Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD442 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF USD 150.00 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A POVERTY ALLEVIATION AND AGRICULTURE-BASED INDUSTRY PILOT AND DEMONSTRATION IN POOR AREAS PROJECT May 26, 2015 Agriculture Global Practice East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2014) Currency Unit = Renminbi (RMB) US$ 1,00 = RMB 6.1 RMB 1.00 = US$ 0.16 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CAIP Cooperative Annual Investment Plan CDF Cooperative Development Fund CNAO Chinese National Audit Office CPS Country Partnership Strategy DA Designated Account EA Environmental Assessment EIRR Economic Internal Rate of Return EMDP Ethnic Minority Development Plan EMP Environmental Management Plan EMF Environmental Management Framework FM Financial Management FMM Financial Management Manual HACCP Hazards Analysis and Critical Control Points FCPMC Foreign Capital Project Management Center FIRR Financial Internal Rate of Return GAP Good Agricultural Practice IPF Investment Project Financing IPM Integrated Pest Management IPRCC International Poverty Reduction Center in China IRR Internal Rate of Return IS Implementation Support LGOPAD Leading Group of Poverty Reduction and Development M&E Monitoring and Evaluation METT Management Effectiveness Tracking Tool MOF Ministry of Finance NPV Net Present Value OA Operating Account OCC Opportunity Cost of Capital PAD Project Appraisal Document PDO Project Development Objective PMO Project Management Office PMP Pest Management Plan POM Project Operations Manual RMB Renminbi RPF Resettlement Policy Framework SA Social Assessment Regional Vice President: Axel van Trotsenburg, EAPVP Country Director: Bert Hofman, EACCF Senior Global Practice Director: Juergen Voegele, GFADR Practice Manager: Nathan Belete, GFADR Task Team Leader: Ulrich Schmitt, SASCL PEOPLE’S REPUBLIC OF CHINA Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context................................................................................. 1 C. Higher Level Objectives to which the Project Contributes .......................................... 3 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................4 A. PDO............................................................................................................................... 4 Project Beneficiaries ........................................................................................................... 4 PDO Level Results Indicators ............................................................................................. 5 III. PROJECT DESCRIPTION ..............................................................................................5 A. Project Components ...................................................................................................... 5 B. Project Financing .......................................................................................................... 6 Lending Instrument ............................................................................................................. 6 Project Cost and Financing ................................................................................................. 6 C. Lessons Learned and Reflected in the Project Design .................................................. 7 IV. IMPLEMENTATION .......................................................................................................8 A. Institutional and Implementation Arrangements .......................................................... 8 B. Results Monitoring and Evaluation ............................................................................ 10 C. Sustainability............................................................................................................... 10 V. KEY RISKS AND MITIGATION MEASURES ..........................................................11 A. Risk Ratings Summary Table ..................................................................................... 11 B. Overall Risk Rating Explanation ................................................................................ 12 VI. APPRAISAL SUMMARY ..............................................................................................13 A. Economic and Financial Analyses .............................................................................. 13 B. Technical ..................................................................................................................... 15 C. Financial Management ................................................................................................ 15 D. Procurement ................................................................................................................ 16 E. Social (including Safeguards) ..................................................................................... 16 F. Environment (including Safeguards) .......................................................................... 18 G. World Bank Grievance Redress .................................................................................. 19 Annex 1: Results Framework and Monitoring .........................................................................20 Annex 2: Detailed Project Description .......................................................................................24 Annex 3: Implementation Arrangements ..................................................................................28 Annex 4: Operational Risk Assessment Framework (ORAF) .................................................49 Annex 5: Implementation Support Plan ....................................................................................52 Annex 6. Project Financial and Economic Analysis .................................................................55 Annex 7. Map of Project Areas ...................................................................................................62 . PAD DATA SHEET China Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project PROJECT APPRAISAL DOCUMENT . EAST ASIA AND PACIFIC 9056 Report No.: PAD442 . Basic Information Project ID EA Category Team Leader P133326 B - Partial Assessment Ulrich K. H. M. Schmitt Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 01-July-2015 31-March-2021 Expected Effectiveness Date Expected Closing Date 01-December-2015 30-June-2021 Joint IFC No Practice Senior Global Practice Country Director Regional Vice President Manager/Manager Director Nathan M. Belete Juergen Voegele Bert Hofman Axel van Trotsenburg . Borrower: People’s Republic of China Responsible Agency: State Council Leading Group of Poverty Alleviation and Development, International Poverty Reduction Center in China (IPRCC) Contact: Mr. Zuo Changsheng Title: Director General Telephone No.: 86-10-8441 9669 Email: zuo@iprcc.org.cn . Project Financing Data(in USD Million) [X] Loan [ ] IDA Grant [ ] Guarantee [ ] Credit [ ] Grant [ ] Other Total Project Cost: 295.10 Total Bank Financing: 150.00 Financing Gap: 0.00 . Financing Source Amount Borrower 145.10 International Bank for Reconstruction and 150.00 Development Total 295.10 . Expected Disbursements (in USD Million) Fiscal Year 2016 2017 2018 2019 2020 2021 0000 0000 0000 0000 Annual 10.00 35.00 40.00 45.00 15.00 5.00 0.00 0.00 0.00 0.00 Cumulative 10.00 45.00 85.00 130.00 145.00 150.00 0.00 0.00 0.00 0.00 . Proposed Development Objective(s) To develop and demonstrate rural value chains that promote equitable organizational arrangements, participation, and the sustainable increase of income of target households in the Project Provinces. . Components Component Name Cost (USD Millions) Integrated Value Chain Development 195.7 Public Infrastructure and Services 66.9 Research, Training and Extension 0.7 Project Management, Monitoring and Evaluation 10 . Institutional Data Practice Area / Cross Cutting Solution Area Agriculture Cross Cutting Areas [ ] Climate Change [ ] Fragile, Conflict & Violence [ ] Gender [ ] Jobs [ ] Public Private Partnership Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Agriculture, fishing, and forestry Crops 45 Agriculture, fishing, and forestry Animal production 35 Agriculture, fishing, and forestry Irrigation and drainage 5 Industry and trade Agro-industry, 5 marketing, and trade Agriculture, fishing, and forestry Agricultural extension 10 and research Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Rural development Rural markets 40 Rural development Rural services and infrastructure 40 Rural development Rural policies and institutions 20 Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Institutional Arrangements X Continuous Description of Covenant Project Agreement, Schedule, Section I, A 1 (a), (b), (c): Provisions requiring the maintenance of IPRCC at the national level, and the Project leading groups and Project management offices at the provincial, municipal and county levels. Name Recurrent Due Date Frequency Annual Work Plans X Yearly Description of Covenant Project Agreement, Schedule, Section I, B 1 (a): Provision requiring the submission of consolidated annual work plans by each Province to the Bank by December 31 each year. Name Recurrent Due Date Frequency Project Implementation Manual X Continuous Description of Covenant Project Agreement, Schedule, Section I, B 2: Provision requiring the Project to be carried out in accordance with the Project Implementation Manual, including the arrangements for: (1) providing grants to Project Farmer Cooperatives under an implementation agreement; and (2) identifying crop insurers and purchasing crop insurance. Name Recurrent Due Date Frequency Safeguards Instruments X Continuous Description of Covenant Project Agreement, Schedule, Section I, D: Provision requiring the Project to be carried out in accordance with the Environmental Management Plan, the Ethnic Minority Development Plan, the Pest Management Plan, the Resettlement Policy Framework (and any Resettlement Action Plans prepared thereunder). Name Recurrent Due Date Frequency Mid-tem Review March 15, 2018 Description of Covenant Project Agreement, Schedule, Section II, A 2: Provision requiring each Province to furnish to the Bank a mid-term review report for the Project, summarizing the result of the monitoring and evaluation activities carried out from the inception of the Project, and setting out the measures recommended to ensure the efficient completion of the Project and the achievement of the objectives thereof during the period following such data. Team Composition Bank Staff Name Title Specialization Unit Xieli Bai Program Assistant Program Assistant EACCF Junxue Chu Senior Finance Officer Senior Finance Officer CTRLN Wenyan Dong Operations Analyst Operations Analyst GURDR Yi Geng Sr Financial Sr Financial GGODR Management Specialist Management Specialist Aimin Hao Social Development Social Development GURDR Specialist Specialist Xin Ren Environmental Specialist Environmental Specialist GENDR Ulrich K. H. M. Schmitt Program Leader Team Lead SASCL Yunqing Tian Program Assistant Program Assistant EACCF Chaogang Wang Senior Social Senior Social GURDR Development Specialist Development Specialist Yuan Wang Procurement Specialist Procurement Specialist GGODR Zhuo Yu Finance Officer Finance Officer CTRLN Aristeidis I. Panou Counsel Counsel LEGOP Alejandro A. Gerez Senior Counsel Senior Counsel LEGES Non Bank Staff Name Title City Weijie Deng Institutions Specialist Chengdu Josef Ernstberger Senior Agriculture Economist Kirkel Zhaomin Lei Livestock Specialist Lanzhou Claude Saint-Pierre Social Development Specialist Montpellier Jianping Wu Livestock Specialist Lanzhou Bruce Trangmar Rural Infrastructure Specialist Christchurch . Locations Country First Location Planned Actual Comments Administrative Division China Sichuan Sichuan X China Guizhou Guizhou X China Gansu Gansu X . I. STRATEGIC CONTEXT A. Country Context 1. Over the past 35 years, China’s economic transformation and achievements in poverty reduction have been remarkable. In the 1980s, de-collectivization marked the beginning of the economic reform period in rural areas. The introduction of the Household Responsibility System, which created a rural property system under which use rights to farmland were allocated to individual households for long-term management stimulated extraordinary agricultural and rural growth and became the most important driver of poverty reduction during the first decade of the reform period. In the 1990s, domestic market reforms and China’s gradual integration into the global economy, along with investment and abundant labor supply, provided the driving force for China’s industrialization, export-led growth, and urbanization. These developments combined have allowed some 500 million farmers to escape poverty and some 260 million rural migrants to transition out of agriculture to more productive activities in the industry and services sectors. China’s urbanization rate rose from 20 percent in 1980 to 54 percent in 2013, and per capita income grew from US$ 222 in 1980 to US$ 6,560 in 2013. 2. Rural poverty alleviation and rural development, however, remain important development challenges in China. Measured by China’s national poverty line of RMB 2,300 per year (US$ 377 per year), there were still an estimated 83 million people living in poverty by the end of 2013, the majority of which were residing in rural areas 1. Poverty remains more pervasive and persistent in the western and inland provinces as compared to the more advanced coastal regions. Rural-urban disparity in income and many other development indicators remains high and large segments of the rural migrant population lack access to adequate social services in the urban areas they have migrated to and are potentially vulnerable of falling back into poverty, especially when economic shocks result in their return to the countryside. 3. As China’s urbanization and rural-to-urban migration continue, complex new questions and development issues have arisen concerning poverty reduction and shared prosperity. These revolve around, for example, questions of how to restructure and modernize the agriculture sector towards sustainable and faster productivity growth; how to reform rural institutions and ensure the protection and marketability of land and property rights; how to diversify agriculture production and create modern agricultural value chains that allow for the professionalization of China’s farmers and support rural income growth; how to achieve the harmonization of rural and urban social security systems; and how to improve food safety, protect land and water resources in rural areas for food security and environmental sustainability. B. Sectoral and Institutional Context 4. Agriculture remains a key sector and entry point for rural development, poverty reduction, and long-term employment and income opportunities in China’s rural areas, especially for those segments of the population that will not migrate but will remain engaged and dependent on agriculture. China’s agriculture sector policies and its poverty reduction strategy, the Outline for 1 Based on a US$2 per day poverty line, there were an estimated 395 million poor people in China (2008). 1 Development-oriented Poverty Reduction for China’s Rural Areas (2011-2020), released in 2011, complement each other in that they both seek to capitalize on the potential of the agriculture sector to stimulate further rural transformation and modernization and to reduce rural-urban inequality. 5. In particular, the potential for stronger agriculture growth includes the following: Recent improvements in transportation infrastructure across the country provide new opportunities for agriculture development through better access to China’s growing urban consumer markets. Changing consumer patterns create new value chain opportunities that allow farmers to shift away from basic commodity production and to diversify into higher value products that better meet demand of an expanding urban population. There is a clear recognition that better functioning rural land markets are needed to promote land transfers for land consolidation and protect farmers’ rights at the same time. A renewed and strengthened regulatory and policy framework explicitly supports the establishment of farmer cooperatives to overcome the structural challenges of small farm size and scattered production in rural areas. And there is also a vibrant private commercial enterprise sector that can outreach and provide new technology to increase productivity in backward areas and assist in marketing of agricultural products to downstream consumers. 6. These opportunities, however, remain un-tapped to a large extent. Particularly in the more remote mountain areas of China, agricultural production remains characterized by poorly organized and scattered production because of the large numbers of unorganized household farms, low technology and management standards, limited access to capital for private investments, lack of marketing and price information, sub-standard product quality, and often a lack of a critical mass of production to attract investments in up-stream processing and marketing. Furthermore, local governments tend to take on roles and responsibilities in economic decision making that should be market-driven and are better placed in the hands of private farmer entrepreneurs and enterprises. 7. The Outline for Development-oriented Poverty Reduction for China’s Rural Areas (2011- 2020), China’s most recent poverty reduction strategy, takes the above mentioned challenges fully into account and provides a renewed direction for addressing rural poverty and stimulating rural development. While it maintains the longstanding objectives to eliminate remaining hunger and elementary needs by 2020 and promotes the convergence of human development indicators and public services coverage across rural and urban areas, it places substantial emphasis on a development approach to poverty reduction and seeks to achieve a growth rate in rural per-capita income that is above the national average. Three particular elements characterize this renewed approach: 8. First, the strategy envisages the use of agriculture value chains to capture the opportunities for poverty reduction that arise from China’s growing domestic urban market. It also emphasizes the complementary roles of the public and the private sectors. While the value chain approach is well understood and focuses on where and how along the value chain new economic value is being created, the pro-poor value chain approach seeks to ensure that broad numbers of small-scale farmers, especially poor farmers, participate in, and benefit from participating in value chains and market access. To achieve this, the Outline explicitly invites agro-businesses to invest in economic activities of comparative advantage in China’s poorest areas while being conducive to environmental rehabilitation. These investment activities include major agricultural commodities, 2 horticulture and specialty products, livestock, and rural tourism. The approach to support value chain development for poverty reduction builds on past experience as well as new and innovative elements. While in earlier programs and Bank-financed poverty projects agro-businesses were direct beneficiaries of poverty reduction funds, with often poor results in terms of economic benefits and poverty impact, the new strategy advocates direct enterprise and private sector investment into pro-poor value chain development. 9. Second, the Outline encourages the development of specialized farmer organizations, such as farmer professional cooperatives. In 2007, when China first promulgated the Farmer Professional Cooperative Law, cooperatives began to grow rapidly from an estimated 130,000 cooperatives in 2007 to 730,000 cooperatives nationwide by 2013, with each of China’s 600,000 administrative villages having at least one cooperative. Despite this growth in the number of farmer cooperatives, the nature and the operational principles of such organizations have remained vague. According to the Government’s assessment, most of the cooperatives do not bear the nature of farmer cooperatives. Instead, they are often a combination of enterprise and farmers where the enterprise provides investment funds while farmers remain as producers of raw material without effective links to the value chain. In addition, problems exist with governance mechanism, the protection of the economic interests and rights of individual members, and the distribution of benefits within the cooperatives. The Government seeks to address those bottlenecks and has reinforced its commitment to farmer cooperative development, for example, in its Central Document Number 1 of 2013 on rural development priorities. It has also been confirmed that the modernization of agriculture through professional cooperatives fully applies to China’s poverty reduction programs which in the past had been limited to support to small-scale and informal mutual funds in poor villages. 10. Third, China’s new poverty strategy also expands the existing system of geographical poverty targeting of nationally or provincially designated national poverty counties and villages. To promote a broader regional development approach to poverty reduction and rural development, the Outline introduced the concept of “poverty-stricken mountain areas” of which 14 have been prioritized for development investments. Of these, the proposed project is targeting the Wumeng Mountains of Sichuan and Guizhou Provinces and the Liupan Mountains of Gansu Province. The project includes all of the three aspects discussed above and promotes a multi-sectoral approach to poverty reduction in which agriculture development through partnerships with agro-businesses, called rural industrialization in China, is one key element. C. Higher Level Objectives to which the Project Contributes 11. The proposed project is consistent with the Bank Group’s Country Partnership Strategy (CPS) for China, which was discussed by the World Bank Board of Executive Directors on November 6, 2012. The project would support the CPS’ strategic theme two: promoting more inclusive development, by geographically focusing on lagging regions and small towns and by supporting policies and demonstration projects that address inequalities. It would contribute to the CPS outcome 2.3: enhancing opportunities in rural areas and small towns, by piloting new ways to boost rural incomes and reduce poverty under the umbrella of the new Poverty Reduction for China’s Rural Areas Strategy (2011-2020) and by promoting inclusive innovation to decrease disparities. 3 12. The project supports China’s 12th Five Year Plan and is in line with the Decision on Some Major Issues Concerning Comprehensively Deepening the Reform, adopted at the Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC). It is also in line with the Outline for Development-oriented Poverty Reduction for China’s Rural Areas (2011- 2020) issued by the CPC Central Committee, and the Views on Promoting Rural Poverty Alleviation through Innovative Mechanism, issued by the General Office of the CPC Central Committee and the General Office of the State Council, as well as provincial strategies and programs for rural development and poverty reduction of Sichuan, Guizhou and Gansu Provinces. The project has a specific learning and demonstration purpose to assist the Leading Group of Poverty Alleviations and Development (LGOPAD) of the State Council in operationalizing the next phase of development-oriented rural poverty reduction through commercial agriculture development in Gansu, Sichuan and Guizhou Provinces. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 13. The Project Development Objective (PDO) is to develop and demonstrate rural value chains that promote equitable organizational arrangements, participation, and the sustainable increase of income of target households in the Project Provinces. Project Beneficiaries 14. The project will be implemented in Sichuan in Meigu, Butuo, Jinyang, and Zhaojue counties of Liangshan Autonomous Prefecture and in Gulin and Xuyong counties of Luzhou Municipality; in Guizhou in Dafang and Zhijin counties of Bijie Municipality and in Chishui, Xishui and Tongzi of Zunyi Municipality; and in Gansu in Zhangjiachuan County (Tianshui Municipality); Gulang County (Wuwei Municipality); Tongwei, Longxi, Weiyuan, Min, Anding, and Lintao counties (Dingxi Municipality); Huan, Huachi, Zhengning, and Heshui counties (Qingyang Municipality); Dongxiang and Yongjing counties (Linxia Autonomous Prefecture); and Zhuanglang and Jingning counties (Pingliang Municipality). 