JAPAN SOCIAL DEVELOPMENT FUND - GRANT PROPOSAL FY10 ROUND 30 A. Basic Information A.1 Beneficiary Country Lao People's Democratic Republic A.2 Grant Recipient Ministry of Industry and Commerce, Government of Lao PDR A.3 Name and Address of Implementing Agency National Implementation Unit, Ministry of Industry and Commerce, P.O. Box 4107, Phonexay Road, Saysettha District, Vientiane Capital, Lao PDR A.4 Is the Implementing Agency a Government Joint implementation by government and NGO(s) entity? #(in case of joint implementation by government and NGO(s), please provide details on the legal status of each agency under Grant Implementation Arrangements below) A.5 Administrator International Development Association A.6 Grant Name ROUND 30: Sustainable Silk Production Partnership in Rural Lao PDR A.7 Grant Amount in USD (includes incremental 2,033,200 Bank costs) A.8 Does this grant proposal qualify for the No special allocation for Africa? B. Grant Development Objectives The objective of the proposed grant would be to pilot an innovative model establishing silk production partnerships that will link rural communities to markets and therefore provide diversified income-generating opportunities to an estimated 1,200 disadvantaged households. C. Eligible Expenditures List all applicable eligible expenditures below in one or more categories as necessary. Eligible expenditures include consultant services (including audits), local training and workshops, small civil works, goods, sub-grants and incremental Bank costs. Category Amount (US. Dollars) Percentage of Percentage of Grant Expenditures to be Amount Financed GOODS 654,200 100% 32% CONSULTING 375,200 100% 18% OPERATING COSTS 76,800 100% 4% TRAINING 770,000 100% 38% Total Grant to Recipient 1,876,200 Incremental Bank Cost 157,000 8% Total Grant Amount 2,033,200 1 Grant Supplementary Information Section 1 - Administrative Information Trust Fund No. (For CFPTO Use Only) TF098229 Resubmission No JSDF Grant Type Project Sector Code Economic Policy Grant Approval Date (For CFPTO Use Only) 00000000 Task Team Leader Mr Richard James Lowden Record TTL Email rrecord@worldbank.org TTL Phone Number 455-784+ Was a JSDF Seed Fund used to prepare this n/a grant? If so, please indicate the TF number. Section 2 - Details of the JSDF Grant Section 2.1 - Grant Components and Activities Briefly describe the specific activities (limit 300 words) to be carried out under each component Component 1 FORMATION OF RURAL SILK PRODUCTION PARTNERSHIP GROUPS Cost (USD) 641,000 This component will provide technical assistance and training in order to facilitate the establishment of a series of production partnership groups that will link the targeted 1,200 farming households, with up to 10 lead silk textiles weaving firms. BACKGROUND AND RATIONALE Lao PDR has a successful hand-woven silk textiles sector that reflects the strong tradition of weaving, and makes Lao products unique in the global market place. Lao firms and non-profit organizations are successfully exporting to a number of premium international markets. However, it is estimated that 80-90% of the silk yarn, for making Lao textiles, comes from Vietnam, China or Thailand. The key constraints to additional silk export production, at this stage of the development of the Lao silk industry, are related to the supply of good quality silk yarn. The current sale price for raw silk yarn varies from around $ 24 to 29 per kg (silk cocoons sell for between $ 2.1 to 2.6 per kg). The production of more yarn is constrained at the farm level by: cost effective investments in modern systems of production; better knowledge of inputs at critical points in the value chain; and from the supply of high quality eggs. Silk represents a tiny percentage of the global textile fibre market, but it is a premium agricultural commodity with a unit price roughly twenty times that of raw cotton. Lao domestic production of between 20 and 30 tons per annum compares with a total volume of 1,550 in Thailand and 12,000 tons in Vietnam. Given the similarities of the geographical and climatic conditions with Thailand and Vietnam, the production potential in Laos is enormous. One of the aims of this project is to add a further 30 tons to the annual production of silk yarn in Laos in the next four years. The international demand for Lao textiles is very good, but currently the bulk of production is focusing on the lower end of the market. Part of the reason for this is the inadequate supply of local high quality silk yarn at an affordable price. In short, there is a supply constraint. Almost any quantity of local silk yarn can be produced and sold. Marketing is not a serious bottleneck; production is. Greater production of the basic raw material for this industry will increase its capacity to produce more for the export market. Lao silk weavers are also finding it increasingly difficult to market their products as being "Lao", when the raw material is imported. Thus there is a strong economic incentive to produce 100 percent Lao silk products using locally produced silk, and hence a strong incentive for firms to engage with farms to boost the domestic production of silk yarn within Laos. The project logic - informed by various analytical and value chain studies, including the government's National Silk 2 Handicrafts Strategy - is as follows: silk makes up the largest segment of the handicraft sector, exports can grow by increasing the quantity and quality of silk yarn; to increase silk yarn more farmers need to be brought into the production system; rearing silk worms productively to the cocoon stage requires extension; this extension capacity exists mainly in the private sector; the private sector is constrained primarily by their ability to train and support more farmers. This project will address the constraints faced by farmers to generate sustainable livelihoods through the promotion of additional and sustainable silk production. 1.1 NATIONAL COORDINATION AND TECHNICAL ASSISTANCE TO PRODUCTION PARTNERSHIPS The purpose of this project sub-component is to link the main target group for this project, the primary producers of the silk cocoons (i.e. rural farmers), with the intermediaries that are essential to support these farmers via a series of production partnerships. The process would be facilitated by staff of the Department of Trade Promotion and Product Development, and Provincial Industry and Commerce Offices, with the support of project-financed international and national specialists in rural livelihoods and market linkages. Staff of the Lao Handicrafts Association will also play an important role in reaching out to farmer groups and potential lead firms. This is an essential part of the project and involves providing farming households with sufficient knowledge, capacity and organization to enter into production partnerships on an equitable basis. An institutional capacity building package will also be provided to upgrade the capacity of the LHA and improve business planning and service delivery. Key to the sustainability of the model is the linking of farmers to intermediaries with whom production partnerships can be established. These are the support businesses and organizations needed to provide knowhow and markets to the farmers so that their production levels are high enough and of adequate quality. The main categories of intermediaries for this project are "lead firms", who use a form of contract farming to support farmers with fixed and variable inputs, husbandry advice and the market for their finished products. Lead firms are typically incorporated into private sector development value chain projects as they often supply critical productivity-enhancing services to the target group as a part of their core transactions with the target group. The use of lead firms is sometimes called Public Private Partnerships or Inclusive Development. There is a strong incentive for lead firms to enter into production partnerships as a way of ensuring the long term supply of domestically produced silk yarn, this is essential for the long development of a wholly Lao silk products value chain. Lead firms will be invited to express interest in forming production partnerships. Detailed evaluation criteria will be determined during project start-up, but would be likely to include measures of social commitment and willingness to engage fairly with farmers, willingness to engage in disconnected locations, depth of existing supply chain networks, financial capacity for co-investment, managerial and human resources, reputations, and inclusiveness. Essentially interested lead firms would be invited to submit proposals through a competitive process outlining the number of farmers with which they wish to establish partnerships, the investment that they are prepared to make, the model with which they wish to operate (i.e. what the lead firm would provide, what farmers would provide, and what the project would provide), and locality in which they would like to establish the production partnership, and (most importantly) the estimated impact on livelihoods and social welfare arising from the establishment of the production partnerships. Expressions of interest would need to include clear and transparent criteria for the identification and selection of farmers. Lead firms may choose to invite non-project organizations to partner during this process. At least four of these lead firms are already in existence, and are currently operating on a small scale in the Lao PDR, and have expressed interest in making the necessary investments required to take part in this project. It is envisaged that as many as ten such lead firms might be able to participate. These lead firms may prefer to operate in different parts of the country and also with different development strategies. However, priority would be given to proposals by lead firms to establish production partnerships in locations where disadvantaged communities are most isolated and disconnected from the modern economy. Given the suitability of silk farming to mountainous rural areas, this is a natural fit. Some lead firms will encourage the production of the traditional varieties of silk worms while others favor hybrids with eggs imported from Thailand. This project will not try to influence these decisions as they are based on the markets to which these firms are catering. Rather, the project will try to facilitate the establishment of partnerships between rural community groups with lead firms, and provide the resources (investments, training and know-how) to ensure that farmers are able to generate sustainably livelihoods from the production partnerships. 