FILEDIN WBDOCS]I. DocuMT1. June 11, 2014

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1 Public Disclosure Authorized Public Disclosure Authorized ' The World Bank ra 2 ea Tel 55 (61) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEV OPMIIIIII&I te Fin ncial Center, 7 0 Andar Fax 55 (61) as lia - DF, BRASIL DocuMT1 Mr. Joqo Raimundo Colombo Governor of the State of Santa Catarina Government of the state of Santa Catarina Centro Administrativo Rodovia SC 401-km 5, no 4.600, Bairro Jodo Paulo Florian6polis, SC, Brazil Dear Mr. Colombo: June 11, 2014 Re: Santa Catarina Rural Competitiveness Project - Programa Santa Catarina Rura 1- MICROBACIAS 3 Loan No BR Second Amendment to the Loan Agreement Public Disclosure Authorized Public Disclosure Authorized We refer to the Loan Agreement entered into between the State of Santa Catarina (the "Borrower") and the International Bank for Reconstruction and Development (the "Bank"), with a guarantee from the Federative Republic of Brazil (the "Guarantor"), dated September 30, 2010 (the "Loan Agreement") as amended on March 26, 2014, for the above-captioned Project (the "Project"). Please note that capitalized terms used in this letter (the "Amendment Letter") not defined herein have the meaning ascribed to them in the Loan Agreement. We are pleased to inform you that pursuant to the request for amendment contained in STN's fax dated April 8, 2014, COFIEX's letter of Recommendation No 03/0246 dated March 12, 2014, PGFN's legal opinion No 555/2014 dated April 15, 2014, and our recent discussions on the subject, the Bank hereby agrees to amend the Loan Agreement as follows: 1. Schedule 1, Part 1 (b) of the Loan Agreement is hereby amended to read in its "the carrying out of demand-driven productive and added-value investments through FDR to support the implementation by family agriculture producer organizations of viable business plans, including, inter alia: (i) diversification and improvement of production/farming systems, aquaculture, and artisanal fisheries; (ii) agro-processing; (iii) support to meet legal environmental and sanitary requirements for market access; (iv) marketing and logistics; and (v) off-farm/non-agricultural, aquaculture, and artisanal fisheries investments." FILEDIN WBDOCS]I

2 2 2. Schedule 1, Part 2 of the Loan Agreement is hereby amended to read in its entirety as follows: "Support the improvement of the structural rural competitiveness framework through the implementation of the pertinent EEPs and the provision of technical assistance, by financing public goods activities that are crucial for the sustained competitiveness of family agriculture producer organizations, and for the implementation of sectoral activities, such as water resource management; ecosystems and corridor management; environmental monitoring and education; rural infrastructure; regulatory framework compliance; rural technical assistance and extension, sanitary and phyto-zoo-sanitary services; and rural tourism." 3. Schedule 2, Section I.A.3 of the Loan Agreement is hereby amended to read in its "The Borrower shall maintain, until the completion of the execution of the Project, a council (the Council of Representatives) to convene at least once every semester, and shall submit the minutes of said meetings to the Bank." 4. Schedule 2, Section I.A.4 of the Loan Agreement is hereby amended to read in its "The Borrower shall, at least once a year during Project implementation on or about January 20, commencing on the first such date after the Effective Date, prepare and furnish to the Bank a plan (the Annual Operating Plan) for the Project's operation during the following twelve months." 5. Schedule 2, Section I.A.6 of the Loan Agreement is hereby amended to read in its "The Borrower shall furnish to the Bank on or about January 5 each year starting on any such date after the Effective Date, a procurement report confirming that all procurement activities under the Project have been carried out in accordance with the Procurement Plan." 6. Schedule 2, Section I.A. of the Loan Agreement is hereby amended to include the following paragraphs numbered as "10" and "1 l" respectively: : "10. The budget code numbers indicated in Schedule 4, Eligible Expenditures Programs of the Loan Agreement shall conform to the Borrower's Budget Law. The Borrower and the Bank agree that such budget code numbers may change under the Borrower's Budget Law, provided however that there is no change in the corresponding Programs described in Schedule 4 of the Loan Agreement and in the underlying activities to be financed by the Bank under such Programs."

