioned by environmental and water resource law as well as
macroeconomic environment.
This environment’s decisions encompass two levels or categories:
First level - formulation and approval of irrigation sub-sector
policy. This level covers concepts, new models and is responsible for
proposing (and also approving) and reformulating laws. For example, the
discussion at the Senate of Bill nº 229/95 – Irrigation Law and, in the
Executive branch, the proposal of a new management model for irrigated
agriculture, especially in the Northeast.
Second level - creating and approving plans (either four-year plans
or annual national plans) as well as local programs and specific irrigation
projects.
The involvement and participation of various decision bodies and
different interest groups is constantly growing in decision processes. The
main tasks for National Irrigation Policy creators (most of them in the
Integration and Planning Ministries) are to achieve political consent and
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implement the management system as well as legal and technical
instruments essential to operation. They encompass economic-financial
mechanisms that encourage capital allocation and return on investment.
Implementation and maintenance of irrigated agriculture programs and
projects in target-regions are fully linked.
2nd The environment of decision processes, related to irrigation
project location and implementation (usually composed of one or
more irrigated areas). Here tactical decisions prevail, which are
the responsibility of executive bodies or irrigation sub-sector
policy, which implement the project directly or together with
other government levels and bodies and with the private sector.
Management models give decisions a direction that contains
specific tools to support decisions. These tools are required by plans and
programs of approved irrigation project implementation, which involve
an increasing participation from the private sector, from its formulation,
financing up to project installation. Thus, it reduces the sole participation
of the public sector.
Nowadays, Irrigation National Policy co-executors are not only in
the Ministry of National Integration but also in other government bodies
either Federal, State or Municipal as well as the private sector. The
exchange between entities seeks to attain knowledge about:
(i) quality of general or specific project information, such as
hydrological and hydrographic basin situation as well as their
development scenarios;
(ii) geological and environmental conditions of selected potential
areas;
(iii) basic social infrastructure needed;
(iv) market and agronomic conditions;
(v) economic-financial aspects;
(vi) policies that direct the relationships between public and
private organizations;
(vii) project potential entrepreneurs, sponsors and global
managers, in order to establish a reasonable division of
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attributions and responsibilities among them, concerning
authority and responsibility for required means.
The leader organizations (sponsors and global managers) are
responsible for the following tasks:
(i) execution of civil engineering works
(ii) Coordination and catalysis of policy projects and financial
“engineering” (master coordination), in order to ensure that
every political agreement established in the first environment
may be validated and observed, indeed, for the consequences
to happen as expected;
(iii) implement agricultural activities integrated to internal and
external demands in order to produce incomes that drive
agribusiness and regional developments;
(iv) elaborate and execute a project promotion plan which is essential
for successful implementation of an irrigation project.
3rd The environment of irrigated perimeter management. Here
tactical-operational decisions that go from public to private
sector in every country where irrigation is important prevail.
The evolution is a consequence of decisions’ multiplicity and
complexity, the existence of various players and interest groups, often in
disagreement, and the Government’s inability to collect and process
information which orientates irrigation projects.
At this third environment, the main responsibilities in system
management are the following:
(i) procedure development and implementation which informs
and evaluates economic and financial mechanisms, geared
towards rational, efficient and non-prodigal use of available
resources such as soil and water, amongst many others;
(ii) consolidate investments in order to guarantee perimeter self-
management and sustainability of economic activities developed;
(iii) select and validate period expected to reach quality goals and
evaluation method;
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(iv) clearly identify sources and destination of needed funds in
order to reach expected level.
The most successful experiences, both in Brazil and in many other
countries studied, indicate organizational systems or management
systems of public irrigated area as the best ones. In these systems the very
producers-irrigators assume the administration, operation and
maintenance of irrigated infrastructure for collective use, through an
association as an irrigation district. At first, they share it with the global
manager but afterwards they become independent and are only monitored
by the public sector.
Depending on project complexity (especially projects with
improvement works or multiple use of water resources), the component
of electricity generation – composed of dike, reservoir and hydroelectric
power generation units (UHE) – may be administrated by two
independent companies, a public and a private one.
In the first case (public company), the argument for its presence
leading administration says that electricity generation must subsidize
(crossed subsidy) part of irrigation system operations. When the use is the
urban supply, rough water (before its treatment and distribution) is
usually supplied for irrigation by users’ associations and it includes
selling water to reduce irrigators’ taxes. During situations of conflict with
city supply or even other uses of water, the association may reduce the
irrigation area under compensations correctly defined, as in the Western
United States, Israel or other countries.
In both cases, economic justification for subsidy is based on two
points:
(i) as irrigators do not have market control, individually, the
results of irrigation technology over productivity are
transferred to consumers through prices;
(ii) in this case, subsidy represents a tax to water consumers
which compensates irrigators for part of the results they had
with agricultural modernization. It is noted that, in this case,
subsidy does not cause any macroeconomic impact. It is a
mere income transfer for two groups.
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Older projects of huge dimensions tend to maintain shared
management. It remains under the responsibility of a public or private
rough water supply organization, from the derivation/reserve and primary
distribution to the entry of each perimeter. Conduction and distribution
from the entry to the whole perimeter are the responsibility of water
users’ associations.
4th Finally, the environment or domain of final-activity management,
which is exclusively the role of the private sector. This
environment comprehends agriculture and stock raising together
with market coordination.
The comparative analysis of the current situation of Brazilian
perimeters, vis-a-vis successful experiences in other countries, shows that
the production of most farmers (small, medium or large-scale irrigators)
is too small to face trade channels operated by large and powerful
corporations (e.g. supermarkets) and is subject to a macroeconomic
policy that discriminates against agriculture.
6.2.2 - Proposal for a management system applied to the

irrigation management environment
The attempt to indicate the division of roles between government

environments and departments and between them and the private sector is
now in progress, following the implementation guidelines for new
irrigation policy.
To facilitate the analysis of proposed changes, this report uses the
Kurstedt (apud SINK et al., 1993) classic model of management systems,
introducing a few modifications as shown in the following Figures 3 and
4. Here the measurement and evaluation of policy management is also
emphasized, aiming to improve development and ensure results. Thus,
better control (including social control) of plans, programs, projects and
processes are required. The aims are to:
(i) to ascertain, at any time, if we are going in the right direction;
(ii) determine efficiency level: if we are doing as well as possible
during the project;
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(iii) ensure cultural support, internal and especially external, to
sustainability (political, financial etc.) and the policy
continuity (also for its elements: plans, programs, projects and
processes).
In Figure 3 below, the three inferior blocks represent an ordinary
management system. The manager: every manager has a domain – a
group of things under his responsibility, following the scope or extension
of his administration. Inside this domain there are people and systems –
that which is managed, in relationships, tools, technologies, information
etc. – that which is used to manage. There are also three interfaces:
between decision and action, between measurement and data and between
information representation and perception.
FIGURE 3
MANAGEMENT SYSTEMS MODEL
OTHER POPULATIONS
Information Information
perception representation
Who Manages What is used
to Manage
Decision Data
Actions Measures
What is
managed
SOURCE: Kurstedt (apud SINK et al., 1993).
In Figure 4, in the following page, the generic model of Figure 3 is

used in the national irrigation policy management environment,
specifying the three mentioned interfaces: the interface between who
manages and what is managed; the interface between
representation/perception – and also between what is used to manage
(tools to store and recover data, processing models, techniques etc.) and
who manages it and, finally, the interface between what is managed and
the tools used to convert data into information.
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FIGURE 4
PROPOSAL FOR MANAGEMENT SYSTEMS APPLIED TO
IRRIGATION MANAGEMENT ENVIRONMENT
Scope of Determining National Irrigation and Drainage Policy
President
Congress
Governors
Mayors
Society, Interest target
Social Control
Information Information
perception representation
Measurement and
National Integration Output/ Visibility of Evaluation Tools
Ministry Measurement and and Techniques:
Evaluation Systems data manipulation
process
Plans, Programs Measurement Systems

and Projects and and Techniques:
improvement techniques data collection
process
Inputs Outputs
Input Systems Organizational Systems Output Systems
SOURCE: Kurstedt (apud SINK et al., 1993).
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Thus, three other intermediary blocks emerge: intervention (plans,
programs and projects and improvement techniques), of measurement
systems and techniques and also of the data collection process. They link
Organization System to Measurement and Evaluation Tools and
Techniques and Data Manipulation Process. Finally, the block that links
all measurement and evaluation systems (of product or results and its
visibility) to the manager thereof.
There is also a third group composed of three blocks. The first one
is the input system, represented by raw material suppliers. In this higher
management level, they are represented by those who supply the
organizational system resources – human, material, financial – with
specialized information and knowledge needed to implement higher-level
administration decisions, required by society and interest groups.
The second block – output systems – is represented by market:
users and clients whom we want/need to supply with services and
products.
Finally, the third block – a different target population, formed, in a
simple way, by an external audience who are those not included in an
organizational system, and internal audience, which is part of this system.
Although it is the last one mentioned, these other targets are the ones
which bring results (internal audience) and consolidate them (external
audience), that may ensure or not the vitality and continuity of the policy
and its plans, programs and projects.
6.2.3 - Attributes of each public project management entity
A proposal of attributions, roles and responsibilities for each public

irrigation manager in the Northeast is described as follows, considering
either common infrastructure management or related agribusiness
management:
♦ Concepts
Basic concepts that, together with terms of reference guidelines,
regulate the conceptual model of irrigation, are explained here.
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a) Institutions, organizations and institutional changes
In an overview, institutions are formed by Constitution, laws,
decrees, regulations and informal rules that guide individuals, company
and market behavior. Organizations are bodies with specific
responsibilities in task-execution in the area allowed by institutions. An
institutional change consists of moving one institutional paradigm to
another (NORTH, 1991). Specifically:
a1) Institutions
These are the structures between people and organizations’
interaction that, as a result, define incentives which (along with other
constraints – concerning budget, technology etc) determine an
individual’s choice. These choices guide the performance of societies and
economies, in a certain period and as time goes by.
In a decision model, institutions represent constraints that must be
observed, apart from those of a physical and financial nature.
Technically, there is a clear distinction between institutions and
organizations.
Institutions are composed of (i) formal rules (norms); (ii) informal
constraints such as behavior rules, conventions and auto-imposed codes
of conduct, their compliance and also the means that determine their
fulfillment.
The fulfillment of or compliance with formal rules and informal
constraints depend on:
1st) the self-imposed code of conduct of the first individual (or
group)
2nd) the second individual – retaliation (and or);
3rd) a third part – society sanctions or State repression.
In summary, an institution is a “group of rules (formal) and norms
(informal constraints) established (self-imposed) and observed (fulfilled)
for the satisfaction of collective interests” (INSTITUIÇÃO, 1999).
93
Institutions affect economic performance, determining – along with
adopted technologies and raw material – the transaction and production
costs.
Thus, if institutions are the game rules, organizations are the
players.
a2) Organizations
These are formed by groups of individuals dedicated to interests or
profitable activities that involve them. The constraints imposed by an
institutional framework (together with other common economical
constraints) establish the dimension of opportunities and thus,
organizations can emerge. According to organization function-objective
(for example, increase profits, win elections, regulate business or educate
people), the related firms, political parties, regulation agencies or schools,
following the example given, will all be dedicated to acquiring raw
material, abilities and knowledge in order to increase capacity for
survival in a competitive environment.
Abilities and knowledge gained must be part of the incentive
structure, inherent to the institutional matrix. For example, if high return
rates limit survival possibilities and arise from productivity increases,
companies and other organizations will invest in abilities and knowledge
that they believe are related to productivity. If greater survival capacity
comes from artificial (or spurious) competitive advantages, organizations
will struggle to maintain these advantages (or status quo).
Thus, the institutional benchmark or institutional environment
encompasses the legal system, tradition, habits, political system and
regulation mechanisms of a given country and its units.
a3) Institutional change: agents, sources, process and direction
The agent of change is the entrepreneur, who makes all
organizational decisions. His subjective perceptions (mental models)
determine the choices (action alternatives) that he can take.
The inspiration for change is opportunity, as seen by entrepreneurs.
Its origin may be external, from macro-environmental changes, or
internal, from knowing and achieving abilities when its mental model
suggests new ways. It is usually external environment changes (such as
94
related price changes) combined with internal learning, which has led to
choices, that determine institutional changes.
Changes in formal rules include: (i) legal changes, such as the
approval of a new law or regulation; (ii) an ordinary law change, via
Court of Law, as a result of a higher court decision; (iii) regulation norms
changes, established by regulation agencies such as ANEEL; (iv)
constitutional changes that transform the rules that give support to all the
other rules (such as 1998 Constitution, that established water as a public
good in Brazil, changing the 1934 Water Code).
On the other hand, the institutional change, as a result of informal
constraint changes (norms, conventions or personal conduct standards,
for example), has the same inspiration sources. In other words, the
internal learning or economic alternatives change. However, this occurs
more slowly.
The institutional change process brings an inevitable improvement
even under a loud revolution. That’s because environment economies,
complements and externalities which emerge from the institutional matrix
do not advise radical paradigm shifts, as huge risks are associated and
also, when it is appropriately considered, it is less profitable. The larger
the number of rules that change, ceteris paribus, the higher the number of
losers and the greater opposition to the paradigm shift.
Direction change is determined by the path of dependency.
Political and economical organizations, that last due to the institutional
matrix, typically count on the perpetuation of the institutional framework.
They accept the changes provided they are sure that they are amongst
winners.
b) Public involvement
“Public involvement concerns processes in which
individuals, private organizations, agencies and government
entities, that receive the impact of institutional changes (of
game rules, that changes policies, projects etc.) are
consulted and also take part in decisions, being co-
responsible for their consequences.” (UNITED STATES
OF AMERICA, 1980).
95
It is important to highlight that public involvement only effectively
happens when it covers the promotion agency and target interests at the
same time.
c) Arriving at a consensus
This means to find a reasonable proposal that may be adopted by
the group involved in order to have the support of all group members and
none of them oppose it. In other words, all members can accept it,
assuming a commitment or co-responsibility for its success. The consent
may require that winners give some compensation to losers.
Thus, consent is not a unanimous choice, as it is not always the
priority of all members. It is not even a majority vote in which the
majority achieves something that satisfies itself but imposes something
that the minority absolutely rejects. Nor is it unanimity when everyone is
satisfied with the decision (SCHOLTES, 1992).
The best way to reach consent in irrigation project management is
the construction and democratic choice of a scenario with high
probabilities of coming true because all the members think it is viable.
d) Sustainable management in irrigation
Sustainable management in irrigation means a system in which
individuals and organizations:
(i) determine, in mutual consent, the system objectives
(concerning a group of related tasks that, afterwards, compose
a group of events, also related);
(ii) establish the conditions needed and viable for its
consolidation;
(iii) search and explore the resources available and their
management, in order to accomplish the collective aims of the
project;
(iv) activities are developed in order to reduce the negative impact
(IIMI, 1995).
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e) Irrigation management transfer
Transferring irrigation management means to relocate management
responsibility and authority of part or the whole irrigation systems
(projects), government agencies to private organizations, such as Water
Users Associations (WUAs).
The transfer represents reduction in the government role in routine
management and the expansion of WUAs users and other local
institutions. It may include full or only partial responsibility and
authority. It may be implemented as a sub-system, as control over
intermediary water distribution channels or the system as a whole
(SAGARDOY, 1995).
Transfer necessarily goes through a contractual phase which is not
limited to juridical instruments or regulation institutions, but also reaches
the possibility of an agreement or consent between public and private
bodies, mutually interested.
Transfer difficulties depend on projects and types of arrangement,
as follows:
• those built by producers, individually, under simple trapping or
water derivation (private projects). These do not have transfer
problems;
• wider arrangements in which management is transferred to an
external agency, usually a State agency, that implemented and
started the project for a local and private user association, such
as irrigation districts. Some examples are Jaíba and Gorutuba
projects, in the north of Minas; Nilo Coelho, in
Petrolina/Juazeiro (PE/BA), among many others in the
Northeast of Brazil and worldwide.
• when a government agency delegates project management to a
State entity it is only an administration decentralization, like
those previously having occurred in irrigated perimeters in Rio
Grande do Norte, Ceará and Paraíba.
The involvement of Water Users Association (WUA) in project
management can start from actions like previously recovering/adapting
soil to agriculture – land reclamation (as in the West of the United States,
97
since the beginning of XX century), and go to user participation in
identification, technical-economic studies, pre-viability, viability and
basic and executive project elaboration.
The involvement may also extend to contracting, building,
managing and financing works for irrigation infrastructure for collective
use (as in Chile). In a more advanced phase, it covers project
implementation, its management, operation and maintenance (O&M) (as
in Mexico and some public irrigated areas in Brazil) and finishes with
project achievement by users, as in Peru.
Thus, the transfer process may include only responsibility transfer
and the delegation of the following rights to irrigation project
management, under its own legal institutes, or finish with giving back
these rights to water users or someone else.
In the first case of delegation rights, the following situations may
occur:
(i) transfer of lot ownership documents for public projects to
their users, by selling them, or the permission to users
association (“administrative act, from which the execution of
services or use or public good are allowed, concerning general
interest”, (POMPEU, 1987)) in order to also grant them
responsibilities for operation and maintenance of irrigation
infrastructure for collective use;
(ii) the concession – “Contract in which Public Administration
delegates to private sector rewarded execution for service or
public project or give the rights of public good, in order to
explore by its own means, in the period and
regulated/contracted conditions” (MEIRELLES apud
POMPEU, 1998) – concerns rights concession, via transfer, to
the private sector, of administration, operation and
maintenance of public projects.
In situations (i) and (ii), ownership of irrigation works and hydro-
electrical-mechanical equipment, of collective use, remains under public
sector control.
In case (iii), giving back the rights corresponds to privatization,
with negotiated transfer of soil asset use rights and collective irrigation
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infrastructure, in public projects, to the private sector. Irrigators are
owners of their lots.
Thus, both delegation and rights devolution demand reducing State
power and, on the other hand, expanding private sector power. In other
words, it means to expand irrigators’ responsibilities in management and
costs, as well as investing in collective infrastructure. Responsibilities
and authority transfer – from public to private sector – also leads to
political and procedure transformations (reaching consent, regulation and
partnership management), in practices and finally, in irrigated agriculture
performance.
f) Political transformation of the irrigation sub-sector
Political transformation of the irrigation sub-sector means:
“A new, wide and long term vision of public and private
sector responsibilities, related to management of natural
resources used in irrigation. The central focus of an
eventual institutional remodeling of sub-sector
comprehends structure, strategies and resources of today
organizations” (GRAAF and TOORN, 1995).
♦ Within the scope of the National Irrigation Policy

Determining policy and defining plans and programs includes the
following attributions to its responsible individual/bodies:
a) Formulating National Irrigation and Drainage Policy:
• National Integration Ministry (Coordination)
• Planning, Budget and Management Ministry
• Agriculture and Supply Ministry
b) Approval and Control of National Irrigation Policy:
• President of Brazil
• Congress (providing legal instruments needed and watching its
execution)
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c) Formulating and approving National Plans (Four-year Plan and
Annual Plan) and Local Programs for Irrigation
• Elaboration: National Integration Ministry – Coordination
and Control
It comes from a close participation of related bodies, of
related bodies and partners, as well as entities representative
of irrigated agriculture entrepreneurs.
Planning, Budget and Management Ministry
Environment Ministry/Water Resources National Board:
combining water resource policy, plans and programs, as
well as establishing a commitment with sustainable
development policy of water resources in hydrographic
basins improved by irrigation projects.
Agriculture and Supply Ministry – combining mainly with
policies, programs and research and development projects
and agricultural sanitary defense, development and market
protection for agricultural products and, finally, the
commitment with the current agricultural policy execution
and adoption.
• Approval: the four-year plan is approved by the Congress and
the annual plans are approved by the National Integration
Ministry.
• Validation: within the political sphere, validation occurs at
Congress, The House of Representatives or even Town Council
Chambers, depending on the local, regional or national level of
the action. Thus, public power involvement depends on the
project nature. More than one public level may get involved in
validation.
♦ Within the scope of Irrigation Project Management
Defining location, designing and implementing irrigation projects
will be the responsibility of the National Integration Ministry
(coordination, attendance and evaluation), having support from:
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- Hydro Infrastructure Department (supervision and control)
- Related bodies: Codevasf and DNOCS (co-execution)
Some attributions must be observed:
a) Global Project Management: location definition and project
design. Negotiation, preparation and execution of contractual
instruments of co-financing and management. Promotion and
diligence. Securing and allocation of funds. Supervision and
control over allocation and recovery of investments.
b) Works management: planning, contracting, supervising and
controlling over management; provision and fund location in
public projects.
c) Minority interest in mixed projects: provision of location
studies and pre-viability projects that cover up to 49% of the
public sector investment, supervision and technical assistance
(both in implementation and management) as well as operation
regulation.
As participants within this scope there are also:
• Related bodies (e.g. official and private banks) – support,
mainly in project implementation and, whenever necessary, act
as a partner (sponsor) taking responsibility for financial
engineering, co-participation in project promotion and
harnessing investments (Project Finance).
• Private partners taking part of hydraulic systems for collective
use implementation.
• Private entrepreneurs of productive chain as a whole.
• Private investors.
• State and Municipal governments – support and co-participation
in project-affected area, mainly in providing support and social
infrastructure as well as in providing public goods under its
constitutional responsibility.
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♦ Within the scope of public irrigation project management
Project administration, operation and maintenance of its irrigation
infrastructure for collective use will be the responsibility of the National
Integration Ministry, through the Hydro Infrastructure Department,
having the support of:
a. Related bodies:
CODEVASF and DNOCS – co-management (only in the
implementation phase); management co-financing, O&M and
technical assistance (for family entrepreneurs); supervision,
technical and management assistance; control, audit and use of
fund and arbitration (of water distribution and tax policies).
b. Partners:
• by rights transfer – Water Users Association, Irrigation
Districts (integrating rural producers of small, medium and
large scales) in order to assume project administration and
O&M activities after its implementation;
• by decentralizing power – State departments – project
administration and transfer of O&M irrigation infrastructure
for collective use to the districts.
c. Interested bodies (government sectors) – public goods providers
etc.
♦ Within the scope of agricultural production organization
In production organization, from the production process to market
coordination aspects, the following attributions must be observed:
a. Public sector
Provide public goods, develop and promote markets, ensure an
appropriate contractual environment and an economic policy
which does not discriminate against agricultural activity, in
order to achieve and maintain the dynamic competitive
advantages of agribusiness activities.
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b. Private entrepreneurs
All scale producers, whether or not associated in groups and/or
co-operatives, integrated under contractual instruments with
other agribusiness activities.
6.2.4 - Management systems for irrigation projects
The international experience of public-private partnership in water

resource use, even when restricted to water distribution operation services
(as in public irrigated perimeters) suggests several alternatives for a new
irrigation policy concerning the expansion of private sector participation
in public irrigation projects for collective use.
Despite being valuable, this experience needs to be developed and
improved in order to accomplish the modern concept of integrated water
resource management, described in Law nº 9.433/97. This means, for
example, that before financing irrigation projects it is necessary to decide
form and funding of water resource management in the basin where the
project is located. Thus, a reliable supply (in quantity and time) of water
is assured and irrigators’ doubts about water supply dismissed.
Consequently, conflicts over water use are resolved, also taking care to
avoid negative environmental impact.
Alternatives to private sector participation in water resource use for
irrigation are part of delegation level or rights transfer desired by
government, of investment and capital financing level, of commercial risk
and risk rate admitted and service reversibility, in terms that range from
one to thirty years. It does not include asset transfers, when the term can
reach up to 50 years.
Five main models of contracting, adopted in many countries, are
suitable for public irrigation projects: Sub-Contracted Services, Lease
Contracts, Build-Operate-Transfer (BOT) or Build-Operate-Own (BOO)
and Asset Transfer.
i) Sub-Contracted Services
These contracts have simple execution but limited benefits. They
are adopted whenever an operational aim is clearly defined, or whenever
a certain expertise is sought and the goal is to reduce costs and improve
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service efficiency, in the scope of public autarchy, well administered
companies and entities with viable commercial tariff systems.
Although these contracts do not attract private capital to projects,
they allow the addition of new management and operational technologies
to systems managed directly by the public sector and, most of all,
stimulate competitiveness between private companies, in order to attain
better quality and productivity. That happens because these are short-term
contracts and are renewable, under a bidding processes, at least every two
years.
Unsuccessful experiences in the delegation of these services, part
of operational responsibilities managed by public sector, quite usually
happen due to their own inability to determine which processes should be
delegated and execution controlled. This reinforces the idea that this
model is only suitable for systems which have been successfully
administered. In most common delegation contracts the biggest mistake
has been process fragmentation, delegating to hired company only a
specific task or activity, as in State sanitation companies.
Attaining success in these contracts is directly related to selection
and contracting of the process as a whole, in which the hired company
may be stimulated to improve and add significant productivity results, as
well as take responsibility for the mistakes. Thus, it will be possible to
vanquish the idea that this contract only aims to hire cheap workers with
the sole and limited objective of reducing costs, no matter the quality
improvement commitment.
In this context, under the new irrigation law, these contracts can
only be adopted for studies and projects and for project supervision.
Water users associations, like irrigation districts, will take the
responsibility for operating and maintaining irrigation infrastructures for
collective use, initially sharing it with the project promoter.
ii) Management Contracts
Management contracts usually go from three to five years, are

presented as a previous phase to implement more sophisticated
alternatives to private sector participation, such as lease, BOT contracts
or BOO contracts for asset sale.
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Management contracts are usually linked to performance goals and
may offer fixed earnings, supplemented by another income depending on
productivity goals achieved by the hired company. However, the
responsibility for harnessing funds is the responsibility of the public
sector. In this case, if the government intention is to promote short-term
investments, hired management does not present significant advantages.
In Brazil, one notes the inability of the public sector to secure
compensation funds for loans or to take full investment with budget
resources.
Management contracts may be important in the medium-term in
opening new possibilities for the private sector both in management and
investments.
iii) Lease Contracts
Lease contracts are an important phase of introducing risk in public

irrigated perimeters management. Under these contracts Government
leases specific assets, irrigation infrastructure for public use, for example,
to an irrigation district or a private company that from that moment
becomes responsible for its total operation, maintenance and
conservation. These contracts range from 8 to 15 years.
iv) BOT and BOO contracts
Contracts to BOT (Build-Operate-Transfer) are those in which

private groups are invited to develop the following tasks:
(i) finance and build certain complete systems (for example,
irrigation infrastructure for collective use in an irrigated area,
part of an irrigation project, a sewerage station);
(ii) operate the system during a fixed term (20-30 years) and thus
attain return on investment;
(iii) return installations to the public sector after the contract ends.
These models are genuine transition alternatives for Project
Finance to implement actions that aim to expand private sector
participation in irrigation.
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The biggest advantage of this partnership model happens exactly
when there is pressure to expand irrigation area, in the shorter term, in a
situation of spare public resources and other prevailing government
priorities.
The alternative of partnership via BOT may be an accelerated
mechanism to meeting the guidelines of the new irrigation policy, that
concern expanding private sector participation in public irrigation
projects, both in the Northeast and north of Minas, considering the
following advantages:
a) using private financing to supply capital, which increases
resource availability to finance more actions under the local
irrigation program;
b) accelerate additional works execution (such as incomplete
collective drainage or irrigated area expansion in unfinished
projects) as part of programs supported by multilateral
financing agencies.
There is an alternative BOT model, named BOO (Build-Operate-
Own) in which contracted assets remain with the private sector instead of
being returned to the public sector at the end of the term return to capital
invested.
Thus, both BOT and BOO may be options to attract private capital
and may therefore be stimulated by a local irrigation program, covering
the biggest part of financing irrigation works and services.
Both may be used under the same current irrigation law once the
assets, when transferred (BOT model) are from private to public sector
and not the contrary, which is prohibited by law.
v) Asset Transfer Contracts
Asset transfer contracts have some of the characteristics of
privatization, which is prohibited by current law. Under the law, services
may be delegated but the assets cannot be transferred to the private
sector. Thus, its use will depend on changing Law nº 6.662/79, now under
the appreciation of the Senate. In Brazilian irrigation law, the payment
term may go up to 50 years.
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In general, all the models presented have some advantages and
disadvantages either for the Government or the private sector. The use of
any of them in financing a local irrigation program must be determined
during the execution detailing of each project and specific conditions of
Project Finance.
Figure 5 on the following page resumes the main characteristics of
each partnership model recommended, including concession, mostly used
in environment sanitation sub-sector.
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FIGURE 5
COMPARATIVE ANALYSIS OF ALTERNATIVES TO PRIVATE SECTOR PARTICIPATION IN WATER RESOURCES USE
ASSET OPERATION AND CAPITAL CONTRACT

ALTERNATIVE OWNERSHIP MAINTENANCE INVESTED COMMERCIAL DURATION
RISK
DELEGATION Public-Private
Public Public Public 1-2 years
MANAGEMENT
CONTRACT
Public Private Public Public 3-5 years
LEASE Public Private Public Public-Private

