Document of The World Bank Public Disclosure Authorized
Report No: 30270
IMPLEMENTATION COMPLETION REPORT (SCL-41610 TF-29388)
ON A
LOAN
Public Disclosure Authorized IN THE AMOUNT OF US$ 120 MILLION
TO
THE PEOPLE'S REPUBLIC OF CHINA
FOR A
HEILONGJIANG AGRICULTURAL DEVELOPMENT PROJECT Public Disclosure Authorized November 17, 2004 Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Renmimbi (RMB) Yuan (Y) Y1.0 = US$ 0.12 US$ 1.0 = Y 8.3
FISCAL YEAR January 1 December 31
ABBREVIATIONS AND ACRONYMS
AM Aide Memories DHIP Dairy Herd Improvement Program EIRR Economic Internal Rate of Return FIRR Financial Internal Rate of Return GMP Good Management Practice HABC Heilongjiang Animal Breeding Center HACCP Hazard Analysis and Critical Control Point HADP Heilongjiang Agricultural Development Project HAHB Heilongjiang Animal Husbandry Bureau HDP Heilongjiang Dairy Project HGSI Heilongjiang Grassland Science Institute HLIC Heilongjiang Livestock Information Center IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IT Information Technology NGO Non Government Organization NPV Net Present Value PDRC Provincial Development and Reform Commission PMO Project Management Office PPMO Provincial Project Management Office PSR Project Status Report QS Quality Safety RCC Rural Credit Cooperative SAR Staff Appraisal Report SARS Severe Acute Respiratory Syndrome SOE State Owned Enterprise TA Technical Assistance TV Television WTO World Trade Organization
Vice President: Jemal-ud din Kassum Country Director David Dollar Sector Manager Mark Wilson Task Team Leader/Task Manager: Zhengxuan Zhu
CHINA Heilongjiang Agricultural Development
CONTENTS
Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 8 6. Sustainability 9 7. Bank and Borrower Performance 10 8. Lessons Learned 12 9. Partner Comments 13 10. Additional Information 13 Annex 1. Key Performance Indicators/Log Frame Matrix 14 Annex 2. Project Costs and Financing 16 Annex 3. Economic Costs and Benefits 19 Annex 4. Bank Inputs 21 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 23 Annex 6. Ratings of Bank and Borrower Performance 24 Annex 7. List of Supporting Documents 25 Annex 8. Borrower's Contribution 26
Project ID: P038988 Project Name: Heilongjiang Agricultural Development Team Leader: Zhengxuan Zhu TL Unit: EASRD ICR Type: Core ICR Report Date: December 17, 2004
1. Project Data Name: Heilongjiang Agricultural Development L/C/TF Number: SCL-41610; TF-29388 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Animal production (41%); Agro-industry (40%); General public administration sector (10%); General agriculture, fishing and forestry sector (7%); Agricultural extension and research (2%) Theme: Rural services and infrastructure (P); Rural non-farm income generation (P); Other rural development (S); Pollution management and environmental health (S)
KEY DATES Original Revised/Actual PCD: 1995-09-01 Effective: 1997-09-24 1997-09-24 Appraisal: 1996-11-15 MTR: 2000-09-05 2000-09-05 Approval: 1997-05-13 Closing: 2003-06-30 2004-06-30
Borrower/Implementing Agency: PRC/HEILONGJIANG PR Other Partners:
STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Jean-Michel Severino Country Director: David Dollar Nicholas C. Hope Sector Manager: Mark D. Wilson Joseph R. Goldberg Team Leader at ICR: Zhengxuan Zhu John Stemp ICR Primary Author: Zhengxuan Zhu; Weiguo Zhou
2. Principal Performance Ratings
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S
QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective:
The primary objectives of the project were to raise incomes and living standards, stimulate market oriented enterprise development in rural Heilongjiang industries, and expand rural employment by increasing livestock and aquaculture production, and expanding or improving crop and livestock processing. The project aimed at introducing new production and processing technologies, and promoting better planning and management to respond to market demands. It also aimed at enhancing environmental standards in the design of crop and livestock processing plants, developing monitoring systems and promoting sound environmental protection practices.
3.2 Revised Objective:
The original project objectives remained unchanged.
3.3 Original Components:
The main features of the project are: (a) to support development of beef cattle fattening, dairy cow raising, pig breeding and fattening, goose breeding and fattening, and fox breeding; (b) to expand fish production through the construction of 584 new ponds, the rehabilitation of 237 existing ponds and the restocking of a 12,000 ha natural lake; (c) construction of new and expansion/improvement of existing facilities for processing milk, beef, pig and geese, cereals, oilseeds, beans and fruit; and (d) institutional development, including the strengthening of livestock and crop supporting services, technical assistance, training and studies.
These components were well designed to achieve the project objectives. Both the central and provincial governments supported the project and mobilized support down to the county and township levels. There was a high degree of support and interest on the part of project beneficiaries and stakeholders.
3.4 Revised Components:
The original component remained unchanged throughout the implementation period. However the scale of the livestock production, aquaculture and the agroprocessing components was adjusted during the process of project implementation, to reflect the market demands and the implementation capacity of the project areas.
Component Cost Rating Livestock Production US$100.3 million S Aquaculture US$ 4.8 million S Agroprocessing US$ 92 million S Institutional Development US$ 11.7 million S Total US$208.8 million
3.5 Quality at Entry:
The quality at entry is rated as satisfactory. The project objectives were consistent with the Bank's CAS in China; and the government's long term policies focusing on increased production, income generation and employment creation in rural areas. The design incorporated a range of technical innovation
- 2 - in livestock production including breed improvement, improved livestock housing to incorporate solar heating, and greater attention to animal nutrition including the introduction of maize silage and new varieties and direct seeding technology for pasture renovation. These innovations proved to be broadly successful, raising productivity, reducing cost and improving animal welfare. With the agro-industry component, much of the equipment was purchased internationally, thus accelerating technical innovation. The strategy of vertical integration between local agroprocessing and production is a proper approach, as at project design, Heilongjiang’s low level of value adding to its agricultural commodities was seen as a major opportunity to improve farm gate prices and raise rural employment when the provinces traditional heavy industries were in decline. Project evaluation indicates that this strategy was successful on both counts. Compared with the Songliao Agriculture Development Project , a similar stream of investments was financed in the mid 1990s and similar results were generated. The project design also incorporated valuable experiences and lessons learned from other Bank-financed projects, especially in wastewater treatment, which were included in the project design and cost estimates for all agroprocessing facilities. The project objectives were relevant and linked to measurable output indicators. During the process of project preparation, a participatory approach was adopted: numerous meetings were held at township and village levels to identify candidate villages and households for participation in livestock and aquaculture development activities.
4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective:
4.1.1. The project was closed after a one-year extension and the outcome of the project is rated as satisfactory. The main achievements/outcome are as follows:
4.1.2 Income and living standard of the local farmers improved through more employment opportunities generated under the project. About 45,800 households directly participated in the livestock and aquaculture production programs. This has brought the farm family labor utilization rate up from 41% at the baseline year to 87%, higher than the appraisal estimate of 69%. On top of that, over 70% of the beneficiaries are women. This has contributed significantly to women's empowerment. In addition, the project financed enterprises are expected to generate about 9,000 full-time job opportunities for local people at the full development of the project. As a result, the rural per capita income of the project counties is expected to reach RMB 3,369 yuan, RMB 1,904 yuan more than the baseline year of only RMB 1,465 yuan, or representing 125.7% that of the appraisal estimate.
4.1.3 Stimulating market-oriented enterprise development in rural Heilongjiang industries. All the fourteen enterprises financed by the project carried out enterprise reform, in accordance with the "Company Law", many of them quite successfully. This has provided useful experiences/lessons to State Owned Enterprise (SOE) reform across the whole province, as Heilognjiang is a province that is regarded as the "Old Industrial Base" in China, with most of the enterprises were state owned. Many of them collapsed during the transitional period from the planned economy to market economy. The experience gained under this project in areas of enterprise reform is expected to play an important role in revitalizing the enterprises of Heilongjiang Province. 4.1.4 Promotion of technology advancement. A series of new technologies were introduced both in production and processing, among which, the introduction of new feeding strategies was the most important in livestock production component. All project staff and farmers involved received training in animal nutrition and the farmers were provided with feeding tables for the types of livestock they were raising. Maize silage is another important technology introduced under the project, and played an important role in improved nutrition for both dairy and beef cattle. Other technologies included improved
- 3 - husbandry and breeding, and better livestock building design, including the use of passive solar heating in winter, and improved shed drainage and ventilation, separate feed storage and better animal space and tethering systems. As a result, the milk production per lactating period was raised from 2.5-3 tons before the project to an average of 4.5 tons at the project completion, with the highest exceeding 6 tons. These technologies are now widely extended throughout the province. The area planted to silage corn in the province grew from about 13,000 ha before the project to about 400,000 ha at the time of project completion. Due to cold weather in Heilongjiang province, over-wintering problem had long constrained fish production in the province. The introduction of deep water culture has successfully solved this problem, with the winter survival rate reaching about 75%-85%. Again, this technology is now widely used in the province, thus greatly promoting aquaculture development. The building and processing system design and equipment procured for most enterprises under the agroprocessing component were of high quality, with some both nationally or internationally advanced.
