Appendix 1. Project Information Document: Heilongjiang Dairy Project
APPRAISAL STAGE Report No.: 31754
Project Name CN - Heilongjiang Dairy Project
Region EAST ASIA AND PACIFIC
Sector Animal production (75%); Agricultural extension and research (15%);
Crops (10%)
Project ID P086629
Borrower(s) GOVERNEMENT OF CHINA
Implementing Agency
People's Republic of China - Ministry of Finance San Li He Lu, Beijing, 100820
China
Tel: 86-10-68551124 Fax: 86-10-68551125 jl.yang@mof.gov.cn
Heilongjiang Province Agriculture World Bank Project Management Office
No. 202 Zhongshan Rd. Nangang District Heilongjiang
China 150001
Tel: 011-86-451- Fax: 011-86-451-8263-2146 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S1 [X] S2 [ ] S3 [ ] SF [ ] TBD (to be determined) Date PID Prepared December 7, 2004
Date of Appraisal
Authorization January 22, 2005 Date of Board Approval May 31, 2005 Country and Sector Background
In recent years, China’s annual GDP growth has averaged around 7 to 8 percent, allowing the country to achieve considerable progress towards an ambitious and broad structural reform agenda, as well as the Millennium Development Goals (MDGs). However, social indicators show that inequality and income gaps appear to be widening between urban and rural populations and between coastal and inland areas, with the poor being mostly located in the rural areas of the lagging inland provinces.
China’s accession to WTO implies a shift in the focus of the country’s agricultural sector from grain self-sufficiency to market-driven diversified agricultural production. With WTO membership and increasing integration with the global economy, the agriculture and livestock sectors will have to undergo substantial structural changes to enhance the livelihood of rural households. In China’s northeast provinces, the economy has been negatively affected by the decline of the State Owned Enterprises (SOE) system and consequent unemployment. Following the collapse of the SOE system, the Heilongjiang government has identified the agriculture and livestock industries as key elements of its future growth and poverty alleviation strategies.
Heilongjiang is a major corn and soybean producer and China’s dominant milk-producing province, accounting for about 20 percent of national milk production in 2002. The dairy industry in China has been rapidly growing over the past 10 years, fueled by a 10% annual growth in dairy consumption and supported by favorable government policies and programs. The dairy industry is one of the priority development areas of China’s 10th Five-Year Plan, and the Ministry of Agriculture has formulated an
“Advantageous Milk Production Area Development Plan, 2003-2007” focusing on improved genetics, feeding management and processing.
Although Heilongjiang benefits from a domestic advantage for milk production due to relatively lower costs of production and a conducive resource base, there are several challenges to sustainable sector growth: (i) While on-farm milk production has increased in the last few years, the insufficiency and relative low quality of milk supply remain the major impediment to the growth of milk processing. With
an average production of 4,300 liter per year per cow, further gains on productivity will require significant investments in both improved herd nutrition/management and genetics; (ii) The majority (70-80 percent) of milk is produced by smallholder households with an average herd size of 3 to 5 cows. These and other potential dairy households have little or no access to formal financing for investment in dairy production; (iii) Farm size and dispersion of milk production are also considered by the Government of Heilongjiang as serious constraints to improved production management, including improved environmental management, herd management and feeding and milking practices; (iv) Farmer associations and representation are only beginning to form in Heilongjiang, thus the protection of farmer interests is an important factor to consider in a sector that has, so far, been driven by milk processors; and (v) Finally, research and investments are needed to improve the environmental sustainability of dairy development, including better management of the province’s pastureland, improved feeding and usage of crop residues, as well as waste management to mitigate the local and global adverse effects of the livestock sector on climate change and the environment.
Objectives
The first objective of the project would be to improve the financial viability of existing and new dairy operations in selected areas of Heilongjiang province. Progress towards the achievement of this objective would be measured by monitoring increases in the productivity of the dairy farmers’ cattle and adoption of the system (DHI) to improve the genetic potential and management of the Heilongjiang dairy herd. The second objective is to reduce greenhouse gas (GHG) emissions and increase carbon sequestration. This would contribute to the global objective of improving the sustainability and impact of livestock production on the local and global environments. Progress towards the attainment of this outcome would be measured by monitoring the manner with which animal manure and crop residues are stored and treated and the area of improved permanent pastures (carbon sequestration).