8-15 years
CONCESSION Public Private Private Public 25-30
Public-Private
BOT / BOO Private Private Public 20-30
ASSET SALE Public-Private Private Private Public Undefined
SOURCE: Adapted from Word Bank (1997).
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6.3 - Production System, Post-Harvest, Distribution and
Market
In Northeastern irrigation clusters there is segmentation between

production, post-harvest and distribution, with price negotiation under
“available” system. The producer usually has no previous purchase
contract before planting and after harvest offers its production to buyers
that visit him. There is lack of contractual links between production and
input systems (coordinated links between harvest, selection, peeling,
processing, packing and transport). Concerning highly perishable
products, it is not an efficient way of achieving the best revenue for
producers.
Information from distribution final markets is not systematically
and clearly transferred to producers due to brokers in every post-
production phase. Information on price, quality, demand or market
consumption rates is asymmetrical and thus the buyer has more relative
power to bargain.
Quite usually production decisions are not included in purchase
and sale formal contracts. When they are, contracts are fragile and not
widespread as common practice, time-honored and capable of guiding
business. If contracts have problems in sharing risks within segments,
without them there is an asymmetrical risk division that leads those who
do not know the trading risks to have less bargaining power.
The result of this contract system with no coordination is higher
risks for all players, from producer to finance agent, going through the
chain as a whole.
Market risks are greater for producers, when information is
asymmetrical (unequal information level between purchaser and
salesmen); when producer sells a perishable product after harvesting it
(inflexible supply); when transaction costs are high, production is
reduced and purchase market is not perfect. Access to information allows
individual trade players to reduce their risks, transferring them to players
with smaller information levels, like producers.
Besides an asymmetrical information system, according to market
and trade aspects, one also notes some difficulties for technicians, small
and large-scale irrigators, concerning technical information available in
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research. It is still fragmented, but not appropriate for the user and quite
usually spread amongst several players and not systematic or suitable for
the region as a whole.
As may be seen, the post-harvest production, distribution and
market systems prevailing in Northeastern irrigation clusters and, thus, in
public irrigation projects, has problems due to asymmetry in the
information system concerning prices, technology and trade management.
As an implementation tool for the new irrigation policy, seeking
economic, financial and environmental sustainability in public projects,
including an increasing participation of irrigated agriculture in exports,
the post-harvest production, distribution and market system must be
oriented to trade management aspects, market strategy, market and
technological information. That is what happens in the United States,
France, Chile and Spain, among other countries, as analyzed in the State-
of-the-Art Irrigation Report.
6.3.1 - Commercial management system
In public irrigation projects nowadays, irrigators (either small,

medium or large-scale), individually or associated (cooperatives, districts,
associations etc.) undertake many activities within the production
process, from identification of market opportunities or raw material
purchase to making production viable. Thus, the decision process is
complex and involves greater risks, especially dealing with vegetables.
The same limits are imposed on irrigators outside public projects,
but still within Northeastern irrigation clusters. Irrigated production is
expected to grow in these clusters and become a big business. Thus, it is
necessary to decentralize decisions and specialize the functions of agents
involved, particularly with large-scale production and trade volumes.
Thus, it is recommended that functions and risks be divided and
specialized. Naturally, reward levels must be proportional to risks.
According to item 3.2.4, about 65% of cluster’s traded production
flows between producers and wholesalers with no information symmetry.
To eradicate this characteristic means to increase producers’ incomes,
especially small producers who generate low volumes and work by
themselves. It will be possible in cases where the trade process is
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operated by leader organizations (producers co-operatives, associations,
agribusiness industries, companies specialized in trading etc.), when the
individual production volume is insufficient or directly sold by producer
or even when individual production volume is enough.
In addition to having trade operated by leader organizations, there
must be a sale contract (quality, quantity and price conditions) between
each organization and its final consumer, as well as between
organizations and their producers.
The leader organizations will be coordinating the market and
making information more symmetrical, because it is important to them.
The emphasis will be on commercial management. Its focus is on finding
new business and transmitting signals about preferences and prices at
final markets, that are received and used by leader organizations. From
these organizations information will flow to producers, who receive the
signals simplified. Thus, they can produce what is demanded according to
quality and prices offered in the final market.
To summarize, trade is based on a commercial management system
coordinated by leader organizations, as presented in the following figure:
FIGURE 6
PRODUCER
Leader organizations
• co-operatives
• associations
• agribusiness industries
• trade companies etc.
Wholesalers
Supermarkets
Foreign market
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Several commercial management systems may be implemented
(some of them are described in Appendix 8.3 of this report and reflect
experiences in Chile, USA, France, Spain). As production grows, they
mature and organizations become consolidated. It is possible to reach the
most advanced form in which every organization has a specific function
(e.g. an organization which only processes and packs) and is linked to
another with its own functions, complementary and specialized (e.g. an
organization to sell in foreign markets).
As production scale increases, more specialized organizations
emerge – under the universal concept of work division. At the same time,
they start to associate themselves in order to operate efficiently, even on a
large scale. Organization associations and, above all, establishing mutual
confidence forms (shared liability in business) are important for two
reasons: a) they increase chances of arbitration in price negotiations; b)
they reduce inefficiency in the legal system, which is the main obstacle to
implementation of a respectable contract regime.
Organization complexity increases along with market competition
level and also as production volumes increase. This dynamic process
deserves special attention because, as it intensifies competition, the need
for harmonization of interests between chain segments also increases, in
order to make business easier. It also avoids the breakdown of
organizational structure due to conflicts that derive from the inevitable
and tough negotiations over price and payment conditions.
As production scale and final market competition increase, the
same happens to risks and financing needs within compatible technical
and financial scales.
The need for processing and industrialization must undergo a
significant increase, which requires the participation of big companies
which operate on scales compatible with production potential, leading to
new production scale levels. In order to keep the market power of big
corporations far from critical levels that are disadvantageous to
producers, Government regulations must follow market evolution.
Finally, as production has potential to grow above the demand,
opportunities for external markets start to deserve very special attention.
New forms of organization must be created in order to respond to the
foreign market needs and to compete successfully.
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This way, signs indicate increasing decentralization and
specialization, coordination needs amongst several agents, functions and
production processes such as: harvest, preparation and packing, physical
distribution logistics, processing and provision of services necessary for
irrigation agribusiness.
Implementing commercial management systems means more
market coordination and symmetry in information flow, in order to
reduce irrigated agriculture risk. To improve market coordination, it is
necessary that Government invest in disseminating these ideas amongst
producers and their associations, discussing advantages and
disadvantages during seminars, releasing informative material,
coordinating contacts with producers’ associations worldwide, qualifying
specialists, improving production management and exchanging of
experiences and so on.
6.3.2 - Market strategies
This chapter describes the domestic market for a project (perimeter

or region) and activities that must be stimulated by Government although
the responsibility of private sector, in other words, of its agribusiness.
♦ Principles
• Companies, producers, associations and co-operatives generally
trade directly to retailers, emphasizing supermarkets and big
retail markets. They therefore achieve margins that today are
distributed between many players in the production-
consumption chain.
• Research is a very worthwhile investment.
• Producers’ associations are essential to achieve scale
development, which can ensure competitive costs.
• If association is not possible, the option is trading companies
which already have tradition in the market.
• Acting professionally is essential to success.
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♦ Strategy phases
PHASE 1 – Market Awareness
1. Identify and calculate the main cities under influence of

production region. Larger cities mean bigger markets.
2. Check population characteristics, such as: population, incomes,
level of education and age.
3. Identify Ceasas, their size, as well as the origin of traded
products. Get information at Ceasas’ technical departments.
Wholesale information serves as an important reference to retail
prices.
4. Identify supermarket chains or associations between small and
medium stores and their purchase base. If necessary, get in
touch with a State or local supermarket association.
5. Define the importance of supermarkets and big retail markets
concerning number of stores, number of check-outs in each
store, estimated income, origin of products purchased.
6. Check directly in the stores aspects such as types of traded
products, weekly purchase quantities, variety, classification,
maturation point, display techniques and packaging, refrigerated
area in stock and display.
7. Check product prices by type; compare bulk product prices with
packed products and pre-processed products.
8. Check with purchase department staff the conditions of product
purchase, concerning classification, packing, delivery days,
locations and shifts, terms and payment conditions.
9. Check purchase personnel requirements concerning store
access, such as tolls (gifts, tips etc.), promotional bonus or
additional volumes, payment to producers. Do not forget
promotional demands for special dates, like Mother’s Day,
Father’s Day, chain/store anniversary, Christmas, New Year’s
Day among others. Of course these expenses must be added to
final costs.
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10. Compare purchase conditions in different chains/stores.
Negotiate clearly and directly, defining responsibilities and
rights for each party. Although it is difficult to make official
purchase contracts, the best way to formalize these must be
sought.
11. Contracts, mainly international ones, must be adapted to
Brazilian law and Brazilian conditions.
PHASE 2 – Production planning
1. Information collected allows production planning in order to

respond to business conditions under conditions agreed.
2. Plan the production according to market and business needs
previously agreed, concerning volumes, classification, packing,
harvest/maturation points, defensive use, harvest and delivery
frequency, manufacturer brand creation and many other aspects.
3. Packing must be designed considering possible use of pallets,
stock area needs, trucks and loading / unloading areas,
considering the whole path to the retailer. The use of pallets
allows reduction of freight costs in many trade phases until the
final consumer, besides allowing mechanization in the whole
loading / unloading process.
4. Attention to Ministry of Agriculture Regulation nº 127, of
January 4th 1991, that indicates the use of packaging suitable for
the use of pallets.
5. Check the cost of stocking products or pre-process products (to
mince, slice, refrigerate or freeze) in retail packaging. Compare
with market prices and check that these process costs, including
machines, equipment and workers, are economically viable. Get
technical support from agricultural industry specialists.
6. Keep checking price evolution of products traded in partner
chains and competitors.
7. Create a brand that identifies and personalizes the product.
Define classification, harvest and packaging points. “Be
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courageous enough to include address and harvest date” on
product label.
8. After defining the brand, prepare a market plan to disseminate
its characteristics which individualize and show that this brand
is different from its competitors. Set strategies to introduce the
brand in the market such as promotions, tasting events etc. The
basis for success base is to maintain quality. Defending the
brand is important to keep market share.
9. Make sure the brand is unique (and respected) in the market
under a registration in the Industrial Property Institute (INPI),
associated to the Ministry of Industry and Development and its
Trade and Export Department (MDICX). The registration can
be requested directly by the company. However, there are
companies specialized in brands and patents in every Capital
and the main cities of Brazil.
PHASE 3 – Post-harvest and trade logistics
1. Calculate packing house installation in order to make it

appropriate to production. Whenever the production volume
does not justify equipment implementation costs, association
with other producers must be considered.
2. Provide strategic storage facilities that respond to the market
needs. If the distance is large, provide a refrigerated store if
economically and technically viable. All these structures must
allow the use of pallets in order to reduce costs in the future.
3. Study delivery strategies, following the most economic routes.
Choose a truck compatible to the orders, able to make the best
use of space for the cargo. Bigger volumes allow delivery in
bigger trucks, reducing unitary freight cost.
4. Watch the quality in all phases: from production to delivery to
the final users. Small and Micro-Enterprise Support Service
(SEBRAE) is able to provide training in total quality processes.
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5. Keep commitments and respect contract conditions. In case of
production problems, make all efforts to fulfill the contract,
including the purchase of other producers’ production.
PHASE 4 – Post-sale
1. It is quite common to find production problems identified in

supermarkets and large retailers’ sales areas. Post-sale
assistance allows detection and solution of these problems. A
direct contact with product replacement staff and consumers is
interesting to get information to help production planning.
2. Return contact with purchaser also allows evaluation of the
operation and collection of strategic support for continuation of
business.
6.3.3 - Market information system
Irrigated area development is related to implementation of

strategies that aim to improve the management profile of people
responsible for decisions, both in production and trading, guiding them to
improve decision process.
Several attempts at correcting errors was focused on production,
with lack of emphasis on the market, including post-harvest and trading.
Thus, the expected effects were not reached.
However, studies indicate that producers with lack of information
or with insufficient information levels sometimes lose up to 75% of their
product’s market value, following a huge income loss. The impact of
these losses is devastating.
Aiming to allow prosperity in irrigation, an information system is
proposed through actions directed to collect, treat and disseminate usable
information for management decisions, from amongst producers and their
organizations. The aim includes turning information into the “key-
element” of competitive capacity increase. These actions are developed
by the Government, as in the major countries, articulated with the private
sector.
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♦ Principles
• The current situation of hydro-agriculture exploitation is not

compatible with physical structure in irrigated areas.
• The lack of information, on several levels, leads to stagnation of
producers and their organizations.
• A continuous and solid information flow makes changes that
lead to increased economic development and competitiveness.
• A solid and efficient information system supports Government
and the private sector in formulating strategies and making
decisions.
• Fruit farming is an important factor in development cluster
formation due to its high income flexibility and volume and
high employment rates.
• Offering information about credit, technical assistance,
producers organizations, phyto-sanitary defense, agricultural
research, market, post-harvest, promotion and market, in
general, contributes to irrigation area viability.
♦ Operation
The National Integration Ministry (MI), as well as Banco do

Nordeste, Embrapa and Codevasf, within the scope of the New Irrigation
Model, have constructed an database that covers national and
international markets in many aspects such as: wholesale and retail,
import and export. They produce production and trade statistics both
nationally and internationally, covering post-harvest and production.
Information consolidated in a database will compose the “Central
Nucleus” of the “Market Information System”.
The use of this database will contribute to change the management
profile of irrigation projects from the collection, analysis and
dissemination of an information group that will be diffused under
“Databases”.
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Choosing geographical location for the activity starts before
technical contacts between MI and federal, State or municipal
institutions. However, Northeastern agriculture clusters will have priority
and they are already being studied by Banco do Nordeste.
Actions will be undertaken through multipliers selected because of
their potential for positive responses from institutions involved:
producers’ associations, irrigated perimeters and irrigation districts.
Multipliers’ preparation will include training courses where they
will learn about markets, trade and post-harvest, among other aspects,
that allow them to contribute with changes in management processes of
entities they represent, making them more competitive both in agriculture
and economy.
From this work, participants will indicate solution alternatives for
any critical points, aiming to improve perimeters’ agricultural and
economic competitiveness, introducing it efficiently into the market
system.
Once trained, participants will be able to receive data from the
Market Information System presented here, analyze them and make
management decisions. On the other hand, they will become information
sources for the System itself, feeding it with their regional production
data.
Some significant information for irrigators includes:
• historical market information;
• behavior graphics;
• situation analysis;
• production situation analysis;
• selected market analysis perspective;
• regular bulletins, with fruit farming selected market analysis
(Fruit Series);
• analytical journals about specific markets (Fruit Facts);
119
• production and post-harvest techniques;
• commercial opportunities in wholesale and retail.
The following information feeds the database:
• planted area by species and variety;
• production evolution: volume, periods, any problems that affect
production (increasing or decreasing it);
• producers’ price increases;
• production costs;
• trade logistics;
• purchasers;
• freight: availability and prices;
• packaging: material type, prices, origin;
• stock (natural conditions or refrigerated): location, capacity,
prices, availability;
• post-harvest infra-structure: availability and capacity of
classification equipment, products;
• agricultural industry: location, capacity, products origin,
production and its destination; purchase prices and so on;
• other data.
Databases will be located at previously selected agribusiness
clusters/irrigation districts. Their implementation will be preceded by
“pilot-systems”, composed of physical and human infrastructure. The
crew will count on a graduate technician, a secondary technician, a room,
a computer (including software and other equipment), telephone line and
a link to an Internet provider. In areas with no access to Internet,
information will be transmitted by fax.
Database operation will depend on the cooperation between the
Ministry of Integration and unity receptor entity, formalized in
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“information reciprocity contract” which defines attributions to both
parts.
The receptor entity is the responsibility of the place, crew and
equipment maintenance, as is feeding the system with local and regional
information. The Ministry of Integration is responsible for providing
technology, equipment, training, keeping a continuous information flow
and supervising developed works.
♦ Interaction with other institutions
Due to activity diversity, the information system, composed of
databases, requires systematic information exchange involving many
institutions, such as:
• Banco do Nordeste, Codevasf and DNOCS
Helping to select and prioritize clusters, training targets, providing
irrigated area information, production reports and so on.
• Agriculture and Supply Ministry
The Regional Development Department is responsible for technical
information exchange and Support and Development Program for Fruit
Farming in the Northeast (PADFIN). The Vegetal Defense Department is
responsible for phyto-sanitary obstacles, defensive registers, rules and
standards.
Embrapa – research and help technological dissemination in many
aspects, such as: new crops, soil-water-plant management, crop
treatment, harvest point, post-harvest treatments, storage and economic
analysis.
• International Relations Ministry (MRE)
Information about international market and commercial
opportunities, relationship with Brazilian embassies, commercial
contacts, support in trade fairs and exhibitions.
Support for marketing strategies of Brazilian products abroad.
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• Industry, Trade and Export Development Ministry
Export and import data.
Allows producers to gain access to the export process, including
bureaucratic and financial support affairs in export. Simplifies export
norms.
• Agriculture and Irrigation State and Municipal Departments –
contribute to information base implementation.
Selecting areas, prioritizing implementation along with producers
and their entities.
Taking part in training processes.
Articulating with irrigation districts, associations and co-operatives
or entities that represents producers, anchor-companies, technological
entities and so on.
• Ceasas/Wholesalers – wholesale data providers.
• Irrigation districts and companies, anchor-companies,
associations, co-operatives and technological entities.
• Information users.
• Information about production conditions, harvest, transport
availability, raw material and other conditions concerning
“information system”.
• Abimaq – provides information about irrigation technology
availability and prices.
• Banks – inform credit lines and availability, financing
conditions, interest rates, warranty. Accelerate profile
information exchange for financing.
• Sebrae – supports market expansion strategies, including
foreign market, under APEX Program, and qualifies
entrepreneurs in business management and strategies.
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6.3.4 - Technological information system
Embrapa coordinates the National Agricultural Research System

(SNPA). Based on research information, notes from various local
production systems and economic analysis of technology. Governments
must organize and offer each irrigation cluster a production system
(“technological pack”) including information on each crop, as follows:
• crops, their acceptance and compatibility with market demands;
• plant population/hectare;
• soil correction and fertilization;
• legal proceedings;
• pest and disease control;
• forms of crop cultivation;
• crop treatments;
• irrigation management (how, how much and when to irrigate);
• harvest, storage and packaging aspects etc.
Production systems must be complemented by quantity reports and
productivity predictions, shelf life of each crop, physical and economic
productivity indicators. In addition to this, information must be provided
about jobs available in each region, mainly those jobs demanded by
producers.
6.4 - Support Services
Successful implementation of a new irrigation policy demands a

support service that further aids private sector participation in the
irrigation business (concerning market, trade, agricultural industry,
private project implementation and mixed project participation).
Moreover, it must create conditions for development of small irrigators in
public projects. Concerning Northeastern irrigation clusters, it is
important to give access to specific market characterization in some
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aspects such as: origin certification, quality certification and production
schedule.
A group of support services may be implemented or ensured
through specific government actions for each irrigation cluster, aiming to
provide competitiveness. It includes information services, technical
assistance and production management, research and development,
management and environmental management training.
6.4.1 - Information base
The information base in each Northeastern irrigation cluster aims

to provide, as in many countries, access by several players to technical
and management information that aids the private sector in decisions,
such as: agricultural industrial implementation, export companies and
private irrigation projects. Information also helps them to decide the area
to purchase, in a public project, in order to respond to a specific demand
as well as to decide about mixed projects. Information must be detailed to
allow related risk evaluation and attraction of enterprises.
Information base will allow transmission of the most convenient
forms of technology and production organization to small producers,
whether in public projects or not.
Information base must be available on the Internet and use the
most varied forms of dissemination. It has to be established in each
irrigation cluster and must have, at least:
§ Basic information concerning weather, water and soil,
projects’ pre-viability, environmental characterization, transport
infrastructure availability, health, education and phyto-sanitary
obstacles among others.
§ Technological information related to potential crops in the
region, as seen in chapter 5.3.4.
§ Market information related to historical market data of each
crop, potentially described as technological information as seen
in chapter 6.3.3.
§ Management information including:
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• irrigated area, both public and private; public project
characteristics, such as: area, irrigator type, water tariff cost,
investment return cost, water volumes used each month etc.
• production by crop in recent years.
• export conditions and rules.
• production organization: type of purchase and sale organization,
agricultural industry etc.
• financial agents, credit lines and conditions, in other words, a
credit manual for irrigated agriculture.
6.4.2 - Technical assistance / production management
As seen in the State-of-the-Art Irrigation Report, at six

Northeastern irrigation clusters studied, small producers linked to public
irrigation projects under Codevasf receive financial and training support
through a technical assistance program, with guidelines, strategies and
searches for result. However, DNOCS adopts a different procedure.
Concerning medium and large-scale irrigators, whether in public or
private projects, technical assistance is provided by private companies or
independent professionals.
In public projects (with small, medium or large-scale irrigators) or
in private areas, technical assistance is focused on production aspects. It
is limited to the area’s boundary and is not highly committed to
agribusiness. Thus, it is opposed to modernity, so it is not convenient for
the competitive agriculture desired by the country.
Concerning medium and large-scale irrigators, whether in public or
private projects, technical assistance is their own responsibility.
Government should help by training private technical assistance in
management, trade and export promotion areas. In addition to this,
government should provide technical information collected in research,
including price formation and quality demanded by consumers.
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Concerning family businesses (small irrigators), government must
take part in production management through a specialized crew that
covers the following aspects:
(i) actions towards production organization focusing on market
and quality;
(ii) actions towards teaching negotiation techniques in purchasing
and selling products;
(iii) actions towards explaining concepts, such as: production
costs, price formation, brand structure and strategies to sell
products in natura or industrialized, both in family enterprises
and small producers’ organizations.
Production management procedure, and not only technical
assistance, allows family entrepreneurs or small irrigators to achieve
competitiveness in an agricultural situation that depends more and more
on productivity and quality focused on market.
The strategy proposed, as occurs with agriculture in other
countries, uses help and participation from specialized organizations not
only focused on agriculture, such as The National Rural Learning Service
(Senar), Sebrae and the information base.
6.4.3 - Research and development (R&D)
In the State-of-the-Art Irrigation Report, agricultural research into

irrigation was covered as a concept and its organization. That information
dates from 1999 and covers six irrigation clusters in the Northeast, north
Minas and 11 countries. In addition to this, during seminars with 243
participants, meetings and personal contacts, the opinion of most of the
public about irrigated agriculture concerning R&D was as follows:
(i) Agricultural research institutes of the region (such as Embrapa
units, companies and State research institutes, as well as
university Agronomy Departments) were structured to
investigate, until today, through agricultural exploitation
under traditional agriculture. In fact, things are changing in
order to study irrigated agricultural affairs, but still very
slowly.
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(ii) Research problems include: crop creation, irrigation and
farming practices, post-harvest problems, diseases and pests,
technology economic analysis, rural credit, prices and exports.
(iii) Technology demands very fast advances and it is more and
more usual to import technology, without the adaptations
needed. However, it is important for irrigated agriculture
modernization.
(iv) In order to reduce the huge gap between technology demand
and supply, it is necessary to expand public investments in
research into irrigated agriculture, stimulate private
investments and guide irrigators toward the best use of
international technology.
From the study, the following is proposed:
(i) Identify and define production systems (technological
packages), involving regional players (producers, innovators,
technical assistance and research crews) based on regional
information. Costs and incomes must be measured.
(ii) Use prospect methodology to define research demand, also
using regional thematic seminars that involve representatives
from irrigated agriculture businesses, in order to find research
problems as well as solutions and financial strategies. These
representatives are producers, technicians, equipment and
machinery suppliers, electricity suppliers, seed and plant
distributors, raw material suppliers, agricultural industries,
wholesalers and consumers. At the seminar priorities are
defined, as well as lines of research, dissemination activities,
transfer, governmental, institutional and private actions,
project co-financing methods, under specific requirements.
This methodology has rarely been used in the Northeast and
north Minas, but its use is growing in developed countries
where, besides researchers, there is close involvement of
agribusiness members. Methodology has a strong appeal to
client participation in defining research problems and does not
aim to limit researchers’ intuition or creativity.
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In Appendix 8.5 of this report the activity proposed to support
service in research and development is further detailed.
6.4.4 - Management training program
Agriculture needs to guarantee economic and environmental

sustainability in irrigation projects, both public and private. Thus, it
requires a high level of qualification and maximum efficiency in all raw
material and services uses. Thus, the new irrigation policy cannot deny
responsibility to support a management training program suitable for
regional characteristics. The National Rural Learning Service (Senar) and
the Small and Micro-Enterprise Support Service (Sebrae) may organize
and even sponsor it, focusing business players as their target.
Training programs must consider the target population involved, as
small irrigators and entrepreneurs, including providing aid for the former.
Management training program curricula will always focus on the
production chain and must include, at least, the following subjects:
(i) cost accountancy;
(ii) price formation;
(iii) users’ organization administration, focused on trade;
(iv) product quality;
(v) users’ organizations focused on irrigation projects operation
and maintenance;
(vi) behavior change.
6.4.5 - Environmental management services
The increasing quality demand for agricultural products, both in

domestic and foreign markets, requires the use of origin labels in order to
control quality.
To compete means to produce with lower prices than the
competitor, respond to consumers’ desires and preserve the environment.
Environmental control procedures sustain the quality and also the original
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labels. Thus, in public irrigation projects it is necessary to implement an
environmental management system to follow environmental impact study
(RIMA) guidelines and control water quality, defensive use (quantity and
type) and appropriate garbage availability (agricultural and residential),
amongst others, as well as undertaking educational work on
environmental affairs.
6.5 - Economic and Financial Mechanisms
Irrigated agriculture encompasses: (i) those projects under

exclusive responsibility of the private sector, that cover from small
irrigated areas, with less than 4 hectares, up to areas above 1,000
hectares; (ii) those where the public sector builds irrigation infrastructure
for collective and social use, locates irrigators and manages to create
conditions for success.
The new law also proposes a mixed project where the public sector
may join the private sector in an irrigation enterprise, since its share is
limited to 49%.
From now on, terms will be used from private, public and mixed
projects to denominate the three alternatives.
It is necessary to observe that Government direct investment in
public projects, at full term, represents a small part of total investment.
Certainly, water costs are lower than 5% of product sale, including
industrialized sale, in a full time project. Admitting proportionality
between expense flow and total investment, investment relation –
Government and private sector – is lower than 0.2, that is, 1 to 5: R$ 1,00
from Government for every R$ 5,00 from the private sector. Thus, even
in public projects, financing from the private sector is extremely
important. However, public investment is essential as it generates
irrigation infra-structure, essential to private sector operation.
The private sector is responsible for financing mixed and private
projects. Certain conditions must be created in order to attract this
sector’s interest also to finance public projects. A section will be
dedicated to this subject.
Concerning irrigated agriculture, and also agriculture in general,
Government credit is the main financing instrument for private projects
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and with regard to the private sector in public projects. In such projects,
Government still finances its part: project elaboration, area expropriation,
builds irrigation infrastructure for collective use, roads, electricity,
irrigator location, implementation and development of irrigation district
and its own action supervision.
Another important source of funding are the funds from project
implementation itself and those generated during the operation. More
sophisticated financing forms were not used until now. They will be
revised in order to indicate conditions that must be created to take-on an
additional irrigation financing form.
6.5.1 - Sources and mechanisms of financing
Irrigation financing occurs at irrigation infrastructure

implementation, either collective or individual, irrigation modular
structure, agriculture implementation (permanent crop formation, for
example: fruit farming, annual production cost), agricultural industry
implementation and also organizations focused on trading (e.g. producers
cooperatives, specialized companies etc.).
In this chapter, financing sources and mechanisms will be
discussed, both for the producer and his organization as well as for public
irrigation projects for collective use.
♦ Rural Credit
From the point of view of costs return, it is essential that public

projects mature in as short a time as possible. Three factors are obstacles
to this: (i) Government delay in finishing works, selecting and locating
irrigators. The reason is the constant contingency of funds by the
Ministry of Finance that obliges Government to postpone investments;
(ii) mistaken selection of irrigators, either from human capital point of
view or the fact of having minimum funds to afford the enterprise, since
irrigated agriculture is a capital intensive activity and, finally, (iii) Banco
Central rural credit norms that require an exaggerated warranty level
contributing to deficient supply of credit in terms of volume and period.
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A) Credit functions
It is necessary to remember the classic functions of rural credit:
1. anticipate fund, which would demand considerable time to be
obtained via traditional savings;
2. increase players’ security about investment;
3. create a trustful “culture” within banks, producers and
companies;
4. value technology and its dissemination;
5. stimulate entrepreneurial innovations, such as: companies
dedicated to profile evaluation, market analysis etc.;
6. stimulate credit submitted to trade affairs (particularly quality);
7. stimulate the creation of an “origin certificate” covering quality
control in vegetal and animal health, amongst other areas.
B) Access to bank credit
Credit norms need to be geared to irrigation characteristics,

