72690 A Harvest of Practical Insights LESSONS LEARNED IN AGRICULTURE, AGRIBUSINESS, SUSTAINABLE RURAL DEVELOPMENT, AND CLIMATE CHANGE In partnership with Austria, Australia, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, the United States, the Afghan Development Association, the European Union, the Inter-American Development Bank, the Private Infrastructure Development Group, the South Asia Infrastructure Facility. Disclaimer SmartLessons is a World Bank Group program which enables development practitioners to share lessons learned in development operations. The findings, interpretations, and conclusions expressed in these papers are those of the authors and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of the World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. This publication is printed using Ecoprint Versa 100 and New Leaf Reincarnation matte papers, and Ecoprint inks and process. Printing 200 copies saved: 694 pounds of virgin wood, 198 pounds of greenhouse gases, 108 pounds of solid waste, 1,020 gallons of liquid waste, and 252 kWh of electricity. International Finance Corporation Copyright © 2012 - All rights reserved Credits Foreword Photos Cover page © IFC crucial Agribusiness is aPage economic across sector, from index for food security of course, for managing water © IFC stress and ecosystem services, but also as a source of employment in emerging markets. 70 Pages 1, 3, 7, 8, 12 © IFC percent of the world’s poorest live in rural areas and agriculture can provide a significant Page 22 © Grahame Dixie pathway out of poverty for many of them. The past century saw massive increases in pro- Pages 23, 28 © IFC ductivity in agriculture, driven by both good government policy and the creativity and ingenuity of the Page 31 © Kiran Gautam private sector, but food production faces yet its biggest challenges in the coming decades. Page As we34 Mirella Hernani © expecting are demand for food to grow by over 70%, with land and coming water availabilityPages 35, under pressure, increasing Image 51 © CONAFOR’s Bankagriculture remains a key focus area for the World Bank Group. Pages 54, 55, 57, 59, 66, 68, 69, 81, 83, 85, 86, 91 © IFC Pages 76, 79 © Jun Zhao This “SmartBook”, aptly titled, ‘A Harvest of Practical Insights’, presents practical lessons learned by staff from across the IFC and the World Bank, on approaches for engaging in agriculture that have led to success. They came together as part of a “Smart Lesson Competition” that we held internally, in late 2011. The projects and programs depicted in this book spanPrinting a wide range of countries, regions and agricultural commodities, yet have one common focus: to help people improve their income through agriculture as a Ecoprint way to lift themselves out of poverty. Our objective in sharing these experiences and les- sons is to encourage learning from and replication of impactful programs. We recognize that our work cannot be done in isolation. The accomplishments presented and lessons discussed were learned by teams who have reached out across organizational boundaries, leveraging the different viewpoints and strengths that come with the Bank Groups investment products and knowledge tools. And this also is a lesson in and of itself. We hope that you will find these narratives engaging and most importantly, that you will gain some practical insight. Monika Weber-Fahr Atul Mehta Juergen Voegele Global Business Line Leader, Director, Manufacturing, Director, Agriculture Sustainable Business Agribusiness and and Rural Development, Advisory, IFC Services, IFC the World Bank smartlessons Smallholder farmer in East Africa. AGRIBUSINESS AND CLIMATE CHANGE Table of Contents general lessons Sowing the Seeds of Sustainability: A Case Project with Unifrutti, IFC, and Smallholder Banana Farmers in the Philippines - Natalie Macawaris, Colin Taylor, Carla Zamora-Galinato............2 Harvesting the Fruits of Your Hard Work, Frustration, and Patience: Implementing an Agribusiness Project in Kandahar, Afghanistan - Hazem Hanbal, Selcuk Tanatar.......................9 Taking Haitian Agriculture to the Cloud: Implementing Google Apps for Government at the Ministry of Agriculture - Diego Arias, Nicolas Weber...............................................................14 Fish Farmers Meet New Technology: Raising the Aquaculture Productivity of Small Farmers in Assam - Grahame Dixie, Manivannan Pathy................................................ 19 lessons ON FOOD SECURITY Grain by Grain: From Punjab to Global: Lessons from the Breadbasket of India Jay Lurie, Neeraj Gupta......................................................................................................... 24 From Crisis Response to Sustainable Strategy: Addressing Food Security in Nepal ......................................................................................... 29 Gayatri Acharya, Mirella Hernani. LESSONS ON CLIMATE CHANGE AND NATURAL RESOURCE MANAGEMENT Adapting to Climate Change in Bangladesh: Stress-Tolerant Seeds for Stress-Prone Regions Anika Ali, Mrinal Sircar....................................................................................................... 36 Assessing the Carbon Benefits of Improved Land Management Technologies Ademola Braimoh................................................................................................................. 40 The Fun and the Defiance of Innovation: Going REDD+ in the Forests of Mexico Graciela Reyes Retana, María Carolina Hoyos, Laurent Debroux.............................................. 46 More Than Just Hot Air: Carbon Market Access and Climate-Smart Agriculture for Smallholder Farmers - Johannes Woelcke....................................................................... 53 lessons ON VALUE CHAIN GO LITE! Increasing Scale and Impact by Combining Diagnostics and Training Lessons from the Ukraine Food Safey Project - Sarah Ockman........................................ 60 Keeping It Fresh! How New Packaging and Distribution Improved the Fruit and Vegetable Supply Chain in Ukraine - Fedir Rybalko, Ebbe Johnson......................................................... 65 smartlessons To WII or Not to WII? Practical Lessons from Implementing Weather Index Insurance for Agriculture - Agricultural Risk Management Team of the Agriculture and Rural Development Department of the World Bank............................................................................................... 70 Supporting Smallholders while Promoting Farmer-Controlled Cooperatives in China Achim Fock, Jun Zhao........................................................................................................... 75 Connecting Fruit Suppliers and Processors: A Comprehensive Approach in Ukraine Oksana Varodi...................................................................................................................... 80 It’s All About Teamwork: Unlocking Opportunities for Agribusiness in Ukraine Alberto Criscuolo, Shaela Rahman.......................................................................................... 87 AGRIBUSINESS AND CLIMATE CHANGE General Lessons smartlessons 1 Sowing the Seeds of Sustainability: A Case Project with Unifrutti, IFC, and Smallholder Banana Farmers in the Philippines Smallholder banana farmers are beginning to understand that their old farming methods are contributing to the planet’s drying up or suffocating in fields of garbage. They are convinced that they have to change their ways for the good of their farms, their communities, and their children. But what really drives them to adopt new and sustainable practices? What will ensure that they continue to do so? IFC partnered with Unifrutti Philippines to work with farmers to enable them to be certified to the international Sustainable Agriculture Network standards of the Rainforest Alliance (RA).1 With concerted efforts from Unifrutti (the lead firm) and IFC, smallholder2 farmers were trained to understand the RA standards and auditing processes, buy into the concepts of environmental and social sustainability, adopt new sustainable practices, and pass the certification audit—all within 12 months. The project began in 2008 and ended in December 2010. This SmartLesson examines the difficult challenges of instituting change, as well as the necessary steps to ensure ongoing sustainability. BACKGROUND ment of E&S-related regulations is weak. Hence, cer- Sustainable development is “development that meets tification in the agribusiness sector to E&S standards the needs of the present without compromising the has been led by the private sector and imposed by ability of future generations to meet their own needs” certain overseas markets (such as Japan). (World Commission on Environment and Develop- In the banana export industry, the exporters, large ment, 1987). Environmental and social (E&S) sus- local and multinational corporations that also manage tainability standards in agricultural development refer corporate plantations, are certified to several specific to farming practices designed to maintain or promote standards (such as ISO3, GlobalGAP4, and RA) to biodiversity and ecosystem integrity and to ensure meet their buyers’ requirements or to enhance their human welfare and safety. Certification gives farm- market position as socially responsible suppliers. ers a stamp of recognition that they adhere to these These corporations have the technical capability and sustainable practices. 1 The Rainforest Alliance (www.rainforest-alliance.org) is an The E&S standards can be imposed by governments international environmental nongovernmental organization that (for example, as a regulation or international trade promotes sustainable farming practices. requirement) or the private markets (for example, 2 The smallholders can be cooperatives composed of members owning 1–2 hectares each or a family-type enterprise owning supermarket standards). Compliance with these stan- 5–25 hectares and leasing up to 200 hectares. dards can be strictly enforced either by the public or 3 International Organization of Standards. 4 Global GAP (Good Agricultural Practices) is the private sector private sector, depending on the political landscape organization that sets the standards for certification of production of a country. In the Philippines, government enforce- processes of agricultural products worldwide. 2 AGRIBUSINESS AND CLIMATE CHANGE financial resources to readily meet any or all certifica- tion standards. The smallholder banana growers, however, are not as able to comply with E&S standards as are their corporate counterparts. Being on the producing end of the supply chain with little market contact, they lack knowledge of certification standards. With little policing from the government, they do not follow Enforcement of rules to protect the environment. the local regulations on proper use of agrochemi- cals, waste management, or provision of minimum An added expense exacerbates the difficulty of chang- wages and benefits to their workers. Furthermore, ing behavior and mindset, given a natural inclination they barely meet the quality standards of premium to resist change. Although people feel good about markets such as Japan, because they have limited protecting the environment, the reality is that it costs access to financing. Their produce is mainly directed money. It is an additional burden that many people— to export markets that do not have stringent qual- from consumers to producers—do not willingly bear. ity or standards requirements. With a national land In smallholder banana farming, profit margins are reform policy turning corporate plantations over to determined literally in cents; thus every penny counts. smallholders, the exporters are increasingly reliant on The heaviest costs to meeting the certification stan- smallholders to supply bananas. One such company dards are capital investments for farm infrastruc- is Unifrutti Philippines, which needed more Rainfor- tures—for example, hazard-proof chemical storage est Alliance–certified bananas to increase its market and mixing areas, shower and toilet facilities for work- share in the specialized highland banana premium ers to remove chemical residues that may have stuck market in Japan. To do this, the company required to their bodies, water recycling to conserve water, and certified bananas from its smallholders. filtering systems to remove contaminants from water coming from packing sheds before being released LESSONS LEARNED back into natural water bodies. These structures are typically not built on smallholder farms. Lesson 1: If you can’t offer an explicit price premium for certification, think twice about There are also the annual costs of the auditing process and doing the project. of maintaining an environmental services team or person on the farm to ensure that standards are maintained. The most important questions that the smallholders ask are: will there be an additional increase in their Fortunately, the lead firm, having the business imper- price if they meet the certification standards, and ative of sourcing certified bananas from smallholders what are the costs involved? to expand its premium highland banana market in Japan, gave the incentive of adding a price premium In the pilot phase of the project, the certification pre- to meeting RA certification. This premium enabled mium was not clearly defined, and it caused a lot of farmers to cover the certification costs and increase discord between the farmer beneficiaries and the lead their income. We learned that having a clearly defined firm. Certification costs were seen as a new additional certification premium makes farmer beneficiaries burden on the farmers. more committed to adopting sustainable practices. smartlessons 3 Lesson 2: If there is no price premium, rigors of meeting international standards require dis- determine whether operational cost savings cipline and organizational efficiency. Therefore, cer- and intangible benefits can provide enough of tified farms are perceived to be well managed and a business case for farmers to adopt sustainable disciplined, hence sustainable businesses. Because of practices. this, they are able to negotiate better terms not just with their contracted lead firm but potentially with In the second phase of the project, the certification other lead firms when current contract terms end and price premium was established only for the highland new ones are negotiated (usually every five years). At growers, who represent less than 10 percent of banana least one bank mentioned that farmers who attain growers. To convince the majority (lowland farmers) international standards certification are more attrac- to adopt sustainable practices without the benefit of tive clients. price premiums, it is imperative that other benefits (cost savings and any increases in productivity) of sus- Meeting the RA certification helps improve compli- tainable practices be clearly quantified. ance with government regulations and demonstrates that the industry can be environmentally and socially By working closely with the farmers, we discovered responsible. The annual RA certification is the best that cost savings that resulted from sustainable prac- policing method to ensure not only that farms con- tices could potentially offset the costs of meeting the tinually implement sustainable agriculture practices, certification. These cost savings could be achieved but also that they comply with agricultural rules and by conserving and recycling water, switching from regulations. Furthermore, in light of the tremendous chemical to organic fertilizer, switching from herbi- pressure applied by local environmental nongovern- cide to manual weeding, and getting new earnings mental organizations (NGOs) and government agen- from sorting and selling recyclable wastes. cies on the banana industry to mitigate the health Clear monetary savings can hold sway in the decision and environmental risks brought by a perceived of farmers to adopt sustainable practices even with- unsustainable farming practice, such as aerial spray5, out the price premium. Given the dearth of data from the smallholders are now better able to show that they farmers, we needed a good methodology to measure are cognizant of and actively mitigating these risks by the environmental benefits (such as keeping natural being certified to the standards of an internationally water bodies clear of contaminants from farms) and renowned environmental NGO. social benefits (such as fewer health-related problems Finally—as illustration that certification helps— associated with farm activity) of sustainable farming. when a major banana export market in the Middle We developed an activity-based methodology to mea- East banned the entry of bananas from the Phil- sure production costs and the impacts of sustainable ippines (as a consequence of international trade practices at various stages of banana production. This can be adopted by farmers and, once applied, will help in determining further impacts of sustainability. 5 At the heart of the controversy was the aerial spray practice, which local NGOs and local government units wanted banned. In addition, we recognized some intangible ben- Aerial spray is still, by global standards, the most cost-effective and efficient way of combating the dreaded black sigatoka (fun- efits enjoyed by RA-certified farmers. They gained gal) disease in banana plantations. There are mitigating practices increased confidence and better negotiating power to minimize the risk of any adverse effects of aerial spray on work- ers and community health. with lead firms, and with banks for financing. The 4 AGRIBUSINESS AND CLIMATE CHANGE politics), the smallholder farmers were greatly and and benefits of meeting certification, the resources adversely affected. Smallholders mainly send their pro- needed, and the commitment required from them duce to the Middle East, because they have difficulty at the beginning and throughout the change process meeting the stringent quality requirements of Japan. (Figure 1). The RA-certified smallholder farmers, however, were not affected, because they had preferred supplier status Increasing the technical knowledge, business man- and were able to meet Unifrutti’s requirements for the agement skills, and financial resources of smallhold- Japanese market. ers is crucial to meeting sustainability standards. Farmers lack access to financing for capital invest- ments, knowledge of sustainability standards, and the Lesson 3: Once a clear business case is organizational capacity to institute reforms in farm established, four project elements are required operations. In this project, the lead firm providing for successful farmer certification: technical the finances for farm improvements and the training training on certification standards, business in RA standards and certification process addressed training, financing, and availability of local these challenges. IFC provided the business manage- auditing capacity. ment skills training that helped farmers embed the Smallholders need to understand the full implications principles of sustainability into their daily farming of adopting sustainable agriculture practices: the cost operations (Figure 2). Figure 1: The Change Process in Adopting Sustainability Standards   ! #" #!       Lead Firm " #"  $"! !"#" #" Business " " ) #!!! '"  # !'  ! "  !) Trainers  " &"$" #! "  "" ! #" "" "!#!" "!) #" Farmers  #!!!"%"  (  Figure 2: Supporting Mechanisms Needed by Smallholders to Meet Ecostandards Certification smartlessons 5   ! #" #!       Lead Firm " #"  $"! !"#" #" Business " " ) #!!! '"  # !'  ! "  !) Trainers  " &"$" #! "  "" ! #" "" "!#!" "!) #" Farmers  #!!!"%"  (  Figure 2: Supporting Mechanisms Needed by Smallholders to Meet Ecostandards Certification Figure 2: Supporting Mechanisms Needed by Smallholders to Meet Ecostandards Certification The lead firm, Unifrutti, having the internal knowledge of the standards and the technical The lead firm, Unifrutti, having the internal knowl- Leadership and Values Formation,” and “Business processes needed to meet them, mobilized its environmental services unit to train farmers on edge of the standards and the technical processes Planning and Entrepreneurship,” gave farmers the needed to meet them, mobilized its environmental tools to understand why and how to adapt to a 5chang- services unit to train farmers on awareness, documen- ing world that requires more care for the environ- tations, and audit process of RA certification; conduct ment. To ensure that farmers continue to receive this tours to RA-certified corporate farms to gather ideas type of training, trainers of a local business training on practical ways to meet standards requirements; service provider were trained to use these modules. conduct internal audits to determine critical areas for The service provider chosen was one that has been change and guide farmers in implementation; and providing annual training to farmers and cooperatives arrange the auditing process with RA. during the last decade. The business training improved the farmers’ skills in A DVD featuring the practical steps to sustainable agribusiness management and organizational devel- agriculture practices under the RA principles was opment. It helped them better manage the process of useful to farmers at RA-certified farms and to other complying with the standards and motivating their smallholders seeking to understand sustainable prac- workers and fellow cooperative members to embrace tices. It featured the actual experiences of farmers who the new sustainable ways of farming. had adopted sustainability and had met RA certifica- tion in the project. Produced mainly in the local lan- Business training modules, such as “Change Man- guage, the DVD can be an effective and inexpensive agement and Strategic Planning,” “Transformational 6 AGRIBUSINESS AND CLIMATE CHANGE smartlessons 7 Worker without protective equipment (left). Local RA auditor interviews a farm worker wearing protective gear (right). learning tool that farmers can readily understand and ior. Support services that enable access to finance and use at their farms to motivate coworkers. that provide ongoing training and education are criti- cal to maintaining sustainable practices. Finally, three Filipinos were trained to become RA auditors. Prior to the project, RA auditors were flown in from the United States or South America to con- duct audits (usually in Unifrutti corporate planta- tions). Having local RA auditors ensures that the ABOUT THE AUTHORS auditing—and if necessary, re-auditing—process can Natalie Macawaris is the Task Leader of the Agribusi- be quickly arranged, lowers auditing expenses, and ness Linkages Program in the Philippines. Prior to joining IFC, she worked as a marketing officer for an makes farmers more comfortable interacting with agribusiness company, an associate aquaculture of- them during the auditing process. ficer of the Food and Agriculture Organization of the United Nations in Samoa, and a marine researcher for The smallholders have acknowledged that, without coastal resources management in the Philippines. the significant support provided by the lead firm and Colin Taylor is the Program Manager of the Agribusi- the business trainers in guiding them through the ness Linkages Program in the Philippines. Prior to join- certification process, it would have taken them much ing IFC, he was an independent consultant, following longer, if ever, to achieve the sustainability standards. a career in international agribusiness companies such as Unilever, Chiquita, and Geest. Carla Zamora-Galinato is the Program Assistant of CONCLUSION the Agribusiness Linkages Program in the Philippines. The Unifrutti, IFC, and Smallholders Banana Farm- Prior to joining IFC, she was a Senior Economic Development Specialist in the public sector, focusing ers Project in the Philippines provides key lessons on on agribusiness development initiatives in Mindanao, how to institute change and increase sustainability. Philippines. Changing mindsets is vital, but it is only the first step. Approved by Tania Lozansky, Regional Head of IFC A sound business case and clear quantifiable benefits Advisory Services in East Asia and the Pacific. for adopting sustainable agricultural practices are the key factors in getting farmers to change their behav- 8 AGRIBUSINESS AND CLIMATE CHANGE Harvesting the Fruits of Your Hard Work, Frustration, and Patience: Implementing an Agribusiness Project in Kandahar, Afghanistan Excited about your new project in a fragile and conflict-affected state? You have used significant time and resources to identify the most promising sector, narrowed down the needs and barriers, had consultations with a wide range of stakeholders on how best you can help, spotted IFC’s additionality, mobilized funds, and fully used all your expertise and experience in designing your project. You have perhaps even run a pilot project to test your approach and incorporated lots of lessons learned in your new “master” project. Now, everything is set, and things can’t go wrong. Right? Not exactly. There is still a long way to go. This SmartLesson describes our experiences and lessons learned in implementing an IFC Advisory Services project in Afghanistan that aimed to improve farmers’ productivity through introducing new processing practices in this fragile and conflict-affected state. BACKGROUND wide change. The project introduced new, simple, Afghanistan is heavily dependent on agriculture as a and affordable production technology based on best source of income and job creation. Fresh and dried practice; trained extension workers and farmers in fruits alone represent 36 percent of total country modern production techniques; and enhanced trad- exports. Out of those, raisins and pomegranates stand ers’ knowledge of potential markets. Significant proj- out as two major commodities with high poten- ect results include the introduction of newly designed tial for growth, while facing limited competition in raisin drying houses, based on the experience of mar- international markets. In early 2006, IFC initiated ket leaders, and their adoption and construction by the Afghan Horticulture Export Development Proj- 10 growers. ect, working with a group of raisin and pomegranate In April 2008, IFC commissioned an independent farmers and traders in Kandahar Province in south- consultant to provide an assessment of the results ern Afghanistan, where 80 percent of employment is achieved in this pilot project. The assessment report related to agriculture and conditions for pomegranate concluded that 1) extension services to farmers and and green raisin production are optimal. the construction of 10 new-style drying houses had The project focused its interventions on improving delivered significant increases in quality, efficiency, performance in production, processing, and market- and productivity; 2) the season’s production demon- ing on a pilot scale and aimed to build knowledge strated that growers can more than triple output with of successful business models to stimulate system- the new drying technologies; 3) pomegranate exten- smartlessons 9 sion activities successfully demonstrated how sorting LESSONS LEARNED and grading can support the growers in achieving up to 80 percent higher prices; and 4) the value of pome- Lesson 1: Be ready to pay the world’s highest granates can be enhanced through basic processing by prices, in the world’s poorest countries. using simple technologies to make secondary prod- ucts and capture the value of byproducts. The $1 million budget for the second phase was established on the basis of the cost of the pilot phase, Building on the success of the pilot project, which factoring in likely price increases during the two years was completed in 2008, IFC launched a second that had passed since the completion of the pilot phase in five districts of Kandahar in late 2009 to project. Taking into consideration two factors— scale up the results and extend its interventions to transfer of international best practice and financial reach a wider audience. Specifically, the project will strength—our first preference was to hire an interna- 1) improve product quality and increase productivity tional consultant for implementation. The request for of green raisin production by farmers by providing expressions of interest (EoIs) was published globally, training in the application of best practices in post- and several proposals were received from a group of harvest treatment, 2) develop a supply chain with international consultants, including the implement- three to five small and medium enterprises (SMEs) to ing consultant of the pilot phase. However, the aver- supply building materials for drying houses and sup- age value of the proposals ranged between $4 million port 100 farmers in building their own drying houses, and $6 million—four times the budget for this sec- 3) improve the product quality of pomegranate pro- ond phase. ducers by providing training in sorting, grading, and packaging, and increase value through exploiting Examining the proposals more closely, we realized byproducts and enabling access to secondary markets, that all prices had inflated exponentially in just two and 4) establish a concrete strategy to build sustain- years. First, nearly 55 percent of the proposed budgets able links between Afghan firms and international were to cover intense security measures as a result of companies. increased hostile activity in the region. Second, prices for the building materials that were required for the The project will further train extension workers from construction of the drying houses had increased the local communities and help establish an extension almost fourfold, compared to the pilot phase. One worker association, which will continue to provide kilogram of steel was three to four times the price of fee-based training and advisory services to farmers what it would be in neighboring Pakistan. Finally, after the completion of the project. implementation costs seemed exaggerated. The exten- sion-worker fees were budgeted six times higher than With secured funding from the Canadian Interna- what a medical doctor would earn in Kabul; and for tional Development Agency (CIDA), we initiated the the one-year lease cost of a motorbike for an exten- implementation of what we thought was a fail-safe sion worker, we could probably buy two in Kabul. project. However, we quickly started to realize that nothing is fail-safe in a fragile and conflict-affected state. Here are some of the key lessons we learned The Lesson: during implementation. When planning for a project in a fragile and conflict- affected state, you should exert extra effort to gather the latest data on prices, cost of implementation, and, 10 AGRIBUSINESS AND CLIMATE CHANGE most important, the security situation and its cost and effort to identify the weaknesses of the NGO implications. Calculations cannot be based on old through open dialogue and incorporated special sup- data by just adding official inflation rates, because port components to mitigate those weaknesses. prices are usually very volatile in conflict environ- ments. Moreover, supply-and-demand forces are The Lesson: unbalanced, and the security situation can change in a minute, resulting in highly elevated security costs. First, in fragile and conflict-affected states, do not assume that the only resources that can implement your project are the international organizations that Lesson 2: Go local, but be careful. you have heard and read about. Dig deep for local When budgets proposed by