4.1.5 Environment awareness enhancement. The wastewater treatment design of all 14 project enterprises were reviewed by an independent panel of experts before they were approved by the local environment agencies. At the time of project completion, construction of the wastewater treatment facilities of all enterprises, with the exception of Bayan Geese and Hulan Pig, were completed. The local environment agency stressed that production by the enterprises is prohibited without construction of wastewater treatment system. While developing aquaculture in the province, attention was paid by the local government and farmers to protect the wetland.
4.2 Outputs by components:
4.2.1 Livestock production component (US$ 100.3 million). The component as a whole is rated as satisfactory.
Dairy Farming (US$ 23 million). About 6,332 households benefitted directly from dairy farming, with credit ranging from 2-4 dairy cows. It gained good financial results, with the Financial Internal Rate of Return (FIRR) reaching as high as 31.4 percent. The sector benefits from a strong provincial policy to expand the livestock sector, which has attracted substantial incremental investment in dairy processing from the private sector. This, in turn, has improved services and prices for farmers over the project life. Most project farmers adopted maize silage technology along with improved feed rationing practices. This has resulted in a significant higher milk production per lactating period than the appraisal estimate.
Beef Farming (US$ 51 million). About 6,361 households participated in the activity, ranging from 10-20 beef cattle. This is the only activity under the component, which is not profitable, as the expected development of a high value beef-processing sector did not materialize and local market demand for finished beef remained flat. Most beef farmers shifted to other more profitable livestock activities after the first cycle of cattle fattening.
Pig Farming (US$ 10.5 million). About 3,399 households were engaged in pig production, ranging from 10-20 fattening pigs, as well as 20 sow breeding farm. The project significantly improved the design of pig housing in the province and strengthened farmer pig husbandry capacity, particularly in pig nutrition. Although China’s 2001 WTO accession exposed farmers to historically low world pork prices at that time, the industry has subsequently recovered and is showing reasonable profitability at project completion.
Geese Farming (US$ 13.1 million). About 28,632 households benefitted directly from this activity, which included 100-200 head geese fattening farms and 250 geese breeding/hatcheries. Among them,
- 4 - about 80% were women. Due to a strong domestic market, goose price rose by 20% over the project life. Some project supported county hatcheries and multiplication farms also initiated cross breeding programs, thus benefiting local producers. In spite of good benefit of geese farming, the number of geese fattening farms are much lower than SAR target, as Suiling county withdrew after loan effectiveness, since it found other funding sources. Goose fattening farm completions were also affected by the cancellation by Nehe County of 50% in the second year of implementation, when goose prices dipped in the late 1990s and shifted to dairy production.
Fox Breeding (US$ 2.6 million). This activity involved the two-stage development of a private central 1,200 vixen breeding farm, which subsequently established 1,200 outreach smallholder fox fur farms, each having 20 females and 5 males and producing 144,000 cubs per year. The smallholder fox farms are profitable, with a reported RMB 16,500 Yuan (US$1,980) average net profit per household. The central breeding farm, however, shows a negative rate of return on investment, due to a substantial fall in fox skin prices in recent years, and a business policy of selling breeding stock to outreach farms at a discount. SARS also seriously disrupted feed supply in 2003, resulting in extensive abortion amongst the breeding vixen due to forced diet changes.
4.2.2 Aquaculture Component (US$ 4.8 million). Despite withdrawal of three counties, out of the seven proposed ones, having found other sources of funding at the project inception, resulting in a reduced scale of the component, it is nonetheless rated as satisfactory. In total, 402 standardized fish ponds were constructed, with a total area of 434.8 ha, among which, 172 ponds, or 197.7 ha were newly constructed and 230 ponds, or 237.1 ha were improved ones. In addition, about 3.36 million fries were restocked in Longhupao Lake, which benefited 75 households. Thus bringing the total direct beneficiaries to 477 households. Fish production almost doubled that of the pre-project time, due to the solving of the over-wintering problem and the use of other technologies, such as use of aerators and time feeding. In some areas, aquaculture has been combined with the tourism development in recent years, hence greatly enhancing the farmers' income.
4.2.3 Agroprocessing Component (US$ 92.0 million). This component as a whole is rated as satisfactory, as the objectives of stimulating market-oriented enterprises development, and expanding rural employment by expanding or improving agroprocessing are substantially achieved, in spite of major adjustment of the participating enterprises, as well as the extended construction period, late start up of production and failure of some individual enterprise.
4.2.3.1 At the time of appraisal, nineteen agroprocessing subprojects were identified for financing under this component, including ten livestock processing enterprises and nine crop processing enterprises. After the project implementation started, however, eight proposed enterprises, withdrew from the project, for the following reasons: the four grain processing enterprises had difficulty in mobilizing the counterpart fund, following the grain marketing system reform in 1997-1998; Market changes is the major cause for the withdrawal of flex and seabuckthorn processing. The two geese processing plants had other sources of funding. Meanwhile, three new subprojects were added, including Zhaodong Lysine, L-Lactic and Suihua Soybean Milk, which showed good market potential. In the end, a total of fourteen agroprocessing enterprises were supported, including eight livestock processing and six crop processing enterprises. During construction period, some individual enterprises, such as Anda Milk, Suihua Soybean Milk, and Zhanzhou Maize have increased their investment, in order to meet the new requirement of the government on food processing, for purpose of raising the food safety level, including Hazard Analysis and Critical Control Point (HACCP), Quality Safety (QS) and Good Management Practice (GMP), etc.
- 5 - 4.2.3.2 At the time of project completion, physical construction of all the enterprises was completed. Seven enterprises were operational, including five geese processing enterprises, together with Anda Milk and Lanxi Oil. Trial production at Suihua Beef and Hulan Pig slaughtering has been undertaken and proved to be successful. Production will start immediately. Three enterprises, including Zhaodong Lysine, Zhaodong L-lactic and Suihua Soybean milk started single equipment testing, with pilot or full production are expected in November or December 2004. Suihua Soybean has obtained HACCP certificate and is now under QS review. Zhaouzhou Maize has not yet started normal production although the trial operation was successfully carried out two years ago. The subsequent delay was due to government's long internal approval process for the enterprise to obtain the production licence for crystalline glucose from the National Pharmaceutical Administration, which took more than 1.5 years. Following which, a GMP review is now underway. Both the construction and equipment of most enterprises are of high quality. The total Economic Internal Rate of Return (EIRR) and FIRR of the crop processing are 14.3% and 12.6% respectively and that of the livestock processing are 26% and 20.6% respectively. Tailai Mung Bean failed, due to its poor management, outdated technology, which has affected the quality of the final product, hence has no market competitiveness.
4.2.3.3 A significant feature of the agroprocessing component is to carry out the reform measures (enterprise reform) by the participating enterprises, to create autonomous corporate enterprises. All the fourteen participating enterprises have carried out, though in varying degree, the reform measure, including merging, selling or leasing the state assets to employees to diversify the ownership or privatize the enterprises. Many of them have achieved good success, such as Suihua Beef, Zhaoyuan Geese, Wangkui Geese, Anda Milk, Suihua Soybean, Zhaodong L-Lactic, etc. Through enterprise reform, a number of nationally famous flagship enterprises were introduced. These flagship enterprises have not only brought financial resources to the project enterprises, but more importantly, advanced modern enterprise management experience. They now enjoy fourteen autonomous rights in managing the enterprises. Enterprise reform has enabled the project enterprises to greatly improve their access into the market, as they are able to make use of the market chain of these flagship enterprises. Enterprise reform surely contributes to the sustainable enterprise development. The PPMO will continue to support the enterprise reform after ICR.
4.2.3.4 Sufficient attention was given to resettlement issue during project preparation and implementation, although this is not a major issue. Among the fourteen agroprocessing enterprises, construction of seven enterprises worked on their own land, hence no land acquisition was involved. Six acquired land from the government reserved land for city construction, with no housing, other infrastructure and production activities involved. There was only one worker's family which was affected by construction of Zhaodong L-Lactic Acid, as they were growing 5 mu of vegetable on the government reserved land for city construction where the enterprise was built. In accordance with the applicable Chinese law, and guided by the local land bureau, a compensation plan was worked out and agreement was signed between the enterprise and the family, with which the family received a compensation of RMB 100,000, averaging 20,000 yuan per mu. In addition, the worker's wife has become a full time worker of the enterprise.
4.2.4 Institutional Development Component (US$ 11.7 million). Under this component, the project financed: (i) support services for livestock, which is satisfactory; (ii) support services for crops, which was unsatisfactory; and (iii) Project management Support, which is satisfactory .