covering volume for various sources, terms, interests, opportunities and
warranties.
Demands for warranty and own bank fund aim to reduce debt risk,
inherent to every credit operation. Bank administrators must report their
actions to stock owners, majority shareholders and maintain security of
funds accrued from the public.
A credit operation includes the possibility that producer-irrigator or
partner company fails to pay its liabilities. Warranties reduce debt risks
through penalties provided for in financing contracts. This loss risk
reduction allows the market to operate with lower interest rates. The use
of own bank funds reduces loan volume and provides objective
information about business competence of credit receiver. It has the same
effect over warranty interest rates and also over profile analysis.
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Specific resolutions of the National Monetary Board (CMN) and
Central Bank supervision, that aim to protect credit institutions and
depositors’ interests, establish norms about warranties and own resources.
For example, CMN Resolution nº 394 establishes that developing
bank credit operation must be ensured, isolated or cumulatively, under
real warranties, fiduciary alienation, collateral security, bail and other
forms such as: linked resources, an unavoidable payment reserve
provided by taxes, incomes or any kind of contribution and other
warranties. These are caution devices to ensure sustainability of “credit
funds”, in other words, to ensure that the future will not be ruined by the
present. Real warranties must cover at least 125% of financing value. If
real warranty is not enough to cover total operation value at contract
signature date, its progressive increase may be admitted during contract
validity, but only when the minimum rate of 125% is kept during
enterprise execution. Finally, collateral security or bail for private
individuals or companies when they are in a “notorious solvency”
situation concerning their economic-financial and asset situation
(BRASIL, 1976).
CMN Resolution nº 18 establishes that, in fixed capital operations,
multiple banks with investment portfolio and investment banks must
observe that resources provided are complementary to borrower
resources, who will always have their own investments in each project,
thus maintaining appropriate proportion between their capital and
borrowed value (BRASIL, 1966).
However, warranty and own fund investment needs constrain
access to credit for a large number of producers-irrigators, small and
medium scale companies, due to their low level of fund capitalization.
There is no information about their performance as borrowers or, when
such information exists, it is irrelevant. This makes the financing agent’s
insecurity even bigger, so that he requires more warranties than the legal
level.
In the case of companies, in short-term financing for working
capital, warranties required are promissory note, collateral security, the
document itself under collateral security (in case of duplicates or
promissory note withdrawal) and also, in some cases, fiduciary alienation
and other warranties. Processing and industrialization financing becomes
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difficult under this system – however, as shown before, there are solid
economic reasons in an insecure world for warranty requirements. In
medium and large-scale projects, the demand for own resources may be
more than 30% of total investment.
Cooperation between small companies has been used to improve
the access to credit. Cooperation concerning mutual warranties
(reciprocal collateral securities) allows small entrepreneurs to access
credit. In a different system, they may be outside of formal credit. This
“joint liability” reduces problems from warranties or own capital
requirement. It is an innovative system that makes access to credit and
collateral security easier and is being used by Banco do Nordeste.
Three important questions surround formal credit. One of them is
the financial agent’s preference for low risk entrepreneurs. It puts aside
small-scale entrepreneurs, especially from the private sector, and those
who are just being introduced to business. It is an adverse selection.
Another question is the possibility that future borrowers are unqualified
or have bad intentions, in other words, there is a moral hazard problem.
And finally, there is the question of asymmetrical information when the
finance agent knows more than the borrower and does not share
information with them. It may also be the opposite, increasing the
operation risk. It all comes from an uncertain situation that is reflected in
higher interest rates, exaggerated warranties and own capital needs.
Joint liability systems and local capital risk funds solve these risk
problems without demanding exaggerated warranties or own capital
needs, that limit producers in access to credit.
The access to credit must be improved through the following
procedures:
1. it has been noted that efficient credit administration depends on
reducing transaction costs, both to borrowers and credit
institutions. Thus, mobile unit lines and proposition receivers’
units or similar initiatives must be taken.
2. another point concerns irrigation credit management training, an
area that cannot be left outside the new activity structure. Here,
not only operational crew and financial technical assistance to
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portfolio is important, but also three extra strategic areas require
more attention:
• borrower management training;
• borrower training in financial operations;
• borrower training in costs accountancy.
C) Financing Manual to Irrigated Agriculture
There is no doubt that rural credit is one of the most important
instruments of irrigation policy. There is a good range of credit lines,
mainly for the production sector. However, it is necessary to consolidate
norms into a single document named the Financing Manual for Irrigated
Agriculture. Something similar was developed by Banco do Nordeste
with the Manager’s Handbook.
The manual’s aim is to make information about irrigation policy
available to future and current irrigators, covering credit norms and rules.
It cannot be static. It must be periodically updated and also be available
on the Internet.
Besides simplicity and objectiveness, the following aspects must
be observed:
1. consolidated laws and norms about the subject, presented in an
understandable way even for a lay person;
2. irrigation project definition and what can be financed; available
credit lines and their characteristics (aims, requirements etc.);
3. credit lines for agricultural industries and related norms;
4. credit lines for commerce and related regulations;
5. financing needs and credit availability, including
recommendation of financial institutions/agencies and their
characteristics;
6. possibilities for financing the productive chain as a whole;
7. incentives and constraints;
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8. access to international credit and how to obtain it.
The following aspects must also be explained:
• what a profile is and how it is done;
• warranties required by loan model;
• own capital required by credit model;
• technical and financial assistance;
• collateral security funds;
• credit warranties (relationship between financiers and warranty
institutions).
♦ Stock market: stocks, shares and stock certificates
The stock market is characterized by the following aspects:
1. Business volume does not have a spread between agents or
enough volume to reduce or keep manipulation possibilities at
regular levels. This sector has been improving a lot recently.
2. Stock markets are still concentrated in a few companies,
particularly State or recently privatized companies.
3. Low viability levels of other debt or stock certificate
instruments, such as: commercial papers (however, with 180
day terms) and issue of debentures. These are essential for
harnessing funds outside the credit system, in other words, for
equity funding.
4. Stocks negotiated at a secondary market are concentrated in a
few companies, particularly State companies. This happens
despite the option of warranty operation for issue viability and
negotiation in a secondary market, from international bodies.
The International Finance Corporation (IFC) would also have
debentures aiming to make investments viable in equity
financing.
5. Since 1994, company balance has shown critical liabilities.
Thus, there are less opportunities for stock issue because of the
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risk of bankruptcy. Incomes and liquidity analysis also show a
certain fragility. Thus, the market for these stock shares shrinks.
Capital risk available to all corporations is reduced not only to
small or medium scale companies. The Northeast follows this
trend.
6. Most Brazilian companies are Limited Corporations, which
blocks access to capital risk resources. The high costs of
transforming Limited Corporations in Limited Liability
Companies, and the ensuing maintenance, are obstacles to
change. There is a consensus that creating a Limited Liability
Company is only worthwhile to harness funds if the investments
are above R$ 250 million (total assets).
7. Capitalization by stock issue or debentures convertible to stock
shares has been difficult for small-scale companies, which
keeps the market concentrated on limited issues from banks and
financial institutes or large-scale companies. New companies
have difficulty in accessing the stock market and that would be
the case of companies involved in the irrigation business, as
well as small and medium scale companies, although they may
have good development and income prospects.
Some suggestions:
a. There have been changes. The market is creating opportunities
that must be considered by irrigators and their organizations in
irrigation business. There are new business and new
financing/capitalization alternatives that, besides current
options, aim to introduce more companies to the stock market.
Despite the difficulties, this market deserves more attention
from companies involved with irrigation business in order to
finance their investments.
b. In private or mixed projects, in the stock share and stock
certificate area, for large operator companies under the
coordination of a bank, it is possible to count stock share issue
for companies responsible for collective use infrastructure.
c. Still within mixed and private projects, another interesting
alternative concerns companies implemented through projects
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from an initial association of large leader-corporations, creating
an initial project-company, followed by capital issue, ordinary
stock or block trade stock, also with a coordinator bank.
d. A capitalization alternative to a project-company may be
ordinary debenture issue to a group of borrowers, such as IFC
and international banks that would guarantee national
construction company consortia. Another option would be to
issue debenture convertible to stock shares to investors or banks
interested in taking part in enterprises, including in investments
and participation portfolios. Finally, there is an option of
issuing ordinary debentures, with security for financing
infrastructure for collective use. The associated companies’
credibility would make the release of these stock certificates
viable, as well as their capitalization for investment.
♦ Risk companies
Capital risk companies focus investments, through diversified
portfolios, on small and medium scale companies of great potential for
huge incomes and development, by partnership. These companies’ funds
come from individual investors, large companies, federations,
entrepreneurial associations and “clubs”, banks, incentive bodies and
other investors, expecting to exceed traditional financial investment
returns. They were especially successful in technology. The main
advantages are: (i) they are more advanced forms of equity financing –
essential nowadays to make middle maturity investments viable
(otherwise, many investments worldwide would not be viable, despite
very high return rates); (ii) in search of high return rates, they are able to
finance more risky investments, since greater risk brings higher return
rates; (iii) they know how to compensate risk operating with high-tech
companies and richer markets; (iv) by choosing competently managed
companies, they make modern management techniques viable.
The main disadvantages are that they are not viable when they
operate: (i) with lower value-added commodities; (ii) with systems
subject to intensive labor activities; (iii) with very complex operations,
depending on several service suppliers or intermediary raw material; (iv)
with long term maturation investments; (v) with enterprises which have
bank credit as their main financing source; (vi) in a market with low level
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of stock share negotiability; (vii) in regimes which do not respect
minority partners’ rights; (viii) in systems where business owners do not
pay dividends or stockholders participation; (ix) with investors who do
not participate with risk capital.
These entities’ investment in risk capital demands not only fund
use, but also technological and top management support for the
entrepreneur, which makes it different from other forms of investment.
In many countries, these companies have facilitated “stock selling”
by initial investors, by selling company shares on the stock exchange.
The market has shown that: when sale system in stock exchange
markets is not viable, considering unfavorable conditions with narrow or
comparatively small companies (unfavorable relationship between major
and minor shareholders), financing alternatives, besides rural credit, are
as follows:
a. self-discharging instruments (recoverable stock shares or non-
convertible debentures);
b. “put clauses” or re-buy participation agreements for original
stock holder;
c. financed sale to company mangers;
d. sale of share to other companies or investors;
e. mergers and take-overs.
These mechanisms are not yet mature in Brazil. In the Northeast,
for example, there is only one company using them, Pernambuco S.A.,
which has been finding it difficult to locate all its resources in risk
capital. The company mentioned operates in Pernambuco, Alagoas,
Paraíba and Rio Grande do Norte States. Financial markets watch this
idea very carefully and it has taken 50 years to be disseminated in Brazil
and have only recently undergone significant development.
♦ Mutual Investment Funds and Emergent Companies
Answering for a substantial part of risk resources in competitive
segments of financial markets worldwide, these funds have been
presenting amazing results and development. They are unquestionably
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risk investments, including expanded risks, due to the group of
companies that compose these funds (which in a certain sense does not
occur with capital risk companies).
Worldwide experiences have been heterogeneous concerning
results. Most of them are very good and a couple of them rather bad, as
opposed to stock exchanges which have varied results as time passes by.
In this case, the results are known in the first years of funds operation.
However, most investors, due in fact to fiscal incentives, concerning
capital returns, have a major part of their portfolios with these funds.
In Brazil, this initiative had only developed from the mid 90’s with
the creation of mutual investment funds in emerging companies,
regulated by CVM Normative Instruction nº 209, dated on March 23rd,
1994 (BRASIL, 1994).
Its advantages are: (i) spread risk; (ii) potential to form a group of
shares in high return companies (even when they are few among a group
of bigger companies); (iii) alternative to investment outside the highly
competitive circuit of funds and investments (where return is slightly
superior to traditional savings, from the market point of view); (iv)
quickness in service demand expansion, as happened in the United States
and Europe, along with increased value quotes (BRASIL, 1994).
In Brazil, until today these funds have not reached a significant
number of companies. According to information available until 1997,
there were only eight funds registered at Comissão de Valores
Mobiliários (CVM). Within these eight funds, only five of them were
indeed working until that date. There are indications that other funds sent
their register applications to CMV and there is a trend towards all
Brazilian States being covered by these instruments. In the Northeast,
Banco do Nordeste, along with Banco Bozano Simonsen, is building a
regional fund predicting initial assets of R$ 30 million.
In an attempt to identify investors, it is noted that although the
minimum value for a single quote had been reduced from R$ 100.000,00
to R$ 25.000,00, most resources for investment funds still come from
institutional investors, mainly pension funds, which may invest up to 5%
of their patrimony in this segment. The investment also comes from
Banco Nacional de Desenvolvimento Econômico e Social Participações
S.A. (BNDESPar), a large-scale institutional fund; medium and large-
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scale companies associated with industry federations in their States; as
well as international investors and bodies, large investors like the IFC,
whose board has been recommending the abandonment of minority
interests in Brazil.
These funds have not been sufficiently capitalized regionally. Fund
opportunities, composed of good companies, are not regionally
disseminated. There is even poor selection of projects. Dissemination is
negligible within companies concerning requirements needed to access
this financing alternative. There is a lack of liquidity warranty
mechanisms for emerging companies that could guarantee a future
purchase base. Finally, it is necessary to stimulate and even finance the
transformation of Limited Corporations into Limited Liability
Companies, using specialized technical services.
Under CVM Instruction, emerging companies are public capital
companies. However, most small and medium-scale Brazilian companies,
that would operate at irrigated perimeters, follow the majority because
they are in the form of Limited Corporations. This avoids companies
accessing the aforementioned fund resources.
One possibility is to change CMV Regulations in order to cover
this situation. Even authorized by regulations, would a fund that invests
in Limited Companies be able to sell its quotes to big institutional
investors, that take part in companies’ capital but do not administer them?
The answer is no.
As a Limited Corporation cannot issue papers or stock
certifications, it is not obliged to publish financial balances or distribute
its results to shareholders, the most realistic solution for bringing them
into the capital risk market is, instead of changing regulations, reducing
costs and the main constraints that inhibit transformation of Limited
Corporations into Limited Liability Corporations.
♦ Capital Risk Funds and Local Development
This is one of the most promising financing systems for small and
medium-scale companies in irrigation projects. One of its main
advantages is that in irrigated agriculture there is enough income to form
a saving fund and loan fund with low operational cost and low levels of
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subsidy dependency (SDI, or the difference between financial costs plus
administration costs and loan rates).
Capital risk funds and local development complement formal
credit. Thus, when these funds are organized along with credit lines for
family agriculture, under rotation and mutual credit (creating joint
liability or mutual passive responsibility), stimulating saving systems
linked to credit and innovative forms to turn borrowers into system “stock
holders” (mutualism), these funds reach higher efficiency levels,
correcting part of adverse selection. This spreads very fast worldwide.
These funds must count mainly on local investors’ resources. Thus,
they are savings and loan funds. To apply for credit, producers must have
savings or be ready to start saving, following game rules. Local resources
may be added to investment banks, bilateral and multilateral agencies and
institutional investment investors, such as matching grants, only for
development, and matching loans, to loan operations.
Amongst the advantages are: (i) system is appropriate for diffuse
operations in small companies and locations, helping small-scale
borrowers; (ii) when commercial banks do not possess appropriate
instruments to supply small enterprises of family entrepreneurs with
capital; (iii) ease rural credit development as the community starts to
demand other kinds of financing, not only those related to incomes; (iv)
resources are given to specific targets and do not concern general credit.
Thus, it starts from local needs and guarantees that the savings will be
invested where they came from; (v) it is cheap credit, but not subsidized –
together with today’s spreads, it is possible to offer lower-interest credit;
(vi) it is more didactic for borrowers than normal credit, as it is their
system.
Funds like these have the advantage of overcoming huge
difficulties from conventional credit systems, that mix development credit
with commercial credit, whish is still abandoned in some countries.
Traditional systems have shown low financial sustainability in the
long term. The reasons: debt composition avoids future use of “funds”; of
low financial credibility due to debts; they were built without borrowers
participation; they are excessively concentrated; local and regional
“entities” do not take part in management; the subsidy dependency level
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is not clear; with high management and transaction costs (both to banks
and borrowers).
Some of the main disadvantages are: (i) there is no “friendly” law
that allows development of innovative ideas in this field; (ii) commercial
and central banks worldwide were against these funds for several years,
however they became associated and supporters later; (iii) Brazilian
experiences are few and far-between; (iv) it is necessary to develop
mutual passive responsibility, which is an obstacle.
Local capital markets may have a regional bank as an anchor,
working together in harmony, as in several countries.
♦ Sales Receivable Security
Increasing operations worldwide prove this system’s advantages,

which grow significantly every year.
Nowadays, receivable security is even more related to small
companies’ financial operations, whenever its origin is linked to similar
operations involving big company invoice discounts (merchant invoices,
for example). Due to security provided, the interest for these operations at
banks is growing. Many small companies operations were focused on
“non-bank” scopes (such as factoring). Today, “vendor” operations and
receivable security interests non-specialized banks, totally supported by
commercial banks.
Operation basically involves: (i) “homogeneous activity” papers
offered by a “receivable salesman”; (ii) a specialized broker to issue
“certificates” (server); (iii) investors interested in buying these
certificates; (iv) fiduciary link that classifies receivables; (v) a credit
assistance that adds credibility.
The advantages are the following:
a. it is a source of “financing” that may have lower relative cost,
once operations are based on liquidity papers;
b. leads to receipts for “sale of client services with almost no
capital risk” in financial balances. Thus, capital return
indicators improve;
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c. reduces fixed assets to provide eventual debts;
d. allows relative reduction in information costs to financial agent
in credit analysis for a sale company and a purchase company;
e. operations are based on “real products”;
f. brings independence concerning financial balance data;
g. it does not depend on warranties (“last instance creditor”);
h. banks can operate with small and medium scale companies and
spread their portfolios for low relative cost;
i. provides liquidity for credit in companies with low capacity to
receive loans;
j. puts cash flow receivables aside, which makes loan receiving
easier (passive operations) for investors outside the bank
system.
The disadvantages stem from the following aspects:
a. companies which purchase projects and perimeter products are
very informal (high risk to operation);
b. high costs to spread portfolio;
c. sensibility to receivable volumes and minimum values;
d. difficulties in selecting companies (selected portfolio) to
compose a group responsible for paying for the receivables;
e. it is very difficult for “investors” to obtain information;
f. there are huge difficulties in “risk classification”.
Water tariffs are qualified as a possible receivable for security.
♦ Public Projects Financing
Financing public project infrastructure for collective use is the
responsibility of the National Treasury or Banco Nacional de
Desenvolvimento Econômico e Social (BNDES) and may be
complemented with international institutions’ resources.
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In the short term, it is possible that the private sector start financing
irrigation infrastructure for collective use, since Government agrees in
providing warranties, based on water tariff payments, for example.
Government sells infrastructure during irrigators leasehold, but the
official ownership transfer occurs when the last installment is paid.
Government gives these parcels paid by irrigators as warranties to the
company which financed the project. In addition to this, Government
guarantees future installment payment, during a given period negotiated
in each case. This negotiation is provided for during project bidding
process announcement. Installments may also guarantee the company that
financed the project in its future loan operations.
Thus, this type of financed project focuses on farmers with proven
competence in irrigation technology and experienced in agribusiness. The
aim is to eliminate, as much as possible, the risk of irrigator failure in
enterprise. In this case, the private sector will be responsible for financing
irrigation infrastructure for collective use in public projects. Within the
Government’s scope is:
a. area dispossession;
b. project elaboration; including, besides usual procedures,
specification of conditions to which a company will be
submitted when financing a project, as well as the warranties
provided by Government;
c. to submit the project to a bidding process in order to select the
company to finance it. Firms involved in this process will be
pre-qualified according to criteria to be defined. One of them
will present proof of competence in operating other financing
forms besides bank credit. A consortium of companies may take
part in the process. In order to simplify, this company will
hereinafter be called financier, which may be a consortium of
companies;
d. to sign a financing contract with bidding process winner, as
established by bidding process official announcement;
e. within financing contract conditions there are:
e.1 penalties to Government and financier in case of breaching
contract clause;
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e.2 financing guaranteed to irrigators, concerning opportunities,
volumes, interest rates and terms;
e.3 financing guaranteed to industry and commerce, as
established by contract;
e.4 guarantee that selection of irrigators will not suffer political
influence, following strictly agreed conditions;
e.5 in case of financier needing official or international banks
funds, Government must provide what is provided for by
financing contract.
e.6 clear indication of how financier will be compensated and
how Government will guarantee the operation.
According to the signed contract, the following actions will be
udnertaken:
1º together with financier, building works and supervision will also
have their bidding processes. The same company may finance and build
the project;
2º Government will provide all social infrastructure buildings, as
established by contract;
3º together with financier and respective contract conditions,
Government will draw-up the official announcement for irrigators’
selection;
4º financier will be responsible for enterprise promotion process;
5º start up irrigators selections, which must sign the contract,
which is part of bidding process official announcement. Under this
document, among other aspects, they assume the commitment of paying
installments related to irrigation infrastructure for collective use purchase
and they are only specific warranties;
6º in this model, technical assistance expenses concerning district
implementation and development, as well as irrigated agriculture
development, are the responsibility of irrigators. However, the part
concerning family business expenses may be the responsibility of
Government.
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6.5.2 - Financing models
The current financing model for irrigation clusters depends on

bank credit, rural credit or own funding. The investors are owners of
production means (from small to large-scale irrigators), processors’
organizations, agriculture or commercial industries.
It is necessary to change this focus and this paradigm. It is
necessary to associate management with financing, in order to make a
more advanced management system viable. The main characteristic of a
modern management system is its capacity to harness funds from other
companies, through a capital association regime that demands return
proof of business as a whole, and not only concerning agricultural
production. The proposed model is named Financing Model Type – 1. It
links commercial management systems to financing and is based on
rural/agricultural credit and investment harnessing.
When operated under an advanced management system, the model
achieves the condition in which producers’ global financing and leader
organizations may be greater than the sum of credits delegated to
individual segments. There is also financial “solidarity” and
responsibility sharing, focusing on irrigation “business value” as a whole.
This may help the strengthening (and creation of new) agricultural
industry that operates in various regions, which previously defines
purchase value of agricultural products, fulfills commitments and
supports production processes by giving technical orientation and
supplying/financing part of the raw material.
It is necessary to change trade companies’ profiles at irrigation
clusters. They only purchase the product, helping to update management
systems and providing credit support and financing to a larger scale
operation.
The process is concerned with creating a “mutual help culture”,
under a guarantee system that involves all interested players from a
business point of view. In other words, it concerns changing the current
view, which is segmented, into an agribusiness view, which is integrated.
Actually, this model is similar to the current irrigation financing
model. The new requirement is to improve State competence in the public
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goods area, allowing private sector to get significant return with business
risk, avoiding an exaggerated number of bankruptcies.
Private sector participation in the irrigation business, in private
areas, individual or collective, may have more defined limits from
consistent and systematic information of enterprise incomes (provided by
information base), which can stimulate project-enterprise development, as
described in Appendix 8.4 of this report, concerning Commercial
Management System 5. In this case, the financing model to be operated is
Financing Model Type – 2, based on partner financing of project assets.
Project-enterprise is composed under partnership agreements with leader
associated companies and strategic investors.
Financing Model Type – 2: Financing of a private enterprise (in a
complete project) named project-company on which participants are
attracted by a positive liquid cash-flow that provides satisfying potential
incomes, although submitted to risks. Participants are project
shareholders.
The advantages and disadvantages of Financing Model Types 1
and 2, as well as a more detailed description, may be found in Appendix
8.4 of this report.
6.5.3 - Description of financial risks
This chapter aims to evaluate investment risks in commercial

enterprises of irrigation projects. Another task is to evaluate project
exchange risk, when financed by international loans, capital investment
of foreign companies focused in export. From exchange rate
liberalization, today in a floating exchange regime, risk generated at
Government had a significant reduction. Exchange rate started to float
according to market forces, not confounding speculative operations
anymore. Under irrigation project conditions, it is noted that our
economic risks have complete domain over exchange risks. Thus, we
decided not to evaluate it.
Thus, this chapter focused on risk evaluation as noted by investors.
For this purpose, potential business investors were consulted. The
objective is to know business investors’ opinion, as well as irrigation
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project risks. The following section summarizes semi-structured
interviews with investors.
The study of risks associated with irrigation enterprises was
divided in two parts:
a) risks that may be classified as general risks of irrigation
projects;
b) financial risks of irrigation projects.
♦ General Risks of Irrigation Projects
The central question was: What are the main risks of an irrigation
project?
The answers, some of them new issues, were the following (in
order of relative importance):
1. Until now, it has not been possible to build competitive
advantages from comparative advantages.
2. What is the real market size for irrigated agriculture products:
domestic or foreign? Not knowing the real dimension of
products market size is a risk.
3. Are the logistic conditions of public infrastructure
appropriate?
4. Do we have technological know-how?
5. Currently, is there integration within irrigated agriculture
chains? Is there a holistic view inside this sector?
6. Can we trust the unity of the chain as a whole concerning
common objectives and business promotion?
7. How does the Government and private sector partnership
work in this business? Is there a tradition covering its new
objectives? If not, is it possible to change it?
8. What are the efforts to develop export markets by promoting
Brazilian products abroad?
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9. Is the labor force qualified? Educated? Trained?
10. What are the labor costs? Are there any incentives to pay for
this?
11. Concerning electricity supply, in some areas it is not
satisfactory.
12. There is also a water supply risk.
13. Tax and fiscal costs are high for industrial activities at
irrigation projects, mainly the income taxes, covering all the
phases through Cofins.
14. Labor is regulated by law. It should somehow be “agreed”.
Payments must follow a quantity-quality system.
15. Financial costs represent the main risks (TJLP flotation is
mentioned), increase insecurity levels and doubts over credit
conditions and security provided by warranties.
16. Nowadays, even when dealing with tropical fruits, there are
competing countries concerning private investment harnessing
and market attraction, which present lower relative risks.
These countries are: Costa Rica, Puerto Rico, Honduras,
South Africa, Israel. Can Brazil offer better incentives to
compete with them?
17. A huge problem is that we do not have an efficient vegetal
sanitary defense system.
♦ Financial Risk Evaluation
This section presents interviews similar to the previous section,
although it focuses on financial risk affairs. The answers, in order of
relative importance, are the following:
a) Delay at project implementation as a whole.
b) Foreign capital constraints (financiers).
c) Domestic capital constraints (borrowers).
d) Low debt capacity (asset commitment).
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e) High liability of current and potential companies.
f) Unexpected capital costs in cash-flows.
g) Project technical failures.
h) Non-fulfillment of public fund release commitments as
predicted for water supply and infrastructure phases.
i) Participants’ financial problems (bankruptcies).
j) Improper Government interference: institutional risk.
l) Losses due to uninsured causes (including financial causes).
m) Price increase or lack of raw material
n) Technical obsolescence of plant or process technology
o) Loss of competitive market position.
p) Weak and people-focused management.
q) Optimistic evaluation of product value: optimistic gap.
r) Bankruptcy or contract breach by local Government.
s) Improper evaluation of cash flow and financial viability.
t) Lack of producer training for financial operations.
♦ Risk of Agriculture Product Price Floating
The hypothesis is that the main risk in irrigated agriculture comes
from product price floatation. Of course raw material prices, weather
conditions and diseases spell trouble for irrigated agriculture. However,
their effect is related to product price flotation due to control provided by
irrigated agriculture, including in raw material purchase.
Prices may vary during the year and within years. There are
seasonal components and trends. As technological development has been
pushing the supply to grow over the demand, general trend is a price
decrease. But it is difficult to model this trend because it would mean
modeling technological progress, which is very complicated.
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The importance of the aforementioned facts, intensively
experienced by producers, led the consortium to develop case studies,
evaluating the risk of product price floatation on investment returns. The
case studies presented here are a guide to specific situations.
From a practical point of view, by using econometric methods,
product price series identified is stationary and, if so, the arithmetic
average will be used. The risk will be the standard deviation divided by
arithmetic average. In case of non-stationary series, the risk measurement
is more complicated. Concerning its future use, we decided to predict the
price one step ahead, in other words, one month after series finish, when
data is monthly. Standard deviation was measured first, and then the risk,
dividing mentioned value standard deviation for the same mentioned
value.
Data covers various irrigated agriculture products, provided by
Minas Gerais and São Paulo Ceasas, from January 1995 to May 1999.
They are monthly averages and June 1999 is the aforementioned ‘one-
step-ahead’ month.
Risk calculation as proposed is based on the hypothesis that
producers would rather have higher prices with less flotation. Thus,
flotation level is an appropriate risk measurement; the lower the flotation,
the better it is from producers’ point of view. In non-stationary series, it is
noted that risk calculation procedure is equal to admitting that producers
do not believe that estimated trend would prevail indeed. They would
probably accept only the mentioned price for the next month at the series
end, for their future decisions. Another restriction: two observers may
have different predictions if one of them has one month of extra
information.
Plena Consultoria de Engenharia Agrícola Ltda. has been assisting
many irrigated agriculturists in north Minas. Within its activities is the
evaluation of financial return internal rate. They used data from 20
irrigated agriculture enterprises since 1997. These enterprises are based
on banana, mango, lemon, onion, taiti-lemon, papaya, watermelon and
coconut crops.
This section’s case study evaluates the risk of price flotation for a
product series, based on data from Ceasas-MG and Companhia de
Entrepostos a Armazéns Gerais de São Paulo (Ceagesp). It also evaluates
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internal rate flotation risks of 20 enterprises assisted by Plena in north
Minas. For each investment, there is a cash flow presenting annual
production for each of the twelve years, as well as a price supposed to
have prevailed during these twelve years. In non-stationary series it is
admitted that an estimate may be made by the one-step-ahead procedure.
We used the price estimated by Plena and the standard deviation obtained
under the model. Besides production data, complete cost data is also
presented.
As only production price flotation was admitted, internal return
rates are recalculated to inferior and superior limits considering price
averages, concerning stationary and non-stationary situations. Trust gap
corresponds to average + 1.96* (average standard deviation). Price
flotation during described interval allows calculation of return rates
flotation interval.
Details and calculations are described in Appendix 8.6 of this
report.
♦ Risk Flotation Estimated for Product Prices
Series seasonality was analyzed under classical Box and Jenkins
(1976) concepts, studying auto-correlation functions, partial correlation
and inverse correlation. When necessary, stationary condition was
introduced under dephase operators system. In general, first of all, to
eliminate stochastic trend and, at 12th place, to eliminate stochastic
seasonality. After this previous smoothing process, the model
Autoregressive-moving average (ARMA) (p, q) was chosen in order to be
sufficiently adjusted to data. The only exception was the mango series,
São Paulo, for which was chosen a deterministic trend model. As
explained before, dealing with long term predictions, in stationary series,
risk is calculated by dividing standard deviation by the average. In non-
stationary series, risk is equal to the aforementioned one-step-ahead value
standard deviation divided by the same mentioned value. In this case, risk
is a proxis. An observer with one month of extra information, not
available when the model was estimated, could find a different risk.
Tables 2 and 3 present estimates of average and standard
deviations from the average for a group of products reported by Minas
Gerais and São Paulo Ceasas. The estimates were obtained from a time
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series econometric model. The tables also indicate if the series is
stationary or non-stationary.
TABLE 2
SERIES CONDITION, MONTHLY PRICES AVERAGE, AVERAGE
STANDARD DEVIATION AND RISK TO A GROUP OF PRODUCTS,
FROM JANUARY 1995-1999, CEASA-MG
Average Risk
Products Condition S.D.
(R$/kg) (%)
Pumpkin Stationary 0,29635 0,019593 6,61
Sweet potato Stationary 0,43993 0,030477 6,93
Beetroot Stationary 0,4858 0,053604 11,03
Onion Stationary 0,59051 0,06689 11,32
Carrot Stationary 0,41022 0,03027 7,38
Watermelon Non-stationary 0,32866 0,011173 3,39
Melon Non-stationary 0,10366 0,093018 89,73
Pimiento Stationary 0,73703 0,04681 6,35
Pepper (SP) Non-stationary 0,07528 0,054246 74,79
Okra Stationary 0,6814 0,047556 6,98
Tomato Stationary 0,043376 0,032953 75,97
Pineapple Non-stationary 0,7218 0,081329 11,26
Banana-prata Non-stationary 0,70689 0,097491 13,79
Banana-nanica Non-stationary 0,4139 0,028975 7,00
Sour coconut Non-stationary 0,82926 0,05985 7,22
Taiti-lemon Non-stationary 0,62271 0,084018 13,49
Papaya Non-stationary 0,851593 0,10660 12,52
Mango Non-stationary 0,22965 0,04151 18,08
Passion fruit Stationary 1,2427 0,091669 7,38
Grape Stationary 2,5397 0,10952 4,31
Yam Non-stationary 0,49793 0,024788 4,98
SOURCE: Ceasa-MG. Data handled by Plena-FGV-Projetec Consortium.
In the stationary type series, only tomato has a high risk (75.97%).
In the non-stationary series, pimiento is highlighted (74.79%) as is melon
(89.73%). Mango has 18.08% of risk rate. Above 10% of risk rate are 10
out of 21 studied products, around 47.6%. Export products, such as grape,
coconut and banana-nanica, have lower risks. Melon is not included in
this standard.
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From the seasonal point-of-view, ten series were stationary and
eleven non-stationary. Excepting sour coconut, non-stationary series
showed a price decrease trend.
São Paulo is different from Minas Gerais in two aspects. Firstly,
the highest risk was equal to 19.15%. Secondly, only six products
presented stationary series against 15 non-stationary series. Five products
were above 10% risk rate, representing 23.8% of 21 studied products.
Just like in Minas Gerais, non-stationary series price trend is non-
decreasing.
As São Paulo’s market is much bigger than that of Minas Gerais, it
is indeed better connected to foreign markets than other regions, of
course the risk is lower than in Minas Gerais. São Paulo’s information is
in Table 3.
TABLE 3
SERIES CONDITION, MONTHLY PRICES AVERAGE, AVERAGE
STANDARD DEVIATION AND RISK TO A GROUP
Average Risk
Products Condition S.D.
(R$/kg) (%)
Pumpkin Non-stationary 0,46031 0,015131 3,28
Sweet potato Non-stationary 0,49482 0,032583 6,58
Beetroot Stationary 0,40828 0,031527 7,72
Pimiento Stationary 0,73703 0,04681 6,35
Okra Stationary 0,64683 0,031553 4,87
Tomato Non-stationary 0,84399 0,078698 9,32
Banana-prata Non-stationary 0,97469 0,078162 8,02
Banana-nanica Non-stationary 0,5199 0,046395 8,92
Sour coconut Non-stationary 0,9443 0,057135 6,05
Taiti-lemon Non-stationary 0,52659 0,076112 14,45
Papaya Stationary 0,64067 0,093158 14,54
Passion fruit Non-stationary 0,87005 0,06948 7,98
Grape Non-stationary 1,2031 0,1047 8,70
SOURCE: Ceagesp. Data handled by Plena-FGV-Projetec Consortium.
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♦ Internal Return Rates Floatation
It is important to point out that absolute rigidity of costs and of
production was admitted, in relation to the inferior and superior limits of
prices, which, in practice, does not occur. It is always possible to cut
costs, when product prices fall, as well as adjust production. And the
inverse can happen when they increase. The effect of these adjustments in
the internal rates of return is very complicated to be foreseen. For this
reason, the calculation of the interval of their variation was preferred,
without considering the adjustments that the producers would carry out,
which can reduce or increase the variation of the rates. The price and
production estimates adopted by the Full Rate was taken as a base. The
interval of variation of production value was calculated, multiplying
inferior and superior price limits by their respective production.
As usual, the study sets product prices in a determined period, 12
years in this case. This change concerns only trust interval measurement
of each price and multiplying respective production by its inferior and
superior limits. Thus, we have production inferior and superior limits.
Afterwards, we follow Plena’s calculation methodology to get inferior
and superior limits of internal rate return. Cost structure remains without
flotation.
Another option is to calculate production flotation, by summing
production volume squared and multiplying it by its respective price
flotation. The square root of flotation obtained is multiplied by 1.96.
From obtained production, we sum and subtract the obtained value. This
option was not followed. Thus, return rate flotation interval was
calculated under the known hypothesis, at the first year, the average
price, the inferior price limit of each product and also the superior price
limit. The other floatation at return rate calculation are known for sure, a
naturally heroic hypothesis. Average price and superior or inferior limits
remain the same for the last 11 years. When it is a non-stationary series,
we substitute average price by predicted value, following the one-step-
ahead procedure discussed above.
All of the 20 projects presented average internal return rate above
capital return rate, which is about 11%. Only four of them have inferior
limit annual return rates lower than 7%. It is also interesting to note the
huge gap between inferior and superior limits. In an average project, if
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return rate was 1%, inferior limit will be equal to 0.42, and the superior,
1.62%.
The main conclusions that may be drawn from this case study are:
• price flotation during the year and price decrease trend indicate
the need to work with a group of products in order to spread the
risk of production value. In addition to this, the highly
competitive market indicates the need for producers to qualify
themselves even more in price formation for their products;
• it is more and more important to guarantee a higher return rate
to compensate other risks. Producers must have an efficient sale
management for their products, trying to sell them in more
favorable periods and in sufficient quantity to compete in the
better markets.
6.5.4 - Strategies for the mitigation of commercial risk
As in the previous section, current and potential investors in

irrigated agriculture in the Northeast of Brazil and north Minas were
interviewed. Their proposals were as follows:
1. Detailed information about all kinds of possible crops to be
developed in irrigation projects, to be used in preliminary
market studies, essential to start up decision process.
2. Indication of potential export products, as well as physical
conditions for loading production for foreign market
3. Detailed information on production technology and crop
productivity to be used in project area.
4. Preliminary guarantees that projects will be financed (mainly
from Banco do Nordeste).
5. Inventory of social and production infrastructure available:
roads, schools, electricity etc.
6. Availability of labor force and local workers’ training, as well
as irrigation management experience.
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7. Indication of probable duration of studies, implementation,
operation beginning and maturation prospects of project
investments.
8. Preliminary predictions of maturation horizons and possible
return rates, based on similar experiences.
9. Involvement of building companies that would be associated
to a group responsible for executing project construction
works.
10. Indications of partnerships with national or international
banks (in participation portfolios) and fixed asset credit
warranties, as well as guarantees for investment, expenses,
trade and export.
11. Fiscal incentives to increase and accelerate economically
viable project returns.
12. Permanent promotion of Brazilian products provided by
Government.
6.5.5 - Description of internal rates
An interview with current and potential irrigated agriculture

investors, concerning risk aspects mentioned before, showed that this
kind of investment is attractive. Internal financial return rate was
calculated under normal operational conditions and varied from 45% to
50%.
6.5.6 - Guiding premises for the role of the public sector:

federal, state and municipal
The role of the public sector role is to supply high quality public
goods and services. It must not provide private goods and services that
are the responsibility of the private sector. Irrigated agriculture is very
demanding concerning strategic public goods. Based on these, the private
sector builds its management and investment plans. Investments will be
more viable depending on the best use of scarce public resources.
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In order to attract private investment, it is first of all necessary to
clearly define the public sector’s role, as in the Proposed Law mentioned
earlier in this report. Secondly, excellent conditions must be created for
the private sector leading to investment and profits. In third place, it is
necessary to show that irrigation business can compete in terms of
advantages with other investment opportunities.
After clearly defining Government’s role in this new paradigm,
investors assume their responsibilities. New irrigation policy
implementation, which includes private sector participation, in higher
investment volumes will depend on operational paradigm changes, both
in size of investment needed and associated risks.
It is important to note the institutional instability of bodies
involved with irrigation and the lack of coordination in public goods and
services. The key-question is: having identified the group of minimum
public goods – what will be done in this regard – who is going to
coordinate public goods supply? This question is a challenge to be
overcome.
♦ Support Activity for Entities Involved with Irrigation Area