1.2 TRAINING AND OUTREACH TO ESTABLISH RURAL SILK PRODUCTION PARTNERSHIP GROUPS The purpose of this sub-component is to formally establish the production partnerships between farmers and lead firms. Production partnerships will be formed and brokered through a mutual process. The production cycle can only be sustained if both parties (household and lead firm) are willing and committed participants. Based on the competitive lead firm selection process undertaken in sub-component 1.1, the project would work closely with each lead firm to prepare an 3 "Inclusive Business Plan" detailing the intended mode of operations for the production partnership, expected outcomes, and principles under which the partnership will be managed. Experience suggests that the preparation of an inclusive business plan is essential in order to ensure that firms take full account of household risks, capacities and needs beyond the pure economic exchange. A start-up training package will be provided to support this process. It is likely that lead firms will be identified through a series of phases during the project, hence firms with lower capacity may benefit from visits to learn from already established production partnerships. At this stage, the project team will also prepare a communications strategy for engagement with farmers to introduce the partnership silk farming model. This will be a key part of efforts to reach out to all members of the target communities, and ensure equitable participation. The communications strategy will be sensitive to the differing needs of ethnic minorities, including the need to engage in languages other than Lao (and otherwise consistent with the indigenous peoples aspects of the project operations manual). The communications strategy will also be gender sensitive, reflecting the significant potential for household silk production to have strong positive gender outcomes. The next stage will be for lead firms to identify and establish partnerships with interested farmers. The target group of farmers are typically located in mountainous rural areas, disadvantaged and dislocated from market linkages in the areas where ethnic minorities are most likely to be located. Lead firms would take the primary role in identifying target areas for farmer identification, and the assistance would be provided by staff of the Department of Trade Promotion and Product Development and Provincial Industry and Commerce Offices (with the support of the project technical assistance team) to facilitate and broker this process. Local teams will also coordinate with Provincial Agriculture and Forestry Offices. Resources for a start-up training package for each identified farmer would be provided in order to introduce the concept of commercial silk farming, explain the costs and benefits, and gauge interest and commitment, and to ensure that households who make the decision to enter into silk production partnerships do so with full information and on a fair and competitive basis. It is anticipated production partnerships will be most successful, where lead firms engage with farmers around a given locality, thus providing opportunities for farmers to learn from each other, benefit from increased group bargaining power, and reducing the costs for lead firms to visit farmers during the production cycle. Model silk farms may be constructed to provide demonstrations for farmers as part of this process. The families should have access to a modest amount of land (1/3 to 1 hectare). Silk rearing is normally a family business suited to the multi-income life style of a rural farmer. The aim of this project would be to expand current land under mulberry by about 350 hectares over four years, giving sustainable employment to a further 1,200 families and supplying the market with an additional 30 tons of silk yarn. The estimated additional income for a family with a 2 to 6 rai holding (1/3 to 1 hectare) would be about $550 to $1,600 per annum, depending on the number of production cycles chosen. The major inputs (besides the land) that would be needed for a farmer, entering into the silk production sector in a modern way, would be: 3,500-4,000 mulberry saplings (typically Buriram 60) per 2 rai plot of land; fencing to protect this mulberry garden (sometimes barbed wire is used, some may use jatropha), a rearing shed of at least 20 m.sq. per sheet of 20,000 eggs, and the husbandry training needed to reduce the risk of disease and to increase quality and productivity. In some cases these inputs are supplemented by basic reeling equipment. One of the main constraints to establishment of such production partnerships is the availability of land. Fortunately mulberry grows well on relatively marginal land so expanding the 2 rai plot to 4 rai should not present much of a problem for most farmers. In such cases the fixed costs would increase somewhat but the income would double, yielding almost $1,200 per family. In the preparation of this proposal the SNV Netherlands Development Organization was approached to assess their willingness to make a contribution to the project's management. They have tentatively agreed to provide a long term foreign expert (of any nationality) on a 50-50 financing basis. SNV is an international NGO that delivers capacity development services to over 2,000 clients in 32 countries worldwide, with extensive experience of the "inclusive business" model through promoting the establishment of producer groups for rural farmers, and in establishing linkages between these groups and their respective markets. Monitorable Deliverables/Outputs (1) Approx. 1,200 families entering into commercial silk production and linked to markets through the establishment of production partnerships with lead firms. Component 2 INVESTMENT IN RURAL SILK PRODUCTION Cost (USD) 1,005,000 Under this component, a package of assets will be provided to farming households in disadvantaged areas in order to facilitate entry into commercial silk farming, along with on-going technical assistance, training and extension services in order to ensure that farmers are able to yield the highest possible returns on this investment. 4 2.1 DELIVERY OF ONGOING TRAINING PACKAGE TO RURAL SILK PRODUCTION PARTNERSHIP GROUPS A training package of up to $300 per farmer will be made available under the project to support capacity building, silk development and extension services for farmers in silk production partnerships. A key determinant of the long-term success of the production partnerships will be the economic returns accruing to the farmer through silk worm rearing. This will be determined primarily by the quality of silk cocoons produced. Thus it will be essential that farmers receive sufficient guidance on husbandry of silk worms. The exact modality of in-cycle training will depend on the nature of the inclusive business plan prepared by the lead firm. Thus it is expected that the model of training delivery will not be the same for all production partnerships, with resources prioritized towards the greatest need. Additional basic business training skills, for example in simple accounting and business negotiation might also be provided to build the capacity of farmers to manage their investments and assets, as part of efforts to ensure equal bargaining power between households and lead firms. 2.2 ASSET CREATION FOR PRODUCTION PARTNERSHIPS Under this sub-component, the project would provide farmers with some of the necessary physical assets required to start-up commercial silk production. Assuming a 2 rai (1/3 hectare) plot of land for mulberry, using hybrid eggs, the following inputs will be required for each farming household. Fixed costs will include mulberry saplings (est. 3,500 saplings for a total cost of $350), materials for construction of a rearing shed (est. $200), and materials for fencing (est. $200). The farmer would supply the plot of land, and the labor. Under the proposed project, the default model would be for the rearing shed and fencing materials to be provided directly to farmers by the project at full cost (purchased centrally), while the saplings would be provided by the project at a 25% subsidy. The lead firm would be expected to provide the remainder of the cost of saplings, as part of its contribution to the production partnership and to ensure commitment to working with a specific group of partner farmers. However, other models might be agreed upon based on different input shares from farmer groups and lead firms. Lead firms and the project technical staff would advise farmers on the establishment of mulberry gardens and construction of rearing sheds as part of the ongoing training package. While assets provided by the project will be essentially "granted" to the farmer, assets provided by the lead firms will be most commonly provided in the form of a loan, to be repaid gradually though purchases of silk cocoons. This acts as a strong motivating incentive to link the lead firm and farmer together into a long term