4.2.4.1 Supporting services for livestock, including support for the (i) Heilongjiang Animal Breeding Center (HABC); (ii) Heilongjiang Grassland Science Institute (HGSI); and (iii) Heilongjiang Livestock Information Center (HLIC).
- 6 - (i) HABC. HABC received equipment for processing and storing semen, together with 45 bulls and 200 frozen embryos valued at US$629,000. The center used these resources effectively, with the imported bulls producing about 0.5 million doses per year since 2001 and the new processing equipment raising semen acceptance levels from 70% to 82%. The HABC realized its target of a 30 percent increase in semen production together with a 15 percent lift in semen yield per bull and a 12 percent improvement in semen quality. Combined with higher frozen semen prices, this has led to about 70% cost recovery in the final project year, up from about 30% at project inception.
(ii) HGSI. Grassland research focused on raising pasture protein levels, primarily through legume introductions. Under the project, HGSI received pasture sod seeding equipment, planting materials, small civil works, technical assistance (TA) and training to the value of US$365,000, for the purpose of systematically testing a range of new species and varieties together with direct seeding technology. Two useful alfalfa species and three indigenous grass varieties were identified. The introduction of leaf cutter bees significantly increased alfalfa seed yield, while the seeding technology enabled the direct seeding of pasture. The Institute, which is responsible for planting in excess of 100,000 ha of pasture annually recently purchased an additional 12 sod-seeding machines, which, when combining with deep ripping, reduce machinery costs for pasture establishment by up to 60%.
(iii) HLIC. HLIC received funding for computer networks, training, limited civil works and a vehicle. It used these resources very effectively to develop an Internet based livestock technical website for the Heilongjiang livestock industry and an administrative website for the Heilongjiang Animal Husbandry Bureau (HAHB) that also links to 33 county Animal Husbandry Bureaus. The technical website provides information on, inter alia, research, journal and magazine articles, seminars, statistics, markets and prices, animal husbandry, support services and links to other sites. The HLIC also publishes two monthly journals and provides a web-based livestock trading service for registered members. Another notable achievement is the pilot development of a wireless farmer information service. Under a pilot rural information technology program, a TV Teletext facility and pages and mobile phones are being used to deliver information into about 5,000 farm households. The Center is presently recovering about 30 percent of its costs through Website membership fees, media publications and information services to the provincial animal breeding industry, which is expected to rise to 60 percent if the farm household information services take root.
4.2.4.2 Supporting Services for Crops. The purpose of this sub-component is to strengthen the seed facilities owned by government seed companies in ten counties. Four, out of the ten approved, withdrew following appraisal. The project supplied good quality seed processing equipment, including seed grading, dressing, bagging and weighing equipment. However, these facilities are far from being fully used. This is mainly due to the change of the government seed legislation after the establishment of the seed processing facilities, which permitted private sector's participation in the seed industry, hence breaking the monopoly position of county seed enterprises. While the reform itself is in favor of seed sector development, no action was taken by the seed companies to match with such legislation changes.
4.2.4.3 Project Management Support . Being the first World Bank financed provincial project managed by the Provincial Development and Reform Commission (PDRC), the Provincial Project Management Office (PPMO) had little understanding of investment project management at project inception. It has effectively addressed this constraint. Through staff training and experiential study tours, PPMO has developed the requisite strategic planning, project management, as well as financial and procurement skills to effectively manage the program. Meanwhile, capacity of the Project Management Offices (PMOs) at prefecture, county and township levels was also enhanced.
- 7 - 4.3 Net Present Value/Economic rate of return:
The analysis presented in this ICR reassesses the economic rate of return calculated in the SAR using updated prices, actual project costs incurred (all Project investment costs, variable operating costs, incremental recurrent cost and production costs), and latest information about project products and production. The EIRR for the project as a whole is 18.1 percent and NPV is RMB 406.1 million Yuan. The notably lower EIRR than 33.4 percent estimated at appraisal is due to the following factors (a) the poor economic performance of 7 project activities with negative NPV; (b) lower output prices; and (c) increased input prices. Annex 3 provides the details of this analysis.
4.4 Financial rate of return:
Financial Analysis has been conducted for each livestock production model, fish farm, individual enterprise, sub-component, component and the project as a whole. The FIRR for the project as a whole is 18.1 percent. When breaking down by components, it is 15.8 percent for agroprocessing, 20.2 percent for livestock production and 23.7 percent for aquaculture. FIRRs of 13 sub-projects (65% of the total) are higher than 12 percent, with the highest at 54.3 percent. However, FIRRs of 3 sub-projects (15% of the total) are negative. Falls in FIRR than the appraisal estimate were primarily due to (a) extended construction periods and the delayed production of many processing enterprises; (b) reduced sales prices for major products including fattened cattle, due to acute market competition, (c) rising production costs including labor, raw material, animal feed, and higher breeding animal prices, and (d) the overestimate of sub-project benefit and underestimate of sub-project cost at appraisal. Annex 3 provides the details of this analysis.
4.5 Institutional development impact:
The institutional development impact of the project is positive and substantial . Being the first World Bank financed provincial project managed by the PDRC, the province had little knowledge of investment project at its inception. To manage the project, a proper administrative system was set up with the provincial project management office in the PDRC and local PMOs in the project counties/cities. Through staff training and study tours, the PPMO's management team has developed the requisite strategic planning and financial and procurement management skills to effectively manage the program. The staff composition, their skill mix and responsibilities have been satisfactorily maintained throughout the Project cycle. Enterprise reform carried out by the processing enterprises has had a significant impact on the institutional development in changing attitude in enterprise operations. In addition, the staff at all levels in the concerned agencies have acquired valuable experience in project planning and implementation. The PMOs staff stated that the most valuable aspect of the project was in its training programs. The training programs financed by the project have had a profound impact in improving institutional competence
5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency:
5.1.1 Natural Disasters. During the implementation period, the project experienced extensive flooding in 1998, drought in 2000/2001 and bird flu in late 2003/early 2004, which seriously affected livestock production in the province. The outbreak of SARS in 2003 disrupted market supply line for the livestock and fisheries production, as well as the physical construction of the agroprocessing enterprises.
5.1.2 Market Changes. Market changes has in particular affected the agroprocessing component,
- 8 - causing substantial adjustment of the subproject activities.
5.2 Factors generally subject to government control:
5.2.1 Government Policy Reforms. Government policy reforms are in favor of China's transition from the planned economy to market economy, and have brought favorable impact on the project implementation in the following areas: (a) macro-economic and sector policies have been supportive of the SOE reform, which contributed to the success of enterprise reform under the agroprocessing component. (b) the rapid development of livestock production, and the dairy production in particular, is due to the provincial government's new policy which greatly stimulated the development of livestock production.
5.2.2 New Sector/Marketing Requirement. Dduring project implementation, the government has made additional requirements for food processing, such as GMP, HACCP and QS review and approval. While these requirements favor higher food safety level, and are consistent with the international practice, they have caused extended construction period and delayed the operation start-ups.
5.3 Factors generally subject to implementing agency control:
Implementation agency performance was generally satisfactory and contributed to the successful implementation of the project. Request for pre-financing of livestock procurement by the smallholder farmers, however, reduced participation, particularly by the poorest smallholder and, in some cases, compromising the quality of the purchased livestock. Inadequate provision of counterpart funds affected all the project activities, slowing project progress. This was particular serious for the agroprocessing component. Project implementation would also have benefited more had a more effective monitoring of evaluation system been established.
5.4 Costs and financing:
In the SAR, the total project cost was US$239.8 million. During implementation, the project cost reduced to US$223 million, due to the reduced scale of aquaculture component from seven counties to four, and the reduced number of agroprocessing enterprises from nineteen to fourteen, following the mid-term review in 2000. It was further reduced to US$218.3 million in 2001, mainly due to the reduced scale of beef production. The actual cost of this project at the time of ICR was US$208.8 million , representing 87% of the appraisal estimate and 96% of the revised amount. Among which, 57% was financed by the IBRD. The remaining was financed by the counterpart fund, with funding sources from the government, enterprise equity, the smallholder and the local banks. Project cost and financing details are described in Annex 2.
6. Sustainability 6.1 Rationale for sustainability rating:
6.1.1 The overall sustainability of the project is likely, but varies among components and activities.
6.1.2 Government Policy. The Provincial Government's policy of putting more emphasis on livestock production and the preferential policies supporting the dairy industry have ensured the sustainable development of livestock production and dairy production in particular.
- 9 - 6.1.3 Profitability and Good Level of Cost Recovery. Despite the current high feed costs, smallholder dairy, pig and geese production, as well as aquaculture were all profitable at project end. Although beef production was unprofitable, most beef cattle farmers had converted their investment into profitable dairy-beef or straight dairying operations by project end. Likewise, it is expected that the agroprocessing component would be profitable, as there is continued strong market demand for the project products, especially those with large investments, such as lysine, L-lactic and Milk, etc. Institutions such as HABC, HLIC and HGSI supported under Institutional Development component, have already shown good cost recovery. They are likely to eventually realize full commercialization.