the international con- resources. You might be surprised at the available local sultants turned out to be four to six times our avail- competencies and capabilities, even for implementing able budget, the project team seriously considered large projects. You might be more surprised when you pulling the plug on the project. All in all, it just did experience the level of enthusiasm and dedication that not seem right to pay at least $4 million to help only local contractors have to serve their own people. So go 1,200 farmers. Before giving up, the team sought one local, not only by selecting a local organization, but other alternative: using local capabilities. An extensive also by being present in the country as much as it takes search was conducted to identify local organizations to establish mutual trust and understanding. Be open with the ability to implement this project. Twelve with what you can and cannot do. Take time, have Afghan consulting companies and nongovernmental patience, and go the extra mile to educate and coach organizations (NGOs) were identified as potential the organization. Investments to enhance the capacity partners, with the help of the World Bank office in of local organizations will have a sustainable and larger Kabul and donors such as CIDA. A call for an EoI positive impact on the community. Enjoy the satisfac- was published locally, and seven organizations sub- tion of your efforts when you receive thanks. mitted EoIs for the project. “Thank you, brother Hazem, for your sup- However, face-to-face meetings revealed that things port and cooperation for the benefit of the were not quite the way they looked on paper. One Afghan people.” of the seven had no previous experience in the field and lacked the organizational capacity to carry out —Program Manager, Afghan Development the activities of the project. The chief executive offi- Association cer of this NGO could hardly speak English, and it was obvious that the EoI was prepared by an outsider. Finally, four proposals were received; and with fur- Second, be careful. Do not allow first impressions to ther negotiation, the project team reached an agree- guide you. Meet with the people, discuss your proj- ment with an NGO within the limits of an increased ect with them thoroughly, and examine their under- project budget of $1.5 million. The selected NGO standing of what is needed. Thorough study will operates in Kandahar, is quite familiar with local con- reveal what they can and cannot do and where they ditions, enjoys a high level of acceptance by the local will need help. In fragile and conflict-affected coun- community, and has easy access to local farmers and tries, great EOIs or proposals do not necessarily mean extension-worker candidates. After the contract was great partners. signed, the project officer then spent significant time smartlessons 11 Lesson 3: Be careful not to contract with an verify achievements, both after the first year of proj- insurgency group to implement your project. ect implementation and at completion. (We already had good candidates for this task as a result of the Although going local seemed to be an ideal solution, “go local” process.) Second, a more comprehensive it also awakened deep concerns in the project team. monitoring and reporting requirement than usual Given the situation in Afghanistan, where the insur- was agreed to with the contracted NGO, covering full gents in some cases are infused in the local commu- details of the beneficiaries, including their villages, nity, the question was, How do we ensure that we do names, photos, and the GPS coordinates of the drying not contract with insurgents to implement our project? houses built. Finally, we agreed with CIDA, which is Consequently, the project team worked on collecting present in Kandahar, to use its local resources to verify information on the bidders through cooperating with the information on project progress submitted by the the World Bank office in Kabul, CIDA, the Canadian contractor, because it would be to CIDA’s benefit as Embassy in Kabul, and several other development donor to confirm the project’s achievements. agencies operating in Afghanistan. Usually, the situa- tion in fragile and conflict-affected states is complex, and sometimes this forces relationships to be struc- The Lesson: tured differently. An in-depth analysis needs to be Always think early on how you will monitor the conducted early before making any commitments. implementation of your project that is running in a remote area where you have limited or sometimes no The Lesson: access. Use local resources, and use technology. Know who you will work with. Start early, and do the integrity due diligence of the organization and Lesson 5: Be mindful that wars do not take into its management team well ahead of time. Internet consideration your project timelines. searches do not yield much information in fragile and Because of the volatile security situation in Kandahar, conflict-affected countries. So allocate extra time, and the project still experiences delays in implementation. spend it on collecting information and listening to views from different sources on potential partners. Farmers training. Lesson 4: Prepare to develop your virtual supervision skills. This project is implemented in Kandahar, where IFC staff are not allowed to visit for security reasons. A major concern at the design of the project was how to monitor the implementation and achievement of project targets. In other words, how could we be sure, while sitting in Kabul or Cairo, that farmers were trained or that the drying houses were actually built? The monitoring plan, constructed early on, consisted of several tools. First, we decided to hire a local independent organization to assess results and 12 AGRIBUSINESS AND CLIMATE CHANGE In June 2010, a large military operation started in Afghanistan has provided extensive practical experi- Kandahar; as a result, many of the farmers in the tar- ence and knowledge that can be used as valuable input get districts of Kandahar were not accessible, because for designing and managing the implementation of they had left their villages and fled to safer areas. The an advisory project in fragile and conflict-affected project team, in cooperation with the contracted states. The key lessons learned have already benefited NGO, accordingly decided to start activities in two other IFC advisory activities that were launched after of the selected five districts of the province—a shift this project (for example, the Business Edge Program from the initial plan to intervene in the five districts for Afghanistan). in parallel. A more flexible project timeline made this change possible, “slicing” the project implementation What is most important, the entire process of work- into smaller components covering batches of activi- ing in Afghanistan and the lessons learned so far have ties that could be implemented independently. For not discouraged our commitment or appetite to work example, the project team kept in constant communi- in fragile and conflict-affected states. On the contrary, cation with the contracted NGO to identify the safe we believe that the potential role of the private sec- regions and consequently decided to roll out activi- tor in improving the lives of people is much higher ties, targeting one-fifth of the farmers at a time and here than elsewhere. We just have to be ready to break organizing the supply of materials in batches of 25 for some of our paradigms, persist in our private sector construction of the drying houses. focus, and plan and follow our work more diligently. The Lesson: When structuring the project timeline, consider the ABOUT THE AUTHORS   unforeseen circumstances that may occur and nega- Hazem Hanbal is a Projects Officer under the Sustain- tively affect your implementation plan. Slice your able Business Advisory Business Line. He joined IFC project activities into smaller components, and always Advisory Services in the Middle East and North Africa in 2008. Hazem has extensive experience in agribusi- have Plan B, Plan C, and sometimes Plan D. ness development, food processing, supply-chain fi- nance for commodities, and international food trade. CONCLUSION Selcuk Tanatar has been with IFC since 2008 and is leading the SME value-chain development and Initially planned as a two-year intervention back in climate-change–related activities under the Sustain- 2008, the project first took off in March 2010 with able Business Advisory Business Line in the Middle the signature of the contract with the NGO, which East and North Africa Region. then started implementation in the field in April Approved by Luke Haggarty, Regional Head of IFC 2010. At this writing, the project is in its eighth Advisory Services in the Middle East and North Africa. month of implementation and has managed to imple- ment one-fourth of the planned activities. Both the IFC project team and the contracted NGO needed to explore and implement a series of unusual practices in getting the project to its current momentum. In spite of the slow mobilization and start-up, the proj- ect has been able to achieve considerable outputs and outcomes that promise significant added value for the farmers in Kandahar. smartlessons 13 Taking Haitian Agriculture to the Cloud: Implementing Google Apps for Government at the Ministry of Agriculture The January 2010 earthquake that devastated Haiti directly affected the infrastructure and personnel of the Ministry of Agriculture, Natural Resources and Rural Development (Ministère de l’Agriculture des Ressources Naturelles et du Développement Rural, or MARNDR). It weakened the ministry’s capacity to lead the country’s economic recovery and food security improvements, and it set back research, innovation, and extension systems in the agriculture sector. In addition, most of the existing information systems and a vast number of electronic and hard-copy documents, including reports, studies, files, statistics, maps, and accounting data, were destroyed. This was due, in part, to the sheer physical destruction of the earthquake— but also because MARNDR lacked a centralized archiving system. This SmartLesson describes the successful introduction of cloud-computing technology to the MARNDR’s information and communications technology (ICT) system as the primary method to manage knowledge and preserve documents for the agriculture sector in Haiti. BACKGROUND urgency led MARNDR and the World Bank to part- The January 2010 earthquake was not the first time ner to strengthen the agricultural knowledge-man- that a destructive event had struck the informa- agement system of the country by making it resilient tion infrastructure of Haiti’s agriculture sector and to future natural disasters and crises and by adapting weakened its capacity to perform. Certain political it to local conditions. events, including the 2004 departure of President MARNDR needed to become more efficient and Jean-Bertrand Aristide and the embargo of the 1990s, transparent and more responsive to farmers’ and the resulted in similar setbacks—for example, the offices sector’s needs. The quality of public agriculture ser- of the Ministry of Agriculture in Port-au-Prince were vices also had to be improved in a sustainable manner. destroyed in 2004, along with archives and computers. After an assessment of public agriculture services in The agriculture sector is especially important in Haiti, we determined that MARNDR’s information Haiti—it generates one-quarter of the country’s gross and communications technology system was at the domestic product (GDP) and provides half of the core of the necessary reforms. The ministry faced a country’s employment. But for MARNDR to lead number of problems, including the following: the country’s economic recovery and provide much- • Low level of official e-mail use by MARNDR staff needed government services, the ministry needs access and extension agents; to reliable information and information systems. This 14 AGRIBUSINESS AND CLIMATE CHANGE • Difficulty making telephone calls and conducting The MARNDR system, deployed across a secure teleconferences—the lack of a landline phone sys- and private network for all ministry buildings in the tem forced staff to use personal cell phones; country, helps address some of these issues by giving workers full access to their information across devices • High costs incurred by staff for electricity, tele- (such as desktops, laptops, and tablets) and platforms phone, transportation, and other services; (such as Windows, Mac, and Linux); allowing them • Absence of secure and centralized electronic archives to work in multiple locations; and leaving fewer data for documents; on vulnerable physical devices. • Difficulty for farmers and agribusinesses to obtain MARNDR does not have 24/7 air-conditioned rooms, official forms or make requests; which makes it difficult and unsustainable to install servers. Furthermore, electricity is not available at • Overall reliance on paper systems and outdated night, requiring staff to constantly back up their files. communications systems. Figure 1: Cloud Computing Cloud computing was identified as the optimal platform for the Haitian agriculture sector’s ICT system smartlessons 15 The cloud-computing revolution—in combination main delivery channels for government services (Box with the explosion in the use of mobile and wireless 1). Lower prices make mobile phones and other devices—presents an exciting opportunity to bridge new technologies more accessible, and technological the digital gap in rural areas of Haiti (Figure 1). It advances allow for more flexibility, greater collabora- has enormous potential to change and improve the tion between agencies, and increased security. Box 1: Improving Communication through Cloud Computing Through the World Bank–financed Strengthening of Agriculture Public Services Project, the Bank and the ministry redesigned the ICT system of MARNDR to be based on cloud technology. The objective was to develop and improve the agriculture sector’s innovation, research, and extension systems, with particu- lar regard to future crises and natural disasters. The decision was made to implement a cloud-computing platform as the primary ICT system for MARNDR. A relatively new technology, cloud computing allows users, using local computers and an Internet connection, to work on and modify files and use applications that are stored remotely. The Bank facilitated an agreement between the government of Haiti and Google, allowing the Ministry of Agricul- ture to use Google Apps for Government. This cloud-technology platform, launched in Haiti in May 2011, offers transparent and effective commu- nications, information-sharing, and collaboration tools for MARNDR staff and departments across the country, and also to other government agencies and partners. Apps for Government allows ministry staff to share and modify agendas and documents and to communicate through e-mail, video conferencing, or phone from any device with Internet access. Meanwhile, the files are safely stored on Google’s servers. The ICT initiative had six components: 1. Installation of network hardware, such as fiber optics and Wi-Fi, at MARNDR offices in Port-au-Prince and in 10 regional offices; 2. Training on the new systems for 200 MARNDR staff and users, with at least 40 hours of training per staff member; 3. A three-week training session for ICT administrators in cloud-computing technology and the Google Apps system; 4. Establishment of sustainable and cost-effective energy sources for the ICT system, such as solar energy, inverters, and batteries (currently no MARNDR office has electricity for a full day); 5. Provision of Internet access through WiMAX and/or satellite; 6. An agreement between the World Bank, MARNDR, and Google to use Google Apps free of charge. 16 AGRIBUSINESS AND CLIMATE CHANGE LESSONS LEARNED be reviewed for cloud computing to be effective as an ICT platform. To maintain security for remote Lesson 1: To design an ICT system in the access, the Bank helped MARNDR introduce a two- agriculture sector, incorporate the needs of factor authentication that relies on a password and a remote users and plan for the worst. code provided by text message. Staff received mobile modems to connect to the Internet, since being able In Haiti, natural disasters, political crises, and even to work from home or a remote area through Internet theft have marred the institutional memory of the connection or mobile phone was a key aspect of the agriculture sector for decades. However, the 2010 project. earthquake was a wake-up call for MARNDR to rethink the ICT system of the ministry and the agri- culture sector of Haiti in general. Planning for a Lesson 2: Enlist extension agents to help worst-case scenario, such as the one in 2010 where introduce a new ICT system to farmers and buildings and equipment collapsed, led to an ICT agribusinesses. system that would have to do away with any local The new ICT platform also needed to respond to physical storage of information. the needs of the stakeholders in the agriculture sec- The system also needed to be equipped with built-in tor—farmers, researchers, and agribusinesses. The alternatives for when the electricity or Internet would extension agent is a pivotal actor, linking these groups be disconnected. Given the daily limitations and char- with the public sector. Finding an ICT solution that acteristics of ICT in Haiti—the need to access mate- extension agents were comfortable with was an essen- rials from rural areas, constant electricity cuts, and tial part of the rapid adoption of new technologies the reliance on cell phones rather than landlines—a in Haiti. MARNDR has conducted tests with exten- solution involved a combination of cloud computing, sion agents by collecting and disseminating real- solar electricity, uninterruptible power supply (UPS), time food-price data from different remote locations laptop and smartphone platforms, and three different within Haiti, comparing the previous handwritten Internet connection technologies (to ensure a backup system to the updated ICT system. Users seem to be option). using more price data for decision making, though no formal evaluation has been conducted yet. Google Apps for Government also allows for offline use, and users can access their mail, calendar, and Lesson 3: To build local capacity and limit documents when they do not have an Internet con- staffing requirements, train ICT specialists— nection. When users reconnect, Google Apps auto- both public and private sector—on cloud matically sends any outbound messages and syncs computing. updates to other documents. Incorporating these features will help prepare the ministry for worst-case One of the key success factors has been creating in- scenarios. country capacity to administer and service the new ICT platform. Cloud-computing applications were Of course, enabling ministry staff to work from uncommon in Haiti, so significant training was built multiple locations raises new security concerns. Pre- into the project, for both MARNDR staff and the viously, security reasons demanded that staff only IT firms that would eventually provide services to the work from government offices, a policy that had to smartlessons 17 ministry. Over 200 users throughout the country will be given 40 hours of onsite training. As a result of ABOUT THE AUTHORS the introduction of cloud-computing technology in Diego Arias is a Senior Agriculture Economist in the MARNDR, three firms in Haiti now offer their own Latin America and Caribbean (LAC) Region of the training in cloud computing and Google Apps. World Bank. He has extensive experience working on agriculture and rural development projects that foster It was also important to build capacity within the innovation and strengthening of public sector institu- tions. Diego has been working with the agriculture ministry. Only four ICT staff members are required sector of Haiti since 2003. to maintain the new system in the ministry; as a result, MARNDR can devote funds to other areas. Today, Nicolas Weber is an expert in cloud-computing strate- gies. Since 2008, he has been working with the gov- MARNDR has a reduced ICT unit supervising one ernment of Haiti, the World Bank, the International of the largest ministries in the country. This low ratio Development Bank, and the U.S. Department of of ICT staff to total ministry personnel would not be Agriculture. He has over 25 years of senior engineer- possible without cloud computing; maintaining serv- ing leadership experience in West Africa, the Middle East, Europe, and Latin America and the Caribbean. ers and the internal network alone would require at least four times as many. Approved by Ethel Sennhauser, Sector Manager, Agriculture and Sustainable Rural Development Unit, LAC Region. CONCLUSION The 2010 earthquake, destructive and horrific, forced MARNDR to rethink its ICT infrastructure. One positive result has been the implementation of a cloud-computing system for MARNDR, conducted with Bank support. Haiti now joins such jurisdictions as the District of Columbia, the city of Los Angeles, and the state of Arizona in using Google Apps as its primary ICT platform. The new system allows past and future agricultural knowledge to be protected, shared, and used, even in times of crisis, and makes the agricultural innovation and extension system more effective and resilient. 18 AGRIBUSINESS AND CLIMATE CHANGE Fish Farmers Meet New Technology Raising the Aquaculture Productivity of Small Farmers in Assam The Assam Agricultural Competitiveness Project (AACP) is exactly the kind of endeavor the World Bank experts warn others about. It is overly complex and ambitious—attempting to integrate the work of seven line departments with 15 interventions (see Figure 1). One of the real successes of the AACP has been intensification of fish farming. So far, the Fish Intensification program has improved the lives of nearly 43,000 families and increased fish production by some 7,000 tonnes annually. And it generates an additional gross income of about $12.25 million per year, of which about half is incremental income (extra money in farmers’ pockets) for small, marginal, and landless farmers. This SmartLesson describes the approach used in the program’s two components—ponds and tanks6—and the positive changes that have resulted. BACKGROUND LESSONS LEARNED Fish consumption is extremely popular in Assam. However, recent estimates indicate that the state Lesson 1: Develop solutions that directly imports about 40,000 metric tons of fish annually, address the small farmers’ needs. worth some $60 million. The AACP baseline survey Fish farming is an enterprise that is particularly suit- revealed that fish yields were low among the small- able for farmers with small areas of land, because it scale farmers who were the project’s beneficiaries (for can generate very high incomes from such areas. In example, 500 kilograms per hectare in ponds and the irrigation-tank enterprises, which are community 875 kilograms per hectare in community tanks).7 The based, many of the farmers are landless. The technol- survey showed low levels of management. Typically, a ogy is scale neutral; that is, needed investments are few small fingerlings were released once a year, with related to the size of the water area farmed, rather no regard for either stocking density or quality. Lit- than large individual investments, which are more tle, if any, feeding was carried out, and there was no suitable for large-scale farmers. attempt to manage the water’s pH. Based on proven best practices, and with the help of a specialist fish consultant, the project developed a semi- intensive production package. The main elements are specific stocking densities (6,000 fingerlings per hect- 6 A tank is a large-scale traditional water-catchment system used in South Asia to store rainwater for surface irrigation. are), the introduction of larger fingerlings, the use of 7 Larger, more commercial fish farming yields were typically lime to deacidify the water (1 metric ton per hect- about 1,000 kilograms per hectare per year. are), and much greater use of fish feed. This higher smartlessons 19 Fish Farmers Meet New Technology Raising the Aquaculture Productivity of Small Farmers in Assam The Assam Agricultural Competitiveness Project (AACP) is exactly the kind of endeavor the World Bank experts warn others about. It’s overly complex and ambitious—attempting to integrate the work of seven line departments with 15 interventions (see Figure 1). One of the real successes of the AACP has been intensification of fish farming. So far, the Fish Intensification program has improved the lives of nearly 43,000 families and increased fish production by some 7,000 tonnes annually. And it generates an additional gross income of about $12.25 million per year, of which about half is incremental income (extra money in farmers’ pockets) for small, Figure 1: Assam marginal, Agricultural and landless farmers. ThisCompetitiveness SmartLesson describes the approach level usedofininputs was expected to result in fish yields the program’s of Project 6 two components—ponds and tanks —and the positive changes that have 3,000 kilograms per hectare per year. The unit cost resulted. of production would be Rs8 30 (about $0.66) per kilo- Figure 1: Assam Agricultural Competitiveness Project gram, as compared with a market price of about Rs 70 ($1.55) per kilogram. Lesson 2: Make it possible for farmers to test the new techniques on their own farms. Enabling smaller-scale farmers to directly try out the new techniques on their own farm was far more convincing than the traditional approach of asking them to visit a field trial. The project used nongov- ernmental organizations, operating at a district level, to mobilize CIGs (common interest groups) of typi- cally 8–20 pond fish farmers and CTGs (community tank groups) of 10–50 people who collectively farm irrigation tanks. These groups received four one-day training sessions covering all aspects of prestocking, stocking, and poststocking management of pond and tank operations. Progressive local fish farmers served 6 as resources. A tank is a large-scale traditional water-catchment system used in South Asia to store rainwater for surface irrigation. 19 a smart subsidy (time-bound, Lesson 3: Provide targeted, and transparent)—and balance it with sound advice to help farmers handle the income spike. The project provides a one-off 90 percent grant for fish inputs and a 50 percent grant for civil works (pond and tank renovation and clearance). During training the point is strongly made that this is a single oppor- Located in Located in northeastern India, northeastern India, Assam Assam an an excellent has has tunity forsubtropical climate farmers to make for the a “super development profit” because of aquaculture ofexcellent in a variety of freshwater subtropical climate for the development bodies. But of the large number of fisheries in the combination of input subsidy and increased state, the pro- of apply few in a technology modern aquaculture bod- techniques. or scientific variety of freshwater duction. The message is clear: this one-time windfall ies. But of the large number of fisheries in the should not be wasted; it should be saved for use as state, few apply modern technology or scientific techniques. working capital in the subsequent year. This subsidy BACKGROUND helps overcome two of the key difficulties that proj- ects face: Fish consumption is extremely popular in Assam. However, it is estimated that the state imports annually about 40,000 metric tons of fish, worth some $60 million. The AACP baseline survey 8 Rs = Indian revealed that fish yields were low among the small-scale rupees. who were the project’s farmers beneficiaries (for example, 500 kilograms per hectare in ponds and 875 kilograms per hectare in community tanks).7 The survey showed low levels of management. Typically, a few small 20 fingerlings were released once a year, with no regard for either stocking density or quality. Little, AGRIBUSINESS AND CLIMATE CHANGE if any, feeding was carried out, and there was no attempt to manage the water’s pH. • Getting farmers to actually take up new technology Lesson 5: Measure the results. or new techniques; and The project’s third-party M&E (monitoring and eval- • Overcoming the problems that poorer or smaller uation) consultants have measured yields both in the farmers have in affording the working capital required support year and in subsequent years (see Figure 1). for these more intensive, higher-input systems. This measuring of results has proven the sustainability of the improved yields and found the following: Lesson 4: Have appropriate procurement and • 87 percent of beneficiaries continued with im- financial safeguards in place. proved production techniques. The project used community procurement, based • There are significant spillover effects as nearby on preapproved district input costs. The process was farmers also take up the technology. verified by the social audit •committee • There are significant commu- of theeffects significant There are spillover spillover as nearby effectsfarmers also as nearby take up farmers the take also up the technology. technology. nity groups and based on the community operation • Each beneficiary in the Fishery Ponds component • Each beneficiary • Each beneficiary in the in the Fishery Fishery Ponds component Ponds component will have benefited will have benefited by 5,560 some Rsby some Rs 5,560 manual. A random ($123)sampleper of subprojects ($123) year. per year. was also will have benefited by some Rs 5,560 ($123) per subjected to physical asset verification visits. year. • • Each beneficiary Each beneficiary of the Tanks the Tanks component ofcomponent will have will have benefited by Rs 2,080 benefited ($46) by per year. Rs 2,080 ($46) per year. • • Of beneficiaries, Of the 43,770 the 43,770 beneficiaries, 41 percent 41 percent are are landless, 42landless, 42 percent marginal percent are farmers, are and marginal farmers, and small the rest are the farmers. rest are small farmers. Figure 1: Sustainable Yield Increases in Tanks and Ponds • • of 13 percent percent 13 all of all the beneficiaries the beneficiaries are women.are women. Figure 1: Sustainable Figure 1: Sustainable Yieldin Yield Increases Tanks and Increases Ponds and Ponds in Tanks Source: Source: AACP AACP reports by third-party reports by third-party M&E M&E consultants. consultants. Source: AACP reports by third-party M&E consultants. CONCLUSION CONCLUSION 22 22 smartlessons 21 0.1 hectare. In total, 26,468 farmers have benefited Fish farmers are able to apply their new knowledge di- rectly to their own work. from 1,832 CIGs. The community tank program cov- ers 461 hectares and 456 tanks and works with a total of 16,311 landless, small, and marginal fish farmers. Beneficiaries are now aware of maintaining specific stocking densities. They understand the importance of maintaining an optimum water pH through the application of lime (CaO) and the necessity of using quality fingerlings. As a result, the farmers have increased their fish productivity by 200–500 percent. What is proving to be even more impressive is that these changes in production technology now appear firmly embedded into the way these fish farmers oper- ate. The reason is believed to be twofold: • Beneficiaries have clearly taken onboard that this is a one-off opportunity to make a super profit, and they have saved some of this money for their work- ing capital in subsequent seasons. • Farmers are not just observing an experiment or a field pilot; they are directly engaging with the posi- tive impact of the technology. • Each beneficiary of the Tanks component will have ABOUT THE AUTHORS benefited by Rs 2,080 ($46) per year. Grahame Dixie joined the World Bank in 2006 as the Agribusiness and Marketing Specialist in South Asia. For the last year, he has worked as the Agribusiness Unit • Of the 43,770 beneficiaries, 41 percent are landless, Team Leader in the Agriculture and Rural Development 42 percent are marginal farmers, and the rest are Department. Grahame was the Task Team Leader of the small farmers. Assam Agricultural Competitiveness Project from the midterm review in late 2007 until January 2011. • 13 percent of all the beneficiaries are women. Manivannan Pathy is the current Task Team Leader of the Assam Agricultural Competitiveness Project. Prior CONCLUSION to joining the Bank in 2006, Manivannan worked for about 12 years in various capacities with leading This approach has proved very popular, bringing a private sector agribusiness companies in India radical change to fish farming in Assam. Altogether, Approved by Mark Cackler, Manager, Agriculture and the project has covered a water area of about 2,500 Rural Development Department of the World Bank. hectares of individual farmers’ ponds, each one about 22 AGRIBUSINESS AND CLIMATE CHANGE Lessons on Food Security smartlessons 23 Grain by Grain: From Punjab to Global Lessons from the Breadbasket of India Wheat is a staple of basic nutrition in India—from open-flame soft chapati to tandoor-fired crispy roti—and hence is a matter of national importance. The Food Corporation of India (FCI), an undertaking of the government of India, is responsible for distributing wheat from producing states to the rest of the country at subsidized prices to ensure the 330 million poorest individuals access to basic sustenance. Now as a result of food-security policy reform, rising commodity prices, and bumper harvests in recent years, India is faced with a problem of plenty: how to store the surplus grain! This SmartLesson is the story of how IFC worked with multiple stakeholders to provide a solution to the problem—and some lessons we learned along the way. BACKGROUND product (GDP), compared with the national average of 26 percent. Roughly half of the 16 million-ton At the end of FY 2010, India had a stockpile of more stockpile is stored in Punjab, with 6.5 million tons than 16 million tons of wheat, 130 percent higher stacked in CAPs. The government of Punjab and its than its minimum buffer norm of 7 million tons.9 Ministry of Food and Civil Supplies recognized the Between rice and wheat, the stockpile totaled nearly urgent need for improved storage of the 6.5 million 61 million tons. With only 42 million metric tons tons. of available storage in covered godowns (warehouses), the remainder is stored in makeshift covered area Given Punjab’s production capacity relative to the rest plinth (CAP), or platform, facilities.10 of India, the Food Corporation of India steps in to Because rice has priority in covered godowns, wheat procure and distribute wheat to less productive states is largely stored in CAPs, which are susceptible to through the Public Distribution System (PDS). FCI losses and rotting. With 25.4 million tons of wheat purchases wheat from the government of Punjab’s procured in India in FY10 at the then minimum sale grain procurement agencies and reimburses the agen- price of Rs11 10,800 per ton, even a 2 percent loss cies for storage costs. Thus, any initiative by the gov- costs the government nearly $110 million per year.12 ernment of Punjab would need the blessing of FCI. In Punjab, the “breadbasket” of India, agriculture con- In 2009, the government of Punjab asked the World tributes almost 40 percent to the state gross domestic Bank to help resolve the storage gap, and the Bank asked IFC to step in. IFC’s Public-Private Partner- 9 Kaushik Basu, The Economics of Foodgrain Management in ship (PPP) Transaction Advisory team in New Delhi India (New Delhi: Chief Economic Adviser to the Union Finance responded with a concept for a modern storage PPP Ministry, September 2010): 25. 