In public projects, all the initial study phases up until the definitive
project implementation, are made by bodies related to this sector, in the
same way that Codevasf operates, for example. This operation system is
known.
However, both for public and private projects, the public sector is
concentrated on some specific tasks in order to ease private investment.
Firstly, the public sector is the responsibility of pre-viability
studies, including hydraulic characteristics, structure of lots etc. The State
or other State department will be in charge of these pre-viability studies
and show project execution conditions, enabling the entrepreneurs to
make a better decision.
♦ Public Sector Operation from Private Sector Operation
From public sector operation, by offering an information base and
pre-viability studies, the private sector starts to define its business
involving irrigation projects. Individually or collectively, it:
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1. Elaborates viability study.
2. Promotes previous environmental studies.
3. Makes final studies of environmental licenses (environmental
impact study and its Rima).
4. Promotes actions to get environmental license and water
rights.
5. Undertakes hydro-economic studies (production volume and
return), water productivity (R$ per water cubic meter), based
on more profitable crops, market studies and market
prospecting.
6. Designs and details financial project, estimates liquid cash
flows and return calculations of projects.
7. Draws-up technical assistance project.
8. Identifies needs in basic infrastructure, education, health,
transport, electricity.
9. Attempts partnerships with State government to improve/built
roads and electricity nets, and with Municipal government to
improve sanitation, education and health.
10. Seeks partnerships with leader corporations and other
companies to associate with the investment.
11. Seeks partnerships with public and private financial agents.
12. Procures external financing.
13. Disseminates project (release) to business community,
individual or institutional investors.
♦ Public Sector Forms of Operation
Public goods have strategic importance to make private irrigation
investments viable. State efforts in all possible scopes must be exerted
upon this group of public goods. The most part of public goods concern
information, which has high costs that small and medium-scale investors
cannot afford. Another important role is regulation and law system
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implementation, which must be fulfilled and followed. This section offers
a recommended, not exhaustive list, covering actions and essential public
goods.
Technical assistance, lato sensu, is one of the State’s roles and may
cover the following aspects:
• Water availability.
• Irrigation financial viability (indicative studies to be used by
private sector as decision tool concerning investments).
• Identification of irrigation clusters with investment potential
(with public policy density and conditions to supply raw
material for this activity).
• New product research, efficient irrigation systems etc.
• Partnerships for market studies, in order to guide private sector
in business identification.
• Facilitation of business abroad – commercial promotion.
• Regional and multilateral commercial negotiations.
Within the scope of regulations, it is the responsibility of the State
to supervise large private projects, in order to avoid “negative” external
impacts to the regions where projects are developed. The State is also
responsible for water use regulation and law. Finally, the State must
implement the new water resources and environmental law.
There are also some specific functions, as follows:
1. Normalization and standardization of products, equipment and
agricultural raw material.
2. Significant improvement of vegetal sanitary defense area, not
only in research but also increasing personal and institutional
qualification.
3. Providing credentials to institutions that certify equipment and
raw material.
160
4. Making Brazilian law compatible with foreign law concerning
markets, products, processes and raw material.
5. Monitoring natural resources and environmental resource uses
(besides normal supervision, to develop research in this area).
In addition to the classic functions described above, there is a
group of strategic investments to be led by the State, which is essential to
the irrigation sector. The aforementioned actions may be divided into two
areas: basic training and rural credit and financing actions.
In the training area it is important to highlight:
• Technical assistance to users and community organizations.
• Methodology to form community associations.
• Operational training and perimeter maintenance.
• Marketing and product processing.
• Vegetal health technology.
• Quality control.
In training area for rural credit and financing, it is important to
emphasize some strategic actions:
• Borrower training in management techniques of their graphic
accounts (credit management training)
• Basic training in financial management.
• Training for credit personnel in technical support at portfolio
level.
• Dissemination of financial technical assistance manuals.
• Credit access availability training.
• Mutual credit operations training.
• Training in financial lines to family agriculture and similar
operations.
161
• Training local development funds participation.
♦ Financial, fiscal and institutional incentives
This section presents incentives to stimulate private investments in
the irrigation sector.
1. A great incentive to the sector is represented by Irrigation Law
approval (and its following regulations). According to the
proposal, the law is “friendly” to attraction of private
investment, clearly defining State operation limits.
2. Availability of State budget resources for electricity
infrastructure, roads, communication and transport, focused on
areas where the private sector shows interest in investing or in
vocational areas, pointed out by the State.
3. Availability of state irrigation funds aiming specifically to
develop irrigation. One example is the State Irrigation Fund
(FEIR), from Law nº 12.532 (12/12/95), from Ceará State,
supported by matching grant resources that involve State,
Municipality and the country. It aims to develop studies,
technological researches, technological and training
dissemination (CEARÁ, 1996).
FEIR also aims to equalize interest rates of irrigation companies
focusing on export, as well as production process practice/substitution for
innovations recommended by research.
4. Fiscal incentives (Value Added Tax on Sales and Services,
ICMS; Income Tax; Tax for Social Security Financing,
Cofins) for industrial processing sectors, as well as Excise Tax
(IPI) for equipment sectors and so on.
5. Fiscal incentives to technology and quality, for example, not
charging taxes on irrigators that use technical assistance,
preserve the environment, make phyto-sanitary control
correctly etc (just as the Mato Grosso State experience with
cotton).
6. Incentives to accelerate return rate, not to make project
economically viable.
162
7. Collateral security funds. This mechanism is important to
small and medium companies concerning institutional
financial warranties. It is the collateral security fund, predicted
at Law nº 8.864/94, composed of Sebrae resources.
8. Credit warranty funds that were made possible by the approval
of CMN Resolution nº 2.211, from November 16th, 1995.
9. Giving credit to export (and import) by regional financial
institution associations, such as Export Special Program (PEE)
initiatives – which is currently in the operational phase. One
notes that it is necessary to develop a financial program of
medium and long term, to stimulate exports of local small and
medium-scale companies, linked to management training and
technological modernization.
10. Access to institutional credit from development banks (such as
Banco do Nordeste).
11. Export promotion actions are being undertaken in the States
by Sebrae and PROMOEXPORTS, highlighting
PROMOEXPORT Bahia, which has a dynamic approach and
is also an international business center. Tariffs are also being
developed by Banco do Nordeste Business Department.
An important role of the State are actions to attract private sector
investments. Some Northeastern States are practicing such actions
successfully. Investment harnessing systems are well known. They may
have a catalytic effect to attract a larger number of investors, including
foreign investors. Investment consultants are operating and they are
important for securing new investments.
Considering the importance of export for business revenue, it is
necessary to finance foreign companies potentially interested in the
irrigation business.
Producers, their organizations and irrigation businesses need new
ways to associate capital. Capital may come in the form of financial
resources (under stock share) or technological capital (technology,
management consulting, physical, financial and marketing management
capacities). It may be associated with market organization, production
coordination, service management etc. Consequently, investment
163
promotion activity is essential to stimulate business environment. It is
more important when linked to export, attracting financial and
technological capital to Brazilian companies under partnerships with
foreign corporations.
Structuring projects related to investment promotion aim to
mobilize capital inside the Region, to attract foreign capital, to expand
markets and stimulate technology transfer to sector enterprises. A project
of this nature is important to form information channels and to
disseminate business opportunities.
Finally, a considerable problem is the high level of bankruptcy
among small and medium-scale companies. This point deserves careful
attention. To resolve this problem it is interesting to suggest the creation
of enterprise “incubators”.
There are three main sources of new small and medium-scale
companies. The spontaneous ones, the company spin-offs or even the
research centers and university spin-offs. No matter what the source is,
the level of bankruptcy is very high. In the United States, it reaches 2/3
and, in Brazil, 4/5.
Enterprise “incubators”, which have been highlighted by American
Congress as a paradigm to new companies, is the way to give enough
time to loans in order to make the company competitive.
The “incubator” is usually associated with a technological center
(company or mother-center), but not necessarily. The “Incubator” is
created by institutions interested in creating companies and increase
employment. It is a physical place where all the components necessary
for a new company are offered, in order to drastically reduce its fixed
costs, because they are shared and sometimes subsidized.
The average time that a company stays in the technological
“incubator” varies from 3 to 5 years. However, it depends on the activity
developed.
In Brazil, there are more than 700 “incubated” companies and
about 70 “incubators”.
Bankruptcy level of North-American “incubated” companies is
close to zero. In Brazil, the National Association of Promoting Entities of
164
Modern Technology Enterprises (Anprotec) shows that bankruptcy level
is 20%. “Incubators” may be technological or otherwise.
Financial needs of small technological companies are still poorly
covered. The special attention of “incubated” companies still covers a
few companies, not only because of lack of funds but also because of
incubators’ low capacity to absorb new productive units. In addition to
this, there is no incentive to leave the “incubation” process, which may
increase this enterprise’s risk of bankruptcy.
Company qualification of an appropriate definition of their
financial need is still very low. This can be solved by the “incubation”
process or with training programs. In literature, it is also noted that small
and medium-scale companies do not know financial options, just like the
producers.
At other opportunities companies present projects that demand
equipment acquisition and working capital resources, putting aside
essential aspects to guarantee competitiveness, such as: technological and
management training. Thus, they require credit but do not have a
compatible management plan. Then, public institutions (associated with
entities representing companies) have an important role in manager
training.
165
7 - REFERENCES
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agricultura. Revista de Política Agrícola, Brasília, DF, ano 8, n. 2, p.
5-19, jul-set. 1999.
BANDARAGODA, D.J. Need for institutional impact assessment in
planning irrigation system modernization. Colombo: IWMI, 1998.
(Research Report, n. 21).
BEST, M. The new competition: institutions of industrial restructuring.
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BOX. G. E. P.; JENKINS. G. M. Time series analysis: forecasting and
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BRASIL. Congresso. Lei nº 6.662, de 25 de junho de 1979. Dispõe sobre
a política nacional de irrigação e dá outras providências. Diário
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1979. Seção 1, p. 8937-8941.
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[da] República Federativa do Brasil, Brasília, DF, 2 dez. 1976.
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de jul. 1934. Seção 1, p. 15.358-15.459.
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de 1984. Regulamenta a Lei 6.662, de 25 de junho de 1979, que
dispõe sobre a política nacional de irrigação e dá outras providências.
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CEARÁ. Governo do Estado. Lei nº 12.532, de 21 de dezembro de 1995.
Dispõe sobre a política estadual de irrigação e dá outras providências.
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de Janeiro: Campus, 1996. 386 p.
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World Bank, 1995.
NORTH D.C. Institutional innovation for agriculture development:
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POMPEU, C. T. Ampliação do setor privado nos investimentos em
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PORTER, M. The competitive advantage of nations. Cambridge:
Harvard Business Book, 1990.
SAGARDOY, J. A. Lessons learned from irrigation management transfer
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SCHOLTES, P. R. Times da qualidade. Rio de Janeiro: Quality-Mark,
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social order. In: _______. Private interest government: beyond
market and state. London: Sage, 1985.
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SVENDSEN, M.; VERMILLION. D. Lessons from management transfer
in the Columbia basin project, USA. In: IIMI. Irrigation
management transfer. Rome, 1995. (Water Report n. 3). p. 343-358.
UNITED STATES OF AMERICA. Department of Interior. Public
involument manual. Washington, DC: Water and Power Resource
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WILLIAMSON, O. The economic institutions of capitalism: firms,
markets, relational contracting. New York: The Free Press, 1985.
WORLD BANK. Toolkits for private sector participation in water
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169
170
8 - Appendix
171
172
8.1 - Legislation and Norms Concerning the Irrigation Sub-
Sector in Brazil
Law and related to environment, water resources and organization of irrigation
sub-sector in Brazil, following a chronological order
Nº Legal Instrument Summary
1 Decree nº 7.619, 10/21/1909 Creates the Inspectorate of Actions
Against Drought (Iocs)
2 Decree nº 13.687, 07/09/1919 Transforms the Inspectorate of
Actions Against Drought into the
Federal Inspectorate of Actions
Against Drought (Ifocs)
3 Decree nº 24.643, 07/10/1934 Implements the Water Code
4 Law-Decree nº 852, 11/11/1938 Changes the Water Code
5 Law-Decree nº 8.486, Structures the National Department of
12/28/1945 Actions Against Drought (DNOCS)
6 Law nº 541, 12/15/1948 Creates São Francisco Valley
Commission (CVSF)
7 Law-Decree nº 45.445, Transforms the Work Group for
02/20/1959 Northeastern Development (GTDN)
into the Northeastern Development
Board (Codene)
8 Law nº 3.692, 12/15/1959 Creates the Northeastern Development
Superintendency (Sudene)
9 Law nº 4.771, 09/15/1965 Implements Forest Code
10 Law nº 5.197, 01/03/1967 Concerns fauna protection
11 Law-Decree nº 200, 02/25/1967, Approves Administration Reform,
valid from 03/15/1967 implementing Interior Ministry
12 Law-Decree nº 270, 02/28/1967 Implements Mining Code
13 Law-Decree nº 292, 02/28/1967 Transforms São Francisco Valley
Commission into São Francisco
Valley ;Superintendency (Suvale)
14 Decree nº 63.775, 12/11/1968 Creates Executive Irrigation Group for
Agriculture Development, within the
scope of Interior Ministry
15 Law nº 6.088, 07/16/74 Creates São Francisco Valley
Development Company (Codevasf)
16 Law nº 6.225, 07/14/1975 Defines the regions with compulsory
execution of soil protection and anti-
erosion plans
(continue)
173
(continuation)
17 Decree nº 77.775, 06/08/1975; Regulates Law nº 6.225/1975
18 Law nº 6.662, 06/25/1979 Irrigation Law – concerns National
Irrigation Policy
19 Law nº 6.766, 12/19/1979 Establishes special protection areas,
concerning portions of urban soil
20 Decree nº 86.146, 06/23/1981 Implements Irrigation Use of Lea
Program (Provárzeas Nacional), by
Agriculture Ministry
21 Law nº 6.938, 08/31/1981 Concerns the Environment National
Policy
22 Decree nº 86.916, 02/10/1982 Concerns Irrigation Equipment
Financing Program (Profir)
23 Decree nº 88.351, 06/01/1983 Regulates Law 6.938/81 and Law
6.902/81
24 Law-Decree nº 2.032, Concerns irrigation investment return
06/29/1983 in semi-arid areas of the Northeast
25 Decree nº 89.336, 01/31/1984 Concerns ecological preservation
areas and other areas of relevant
environmental interest
26 Decree nº 89.496, 03/29/1984 Regulates Law nº 6.662/79, the
Irrigation Law
27 Decree nº 90.309, 10/16/1984 Changes Decree nº 89.496/1984
29 CONAMA Resolution nº 004, Concerns ecological preservation
09/18/1985 areas
30 CONAMA Resolution nº 001, Establishes responsibilities, criteria,
01/23/1986 definitions and guidelines for
Environmental Impact Evaluation
31 Decree nº 92.344, 01/29/1986 Implements the Northeastern
Irrigation Program (Proine)
32 Decree nº 92.395, 02/12/1986 Implements the National Irrigation
Program (Proni)
33 Governmental Decree nº 74, Concerns lots destination in public
06/03/1986 irrigation, from Extraordinary
projects, for Agriculture Science
professionals – Ministry for Irrigation
Affairs
(continue)
174
(continuation)
34 CONAMA Resolution nº 20, Establishes classification for fresh,
06/18/1986 salt and brackish water covering the
National Territory
36 Decree nº 93.407, 11/04/1986 Regulates Law-Decree nº 2.032/83
37 Decree nº 94.314, 05/07/1987 Expands the term to execute Proni
38 Law-Decree nº 2.369, Changes Law-Decree nº 2.032/83
11/11/1987
39 Decree nº 95.192, 11/12/1987 Changes Decree nº 93.507 or 93.407
40 Decree no 95.733, 02/12/1988 Concerns the inclusion of resources to
prevent or correct environmental
losses in federal project budget
41 Law nº 7.735, 02/22/1989 Extinguish Environment Special
Department (Sema) and Fishing
Development Superintendency
(Sudepe). Creates the Environment
and Renewable Natural Resources
Brazilian Institute
42 Decree nº 97.628, 04/10/1989 Regulates article 21 of Law
nº 4.771/1965 Forest Code
43 Decree nº 97.635, 04/10/1989 Regulates article 27 of Law
nº 4.771/65 – Forest Code
44 Law nº 7.803, 07/18/1989 Changes Law nº 4.771/65 – Forest
Code
45 Law nº 7.804, 07/18/1989 Changes Law nº 6.938/81, concerning
Environment National Policy
46 Law nº 7.875, 11/13/1989 Changes the Forest Code established
by Law nº 4.771/65
47 Normative Government Decree Concerns the charge of Environment
nº 1, 01/04/1990 License supply, as well as the
operational costs related to projects
analysis and supervision
48 Law nº 8.029, 04/12/1990 Extinguish the Center-West
Development Superintendency
(Sudeco), South Development
Superintendency (Sudesul) and
National Sanitation Department
(DNOS)
49 Decree nº 99.240, 05/07/1990 Regulates Law nº 8.029/90
(continue)
175
(continuation)
50 Decree nº 99.274, 06/06/1990 Regulates Law nº 6.938/81
51 Decree nº 99.451, 08/15/1990 Transfers to Irrigation National
Department of Agriculture and
Agrarian Reform Ministry the
extinguished DNOS attributions and
heap as well as transfers the flood
control to Presidential Regional
Policies Department
52 Law nº 8.657, 05/21/1993 Changes Law nº 6.662/79 – the
Irrigation Law
53 Law nº 8.666, 06/21/1993 Regulates article 37, incise XXI of
National Constitution; defines norms
to bidding processes and contracts
of Public Administration
54 Law nº 9.074, 07/07/1995 Disciplines the users participation
form in supervising delegated public
services
55 CONAMA Resolution nº 02, Environmental harms compensation
04/18/1996
56 Law nº 9.433, 01/08/1997 Implements National Water
Resources Policy and creates
National Water Resources
Management System – Water Law
57 Decree nº 2.178, 03/17/1997 Changes Decree nº 84.496/84 that
regulates the Irrigation Law
58 CONAMA Resolution nº 237, Redefines concepts related to
02/19/1997 environment, activities submitted to
licensing, environmental organisms
competencies among others
59 Law nº 9.417, 12/26/1997 Creates National Electricity Agency
(Aneel)
60 Law nº 9.605, 02/31/1998 Environmental Crimes Law
61 Law nº 9.649, 05/27/1998 Concerns Presidency and Ministries
organization
62 Decree nº 2.612, 06/03/1998 Regulates Water Resources National
Board, as predicted by Law
nº 9.433/97
(continue)
176
(conclusion)
63 Law nº 9.795, 04/27/1999 Concerns Environmental Education;
implements the Environment
Education National Policy
64 Provisory Resolution nº 1.874-13, Changes Law nº 9.605/98 –
07/28/1999 Environmental Crime Law
65 Provisory Resolution nº 1.911-8, Changes Law nº 9.649/98,
07/29/1999 concerning Presidency and
Ministries organization
66 Decree nº 3.179, 09/21/1999 Regulates Law nº 9.605/98 –
Environmental Crimes
8.2 - Contribution to the New Legal Benchmark for Irrigation

in Brazil
Within the aims of this study, it is to make a group of studies to

complement the analysis of the needed institutional reforms, including
suggesting propositions of law and regulations essential to an efficient
and equal use of water in irrigation.
This activity began in August 1999 by Banco do Nordeste in order
to supply the demand of National Integration Ministry in offering
subsidies to the National Congress to the current appreciation of Bill
229/95, concerning irrigation.
Thus, by the Specific Report – CONTRIBUTION TO THE NEW
LEGAL IRRIGATION BENCHMARK IN BRAZIL, the Consortium
accomplished, in December 1999, as determined by
Banco do Nordeste.
In the making of this work, the Consortium made a comparative
analysis of current legislation (Irrigation Law, nº 6.662/79 and its
regulations), of Bill 229/95 and related laws of 11 countries, which
analysis is in Volume 2 of Irrigation State-of-the-Art.
Afterwards, a first version of a substitutive was elaborated and
discussed previously and successively with Banco do Nordeste and
Technical Assistance of National Integration Ministry, taking as
references not only current irrigation law and its regulations and Bill
229/95, but also a law proposition by Codevasf. That resulted in a second
177
version, still preliminary, discussed in a specific seminar held by Banco
do Nordeste and National Integration Ministry, in Brasília, at the endings
of October 1999. There were more than 100 participants from several
areas.
Thus, a third and last version was finished and exhausted discussed
with Ministry Technical Assistance and its related organisms, resulting in
the present version of National Integration Ministry and, due to it,
presented then to the eminent Reporter of Bill 229/65, Senator Osmar
Dias.
178
DRAFT OF BILL
Law nº , from
Concerns the National Irrigation

Policy and other procedures.
CHAPTER I
NATIONAL IRRIGATION POLICY
Art. 1 – The National Irrigation Policy will be executed under this

Law, aiming the rational use of water resources and soils allowing the
development of hydro-agriculture projects oriented to a sustainable
irrigated agriculture.
§ 1º The policy defined by this Law will be executed in a
compatible way with agriculture, water resources and environmental
policies.
§ 2º Under this Law, the rational use of water resources and soils
concerns practices which promotes the production optimization with the
minimum use of these resources.
§ 3º The market potential and private sector participation are
relevant to government induction and support to implement development
projects of irrigated agriculture.
CHAPTER II
OBJECTIVES
Art. 2 – The aims of the National Irrigation Policy are:

I – increase agriculture production and productivity;
II – reduce costs inherent to agriculture activity;
III – guarantee priority to economic and social functions of
irrigated areas;
179
IV – support irrigation nationally, specially in areas where
hydrologic conditions are not favorable to agriculture, although they
present competitive advantages;
V – stimulate private and public agents operation in irrigated
agriculture, in prior areas defined under technical, cultural, social,
economic and environmental criteria;
VI – stimulate and support research development, fitting and
matching technology to the rational use of water resources and soil, as
well as preventing diseases transmitted by water;
VII – integrate itself with another branch planning of water
resources and hydrographic basin soils use;
VIII – disseminate technology of water resources and soil use and
handle;
IX – emphasize and support regular formation and intensive
training of human resources in irrigated agriculture;
X – promote private sector participation in irrigated agriculture;
XI – conciliate hydro-agriculture development with environment
and water resources management; and
XII – prevent rural epidemics.
CHAPTER III
DEFINITIONS
Art. 3 – Under this Law, it is considered:

I – Public irrigation project those implemented by Government
and which irrigation and draining infrastructure for collective use are
public property, at first, and may be alienated or leased afterwards;
II – Private irrigation project those implemented by private
sector or achieved from Government;
III – Mixed irrigation project those implemented in a shared form
between public and private sectors;
180
IV – Irrigator a private individual or company that explores
irrigated agriculture activity;
V – Irrigated area those considered able to irrigated agriculture,
under technical and economic studies;
VI – Dry areas those surrounding irrigated or internal areas on
irrigation projects boundaries, not able to be irrigated;
VII – Tariff the value to be paid by irrigator for water use and
irrigation infrastructure for collective use;
VIII – Irrigation district a civil private society with no profit
aims, company profile, own patrimony and administration, undetermined
validity term, composed by irrigators from one or more irrigation projects
aiming to manage, operate and keep irrigation infrastructure for collective
use;
IX – Multiple use infrastructure comprehends all buildings that
serves irrigated agriculture aims and other objectives usually shared with
irrigation sub-sector;
X – Irrigation infrastructure for collective use comprehends all
buildings, structures and equipment of an irrigated area that serves more
than one irrigator, in a shared way;
XI – Social infrastructure the buildings and equipment destined
to health, education, leisure and security areas;
XII – Parceled infrastructure comprehends improvement and
internal equipment installed in agriculture lots;
XIII – Family entrepreneur the irrigator, private individual,
operating directly in agriculture production in a lot where dimension and
criteria are defined based on specific studies to each project, in an area
which dimension is able to assure economic and social improvement to
him and his family;
XIV – Useful and needed improvement are those built by the
irrigator in his lot in order to complement irrigation system, as well as
stocking, improvement and agriculture production infrastructures;
181
XV – National Irrigation Plan a group of irrigation projects
aiming social-economic development of a determined region;
XVI – Irrigation Program a group of irrigation projects and
activities aiming social-economic development of a determined region;
XVII – Rent the return value paid by irrigator due to the lease of
irrigation and draining infrastructure for collective use;
XVIII – Quotation-part is the ideal portion of irrigation
infrastructure for collective use, owned by irrigator by achievement or co-
responsibility in building, which portion is a complementary or undivided
part the lot ownership document.
CHAPTER IV
INSTRUMENTS
Art. 4 – The National Irrigation Policy instruments are:

I – the National Information System over Irrigated Agriculture,
integrated to National Information System over Water Resources;
II – the ecological and economic area distribution;
III – research, technical assistance and technology dissemination
programs;
IV – sector norms, guidelines, plans and programs;
V – national and international technical interchange;
VI – fiscal and institutional incentives;
VII – public and private funds;
VIII – agriculture credit.
182
CHAPTER V
PUBLIC SECTOR OPERATION
Art. 5 – The Government responsibilities on National Irrigation

Policy implementation, within its domain scopes and operation areas, are:
I – define norms, support, supervise and monitor activities related
to irrigated agriculture;
II – concede water resources use rights;
III – support technical training, research and technology
dissemination;
IV – stimulate community organization aiming irrigation projects
self-management;
V – stimulate irrigated agriculture development;
VI – promote federal articulation between States, Federal District,
Municipalities and private sector;
VII – prior investments in public and mixed projects of
unquestionable priority and high return rate;
VIII – stimulate and support private investments in irrigated
agriculture; and
IX – stimulate the creation of inductive mechanisms to develop
productive chains related to irrigation.
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CHAPTER VI
IRRIGATION PLANS, PROGRAMS AND PROJECTS
Art. 6 – The National Irrigation Plan, with four-year validity, will be

based on this Law devices and include the Federal Government priorities to
irrigation, compatible with local and State priorities.
Single Paragraph – Government will define the executors
organisms of National Irrigation Plan.
Art. 7 – Irrigation programs will be elaborated by Federal, State
and Municipal Governments, as well as Federal District, according to the
Irrigation National Plan.
Art. 8 – Irrigation projects will be previously submitted to
competent organisms in order to concede the use rights of water resources
and environmental license.
Art. 9 – Irrigation projects may be public, private or mixed.
Art. 10 – Public irrigation project are those implemented by
Government, which is the owner of irrigation infrastructure for collective
use at the beginning, but that may be alienated or leased afterwards.
§ 1º Public irrigation projects will be implemented by Federal,
State, Municipal or Federal District governments.
§ 2º Government may transfer the project, under alienation or
lease, to public irrigation project users, organized in an irrigation district
or another self-managed entity, according to related Law.
Art. 11 – Private irrigation project are those where irrigation
infrastructure for collective use is projected and implemented by private
sector, or achieved from Government.
Art. 12 – Mixed irrigation projects are those implemented in
conjunction with Public Administration, on three levels: federal, state /
Federal District and municipal, as well as the private sector.
§ 1. Mixed irrigation projects shall be organized in the form of
entities governed by private enterprise, in which Public Administration
shall have a share of up to 49%.
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§ 2. In mixed irrigation projects, Public Administration, with the
share of invested capital, shall acquire part of the project area for
installation of family enterprises, which, delegated thereby, may be
installed directly by the private sector.
§ 3. In mixed irrigation projects that part of the area acquired by
Public Administration shall be separated from the family enterprises by
means of legal proceedings, according to the law, it being the
responsibility of the private sector to execute this process.
§ 4. The rights and obligations of Public Administration and of
private initiative in mixed irrigation projects shall be adjusted in a
contract to be signed by both parties.
CHAPTER VII
PUBLIC AND MIXED PROJECTS
SECTION I
USE OF SOIL
Art. 13 – Public irrigation projects shall be implanted, on publicly

owned land, confiscated or acquired for that purpose.
§ 1. Mixed irrigation projects may be located on publicly owned
land or in private areas.
§ 2. In public projects and on the public part of mixed projects
property rights are dissoluble and lots destined for family enterprises are
indivisible.
§ 3 Areas needed to implement public or mixed projects may be
dispossessed or achieved.
§ 4 In case of alienation, all buildings and services executed in the
lot must have its cost incorporated to lot value.
Art. 14 – In dispossessed or achieved areas mentioned on the
previous article, the areas suitable to agriculture will always be oriented
to an intensive exploitation, either agriculture or agriculture industry, and
divided in lots with different dimensions, according to the production
structure planned and irrigator management capacity.
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§ 1º Lots may be alienated to individual persons or companies
under a tender process.
§ 2º From tender process until lots sale only may participate
individual persons or companies that aim at irrigated agriculture and that
show ability to develop it, according to the conditions officially
described.
§ 3º Water use rights are an indivisible part of lots achieved in
tender processes, in quantities previously and officially defined.
§ 4º For each project there may be defined the maximum irrigated
area able to be alienated to one individual or company.
§ 5º During the implementation studies of public or mixed
irrigation projects, areas for family entrepreneurs only should be
foreseen.
Art. 15 – A family entrepreneur lot, which cannot be inferior in
size to a minimum production area capable of assuring economic and
social improvement to irrigator and his family, will be defined based on
specific studies for each project and region.
Art. 16 – Once established the joint ownership due to family
entrepreneur death, the other owners will choose a lot administrator
within themselves, who will be in charge of all legal responsibilities.
Single paragraph – It there is no heir, the alienating entity may ask
for the possession to itself, paying at a juridical court the evaluation
value.
Art. 17 – The areas in public projects reserved to social
infrastructure, preferably situated in non-irrigated areas, may be conceded
with no charge.
§ 1º Exceptionally, a lot may be conceded to a public entity,
aiming to develop training activities and irrigated agriculture experiences.
§ 2º The free cession mentioned in this article will be reverted in
case its predicted activities is not developed in two years.
Art. 18 – Urban areas, situated in public projects, may be
transferred to the municipalities they belong to.
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Art. 19 – In public and mixed projects, in case of using previous
lots structure, the owners will be considered irrigators provided they
respond to all legal requirements and projects objectives.
Single paragraph – If the irrigators obligations are not
accomplished, the areas will be dispossessed.
Art. 20 – Rural workers that can prove their activities for more
than five years in areas achieved or dispossessed for public projects
implementation will be considered irrigators, as long as they respond to
all legal requirements and projects objectives.
Art. 21 – In public projects, infrastructure buildings for collective
use, implemented with public resources and its respective domain areas,
will be property of the public entity responsible for the implementation,
at the beginning. In order to alienate or lease the area, the value must be
evaluated as a whole.
Art. 22 – Under a Presidential decree, areas or lots selected to
implement or expand public and mixed irrigation projects, may be
declared of public and social interest, in order to be dispossessed,
according to the related law of dispossessions and its current regulations.
SECTION II
INFRASTRUCTURE
Art. 23 – Public projects infrastructure is composed by irrigation

infrastructure for collective use, social infrastructure and parceled infrastructure.
Art. 24 – Irrigation infrastructure for collective use in public and
mixed projects will be managed, operated and kept by the irrigators
themselves, organized, preferentially, in irrigation districts.
§ 1º Government must promote the creation of an Irrigation
District or another self-managed entity, up to one year after the first
irrigator installation.
§ 2º Expenses related to management, operation and maintenance
of infrastructure for collective use will be shared between its users, as a
tariff, according to the regulation.
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§ 3º The water tariff will be automatically charged of all irrigators
by Government, irrigation district or another user. Its value must be
enough to cover all the project management, operation and maintenance
expenses.
§ 4º In public irrigation projects, Government must pay for the
increase of operation costs related to irrigated area not yet occupied.
§ 5º Government may directly hire the irrigation district to develop
infrastructure works, according to the legal rules.
Art. 25 – Government is authorized to alienate to project irrigators,
by the means of Irrigation District, with no need of tender process, the
irrigation infrastructure works for collective use. The payment term is
limited to up to 50 years.
§ 1º The sale value mentioned in this article does not include the
project social infrastructure cost.
§ 2º The quota-part of irrigation infrastructure works for collective
use, that will be responsibility of each irrigator, will be proportional to its
lots and will be an indivisible part of it, for official registration purposes.
Art. 26 – In public and mixed projects, the parceled infrastructure
implementation is the responsibility of the irrigator.
Art. 27 – The Government responsibilities over irrigation and
draining infrastructure for collective use is limited to derivation,
harnessing, reservation, delivery, conduction and distribution of water
until the entry of the lot, allowing the irrigator to build its own parceled
infrastructure.
SECTION III
IRRIGATOR
Art. 28 – The irrigator has the following obligations:

I – adopt practices recommended by administration for water use,
as well as soil use and conservation;
II – obey the legal rules, regulations and administrative decisions
related to irrigator situation and activity;
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III – explore the irrigated area under his responsibility according to
technical orientation recommended and countersigned for that specific
region;
IV – allow supervising activities inherent to water use and giving
information required;
V – allow the execution of works needed for the conservation,
expansion, modernization or transformation of irrigation infrastructure
for collective use installations;
VI – pay the tariffs;
VII – accomplish the obligations predicted by contract signed with
project managers;
VIII – pay the costs related to the purchase of the lot and its
improvements;
IX – if necessary, pay the rent parcel related to the lease of
irrigation and draining infrastructure for collective use;
X – if necessary, pay his quota-part in purchasing irrigation and
draining infrastructure for collective use.
Single paragraph – The irrigator in private irrigation projects is
submitted to the constant obligations of Incises I to VI of this article.
Art. 29 – The breach of any obligation described in article 28, as
well as the other legal, regulation and contractual devices inherent to
irrigator condition, will result in water supply suspension, ownership
reversion and use rights revocation followed by ownership reintegration
to alienating entity.
§ 1º Penalties predicted in this article caput will be gradually
adopted considering the mentioned order.
§ 2º If reversion occurs, the alienating entity will promote the
indemnification of the useful and needed improvement in two annual
installments, paying the first one after one year of the reintegration.
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CHAPTER VIII
GENERAL PROVISIONS
Art. 30 – Official financial institutions may create mechanisms,

along with public sector, to stimulate production through financing. In
this case, the lots may be mortgaged for the investment at the same lot.
§ 1º Reversion predicted at article 29 will not occur if the real
estate is mortgaged to official financial institutions.
§ 2º If the financial institution requires the immediate payment of
its mortgage credit, due to an irrigator debt, it has to notify alienating
entity 30 days before executing the operation.
§ 3º Alienating entity notified, if decides to take advantage on
reversibility, may offer to the financial institution, during the mentioned
term, enough warranties to substitute the mortgage.
Art. 31 – Official financial institutions will keep a credit line to
finance private sector in implementing private irrigation projects, and
also for the capital complement in mixed projects, as well as to finance
the achievement of infrastructure for collective use in public projects.
Art. 32 – Concerning the alienation described at article 25, about
alienation final value calculated after discounting the repaid, Government
may give discounts up to 50%, to be defined in regulation, according to
each project characteristics.
Art. 33 – It is priority to develop irrigation activities in soils able to
irrigation both in arid and semi-arid regions.
Art. 34 – The caput of article 1 from Law 8.001, from March 13th
1990, starts to have the following text:
“Art. 1º The monthly distribution of financial compensation
described at Incise I of § 1º of article 17 from Law nº 9.648, from May
27th 1998, which text is changed by this Law, will have the following
form:
I – 45% to the States;
II – 45% to the Municipalities;
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III – 3,4% to the Ministry of the Environment;
IV – 2,6% to the Ministry of Mines and Energy;
V – 2,0% to the Science and Technology Ministry;
VI – 2,0% to the National Integration Ministry.”
Art. 35 – Article 36 from Law nº 9.433, from January 8th 1997,
starts to have the following text:
“Art. 36 –The National Water Resources Board will be managed by:
I – a President, who will be the Minister of the Ministry of the
Environment;
II – a Vice-President, who will be the Minister of National
Integration Ministry;
III – an Executive Secretary, who will be the representative of the
department of Environment Ministry responsible for water resources
management.”
Art. 36 – This Law is valid as of its publication date.
Art. 37 – Law nº 6.662, from 06/25/1979, Law-Decree nº 2.032/83
and Law nº 8.657, from 05/21/1993, are cancelled.
8.3 - Commercial Management System
The main objective of this section is to identify the most successful

systems in coordinating relations between production, post-harvest,
distribution and market, within national and international experiences,
proposing improved forms, for example, to leader organizations, or
market coordination, to specific irrigation projects.
In the current systems, organizations that operate in public
irrigation projects (as well as individuals) develop many functions, from
market opportunities identification to production viability, by organizing
all information and intermediate raw material supply. Decision process is
complex and involves bigger risks, under this conditions, particularly to
vegetables, which is the base of the projects.
191
If it is expected that irrigated agriculture production will grow in
target region, becoming a great business, it is necessary to decentralize
decisions and specialize functions of involved agents. These principles
must be respected, since the volumes to be produced and traded tend to
be high. In this case, it will be convenient to divide and specialize
functions, risks and, naturally, different income levels proportionally to
the risks.
The proposed systems grow proportionally to projects size, from a
small scale project until reaching a big scale or a multiple project system.
As projects grow and organization forms maturate, as well as leader
organizations or coordinators consolidate themselves, new forms are
proposed, following complexity principles and increasing specialization –
representing future trends to irrigated agriculture sector organization. In
more advanced organization forms, any of them has a specific function
and is linked to the others with its own functions, complemented and
specialized.
The emphasis is on project commercial management, focusing new
business discovery and transmitting preference signs and final market
prices, to packaging companies, industrial processors and then to the
primary production sector, that receives market signs “decoded” to
produce what is demanded, with the necessary quality and prices suitable
to final market.
In all systems presented at the following, the long arrows indicates
the direction of price formation system and chain business coordination,
for all involved sectors. These arrows always come from market signs.
The most important thing to be considered is the group of
principles that guides business organization forms, following the concepts
sequence of proposed chains. This group of organization forms considers
that, as investments and irrigation business production increases at the
Region, organization forms and combinations must present increasing
complexity.
As production scale gets higher, it is necessary to have more
specialized organizations – under the universal concept of workers
specialization. At the same time, they develop associations in order to
have a common development able to efficiently operate in a large scale
business. These associations and, overall, establishing mutual trust forms
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(business mutual trust) is important for two reasons: a) they increase
arbitrage conditions in price negotiations; b) reduce the lack of efficiency
of the Brazilian legal system, that constraints the implementation of a
respectable contract regime.
Organization forms complexity also grows with competitive level
of internal market, as harvest volumes increases. As market competition
grows, the same happens to the need of interests harmonization among all
branches inside the chain, aiming at the strategic viability of business.
Otherwise, companies organizational net may break up, due to the
inevitable and tough company negotiation over prices and payment
conditions.
Another important principle: as production scale and final market
competition increases, the same happens to the risks and companies
financing needs, under technical and financial compatible scales.
Another principle is that the need of processing and
industrialization tend to grow significantly, requiring the participation of
large scale companies which operates in scales compatible to production
potential and leading to new production scale levels.
Finally, as production grows, the foreign market opportunities start
to deserve much more attention. New organization forms must be created
in order to respond to these markets needs and to successfully compete in
them.
This way, the principles are decentralization and increasing
functions specialization, in management organization forms and market
commercial coordination, as well as functions and internal production
processes, harvest, preparation and packaging, physical distribution
logistics, processing and management of all services needed in all
irrigation business processes.
Systems may be better noted with the graphics at the following. At
System 1, market coordination is done by a concentrated or other
processed products industry or by a producers organization. At system 2,
by a trade company. At system 3, the coordination is in charge of a
multiple international trader, either of fresh or processed products. At
System 4, by exporters and importers with national or foreigner banks,
with the responsibility to evaluate business risks in order to guarantee its
193
efficiency and expansion. Finally, at System 5, a project-company leads a
well advanced global management system.
8.3.1 - Commercial management system type 1
FIGURE 7
LEADER-ORGANIZATION – INDUSTRY AND PRODUCERS
ORGANIZATION
Rural Producer
Industries’ establishments
Rural Companies
Producers Juice and CONCENTRATED AND

Organization PROCESSED PRODUCTS
Packing House
Concentrated INDUSTRY
Products Industry
CEASA’s Supermarkets Wholesalers
Retailers Wholesalers RETAILERS

Supermarkets
IN NATURA MARKET INDUSTRIALIZED

PRODUCTS MARKET
FOREIGN MARKET
FOREIGN MARKET
SOURCE: Plena-FGV-Projetec Consortium
The leader organization bases its activity in a

management/operation alternative and a contract system, described as
follows.
♦ Institutional, Management and Operation Model

In this management/operation system there is a single industrial
company that may be associated to a concentrated company (concentrated
products and juice), that purchase producers and irrigation entrepreneurs
production and coordinates this supply to the market, where the company
194
operates, or even to a producers organization (e.g. a co-operative society),
that assumes the whole process of post-harvest, trade and distribution.
This management system is very common in France, the United
States, Chile, Spain and many irrigation clusters in the Northeast of
Brazil.
The improvement proposed aims to increase product competition
through organizations like co-operative societies. The existence of a co-
operative society / packing houses makes viable a more direct contact
from producer to in natura products market, as an alternative to sale or
export; as well as Ceasas and supermarkets, due to a larger scale and
standardization of appropriated packages types.
The existence of a larger scale industry and value added products
of irrigated agriculture aims to increase technical, economic and financial
scales of the business, as well as establishing synchronization in raw
material purchase with producers, and supplying processed products with
distributors.
In other words, these new industrial plants could promote a better
balance between bargain power of producers and market power of
industry, previously implemented, due to the increase of purchased
volume, value added etc. Producers starts to assume the role of raw
material strategic suppliers, because in today system, the smaller scale of
purchasers and companies, the smaller the (strategic) value of raw
material.
♦ Coordination company contract models
Contracts types, in model 1, may be developed from commitment

contracts (not formal, but based on trust) and written contracts of
purchase and committed sale. Contracts may include technical assistance
and credit clauses, as well as other ways of production delivery and
quality warranties. These contracts are the most simplified commitment
forms between producers and co-operative societies, concentrated
industries, industries with high level of industrial processing and high
value added.
Contract system is based on a group of double and synchronized
contracts: one purchase and sale contract (supply) between leader
195
company and producers; and a supply contract between leader company
and distributors (retailers and/or wholesalers).
Besides identifying the promised purchaser and sales
company/person, the first one has the following clauses: a) producer
culture and harvest commitment, specifying product, quantity and quality,
as well as schedule (lot parcel, area, seeding week, variety, estimated
production cycle, estimated production, harvest and production delivery
period); b) fixed and guaranteed prices, established FOB according to
quality (previously defined agio and loss of the agio); c) supplying what
is really needed and agreed (plants, seeds, fertilizations, intermediary raw
material); d) technical assistance and culture handle supervision; e)
transport conditions; f) rejection conditions and production resigns
criteria (above or out of quality standards); g) payment conditions; h)
special conditions to costs financing supply, by harvest pawn linked to a
financier bank; i) definition of accidental reasons clauses that avoids
contract accomplishment; and j) definition of penalties in case of contract
breach.
The second type of contract concerns leader company supply to
distributors, with the following clauses, besides the identification of
promised purchaser and sales company/person: a) strict form of a
purchase order; b) definition of processed product, with all related
characteristics and its perfect identification; c) definition of products not
appropriated to sale, that may be resigns or sent back by purchaser
(agreed with the sales company/person); d) sample products conditions,
in case of arbitrage; e) mark and label definition; f) invoice issue
conditions; g) definition of stocking and transport systems (Free on Board
– FOB, or Cost, Insurance and Freight – CIF); h) delivery conditions and
frequency – according to scheduled quantities; i) penalties (discounts,
total or partial resign of products or products devolution); j) cargo
checking procedures; i) payment conditions and eventual pay day
postponing; m) documents needed to transport and payment for the
supplied product.
This organization system, when maturates contract system, is the
seed for more advanced forms, presented as follows.
196
FIGURE 8
LEADER ORGANIZATION – TRADE COMPANY
Distributor abroad Individual

Producers
Global Packing
Company
Logistics
Wholesalers Trading Fresh
abroad External Company
Market Produ
Foreign Supermarket Trade

Chains and
Sales
Company
Domestic
Processing
CEASAs Industry
Logistics
Supermarkets Industrialized
Company
Product
Wholesalers
Agricultural
Production
Companies
SOURCE: Plena-FGV-Projetec Consortium.
In this system, a trade leader organization coordinates all irrigation

perimeter business, connecting input sectors to packing companies and
processing industries, as well as output sectors to distributors abroad,
tradings, external market, distribution nets abroad, wholesalers at Ceasas,
supermarkets and other retailers at internal market.
This system is usual in France, Chile, the United States, Spain and
other countries.
This leader organization presents high specialization level and is
focused on linking input and output companies business in the whole
system. Its competence is trade and sale, distributing responsibilities
within input and output sectors of the project.
197
It is a typical company from a single large scale project, although
with few companies (only with a packing company and a processing
industry).
Contract system may be developed from commitment contracts
(not formal, but based on trust), written contracts of purchase and
committed sale, with prices to be defined, with consigned sale and
various forms used worldwide.
Packing Company may be a producers organization, as well as
trade company may be composed by producers organizations.
FIGURE 9
LEADER ORGANIZATION – INTERNATIONAL MULTIPLE
TRADER COMPANY
Packer I
Producers
International
Client Retailer Whole Imp Packer II
saler orte Multiple
Multiple
Trader Processor Agricultural
Company I Production
Client Supermarkets Importers Company
Companies
Multiple
Processor
Company II
Known as a Commercial Network System, this coordinating

company is specialized in multiple trade or trade representation of
various packing companies and multiple processors concerning input
system, with focus and wide operation in foreign markets. It may also
operate with production contracts in other countries, in case of seasonal
demand.
Commercial Net System advantage is the products density offered
by international market, based on (new) “business discoveries” in
international markets.
198
It also presents a high level of integration with similar companies
at international market and may sign sale agreements with other
companies of the same branch worldwide.
All attention is focused on outlook and developing markets to
typical products of “tropical” cultures, with specific products.
It offers trade and sale services to various packing and multiple
processors companies. They get specialized by marks, product types,
quality standards and, in particular, specific markets with its demand
levels and product quality abroad.
That is the typical company from areas with various projects in
progress or large scale projects, with high product variety and a bigger
number of specialized packing and multiple processor companies. It has
been used in the United States.
Just like the previous mentioned leader company, there are contract
systems developed from formal contracts, in other words, written
contracts of promised purchase and sale, with prices to be defined, with
signed sale and various more advanced forms used worldwide nowadays.
As in other systems, both packing companies and multiple
processors may be a producers organization, as well as the international
multiple trader may be a company composed by producers organization.
199
FIGURE 10
LEADER ORGANIZATION – EXPORTER – IMPORTER
SECEX
Export
Register
Documentation
Producers Brazilian
Purchases and Export Credit
Agricultural Commercial
Payments Payments
Companies Bank
Export Records
Risk Evaluation
National Bank (Send LD and CD)
1. Qualified profile forms
Packer 2. Business history
Payment 3. Commitments fulfilling
Services Exporter 4. Delivery responsibility
Processor 5. Quality control
6. Experience and tradition
Foreign Bank (Pays LD and CD)

1. Payment of Letter of Credit
2. Operations and experience
Transport and Loading
3. Relationships and experience

Contact 4. Tradition and experience
5. Payment forms
LC
Credit Foreign
Importer
Commercial Bank
Payment
Loading Unloading
Port
Cold Destination port

Storage
Distributor
Legend:
LD = Loading documents
LC = Letter of Credit
200
An advanced system of new trends to huge export volumes to
foreign markets already consolidated. In this system there is straight
synchronicity between activities and information interchange within
exporters (specialized companies, as in the previous cases) and importers.
With bank services intervention that ensures commitments integrity and
fulfillment (tradition) of national exporters, through national banks, and
importers abroad, through foreign banks intervention.
The whole system is focused on exporter-importer relationship,
with national and foreign banks intervention that “quit” financial
operations, into a faster and competent logistic system. This system is
used in the United States, Chile and France.
The system is based on supply and purchase contracts, with strict
commitments.
As seen before, both in previous models and traditional ones, the

coordination is divided. The idea is to develop a new planning,
implementation and wide management form in all areas, articulating them
with other companies and complementary institutions to implement a
completely structured irrigation business, leading to a global manager.
The global manager must be in charge of: a) market and profit
analysis – market opportunities and sale goals management; b)
investment management (or even hiring a specialized manager company);
c) organization, coordination and management systems competitiveness
analysis – contracts management; d) competitiveness analysis, by
formulating a strategy to expand and face competition – competitiveness
management; e) deal with costs management with high efficiency (under
the lower costs); f) quality management; and g) communication and
information management.
The company must be competitive with: a) high capacity to create
improvement competencies; b) articulation capacity in market
organization areas, agriculturists and industrial units coordination, as well
as managing companies which provides the needed services; c) leadership
in lower costs structures together with high technical and financial
201
efficiency levels; d) leadership in differentials in products (and services)
quality; and e) capacity to identify and explore market branches.
In this model there is a central coordination to business as a whole,
executed by a group of leader companies and strategic investors, in order
to design and implement all strategic decisions of the chain, from market
outlook to service companies organization. This system has been used in
some projects in the United States.
It is necessary to recognize that this model is not suitable to cases
where production is very spread and hard to organize.
The mentioned global trader does not work very well in public
projects, where it has no control over the organization, coordination and
management as a whole. However, it works in mixed in private projects
and was designed specifically to these cases.
The following figure shows this model design, focusing: a) market
activities organization; b) production and post-harvest coordination; and
c) all support activities management (from engineering project to water
and raw material supply). The inferior part of the figure show the
economic-financial model that, based on financial returns, will harness
funding from global manager.
202
203
The attributes of a private company able to develop a modern
irrigation project as the global manager are described below. The
description of abilities required helps to better define them, in case of
irrigation projects. They are:
1. Make small irrigation projects viable
2. Capacity to business outlook: identifying clients to purchase
products and investors
3. Corporation capacity declaration
4. Show capacity to transfer competencies in strategic
organization and management areas
5. Ability to elaborate the basic project or viability project from
pre-viability project provided by public organisms
6. Prove competency in managing coordination mechanisms of
chains and agribusiness
7. Prove national and/or international experience
8. Prove ability to find new clients (investors clients portfolio or
ability to mobilize investors). Do the funding for part of the
project, complemented by strategic investors companies.
9. Ability to design the legal system, according to national law.
Articulating with authorities in charge of supervising legal
system.
10. Prove staff qualification in agronomy, as well as technical
assistance and training, based in scientific knowledge.
11. Capacity to compete in profits with other investments
considered by private investors in other economic sectors.
The main conditions to coordination, management and operation
capacity of a global manager are:
1. Present clients and purchasers to buy products and to sign
purchase commitments.
2. Capacity to elaborate products supply contracts for the clients.
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3. Elaborates product specifications benchmark (all
characteristics required by client-purchaser, to disseminate it
within irrigation producers). Exact description of product
standard, like maturation grade etc.
4. Present logistic ability, from processor plant until unload port
and distribution abroad. Integrated logistic organizational
structure, in charge of the company.
5. Ability to market outlook and scheduled production planning,
including determining cultures combination (crop mix),
according to market demands – including planning.
6. Capacity to elaborate culture planning and action plans to
technical assistance.
7. Product processing technology. Elaborating needed standards
to quality control in packing houses, according to clients-
purchasers demands (processing plants services, labeling,
packing, refrigerating engineering management locally and in
ports etc.).
8. Ability to make studies on hydraulic and agronomic
engineering.
9. Ability to elaborate and implement irrigation and draining
projects.
10. Interplay with research and development centers.
11. Installation of laboratory tests services.
12. Monitoring vegetable sanity (dynamic of population density
of pathogens and plagues, integrated control of plagues and
diseases etc.).
13. Installation of meteorological mini-stations, with daily
weather conditions such as photo-period, relative air humidity,
precipitation, winds, temperatures to determine potential
evaporative-transpiration, attack intensity – including
installing specialized equipment. There must be created
simplified register control to make it understandable to
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irrigators in order to adopt technical assistance
recommendations.
14. Monitoring services provided and control soil and water uses.
15. Use hydro-productivity and hydro-economic focuses on
managing water distribution and its tariff policy, aiming the
highest technical and financial efficiency possible, involving:
ability to reach the efficiency goals in irrigation; electing
special goals to reduce costs etc.
16. Ability to accomplish the aim of sustainable handle of natural
resources involved in the project (according to environmental
and water resources current laws and the best practices proved
by worldwide experiences).
17. Ability to design draining systems (soil profiles, water
saturation conditions in soils, soils saltiness status, soils
hydraulic conductivity, detailed technical specifications of the
systems; materials and costs specifications etc.)
18. Ability in technical assistance and financial areas to associated
irrigation producers – including excellent incomes and profits,
agronomic services of technical assistance and technology
dissemination. Ability to organize services. Operation under a
(owned or hired) company model of “technical and financial
consulting”.
19. Design and implement computer systems for costs control,
associated producers monitoring (products delivery), quality
control, graphic accounts for producers and all operation
financial agents, companies, services etc. both to operation
and outlook.
20. Elaborate graphic accounts to irrigators that participate on
simplified systems (smart charts) of easy understanding.
21. Proved capacity in elaborating fidelity contracts to irrigators,
including participating on financial settings with foreign
investors banks, to guarantee production and credit contracts
fulfillment.
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22. Ability to articulate with strategic investors in financing
irrigation producers, development banks, in the most difficult
segments (with high transaction costs). Strategic investors in
irrigation producers financing play a essential role in this
process.
23. Ability to operate in development clusters, in a integrated and
shared form.
8.4 - Financing models
This section will discuss how to operate financing conditions to

commercial management systems presented. Two financing models will
be discussed: the first model will identify conditions to commercial
management models types 1, 2,3 and 4 previously discussed; the second
model will discuss commercial model type 5, where collective
infrastructure and all the other actions are totally private, in other words,
having an entrepreneur and a project-company.
8.4.1 - Financing model type 1
The financing model related to commercial management systems

types 1, 2, 3 and 4 mentioned before, is based mainly in traditional
financing, particularly through bank credit. Part of funds used in
productive sectors comes from own funds. The investors are the owners
of production means (from small to large irrigators), from packing
installations and industries, as well as trade organizations. This system is
known and operates today in irrigation clusters. Its knowledge is
expanded with model advantages and disadvantages analysis, concerning
its financial risks.
The following Figure 12 shows the system representation.
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208
It is convenient to propose a change of focus and paradigm.
Management association is necessary (management model) with
financing (financing model), through credit and something essential to
make viable more advanced systems of management and financing:
harnessing funds from other companies, under capital association regimes
– where to prove returns in business as a whole is essential.
Financing model through credit and investment harnessing will
have a very important role in making more advanced management model
viable, with leader organizations as packing houses, processors,
agriculture industries, co-operative societies and sale companies, needed
to create bargain power face to purchaser markets of relative market
power.
On the other hand, a more advanced organization model (irrigation
business management), like the ones proposed here, may stimulate a
credit system where global financing to producers and companies may be
bigger than the sum of credits given to individual sectors, including
“solidarity” and shared financial responsibilities, focusing irrigation
“business value” as a whole.
This model may promote the reinforce and creation of new
agriculture industries that operates in many regions, with defined prices,
support to production process, technical orientation, part of raw material
supply, through credit and financing support.
It is necessary to change the profile of the few trade companies that
works today in irrigation clusters and only purchase products, by
providing them new credit support “management” and financing to larger
scales operations.
It concerns creating a new “mutual help culture”, providing a
“mutual investment warranty” system under a business view. In other
words, it concerns changing today view to a “chain” view, including all
involved sectors.
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A) Relative Advantages of Financing Model Type 1
1. Operational simplicity and tradition of operation.
2. Financing can be set up quickly.
3. Creditors have a tradition of analyzing individual risks.
4. Creditors have the total right of return on participating assets
(main and accessory).
5. Risks are diluted among the participating assets.
6. Creditors use the (selected) portfolio of assets of the companies
and owners for the guarantee of debt service.
7. Greater selectivity of clients on the part of creditors.
It is important to point out that this model is similar to that which
exists today in the sector. It will always depend on the construction of
increasing legal power, on the part of the State, in the area of public
goods that drive the growth of the sector. If the State does not support this
model with public goods, the private sector will not accomplish
profitability consistent with the business risks, and bankruptcies will be
frequent. There will always lack an essential element to make the
business feasible. Irrigation from a business with relative risks will
become a high-risk activity.
B) Relative Disadvantages of Financing Model Type 1
1. Low rates of leveraging of third-party resources make the
business unfeasible. This is the greatest problem. Assets
committed as guarantees.
2. High financial charges make the business unfeasible.
3. High financial charges increase the risk of default
4. Cash flows from various assets and businesses are mixed.
5. Control of the company is done by management (concentrated
control).
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6. The “stockholders” are represented and do not exercise direct
control.
7. Excessive dependence on the companies’ administrative
management.
8. The administration has latitude in decision-making on the use
the financial results (between dividends and reinvestment -
conflict of agency).
9. Possibility that administration is not fully professionally
trained.
10. Administration of the business of diversified irrigation among
several actors with conflicting objectives (of prices). Difficult
mechanisms of coordination.
11. The creditors have to know the “real dimension" of the capital
needs of the actors, and may under - or overestimate the
amount of credit.
12. Credit risks must be evaluated case by case.
13. The debt cannot be “totally” guaranteed.
14. There may be an unbalance of provision of capital among the
segments of the chain, with liquidity problems in specific
segments. Few credit sources. Problems with efficiency of the
business due to lack of capital.
15. Difficulties in one activity of a company or producer may
drain resources of good projects, jeopardizing the debt service
or production in any of the business activities of a "good"
company or of a "good" producer.
16. The insolvency of one segment may jeopardize the entire
irrigation project.
17. The creditor is the only one to be convinced of the
profitability of the project (which may be a financial agent and
not an entrepreneur from the real sector of the economy).
18. Easier "concealment of risks".
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• Organization of the Financing System
The objective of this section is to identify which types of financing,
mechanisms, institutions and resources would be available or could
potentially be used for implementation of the segments that compose the
systems of commercial administration: 1, 2, 3 and 4. All of the financing
alternatives will be utilized, whether credit (debt financing), participation
in shares of stock (equity financing) or new institutional arrangements
and financing mechanisms that are currently growing throughout the
world.
A) Financing for Irrigating Producers
The main issues related to this type of financing are: a) which
conditions / financing are to be offered to irrigators so that they can
implement a partnership infrastructure and cultivation activities, as well
as accelerate the production process; b) how to ensure the commitment of
resources in the totality and timeliness required by the enterprise until its
full production.
Furthermore, the question should be asked as to which rates of
financial charges are compatible with the cost of the investment and the
period of maturation of the investment. How to mitigate the risks of a
relatively costly business and the long period of maturation?
In this case, the resources may be those of producers with a
leveraging capacity of the enterprise’s initial resources. Alternatively,
bank resources of special lines of credit may be used for this purpose and
for investments of long periods of maturation. Another hypothesis would
be the opening of lines of public credit for this purpose: investment in the
development of a project of public interest.
In the case of the family entrepreneur, in that this a specific target
public, financing for this category of producer-irrigators would be of
public interest, making it justified to offer a special line of credit for
development.
The credit should include all of the following phases: implantation,
annual costing, post-harvest, and commercialization.
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B) Financing for processing companies
- Initial investments of Implantation
Agricultural companies can be classified as packing companies -
which require relatively modest investments - or processing companies,
such as the production of juices and processed food products, which can
be associated with packing companies or industrial companies. The
association of a packing company with a processing company is suitable,
for instance, for juices and pulps, for a greater and more efficient
utilization of the product, for consumption in natura or for processing.
In this case, resources owned by the companies may be used which
- whether capitalized or associated with other product purchasing
companies – will be able to leverage resources for investments.
Bank resources could be made available, with relatively larger
facilities in relation to producers, due to greater levels of guarantees, and,
in cases of companies with intangible assets of value, tradition and
market knowledge, there would not be a lack capital for them to become
associated with the companies for projects of high financial feasibility.
- Credit for Working Capital
Packing companies need more modest sums for financing of
working capital: basically short-term and for intermediate inputs
(packaging and products necessary for processing). On the other hand,
the necessities of larger industrial processing companies are much
greater, because the producers harvest and sell the production within few
months and the processors have to process and stock the processed
product for up to 7 or 8 months for commercialization. There is a period
of sharp rises in expenses, followed by prolonged period of sales.
In this last case, the needs of working capital are very high. Bank
credit is an alternative, within limits. There would not be, however, an as
big a shortage of resources as for the economic segments of smaller
scales. Furthermore, the financial charges would be tolerable in the
current situation.
Agile systems of guarantees of high-quality receivables, with
revolving credit - as in a float system - in which the liquidation of
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receivable serves to lower pending debits, that may greatly facilitate
negotiations for relatively more reduced financial charge rates.
C) Financing for Industrial Companies
- Initial Implantation Investments
Large industrial companies have easier access to medium-term
financing. The system of capital leveraging (gearing), due to production
density and product markets, could be facilitated up to the limit of the
opening of capital. Raising the resources for investment, in this case, does
not cause so much concern.
- Working Capital Credit
The case of financing for large-scale processing companies is
similar to that of processing companies discussed previously. In this case,
the very needs of working capital are much greater, basically due to the
financing needs of a much larger volume of raw materials and
intermediate inputs.
D) Mixed Projects
The creation of the mixed projects within the legislation facilitates
the solving of the problem of financing of irrigation projects. With the
stockholding participation of the State fixed at a maximum of 49%, the
projects may have within the public power, in any of its realms, a strong
resources leveraging factor for the development of irrigation projects.
The stockholding participation of the State may make it possible to create
works of infrastructure for common usage, thus reducing investors' initial
costs. The State may participate in shareholding by guaranteeing the
purchase of a percentile of lots of the projects for family entrepreneurs.
The mixed projects may be developed from the opening of capital.
The amounts of resources necessary for the implantation of those projects
justify the opening of capital, for instance, for a project of 5,000 hectares.
The stockholding would make a project feasible provided that the
strategic investors have the credibility to begin the enterprise.
Both in mixed projects and in private projects, the design of
companies with financial architecture (or so-called “financial package”)
led by major banks has been growing in Brazil. In this case, in addition to
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the strategic investors (please see this definition further on, in the case of
the project-company) there are also institutional investors as well as the
participation of state banks (BNDESPAR). The number of companies of
this type is growing every day.
The design of these projects should be preserved for the
development of creativity and innovative ideas in the private sector. The
role of the State should be contained, not adopting any form of
government-controlled economy - because this generates capital risk.
8.4.2 - Financing model type 2
The following graph (Figure 13) displays the conception of

financing model for the project-company, in other words, the Type 5
Model of Business Administration, proposed as one of the options in the
irrigation project, with strong participation from the private initiative. The
illustration contains all of the initial elements in order to assess the
project-company formed, based on partnerships with leader-companies,
associated companies and strategic investors.
This model of proposed financing is targeted at attracting the
private initiative to implement private irrigation projects in the Northeast
of Brazil, within a more systemic and coordinated vision.
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216
A) Relative Advantages of Financing Model Type 2
1. Lower risks stemming from high financing charges.
2. Lower risks regarding default of the entire project (interest).
3. The business has to prove that it is lucrative: the profitability
tests are more rigorous because there is a greater number of
"stockholders" to be convinced to participate in the project-company with
their resources.
4. Greater participation of the component companies: from the turn
key system to the current competitive system: enormous savings of costs.
5. The project-company may be organized as a limited liability
company in order to use the benefits stemming from tax incentives for
property and profits.
6. The cash flows and assets of the project-company are separate
from those of the leader-companies.
7. The administration stays in control but must be accountable to a
larger group of "stockholders" (participating companies).
8. The centralization of assets and cash flows of the project-
company facilitates greater fiscal auditing and control on the part of the
associated companies.
9. There are contractual conditions that govern company
management, generation of results, debts, and assets, thus greatly
facilitating control.
10. A portion of the risks of project construction and works may be
transferred to third parties (through performance bonds), or may be
diluted among other leader-companies.
11. The creditors' financial exposure is specific to the project’s
assets.
12. The contracts dilute the risks between activities and
participating companies.
13. Greater solidarity in the rendering of services and in the
project.
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14. The risks of the project can be better allocated to the companies
that can best assume them. Labor specialization and risks.
15. Those offering the service have an interest in the profit of the
business.
16. The participating companies are not involved in operational
risks (they employ professionals with recognized capabilities).
17. Management of irrigation project without conflicts of interests
(of prices).
18. The administration has no decision latitude between
distribution of dividends and reinvestment: the liquid cash flow is
distributed, by contract, among the capital investors.
19. Low levels of conflicts among investors and companies and the
administration in the distribution of results (conflict of agency).
20. Greater and more efficient monitoring on the part of the
investors and companies.
21. The debt may be better guaranteed by the assets of the project-
company.
22. Debt equity ratio contracts are tailor-made so that the project-
company and the debt can be, up to a certain point, better guaranteed.
23. The participating companies also share in the financing:
diversification of sources, from the suppliers of inputs to the buyers of the
product, as well as share in the labor capital and profits.
24. Greater leveraging resources with diluted liability and joint
liability.
25. The insolvency of one individual business does not affect the
project-company.
B) Relative Disadvantages of Financing Model Type 2
1. More complex financial modeling.
2. Dependence on much more “sophisticated” contracts.
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3. The setting up of the project-company requires more information
and involves larger transaction costs, with contracts, participant
regimentation, etc.
4. Dependence on the efficiency of the justice system.
5. Creditors are entitled to limited return on the project-company’s
assets.
6. Creditors are not entitled to return on assets of the participating
companies.
7. The financial projects, in particular, are much more rigorous in
the statements of generation of liquid cash flow, thus consuming more
time.
8. Proper risk assessment is required, thus making it more costly to
set up the projects. Projects are risk- sensitive.
9. The risk of the creditors not recovering their credits are greater,
since the debt cannot be redeemable with the resources of other assets or
other projects of the companies.
This model is the one that best serves the efficiency criterion for
cost reduction (cost-effectiveness), or participation of the community of
beneficiaries in the setting up and financing of the project. Preferably, the
project should be set up in the most recent system of investments, and
distribution of responsibilities for carrying out the services should include
contributions of capital.
The system used until recently by the private sector was a turn key
system, with the hiring of an engineering firm for total execution. This
system changed this year. Now, participating in the implementation are
the company of the overall project, the supplier of equipment, the general
manager, other suppliers, etc. With the new competition - which should
appear in irrigation efforts with the participation of the private sector - it
was necessary to lower costs and the "turn key system is no longer
satisfactory.
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General Characteristics of Financing Model Type 2
Separate Business Entity
The participants (leader-companies and associated companies) of

