Agribusiness Development Project Final Report

ADB TA No. 4139-BAN

AGRIBUSINESS DEVELOPMENT PROJECT

BANGLADESH

FINAL REPORTSeptember 2004

Prepared for the

Ministry of Agriculture, Government of Bangladeshand the

Asian Development Bank

By

AGRICO Limited, New Zealandin association with

ANZDEC Limited

Agrifood Consulting International INC

SODEV Consult

HB Consultants

Agrico Limited Final Report

TA 4319-BAN on Agribusiness Development Project

TABLE OF CONTENTSTABLE OF CONTENTS ................................................................................................................................. I LIST OF APPENDICES................................................................................................................................ III LIST OF TABLES .................................................................................................................................IV LIST OF FIGURES.. .................................................................................................................................IV LIST OF SPECIAL TERMS ..........................................................................................................................IV ABBREVIATIONS..................................................................................................................................V 1. EXECUTIVE SUMMARY ............................................................................................................... 1 1.1 RATIONALE ................................................................................................................................ 1 A Sector Performance .............................................................................................................. 1 B The Core Problem: Lack of Effective Value Chain Linkages.................................................. 2 C The impact of Lack of Effective Value Chain Linkages .......................................................... 3 D Opportunities......................................................................................................................... 4 1.2 THE PROPOSED PROJECT....................................................................................................... 5 A Objectives and Scope ........................................................................................................... 5 B Components and Outputs...................................................................................................... 6 1.3 IMPLEMENTATION ARRANGEMENTS...................................................................................... 9 A Implementation Schedule .................................................................................................... 10 B Flow of Funds...................................................................................................................... 10 1.4 COST ESTIMATES ................................................................................................................... 10 1.5 FINANCING PLAN..................................................................................................................... 11 1.6 PROJECT BENEFITS, IMPACTS, AND RISKS......................................................................... 11 A Economic Benefits and Impacts .......................................................................................... 11 B Environment ........................................................................................................................ 12 C Social Impacts ..................................................................................................................... 12 1.7 ASSUMPTIONS AND RISKS .................................................................................................... 13 2. INTRODUCTION ......................................................................................................................... 21 2.1 TA OBJECTIVES AND SCOPES............................................................................................... 21 2.2 OBJECTIVES AND ORGANIZATION OF THE DRAFT FINAL REPORT .................................. 21 A Structure of the Draft Final Report....................................................................................... 21 2.3 PROGRESS MADE SINCE THE INTERIM REPORT................................................................ 22 A Period of Phase III of the TA (July to August 2004)............................................................. 22 B Mobilization of Consultants.................................................................................................. 22 C Support by DAM .................................................................................................................. 22 D Participatory Meetings......................................................................................................... 22 E Key Informants Interviews ................................................................................................... 22 F Planning of Future Activities ................................................................................................ 23 3. RATIONALE................................................................................................................................ 24 3.1 SECTOR PERFORMANCE ....................................................................................................... 24 A The Macroeconomic and Policy Context ............................................................................. 24 B Rural Finance...................................................................................................................... 28 C Marketing ............................................................................................................................ 30 3.2 PROBLEMS............................................................................................................................... 34 A Lack of a comprehensive policy for agribusiness development ........................................... 35 B Weak Institutions (private and public) Supporting Agribusiness Development .................... 37 C Weak Capacity in Resolving Agribusiness Problems........................................................... 44 D Exclusion of Women from Agribusiness Activities ............................................................... 44 E Inadequate Infrastructure for Agribusiness Development .................................................... 45 3.3 THE CORE PROBLEM FOR AGRIBUSINESS DEVELOPMENT.............................................. 46 3.4 THE IMPACT OF LACK OF EFFECTIVE LINKAGES................................................................ 47 3.5 OPPORTUNITIES ..................................................................................................................... 48 A Large population.................................................................................................................. 48 B Natural and Comparative Advantages................................................................................. 49 C Policy Reforms and Shift in Government/Private Sector Roles............................................ 49 D Entrepreneurial Base........................................................................................................... 50 E An emerging force represented by Associations ................................................................. 50 4. THE PROPOSED PROJECT ...................................................................................................... 51 4.1 INTRODUCTION ....................................................................................................................... 51 4.2 OBJECTIVES ............................................................................................................................ 51 4.3 COMPONENTS AND OUTPUTS............................................................................................... 51

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5. 5.1 5.2 6. 6.1 6.2 6.3 6.4 6.5

6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 7. 7.1 7.2 7.3

7.4 8. 8.1 8.2

A Capacity Development (component 1) ................................................................................ 52 B Agribusiness Value Chain Development (component 2)...................................................... 56 C Agribusiness Investment (component 3) ............................................................................. 62 D Project Management (component 4) ................................................................................... 63 COST ESTIMATES AND FINANCING PLAN ............................................................................. 65 COST ESTIMATES ................................................................................................................... 65 FINANCING PLAN..................................................................................................................... 65 IMPLEMENTATION ARRANGEMENTS ..................................................................................... 67 EXECUTING AGENCY.............................................................................................................. 67 PROJECT COORDINATION UNIT ............................................................................................ 67 STEERING COMMITTEE .......................................................................................................... 68 IMPLEMENTATION AGENCIES ............................................................................................... 69 PROJECT IMPLEMENTATION UNIT (PIU)............................................................................... 69 A Selection of the PIU............................................................................................................. 70 B Selection Committee for the PIU ......................................................................................... 71 C PIU Help Desk..................................................................................................................... 71 AGRIBUSINESS DEVELOPMENT FUND ................................................................................. 71 AGRIBUSINESS PROPOSAL SCREENING COMMITTEE ....................................................... 72 AGRIBUSINESS PROPOSAL SELECTION COMMITTEE ........................................................ 72 AGRIBUSINESS CREDIT UNIT (ACU) ..................................................................................... 74 A PFIS Help Desks ................................................................................................................. 74 AGRIBUSINESS CREDIT LINE (ACL) ...................................................................................... 74 PROJECT MONITORING AND EVALUATION UNIT (PMEU) ................................................... 75 PROJECT PERFORMANCE MONITORING AND EVALUATION (M&E) .................................. 76 ORGANIZATIONAL CHART...................................................................................................... 76 PRE-INCEPTION ACTIVITIES .................................................................................................. 78 IMPLEMENTATION SCHEDULE .............................................................................................. 78 OFFICE 78 FLOW OF FUNDS ..................................................................................................................... 78 TECHNICAL ASSISTANCE....................................................................................................... 79 PROJECT BENEFITS, IMPACTS, AND RISKS.......................................................................... 80 ECONOMIC BENEFITS AND IMPACTS ................................................................................... 80 ENVIRONMENT ........................................................................................................................ 81 SOCIAL IMPACTS..................................................................................................................... 82 A Social and Gender Analysis ................................................................................................ 82 B Participation Strategy .......................................................................................................... 84 C Impact on Gender................................................................................................................ 84 ASSUMPTIONS AND RISKS .................................................................................................... 85 ASSURANCES............................................................................................................................ 86 GENERAL ASSURANCES ........................................................................................................ 86 SPECIFIC ASSURANCES......................................................................................................... 86 A Prior to Loan Negotiations ................................................................................................... 86 B Prior to Loan Effectiveness.................................................................................................. 87

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LIST OF APPENDICES Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Appendix 7 Appendix 8 Appendix 9 Appendix 10 Appendix 11 Appendix 12 Appendix 13 Appendix 14 Appendix 15 Appendix 16 Appendix 17 Appendix 18 Appendix 19 Appendix 20 Appendix 21 Sector Analysis Related External Assistance Project Framework Cost Estimates and Financing Plan Economic and Financial Analysis Project Organizational Chart Implementation Schedule Outline Terms of Reference for Consulting Services Procurement Packages Summary Poverty and Social Analysis Gender Action Plan Summary Initial Environmental Assessment Component 1 on Capacity Development Component 2 on Agribusiness Value Chain Development Component 3 on Investment Component 4 on Project Management Poverty Reduction, Social Strategy, and Gender Plan Detailed Cost Tables Monitoring and Evaluation Pictures Maps