6.1.4 Enterprise Reform. Enterprise reform has injected the enterprises with new vitality, in terms of financial resources, good enterprise management, technology advancement and market accessibility, etc.
6.2 Transition arrangement to regular operations:
6.2.1 The Government is committed to take advantage of the institutional set-up of the project and to continue managing project activities through the existing line-agencies responsible at the local levels. The PPMO will remain in function, although its main responsibility will shift to the new Heilongjiang Dairy Project (HDP), and the provincial Bureau of Finance would remain responsible for coordinating repayment of the Bank loan.
6.2.2 Most of the project activities under livestock and aquaculture production were contracted out and implemented by farmers and therefore do not require any specific transitional arrangement. For dairy production, however, the provincial government is now working closely with the Bank to prepare the new HDP. Lessons learned from this project will be incorporated into the new project design.
6.2.3 For aquaculture, arrangements have been made in new and high value species trials, so as to diversify fish varieties and to gain better profit. For these purposes, study tours to other parts of the country are being organized, and invited specialists, in addition to the local line agencies will conduct more training. In some places, aquaculture is being combined with tourism.
6.2.4 Both the HABC and HLIC will participate in the proposed HDP, which will further strengthen their services to the livestock sector and diversify their income base. The HGSI has a sustainable pasture seed production business and is assured of continued government funding for pasture renovation.
6.2.5 Enterprise reform will continue to be carried out and further deepened, especially those with large government shareholding, including the county seed companies. The project enterprises, which will soon start operation, have made appropriate arrangements in terms of staff recruitment and training, development of sales program and marketing strategies, as well as the arrangement of the working capital, etc. Some enterprises, such as the geese processing enterprises are considering to add cooked geese meat, or to run geese farms, so as to ensure raw material supply and raise the economic benefit.
7. Bank and Borrower Performance Bank 7.1 Lending:
The Bank's performance in the identification, preparation, and appraisal of the project is rated satisfactory. The Bank took into consideration the project's consistency with the government's development
- 10 - priorities. Project objectives were relevant to the provincial needs and in line with the Bank's development priorities and strategies, as well as with the goals of both the National and Provincial Ninth Five-Year Plans (1996-2000).
The Bank had a team with a good skills mix that remained comparatively stable during preparation and appraisal. The Bank took into account the adequacy of project design and all major relevant technical, financial, economic, institutional aspects including procurement and financial management, environmental, sociological and consistency with the Bank's safeguard policies. Project risks were identified and measures incorporated in the project to minimize their effect.
7.2 Supervision:
The Bank's performance during the implementation of the project is rated as satisfactory. The Bank's relationship with the client was cordial and productive. Supervision teams included specialists in livestock production, aquaculture, agro-industry and enterprise reform, as well as financial management and procurement. The core supervision team was well maintained and a good working relationship was kept with their counterparts. The mission's Aide Memories (AM) systematically alerted the government to issues in project execution and suggested remedies in a timely manner and in conformity with Bank procedures. The PSRs did realistically rate the performance of the project both in terms of achievement of development objectives and project implementation in all aspects. Attention was paid to legal covenants. Supervision on the supporting services on crops, mainly seed facilities, however, was inadequate. The supervision missions also helped to build the institutional capacity of the PMOs at different levels.
7.3 Overall Bank performance:
The overall Bank performance during project preparation, appraisal and implementation is rated as satisfactory.
Borrower 7.4 Preparation:
The Borrower's performance in the preparation of the project is rated as satisfactory. The Borrower committed adequate resources to the project preparation, displayed an adequate level of commitment to the objectives of the project and covered the adequacy of design and all major aspects such as technical, economic, institutional environmental and sociological factors. During the process of project preparation, numerous meetings were held at township and village levels to identify candidate villages and households for participation in the livestock and aquaculture development activities. All proposed agroprocessing subprojects constitute autonomous initiatives by enterprise sponsors. The government officials and staff of the implementing agencies at the provincial, prefecture, and county levels worked closely with the Bank's project team on a continual basis, with full cooperation and enthusiasm.
7.5 Government implementation performance:
The Government implementation performance is rated as satisfactory. The government macro-economic and sector policies have been very conducive to the development objectives. The government consistently maintained its high level of commitment throughout the implementation of the project. Government officials were always available and cooperative. However studies on the newly arising issues and their possible impact on the project implementation was not adequate.
7.6 Implementing Agency:
- 11 - Implementing agency performance also rated as satisfactory. The institutional arrangements for project implementation have proved adequate. Involvement of the line agencies strengthened the technical qualifications of the project. Monitoring of the physical progress of the project by PPMO was adequate, however the PPMO's performance could have been improved if more and effective attention was given to impact monitoring and evaluation at the household level.
7.7 Overall Borrower performance:
The overall performance of the Borrower was satisfactory. All covenants were complied with.
8. Lessons Learned 8.1 On the basis of the above review and assessments of the project, the following lessons can be drawn for similar projects:
8.2 Close correlation with the Borrower's priorities is the foundation of the project. This project was initiated by the Heilongjiang Provincial Government and is highly consistent with the Provincial Government's development priorities. It therefore received support from the Provincial government throughout project preparation and implementation. This is an important factor for the realization of the project goals and objectives.
8.3 Flexibility in addressing emerging market opportunities is important for success. The project design provided a framework for each project component with clear principles in terms of targeting, ownership and implementation arrangements. With respect to its specific contents, considerable flexibility was applied based on the changing market, as at the design stage many of the emerging market opportunities could not be anticipated. Over the relative long implementation period of 6.5 years, significant market challenges and opportunities emerged. The PPMO together with the Bank team took advantage of such changes, designed some new and important project activities, such as lysine, L-lactic production, etc. and dropped activities that were no longer demanded by the market.
8.4 Adequate counterpart fund Provision in a timely manner is essential. Insufficient counterpart fund had been a major factor affecting the project implementation and operation. To solve the problem, the old model of the counterpart fund provision, mainly by relying on the government and the local banks, must be changed. Apart from public goods, which should be the responsibility of the government, others, should be self mobilized, either use the equity contribution, or to expand the line of credit. Out of the total fourteen agroprocessing enterprises, only half provided an equity contribution at or above 30% under this project. To expand the line of credit, the local financial institutions, including the local banks and Rural Credit Cooperatives, should be more actively involved during project design.
8.5 Actions should be taken to match with the changed environment. Economic reform and policy changes occurred during the project implementation, such as seed sector, grain marketing system reform, and local bank reform, etc. To ensure the success of project implementation and to minimize the adverse effect on the project, it is important to study, in a timely manner, the implications of such change/reform on the project implementation and actions should be taken to match with the changing requirement.
8.6 Further technology promotion. Technology advances have played a key role in a significant improvement in livestock productivity in the province. However, for future projects, more experiential
- 12 - learning opportunities should be provided, particularly for younger scientists, and finance research on a more competitive basis, rather than relying on a single institution for scientific outputs that have the potential to significantly influence project outcomes.
8.7 Development of farmers association should be encouraged. Farmers in some project villages formed unregistered associations, often in order to negotiate with service providers and markets. China’s emerging experience with farmer’s associations is largely positive and opportunity exists to strengthen farmer participation in livestock industry services and policy dialogue through forming registered farmer’s associations. This, however, will require investment in rural leadership and association management training and initial support to establish basic IT services for farmer associations.
8.8 Effective project management with rigorous monitoring and evaluation is key to success. Although the PPMO closely traced the physical progress of the project, implementation could have been further improved if a rigorous monitoring and evaluation was conducted. Future projects must prepare detailed project implementation and monitoring and evaluation manuals, train project staff in their application and fully finance annual impact monitoring surveys, preferably through contracts with competent, independent providers.
9. Partner Comments (a) Borrower/implementing agency:
We believe the assessment of the project in the ICR reflects, in general, the actual situation of the project. We are satisfied with the ICR assessment on the achievements of project objectives, outputs, project management as well as supporting services. We appreciated very much the efforts made by all of the ICR mission members. We would like to emphasize the following aspects:
(1) The design of the project is proper, and the forecast made by the project in terms of the industrial development and the market changes is basically correct.
(2) The implementation of the livestock production component has made substantial contribution to the improvement of the income level and living standards of the farmer households in the project area, and to the creation of job opportunities for the farmers, and women in particular.
(3) The implementation of the agroprocessing component as a whole is successful. It has promoted the rural industry structure adjustment, which has added value to the crop and livestock production, resulting in a better life of the project farmers.