partnership. BACKGROUND TO THE SILK PRODUCTION CYCLE Silk is made of proteins secreted in a fluid state by a silkworm. These silkworms feed on selected food plants and spin cocoons as a protective shell for their next life cycle stage. The life cycle of a silkworm spans about 50 days. It starts with an egg stage of about 10 days followed by a larval (silkworm) stage of about 25 to 30 days to end with a pupa stage of about 10 days. Humans intervene in this life cycle at the pupa stage in order to obtain the silk from the protective cocoon surrounding the pupa. Current estimates suggest that it takes an average of 10-12 months before mulberry saplings planted can yield a sufficient quantity of leaves to support full and sustained worm production. This complete cycle can be replicated in villages but, these days, a division of labor has been introduced which reduces the incidence of disease, raises productivity and improves the overall quality of the final product. There are variations in this process but the essential elements are as follows: silk eggs are produced in a controlled environment by professionals and laid out on flat sheets of paper in batches 18-22,000 eggs each; they are stored like this for some time; 3-4 days before the hatching is desired the eggs are dipped in a solution of H2SO4 or HCL for 2-3 minutes to remove the waxy coating on their shells; the eggs are then brought to villagers, just as they are hatching; the eggs are then reared by villagers in sheds which are protected from other animals and the elements; the larvae are fed, over a period of about 28 days, with mulberry leaves (between 5-700 kg. per 20,000 eggs) until the cocoons have been formed; the cocoons are then processed and the strands are reeled (sometimes in the village and sometimes in a more mechanized environment); this thread is then further processed (degummed) and spun to the desired count (typically 20-22 or 40-44 denier). Depending on the quality of the finished product, the yarn is then used for warp (if it is stronger) or weft in weaving silk products. In terms of variable costs, the eggs will be supplied to farmers by lead firms at the start of each production cycle. Farmers would contribute the labor necessary to feed and otherwise look after the silk worms during the 28-day cycle. The firm then buys the cocoons. Assuming 40 kg of cocoons per cycle, sold at an average price of $2.3 per kg, farmers would earn $92 in income for one cycle. With six cycles per year, an additional household income of $552 can be expected. The main limiting factor is the volume of mulberry leaves that the farmer can grow to support the silk larvae. With a larger plot size, farmers can earn increased income. Farmers may also choose to break down the cycle and only feed the silk worms for sections of the larvae stage (e.g. specializing in the first 10 days only, before selling worms on to another farmer). The project will be sufficiently flexible to allow farmers and lead firms to come to agreement on the most appropriate model in any given location. Thus farmers may engage with lead firms in production partnerships as individuals, or as groups of farmers. 5 The main contributions that will come from the farmers are in the form of their labor: land clearing for the mulberry garden, construction labor of the rearing shed, labor for the fencing, and of course cultivating the mulberry plantation and looking after the silk worms. The contributions from the lead firm will be in the form of a 75% grant or loan to the farmer for saplings, and advice during the establishment and ongoing commercial silk farming under the production partnership. The lead firm would also assume all of the variable costs of egg supply, and will purchase the cocoons produced at the end of the cycle. The core contribution of the JSDF will be to subsidize the full costs of materials for construction of rearing sheds and for fencing, and to subsidize 25% of the cost of saplings. A start-up training package of $150 per family will be provided, along with an ongoing training package of $300 per family (a key part of efforts to ensure that farmers have the capacity to engage effectively in the market). Monitorable Deliverables/Outputs (1) Provision of assets to approx. 1,200 farmers to start-up commercial silk production; (2) Delivery of ongoing training and extension service package to approx. 1,200 farmers Component 3 MONITORING AND EVALUATION, PROJECT MANAGEMENT AND ADMINISTRATION Cost (USD) 230,200 This component will provide for the collection of baseline data as well as periodic monitoring and evaluation to demonstrate results and allow for course corrections. 3.1 BASELINE AND FINAL HOUSEHOLD SURVEYS A baseline survey will assess household consumption and income in target populations, as well as assessing current values of silk production within Laos. An ex-post impact evaluation will assess the effectiveness of the project in supporting increased consumption and income in target households (compared to a control group not in a silk production partnership), together with measurements of overall increases in aggregate silk production and exports. Since silk farming is a household activity, gender sensitive indicators will be collected to measure the impact of increased income at the household level on women's economic empowerment. The baseline survey will thus provide important data into household accounting among target beneficiaries, and will need to be sensitive to differing practices among ethnic minorities. 3.2 KNOWLEDGE AND DISSEMINATION Knowledge dissemination events will be undertaken to raise awareness on the potential for silk production partnerships, as part of efforts to encourage sustainability of production partnerships beyond the lifetime of project financing. This will be a key part of efforts to see crowding in by new entrants (farmers and lead firms) into partnerships and scaling up of activities beyond those directly facilitated by the project. Events will also be undertaken to raise awareness of the project model and for shared learning across the JSDF portfolio. 3.3 PROJECT MANAGEMENT AND ADMINISTRATION The proposed project will fit into the existing government structure for management of trade-related assistance to the Lao PDR, namely the National Integrated Framework Governance Structure. There are several set of partners involved in this project. The core ownership of the project will be with the Ministry of Industry and Commerce's Department of Trade Promotion and Product Development, in cooperation with the Lao Handicrafts Association. The Ministry of Industry and Commerce - National Implementation Unit will provide core program management services (monitoring and evaluation, procurement, financial management as well as overall management) under the Trade Development Facility Project. Reporting will be via the existing structures: a TDF steering committee that meets twice per year, twice annual implementation progress reports, and quarterly interim financial reports - thus reducing transactions costs carried by the implementing agencies. The JSDF grant will be audited following the same procedures as existing TDF audits. Monitorable Deliverables/Outputs (1) Baseline survey, mid-term and final evaluations conducted and disseminated; (2) NIU, TPPD and LHA capacity built in project management, monitoring and evaluation Summary Description for Grant Agreement Grant financed activities are clustered into three components, as follows: (1) FORMATION OF RURAL SILK PRODUCTION PARTNERSHIP GROUPS This component will focus on establishing production partnership groups by linking rural farming communities in disadvantaged areas to silk textile weaving firms in a sustainable manner. Lead firms will be invited to submit proposals to 6 partner with disadvantaged rural communities, and will be provided with assistance in order to prepare "Inclusive Business Plans" to work in partnership with farmers. This process of identifying farmers and linking them to lead firms (to form production partnerships) will be brokered by a technical unit drawing upon the staff of the Department of Trade Promotion and Product Development, Provincial Industry and Commerce Offices and the Lao Handicrafts Association. An identification and start-up training package will be provided to farmers as part of efforts to sensitize them to the costs and benefits of entering commercial silk production, and (if farmers do decide to enter into silk production) build the capacity of farmers so that they are equiped to enter into the market on an equitable basis. (2) INVESTMENT IN RURAL SILK PRODUCTION This component will provide assets to support the establishment of silk production on farms in rural areas. The exact model and division of assets to be provided by the three parties (lead firms, farmers and the project) will be determined based on the inclusive business plan prepared by lead firms and the agreed production partnership arrangement between lead firms and rural communities. In the default case, the project will provide fencing for mulberry gardens, materials for construction of rearing sheds and a partial subsidy for mulberry saplings. Lead firms will provide the majority cost of saplings, silk worm eggs at the start of each production cycle, and direct extension services and training to farmers through the silk production cycle. Lead firms will not be subsidized by the project. Farmers will provide land (est. 2 rai per household) as well as labor to fence the saplings and construct the rearing sheds. Ongoing training, extension services and technical support will also be provided to farmers by the project in order to maximize returns on investment through the production cycle. (3) MONITORING AND EVALUATION, PROJECT MANAGEMENT AND ADMINISTRATION This component will provide for the collection