10 Planning Commission Concept Paper (September 2011): 3. and soon thereafter was hired as lead transaction advi- 11 Rs = Indian rupees. sor to the Punjab State Grains Procurement Corpora- 12 Calculation: 25.4 metric tons x 2 percent x Rs 10,800 per ton tion Ltd. (PUNGRAIN). ÷ 50 (Rs 1 = $50). 24 AGRIBUSINESS AND CLIMATE CHANGE FCI had previously contracted a grain storage silo By multiplying the minimum sale price (MSP) for PPP in Punjab through a business model that incor- wheat (FY10 MSP Rs 10,800 per ton) by 50,000-ton porated transport and logistics in addition to storage. capacity and the estimated loss from not storing in IFC had to prove to the previous silo project champi- silos, one can arrive at the estimated fiscal loss. For ons that the new, simpler silo business plan was a step example, a 1 percent estimated loss would result in in the right direction and to the officials who favored an Rs 54 lakh14 ($108,000) opportunity-cost gain for cheaper (and lower quality) storage that the higher silos.15 rental rate would offset losses. The rate at which FCI was reimbursing PUNGRAIN The project was awarded in May 2010, but due to the (Rs 890 per metric ton per year) implies an additional hurdles remaining between the government of Punjab cost of the silos PPP of Rs 285 per metric ton per and FCI, the concession agreement was not signed year,16 or Rs 142.5 lakh ($285,000) for 50,000 metric until July 2011. tons of storage in Year One.17 Solving for the break- even loss (L): LESSONS LEARNED PPP Storage Charge (Rs) – FCI Reimbursement Lesson 1: How to address a weight problem Rate (Rs) = MSP (Rs) x L% when the subject does not admit that he has a Rs 1,175 / ton – Rs 890 / ton = Rs 10,800 / ton x L% weight problem: refocus the argument. L = 285 / 10,800 = 2.6% On December 12, 2011, Indian Food Minister K. V. Thomas declared that on FCI’s account “no stock of With 2.6 percent wheat loss or more, the silos are wheat and rice got damaged due to insufficient stor- more economical (see Figure 1). age space.”13 While IFC was anecdotally apprised of losses of grain of up to 20 percent due to poor stor- age, the team also encountered other statistics, in line Lesson 2: If the roti is not perfectly round, is with the food minister’s statement, that attempted to it still worth eating? (Yes.) Don’t attempt to demonstrate zero losses—and even gains in volume change everything! due to moisture. Thus, in proving that the silos PPP IFC reviewed the entire value chain of the grain pro- represented value for money, we could not make an curement and distribution system (see Figure 2). In assumption about the actual loss. our feasibility analysis, we debated the merits of a Instead, we illustrated the breakeven point of losses where silos would make economic sense. This sepa- 14 Lakh indicates a multiple of 100,000. rated the argument from a debate on “what is the 15 50,000 tons of wheat x 1 percent loss x minimum sale price of right loss figure?” to “the government of Punjab and Rs 10,800 per metric ton = Rs 5,400,000 ($108,000). 16 Difference between the PPP Storage Charge of Rs 1,175 per FCI should think about reforms if they believe losses metric ton per year and FCI reimbursement of Rs 890 per metric could be over 3 percent per year, either now or in the ton per year = Rs 285 per metric ton per year. future.” 17 The Storage Charge increases by a formula devised in the Con- cession Agreement, taking into account India Central Warehous- ing Corporation storage rates, taxes on the Minimum Support Price of wheat, and Wholesale Price Index (a proxy for inflation). Thus, it will not always be Rs 285 per ton difference from the FCI 13 Press Trust of India (December 12, 2011). reimbursement rate. smartlessons 25 additional cost of the silos PPP of Rs 285 per metric ton per year, or Rs 142.5 lakh ($285,00 for 50,000 metric tons of storage in Year One.17 Solving for the breakeven loss (L): PPP Storage Charge (Rs) – FCI Reimbursement Rate (Rs) = MSP (Rs) x L% Rs 1,175 / ton – Rs 890 / ton = Rs 10,800 / ton x L% L = 285 / 10,800 = 2.6% With 2.6 percent wheat loss or more, the silos are more economical (see Figure 1). Figure 1: FCI Additional Payout for Silos Figure 1: FCI Additional Payout for Silos  Lesson 2: system bulk-handling If the compared roti is not a bagged-grain withperfectly round, is it 3: Lesson Breaking still worth bread with (Yes.) eating? the client—early Don’t attempt to cha system and presented our findings for a more efficient in the subcontracting process is better than everything! system to the governments of Punjab and India. We later. acknowledged the political bottlenecks in effecting any change to the system (namely concerning the IFC subcontracts certain work to consultants who are IFC reviewed the entire value chain of the grain hired procurement according to World BankandGroup distribution procurement system (see Fig bagged dispatch and distribution through commis- 2).agents), sion In our feasibility but analysis, we held to our we holistic view ofdebated a bet- policies. the meritsTypically, of aclient approval is not bulk-handling necessary, system compared with ter system to see whether we could make a difference. because the contract relationship is directly between 14 IFC and the consultant. In practice, however, con- The Lakh indicates client’s a multiple singularity of purposeof 100,000. helped us focus sultants have to work closely with the client. In this 15 50,000 tons of wheat x 1 percent and rethink phasing of reforms. The final projectloss x minimum sale price project, of Rs 10,800 PUNGRAIN per views had strong metric on ton the= Rs 5,400,000 initial ($108,000). structure centers on introducing an efficient storage technical consultant shortlist that IFC shared once it 16 Difference between the PPP Storage system while allowing for future reforms in transpor- Charge of alreadyper Rs 1,175 had theton metric notified per year consultant and FCI reimbursement of Rs bidders. per metric tation ton per and handling. year = Rs Although 285 it is per ideal tometric ton per year. strive for 17 The Storage Charge holistic system reforms, project-level interventions devised increases by a formula Realizing that in the the difficulty Concession of hiring a Agreement, consultant taking into account India Central that Warehousing achieve some but not Corporation all goals can storage serve as an taxes rates, not favorable to the client on the Minimum could be Support fatal of Price to wheat, the proj-and Wholesale P Index (a proxy for inflation). engine for broader changes. Thus, it will not ect, always IFC be restarted Rs 285 the per procurement ton difference process, from delaying the FCI reimbursement the project timeline by three months. IFC would do 26 AGRIBUSINESS AND CLIMATE CHANGE bagged-grain system and presented our findings for a more efficient system to the governments of Punjab and India. We acknowledged the political bottlenecks in effecting any change to the system (namely concerning the bagged dispatch and distribution through commission agents), but we held to our holistic view of a better system to see whether we could make a difference. Figure 2: Grain Movement in Punjab Figure 2: Grain Movement in Punjab  1. Commission agent delivers grain to the silo in bags, handled by the silo operator. (1) Commission agent delivers grain to the silo in bags, handled by the silo operator. 2. Silo (2) Silooperator operator quality allgrain checksall quality checks grain received, received, accepting accepting grain grain within within the standards the standards specified. specified. (3) Silo operator gives PUNGRAIN confirmation of quantity and quality of grain accepted. 3. Silo operator gives PUNGRAIN confirmation of quantity and quality of grain accepted. (4) Silo operator issues payment slip to farmer according to grain delivered. 4. Silo (5) issues directions operatorissues PUNGRAIN payment slip tooperator to silo of grain for releaseto farmer according grain.delivered. (6) issues grain Silo operator issues 5. PUNGRAIN toin to PDS directions bags. silo operator for release of grain. (7) PUNGRAIN pays silo operator a storage charge and variable charge (for each movement) during 6. Silo operator concession issues grain to PDS in bags. period. 7. PUNGRAIN pays silo operator a storage charge and variable charge (for each movement) during concession period. The client’s singularity of purpose helped us focus and rethink phasing of reforms. The final project structure centers on introducing an efficient storage system while allowing for future reforms in transportation and handling. Although it is ideal to strive for holistic system wellreforms, to seek the client’s buy-in project-level at the procurement interventions tural storage that achieve some but not now isall an eligible goals sector can serve anViability Gap asfor shortlisting stage to preempt engine for broader changes. any conflicts other- Funding from the government of India, an amend- wise unknown to IFC. ment for which IFC had lobbied to ensure economic Lesson 3: Breaking bread with the client—early in the feasibility of projects subcontracting is better the and alleviate process thanfiscal burden CONCLUSION later. at the state level. The Punjab Silos PPP project rep- resents only a piece of the food distribution value Private sector solutions for grain storage represent chain, but it demonstrates a transformation in policy an IFC intervention to a highly developmental sec- thinking on how to more efficiently feed a country’s tor, with high-stakes implications for food security. In 27 population. The government of India has now set India, we have seen a sea change of policy attention out to develop a 2 million-metric-ton pilot of simi- since the start of the project in early 2009. Agricul- larly modeled grain silos PPPs throughout India in smartlessons 27 consumption centers, addressing a gap in the ability of receiving states to store grain beyond the harvest season. ABOUT THE AUTHORS Jay Lurie is an Associate Investment Officer in IFC SCATTERING OUR GRAIN Advisory Services in Public-Private Partnerships, South Asia, and a member of the global agribusiness PPP Admitting its imperfections but glowing in its inno- sector team. Based in the New Delhi office since vative solution to a global food security problem, IFC joining IFC in 2009, he brings previous experience in infrastructure finance and capital markets from endeavored to take the lessons of Punjab, India, to Macquarie Capital, Credit Suisse, and UBS. other geographies. The first example of replication is in neighboring Pakistan, where the topography and Neeraj Gupta is a Senior Investment Officer in IFC Advisory Services in Public-Private Partnerships, South grain procurement system are broadly similar to that Asia, and leads the global agribusiness PPP sector of India. IFC is supporting the governments of Sindh team. He was the Project Leader for this project. Prior and Punjab, Pakistan, on silos projects representing to joining IFC in 2007, Neeraj had over 13 years of experience in management consulting firms such as more than 1 million metric tons of wheat storage, PwC and in the World Bank. adding certain elements (such as ancillary land devel- opment availability and wheat grading) to the com- Approved by Sujata Lamba, Senior Manager, IFC Advisory Services in Public-Private Partnerships, South plexity of the projects. Asia; Vipul Bhagat, currently Chief Investment Officer, IFC Advisory Services in Public-Private Partnerships IFC also has indications of significant interest in (Manager of the PPP Business Line in South Asia at similar projects from Sub-Saharan Africa and East the time of the transaction). Asia, where grain losses and rotting are also prevalent. Governments and procurement agencies are realizing that they can defer large upfront payments on stor- age facilities and outsource the technical operations to private sector experts. Here we have “farmed out” the small pilot project in Punjab to catalyze global reforms in a priority sector. 28 AGRIBUSINESS AND CLIMATE CHANGE From Crisis Response to Sustainable Strategy: Addressing Food Security in Nepal Emerging from more than a decade of conflict—and subject to significant geographical, economic, and social disparities—Nepal has struggled to meet the food needs of its population, despite a heavy reliance on agriculture. Limited arable land and limited access to market infrastructure have made some areas particularly food insecure, resulting in increased migration from these areas because of distress and lack of opportunity. In 2008, the World Bank began working with the Nepalese government through the Nepal Food Crisis Response Program (NFCRP) and since 2004 has supported the Poverty Alleviation Fund. This SmartLesson shares insights gained during this ongoing support. BACKGROUND As in much of South Asia, malnutrition levels in Nepal has enormous geographic and social diversity. Nepal are alarming. An estimated 39 percent of chil- Its elevation ranges from less than 100 meters (328 dren under five years of age are underweight, and 49 feet) in the Terai to the 8,800 meters (29,000 feet) of percent suffer from stunting, according to the 2006 Mount Everest. The country’s population of 26 mil- Nepal Demographic Health Survey. Nepal’s children lion people, 14 percent of whom are currently food also suffer from vitamin and mineral deficiencies: the insecure, includes 100 caste or ethnic groups, accord- prevalence of anemia is 74 percent in children under ing to the 2011 census. two years. Food prices are constantly increasing, and transport Communities in marginalized areas in Nepal are costs for this landlocked and politically fragile state highly vulnerable to internal and external factors, can add significantly to the cost of food and other such as increasing global food prices, political insta- essential items in remote communities. Nepal’s bility, and natural hazards. Despite remittances that national annual food price inflation remains about provide some level of succor for these communities, 16 percent. Since Nepal’s poorest households spend rising expenses make it difficult for remittances to more than 75 percent of their income on food, high translate into long-term income-generating opportu- prices will continue to frustrate efforts to alleviate nities for these households. poverty. Natural disasters or political instability can The NFCRP began in 2008 as an emergency response. affect the transportation network throughout the The strategy was to access food and basic needs for country, which adds to the challenge of transporting vulnerable households in the short term in food-inse- food. In addition, the country has a high dependency cure districts. Using a community-based investment on rain-fed agriculture and has experienced a series of approach, Nepal responded with investments in criti- droughts in food-insecure areas. cal infrastructure, such as roads, bridges, irrigation smartlessons 29 schemes, and construction and rehabilitation of com- in the long term, and it might also provide medium- munity buildings. In 2010, the food crisis response and short-term solutions to vulnerable households, incorporated a more comprehensive, longer-term building a foundation for a more sustainable self- strategy to build a better system and increase resil- support strategy, with high returns from appropriate ience in Nepal’s most food-insecure areas through a infrastructure and income-generation investments. market approach that encouraged income-generating investments and improved infrastructure. For instance, the impact evaluation of the Nepal Poverty Alleviation Fund (PAF) estimated that an investment of $33.83 million on income-generating LESSONS LEARNED activities yielded a return of $71.70 million for nearly 800,000 beneficiaries, or a return of 74 percent. The Lesson 1: Show them the bill! Help the return on PAF investments in infrastructure is esti- government see the true cost of short-term mated to be 140 percent. The overall economic return responses, which do not always address of PAF investment is 79 percent. long-term needs or help create a change in perspective. To help the government increase awareness of the cost of short-term, year-on-year responses, the NFCRP Assess the cost involved in a food-security emergency team worked with the Ministry of Local Development response as opposed to a long-term poverty-allevia- and the World Food Program to reorient the public tion strategy. A short-term strategy requires high costs works program toward agriculture asset creation as a in a short period and high involvement of donors, way to provide livelihood opportunities to the food and returns are limited to ensuring that those who insecure. This process will also help the Ministry of are most chronically food insecure are supported dur- Local Development identify vulnerable households ing lean periods. By contrast, a long-term strategy that will require long-term support through safety requires sustained lower levels of expenditure over a nets and those that will eventually be able to move long period of time and higher government involve- toward a more food-secure status through the use of ment, and returns are proven to be higher. the assets created by the public works efforts. For the past 15 years, donors have responded through short-term aid to the World Food Program and other Lesson 2: Understand the context—and build agencies to provide relief to chronically food-insecure on existing delivery mechanisms. areas. The government has not seen the full cost of this effort, because much of the support is off-budget and Use existing strengths. Post-conflict countries don’t through emergency humanitarian response. The coun- have strong service-delivery mechanisms, and com- try receives an average of $60 million to $70 million munities know what they need. The food crisis per year from donors for feeding food-insecure popu- response in a post-conflict environment required lations. Over the last three years, the country received a delivery mechanism for the implementation of a an average of $50 million per year from donors for short- and longer-term strategy. More than a decade feeding food-insecure populations. This approach will of conflict left Nepal with a weak government struc- eventually translate into higher returns to healthier ture in remote areas, where even now there are no human capital—if support is sustained. However, elected local governments and local councils. The applying the resources to a poverty-alleviation strategy more remote a district, the more likely the position is may well translate into a higher-value human capital vacant with, at best, an acting official. 30 AGRIBUSINESS AND CLIMATE CHANGE Investments in livestock are a common priority to increase capital for women in Nepal. smartlessons 31 Meanwhile, communities keep their development which means the farmers don’t have to travel as far to process alive, try to overcome their challenges, and transport the inputs to their farms. take advantage of the opportunities as they appear. In Nepal, community organizations have a long his- Also, invest in the development of quality agricultural tory of effective administration, and they function as input markets. Although fertilizer supply constraints a support mechanism for rural populations where the are often difficult to address in the national context government is absent or weak. Public goods managed and may require solutions at the regional level, this is by communities are recorded by the community orga- not the case with source seeds. It is possible to address nizations and registered in local government plans. improved provision of good-quality source seeds to increase productivity within a small country such as Furthermore, community organizations in the coun- Nepal. The food response strategy involves financing try have taken a lead role in building resilience to the production, processing, quality assurance, bagging, external shocks, with strategies that allow them to and storage of pure breeder and foundation seeds for direct their own development path within their own further multiplication of varieties with better nutri- limitations. Communities have been investing in a tional qualities, which can partially offset the impact comprehensive multisectoral strategy and therefore of climate change in food-insecure areas in the country. a longer-term solution. Not surprisingly, food-inse- cure areas invest heavily in increased food production The seed sector is also particularly attractive for pri- and access to markets, by their own preference. The vate sector investments. Market development of approach used by the Bank’s program of support is to agricultural inputs, especially quality seeds with char- build on these community preferences and ability to acteristics that adapt to specific environments and cli- work together. mate change, is critical to sustaining and increasing agricultural productivity and can help motivate pri- vate sector investments. An increased perception that Lesson 3: Be alert to opportunities to develop quality breeder seeds are becoming available is already markets that have a large unattended resulting in interest from seed companies to increase demand—such as fertilizer and seeds. investments in this sector. Take advantage of the opportunity to address supply constraints, which may have a greater impact than Lesson 4: Map it, show it, and perform—make just on your immediate objective. The food-security information a tool for planning. crisis strategy in Nepal includes the production of quality seeds as well as the transportation of fertil- Data can be overwhelming. Fortunately, advances in izer and seeds in the most food-insecure districts. visual data analysis make it easier to detect outliers, The government of Nepal has put into operation a carry out analysis, and provide guided analytics to program to supply chemical and organic fertilizers project teams, government, and the general public. and improved seeds at subsidized prices to farmers in Displaying spatial information provides a platform remote areas (mountains and hills), where the cost of for project developers to identify gaps and opportuni- transport adds significantly to the cost of these inputs ties. Showing layered spatial data of different projects, to the farmer. The food crisis response includes sub- indicators, infrastructure, and natural resources is sidized targeted transportation costs of these inputs useful for visual data analysis. It also has proven to be from road head to the district headquarters and estab- a good way to communicate complex databases that lishes several distribution centers within a district, frequently are not interconnected. 