the unit or project-company may find it advantageous to form a new
business entity targeted at constructing, retaining property, and operating
the project.
If sufficient profits are predicted, the project-company may finance
the construction based on the project that involves the issuance of
securities (for the participating companies or "partners") as well as debt
bonds. The titles referred to here are designed in a way as to be liquidated
through the derived liquid revenues of project operation.
Business Structure
The choice of the business structure should include important fiscal
and accounting considerations.
It can also affect the availability of resources for a project and its
financing cost.
The type 2 model requires that the economic rewards be allocated
in a consistent way commensurate to the risks of the project.
The involved parties should work in close conjunction with
financial and business consultants of the project in order to assess the
alternative legal structures and determine the most advantageous.
Generally, the following principal forms of alternatives exist in the
United States:
• Indivisible common interest joint-ownership
• Corporation
• Partnership
• Limited Liability Company
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Tapping of Resources
This is the tapping of resources to finance a capital investment
project, economically separable, in which the providers of resources
(partners and creditors) view the cash flow stemming from the project as
a primary source of resources to assist the return on capital invested in the
project.
The terms of maturity and the values of the titles are projected in
accordance with the characteristics of the cash flows free from the
project.
For the effect of guarantee, the debt titles of the project depend on
profitability and (at least partially) on the assets of the project; but the
emphasis is always on the project profitability.
Basic Financial Characteristics of Investor Security
1. An agreement among the parties financially responsible for
making all of the necessary financial resources available to the
project for its completion.
2. An agreement among the parties financially responsible
(typically in the form of purchase of project production) that
guarantees that the project, after completion, has sufficient cash
flow to serve their operating expenses and debt services, even if
the project is not successful because of forces of nature.
3. Guarantees by the parties financially responsible that, in the
case of difficulties, before or after its completion, there will be
additional resources available to restore operational conditions
to the project.
Important distinctions
Model 2 is different than conventional direct financing. However it
cannot constitute a form of funding that is not as financially feasible as a
conventional financing project.
In conventional direct financing the creditors have the company’s
total portfolio of assets for the generation of cash flows for the service of
their loans. The assets and their financing are integrated into the
company’s portfolios of assets and liabilities.
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In Model 2, the project is a distinct business entity. The partners
usually offer the assets of the project - however none of the other assets
(foreign to the project) - to guarantee loans to the project.
The concepts concerning the financial architecture are thoroughly
misused and misunderstood.
The Model 2 system is not a means of leveraging resources in
order to finance a project of low economic and financial profitability,
which cannot generate sufficient operational cash flows to serve their
debts, pay fees and taxes and supply adequate return to the partners.
In other words, Model 2 is not a means of financing projects which
cannot be financed on a conventional basis.
Important considerations:
This project type requires careful financial engineering to allocate
risks and returns among the parties involved (partners and creditors), in a
mutually acceptable way.
To be financed through a project-company, a project should
include all of the necessary conditions so that it constitutes an
independent operational unit and, above all, is economically feasible. For
example, it cannot be an integral part of other installation(s).
If the project depends on property assets of other parties in any
stage of its operational cycle, the unconditional access of the project to
the those facilities should be guaranteed (by contracts), whenever it is
necessary, regardless of events that may occur.
Model 2 is efficient for a company that has a project in view or
already proposed, when:
a) the production of the project has such a strong demand that
buyers are willing to accept long term purchase contracts;
b) the contracts have conditions strong enough so that the banks
(creditors) they are willing to advance resources in order to finance the
implementation of the project based on those contracts.
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8.4.3 - Comparison of financing models types 1 and 2
A) Financing Model Type 1

Definition
It is a conventional financial project where the participants and
companies are responsible for the success or failure of the project,
bearing the totality of the profits or losses of their enterprises.
Suppliers of production inputs, creditors and buyers do not have
any responsibility, compromise, or interest in the success of the irrigation
project as a whole. Interest here means to gain something “additional" for
the sum of the competencies of the associated companies.
If the companies or producers fail to generate sufficient cash flows
to pay their accounts individually, they shall execute judicial collection of
the debts, separately or jointly, in addition to requesting the bankruptcy of
the project and, if necessary, executing the guarantees supplied by the
individuals and companies.
Important Issues: Major Systemic Risks
The risks can be potentially large enough to jeopardize the entire
irrigation project. In this case, each participant takes precautionary
measures to ward off the risks of the other participants.
This system can present high risk (water shortages, for instance,
can jeopardize the whole project). With Model 2, it is sought to isolate
the risks of a project so that a failure in the project cannot compromise
other stockholder assets in other segments of the project.
In order to isolate the risks of the project, risks should be
reallocated so that it becomes acceptable to the involved parties to receive
as collateral for their investments only the assets of the project itself.
B) Financing Model Type 2
Definition
It is the financing of a private economic unit (a complete project,
designed in a harmonic and integral way), called project-company, in the
which the participants are attracted by the generation of a positive liquid
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cash flow that propitiates a given potential profitability, however with
risk.
The project is conceived, designed, planned and carried out in an
integral way, with optimal economic scale and technique. It is a set of
assets related amongst themselves, in a harmonic way, capable of
working profitably as an independent economic unit.
The project will provide profits, with funding paid that may come
to be necessary. The collateral guarantees of all financing are from
properties restricted to assets of the size of the project. The assets of this
project-company unit are sufficient as collateral for the loan.
This concerns a project with application of techniques targeted at
the solution of financial problems with the distribution of self-financing
and allocation of risks.
The project is not a “better form of generating wealth". It is a form
of involving a greater degree of self-financing, less dependence on third-
party resources, and risk distribution. The participants are stockholders in
the project. It is a trade-off. The participants gain less, in compensation
they do not have risks beyond their investments in the project itself.
The creditors accept smaller collateral guarantees, in compensation
they may gain more with the success of the administration and joint
management of the project. The buyers commit themselves to certain
purchase levels, in compensation they pay less for the products.
The suppliers commit themselves more with the supply of raw
materials and/or facilities in a partnership relationship; in compensation
they receive a larger rate of return.
The participants that offer services have an interest in best offering
them, because they profit from that. And those that use these supplies
have a greater guarantee of quality and a smaller risk of not having the
rendered service, and so on.
Adapting Model 2 to an Irrigation Project
The demand for products of irrigated agriculture is known and it
depends on arrangements of purchase commitment. Outside a
programmed production, the market risks are very high.
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The project depends on a high degree of integration among all
segments. An irrigation project has to be an entirely harmonic one, with
coordination mechanisms among all of the stages and activities.
Otherwise, there are risks of system malfunctioning.
The problem is that, in an irrigation project financed with third-
party capital, there is the concern about the payment of the debt service.
The market risks and prices are great (perishable products). Any problem
with supply of goods and services jeopardize the quality and the quantity
of the final product.
Thus, on certain occasions it is possible that the gross revenues of
the operations is so low, that interest and amortization of the loan are not
gotten. Technically, this would be a state of insolvency for individuals or
companies. There may also be debt stock accrual.
The banks know about this. Consequently, in order to lend
resources in scenarios of uncertainty, they demand extra collateral. For
instance, to meet what the banks ask for in terms of collateral, the set of
goods of the producers, companies, etc., is not sufficient; even more so if
we consider that many of the project’s assets are of property of the state
(except in the case of the private projects).
Additional collateral for the loans are requested. They should also
include the individuals’ and the companies’ goods in other activities.
Thus, a problem with the project could lead even a solid group of
companies to have to request composition of creditors or file for
bankruptcy. With the existent risks, the project arouses little interest.
A solution for this problem will be found when admitting a new
partner or new partners is achieved (with preferential shares, for example)
in the business (project), with shareholder equity, besides the
“shareholder equity of the ordinary partners”, in order to finance the
project. With this "new partner" (leader-companies or associated
companies) the need for third-party capital drops to a level in which the
goods of the project itself are already sufficient for us to serve as bank
collateral without the need for other goods.
The "new partner" or new corporate arrangement - of leader-
companies and associated companies - is interested in the business since
it has strong market performance (in civil construction, administration of
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water resources, supply of inputs etc.); or, even better, there can be a
company-leader that is a major purchaser of products from the project.
The potential revenues of the new investments, in a major project-
company, associated with the "new partners", will be potentially larger
and distributed through preferential dividends (profit sharing) and of the
(closed) purchase of the project’s products with large discounts
(supermarkets, wholesalers, distributors in Brazil or abroad, etc.)
One of the advantages is that, with the pre-planned sale of part of
the products (to the new "partners"), the volatility of revenues decreases.
With the volatility of the revenue decreasing and with "satisfaction" of
the need of third-party capital, the risks of loan default are much less.
They can be dramatically reduced if we include in the project-company
associated companies as leaders that represent the demand for the
products and the supply of critical inputs in the production process.
8.4.4 - Conditions for viability of proposed financing models
• General Conditions for Feasibility and Implantation of the New

Models
These conditions concern more the project-company type per se,

but they can be applied to any types of investments with the leadership of
the private sector. These conditions are necessary to attract large-scale
financial investors.
The following points are responses and observations made by
potential investors in the area of irrigation projects, when stimulated by
semi-structured interviews, conducted for the purpose of knowing the
conditions according to which these investors would be interested in the
business. This consultation was conducted with a group of business
leaders, eventually interested parties in the irrigation project, but
inexperienced in the area of this type of project.
The essential definitions for participation in an irrigation financing
project would be:
1. Definition of the mechanism of risk distribution for the
business or enterprise: what other groups would be associated
with the enterprise?
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2. The assets of the associated companies would not be collateral
for financing.
3. Acceptance of an elevated degree of association in the risks
and profits, a relative disposition for investment in the real
sector of the economy with reduced technological risks.
4. Identification of which associated company will be with
which type of risk, in a very defined way in the project - with
one essential pre-condition: at least one associated company
with a tradition in the area and administration experience.
5. The investors are associated with banks, suppliers, buyers,
sellers, builders etc. (all of the involved segments), because
this represents the market tendency for businesses in the real
sector, with stock participation in the financing; not to act in
an isolated way.
6. Rigid definition of the contract regime; the juridical and legal
portions are very important among the parties. Alternatively
there may be forms of contracts with judicial arbitration.
7. Compromise from the Government (BNDES); as a form of
hedging against the risk of the Government changing "the
rules of the game", preferably within an institutional
government policy.
8. Compromise of the local government - state and municipal
districts - as a form of hedging against the risk of a lack of
infrastructure and, preferably, with some form of financial
participation. Preference for “hospitable" states with a
tradition of stimulating private investment.
9. Tax incentives: major investments are always sought for fiscal
and investigation actions on the part of the state treasury. The
incentives should not be conceded to make the project
economically viable, but rather to increase the value and speed
of return on the projects.
10. The holding companies of these businesses will not provide
investment guarantees.
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11. Separation of assets. The participants' assets do not share an
eventual failure of the enterprise; they are not joint assets. In
Brazil there have already been negative experiences with
financial solidarity with high risks.
12. Separate financial, legal and economic structures: the
guarantees may eventually be complemental.
13. The number of key-investors should be sufficient to guarantee
and make the business feasible.
14. Creation of the so-called "detonator factors", participants with
high credibility and definition of a business capable of
generating debt service for the liabilities of the projects; the
profitability may be slightly reduced, but with smaller risks.
Minimum annual returns of 12%, 14% and 16%, without
risks, to serve the investors' liabilities.
15. Special conditions:
a. known technology;
b. guaranteed market;
c. sources for supply of materials and intermediate inputs
guaranteed and reliable;
d. qualified labor force.
16. Good history of local government: not displaying hostility
towards investments.
17. Existence of firm sales contracts.
18. Sales volume of final products - purchased and distributed
product, ready to invoice.
• Condition for Attracting National Private Investments in the New

Irrigation Projects
The objective of this section is to summarize and register the

results of consultations with heads of companies and institutional
investment groups that would potentially participate in investments in the
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business of irrigated agriculture. These are conditions for attracting
private investments.
The points listed below reflect a summary of the pre-conditions
mentioned by qualified informants and leaders of business groups that are
potentially interested parties in investing in irrigated agriculture. The
points have an order of importance more or less as follows:
1. Detailed information on the types of possible crops to be
developed in the irrigation projects, for the effects of a
preliminary market survey, without which the decision-
making process cannot begin.
2. Indication of the potential for exporting the products
originating from of the projects, as well as the physical
embarkation conditions for production sold to foreign
markets.
3. Detailed information on production technology and
productivities of crop to be explored in the project area.
4. Preliminary guarantees that the projects would have financing
(especially from BNDES).
5. Inventory of the social and productive infrastructure available:
highways, schools, electricity etc.
6. Labor availability and worker qualification in the region, as
well as experience in working with irrigation.
7. Indications of probable periods of studies, implantation,
operation start-up, and horizon of maturation for investments
in the project.
8. Preliminary estimates of maturation horizon and probable
return rate from the project, based on identical experiences.
9. Partnerships with construction companies that would be
associated with the formation of a group for carrying out the
works of the project.
10. Indications of formation of partnerships with domestic
[Brazilian] or foreign banks (in portfolios of participation) and
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guarantee of fixed capital credits, investment, costing,
commercialization and export.
11. Tax incentives in order to increase and accelerate the returns
of economically feasible projects.
• Conditions for Attracting International Investors
There are advantages in attracting international investor companies

which can contribute important elements such as organizational
technology, coordination and administration, in addition to state-of-the-
art technology.
For this reason, it is necessary to carry out a study for the definition
of the essential elements of the document known internationally as
Statement of Corporate Capability, which registers the conditions of
competence of potential international investors (companies understood as
"corporations").
To attend to the needs of development of projects in Brazil, this
statement must be made up of a set of special requirements, designed
based on the interests of Brazil in the welcoming and formation of
partnerships with international investors.
A) Minimum Conditions for Acceptance of the Companies
1. Capacity of discovering businesses by investigating market
opportunities;
2. Design of sound planning and engineering projects;
3. Integral organization of the project’s financial engineering,
from start-up to permanent production.
4. Capacity of development and construction.
5. Capacity to manage production systems, producers, inputs etc.
6. Transportation logistics; marketing and commercialization;
7. Training and timing of implantation for all operations.
8. Logistics timing;
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9. Research, tests for improvement, and tests of new varieties;
10. Seeds products of inputs.
11. Processing, packing and industrialization.
B) Study of Conditions for Participation in the Projects of Investors
Specializing in Irrigation
The purpose of this section is to indicate how the conditions of
investors participation that are in the "business" will be investigated for
projects in Brazil, in accordance with existent worldwide experience.
Identification of the main components for the formation of an
environment favorable to investment, technology transfer and formation
of partnerships with national groups.
Identification of the scope of investments by investors in the area
irrigation in several countries throughout the world, average project
dimensions (by the criteria of total assets). Existence of an integrated
program on a foreign scale of distribution and commercialization.
Study of the modalities and limits of participation in a system of
debt financing.
Study of the modalities and financing limitations with shareholder
participation and division of equity financing risk. Indication of
equilibrium and proportionality of funding and equity financing for
irrigation projects.
Appraisal of financing instruments used by international investors:
bank credit, simple swap, or use of debt equity funds, for medium-scale
investors that will be defined in terms of the size of the enterprises.
Study of conditions for flexibility in contributions of hard-currency
resources, as well as convertibility and expatriation of profits, as an
indication to investors of how this set has changed in a notable way in
Brazil during the 1980s, from centralization of currency exchange to
nowadays, with the opening of trade.
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C) Financial Gearing Capacity
Study of conditions to be served by investors with international
experience for participation in programs of project development:
a) Solid experience in projects of at least three countries,
preferably under identical conditions as those of Brazil;
b) stockholding participation in sister companies in the area
abroad;
c) to possess a subsidiary or associated company preferably in the
distribution sector, or retain any form of participation in
distribution organizations and markets in centers of
convergence and distribution (Rotterdam, La Havre, USA,
Europe, Middle East, South America and Japan, for example);
d) potential of conducting feasibility studies;
e) participation with shareholder equities of the enterprises;
f) capacity for stockholder leveraging in investments with
moderate to low financing participation, through debit (high
investment equity and low debt financing);
g) identification of the maximum of reachable financing for a
project of excellent standard and percentile of stockholding
consistent with this maximum financing;
h) proven capacity of stock diversification and flexibility of
participation in the company’s capital. Performance in Brazil, in
the equity partners regime, with a substantial participation of
domestic companies in the corporate investment regime and
stockholding participation;
i) proven capacity of carrying out negotiations with potential
investors and attracting investment capital, loans, stockholding
participation, and any forms participation by individual
investors, etc. for developing countries;
j) Core business centralized in processing, industrialization and
marketing, with a form of preferential organization with
participation of independent producers under a contracts
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regime, remaining with control of processing and
commercialization of the production and small unit of supply of
inputs and credit management (for direct contact with the
financial agents), preferably as credit reviewers;
l) capacity of setting up demonstration models of production units,
control of the associated producers in form of partnership;
m) capacity of developing project planning, feasibility analyses,
complete business organization, services and administration
units, technical support, irrigator training, food processing,
commercialization of proven efficiency and credibility, in
similar conditions to those prevalent in developing countries;
n) experience in generation and transfer of applied technology and
training of local professionals both in technology and,
primarily, in operational processes and administration;
o) solid experience in the area of contracts, administrative
organization through partnerships and contracts, in the areas of
production, supply of inputs and credit;
p) to prove that the operational regime - with the interconnection of
the various links through contracts and good operational
practices - reduces risks for the enterprise;
q) capacity of offering some form of pricing guarantee to serve the
purpose of holding prices for the producers and financial agents
in the area of costing credit - including as a form (to be defined
explicitly) of cost reduction;
r) To make available: agronomists, agricultural engineers,
irrigation specialists, hydrology technicians, entomologists,
aquaculture specialists, administrative technicians, accounting
specialists, auditing specialists;
s) Proven capacity of serving clients from major brokerage
companies of funds as well as investments from private clients
of all sizes that are brokers of funds; to stimulate the
participation in the enterprises of purchasers of the products in
the industrial sector, celebrating not only supply partnership
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contracts, but also contracts of stockholding participation in the
investment;
t) capacity of accomplishing efforts of tests for improvements of
new seeds and varieties, crops, usage of inputs, in conditions of
temperate, subtropical and tropical climates, at different
altitudes, and different rainfall and evaporation regimes;
u) to allow external auditing, in accordance with national
[Brazilian] legislation;
v) capacity of assembling computerized systems of producers
tracking, cultivation systems, controls of supply of inputs,
usages of technologies, controls of production costs, controls of
graphic accounts of the "borrowers", register of quality of
products delivered by producers, monitoring systems and
management of the project as a whole, cash flow, generation of
financial statements and results, and reports for fiscal effects.
D) Relative Advantages of These Companies
International investment companies have computerized systems for
control of water, soils, climatic conditions, solar radiation, humidity,
precipitation, wind and temperature for evaporation control, forecast of
harvests based on the system, in addition to control of fertilizers,
herbicides and pesticides.
They also have proper timing of soil fertilization in appropriate
quantities, tests and experiments on soils for physical and chemical
quality of soils and water.
Furthermore, they also count on laboratory analyses of the
following types: water analysis, soil analysis, nutrients analysis etc.,
including degree of toxicity of the quantities of defensive and chemical
products used for preservation of the natural resources and the
environment.
The companies have experience in the issuance of performance
bonds for the implantation phases of the projects, as well as
internationally recognized experience and credibility.
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Also very important: they have the potential for operation with
cultivations of medium and low relative profitability, but that are
important to Brazil in terms of import substitution.
E) Scale of Investments of These Companies
In general, the scale of investments of these companies is: small -
up to US$ 3 million; medium - up to US$ 35 million; large - over US$50
million. Land areas: average - 12,000 hectares.
F) Preconditions for attracting these companies
The preconditions required by investors and international
companies in the area of irrigation would be:
a) access to the lands;
b) freedom from government interference, in the sense of policies
that, in some way, generate institutional risks or, alternatively,
if there is some form of interference, that this be processed with
clear and pre-defined rules, in a way that is compatible with
projects of long maturation;
c) low relative population density (so there will not be competition
for lands and elevation of opportunity costs of the land factor -
which is a risk);
d) relatively low cost of lands;
e) relatively cheap recovery costs for costs of basic infrastructure
works;
f) low political risks, in a broad sense, in all of the government's
realms;
g) currency convertibility, without risks of exchange centralization
or measures of this nature;
h) availability of some form of reducing financing costs.
• Participation of Business Brokerage Companies
Once the incentives for the attraction of private investments have
been created, an important step is to put companies to work that are
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acquainted with business abroad, and can attract large-scale investors for
the projects.
Examples of these companies are: Mackinsey, Andersen
Consulting, Booz Allen, Arthur D. Little, BCG, A. T. Kearney, Price
Waterhouse, Ernest Young, Delloite, KPMG, Arthur Andersen,
Associated Trevisan, Mac Rich, etc.
However, the following items are necessary:
1. Study and proposition of selection criteria for client approach
companies, business incorporation and brokerage.
2. Establishment of the "rules of the game" for the participation of
national and foreign companies that are potential candidates for
the system of incorporation.
3. Definition of the kind of performance for the incorporation
operators, with remuneration of the fixed portion, for the pre-
feasibility study, a portion for the feasibility study, and a
portion of the remuneration as a rate of success, under the form
of risk association.
4. Basic technical, economical and financial feasibility project, and
primarily, that of financial engineering, are carried out by the
incorporator that will be able to seek out partners at the
beginning of the process.
5. Conditions to launch projects on domestic and foreign markets,
making information on the projects available through
permanent exposure to worldwide companies.
The following should be required:
Experience in appraisal of corporate finance, assessment of assets
and liabilities for merges, mergers and acquisitions, partnerships etc.
Acquaintance with potential companies to work in the areas pf
auditing and brokerage of businesses, in a broad sense.
The brokerage companies should be capable, through a statement
of corporate capability, of knowing how to identify who wants to buy and
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sell, what and how to buy, including an assessment of the performance of
potential investors.
They should have credibility, access to the international market for
inversion projects and access to companies acting in diverse countries.
They should have access to medium- and large-scale companies.
• Attractiveness of Investments in the Processing and
Industrialization in the Irrigation Project
The points listed below reflect the opinions of qualified informants
from the sector of industrialization of products originating from irrigation
projects. The points mentioned reflect the identification, in preliminary
character, of the minimum standard of information necessary for the
attraction of investments of agro-industries that may eventually be
interested in participating in an irrigation project joint venture.
A) Stage of Preliminary Studies
In this stage, preliminary surveys of market potential should be
conducted, once considering that the Brazilian market is very competitive
and a large-scale investment would tend to have a long maturation period.
The stages of the basic studies would be:
Stage l: market studies: what to produce and where to sell
Stage II: commercialization studies: competition conditions
Stage III: development of agro-industrial projects: technology
Stage IV: development of the complete financial project
Stage V: development of the detailed physical project
Technology does not represent a barrier to access. There are world
fairs for industrial processing machines with state-of-the-art technology,
plus suppliers credit. The problems are the market risks.
B) Stage of Logistic Planning
Information and studies on post-harvest procedures are necessary,
in order to know: harvest and transportation conditions in appropriate
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trucks, as well as washing, selecting, cooling, storage, etc. In the
production portion, an important point is the control of fruit ripening. The
investments feasibility study depends on logistic planning.
C) Conditions for Investment
1. Availability of the scale of production and quality
2. Relative low cost of qualified manpower
3. Existence of infrastructure and transportation (factor of distance
from supply lines)
4. Minimum area to make agro-business feasible
• Principles for the Success of Private Projects
The primary principles for the success of private projects can be
summarized in the following points:
1. The goal of the project should be, in an unyielding way:
financial self-sustainability.
2. It should have the lowest possible dependence on sources of
high uncertainty funds, such as in the case of public funds.
3. There must be, in all perimeters and projects, mainly public
ones, a reduction of the subsidies and taxing of water in
accordance with the costs.
4. A fundamental principle of good financial management and of
the credibility of an enterprise is the recovery of all costs
involved, mainly of the costs of works of infrastructure for
common usage, investments in fixed capital and labor etc.
including operation and maintenance costs.
5. The principle of distribution of financial liabilities of all
beneficiaries should be strictly observed, mainly the
participation of user capital.
6. The administration should be decentralized in separate units and
not centralized in a single decision-making unit.
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7. There should be the delegation of competency and the transfer of
administration and property of the projects to the user-irrigators,
as a way to distance the State as well as the support of federal
funds.
8. The projects have to go through a rigorous assessment of the
project’s profitability.
Furthermore, the user communities will come to assume new roles
and new responsibilities in the projects, such as forming competent
associations to manage, primarily, the rendering of water services;
participating in the design of the project, starting from its initial
conception; participating in the execution and implementation of the
project; negotiating technical support, for its account and risk; and
permanently assessing the degree of satisfaction of the participating
members with the project’s performance as a whole .
A fundamental principle is that the design of projects should come
from users that know whether and how much users can pay for the
services rendered to them (as in the case of the taxation of water), with
activities that they are able and know how to do. If the State wants to
settle entrepreneurial families, it will have to enable them to live together
with entrepreneurs of a new irrigation project.
8.4.5 - General risk characteristics in project companies
In spite of the unquestionable superiority of the system of project-

companies in conventional systems in which the businesses are set up in a
segmented way, with serious risks of not carrying out the plans of
installation of the businesses, the exigencies of this form of
management/financing are much greater than in current systems.
The number of exigencies is greater, inasmuch as the project-
company involves greater risks and the feasibility of the project must be
strictly proven. The most common risks should be avoided. The most
complicated ones must be solved. An example of this is the fundamental
point that the undertaking of the project-company, as technically well-
conceived as it may be, should not be begun unless all of the financing is
available, for investment in fixed capital, and provision of capital and
financing for the project’s subsequent operation - something that is not
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considered in current projects. Lack of integral financing is one of the
risks - if not the greatest of all.
The most important point is to find a (or a set of) strategic
investor(s), a company-leader or a group of company-leaders that are
willing to form a project-company, in a joint way, including to jointly
leverage financial resources. Another risk is that of the credibility of
strategic investors.
The formation of partnerships with these companies depends on
the leader-companies respectability. The “herding” effect should prevail -
where one group adheres, and then other companies adhere because of
the credibility of the leader-group. Intangible assets (brands, know-how,
administration, organization capability, coordination and administration),
depending on the complexity of the business, as in the case of irrigation
project, are as important as the tangible assets.
The main risks perceivable by potential investors are, in relative
order of importance:
1. Credit risk in "equity financing” - in other words, risk of the
"stockholder" is higher in the project-company, even though
the profits may be potentially greater, because the perception
is that the investment is private, with lower costs and greater
control over the results.
2. Feasibility studies and financial planning have to be
discerning and carefully prepared, including with risk
scenarios, as it is done in risk analyses for private projects.
3. The costs of raw materials and other intermediate inputs and
products necessary for production must be ensured.
4. The supply and quality of electric power (at a reasonable cost)
must be ensured.
5. Existence of a market for the product to be produced, with
high degree of predictability, taking into consideration the
levels of competition in the coming years.
6. Existence of means for transporting (at a reasonable cost) the
products to the destination markets.
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7. Existence of available means of communication.
8. Construction materials are available at required costs and
quantities.
9. The construction company is experienced and reliable.
10. The operator company is experienced and reliable.
11. The administrative staff is experienced and reliable. The
administration and management will be professionally trained
and specialized.
12. The technology is known and it is not a factor of
competitiveness in the market. There are no technological
barriers to market entry.
13. Contracts among the various partner companies are possible
and operational. The local legal system is efficient and can be
used; possibility of contracts exist with judicial arbitration.
14. The political environment is friendly and stable. The local
government is cooperative. It is willing to associate with the
project. Licenses and permits will be available. The local
government promotes investments.
15. No risks of partial or total expropriation of the project exist.
16. The risk of the country is known (and should preferably be
low).
17. The risk of property rights is low.
18. The risks of exchange of the involved currencies have been
considered and can be resolved (Dollar [US$] and Real [R$]).
19. The participating companies (the most important ones) that
are key to the process, have contributed appropriately with
their portion of resources, or have contributed appropriately
with the effort of tapping these resources.
20. The project has value as collateral (guarantee).
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21. Satisfactory evaluations of the resources and assets have been
obtained by rigorous process within of the best available
techniques.
22. Insurance can provide adequate coverage.
23. The risk of acts of nature has been considered.
24. The risk of cost surges (sharp increases) has been considered.
25. The risk of arrears has been considered.
26. The project presents appropriate rates of return for the
investors.
27. The inflation projections are realistic.
28. The interest rate projections are realistic.
29. The environmental risks are manageable - they will comply
with the law.
30. The project is in accordance with existing friendly "laws" in
effect on the local, state and federal levels.
8.4.6 - Final comments
The literature addressing the issue of attracting private investment

and investigating the restrictions to development, on the part of the
private sector, for activities of irrigation, has indicated that an important
pre-condition for private enterprise (in any sector of the economy) is what
is conventionally called predictable “commercial environment”, that is,
where policies of irrigation, credit, prices and markets were more stable.
A predictable commercial environment would encourage the private
sector to invest in the exploration of irrigation activities. The private
sector tends to distance itself when there are institutional risks of various
natures.
One of the most important risks that makes private investment
unfeasible is that of changes in scenarios for factors that affect the
profitability of the businesses, as well as the signals sent out by certain
public policies, mainly paternalism.
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When the scenarios that determine the profitability of the
businesses are not clear, for a horizon of time necessary to make medium-
and long-term investment feasible, the reaction of investors is negative.
The businesses are not set up, there is no transparency or tradition of
profitability.
When there exist institutional risks or risks of public policies, not
only is there economic loss, bit also the threat of unrecoverable financial
losses for the private sector. One of the most important risks that affect
the activity and profitability of irrigation (as well as economic activity in
general), are the institutional risks, for which there is no insurance.
Another high risk factor that affects the profitability of investment
and that shuns the private sector is insecurity regarding public credit,
often promised and viewed as reliable. However, in Brazil, the budgets of
application of public resources, whether for classic fiscal expenditures or
for investments of credit, are indicative budgets and the investments are
contingencied.
When the promise of provision of public credit exists, private
credit, on the part of the financial agents, is pushed away (known as
crowding out). Without the guarantee of credit, it is practically
impossible, for an irrigator, to plan his cultivations with programmed
financial disbursements, which are not served with the due timeliness.
This is even more serious the larger the investment made with
shareholder equity by the producer-irrigator that has already committed
his financial gearing capacity to make his project feasible, the nature of
which is long-term.
Another uncertainty stems from the existence of incentives and
subsidies (or promise of these) that produce unequal conditions of
competitiveness within a project or among projects. Regimes of
incentives that vary from project to project or from producer to producer
violate the principle of equity in the distribution of the same, and this
principle is indispensable in order to attract the private sector.
The State should have a selective role, but there is a limit, in
addition to making the participation of the private sector more difficult.
The international experience shows that, if there is a competitor alongside
another one that enjoys special conditions of incentives, the conditions of
competitiveness in the markets are altered.
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Another important point of risk concerns the tariffs or the
remuneration of investments in common infrastructure for irrigation,
operation and maintenance. The recovery of these costs, that are
substantiated in the taxes and fees, should have a common denominator
for all producer-irrigators. Otherwise, it is possible that there be
differences between production costs of a given crop, even within the
same project. Moreover, the collection of taxes and fees should contain
minimum conditions of equity and, above all, conditions that "all must
pay". The lack of tax collection creates "differentiated taxes”. The
recovery of costs is a common trace today in the state of the arts of
effective irrigation models in all of the countries studied.
The literature shows that the irrigation project should be seated on
the basis of equity, in terms of costs for all, regarding the recovery of
investments. There should be a definition of the rules of the game, basic
to all, within the project and among projects, and some form of guarantee
that the private sector can invest. The State should not grant
discriminatory subsidies under the form of works, taxes, fees, or credits,
in order not to make the commercial ambient and competition unequal.
For the individual investor, the conditions of growth of fiscal
deficit, raising of interests and cuts in the supply of credit can create
serious problems, mainly when there is a "breach of contract" for the
supply of basic services that is unilaterally not complied with by the
State. The breach of that contract can create enormous financial
difficulties to individual investors and a rejection, on their part, of their
performance in their activity. The relationship of the State, through the
public agencies, with the irrigators, just as much as in the relationship of
the irrigators with service companies, should be regulated through a
regime of engagement and mutual duties contracts, with severe penalties
in the case of noncompliance.
This is an essential pre-condition for attracting private investment
and part of this pre-condition is the issue of cost recovery, as has already
been demonstrated. It is necessary to look at the fact that the economical
relationships are seated in contract regimes, without which it becomes
impossible to carry out any economic activity.
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8.5 - Research and Development in Irrigated Agriculture in the
Northeast of Brazil
Analyzing the latest diagnoses, regarding the problems that the