15. The total population in these 27 counties is 11.52 million of which 3.46 million are registered as poor people under China’s domestic poverty line (2012). The project covers 134 townships and 537 administrative villages with a total population of 946,000 people of which 343,000 are registered as poor and 241,000 belong to ethnic minorities. The project will establish or restructure up to 408 farmer cooperatives (Gansu: 215, Sichuan: 115, Guizhou: 78) and seeks to outreach to and strengthen the organizational level of at least 40 percent of the total population and at least 50 percent of the poor population residing in the targeted project villages. 4 PDO Level Results Indicators 16. Achievement of the PDO will be assessed by the following key performance indicators, covering the economic, social and institutional development dimensions of the project: a) Number of beneficiaries by gender, poverty level and ethnic status (outreach indicator); b) Share of project-supported cooperatives making a profit (financial success and sustainability indicator); c) Incremental farm income generated by project activities (economic success indicator); d) Cooperative management effectiveness, measured by the Management Effectiveness Tracking Tool (institutional development and sustainability indicator). III. PROJECT DESCRIPTION A. Project Components 17. The project comprises four components, which are summarized below. A detailed project description is provided in Annex 2. 18. Component 1: Integrated Value Chain Development (Total Cost $195.7 million, IBRD $113 million) a) Supporting Project Farmer Cooperatives establishment and development, through, inter alia: (i) construction of offices and acquisition of basic office furniture and office equipment; (ii) provision of training and technical assistance in cooperative management and business operations, the establishment of new and/ or improvement of existing farmers cooperatives and other cooperative or community-based production arrangements; (iii) provision of training and capacity building for community economic groups in ethnic minority areas; and (iv) provision of technical advisory services and agricultural crop insurance for selected crops in order to pilot crop- and livestock insurance schemes for the benefit of qualifying members of Project Farmer Cooperatives. b) Provision of Grants to Project Farmer Cooperatives to finance investments in agricultural products and services for value chain development. c) Provision of technical training and services, through qualified agricultural enterprises, for farmer cooperatives, communities, and farmer households groups, and for enterprises in strengthening their outreach to targeted poor households or farmer groups 19. Component 2: Public Infrastructure and Services (Total cost $66.9 million, IBRD $32 million) a) Supporting public infrastructure for farmer cooperatives and agricultural key commodity development, through, inter alia: (i) construction of production road infrastructure; (ii) construction of irrigation and drainage infrastructure; (iii) establishment of communications and information infrastructure and equipment; (iv) construction of public market facilities, including installation of electricity supply and other infrastructure and 5 acquisition of goods necessary to facilitate and complement investments under Component 1 of the project. b) Supporting public services for farmer cooperatives and key commodity value chain development, through, inter alia: (a) construction of food testing certification facilities and acquisition of equipment; (b) carrying out of food safety testing and control; (c) provision of public extension and training services; and (d) carrying out of agriculture research, and technology transfer activities, market studies, including recruitment of cooperative facilitators. 20. Component 3: Research, Training and Extension (Total cost $0.7 million, IBRD $0.7 million) Supporting the learning and dissemination of project implementation lessons in support of implementing the Borrower’s national poverty reduction strategy, through, inter alia: (a) analytical studies, including studies on poverty reduction and key commodity value chain development in adjacent destitute areas; (b) studies on equitable cooperative/ organization arrangements; (c) training and workshops for government line agencies, entrepreneurs, and public sector institutions on key commodity value chain development; and (d) policy guidelines appraisal guidelines for public sector support in rural areas. 21. Component 4: Project Management, Monitoring and Evaluation (Total cost $10 million, IBRD $3.8 million) Strengthening of administrative and technical capacity and capability of the project management offices at the provincial, municipal and county levels to manage, implement and monitor Project activities; including the monitoring of environmental and social safeguards requirements, through the provision of technical assistance and domestic and international training. B. Project Financing Lending Instrument 22. The World Bank will finance the project through an IBRD Investment Project Financing (IPF) in the amount of US$ 150 million. The Borrower has selected a US Dollar denominated commitment-linked variable spread loan based on six-month LIBOR plus an additional variable spread. It has also selected all available conversion options and annuity repayment of principal. The loan has a repayment period of 29 years, including a 10-year grace period and carries a commitment fee of 0.25 percent and a front-end fee of 0.25 percent. Project Cost and Financing 23. Project Cost. Total project costs are estimated at US$ 295.1 million (RMB 1,800 million), including price contingencies of 4 percent averaged across the three provinces. Project costs in RMB are calculated at an exchange rate of RMB 6.1/ US$1. Project costs will be financed by an IBRD loan of US$ 150 million and government counterpart funds of US$ 145.1 million (RMB 6 855 million equivalent). Table 1 below summarizes the project cost and financing by components and sub-components. Table 1: Project Cost (USD million) % of IBRD % Cost Total Financing Financing A. Integrated Value Chain Development 195.7 66.3 113.0 57.7 Cooperative Development 19.5 6.6 16.1 82.6 Cooperative Development Fund 174.6 59.2 95.3 54.6 Public-Private-Partnerships 1.6 0.5 1.6 100 B. Public Infrastructure and Services 66.9 22.7 32.0 47.8 C. Research, Training and Extension 0.7 0.2 0.7 100.0 D. Project Management, Monitoring and Evaluation 10.0 3.4 3.8 38.0 Management 8.1 2.7 3.3 41.0 M&E 1.9 0.6 0.5 26.3 Subtotal 273.3 92.6 149.6 54.7 Contingencies 16.9 5.7 - - Financial Charges During Implementation 4.9 1.7 0.4 8.2 Total 295.1 100.0 150.0 51.0 24. Retroactive Financing. Retroactive financing up to an aggregate amount of US$ 15 million would be available for eligible expenditures incurred under all project components prior to the date of the signed Loan and Project Agreement, but on or after December 1, 2014. Retroactive financing will be processed according to the requirements specified in the Loan Agreement and Project Agreement. C. Lessons Learned and Reflected in the Project Design 25. The project builds on a body of project experiences and knowledge that has built up in recent years on pro-poor value chain development, emphasizing the complementary roles of the public and private sectors. It includes six elements from international experience outlined below. a) Market stakeholder participation. Public institutions and the private sector have an equally important role to play in triggering changes in market structure that benefit the poor. In addition to the project leading groups supporting the coordination between government agencies, a participation mechanism (such as an advisory group consisting of representatives from the public and private sectors) is expected to play a critical role during project implementation. b) Transparent rules. The poor will benefit from improved rules in market relationships. This requires both a more formalized regulatory framework and its implementation. 7 Transparent production arrangements between households, cooperative managers and other market operators will obtain as much attention in project management and monitoring as support to the formalization of cooperatives. c) Entrepreneurship and identification of new opportunities. New opportunities in value chains arise from changes in consumer demand and in the structuring of market operators. The poor will benefit when their cooperatives better identify these opportunities. This requires the development of enhanced business skills among managers of cooperatives. Cooperative training and technical assistance project budget lines will enable the provision of related support during project implementation. d) Public Private Partnerships (PPP). PPPs have become an important tool in development as it is more effective and more sustainable if the public sector joins forces with the private sector and works together with each side building on its comparative advantages. The project design includes an opportunity to work with private partners to provide services and training to cooperatives and poor farmers. Out of these services further business relationships are expected to emerge. e) Quality enhancement. Organic agriculture and geographic indications are only two among a number of quality criteria, and are, except for some commodities, unlikely to be accessible to broad numbers of poor households. Conversely, most market operators will pay higher prices for produce that has been graded after harvest and adequately stored and transported. In addition, traceability is becoming compulsory in sales to supermarkets. The project will help cooperatives through technical assistance to design a quality enhancement strategy, supported by related training of managers and members of cooperatives, and investments in post-harvest equipment. f) Support services. Poor producers will benefit from direct access to a range of support services, including market information, supply of agricultural inputs, insurance, training & extension, quality monitoring and post-harvest services. The value-addition sub- component will enable private enterprises to be involved in service provision to cooperatives. g) Project-based facilitation. The poor will benefit from facilitation between the producers and market operators and between the public and private sector. Cooperative facilitators will provide this facilitation at the local level, while provincial and county project management offices will need to clearly define their role in business development services and liaison with the private sector. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 26. Project implementation arrangements have been set up at the central, provincial municipality, and county levels. Institutional responsibilities are summarized below. They are described in more detail in Annex 3 and in the Project Implementation Manual (PIM). 8 27. National Project Coordination Office. The International Poverty Reduction Center in China (IPRCC) of the State Council’s LGOPAD will serve as the national project coordination office. IPRCC will be responsible for coordinating the three provincial-level Foreign Capital Project Management Centers (FCPMCs) of the three provincial Poverty Alleviation and Development Offices in overall project implementation and for overall project coordination with the Bank. IPRCC will also guide the overall policy dialogue on poverty reduction at the national level and the implementation of the learning and knowledge dissemination activities of the project to inform the implementation of China’s Outline for Development-oriented Poverty Reduction for China’s Rural Areas (2011-2020) 28. Project Leading Groups. Project Leading Groups at the provincial, city and county levels, comprising representatives from the reform and development commissions, finance bureaus, poverty reduction offices, auditor’s offices, civil affairs bureaus, ethnic affairs commissions, women’s federation, and other departments will provide leadership, policy guidance, and direction for project implementation within their respective jurisdictions. 29. Project Management Offices. Provincial Project Management Office (PMO) have been established in the provincial FCPMCs under the Poverty Alleviation and Development Offices in Gansu, Sichuan and Guizhou to be responsible for overall project coordination and management, including annual work and budget planning; coordination of municipalities and counties in public outreach, work planning, procurement, fund withdrawal and reimbursement management and financial reporting; technical and institutional aspects of implementation; general oversight, field supervision and acceptance checks; and training and capacity building. The provincial PMOs will also be responsible for overall project M&E and reporting to the Bank and will maintain and, in consultation with IPRCC contribute to the update of the PIM, as necessary (including the Financial Management Manual). City-level PMOs will provide technical guidance to counties, supervise implementation, and assist the provincial PMO in acceptance checks, and M&E. County PMOs will have primary responsibility for project management at the local level. 30. Administrative village committees. Village committees will be responsible for local public information dissemination, community mobilization, planning and implementation of public infrastructure investments assigned to the administrative village level, and coordination of any land adjustments for infrastructure construction, as needed. 31. Professional farmer cooperatives. Farmer cooperatives will be established as economic entities and registered in accordance with China’s Farmer Professional Cooperative Law under local bureaus for industry and commerce. They will have implementation responsibility for all activities under the CDF. They will organize cooperative members; prepare the cooperative industry investment and Cooperative Annual Investment Plans (CAIPs); and administer cooperative development funds in accordance with approved plans and project regulations. 32. Farmer cooperative facilitators. Farmer cooperative facilitators will be recruited and trained by the provincial and county PMOs to assist in the establishment and operationalization of new cooperatives, provide guidance to cooperatives in the formulation and implementation of productive investments and CAIPs, and assist the county PMOs in conducting acceptance checks, monitoring and reporting of cooperative activities, and cooperative complaints handling. 9 33. Technical advisory groups. Each county will set up a technical advisory group comprising representatives from government, cooperatives, and industry-related enterprises to provide advisory services for the cooperative value chain investments. B. Results Monitoring and Evaluation 34. The Result Framework describes the PDO-level outcome indicators and the component- specific intermediate indicators, including core sector indicators, and respective baselines and targets (Annex 1). Monitoring and evaluation (M&E) arrangements and responsibilities are described in detail in the PIM. Project M&E will be the responsibility of the provincial and county PMOs. A designated M&E officer will be appointed at each provincial PMO and in each county PMO for compiling M&E data for consolidation into the semi-annual and annual project progress reports. A simple computerized progress monitoring system will be set-up at the county and provincial PMO levels to help track and document physical, institutional, and financial project progress. Management effectiveness of farmer cooperatives supported by the project would be measured by the Cooperative Management Effectiveness Tracking Tool (METT), a qualitative self-assessment tool. The IPRCC will engage qualified institutions or experts to carry out an independent project baseline survey at project start-up, a METT assessment at mid-term, and an independent impact assessment, including the METT, at the end of the project. An appropriate approach and methodology for measuring farm income increase, including baseline and follow-on surveys at mid-term and project end, has been developed by a research team from the Poverty Alleviation Center of Renmin University, which will be funded by IPRCC during project implementation. Detailed terms of reference would be reviewed by the Bank during implementation prior to commencement of the study. C. Sustainability 35. Specific sustainability considerations that have guided project design include: a) Production scale-up. The project will not subsidize the expansion of existing agricultural production capacity. Production expansion would only be supported if there is potential for improving competitiveness and marketability, identified through industry, technology, and market analyses; such expansion is combined with structural adjustments in production arrangements, e.g., new arrangements that involve agro-businesses and cooperatives as main actors and investors, with government acting as service provider; and only targeted poverty households will receive project subsidies for additional production and/or expansion of production. b) Cooperative sustainability. Financial sustainability of commodity value chains will be assessed through market competitiveness analysis during the investment preparation, as laid out in the PIM. Environmental sustainability will be confirmed through resource assessments at the cooperative level. In particular, ruminate livestock development will include feed balances and will not depend on free grazing on sloping pasture, in circumvention of government-regulated grazing bans. 10 c) Agro-business participation. The project will seek to leverage private sector investments linked to the project. Investment commitments from the private sector are expected to provide an important indication for a business rationale and longer-term sustainability of the commodity value chain. Local PMOs may select local agro-businesses for project participation based on based on clear criteria, e.g., strong business and financial record, experience in the sector, strong management and business planning, as elaborated in the PIM. Agro-businesses would however not receive any project but would contribute from their own resources. Agro-business participation would be subject to regular joint review by provincial and county PMOs and the Bank during project implementation. d) Input supply. A sustainable approach to input supply is being introduced under the project. In cases where input supply or access to short-term lending from commercial banks is a bottleneck, farmer cooperatives will manage input supply under their own responsibility. Cooperatives can also provide funds to their members for the procurement of seeds or breeding animals. e) Farmer cooperatives. Detailed constitutional principles for farmer cooperatives are based on China’s Farmer Professional Cooperatives Law and are summarized in the PIM. These principles included, for example, an elected board, a transparent accounting system, open membership, a system of regular mandatory meetings and decision making arrangements, a complaints handling process, and regular audits. f) Rural infrastructure. Infrastructure investments and public services are directly linked to the proposed agricultural investments. They will be implemented through local government or village committees in close coordination with the cooperatives to strengthen the overall sustainability of productive investments by cooperatives and agro-enterprises. V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Stakeholder Risk Low Implementing Agency Risk - Capacity Substantial - Governance Moderate Project Risk - Design Substantial - Social and Environmental Moderate - Program and Donor Low - Delivery Monitoring and Sustainability Substantial Overall Implementation Risk Substantial 11 B. Overall Risk Rating Explanation 36. Overall risk rating for project implementation is substantial. The main risks and associated mitigation measures are presented in the Operational Risk Assessment Framework (ORAF in Annex 4). The main risks to the achievement of the PDO are: the limited capacity of the implementing agencies at the provincial and county levels to implement a Bank project, especially in terms of adherence to Bank procurement and financial management requirements in a decentralized environment; the challenges associated with institutional innovation, such as farmer cooperative development and with changing from top-down target-driven development towards participation and local investment decisions based on business planning; and capacity to conduct economic and financial analysis at the cooperative level to support long-term sound investments. Risk management measures are reflected in the project design, including the adoption of a PIM, procurement and financial management training for relevant staff, and extensive implementation support through the Bank team. 37. From a technical perspective, no particular risks are foreseen. The project will generally invest in infrastructure and agricultural/ rural technologies and approaches that are tested and proven to be of low risk, such as introducing improved seeds and improved breeding stock and related technologies, small-scale primary processing equipment and facilities, standard small-scale public infrastructure and others. Investments in agricultural production are subject to Good Agriculture Practices (GAP) standards and Integrated Pest Management (IPM). 38. From an economic perspective, many project areas are marginal agricultural production areas with limited development opportunity or comparative advantage. Project investments could be directed as a temporary subsidization of sub-sectors and products that would not be competitive in the longer run or where demand is limited. The marketing potential of some niche products, such as medicinal herbs or specialized tea products, could also be overestimated. Many project counties may see their local production in isolation from other places that may be promoting the same product and hence there is a risk of over-production. To address the risk to economic sustainability, the project design requires an investment planning process for cooperatives, including market analyses, prior to implementation of cooperative investments. The procedures for this detailed investment planning are described in the PIM. 39. The use of public (project) funds is justified to overcome market failures that prevent or hinder private investments and business engagement. The understanding of public goods, however, is limited at the local level, and this carries the risk that project funds could be used inefficiently. The project will avoid directing public funding to finance private commercial activities. Investments of commercial (profit generating) nature will be conducted only at the cooperative level, based on approved annual plans subject to review by technical advisory groups and county PMOs. Public infrastructure investments have been separated from commercial investments and will be implemented by the county government or village committees. 40. There is a risk of power imbalances between enterprise and farmer cooperatives in vertically integrated production and marketing structures that will be promoted under the project. Farmers, especially poor households, are often the weaker stakeholders in such value-chains. In the case of specialty agricultural products, market channels also tend to be narrow with often only one processor or marketing company determining production conditions and price. The same 12 company often also provides inputs and technical services. In such arrangements, benefits from added value or increased productivity can be captured primarily by the enterprise partner. The project seeks to reduce such potential power imbalances by formalizing and strengthening the cooperative organizations as independent economic entities and, where applicable, by putting in place clear contractual arrangements between enterprises, cooperative, and local government with facilitation by the project. 