(b) Cofinanciers: N/A (c) Other partners (NGOs/private sector): N/A
10. Additional Information None
- 13 - Annex 1. Key Performance Indicators/Log Frame Matrix
Outcome/Impact Indicators Unit Projected in SAR Actual/Latest Actual/SAR Indicators Estimate
A. Raise Incomes and Living Standard Rural per capita income - Project county yuan 2,681 3,369 126% B. Generate employment Farm family labor utilization rate % 69 87 127% Additional farm hired labor (000 days) 566 1,843 326% Additional industrial labor - full time (000 days) 2,860 2,289 80% positions Additional industrial labor - part time (000 days) 1,120 440 39% positions C. Stimulate Enterprise Development Establishment as LLC under Co. Law No. 19 14 74% Holding 14 autonomous management rights No. 19 14 74% Profit as percentage of sales % 20 17 87% 1 D. Capacity Building Local Training per.month 7,699 7,499 97% Overseas Training per.month 164 39 24% Domestic Study Tours per.month 73 48 66% Overseas Study Tours per.month 41 24 59% National Consultants per.month 75 70 94% International consultants per.month 40 18 45% 1/ Converted based on 7 days a week and 4 weeks a month.
Output Indicators Unit Projected in SAR Actual/Latest Actual/SAR Indicators Estimate
A. Livestock Production Fresh milk 000 litre 99,000 97,947 99% Live beef cattle head 117,400 108,198 92% Live pig head 108,220 91,512 85% Live geese 000 bird 5,700 2,360 41% Breeding fox head 1,800 3,600 200% Fox skin piece 1,800 3,800 211% B. Aquaculture 8,860 5,762 65% Common Carp ton 5,740 3,422 60% Grass Carp ton 440 159 36% Silver Carp ton 1,700 1,589 93% Big-head Carp ton 980 592 60% C. Crop Processing Glucose ton 10,000 10,000 100% Bio-degradable polymers ton 6,000 6,000 100% Whole-sugar powder ton 2,800 2,333 83% Salad oil ton 940 3,394 361%
- 14 - Epoxy soybean oil ton 2,000 2,000 100% Coated corn/soybean seed ton 24,000 4,000 17% L-lactic acid ton 3,500 N/A Lysine ton 7,000 N/A D. Livestock Processing Dressed geese carcass ton 6,900 4,600 67% Geese cut parts ton 5,100 1,438 28% Chicken cut parts ton 8,800 N/A Soybean milk ton 10,000 N/A UHT fresh milk ton 6,000 55,000 917% Pig side ton 7,000 7,000 100% Pig cut parts ton 3,000 4,031 134% Meat product ton 600 798 133% Beef cut part ton 5,000 1,770 35% Cattle hide piece 30,000 30,000 100% E. Raise Incomes and Living Standard No. Households in livestock & aquaculture (000) 52.8 45.8 87% F. Stimulate Enterprise Development Enterprise incrementatl profit (y million) 274 272 99%
- 15 - Annex 2. Project Costs and Financing
The latest estimate of total project investment is about $208.8 million or 87% of the appraisal estimate including working capital. With a few exceptions, investment for all sub-projects and all components was below the appraisal estimate. This reduction in investment at ICR is mainly due to (a) drop-out or cancellation of sone sub-projects; (b) delayed completion of construction and production resulting in reduced uptake of working capital provisions; and (c) changes in the mix of livestock production investments following the withdrawal of some counties/institutions from the project; and (d) over estimation of project costs at SAR. Project expenditure on livestock production activities amounted to US$100.3 million, while expenditure on livestock support services totaled US$3.8 million, both being 14 percent below SAR budgets. The livestock information service and fox breeding programs both exceeded the SAR budget, following agreement on additional investment. The private goose-breeding program exceeded the SAR budgets, due to the rising cost of breeding stock.
Based on the current statistics, IBRD disbursements amount to $120 million or 57% of the total project costs which is 7 percentage points higher than the appraisal estimate. The Government/local banks provided funding of $19.9 million, almost 10% of the project cost, which was less than 27%, that was committed at appraisal. Though the beneficiary’s contribution as a whole (about $68.9 million) is higher than the appraisal estimate, the equity contribution from enterprises is reduced from the required 30% to only 23% on average at project completion. The World Bank financing comprised 48% of the livestock production, the remaining included 5% from the government, 2% from Rural Credit Cooperative (RCC) and 45% from farmer equity, which is 25% higher that the appraisal estimate. The lack of farmers' access to RCC credit and corresponding demand on farmer equity seriously undermined the quality of many farmers’ livestock investments. The Bank financed about 39% of the total cost for Aquaculture component with 48% contributed by farm owners. IBRD's financing is at an average of of the total cost for Agroprocessing component with only 23% from the participating enterprises far below the required minimum of 30%. The Bank's financing is at 53% of the cost for Institutional Development component while it is at 98% for the livestock support services sub-component.
Project Costs by Component (in US$ million)
Project Component Appraisal Actual/Latest Percentage of Estimates Estimate Appraisal Livestock 116.0 100.3 86 Dairy 23.8 23.0 97 Beef 61.8 51.0 82 Pig 11.7 10.5 90 Geese 17.3 13.1 76 Fox 1.3 2.6 198 Aquaculture 7.9 4.8 61 Agroprocessing 104.3 92.0 88 Crops 71.7 62.4 87 Livestock 32.6 29.6 91 Institutional Development 11.7 11.7 100 TOTAL PROJECT COSTS 239.8 208.8 87 Totals may not add up due to rounding.
- 16 - Project Cost by Procurement Arrangement (in US$ million)
1 Category Appraisal Estimate 2 3 ICB NCB Other NBF Total Works 16.6 32.3 48.9 (6.8) (18.9) (25.7) Equipment 39.2 13.4 4.8 57.4 (34.4) (10.6) (3.5) (48.5) Vehicles 3.4 0.5 3.9 (3.4) (0.4) (3.8) Livestock Inputs 44.4 44.4 (38.1) (38.1) Overseas Training and Technical Assistance 1.8 1.8 (1.8) (1.8) Domestic Training and Technical Assistance 2.1 2.1 (2.1) (2.1) 4 Miscellaneous 24.3 24.3 (0.0) (0.0) Working Capital 57.0 57.0 (0.0) (0.0) Total 42.6 30.0 85.9 81.3 239.8 (37.8) (17.4) (64.8) (0.0) (120.0) 1/ Figures in parentheses represent the amounts financed by the IBRD loan, including contingencies. 2/ Other procurement methods include force account for works, direct contracting and shopping for small equipment, livestock and materials, training and consultant services. 3/ NBF denotes non-Bank financing. 4/ Miscellaneous include $7.5 million of taxes, $1.8 million of transportation costs, $1.7 million of land acquisition and compensation and $13.3 million of other costs (management, technical transfer fee and other costs).
Project Cost by Procurement Arrangement (in US$ million)
1 Category Actual/Latest Estimate 2 3 ICB NCB Other NBF Total Works 15.6 26.2 15.6 57.4 (5.9) (15.5) (21.4) Equipment 49.8 7.4 11.6 68.8 (49.8) (7.4) (8.7) (65.9) Vehicles 2.9 2.9 (2.9) (2.9) Livestock Inputs 33.1 33.1 (28.4) (28.4) Overseas Training and Technical Assistance 0.4 0.4 (0.4) (0.4) Domestic Training and Technical Assistance 1.0 1.4 2.4 (1.0) (0.0) (1.0) 4 Miscellaneous 7.8 7.8 (0.0) (0.0) Working Capital 36.0 36.0 (0.0) (0.0)
- 17 - Total 52.7 23.0 72.3 60.8 208.8 (52.7) (13.3) (54.0) (0.0) (120.0) 1/ Figures in parentheses represent the amounts financed by the IBRD loan, including contingencies. 2/ Other procurement methods include force account for works, direct contracting and shopping for small equipment, livestock and materials, training and consultant services. 3/ NBF denotes non-Bank financing. 4/ Miscellaneous include $1.1 million of transportation costs, $1.4 million of land acquisition and compensation, $2.4 million of management fee, $2.8 million of project preparation, and $0.1 million of minor other costs.
Project Financing by Components (in US$ million)
1 Component Appraisal Estimates IBRD Prov. Gov. County Gov Local Beneficiaries Banks Livestock Production Aquaculture Agroprocessing Crop processing Livestock processing Institutional Development TOTAL PROJECT COSTS 120.0 63.8 56.0 1/ No estimate of separate financing by component was made at Appraisal. No split of contributions by provincial government, country government and local banks was made at Appraisal.
Project Financing by Components (in US$ million)
1 Component Actual/Latest Estimates IBRD Prov. Gov. County Gov Local Beneficiaries Banks Livestock Production 47.9 5.5 2.0 44.9 Aquaculture 1.9 0.6 2.3 Agroprocessing 64.0 3.7 3.1 21.2 Crop processing 46.4 1.5 1.1 13.4 Livestock processing 17.6 2.2 2.0 7.8 Institutional Development 6.2 4.2 0.8 0.5 TOTAL PROJECT COSTS 120.0 4.2 10.0 5.7 68.9 1/ Local banks include rural credit cooperatives, China Construction Bank , Industrial and Commerce Bank of China, Agriculture Bank of China.