of baseline data as well as periodic monitoring and evaluation to demonstrate results and allow for course corrections. Knowledge dissesmination events will be undertaken to raise awareness on the potential for silk production partnerships, and as part of efforts to promote the model to farmers and lead firms beyond the scope of the proposed project intervention. Project management and administration will also be covered by this component. Core project management services (procurement, financial management and overall management) will be provided by the Trade Development Facility Project. Section 2.2 Incremental Bank Costs The costs of normal supervision are expected to be covered through the administrative budget and fee provision. Under exceptional circumstances, if additional resources are needed to facilitate community participation or NGO collaboration under particularly difficult conditions, incremental Bank costs can be requested up to 9 percent of the total grant amount. Amount requested in USD 157,000 Lao PDR is a low income, least developed country with very low capacity - including both weak administrative and technical capacity to implement governmental programs and weak human and social capital in many rural areas. Testing the potential of the proposed production partnerships under these circumstances will require a significant amount of Bank staff and consultant support, especially in the first year when program design will be finalized and when implementation will be initiated. The team therefore requests 7.9% of the grant amount for incremental Bank costs. Moreover, the beneficiaries are located in remote areas which are hard to reach and the project will require extensive travel to those areas. Section 2.3 - Rationale and Participatory Approach Briefly present (a) the origin and rationale for the proposal; (b) participatory activities which led to the proposal concept; (c) its innovative features in responding rapidly to the needs of the poor and vulnerable groups; (d) describe the intended beneficiaries and provide an estimated number of beneficiaries and cost per beneficiary. Consultations with firms, NGOs and associations working in the silk handicrafts sector in Laos have shown that there is strong community demand to participate in the type of production partnerships outlined in this project proposal. In the start-up phase, the project will invest significant time and resources into the process of partnership formation. This will involve the project team putting substantial efforts into introducing the model/concept into rural areas, engaging with farmers, demonstrating and providing households with sufficient information to make an informed decision on whether or not to enter into production partnerships. For households that do elect to enter into silk production partnerships, this capacity building process will continue in order to ensure that farmers do so on a competitive basis. The project concept was developed jointly by the Lao Handicrafts Association and the Ministry of Industry and Commerce (National Implementation Unit and Department of Trade Promotion and Product Development) with the support of the World Bank Vientiane Office. The concept was developed after a series of consultations with silk producers, representatives of farmer groups and associations in July 2008, in February and March 2009 and in February 2010. During these missions, a 7 model concept was developed and tested with stakeholders to gauge likely interest from farmers and lead firms. The project rationale and detailed design are informed by the large amount of consultative processes, surveys, research and analysis carried out by the World Bank, including the 2005 Diagnostic Trade Integration Study, the 2006 Investment Climate Assessment, the 2009 Second Investment Climate Assessment, and a key 2006 study on Linking Laotian Farmers to Markets. The proposed project is also closely informed by the government's National Export Strategy (endorsed by the government in 2009), including the National Silk Handicrafts Sector Strategy - both of which were prepared in a highly participatory manner. The international demand for Lao textiles is very good, but currently the bulk of production is focusing on the lower end of the market. Part of the reason for this is the inadequate supply of local high quality silk yarn at an affordable price. In short, there is a supply constraint. Almost any quantity of local silk yarn can be produced and sold. Marketing is not a serious bottleneck; production is. Greater production of the basic raw material for this industry will increase its capacity to produce more for the export market. Lao silk weavers are also finding it increasingly difficult to market their products as being "Lao", when the raw material is imported. Thus there is a strong economic incentive to produce 100 percent Lao silk products using locally produced silk, and hence a strong incentive for firms to engage with farms to boost the domestic production of silk yarn within Laos. REDUCED HOUSEHOLD VULNERABILITY Commercial silk production is especially appropriate for farmers living on marginal land in rural mountainous areas. The short production cycle (normally approximately 50 days in total, during which the silkworm larvae must be fed cut mulberry leaves for approximately 25-30 days) is well suited to the multi-activity needs of low-income farming communities. Similarly, the earned income (estimated at $550 to $1,600 per household per year depending on the number of cycles) has the potential to transform the welfare of disadvantaged and isolated rural households in a comparatively short period of time through the provision of a diversified source of income. SUSTAINABILITY ENSURED THROUGH LINKS TO MARKETS This project presents a unique opportunity to sustainably integrate disadvantaged Lao communities into the market economy, by linking remote farmers to markets through an innovative inclusive business model. The project will develop and test a partnership model that will aim to provide a sustainable source of income in rural areas through linking farmers to markets via lead firms. This addresses one of the key causes of failed community development interventions in Laos, namely no clear exit strategy. The project seeks to provide not only sustainable incomes for the target households, but demonstration effects that will encourage the model to be replicated through private sector sources of finance, and without the need for future grant funds (crowding in and scaling up). POSITIVE GENDER OUTCOMES Once the initial start-up investment has been made, silk rearing is well suited to family farming with only fairly modest labor requirements on a day-to-day basis. This reduces the risk of distorting labor incentives within farming households and supports increased diversification of activities and income. In male-headed households, commercial silk farming is often carried out primarily by women, and thus provides an opportunity for alternative on-farm income generation, and enhanced women's economic empowerment. Special attention will be given during the preparation of the Inclusive Business Plans, and of the communications strategy to ensuring that women are given every opportunity to benefit from the production partnerships. The proposed grant will provide sustainable and diversified sources of income for a target 1,200 farming households in disadvantaged rural areas, with an estimated 7,200 direct beneficiaries. Silk production is naturally suited to marginal land in mountainous areas, and as such is an appropriate fit with the locations within the Lao PDR which are most disconnected from markets and where poverty is most acute. The exact locations where production partnerships will be established between rural communities and lead firms will be determined during project implementation, and as part of the process of facilitating the establishment of production partnerships between lead firms and farmers. Strong priority will be attached to ensuring that disadvantaged households are included in the pilot project, as well as ethnic minorities. (For the purposes of this project we define disadvantaged in terms of both income poverty and disconnection from markets). Specific attention will also be given to ensuring that women are given voice and opportunity to benefit from project activities. Below is a list of target long-list of indicative provinces where the evidence suggests are most suitable for silk production. The project will not attempt to fix specific project locations, but rather to facilitate the process of matching between farmers and lead firms. However, it is likely that farmers and lead firms will establish partnerships in cluster locations in order to reduce costs and support cross-learning and fertilization of skills and ideas. Similarly, it is expected that the actual locations for project activities will be more limited than on the long-list of provinces. The long-list of indicative provinces also represents those provinces where the share of poor households, as defined in the 2007/09 Lao Expenditure and Consumption Survey, is highest. 