41. Commercialization and specialization of farmers increases their exposure to price and market risks and/or the business success of enterprises in the up-stream value chain. In addition, for rural households which are migrating out of agriculture production and are willing the lease their land temporarily to other cooperative members, their lease income will depend on the commercial success of the cooperative. The project will seek to reduce the risk associated with markets through careful analysis of competitiveness and marketing prospects of each investment proposal and an appraisal of the management capacity and financial strength of any enterprises and cooperatives involved in the project, as is detailed in the PIM. 42. A large number of households are situated in remote mountain areas and belong to ethnic minorities. Often these are not well integrated into the commercialized agriculture sector, are weakly organized and have limited capacity to participate in market-driven commercial agriculture. The participation of such households in company-farmer arrangements and in value- chain integration may require changes in their traditional (subsistence-oriented) production practices in form of shifting to single and/or specialized crops. Such shifts may expose households to livelihood risks. Risk mitigation measures include an EMDP, the implementation of the cooperative development funds mechanism provided on a grant basis and a strong focus on participation of poor households in the production arrangements. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 43. Repayment obligations. Funding sources for the project include the Bank loan and counterpart funds. The Loan Agreement will be signed between the World Bank and MOF. The on-lending agreements will be signed by MOF and the provincial governments of Gansu, Sichuan and Guizhou. The Provincial Governments will be the final debtors and responsible for repayment of IBRD loan funds from their regular fiscal budget. 44. Counterpart funds. Counterpart funds will be provided from national and provincial fiscal budgets earmarked for poverty alleviation programs as well as line department budgets. Project counties will not be required to provide any counterpart funds from their own fiscal revenue in addition to those appropriated by the national and provincial governments. This arrangement will significantly decrease the fiscal burden of poor counties and help ensure the timely availability of such funds for project implementation. To confirm the availability of domestic funds for the project, commitments have been received that confirm that the allocation of counterpart funds to the project on a priority basis. The three provinces have provided annual counterpart fund budgets which have been approved by the Provincial Finance Bureaus. Annual project implementation plans, including the funding budget and the resources, will be prepared by the county PMOs based 13 on the annual work program implemented by county PMO and cooperatives. Country Finance Bureaus will review annual budgets and release funds based on actual implementation progress. 45. Development impact. Specific and direct benefits expected from the project include improved productivity, value-addition, and market opportunities which are expected to result in increased incomes and long-term local employment opportunities. These benefits will primarily result from: (a) adoption of new production standards and technologies; (b) reduced post-harvest losses; (c) improved produce processing and/or packaging; (d) better access to services, markets, and information; (e) reduced transaction costs; (f) improved product quality and producer (farm- gate) prices; (g) higher production values through market differentiation (e.g., product certification, branding), and (g) advantages from economies of scale. Indirect benefits expected from the promotion of cooperative models include: (a) strengthening of producers and marketing groups; (b) improving quality and reducing the costs of forward and backward linkages of farmers to markets and value chain operators higher up; (c) local cooperatives managing physical infrastructure investments in a sustainable manner; (d) public and private sector operators delivering quality services in more efficient and targeted ways; and (e) new models of cooperatives and enterprises working together. In addition, the project is expected to contribute to improving outreach and inclusiveness of agro-business investments. 46. Project cooperative-level investment plans will be finalized once the cooperatives are established along the provisions stated in the PIM. Financial and economic net returns have therefore been calculated for range of farming activities typical for the proposed value chains in the project areas a household or per hectare basis. The analysis shows that there is sufficient scope for economically viable investments in agricultural value chains in the project areas. Financial rates of returns at the production level range from 6.1 percent to 38.8 percent. The overall Economic Rate of Return (ERR), taking into account all overhead costs, is estimated at 17.3 percent, with a Net Present Value (NPV) of RMB 721 million. The analysis also indicates that long-term attractive rural incomes in the project areas, which would be comparable to non-farm (urban) incomes, will rely on further structural change with larger land holdings. It is estimated that a household would need about 1.5 to 2 hectares of farmland to realize an income comparable to urban income levels, indicating that only 20-30 percent of the households still engaged in agriculture can be supported by agriculture in the longer term. 47. Justification of public financing and Bank value-added. The project addresses a number of market failures related to barriers to entry, stakeholder diversity in combination with weak organizational structures, and imbalance in access to knowledge and information of poverty households. Many project counties have supported their key products mostly in production, but also on processing and marketing by injecting significant public funds. In many cases this was done irrespective of the relative competitiveness and market demand and has led to market distortions and a continuing dependency of the industry on public funds. The project directs its support towards creating sustainable overall organizational and institutional settings and towards addressing only true market failures (not generally issues of insufficient competitiveness). This will allow the private sector and markets to work more effectively and increase long-term competitiveness, with an exit strategy from long term public subsidies. Bank support for the project will add value by: (a) helping to understand the roles of stakeholders and the rationale for 14 using public funds for value chain investments; (b) optimizing the use of funds without distorting markets; and (c) ensuring sustainability. B. Technical 48. Project counties have proposed a set of key commodities for project support, which despite market risk, are acceptable from an economic, technical feasibility and institutional perspective. A technical review of most of the proposed commodity chains has been carried out during preparation and further detailed technical review will be carried out for each individual cooperative investment during implementation, which will be subject to inputs from the external advisory group as well as reviews by the provincial PMOs and the Bank. Most of the proposed technologies and technical aspects proposed in agricultural value chain development under the project are already widely applied in the project counties or elsewhere and pose little technical risks. Enterprises in the project areas and/or cooperatives may propose improved plant varieties or livestock breeds, which are not yet used in the project areas. In such cases, technical appraisal teams at the county level and the joint appraisal team at the province level will consult with the relevant provincial agricultural departments and supporting research institutions to ascertain the suitability of the proposed variety/breed for the project area, prior to obtaining approval. 49. All agricultural production will follow GAP standards and the provisions set forth in the project’s Pest Management Plan (PMP). To reduce grazing pressure, the project will only support livestock productions systems that do not involve any free grazing of animals. Waste disposal systems and related technical options for waste treatment (biogas fermentation or composting) will be assessed and, if necessary, included on a mandatory basis for all animal production support under the project. The design of all agro-processing facilities supported under the project will follow HACCP (hazard analysis and critical control points) principles. Only trained staff will operate food testing and certification facilities. C. Financial Management 50. The management of the IBRD loan proceeds, including overseeing the Designated Accounts in each province, will be under the responsibility of the provincial finance bureaus of Gansu, Sichuan and Guizhou, respectively. The PMOs are housed in the Foreign Capital Project Management Centers (FCPMCs) of the Poverty Alleviation Office Offices at the province, municipality/prefecture, and county levels and will be the responsible project implementation agencies. Many of these have previous experience in managing Bank-financed poverty alleviation projects. A Financial Management (FM) capacity assessment identified the lack of experience of FM staff at the county levels, a large number of small expenditures by project farmer cooperatives increasing the complexity of project management, and risks associated with second-level advances of project funds to Operating Accounts (OA) managed by the municipal and county finance bureaus. An action plan to strengthen FM capacity has been agreed with the implementing agencies. The FM assessment concluded that with the implementation of the proposed actions, the project’s FM arrangements satisfy the Bank’s requirements under OP/BP 10.00. FM arrangements are described in detail in Annex 3. 15 D. Procurement 51. The provincial PMOs and county PMOs have designated full-time procurement staff. Community facilitators will be recruited by each county PMO to support project implementation at the cooperative/village level, including procurement. The key project procurement issues and risks identified by the procurement capacity assessment are: (a) the project involves a multiplicity of actors in procurement; (b) communities and sub-projects are scattered, with some in remote locations, which will make supervision a challenge; (c) some of the county PMOs and their designated procurement staff have no prior procurement experience in Bank-financed projects (although provincial and some county PMOs have implemented Bank-financed projects in the past); and (d) PMOs may unintentionally follow domestic procurement practices, which may lead to non-compliance with Bank procurement guidelines. To address these risks, designated procurement staff have attended procurement training provided by the Bank and will attend additional procurement and contract management training during project implementation. The provincial PMOs will be responsible to provide support to and monitor the implementation of project activities carried out by the county PMOs. County PMOs will provide support and monitor the implementation of project activities carried out by the cooperatives and village committees. A Project Implementation Manual (PIM) acceptable to the Bank has been prepared for the project. The PIM describes in sufficient details, the procurement arrangements, methods and procedures as well as roles, responsibilities and oversight functions. The PIM will be made publicly available by the Provincial PMOs after negotiations. In Sichuan, project cooperatives can delegate the implementation of procurement activities under Component 1(b) “Cooperative Development Fund to the county PMOs in case of capacity constraints. Such procurement through the county PMOs would follow regular procurement procedures and be included in the Procurement Plan. 52. A Procurement Plan for the initial 18 months of project implementation in each province has been agreed at negotiations. The Plan will be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated annually (or as often as is required) in agreement with the Bank, to reflect project implementation needs and improvements in institutional capacity. For procurement activities carried out by cooperatives under Component 1 (b), ‘Cooperative Development Fund’, a Cooperative Annual Investment Plan (CAIP) would be prepared after cooperatives have been established and their investment proposals have been approved by the county PMOs. Annex 3 provides additional information on the project’s procurement arrangements. E. Social (including Safeguards) 53. The project is expected to generate positive social benefits and sustainable poverty reduction opportunities for rural communities in project villages, including employment opportunities for poorer rural households, individual and collective empowerment through membership in farmer cooperatives, improved access to rural infrastructure and trading facilities, as well as new technical and management skills. Attention to more equitable sharing of economic gains from modernized value chains will be paid during the process of farmer cooperative establishment with active support from dedicated cooperative facilitators. 54. Involuntary Resettlement (OP4.12). No involuntary resettlement is expected under the project. Project areas are not located in areas of current ecological resettlement programs and will 16 not be associated with such programs. The project also does not support farmland consolidation or the acquisition of farmland by agro-enterprises. The project will involve some small-scale land acquisition for civil works at the village level that will be built on available land. Any needed land adjustments will be coordinated and agreed at the village-level and will be voluntary and documented. Where infrastructure construction extends beyond individual villages and the need for land acquisition arises, the Resettlement Policy Framework (RPF) will apply and guide the process. The RPF provides the principles and procedures for land acquisition and land transfers in the project, describes provisions for compensation and mitigation measures of any negative impact from land acquisition, includes a grievance redress mechanism, and sets up M&E as well as institutional arrangements in the event of land acquisition. The RPF is prepared in compliance with the current Chinese legal and policy framework for land acquisition and with the Bank’s Policy on Involuntary Resettlement (OP4.12). 55. Indigenous Peoples (OP4.10). Bank Policy on Indigenous Peoples (OP4.10) applies. Four ethnic groups, the Yi, Miao, Hui and Dongxiang have rural communities in the project area. These meet the characteristics of indigenous peoples under the operational policy. An Ethnic Minority Development Plan (EMDP) has been prepared to enable ethnic minority communities to fully participate in, and benefit from, the project and to ensure the protection of their interests and rights in land and resources. Key elements of the EMDP include: (a) an enhanced mobilization and participation process at the village community level; (b) a reinforced capacity building program with a related budget; and (c) a required minimum proportion of ethnic minority people among cooperative members, cooperative project workgroups and training course participants. Assistance (or participation) of Ethnic Minority Affairs Commissions at various levels will be invited as and when required, and a grievance redress mechanism has been established. In the Yi areas in the Liangshan Mountains in Sichuan as well as in the Dongxiang villages in Gansu, the project will address the cultural and language gaps between local communities and the mainstream Chinese society through the recruitment of qualified cooperative facilitators and trainers that are familiar with the culture and speak the local languages. The Yi script will be used in the Liangshan Mountains for the dissemination of project information. 56. Social Assessment (SA). A comprehensive SA was prepared during preparation, complemented by screening for social impact by the Bank. Consultations during the SA process covered about 13% of all project villages. No risk of potential large scale or significantly irreversible negative social impact has been identified. SA recommendations have been integrated into project design and recommendations from the SA are incorporated in the PIM. The main risks identified are discussed in detail in Annex 3 and are covered in the social safeguard documents. Implementation of the RPF and EMDP will be integrated into project implementation. Implementation will be monitored by the PMOs internally and evaluated at least twice during the project by a professional expert team. 57. Pro-poor aspects and gender development. Project sites are located in two nationally recognized poor mountainous regions (Wumeng mountains of Sichuan and Guizhou, Liupan mountains of Gansu) and the majority of project villages are listed as key poverty reduction villages. A strong pro-poor approach to the development of value chains was taken in project design. Providing equal opportunity for women to take part in the development of farmer cooperatives was identified as a challenging task and has been taken into account. This approach will continue to be promoted throughout project implementation through broad consultation and 17 participation of rural households, with special attention to vulnerable groups. The poor and women will be offered equal opportunity to join farmer cooperatives and participate in training and capacity building activities. Special consideration will be given to the voices of women as a vulnerable group, both in accessing employment and in taking part in cooperative decisions. Local Women’s Federations at various levels will be invited to facilitate women’s participation in project implementation. 58. Institutional arrangements and capacity building. LGOPAD and the three provincial PMOs are experienced in implementing World Bank-financed poverty reduction projects. They also have good experience in coordinating implementation of domestic poverty reduction programs. Designated staff is arranged for each PMO at provincial and county level to coordinate RPF and EMDP implementation. F. Environment (including Safeguards) 59. Environmental Assessment (OP. 4.01). The project has been assessed as Environmental Category B. An Environmental Assessment (EA) has been prepared for each project province in accordance with Bank Operational Policy 4.01 and Chinese domestic regulations. The EA confirms that the project is expected to generate positive environmental benefits in project areas. Two components will involve activities that may have adverse environmental impacts that require mitigation. Component 1 will support farmer cooperative-level agricultural production activities and agro-product processing. Component 2 will finance complementing rural infrastructure investments, including access roads, field tracks, marketing facilities, irrigation works, and public markets to support interventions under Component 1. The EA confirms that negative environmental impacts resulting from these activities can be mitigated. Each province has developed an Environmental Management Plan (EMP) to mitigate any adverse impact. To ensure EMP implementation, institutional arrangements and responsibilities for implementation and supervision of environmental safeguards implementation have been specified in the EMP, including a budgeted training program and a monitoring plan. In addition to the EMP, an Environmental Management Framework (EMF) has been developed to be applicable to all project provinces. The EMF will guide the screening of sub-projects and site selection, environmental assessment preparation, public consultation, and formulation of site-specific mitigation measures for cooperative-level investments and other project activities that cannot be specified by appraisal but would be determined during implementation. 60. Pest Management (OP 4.09). The expansion, intensification and diversification of agricultural activities will likely result in increased application of pesticides. A Pest Management Plan (PMP) has been prepared for each province, centering on Integrated Pest Management (IPM) principles. The PMPs describe the relevant national and provincial regulatory frameworks, the current status of pest and disease control, monitoring and supervision mechanisms, experience and problems, and lessons learnt from pest management in previous projects. The PMPs also specify a range of non-chemical methods to address pest management issues, and a program for training and monitoring during project implementation. The PMPs include a list of all chemicals needed for the project. These fall into the categories recommend by the World Health Organization and meet Bank requirements. 18 61. Natural Habitats (OP/BP 4.04). The EA screening process identified a number of national and provincial level designated natural reserves in the vicinity of project areas. The project will bring improvements to agricultural production practices and help raise local incomes, which are expected reduce the pressure on and likelihood of encroaching on these areas. However, some project activities (infrastructure construction, seasonal grazing) may impact natural habitats negatively because of their proximity to protected areas. Bank Policy on Natural Habitats (OP/BP 4.04) will be applicable in view of the importance of ecosystem protection in project areas. Relevant preventive and mitigation measures are included in the EMPs. Agriculture-related activities would take place on existing household farmland and no expansion into fragile mountain areas is foreseen. 62. Consultation and information disclosure. Public consultation was carried out in the project areas through information dissemination campaigns and as part of the EA/SA process. In each project county, PMOs and the external EA/SA teams carried out surveys, interviews and meetings with beneficiaries in a sample of project villages (13 percent of all villages) in all 27 project counties. Selection criteria for project sites and proposed location and implementation plans for civil works were shared publicly and with stakeholders. Consultations were completed in late 2013. More than 2,000 people and more than 100 institutions were surveyed with a balanced distribution in gender, age, educational background and profession. The majority of the consulted citizens confirmed strong support for the project and welcomed it as means to create job opportunities, contribute to local development, and improve economic wellbeing and the environment. Consultations included questionnaire surveys and public meetings and information dissemination through government websites, bulletin boards in villages, PMOs, and libraries. 63. The EA report, including the EMP and PMP, was disclosed locally in Chinese language during March-May, 2014. The SA report, including the RPF and the EMDP, was disclosed locally in Chinese language on April 28, 2014. English versions of the EA, EMP, PMP were disclosed through the Infoshop on November 24, 2014. The SA and RPF were disclosed on December 4, 2014. The EMDP was disclosed on June 5, 2014. G. World Bank Grievance Redress 64. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit www.worldbank.org/grs. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 19 Annex 1: Results Framework and Monitoring Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project Project Development Objective (PDO): To develop and demonstrate rural value chains that promote equitable organizational arrangements, participation, and the sustainable increase of income of target households in the Project Provinces. Cumulative Target Values Responsibility PDO Level Results Core Unit of Baseline Data Source/ for Data Frequency Indicators Measure (2015) 2016 2017 2018 2019 2020 2021 Methodology Collection Indicator One: Annually Project County and Number of direct 0 Reporting Provincial project beneficiaries, Number 10,000 30,000 170,000 250,000 350,000 470,000 PMO broken down by: 20 25 25 30 35 40 (a) female 0 10 25 25 30 30 30 (b) poor (%) 0 15 20 15 20 20 20 (c) ethnic minority 0 Indicator Two: Share Annually Project Provincial and of project-supported Reporting County PMOs cooperatives making Percent 0 0 10 20 30 35 40 profit in each year. Indicator Three: Baseline, Financial External Incremental farm Mid-term surveys Monitor income generated by Percent 0 - - 15 - - 25 and end of (representativ project activities. project e sample) Indicator Four: Mid-term METT External Cooperative and end of Survey Monitor effectiveness, as project Score 0 - - 30 - - 40 measured by METT (percent of cooperative with improved scores) 20 INTERMEDIATE RESULTS Intermediate Result (Component One): Institutional arrangements and marketing arrangements for value chains for key agricultural commodities are strengthened. Intermediate Result Annually Project County and Indicator 1.1: Number Reporting Provincial of cooperatives No. 0 25 100 150 200 250 300 PMOs established and registered legally. Intermediate Result Annually Project County and Indicator 1.2: Share of Reporting Provincial Percent 0 0 5 30 40 45 50 cooperative members to PMOs total village population. Intermediate Result Annually Project County and indicator 1.3: Number Reporting Provincial of cooperatives having No. 0 25 100 150 200 250 300 PMOs organized management training. Intermediate Result Annually Project County and Indicator 1.4: Number Reporting Provincial No. 0 25 75 120 180 240 300 of cooperatives with PMOs CDF support. Intermediate Result Mid-term Project County and Indicator 1.5: Share of and end of Reporting Provincial Percent 0 0 10 20 30 35 40 project cooperatives project PMOs paying out dividends. Intermediate Result Mid-term Project County and Indicator1.6: Share of and end of Reporting Provincial cooperative members 60 project PMOs Percent 0 0 10 30 40 50 buying inputs or marketing production through cooperatives. Intermediate Result Mid-term Project County and Indicator 1.7: Number and end of Reporting Provincial of cooperatives with project PMOs No. 0 0 10 50 75 85 100 production arrangements with enterprise partners. 21 Intermediate Result Annually Project Provincial Indicator 1.8: Number Total No. Reporting PMOs 0 1,000 10,000 30,000 60,000 80,000 of cooperative members % female 100,000 % 20 25 25 25 25 trained, by gender and % ethnic 25 % 15 20 25 25 25 ethnic minority (person- minority 25 times, cumulative). Intermediate Result (Component Two): Supporting public infrastructure and service system established. Intermediate Result Annually Project County and Indicator 2.1: Length Reporting Provincial of production / tractor Km 0 60 140 400 750 850 900 PMOs roads built or improved by the project. Intermediate Result Annually Project County and Indicator 2.2 Number Reporting Provincial of public markets No. 0 0 2 10 12 12 12 PMOs constructed under the project. Intermediate Result Annually Project County and Indicator 2.3: Number Reporting Provincial of agro-products No. 0 0 0 25 40 45 50 PMOs certification issued under the project. Intermediate Result Actual Annually Project County and Indicator 2.4. Person- Number Reporting Provincial days of advisory PMOs No. 0 services provided to cooperatives (cumulative). 22 Intermediate Result (Component Three): Research, Training, Extension. Intermediate Result Mid-term Project Provincial Indicator 3.1: Number and end of Reporting PMOs of analytical studies project No. 0 0 0 3 3 5 6 completed/ and disseminated (cumulative). Intermediate Result Mid-term Project Provincial Indicator 3.2: Number and end of Reporting PMOs provincial/ national No. 0 3 6 12 18 22 24 project seminars/ workshops completed (cumulative) Intermediate Result (Component Four): Capacity of PMOs to manage the Project effectively in place Indicator 4.1: Training Annually Project County, (person-times) in Reporting Municipal, project management and No. 0 350 1000 1900 2200 2300 2500 completed by PMO Provincial staff at all levels PMOs (cumulative). 23 Annex 2: Detailed Project Description China: Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project 1. The PDO is to develop and demonstrate rural value chains that promote equitable organizational arrangements, participation, and the sustainable increase of income of target households in the Project Provinces. The project aims to demonstrate an approach to poverty reduction, rural development, income generation and in poverty-stricken areas that is based on commercialized agriculture, institutional development and capacity building, participation and empowerment, and a clear distinction of the different roles and responsibilities of government (public sector) and farmer cooperatives (private sector) in agricultural modernization. The distinction of the various roles of different stakeholders is reflected in the component design. The project has also a broader learning objective to generate lessons from implementation experiences relevant for the application and scale-up within the LGOPAD own program under the Outline for Development-oriented Poverty Reduction For China’s Rural Areas (2011-2020). With this implicit learning objective, the project represents a continuation of the LGOPAD-Bank cooperation in poverty reduction that has evolved from multi-sector approaches, participation and community- driven development, towards market-based approaches to poverty reduction. 2. The project design reflects the recognition and experience that rural income growth and poverty reduction may only be sustainable if investments in productive activities are based on sound business decisions that take long-term profitability of such investments into consideration. The project therefore focuses on developing agricultural (rural) key commodities that have been identified based on local comparative advantage and on products that have comparatively good marketing prospects, are suitable for technology standardization and for scaling-up integrated production, and allow for value creation upstream at the cooperative level. Key commodities (sub- sectors) have been pre-selected during preparation in line with the social-economic development and poverty alleviation plans of the project counties in the Liupan mountain areas of Gansu and Wumeng mountain areas for Sichuan and Guizhou. The risks, including institutional, market and sustainability risks, inherent in this approach are discussed in detail in the above sections. 3. Project interventions seek to overcome a number of structural challenges in the project areas. By removing such structural bottlenecks, the project seeks to promote the modernization of the household-based farming model in rural areas, improve the sustainability of agriculture, and strengthen the role and potential of agriculture for employment and income generation and poverty reduction. The project design also recognizes that out-migration from rural to urban areas and agricultural modernization are complementary elements in China’s poverty reduction strategy. The specific bottlenecks to modern agriculture development that have been identified and the proposed measures to address these are the following: • Low technology levels. Project investments are expected to facilitate the introduction of new technologies to increase productivity and product quality. As individual farmers cannot overcome low technology diffusion by themselves, cooperatives and companies will have to play a critical role in introducing and extending innovation, for example through improved breeds, varieties, innovative processing, packaging, and other means. 24 • Scattered and non-standardized production. Strengthening the role and capability of cooperatives is also critical for helping organize production, and assist farmers to use standardized production methods so that higher and more consistent product quality standards and volumes can be achieved. Unified standards, consistency of supply and product quality combined with quality assurance (provided by cooperatives) can make such production more attractive to enterprises and buyers. • Poor market linkages. Consideration is given on how to strengthen market linkages, e.g., through contract farming, joint marketing through cooperatives, direct sales to supermarkets, traceability systems, etc. This requires the strengthening of cooperatives to coordinate farmers, coupled with strengthening relevant supporting public services, such as food safety testing to guarantee quality, certification standards, etc. • Lack of value addition. Introducing new value-added production generally needs outside investors and a value chain approach, not simply a focus on expanding production capacity as is currently practiced in many rural areas. The project will therefore seek to support the development of value chains for key commodities through including value-addition investments, such as quality improvements, standard setting, branding of products, and product marketing, and through new organizational arrangements, such as farmer cooperative – agro-enterprise cooperation agreements. • Roles and responsibilities of government, cooperatives and households. Many counties lack clarity on the respective roles of cooperatives, farmer households, agro-enterprises, and government in commercial agricultural production. The project seeks to improve the understanding of the respective roles of these actors and sharpen the focus on the different characteristics of public and private goods. 4. Based on these considerations, the project is designed along four main components: 5. Component 1: Integrated Value Chain Development. The objective of this component is to support the improvement of value chains for selected agricultural products with local competitive advantage (key commodities), establish new farmer cooperatives or strengthen existing cooperatives or other producer/community cooperation arrangements to become effective business entities, and strengthen forward and backward marketing linkages. The specific activities supported under this component are arranged along the three sub-components: a) Cooperative Establishment and Development. This sub-component will support the construction of management facilities (small buildings and offices; in Guizhou also exhibition halls for farm products) for cooperatives; procurement of basic office equipment, including computers, printers, copy machines, software, and office furniture. It will also support training in cooperative management and business operations; technical and other training related to the establishment of new and/ or improvement of existing farmers cooperatives and other cooperative or community-based production arrangements; training and capacity building for community economic groups in ethnic minority areas; and technical advisory services and subsidies for risk prevention and agricultural insurance on a pilot basis for poor households and for selected products. 25 b) Cooperative Development Fund. This sub-component would provide grant financing support to newly or existing eligible cooperatives. Funds would be used to implement cooperative investment plans that are formulated jointly by cooperatives/ community groups, technical experts, enterprises, and county government line agencies. Upon approval of the investment plan by the county government, cooperatives/ community groups would invest the cooperative development funds in: new production systems for improved/ high quality seedlings and improved breeding stock; facilities and goods for pre- processing and processing of agricultural and related products at the cooperative level; facilities and goods related to rural tourism development (in counties where rural tourism is a key industry), and related civil works and goods; storage and marketing facilities at the cooperative level; technical services for market analysis and market development to access new and higher-value markets, and civil works, goods and services related to up-grading of quality standards, labeling, certification, branding, logistics, food safety and others at the cooperative level. Cooperative Development Fund resources funds could also be used by cooperative members for purchasing annual farm inputs (seeds, fertilizer) but such support would be provided on a revolving basis to individual cooperative members. c) Public Private Partnerships. This sub-component would support training and technical services for cooperatives, communities, and farmer households groups that will be delivered through qualified agricultural enterprises. It would also support enterprises in strengthening their outreach to targeted poor households or farmer groups. 6. Component 2: Public Infrastructure and Services. The objective of this component is to establish and strengthen the supporting public infrastructure and service systems for cooperative and key agricultural commodity value chain development. The component would provide investment support for public infrastructure, including: (a) the construction of production road infrastructure, such as tractor roads, field tracks, off-grade access roads to village production areas or processing and marketing facilities; (b) construction of irrigation and drainage infrastructure, land leveling and terracing; (c) establishment of communications and procurement of information infrastructure and equipment; (d) construction of public market facilities, electricity supply and other infrastructure and goods necessary to facilitate and complement investments under Component 1. 7. The component would also support public services, such as government entities for food safety testing and control, public extension and training, development of marketing systems and agriculture research and technology transfer provided by government and private entities, and market studies for business development and others. The component would also support advisory services for cooperatives and provide financing support to cover salaries, training, and related cost of cooperative facilitators. 8. Component 3: Research, Training and Extension. The objective of this component is to support the systematic learning and dissemination of project implementation lessons in support of implementing the LGOPAD’s development-oriented poverty reduction strategy. The component would support: analytical studies, including studies on poverty reduction and agricultural key commodity/ rural value chain development in adjacent poverty-stricken mountain areas; studies on equitable cooperative/ organization arrangements and others to be determined during 26 implementation; training and workshops for government line agencies, entrepreneurs, and public sector institutions on key agricultural key commodity value chain development; and support development of policy guidelines and the development of appraisal guidelines for public sector support in rural areas and others. 9. Component 4: Project Management, Monitoring and Evaluation. The objective of this component is to strengthen and develop the administrative and technical capacity of staff of the PMOs to manage the project effectively. The component would support the county, city and provincial PMOs with office equipment, management software, vehicles or vehicle rental fees, training, domestic and international study tours, project management training and provide incremental operating funds for regular supervision, progress and impact monitoring and evaluation, acceptance checks, and for safeguards implementation supervision and monitoring. 10. Role of cooperatives and capacity building needs. Farmer cooperatives will be critical for farmer organization, coordination of input supply to farmers, product delivery to companies/ processors, markets, and consumers, and the provision of technical services. Cooperatives that already exist in the project areas have varying capability to perform these services to the standards required under the project. 11. During project implementation, the provincial and county PMOs would: (a) determine the basic requirements of each cooperative in order to become eligible to participate in the project and receive project funds. These requirements should include clear statements on membership and poor farmer participation, operating principles, formal registration, governance structure, and supervision, and other aspects. In particular, clear principles for the targeting and inclusion of poor farmers into cooperative arrangements need to be formulated for each individual cooperative; and (b) assess human resource capacity building needs of existing and new cooperatives in relation their roles in the project; in addition, develop training plans (such as training in business and financial management, marketing, technical capacity) for cooperatives and households. 12. CDF operating principles. The CDF will provide conditional grants to project cooperatives that have been established in accordance with the provisions of the PIM. Grants will to support self-organization of cooperative members, improve production organization and engagement in added-value activities, promote technical service outreach and technology diffusion, market position, and strengthen linkages and coordination in the value chain. The principles and operating mechanisms are described in the PIM. CDF funds may be used for: (a) cooperative-level start-up investments in new production systems, including production systems for advanced breeding stock and improved seeds; (b) input supply (seedlings, fertilizer, breeding stock); (c) pre-processing and processing technologies for agriculture and related products; (d) storage and marketing facilities; (e) market exploration and market development to provide access to new and higher-value markets; (f) up-grading of quality standards, labeling and certification, branding, product tracing, logistics, food safety and others; and (g) input supply, such as fertilizer and seeds on a revolving basis. 27 Annex 3: Implementation Arrangements China: Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project Institutional and Implementation Arrangements 1. Institutional arrangements for project implementation have been established at the provincial and prefecture/ municipality levels and in the 27 project counties. 2. National Project Coordination Office. The International Poverty Reduction Center in China (IPRCC) of the State Council’s LGOPAD will serve as the national project coordination office. IPRCC will be responsible for coordinating the three provincial Poverty Alleviation and Development Offices in overall project implementation and for coordinating timely reporting on annual work plans, progress reports, and any implementation issues to the Bank. IPRCC, in close consultation with the provincial Project Management Offices (PMOs) will maintain and update, as necessary, the PIM (including the FMM). In addition, IPRCC will guide implementation of the learning and knowledge dissemination activities of the project and the overall policy dialogue on poverty reduction at the national level. 3. Project Leading Groups. Project Leading Groups, comprising representatives from the reform and development commissions, finance bureaus, poverty reduction offices, auditor’s offices, civil affairs bureaus, ethnic affairs commissions, women’s federation, and other departments have been set up at the provincial, municipal and county levels. The project leading groups will provide leadership, policy guidance, and strategic direction to the PMOs within their respective jurisdiction. 4. Provincial Project Management Offices. Provincial Project Management Offices (PMOs) have been established in the Provincial Poverty Alleviation and Development Offices of Gansu, Sichuan and Guizhou Provinces. These are responsible for overall project coordination and management, including: annual work and budget planning; coordination of prefectures/ municipalities and project counties in public outreach, work planning, procurement, fund withdrawal and disbursement management and financial reporting; technical and institutional implementation aspects; general oversight, field supervision and acceptance checks; and training and capacity building. They will also have primary responsibility for reviewing and appraising cooperative level investment plans for key commodity value chain development and will be responsible for facilitating exchange and cooperation with agro-enterprises that are suited to participate in the project under the public-private partnership arrangements and their outreach for project farmer cooperatives. They will also be responsible for M&E and reporting to IPRCC and the Bank. Prefecture/municipal-level PMOs will provide technical guidance to the counties, supervise implementation, and assist the provincial PMOs in acceptance checks, and M&E. 5. County PMOs are responsible for project management at the local level. They will prepare county work plans. They will also and review and approve cooperative investments plans for value-chain investments and Cooperative Annual Implementation Plans (CAIPs), approve and oversee cooperatives’ use of project funds, coordinate line departments in the implementation of cross-village (township) cooperative investments, and coordinate enterprise participation to promote agricultural technology transfer and information and marketing services needed by 28 cooperatives. Furthermore, they will be responsible for the procurement and management of public production infrastructure and services. They will report on the utilization of project funds to the provincial PMO, prepare semi-annual progress reports, and recruit and train cooperative professional facilitators. They will be responsible for identifying and addressing implementation issues, while government office would manage the local complaints handling mechanism. All PMOs staff have experience (or have been trained) in project management, financial management, procurement, and monitoring and evaluation. They will be assisted by officers from the finance bureaus, development and reform commissions, auditor’s offices, and the poverty alleviation offices as well as technical line bureaus. 6. Administrative village committees. Village committees will be responsible for local public information dissemination, community mobilization, planning and implementation of public infrastructure investments assigned to the administrative village level, and coordination of any land adjustments for infrastructure construction. 7. Professional farmer cooperatives. Farmer cooperatives will be established as economic entities and registered under the Industry and Commerce, in accordance with China’s Farmer Professional Cooperative Law. They will have implementation responsibility for all project activities under the CDF. They will organize cooperative members; prepare cooperative value chain investment plans and CAIPs; and administer cooperative development funds in accordance with approved plans and project regulations. They will provide training and technical support to their members; facilitate linkages between cooperatives and enterprises; manage cooperative-level production facilities and related services; support the introduction of new technologies, and provide technical training, technical exchanges and advisory services to their members. Cooperatives will be responsible for outreach to and inclusion of households currently listed as poor within the community. They will also operate and manage value-chain related infrastructure under their ownership. 8. Farmer cooperative facilitator. Cooperative facilitators will be recruited and trained by the county PMOs to assist in village mobilization and in the establishment and operationalization of new cooperatives; provide guidance to cooperatives in the formulation and implementation of productive investment plans and CAIPs; and assist county PMOs in conducting acceptance checks, monitoring and reporting of cooperative activities, and complaints handling. 9. Technical advisory groups. Each county will set up a technical advisory group comprising representatives from government, cooperatives, and industry-related enterprises to provide advisory services for cooperative value chain investments. Advisory groups will participate in and guide value-chain development investment planning of cooperatives. They will provide advice in relation to investment costing, technology innovation and dissemination, production organization and processing, and marketing research to strengthen the overall business orientation and operation of cooperatives. They will also assist the counties in soliciting interest from qualified agro- enterprises for investment in the project. 10. Other technical support. Technical Support will be sought from research institutes, universities, and technical staff from the agriculture, forestry, animal husbandry and other functional departments at the county and town levels. This will include support in the development of technical standards and specifications for crops and other products, standardization of livestock breeding, as well as fertilizer and pesticide application. 