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LIST OF TABLES Table 1: Cost Estimates ............................................................................................................... 65 Table 2: Financing Plan ............................................................................................................... 66 Table 3. Summary of Estimated Economic Benefits of Overall Project ...................................... 81

LIST OF FIGURES Figure 1. Organizational Chart ..................................................................................................... 77 Figure 2. Flow of funds for the Agribusiness Development Project79 LIST OF SPECIAL TERMSAman Boro Aus Haor Main summer rice crop Main winter rice crop Minor summer rice crop bowl-shaped large tectonic depression. It receives surface runoff water by rivers and khals, and consequently, a haor becomes very extensive water body in the monsoon and dries up mostly in the post-monsoon period. A large surface waterbody that accumulates surface runoff water through internal drainage channels; these depressions are mostly topographic lows produced by erosions and are seen all over Bangladesh. The term beel is synonymous to baor, and familiar in greater Comilla, Faridpur, Dhaka and Pabna districts. Beels are small saucer-like depressions of a marshy character. Many of the beels dry up in the winter but during the rains expand into broad and shallow sheets of water, which may be described as fresh water lagoons District Commission Agent Small trader Collection agent Union Council Municipal committee Weekly market Type of fish Type of fish A landing place at a riverbank or bank of a pond Examiner Local officer Lentil Grass Pea Type of vegetable Eggplant Warehouse Police Station

Beel

Zila Arathdar Bepari Faria Parishad Paurashavas Haat Hilsa Ruhi Ghat Jachandar Dalal Masuri Kheshari Patal Brinjal Godown Thana

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ABBREVIATIONSACC ACL ACU ADAB ADB ADF ADOB ADP AIUB AMCL AMIIP AMIS ASEAN ASIRP ATDP BAC BADC BAPA BARC BARI BAT BB BBS BCIC BDS BECA BECR BEMP BER BEPZA BFA BFD BFDC BFFEA BFIDC BFMA BFVAPEA BGMEA BIDS BIMST-EC BJMC BKB BLRI BMDA BMFA BOI BRAC BRDB BSBL BSCIC BSF BSTI Aquaculture Certification Council Agribusiness Credit Line Agribusiness Credit Unit Association of Development Agencies in Bangladesh Asian Development Bank Agribusiness Development Fund Agribusiness Development Organizations of Bangladesh Agribusiness Development Project American International University in Bangladesh Agricultural Marketing Company Limited Agricultural Market Information Improvement Project Agricultural Market Information Systems Association of South East Asian Nations Agriculture Support Innovation Reform Project Agro-based Technology Development Project Bangladesh Agribusiness Council Bangladesh Agricultural Development Corporation Bangladesh Agro-processors Association Bangladesh Agricultural Research Council Bangladesh Agricultural Research Institute British American Tobacco Bangladesh Bank Bangladesh Bureau of Statistics Bangladesh Chemical Industries Corporation Business Development Services Bangladesh Environment Conservation Act Bangladesh Environment Conservation Rules Bangladesh Environment Management Project Bangladesh Eastern Railway Bangladesh Export Zone Processing Authority Bangladesh Fertilizer Association Bangladesh Forestry Department Bangladesh Fisheries Development Corporation Bangladesh Frozen Foods Exporters Association Bangladesh Forestry Industries Development Corporation Bangladesh Farm Machinery Association Bangladesh Fruits and Vegetables and Allied Products Exporters Association Bangladesh Garment Manufacturers and Exporter Association Bangladesh Institute of Development Studies Bangladesh, India, Myanmar, Sri Lanka, Thailand - Economic Cooperation Bangladesh Jute Mills Corporation Bangladesh Krishi Bank Bangladesh Livestock Research Institute Barind Multipurpose Development Authority Bangladesh Marine Fisheries Association Board of Investment Bangladesh Rural Advancement Committee Bangladesh Rural Development Board Bangladesh Samabaya Bank Limited Bangladesh Small Cottage Industry Corporation Bangladesh Shrimp Foundation Bangladesh Standards and Testing Institution

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BWDB BWR CAR CDB CDP C&F CEO CHT CIDA CMI CPI CSD CSR CWBMP DAE DAM DANIDA DC DCCI DFI DFID DLS DMAC DMO DOE DOF DRC EA EEF EPB EPF EPR EPZ ERD EU EUREPGAP FAO FDI FFV FGM FRIDP FY GAA GAP GDP GIS GMR GOB GSP ha HACCP HDB HRD HYV I/AMF

Bangladesh Water Development Board Bangladesh Western Railways Capital Adequacy Ratio Cotton Development Board Crop Diversification Program Collection and Forwarding Chief Executive Officer Chittagong Hill Tract Canadian International Development Agency Census of Manufacturing Industries Consumer Price Index Central Storage Depot Corporate Social Responsibilities Coastal Wetland Biodiversity Management Project Department of Agricultural Extension Department of Agricultural Marketing Danish International Development Agency Deputy Commissioner Dhaka Chamber of Commerce and Industry Development Finance Institutions Department for International Development (UK) Department of Livestock Services District Market Advisory Committee District Marketing Officer Department of Environment Department of Fisheries Domestic Resource Costs Executing Agency Equity and Entrepreneurship Fund Export Promotion Bureau Export Promotion Fund Effective Protection Rate Export Promotion Zone Economic Relations Division (MOF) European Union Euro Retailer Produce Working Group on Good Agricultural Practice Food and Agriculture Organization of the United Nations Foreign Direct Investment Fresh Fruits and Vegetables Focus Group Meetings Fourth Rural Infrastructure Development Project Fiscal Year Global Aquaculture Alliance Good Agriculture Practice Gross Domestic Product Geographical Information System Greater Mekong Region Government of Bangladesh Generalized System of Preferences Hectare Hazard Analysis Critical Control Point Horticulture Development Board Human Resources Development Yigh Yielding Varieties Institutional/Agency Management Framework

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IA ICA ICM ICT IDS IFAD IFFD IMED IMF IPM IPRSP I-PRSP IQF ISC ISO IUCN IWTA LC LDR LGED LSD MFI MIDAS MIS MOA MOC MOF MOFE MOI MOJ MOLF MOLGRD MORDC MOWA MSME NAEP NAP NBFI NBR NCB NCDP NEC NEM NGO NPC NPL OECD PCB PCU PDB PFDS PIC PIU PKSF PMED

Implementing Agency International Commodity Agreements Integrated Crop Management Information and Communication Technology Institute of Development Studies, Sussex International Fund for Agricultural Development Integrated Food for Development Implementation Monitoring and Evaluation Division (MOP) Implementation Management Framework Integrated Pest Management Interim Poverty Reduction Strategy Paper Interim Poverty Reductions Strategy Paper Individually Quick Frozen Industrial Support Centers International Standards Organization International Union for the Conservation of Nature and Natural Resources Inland Water Transport Authority Letter of Credit Loan Deposit Ratio Local Government Engineering Department Local Storage Depot Microfinance Institution Micro Industries Development Assistance and Services Market Information System Ministry of Agriculture Ministry of Commerce Ministry of Finance Ministry of Forests and Environment Ministry of Industry Ministry of Jute Ministry of Livestock and Fisheries Ministry of Local Government and Rural Development Ministry of Rural Development and Cooperatives Ministry of Womens Affairs Micro, Small and Medium Enterprises New Agricultural Extension Policy New Agricultural Policy Non-Bank Financial Institutions National Board of Revenue Nationalized Commercial Bank North West Crop Diversification Project National Environment Council Nucleus Enterprise Model Non-Governmental Organization Nominal Protection Coefficients Non-Performing Loan Organization for Economic Co-operation and Development Private Commercial Banks Project Coordination Unit Power Development Board Public Food Distribution System Project Implementation Committee Project Implementation Unit Palli Karma Sahayak Foundation Primary and Mass Education Division

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PMEU PoA PPF PPMS PRA PRSP PVCA QPD R&D RAKUB RDRS REB RWRC SA8000 SAFTA SAI SCA SCM SE SEDF SEMP Shogorip SIP SME SMI SO SOE SPS SRDI SSOQ SWAGARIP SWOT T&V TA TBT TCP Tk TL TMU TOR TRIPS TSP UDCC UK UNCTAD UNDP UP UPC US USAID USDA USDA-ERS USDA-FAS VAT VCA