8 Target provinces % of poor households Est. GDP per capita No. of households Ethnicity Population Bolikhamxay Province 32 711 41,127 Multi-ethnic 248,378 Xieng Khouang Province 56 606 39,056 Multi-ethnic 257,683 Luang Namtha province 41 529 28,831 Multi-ethnic 156,667 Luang Prabang province 34 583 71,090 Multi-ethnic 431,439 Houaphan province 63 427 44,664 Multi-ethnic 302,809 Sekong province 58 463 15,200 Multi-ethnic 92,624 Attapeu province 34 539 20,447 Multi-ethnic 121,134 It is expected that each farming household participating in a production partnerships will receive a start-up asset package of an average value of $530 (representing full costs of rearing sheds and fencing, plus 25% of sapling costs - the remaining 75% of sapling costs, on average, will be provided to farmers by lead firms). Each farmer will also be provided with a start-up training package valued on average at $150, and an ongoing training package valued on average at $300. Thus the total direct investment by the proposed project in each farming household (excluding the additional fixed and variable costs that will be provided by lead firms) is $980. Including all overhead costs, technical assistance, monitoring and evaluation, knowledge dissemination and capacity building activities (but excluding incremental Bank costs), the total unit cost per household comes to $1,522 (ie. Total grant amount divided by 1,200 farming households). Assuming an average of six persons in each rural Lao household, a total of 7,200 beneficiaries will be reached. Therefore, the direct cost per beneficiary from the project will be $254. In terms of economic returns, if the average farmer allocates a minimum plot size of 2 rai to mulberry, and earns an estimated $550 per year, then the project should lead to a direct generation of $660,000 in additional income per year, thus meaning a notional investment payback period for the project of 2.8 years. If the average farmer allocates a minimum plot size of 4 rai to mulberry, and earns an estimated $1,100 per year, then the project should lead to a direct generation of $1,320,000 in additional income per year, thus meaning a notional investment payback period for the project of just 1.4 years. Such income flows would accrue directly to households in the most impoverished parts of Laos. Obviously these estimates do not include the effects of income multipliers as resources flows through the local economy in areas surrounding production partnerships, not are demonstration effects captured (where farmers and lead firms establish additional partnerships, copying form the project model after gaining sufficient confidence to make investments without the need for project funds). Section 2.4 - Sustainability Indicate the mechanism for sustainability of the proposed activities after the completion of the grant. This should include a description of the exit strategy and mechanism for long-term sustainability with specific measures and cost. At the first level, the project aims to establish sustainable livelihoods for a target of 1,200 rural households, by linking these households into market based partnerships. Once production partnerships have been established, the initial start-up investments in assets have been made, and the farmers have gained production experience over a number of cycles, no additional support will be required for these partnerships to continue. It is expected that with the sunk costs covered, both households and lead firms will have a strong and mutual economic incentive to continue the production partnership. Thus while the proposed pilot is designed to end after four years, it is expected to leave behind a robust and tested series of production partnerships that will continue to provide sustainable livelihoods to the targeted farming households. In terms of higher ambitions, the objective of the project is to build the silk production industry to a level whereby it becomes more commercially attractive for larger and more sustained investments. Once this critical size is reached it should be possible for the private sector (farmers and lead firms), as is the case in neighboring Thailand, to continue the process of additional investments. This process is known as 'crowding in' and 'scaling up'. Knowledge sharing events will be undertaken to disseminate the model to support this process. At this stage these investments will come from both the farming community who will be able to see significant returns to their investments through successful demonstration effects as well as from the processors of silk cocoons and silk yarn. International evidence suggests that once critical mass is reached, farmers and lead firms become sufficiently confident to engage in these type of production partnerships without the need for project support. In most cases, lead firms financed the entire start-up investment, with the cost re-couped through the silk cocoons over time. Section 2.5 - Safeguard Issues Describe any significant adverse impacts related to environment and social safeguard policies, and how they will be addressed. 9 The activities to be piloted are likely to have no adverse environmental or social impact, however since the project will be operating in areas where indigenous people are located OP/BP 4.10 will be triggered. Ethnic Lao communities have traditionally the strongest association with silk production and weaving. However, pilot design will explicitly try to promote active engagement with ethnic minorities which have not traditionally been associated with the silk sector, as a means to promote alternative and sustainable livelihoods for all. Specific facilitation, communications and monitoring arrangements (including in appropriate languages) will be provided to ensure that such communities can benefit in a culturally appropriate manner. A project operations manual will be prepared during the start-up phase of the project and this manual will specifically address how the needs of indigenous peoples will be effectively and fairly addressed and how ethnic minorities are able to benefit from project activities. Lessons will be learned from the experiences of other Bank-financed community driven development projects in rural Laos, including from the Poverty Reduction Fund and its allied JSDF grant. Similarly, the "inclusive business plans" prepared by lead firms will detail approaches for engaging with the different ethnic groups in the locations within which specific lead firms aim to operate. Section 3 - Linkage to Country Strategy and Associated Bank Financed Operation Section 3.1 - Country/Sector Background Provide any specific information related to country and sector strategies which may support this proposal. The proposal directly responds to three key development issues in Lao PDR, including: persistent and high incidence of poverty particularly in remote mountainous areas and among non-Lao ethnic groups despite strong aggregate economic growth; weak economic and market integration in rural mountainous areas; and limited employment opportunities in the non-natural resources sectors. By supporting livelihood improvements and linking farmers to markets, the proposed grant is in line with the government's National Socio-Economic Development Plan along with the National Growth and Poverty Eradication Strategy (NGPES)'s policies of promoting affordable, community-based solutions and of supporting rural development. The proposed grant is also in line with the government's National Export Strategy, which identifies the silk sector as a priority sector to support pro-poor economic growth through expansion of the domestic value chain and closer international economic integration. This proposal is entirely consistent with the aims and objectives of the Lao PDR Country Assistance Strategy (CAS). It is directly supportive of the first CAS pillar which aims to sustain growth by promoting rural development. It is also directly supportive of the second CAS pillar which focuses on improving social outcomes and reducing vulnerability. The pilot activities also aim to contribute to the third CAS pillar that addresses strengthening the capacity of line ministries to implement the objectives of the National Socio-Economic Development Plan. Section 3.2 - Bank Financed Operation the Grant will Complement Trade Development Facility Multi Donor Trust Fund, P106165, GFR Approval 11/16/07, PDO: The TDF aims to support the establishment of the National Integrated Framework Governance Structure (NIFGS) and implement NIFGS 's initial activities to address the key institutional and operational bottlenecks and capacity gaps that hinder cross-border trade. Section 3.3 - Rationale for Grant Funding versus Bank Lending Briefly describe why the proposed JSDF activities could not be financed under the Bank-financed operation or by other sources. From the client perspective, a JSDF grant is highly desirable as a source of timely support for innovation in program design and piloting of new activities. The GoL would prefer to direct the country's limited allocation of IDA resources to ongoing projects or programs that are less experimental in nature. The proposed project, while not without risks, provides for the testing of a a new and innovative approach to addressing the needs of poor households in this least developed country. The project will facilitate the formation of a new type of partnership that has significant potential for "scaling up" and "crowding in", if proven to be sucessful. Section 4 - Grant Implementation Arrangements Section 4.1 - Name and National Implementation Unit, Ministry of Industry and Commerce, P.O. Box 4107, Phonexay Address of Implementing Road, Saysettha District, Vientiane Capital, Lao PDR 10 Agency Please provide the rationale for the selection of the implementing agency Briefly describe the organization's mission, country/sector experience, program of activities, sources of financing, and evidence of financial management capacity to assure appropriate use of JSDF funds. If the grant will be implemented by more than one entity, briefly describe the responsibilities of each implementing agency. The team selected the government's National Integrated Framework Governance Structure (NIFGS) for implementation of the proposed grant. The NIFGS is the government's own implementation structure for coordinating and managing policy and trade-related assistance. This is in line with the Vientiane Declaration on Aid Effectiveness and consistent with efforts to ensure that