Rationale for Bank Involvement
Through the Heilongjiang Agriculture Development Project (HDP), the Bank has acquired experience with the Heilongjiang livestock sector, including the dairy sector. The Bank’s involvement will support the provincial objectives of fostering development activities with a strong element of public goods such as capacity building and improving environmental management. This would be very much in line with the Bank’s CAS goal of facilitating an environmentally sustainable process. The Bank’s involvement has been instrumental in highlighting the importance of improving dairy herd management and feeding along with genetic improvement to achieve and sustain the high dairy production and productivity sought by the Heilongjiang dairy development strategy.
The Bank’s involvement will also contribute to a greater focus on targeting relatively poor dairy farmers. The Bank’s involvement in the project will ensure that smallholder farmers’ interests are fully integrated in the design of project activities, and will catalyze the emergence of farmers’ associations that would play a key role in the future management of the industry support services to be developed under the project. The design of the proposed project benefited from the Bank’s expertise in the assessment of the environmental and social impacts of increasing dairy livestock production. Bank’s involvement also allowed for the leveraging of additional trust fund resources (Italian Trust fund) for climate change mitigation activities and environmental sustainability.
Description
The proposed project would have four components: (i) dairy production, (ii) breed improvement, (iii) climate change mitigation and (iv) project management, monitoring and evaluation.
(i) Component 1: Dairy production development (Estimated cost: US$143.9 million). The purpose of this component is to increase smallholder dairy production in the project area through investments in improved on-farm dairy production and management, the construction of milking stations, dairy parks, dairy demonstration farms and by building the capacity of provincial and local institutions to provide training to dairy farmers and to facilitate the development of dairy farmers associations. The component will target over 10,000 existing small and medium size farmers willing and financially able to increase their herd, as well as (generally poorer) new households interested in engaging in dairy production. This component has six sub-components:
Household dairy farms (US$ 53.8 million) Milking and collection stations (US$ 3.6 million) Dairy parks (US$ 64.7 million)
Demonstration farms (US$ 18.0 million) Farmer associations (US$ 0.3 million)
Training and technology transfer (US$ 3.5 million)
(ii) Component 2: Breed improvement (Estimated cost: US$ 7.3 million). The aim of this component is to improve the genetic base of the Heilongjiang dairy stock, the efficiency of milk production and milk quality. This would be achieved by establishing a comprehensive Dairy Herd Improvement Program (DHIP), including the recording of milk and livestock management data, bull breeding and progeny testing. By the end of the proposed project, it is anticipated that the Heilongjiang DHIP would cover about 150,000 dairy cows.
(iii) Component 3: Climate change mitigation (Estimated cost: US$ 9.1 million). The aim of this component is to demonstrate and pilot innovative technologies to increase carbon sequestration and mitigate/reduce greenhouse gas emissions resulting from the expansion of livestock production in Heilongjiang. This would include innovative technologies in (i) pasture improvement for the purpose of increasing fodder production, carbon sequestration and combating desertification; (ii) treatment of crop residues to improve their quality and usage in animal feeding, decrease methane emissions and reduce on-field burning of residues; (iii) treatment of animal manure to reduce methane emissions and convert it into a salable fertilizer; and (iv) assessing climate change experimental technologies through the implementation of research programs.
(iv) Component 4: Project management, monitoring and evaluation (Estimated cost: US$ 0.9 million).
The proposed Project will be managed by the existing World Bank provincial project management office (PPMO) within the Heilongjiang Development and Reform Commission (HDRC) and PMOs established at county level. The PPMO would be responsible for all aspects of project administration, including program management, procurement, financial management, and monitoring and evaluation.
The PPMO would receive policy guidance from a Project Leading Group (PLG), and from a Technical Working Group as regards technical issues and coordination. The Project would also help build the capacity of the Heilongjiang Environment Protection Bureau (HEPB) to monitor project environmental impacts.
Financing
Source: ($m.)
BORROWER 19.9 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 100
ITALY: DEV. COOP. DEPARTMENT (MOFA) 5.5
SUB-BORROWER(S) 22
LOCAL FARMER ORGANIZATIONS 29.3
Total 176.7
Implementation
The Project will be managed by the existing World Bank Provincial Project Management Office (PPMO) within the HDRC. The PPMO will be responsible for the Project’s day-to-day management, including work programming and financial management, project procurement, progress and financial reporting, staff appointment and management and project monitoring and evaluation. At county level, County Project Management Offices (CPMOs) will coordinate activities, working in collaboration with county level Bureau of Finance (BOF) and AHB counterparts. Under the guidance of the PPMO, CPMOs will be responsible for consultations with farmers and the identification of participating farmers, coordinating investment planning, monitoring in collaboration with HEPB and HAPB staff the environment impact assessments, organizing supporting services and capacity building programs and monitoring project outcomes at the local level. County BOF will be responsible for loan disbursement and recovery at county level. At township level, CPMOs will work with township veterinary, animal production and AI technicians who will be provided with training and equipment. At village level, the local village leaders and Village Management committees (VMCs) will assist the PPMO to advise farmers on project investment options and policies, identify project beneficiaries, and monitor project implementation. The project will also collaborate with the All China Women’s Federation (ACWF) and China Communist Youth Party (CCYP) in training and other village-level project activities.