Project Monitoring and Evaluation Unit Plan of Action Policy and Planning Framework Project Performance Monitoring System Participatory Rural Appraisal Poverty Reduction Strategy Paper Participatory Value Chain Analysis Quality, Price and Delivery reliability Research and Development Rajshahi Krishi Unnayan Bank Rangpur Dinajpur Rural Services Rural Electrification Board Regional Wheat Research Center Social Accountability Standards 8000 Southasian Free Trade Agreement Social Accountability International Seed Certification Agency Supply Chain Management Small Enterprises South Asia Enterprise Development Facility Social Environment Management Project Shwasha Gudam Rin Prakalpa Special Inducement Price Small and Medium Enterprise Supply Managed Inventory Scientific Officer State Owned Enterprise Sanitary and Phyto-sanitary Soil Resources Development Institute Shrimp Seal of Quality Shwasha Gudam Rin Prakalpa Strengths, Weaknesses, Opportunities and Threats Analysis Training and Visit Technical Assistance Technical Barriers to Trade Technical Collaboration Project Taka Team Leader Technical Management Unit Terms of Reference Trade Related Intellectual Protection Systems Triple Super Phosphate Upazila Development Coordination Committee United Kingdom United Nations Conference on Trade and Development United Nations Development Programme Union Parishads Union Parishad Complex United States United States Agency for International Development United States Department of Agriculture United States Department of Agriculture Economic Research Service United States Department of Agriculture Foreign Agriculture Service Value Added Tax Value Chain Approach

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VMS WB WFP WTO

Voice Messaging Service World Bank World Food Programme World Trade Organization

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1.1.1

EXECUTIVE SUMMARY RATIONALE A Sector Performance

1. The private agribusiness sector in Bangladesh emerged during the 1990s and exhibited a sustained growth well into the early 2000s. It is estimated that the sector contributes over 10 percent to total GDP and its growth is almost double the growth of agricultural GDP. Nevertheless there is scope for accelerating growth further in light of several opportunities in the sector and also the fact that growth is still low when compared to other Asian countries at similar stage of development. 2. The policy context for agribusiness development is provided by a number of policies including the New Agricultural Policy, the Industrial Policy, the Export Policy, the Land Policy, and the Agricultural Marketing Policy. Recent pronouncements in the Budget Speech propose various tax and fiscal incentives to agro-based industries, and low interest rates to the sector. Agribusiness is considered a thrust sector, but still missing is an Agribusiness Policy that provides a comprehensive framework, clear strategies, and a regulatory framework for agribusiness development. Measures are proposed on an ad hoc basis without sufficient attention being paid to their implications and consistency with broader strategies. Low interest rates, technology packages, infrastructure development, tax incentives are considered a panacea for the sector, even though past experience from Bangladesh and other countries suggests that similar measures are not addressing the fundamental problems of the sector. 3. The major financial institutions including the nationalized banks and the agricultural banks exhibit dismal performance in terms of most financial indicators, such as loan recovery, loan disbursement, capital adequacy ratio, returns on assets, and profits. The governance of these financial institutions is beset by serious problems that are unlikely to be resolved, and might be aggravated, by the current trends towards subsidized credit. As a result, agribusiness sector access to credit is limited and will likely continue to be so if the structural problems of rural financial institutions are not resolved. Particularly constrained is the access of farmers, SME, and large enterprises to medium and long-term credit for financing investment in the agribusiness sector. In spite of an apparent liquidity surplus, there is a mismatch between long-term liabilities and short-term deposits that limits the capacity of banks to increase their long-term credit to the agribusiness sector 4. A chaotic organization of marketing channels results in low quality of products, high postharvest losses, and high price fluctuations. Methods to improve marketing channels require greater coordination in terms of contracts, vertical and horizontal integration, and joint efforts of stakeholders; these methods are rarely used because of lack of trust among stakeholders and a lack of capacity in value chain management. The situation in agricultural market places is similarly chaotic. Congestion of markets prevails; market infrastructure is in appalling conditions, and the market revenue collection system is fraught with irregularities. The current marketing policy (Agricultural Marketing Act and related Ordinances) requires revision. At present, Market Management Committees are largely devoid of authority, lack resources for investment, and hardly are in a position to manage the markets. Unless policy and regulatory changes are introduced to empower the Committees with the authority and responsibility of managing the markets and raising market revenues themselves, the market infrastructure will continue to be poor, congestion high, and organization of the market chaotic.

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B

The Core Problem: Lack of Effective Value Chain Linkages

5. The analysis of the problems and constrains facing agribusiness development indicates a general failure in coordinating the efforts and decisions of agribusiness stakeholders. Such coordination requires adequate policies and institutions, which currently are not in place. Both among commercial stakeholders and service providers, there is poor understanding of the meaning of agribusiness as an organized system of interlinked activities related to agricultural production, marketing and trade, and agro-processing. Linkages among commercial stakeholders (farmers, traders, and processors) exist, but are weak, lack trust, and do not result in increased value added, competitiveness, and innovation. Coordination among government agencies is also weak, mainly because of the lack of a leading agency responsible for agribusiness development. 6. This general failure in coordination among commercial stakeholders and service providers translates into ineffective value chains. Value chains are organized linkages among groups of producers, traders, processors, and service providers who join together in order to improve the value of their activities. By joining together, the actors in a value chain increase competitiveness and are able to maintain competitiveness through innovation. The limitations of each single group in the chain are overcome by the synergies of their actions and governance rules that are intended to produce higher value. 7. The main advantage for commercial stakeholders to be part of an effective value chain is that they will be able to reduce the costs of doing business, increase their bargaining power, improve access to technology, information, and capital, and, by doing so, be able to innovate their production and marketing processes in order to gain higher value and provide higher quality to their customers. 8. The core problem for agribusiness development in Bangladesh is the lack of effective value chain linkages among input providers, farmers, traders, processors, and service providers. The lack of effective linkages is explained by various factors including policy, institutions, human resources, gender, and infrastructure. 9. Policy factors indicate that there is not a serious effort at coordinating different agencies, policies, and organizations with the stakeholders involved in agribusiness. The absence of linkages at the policy level does not stimulate the emergence of value chains that are critical to the development of the sector. Efforts by different stakeholders are pursued in isolation, with various degrees of success. Coordination is lacking because also lacking is a strong leadership in ensuring that decisions are taken and policies are implemented effectively. 10. Institutional factors indicate that mechanisms to ensure improved flow of information, finance, and technology either do not exist or are ineffective. Most of these institutional mechanisms require effective linkages of stakeholders. Technological solutions will hardly be successful unless they are introduced within an institutional framework that could benefit from new technologies. In fact, most technologies are available, but in order for those technologies to be accessed and adopted, proper organizational and institutional structures are required. Subsidized credit, improved infrastructure, tax incentives, and other fiscal incentives might provide a temporary and illusory impetus to growth; however, since they are not addressing the core problem of value chain linkages, they are unlikely to actually take the agribusiness sector to a higher level of development. In spite of past experiences with subsidized credit, improved infrastructure, tax incentives, and other fiscal incentives, the growth of agribusiness sector has been modest by regional standards and has not yet taken off to a level that would make a noticeable impact on overall growth and poverty reduction. 11. Human resource factors indicate that unless individual capacities are translated into capacity of organizations, the uptake of innovations and market opportunities will be retarded.