- 18 - Annex 3. Economic Costs and Benefits The analysis presented in this ICR reassesses the EIRR calculated in the SAR using updated prices, actual project costs (all project investment costs, variable operating costs, incremental recurrent cost and production costs), and the latest information about project products and production. Economic analysis was carried out based on the information and data collected during the ICR mission. The Project costs and physical achievements were drawn from Project records, while the future production projections are based on actual performance of current operations and data from the Project. Economic prices for major traded inputs and outputs are based on relevant World Bank price projections or import and export prices actually realized by China. Economic prices for non-traded goods were estimated using conversion factors with standard conversion factor of 1. Transfer payment items mainly in the form of tax and subsidy, were eliminated.
In comparison to the SAR projections, the analysis indicates reduced EIRRs for all component, all sub-components and almost all (except Zhaoyuan goose slaughtering house) sub-projects. This is a reflection of the following factors: (a) the poor economic performance of 7 sub-projects with negative NPV; (b) lower output prices; and (c) increased input prices. Annex 3 provides the details of this analysis. Despite the general trend, the analysis results show a robust EIRR ranging between 17.4 percent for the Livestock Production component and 23.8 percent for the Aquaculture component. Overall, the Project yields an EIRR of 18.1 percent and a NPV of RMB 406.1 million yuan ($49.1 million) derived from the weighted average EIRRs and NPVs of all components at a discount rate of 12 percent over a 15-year period. Quantifiable economic benefits are derived from net value of incremental production in a “with and without” Project scenario including milk, fattened livestock (beef cattle, geese, pig), fox skin, fish and processed agricultural products. Economic flows are valued at 2003 constant prices.
Financial Analysis has been conducted using a cost and benefit analysis approach to assess the financial performance of each livestock production model, fish farm, individual enterprise, sub-component, component and the project as a whole. For consistency purposes, the analysis followed the principles observed at project appraisal i.e. (a) costs separated by investment and operating costs; (b) benefits derived from sales of outputs and products produced by the sub-projects from past years and projected values for the future; (c) full costing; (d) before income tax and debt service scenario; (e) incremental cost and benefit; (f) a 15-year time period. The initial analysis showed a significant FIRR decline for all sub-projects with the exception of the Zhaoyuan geese processing enterprise and dairy cattle farming. The FIRRs of 13 sub-projects (65% of the total) are higher than 12% with the highest at 54.3%, while the FIRRs of 3 sub-projects (15% of the total) are negative. Falls in financial returns were primarily due to (a) extended construction period and delayed production of most processing enterprises; (b) reduced sales prices for major products including fattened cattle, due to acute market competition; (c) rising production costs, including labor, raw material, animal feed and higher breeding animal prices; and (d) the overestimate of sub-project benefit and underestimate of sub-project cost at appraisal.
The FIRR for all components showed a similar declining trend. The FIRRs for livestock production component were mixed. Dairy cattle production, pig fattening and goose fattening all showed strong FIRRs, whereas the beef cattle production and fox breeding activities yielded negative FIRRs. While beef farming proved unprofitable, most farmers shifted their beef investment to a more profitable beef-dairy production system. Those beef farmers in the supply area of the new Suihua beef abattoir are offered prices sufficient to keep profitability of beef production. The fox breeding program was seriously affected by the SARS epidemic, which disrupted its feed supply and has experienced a 30 percent drop in fur price over the last 18 months. Both negative FIRR and NPV indicate that the farm will have difficulty to service its debt unless prices rise. Conversely, the satellite smallholder fox farms with 12-20 vixen remain
- 19 - profitable thanks to their lower cost structure. The FIRR for aquaculture component was strong. This is mainly because Zhaoyuan operated its fish ponds largely for tourism purposes. The agroprocessing component yielded a much reduced FIRR. The Tailai Mungbean powder sub-project failed to produce the designed product, which yielded the only negative FIRR under the agroprocessing component. The Project’s overall FIRR is estimated at 18.1 percent.
1 Cost Benefit Analysis
Economic Analysis Financial Analysis Component Appraisal Latest Estimates Appraisal Latest Estimates EIRR NPV EIRR NPV FIRR NPV FIRR NPV % Y million % Y million % Y million % Y million A. Livestock Production 30.1 599.2 17.4 166.0 31.4 597.2 20.2 264.3 1. Dairy Cattle 35.7 180.6 26.6 140.0 42.7 54.3 386.1 2. Beef Fattening 32.2 309.1 10.4 -22.2 31.8 -2.7 -175.1 3. Pig Fattening 35.9 68.2 13.6 4.4 40.6 26.6 42.3 4. Goose Fattening 49.3 110.9 77.4 115.4 64.9 39.4 56.0 5. Fox Breeding 26.6 8.0 1.1 -10.2 27.0 7.5 -4.8 -13.4 B. Aquaculture 43.9 99.5 23.8 36.5 32.9 58.1 23.7 35.9 C. Agroprocessing 36.3 1,355.2 19.2 239.8 23.8 558.2 15.8 117.2 Crop Processing 33.5 821.7 14.3 46.6 25.1 413.7 12.6 11.8 1. Zhaozhou Corn 23.8 88.3 13.5 10.4 31.6 129.1 3.9 -43.6 2. Tailai Mungbean Powder 43.7 33.2 -13.5 -8.1 27.6 12.7 -13.3 -7.6 3. Lanxi Epoxy Oil 59.9 88.8 28.1 40.1 36.0 34.0 20.2 17.4 4. Suihua Rice 47.2 190.0 25.6 62.1 5. Nehe Wheat 24.7 87.5 17.2 30.5 6. Bayan Corn 33.4 61.3 30.0 46.2 7. Lanxi Flax Seed 35.3 20.4 24.8 8.4 8. Qiqihar Sea Buckthorn 44.7 96.3 24.2 29.3 9. Shuangcheng Corn 27.8 121.1 20.7 49.5 10. Zhaodong Lysine 8.7 -34.2 14.9 32.6 11. Zhaodong L-lactic Acid 31.5 74.5 22.3 35.8 12. Suihua Soybean Milk 13.8 4.1 14.1 4.8 Livestock Processing 42.1 533.4 26.0 193.3 25.3 185.0 20.6 105.4 1. Zhaozhou Geese Processing 29.5 23.8 7.0 -4.7 20.6 8.6 8.0 -3.7 2. Zhaoyuan Geese Processing 31.9 25.8 38.8 30.7 22.3 9.8 35.3 24.1 3. Yian Geese Processing 34.7 23.7 22.8 8.7 4. Nehe Geese Processing 55.0 65.5 38.4 31.6 5. Wangkui Geese Processing 48.4 29.4 13.8 0.9 31.1 12.2 19.1 3.7 6. Bayan Geese Processing 25.0 17.9 10.8 -1.1 17.5 5.6 10.3 -1.6 7. Zhaodong Geese 27.2 18.7 9.4 -1.6 19.1 6.5 6.5 -3.2 Processing 8. Anda Dairy Processing 36.5 79.5 27.1 84.8 20.5 21.6 19.4 38.2 9. Hulan Pig Processing 53.3 106.4 35.4 72.5 36.0 52.2 28.3 41.2 10. Binxian Cattle Processing 57.6 142.8 22.9 28.1 11. Suihua Cattle Processing 30.5 72.3 23.2 38.7 Total Project 33.4 2,053.8 18.1 406.1 27.3 1,282.3 18.1 384.6 1/ Financial analysis is based on before income tax and debt service scenario. Those sub-projects with SAR projection but without ICR estimate are dropped out or cancelled during project implementation. Those sub-projects with ICR estimate but without SAR projection are new participants during project implementation.
- 20 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 01/09/95 6 AG & TTL. (1); FM (1); AP(1); S S AS (1); LS (1);AQ (1) 05/22/96 6 AG & TTL. (1); FM (1); AP(1); S S AS (1); LS (1);AQ (1)
Appraisal/Negotiation 11/7/96 6 AG & TTL. (1); FM (1); S S AP(1); AS (1); LS (1);AQ (1) 03/24/97 6 AG & TTL (1); FM (1); AS (1); S S LA(1);AP (1); AQ (1); Supervision 11/09/1997 7 AG & TTL (1); FM (1); S S AP(1); A S (1); LS (1),AQ (1); DI(1); 10/19/1998 8 TTL (1); AP (1); OP (1); AQ (1); S S AG(1); AS(1);DI(1);PR (1) 10/21/1999 6 TTL (1); AP (1); OP (1); LS (1); S S AQ(1); AG (1) 08/21/2000 5 TTL (1); AG (1); LS (1); AP (1); S S OP (1) 09/05/2001 4 TTL (1); LS (1); AP(1); FM (1) S S 08/20/2002 5 TTL (1); AP (1); LS (1); FM (1); S S AQ (1) 01/23/2003 3 TTL (1); FM (1); AP (1) S S 08/06/2003 5 TTL (1); AP (1); LS (1); FM (1); S S ER (1) ICR 09/17/2004 5 TTL & AQ (1); AP (1); LS S S (1); ER (1) ; FM(1) AG: Agriculturist AP: Agroprocessing Specialist AQ: Aquaculture Specialist AS: Animal Science ER: Enterprise Reform Specialist EN: Environment Specialist DI: Disbursement FM: Financial Management Specialist OP: Operations Officer PR: Procurement Specialist LA: Lawyer LS: Livestock Specialist TTL: Task Team Leader
(b) Staff:
Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 104.3 193.1
- 21 - Appraisal/Negotiation 138.2 241.6 Supervision 375.2 671.6 ICR 22.4 40.3 Total 640.1 1146.6
- 22 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA
Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA
- 23 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)
6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU
6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU
- 24 - Annex 7. List of Supporting Documents 1. Aide Memoir, Covering letter of the ICR mission;