The Dairy Herd Improvement Program (DHIP) described under component 2 of the Project will be managed by the Heilongjiang Dairy Industry Association (HDIA), whose mandate includes coordination of public and private stakeholders for the sustainable development of the dairy industry. A DHIP Working Group, established under the HDIA, will be responsible to the PPMO for planning, monitoring and reviewing the implementation of the DHIP. The Working Group will include the HDIA, Heilongjiang Animal Breeding Center and Heilongjiang Livestock Information Center. The capacity of these agencies to implement the DHIP will be strengthened through training, technical assistance, and the provision of equipment.
The climate change component will be implemented by the PPMO and relevant CPMOs. The PPMO would implement this activity in close collaboration with the institutions in charge of pasture renovation and management, animal waste disposal and entities that will conduct the special research activities. These research activities would be funded through a competitive grants process on the basis of recommendations by a research committee to be created within the PPMO. The project would require the Project entities involved in the climate change component to monitor and document the environmental impacts and economic performance of the activities supported by the Italian grant at mid-term review and at project completion.
Project policy will be set by a Project Leading Group (PLG), chaired by the Vice Governor of Heilongjiang Province and include the Directors of the HBOF, HDRC, HABC, HEPB, the Audit Bureau and the Heilongjiang Agriculture Commission.
A Technical Advisory Group (TAG) will provide guidance to the PPMO on technical issues and ensure the inter-agency coordination required for successful project implementation. The TAG will include representatives of the HAHB, HLIC, HABC, North-East Agricultural University, HDIA, (HEPB) and the All China Women Federation (ACWF). The Director of the HAHB would chair the TAC.
Monitoring of the Project’s outcomes will be measured through regular progress reports, which would include key indicators such as the number of farmers participating in the project and the increase of individual household and aggregate milk sales to processors. Through periodic socio- economic and production surveys, the efficiency and social distribution of dairy production investments under the project will be monitored.
1. Sustainability
Sustainability of the project activities and outcome beyond the implementation period is considered likely, because the project is specifically designed to support and improve the competitiveness and profitability of an already profitable and rapidly expanding industry. However,
given the high income elasticity of dairy product sales, a declining business environment in China would be a negative factor for the long-term development of the dairy industry. The development of farmers’ associations, eventually integrated into dairy sector management through the HDIA, would be central to the sustainability of smallholder production, both on household farms and in dairy parks.
Once established, the DHIP could be easily expanded to directly involve the majority of the dairy sector in Heilongjiang. Significant benefits would flow not only to producers, but also to the processors and consumers and, as public good, to the community. Provision has been made to include the Heilongjiang DHIP within the national dairy herd improvement program to be implemented by the China’s National Dairy Association with technical assistance support from a Dutch specialized company.
Chinese environmental regulations together with an improved enforcement capacity, combined with project managed environmental check lists should ensure a sustainable environmental outcome. The new Chinese Grassland Law (2003), which the project would support, has a strong focus on reducing grassland degradation. Project proposals to transfer effluent to pastureland would reverse the negative fertility balance presently experienced in most pasture management systems.
Strict application of regulations governing dairy farm waste disposal combined with the required EIA would ensure the integrity of streams and groundwater resources. The Italian Grant would help address the serious problems relating to degraded grasslands and salinity.
2. Lessons Learned from Past Operations in the Country/Sector
A key lesson from Bank financed projects is that commitment by Government and the active participation of beneficiaries and other stakeholders (village, township and country governments, and line agencies) is critical to ensure the smooth implementation, success and sustainability of the project. The Social Assessment conducted during project preparation allowed for extensive consultations with farmers and other stakeholders to determine site selection for milking station, parks and demonstration farms. Concerns for gender issues and equity among beneficiaries were also addressed in the project design.
In recognition of China’s move towards a market economy, the proposed project gave a determinant role to private sector enterprises and individuals who would participate in the project.
Modeling on the recently completed Heilongjiang Agricultural Development Project, the proposed HDP would maintain a focus on helping smallholder dairy farmers at both the farm household and in the proposed dairy parks. Many investment activities under the project will be owned and operated by private entities or individuals. Where local administrations choose to invest in dairy farming infrastructure in support of local farmers, those assets will be leased to and managed by the beneficiaries or professional managers without government interference.