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Management practices within enterprises and organizations, including educational organizations and business associations do not promote a learning and problem-solving attitude, and hinder rather than facilitate effective linkages among stakeholders. 12. Gender factors indicate that the exclusion of women is perhaps one of the most glaring examples of weak linkages within value chains. The economic potential represented by half of the population is largely left unfulfilled. When compared to other countries in the region and Asia, the involvement of women in agribusiness activities in Bangladesh is minimal and an additional reason for lower competitiveness and growth. 13. Infrastructure factors by definition indicate missing links among people in different locations (farms and cities, country and rest of the world, farmers and entrepreneurs). Inadequate infrastructure however is not only the result of low public investment, but also the result of inappropriate policies that do not promote private investment and the result of a failure in coordinating efforts to plan, finance, and maintain infrastructure. 14. The identification of the core problem for agribusiness development in Bangladesh as the lack of effective value chain linkages among stakeholders provides an entry point for policy and investment interventions. Recognizing the complexity of the various factors explaining the lack of effective linkages allows designing institutional mechanisms and measures that improve linkages and therefore provide a unifying approach to solve problems of agribusiness development. From this perspective, those mechanisms and measures that enhance linkages among value chain stakeholders have the potential of leading to higher development of the sector. Rather than proposing isolated and ad hoc measures that benefit only few and isolated actors in the value chain (whether they are processors, traders, input providers, or farmers) the conceptualization of the core problem allows designing an integrated Project. A further advantage is the possibility of linking the Project to other programs and projects that are ongoing or under planning by GOB, donors, private sector, and NGOs. C The impact of Lack of Effective Value Chain Linkages

15. The lack of effective linkages among stakeholders in a value chain has several consequences. Perhaps the most obvious consequence is the presence of supply chain bottlenecks. Bottlenecks results in produce from farmers not flowing to the market in the amount and quality necessary to ensure high and stable returns. Therefore, the overall volume of trade is reduced; in turn this implies that the rural households and enterprises are not able to reap the benefit from higher rural income and employment. In turn, a weak rural economy reduces the scope for investment and leads to low growth. 16. In the absence of effective linkages among stakeholders the scope for innovation is also limited. For example, improvements in packaging technologies are not adopted, not necessarily because the technologies are not known, not available, or expensive. If a processing factory requires a constant flow of fruits to its plant, it might make good economic sense to use plastic crates rather than bamboo baskets. However, unless a logistics system and a supervision system are established that involve transporters, suppliers, farmers, and factory workers, there is no benefit in introducing such innovation. Another example is the adoption of improved seeds and crop husbandry at the farm level. The resulting increased in production not necessarily will result in higher income for the smallholders, unless established market linkages ensure that the increase in production is actually marketed at prices providing an adequate profit margin. One effect of a low rate of innovation is low farm productivity which results in low comparative advantage; another effect is missed market opportunities. Together these two effects results in low competitiveness of agriculture in Bangladesh. 17. Without effective linkages among stakeholders, success cases of entrepreneurships remain isolated and do not induce an adequate growth of the agribusiness sector. As a result the3



potential employment and income generation is underutilized. Clustering of economic activity is limited to few areas in the country. Women participation in the agricultural value chains remains sporadic. Economies of scale and scope are not realized. The overall effect is a low level of agribusiness development. 18. The capacity of individuals to solve agribusiness problems does not translate into organizational capacity. Product development requires the concerted effort of several people within the organization and among organizations; in the absence of this concerted effort, market opportunities cannot be exploited. The frustration in solving problems as individuals generates a perception of helplessness and induces a dependency attitude, whereby problems are expected to be solved by the Government, or by investment and technical assistance provided by donors. This in turn translates into a lack of sustainable enterprise development. 19. Isolated attempts at investments are not likely to raise the necessary capital to undertake modern agribusiness activities. At the farm level, the low income of most rural households often does not allow for the single or small group of poor smallhoders to mobilize sufficient capital or access credit to adopt new technologies, build basic marketing infrastructure, and obtain working capital for a variety of business activities. Similar situation occurs for other value chain stakeholders, albeit at a different scale. If organized in larger groups, the same stakeholders could be able to make larger investments and avoid dependency on scarce and unreliable sources of finance for their investment. Low investment in the sector results in lower growth. 20. The ultimate impact of the core problem of absence of effective value chain linkages is low growth of agribusiness development resulting in a low growth of the rural economy and aggregate growth. Given the overwhelming presence of the poor in rural areas, the low growth of the rural economy means persistence of poverty. The Participatory Social Assessment conducted by the TA Team indicates that growth of commercial value chains will have positive effects on poverty and gender status, through expanded employment and income opportunities for the poor and women, and improved social status of women. D Opportunities

21. The emergence of a private agribusiness sector during the 1990s has already contributed a non-negligible share of GDP and rural employment. At the current juncture in time when other previously promising sectors such as the Ready Made Garment (RMG) and the power sector seem to face structural difficulties, the agribusiness sector promises to fulfill its potential for higher growth and capitalize on several opportunities. The opportunities for accelerating growth of the sector (from an estimated 6 percent annual growth to 10-15 percent) are related to five factors: (i) population; (ii) comparative advantage; (iii) policy reforms; (iv) entrepreneurship; and (v) associations. 22. A large population provides not only an abundant source of low cost labor, but also a growing urban middle class with an increasing demand for safer, higher quality, and more convenient products. This demand is currently met mainly by imported products. However, the scope of meeting this demand through domestic production suggests an opportunity for developing agro-based industries and value chains linking farmers to markets, including the emerging supermarket chains. 23. Bangladesh agriculture seems to have comparative advantage in a number of commodities including shrimp, tea, fruits, vegetable, jute, and medicinal plants. A number of developments would have to occur to enable Bangladesh to realize the potential for exports. There would need to be substantial increases in productivity at the farm level, combined with a lowering of production costs. Value adding processing facilities, packing, cleaning, sorting, grading, packaging, pre-cooling, refrigerated storage and transport would be required. Modern food processing methods would need to be introduced. Substantial improvements would need to4



be made in the availability and utility of market information and intelligence and in overall marketing systems. All of these needed developments represent opportunities for agribusiness entrepreneurs. Realizing the potential for exporting the above mentioned commodities could involve a large number of agribusiness enterprises in supplying production inputs to producers and processors, in providing technical services, in post-harvest handling and transportation, in value added processing, and in marketing. 24. Policy reforms during the past two decades have helped creating a policy environment that is more conducive to private sector development. Much remains to be accomplished, however, particularly in the area of policy implementation. The government is committed to playing a facilitative and regulatory role in agriculture and agribusiness, leaving commercial activities to be carried out by the private sector, consisting with the general framework of the Poverty Reduction Strategy Paper (PRSP). While this commitment represents a move in the direction of greater involvement of the private sector, the government has thus far been largely unable to effectively fulfill its facilitating and regulatory role. Effective implementation of government programs in partnership with the private sector will be a critical element in promoting the development and growth of the private agribusiness sector in Bangladesh. 25. There appears to be a large pool of Bangladeshi agribusiness entrepreneurs, who lack the access to information, resources, and mechanisms that would make it possible for them to lead successful business enterprises. However, the number of entrepreneurs engaged in expanding medium scale enterprises is particularly encouraging. 26. Many of the associations related to agribusiness have emerged during the 1990s. An opportunity for these associations consists of serving as a mediator between their membership and local and national governments. However, most of the associations provide little in the way of business development services to their members. The associations do, however, represent a very important resource base for agribusiness enterprise development. Strengthening the capability of the associations to provide services to their members will pave the way to improving the effectiveness of programs oriented towards the promotion individual enterprises.

1.2

THE PROPOSED PROJECT

27. The core problem for agribusiness development in Bangladesh is the scarcity of effective value chain linkages among commercial stakeholders such as farmers, traders, and processors, and business service providers. Value chain linkages often do not exist or, when they do, management of value chain linkages is poor. The development of value chain linkages and management of value chain is critical to accelerate the growth of the agribusiness sector in Bangladesh. Agribusiness is a complex set of activities cutting across production, commerce, and industry. Unless linkages among farmers, traders, processors, and service providers are coordinated and managed effectively, agribusiness development will be relatively slow, and will not fulfill its potential to make a significant contribution to overall growth, rural employment, and poverty reduction. Individual interventions to improve technology, infrastructure, and access to credit and markets will only be partial solutions that could at best keep the growth of the sector at the levels experienced over the past rather than accelerating growth and take agribusiness at higher level of development. A Objectives and Scope

28. The main purpose of the Project will be to strengthen agribusiness value chain linkages. The goal of the Project is to accelerate the growth of the agribusiness sector and its contribution to the national and rural economy and poverty reduction. The specific objectives of the Project are to:

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1. Improve formulation of policies providing an improved context for agribusiness development and market management; 2. Improve capacity of agribusiness stakeholders (farmers, traders, and processors) and service providers (associations, financial institutions, and NGOs) in understanding and incorporating the principles and practices of value chain management into the strategies and operations of their own organizations; 3. Improve management of value chain linkages through demand driven-investments that strengthen value chain management; 4. Increase the capacity of financial institutions to provide credit for long-term agribusiness investments in a sustainable manner; 5. Raise awareness about agribusiness development issues. B Components and Outputs