32 AGRIBUSINESS AND CLIMATE CHANGE Figure 1: Map of Community-Targeted Interventions Addressing Food Insecurity in Nepal Figure 1: Map of Community-Targeted Interventions Addressing Food Insecurity in Nepal 1. Karnali region, 100% covered by the Poverty Alleviation Fund 1. Karnali region, 100% covered by the Poverty Alleviation Fund 2. Location 2. Location of public of public works works developed developed through through the Socialthe Social Safety Safety Nets Project Nets Project 3. Location of irrigation schemes implemented by the Irrigation and Water Resources Management 3. Location Projectof irrigation schemes implemented by the Irrigation and Water Resources Management Project 4. Location of areas covered by fertilizer distribution financed by the Social Safety Nets Project 4. Location 5. Locationof areas covered of water by sanitation and fertilizer distribution schemes financed by the financed bySocial Safety Water Nets Project the Rural Supply and Sanitation Project 6. Location of breeder seed production centers financed by the Social Safety Nets Project 5. Location of water and sanitation schemes financed by the Rural Water Supply and Sanitation Project 6. Location of breeder seed production centers financed by the Social Safety Nets Project CONCLUSION Furthermore, providing open access to this informa- villages. The map has been used to address coordi- tion improvesconceived Initially transparencyas an and emergencyand accountability, response, it the between nation Nepal Food Crisis projects Response and absence Program used the of interventions crisis enables as a way strategic to increase coordination betweenawareness that investments local and cen- in agriculture in certain areas andpopulations where vulnerable safety nets are live, tohighly tralnecessary authorities andin the country. the civil A society. food1strategy Figure provides embedded in a longer-term promote discussions, and to poverty-alleviation encourage the imple- strategy has the potential to create assets an example of how data visualization software can be that translate into returns in the short, medium, and long terms mentation of more appropriate strategies. for in helpful detecting outliers. vulnerable The map populations. shows It also the has Kar- the potential to involve private sector investors, who might region, nalisee it as anmost the food-insecure opportunity region inaNepal. to address that has been unattended. A long-term poverty- demand CONCLUSION In layers, it shows alleviation the location strategy of four different increases governmentcom- ownership, improves aid effectiveness, and enhances munity-targeted Initially conceived as an emergency response, the communityprojects that address participation food security in local in investments. the country. The map allows a quick view of the data, Nepal Food Crisis Response Program used the crisis using color to highlight interventions inthe clusters of as a way to increase awareness that investments in Challenges remain in realizing full value of these necessary inroads, but the program has successfully generated a conversation about the cost of short-term emergency responses, the value of longer-term livelihoods programs that build on community strength, the opportunities to information to produce find sustainable solutions to productivity constraints, and the power of smartlessons 33 informed decisions that make the best use of scarce financial resources. agriculture and safety nets are highly necessary in the country. A food strategy embedded in a longer-term ABOUT THE AUTHORS poverty-alleviation strategy has the potential to create Gayatri Acharya, Senior Economist and Country Sec- assets that translate into returns in the short, medium, tor Coordinator, Agriculture and Rural Development and long terms for vulnerable populations. It also has in Nepal, has worked with the World Bank for the last 12 years on rural development, agriculture, environ- the potential to involve private sector investors, who ment, and social development. might see it as an opportunity to address a demand that has been unattended. A long-term poverty- Mirella Hernani, a Consultant specializing in agricul- ture, rural development, and social development, alleviation strategy increases government ownership, worked with the World Bank for the last eight years. improves aid effectiveness, and enhances community Mirella is currently involved in monitoring agriculture participation in local investments. and rural projects in Nepal. Approved by Simeon Ehui, Sector Leader, South Asia Challenges remain in realizing the full value of these Agriculture and Rural Development (SASDA). necessary inroads, but the program has successfully generated a conversation about the cost of short-term emergency responses, the value of longer-term liveli- hoods programs that build on community strength, the opportunities to find sustainable solutions to pro- ductivity constraints, and the power of information to produce informed decisions that make the best use of scarce financial resources. The food-security-focused poverty-alleviation strategy has resulted in more cultivated areas for the most insecure. Shown here is a proud beneficiary of the Poverty Alleviation Fund. 34 AGRIBUSINESS AND CLIMATE CHANGE Lessons on Climate Change and Natural Resource Management smartlessons 35 Adapting to Climate Change in Bangladesh: Stress-Tolerant Seeds for Stress-Prone Regions In the event of global climate change, agriculture will be one of the worst-hit sectors in Bangladesh. Increasing global temperatures, rising sea levels, and melting polar ice caps result in land submergence, salinity intrusion, drought, and so on. All of these occurrences drastically affect agricultural productivity and, by extension, food security as well as the livelihoods of millions of people. Bangladesh, a low-lying deltaic country, is predicted by the international community of experts to be one of the first countries affected, and it has already been experiencing serious impacts of climate change, particularly in the agriculture sector. The Agribusiness Advisory team in Bangladesh has been working on a project focused on climate change adaptation and building resilience of the resource-poor farmers. This SmartLesson describes the team’s experience. BACKGROUND crop cycles, bringing new challenges to sustainable Since Bangladesh is only 10 meters above sea level, it agriculture. For example, rising salinity levels in the faces the risk of losing 17 percent of its land mass and coastal regions have made the traditional seed variet- the displacement of 20 million people as a result of ies redundant, and a belated monsoon brings forth a a rise in sea level. Agriculture is the major economic cascading negative effect on the subsequent produc- driver in Bangladesh, accounting for 20 percent of tion cycles. An increase in rainfall intensity and the gross domestic product (GDP) and 65 percent of the occurrence of flash floods and tidal floods have made labor force. Of the total 9 million hectares of arable farmers even more vulnerable. land, over 50 percent have already been affected by Added to this is the disproportionate growth of popu- salinity intrusion, submergence, or drought. Crop lation (1.50 percent per year) and loss of arable land yields have dropped to as low as 1.0 metric ton per (1.75 percent per year). By 2025, an additional 19 hectare in affected areas (the average yield being 4.5 million mouths are to be fed by a relatively poorly metric tons per hectare). performing agriculture sector. Failing to take timely Between 1991 and 2000, 93 major disasters were and appropriate adaptive measures and to build the recorded, resulting in nearly 200,000 deaths and caus- coping capacity may result in catastrophic conse- ing $5.9 billion in damage, with severe losses in agri- quences with regard to food security and livelihoods culture. Cyclonic storms and tidal surges in the Bay for a growing population vulnerable to the impacts of of Bengal have become more frequent and intense. climate change. Changes in rainfall patterns are adversely affecting the 36 AGRIBUSINESS AND CLIMATE CHANGE THE PROJECT Development Corporation, the public sector agency To address some of these constraints and chal- responsible for supply of agri-inputs to farmers. lenges, IFC is working with leading seed companies Thus, the team undertook stepwise initiatives to induct to increase the production, distribution, and adop- the relevant stakeholders, mobilize key partners, design tion of stress-tolerant seed varieties, and to promote specific projects, and ultimately roll projects out into these varieties to farmers who desperately need them the field. This led to the implementation of activities but are not aware of their availability or the farming to strengthen the production, supply, and adoption of practices the new seeds require. These seed varieties stress-tolerant varieties in the coastal belt of the coun- can withstand prolonged periods of submergence, try with four of the lead firms in the sector. During high levels of salinity, and drought conditions. The the first three months of the implementation activities, use of stress-tolerant seeds has demonstrated a drastic over 300 lead seed growers, dealers, and retailers were reduction in crop damage in affected regions. Yields exposed to the varieties and their production process have been found to be as high as 5–7 metric tons per through field demonstrations. Training manuals on hectare in many regions. Development and promo- production of stress-tolerant varieties of rice have been tion of stress-tolerant seeds, and the establishment of developed to build the capacity of the contract-grower an efficient distribution system, are elements of one farmers and the technical team of the lead firms, to of the effective interventions for climate change adap- ensure that they meet the potential demand. tation in the agriculture sector, thereby contributing to food security and to the building of farmers’ eco- LESSONS LEARNED nomic resilience. Notwithstanding the importance of climate change Lesson 1: Work bottom-up to identify specific issues in the arena of global development these days, constraints. there are few projects worldwide that address cli- Climate change adaptation is truly a context-based mate change adaptation—particularly with a focus need, even within a country. In Bangladesh, the south- on mobilizing private sector capacity and resources ern coastal regions are suffering from salinity intrusion to meet the adaptation challenges. Thus there is lim- and submergence, while the northern region is suffer- ited opportunity to build on past initiatives. Each of ing from water shortage and drought. Thus, the needs the affected countries is setting its own objectives and of the specific location, the current practices, and the identifying approaches to deal with its own specific capacity of the community to adapt have to be care- constraints in adapting to climate change. fully considered in designing projects to suit the par- When the Agribusiness team of Bangladesh started ticular needs. For example, in Uganda, a development evaluating the prospect of building adaptation proj- project distributed drought-tolerant seed varieties ects around the use of stress-tolerant seed varieties, among farming communities and went back at the end the importance and role of these varieties were not of the crop season to check on the field performance of clear to many stakeholders. The release process of new the varieties. The project team was shocked to see that seed varieties was slow. Policy was not favorable. The there were no crops in the field. When asked why they private sector had yet to see the business prospects. had not planted the seeds they were given, the local The public sector was slow and took a silo approach, people responded that they were suffering from the relying mostly on the Bangladesh Agricultural effects of a huge famine, and they ended up eating the seeds instead of planting them. smartlessons 37 In our own context we first conducted a detailed sec- retary of the Ministry of Agriculture, and the min- tor study and baseline surveys to identify the criti- ister of agriculture herself. That was an exceptional cal constraints faced by the farmers. We then worked event, where the public and private sector representa- closely with government research and extension tives jointly worked out their roles and responsibili- agencies to evaluate further results coming from the ties in promoting stress-tolerant rice in Bangladesh. field and the resultant innovations that can address Following the workshop, we formed a core group, the constraints. This helped us understand the criti- with public and private sector representation, that cal constraints being faced by the farmers, whether provides an effective platform for us to interact with the stress-tolerant seed varieties would be beneficial all stakeholders. to them, whether they would use them, what kind of pricing would make the product marketable, what Lesson 3: Raise awareness at multiple levels. the technical limitations of the farmers are with regard to using the varieties, what other input requirements For new initiatives, it always helps to gain momen- there are (irrigation water, for example), what the tum around the focus area of the project. Several production- and supply-related constraints are (from high-level workshops, seminars, and conferences the perspective of the seed companies) to ensure a highlighted the importance of stress-tolerant seed consistent supply of the varieties to the market, what varieties in the context of Bangladesh. Diverse groups the policy and regulatory issues are, and so on. of stakeholders were introduced to the product and its importance. The initiatives provided multipronged The project design then took all of these aspects into benefits to the project. On one hand the private sec- account. tor stakeholders started taking the issue seriously, and on the other hand it provided us access to all the key Lesson 2: Effective stakeholder engagement: public institutions linked to the research, release, pro- understand how critical the public sector role is. duction, and supply of these varieties. These initia- tives provided us, as champions of work in this field, Agricultural research and extension in Bangladesh smoother access to both groups, and helped us act as are still spearheaded by the public sector agencies. In a catalyst in bringing them together into more col- our specific project context, the private sector entry laborative initiatives. For example: into this business opportunity to meet the adapta- tion challenges was entirely dependent on access to • The private sector needed to see the business aspect breeder seeds of the stress-tolerant varieties from the in the area of stress-tolerant seeds, and to make the Bangladesh Rice Research Institute for multiplication extra effort to research and develop their capacities by the private seed companies. Further, collabora- to produce, distribute, and supply the seeds to the tion with the Department of Agricultural Extension farming community. We took this need into ac- is critical for the private companies to leverage their count for our promotional efforts that were focused extension networks in the market development of on the private sector. new products. • To draw attention to the project, we engaged the In one workshop, we were able to mobilize five direc- big names in the private and public seed sectors. tors general of relevant public sector agencies within Their strategic engagement helped kick-start initia- the National Agricultural Research System, the top tives and gain support for the projects. management of all leading seed companies, the sec- 38 AGRIBUSINESS AND CLIMATE CHANGE • A diverse and high-profile group was formed to lobby 10 different directions and are assisting in projects for the initiative. It included the director general of worldwide, often leading to diminishing quality of the the Seed Wing, Ministry of Agriculture, the head of service. Thus, it requires careful thought and investi- the International Rice Research Institute in Bangla- gation to identify resources to support the projects. desh, the chief scientific officer for Bangladesh Rice Running the names of prospective resources through Research Institute, the president of the Bangladesh other donor-funded organizations helps gauge their Seed Association, and seed experts. Their combined level of engagement, intensity of assignments world- efforts led to the speedy release of two submergence- wide, and quality of service provided. tolerant varieties that were in the pipeline. CONCLUSION Lesson 4: It is important to catalyze other The current project is a baby step in a long journey. So climate change initiatives. far, only one company has completed the first cycle of Compared with the compelling needs, we can directly demonstration of a salinity-tolerant rice variety. Ini- address only certain constraints, but when interven- tial results show a smile on the farmer’s face, but we tions occur at multiple levels, we can begin to see strong need to gather more data on output at the farmer level positive impacts. For example, our efforts at enabling to measure the results. Since varieties are new, farmers farmers to adopt stress-tolerant seed varieties might be have yet to adopt and adapt to new practices. We all impeded if the farming communities in the vulnerable are going through a learning phase to see what works regions do not have the basic level of protection, such and what doesn’t. The government recently released as dikes and polders, to protect them from tidal surges. two new submergence-tolerant varieties, which has In many instances, either there are no dikes available, created more opportunities for the private sector— or the ones that do exist have not been maintained at all and for us as well—to scale up for a greater outreach over the years, leading to collapse. Similarly, there are and positive impact. The productive relationship we also issues related to social protection, public health, have been able to build with the private sector seed water sources, infrastructure, and so on. companies is the real strength for us, going forward. IFC is working closely with the Pilot Program on Cli- mate Resilience under the Multi Donor Trust Fund ABOUT THE AUTHORS: in Bangladesh to assist in the identification of such Anika Ali, Task Manager for projects in Agribusiness issues, and then building projects around them and and Climate Change Adaptation, has worked with mobilizing relevant stakeholders, so that the cumula- IFC Advisory Services in Bangladesh since early 2005. tive results in the area of climate change adaptation She is part of the IFC team leading the work on the Pilot Program on Climate Resilience (PPCR) in Bangla- have greater impact and are more pronounced. desh, together with other donor operations and the government of Bangladesh. Lesson 5: Deal with the constraints of resources Mrinal Sircar, Program Manager, IFC South Asia and institutional capacity. Advisory Services, currently manages sector work in agribusiness and in textiles and apparels. He is a Demands for work on the aspects of climate change member of the PPCR mission in Bangladesh. have sprung up within a short span of time. The avail- Approved by Ian Crosby, Head of IFC Advisory ability of skilled and experienced resources to assist Services in Bangladesh, Nepal, North East India, and on climate change projects and initiatives is limited. Bhutan. The few people who are available are being pulled in smartlessons 39 Assessing the Carbon Benefits of Improved Land Management Technologies Ensuring food security under changing climate conditions is one of the major challenges of our era. Agriculture must not only become increasingly productive, but must also adapt to climate change while reducing greenhouse gas emissions. Soil carbon sequestration, the process by which atmospheric carbon dioxide is taken up by plants through photosynthesis and stored as carbon in biomass and soils, can support these goals. First, soil carbon enhances agricultural productivity, which reduces rural poverty; second, it limits greenhouse gas concentrations in the atmosphere; and third, it reduces the impact of climate change on agricultural ecosystems. This SmartLesson describes the potential benefits of selected land management technologies that sequester carbon. BACKGROUND greenhouse gas emissions, or approximately 30 per- Agriculture is the economic foundation of many cent when considering land-use change, including developing countries, employing up to two-thirds deforestation driven by agricultural expansion for of the workforce and contributing 10–30 percent of food, fiber, and fuel. The net increase in agricultural gross domestic product (GDP). For the poorest peo- land during the 1980s and 1990s was more than 100 ple, GDP growth originating in agriculture is about million hectares across the tropics. About 55 percent four times more effective in raising incomes than of this new agricultural land came at the expense of GDP growth originating from other sectors. Yet agri- intact forests, and another 28 percent came from the cultural growth rates have declined significantly over conversion of degraded forests. the last decade, and food insecurity remains pervasive. With effective policies, agriculture can also be a part Food production must increase by 70–100 percent by of the solution to climate change. Climate-smart 2050 to meet the demands of a world with 9 billion agriculture (CSA) seeks to increase productivity in people and changing diets. an environmentally and socially sustainable way, Agriculture is highly vulnerable to climate change strengthen farmers’ resilience in the face of climate and needs to adapt to it. Under optimistic lower- change, and reduce agriculture’s contribution to it end projections of temperature rise, climate change by decreasing greenhouse gas emissions and increas- may reduce crop yields by 10–20 percent, whereas ing soil carbon storage. Historically, agricultural soils increased incidence of droughts and floods may lead have lost more than 50 billion tons of carbon. Some to a sharp increase in prices of some of the main grain of this carbon, however, can be recaptured through crops by the 2050s. While agriculture is the sector improved land management practices. most susceptible to climate change, it is also a major There is a growing global momentum to rapidly scale cause of it, directly contributing about 14 percent of up CSA, but there is a more urgent need to improve 40 AGRIBUSINESS AND CLIMATE CHANGE the knowledge base for facilitating investments in compared with conventional tillage systems. In Zam- land management technologies that increase the stor- bia, yields have doubled for maize and increased 60 age of soil organic carbon. The Economic and Sector percent for cotton, compared with the conventional Work (ESW) on Soil Carbon Assessment was carried tillage system. Farmers also frequently reported sig- out to fulfill this need. The study involved: nificant crop-yield increases for maize, sorghum, millet, cotton, and groundnut in agroforestry sys- • A meta-analysis to provide better estimates of soil tems, but relatively high labor inputs are required to carbon sequestration rates; reduce the competition effects of trees from having a • An ecosystem simulation modeling technique to negative impact on crop growth. Inorganic fertilizers predict future carbon storage in global cropland also show relatively high profits, because they pro- soils; and vide nutrients that can be readily absorbed by plants. They are less environmentally friendly, however, due to • An assessment of the cost-effectiveness of the land nitrous oxide emissions associated with high applica- management technologies in mitigating climate tion rates of nitrogen fertilizers, and to fossil fuel-based change. emissions associated with fertilizer production and transportation. The ESW began in October 2010, and the results will be disseminated in January 2012. Lesson 2: Soil carbon sequestration can be maximized by managing tradeoffs and synergies. LESSONS LEARNED Tradeoff occurs when attempts to increase carbon stor- Lesson 1: Soil carbon sequestration is profitable age reduce productivity (profitability). On the other to the farmers. hand, synergy implies a positive correlation between carbon sequestration and profitability. Increasing In addition to storing soil carbon, sustainable land food security under a changing climate requires the management technologies can be beneficial to farm- analysis and identification of the land management ers, because they can increase yields and reduce pro- technologies that maximize synergies and minimize duction costs. Such technologies include integrated tradeoffs. nutrient and water management, mulching and residue management, no-tillage, crop rotation, cover Synergies between profitability and mitigation are crops, and agroforestry—the integrated land use sys- found in two agroforestry systems: intercropping and tem combining trees and shrubs with crops or live- alley farming (top right quadrant of Figure 1). Inter- stock. Increases in crop yields derive from the ability cropping is growing crops near existing trees, whereas of the land management technologies to maintain soil alley farming is growing crops simultaneously in alleys organic matter and biological activity at levels suitable of perennial, preferably leguminous, trees or shrubs. for soil fertility. Both are important strategies for increased productiv- ity and resilience of the farming system. However, the pattern of increase in yield varies from crop to crop. The profitability of no-tillage systems Land management technologies in the lower right derives primarily from a lesser labor requirement for quadrant of Figure 1 have high mitigation potential seedbed preparation and other tillage operations as but are modestly profitable. Afforestation, improved smartlessons 41 Figure 1: Tradeoffs Figure 1: Tradeoffs between between profitability profitability and and carbon carbon sequestration sequestration of sustainable of sustainable land land management management technologies. technologies. Thresholds for Thresholds classification for classification were $50 profit and were $50 profit 4.1 tonnes and 4.1 carbon of sequestered tonnes of dioxide. sequestered carbon dioxide. Note: Thresholds for classification were $50 profit and 4.1 tonnes of sequestered carbon dioxide. Note:fallow involvingfor Thresholds the classification use of fast-growing trees$50 were to accel- crop residues profit and does not 4.1 tonnes accumulate easily, of sequestered resulting carbon in dioxide. erate soil rehabilitation (including trees in croplands), lower mitigation benefits. and establishment of barriers across sloping areas tend to take land out of production for a significant Judicious fertilizer application counters soil nutri- management Land period technologies in the lower of time. They reduce the amount of land avail- right quadrant reduces1deforestation of Figure ent depletion, have high mitigation and expansion potential but are modestly profitable. Afforestation, able for cultivation in the short run but can lead to ofimproved cultivation fallow to involving marginal areas, the and use of fast- increases crop growing trees overall to accelerate increases soil rehabilitation in productivity (including and stability in the Yieldsin yields.trees also increase with croplands), and manure application of establishment barriers across sloping areas tend to take long run. The time-averaged, aboveground biomass land out and of accumulation production for of a soil carbon, significant but with period patterns of time. They ofreduce the amount crop residues of land and other available technologies in thefor cultivation lower that depend in the on crop run short type.butManure is lessto can lead profitable overall left quadrant increases of Figure 1 and in productivity is relatively small, stability in compared than inorganic fertilizer because the long run. The time-averaged, aboveground biomass of the labor costs with of crop that of agroforestry residues and other systems. Also, the biomass technologies of in the lower associated with collecting left quadrant of Figure and 1 is processing relatively manure small, compared with that of agroforestry systems. Also, the biomass of crop residues does not accumulate easily, resulting in lower mitigation benefits. 42 AGRIBUSINESS AND CLIMATE CHANGE Judicious fertilizer application counters soil nutrient depletion, reduces deforestation and expansion of cultivation to marginal areas, and increases crop yields. Yields also increase with (top left quadrant of Figure 1). Manure also has quite Carbon sequestration provides private benefits to the low nutrient content relative to inorganic fertilizers, farmers through enhancement of soil fertility that so a large amount needs to be applied on relatively leads to increases in crop yields and more efficient pro- small fields. This explains why manure works well for duction. However, other benefits, such as improved small-scale intensive and high-value vegetable gar- air quality, water quality, and biodiversity, are public dening. Manure systems are also associated with high goods that accrue to society but not to the farmers methane emissions. The relatively high profitability of engaged in market transactions alone. Without gov- no-tillage derives primarily from the decrease in pro- ernment intervention, poor agricultural land manage- duction costs after the establishment of the system. ment will intensify land degradation and contribute additional greenhouse gases in the atmosphere. Lesson 3: Sustainable land management Public cost refers to government support toward the practices generate benefits to the farmers—but implementation of land management practices. This at varying costs to the public. includes investments in seeds and seedlings, input Figure 2: Relationship between Private Benefits and Public Costs Note: Thresholds for classification were $50 profit and $5.50 for public costs. Figure 2: Relationship between Private Benefits and Public Costs Note: Thresholds for classification were $50 profit and $5.50 for public costs. smartlessons 43 Table 1: Relative Importance of Different Factors for Adopting Improved Land Management Practices Table 1: Relative Importance of Different Factors for Adopting Improved Land Management Practices Land management Inputs/ Market Training/ Land Research Infrastructure technology Credits Access Education Tenure Inorganic fertilizer *** ** ** ** * ** Manure ** ** * ** * ** Conservation ** ** *** ** ** * agriculture Rainwater harvesting ** ** ** *** ** ** Cross-slope barriers ** * ** ** ** * Improved fallows ** * * *** ** * Grazing management *** *** ** *** ** * Key: * Low importance; ** Moderate importance; *** High importance. Key: * Low importance; ** Moderate importance; *** High importance. Source: Synthesized from Liniger, H.P., R. Mekdaschi Studer, C. Hauert and M. Gurtner. 2011. Sustainable Land Source: Synthesized Management from in Practice Liniger, - Guidelines andH.P., R. Mekdaschi best practices Studer, for Sub Saharan C. Hauert Africa. and M. of World Overview Gurtner. 2011. Conservation Sustainable Approaches and Technologies (WOCAT) and Food and Agriculture Organization of the United Nations (FAO). Land Management in Practice - Guidelines and best practices for Sub Saharan Africa. World Overview of Conservation Approaches and Technologies (WOCAT) and Food and Agriculture Organization of the United Nations Behavioral change (FAO). through education is required to enable changeover to improved land management technologies. For instance, conservation agriculture—the farming system involving no-tillage, residue management, and use of cover crops—is highly knowledge-intensive, requiring those promoting its adoption to acquire training and practical experience. Learning subsidies, extension hubs, regional services, and other platforms, administrative scientific profits—and research, South-South also manure knowledge exchange,andandno-tillage technical that gener- costs. The pattern of public support is as crucial as the ate relatively higher support mechanisms will increase innovation and facilitate adoption of improved land profits—require minimal govern- of support for amount management the full realization technologies. of produc- The knowledge base of land support ment management(lower left andat practices upper left level the local quadrants of can be also tivity, mitigation, improved and through adaptation careful benefits agricul- of Figure in targeting capacity-development 2, respectively).programs. These technologies generally ture. Public support measures that focus on research, have low mitigation potential. The relatively high There is also the need to boost financial support for early action in climate-smart agriculture. For investments in improved land management, and land technologies with significant private returns, grant public funding cost of inorganic or loans fertilizer may be more (topto suitable right quad- tenure—rather overcome than on input adoption support—are barriers. generally such For technologies rant, Figure 2) reflects as conservation the use agriculture of subsidies require in spurring that more effective, benefit more farmers, and are more farmers’ access to the technology. specific machinery inputs, the initial costs of investment can be considerable. Thus, payment for sustainable in the long ecosystem run. service plans could be used to support farmers and break the adoption barrier. There is also the potential for carbon finance to support farmers during the initial period before the trees Technologies that involve significant change Lesson 4: Adoption of sustainable land in land return. in agroforestry systems generate an economic The costs to the public sector could be use (afforestation, lower if some improved fallows) of the costs wereandbornelandscape management by the private practices sector. For instance, faces the considerable private sector may barriers, be (terracing, alteration establishing involved incross-slope tree plantations barriers) incur high despite the private benefits they or in developing improved seeds and seedlings. generate. public costs but generate low private benefits (lower Despite the fact that improved land management CONCLUSION right quadrant of Figure 2). The low profits suggest technologies generate private benefits, their adoption that farmers may be reluctant to privately invest in faces many socioeconomic and institutional barriers. these technologies. Strong public involvement in Table 1 suggests that lack of credit and inputs and 46 these technologies is justifiable, given their relatively land tenure problems are by far the most important high mitigation potential. Crop residues, cover crops, factors for adoption. However, improved availability crop rotation, and rainwater harvesting with lower of inputs is a necessary but insufficient condition for 44 AGRIBUSINESS AND CLIMATE CHANGE adoption of land management practices. Better mar- CONCLUSION ket prices for crops and other agricultural produce are We need a new global vision that appreciates and crucial. Secure land rights are a precondition for cli- rewards the productivity, mitigation, and adapta- mate-smart agriculture, because they provide incen- tion benefits of soil carbon sequestration. Progress in tives for local communities to manage land more agriculture is slower than most people had hoped for sustainably. under the UN Framework Convention on Climate Behavioral change through education is required to Change (UNFCCC). However, some good news came enable changeover to improved land management out of the recently concluded Conference of Parties in technologies. For instance, conservation agricul- Durban, South Africa, where, for the first time, it was ture—the farming system involving no-tillage, resi- agreed to initiate a formal work program under the due management, and use of cover crops—is highly UNFCCC Subsidiary Body for Scientific and Tech- knowledge-intensive, requiring those promoting its nological Advice18. Placing agriculture under a firm adoption to acquire training and practical experience. global agreement could help provide a policy frame- Learning hubs, regional platforms, scientific research, work for fully incorporating agriculture into adap- South-South knowledge exchange, and technical tation and mitigation strategies. There is a need to support mechanisms will increase innovation and integrate the public sources of climate finance and facilitate adoption of improved land management those supporting food security into a single mecha- technologies. The knowledge base of land manage- nism to support climate-smart agriculture. Countries ment practices at the local level can be also improved must be prepared to access new and additional finance. through careful targeting of capacity-development Readiness for carbon sequestration and climate-smart programs. agriculture can be achieved through capacity building for strengthening the institutional and implementa- There is also the need to boost financial support for tion framework for climate-smart agricultural devel- early action in climate-smart agriculture. For technol- opment, and identifying early-action investments in ogies with significant private returns, grant funding land management technologies for different locales. or loans may be more suitable to overcome adop- tion barriers. For technologies such as conservation agriculture that require specific machinery inputs, the initial costs of investment can be considerable. ABOUT THE AUTHOR Thus, payment for ecosystem service plans could be Ademola Braimoh is a Senior Natural Resources Man- agement Specialist at the World Bank’s Agriculture used to support farmers and break the adoption bar- and Rural Development Department in Washington, rier. There is also the potential for carbon finance to D.C. He has broad expertise in agriculture, environ- support farmers during the initial period before the ment, water, and natural resources management. trees in agroforestry systems generate an economic Approved by Mark Cackler, Manager, Agriculture and return. The costs to the public sector could be lower if Rural Development Department of the World Bank. some of the costs were borne by the private sector. For instance, the private sector may be involved in estab- lishing tree plantations or in developing improved seeds and seedlings. 