to credit, the fostering of on-farm water storage facilities, and the technical assistance available. In addition, increased productivity and sustainability in the main state crops are expected to contribute indirectly to the sustainability of the urban economy of small and poor municipalities, where the retail market and the service sectors heavily rely on the income of the rural population to expand their sales and earnings. The pro-poor distributive effects of these policies can be demonstrated by some features of their built-in system of subsidies, and the potential impact in the livelihood of small family farmers. On the one hand, these policies will favor small rural producers with larger subsidies. Under the 'More Water, More Income' Program there are differences between the financing conditions for small, medium and large producers. The first will receive subsidies equal to 100 percent of the first and last tranche; for the second and the later, these subsidies are reduced to 75 and 50 percent of these tranches, respectively. These policies are expected to have a larger positive impact on the livelihood of the small family farmer than on the incomes of medium and larger farmers. The small producers have less capital as well as access to credit for expanding water reservation and irrigation systems in their lands. They are also the most vulnerable to climatic events as their assets and savings are comparatively smaller to face the losses in dry years. Additionally, and due to the agricultural calendar year, the period of harvesting of their main crops extend over the dry season, and are most dependent on the availability of water during it. Consequently, their earnings and recovery capacity are the most impacted by cyclical droughts. An estimate of the positive economic impact of these policies can be drawn from comparing maize production (one of the main crops sowed by small family farmers) in dry lands and in irrigated lands. Recent assessments point out relevant differences in productivity per hectare: for years with favorable weather conditions, the gap in favor of the irrigated areas equals 49 percent; whereas, in years of shortage of rainfall, this gap widens to 90 percent. Furthermore, financial returns drawn from irrigated plots are 68 percent higher than from dry lands in years of favorable weather conditions and this rate rises to 162 percent in years of shortage of rainfalls.

### Environment Aspects

No significant environmental impact is expected from Pillar I, while positive impacts are expected from the policy actions supported under Pillar II. The State Irrigation Policy Law is focused on integrated WRM at the river basin level and establishes a statewide Master Plan for Irrigation in the Context of Multiple Water Uses in Rio Grande do Sul prepared in coordination and with participation of the state's water resources and environmental entities. The policy also establishes that all irrigation programs in the state should be made compatible with its principles and objectives including sustainable use and management of water resources and soils for irrigation. The water resources management actions will strengthen the capacity to manage water resources while improving the knowledge on water quantity and quality for its multiple uses. Further assessment of the environmental impacts will be carried out for ROC stage.

- V. Tentative financing

Source:	($m.)
Borrower	0
International Bank for Reconstruction and Development	280
Borrower/Recipient
IBRD Others (specifiy)
Total