ODA flows through structures already established and fully owned by the government, and with reducing the transactions costs, overlaps and gaps frequently associated with standalone projects. Details of the specific implementing partners are described below: - The Ministry of Industry and Commerce - National Implementation Unit will be the primary Grant Implementing Agency. Established in 2004, the MoIC-NIU is the anchor unit for a sector-wide approach on trade in the Lao PDR and is responsible for coordinating all trade-related assistance to the country. The MoIC-NIU is the central technical unit within the government's National Integrated Framework Governance Structure. The MoIC-NIU is already receiving financial and technical support for trade development activities under the Trade Development Facility multi donor trust fund, financed by the EC and Australia, and administered by the World Bank. The World Bank and the MoIC-NIU have a strong and solid working relationship. The most recent joint donor implementation support review in July 2009 concluded that the MoIC-NIU is successful in the implementation of the Trade Development Facility Multi Donor Trust Fund, including in terms of fiduciary performance. Given that capacity in the Lao PDR on procurement and financial management is generally very weak, the team believes that it makes sense to take advantage of strong fiduciary skills already established in the MoIC-NIU. For the proposed grant, central procurement, financial management and core program management services will be provided by the MoIC-NIU. - At the technical level, the MoIC Department of Trade Promotion and Product Development - as the agency responsible for technical implementation - has amassed strong experience in promoting linkages between rural communities, and small scale entrepreneurs in a number of sectors. Under the TDF, the department is working to support these aims in rural agribusiness, in secondary wood processing, in garments and with efforts to link handicrafts producers to markets via e-commerce initiatives. The department has also worked on a number of other initiatives supported by development partners in the past, including a current JICA project to support trade promotion. For the proposed grant, the Department of Trade Promotion and Product Development will be the lead technical implementing agency. - The Lao Handicrafts Association is also a natural co-implementing partner with the Department of Trade Promotion and Product Development as the organization best able to balance the demanding needs of silk products export markets, while ensuring that local farmers and producers are able to take part in the domestic value chain as equal partners and in a sustainable manner. As part of efforts to establish production partnerships between target farming households and lead firms, the Lao Handicrafts Association (LHA) will play an important role in supporting and brokering the establishment of these partnerships. The LHA is a non-profit organization, established in 1998, and representing small entrepreneurs in the production and distribution of handicraft products. The association was formed by handicraft firms to develop and promote new products including silk products as well as to preserve Lao traditional crafts. More than 65% of the members of the LHA are involved in the handmade textile business. The majority of these are engaged in processing or selling of silk and silk products. The LHA organizes the annual Lao Handicrafts Festival, now in its 9th year, as an important part of efforts to raise the profile of Lao handicrafts and link small scale handicraft producers, many from rural areas and ethnic minority communities, to end markets. An institutional capacity building/stregthening package will be provided to LHA under the proposed project as part of efforts to improve business planning, management skills, outreach and service delivery. - SNV, the Netherlands Development Organization, is an international NGO that delivers capacity development services to over 2,000 clients in 32 countries worldwide. In Laos, SNV has been particularly involved in supporting a number of agricultural value chains including fodder maize, white rice, paper and bamboo. The organization has extensive experience in such activities as producer group promotion and implementation for rural farmers; and establishing linkages between these groups and their respective markets. These activities are part of a much larger approach, known as the Inclusive Business Model. The Inclusive Business Model is a core part of SNV's strategic plan to engage low income segments along the value chain of firms in a win-win situation to create economic benefits and reduce poverty. To date, the SNV Inclusive Business Model has been implemented successfully in 15 countries and has touched the lives of over 500,000 poor people. SNV's comparative advantage is its track record of helping businesses become more profitable by including individuals at the bottom of the economic pyramid. SNV has agreed to finance 50 percent of the costs of international technical assistance 11 under the proposed grant. The National Implementation Unit is the central coordinating unit for all trade-related assistance to the Lao PDR. The unit is the secretariat for the National Integrated Framework Governance Structure, the government's coordinated structure for managing the process of economic integration in the Lao PDR. The unit is located within the Ministry of Industry and Commerce, and is staffed jointly by regular civil servants and staff financed with development assistance. The NIU comprises of qualified finance, procurement, monitoring and evaluation and technical specialists and has strong working relationships across government. The unit has successfully implemented three projects under the Integrated Framework program to support least developed countries integration into the international trading system (value of $1million). The unit is now implementing the Trade Development Facility multi donor trust fund, a four year cross-government program to support implementation of the Diagnostic Trade Integration Study action matrix (value of $6.8million). The MoIC-NIU will also be responsible for implementation of the Enhanced Integrated Framework trust fund, a similar multilateral initiative with an estimated LDC country allocation of $4-6 million. The MoIC-NIU has established systems and procedures for operating de-centralized activities to support trade and economic integration with a number of implementing partners. Four main partners will be involved in the implementation of the proposed grant. The Ministry of Industry and Commerce - National Implementation Unit will be responsible for core project management, procurement, financial management and operation of the designated account. Technical implementation will be the responsibility of the Department of Trade Promotion and Product Development, working in partnership with the Lao Handicrafts Association and the SNV Netherlands Development Organization. As per the existing legal agreement on the Trade Development Facility Multi Donor Trust Fund. There is only one implementing agency of record (MoIC-NIU), but technical work is carried out via the government sub-executing units established within the government national integrated framework governance structure (in this case DPTP/LHA). Other institutions (if any) involved in grant implementation. If sub-grants are a component, describe how they will be managed. n/a Section 4.2 - Consultation with Other Development Partners Describe consultations with Japanese embassy, JICA, as well as other MDBs (e.g., ADB, IDB, AfDB, EBRD) in the design of grant activities (indicate names of officials contacted at Japanese embassy and dates). Explain the division of labor among the various partners in order to avoid overlap between programs. The Lao National Integrated Framework Governance Structure (and the MoIC-NIU) is supported by the World Bank, the EC and Australia (via the Trade Development Facility Multi Donor Trust Fund), by UNDP and other donors (via the global Integrated Framework trust funds), and by the WTO and others (via the Enhanced Integrated Framework trust funds). The EC and Australia have participated actively in the design of this proposal and are highly supportive. The Department of Trade Promotion and Product Development also has a close working relationship with Japanese ODA, having received support from the ASEAN-Japan centre on using e-commerce to link Lao handicrafts producers with export markets, and a JICA technical assistance project to support trade promotion. The joint World Bank / MoIC / LHA pilot preparation team consulted with representatives of the Japanese Embassy in Vientiane (Ms. Akemi Ishikawa, Advisor for Economic and Social Development; Mr. Yuichi Metoku, Second Secretary - Agriculture and Rural Development; and Mr. Tomohiro Tanaka, Second Secretary - Industry and Private Sector Development on February 25, 2010. The meeting was very successful and the Japanese Embassy team expressed their strong support and agreement with the concept, describing it as "a very exciting concept, and a very good fit with the type of innovative pilot approaches that the JSDF is designed to support". The team asked to be kept informed of project progress and provided a number of constructive suggestions on how to clarify and strengthen the project design, which have now been incorporated into the Grant Fund Request. At present, there is no indication of overlap between the proposed pilot and other donor-supported programs. The proposed grant activities are supportive of objectives espoused within the Diagnostic Trade Integration Study Action Matrix - the guiding framework for interventions in the areas of trade and integration in the Lao PDR, and will be implemented as part of the government's broader sector-wide approach in trade development. A separate initiative to be funded by the Government of Switzerland / SECO is also planned for the silk sector, but will be directed at marketing and establishing downstream linkages between silk weavers and markets. This is likely to be highly complementary to this proposal, which focuses on the upstream linkages between rural farming households and silk producers. Section 4.3 - Monitoring and Evaluation List and quantify the performance indicators (maximum 5) and explain how the grant activites willl be monitored and 12 evaluated against these indicators. Please use outcome-level indicators in line with the project objectives (e.g., productivity enhancement; increased access to social and community services and infrastructure; and improvement in the living conditions of the poor and vulnerable groups). Please indicate targets and performance indicators for monitoring the measures. Indicators Base Value Base Date Target Value Target Date HOUSEHOLD INCOME To be established by 01/03/2011 20% cumulative 12/31/2014 (POVERTY INDICATOR) baseline household increase in beneficiary survey annual household income by end of project (comparing households in production partnerships with control group) SILK PRODUCTION To be established by 01/03/2011 Approx. 