farmer-irrigators in the Northeast of Brazil and north of the state of Minas
Gerais are confronted with, and tackling them based on indications from
the farmers, specialists in technical and credit support, suppliers of
machinery, seeds and seedlings, and other agricultural inputs, participants
in the seminars held in the six agro-industrial centers of the Brazilian
Northeastern and northern Minas Gerais, it was possible to identify issues
and respective lines of research of interest and common relevance. If
implemented, they will be capable of offering relevant technological
solutions for irrigated agriculture in those regions.
As a starting point, in a new form of joint performance of
agricultural and livestock research organizations, acting in and for the
Brazilian Northeastern and northern Minas Gerais, and freely integrated
in the research system proposed herein, the issues and respective research
lines should make up the first stage of an INTEGRATED PROGRAM
OF RESEARCH IN IRRIGATED AGRICULTURE FOR THE
BRAZILIAN NORTHEAST, many of which are already being executed
in that region, including with financial support of the “Avança Brasil”
Program, mentioned previously.
The expectation is that, if endorsed by those responsible for the
implementation of the New Irrigation Model, in those regions, they
should also constitute one of the pre-conditions for public financing of
agricultural research for Irrigated agriculture in the Brazilian Northeast
and northern regions of the state of Minas Gerais.
This proposal, in addition to suggestions from final users, as
mentioned previously, was also based on discussions with technicians
and officials from Embrapa as well as several other state research
agencies.
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8.5.1 - Organizing research efforts in irrigated agriculture in
Northeast Brazil and the North of Minas Gerais state-
determining factors and proposed innovations
• Determinants
The major transformations that are currently occurring throughout

the world also bring new challenges to irrigated agriculture. The most
prominent among these are: globalization, with the consequent incitement
of competition, in addition to the continuation of distortions in
international trade, caused by agricultural subsidies - "only the countries
of the Organization for Economic Cooperation and Development spent
something around US$ 360 billion in financing to agriculture in 1998,
which leads consumers in the industrialized world to pay almost a third
the more for their food products than would be paid if the government did
not subsidize producers.”
“Furthermore, taxes on agricultural products are still 40% on
average, compared to much less than 10% for manufactured products,
and import quotas remain rigid" (THE ECONOMIST, 2000).
Added to this is the growing awareness of the need for
environmental conservation (including the imperative need to save water;
a strategic - and increasingly critical - input for irrigated agriculture in the
Brazilian Northeast); and technological revolution, based on
biotechnology, robotics and information technology, plus the recognition
of consumer empowerment, realities which, all in all, also determine
changes in the needs and priorities of research and development activities
in irrigated agriculture, worsened by the persistent reduction of resources
for R&D, a reality for research systems throughout the world.
Therefore, Brazilian agro-business also seeks to attain greater
competitiveness, centered in the highest efficiency in the usage of
resources, in the generation of products of better quality in their
productive chains, with lower production costs and better administration
of all the activities involved.
This structural adjustment affects, in a differentiated way, the
different segments of the productive chain. Producers are the most
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pressured, mainly those of subsistence and those placed in transition
agriculture.
Gradually, the government's actions are less intervening and
become more of a regulatory and support character. Nonetheless, while
commercial agriculture is guided by market signals, subsistence and
transition farming (usually carried out by small- and medium-scale
farmers) will need government support in order to be integrated in the
market in a sustainable form.
Alongside the major transformations, pointed out above, the
following aspects are also determinants of changes in the execution of
R&D activities:
a) in the ambient of Brazilian science and technology, there is
growing international interest for partnerships with Brazil and
greater availability of better-qualified research personnel, in
contrast to the unequivocal weakening of public systems of
agricultural research and rural extension, both international and
national. Thus, a new model of research financing is outlined,
based on competitive funds, with incitement of inter-
institutional disputes for resources, leading those that are
induced and accelerated to the formation of interdisciplinary
“excellence nuclei”, and the allocation of resources in thematic,
multi-institutional projects;
b) sharpen the problems regarding germplasm flow;
c) intellectual property legislation is consolidated, which stimulates
scientific and technological development with the participation
of the private sector and, on the other hand, limits the use of
base technologies;
d) Non-tariff protectionism increases, through sanitary, social and
environmental issue barriers (now, under the deceptive guise of
agricultural multifuntionality, extensive throughout the first
world in less competitive agricultural activities);
e) the integrated vision of sustainable development, that has as a
pillar the concept of equity of opportunities and the distribution
of gains from technological advances; environmental and
biodiversity conservation and income generation;
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f) the geographical mobility of agricultural development, supported
by R&D activities, in non-discriminating economic policies and
in public and private investments that stimulate the usage of
technologies generated. It is the case of the Brazilian “cerrados”
(grasslands) which, in the last 20 years, have enlarged the
narrow agricultural frontiers from the south to the center-west
of Brazil and that have extended to the west of the state of
Bahia, the southwest of the state of Piauí, the south of the state
of Maranhão, now having reached the extreme north of Brazil;
g) organization and modernization on course with the main
productive chains, increasingly capable in specifying and
making technological demands more explicit;
h) government decision-making, which made it possible for
institutions of research and agricultural teaching , such as
Embrapa and Brazilian universities, to begin broad and
intensive post-graduate programs, supplying basic resources in
research and development (R&D), because they are intensive in
intellectual capital. The quality of this human capital is reflected
directly in the quality of the results, since there are no
substitutes for professionals who are well-trained, committed
and adequately rewarded;
i) the strengthening, at all levels, of market-based research, with
the improvement of instruments that lead to the incorporation of
basic knowledge for solutions to real problems of producers,
and the conversion of this knowledge in innovative
technological concepts, that are validated, economically feasible
and are, without delays, transferred to the market;
j) verification that public and private R&D are complemental to
each other, in other words, they are synergistic rather than
antagonistic. Therefore the former should not lose the sense of
relevance and objectivity of the research. On the other hand,
public institutions should seek a balance between the
technological and pre-technological efforts. This balance is
determined according to the structure of the agro-business, from
the perspective of intellectual property, and according to the
nature of each technology considered.
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New conditions of production and commercialization determine
new forms of approach to the issue of technological development and
transfer of technologies to agro-business, based on irrigated agriculture,
in the Brazilian Northeast.
In the segment previous to agricultural production, a new
relationship must be implemented with companies that produce,
machinery, equipment and inputs. In the industry of seeds and seedlings,
technological support of small- and medium-scale companies, that do not
have their own research program, is essential for their survival. The
occupation of niches – such as those represented by poor farmers located
in areas of little interest to companies which produce seeds of high
technological content - is another essential point. On the other hand, it is
necessary that public research regarding irrigated agriculture, also
participate in the advances taking place in the biotechnological area.
Forms of relationship with multinational corporations, acting within this
segment, are necessary in order that Brazil may dominate knowledge that
is indispensable to the development of modern technology.
In the case of input producing companies, the chemical industry,
and the machinery and equipment suppliers, this relationship is also
necessary for the process of adapting these products to Brazilian
conditions, and for information to the farmers about their characteristics
and performance, in addition to impacts on the environment. Thus, it is
imperative to introduce the concept of hydro-economics to Brazilian
irrigated agriculture, developing more efficient equipment in the
distribution of water and crops that are less demanding of water. Also, the
modern concept of precision agriculture should be introduced in this
sector, which is wisely intensive in the usage of inputs.
In the segment following agricultural production, serving the needs
of the processing industry and distribution companies must be
considered, regarding a quality product, whether to serve the new needs
of the industry, or to serve its efficiency program, in order to live with a
situation of increasingly narrow margins, in a market of intense and
growing competition, and increasingly concentrated.
• The Diversified Segment of the agricultural production
In the agricultural segment, responsibilities are greater.
Modifications in the segments upstream and downstream must be
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internalized, through a process of adaptation and adjustment, on the part
of farmers. Some of them have greater ease and access to information,
which makes this adjustment possible in acceptable time. In the case of
poor farmers, this is more difficult, and the time necessary for the
adjustments is greater. Since their economic survival is related to this
adjustment, some type of action must be developed, in a way as to
prevent their being pushed out of the market or their surviving under
marginal conditions, which, in the long run, will exhaust their reserves
and those of the natural environment exploited by them.
• Innovations Suggested for Research Organization and
Administration
Vis-à-vis these new realities, new demands are also placed on the
research system, in order to face the new challenges presented for
dynamic competitiveness of irrigated agriculture in the Brazilian
Northeast and northern Minas Gerais. They eventually determine
alterations in the modus operandi of the research systems, among which
the following stand out:
Focus on the client
To adapt the characteristics of products from irrigated agriculture
to the needs and demands of agro-business (intermediate customer) and
society (final customer).
Quality
For each unit of the research system to make up a center of
excellence, planning actions in effectiveness and efficiency in the search
for results and solutions for producer-irrigators.
Agility
To reach objectively the planned goals of the research activities,
seeking to serve, on time, the needs of the customers.
Focus on obtaining solutions
To internalize the demands, seeking to advance knowledge,
through the mobilization of internal and external capabilities, integrating
them in defined and objective actions for obtaining solutions,
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Partnerships
To enlarge the interaction of the integral units of the research
system, regarding irrigated agriculture, for the institutional cooperation
among institutions of learning, research and extension, public and private.
The research consortium, occasioning the research organizations to act in
network, however maintaining their individuality, is an alternative, above
all when human, material and financial resources are critical and the
demands for technological solutions increase. A good example of the
effectiveness of this modus operandi are the victorious Brazilian efforts
in the sequencing of the genetic code of the causal agent of citrus
variegated chlorosis - the pernicious Xylella bacteria.
But partnerships do not become exhausted in this restricted
universe of interactions among organizations of learning, research and
development. They should also consider as a partner every individual or
organization, public or private, with whom the research system and its
integral and associated units can assume and maintain - in a temporary or
permanent manner - a relationship of cooperation, sharing the risks, costs
and benefits of research and development and/or technology transfer.
• Objectives of the Irrigated Agriculture Research System
Problems-solving and taking advantage of opportunities, in regards
to agro-business, should be the final objectives of the solutions made
feasible by the research, for its development and for the welfare of the
entire partnership. This common purpose must be translated to the
following general objectives:
General Objective 1
To make technological solutions feasible for the competitive
development of agro-business based on irrigated agriculture, in a
globalized economy.
In order to accomplish this first objective, the research system must
implement actions which aim primarily:
a) to introduce, evaluate and use germplasm, for the purposes of
development of basic materials, in the improvement and
obtainment of lineages and crops, through classic methods;
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b) to use biotechnological techniques to support conventional
programs of genetic improvement for the obtainment of new
crops for an irrigated environment;
c) to implement interactive programs with private companies for
the development of new crops and to maintain the production of
hybrids for the companies that do not have their own programs
of genetic improvement, or that are available to use existing
hybrid combinations in the system;
d) to occupy strategic niches in biotechnological research (quality,
desirable standards such as: format, transportability, adaptation
to strains) not used by the private initiative;
e) to develop biotechnological tools of support for programs of
obtaining crops that are more adapted and tolerant to conditions
of strain and that generate products with better physical,
chemical, organoleptical and nutritional quality;
f) to incorporate, within the concept of germplasm pool,
microorganisms with the potential for usage in sustainable
irrigated agriculture;
g) to develop lineages and hybrid combinations that can be
licensed, after protection, in an arrangement of the Foundation
Seed type;
h) to develop and adapt methodologies and processes for automatic
acquisition of data, treatment and interpretation of information
and assessment of irrigated agricultural systems;
i) to develop and adjust systems of control and decision support for
rational usage of natural resources and agricultural inputs;
j) to improve horticultural planting systems (vegetables, fruits and
flowers), as well as harvest, maturation, storage and
transportation technologies in a controlled atmosphere;
l) to optimize processes and systems, so as to reduce physical and
qualitative losses in the harvest, preparation, storage,
transportation and sale of irrigated agricultural products;
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m) to identify intervening factors in the formation and
development of agro-industrial centers;
n) to track, systematize and make available market information on
the productive chain of irrigated products;
o) to integrate information of the agro-climatic zoning, differential
zones of adaptation and indication of crops;
p) to make available systems of geographical information on
irrigated crops, of easy access to the public;
q) to participate in regional development actions based on the
competitiveness of agro-business;
r) to use participative methodologies for prospecting demands;
segmentation, definition of target-public and positioning in the
market; tactical and strategic marketing and control
management for guiding research and development activities;
s) to act in the process of incubation of companies of base
technologies, in order to increase the transfer of generated
technologies and support regional and sectorial
entrepreneurship;
t) to widen activities of technology transfer which increase its
effectiveness;
u) to improve and internalize management of intellectual property.
General Objective 2
To make feasible technological solutions for the agro-business of
irrigated agriculture which promotes and makes the sustainability of the
economic activities compatible with environmental equilibrium.
To accomplish this second general objective, the research system
must implement actions which aim primarily:
a) to identify mechanisms of adaptation and environmental strain
seeking the minimization of losses and the stability of
production;
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b) to generate knowledge and technologies that allow the
introduction of genetic alterations in plants, so as to ensure
agricultural sustainability and reduce or minimize biotic and
abiotic strains and negative environmental impact from
agricultural activity;
c) to identify mechanisms of plant-pathogen and plant-insect
interactions which lead to safer and more effective methods for
pest and disease control;
d) to preserve the environment, through the development of
alternatives of cultural management that make it possible to
reduce agro-chemicals usage in agricultural production systems;
e) to promote sustainability and competitiveness of the main
production systems, involving direct planting, irrigated
agriculture, harvests to explore market windows (domestic and
foreign) and integration of irrigated agriculture and aquaculture
(observing the project’s water grants);
f) to integrate the concepts of precision agriculture and
conservationist agriculture;
g) to identify, select and develop technologies for the use of
beneficial organisms, seeking greater productivity and stability
of agro-ecosystems;
h) to identify resistance genes; evaluate and select elite genotypes,
resistant to pests and diseases, and to develop technologies for
managing this resistance;
i) to develop and adapt strategies of disease and pest control,
through cultural, biological, physical and chemical methods;
j) to monitor and establish disease and pest expansion forecasting
models, primarily in regions of intensive irrigated agriculture;
l) to develop environmental management and intervention
techniques that contribute to the increase of efficiency in the
usage of inputs, rationalization of such usage, and minimization
of contamination of the agro-ecosystems.
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General Objective 3
To make feasible technological solutions for agro-business, mainly
in the agro-industrial centers in the Northeast of Brazil and northern
Minas Gerais state, that contribute to the reduction of regional and social
unbalances.
In order to accomplish this third objective, the research system
a) to improve the performance of production systems, seeking
economic and ecological sustainability of family agriculture in
those regions;
b) to identify the reasons for low use of seeds and improved
seedlings in horticultural products, grains and cotton, for poor
farmers, and to develop actions of diffusion of appropriate crops
for these farmers, enlarging the usage of methodologies of
campaigns such as the current National Campaign for the
Production of Corn Variety Seeds in Rural Communities,
coordinated by Embrapa - Corn and Sorghum;
c) to improve the process of transfer of technologies and
knowledge, based on the understanding of the concepts and the
organizational and managerial principles of transition
agriculture (from subsistence farming to market-based irrigated
agriculture);
d) to concentrate efforts on the increase of work productivity by
mechanization on small properties, as a form of joining incomes
(for instance, ferti-irrigation);
e) to diversify the line of crops for irrigated agriculture, also
including transition agriculture, seeking to obtain varieties that
can be bred by growers and double hybrids with improved
nutritional quality;
f) to increase a property-level storage program, targeted at family
agriculture.
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General Objective 4
To make feasible technological solutions for the supply of raw
materials and food products of agro-business based on irrigated
agriculture, which promote the health and improvement of nutritional
levels as well as the quality of life of the population.
To accomplish this fourth general objective, the research system
a) to carry out research relative to the post-harvest quality of fruits
and vegetables, grains and fibers, developing technologies to contribute
to the integrated control of insects (pests) for these products, when
stocked - with or without controlled atmosphere – for the reduction
residual pesticide and herbicide usage, as well as reduction of physical
losses and grains free of micotoxins;
b) to articulate, with the agro-industrial sector, the development of
new products in irrigated agriculture, both for industrial usage as well as
for human consumption;
c) to develop research related to the quality of irrigated agricultural
products (e.g. corn and sorghum with larger oil and iron content, essential
amino acids, digestibility, etc.) that contribute to its use for animal and
human consumption;
d) to implement, in collaboration with technical support and rural
extension agencies/companies, Non-Governmental Organizations
(NGOs), town halls, etc., programs on usage of corn with protein quality
for feeding groups of the population with nutritional shortages.
• Suggested Goals
The reach of the following types of goals should be sought as a
result of the actions to be implemented, in accordance with what has been
established in multi-year R&D plans, during their validity. They involve
both aspects relative to R&D and technology transfer as well as the
management of research efforts.
1. To increase the average productivity of irrigated agriculture
crops of economical importance.
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2. To introduce, within the period of the plan, an average of “n”
crops of "p" species every year, which incorporate advances in
resistance to major pests, diseases and abiotic strains.
3. To introduce, by the end of the period, hybrids and crops
adapted to the semi-arid conditions and to irrigated agriculture
in the Northeast of Brazil and northern Minas Gerais state.
4. To develop technology for generation and interpretation of
geo-referenced information of production systems, validating
this as a useful instrument of recommendation for systems of
precision agriculture.
5. To identify and promote detailed characterization of at least
one mechanism for tolerance to aluminum, one mechanism of
efficiency for phosphorus, and a mechanism for drought
tolerance.
6. To develop two techniques of molecular, cellular and genetic
transformation biology under usage conditions for the
programs of genetic improvement of plants in tropical
conditions, seeking tolerance to biotic and abiotic strains, and
for the improvement of the nutritional and physical quality of
the grain.
7. To develop a strategy of integrated management of major
pests and diseases for irrigated crops in the Northeast region
of Brazil.
8. To develop at least 60 agricultural practices/processes in order
to improve the sustainability / competitiveness of production
systems involving the irrigated cultivation of grains, fruits and
oilseeds.
9. To implant and make available, in a systemized manner, the
production costs, profitability and competitiveness of the
production systems that involve the irrigated crops in the main
agro-industrial centers of the Brazilian Northeast.
10. To develop a model and software for recommendation of
irrigation management using the soil water balance, under
irrigated production systems of grains, fruits and oilseeds.
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11. To develop a methodology which aims to correct, predict and
make available the reference evaporation through artificial
neural networks for the rationalization of practices of
irrigation management.
12. To develop a strategy of integrated management of pests and
diseases for maintenance of post-harvest quality of irrigated
agricultural products in the Brazilian Northeast.
13. To characterize commercial crops, available on the market, in
regards to nutritional quality and industrial processing.
14. To arrive at the end of the period with a ratio of 1.5 for
technical publications (articles in indexed magazines or in
annals of trade conventions and chapters in books) for team
researchers.
15. To reach, in the last year, a total of 10,000 hours of training
courses.
16. To implant the organizational structure of the thematic nuclei.
17. To implant administrative management through processes.
18. To implant the segments regarding the products of irrigated
agriculture in the Brazilian Northeast in the following
networks: Embrapa Network of Information Technological
and the Bank of the Northeast of Brazil’s Irrigation Network,
incorporating, among the users, technical support and
extension rural agents, both public and private, and sales staff
of the licensed companies for production of seeds and
seedlings for the research system’s programs of improvement,
acting in and for the Brazilian Northeast.
19. Adequacy of the personnel roster, outsourcing of support
activities and concentrating recruitment directly in areas
linked to the purpose of the activity.
20. To implant annually a campaign for production and/or use of
improved seeds and seedlings in irrigation perimeters and
rural settlements.
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• Suggested Strategic Guidelines
To accomplish the objectives proposed in the scope of its mission,
the research system in irrigated agriculture should base its strategic
guidelines focused on:
Human capital
Because human resources are critical to R&D activities, realigning
should support constant development. It is necessary to define strategies
of continuous improvements, in the context of structuring projects that
aim to motivate, commit and mobilize people with such strategic
realignment, so that it is solidified.
The process of mobilization and realignment should occur through
the following initiatives which are organizational in character:
a) to promote a policy of replacement, updating/development, and
management of human resources, incorporating new skills,
strengthening the areas of R&D and technology transfer;
b) to redimension the managerial area of administrative support in
the sense of making it more agile, simple, and flexible, and to
integrate the different strata of the institution, seeking better
R&D support and technology transfer, free researchers from
middle activities;
c) to adopt mechanisms to make it possible to create an
environment favorable to innovation, creativity, performance
assessment, and awards for excellence;
d) to create mechanisms that allow training, in the unit itself, for
young professionals with distinguishable skills;
e) to promote training programs in order to adapt the employees to
the new reality of each component of the research system, re-
aligning the professional profile of the managerial, scientific/
technical, and operative segments;
f) to strengthen the actions for shared management, with the
involvement and participation of employees in decision-making
processes;
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g) to intensify actions of explanation and clarification for all
employees regarding the systems of evaluation;
h) to simplify the systems of evaluation and its use as a tool for
effective management;
i) to qualify managers in the carrying out of actions for planning,
tracking, and evaluation, as well as for conducting human
relations that occur in the work environment;
j) to develop and implement programs aiming to improve
interpersonal relationships.
Research and Development (R&D)
For the strategic guiding of the research system’s priority R&D
activities in irrigated agriculture, the following actions should be
implemented:
1. To develop fact-finding and tracking mechanisms for the
aspirations and needs of society and for the level of satisfaction
with the technologies, products and services offered by the
research system and by competitors.
2. To reorganize the R&D program in the sense of guiding
primarily the actions of the thematic nuclei for problems and
issues of strategic value, addressing governmental and market
priorities as well as respecting the environment.
3. To use information technologies intensively and to modernize
the methods of research and development.
4. To address the actions of R&D primarily for issues and strategic
areas for the agro-business of irrigated agriculture, and for
scientific and technological development, within a prospective,
integrated and systemic outlook, strengthening the concept of
productive chains and systems as the basic focus of the
research.
5. To continually monitor the progress of worldwide scientific
knowledge, internalizing it into the System of Research on
irrigated agriculture.
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6. To seek the consolidation of organizational integration,
strengthening partnerships among all members of the system,
organizations of the public and private sector and rural
producers, improving the capacity of the research system to
interact with the market.
7. Internalize the demands stemming from of the necessities of
promoting advances in knowledge, and to mobilize the internal
and external capacities, integrating them in well-defined and
objective actions.
Technology Transfer
For the strategic guiding of the priority activities of technology
transfer in the system of research on irrigated agriculture, the following
actions should be implemented:
1. To develop, internalize and use mechanisms of appropriation
and strategic use of intellectual property rights.
2. To develop an administration policy for the processes
technology transfer in order to ensure: the availability of
knowledge and technologies that have a real interest for society;
negotiations for the distribution of knowledge and technologies
generated by it or by its partners, and the promotion of
knowledge and technologies among the diverse publics.
3. To enlarge the technology transfer network, starting with the
utilization of instruments such as: the Embrapa Network of
Information Technological (Reit); the Irrigation Network,
whose networker is the Bank of the Northeast of Brazil;
consolidation of the role of the product manager; gathering,
systemization and availability of technological information and
training.
4. To increase tapping of resources, through the sale or grant of
rights to the use the results of the research through R&D
projects and technology transfer.
5. To establish an integrated nucleus of information for the agro-
business of irrigated agriculture, reinforcing the process of
technology.
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6. To create, maintain and increase the flow of communication, in a
way as to stimulate interaction between the research system and
its internal and external publics, using modern systems,
methods and communication tools (intranet, Internet, etc.);
7. To improve the irrigated agriculture research system’s capacity
to produce qualified information, with a modern vision of this
agro-business and concerning the demands, expectations and
needs of the diverse publics.
8. To reinforce the process of social control over the research
system’s integral organizations, establishing mechanisms for
tacking research projects which mainly involve the users of the
products and services of these organizations.
Upgrading Research Management
In order to support the priority R&D activities and technology
transfer in the irrigated agriculture research system’s integral
organizations, improvement measures should be implemented in the
management of research on irrigated agriculture, such as:
1. Promotion of a management system based on principles of
quality, focused on customers, structured by processes, and
based on assessment of results, together with a rewards system.
2. Promotion of the rationalization and fusion of structures and
activities, through management by processes, outsourcing,
automation, computerization and mechanization.
3. Strengthening of planning activities at all levels.
4. Periodic improvements to the organizational design and the
research program, concentrating strategic issue actions on
Brazilian society.
5. To enlarge the partnership with business development
foundations and support of R&D.
Physical Infrastructure and Financial Resources
1. To promote outsourcing of activities which are not focus of the
units operations, within the budgetary and financial availability.
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2. To concentrate investments in equipment for mechanization,
automation, laboratory infrastructure, computerization and
information.
3. To adopt an ongoing program of cost rationalization.
4. To enlarge the capacity of resource tapping from alternative
sources.
5. To promote the participation of the private sector in the
financing of technological development.
• Strategic Projects
The research system for irrigated agriculture should improve,
strengthen and make feasible strategic projects in progress, and dedicate
efforts to the introduction, in an efficient and effective way, of new
projects for the implementation of the defined strategic guidelines,
encompassing all of the activities related to the mission, vision and values
of research organization and the decentralized units.
Thematic Nuclei
The thematic nuclei, often found in advanced research systems in
several countries, including in Brazil, are focused on areas and issues of
major relevance, aimed at solutions to problems that involve several areas
of knowledge, stemming from the demands of customers and partners, in
the scope of the research organization’s activities. They are made up by
multidisciplinary teams of research organization and by partners of other
public or private institutions, domestic and international.
The thematic nuclei should increasingly constitute efficient and
including wide-ranging forms of solutions of problems identified among
the different segments of the various productive chains of irrigated
agriculture agro-business, for the possibility of making feasible and
promoting the integration, strengthening, and constitution of
interdisciplinary teams; of making feasible the systemic focus and
solutions of problems in an integrated way; and of reducing costs of
investment resources, costing and human capital, for the optimized use of
the infrastructure.
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Thematic Seminars
The irrigated agriculture research system should motivate, support
and promote the holding of prospective forums in science and
technology, in which people from different organizations, interest groups
and disciplines have the opportunity to manifest their concerns regarding
relevant issues, indicating problems and difficulties, forms and methods
of solutions and needs for involvement and support, seeking the
improvement and the increase of competitiveness of the activities that are
subjects of the issues addressed. The main focus is the prioritization of
areas of activities in which each unit, the research system and the nation
reach and sustain dynamic competitive advantages. From these forums
will emerge integrated research and development projects in relevant
areas, where partnerships among universities, public and private
institutions, government agencies, and international organs and
universities will be motivated, aiming to optimize scientific and
technological support.
Technological Information
The research system and its organizations should intensify and
institutionalize new mechanisms for the agile and flexible treatment and
diffusion of information. For this, it should emphasize the speed with
which the information travels from the teams of researchers to the
databases, to the technical support agents and the user or client, and also,
in the inverse sense, motivating and promoting the prompt updating of
the information made available and feedback from researchers, with
information about the effectiveness and opportunity of the offered
solutions/services, as well as of new problems presented.
Means such as computer networks, television, radio programs,
newspapers and magazines should be utilized, as a form of mass public-
service. To the extent that it is possible, the segmentation of information
and mean of communication utilized should be promoted in way as to
reach the defined customer strata.
Project Workshops
In order to reinforce the activity of resource tapping , a researcher
support area should be structured, enlarging the existent organization, in
the sense of supporting the stages relative to a project’s cycle, including
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the identification of sources of supply for resources, the elaboration of
financing proposals, according to norms of each source, presentation,
negotiation, project tracking and evaluation of project results.
Therefore, the project workshops will identify and divulge
information to researchers about the financing agencies’ priority agendas
as well as availabilities of project financing, and will prepare detailed
information on procedures required by the different financing agencies,
as well as establish permanent contacts with funding sources, elaborate
and divulge lists of financing agents, and establish partnerships with
research and development support foundations, aiming to make greater
speed and efficiency possible in the management of projects and service
rendering contracts.
Management by Processes
The model of management by processes should replace the
traditional functional vision with an integrated vision of the activities of
technological innovation. It will also make it possible for the work flow
to occur in a more horizontal manner, regardless of where the various
activities are carried out.
These processes can be understood as business units and a new
standard of professional development is required for their implantation.
The actions that must be taken on order to adopt a form of
management by processes and to improve operational efficiency, will
encompass:
a) formal and informal training for managers supervisors, and other
leaders responsible for the management of the research system’s
integral organizations, in the application of principles and
methodologies of management by processes;
b) definition of the structural model of the research unit’s
processes, starting with their identification, description and
prioritization, aiming to organize it in a horizontal manner, from
strategic levels to operational levels;
c) organization and division of labor from an outlook of processes.
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Strategic Management of the Research Infrastructure
Strategic Management of the infrastructure should adjust the
availability of resources to the needs of the research unit, based on its
current and potential planning, aiming to strategically utilize, maintain,
modernize and demobilize company goods in general, seeking the
improvement and effectiveness of the operations of each integral
organization in the research system.
The actions to be developed consist of:
a) promoting the demobilization of obsolete vehicles, machinery,
and equipment, and making the unnecessary ones available for
interested partners;
b) demolition of properties whose recovery is technically or
economically unfeasible;
c) promoting outsourcing of activities which are not the focus of
the research unit;
d) promoting studies of availability and usefulness of unused or
unnecessary areas ;
e) concentrating investments in equipments for the mechanization
of field activities, automation of essay preparation, laboratories,
as well as computer and information equipment;
f) carrying out studies on idleness and needs for re-distribution of
laboratory equipment.
Outsourcing should be contained within the cost budget for the
next few years and should also be able to generate resources.
Business Incubators
The activity of business incubation for technological companies
seeks to promote new businesses and stimulate the diffusion of
innovations that can generate benefits for society, from a technological,
economic and social viewpoint. The creation and development of
technological micro- and small- enterprises run into the unavailability of
technologies that guarantee them an effective performance, since they do
not have adequate knowledge available, nor the sufficient resources for
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its acquisition, in addition to the business risk that they are subject to.
Incubators of technological companies open perspectives so that national
micro- and small-enterprises can enter the market, with more security, in
an environment of high technological and commercial competitiveness.
This action intends to give support to the management of
incubators that will be active in the biological area. The structuring of the
efforts will be done in two modules: idealization and development. The
idealization module includes the identification of technologies and their
transfer as form of solidifying a real business opportunity, and the
identification and training of entrepreneurs. The development module
includes the preparation of a business plan, implantation of a production
base, positioning of the incubator company in the market, and, finally, the
maturation of the company, when it will be ready to be integrated in the
technical and commercial community, separating itself from the
incubator.
This initiative takes into account one important problem, in the
frame of business development for small and medium companies: in
Brazil - and in a certain sense, in the world as a whole - the high rate of
precocious mortality of small and medium companies, when a new
company enters directly into a competitive market. The mortality rate in
the USA reaches 2:3, and in Brazil, 4:5.
To mitigate this problem, the alternative of creating incubators of
companies has been utilized, as a form of giving to the entrepreneur time
to become competitive.
Usually the incubator is linked to a technology-generating center
(R&D company or head office), but not necessarily. The incubator is
created by institutions interested in the generation of jobs and companies.
It consists of a physical place where all of the ingredients for the new
companies to drastically reduce the fixed costs are supplied, because they
are shared and sometimes subsidized.
The average stay of a company in a technological incubator, for
example, may vary from 3 to 5 years, depending on the activities that are
developed.
There are over 700 incubated companies in Brazil, and
approximately 70 incubators.
267
The mortality rate of the American incubated companies is close to
zero. Data from Anprotec reveal that the mortality rate in Brazil is 20%.
The incubators may or may not be of a technological nature.
However, attending to the financial requirements of small
technology companies remains precarious. The special treatment offered
to the incubated companies serves a highly reduced number of
companies, due not only to a lack of financing lines, but also to the
absorption capacity of new productive units by the incubators. Moreover,
there is no incentive for the undoing of the incubation process, which
may increase the mortality rate of those enterprises.
There is relative lack of qualification of companies for adequate
formulation of their financing needs – and this lack should be solved in
the incubation or training processes in an independent way. It has been
verified in the literature that there is a certain knowledge deficiency in
small and medium companies regarding financing options - as much as
exits among producers.
Other times the companies present projects in which they request
the acquisition of equipment, in addition to resources for working capital,
leaving behind essential aspects for the improvement of their
competitiveness, such as technological and managerial training - that is,
the request of credit without a compatible management plan. In this
sense, public institutions (in association with the companies’
representative entities) have an important role in training the business
community for the growth of the sector.
Evaluation of the Results and Socioeconomic Impacts of the
Products and Services
The thematic nuclei and their projects are expected to undergo
periodic evaluations and revisions, aiming to determine the development
of the projects, their scientific production, the obtained technological
products and the technology transfer occurring in the market.
In a more encompassing manner, the impact assessment should
consider to what extent the technological products of the research system
have contributed to the increase of dynamic competitiveness of agro-
business, the improvement of sustainability of natural resources, the
268
reduction of regional and income unbalances, and the contribution to the
improvement of the nutritional levels and health of the population.
Moreover, not only should ex post impact studies be carried out,
but also ex ante, as a form of evaluating research investment priorities.
Evaluations of the generated technologies should also consider the
distribution of gains by interest groups, so as to consider their distributive
aspects within society.
8.6 - Risks of Production Value Fluctuation in Irrigated