18 The Conference of Parties (COP 17) took place November 28 – December 9, 2011 in Durban, South Africa. smartlessons 45 The Fun and the Defiance of Innovation Going REDD+ in the Forests of Mexico By the end of 2010, the government of Mexico, through the Forestry Commission, requested support from the World Bank to develop and implement a new package of services (the Package) focused on forests and climate change. The Package was designed throughout 2011 to support sustainable management, restoration, and expansion of Mexico’s forests, while promoting local socioeconomic development to strengthen local communities’ resilience in the face of climate change and spearheading the global effort on Reducing Emissions from Deforestation and Forest Degradation (REDD+). This SmartLesson describes the challenges encountered in the design process of this innovative, integrated package of financial, advisory, and convening services. BACKGROUND products and services, and about 60 community for- Mexico has 64 million hectares of forests. About 70 ests are independently certified. percent of these belong to rural communities under To address the challenges and opportunities in the for- a legally established collective ownership system—a est sector, Mexico’s Forestry Commission (CONAFOR tenure situation unique in the world. The net defores- in Spanish) was created in 2001. CONAFOR has the tation rate is moderate, but forest degradation is rela- mandate to assist communities and small private own- tively high;19 both show significant variation across ers in managing and protecting forests—for example, the country. by developing management plans, restoring degraded It is estimated that 12–13 million people live in for- areas, planting trees, using nontimber products, and est areas in Mexico. In the 1990s, the government of protecting environmental services. Mexico began empowering communities to manage CONAFOR operates a range of thematic, commu- their forest resources through a series of community- nity-based incentive programs, collectively known as based incentives and advisory programs. Although Pro-Árbol. The scope of these programs has evolved much remains to be done, Mexico’s approach to com- rapidly since 2001, from traditional forest manage- munity forestry and payment for environmental ser- ment to payment for environmental services and vices is now increasingly recognized as an emerging climate change mitigation and adaptation activi- worldwide good practice. Many community forests ties in the forest landscape. CONAFOR’s budget are sustainably managed for timber and nontimber increased from $27 million in 2001 to $486 million in 2011, and its portfolio has reached a total of about 19 Government estimates for annual deforestation and forest deg- 12,000 transactions annually, benefiting about 4,000 radation rates are 0.25 percent and 0.45 percent, respectively (based on the Readiness Preparation Proposal–CONAFOR communities. 2011). 46 AGRIBUSINESS AND CLIMATE CHANGE In parallel, Mexico has actively engaged in the forests After the success in brokering a set of decisions called and climate change dialogue at the international level, the Cancun agreement to move international action and has started to look at the opportunities for cli- on climate change during the 2010 United Nations mate change mitigation and adaptation in conjunc- Climate Change Conference in Mexico, the gov- tion with a sustainable rural development strategy. ernment of Mexico intensified its participation in Table Table1:1: InstrumentsIncluded Instruments Includedin the Forests inthe Forestsand andClimate Change Package Climate Change Package Instrument Description Forests and The FIP is a program of the Climate Investment Funds to support developing countries’ Climate Change efforts on REDD+ and promote sustainable forest management. Mexico is one of eight Forest pilot countries worldwide. FIP resources under CONAFOR’s responsibility ($42 million) Investment would be combined with the proposed IBRD SIL. Status: Approved by the board in January 2012 jointly with SIL. Program (FIP) Forests and The SIL will support the government of Mexico in two main areas; 1) Multi-Scale Climate Change Institutional Strengthening, and 2) Incentive Programs to Communities. Tentative Sector amount: $300 million to $350 million. Investment Loan Status: Approved by the board in January 2012 jointly with SIL. (SIL) Social Forestry is one of three pillars in the Social Resilience and Climate Change DPL ($300 Resilience and million). The pillar supports three policy actions: 1) launching of a new collaboration among CONAFOR and the Ministries of Agriculture and Environment; 2) creation of one Climate Change national and three state-level REDD+ civil society Consultative Groups; and 3) inclusion Development of REDD+ in the first intermunicipal initiative. The same policy matrix is also supported Policy Loan by the French Development Agency with a budget support of 300 million. (DPL) Status: Negotiated in January 2012. Expected board presentation March 2012. Mexico is eligible for a $3.6 million grant from the FCPF for Readiness Preparation (studies and consultations). The activities would culminate in a Readiness Package Forest Carbon consisting of: 1) a national REDD+ strategy; 2) a national forest reference level; 3) a forest monitoring and verification system; and 4) a system for addressing environmental Partnership and social safeguards. The FCPF also operates a Carbon Fund to pay pilot countries Facility (FCPF) for demonstrable results in REDD+. Mexico intends to submit a proposal for pipeline entry in the Carbon Fund; envisaged transactions could be $40 million per pilot country. Status: FCPF Preparation Grant Agreement ready for signing. The Bank mobilized three PROFOR grants to support CONAFOR in: 1) redesigning the Program on Mexican Forest Fund ($100,000); 2) assessing Mexico’s community forestry Forests enterprises’ competitiveness in local and global markets ($150,000); and 3) conducting (PROFOR) a South–South collaboration on REDD+ and Payments for Environmental Services with Costa Rica and Ecuador ($150,000). The government of Mexico is currently exploring the possibility of piloting a Forest Bond Forest Bond with the Bank’s Treasury Department. The objective of the Sustainable Production Systems and Biodiversity project is to Global conserve and protect nationally and globally significant biodiversity in Mexico through Environmental improving sustainable management practices in the productive landscape in priority Facility (GEF) ecological corridors. The Global Environmental Facility funds are $11.7 million. Status: Expected board presentation April 2012. smartlessons 47 LESSONS LEARNED the Forest Carbon Partnership Facility (FCPF)—a LESSONS LEARNED 50-country partnership for REDD+ administered by the Bank—and became one of the pilot coun- Lesson 1: Birds of a feather flock together: mix tries for the new Forest Investment Program (FIP)— and match instruments to increase the impact. a targeted program of the Strategic Climate Fund. Simultaneously, the government expressed interest in The successful design formula simultaneously combined engaging with the World Bank in the development financial services, knowledge services, and coordination of an integral Package of financial, knowledge, and and convening services. These instruments complement coordination services to support its forest agenda each other, add value, and scale the impact. while promoting local socioeconomic develop- Mexico requested that the $42 million Forest Invest- ment, strengthening local communities’ resilience ment Program under CONAFOR’s responsibility be to climate change, and spearheading the global combined with the $350 million Sector Investment effort on REDD+ (see Table 1). Loan to increase the expected impact, simplify the The main umbrella of this Package is composed of design process, and reduce transaction costs. The SIL, an IBRD Sector Investment Loan (SIL) providing the FIP, and the FCPF are designed in a manner that a foundation for the country’s participation in the allows a two-way iterative process of learning by doing, innovative Forest Carbon Partnership Facility and where successful pilots from the FIP can be scaled up Forest Investment Program. through the SIL while also informing the policy design supported under the FCPF, and vice versa. The Package This Package has been recognized as an early example is also coordinated and designed simultaneously with of the Bank’s enhanced business model in Mexico, a development policy loan (DPL) for Social Resilience combining investments, advisory, and convening ser- and Climate Change (see Table 1), providing politi- vices with new financial instruments and a focus on cal visibility and promoting important policy reforms innovation. The government of Mexico considers it needed to foster the SIL and FIP. At the same time, a core element of its climate change adaptation and other innovative instruments (see Table 1 and Figure mitigation agenda. 1) support specific activities, such as South–South col- laboration on REDD+, advice on the competitiveness However, the innovative nature of the approach encoun- of community enterprises, and the design of a potential tered some challenges during design, mainly because: forest bond with the Bank’s Treasury Department. The • Mexico is a sophisticated client and therefore needs main focus was on designing an integrated development sophisticated development solutions, not just tradi- solution, instead of a traditional single project, with syn- tional projects. ergies that supported an exponential positive impact. • Some of the instruments included in the Package The Package reaches across sectors and ministerial are new, and Mexico is one of the first pilot coun- boundaries in Mexico, and their proposed activities tries to experiment with them and to deal with the are organized at forest landscape level. Cross-sector new rules and procedures. collaborations involve government agencies in charge of environment, agriculture, biodiversity, indig- enous issues, and gender, among others. Although the Forestry Commission will be implementing the Package, the cross-sector approach enables positive 48 AGRIBUSINESS AND CLIMATE CHANGE environmental, social, and economic impacts. This Lesson 2: Do not start from scratch; scale up approach could be used in the future as an example previous projects and complement the sector for the Global Landscape Restoration Initiative and agenda. “Climate-Smart Agriculture.” When possible, use first-hand lessons learned, not just The packaging of multiple instruments has a mul- reports-based experiences. This will help to reduce risks tiplier impact, with a “developing solution” focus and improve the project design. instead of a single product objective. The design of the Forests and Climate Change Pack- age was built on two decades of Bank operations Figure Figure 1: The packaging 1: Packaging of multiple of Multiple instruments has a multiplier impact, with a “developing Instruments solution” focus instead of a single product objective smartlessons 49 and policy dialogue on forests and climate change in have succeeded in strengthening social and human Mexico and was fully aligned with the Bank’s overall capital and were used to spearhead the initial interven- climate change engagement in Mexico (see Table 2). tions and lay the groundwork for further investments Most important, it capitalized on the strategies and and cutting-edge advisory and financial services. instruments generated under three previous Bank- supported projects: Community Forestry, Com- Moreover, the Package has been coordinated and has munity Conservation Project for Biodiversity, and used early experiences learned from the projects of other Environmental Services Project. These operations partners supporting the national Forests and Climate Table 2: Stages of Climate Change Engagement in Mexico, and Relationship with the Forests and Climate Change Package Note: Forest-related ofare operations Table 2: Stages highlighted, and projects climate-change included in engagement in the and Climate Forests and Mexico, Package Change with relationship theare underlined. Forests and Climate Change Package (Forest-related operations are highlighted, and projects included in the Forests and Climate Change Package are underlined) This tablehighlights This table highlights several several significant significant examples examples and and does not does aim tonot aim to exhaustively exhaustively illustrate illustrate all climate allactivities. change climate change activities. 50 AGRIBUSINESS AND CLIMATE CHANGE Change agenda, including a monitoring and verifi- Lesson 4: Faster could be the antonym of cation system grant from the Norwegian Embassy easier: be sure to have a committed client and and a €300 million budget support operation by the team when the time is short. French Development Agency—which uses the same policy matrix as the Forest pillar of the Bank’s DPL. Keep the client and Bank teams fully committed. If the The Bank organized meetings with donors working project is not a priority for both sides, it will be compli- on forest projects in Mexico to promote coordina- cated to design it within a limited time frame. tion and mutual learning. CONAFOR’s capacity to The client asked that the Package be designed in a establish partnerships and trustworthy relations with short time frame. The design of the Package needed many development agencies and experts around the to be faster, but the safeguard, legal, and operational world has been instrumental in building support for requirements needed to follow high standards, all the the proposed agenda. more considering the visibility and innovative nature of the operation. It took 12 months from identifica- Lesson 3: Innovation is not is always simple: push tion to Board. the envelope, but understand the ground rules. Having a motivated and committed client was a key Innovation can have a high price. Work closely with the element of success. The vision, technical skills, dedi- technical, safeguards, and fiduciary teams, and be as cation, and flexibility of CONAFOR and the Minis- realistic as possible within your boundaries during tech- try of Finance were outstanding. The Bank team, all nical design. quarters involved, also displayed tremendous energy and commitment. External and internal recognition of As a pioneer in REDD+ instruments and global part- the Package as a milestone in the global climate change nerships, Mexico has had the opportunity to innovate agenda boosted the client’s and the teams’ dedication. and guide the process. However, in some cases, the strategic thinking and technical design moved faster One single team was in charge of the Package. It than the practical considerations. For example, when included staff from environmental, social, rural, safe- discussing implementation arrangements, we realized guards, fiduciary, and communication units from that the combined operation was not as simple as the region and the anchor, with in-depth experience expected. Moreover, the rules and framework of the with Mexico’s institutions and field conditions and FCPF and FIP were still being developed—and were sometimes changing during project design—hence leading to the perception of a moving goalpost and requiring acrobatic explanations with the government and other stakeholders. Combining specific donor requirements with the Bank’s systems, while fostering client ownership and multi-stakeholder buy-in, was not always an easy proposition. In spite of this bumpy road, the project kept its innovative nature and straightforwardness. However, clearer guidelines from the start could have saved Previous project demonstrated the value to a gender focus, which is retained in the SIL/FIP. multiple headaches. smartlessons 51 knowledge of previous Bank engagements. This team when undertaking new collaborations with similarly embodied a valuing of institutional memory while also sophisticated and demanding clients that are seeking bringing fresh views and experiences from other parts development solutions beyond traditional projects. of the world. The lessons could also be useful in the design of com- plex operations that include various instruments and Lesson 5: Have more open dialogue and fewer focus on piloting new approaches. brochures: involve communication strategies Though the design of the Package has been exciting, early when the project includes a new topic and it also has come with challenges because of its inno- vulnerable stakeholders. vative nature, the political time frame, and the com- Communication for development is more than words. plexity of handling multiple innovative instruments Ensure that financial and human resources for com- at the same time. The team always took these chal- munication are contemplated in innovative or sensitive lenges as opportunities for creative thinking, while projects. building on the solid foundations established over two decades of successful collaboration. As a result, The Bank team included a communications officer as a well-informed external observer pointed out, throughout the design phase to ensure information the Forests and Climate Change collaboration with dissemination. By assessing the needs and scope of Mexico has the potential to become one of the Bank’s the project—new topic, thousands of stakeholders most successful forestry programs anywhere ever. with different interests, views, and even language— we saw clearly that we needed to use the principles of development communication to strive for multi- stakeholder participation, not just information dis- semination, education, or awareness raising. ABOUT THE AUTHORS The team worked closely with the client, offering Graciela Reyes Retana is a Junior Professional Associ- stakeholder workshops, training staff, and journalists, ate in the International Bank for Reconstruction and and giving advice to develop the national communi- Development (IBRD), Latin America and Caribbean (LAC) Region, working on the Forests and Climate cations strategy for REDD+ and the overall Climate Change Package in the Mexico country office. and Forests Package. María Carolina Hoyos is a Communications Special- ist with IBRD, supporting the LAC countries in their CONCLUSION REDD+ communication strategy. In recent decades, Mexico has advanced in the design Laurent Debroux is a Senior Natural Resources Spe- and consolidation of a variety of instruments related cialist with IBRD and Task Team Leader of the Forests and Climate Change Collaboration Package with to forests and climate change. Since the 1990s, the Mexico—Sector Investment Loan, Forest Investment Bank’s engagement with Mexico in this area has been Program, and Forest Carbon Partnership Facility. increasing, and the new Forests and Climate Change Approved by Ethel Sennhauser, Sector Manager, Agri- Package has the potential to become a milestone in culture and Rural Development Unit, LAC Region. this area and to be replicated in other countries. The key early lessons from the design of Mexico’s For- ests and Climate Change Package could be relevant 52 AGRIBUSINESS AND CLIMATE CHANGE More Than Just Hot Air: Carbon Market Access and Climate-Smart Agriculture for Smallholder Farmers The Kenya Agricultural Carbon Project is breaking new ground in designing and implementing climate finance projects in the agriculture sector. The project is regarded as an innovative example for climate-smart agriculture within and outside the World Bank. For the first time, while increasing productivity and enhancing resilience in the face of climate change, smallholder farmers in Africa will receive payments for greenhouse gas mitigation based on sustainable agricultural land management. Quantification of carbon sequestration is monitored based on a newly developed carbon accounting methodology. This SmartLesson describes the key factors to consider when facilitating the adoption of climate-smart agricultural practices and access to carbon markets for smallholder farmers. BACKGROUND and technologies were used, and the resulting decline The objective of the Kenya Agricultural Carbon Proj- in soil fertility led to low crop yields. ect is to increase crop yields and to enhance small The project developer provides advisory services that farmers’ ability to respond to climate change and respond to the specific needs and questions of farm- weather variability. An additional benefit of adopting ers. ViA extension staff are building capacity on a sustainable agricultural land management (SALM) wide range of aspects of sustainable agricultural pro- practices is carbon sequestration, which leads to duction, marketing, and development of farm enter- greenhouse gas mitigation. Smallholder farmers will prises. Farmers can choose which SALM practices be able to access carbon-credit markets and estab- that they would like to adopt, including mulching, lish additional revenue streams by selling the carbon composting, crop residue management, agroforestry sequestered. systems, and manure management. A Swedish nongovernmental organization (NGO), The NGO works with registered farmer groups Vi Agroforestry (ViA), is implementing the project based on contracts that detail the rights and obliga- in collaboration with 60,000 smallholder farmers on tions of both parties regarding service provision and approximately 45,000 hectares in western Kenya. The carbon revenues. ViA sells the emission reductions to project is located on highly degraded land dominated the BioCarbon Fund of the World Bank on behalf of by mixed cropping systems, mainly for subsistence the farmer groups. Once payments are made by the farming. Average farm size is less than 1 hectare, and Bank (after project validation by an independent third farmers have clear ownership rights to the land. Prior party), almost all revenues will be used to benefit the to the project, few improved agricultural practices smartlessons 53 smallholder farmers, partly in the form of direct pay- bon sequestration. This environmental service should ments and partly through the financing of advisory ser- be rewarded, and carbon revenues can constitute an vices. Details of the terms and conditions of the sales of attractive co-benefit for smallholder farmers. emission reductions are specified in the ERPA (Emis- sion Reduction Purchase Agreement) between the Bio- The amount of carbon revenues that a project could Carbon Fund and ViA, signed in November 2010. generate should be clearly communicated in the early stages. In the Kenya project, the Bank team commu- A key innovative element of the carbon finance project nicated the level of expected carbon revenues right at is the MRV (measurement, reporting, and verification) the inception, and the project developer then com- system to track the amount of emission reductions municated these aspects to the beneficiaries. generated by the project. The NGO is implementing the MRV system, which is based on the first carbon Lesson 2: Monitor transaction cost—MRV systems accounting methodology for sustainable agricultural should be cost-effective and user-friendly. land management. Although scientifically rigorous, the methodology aims for cost-effective monitoring of Carbon payments are relatively small in compari- emission reductions (ERs) to minimize the transaction son with the benefits of increased crop yields, par- costs and maximize the benefits for farmers. ticularly given the current prices paid for ERs from LESSONS LEARNED Lesson 1: Get the priorities right—focus project design on smallholder farmers’ interests; first come increased crop yields and food security, and then carbon sequestration. Although the success of carbon finance operations is usually measured by the amount of ERs deliv- ered, an agricultural carbon project should focus on increasing crop yields as a priority. Farmers will only adopt and maintain practices if they realize increases in productivity and incomes. The project team also should not attempt to convince the project devel- oper and farmers to change priorities, since doing so would create false expectations about potential earn- ings from carbon revenues. Ex ante economic and financial analysis of the Kenya Agricultural Carbon Project clearly indicates that the amount of carbon revenues are expected to be small in comparison with revenues from increased crop yields. Farmers’ primary objective is to achieve increased crop yields under changing climate conditions; they simultaneously A smallholder farm in East Africa. provide an environmental service in the form of car- 54 AGRIBUSINESS AND CLIMATE CHANGE A smallholder farmer and his family in East Africa. smartlessons 55 agricultural land management. However, they can cial support from other sources for implementing be an interesting additional incentive for the transi- the project. Most important, however, the project tion of agricultural production systems until higher developer should have a strong and demand-driven productivity levels are reached and soil carbon pools advisory system in place. Without a well-established are filled. Therefore, the transaction costs of the addi- advisory system, adoption and maintenance of prac- tional activities needed to sell the ERs, mainly the tices leading to a sustainable increase of crop yields MRV system, need to be contained. and carbon sequestration will not happen. To the extent possible, a project should build on exist- Therefore, selection of the project developer is of ing carbon accounting methodologies and integrate utmost importance. The Kenyan project included the the MRV system into a project’s existing monitoring following steps in selecting a project developer: 1) a and evaluation (M&E) system. In general, the project prefeasibility assessment of the carbon sequestration should build on the existing institutional structure of potential in Kenya’s agriculture sector; 2) a work- the project developer and avoid the creation of new shop, plus a public call for project ideas to identify structures for the carbon component only. Working technically sound and financially viable mitigation with farmer groups instead of with individual farmers activities; and 3) an in-depth capacity assessment of is essential to cost-efficiency. short-listed project developers and their project ideas, plus coaching support to enable them to develop a Lesson 3: Carefully select the project realistic and high-quality proposal. developer—strong extension systems, innovativeness, interest in learning, and Lesson 4: Technical assistance and capacity technical and financial capacity are key. building are key to project success—providing smallholder farmers access to carbon revenues Agricultural carbon projects put high demand on the requires special technical expertise. project developer, particularly since this approach is still in its infancy. A project developer needs to be The Bank task team should be ready to spend time innovative, flexible, and willing to spend sufficient and resources on digging into a new technical subject resources on the complex technical nature of carbon area. If one of the objectives is to actually facilitate finance operations. The entity should be interested in the flow of carbon revenues to smallholder farm- learning those aspects thoroughly, in particular how ers, MRV issues need to be dealt with thoroughly. to make them operational. Requirements for proj- Technical expertise from outside the Bank should be ect approval and verification of ERs under the exist- tapped into, since the Bank does not have the human ing frameworks can entail a rather long process. The resources to address the issues in necessary depth. project developer and farmers need adequate time to Therefore, additional financial resources need to be become familiar with the concept and the implica- identified early on to provide first-class and practical tions of participating in a project of this nature. The implementation-focused technical assistance. project developer should be made aware of those implications from the very beginning. In this project, additional Trust Fund resources were mobilized. Another promising option—also for scal- Currently, the Bank limits its support of carbon ing up—is to link such activities with Bank-supported finance operations to technical assistance and the investment operations. Further, contract only those purchase of ERs. This implies a need for strong finan- consultants who have actually worked on MRV issues 56 AGRIBUSINESS AND CLIMATE CHANGE related to land management projects, ideally an agri- ditions (focusing primarily on adaptation, which cultural carbon project. Otherwise, you risk support- can also lead to carbon sequestration), the number ing an academic exercise with no operational relevance of generated ERs might not justify a carbon finance to the project. At the same time, however, it is crucial transaction. that capacity for generating ERs for market access is transferred systematically to in-country institutions. CONCLUSION The ERPA of the Kenya Agricultural Carbon Project Lesson 5: Focus on areas with high agricultural was signed in November 2010, and project validation potential—carbon sequestration potential is is scheduled for the first half of 2012. Farmers have higher in areas with high biomass growth. started to adopt SALM practices, and the MRV sys- If the objective is to design a project that leads to tem is being implemented. The intensive preparation actual carbon payments to farmers, it should focus phase and the first year of implementation have pro- on areas with high agricultural potential. The amount vided important lessons that are broadly applicable, of emission reductions generated by a carbon finance independent of region, country, or specifics of project project based on adoption of SALM practices is design. Obviously, the more farmers included and the mainly determined by the actual biomass yield and more diverse the farming systems, the more complex how the residues are treated. Biomass yields increase the technical dimension becomes. However, com- with favorable agro-ecological conditions. Even plexity should not be an excuse, given the importance though there is certainly huge potential for sustain- of learning by doing and the need for exploring prac- able land management projects in less favorable con- tices and solutions for climate-smart agriculture while A smallholder farm in East Africa. smartlessons 57 at the same time finding mechanisms for rewarding small-scale farmers for the provision of environmen- ABOUT THE AUTHOR tal services. Johannes Woelcke is a Senior Economist at the World Bank’s Agriculture and Rural Development Unit (AF- The SALM carbon accounting methodology—devel- TAR) in the Africa Region. He joined the Bank in 2004 oped as part of the project—has been approved by the as a Young Professional. Johannes is the focal point Verified Carbon Standard. The methodology is in the for Climate Change and Agriculture in the Africa public domain and can be used for similar projects, Region. thereby lowering transaction costs significantly. More Approved by Karen Mcconnell Brooks, Sector Man- technical work needs to be undertaken and innova- ager, AFTAR, Africa Region. tive approaches explored to further reduce transaction costs for MRV (without compromising on the accu- racy of the system). We also need to connect the dots for more effective work in the field. The Kenya Agricultural Carbon Project is adding knowledge and evidence at differ- ent levels. It is being used as a good-practice example for capacity building of interested project develop- ers in East Africa—an effort supported by the World Bank Institute. ViAgroforestry and the World Bank continually inform a wide range of interested stake- holders—including civil society organizations, gov- ernment officials within and outside Kenya, national and international research organizations, private sector entities, and development partners—about the project concept and its progress. Public aware- ness raising and consultations are an important ele- ment of further scaling up climate-smart agriculture in Africa and other regions. The project also serves as the basis of technical assistance on Readiness for Climate-Smart Agriculture in Kenya, supported by the Danish Ministry of Foreign Affairs, which aims to mainstream climate change considerations in Kenya’s agricultural development strategy and programs. Further, the project is informing the integration of climate-smart agriculture into the Comprehensive Africa Agriculture Development Program, with the potential of scaling up climate change aspects in investment plans and operations. 