30 tons of 12/31/2014 baseline producer additional silk yarn survey produced annually by end of project (this would represent a 100% increase in current national production) SILK PRODUCTS To be established by 01/03/2011 20% increase in annual 12/31/2014 EXPORTS baseline producer exports by silk survey handicraft producers by end of project WOMEN'S ECONOMIC To be established by 01/03/2011 20% cumulative 12/31/2014 EMPOWERMENT baseline household increase in beneficiary (GENDER INDICATOR) survey household income controlled by women in male-headed households by end of project (comparing householders in production partnerships with control group) Section 4.4 - Risk Affecting Grant Implementation See attached Risk Assessment Sheet Section 4.5 - Retroactive Financing If retroactive financing is envisaged, the automatically generated grant agreement will specify the grant approval date as default retroactive financing date. This date can be manually set in the grant agreement to a later date but not earlier, if desired. Is retroactive financing needed? No Retroactive financing amount, if needed. Section 4.6 - Financial Arrangements This section should be filled out in consultation with the Financial Management Specialist. Are interim unaudited financial reports required? If yes, The proposed recipient of the grant, MoIC-NIU, is also indicate frequency. Note: These reports should normally be currently implementing the Trade Development Facility used to support disbursement. Project (TDF). As the proposed grant will be implemented by the same implementing agency as the TDF, the proposed 13 grant will rely primarily on the same financial arrangements as the TDF. The initial financial management assessment of the MoIC-NIU conducted by the World Bank, concluded that financial management arrangements are satisfactory and on par with World Bank standards. The latest financial management rating provided in June 2009 also rated the project as satisfactory. Interim un-audited financial reports (IFRs) are required to be prepared by the MoIC-NIU on a quarterly basis. IFRs are to be submitted to the World Bank no later than 45 days after the quarter end. Procurement under the proposed grant will be carried out in accordance with the World Bank's Guidelines, revised October 2006, and the provisions stipulated in the Grant Agreement. A Procurement Capacity Assessment of the implementing agency will be conducted at a later date and a strengthening action plan will be proposed in case the implementing agency does not have sufficient procurement capacity. Before the signing of the Grant Agreement, a procurement plan (integrating JSDF funded activities into the broader trade program) will be prepared by the implementing agency reflecting the activities and inputs that the grant is supposed to finance with the assistance of the task team and in consultation with the designated procurement staff. Describe the audit requirements. External audit are required to be audited annually by an independent auditor acceptable to the World Bank. The audit report and management letter should be submitted to the World Bank no later than 6 months after the end of each financial year. There will be separate designated accounts, but we do not propose doubling all the reporting requirements. One IFR can be prepared, but with multiple sources of funds and flows of funds reported. Section 4.7 - Disbursement Arrangements This section should be filled out in consultation with the Finance Officer. Will advances to a Designated (e.g., Special) Yes, advances to a Designated Account will be required. Account be required? What is the proposed ceiling for advances? (This The specific amount will be determined at project appraisal, authorized can be a specific amount or a period if interim in an additional instruction to the grant agreement (the disbursement unaudited financial reports are used to support letter) and specified in the MoIC-NIU financial management manual. disbursement). If a Designated Account will not be used, specify n/a how disbursements will be made (e.g., direct payments, reimbursement for prefinanced expenditures). Specify the type of documentation that will be Disbursement will be via the traditional method, which includes direct provided to support disbursements, e.g., interim payment and replenishment of the Designated Account on a SOE basis. unaudited financial report, SOE, or copies of records (e.g., actual invoices). Section 4.8 - Additional Obligations Covenants drafted by the lawyer can be inserted in this space when, exceptionally, any additional obligations of the 14 Recipient need to be specified. No additional obligations identified. General obligations will be specified in the operations manual. Section 5 - Financing Plan Core project management services (including procurement and financial management) will be provided by the NIU to support implemention of the proposed grant-financed activity, financed from the TDF (US$ 6,815,855). MoIC (National Implementation Unit, the Department of Trade Promotion and Product Development, and various Provincial Industry and Commerce Offices) will provide staff time, management services and office-space as in-kind contributions (estimated cost is US$ 100,000). The Lao Handicrafts Association will provide staff time, technical guidance and access to silk sector network as in-kind contributions. The SNV Netherlands Development Organization will finance 50% of the costs of international technical assistance under the proposed grant-financed activity. Section 6 - Detailed Cost Table Please consult with Procurement Accredited Staff on the proposed procurement methods. See attached Cost Table Section 7 - Technical Review & Clearances Section 7.1 - Technical Review SDV Technical Reviewer (Please insert comments below) SDV Technical Reviewer: Comment on a) technical feasibility/appropriateness of the grant from the SDV perspective; b) relevance of the proposal to JSDF requirements for innovative approaches to provide direct benefits to disadvantaged/marginalized groups. Directions for TTLs: Indicate in capital letters, after each comment, where in the proposal the comment has been reflected. Please provide tab and field references. Richard, Sorry for the delay. I will add a few add'l points to the ones that Helene has already brought up and which I fully endorse: -- I am not familiar w/ the ethnic make-up of Lao in general and the ethnic minority issues specifically related to this project, but I note that you indicate in a few places that the project will target (or operate in) areas where EMs are concentrated. As such, it would be helpful to highlight any socio-cultural issues that may help or hinder the succes of the project. One wonders in reading the proposal if issues of communication, discrimination, or other factors have limited these communities access to key inputs that the project is intending on delivery (extension services for instance) and therefore, what may be done under the project to address these issues. If Lao and the project area are anything like the work I'm involved in in Vietnam in the Northern Mntns regions, communications and access are HUGE issues that underlie the much higher poverty levels of EM communities. Is this the case in Lao and if so, what specifically will be done to overcome these issues? Helene's suggestion for a communication strategy that may take minority languages into consideration seems very important to me. [ADDRESSED IN COMPONENTS/OUTPUTS 2] -- in relation, it would be good to know a bit more about the specific gender roles of different groups (if there are different groups) regarding work on cash-crops (tho Helene mentions that this is often a women's responsibility) and importantly the control of $ that comes from those cash-crops-- this can vary from ethnic group to ethnic group. If not now known, it might be a key issue to determine thru the b/line survey so strategies might be developed to ensure that women do have access to the $ that is earned. [ADDRESSED IN COMPONENTS/OUTPUTS 3 AND JSDF] -- further to Helene's comments on the "community buy-in", some information on the social structures and possible community obligations individual farmers may be under would help to know how well the selection of farmers will work. As suggested by Helene, you may have instances where this individual work is "collectivized" and/or captured, which would undermine your intended h/hold outcomes. [ADDRESSED IN