29. In order to achieve its objectives, the Project will be organized into four interrelated components: (i) Capacity Development; (ii) Agribusiness Value Chain Development; (iii) Agribusiness Investment; and (iv) Project Management. 30. Component 1 will improve stakeholders capacity of understanding and incorporating value chain management principles into the strategies and operations of their organizations; based on this improved understanding, Component 2 will improve the management of value chain management through the implementation of sub-projects based on demand-driven proposals funded by a matching-grant mechanism. After improving understanding and management of value chains in the first two components, Component 3 will provide mechanisms to increase investment in the sector through access to long-term credit. Component 4 will ensure smooth coordination and implementation of the other components of the Project. i Component 1: Capacity Development

31. The objectives of this component are to improve the formulation of policies for agribusiness development and market management and to strengthen the capacity of commercial stakeholders (farmers, traders, and processors) and service providers (associations, financial institutions, NGOs, agribusiness service providers, and market management committees) of understanding and incorporating value chain management principles into the strategies and operations of their organizations. 32. The component is organized into the following sub-components: (i) Comprehensive Agribusiness Policy Formulation; (ii) Formulation of a revised Agricultural Marketing Policy; (iii) Capacity Strengthening for Associations; (iv) Capacity Strengthening for Commercial Stakeholders; (v) Capacity Strengthening for Facilitating Service Providers; (vi) Capacity Strengthening for Agribusiness Management; and (vii) Awareness Creation. 33. The Project will assist the formulation of a comprehensive policy for agribusiness development, including the related legislation by working together with policy and legal experts from a variety of agencies responsible for agricultural production, trade, industry, technology, and fiscal issues. The policy will provide a clear framework and strategies for the development of the sector. The revision of the current agricultural marketing policy and related legislation will also be assisted by the Project working in close collaboration with the Department of Agricultural Marketing. The current policy and regulatory framework needs revision in order to improve the functioning of markets, reorganize the process of market revenue collection, and promote private sector investment in market infrastructure. 34. The capacity strengthening sub-components will focus on commercial stakeholders,

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associations, and service providers. These sub-components will improve capacity through a series of activities where participants will be selected for their commitment, evaluated based on their performance, and will produce outputs. The performance and output orientation will be rigorous in order to ensure that the participants could have access to the opportunities offered by the matching-grant system of the Agribusiness Development Fund proposed in component 2 and the Agribusiness Credit Line provided in component 3 of the Project. 35. The awareness creation sub-component will ensure that Project activities are broadly disseminated and agribusiness issues become part of the national debate. In spite of agribusiness being indicated as a thrust sector, there is not yet sufficient awareness of the issues involved in agribusiness development. Through news, radio, and television media, the Project will be able to reach a wide national audience and enhance the participation in the Project of farmers, entrepreneurs, and service providers, as well as women, ethnic groups, and disadvantaged groups. ii Component 2: Agribusiness Value Chain Development

36. The objectives of component 2 are to (i) improve value chain linkages and management between stakeholders, (ii) improve post-harvest technology and processing, (iii) develop a contract based marketing system, (iv) improve quality control and assurance mechanisms, (v) improve market management operations, and (vi) develop corporate business services for agribusiness stakeholders. 37. The component is organized into the following subcomponents: (i) value chain management development, (ii) market management and operations development, and (iii) corporate agribusiness service provider development. 38. The value chain management sub-component envisages investment and technical service provision to stakeholders to facilitate the development of agribusiness linkages and value chain management on a demand basis through a matching grant scheme to be co-funded by stakeholders and an Agribusiness Development Fund established by the Project. The market management operations sub-component envisages investment and technical service provision to market management committees in order to strengthen their capacity to competently manage market operations and utilize toll revenue for market infrastructure investment. A pre-condition of this sub-component is that the appropriate policy and legislative changes are made to enable market management committees to take control of the market finances and operations. The third sub-component involves investment and technical services provision to individual business service providers to set up corporate organizations so that they can provide technical services to agribusiness stakeholders on a fee-for-service basis. 39. The Project will assist stakeholders to specify and access demand-driven market-oriented services or investments of their own choosing, which will help them to increase their profitability, income, and productivity by strengthening their trading and other linkages with each other and with other value chain stakeholders and thus to move the commercialization of the agribusiness sector upwards to a higher level of development. 40. Specific proposals for such services and/or investments will be made by qualifying stakeholders to the Screening Committee, and will be accepted or rejected by decisions of a Selection Committee. 41. Each proposal, service and/or investment program that is subsequently implemented after a proposals acceptance by the Selection Committee will specify and subsequently implement a co-financing plan for the service or investment. The contributors to the co-financing plan will be the stakeholders themselves making the proposal; the Project, by grant funding; and (possibly, but by no means necessarily) other private or public parties whose co-financing and/or7



other role in the program will be specified in the proposal. iii Component 3: Agribusiness Investment

42. The objective of component 3 is to support financial institutions that have a capacity to expand financial services in rural areas in a sustainable manner so as to stimulate long-term investment in agribusiness activities that promote market linkages. Access of qualified agribusiness stakeholders to long-term credit is constrained by the fact that financial institutions term structure of assets and liabilities is mismatched; as a result investors are being forced to borrow short term for long term investment. Moreover, there has been a decline in the proportion of term liabilities to total liabilities held by banks and this makes it difficult to finance long term lending. Almost none of the term lending of Private Commercial Banks (PCBs) is to agriculturerelated borrowing and leasing companies report only one percent of financing is for agriculture. 43. An Agribusiness Credit Line (ACL) established under the Project will improve access to term finance. The implementation of component 3 will provide term finance to Participating Financial Institutions (PFIs) for on-lending to sub-borrowers. Finance to PFIs will be provided through BASIC Bank who will withdraw from ACL and act as a wholesale financing institution for on-lending to PFIs. The eligible sub-borrowers are among those who have participated to the activities of the Project under component 1 and component 2 and who submit financially and technically sound proposals for term borrowing that will improve value chain linkages and management. iv Component 4: Project Management

44. The objectives of this component are to ensure smooth and timely implementation of the activities planned under the Project, fulfill loan agreement obligations, and coordinate Projects activities with relevant organizations. In order to achieve these objectives, the component will utilize the services of four units: (i) the Project Coordination Unit; (ii) the Project Implementation Unit (PIU); (iii) the Agribusiness Credit Unit (ACU); and the Project Monitoring and Evaluation Unit (PMEU). 45. Project Coordination Unit (PCU). The PCU, headed by the Project Director and established by the Executing Agency (EA) will provide overall support to the Project by ensuring coordination of the Projects components 1, 2, and 3; coordination of the EA with ADB, relevant government agencies, and the Steering Committee of the Project; authorize disbursement and replenishment of funds according to the Projects work plans submitted by PIU, ACU, and PMEU; and review performance and progress of the Project implementation according to the overall plan of the Project. 46. Project Implementation Unit (PIU). The PIU, headed by the Senior Agribusiness Advisor/Team Leader and recruited by the EA through international bidding following the Quality and Cost Based System (QCBS), is a team of professional experts and supporting staff who will have the responsibility of implementing the capacity development activities under component 1 of the Project and the agribusiness value chain development activities under component 2 of the Project. The PIU will submit work plans to the PCU consistent with the Project design. Approved work plans will then be financed based on requests for funds by the PIU to the PCU and authorization of the PCU. The PIU will provide planning, management, and organization of the activities related to components 1 and 2 of the Project and deliver technical services to the beneficiaries (commercial stakeholders and service providers) of the Project. The PIU will coordinate its activities with the ACU of component 3 and the PMEU. The PIU will submit sixmonthly work plans and progress reports on a quarterly basis to the PCU for review and general guidelines.