58 AGRIBUSINESS AND CLIMATE CHANGE Lessons on Value Chain smartlessons 59 GO LITE! Increasing Scale and Impact by Combining Diagnostics and Training Lessons from the Ukraine Food Safey Project The Ukraine Food Safety Project found that the typical way of providing firm-level assistance— conducting an in-depth diagnostic for companies in a pilot project, followed by an offer for assistance—was scaring off some potential clients with the seeming complexity of the task and cost. But by offering a “lighter,” less-intense approach at a cheaper price, we were able to reach more clients and have a greater impact. This SmartLesson shares some of what we learned. BACKGROUND • Demonstrate measurable results more quickly than The programmatic approach in IFC Advisory Services we could by working with pilot companies alone; involves a combination of policy work, public aware- • Build a strong consultant base that will ensure the ness campaigns, and capacity building at the firm sustainability of the product; level. Typically, a project rolls out firm-level assistance by training local consultants, who in turn conduct • Reach more clients with demonstrable results and diagnostic evaluations and train firms. These consul- impact. tants might also be hired to provide in-depth advisory This methodology can be replicated for just about any services for specially selected pilot clients. firm-level intervention in a variety of sectors. We also Although a project may reach many firms with train- feel that this could be a good way to conduct scoping ing, it is difficult to measure results. Meanwhile, pilot in countries where a standalone project is not neces- interventions are limited to a select number of larger sary but where IFC can still play a role. players who can provide a demonstration effect. Is there a way to reach many companies while also mea- LESSONS LEARNED suring results? Lesson 1: Using an incremental approach The Ukraine Food Safety Project has found a formula increases the chances that a company will that is effective for agribusiness projects and perhaps engage IFC—and allows you to track results. other sectors as well. The approach is simple: We combine three short assessments with complemen- Most advisory projects include some kind of diag- tary training, while also partnering with market mov- nostics and training. Often the diagnostics are used ers who can help ensure implementation. As a result, to get a foot in the door, in hopes that the firm we are able to accomplish the following: will decide to engage IFC for more in-depth work. 60 AGRIBUSINESS AND CLIMATE CHANGE requirements (which is more manageable to the client), we have a good baseline to start from, and there is a smaller, less overwhelming list of follow-up items. We then follow up with a standardized training workshop for all companies participating in the program, followed by a one-day consulting visit about one month later—then a final assessment one month after that (see Table 1). Since all the onsite visits are scored, we can measure how much the companies improve from visit to visit. In our pilot program conducted in 2010, client companies’ scores improved on average from 49 percent in the baseline assessment to 93 percent in the final. Preliminary results from our impact survey also confirm that these clients were able to increase sales significantly to major purchasers—in some cases doubling sales—since clients were able to demonstrate that they had made progress on food safety. To keep the results as objective as possible, we assigned a different consultant to perform the final assessment. Table 1: Staged Approach Table 1: Staged Approach Stage 4: Stage 1: Stage 2: Stage 3: Final onsite Initial onsite assessment Training Onsite consultations assessment 1 day 2 days 1 day 1 day Combining diagnostics and training enabled us to measure the results of our work, and we Sometimes the company is interested but ultimately assigned a different consultant to perform the final developed a scoring system that allows for comparisons between companies. For example, chooses not to engage IFC because the cost and the first module contains 51 requirements in the form oftime assessment. a checklist. Each requirement is required to make the recommended improvements rated from 1 (not fulfilled) to 4 (requirement fulfilled). During a visit, the consultant reviews are too overwhelming. scores with the client As a result, and providesIFC has invested suggestions for how to improve diagnostics Combining the score for and the training next enabled us to its own resources assessment. Weand aretime then in a potential able project to track the and effectiveness measure the results of our work, of the training and consulting visits. and we developed a Ultimately, has nothing we saw to show forthat scores it. How consistently can we increase increased the scoring after eachsystem phase. that allows for comparisons between chances that the firm will continue working with us? companies. For example, the first module contains 51 By offering a less-intense product and bunching the companies into groups requirements in the form for the of atraining, checklist. Each require- we were able to keep costs down and We found that, with those clients that are not readyoffer discount pricing to our clients, thus providing a ment is rated from 1 (not fulfilled) to 4 (requirement further incentive to participate. Our in-depth advisory package typically involves about 50 to commit to a longer intervention, breaking down fulfilled). a visit, the During$20,000 consultant reviews scores consulting days, plus considerable IFC supervision, and costs between and a typical diagnostic into short, focused assessments $30,000—at least 50 percent of which must be covered by the company. This lightersuggestions for how to with the client and provides lasting no more program, by than one dayrequires comparison, more each is aonly effective three consulting improve days onthe score site, for the a two-day next assessment. We are training approach. session,That andway, we can minimal focus travel. In on shorter theapilot listwe phase of offered then a able to track 50 percent the effectiveness subsidy of the training and to incentivize requirements (which is more manageable to the cli- participation. Since the pilot phase completed last year, we have priced this package at consulting visits. Ultimately, we saw that scores con- ent),market we have rates, with a good no subsidy, baseline at about to start from,$1,000 and thereper company. sistently increased after each phase. is a smaller, less overwhelming list of follow-up items. Lesson 2: Don’t “Go Lite” alone—when possible, adapt offeringtraining By existing materials a less-intense from and bunching the product international associations. We then follow up with a standardized training work- companies into groups for the training, we were shop for all companies participating in the program, able to keep costs down and offer discount pricing followed by a one-day consulting visit about one to our clients, thus providing a further 61 incentive to month later—then a final assessment one month after participate. Our in-depth advisory package typically that (see Table 1). Since all the onsite visits are scored, involves about 50 consulting days, plus considerable we can measure how much the companies improve IFC supervision, and costs between $20,000 and from visit to visit. In our pilot program conducted in $30,000—at least 50 percent of which must be cov- 2010, client companies’ scores improved on average ered by the company. This lighter program, by com- from 49 percent in the baseline assessment to 93 per- parison, requires only three consulting days on site, a cent in the final. Preliminary results from our impact two-day training session, and minimal travel. In the survey also confirm that these clients were able to pilot phase we offered a 50 percent subsidy to incen- increase sales significantly to major purchasers—in tivize participation. Since the pilot phase completed some cases doubling sales—since clients were able last year, we have priced this package at market rates, to demonstrate that they had made progress on food with no subsidy, at about $1,000 per company. safety. To keep the results as objective as possible, we smartlessons 61 helps them achieve the international standards required by retailers. In the past, however, helping a client achieve certification has been a le one or two years. Recently, the Global Food Safety Initiative—a collab experts, retailers, and food companies that attempts to harmonize intern food safety—developed a shorter, three-module approach to certificatio using these materials and this approach in helping our clients meet inte standards. Using existing content that has already been endorsed by ma helped us encourage more companies to start improving their food safe We now offer a standardized certification process, with group pricing, developed by the GFSI (see Figure 1): Lesson 2: Don’t “Go Lite” alone—when 2. Intermediate Level—includes HACCP as well as 1. Basic Level—roughly corresponding to the prerequisites for HA possible, adapt existing training materials from food defense, transport, and logistics. GMPs, GHPs, control of allergens, and traceability. international associations. 2. Intermediate Level—includes HACCP as well as food defense, 3. Advanced Level (in development). logistics. Normally in our in-depth pilot work, we help clients 3. Advanced Level (in development). achieve an internationally recognized food safety certifi- cation. Many major retailers will work only with those Figure 1: Three Levels Developed by GFSI Figure 1: Three Levels Developed by GFSI suppliers that are certified according to international standards; achieving one of these standards makes business sense for our clients, since it helps increase their sales. Examples of commonly used best prac- tices are Hazard Analysis and Critical Control Points (HACCP),20 Good Manufacturing Practices (GMP), and Good Hygiene Practices (GHP). Implementing these systems helps companies ensure that the food they produce is safe for their customers, and it helps them achieve the international standards required by retailers. In the past, however, helping a client achieve certifica- tion has been a lengthy process—taking one or two years. Recently, the Global Food Safety Initiative— a collaboration between experts, retailers, and food companies that attempts to harmonize international What’s important here is not the topic (which could standards in food safety—developed a shorter, three- be food safety standards, farmer productivity, resource module approach to certification. We have begun efficiency, 20 HACCP is corporate governance, an internationally or safety accepted food manage- system that is requ risk management using these materials and this approach in helping ment); it’s the including the approach. European We Union andtook care to the United ensure States, that for food processors. HACCP is our clients meet international safety standards. Using international food safety certification plan. the assessments were focused enough to be conducted existing content that has already been endorsed by in one day, and the training was focused on this nar- market movers has helped us encourage more compa- row list of requirements. nies to start improving their food safety levels. Companies that are not ready to commit to an in- We now offer a standardized certification process, depth advisory intervention now have the option of a with group pricing, for the three levels developed by less-intensive service that costs considerably less. Fur- the GFSI (see Figure 1): thermore, because the modules are standardized and 1. Basic Level—roughly corresponding to the prereq- take less time, we can reach more companies. And uisites for HACCP, including GMPs, GHPs, con- because the content was prepared by GFSI, it already trol of allergens, and traceability. had the buy-in from a major market mover in our region: Metro Cash & Carry. 20 HACCP is an internationally accepted food safety manage- ment system that is required by many governments, including the European Union and the United States, for food processors. HACCP is a critical component of any international food safety certification plan. 62 AGRIBUSINESS AND CLIMATE CHANGE Lesson 3: Engage market movers—they can launched a joint effort with the Ukraine State Com- provide incentives for companies to improve mittee for Veterinary & Phytosanitary Services, performance. Ukraine’s de facto food safety agency, to roll out the program. As with Metro, this partner will help push Just as we engaged a global association to develop con- the suppliers to participate: we represent the car- tent for the training, it was also important to develop rot, while the government is the stick, threatening to relationships with companies and policymakers that revoke export or production permits if companies do had the power to transform the market. In our case, not comply. We hope that we can get another major we worked closely with Metro Cash & Carry Ukraine, retailer on board to help us achieve even greater impact. a global retailer. Metro Ukraine signed purchasing agreements with its suppliers, stipulating that inter- national food safety certification must be reached by Lesson 4: Encourage mentoring. 2013, and followed up with letters and presentations From the start, we emphasized that this program, offering our program to its suppliers. So far, we have despite the short time frame, is about mentoring the reached over 15 companies with the full program and companies, not auditing them. A train-the-trainer hope to reach most of Metro Ukraine’s 120 fresh sup- workshop—a one-week training for the consultants, pliers in the next year. Metro Ukraine also provided which included a practical site visit—emphasized the training space as an in-kind contribution, which not just the technical aspects of the program but has helped keep our training costs down. also how to support the clients. Whereas assessments Not only did Metro Ukraine provide incentives to and audits usually work with a checklist as a starting join the program, they also followed up with clients point, an auditor only identifies where the company that were not making sufficient progress. For exam- has not complied with the requirements, and offers ple, one company was not demonstrating sufficient no solutions for how to improve. During our assess- commitment to improving food safety at its fac- ments, the consultants provided concrete solutions tory—its scores, unlike all others in the pilot group, for how to improve scores before the next visit. In remained flat from Stage One (first assessment) addition, the training specifically addressed the same to Stage Three (onsite consultation), with a below- checklist. Because there were representatives from average score of 39 percent. We were concerned and about 10 companies in each training, firms also had called Metro. Metro’s meat buyer then called the cli- the opportunity to learn from each other. ent and threatened to take the company’s product off We have been in a “continual improvement” mode the shelf for the lucrative holiday season. By the final from the beginning, offering practical exercises for assessment, the company had improved considerably subjects that are difficult or new for Ukrainian clients. and achieved a score of 92 percent! It continued to For example, we were particularly worried that inex- improve between the basic and intermediate modules perience with traceability and allergens, two relatively and is now progressing well through the intermediate new topics for Ukrainian food companies, would level. Sometimes only the market movers can provide cause our companies to fail the program. Therefore, the necessary wake-up calls. we added practical group exercises and tip sheets to However, to reach critical mass and achieve true mar- the existing training. In the end, we had significant ket transformation, we recognize that a partnership progress in these areas, especially with allergens—all with one market mover is not enough. We recently companies scored 0 percent in the first assessments and 100 percent on the final assessments. smartlessons 63 Lesson 5: “Going Lite” helps build local capacity by providing real-life experience in a controlled environment. ABOUT THE AUTHOR Sarah Ockman is the Manager of the Ukraine Food The program is a great testing ground for our con- Safety Project. Prior to the project launch in October 2009, Sarah worked as a consultant on IFC Access to sultants. We have found that the pool of consultants Finance projects. In 2011, she presented the results for our in-depth interventions is now larger and more of this lite-touch program at the GFSI Global Food experienced. We are more comfortable working with Safety Conference in London and for the Japan Food consultants after testing them in this lighter-touch Safety Day in Tokyo. program. Approved by Patrick Luternauer, Regional Business Line Manager, Sustainable Business Advisory Services, But we made a mistake by paying a flat rate to all IFC Europe and Central Asia. consultants, regardless of their going rates. In the beginning, we feared that the paperwork would be overwhelming and thought it would be easier to pay a flat rate. In the long run, this approach made things more complicated; one excellent firm did not want to work with us, since the rate fell below its normal rate, while less experienced firms got paid the same amount as the average. CONCLUSION Although we still offer in-depth advisory services to select companies, we are finding in the first 18 months of this incremental approach that limited engage- ment with clearly set milestones and deadlines forces companies to do more on their own. Consultants are available for three days on site, but otherwise have little time to offer customized advice. We originally expected that companies would lose momentum in the six months between the end of the pilot program and the start of the intermediate program. How- ever, we found the opposite: companies continued to improve on their own without hand-holding from us or the consultants. We therefore believe this incre- mental approach could work not just in agribusiness but also for most advisory programs. 64 AGRIBUSINESS AND CLIMATE CHANGE Keeping It Fresh! How New Packaging and Distribution Improved the Fruit and Vegetable Supply Chain in Ukraine IFC’s Ukraine Fresh Project focused on improving the fresh fruit and vegetable supply chain as well as the quality of fruits and vegetables for both the fresh market and processing. Key areas addressed were packaging and logistics, which had evolved from the rough handling of produce—a practice adopted following Ukrainian independence 20 years ago—to packaging in cardboard boxes. To increase produce quality and supply chain efficiency, the project introduced the modern system of pooling, in which produce is packaged and distributed in special, reusable plastic crates (see Box 1). This SmartLesson discusses some of the lessons we learned in introducing the pooling system to Ukraine. BACKGROUND Box 1: Pooling Ukraine is a major producer of fresh fruits and veg- etables. The commercial market has been growing for Pooling refers to the practice of using reus- 10 years, with growth in 2010 exceeding 35 percent able plastic crates to pack, store, and distrib- in spite of the recent economic crisis. Most fruits and ute goods. Pooling is particularly important in vegetables are sold in open markets, with no more the supply chain and distribution of perishable than 15 percent currently sold in supermarkets. How- products, such as fruit and vegetables. Once ever, with the strong growth of modern retail chains packed, produce remains in the crate from the in recent years—exceeding 50 percent annually before point of departure to the destination at the the 2008 financial crisis—sales of fresh produce are shops where it will be sold. The plastic crates likely to shift to supermarkets. also serve as the display units in the shops. Empty crates are collected and reused. The potential for further increases in the market for locally grown fruits and vegetables is strong. Cur- The benefits are significant: more efficient rently, 59 percent of the fruits and 30 percent of the transport, lower cost, reduced waste, less dam- vegetables sold in supermarkets are imported. Most of age, and ultimately higher quality produce. this produce could be grown in Ukraine, which has This system also promotes energy efficiency excellent climate to support fruit and vegetable culti- and reduces greenhouse gas emissions. Pool- vation. Fruits and vegetables cultivated for domestic ing is widely used in developed countries and consumption should be competitive with imports: is now being introduced in the countries of the they are fresher, have lower transportation costs, and former Soviet Union. have the potential for superior quality. smartlessons 65 PACKAGING AND DISTRIBUTION: A DEMONSTRATING BEST PRACTICES KEY SUCCESS FACTOR In late 2006, IFC organized a study tour to Turkey One key to improving the competitiveness of Ukrai- for Ukrainian farmers and local fruit and vegetable nian fruits and vegetables is in packaging and distri- traders to study modern packaging and distribution bution. Prior to the implementation of the Ukraine practices, among other things. The following year, an Fresh Project, most Ukrainian produce was packed in IFC project in the southern region of Nikolaev con- cardboard boxes, and the distribution chain was frag- ducted a feasibility study of the potential market for mented as a result of several stages of reloading along pooling in Ukraine and presented research data to the supply chain. The project was designed to: market participants. The study also included a five- year business plan of a pooling company, developed • Facilitate access to commercial markets for Ukrai- in cooperation with Schoeller Arca Systems, a lead- nian fruit and vegetable farmers by improving qual- ing global manufacturer of plastic packaging systems. ity and logistics, with a projected increase in sales of $30 million; • Facilitate investments in the fresh supply chain storage and logistics, with a target to support in- vestments by $20 million. The project worked with main retail chains, includ- ing Fozzy,21 the largest retail chain in Ukraine and a leader in fruit and vegetable sales, and Evroterminal, a company based in the Odessa region that is plan- ning for investment in its fruit and vegetable logis- tics operations. The work with Fozzy focused on the development of logistics and the internal cold-chain handling of fruit and vegetables. The overall goal was to increase sales by improving quality and reducing waste. The work with Evroterminal consisted primar- ily of providing advisory services to the company on how to improve the fruit and vegetable portion of the business. As of June 30, 2011, project clients reported a com- bined cumulative increase of $46 million in Ukrai- nian fruit and vegetable sales and $36 million in investments—well above project targets. 21 Fozzy, a locally owned retail company, employs more than 50,000 people and has a 10 percent share of the organized market as well as an annual turnover of $2 billion. Pooling in practice. 66 AGRIBUSINESS AND CLIMATE CHANGE When the findings and plans were presented to local estimated the annual value of introducing the pooling retailers and representatives of European companies, system in its fruit and vegetable operation to be $5 they initially estimated that the market for pooling million. Based on the positive experiences from fruit services in Ukraine would not develop for at least and vegetables, the company also introduced pool- five years. As a follow-up, in the spring of 2008, IFC ing for other perishable products (milk, meat, bread), organized another study tour to Turkey for a group of gaining an additional $2 million. representatives of the Ukrainian fruit and vegetable business to study the experience of using returnable For farmers, the value of using returnable crates and crates in pooling systems. a pooling system is a reduction in damage and losses (the farmer is paid only for accepted produce) and a The financial crisis in 2008–2009 led to an increase more effective logistics plan at the farm. in the cost of cardboard boxes used by the fruit and vegetable industry of Ukraine for packaging and dis- LESSONS LEARNED tribution. This in turn led to a renewed interest in pooling, and several wholesale operators returned Lesson 1: Seeing is believing, when it comes to to Turkey to carry out additional studies of the sys- overcoming the resistance to break from the tem during the spring of 2009. Pooling slowly began usual practice. to develop in Ukraine. Schoeller Arca Systems also quickly responded to demand by organizing the pro- Ukrainian firms initially rejected the idea of adopting duction of plastic crates in the fall of 2009. From that the pooling system, citing factors such as cost (it was fall to the summer of 2010, the Ukrainian company too expensive) and timing (it was not the right time increased its volume up to one million cases, invest- for the Ukrainian market). To overcome this resistance, ing more than $5 million. the IFC project team organized a study tour to Turkey on the overall fruit and vegetable supply chain in 2006 Fozzy was the first company to adopt the pooling for farmers and traders. This led to a second study tour system for the packaging and distribution of fruit in 2008 for retailers, focusing on logistics and distribu- and vegetables in the country. By the end of 2010, tion. As a result of the second tour, a number of percep- pooling and the use of plastic crates had been fully tions changed. Once Ukrainian firms saw the benefits implemented for Ukrainian produce, with encourag- of the system—including hard figures that showed cost ing results: efficiency in distribution was increased savings—they became enthusiastic about modernizing as well as quality of the produce. The company esti- their packaging and distribution systems. mated that efficiency in transport increased by 20–30 percent (depending on the produce being trans- Lesson 2: Localize to the context. ported) and losses decreased by about 15 percent. The increased efficiency in transport was as a result Industry information and financial models provided of improved capacity (crates/pallets), and the reduc- much of the key data needed to demonstrate the value tion in losses was a result of less handling and better of pooling. It wasn’t enough, however, to merely show packaging. The company estimated an annual savings data from Europe or Turkey. The financial models had of about 300,000–350,000 kilometers of truck travel to be localized to reflect Ukrainian conditions—for to transport Ukrainian produce alone—also saving example, the size of Ukrainian farms and traders/deal- 400–500 tons of carbon dioxide emissions per year, ers (there are some significantly larger fruit and vegeta- as estimated by an IFC climate change expert. Fozzy ble farms as compared with those in Western Europe). smartlessons 67 Reflecting local conditions enhanced credibility and had CONCLUSION a greater impact on the study-tour participants. The Having worked in the fruit and vegetable sector in high level of awareness of and access to quality industry Ukraine for 10 years, IFC’s technical assistance projects information for IFC projects made it possible to conduct gained comprehensive information and knowledge studies quickly, and it also made it possible to evaluate the about the sector, sector stakeholders, and important effectiveness of similar projects in other regions. issues and bottlenecks. This was of major importance in enabling the Fresh project to identify problems, Lesson 3: Select the best clients to generate find a good partner/client to support the implemen- more buy-in. tation of development (in this case a pooling system), and actually get things done. Today, different compa- This project relied on working with a selection of cli- nies in Ukraine are implementing improvements in ents to demonstrate new ways of doing business to an the supply chain, copying the success of Fozzy and entire sector. Therefore, selecting the best clients was