2. PSRs;
3. Borrower's ICR report;
4. SAP for China Heilongjiang Agricultural Development Project (report No. 16049-CHA);
5. Economic Analysis working paper;
6. Detailed EIRR calculation.
- 25 - Additional Annex 8. Borrower's Contribution
China Heilongjiang Agriculture Development Project
IMPLEMENTATION COMPLETION REPORT (ICR)
FOR
HEILONGJIANG AGRICULTURAL DEVELOPMENT PROJECT (HADP)
Nov.15, 2004
Heilongjiang Provincial Agriculture World Bank Loan Project Management Office
- 26 - Heilongjiang is a province with abundant natural resources, especially in Songnen Plain, which is in favor of comprehensive development. However lack of financial resources had become a major constraint for such development. Therefore, the provincial government decided to use the World Bank loan to help develop its agriculture, and to raise its comprehensive production capacity. Through 7 years implementation, Heilongjiang Agricultural development Project has gained good success. This is the first and the largest agricultural project funded by foreign capital, which is innovative in many ways and covers wide areas of the province.
1. The project
HADP came into effectiveness in September 24, 1997 and completed all the construction in June 2004, taking a period of time of seven years. The project is finally implemented in 28 counties of 5 prefectures, including Harbin, Qiqihar, Daqing, Heihe and Suihua. It covers 72 project activities, falling into four components of aquaculture, livestock production, agro-processing and institutional development, including the establishment and expansion of 14 crop and livestock processing enterprises, and strengthening of 3 provincial level livestock institutional services. 46,000 individual households benefited from the household based livestock and aquaculture production. The total investment of the project is US$ 208.78 million, in which, World Bank loan is US$ 120 million.
The implementation of the project is in line with the World Bank Assistance Strategy and the government development plans. It has created employment opportunities for 46,394 farm family labors, in which, over 70% are women. The annual income per farmer is expected to reach 3,369 yuan in project areas. The accumulated production value in livestock production and aquaculture is RMB 3.32 billion yuan. Details is as follows:
1.1 Aquaculture Component is carried out in 4 counties of Bayan, Dumeng, Zhaoyuan and Shuangcheng. In total, 402 standardized fish pond were constructed, with a total area of 434.8 ha. In addition, 12,000 ha natural lake is improved through restocking 3.36 million fries. The total investment is US$ 4.8 million, in which, WB loan is US$ 1.9 million.
1.2 Livestock Production Component is implemented in 28 counties of 5 prefectures and consists of 45 activities in areas of dairy farming, beef farming, pig farming, geese farming and fox breeding. The project constructed 45, 182 household farms and trained 49,784 persons, in which, more than 80% are women, The total investment is US$ 100.3 million, in which, the World bank loan is US$ 47.9 million. The accumulated output includes 0.401 million tons of fresh milk, 464,000 heads of high quality beef cattle, 511,000 head of pig, 19.53 million heads of geese and 17,000 heads of breeding fox. The accumulated production value is RMB 3.32 billion yuan.
1.3 Institutional Development Component consists of 4 activities of Heilongjiang Livestock Information Center (HLIC), Heilongjiang Animal Breeding Center (HABC), Grassland Research Center and Supporting Services for Crops. It helped Strengthen both the
- 27 - livestock and crop service systems. The total investment of this component is US$ 11.7 million, in which, the World Bank loan is US$ 6.2 million.
1.4 Agroprocessing Component helped establish or expand of 14 agroprocessing enterprises, including eight livestock and six crop processing enterprises. The total investment is US$ 92 million, in which, World Bank loan is US$ 64million. The details are as follows:
1.41 Livestock Processing covers (i) newly build Suihua beef cattle slaughtering enterprises, with the annual slaughtering capacity of 30,000 heads and annual output of beef product of 5300 tons. (ii) newly build Hulan pig slaughtering enterprise, with the annual slaughtering capacity of 200,000 heads and annual output of meat product of 10,250 tons. (iii) improved five geese processing enterprises in Zhaozhu, Zhaoyuan, Wangkui, Bayan and Zhaodong, with the total annual slaughtering capacity of 2.5 million heads and annual output of cutting meat of 7,500 tons and 120 tons of downs. (iv) Dairy processing, mainly helped expansion of Anda milk, with the annual production capacity of UHT milk of 50,000 tons.
1.42 Crop processing include (i) newly build Zhaodong Lysine enterprise, with the annual production of feed lysine of 7,000 tons. (ii) newly build Zhaodong L-lactic enterprise, with the annual production of L-lactic of 3,500 tons. (iii) newly build Zhaozhou Maize enterprise, with the annual production of 10,000 tons of glucose and 6,000 tons of degrade resin. (iv) newly build Suihua Soybean Milk enterprise, with the annual production of 10000 tons. (v) newly build Lanxi Oil enterprise, with the annual production of 2,000 tons of Proxy Oil and 3,394 tons of soybean cooking oil. (vi) newly build Tailai Mung Bean project, with the designed processing capacity of 1,640 tons of Mung Bean and production of 1,000 tons of mung bean powder.
2. Implementation Achievements
2.1 Livestock Production and aquaculture Dairy production gained excellent result, due to favorable government policies, adjustment of agriculture industry structures and good market. Main achievements are shown in the following aspects: (a) the traditional extensive culture is replaced by intensive culture, focusing on shed culture, compound feed, improved breeding stocks and use of silage. As a result, milk production per lactating period per cow is increased from 2.5 tons before project to 5 tons, with the highest reaching 6 tons. Dairy development has promoted maize production of the province, with the area expansion from 200,000 mu in 1994 to 6 million mu, thus further promoting the use of silage in the whole province. Income and employment opportunity increase of the project farmers is obvious. In addition, project impact is also shown in the enhancement of milk quality and environment improvement. About 6,332 households as beneficiaries. (ii) Beef Cattle production is developing in a stable way. This is the activity with the largest investment under livestock production component, and is widely spread in all the project counties. About 6,361 households are benefited. Thanks to the advanced technologies, including shed design, proper number of cattle raised by each family, as well as feeding technology, this activity gained good result, in aspects of promoting the development of beef processing industry, and provision of high quality beef. The project has served as a demonstration to the surrounding areas,
- 28 - specialized beef production villages and townships appeared. A lot of technologies, such as beef fattening, silage and artificial insemination are followed by these villages and townships. Nevertheless, due to market price, which has been kept lower than the estimation at the time of appraisal, while that of the feed has been kept rising, the economic benefit of the project farmers has been lower than expected. Some of the beef farmers shifted to dairy production, which generated much higher income. (iii) Pig production has gained good result. Implementation of this activity has not only increased the number of pigs of the province, but also has helped the province improve its credit for good product quality. The project produced pigs are marketed in over 40 regions of 14 provinces of the country. The pig fattening technology introduced by the project has been widely extended throughout the province. The conversion rate of meat/feed is reduced from 1:3.5 to 1:3.3, which has greatly aroused the enthusiasm of the farmer households outside the project area. About 3,399 households have been benefited from this activity. (iv) Goose Production is expanding. Production in the project area accounts for over one eighth of the provincial production. Geese production has played an important role in promoting balanced economic development and the environment protection, as the geese manure is used as the organic manure in the crop field, which could help improve the soil structure and nutrition. About 28,632 households directly benefited from the project (in average, 100-200 geese per household), most of them are women. In addition, geese breeding farm has also benefited from the project. (v) Fox breeding farm has played an important role in provide the farmers with superior fax baby and advanced production technology, thus helped the farmers increase their income. However due to reasons such as subsidized provision of baby fox to the households, SARS, which affected its feed supply, and the price drop of the fox skin, its IRR is seriously affected. (vi) Aquaculture is quite successful, due to adoption of advanced technology, and the over-wintering technology in particular. The winter survival rate reached 75-80% at the time of project completion.