8



47. Agribusiness Credit Unit (ACU). The ACU, headed by the Agribusiness Credit Chief of BASIC Bank, will be responsible for the implementation of activities under component 3 of the Project. The ACU will submit requests for replenishment of funds available under the Agribusiness Credit Line established by the Project to be disbursed to Participating Financial Institutions (PFIs). The EA will review the requests for consistency with overall objectives of the Project and the design of the Agribusiness Investment component of the Project and authorize withdrawals of funds. The ACU will then wholesale the funds to qualified PFIs for on-lending to eligible sub-borrowers. The ACU will coordinate its activities with the PIU and the PMEU. The PIU will submit six-monthly work plans and progress reports on a quarterly basis to the PCU for review and general guidelines. 48. Project Monitoring and Evaluation Unit (PMEU). The PMEU, headed by the Monitoring and Evaluation Chief, is the unit selected by the EA to conduct monitoring and evaluation of all the Projects activities. The PMEU, with technical assistance (TA) from a Monitoring and Evaluation Specialist, is responsible for establishing a Project Performance and Monitoring System (PPMS), conducting longitudinal surveys, and monitoring and evaluation surveys for all sub-project sponsored by the Project under component 2 and component 3 of the Project. Gender plan indicators and environmental indicator monitoring will be part of the overall monitoring activities. The PMEU will submit work plans to the PCU consistent with the PPMS. Approved work plans will then be financed based on requests for funds by the PMEU to the PCU and authorization of the PCU. The PMEU will coordinate its activities with the PIU and ACU. The PMEU will submit six-monthly work plans and progress reports on a quarterly basis to the PCU for review and general guidelines.

1.3

IMPLEMENTATION ARRANGEMENTS

49. The Projects Executing Agency (EA) will be the Prime Ministers Office (PMO). The EA will be responsible for overall implementation and coordination of activities and agencies related to the various components of the Project. The PMO, as the overarching authority to which all line agencies are responsible will be in a privileged position to ensure smooth coordination among these agencies. This is necessary for agribusiness development spans across production, commerce, and industry, and there is no other agency that has the position or the capacity for ensuring such coordination. 50. The EA will nominate a Project Coordination Unit (PCU). The PCU will provide overall coordination of the Projects four components and support to Project implementation. Its responsibilities include coordination, review of progress and performance, and executing functions such as inter-agency coordination and directives, ADB relations, recruitment of the PIU, and authorization of disbursements of funds to the implementation agencies. The PCU will be headed by a senior GOB officer (of at least Joint Secretary level) selected by the EA who will act as Project Director. 51. The Steering Committee of the Project will oversee the implementation of the project and will meet as necessary, but no less than twice a year, to review progress and resolve policy issues. The Steering Committee will be chaired by the Principal Secretary (PS) and consist of representatives of the public, private, and NGO sector. 52. The Projects Implementation Agencies (IAs) will be the Project Implementation Unit (PIU) selected by the EA and the Agribusiness Credit Unit (ACU) selected by BASIC Bank. The PIU will be responsible for overall implementation of the Capacity Development component (component 1), and the Agribusiness Value Chain Development component (component 2). ACU under the guidance of the Board of BASIC Bank will be responsible for overall implementation of the Agribusiness Investment component (component 3) of the Project. The two implementation9



agencies, under coordination of the PCU, will exchange information and experiences gained during implementation of the activities under their respective responsibilities. 53. The Agribusiness Development Fund (ADF) will finance proposals submitted by beneficiaries to develop Value Chain Management, Market Management and Operations, and Corporate Agribusiness Services Providers. Beneficiaries will submit proposals to the Agribusiness Proposal Screening Committee for screening based on eligibility criteria and a scoring matrix. Based on the technical recommendations of the Agribusiness Proposal Screening Committee, the proposal will be forwarded to the Agribusiness Proposal Selection Committee. The selected proposals will be formalized through a contract with the PIU stating the obligations of various parties, the co-sharing of funding, the implementation of investments, and the technical services assistance required. The implementation of the proposals will be monitored both by the PIU internal monitoring staff and by a Project Monitoring and Evaluation Unit (PMEU) independent of the PIU. 54. Finance to PFIs for on-lending to sub-borrowers will be provided through BASIC Bank acting as a wholesale financing institution. The investment component would be through at least three private commercial banks (PCBs), three non-bank financial institutions (NBFIs), and three to five NGO microfinance institutions. Withdrawals of funds by BASIC Bank from the Agribusiness Credit Line (ACL) will be authorized by the Project Director. 55. In addition to monitoring activities to be carried out by the Project Implementation Unit and the Agribusiness Credit Unit, the Project will establish a Project Monitoring and Evaluation Unit (PMEU) which will be independent of the PIU and ACU. The responsibilities of the PMEU include establishing a Project Performance Monitoring System (PPMS) for the Project, conduct baselines and longitudinal surveys, monitoring on all sub-projects carried out under component 2 and 3, and monitoring of gender and environmental indicators. A Implementation Schedule

56. The Project will be implemented over a period of 6 years. Pre-inception activities have been specified in order to ensure that upon Project effectiveness the key implementation units (PIU and ACU) are staffed with competent professionals and TA consultants are recruited and ready for mobilization. B Flow of Funds

57. An imprest account will be opened by the MOF at Bangladesh Bank before inception of the Project. Sub-accounts will be created for (i) the Agribusiness Development Fund (to fund activities under component 2); (ii) the Agribusiness Credit Line (for withdrawals by BASIC Bank and onlending to PFIs); (iii) the operational expenses of the PCU; (iv) the operational expenses of the PIU; and (v) the operational expenses required for implementation of component 1.

1.4

COST ESTIMATES

58. The estimated Project cost is $124.5 million equivalent, inclusive of physical and price contingencies, taxes and duties, and interest and service charges during construction. The foreign exchange cost is estimated at $14.7 million, or about 12% of the total cost. The local currency cost is estimated at $109.8 million equivalent, or about 88% of the total cost. The cost estimates summarized in the table below should be regarded as indicative only.

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Cost Estimates ($ million) Foreign 1. Capacity Development 2. Agribusiness Value Chain Development 3. Agribusiness Investment 4. Project Management Total BASELINE COSTS Physical Contingencies Price Contingencies Total PROJECT COSTS Financial Charges During Implementation Total Costs to be Financed 1.4 3.8 5.7 2.4 13.2 0.4 -0.1 13.5 1.2 14.7

Local 1.6 34.6 67.1 5.9 109.2 0.8 -0.1 109.8 109.8

Total 3.0 38.4 72.7 8.3 122.4 1.2 -0.2 123.4 1.2 124.5

1.5

FINANCING PLAN

59. The Government has requested a loan of $50.0 million from ADB's Special Funds resources to help finance 40% of the project cost. The loan will finance 100% of the foreign exchange cost of $14.7 million and $35.3 million equivalent of the local currency cost (32% of the total local currency cost). PFIs are expected to contribute $26.2 million equivalent of the local currency cost (21% of the total project cost) in the form of medium-term credit and working capital for sub-borrowers. The beneficiaries will contribute $37.5 million equivalent of the local currency cost (30% of the project cost) through equity contributions to agribusiness investments and costs of workshops and seminars relating to agribusiness development. Local cost financing is justified, given the pro-poor orientation of the Project and the tight fiscal situation in the country. The financing plan is summarized in the table below. Financing Plan ($ million) Foreign Local ADB PFIs Beneficiaries The Government Total 14.7 -0.0 14.7 35.3 26.2 37.5 10.8 109.8

Total 50.0 26.2 37.5 10.8 124.5

Percent 40.1 21.0 30.1 8.7 100.0

1.6

PROJECT BENEFITS, IMPACTS, AND RISKS A Economic Benefits and Impacts

60. An economic evaluation of the overall project was undertaken by aggregating the incremental cash flows of indicative sub-projects. Incremental cash flows were estimated for the aggregate of value chain management sub-projects and agribusiness investment sub-projects, as well as for all sub-projects. The economic value of the Project costs was estimated using COSTAB based on the value of the investment in Components 1 and 4 plus the economic value of the costs of the Screening and Selection Committees in Component 2. A standard conversion factor of 0.91 was used for converting the financial costs into economic costs. The incremental

11



cash flow for the overall Project was then estimated as the aggregated cash flow for all of the sub-projects less the Project costs, the investment costs having been included in the subprojects. Summary of Estimated Economic Benefits of Overall ProjectSub-project Cash Flows Value Chain Agribusiness All Management Investment Subprojects ENPV @12% discount (Tk million) Incremental Cash Flow Base Case 1-year lag in sub-projects