29 Financial Management, Disbursements and Procurement Financial Management 11. Capacity assessment. The FM capacity assessment conducted for all PMOs at the provincial, city and county levels identified the following principal financial management risks: (a) most of project activities will be implemented and managed by county PMOs; county PMO staff generally to not have much experience or strong capacity in FM; (b) a large number of project activities involve small expenditure items carried out at the village or community levels which increases the complexity of project management; (c) finance bureaus at municipal and county levels will manage furhter advances for IBRD funds through Operating Accounts (OAs). 12. Mitigation measures to address the above identified risks are as follows: (a) preparation of a designated FM manual (FMM), as part of the Project Implementation Manual (PIM) to standardize FM procedures and reporting; (b) in addition to FM training provided by the Bank, the Provincial Finance Bureaus and provincial PMOs will continuously organize FM training workshops and provided hands-on guidance in FM; (c) the provincial PMOs will closely guide and monitor the implementation status at the county PMOs; (d) transparent disclosure and public monitoring mechanism will be established in villages and communities to safeguard project funds; and (e) local finance bureaus (cities and counties) will report periodically to the Provincial Finance Bureaus on the usage of further advances into OAs in the required format, supported by bank statements. The residual financial management risk, after taking these mitigation measures into account, is rated as Substantial. 13. Fund flow. In Guizhou, the project Designated Account (DA) will be opened in US$, with a fixed ceiling of US$ 4 million and managed by the Guizhou Provincial Finance Bureau. Further advances will be made from the DA into the OAs established at commercial banks acceptable to the Bank and managed by the five County Finance Bureaus (under the jurisdiction of provincial government). Each OA will be maintained in RMB with a pre-defined ceiling of RMB 4 million. In Sichuan, the project DA will be opened in US$ with a fixed ceiling of US$ 5 million and managed by the Sichuan Provincial Finance Bureau. In Gansu, the DA will be opened in US$ with a fixed ceiling of US$ 6 million and managed by the Gansu Provincial Finance Bureau. Further advances will be made into sixteen OAs established at commercial banks acceptable to the Bank. The OAs will be managed by Dingxi Municipal Finance Bureau (for Anding District) and the fifteen County Finance Bureaus (under the jurisdiction of the provincial government). The OA will be maintained in RMB with a pre-defined individual ceiling of RMB 2 million. 14. Actual eligible expenditures paid from OAs will be reported to the Provincial Finance Bureaus quarterly. Advances into OAs and outstanding advances in the OAs will be documented and supported by: (a) expense summaries; (b) bank statements and reconcilitaion statements in the format required by the Bank. For Guizhou, disbursements will be made: (a) from the DA to the provincial PMO, county PMOs and/or contractors for expenditures incurred by the provincial PMO, or expenditures procured through competitive bidding incurred by county PMOs; (b) from the DA to the municipal finance bureaus for expenditures incurred by the municipal PMOs; or (c) from OAs to county PMOs, cooperatives or contractors for all other expenditures. For Gansu disbursements wil be made: (a) from the DA to the provincial PMO or contractors for expenditures incurred by the provincial PMO; or (b) from OAs to county PMOs, cooperatives or contractors for 30 all other expenditures. For Sichuan, disbursements will be made: (a) from the DA to Liangshan Prefecture Finance Bureau (for expenditures incurred by the prefectural PMO) and to the county PMOs; and (b) from the DA to the County Finance Bureaus of Gulin and Xuyong, for expenditures incurred by the Gulin and Yuyong county PMOs. 15. Accounting and financial reporting. Each province will use a unifom accounting system based on common computerized accounting software to record project transactions. The provinical PMOs will complete the adoption of the system and relevant training before project effectiveness. The administration and accounting of the project will be set up in accordance with Circular 13: “Accounting Regulations for World Bank-financed Projects” issued by the Ministry of Finance in January 2000. The county PMOs will manage, monitor and maintain the project accounting records in accordance with Circular 13 for both county PMO and for project farmer cooperatives. The provincial PMOs will consolidate project financial statements of each county PMO and incorporate DA and OA information maintained by the related finance bureaus to prepare the consolidated project financial statements. The unaudited semi-annual project financial statements will be prepared and furnished to the Bank by the provincial PMOs as part of the Progress Report no later than 60 days following each semester (due dates are August 31 and February 28 of each year). 16. Internal control. Accounting policy, procedures and regulations for Bank projects were issued by MOF. The FMM aligns the financial management and disbursement requirements among various implementing agencies. Since the project will use a further advance mechanism at the city/ county level, the following financial control measures have been incorporated into the FMM to strengthen financial management: (a) In each province, a joint financial team comprised of representatives of the Provincial Finance Bureau, provincial PMO and consultants will carry out semi-annual FM supervision of county PMOs and local finance bureaus during the first year of implementation, covering: (i) a review of semi-annual project financial statements, (ii) review of project accounts, (iii) examination of the project expenditure eligibility and related supporting documents, (iv) sample review of cooperatives’ project accounts and supporting documents, (v) field visit and stock taking of construction implemented, and (vi) variance analysis between the approved annual work plan and expenditures. The supervision results will be documented in a report and filed. The frequency of FM supervision may be reduced to an annual basis during the second year and onwards if no significant FM issues are identified. (b) Each cooperative will comply with the National Accounting Regulation for Rural Cooperatives to maintain financial records and accounts, subject to PMO and Bank review. Bank loan proceeds received and the status of their usage would be included in the cooperative’s individual annual audit, which would be publicly disclosed annually in each village. 17. Audit. The Gansu Provincial Audit Office, the Guizhou Provincial Audit Office and the Sichuan Provincial Audit Office will be assigned by the CNAO (China National Audit Office) as auditors for the project in the respective provinces. These provincial audit offices wil lissues the annual audit reports for each province. The annual audit reports of the project financial statements will be due to the Bank within 6 months after the end of each calendar year. According to the agreement between MOF and the China National Audit Office, the audit reports and audited 31 financial statements will be made publicly available on the official websites of both, the World Bank and the project auditor (either CNAO or the provincial auditor). Project audits can be financed under the project, following the applicable procurement provisions and be included into the Procurement Plans. Disbursement 18. Four disbursement methods are available for the project: advance, reimbursement, direct payment and special commitment. The main Bank disbursement method will be advances to the DAs. Supporting documents required for Bank disbursement under different disbursement methods are documented in the Disbursement Letter issued by the Bank. The Bank loan will be disbursed against eligible expenditures (taxes inclusive) as described in Table 1 below: Table 1: Disbursement Categories and Percentages Category Amount of the Loan Percentage of Expenditures Allocated to be financed (expressed in US$) (inclusive of Taxes) (1) Gansu Province: (a) Grants under Component 1 (b) of the 47,180,000 56% Project (b) Goods, works, non-consulting services, 12,670,000 100% and consultants’ services and Training and Incremental Operating Costs (2) Sichuan Province: (a) Works under Component 1 (a) (i) and 11,980,000 50% 2 (a) of the Project (b) Grants under Component 1 (b) of the 29,090,000 52% Project (c) Goods, non-consulting services, and 8,805,000 100% consultants’ services and Training and Incremental Operating Costs (3) Guizhou Province: (a) Grants under Component 1 (b) of the 17,500,000 50% Project (b) Works under Component 2 (a) of the 12,570,000 50% Project (c) Goods, works, non-consulting services, 9,830,000 100% and consultants’ services, Training and Incremental Operating Costs (4) Front-end Fee 2 375,000 TOTAL AMOUNT 150,000,000 2 Gansu: US$150,000; Sichuan: US$125,000; Guizhou: US$100,000 32 19. Retroactive Financing. Retroactive financing up to an aggregate amount of US$ 15 million would be available for eligible expenditures incurred under all project components prior to the date of the signed Loan and Project Agreement, but on or after December 1, 2014. Retroactive financing will be processed according to the requirements specified in the Loan Agreement and Project Agreement. 20. In all 27 project counties, project farmer cooperatives will implement activities under Component 1 (b) (Cooperative Development Fund (CDF). Disbursement procedures for the CDF would be as follows: (a) project cooperatives will open cooperative-level accounts; however, no advances of Bank loan proceeds will be made from the OAs maintained by local finance bureaus into such cooperative accounts; (b) county PMOs and each project cooperative will enter into an implementation agreement, including an approved overall investment plan and approved CAIP; (c) cooperatives will claim expenditures incurred in accordance with the annual work plan from the county financial bureau through the county PMO; (d) payments will be made by the county finance bureau out of the OAs to the cooperatives, if the expenditures were pre-financed by the cooperatives or to third parties directly upon payments due; and (e) supporting documents for payments to cooperatives (signed procurement contracts, copies of invoices, verification report, etc.,) are stated in the FMM. Procurement 21. Capacity assessment. The procurement capacity assessment identified that procurement personnel of the three provincial PMOs and those in a number of county PMOs have experience with Bank-financed projects, including the Southwest Poverty Reduction Project 1995-2000, the Qinba Mountains Poverty Reduction Project 1997-2004), the Gansu and Inner Mongolia Poverty Reduction Project (1999-2006), the Poor Rural Communities Development Project (2005-2011), and the Guizhou Rural Development Project (2014-2019) and are familiar with Bank procurement procedures. Newly appointed procurement staff in many counties, however, lack experience with Bank-financed projects. This risk will be addressed through: (a) preparation and implementation of a procurement training plan to train all procurement staff at provincial and county levels periodically during project implementation; (b) participation of procurement staff in the regular procurement training program offered by Tsinghua University (or equivalent) in cooperation with the Bank; (c) preparation of a procurement section in the PIM to standardize project procurement procedures and provide guidance to procurement staff, with particular focus on community participation in procurement; and (d) Community Facilitators will be recruited by the county PMOs to support the project implementation at cooperative/ village level, including in procurement. Overall procurement risk is rated as Substantial. 22. Applicable guidelines. Procurement for the proposed project would be carried out in accordance with: World Bank “Guidelines: Procurement of Goods, Works and Non-consulting service under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011, revised July 2014; “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers”, dated January 2011, revised July 2014; and the provisions stipulated in the Loan agreement. Bank standard procurement methods and procedures would apply to all procurement activities carried out by the provincial PMO and the county PMOs, except Component 1 (b). Community Participation in Procurement would apply 33 to civil works carried out by project village committees under Component 1 (a) ‘Cooperative Establishment and Development”; to all procurement activities under Component 1 (b) ‘Cooperative Development Fund’; and to small-scale civil works related to cooperative development under Component 2. Detailed procedures for Community Participation in Procurement are defined in the procurement section of the PIM. 23. Procurement responsibilities. Procurement for investment activities at provincial and prefecture/ municipal levels will be implemented by the provincial PMOs and prefecture/ municipal PMOs, respectively. Procurement for investments at the county level will be under the responsibility of the respective county PMOs, except for those activities to be implemented by village committees and farmer cooperatives under Community Participation in Procurement. The detailed procurement arrangements and responsibilities are summarized in Table 1. 24. Procurement of works, goods, non-consulting services and consulting services under Component 1 (a) (‘Cooperative Establishment and Development”), Component 1 (b) (‘Cooperative Development Fund’), and small-scale civil works related to cooperative development under Component 2. The nature of community participation in procurement requires more flexible procurement procedures and arrangements for implementation by the cooperatives and administrative village committees. Within the principle of community participation in procurement under the Bank’s Procurement Guidelines (paragraph 3.19), simplified procurement procedures are described in the procurement section of the PIM. 25. Procurement under other components. Goods, works, non-consultants’ services, and consultants’ services under the Components 1 (except Component 1 (b)), 2, 3 and 4 would be procured as shown in Table 2. Procurement will be done using the Bank’s standard bidding documents (SBD) for all international competitive bidding (ICB) contracts and National Model Bidding Documents (MBD), agreed with or satisfactory to the Bank for all national competitive bidding. 26. Selection of Consultants. The Bank’s Standard Request for Proposal shall be used for all competitive selection of firms. Universities and research institutes may be included in shortlists as a source of consultants, provided they possess the relevant qualifications and they are not in a conflict of interest situation. In such cases, QBS or CQS (for small assignments) would be used, if the shortlist also includes consulting firms. 34 Table 2: Detailed Procurement Arrangements and Responsibilities Component and Activities Procurement Arrangement Responsible Agency Sub-Component Standard Community Procedures Participation Component 1: Integrated Value Chain Development 1 (a) ‘Cooperative Cooperative Office Buildings Yes County PMO Establishment and Yes Village Committee for small-scale buildings Development’ (included in the Procurement Plan) Cooperative Office Equipment Yes County PMO Cooperative Office Furniture Yes County PMO Yes Village Committee for small value furniture (included in the Procurement Plan) Technical training, training for ethnic minority County PMO communities (incremental operating cost) Agricultural crop insurance fees for poor farmer Yes County PMO households (incremental operating cost, consultants’ services). 1(b) ‘Cooperative Investments in nurseries, production facilities Yes Cooperatives Development Fund’ and equipment for advanced breeding stock and improved seed production; cooperative storage and marketing facilities for agricultural produce, small-scale pre-processing and processing facilities, and other small-scale cooperative level infrastructure; facilities, goods, and services related to rural tourism development, marketing studies, product promotion, up-grading of quality standards and food safety monitoring, certification, labeling, and brand naming, as well as hardware investments in the construction of product markets (civil works, goods, and consultants’ services) 1 (c) ‘Public Private Training, technical services for cooperatives/ Yes County PMO Partnerships’ communities provided by enterprise; support to strengthen outreach of enterprises to poor households; (consultants’ services, incremental operating cost) 35 Component 2. Public Infrastructure and Services Public Infrastructure (i) construction of production road infrastructure Yes County PMO related to (such as off-grade access roads to village Yes Village Committee: for small-scale civil works cooperative production areas or processing and marketing development under facilities, tractor roads, field tracks, and foot Component 1 paths); (ii) construction of irrigation and drainage Direct infrastructure, land preparation and terracing; (iii) Contracting establishment of communications and for County PMO procurement of information infrastructure and electricity equipment; (iv) construction of public market supply facilities, electricity supply and other (power infrastructure and goods necessary to facilitate transmissio and complement investments under Component 1 n lines) (civil works and goods). Public Services and Services related to government entities for food Yes County PMO Training safety testing and control, public extension and training services, marketing systems, agriculture research and technology transfer provided by government and private entities; market studies for business development, and advisory services for cooperatives and provision of financing support to cover salaries, training, and related cost of cooperative facilitators (consultants services; incremental operating cost). Component 3. Research, Training and Extension Analytical studies on poverty reduction and key Yes Provincial PMO commodity chain development in nationally County PMO designated poverty-stricken mountain areas; studies on equitable cooperative/ organization arrangements and others; training and workshops; support for the development of policy guidelines and implementation guidelines for public sector support in rural areas and others (consultants’ services, incremental operating cost). 36 Component 4. Project Management, Monitoring and Evaluation Project Management, Office equipment, management software, Yes Provincial PMO Monitoring and vehicles/ vehicle rental fees, transportation, and Municipal PMOs Evaluation technical assistance services, international and County PMOs domestic study tours, training, safeguards supervision, acceptance checks, progress and impact monitoring and evaluation (goods, consultants’ services, incremental operating cost). 37 27. Prior-review thresholds. Prior-review thresholds are indicated in table 3 below: Table 3: Thresholds for Procurement Methods and Prior Review Contract Value Prior Review Threshold Expenditure Category Procurement Method Threshold (US$) (US$) 1. Goods and Non- ≥10,000,000 ICB All Consulting Services <10,000,000 NCB First contract of each province <100,000 Shopping Not applicable None Direct Contracting All 2. Works and Supply and ≥40,000,000 ICB All Installation of Plant and Equipment <40,000,000 NCB ≥10,000,000 and first contract for each province <200,000 Shopping Not applicable 3. Consultants Services ≥300,000 QCBS/QBS All <300,000 CQS first contract for each province Individual consultant Only in exceptional cases e.g. long term TA Single source selection ≥100,000 (firm) Single source selection ≥50,000 (individual) 28. Training and workshops. Plans for training and workshops will be developed by the PMOs and included in annual project work plan. Expenditures incurred in accordance with the approved plans for training and workshops will be the basis for reimbursement. 29. Procurement Plan. Procurement Plans, acceptable to the Bank, have been prepared by the three provincial PMOs for the initial 18 months of project implementation. These will be made available in the project’s database and on the Bank’s external website. The Procurement Plans will be updated annually or as required to reflect implementation needs. For the procurement activities carried out by cooperatives under Component 1 (b) (Cooperative Development Fund), no Procurement Plans will be prepared. Instead, cooperatives would prepare Cooperative Annual Implementation Plans (CAIPs) after the cooperatives have been established and their investment proposals have been approved by the county PMOs and county governments. 38 30. Frequency of Procurement Supervision. Prior review supervision will be carried out through the World Bank office in Beijing. Procurement post reviews will be carried out every 12 months by the Bank and/or by external auditors in accordance with terms, conditions, and reporting procedures acceptable to the Bank. The initial procurement post review sampling ratio will be one out of twenty-five contracts for procurement activities carried out by Cooperatives/village committees and one out of fifteen contracts for procurement activities carried out by the provincial, municipal, and county PMOs. Given the large number of parties and transactions involved, the small value and multiplicity of contracts, and the scattered locations of the subprojects, which present a challenge to verifying all individual sub-projects, various accountability mechanisms including community participation, public announcement of community activities and funds received and spent have been built into the local governance system and included in the PIM. 31. Advance Contracting and Retroactive Financing. Contracts expected to be procured in advance (before Loan Signing) are included in the Procurement Plan. Retroactive financing will be allowed under the project for eligible expenditures under all project components. Withdrawals for eligible expenditures up to an aggregate amount not to exceed US$ 15 million (Gansu: US$ 6 million; Sichuan US$ 5 million; Guizhou US$ 4 million) may be made for payments within 12 months prior to the date of the Loan Signing, but on or after December 1, 2014. Relevant activities for which retroactive financing is being sought are subject to prior review on a sample basis. Environment 32. Environmental Assessment (OP. 4.01). The project is classified as an Environmental Category B project. It is expected to bring about positive environmental benefits to the poor rural areas of Gansu, Sichuan and Guizhou Provinces. However, the project will involve some activities that may have adverse environmental impacts if not mitigated properly. Component 1 will support agricultural activities and agro-products processing at the individual farm and cooperative level. Component 2 will finance investments in rural infrastructure (access roads and tracks, market facilities, irrigation infrastructure, public market facilities etc.), complementing the cooperative investments under Component 1. EAs have been prepared in each province by certified institutes with experience in similar projects in the region 3 in accordance with Bank Operational Policy OP/BP 4.01 and Chinese domestic regulations. The EAs describe baseline conditions and assess the potential impacts of major project activities in each province. Based on the EAs, an EMP was developed for each province, specifying mitigation measures, training and monitoring, as well as supervision arrangements. 