other stakeholders. The experiences underline again extremely important. Some of the factors we looked the importance of a strong understanding of the sec- at were: 1) reputation—we wanted to be sure that tor and the selection of good clients. others would be looking at the results; 2) willingness to share their experience—the clients benefited by The fruit and vegetable industry is a very impor- being early adopters of the new technology, but we tant part of the food supply in almost all countries wanted them to be willing to show the benefits of the where IFC works. The problems in Ukraine—the new system; 3) scale—the operations of the client had need for new and modern technologies and the large to be big enough for results to be visible; and 4) tech- bottlenecks in the supply chain (storage, packaging, nical capacity—the client had to have the resources distribution)—are present in many other countries. to implement the technology and assume the corre- Addressing these issues effectively requires a thorough sponding risks. understanding of the sector and the market in the relevant country. You have to do your homework: in Ukraine, we conducted many studies and constantly researched the issues. With this knowledge, the suc- cess we had in Ukraine can be replicated in other countries facing similar challenges. ABOUT THE AUTHORS Fedir Rybalko is a Business Development Specialist with the Ukraine Fresh project, based in Kherson, a region in southern Ukraine. Ebbe Johnson is a Project Manager and has worked on various IFC agribusiness projects in Ukraine since 2001. Approved by Patrick Luternauer, Regional Business Line Manager, Sustainable Business Advisory Services, IFC Europe and Central Asia. 68 AGRIBUSINESS AND CLIMATE CHANGE smartlessons 69 To WII or Not to WII? Practical Lessons from Implementing Weather Index Insurance for Agriculture Weather index insurance (WII) is a new product, and numerous pilots around the world have experimented with it. But despite the potential promise of the product, the results in the field have been mixed. The Agricultural Risk Management Team of the World Bank has written a guidance document that distills almost eight years of effort researching, developing, and implementing pilot projects for weather index insurance in developing countries. It analyzes the advantages, challenges, and implications of implementing weather index insurance programs. This SmartLesson summarizes the key messages of a recently released discussion paper from the Agriculture and Rural Development department, titled Weather Index Insurance for Agriculture: Guidance Note for Practitioners. It is a distillation of the findings of almost eight years of research and development work on the topic, and the major lessons are summarized below. BACKGROUND Insurance is generally the first thing that comes to Weather index insurance aims to protect farmers mind for most people when they think of risk, yet it against weather risks such as droughts and floods. An is important to understand that, in agriculture, risk index-based weather insurance policy links possible management consists mainly of three types of activity: insurance payouts with the weather requirements of • Mitigation covers a number of traditional activities. the crop being insured; the insurer pays an indemnity From irrigation to hybrid seeds, from vaccinations whenever the realized value of the weather index meets to pest control, many agricultural activities are real- a specified threshold. Whereas payouts in traditional ly the application of risk management approaches. insurance programs are pegged to actual crop dam- ages, a farmer insured under a weather index insur- • Transfer is the simple act of passing one’s financial ance contract might receive a payout, for example, in risk to a third party, who is prepared to accept it in the event of too little or too much rain. In this case, exchange for a fee or premium for the service—as, for rainfall serves as a proxy for crop water need, which in example, in insurance and commodity price hedging. turn is correlated with actual crop losses. • Coping comes into play after the fact, when an in- Some potential advantages of index insurance over dividual takes physical or financial measures to deal traditional crop insurance include the elimination of with the impact of a risk once it is realized. field loss assessments, reduced information require- Before embarking on the use of a particular prod- ments and bureaucracy, greater transparency that uct, it is imperative to identify the risk and assess the facilitates reinsurance, and lower costs and greater potential application of one or a combination of these affordability for farmers. risk management activities, including insurance. 70 AGRIBUSINESS AND CLIMATE CHANGE Since the late 1990s, there has been a lot of discus- LESSONS LEARNED sion and debate about the promise and potential uses of index-based insurance in agriculture in developing Lesson 1: Prefeasibility work is important, since countries. A 2005 World Bank publication, Man- data series may be incomplete or missing. aging Agricultural Production Risk, set out in some detail the potential benefits of index insurance and The need for accurate and reliable data for the estab- some early examples of its application in developing lishment of the index creates major challenges in countries. Since that time, a large amount of research many developing countries. For years there has been and piloting of the product has been undertaken both underinvestment in meteorological services and infra- within and outside of the World Bank, largely target- structure in developing countries; as a result, data ing small farmers. However, despite this experience series are often simply not available. These data are and effort, there have been few examples of successful necessary for the implementation of pilot programs, scale-up at the farmer level without the help of policy and practitioners should identify whether these are or financial tools by governments, heavy financial available at the outset of the activity. In certain cases support from donors, or both. there may be alternative solutions—for example, con- structing synthetic weather data by interpolating field and satellite-based observations to create a higher resolution data grid. WII: ADVANTAGE AND RESULTS WII: : Advantage WII andResults Advantageand Results ClaimedAdvantages Claimed Advantagesof ofWII WII WIIPiloting WII PilotingResults Results • • Reduces Reduces adverse adverse selection selection Few • • Few examples examples ofofsuccessful successful scale-up scale-up • • Reduces Reduces moral moral hazard hazard Not • • Not much much clarity clarity about about the the “successes” “successes” and and ‘failures” ‘failures” • • Eliminates Eliminates field fieldloss loss assessment assessment Limited • • Limited dialogue dialogue and and information information • • Simplifies Simplifies information information exchange exchange onon the the topic topic requirements requirements for for farmers farmers Lack • • Lack of technical oftechnical guidance guidance on when, on when, Lowers • • Lowers administrative administrative costs costs why, why, and and howhow totoproceed proceed with with WII WII pilots pilots Facilitates • • Facilitates reinsurance reinsurance Limited • • Limited information information onon practical, practical, Increases • • Increases Transparency Transparency technical, technical, and and operational operational challenges challenges onon implementing implementing WII WII Lack • • Lack ofofinformation information onon building building blocks blocks and and necessary necessary pre-requisites pre-requisites for for launching launching WII WII programs programs   smartlessons 71 Lesson 2: The implementation of index Sample Feasibility Assessment Highlights: Highlights: Feasibility Assessment insurance plans is Feasibility technically very Assessment challenging, and there is a lack of capacity in those countries where it would be most useful. There is currently a lack of technical capacity in the insurance sectors of most developing countries, which is a constraint to the scaling up and further develop- asibility asibility assessment assessment ment of WII. Although it is possible, on a pilot basis, to use external consultants to design an index product nical feasibility assessment and assist nical feasibility in rollout, marketing, and sales, such assis- assessment tance is not possible on a wide scale, simply because of the lack of qualified professionals. It usually requires sing sing practicality practicality of intricate of field field modeling, data manipulation, mathematical mentation mentation and expertise in crop phenology (the study of how plant life relates to variations in the climate) to design an index. Exposure assessment Exposure assessment Until such time as local capacity in these and other Hazard areas is developed, there will be a heavy reliance on Hazard assessment assessment scarcely available international technical assistance. The technical expertise required also makes the prod- ndex assessment uct expensive and difficult to market to potential ndex assessment policyholders. Vulnerability assessment Vulnerability assessment Lesson 3: Farmers actually want full indemnity. The very nature of an index-based product creates the chance that insured parties may not be paid when they suffer a loss. Index products do not offer exact indemnity— a farmer can suffer a loss and not receive a payout, either because the index was not triggered or because the loss was caused by a variable not covered by the index. This would be the case if, for example, a farmer had drought coverage and his crop was destroyed by “Basis risk” is also a particular problem for index a pest. Generally, farmers want indemnity from loss, products. It is frequently caused by the fact that mea- no matter what the cause. It is possible to structure surements of a particular variable, such as rain, may insurance with multiple indexes, but this increases the differ at the insurer’s measurement site and on the complexity of the product and makes it difficult for farmer’s field. This also creates problems for insurance farmers to comprehend it. providers. Insurers face serious reputational problems when farmers pay premiums and suffer losses not cov- 72 AGRIBUSINESS AND CLIMATE CHANGE ered under the index. Insurers run the risk that such Lesson 5: Legal ambiguity will continue to incidents negatively affect other products that they threaten the use of WII. sell in the market. Part of the reason the scaling up of index products has failed is that both insurers and Bear in mind that there is a lack of clarity as to the regu- farmers suffer from this basis risk. latory and legal status of index-based products in nearly all jurisdictions. Clearly, index products do not align with the traditional definition of insurance, because Lesson 4: There are practical challenges to they do not indemnify actual loss and policyholders product rollout and the establishment of a do not need to have an insurable interest before they sustainable pilot, including the willingness of purchase an index-based contract. Certain commen- farmers to pay. tators have referred to these products as little more The rollout of a product and its sale to potential poli- than gaming or lottery-type activities. Without strict cyholders can be very time consuming and compli- regulation, buyers of these products will not have cated. In addition to all the technical challenges of their interests protected by law. establishing a weather index, it is not assured that farmers will be willing or able to pay premiums. Most CONCLUSION farmers in developing countries have extremely low Experience with the product has been mixed, but disposable incomes and a limited awareness of finan- there appear to be some promising applications that cial products such as insurance. Given this, most are can benefit farmers in developing countries. Some reluctant to pay insurance premiums, because many areas in which WII or other index-type products do not monetize their crops—especially if their gov- show promise include the following: ernment has a history of writing off debts or provid- ing compensation. Add to this the complexity of For large-scale commercial farmers. For large-scale explaining how WII works and on what basis payouts farmers who have clearly identifiable and insurable are calculated, and it is clear that demand is a real losses, and revenue streams that enable them to pay obstacle to scaling up. premiums, WII can be an interesting option, espe- cially where traditional insurance is either not avail- Even though WII may not require a local presence for able or too expensive. field-level assessments, it does require local presence during product rollout and sales. Extensive awareness As a financing tool for social protection plans. WII activities and training are necessary to ensure that may not be for the “poorest of the poor” because of farmers understand the product. The costs inherent in their inability to pay premiums or lack of insurable such a process are prohibitive for most local insurance interests. But the use of indexes at a district, regional, companies and therefore a major constraint to prod- or national level can be a useful tool to generate funds uct development. Likewise, banks and local partners for social protection measures in natural disasters. may be hesitant to cooperate, and it may take a long Obviously, the issue of who will pay the premium and time to market and sell the product to consumers in the establishment of distribution channels are impor- potentially remote farming communities. tant parts of the product design. Portfolio risk management for intermediaries. Input suppliers, banks, and processors often lend cash or products to a wide group of farmers and are smartlessons 73 therefore exposed to the same production risks. The ance pilot activities by the World Bank and its part- use of WII by such intermediary stakeholders can be ners. It should be noted, however, that the field effective in reducing their exposure to certain risks. continues to develop, evolve, and benefit from inno- However, care should be taken, because many risks vations in many technical areas, with a number of that actually drive farmer default cannot be covered new approaches being tested by other institutions. by WII—for example, side selling, price risk, and Weather index insurance faces many challenges, but quality issues. In addition, there is a possibility that if if a number of obstacles are overcome, it might still a farmer is aware that the counterparty has insurance, hold some potential for risk transfer in the agriculture the farmer will be more likely to default, even where sector in developing countries. default is not due to a risk covered by the index. Sovereign risk transfer at the macro level. If a country is running a contingent risk that relates to ABOUT THE AUTHORS a weather variable, the use of a WII product can be This SmartLesson was written by the Agricultural Risk Management Team of the Agriculture and Rural extremely useful. Although at this level the product is Development Department of the World Bank, under slightly different—a derivative, as opposed to insur- the leadership of Marc Sadler (Task Team Leader). The ance—the general principles are the same. The pay- core team working on this document consisted of (at outs received from such a derivative could be used various times) Erin Bryla-Tressler, Joanna Syroka, Julie Dana, Ornsaran Pomme Manuamorn, Alex Lotsch, to stabilize budgetary shocks, purchase food for vul- William Dick, Andrea Stoppa, Sandro Calmanti, Erik nerable populations, or finance social safety-net pro- Chavez, Xavi Gine, Panos Varangis, Ulrich Hess, Steve grams. Although this is a very attractive form of risk Jaffee, Carlos Arce, Jerry Skees, Mario Miranda, Rich- ard Carpenter, Olivier Mahul, Ramiro Itturioz, David management, countries often cannot finance premi- Rohrbach, Diego Arias, John Nash, Hector Ibarra, ums, or they face political challenges in the use of Pablo Valdivia, Roy Parizat, and Vikas Choudhary. public funds for nontangible and potentially “risky” Approved by Mark Cackler, Manager, Agriculture and premium payments. Rural Development Department of the World Bank. Contingent finance, as opposed to risk transfer. Very similar to the previous application, the use of parametrics related to contingent financing is another interesting use of the index model. However, in con- tingent financing, a country faces slightly less “risky” premium payments, which are replaced by much smaller commitment fees to access a line of credit, if needed. The main advantage for politicians is that they do not have to pay relatively large amounts of money and potentially receive nothing in return— with contingent finance, they have to pay back the credit used to compensate losses, but only if the risk is realized. This SmartLesson describes lessons derived from a number of agricultural index-based weather insur- 74 AGRIBUSINESS AND CLIMATE CHANGE Supporting Smallholders while Promoting Farmer-Controlled Cooperatives in China Farmer cooperatives in China have seen tremendous developments and increases in membership. But making them more beneficial for China’s millions of smallholder farmers remains a challenge. Promoting farmer-controlled cooperatives within the existing institutional country context is a challenging and long-term agenda requiring a strong focus on the ultimate beneficiaries and engagement well beyond a single fiscal year, study, or project. Given the blockholder structure of many cooperatives, ensuring that smallholders benefit will be difficult—but not impossible. This SmartLesson suggests ways to promote the smallholder role in Chinese farmer cooperatives. BACKGROUND and controlled by nonfarmers, most commonly gov- After more than a decade of internal debate by min- ernment officials or leading agribusiness enterprises. istries and local authorities, the China Farmers Pro- Many others are organized through the “company fessional Cooperative Law (CFPCL) was passed in and households” model, in which a leading com- November 2006 and enacted in July 2007. With the pany and other key shareholders, such as government passage of this legislation came a rapid growth in the officials, control the shares. Many local governments number of farmer cooperatives. According to statistics regard these mixed-membership cooperatives as a from the official cooperative registrar office, the State means to support their local economic champion, Industry and Commercial Bureau, 407,600 farmer and these types of cooperative often receive signifi- cooperatives with a combined membership of 7.8 cant support in the form of tax breaks and subsidized million and equity capital of 502.4 million Chinese interest on loans or grants. They can be characterized renminbi (approximately $79 million) had registered by the following: by the end of March 2011. • A “blockholder” governance structure. The block- Although the progress in numbers is impressive, a key holder model tightly links ownership and control. issue for the development of cooperatives in China Managers are supervised by a concentrated group of will be governance—or, in short, who owns and con- blockholders—individuals who own a large portion trols them. Various field studies suggest that most of the organization’s shares. In the blockholder ap- farmer cooperatives have a heterogeneous member- proach, large shareholder blocks are held by big busi- ship, and that the agricultural activities of members nesses or controlled by families, ethnic networks, vary tremendously in type and scale. Large, wealthy or authorities. The board of directors is made up households with significant economic and political of representatives from these various blockholders. influence in their village or township often exercise a dominant influence over cooperative decisions and As blockholders, many big households exploit the can reap disproportionate benefits. Some are initiated cooperative to their own ends, and smaller produc- smartlessons 75 ers remain peripheral members. Voting rights are in • Lack of bargaining power. Smallholders are often proportion to shares of equity contribution rather the majority, but they have difficulty exerting bar- than “one member, one vote.” Small producers do gaining power with the actors downstream of the not, or are not allowed to, contribute capital to the supply chain. Given a cooperative’s relatively small cooperative; as a result, many of these members be- scale of operation and inability to integrate forward come alienated from what should have been their along the supply chain, smallholders have to obey own organization. This gives smallholders little or the terms of trade specified by these companies. In no influence on issues that should be of direct con- addition, core members of the cooperative often cern to them, such as the marketing and pricing of raise funds for project investments by recruiting new their products. The core members capture the lion’s members, but they often refuse to grant voting rights share of surpluses of profits and capitalized govern- to new members. ment grants. The resulting pattern of cooperative development has • Exclusivity. Small farmers are forced to operate serious shortcomings but seems to be the outcome of under the umbrella of the cooperatives, because China’s agricultural industrialization, given its economic the leading enterprise will not deal with individual development goals and political economy. However, producers. This is because of its concern with food farmer cooperatives are dynamic institutions. Devel- safety, compliance with government regulation, opment partners, including the World Bank, can play and the transaction costs of dealing with individual a crucial role in shaping these organizations to yield small producers. greater benefit and control for smallholder farmers. Group meeting of vegetable growers in Sichuan. 76 AGRIBUSINESS AND CLIMATE CHANGE LESSONS LEARNED counterparts to the most relevant experiences from around the world. Lesson 1: Though the ultimate focus should be on smallholders and beneficiaries, pursue A policy study report summarizing key findings and changes at the highest policy levels. policy recommendations was also widely dissemi- nated to policymakers, legislators, and the develop- The Bank’s first support for introducing farmer orga- ment community in 2006. As a result, some of the nizations into China dates back to 1993 when, under Bank’s key messages were ultimately incorporated the Agricultural Support Service Project, it promoted into the CFPCL, including changes to ownership and smallholder farmers’ forming various types of pro- benefit structure. ducer organizations toward the goal of improving their competitiveness. The project financed several Lesson 2: Ensuring that project benefits accrue visits of groups of policymakers to study farmers to the intended beneficiary is often more associations and other self-help groups in Australia, difficult than it seems. Bank teams need to play the United States, and other countries. However, at a “balancing” role. that time, the Chinese government did not initiate reforms based on the experience gained. Given the power structure in many rural commu- nities, smallholders are often at the mercy of larger But work continued. In 2006, the Bank undertook blockholders and influential government officials. an Analytic and Advisory Activities (AAA) study— Bank task teams need to provide accountability by China Farmers Professional Association: Review and pointing out these imbalances and other inconsis- Policy Recommendations—in parallel with the leg- tencies, with the objective of benefiting all coopera- islative process of the CFPCL. The study engaged tive members. This allows smallholder producers to all key stakeholders, including the Ministry of Agri- benefit from project investments by participating in culture, the Development Research Center (DRC), project activities. leading research institutes, and local governments. It commissioned field studies to examine various pilot Bank supervision missions have played a key “checks activities at the grassroots level and understand the and balances” role—this has been crucial, because pattern of producer groups. the intended beneficiaries are usually vulnerable, and other project partners do not always have sufficient The Bank also supported policy studies of govern- capacity to carry out these initiatives. For example, ment think thanks to review the practices of producer under the Henan Ecological Livestock Project, the groups worldwide and develop policy recommen- county project management offices usually report dations to legislators. This included a discussion on to county line bureaus, as is common to all projects internationally accepted principles for farmer coop- in China. Often, bureau leaders intervene to select eratives and their differences with other groups and specific contractors; sometimes the ones they favor business organizations. To this end, a number of are too large and not eligible for participation in the international conferences sponsored by the Bank, the project. DRC, and the Canadian International Development Agency were conducted in Beijing. These studies and A World Bank Supervision Mission reviewed the doc- events have given Bank staff solid ground to argue for umentation in the project management offices and farmer cooperatives, and the ability to expose Chinese interviewed the project households and farms. Once smartlessons 77 this inconsistency was identified, the Bank discussed policies and project standards related to cooperatives it with the project management offices and asked for are complied with. The goal is to ensure that these rectification. organizations are registered in the official registrar office and that they comply with the CFPCL, have The consistent focus of our work has been that the adequate capacity to run facilities supported by the benefits of cooperatives accrue to the farmers them- project, and can benefit from relevant capacity-build- selves. This requires accountability, and often project ing activities. These steps will allow the small produc- teams must provide the checks and balances to correct ers to hold a cooperative’s management accountable any imbalances in the system. and ensure that project investments are owned and managed by the co-op as a whole rather than by the Lesson 3: Standard contracts and registration large households. Without proper checks and bal- with the CFPCL help ensure that smallholders ances, including through the Bank’s involvement, the are protected. lion’s share of project investments will be captured by large households with strong social and economic The above-mentioned Henan Ecological Livestock connections. Project aims to ensure adoption of improved envi- ronmental health management practices on targeted livestock farms. Local authorities are banning small- Lesson 4: To benefit smallholders, the minimum holders’ backyard production because of concerns number of members for a meeting should be for food safety, animal health, and public health. As increased, and any individual’s maximum voting a result, the project emphasizes that it is crucial for right should be reduced. smallholder producers to adopt environmentally sound Small steps can make significant changes. To ensure livestock production practices if they want to continue that control of cooperatives rests with small producers, earning their livelihood from livestock production and who account for the vast majority of cooperative mem- expand into larger commercial production. bership, the minimum number of members required The project’s approach is to support farmer coopera- to move to a meeting of delegates should be increased tives in building new livestock parks and farms. Dur- significantly. Currently, the CFPCL stipulates 150 ing project appraisal, the Bank task team found that members; Germany’s cooperative law, by compari- small producers were discriminated against in owner- son, requires 1,500. Further, any individual member’s ship and benefit structure when they moved into the maximum voting right should be reduced (currently parks and farms run by cooperatives dominated by a member can have as much as 20 percent of voting large households. In light of this, the project manage- right), and a greater share of operating surplus should ment offices at all levels are required to use standard be allocated to members based on volume of trade with contract templates to ensure that small producers the cooperatives (currently, 40 percent of operating receive fair treatment when they join these coopera- surplus can be allocated based on investments). tives. The contracts state clearly that the small produc- Another area for improving the CFPCL is to better ers should have equity share, have a voice in decision regulate transactions between members and nonmem- making, and receive shares of profits based on sales. bers. The volume of business with nonmembers cur- Task teams have kept a close supervision and support rently is not restricted as it is in other countries, such relationship with government partners to ensure that as the United States, where business with nonmembers cannot outweigh business conducted with members. 