15,318.2

4,256.2

19,574.4

19,081.6

16,927.6

EIRR

56.2%

36.8%

48.7%

43.6%

42.0%

61. Based on these calculations, the ENPV @12 percent discount of the aggregate of value chain management sub-projects is Tk15.3 billion and the EIRR is 56.2 percent, while the respective values for the agribusiness investment sub-projects are Tk4.3 billion and 36.8 percent. Thus the ENPV for the aggregate of all sub-projects is Tk19.6 billion and the EIRR is 48.7 percent. When the additional project costs are included in the estimate, the ENPV is Tk19.1 billion and the EIRR is 43.6 percent. 62. Given the problems frequently encountered with project implementation, the impact of a one-year lag in implementation of the sub-projects was investigated. Calculations show that the impact of such a delay would be a reduction of the ENPV to Tk16.9 billion together with a reduction of the EIRR to 42.0 percent. While this is serious in terms of the extent of reduced value of the cash flow, it does not have a serious impact on project viability. B Environment

63. The Project provides for environmentally friendly institutional mechanisms that promote value chain development and contribute to growth of income and employment. The identified adverse effects will be addressed through proper site location, planning, implementation, and management of operations that incorporate identified mitigation measures. The Project can therefore be classified under Category B. Sub-projects will follow the project-specific environmental assessment and monitoring procedures and arrangements developed in conformity with GOB and ADBs environmental and social safeguards policies. Appropriate review and monitoring will be carried out throughout the project life to ensure that the guidelines are adhered and that adequate capacity development support is given to the facilitating service providers. C Social Impacts

64. Agribusiness development will contribute to reduce poverty in Bangladesh through two channels. First, agribusiness development will generate new employment opportunities especially in rural areas. This is particularly relevant for landless households, which constitute a significant share of the hard-core poor. Employment opportunities will result from (i) improvement in large and medium agribusiness enterprises profitability resulting from a revised agribusiness policy framework, more effective market management, and improved access to markets; (ii) fostered linkages of primary producers with markets; (iii) diffusion of new tasks at the farm level in term of agro-processing and post-harvest; (iv) higher production volume in large and medium agribusiness enterprises; (v) better organizations and improved marketing capacity of agricultural

12



service providers; (vi) improved credit opportunities for undertaking long term investment aimed at fostering value chain development. 65. Second, agribusiness sector development will support income generation of poor farmers engaged in agribusiness through the following levers: (i) improved organization of market linkages; (ii) diffusion of contract farming system; (iii) emergence of incentives for the adoption of appropriate agricultural technology; (v) decrease in post-harvest losses; (vi) increase in output quality; (vii) adoption of new crop varieties; (viii) improved availability of long-term credit for investment and (ix) improved functioning of facilitating agencies, associations and NGOs. 66. The Project has a strong focus on poverty, which is reflected in (i) the focus on rural areas as priority for poverty reduction in Bangladesh; (ii) prioritization of employment creation in both farm and non-farm sector; (iii) the objective of strengthening market linkages which will result in higher profitability for smallholders farmers; (iv) the importance given to value chain development which is shown to positively impact on women and poor participation; (v) the involvement of marginal areas and ethnic minorities during dissemination campaign of project activities. 67. The poor will directly benefit from the Project (when involved into Project activities) but also indirectly as employees of beneficiary large or medium enterprises, as clients in value chain or as suppliers of agricultural goods and services. In order to have an on-going analysis of impact on poverty reduction, the Project will utilize (i) baseline household and community surveys; (ii) records of NGOs, farmers organizations, facilitating agencies and micro finance institutions; (iii) participatory techniques with a special focus on poor farmers, enterprise employees, service providers, women and ethnic groups, in order to gather data and information on basic needs, assets, vulnerability and livelihoods.

1.7

Assumptions and Risks

68. The major assumption of the proposed Project is that there will be continuity of the Government policy towards market orientation, private sector promotion, trade liberalization, and a view that agribusiness is a thrust sector critical to the growth and poverty reduction strategy of the Government. If the priorities of the Government were to change during Project implementation, it will be difficult for effective agribusiness value chain to emerge and private investment to flow into the sector. Critical to this investment will be the continuity and credibility of Government policy towards the sector. The approval of a comprehensive Agribusiness Policy and a revision of the Agricultural Marketing policy and related legislation will be important steps towards confirming the continuity and enhance credibility. The second major assumption of the Project is the selection of a team of highly competent professionals for the implementation of the various components of the Project. 69. The major risk of the proposed Project is that social unrest and political conflict might delay the scheduling of activities and compromise the success of the Project. In the extreme case of political instability and disruption of basic conditions of peace, law, and order, no new investment will occur in the agribusiness sector. Another risk is that interference with the internal and sound operations of the implementation agencies of the Project (the PIU and the ACU) might lead to a loss of motivation on the part of the implementing professionals and the beneficiaries of the Project. If technically and financially un-sound sub-project proposals are selected in order to favor special interest groups, the overall purpose of the Project will be endangered. 70. The design of the Project stresses the key role played by farmers and the private sector in planning and implementing proposed sub-projects. This demand-driven approach will promote a sense of ownership that is expected to improve management skills, investment, and entrepreneurship in the agribusiness sector. Overall, the value chain management approach to agribusiness development, coupled with the technical soundness of the proposed production and13



marketing-related sub-projects, will generate the expected impacts and result in benefits exceeding the costs.

PROJECT LOGICAL FRAMEWORK

Design Summary Goal To accelerate the growth of the agribusiness sector and its contribution to the national and rural economy and poverty reduction

Performance Indicators/Targets Accelerate annual growth of agro-industry GDP from 6% to 10% 2. Increase value of agricultural exports from $400 million to $800 million 3. Increase number of enterprises involved in agrobased industry by 25% For all Project beneficiaries, at Project completion: 1. Increased competitiveness (productivity at farm level increased by 20%, value added of enterprises increased by 50%, postharvest losses reduced by 50%) 2. Increased innovativeness (at least 20% increase in the following: farmers adoption of new technologies in production and postproduction activities, use of contracts with agroenteprises; agroenterpise use of business plans; medium and large enterprise access and use of internet; all stakeholders improved knowledge of foreign and domestic markets; new products development; and fairs and exhibitions of agricultural products) 3. Agribusiness Investment increases by 100% 1. 1.

Monitoring Mechanisms National Accounts


Purpose To strengthen agribusiness value chain linkages among farmers, traders, processors, and service providers

1. 2. 3.

4.

PMEU Reports Progress Reports of PCU and PIU Progress and financial reports of ACU and Participating Financial Institutions (PFIs) Longitudinal surveys (with and without Project, before and after Project, exposed and not-exposed to the Project)

Assumption. Policy orientation towards trade liberalization, privatization, and market orientation continues and is further strengthened. Assumption. Current Government priorities on agriculture and rural development continue. Assumption: Continued efforts of Government to improve road and power infrastructure.

Components/Sub-components and Outputs 1. Component 1: Capacity Development Output: Strengthened capacity for agribusiness policy formulation and value chain management Sub-components: 1.1 Comprehensive Agribusiness Policy Formulation 1.2 Formulation of a revised Agricultural Marketing Policy 1.3 Capacity Strengthening for Associations 1.4 Capacity Strengthening for Commercial Stakeholders 1.5 Capacity Strengthening for Facilitating Service Providers 1.6 Capacity Strengthening for Agribusiness Management 1.7 Awareness Creation Agribusiness Policy and related legislation formulated and approved Agricultural Marketing Policy and related legislation revised and approved Business plans of commercial stakeholders, facilitating service providers, Market Management Committees, and Corporate Agribusiness Service Providers incorporating principles of value chain management formulated Members of national and regional trade and industry associations aware of Project; at least 1000 farmer groups (each on average of 100 members) aware of the Project activities; all relevant departments and agencies of 1. 2. 3. PMEU Reports Progress Reports of PCU and PIU Longitudinal surveys (with and without Project, before and after Project, exposed and not-exposed to the Project) Component monitoring reports and Participatory Benefit Monitoring carried out by PMEU. Assumption: Commitment of the Government to adopt formulated Policies and Legislation by year 2 of Project implementation. Assumption: Effective media activities are conducted on an ongoing basis during Project implementation.