33. The main potential adverse impacts of project investments are: a. For cropping activities, erosion may occur as part of traditional slope-land cropping and inter-cropping in the karst mountain areas of Guizhou as well as in the mountain areas of Sichuan. Overuse and misapplication of fertilizer and pesticides, common in rural China, could lead to water and soil contamination and soil and water eutrophication in all three provinces. Plastic material used for mulching and greenhouses could be left in the field affecting soil texture, clog irrigation facilities and pollute rivers and land. 3 Gansu: Guangzhou EP Environmental Management, Ltd.; Sichuan: Sichuan University, Institute of Environmental Protection Research; Guizhou: Guangzhou EP Environmental Management, Ltd. 39 b. For animal husbandry activities, there is a risk of exceeding the carrying capacity of existing seasonal pasture land due to the planned expansion of livestock (sheeps, goats) production and insufficient availability of fodder for animal pen-feeding, particularly in the high elevation areas of Sichaun and in the karst aras of Guizhou. Over-grazing and poor management of pasture resources could lead to a deterioration of pastures, soil erosion and exacerbate the stone desertification already severe in various parts of Gansu, Sichuan, and Guizhou. These risks were considered during the site selection process. Grazing sites, ere to be located at least 1.5 kilometers away from any protected or fragile areas, including natural reserves and protected zones for drinking water supply. c. Animal waste from expanded livestock production activities could be a significant source of non-point source pollution, if poorly managed and if livestock production expansion exceeds the capacity of the land to absorb manure as nutrients. The scale of animal husbandry activities has therefore been adjusted and provisions have been made for adequate animal waste management. d. Agro-processing investments will require higher consumption of water and energy and will generate more pollution compared to primary processing of herbs, tea, and other products. e. Rural infrastructure could result in additional dust, noise, spoil dumping on farmland or blockages of irrigation facilities, and traffic disturbance. Impacts have been assessed as moderate and temporary and can easily be mitigated. 34. Alternative project analysis. The EA anlaysed techncial alternatives to the project design, including a without-project scenario. Different methods of manure treatment that are suitable for both households (simple piling with soil cover versus biogas production) and centralized scale husbandary (larger-scale biogas, septic tank /anerobic digestion, composting or conversion to manure-fertilizer) were compared. Conventional planting and pest control practice were also compared with the new practice to be adopted by the project. 35. Related activities. Although agri-businesses are not direct project beneficiaires and will not receive investment funds under the project, they may be involed in the provision of technical services to project beneficiaries and buy agricultural raw material from cooeprative producers. Potential agri-businesses upstream and downstream on the value adding chain were surveyed as part of the EA process. Due diligence review of their current EA status, pollution levels, and environmental compliance was carried out, with the findings summarized in the EAs. The EAs also contain information on other major on-going or planned development projects that could potentially compete for the limited land, pasture and water resources in each project county. 36. Pest Management (OP 4.09). The expansion, intensification and diversification of agricultural activities under the project will lead to changes in the application of pesticides for pest and disease control. As per the Bank’s safeguard policy, separate Pest Management Plans (PMP) were prepared for each province based on Integrated Pest Management (IPM) principles. The PMPs describe the relevant national and provincial regulatory framework, current status of pest 40 and disease control, monitoring and supervision mechanism, major experience and problems, and lessons learnt from past projects. It specifies a range of non-chemical methods and a training and monitoring program to facilitate implementation. A list of all chemicals needed for the project that meet Bank requirements, namely, comply with the World Health Organization’s recommended categories, has been included in the PMPs. 37. Natural Habitats (OP/BP 4.04). The EA screening process identified a number of national and provincial level designated natural reserves in the vicinity of the project areas. Agriculture-related activities would take place on existing household farmland and no expansion or creation of new farmland in fragile mountain areas is foreseen. While the project will bring improvements to agricultural practices that are expected to reduce the pressure on and likelihood of encroaching on these areas, some project activities, however, might negatively impact natural habitats because of the proximity of project interventions, such as the construction/upgrading of rural infrastructure and temporary livestock grazing. OP 4.04. will therefore apply to the project, highlighting the need to incorporate the protection of local ecosystems. Relevant preventive and mitigation measures are included in the EMPs. 38. Environmental Management Plan (EMP). Based on relevant domestic guidelines and specification, and WB/IFC Environmental, Health and Safety (EHS) Guidelines related to planting, husbandry and agri-processing, an EMP was developed for each province. It specifies the institutional arrangements and responsibility of each party for EMP implementation and supervision, and includes a budgeted training program. The EMP includes environemntal codes of practice for all construction work related to rural infrastructure. It also contains specific sets of mitigation measures for production of major plants and animals over their life cycle and for processing of major agro-products. The environmental monitoring program covers soil losses, surface runoff, soil fertility, frequency of pest and disease, and effluents from key polluting agro- processing in selected counties. 39. Environmental Management Framework (EMF). Cooperative-level and related infrastructure investment activities can not be specified in full detail at the time of appraisal but will be determinded and finalized during implementation as part of the project’s cooepratvie development activities. An EMF was therefore developed for all provinces to guide screening and selection of such activities from an environmental perspective and to manage their environmental impacts. The EMF defines the screening criteria, for sub-projects and site selection, contents, procedures and responsibilities for EA preparation and implementation, and public consultation to ensure compliance with both, Chinese EA laws and regulations and the World Bank’s OP/ BP 4.01. Social 40. Social Assessment (SA) process. A SA was undertaken by a specialized research institution during preparation. Field visits took place in late 2013 to all 27 project counties and included household consultations in 69 villages, i.e. 13 percent of the project villages. A quantitative survey with 1,507 respondents, 150 focus group discussions in project villages, and around 400 interviews with households and local cadres were conducted. The SA involved women (48 percent of survey respondents) and ethnic minority people (60 percent of survey respondents). 41 The Bank team also screened for project risks and opportunities as part of preparation. At the time of the SA, more than 85 percent of households surveyed were aware of the project (in Sichuan, a little over 20 percent of the households were not aware of the project) and more than 50 percent said they knew its actual contents. To ensure prior and informed consent in all participating villages, implementation will start with an information and mobilization stage covering rural households in the project areas. The SA confirmed that OP 4.10 (Indigenous Peoples) and OP4.12 (Involuntary Resettlement) are applicable. An EMDP and a RPF were prepared in compliance with the Chinese legal and policy framework as well as Bank operational policy requirements. 41. Poverty in the project areas. The project area is located in two of the designated mountain areas that have national priority status for poverty reduction, namely the Liupan mountains in southern Gansu and the Wumeng mountains in northwest Guizhou and southeast Sichuan, the latter mountain range including the Liangshan mountains. In total, 537 villages in 134 townships have been selected to participate in the project with a total population of 946,000, approximately equally distributed among the three provinces. A total of 359 project villages are designated key villages for poverty reduction. Poverty incidence in the project area (based on China’s domestic poverty threshold of RMB 2,300 per person/year and 2012 registration data) is around 30-35 percent in Sichuan and Guizhou, and as high as 50 percent in some areas in Gansu (with poverty incidence reported as high as 80 percent in Yongjing County). Poverty incidence is also especially high in the Sichuan project area, where it is twice as high as the county average. 42. Project stakeholder expectations. The SA included a stakeholder analysis that revealed that all project stakeholders, including rural households, existing cooperatives, independent small business and agribusinesses, welcome the formalization of specialized farmer cooperatives, which is the central thrust of the project design, and view this as an important means to reduce market risks. However, there are important differences in expectation between larger enterprises and rural households. While enterprises expect an improvement of their links with producers from the project, rural households stated their priority as becoming the member owners of farmer organizations. Cooperatives, small businesses and households describe the improvement of rural infrastructure as a second important shared need. Households also rank technical training as a priority. Agribusinesses, on the other hand, list the improvement of market facilities and support for R&D as priority in view of developing processing capacity for local products. County-level poverty alleviation offices view cooperatives as a means for sustainable poverty reduction while technical line agencies highlight the role of cooperatives in the modernization of agriculture in a stable social environment. 43. Status of cooperatives. A number of cooperatives exist in the project area and operate in crop production, livestock raising and rural tourism, but are generally at an early stage of establishment and development. In Guizhou, project areas are more advanced with close to 40 percent of surveyed households being cooperative members while only about 25 percent of the surveyed households are cooperative members in Gansu and Sichuan. Households that are not cooperative members have only little knowledge about cooperatives. Almost all of the 40 cooperatives reviewed during the SA have been initiated by local farmer entrepreneurs, often with the participation of village cadres. These cooperatives are de facto micro-enterprises managed by a small number of core members, while ordinary members primarily provide labor and/or land. Micro-entrepreneurs often take up a cooperative status to access larger areas of agricultural land 42 with preferential policies. In return, they fulfil a social function by providing employment to the elderly and the poor. 44. Around half of the surveyed cooperatives operate a “production base”, i.e. a larger-scale crop production or animal breeding operation, sometimes under the direct control of an enterprise, sometimes in an independent fashion, while others are former farmer technical associations with agricultural input supply provision and marketing functions. In “production base” cooperatives, households either contribute their land use rights as shares in the cooperative or lease them to the cooperative. Asset ownership often lacks transparency and many cooperatives do not distribute profits to all of their members. The availability of cooperative services is limited as well. The SA revealed a strong interest among local households for cooperatives in spite of these limitations. About 90 percent of surveyed households supported for cooperative development through the project and more than 95 percent of poor households expressed in interest in participating in a cooperative and in developing new agricultural commodities. In Sichuan these figures were somewhat lower at 90 percent. 45. Opportunities for positive social impact. The SA identified several areas of opportunities to maximize positive project impact. Through value chain development, local agricultural products (and rural tourism in one county) are likely to gain more visibility on the market. Higher visibility combined with better products quality would create additional economic returns for local producers. Quality and brands are therefore critical factors to ensure project success. The creation or improvement of farmer cooperatives will also bring more secure market access and access to farm inputs to poorer households since they will be able to sell their products through cooperatives. The project can maximize this impact through reinforcing management and entrepreneur skills among cooperative investors. The improvement of local infrastructure will have positive impacts, especially if infrastructure needs are carefully identified to serve both agricultural production needs and the needs of local communities. Furthermore, the formalization of cooperatives is likely to enhance the individual and collective self-development capacity, especially if training combines skill development with managerial capacity building. 46. Risks of negative social impact. No potential large scale or risk of significantly irreversible negative social impact was identified through project preparation. The SA, however, pointed to a number of risks that deserve close attention during implementation, including the following: (a) women, the poor and the elderly are especially vulnerable and their participation in project activities might be limited resulting in inequitable production arrangements within the cooperative; (b) despite more efficient cooperative production arrangements, market risks will remain substantial, particularly in remote mountainous areas, and timely access to market information will remain challenging; this may result in cooperatives not being able to assess market and demand conditions adequately; (c) current local policies require cooperatives to specialize in one single commodity which might reduce the diversity of livelihood sources and expose households to additional market and price risks; (d) modernized agriculture requires more investment while some of the proposed commodities only provide returns in the longer term; poorer households may therefore face increased risk of indebtedness because of their motivation to participate in the project; (e) infrastructure investments serving agricultural production might be insufficiently connected with the construction and maintenance of the existing rural road network; (f) ecological resettlement programs may impact the project if communities are not well 43 established and stable; it was therefore agreed that project villages will neither be departure locations nor arrival locations for households of the government’s resettlement programs; and (g) the participation of vulnerable households in transfers of land use rights to cooperatives and enterprises or their contribution of land as cooperative share, which are both widespread practices aimed at promoting land consolidation across China, may not be fully voluntary or equitable and such households may be disadvantaged in long-term land leasing arrangements. 47. Pro-poor value chains. The project will seize opportunities to ensure a pro-poor approach in the development of value chains in the project areas. The formalization of cooperatives would help establish more transparent rules at the local level, and local entrepreneurship would be enhanced among cooperative core members. The project also provides the opportunity to invite the public sector and enterprises to work jointly for the development of value chains. This will take place if enterprises are actually invited to advise on cooperative investments and if the public sector strengthens its role in market development support, for example through business support services. There is also an opportunity to develop a new strategy for quality agricultural products in poor areas, taking into account both modern production standards and the unique features of mountain products when these are in increased demand among urban consumers. Cooperative facilitators recruited under the project will have an important role not only in supporting cooperative establishment but also in facilitating interaction among stakeholders along the value chain. The project will address social risks through various measures that have been integrated into project design. These measures relate to training in cooperative management, the use of a participatory process for cooperative establishment, with enhanced attention to the participation of women, the poor and ethnic minority people, through a mobilization process involving the whole village community, an enhanced role of village committees in the public infrastructure component. 48. Specific risks and opportunities for women. The project will generate employment opportunities for women in cooperatives and will provide them training in agricultural skills. Beyond these immediate benefits, focus on the formalization of cooperatives might result in limited participation of women since farmer professional cooperatives are a field where women are markedly less represented. A more active role of women in cooperatives was observed in Guizhou where they accounted for close to 30 percent of cooperative managers. In Gansu, two thirds of the surveyed cooperatives were managed by men. The SA survey however also showed that women were highly interested in cooperatives, with a rate of more than 95 percent of positive attitudes towards cooperatives and viewed training through cooperatives as an important need and benefit. 49. Ethnic minorities in the project area. Four minority ethnic groups in the project area are indigenous peoples and meet the definition of the World Bank’s Operational Policy OP4.12. These groups have distinct cultural features and identify themselves as groups having customary social institutions and include the Hui and Dongxiang in Gansu Province, the Yi in Sichuan and Guizhou, and the Miao in Guizhou and in some areas in Sichuan. The SA has listed the presence of ethnic minority communities in 209 administrative villages, i.e. 39 percent of project villages, with a total population of around 243,000 ethnic minority people. These villages are located in 5 project counties in Sichuan, 3 in Gansu and 2 in Guizhou. The Yi are by far the largest group, accounting for 80 percent of ethnic minority people in the project. Three of the four counties in the Liangshan Autonomous Prefecture have a 100 percent Yi population in project villages. By appraisal, no 44 ethnic minority community had been identified in project villages in any of the other 17 project counties. Some of these counties, however, have ethnic minority townships outside of the identified project area. Should additional ethnic minority communities be identified at a later stage, theses would be covered under the EMDP. 50. About 95 percent of ethnic minority villages are listed as key villages for poverty reduction work. The Liangshan Yi people live at high elevations with livelihoods based on traditional agriculture and animal husbandry. Poor access to infrastructure and social services remains important development constraints. In some counties, more than 80 percent of project administrative villages do not have a health station and more than 20 percent of project natural villages have no road access. The Miao villages are also located in difficult remote environments. The Hui villages and Dongxiang villages in Gansu report very high poverty incidence and reliance on external employment (not farming) for the majority of poor households while trade is an important activity for better-off households in these villages. The Yi and the Dongxiang also display a marked cultural gap with the mainstream society, much lower access to formal education and a large share of the rural population with insufficient or no command of Mandarin. In the Dongxiang villages, only one out of 90 survey respondents confirmed s/he could understand Mandarin. In the Liangshan, formal education is bilingual and the Yi script is in use. 51. Farmer cooperatives are at a much earlier stage of development in ethnic minority villages than in other parts of the project area. This is particular prevalent in Liangshan where only very few cooperatives exist. In other place, cooperatives are more likely to operate as technical associations managed by village cadres. In a number of Hui and Dongxiang villages, “mutual cooperatives for industrial development” are operated and invested in by the local governments. SA surveys revealed mixed opinions about farmer cooperatives in those villages. Support for the project and interest in cooperatives, however, was very high among Yi and Miao survey respondents despite very limited experiences in cooperative management. 52. Specific risk and opportunities for ethnic minority people. The risks of potential negative project impact discussed above are also present in ethnic minority villages. In addition, there is a risk of failure of establishing farmer cooperatives in the Liangshan mountains (Sichuan) and in the Dongxiang and Hui areas (Gansu) due to the very limited experience in managing farmer organizations and limited availability of management and micro-enterprise skills locally. The EMDP is designed to address this risk. Ethnic minority households are also more at risk of unequal access to the project if no specific attention is paid to their participation. Market risks will likely remain prominent despite the establishment of cooperatives. The development of more commercialized agriculture might also lead to some transfer of rights over indigenous crop varieties or animal breeds, and the development of private brands making use of local cultural heritage might take place in a way that would impact those cultures. 53. Areas of opportunity for positive project impact in ethnic minority villages include the following: (a) employment opportunities will be created through cooperative operations and during infrastructure construction; (b) the improvement of rural roads, irrigation facilities and market places will benefit agricultural production and local living conditions; and (c) the gap between ethnic minority villages and other localities in the development of farmer cooperatives will likely be reduced as the project provides opportunities for self-development in these communities. 45 54. Ethnic Minority Development Plan (EMDP). An EMDP covering all project villages with ethnic minorities has been developed. It includes an action plan with three main actions: A phased training program has been developed to help ensure that cooperatives become formal organizations only after local capacity has been strengthened. Project funds have been set aside for such training. Training support will balance between cooperative operation and management and agricultural technical skills. Quality of training will be controlled through a training of trainers’ scheme. Equal opportunity for the various ethnic groups to access project information and funds is stated as a project principle. Each cooperative includes at least one ‘preparation group’ (management board) member from the local ethnic minority community. Specific efforts for information dissemination will be made through meetings in Mandarin or in the local language depending on local preferences. A complaints mechanisms has been set up to allow community members to provide feedback at various times through local public meetings and file complaints. Assistance or participation of the Ethnic Minority Affairs Commissions at various levels will be invited as and when required. 55. The EMDP also includes actions that are specific to each ethnic group. In the Liangshan Mountains, the project will recruit cooperative facilitators that are familiar with the Yi culture and Yi language. The county PMOs and facilitators will work with all community members and all segments of the traditional structure of the Yi society. They will pay enhanced attention to the participation of poorer households. Additional information meetings will take place with a focus on the purpose of cooperatives and printed documents will be at least partly in Yi script. In the Dongxiang areas, it will be equally important to recruit cooperative facilitators that are familiar with the local Islam culture and respectful of Islam, and imams as well as elders will be informed about the project. Training will mostly take place in the Dongxiang language and training contents will take into account local knowledge and skills in animal raising. In the Miao villages, attention to those with little command of the Mandarin will be paid, while villager fairs may be an opportunity to disseminate project information. 