To ensure its success, the Project would invest extensively in building the technical and managerial capacity of farmers, staff of technical departments and their managers.
China has little experience in the development of farmer’s associations outside of the collective farm model. One emerging example of successful farmer association in China lies with the Bank financed Self-Financing Irrigation and Drainage Districts (SIDD) supporting farmer participation in local irrigation management. Key lessons learned from the SIDD program to date include: local government must fully support the development of farmer’s associations; farmers must be fully engaged in the setting of the association goals and charter; associations must directly manage the resources under their control (milking stations, Dairy Parks, field demonstrations, etc); the ways of management may vary with local circumstances; farmers’ associations should be represented in higher level industry organizations (e.g. the HDIA); and farmers’ associations will require strong government support (not control) and capacity building to succeed.
3. Safeguard Policies (including public consultation)
The safeguards screening category of the project is S2. The set of proposed project activities involves no critical environmental issues and therefore the project has been categorized as an Environmental Risk Category B project. The project is unlikely to have major negative social and environmental impacts. Applicable safeguard policies for the project are: (a) Environmental assessment; (b) Cultural
Property; (c) Involuntary Resettlement; (d) Indigenous Peoples. An Environmental Impact Assessment has been prepared. The result of the assessment of social safeguard issues is summarized below:
(i) Involuntary Resettlement (OP 4.12). The project will not involve any significant involuntary land or productive assets acquisition. However, in the event that small land parcels are affected by project acquisition or rental, a Resettlement Policy Framework (RPF) for the various project sub- components will be implemented.
(ii) Cultural Property (OP 4.11). Although unlikely, some civil construction works might conceivably affect cultural property sites. Should any culturally or historically significant finds be encountered during project implementation China’s laws on protection of cultural relics and the World Bank’s OP 4.11 will be invoked, leading to the immediate cessation of work, followed by an initial survey of the site, its later excavation, and comprehensive protection of the site.
(iii) Indigenous Peoples (OD 4.20). Indigenous Peoples (Koreans, Manchus, Mongols, and Daur, among others) live in the project areas, overall comprising about 5% of the project’s potentially affected people. The assessment conducted by an Indigenous People specialist indicated that no special cultural tailoring of the project was necessary to ensure that minority nationalities participate fully and appropriately in the project, no negative effects were foreseen affecting any minority nationality, and the province’s most numerous minorities were adequately included in the project with the sole exception of the Daur nationality. To rectify this omission, the project added two Daur villages (villages in which the majority of inhabitants are Daur nationality) to host project sub-components. With this inclusion, no Indigenous Peoples Development Plan was deemed necessary or useful.
The environmental and social assessment reports and safeguard studies were made available at the Infoshop on (date) 2004. The Borrower has advertised the reports in xxx (papers) in (date) 2004.
4. List of Factual Technical Documents Technical Reports
• Heilongjiang Dairy Project: Project Preparation Report;
• Dairy Industry Rejuvenation Plan of Heilongjiang Province;
• Charter of the Dairy Association of Heilongjiang Province;
• Brief Introduction to Dairy Industry development in the Reclaimed Area of Heilongjiang Province, November 2003;
• The Emerging Dairy Economy in China: Production, Consumption and Trade Prospects (Agribusiness Review);
• Presentation on Dairy Production in Jiamusi Municipality;
• Italian Environment Grant: Project Proposal Report
• Tetra Pack Notes for Heilongjiang Dairy Project –01-03-2004
• Heilongjinag – Milk Marketing/Processing Industry Notes Project Preparation Documents
• Heilongjiang Dairy Development Project: Social Assessment
• Heilongjiang Dairy Project Resettlement Review Report
• Heilongjiang Dairy Project Resettlement Policy Framework
• Heilongjiang Dairy Project Minority Review Report
• Heilongjiang Dairy Development Environment Impact Assessment
• Heilongjiang Dairy Development Step-wise Dairy Herd Improvement Strategy
• Feeding Dairy Cows for Milk Production: Options and Integration with Heilongjiang Grassland Resource
• Project Costs
• Financial and Economic Analysis.
• Project Implementation Plan
5. Contact point
Contact: Mohamed N. Benali Title: Lead Operations Officer Tel: (202) 473-7357
Fax: (202) 522-1675
Email: Mbenali@worldbank.org 6. For more information contact:
The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500
Web: http://www.worldbank.org/infoshop