RISKS] -- the overall sustainability of the model beyond the immediate farmers assisted may need some further thought or information. I'm particularly interested in knowing if the projected cost of raw materials (silk) plus the add'l investments under the project would still give producers a raw material at or below the price that they could import from Vietnam or 15 Thailand. Also, the vague reference to subsequent "private financing" to extend such activities is, well, vague. What is the status of rural finance in Lao and is this likely to be able to step into the role that the project is currently proposing to fill, or likelihood that the lead firms would step into this void? [ADDRESSING IN JSDF AND RISKS] -- more editorial or for clarification: # what will be the incentives for getting firms to go to the harder to reach (and presumably poorer) communities? [ADDRESSED IN COMPONENTS/OUTPUTS 1] # why do you propose to monitor both income and consumption? don't know Lao but if capacities are constrained, seems one indicator would do [HAVE DROPPED THE CONSUMPTION INDICATOR] # "part-time" "full-time" dichotomy under first para on Background/Rationale for component 1 is confusing [ADDRESSED IN COMPONENTS/OUTPUTS 1] # the para on "project logic" is helpful, and I wonder if a value chain analysis was carried out? If so, it would be good to cite. [ADDRESSED IN COMPONENTS/OUTPUTS 1] # under question 4 for JSDF specific questions (participatory activities), what I understand from this heading is that JSDF is interested in the activities where the intended beneficiaries were involved in a participatory process in designing the project. Thus, your reference to the producers and farm groups and associations should be the focus on this one, and it would be good to know what specifically came out of those consultations with those groups [ADDRESSING IN JSDF] Hope helpful. I also agree this appears to be a worthwhile proposal and I support it's financing. Equally, I strongly encourage the recommended linkages to other relevant JSDF and IDA activities in Lao, particular w/ ethnic minority groups. Best of luck Sean Directions for TTLs: Please provide the name and area of specialization of the SDV Technical Reviewer. Sean Bradley, Senior Social Development Specialist - Sustainable Development Department, East Asia and Pacific Region Thematic Technical Reviewer (Please insert comments below) Thematic Technical Reviewer: Comment on a) the technical approach from a country/sector viewpoint and b) the relevance of the proposal to JSDF requirements for innovative approaches to provide direct benefits to disadvantaged and marginalized groups. Directions for TTLs: Indicate in capital letters, after each comment, where in the proposal the comment has been reflected. Please provide tab and field references. Dear Richard, Thanks for the opportunity to review this proposal, which I read with great interest. I think you've put together a solid and innovative project which will have a positive contribution to rural livelihoods in Lao PDR as well as to the national silk industry more generally. I particularly like the strong links to markets, which is often the weak link in livelihood programs. Here are my comments, which I hope you'll find useful in further refining the proposal. Relevance of proposed activities: # In trying to establish sustainable links between rural communities and markets in the area of silk production, the proposed JSDF is highly relevant in its approach. By explicitly focusing on the links to markets the proposal specifically addresses the weaknesses to date of many livelihoods approaches. If successful, this model and its focus on "inclusive business" can serve as a template for future livelihood interventions in Lao PDR. The focus on silk is also highly relevant, by building on Lao PDR's comparative advantage in the silk industry, and seeking to tap into an existing market segment that is already operational but that has significant growth prospects. Selection of farmers / Incentives for farmers to participate: # The target groups for this proposal are on the one hand farmers located in remote rural areas and on the other hand lead firms in the silk sector. Regarding the selection of farmers, it is unclear what processes the project will put in place to attract/select farmers to partake in project activities. For example will the project target farmers with certain characteristics, how will the project minimize elite capture etc.? It would be useful if this process could be spelled out in more detail. [ADDRESSED IN COMPONENTS/OUTPUTS 1 AND RISKS] # Along the same lines, it is unclear how the project will convince farmers to participate more generally. Some of the target farmers may not currently be engaged in silk production and will have very limited understanding of what silk production entails. How will the project attract these farmers and make them understand the project objectives? You may want to consider adding to Component 1 (formation of rural silk production partnership groups) a budget line item for a communication strategy to reach out to and inform potential participants in the project. As well, it may be useful to add "demonstration sites" that farmers can visit to and learn from first-hand. Overall, how will the project ensure broad 16 community buy-in? [ADDRESSED IN COMPONENTS/OUTPUTS 1] # Will the project work with individual farmers or do you expect that groups of farmers will form in the target areas? I suggest that you spell-out a bit more the expectations around this. [ADDRESSED IN COMPONENTS/OUTPUTS 2] Relationship between lead firms and farmers: # In Laos there are many examples of agreements with companies and farmers that have resulted in the farmers being ripped-off and seriously worse off as a result. We've seen this a lot in rubber plantations for example. In the risk section, I suggest that you address this issues and discuss what mitigation strategies the project will put in place to ensure that this is a beneficial relationship for all partners. [ADDRESSED IN RISKS] # In this regard, you may also want to further spell out if there are some core principles (such as Fair trade or corporate social responsibility) that lead firms would need to take on board in order to be eligible to participate. The proposal discusses "Inclusive Business Plans", it would be useful to add some details around what these plans will entail and how they will be monitored. Will the project put in place grievance mechanisms in case conflicts arise? [ADDRESSED IN COMPONENTS/OUTPUTS 1] Farmer contributions: # Global experience shows that both empowerment and sustainability are improved when beneficiary contributions are required as part of the overall financing package of the subproject. In this proposal, the farmers are expected to contribute land and their labour to the project, while the project and firm will contribute fencing, materials saplings, and extension services. In total the direct investment to farming household is $980. Will the farmers be able to keep these investments at the end of the project, or are the farmers expected to pay for some of these inputs? What happens if the farmer drops out half way? I suggest that you spell-out a bit more the expectations around this. [ADDRESSED IN COMPONENTS/OUTPUTS 2] # A related point, as part of the training (component 2), I'm wondering if this training will also include basic financial management/ accounting training? Building the farmers# capacity in this area could have a significant impact on their empowerment, strengthening their voice and contribute to them being able to participate on more equal terms with the firms [ADDRESSED IN COMPONENTS/OUTPUTS 2] Gender focus: # Silk production tends to heavily involve women. More broadly, handicraft is attractive to women as it allows them to combine handicraft tasks with other household activities. Given the strong engagement of women, it seems to me that the project could benefit from a stronger gender focus, including considering targeting women producers directly. The indicator on women's economic empowerment is welcomed and will be useful to monitor. In general, however, further highlighting the gender aspects of the proposed activities would strengthen the proposal. You may want to look at the Mekong Bamboo Handicraft initiative, which has a specific gender focus and is designed around improving women#s economic empowerment. [ADDRESSED IN COMPONENTS/OUTPUTS 3 AND JSDF] To conclude, this proposal with its strong focus on linking farmers to markets in a sustainable fashion will make an important contribution to rural livelihood development in Laos. I fully support it and hope that it will get the approval it deserves. If approved, it will be useful to discuss how we can link this proposal to the JSDF project on Mobilizing Ethnic Communities for Improved Livelihood and Well-being. I think there are many synergies that can be harnessed. Directions for TTLs: Please provide the name and area of specialization of the Thematic Technical Reviewer. Helene Carlsson Rex, Senior Gender Specialist - Gender and Development, Poverty Reduction and Economic Management Section 7.2 - Clearances and Comments Team Member Mr Mohamed I. Diaw CHANGED Team Leader Mr Richard James Lowden SUBMITTED Record Finance Officer Ms Thao Le Nguyen CLEARED FM Specialist Ms Siriphone Vanitsaveth CLEARED Procurement Specialist Ms Sirirat Sirijaratwong CLEARED Country Lawyer Mr Roch Levesque CLEARED Sector Manager Mr Mathew A. Verghis CLEARED Country Director Ms Annette Dixon CLEARED TF Coordinator Ms Kunthary de Gaiffier CLEARED 17 Team Leader Mr Richard James Lowden SUBMITTED Record TF Program Team Ms Yolaine E. Joseph CLEARED Manager Ms Linda Van Gelder CLEARED Window Manager Ms Yolaine E. Joseph APPROVED Program Manager Mr Roberto Tarallo TACT 18