56. Resettlement Policy Framework (RPF). Most project facilities will be small scale at village level and built on existing land. Some facilities might be added to current project plans but these will be at the administrative village level and would require only voluntary land adjustments within the village. Some project activities such as the construction of trading facilities for agricultural products and livestock might extend beyond individual villages and generate a land acquisition case. To cover such cases where infrastructure construction extends beyond individual villages or where a need for land acquisition later arises, a Resettlement Policy Framework (RPF) has been prepared to guide the land acquisition process in compliance with the Chinese legal and policy framework for land acquisition as well as OP 4.12. The RPF has set key principles and procedures for land acquisition, covering documentation, compensation and mitigation principles, a grievance redress mechanism, M&E, and institutional arrangements. 57. The RPF also includes measures to minimize the land tenure risk. It states a principle of voluntary and fair land management in project-supported cooperatives. Households that do not want to join a production base will be able to stay out without being impacted by the neighboring production base. Short-term land rentals based on clear contractual arrangements will be promoted instead of long-term land leasing, so that poor households can actually opt out of the cooperative, 46 especially in case a migrating family member is returning to the village. Finally, since the project will provide each cooperative with a grant as working capital, newly established cooperatives will not require household land use rights as cooperative shares. Contributions of land as share into cooperatives will be possible on a voluntary and transparent basis. 58. M&E. The provincial PMOs of Gansu, Sichuan and Guizhou have overall responsibility to coordinate and oversee implementation of the RPF and EMDP at the provincial level, including management and supervision, training, and preparation of semi-annual project progress reports based on monitoring information from each project county. Each PMO at provincial and county levels will assign a dedicated staff member or recruit qualified social/resettlement experts to coordinate social safeguards work with relevant local government departments and for social and resettlement monitoring. The assessment of project impact on vulnerable groups, including the poor, women and ethnic minority people, will be integrated into the evaluation of overall project impacts at project mid-term and at the end of the project. These evaluations will also carefully address the issue of rights over local resources and cultural heritage. 59. Consultation and information disclosure. Public consultation was carried out in the project areas through information dissemination campaigns and as part of the EA/SA process, and were completed in late 2013. Consultations covered 69 villages (15 percent of all project villages) and included information dissemination through the government websites of the 27 project counties and bulletin boards in project villages. The EA/SA reports were disclosed on the website of the Provincial PMOs. Hard copies of the SA, EMDP, and RFP were made available in the provincial and counties’ poverty alleviation offices, in all project township offices, and in some public libraries. Consultations took place in the form of questionnaire surveys and public meetings. Selection criteria for project sites, proposed location and implementation plans for civil works were shared with the public and stakeholders during consultation. More than 2,000 people in the project areas were surveyed with a balanced distribution in gender, age, educational background and profession. The majority of the consulted citizens confirmed strong support to the project activities and welcome the project as means to create new job opportunities, contribute to local development, and improve economic wellbeing and the environment. The final EA report, including the EMP and PMP, was disclosed locally in Chinese language on May 14, 2014. The SA report, including the RPF and EMDP report were disclosed locally in Chinese language on April 28, 2014. The English versions of the EA, EMP, PMP were disclosed through the Infoshop on November 24, 2014. The SA and RPF were disclosed on December 4, 2014. The EMDP was disclosed on June 5, 2014. 47 Monitoring & Evaluation 60. The Result Framework describes the PDO-level outcome indicators and the component- specific intermediate indicators and the respective baselines and targets (Annex 1). The M&E arrangements and responsibilities are described in the PIM. M&E of project progress, outputs, and outcomes will be under the responsibility of the provincial and county PMOs. A designated M&E officer will be appointed in each provincial and county PMO to be responsible for compiling M&E relevant information in a timely manner for consolidation into the semi-annual and annual project progress reports. A computerized progress monitoring system will be set-up at the county and provincial PMO levels to help track and document physical, institutional, and financial project progress. 61. The management effectiveness of farmer cooperatives supported by the project would be measured by a qualitative self-assessment, using the Cooperative Management Effectiveness Tracking Tool (METT). This tool is described in the PIM and would be applied at mid-term and at the end of the project. METT would allow the qualitative assessment of various elements of cooperative performance, e.g., the availability of management objectives, analysis of challenges of the farmer cooperative, appropriate planning and resources allocation (inputs), application of management actions, provision of products and services (outputs), and results in terms of impacts. 62. A detailed approach and methodology for measuring farm income increase, including baseline and follow-on surveys at mid-term and project end, has been developed by a research team from the Poverty Alleviation Center of Renmin University, which will be funded by IPRCC during project implementation. Detailed terms of reference would be reviewed by the Bank during implementation prior to commencement of the study. 48 Annex 4: Operational Risk Assessment Framework (ORAF) China: Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project Stage: Approval Project Stakeholder Risks Rating LOW Description: Risk Management: This is the 6th project in a series of Bank-LGOPAD cooperation No specific risk management measures are considered necessary to ensure the commitment of the projects in poverty reduction that dates back to the 1990s. central and provincial government levels. During implementation, the Bank will consult with Government stakeholders are committed to an innovative project stakeholders and beneficiaries on an on-going basis. institutional development project and Bank-LGOPAD relationship at the national and provincial levels is strong. Interest from and ownership at the direct beneficiaries level (farmers, cooperatives, companies) has been confirmed through Resp: Stage: Due Date : Status: the consultations carried out during the SA process and such Bank Implementation Continuous Ongoing interest and ownership is expected to remain high through implementation. Implementing Agency Risks (including fiduciary) Capacity Rating: Substantial Description : Risk Management: IPRCC of LGOPAD has recently been appointed as national The Bank team, in coordination with IPRCC, will provide continuous and extensive implementation project coordination agency. IPRCC replaces the Foreign Capital support to the provincial PMOs and county PMOs with particular focus on: (a) quality of cooperative Project Management Center (FCPMC) as coordination agency as investments plans and investment (matching grant) proposals of agro-enterprises that partner with result of LGOPAD internal restructuring. IPRCC is a relatively the project; (b) establishment and governance of project cooperative arrangements in line with new entity in the LGOPAD without prior experience in the principles and provisions of the PIM; and (c) social and environmental safeguards supervision. The coordination of Bank lending projects. However, IPRCC draws county PMOs will establish technical advisory groups to review and advise on cooperative on highly experienced senior-level staff previously involved in investment proposals. Such proposals will be subject to technical review by the provincial PMO. Bank projects. Technical expertise of the provincial PMOs in The Bank will also conduct a prior review of the first batch of proposals. County PMOs will guide agriculture and rural sector economic issues is strong. Capacity the cooperatives to amend the investment proposals. The cooperatives will implement the proposal to manage and coordinate an innovative decentralized project is upon approval from the county technical leading groups. The Bank will post-review the investment also reasonably strong. County PMOs, with some exceptions, proposals of other cooperatives during implementation. have no previous Bank experience and implementation capacity is generally weak, especially in view of the project’s complexity and multi-stakeholder nature. Because county level decisions are generally guided by local government development plans, project Resp: Stage: Due Date : Status: implementation may be diverted to achieve the government’s Bank/ PMO Implementation Continuous Ongoing quantitative output targets rather than promoting the institutional innovations envisaged by the project. Combined with weak capacity, this poses a substantial risk to the project. Governance Rating: Moderate Description: Risk Management: 49 Provincial project leading group are in place in each project Bank implementation support missions will monitor effective functioning of the governance province to guide implementation. Provincial strategies and structure for the project and address any issues with provincial leaders. FM and procurement programs are in place and funded, and decision making implementation support will help to ensure that the project is implemented in compliance with responsibilities within the government system are clearly fiduciary obligations. defined. The provincial FCMPCs will coordinate line agencies Resp: Stage: Due Date : Status: and PMOs at different levels and help ensure compliance with Bank / IPRCC/ PMOs Implementation Continuous Ongoing Bank and Government financial management, procurement and other provisions and regulations, as documented in the PIM. Project Risks Design Rating: Substantial Description: Risk Management: The project design is complex and involves the establishment of Agreed principles and procedures to establish project cooperatives are listed in the PIM. The project new cooperatives or the improvement of existing cooperatives as requires cooperatives to prepare standard investment proposals and market analyses with support new economic institutions in rural areas that are envisaged as from qualified technical advisory groups. These proposals will then be subjected to county and self-standing entities with equitable participation opportunities provincial level PMOs and World Bank technical reviews (prior or post reviews). Clear guidelines and benefit sharing arrangements for local farm households for the participating of existing cooperatives (especially cooperatives dominated by large situated between government and the agro-enterprise sector. households) have been developed to avoid value capture. Existing (enterprise) cooperatives can Local governments could dominate the process of cooperative participate can receive grant support based on an investment cost sharing approach. Intensive Bank establishment, promoting investments into products to meet local supervision and implementation support is envisaged for the first years of implementation to focus government targets but for which markets do not exist and the is on creating an understanding of the different roles and responsibilities of the various actors in the little economic or financial rationale. Existing cooperatives that value chain: local governments, cooperatives, and enterprises. Bank supervision will also closely are dominated by elite households may capture project support monitor the implementation of benefit sharing within cooperatives. The PMOs and the Bank will and thereby reduce participation opportunities for poor continuously monitor performance of newly established cooperatives and review capacity building households. Proposed value chain investments may fail to and other support needs. generate the economic returns expected affecting the sustainability of cooperatives. Resp: Stage: Due Date : Status: Bank and PMOs Implementation Continuously Ongoing Social & Environmental Rating: Moderate Description : Risk Management : Environment: The EA has identified potentially negative impacts The Bank, IPRCC, and the provincial PMOs will provide close supervision and support during for on the environment through project investments, if not managed the implementation of the safeguards instruments of the project. The EMP will help minimizes any properly. negative environmental impacts from project investments. An EMF will be applicable to all those investments that can only be finally determining during implementation as cooperatives are finalizing Social: There is a potential risk that transfers of agriculture land their investment plans. The project operates on the principle that households that become members are enforced to stimulate cooperative development and that such of cooperatives will manage their own land. Transfers of land between cooperative members would land transfers are not entirely market-based driven or voluntary. be possible if based on written contractual arrangements where land is transferred for a specified period of time. Land consolidation, especially land transfers from households to agro-enterprises will not be promoted or included in the project to avoid potentially unfair land tenure arrangements and negative impacts on poor households. The project’s PIM and RPF detail the principles of land resources management. Resp: Stage: Due Date : Status: Bank and PMOs Implementation Continuously Ongoing 50 Program & Donor Rating: Low Description : Risk Management: No donor participation is foreseen during implementation. No specific risks have been identified. Resp: Stage: Due Date : Status: Bank Implementation Continuous Ongoing Delivery Monitoring & Sustainability Rating: Substantial Description : Risk Management : An M&E framework has been developed that covers economic, Two independent project impact evaluations will be carried out by external consultants (under ToR institutional and social/ income aspects in a clear conceptual provided to the Bank for review) at mid-term and at project closing. The Bank would monitor the framework. Intermediate indicators with baselines and targets effective functioning of the M&E system on an on-going basis and initiate remedial action, as have also been formulated and included in the PIM. In addition, required a simple self-evaluation tool the cooperative METT has been introduced, to help the PMOs assess the performance of project Counterpart funding availability needs to be continuously monitored during implementation. cooperatives Counterpart funding shortages or delays in the provision of Resp: Stage: Due Date : Status: counterpart funds could negatively implementation progress and Bank / PMO Implementation Continuous Ongoing performance. Overall Implementation Risk Rating: Substantial The project seeks to introduce an innovative approach to agriculture sector restructuring, cooperative development, and integration of poor households into modern commercialized activities in remote poverty areas with poor resource endowments. The relative complexity of the design and the relatively low capacity of the provincial PMOs are challenges during project implementation. Project implementation will be guided by a detailed Project Implementation Manual. Successful implementation will depend on the PMOs commitment to the project’s innovative approach. 51 Annex 5: Implementation Support Plan China: Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project 1. The Project will require extensive implementation support and continuous dialogue with the client at national, provincial, county and cooperative levels. It is expected that the early implementation phase, in particular, will face some significant start-up and support challenges that will require close and frequent Bank implementation support and guidance: a. Achieving the demonstration and learning objective. Achievement of the project’s demonstration and learning objective will depend on an implementation support strategy that combines dialogue, partnership, and hands-on implementation guidance in the field. Continuous interaction with all stakeholders will require consistency in the composition of the core team, technical expertise, and, critically important, country knowledge and familiarity with the provincial, country and local situations. b. Changing perceptions of local government offices. The process of preparing business oriented investment proposals for cooperatives and defining their specific content poses significant challenges to the stakeholders at local levels. Local governments are inclined to use the project to continue pursuing past government-driven strategies with limited business and market orientation, limited focus on the poor, and neglect issues of private sector participation and equitable organizational arrangements. The team will allocate significant time and resources to interact with county governments and leaders to help change perceptions, with a particular focus on community-based approaches and the needs of ethnic minority communities, women, and other vulnerable groups. c. Technical review of cooperative investment proposals. The first set of cooperative-level investment plans will need careful technical review as well as review of the business aspects and financial viability, as well as attention to the PDO. For subsequent proposals later during implementation, technical and economic post-reviews will be necessary. Sufficient staff time for an experienced agricultural economist and/or agri-business expert will be provided. d. Capacity building of the implementation agencies. Significant training and hands-on support will be required on a technical level and in terms of fiduciary management. e. Monitoring, evaluation, learning. Coordination of M&E and capturing of project outcomes and results will need professional guidance from a monitoring expert in the team. f. Financial Management and procurement. The proposed funds flow through various DAs and OAs brings challenges for financial management. The team will provide hands- on guidance in FM reviews and audit, and reporting procedures. Similarly, procurement activities will be spread widely among entities, types of procurement, and size of contracts, which will require intensive implementation support. g. Safeguards. M&E and mitigation of social risks requires experienced expertise in the team with a good understanding of the rural transformation process in China. Sufficient staff 52 time and resources will be provided to review site specific environmental management measures during the investment planning process for cooperatives. Implementation Support Plan 2. The implementation support Plan below describes Bank support for the implementation of risk mitigation measures and provide the technical advice necessary to facilitate achieving the PDO (linked to results/outcomes identified in the result framework). The plan also takes into account the requirements to meet the Bank’s fiduciary obligations. Time Focus Skills Needed Resource Partner Estimate Role First General. Assure that all PMOs are familiar with the project TTL, US$ twelve approach and that the PIM is being followed. 100,000 Agricultural months Familiarize the PMOs with all relevant administrative and Economist operational aspects of project implementation. Provide consistent and on-going support on operational and Social technical implementation issues. Development/ Technical. Review and comment on investment proposals. Institutional Specialist Procurement. Provide training to PMO staff; review procurement documents and provide timely feedback; Agro-business provide detailed guidance on Bank Procurement Guidelines; monitor procurement progress against the detailed Procurement Procurement Plan; and (e) conduct procurement post review assessments once a year. FMS Financial Management. Provide training to PMO staff; assess the project’s FM system, including but not limited to, Environmental accounting, reporting and internal controls; Review the Safeguards project’s FM reports on a regular basis; and review annual audit reports. Social Safeguards Social Development/ Institutional Development: Ensure attention and support PMOs in the establishment of equitable, transparent cooperative arrangements. Environment and Social Safeguards. Ensure that the related safeguard documents are well understood and the provisions are implemented. 12-48 General. Review and understand all implementation TTL, US$ 90,000 months processes and remove implementation obstacles. per year Agricultural Refine and revise PIM as needed. Move focus towards Economist dialogue and capturing lessons. Prepare for mid-term review. Technical. Visit on-going project investments and provide Social feedback; continue prior and/or post review of Investment Development/ Proposals and provide comments. Institutional Social Development/ Institutional Development: Ensure Specialist attention and support PMOs in the establishment of equitable, transparent cooperative arrangements and monitor benefit Agri-business sharing arrangements and poverty impact. Procurement Procurement. Review procurement documents and providing timely feedback; monitor procurement progress against FMS Procurement Plan; conduct procurement post reviews at least once a year. Environmental Financial Management. Implementation support will Safeguards include: (a) review the implementation of Project’s FM system, including but not limited to, accounting, reporting Social Safeguards and internal controls; (b) reviewing the project’s financial 53 management reports on a regular basis; and (c) reviewing the annual audit reports. Environment and Social Safeguards. Review environmental and social impact. 