3 3 "11. The Borrower and the Bank may jointly review, once every year, the amounts assigned per budget code to the Eligible Expenditure Program detailed in Schedule 4 to this Agreement, and adjust, as necessary, in a manner satisfactory to the Bank." 7. Schedule 2, Section II.A.1 of the Loan Agreement is hereby amended to read in its "The Borrower, through the Project Implementation Unit, shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 5.08 of the General Conditions and on the basis of the performance indicators set forth in the Operational Manual. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the Bank not later than two months after the end of the period covered by such report." 8. The table in Schedule 2, Section IV.A.2 of the Loan Agreement is replaced in its entirety as set forth in Annex I of this Amendment Letter. 9. Schedule 2, Section IV.B.2 of the Loan Agreement is hereby amended to read in its "received only partial evidence of compliance under the Disbursement-Linked Indicators referred to in Schedule 5 to this Agreement and/or the 70 percent rule- Interim (as referred to in the Project Operational Manual and the additional instructions referred to in Section IV.A. I of this Schedule) is not met, and/or the Borrower has not presented enough Eligible Expenditures under the Eligible Expenditure Programs to disburse the full amounts in respect to the withdrawals under Category (1) (as referred to in the Project Operational Manual and the additional instructions referred to in Section IV.A. I of this Schedule), the Bank may, at its option, authorize that the unwithdrawn portion of the Loan resulting from this lack of evidence be carried forward to the subsequent withdrawals, provided that, if this occurs, the amount to be disbursed by the Bank, in the aggregate under all subsequent withdrawals, shall not exceed 100 percent of the sum of amounts spent under the Eligible Expenditure Programs for the years up to and including the one for which the withdrawal is made; and" 10. Schedule 2, Section VI.3 of the Loan Agreement is hereby amended to read in its "The Borrower, through SAR and EPAGRI, shall: (i) no later than twelve months after the Effective Date, launch a public competitive examination (in form and substance satisfactory to the Bank) to hire rural extensionists." 11. The table in Schedule 4 of the Loan Agreement is replaced in its entirety and reads as set forth in Annex II of this Amendment Letter. 12. The table in Schedule 5 of the Loan Agreement is replaced in its entirety as set forth in Annex III of this Amendment Letter.

4 4 13. The following definition in Section I of the Appendix to the Loan Agreement is amended and replaced to read in its "1. "70 percent rule-interim" means a condition to be met by the Borrower for Loan disbursements to take place, namely that for interim disbursements (as specified in the additional instructions referred to in Section IV.A. I of this Agreement), the EEPs supported actually disburse at least 70% of the overall budgeted amount for the group as a whole during the previous fiscal year with respect to the expected annual budgeted amounts specified in Schedule 4 to the Loan Agreement."" 14. The definition of "Beneficiaries" Section 1.4 of the Appendix to the Loan Agreement is amended to read in its "4. "Beneficiaries" means a family agriculture producer organization, a group of individuals living in a rural or fishery area, a rural community organization, a rural or fishery cooperative in the Borrower's territory, all vested with legal personality in accordance with the Borrower's and the Guarantor's law, whose Subprojects have been found eligible in accordance with the criteria set forth in the Project Operation Manual, have applied for financing and have received or are to receive a Grant to be executed under Part I (b) of the Project."" 15. The definition of "IGASC" is deleted in its entirety from Section I of the Appendix to the Loan Agreement, and the definitions that come after this deletion are consequently renumbered. 16. The term "Technical Council of Representatives" is replaced by "Council of Representatives" throughout the entire Loan Agreement and its definition in Section I of the Appendix to the Loan Agreement is amended, replaced and placed alphabetically in this section, to read in its entirety as follows (all subsequent definitions are renumbered accordingly): "Council of Representatives" means a committee in charge of the oversight of the Project as established and operating under the Rural Development Council Regulation." Please confirm your agreement with the foregoing amendment by signing and dating the two originals of this Amendment in the spaces provided below. The provisions set forth in this Amendment Letter shall become effective as of the date of its countersignature, upon receipt by the World Bank of a fully executed original of this Amendment Letter. All other provisions of the Loan Agreement, except as amended through this Amendment Letter, shall remain in full force and effect.

5 5 Please also note that the approved Restructuring Paper dated June 11, 2014 will be disclosed on the Bank's external website. Sincerely, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (ow By: ({ ' Deborah L. Wetzel Director Brazil Latin America and the Caribbean Region AGREED: STATE OF S NTA C RINA By: a Au ri ntative Name: Jodo Raimundo Colombo Title: Governor of the State of Santa Catarina Date: r. Robert %., Eci D cc: Mr. Roberto B. Tan, Executive Director for Brazil, The World Bank Mr. Rogdrio Studart, Alternate Executive Director for Brazil, The World Bank Mr. Jodo Guilherme Machado, Secretary of International Affairs, SEAIN/MP - Fax: , seain@planejamento.gov.br Mr. Paulo Caffarelli, Executive Secretary, MF - Fax: , gabinete.se.df@fazenda.gov.br Mr. Marcelo Estrela Fiche, Chief of Staff, MF - Fax: , sec.chgabin.gmf@fazenda.gov.br Ms. Adriana Queiroz de Carvalho, Attorney General, PGFN/MF - Fax: , adriana.carvalho@pgfn.gov.br Mr. Arno Augustin Filho, Secretary, National Treasury, STN/MF - Fax: , gab.df.stn@fazenda.gov.br Mr. Carlos Mdrcio Bicalho Cozendey, Secretary, SAIN/MF - Fax: , gabinete.df.sain@fazenda.gov.br Ms. Eva Maria Cella Dal Chiavon, Executive Secretary, MP - Fax: , se@planejamento.gov.br Mr. Nelson Ant6nio Serpa, State Finance Secretary, - Fax: Mr. Airton Spies, State Agriculture Secretary, - Fax:

6 6 ANNEX I Category Amount of the Loan Percentage of Allocated Expenditures to be (expressed in USD) financed or reimbursed (inclusive of Taxes) (1) Eligible Expenditure Up to 100% of amounts Programs under the 77,202,000 spent and reported under the Project (including EEP Spending Reports Subprojects) (2) Consultants' services, goods, works, and non- 12,573,000 90% consulting services for technical assistance under the Project (3) Front-end Fee 225,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General Conditions (4) Premia for Interest Rate 0 Amount due under Section Caps and Interest Rate 2.07(c) of this Agreement Collars TOTAL AMOUNT 90,000,000

7 7 SCHEDULE 4 ANNEX II Eligible Expenditure Programs 4W Budget Item and Expenditure Expected Expenditures (US$ Borrower's Type _ 00) Budget Line Numbers Year Year Year Year Year Year Total (as set forth in the Borrower's Budget Laws) Goods / Works / Rural Roads and Urban Services 0100 Mobility under Part 2 and (incldn luding 874 2,044 2,545 7,641 18,930 9,555 38,049 of the Project 0105 consultants' services) / and Operating Costs. Digital Inclusion under Goods / Works / Part 2 of the Project 0250 Services / , ,411 Recurrent Costs Quality of Life in Rural Goods / Works / and Urban Areas under Services / adrt o0300 n a Rece s Part I of the Project Recurrent Costs 1,800 1,910 1,668 2, ,395 6,709 Competitive Goods / Works / Agribusiness and 0310 Services / Agricultural Sanitary Recurrent Costs Defense Defns unerpar under Part and 1 01 and 2 of the Project 18,770 15,624 14,374 13,276 29,978 29,258 97,385 Sustainable Goods / Works / Environmental Services / Development under 0340 Part I and 2 of the Recurrent Costs 1,476 1, ,314 1, ,221 Project (including Subprojects) Water Resources Goods / Works / Management under Services / Paartm2nofh ert Part 2 of the Project 0350 Rece s Recurrent Costs 6,079 5,056 3,224 3,341 5,093 5,474 17,867 Rural Tourism under Goods / Works / Part 1 and 2 of the 0640 Services / ,463 Project (including Recurrent Costs Subprojects) Administration and Goods / Works / Management in the Services / Executive branch of the Recurrent Costs 1, ,543 Borrower under Part 3 of the Project I I

8 8 ANNEX III SCHEDULE 5 Disbursement Linked Indicators Disbursement Linked Indicator Annual Cumulative Target Total Year Year Year Year 4 Year Year (1) Number of new added-value arrangements established or strengthened, such as alliances, networks and cooperatives (2) Number of existing small agrobusinesses made compliant with SPS Requirements, and new agro- N/A processing and non-agricultural businesses created (3) Number of ancillary climateresilient production systems improvement and tourism plans N/A 1,576 4,616 19,014 20,014 20,514 20,514 executed through Subprojects with Project support (4) Number of rural tourism plans executed through Subprojects with N/A Project support [DROPPED AS OF YEAR 41 (5) DLI FOR YEARS 2 and 3: Number of River Basin Strategic N/A 3 5 Plans formulated on a participatory basis. DLI FOR YEARS 4,5, and 6: Number of additional tenured technical staff in the Water Resources Directorate (6) DLI FOR YEARS 2 and 3: N/A 3 5 Number of River Basins with registration of users completed DLI FOR YEARS 4,5, and 6: Number of self-declaratory water 49,350 51,000 54,050 54,050 users registered in River Basins (7) Number of hectares of forests under "Conservation Credits" N/A N/A N/A N/A N/A [DROPPED AS OF YEAR 41 (8) Number of farms with SIEE implemented (SIEE of livestock - meat and milk -, grains, forestry, N/A SAF and tourism)

9 9 (9) Number of kilometers of rural roads associated to business plans N/A ' rehabilitated (10) Number of Pilot Digital Inclusion projects implemented with internet connection to support N/A enterprises connected to networks (11) Number of units of Family Agriculture production and processing units registered and N/A ,685 2,225 2,740 2,740 certified to comply with phytosanitary requirements (12) Number of farms certified for absence of animal tuberculosis and N/A brucellosis (13) Number of new regular technical assistance and rural extension professional staff allocated by EPAGRI in priority Project municipalities, by CIDASC to phyto-sanitary certification and by FATMA to SIEE implementation For this DLI, the target was not met for the first 2 years, for this reason year 3 does not appear as "cumulative" with respect to year I and 2, but it is rather a new target.