Agriculture
The hypothesis is that, in irrigated agriculture, the primary

component of risk stems from variations in product prices. It is certain
that the prices of inputs, weather and diseases bring complications for
irrigated production. However, the effect is slight, relative to the variation
in product prices, in terms of the control that irrigated agriculture
provides, including in the purchase of inputs.
The prices vary from season to season and from year to year. Since
technological development has been making supply grow more than
demand, the general tendency is for prices to decrease. It is difficult to
model this tendency however, because this would be equal to modeling
technological progress.
The importance of the above-mentioned facts, lived intensely by
agricultural producers, led the Plena-FGV-Projetec Consortium to
develop a case studies, evaluating the risk caused by variation of product
prices on investment profitability for irrigated agriculture, presented here
in this section. Naturally that these case studies serve as a guide for
application in specific situations.
From a practical viewpoint, it has been identified that through the
application of econometric methods, that the series is stationary. Being
so, the average is used as a forecaster and the risk is the standard
deviation divided by the average. When the series is non-stationary, the
calculation of risk is more complicated. In function of the usage, it was
opted to forecast the price one-step-ahead, in other words, one month
after the end of the series, when the data are monthly. A standard
deviation for this forecaster was obtained, followed by the risk, by
269
dividing the standard deviation of the predicted value by its predicted
value.
The data - covering various irrigated agricultural products - were
supplied by Ceasas from the states of Minas Gerais and São Paulo, from
January 1995 to May 1999. The data are monthly averages. June 1999 is
the month corresponding to one-step-ahead.
The justification of risk calculations, as proposed here, are based
on the hypothesis that growers prefer higher prices, with the lowest
possible variations. Thus, the variation coefficient is an adequate measure
of risk: the lower the better, from a producer’s viewpoint. In the non-
stationary series, it is recognized that the procedure of calculating the
equivalent risk to admit that the producers do not believe that the
estimated tendency will in fact come to prevail, and that they are willing
to accept just the predicted price for the month following the end of the
series for their future decisions. Another limitation is that two observers
can make different predictions, if one of them has one more month of
data.
The Plena Agricultural Engineering Consultancy Firm has been
advising several irrigated agriculture entrepreneurs in the northern Minas
Gerais. And among their consulting activities, the internal rates of
financial return of the enterprise are assessed. Data from 20 enterprises
that were developed with irrigated agriculture, beginning in 1997, were
utilized. Those enterprises have as production base the following
products: banana, mango, lime, onion, Tahiti lime, papaya, watermelon,
coconut.
The case study of this section evaluates the risk of price variation
for a series of products, based on data from Ceasa-MG and Ceagesp, and
evaluates the risk of variation for internal rates of return for the 20
enterprises advised by Plena in northern Minas Gerais. For each
investment, there is a cash flow that presents annual production for each
of the twelve years, and a price that was assumed to remain the same
during the twelve years. In the stationary series, the best estimate is the
average. In the non-stationary series, it is admitted that the estimate had
been reached by the procedure of one-step-ahead. The estimated price
was accepted by Plena and used the standard deviation obtained in the
270
model. In addition to production, complete data on costs are also
presented.
As it was admitted that only the product prices varied, the internal
rates of return are recalculated for the lower and upper limits of the price
average, taking into account seasonality or non-seasonality. The interval
of confidence corresponds on average to ± 1.96* (average standard
deviation). Therefore, the price variation for this interval allows the
calculation of the variation interval for rates of return.
8.6.1 - Estimate of the product price fluctuation risk
A summarized explanation of the model will be presented. The

seasonality for the series was evaluated through the Box and Jenkins
(1976) Classic Approach, with the study of the functions of self-
correlation, partial correlation and inverse self-correlation. When
necessary, seasonality was induced with dephasing operators. In general,
on the order of one to eliminate the stochastic tendency and on the order
of 12 to eliminate stochastic seasonal variation. After this preliminary
smoothing-over process, a model in the arm class (P, Q) was chosen
(Autoregressive-Moving Average) that adjusted reasonably to the data.
The only exception was the series of mango in São Paulo, for which a
deterministic tendency model was adjusted. As a long-term estimate, in
the cases of seasonality, the risk is the standard deviation of the average
divided by the average. In the presence of non-seasonality, the risk is the
standard deviation of the forecaster of one-step-ahead divided by the
value of the forecaster. In this case, the risk obtained is approximate. An
observer with one more month of observation, which was not available
when the model was estimated, could obtain a different risk.
The following two tables present the estimates of the average and
the standard deviation of the average for a set of products, moderated by
Ceasas of Minas Gerais and São Paulo. The estimates were obtained from
a time series econometric model. It is also indicated if the series is
stationary or non-stationary. In item 8.6.4 of this chapter, there are the
calculation procedures for mangoes (SP) and banana-prata (MG), the
model that TABLES 4 and 5 are based on.
271
TABLE 4
SERIES CONDITIONS, AVERAGE MONTHLY PRICES, AVERAGE
STANDARD DEVIATIONS, AND RISKS FOR A SET OF
PRODUCTS, FROM JANEIRO 1995 TO MAY 1999, CEASA-MG
Average Standard Risk
Products Condition
(R$/kg) Deviation (%)
Squash Stationary 0,29635 0,019593 6,61
Sweet potato Stationary 0,43993 0,030477 6,93
Beet Stationary 0,48580 0,053604 11,03
Bell pepper Stationary 0,73703 0,046810 6,35
Pepper (SP) Non-stationary 0,72528 0,054246 74,79
Okra Stationary 0,68140 0,047556 6,98
Tomato Stationary 0,43376 0,032953 75,97
Banana (“Prata”) Non-stationary 0,70689 0,097491 13,79
Banana (“Nanica”) Non-stationary 0,41390 0,028975 7,00
Coconut Non-stationary 0,82926 0,059850 7,22
Lime (“Tahiti”) Non-stationary 0,62271 0,084018 13,49
Papaya Non-stationary 0,85159 0,010660 12,52
Passion fruit Stationary 1,24270 0,091669 7,38
Grape Stationary 2,53970 0,109520 4,31
SOURCE: Ceasa-MG. Data calculated by the Plena-FGV-Projetec Consortium.
In the stationary series, only tomatoes have a very elevated risk

(75.97%). In the non-stationary series, peppers (74.79%) and melons
(89.73%) stand out, followed by mangoes, at 18.08%. There are 10
products among the 21 studied with a risk over 10%, around 47.6%. The
exportable products (grapes, coconuts and Nanica bananas) have lower
risks. Melons stray from the standard.
From a viewpoint of seasonality, ten products showed stationary
series and eleven showed non-stationary series. With the exception of
coconuts, the non-stationary series presented a declining tendency for
prices.
272
São Paulo diverges from Minas Gerais in two aspects. In the first
place, the greatest risk was equal to 19.15%. In the second place, only six
products presented stationary series, compared to 15 non-stationary
series. Five products passed the 10% mark for risk, which is equal to
23.8% of the total of twenty-one products. Unlike Minas Gerais, the
tendency of prices in non-stationary series in São Paulo is non declining.
Since the São Paulo market is much larger than that of Minas
Gerais, as well as better connected with markets in other regions in Brazil
and abroad, it is natural that the risk is smaller than in Minas Gerais. The
information for São Paulo are in TABLE 5, as follows.
TABLE 5
SERIES CONDITIONS, AVERAGE MONTHLY PRICES, AVERAGE
STANDARD DEVIATIONS, AND RISKS FOR A SET OF
PRODUCTS, FROM JANEIRO 1995 TO MAY 1999, CEAGESP.
Average Standard Risk
Products Condition
(R$/kg) Deviation (%)
Squash Non-stationary 0,46031 0,015131 3,28
Sweet potato Non-stationary 0,49482 0,325830 6,58
Beet Stationary 0,40828 0,031527 7,72
Bell pepper Stationary 0,73703 0,046810 6,35
Okra Stationary 0,64683 0,031553 4,87
Tomato Non-stationary 0,84399 0,078698 9,32
Banana (“Prata”) Non-stationary 0,97469 0,078162 8,02
Banana (“Nanica”) Non-stationary 0,51990 0,046395 8,92
Coconut Non-stationary 0,94430 0,057135 6,05
Lime (“Tahiti”) Non-stationary 0,52659 0,076112 14,45
Papaya Stationary 0,64067 0,093158 14,54
Passion fruit Non-stationary 0,87005 0,069480 7,98
Grape Non-stationary 1,20310 0,104700 8,70
SOURCE: Ceasa-MG. Data calculated by the Plena-FGV-Projetec Consortium.
NOTE: In Item 7.6.4 of this section, there are the calculations made for each product.
273
8.6.2 - Fluctuation of internal rates of return
In Item 7.6.4 of this section, there is the flow model for the
calculus of internal rates of return of 20 enterprises, calculated by Plena,
for irrigated agriculture investors in northern Minas Gerais. As usual, the
study fixes product prices for the established period, in this case, for 12
years. This modification only concerns calculating the interval of
confidence for each price and multiplying the respective production by
the lower and upper limits. Thus, the lower and upper limits are obtained
for production. Afterwards, the Plena methodology for calculations is
proceeded, and the lower and upper limits of internal rates of return are
obtained. The cost structure remained unchanged.
Another option is to calculate the variance of production that is the
sum of the squares of quantities produced multiplied by the respective
variances of prices. The square root of the variance obtained is multiplied
by 1.96. From the obtained production, the found value is added and
subtracted. This option was not followed. Thus, the interval of variation
of the rate of return was calculated based in the hypothesis that, in the
first year, the average price, as well as the lower limit and the upper limit
of each product, are known, and that the other variables that enter the
calculations for the rate of return are known. The average price and the
upper and lower limits remain constant in the other eleven years. If the
series is stationary, this procedure is correct. When the series is non-
stationary, the average price was substituted for that which was predicted
by the procedure of one-step-ahead, as discussed earlier.
It is important to point out that we are admitting an absolute
rigidity of costs and production in relation to the lower and upper limits
of prices, which, in practice, does not occur. It is always possible to cut
costs, when the prices of the products fall, as it also is to adjust
production. And the reverse can occur when they increase. The effect of
these adjustments on the internal rates of return is very complicated to
predict. For this, it was preferred to calculate the interval of variation of
the same, without considering the adjustments that the producers would
make, which can reduce or increase the variation of the rates. The price
and production estimates adopted by Plena were taken as basis, and the
interval of variation of the value of production was calculated, by
multiplying the lower and upper price limits for the respective
productions. The data obtained are presented in TABLE 6.
274
TABLE 6
INTERNAL RATES OF RETURN, UPPER LIMITS, AVERAGES,
AND LOWER LIMITS FOR PROJECTS IN NORTHERN MINAS
GERAIS. RATIOS OF UPPER TO LOWER LIMITS, AND AVERAGE.
Internal rate of return (%)
Projects Upper Ave. Lower Ave.
Upper Limit Average Lower Limit
Limit Limit
1 66,46 47,21 27,37 1,41 0,58
2 66,72 46,31 26,56 1,44 0,57
3 91,23 55,35 9,59 1,65 0,17
4 121,33 61,26 23,37 1,97 0,40
5 60,05 44,02 28,50 1,36 0,65
6 82,14 48,33 9,18 1,70 0,20
7 85,72 57,39 30,74 1,49 0,54
8 60,04 36,94 7,02 1,63 0,19
9 47,78 32,04 14,00 1,49 0,44
10 61,31 36,08 4,59 1,70 0,13
11 111,12 47,51 0 2,34 0,00
12 64,54 40,64 13,92 1,59 0,34
13 107,38 52,58 5,66 2,04 0,11
14 74,36 47,32 22,34 1,57 0,47
15 50,03 32,92 15,45 1,51 0,50
16 64,93 45,34 26,23 1,52 0,58
17 61,16 38,40 10,36 1,59 0,27
18 68,20 48,03 26,08 1,42 0,54
19 83,35 51,72 3,08 1,61 0,06
20 77,81 56,35 33,74 1,38 0,60
Average 75,28 42,68 16,9 1,62 0,40
SOURCE: Plena.
All 20 projects presented average internal rates of return well

above the average returns of capital, around 11%. Only 4 of them have
lower limits of annual rates of return under 7%. A major difference exists
between the lower limit and the upper limit. On the average for the
projects, if the rate of return is 1%, the lower limit would be 0.42% and
the upper limit would be 1.62%.
8.6.3 - Comments on the study
The primary observations that can be drawn from this case study are:
275
- The variations of prices during the year and the tendency to for
prices to decline indicate the need of working with a
composition of products that allows the mitigation of risks of
the property’s production value. Moreover, the extremely
competitive market indicates the need for producers to be
increasing trained and instructed in calculating the price
formation for their products.
- In order to ensure a higher rate of return and compensate for
other types of risks, producers should have effective
management in the sale of their products, aiming to offer them
in more favorable periods and in quantities capable of disputing
the best markets.
8.6.4 - Chapter Appendices
276
♦ Model of Calculation Memory for Return Rates in Irrigated Agriculture Enterprises –
For Enterprise No. 1
TABLE 7
GLOBAL FLOW OF THE ENTERPRISE – ENTERPRISE 1

R$/YEAR
SPECIFICAIONS
YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 YR11 YR12
1-COSTS
1.1-Investments (A) 102.967,60 16.700,00
1.2-Investments (B) 49.465,60 16.560,40 9.899,50 3.466,00
1.3-Costing 2.640,00 45.447,00 65.138,00 77.159,00 85.434,50 90.155,50 90.400,50 90.400,50 90.400,50 90.400,50 90.400,50 90.400,50
1.4-Loan Payment
(A) 8.361,25 8.631,15 11.238,92 12.080,23 14.874,87 16.266,50 17.444,29 15.293,63
1.5-Loan Payment
(B) 4.094,39 4.226,56 5.503,54 5.915,52 7.284,02 7.965,48 8.542,22 7.489,08
1.6-Loan Payment (B)
Capitalization 640,74 640,74 640,74 640,74 640,74
1.7- Loan Payment
Costing 2.640,00 10.466,10
1.8- Financial Cost of
Loan Investment
(A) 6.672,30 12.502,90 11.499,55 10.463,81 9.115,14 7.665,51 5.880,53 3.928,55 1.835,24
1.9- Financial Cost of
Loan Investment
(B) 1.424,61 3.061,25 5.631,17 5.123,98 4.463,56 3.753,70 2.879,61 1.923,76 898,69
1.10- Financial Cost
of Loan
Investment (B)
- Capitalization 142,46 192,22 384,45 307,56 230,67 153,78 76,89
1.11- Financial Cost
of Costing
Loan 174,24 690,76
TOTAL COSTS (1) 163.170,11 109.683,88 116.375,02 113.980,44 117.957,23 124.605,00 124.187,15 122.956,95 115.917,13 90.400,50 90.400,50 90.400,50
277
TABLE 7
GLOBAL FLOW OF THE ENTERPRISE – ENTERPRISE 1
(conclusion)
R$/YEAR
SPECIFICATIONS
YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 YR11 YR12
2-REVENUE
2.1-Value of
Agricultural
Production 132.300,00 160.390,00 161.160,00 162.790,00 179.540,00 179.540,00 179.540,00 179.540,00 179.540,00 179.540,00 179.540,00
2.2-Credit Loan
Investment (A) 92.670,84 11.520,00
2.3-Credit Loan
Investment (B) 39.572,48 11.448,32
2.4-Credit Loan -
Costing 2.640,00 10.466,10
TOTAL REVENUE
(2) 134.883,32 165.734,42 160.390,00 161.160,00 162.790,00 179.540,00 179.540,00 179.540,00 179.540,00 179.540,00 179.540,00 179.540,00
3- Financial Balance
(2-1) 28.286,79 56.050,54 44.014,98 47.179,56 44.832,74 54.935,00 55.352,85 56.583,05 63.622,87 89.139,50 89.139,50 89.139,50
4- Own Resources 28.286,79
5- Annual Payment
Capacity 56.050,54 44.014,98 47.179,56 44.832,74 54.935,00 55.352,85 56.583,05 63.622,87 89.139,50 89.139,50 89.139,50
6- Accumulated
Payment
Capacity 56.050,54 100.065,52 100.065,52 144.898,27 199.833,26 255.186,11 311.769,16 375.392,04 464.531,54 553.671,04 642.810,54
7- Average Monthly
Income 4.670,88 3.667,92 3.931,63 3.736,06 4.577,92 4.612,74 4.715,25 5.301,91 7.428,29 7.428,29 7.428,29
TIR Balance -155.073,20 53.592,60 85.352,50 80.535,00 77.355,50 89.384,50 89.139,50 89.139,50 89.139,50 89.139,50 89.139,50 89.139,50
(A) Jaíba Fund Investments (B) Competitive Northeast Investments TIR = 47.21%
Lower TIR 27.37 0.58
Average TIR 47.21 1.00
Upper TIR 66.46 1.408
SOURCE: Plena
278
♦ Model Calculation of Price Variation in Mango (SP) and Banana-
prata (SP)
Analysis of Mango – SP 69
Model: MODEL1
Dependent Variable: PRICE
Analysis of Variance
Sum of Mean
Source DF Squares Square F Value Prob>F
Model 1 42.63817 42.63817 51.814 0.0001

Error 51 41.96796 0.82290
C Total 52 84.60613
Root MSE 0.90714 R-square 0.5040

Dep Mean 1.76712 Adj R-sq 0.4942
C.V. 51.33418
Parameter Estimates
Parameter Standard T for H0:

Variable DF Estimate Error Parameter=0 Prob > |T|
INTERCEP 1 4.053871 0.34124518 11.880 0.0001

T 1 -0.058635 0.00814569 -7.198 0.0001
OBS PRICE P STDI L95 U95
1 1.12376 3.29162 0.93983 1.40483 5.17841

2 5.25697 3.23299 0.93803 1.34982 5.11616
3 4.17334 3.17435 0.93629 1.29466 5.05404
4 3.58482 3.11572 0.93463 1.23938 4.99206
5 3.91435 3.05708 0.93303 1.18395 4.93022
6 3.40085 2.99845 0.93150 1.12839 4.86851
279
7 2.34951 2.93982 0.93004 1.07269 4.80694
8 4.46460 2.88118 0.92864 1.01685 4.74551
9 2.65585 2.82255 0.92732 0.96087 4.68422
10 1.57092 2.76391 0.92607 0.90475 4.62307
11 0.73996 2.70528 0.92489 0.84849 4.56206
12 1.24306 2.64664 0.92377 0.79209 4.50119
13 2.62932 2.58801 0.92273 0.73555 4.44047
14 2.07344 2.52937 0.92176 0.67886 4.37988
15 3.84760 2.47074 0.92086 0.62204 4.31944
16 1.79894 2.41210 0.92003 0.56507 4.25914
17 2.56054 2.35347 0.91927 0.50795 4.19899
18 2.96169 2.29484 0.91859 0.45069 4.13898
19 3.79212 2.23620 0.91797 39329 4.07911
20 4.22628 2.17757 0.91743 33575 4.01939
21 1.93423 2.11893 0.91696 27806 3.95981
22 1.29498 2.06030 0.91656 22022 3.90037
23 0.85697 2.00166 0.91624 16224 3.84108
24 0.82146 1.94303 0.91598 10412 3.78194
25 0.58382 1.88439 0.91580 04584 3.72294
26 3.32740 1.82576 0.91569 -01257 3.66409
27 2.26722 1.76712 0.91566 -0.07113 3.60538
28 1.54272 1.70849 0.91569 -0.12984 3.54682
29 1.21383 1.64986 0.91580 -0.18869 3.48840
30 0.94233 1.59122 0.91598 -0.24769 3.43013
31 1.47438 1.53259 0.91624 -0.30683 3.37201
32 1.03848 1.47395 0.91656 -0.36612 3.31403
33 1.25967 1.41532 0.91696 -0.42556 3.25619
34 0.78729 1.35668 0.91743 -0.48514 3.19850
35 0.61473 1.29805 0.91797 -0.54486 3.14096
36 0.57810 1.23941 0.91859 -0.60473 3.08355
37 0.93502 1.18078 0.91927 -0.66474 3.02630
38 1.69447 1.12214 0.92003 -0.72489 2.96918
39 1.55872 1.06351 0.92086 -0.78519 2.91221
40 1.22821 1.00488 0.92176 -0.84563 2.85539
41 1.71721 0.94624 0.92273 -0.90622 2.79870
42 1.17999 0.88761 0.92377 -0.96695 2.74216
43 0.64959 0.82897 0.92489 -1.02781 2.68576
44 0.61621 0.77034 0.92607 -1.08882 2.62950
45 0.62701 0.71170 0.92732 -1.14997 2.57338
46 0.48236 0.65307 0.92864 -1.21126 2.51740
47 0.42713 0.59443 0.93004 -1.27269 2.46156
48 0.51925 0.53580 0.93150 -1.33426 2.40586
49 0.59817 0.47717 0.93303 -1.39597 2.35030
280
50 0.71158 0.41853 0.93463 -1.45781 2.29487
51 0.71166 0.35990 0.93629 -1.51979 2.23958
52 0.54549 0.30126 0.93803 -1.58191 2.18443
53 0.55000 0.24263 0.93983 -1.64416 2.12942
54 0.18399 0.94170 -1.70655 2.07453
OBS PRICE P STDI L95 U95
55 . 0.12536 0.94364 -1.76907 2.01978

56 . 0.06672 0.94564 -1.83172 1.96517
57 . 0.00809 0.94770 -1.89451 1.91069
58 . -0.05055 0.94984 -1.95742 1.85633
59 . -0.10918 0.95204 -2.02047 1.80211
60 . -0.16781 0.95430 -2.08365 1.74802
Analysis of Passion Fruit 72
ARIMA Procedure
Name of variable = PRICE
Period(s) of Differencing = 1,12.

Mean of working series = 0.009215
Standard deviation = 0.374848
Number of observations = 40
NOTE: The first 13 observations were eliminated by differencing.
281
Autocorrelations
Lag Covariance Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
0 0.140511 1.00000 | |********************|

1 -0.081607 -0.58079 | ************| . |
2 0.024316 0.17306 | . |*** . |
3 0.0088724 0.06314 | . |* . |
4 -0.038038 -0.27071 | . *****| . |
5 0.023662 0.16840 | . |*** . |
6 0.011540 0.08213 | . |** . |
7 -0.039631 -0.28205 | . ******| . |
8 0.059908 0.42636 | . |********* |
9 -0.044221 -0.31472 | . ******| . |
10 0.014951 0.10640 | . |** . |
"." marks two standard errors
Inverse Autocorrelations
Lag Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
1 0.55438 | . |*********** |
2 0.25038 | . |*****. |
3 0.22600 | . |*****. |
4 0.16301 | . |*** . |
5 -0.02274 | . | . |
6 -0.08060 | . **| . |
7 -0.07660 | . **| . |
8 -0.16880 | . ***| . |
9 -0.06599 | . *| . |
10 -0.01625 | . | . |
282
Analysis of Mango - SP
Analysis of Banana – MG 49
ARIMA Procedure
Name of variable = PRICE
Period(s) of Differencing = 1.
Mean of working series = -0.01602
Standard deviation = 0.111507
Number of observations = 52
NOTE: The first observation was eliminated by differencing.
283
Autocorrelations
Lag Covariance Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1

0 0.012434 1.00000 | |********************|
1 0.0054752 0.44035 | . |********* |
2 0.00031847 0.02561 | . |* . |
3 -0.0027813 -0.22368 | . ****| . |
4 -0.0025307 -0.20353 | . ****| . |
5 -0.0020480 -0.16471 | . ***| . |
6 -0.0007959 -0.06401 | . *| . |
7 -0.0003658 -0.02942 | . *| . |
8 -0.0030622 -0.24628 | . *****| . |
9 -0.0023216 -0.18672 | . ****| . |
10 -0.0006546 -0.05265 | . *| . |
11 0.0028496 0.22918 | . |***** . |
12 0.0027612 0.22207 | . |**** . |
13 0.0026722 0.21491 | . |**** . |
"." marks two standard errors
Inverse Autocorrelations
Lag Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
1 -0.44278 | *********| . |
2 0.11823 | . |** . |
3 0.09427 | . |** . |
4 -0.03810 | . *| . |
5 0.11408 | . |** . |
6 0.04324 | . |* . |
7 -0.16429 | . ***| . |
8 0.22722 | . |*****. |
9 -0.09434 | . **| . |
10 0.13456 | . |*** . |
11 -0.17031 | . ***| . |
12 0.08314 | . |** . |
13 -0.05001 | . *| . |
284
Analysis of Banana P - MG 50
ARIMA Procedure
Partial Autocorrelations
Lag Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
1 0.44035 | . |********* |
2 -0.20877 | . ****| . |
3 -0.18858 | . ****| . |
4 -0.01003 | . | . |
5 -0.10780 | . **| . |
6 -0.00948 | . | . |
7 -0.05902 | . *| . |
8 -0.36303 | *******| . |
9 0.04637 | . |* . |
10 -0.02474 | . | . |
11 0.16480 | . |*** . |
12 -0.05046 | . *| . |
13 0.07599 | . |** . |
Autocorrelation Check for White Noise
To Chi Autocorrelations
Lag Square DF Prob
6 17.87 6 0.007 0.440 0.026 -0.224 -0.204 -0.165 -0.064
12 31.32 12 0.002 -0.029 -0.246 -0.187 -0.053 0.229 0.222
ARIMA Procedure
Maximum Likelihood Estimation
Approx.
Parameter Estimate Std Error T Ratio Lag
MU -0.01521 0.02463 -0.62 0
AR1,1 0.43500 0.12653 3.44 1
Constant Estimate = -0.008596
285
Variance Estimate = 0.01040747
Std Error Estimate = 0.102017
AIC = -87.652149
SBC = -83.749661
Number of Residuals= 52
Correlations of the Estimates
Parameter MU AR1,1
MU 1.000 -0.003
AR1,1 -0.003 1.000
Autocorrelation Check of Residuals
To Chi Autocorrelations
Lag Square DF Prob
6 5.11 5 0.403 0.098 -0.081 -0.235 -0.091 -0.096 0.012
12 16.14 11 0.136 0.126 -0.244 -0.115 -0.103 0.245 0.088
18 20.36 17 0.256 0.165 0.013 -0.109 0.016 -0.125 -0.029
24 23.78 23 0.416 0.063 0.030 -0.101 -0.031 0.124 0.070
Model for variable PRICE
Estimated Mean = -0.0152142

Period(s) of Differencing = 1.
Autoregressive Factors
Factor 1: 1 - 0.435 B**(1)
ARIMA Procedure
Forecasts for variable PRICE
Obs Forecast Std Error Lower 95% Upper 95%

54 0.5304 0.1020 0.3305 0.7304
286
Analysis of Banana P
287
288

General Model For Optimization and Promotion of Irrigation Agribusiness in The Northeast of Brazil, Volume 3.

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General Model For Optimization and Promotion of Irrigation Agribusiness in The Northeast of Brazil, Volume 3.

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GENERAL MODEL FOR

OPTIMIZATION AND PROMOTION

V.1 – The Importance of Agribusiness Irrigation for the Development

V.2 – National and International State of the Art Irrigation

V.3 – General Model for Optimization and Promotion of Irrigation

V.4 – Specific Model for the Optimization and Promotion of the

Francisco Mavignier Cavalcante França

Directors: Ernani José Varela de Melo, Marcelo Pelágio da Costa Bomfim,

Editorial Coordination: Ademir Costa

Consulting Firm Consortium Responsible for the Study

Getúlio Vargas Foundation – FGV

PROJETEC – Projetos Técnicos Ltda.

Banco do Nordeste Technical Team

Inter-Institutional Management Committee

Inter-American Development Bank Team

Advisory Council (Independent Consultants)

2 - THE IMPORTANCE OF IRRIGATION FOR THE NORTHEAST

3 - IRRIGATION IN BRAZIL AND IN THE NORTHEAST

4 - THEORETICAL BENCHMARK ............................................. 42

5 - PROPOSED NATIONAL IRRIGATION POLICY ................... 51

8 - APPENDICES ..................................................................... 171

One of the projects of the Avança Brasil program is the New

Brazilian agriculture will evolve to the level of more developed

3.1 - Current Irrigation Policy in Brazil

3.1.1 - The prevailing institutional view

3.2 - Current Position of the Public Irrigation Projects in the

This chapter presents a brief evaluation of public projects under the

3.2.1 - Focus on project implementation

Aspects of engineering projects in public irrigation projects were

According to information from representative institutions, in 1998

3.2.3 - Operation and maintenance management

North-eastern public irrigation project operation and maintenance

3.2.4 - The production process

For small producers associated with Codevasf, there is a guideline

PROCESSING AND TRADING COMPANY

3.2.5 - The role of the private sector

This chapter analyses the role of public and private irrigation

Public project costs vary from US$ 4,500 to 5,500/hectare when

Bearing in mind the study’s concern with proposing a new

- Corporate Organizations - Legal system - Technological

SOURCE: Farina, Azevedo & Saes (1997).

Irrigation state-of-the-art analysis, in Brazil and another 11

This study aims to “develop, validate and establish structural,

5.2 - Current Legal System

5.2.1 - Water ownership: who may use it and how

The national constitution of 1988 says that practically all water is

5.2.2 - The current irrigation act (nº 6.662/79)

Under current legislation, dictated by the Irrigation Law (nº

5.3 - Proposed Judicial Regime

As discussed above, the new irrigation policy requires some

5.4 - Guidelines for the Implementation of Irrigation Projects

If approved by the Legislative Branch, the proposed irrigation law

5.4.1 - The role of the public sector

5.4.2 - Principles and recommendations

The new law (Appendix 8.2) establishes operation benchmarks for

5.4.3 - Procedures for the implementation of irrigation projects

With irrigation project implementation under the proposed policy,

As explained in this Report, the proposed irrigation law establishes

As mentioned before, new irrigation policy implementation will

6.1 - Irrigation Planning

This section contains an irrigation planning proposal according to

6.1.1 - Basic principles

Irrigation must be implemented through plans, programs and