48-60 General. Understand failure and success parameters in close TTL, US$ 90,000 months dialogue with the implementing agencies. Facilitate exchange per year among counties and cooperatives to learn from each other. Agricultural Prepare detailed learning and analysis framework and prepare Economist for end-project evaluation. Social Technical. Visit on-going project investments and provide Development/ feedback. Support technical and financial analysis of project Institutional investments. Post review Investment Proposals and provide Specialist comments. Social Development/ Institutional Development: Ensure Agri-business attention and support PMOs in the establishment of equitable, transparent cooperative arrangements and monitor benefit Procurement sharing arrangements and poverty impact. Procurement. Review procurement documents and providing FMS timely feedback; monitor procurement progress against Procurement Plan; conduct procurement post review at least Environmental once a year. Safeguards Financial Management. Review implementation of the Social Safeguards project’s FM system, including but not limited to, accounting, reporting and internal controls; review the project’s FM reports on a regular basis; review annual audit reports. Environment and Social Safeguards. Review environmental and social impact and extract lessons. Provide guidance to the social and environmental impact assessment. I. Skill Mix ` Skills Needed Number of Staff Weeks Number of Trips Comments Task Team Leader 12 SWs annually Two per year, three in first Country office or year headquarter based Social Development / 6 SWs annually Fields trips as required. Consultant Institutional Specialist Social Specialist 3 SWs annually Fields trips as required. Country office based Environment Specialist 3 SWs annually Fields trips as required. Country office based Procurement Specialist 3 SWs annually Two per year Country office based Financial Management 3 SWs annually Two per year Country office based Specialist Monitoring and Evaluation 3 SWs annually Two per year, three in first Consultant Specialist year Agricultural Economist, 6 SWs annually Two per year, three in first Consultant year. Agri-Business Specialist 10 SWs annually Two per year, three in first Consultant (national, if year. available) 54 Annex 6. Project Financial and Economic Analysis Poverty Alleviation and Agriculture-based Industry Pilot and Demonstration in Poor Areas Project I. Introduction and overview of the analysis 1. A financial and economic analysis of the project was undertaken to answer the following questions related to the project’s design and expected development outcomes: • What are the financial arrangements for loan repayment and provision of government counterpart funds? An analysis of the loan repayment obligations and the counterpart funding needs and availability was conducted as part of appraisal to assess the likelihood of timely availability of such counterpart funds. • What is the project’s expected economic development impact? A standard cost-benefit analysis of various value chain production systems in the project areas was carried out to to assess the project’s economic impact. • Is public funding needed and what levels of financing are appropriate? The analysis identified market failures that prevent private farms and businesses to invest in remote and poor areas in the project provinces. It analyzed how market failures can be addressed through the project and what types of public interventions are needed. • What is the World Bank’s value added in the project? The analysis identified the value added derived from Bank experience, and the commitment of Bank staff time needed to for effective implementation support. II. Financial analysis: repayment and domestic counterpart funding obligations 2. Repayment obligations. Funding sources for the project include the IBRD loan and government counterpart funds. The Loan Agreement will be signed between the World Bank and MOF. On-lending agreements will be signed by MOF and the provincial governments of Gansu, Sichuan and Guizhou, which will be the final debtors and responsible for repayment of IBRD loan funds. The loan proceeds will flow from the Bank into Designed Accounts (DA) to be set up at and managed by the respective Provincial Finance Bureaus. Advances from the DAs will be made into the Operating Accounts (OAs) managed by local finance bureaus at the prefecture/municipal and county levels. Each OA will be maintained in RMB with a pre-defined ceiling documented in the Disbursement Letter. Transfers/payments will be made to county PMOs, project farmer cooperatives, or contractors based on funding requests (also referred to as withdrawal applications) submitted by county PMOs. The funding requests will be supported by contractor and supplier invoices and other necessary documents processed by county PMOs. 3. Counterpart funds. The Bank team conducted a financial analysis during preparation to assess the timely availability of counterpart funds. Counterpart funds will be provided from national and provincial fiscal budgets that are earmarked for poverty alleviation programs. Project counties will not be required to provide any counterpart funds from their own fiscal revenue in addition to those funds appropriated by the national and provincial governments. This arrangement will significantly decrease the fiscal burden of poor counties and likely contribute to the timely availability of such funds for project implementation. According to current national 55 regulations, earmarked poverty alleviation funds are expected to increase annually by 20 percent. Nationally designated poor counties may qualify for additional subsidies for poverty reduction. Earmarked counterpart funds will be managed by the Provincial and County Finance Bureaus and appropriated in two tranches: approximately 70 to 80 percent will be available by April of each year while the remaining funds would be made available during the second half of the year. 4. The comparison between allocated earmarked counterpart funds for 2014 (actual) and 2015 (budgeted) showed that the counterpart funds required by the project account for only 18 percent, 17 percent, and 7 percent of all poverty reduction funds in Sichuan, Guizhou and Gansu, respectively. To confirm the availability of such funds for the project, commitments have been received from the provinces that confirm that the allocation of counterpart funds will be made to the project on a priority basis. The three provinces have provided annual counterpart fund budgets which have been approved by the Provincial Finance Bureaus. Annual project implementation plans, including budgets and funding sources, will be prepared by the county PMOs based on the annual work programs implemented by county PMOs and cooperatives. County Finance Bureaus will review such annual budgets and release funds based on actual implementation progress. Budget variance analysis will be conducted regularly to enable timely corrective action, if needed. III. Expected development impact Project Benefits 5. Direct benefits expected from the project include: improved productivity, value-addition, and new market opportunities, resulting in increased incomes and employment opportunities. These benefits will result from: (a) the adoption of new production standards and technology packages, leading to increased output and increased factor productivity; (b) reduced post-harvest losses; (c) improved produce processing and/ or packaging; (d) better access to services, markets, and information; (e) reduced transaction costs; (f) improved product quality and producer (farm- gate) prices; (g) higher production values through market differentiation (e.g., through product certification, brand naming etc.), and (g) advantages from economies of scale. 6. Indirect benefits expected from the establishment and support to farmer cooperatives under the project include: (a) strengthening of capacity and the organizational level of producers and marketing groups; (b) improving quality and reducing the costs of forward and backward linkages of farmers to markets and higher-up value chain operators; (c) local cooperatives managing their physical infrastructure investments in a sustainable way; (d) public and private sector operators delivering quality services in a more efficient and targeted way; and (e) new models of cooperatives and enterprises working together. In addition, the project is expected to provide important lessons from implementation on the role of agriculture for poverty reduction and on how to improving the policy and implementation framework with respect to improved outreach and inclusiveness of agro-investments for poverty reduction. Quantification of Project Benefits 7. Crop and household activity models. The county-specific key value chains and types of agricultural investment activities that will be supported under the project areas have been identified and assessed during project preparation. Detailed site-specific investment activities and the scale 56 of local investments are subject to further refinement in investment plans to be prepared by project cooperatives during implementation. The analysis has therefore calculated the financial and economic viability of a range of typical farming activities for the identified value chains on a household or per hectare basis. These unit models take into account the ‘with’ and ‘without’ project situations and are scaled-up to the likely total scale of each value chain under the project. The models analyzed in the financial and economic analysis include: fruit trees, nut trees, poultry, goats, cattle, tea, virus-free potato seed production, Tian Ma (an annual Chinese herb), Dendrobium orchid (a perennial Chinese herb), and rural tourism. For these activities cash flow calculation were prepared over a period of 10 years for livestock and tourism, and over a period of 20 years for tree crops and tea production. Economic and fruit trees are usually inter-cropped with an annual crop during the first years after establishment. This is reflected in the cash flow models for plantations. 8. Prices. Farm-gate prices are used for all traded input and output prices. The current stage of trade liberalization in China does not suggest significant price distortion. For rural labor, the daily rate of RMB 60 is used as a financial labor cost. Based on historic trends showing a continuing increase of rural labor costs, the current rate of RMB 60 is expected to increase to RMB 110 over the next 10 years. This increase is considered in the cash flow calculations. However, despite a continuing reduction in the availability of rural surplus labor, there is still some level of rural unemployment for those who do not have enough mobility and opportunities for labor migration. To account for the lower economic opportunity costs for labor in rural areas, financial labor costs are converted by a factor of 0.8. 9. Other project investment costs. No separate benefits are calculated for project investments in public infrastructure, institutional capacity building and project management and evaluation. These investments are added as costs to the aggregated cash flow from production models. It is assumed that these investments will generate benefits mainly at the household and cooperative levels. However, there will likely be spill-over effects as production roads, tractor roads and field tracks will benefit other non-project farmers and users, and institutional capacity building will have a wider impact beyond the project. The economic benefit calculation is therefore considered conservative and overall project benefits are likely higher than estimated. Results 10. Financial returns of cropping and household activity models. Most of the crop and household activity models show good financial returns and provide attractive income opportunities for the poor farmers in project areas. The only exception is walnut tree plantation with the lowest returns (FIRR 6.1 percent). Walnuts are promoted by many local governments, since they are relatively easy to grow and provide an alternative use on steep slope-land which under Chinese regulations cannot be used for annual cropping. Fresh nuts are often not competitive and processors, if available at all, offer often low prices to farmers. 11. Implications for long-term household farm income. The analysis indicates that improvements in productivity, new organizational arrangements, better market access and a switch to higher value crops and activities can significantly increase household income. However, in the longer term, limited land resources in the project areas may not allow farm households that depend on land-based production activities to earn an income comparable to those in the non-farm sector. 57 For most of the land based activities (except for tea), a land area of 1.5 to 2 hectares would likely be necessary to achieve per capita income levels of RMB 8,000 to 10,000 per year. As a consequence, only 20 to 30 percent of the current rural population may be able to achieve higher incomes through farming in the project areas. Project learning and research activities under Component 3 during implementation will include analyses of agriculture’s longer-term role in poverty reduction and the implications for LGOPAD’s Development-oriented Poverty Reduction Strategy implementation. The detailed results are shown in Table 6. Table 6: Economic and Financial Analyses Results Activity Financial Rate of NPV (OCC 10%) Comments Return RMB Orange plantation 14.1% 33,110 (per ha) The calculation is based on walnuts (most common nut tree in the areas), Nut tree plantation 6.1% -13,174 slow building up of production and (per ha) difficulties in marketing, which make this investment relatively uncompetitive Poultry production 30.3% 37,179 (household unit) Goat production 31.7% 38,519 (household unit) Cattle production 29.9% 17,300 (household unit) Tea plantation 32.7% 353,899 (per hectare) Rural tourism 38.8% 51,877 (household unit) Activity is relatively labor intensive, Dendrobium orchid 15.8% 11,797 and increasing labor costs reduce the (per hectare) rate of return. Without labor costs the IRR is 44.9%. Seed Potato This is an annual cropping activity with an annual net return per hectare of RMB 5,200. Rate of return calculation is not applicable. Tian Ma This is an annual cropping activity with an annual net return per hectare of RMB (per hectare) 3,400. Rate of return calculation is not applicable. 12. Internal Rate of Return (IRR). The aggregated economic cash flow of the project, including all supporting investments, shows an Economic Internal Rate of Return (EIRR) of 17.3 percent and an economic NPV (OCC 10 percent) of RMB 721 million. The Financial Internal Rate of Return (FIRR) of the project, using agricultural labor costs at market value, is 7.7 percent. Details of the analysis and cash flow tables are in the project files. 13. Sensitivity analysis. The economic return is not very sensitive to increases in the project investment costs. A cost increase of 10 percent would reduce the EIRR by 1.6 percent points and a cost increase of 20 percent would reduce the EIRR by 3.1 percent points. The project’s economic viability, however, is sensitive to changes in the agricultural product prices. For example, if all output prices would drop by 10 percent the EIRR would drop from 17.3 percent to 11.3 percent. 58 IV. Justification of public funding and levels of financing support Public Funding to Overcome Market Failures 14. The proposed project provides public funds to help identify and address market failures faced by poor smallholder farmers in the project areas, including the following: a. Temporary barriers to entry, such as high transactions costs, can prevent the aggregation of scattered household-level production or the achievement of uniform quality standards in smallholder agriculture for high value markets. Smallholder farmers may require certification and support to guarantee that each individual producer meets the required production standards to access the market. Project funding support is used to invest in product certification, product quality assurance, brand naming and the protection of product standards and quality to help smallholders to access such markets. b. Weak organizational structures can pose obstacles to smallholders to participate effectively in agricultural value chains. The project will support cooperative grants to allow farmers to organize themselves in modern cooperative institutional arrangements to aggregate and coordinate production, provide services and access to market information, and make themselves attractive partners in value chains. c. Investment in primary production and processing require careful coordination. Project support will be provided to cooperatives to better link primary producers and private sector investors, when both parties need to invest in a phased and coordinated manner to establish an efficient value chain. For example, start-up investments in tree crop establishment at the household level are required (and supported by the project) to generate sufficient production volume to attract investments into downstream processing and marketing for value creation. d. Access to knowledge about new technologies and institutional structures require strengthening. The project will support the partnering of farmers with investors and enterprises to promote the delivery of knowledge and innovation through private sector partners. Unlike in public extension systems, which are often supply drive, private sector and demand-driven technological innovation is often more relevant as it is directly market and business related. 15. Avoiding Market Distortions through Public Investment. A difficult aspect of managing public investment in private production is to determine how much public funding is required and in what areas to overcome particular market failures. If funds are too small, market failure may not be overcome and the objective of the public funding would not be met. If funding is too much or used in a wrong way, public support can create new and unintended distortions. 16. Over the past decades, many project counties have supported key commodities both at the production side and in processing and marketing through public funds. This was often done irrespective of the relative competitiveness and market demand and has often led to market distortions and a continuing dependency of producers on public funds. A more careful approach to public funding is needed, moving away from subsidizing non-competitive industry towards public funding aimed to achieve competiveness. The project therefore directs support towards creating sustainable organizational and institutional settings and towards addressing identified real 59 market failures. This will allow the private sector and markets to work more effectively and increase long-term competitiveness with an exit strategy from the provision of public subsidies. 17. Additionality Principle. The allocation of public funding to private entities, such as cooperatives, to support private economic investment is justified if additional positive net economic returns and externalities are generated through these funds. To approach this problem, the project distinguishes between four types of investments as illustrated in Figure 1 4. 18. Investments that fall into quadrants A and C would be ‘undesirable’ under the project as the expected net benefits to society are negative. Private investors may invest in activities in Quadrant A because these investments can generate profits. However, because social and environmental costs are externalized, such investments proposals are not suitable for project support. Investments in quadrant C are not profitable for the private investors and have negative net-returns for the society. These will also not be funded by the project. Investments in quadrant B are profitable and receive investments from the private sector and there is no need for public financial support. Investments in quadrant D, however, will not be funded by the private sector, because they are not profitable. Public investment may be justified as these have positive net benefits for society. However, it would not be appropriate for the project to pay for the full value of all public goods generated by the proposed sub-project investment. The level of public funding should only be high enough to change investment decisions by the potential investor. In Figure 2 this is shown by the gap represented by b, and not the positive economic returns shown by a. In other words, the project will not pay for the public good itself, but for the incentive needed to trigger an investment, which has an economic net return above an agreed benchmark of 12 percent. 19. This approach will require that cooperative investment plans will need an economic and a financial analysis in the form of a realistic cash flow forecast. These analyses have to be done as part of a business plan formulation for each value chain investment and will be reviewed by county level appraisal teams. Economic analysis will help determine whether an investment falls into 4 The coordinates refer to positive or negative NPVs, which could relate to different opportunity costs of capital. 60 categories B and D. The financial analysis will show whether public funds are required and help determine the level of public funds needed. Both types of analysis will be demanding for local level stakeholders and will need support from skilled agricultural economists and/or agri-business experts who should be selected from the provincial and county PMOs. V. World Bank value-added 20. The Bank’s value added in this project is in the following areas: (a) helping to understand the roles of stakeholders and the rationale for using public funds in value chain investments; (b) optimizing the use of funds without distorting markets; (c) ensuring sustainability; and (d) maximizing effectiveness by taking a macro view under the project. 21. Understanding the role of stakeholders. Bank involvement will be instrumental in helping to better define the role of stakeholders in promoting the integration of poor small-holder farmers into competitive agricultural value chains. The private sector is expected to be efficient and effective in bringing about market-driven technical and institutional innovation, the diffusion of new technologies, the development of new products and production opportunities, and access to national and international markets. The government’s role remains important for providing: (a) a conducive business environment, public services, and a regulatory system and enforcement capacity; and (b) the necessary physical public infrastructure. Innovative institutional and organizational models are required to allow stakeholders to interact more effectively while market incentives and linkages are required to generate investment opportunities with prospects for growth generation for the poor. The Bank has conducted a large amount of analytical work to understand the role of private businesses in becoming a key partner in development. The Bank has also accumulated significant expertise in agricultural value chain support, which will be critical during project implementation. 22. Optimizing the use of funds and long-term sustainability. Making the best use of public finance has two dimensions: (a) understanding what to finance and at what levels; and (b) ensuring that funds are used for the purpose intended. In both dimensions, the Bank will provide expertise and implementation support, including analytical expertise and expertise in fiduciary matters. For long-term sustainability, the project needs to ensure that investments: (a) achieve a sufficient outreach and coverage of the poor, including ethnic minorities and women; (b) involve fair benefit sharing between larger investors and small farmers; and (c) are based on sound business planning ensuring that the financial returns are sufficient and sustainable. The project design gives due consideration to all of these aspects. The Bank is expected to have sufficient leverage to address all of the above sustainability dimensions. The project provides support at the micro-investment level as well as serves as a platform for investment environment analysis and policy dialogue with IPRCC as the national level leading agency of the project. 61 Annex 7. Map of Project Areas CHN41647 62 CHINA POVERTY ALLEVIATION AND AGRICULTURE-BASED INDUSTRY PILOT AND DEMONSTRATION IN POOR AREAS PROJECT PROJECT COUNTIES SELECTED CITIES AND TOWNS PROJECT PREFECTURES PROVINCE CAPITALS COUNTY BOUNDARIES HIGHWAYS PREFECTURE BOUNDARIES MAIN ROADS PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES 95°E 100°E 105°E 110°E MONGOLIA X INJ IA N G 0 100 200 Kilometers 40°N Anxi N EI MONG OL Dunhuang Yumen Jiayuguan 40°N Zhangye Jinchang YINCHUAN GANSU Wuwei Wuwei Gulang NINGXIA XINING Huan Q I N G H AI Huachi LANZHOU Qingyang Heshui Yongjing 35°N Dongxiang Linxia Anding Pingliang Lintao Linxia Hui Jingning Zhengning Dingxi Zhuanglang Pingliang Tongwei Weiyuan Longxi 35°N Longxi Zhangjiachuan Tianshui S HAANXI Minxian Min Tianshui XI’AN Guangyuan SICHUAN Mianyang Langzhong XIZA ANNG Danba Deyang Nanchong 30°N CHENGDU Suining 95°E 30°N Yaan CHONGQING Leshan Neijiang RUSSIAN FEDERATION Fulin CHONGQING Luzhou HEILONGJIANG Yibin Chishui Meigu Xishui Tongzi MONGOLIA Xuyong L Liangshan Yi O G JILIN Zunyi N Zhaojue Luzhou O Xichang Gulin M Jingyang Zunyi LIAONING Butuo Tongren DEM. PEOPLE’S BEIJING REP. OF KOREA I Beijing Bijie N E TIANJIN Dafang SHANXI HEBEI REP. OF KOREA Bijie GUIZHOU NINGXIA SHANDONG Yellow Panzhihua QINGHAI Sea Zhijin GANSU Lupanshui HENAN JIANGSU SHAANXI GUIYANG ANHUI SHANGHAI Anshun HUBEI XIZANG SICHUAN CHONGQING East ZHEJIANG China YUNNAN HUNAN JIANGXI Sea GUIZHOU FUJIAN KUNMING 25°N 25°N TAIWAN YUNNAN Xingyi GUANGXI GUANGDONG HONG KONG, SAR This map was produced by the Map Design Unit of The World Bank. MYANMAR MACAO, SAR The boundaries, colors, denominations and any other information GUANGXI IBRD 41647 VIETNAM LAO shown on this map do not imply, on the part of The World Bank MAY 2015 PEOPLE’S GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any HAINAN endorsement or acceptance of such boundaries. 105°E THAILAND DEM. REP. PHILIPPINES