78 AGRIBUSINESS AND CLIMATE CHANGE World Bank and other development agencies need to understand the institutional environment into which cooperatives are being introduced. The Bank should continue its long-term engage- ment in developing farmer cooperatives in China and improving the CFPCL. The vision should remain of allowing small producers to be effectively included in modern supply chains and high-value markets. Continued work should focus on the relationship between patron members and investor members, ben- efit structures, and core-periphery membership. Such initiatives would reflect a multistakeholder process for linking small producers to modern markets and including them in the value chain. Cooperative training given to a group of herders in Inner Mongolia. ABOUT THE AUTHORS Achim Fock is a Senior Economist in the Agriculture and Rural Development Unit (AFTAR) of the Africa Finally, the CFPCL should also require the appoint- Region, based in Addis Ababa, Ethiopia. He worked ment of an external auditor for the cooperative. An for the World Bank on agriculture and rural develop- ment in China from 2001 to 2008 and was based in external audit is critical to ensure that the cooperative Beijing from 2004 to 2007. is acting in the best interests of its membership. In particular, the external audit should assess the perfor- Jun Zhao is a Rural Development Specialist with the China and Mongolia Sustainable Development Unit mance of the board of directors and management in (EASCS) in the World Bank Office in Beijing. He is meeting the objectives of the cooperative and ensur- working on a wide range of the World Bank’s rural ing their member-oriented effectiveness. and agricultural development projects in China. Approved by Paul Kriss, Acting Manager, Sustainable CONCLUSION Development Department, the World Bank Office in Beijing. Changes in China’s corporate governance structure are required before significant further success of member- owned and member-controlled farmer cooperatives can be achieved. Specifically, the emergence of stron- ger minority shareholder protections appears to be a necessary condition, since such protections would sig- nal both a change in the underlying power structure of the economy and a change in the power of small investors at the firm level. These outcomes will require even more fundamental changes in the institutional underpinnings of China’s society and economy. The smartlessons 79 Connecting Fruit Suppliers and Processors: A Comprehensive Approach in Ukraine Although Ukraine has some of the best agricultural land in the world, the country’s agricultural system lags behind Europe and North America in productivity. This is primarily because of outdated production technologies, lagging skills at the farm level, and limited access to financing and high-quality inputs. There is also a lack of a long-term “partnership” mentality along the supply chain. Modern processors of agricultural products and local farmers don’t fully connect— processors often want producers to serve as exclusive suppliers, while producers often prefer bringing their products to the fresh market. This SmartLesson describes how the Ukraine Vinnitsa Fruit Project addressed these issues by working with local farmers so that they could become reliable, high-quality suppliers to Agrana—a large processor. It also shares lessons we learned in the process, some unintentionally, which contributed to overall project success. BACKGROUND 2000s, orchards became less productive, and Agrana’s With an excellent climate and nearly perfect soil, processing facility was able to get only 15–30 percent Vinnitsa, a region in central Ukraine, is a prime of the inputs it needed, such as apples, pears, apricots, area for growing fruit. This explains why a number cherries, and berries. So Agrana was not processing as of fruit processors have been attracted to the region. much fruit as its capacity would allow. This is when One such food processor is Agrana, an Austrian firm IFC stepped in to provide some much-needed exper- majority owned by Raiffeisen Bank—an IFC invest- tise via the Ukraine Vinnitsa Fruit Project. ment client. The company set up shop in Vinnitsa IFC has been active in Ukraine since the early 1990s, to produce apple juice concentrate and fruit prepara- starting with a farm and land privatization project tions used for everything from yogurt to Pepsi. and then moving to the agricultural supply chains. It The plant has a total processing capacity of 200,000 partnered with Chumak (a Swedish-owned agripro- tons of fruit per year. At first, it worked at a fairly high cessor in Southern Ukraine), Sandora (a leading local capacity use of 60 percent—processing 120,000 tons juice producer), and Loostdorf Dairy to increase of fruit per year. But the apple orchards, which have a farmer output and quality within their supply chains. productive life of about 30 years, had been planted in IFC and Agrana agreed that the Ukraine Vinnitsa Soviet times. Their productivity peaked in the 1990s, Fruit Project would focus on apples and berries, with when the economy was wrenching itself away from a the aim of increasing the raw material base of Agrana centralized system to a free-market one. by making area growers more productive. Agrana also One consequence was that subsequent investments worked with IFC on the introduction of best prac- in orchards didn’t happen. Everything was neglected, tices to farmers, using pilot demonstration farms from nurseries to fertilizer. As a result, in the early that allowed new varieties of fruits to be grown using 80 AGRIBUSINESS AND CLIMATE CHANGE Demo-field visit at Project annual Seminar, “Growing Strawberries,” June 2011. different kinds of growing techniques, including dif- of the harvest to the fresh market at higher prices, ferent irrigation techniques, fertilizers, and inputs. the farmer could generate enough income to invest These techniques were introduced broadly in Ukraine in new fruit plantations and technological upgrades. through public education, how-to manuals, and other This would ensure an increase in fruit production methods. Besides technical advice, the project helped and, as a result, a stable supply to Agrana over the farmers with business planning and legal issues. Pub- long term. Overall, the project was a success. Farmers lic education programs were held in partnership with were able to meet the needs of Agrana and become Agrana, input suppliers, and financial intermediaries. more successful as businesses. The project also convinced Agrana that if a farmer could produce higher quality products and sell part smartlessons 81 LESSONS LEARNED Lesson 2: Be very, very picky when selecting international consultants. Lesson 1: Get agricultural input suppliers to make pilot farms cheaper and more effective by Introducing global best practices usually—though providing inputs and advice to farmers. not always—involves bringing in foreign experts as consultants. But just because a consultant is a for- Pilot farms are a great way to introduce best practices eigner and has a solid-looking CV doesn’t mean he in agriculture to local farmers. They allow experi- or she will do the job well. The expert you choose can mentation under local conditions without great risk make or break a project. Picking the wrong person or cost to farmers. However, pilot farms cost money. can damage your credibility and reduce the impact of Besides renting land, you need knowledge, skills, and your entire project. So it pays to be selective: all of the agricultural inputs, such as seeds, fertilizers, crop protection products, and equipment. It may be • Give potential consultants test assignments. Prepare possible to get donors to support these investments, a hypothetical situation that includes local condi- but you can stretch donors’ funds by having potential tions—describe, for example, legal, climate-related, beneficiaries provide inputs and advice to the pilot or logistical challenges—and ask the consultant to farm. Then use donor funding to involve leading explain his or her approach to this situation. Keep independent consultants who can ensure complete an eye out for consultants who factor in local reali- and objective support to the pilot farmer, as well as ties when outlining their approach and solutions. the effective dissemination of lessons learned. This enables you to weed out “cookie cutter” con- sultants who recommend identical solutions re- The Vinnitsa project used agricultural suppliers in gardless of local circumstances. this way, including plant material and seed suppliers, crop protection and fertilizer suppliers, and machin- • Tap into your network to both identify and check ery and equipment suppliers. There was a natural up on the consultant. Global agri-specialists tend to incentive for the suppliers to participate: by investing know each other, so if the proposed candidate has their resources to show farmers new techniques, they a reputation—whether good or bad—you should were creating a market for themselves. With project be able to find out about it. If your network isn’t support, Vinnitsa fruit farmers invested about $40 extensive yet, contact IFC agricultural people in in- million over six years in new plantations, machinery, vestment and advisory services in other countries to and equipment. find out what they know. In making this happen, our role was to identify the • Look for consultants who know your region. Al- input suppliers and technologies most suitable for though there are undoubtedly many excellent con- the pilot farms, given the demands of the market. We sultants in other parts of the world, someone who then conducted an analysis to determine the relative already has local knowledge is more likely to be benefits of the new techniques over traditional farm- effective, because he or she has already ridden up ing methods. Finally, we conducted a number of outreach the learning curve. But make sure you don’t select campaigns (described below) to disseminate the results someone just because of local experience—think of and, hopefully, achieve greater development impact. it as a tiebreaker when you have several experienced candidates to choose from. 82 AGRIBUSINESS AND CLIMATE CHANGE Lesson 3: Don’t overload your farmer clients • The press is more likely to be interested and cover with seminars; use a range of training and the event, providing broader reach for the messages coaching vehicles. you wish to convey. Seminars can be boring if you just throw facts and In the Ukraine Vinnitsa Fruit Project, annual the- figures at farmers. A better approach is to organize an matic seminars were combined with a range of other annual conference that focuses on a specific, appli- training vehicles, including practical training and cable topic, such as growing apples. Because the con- workshops in smaller groups, individual advice and ference happens only once a year, the key players are coaching, TV and radio educational programs, and more likely to come. Some other benefits of an annual study tours to enable farmers to learn about new conference include the following: developments that could not be introduced through the pilot demo-testing program (because they require • The key players, including farmers, processors, in- larger investments and periods greater than one year put suppliers, and agro-finance institutions, have to see results). an excellent opportunity to network. IFC’s name provides the stamp of credibility that enhances the reputation of the event. Lesson 4: Develop your local staff into highly skilled experts who can provide commercially • The conference provides an excellent way to intro- sustainable extension services. duce materials, such as how-to manuals for farmers. Ukrainian IFC staff who worked on the project devel- • It enables the results from pilot farm demonstra- oped expertise that proved commercially sustainable tions to be broadly disseminated. after the project ended. Thanks to a unique pricing Study tour to USA, August 2011. Visit to STEMILT (Washington State). Farmers are learning about fruit postharvest handling, storage and marketing technologies. smartlessons 83 plan for study tours and assistance, farmers were will- cessors was to help farmers be successful overall. That ing to pay for technical, financial, and legal advice as is to say, we wanted to help farmers be financially suc- well as for their training; likewise, the team learned cessful by enabling them to sell a larger part of their which farmers were willing to pay for these services, output to the fresh market, and at a higher price— and how much. To introduce payment, we began by despite the fact that the ultimate project goal was to offering a free study tour to approximately 20 farm- increase fruit supply to the processor. ers. Later, a second tour was offered at 50 percent of cost, and a third at 80 percent. Farmers were willing Why? Because farmers that are on a sound business to pay at these rates, once they had seen the value footing make better suppliers overall. Their income of the training and advice received. Subsequent itera- is diversified, they are better protected from market tions have been conducted with farmers paying the risks, and they are more likely to supply Agrana when full cost. In short, farmers valued the knowledge and times are tough. expertise of consultants and IFC staff—and were will- It took some effort to convince local Agrana manage- ing to pay for it. Although this was not an original ment to see this point of view, but in the end they did. aim of the project design, it turned out to be a valu- In convincing them, we argued that a farmer can only able outcome. In the future, project designers should grow his business if his production is profitable and he consider making an extension service spin-off part of has enough capital to invest in new developments and the project exit strategy. The following are benefits of growth. Because there is no long-term agrifinancing this approach: available in Ukraine, and the fruit business requires • Local capacity developed and available to farmers long-term capital investments, a farmer can only get postproject; sufficient income for investment if he is able to sell to the fresh market, which pays much higher prices. In • Greater long-term impact; short, if we want a farmer to be able to invest in new plantations, we need to help him generate enough • Higher degree of sustainability; income from his existing fruit plantations to support • More motivated staff. new investments. We thus persuaded the local Agrana management Lesson 5: Make the pie bigger by focusing on to move from short-term thinking in their attitudes the viability of farmer suppliers in general, not toward their farmer-suppliers to an attitude of sus- just on supply issues for your agriprocessing tainable long-term partnership with them. They pro- partner. vided resources to help farmers with their big-picture plans, not just their efforts to supply fruit for pro- Although the project was built around the needs cessing. The result was more stable, reliable, and loyal of an agriprocessor partner, we also considered the suppliers, growing more products. needs of others in the supply chain. Farmers supply both processors and the fresh fruit market. Naturally, local Agrana management wanted to limit assistance CONCLUSION to those farmers who supplied a larger percentage of Managing agricultural supply chains can be tricky, fruit for fresh markets. We didn’t agree, and held a and any project that aims to make them more effi- counterintuitive view that turned out to be right: we cient will have to look at the challenges from many felt that the best way to ensure good supply for pro- different angles. In some cases we adopted the cor- 84 AGRIBUSINESS AND CLIMATE CHANGE rect approach from the start—selecting international consultants, for example. Other elements were lucky ABOUT THE AUTHOR accidents, as when our local staff became successful Oksana Varodi is an Operations Officer who joined providers of agricultural extension services. IFC in Ukraine in 1998 as an analyst-assistant to the senior economist in the Farm Reorganization and But everything we did had a single focus: helping Land Privatization Project. She has worked on several Ukrainian farmers become successful producers and agribusiness advisory projects, has managed the implementation of the Ukraine Vinnitsa Fruit Supply suppliers. We approached this goal from many angles. Chain Development Project, and is currently work- We looked at better ways to introduce best practices ing on new agribusiness initiatives in the Europe and through demonstration plots at pilot farms and get- Central Asia (ECA) Region. ting the best experts. We developed local capacity and Approved by Patrick Luternauer, Regional Business found the best ways for them to deliver the right mes- Line Manager, Sustainable Business Advisory Services, sages to farmer clients. And we were able to get the IFC Europe and Central Asia. agriprocessor to look at the overall health of its supply base rather than focus exclusively on its supply needs. This long-term, comprehensive approach worked in Ukraine. Although the details may differ, it can work in other countries as well. Demo-field visit at IFC Project annual seminar “Growing Apples,’’ September 2011. Farmers are learning about new apple varieties introduced by the Project in partnership with Agrana. smartlessons 85 Wheat field, Chernihiv, Ukraine. 86 AGRIBUSINESS AND CLIMATE CHANGE It’s All About Teamwork: Unlocking Opportunities for Agribusiness in Ukraine The Ukraine Investment Climate (IC) Project and the Sustainable Business Advisory (SBA) Food Safety Project in Ukraine formed a partnership—one that has led to tangible results in the form of burdensome regulations being abolished and businesses receiving advice on safety standards that will help them become more competitive in European Union (EU) markets. IC-SBA advice has helped facilitate IFC investments in Ukraine and helped set triggers for World Bank lending. It has also defined the future of the work being done by these two business lines in the agribusiness sector. This SmartLesson relates lessons and experiences of the teams in designing and implementing such an innovative and holistic technical assistance solution, within a specific sector, for government and private sector clients. BACKGROUND • Mandatory certification of food products (exclud- Agribusiness is a key driver of the Ukrainian econ- ing baby food and tobacco and alcohol products) omy: some 70 percent of the country’s total land was eliminated, resulting in $20.7 million annual area is dedicated to agriculture, and over 20 percent compliance cost savings for the food processing in- of the population is employed in the agriculture sec- dustry. tor. However, arcane regulations for agricultural and • Requirements for costly duplicative licenses for cer- food products carried over from the Soviet era have tain agribusiness activities were canceled, including held business back in this sector. The regulatory bur- those for wholesale seed trading, raising of domes- den is particularly heavy for the food safety system, tic animals, and manufacturing of agrochemicals. which should aim to ensure public safety and support the competitiveness of Ukrainian exports. Ukraine’s • Licenses for trading of agrochemicals and selling system instead placed a heavy burden on companies, of biogas/biofuel, previously subject to five-year re- with costly and duplicative controls imposed by mul- newals, were made permanent. tiple state agencies, without adequately increasing the safety standards of food products. • The president of Ukraine committed to establish a single food safety controlling agency instead of sev- IFC Advisory Services (AS), the Investment Climate eral agencies undertaking duplicative responsibili- (IC) and Sustainable Business Advisory (SBA) teams ties, and prioritized food safety on the deregulation worked together to address this, streamlining regula- agenda of the Committee for Economic Reforms. tions and harmonizing food safety management sys- tems with international and EU best practices. The • Amendments to the national food legislation were results of these efforts include the following: drafted that will lead to a further reduction of costs to food producers (the estimate of the cost of food- related inspections in Ukraine is $8.6 million per smartlessons 87 year) and an increase in the safety and competi- The cancellation of mandatory certification has been tiveness of Ukrainian food products, since require- very favorable for us. We import tea and coffee from ments will be harmonized with EU requirements. various parts of the world, and package and sell it in Ukraine. Previously we paid up to $3,000 a month • The teams helped develop six industry checklists for certificates, and it took a week and a lot of paper- on Hazard Analysis and Critical Control Points work to obtain them. We also incurred additional (HACCP) in the poultry, eggs, and dairy sectors in costs of having the container sit at a port in case the collaboration with the Veterinary Service and en- certification was delayed for any reason, as customs dorsed by the EU. These are expected to open up clearance was not possible without it. So the cancella- new opportunities for exports to EU markets. tion of these certificates will literally save us thousands Businesses are already reaping the benefits of these in terms of cost and man-hours per month! improvements. For example, Volodymyr Barabash of The agribusiness work in Ukraine serves as an exam- the Monomakh tea and coffee company had this to ple of a fully integrated country pilot with strong col- say: laboration between IC and SBA on policy and food Figure 1: Ukraine’s Figure Integrated 1: Ukraine’s Value Chain Integrated Value Chain 88 AGRIBUSINESS AND CLIMATE CHANGE From the investment climate side, this project was innovative in many ways and yielded safety, and coordination with other AS business lines These efforts helped shape a joint technical assistance and Investment Services (IS) to address additional intervention that addressed issues both at the govern- challenges along the value chain (see Figure 1). ment/policy level and at the firm level. From the investment climate side, this project was innovative in many ways and yielded lessons that Lesson 2: Innovative industry-specific are helping shape our approach to other agribusiness diagnostics helped set clear reform targets and interventions in the Europe and Central Asia (ECA) create consensus on reform priorities. region and elsewhere. An objective of the IC work was to use research and diagnostic tools to help kick-start the dialogue with LESSONS LEARNED government, the private sector, and other stakehold- ers. One of the studies produced jointly with the Lesson 1: Don’t just give lip service to SBA team and widely promoted to stakeholders was collaboration: “walk the talk” through an the report, “Reforming Food Safety Regulation in integrated approach across business lines. Ukraine—Proposals for Policymakers,” which empha- sized the urgent need for change in policies governing The Ukraine Investment Climate Project worked this critical sector. The IC team also produced another jointly with the SBA Food Safety team from an early report, “Investment Climate and Industry Competi- stage, sharing staff and resources: tiveness in Ukraine—an Industry-Level Regulatory • There was a clear and full complementarity between Analysis of the Impact of Food Safety Regulation on IC focusing on policy work and SBA focusing on the Dairy Sector in Ukraine,” which constitutes a first firm-level work to present a unified private sector IFC analytical pilot combining the strengths of both reform agenda. industry-level value chain competitiveness analysis22 and regulatory analysis of the economic impact of • There were three staff, shared 50/50 between IC regulation on the private sector through the standard and SBA, that had joint results agreements, dual cost model (SCM) analysis.23 clear reporting lines, and clear guidelines to deliver the joint components between IC and SBA. The value chain analysis presented in the report focused on the industry-specific regulatory frame- • On the investment climate side, there was also the work (food safety regulation) as a way to provide an element of sharing knowledge between the global objective and quantitative reference point for address- and country team, with the agribusiness compo- ing sector-specific regulatory constraints of the invest- nent team leader’s time shared 50/50 between HQ ment climate. At the same time, the report followed and the IFC region. the view that better regulation is crucial to enabling private sector–led growth and improving both econ- • The teams held joint planning meetings and also tested approaches to jointly developing research 22 See, among the vast literature on the subject, “Moving Toward products (as outlined in Lesson 2, below). Competitiveness: A Value Chain Approach,” FIAS, The World Bank Group, 2007. • The teams also held regular meetings and updates 23 Also see, among the vast literature on the subject, “Interna- with all other agribusiness-related AS projects and tional Standard Cost Model Manual: measuring and reducing administrative burdens for businesses,” Standard Cost Model IS to check on progress on joint strategic objectives. Network, 2008. smartlessons 89 omy-wide and industry-specific competitiveness. A tronics in Malaysia and high-tech clusters in East Asia, central aspect of better regulation relates to minimiz- car parts and assembly in Eastern Europe, salmon ing the administrative burden of compliance with farming in Chile, wine in South Africa, among oth- regulatory requirements for the private sector. ers). For a country seeking to increase the competi- tiveness of its established businesses and attract new More specifically, the SCM methodology and value foreign and domestic investment, a sectoral approach chain analysis were combined to identify and assess to reform and investment generation is complemen- the impact of all relevant types of regulatory (food tary and often necessary for success. safety) requirements (permits, licenses, certifications, inspections, conformity assessments, and so on) In Investment Climate, the idea of sector-specific affecting the selected industry. This was a significant policy reform is a relatively new one, being honed change from the traditional “horizontal” approach through projects such as this one in Ukraine, the suc- to regulatory analysis, in which the SCM method- cess of which has set the stage now for a next phase ology is used to assess the administrative burden of of an Investment Climate program focused fully on a specific type of regulation (inspections regime, or agribusiness reform. licensing regime, or permits regime, or product certi- fication, and so on) without taking into account the Lesson 4: Go West—customize the intervention cumulative effect of the different types of “horizontal” to meet the client’s priorities. regulation on industry-specific dynamics. The need to open up Ukrainian businesses to EU A second significant synergy resulting from the com- markets was a key factor that the project team high- bination of the value chain and SCM methodologies lighted to keep the momentum on these reforms relates to the ability of this joint approach to identify alive. In fact, a key challenge faced by food processors, and assess the distributional effects of a specific piece even the ones with advanced facilities, is that access of regulation throughout the selected value chain, and to the EU market is conditional on EU recognition to estimate the differential impact of policy proposals of the Ukrainian public food safety controls system. on the various stages (and stakeholders) of the chain. A key lesson here is that the IFC team adopted a gradual, yet strategic, advisory support engagement Lesson 3: Taking a focused and industry-specific by assisting the Ukrainian State Committee for Vet- approach to reform can generate big wins. erinary Services (a unified agency responsible for food safety in the country since 2011) in the development A number of countries have invested significant of EU-compliant food safety controls procedures and amounts of resources and effort in undertaking checklists for priority agribusiness value chains with reforms to their business environment. However, regard to export potential (see results in the “Back- most of these reform efforts are “industry blind,” ground” section, above). The prospects of enabling because they seek to address economy-wide regula- greater exports of food products from Ukraine to the tory obstacles. Although these types of economy-wide EU, opening the huge new market for Ukraine’s food reforms are often required to level the playing field processors, helped create strong support for reform for competitive businesses, combining or following from the private sector, since this was fully aligned these reforms with sector-specific initiatives can sig- with their business priorities. nificantly enhance the probability, type, and extent of measurable impacts (as illustrated by the rise of elec- 90 AGRIBUSINESS AND CLIMATE CHANGE Lesson 5: The battle of the giants for Ukraine’s overall economic policy reforms as part of the policy agribusiness development—get the World Bank lending negotiations with the government. The key and IS on board to leverage the AS offerings. success factor of the internal “deal” was that the Bank put its financial weight behind the investment climate The Investment Climate team also worked closely policy triggers included in the policy lending relative with the World Bank to leverage policy lending. In to the government of Ukraine, while the IC team Ukraine, agricultural policy and any agribusiness- worked on a daily basis with the government agencies related reform initiative is a “big ticket” policy item, charged with implementing the reforms to build their given the sheer importance of the sector in the national capacity to adopt and operationalize them. economy. In this context, a small project, such as IC, had to play it smart and join forces with the “Big Sis- Collaboration between IC and SBA helped closely ter” (the World Bank) to include the key investment align with the IFC Investment Services agribusiness climate reform priorities on food safety among the strategy in Ukraine and in ECA. The AS teams have Fresh market, Chernihiv, Ukraine. smartlessons 91 worked closely with the IS team and advised two IFC Investment Services clients in Ukraine—Globino and ABOUT THE AUTHORS Khlibprom—on improving food safety management Alberto Criscuolo is a Senior Private Sector Develop- systems and introducing HACCP. This advice has ment Specialist with the Industry unit of the Invest- facilitated $25 million in investment so far, as well as ment Climate Advisory Services of the World Bank a combined $24 million increase in sales. Group. He is a member of the Agribusiness Global Product Team in the Investment Climate Business Line and was based in Kiev for two years, focusing on the CONCLUSION agribusiness component of the Ukraine Investment Climate Project. The Investment Climate and Food Safety projects in Shaela Rahman is an Operations Officer in the Invest- Ukraine came together in a way that has set a stan- ment Climate Advisory Services of the World Bank dard for collaboration between the IC and SBA busi- Group. She leads strategic and corporate commu- ness lines. The great teamwork and innovation seen in nications for the department and the Investment this partnership have built a base for strong collabora- Climate Business Line. Shaela is also coauthor of the “Strategic Communications for Business Environment tion with other AS and IS units at IFC and with the Reforms” toolkit. World Bank. It has also generated strong learning and Additional Contributors: We would also like to knowledge, which is now being applied across other thank Serhiy Osavolyuk, Task Team Leader (TTL) for agribusiness projects across ECA: the IC and SBA the Ukraine Investment Climate Project, and Sarah teams are working together in Georgia, Belarus, and Ockman, TTL for the Ukraine Food Safety Project, for Moldova, with additional projects in Armenia, Tajiki- their invaluable input in shaping this SmartLesson. stan, and the Balkans in the pipeline. For Investment Approved by Cecilia Sager, Manager, Investment Climate, the work in Ukraine serves as a model for Climate Advisory Services of the World Bank Group. a growing agribusiness portfolio and pipeline that spans every region, and it has fed into the new strat- egy for Investment Climate that is more focused on sector- and industry-specific reforms. 92 AGRIBUSINESS AND CLIMATE CHANGE Credits Photos Cover page © IFC Page across from index © IFC Pages 1, 3, 7, 8, 12 © IFC Page 22 © Grahame Dixie Pages 23, 28 © IFC Page 31 © Kiran Gautam Page 34 © Mirella Hernani Pages 35, 51 © CONAFOR’s Image Bank Pages 54, 55, 57, 59, 66, 68, 69, 81, 83, 85, 86, 91 © IFC Pages 76, 79 © Jun Zhao Printing Ecoprint smartlessons 93 SmartLessons is a World Bank Group program which enables development practitioners to share lessons learned in development operations. This SmartLessons brochure presents first-hand and straightforward project stories with pragmatic useful analysis, written by professionals for professionals. Through the prism of their own experience—positive and negative—these authors aim to capture practical insights and lessons that could help advance development-related operations for private sector-led growth across the globe. For more information, please visit the SmartLessons website: http://smartlessons.ifc.org or contact the SmartLessons program: smartlessons@ifc.org. March 2012 94 AGRIBUSINESS AND CLIMATE CHANGE