2.

3.

4.

4.

14

Agrico Limited Final ReportDesign Summary


Performance Indicators/Targets Government aware of the Project; all relevant projects (Government or donor funded) aware of the Project activities.

Monitoring Mechanisms


Component 2: Agribusiness Value Chain Development Output: Improved management of agribusiness value chain linkages Sub-components: 2.1 Value Chain Management Development 2.2 Market Management and Operations Development 2.3 Corporate Agribusiness Service Providers Development

For Project beneficiaries, at Project completion: 1. Postharvest losses on marketing chain reduced by 50% Farm Productivity increased by 20% Enterprise Value Added increased by 50% In at least 60 markets, transparent market revenue collection system established In at least 60 markets, market congestion reduced by 50% In at least 60 markets, investment in market infrastructure increased by 100% Value added by corporate serviced providers increased by 50%

1. 2. 3.

2. 3. 4.

4.

5. 6.

PMEU Reports Progress Reports of PCU and PIU Longitudinal surveys (with and without Project, before and after Project, exposed and not-exposed to the Project) Sub-projects monitoring and Component monitoring carried out by PMEU.

Risk: Undue pressures and influence exercised on the PIU, the Screening and Selection Committee Assumption: Revision of Agricultural Marketing Policy and related legislation is enacted.

7.

Component 3: Agribusiness Investment Output: Strengthened financial services to finance demand-driven long-term investment in agribusiness activities with improved value chain management

For Project beneficiaries, at Project completion: 1. 2. 3. 4. Agribusiness Investment increased by 100% Value of Production increased by 30% Sales increased by 50% Employment increased by 30%

1. 2. 3.

4.

5.

PMEU Reports Progress Reports of PCU Financial Reports of BASIC Bank and PFI Longitudinal surveys (with and without Project, before and after Project, exposed and not-exposed to the Project) Sub-projects monitoring and Component monitoring carried out by PMEU. Progress Reports by PIU ADB Project Performance Reports (PPRs) ADB Review Missions Project completion Report Component monitoring carried out by PMEU.

Risk: Interference of Government policies, agencies, ore person with internal sound operations of BASIC Bank and PFIs

Component 4: Project Management Output: Obligations and responsibilities of the loan agreement met and performed in a timely manner.

1.

2.

3.

Project Coordination Unit (PCU): Effective coordination with all relevant agencies and with ADB achieved; directives issued; workplans reviewed and approved timely Project Implementation Unit (PIU): Planned activities performed and outputs delivered as per schedule Agribusiness Credit Unit (ACU): Medium and longterm credit line disbursed to

1. 2.

Assumption: Commitment of the Executing Agency sustained. Assumption: Recruitment of a team of senior Project management staff and specialists of high technical and managerial skills.

3. 4. 5.

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Agrico Limited Final ReportDesign Summary


Performance Indicators/Targets qualified sub-borrowers through eligible Participating Financial Institutions (PFIs) Project Monitoring and Evaluation Unit: Planned activities performed and outputs delivered as per schedule


4.

Assumptions and Risks Assumption: Appointment of a PIU Team Leader of a very high professional and proven management skills Assumption: Continuity of PIU Team Leader throughout the life of the Project Assumption: Close coordination among PCU, PIU, ACU, and PMEU and related agencies

Activities Risk: Political and social unrest may affect the scheduled of planned activities.

Activities related to sub-component 1.1 on Comprehensive Agribusiness Policy Formulation: (i) Review of the literature; (ii) consultative meetings; (iii) field work; (iv) analysis of alternative issues and options; (v) formulation of policy documents; and (vi) workshops. Activities related to sub-component 1.2 on Formulation of a Revised Agribusiness Marketing Policy: (i) Review of the literature; (ii) consultative meetings; (iii) field work; (iv) analysis of alternative issues and options; (v) formulation of policy documents; and (vi) workshops Activities related to sub-component 1. 3 on Capacity Strengthening for Associations: (i) Training; (ii) study tours; and (iii) workshops. Activities related to sub-component 1.4 on Capacity Strengthening for Commercial Stakeholders: (i) Training; (ii) study tours; and (iii) workshops. Activities related to sub-component 1.5 on Capacity Strengthening for Facilitating Service Providers: (i) Training; (ii) study tours; and (iii) workshops. Activities related to sub-component 1.6 on Capacity Strengthening for Agribusiness Management: (i) Training; (ii) study tours; and (iii) workshops. Activities related to sub-component 1.7 on Awareness Creation: (i) Weekly announcements in major daily newspapers (both in Bengali and in English); (ii) weekly radio talk shows about agribusiness development; (iii) weekly television shows about agribusiness development; (iv) dissemination of brochures and publications produced by the Project to a wide audience including chamber of commerce and industry, associations (both national and regional), relevant government agencies; (v) annual agribusiness conferences to be organized in conjunction with associations and relevant government agencies; and (vi) establishment of a web site containing Project information (planned and ongoing activities, publications,

1.

Timely completion of activities as per implementation schedule

1. 2.

3.

4. 5.

PIU Project Progress Reports ADB Project Performance Reports (PPRs) ADB Review Missions Project Supervision Back-to-Office Reports (BTORs) Progress Reports of PMEU

16

Agrico Limited Final ReportDesign Summary forms, contacts, databases). Activities related to component 2 on Agribusiness Value Chain Development: 1. Operational policies and procedures including application formats and evaluation criteria are designed, approved, and printed 2. Calls for proposals for investment and technical support are periodically published, announced through media and web 3. Proposals are screened, approved, and agreements signed 4. Implementation of supported proposals are supervised 5. Implemented proposals are periodically evaluated, monitored, and reviewed. Activities related to sub-component 2.1 on Value Chain Management Development: Activities specified in proposals to be submitted by commercial stakeholders and involving technical services and investments related to technology, marketing and information, infrastructure, and capacity building and training. Activities related to sub-component 2.2 on Market Management and Operations Development: Activities specified in proposals to be submitted by Market Management Committees and involving technical services and investments related to technology, marketing and information, infrastructure, and capacity building and training. Activities related to sub-component 2.3 on Corporate Agribusiness Service Provider Development: Activities specified in proposals to be submitted by corporate agribusiness service providers and involving technical services and investments related to technology, marketing and information, infrastructure, and capacity building and training. Activities related to component 3 on Agribusiness Investment: Term loans (at least 3 years) for agribusiness investment to a variety of agribusiness stakeholders including farmer groups and small, medium, and large enterprises, based on demand and technical and financial soundness. 1. 2. 3. 4. 5. 6. Prepare policy and operational procedures for term loans Public announcement of the fund and its mode of utilization Training, tours, and workshops for improved financial services of PFIs Call for proposals Evaluation of proposals on technical and financial soundness Period supervision, monitoring, and evaluation of performance


Performance Indicators/Targets



Activities related to component 4 on Project Management: (i) Establishment of units (PCU, PIU, ACU, and PMEU); (ii) mobilization of personnel and establishment of offices; (iii) preparation and dissemination of project documents including

17

Agrico Limited Final ReportDesign Summary brochures, forms, procedures, reports, manuals; (iv) planning and organization of component 1 and component 2 by PIU; (v) Advisory and technical services to component 1 and component 2 by PIU; (vi) coordination of overall Project activities by PCU; (vii) implementation of component 3 by ACU; (viii) reporting (financial, progress, monitoring and evaluation, reviews, technical)


Performance Indicators/Targets



Inputs Inputs for activities related to sub-component 1.1 on Formulation of Agribusiness Activities: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 1.2 on Formulation of Agribusiness Marketing Policy: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 1. 3 on Capacity Strengthening for Associations: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 1.4 on Capacity Strengthening for Commercial Stakeholders: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 1.5 on Capacity Strengthening for Facilitating Service Providers: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 1.6 on Capacity Strengthening for Business Development: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 1.7 on Awareness: PIU Staff Technical assistance Sub-contracts Operational funds Inputs for activities related to sub-component 2.1 on Value Chain Management Development: PIU Staff Technical assistance Sub-contracts Operational funds Agribusiness Development Fund

ADB Total: $ 50 million 1. Cons

Documents

Agribusiness Development Project Final Report