2.2 Agro-processing is completed with good quality in general. Among which, Anda milk and the five geese processing enterprises are operational. Suihua Beef and Hulan pig slaughtering have completed trial successfully and will start full operation soon. Others will either start trial production or become operational before the end of 2004. The main achievements of this component are shown in the following aspects: (i) IRR of livestock processing is 20.12% and that of crop processing is 15.8%. In which, subproject with IRRs over 20% include Zhaoyuan geese (35.3%), Suihua Beef (23.2%),Zhaodong L-lactic (22.3%), Hulan pig (28.3) and Lanxi Oil (20.2%). IRRs between 12%~20% include Anda milk (19.4%), Suihua Soybean milk (14.1), Zhaodong Lysine (14.9) and Wangkui geese (19.1); subprojects with low IRR (<12% ) include Bayan geese (10.3%), Zhaodong geese (6.5%), Zhaozhou geese (8%),Zhaozhou maize (3.9%) and Tailai mungbean(-13.3%). (ii) Introduced some nationally well known flagship enterprises, through enterprise reform, such as Yurun, Yili, Huiyuan, Caoyuanxingfa and Yaya Group etc. While introducing good enterprise managerial experience and provide financial support, these flagship enterprises also help raise the market competitiveness of the project enterprises, thus laying good foundation for their sustainable development in the future. (iii) Promotion of human resources development of the project enterprises. The project has trained large number of enterprise managers who have a strong sense of marketing, with good managerial skills and are knowledgeable at sector
- 29 - development. (iv) Enhanced awareness of environment protection. Wastewater treatment design of all the processing enterprises was reviewed by an independent panel of experts before they were approved by the local environment agencies, which stressed that production is not allowed until the wastewater treatment facilities are completed. At present, the wastewater treatment system of most enterprises are operational, with the exception of Bayan geese and Hulan pig, their wastewater treatment facilities are being installed. (v) More employment opportunities. At the time of full operation of all project enterprises, the enterprises financed by the project will generated about 9,000 full time job opportunities for the local people.
2.3 Supporting Services financed (i)Heilongjiang Animal Breeding Center (HABC). HABC received equipment for processing and storing semen, together with fine imported bulls and embryos. The project has not only help improve the technical and breeding level of the HABC itself, but also popularize the technology in the whole province. The center had used these 45 bulls and 200 frozen embryos effectively. The semen survival rate has been raised from 70% to 80% since 2001. (ii)Heilongjiang Livestock Information Center (HLIC). Through construction of information networks and provide computer networks, software and related equipment, the farmers are able to receive livestock related information in a timely manner. Through application of wireless information service, TV teletext facility, pages, mobile phones and GDLN, about 5,000 household are benefited. (iii) Grassland Science Institute has gained good success in grass research. The new grass variety, which is adapted to the local conditions were identified and the technical regulations for scientific production is worked out. This has laid a good foundation for livestock production development.
3. Main Experience and Lessons Learned
Our main experience and problems/issues are as follows:
3.1 Sound programming. (i) Proper selection of the project area. Criteria for project area selection was worked out. First, project areas are identified. They are the main grain production area with comparative advantages and Songnen plain, which is good for dairy production. Based on this, project townships are selected in accordance with the following criteria: (a) some experience in livestock and aquaculture production; (b) the farmers are enthusiastic in participating in the project; (c) contiguous; and (d) good investment environment. Selection criteria of the project households include: (a) enthusiasm in participating in the project; (b) experience in livestock and aquaculture production; (c) ready to repay and are capable for repayment. All these have ensured success of project activities and reduced the repayment risks. (ii) Quality control. Project activities are carried out by strictly following up the technical design of the project, and realized four unification of planning, design, model and standardization. Auxiliary production equipment was procured through quotation or competitive bidding, hence of high quality and cost saving.
3.2 Effective Management as well as monitoring. In order to guarantee the implementation of project with high quality and high standard, World Bank loan project leading group was set up at all levels of province, prefecture and county in all the project
- 30 - areas, which exercised project leadership and coordination for all difficult issues. Under them, project management offices were set up, responsible for day to day operation of the project based on the annual work plan formulated by the Provincial Project Management Office after full consultation with the lower level PMOs. A series of project management regulations were worked out, including "Implementation Methodologies of the World Bank Loan project", and "Management and Implementation Regulations of World Bank financed Heilongjiang Agricultural Development Loan Project", etc. "On-lending Agreements" were signed with the township government, and "Contracts" were signed with the project households. All project prefectures and townships appointed M&E staff, who carried out M&E based on the "Detailed Implementation Regulations on Monitoring and Evaluation of the World Bank financed Heilongjiang Agricultural Development project", including project implementation progress, project financing and project impact. M&E reports were submitted by them on a regular basis.
3.3 Technology advancement and training. Support services was established at five levels of provincial, prefecture, county, township and village to provide technical services by various ways, including training, broadcasting , TV lectures and in-home training. Through which, the farmer well mastered technologies such as animal fattening, feed, breeding, application of veterinary medicines and epidemic prevention, etc. Local and international consultants were invited to lecture at the training courses. In this way, technology advancement, and standardized livestock and aquaculture production were greatly promoted.
3.4 Enterprise reform. This is an important aspect of the project, which was proposed by the World Bank Task Team at the time of project preparation and appraisal. Enterprises reform was carried out in various forms, which has revitalized the enterprises financially, technically and managerially. At the time of project completion, , all the 14 enterprises have become shareholding companies, which enjoys 14 autonomous rights in managing the enterprises. The project has set up examples for all state owned enterprises of the province in enterprise reform. Modern enterprise management mechanism was formed.
3.5 Close cooperation with the Bank Team. The Bank Team has made good contribution to the project. They have helped PPMO to work out the proper design and technical package, which suits the local conditions of Heilongjiang, and are proved to be proper and effective. Good cooperation relations have been maintained between the Bank team and PPMO/provincial finance department during the whole period of project preparation and implementation. Their dedication, hard work and efficiency have impressed us all. Their recommendations made after each mission are valuable to the project entities.
3.6 Major Problems include (i) During the implementation period, the project experienced several severe natural disaster years, added by continuous market depression for some livestock products and grain, resulting in reduced scale of some project activities. (ii) Due to China’s financial system reform, all the four state owned commercial banks took Heilongjiang as high financial risk province, hence the loan amount and the loan terms was strictly controlled. This has added difficulties in mobilizing the counterpart fund for the project, and affected, to certain extent, the project implementation progress. (iii) Due to long project
- 31 - preparation, market changes occurred during project implementation, therefore adjustment of the project activities, especially with regard to the agro-processing component, was necessary. (iv) Heilongjiang is a province of less economic development. It is difficult to afford the IBRD loan, as it increased the project cost. (v) Government policy changes brought some adverse effect on the project implementation, and the agro-processing component in particular. Take the seed processing as the example. The government issued the new policy to open the seed business after the completion of the seed processing activity, which affected the economic benefit of the seed companies.
4. Sustainability
Sound project design and project completion with high quality has laid good foundation for future operation, hence sustainable, with details as follows.
4.1 Livestock and Aquaculture Component (i) favorable government policies. Government at all levels view livestock production as the major policy to revitalize the rural and local economy. They have decided to provide continuous policy support to the farmers in areas of taxation, land, grass land and infrastructure, etc. The farmers are exempted all taxes related to livestock production and aquaculture; reduced land tax for livestock production and to provide silage land to the farmers engaged in livestock production. (ii) Constant improvement of production Level through various trainings, both technical and managerial, with a view to raise the market competitiveness of the farmers. The aquaculture department has helped introduction of super fish varieties, and new aquaculture technologies, which is an important element for sustainable development of aquaculture. (iii) Good processing system. An improved and complete processing system, with major focus of dairy products, pig, beef cattle and geese slaughtering, is formed as a result of this project. This system has ensured marketing of the products produced by the farmers. (iv) Market Driven. With the improvement of people’s living standard, demand for livestock and fish products will surely be increased, hence ensured sustainable development of the livestock production and aquaculture. (v) Complete Socialized Support Service System. World Bank loan project has established support service system for the livestock and fishery production. More investment has been put by the relevant government agencies, to make it more complete, so as to satisfy the needs of the project area and the entire province.
4.2 Agro-processing Component (i) Operation and management mechanism, which meets the needs of the market economy, was established through enterprise reform under agro-processing component, which is the key element for sustainable development of the enterprises. For example, by cooperation/share holding with Yili, Anda milk has enhanced its market competitiveness; Zhaozhou geese processing is able to extend its production chain to cooked geese food by introducing more funds; Zhaodong geese has improved the equipment utilization efficiency, through chicken slaughtering in the slack season of geese slaughtering. (ii) Good market potential. All the products designed under agro-processing component have market potential, which is expected to last for a quite long period of time. For example, Lysine has very good market. Following the enterprise is put into operation, it could reduce, to large extent, China’s dependence on lysine imports. (iii) High Managerial and Technical
- 32 - Level. Sufficient attention was given to technical and managerial training during project implementation. Training efforts will continue after the project completion. (iv) Great support by the Local Government. Enterprise development under the project has brought up development of both crop production, as well as the livestock and aquaculture production, hence has become the backbone of the provincial economy. The local government has promised to continuously support the enterprise development. Take Suihua as the example, both the beef slaughtering and soybean milk enterprises have received great support from the local government. At present, Beef slaughtering has merged with Yuren Group. Soybean milk has increased milk production line, in order to improve the taste of the soybean milk. Such change has attracted attention of several dairy processing groups. They have started to contact the management of soybean milk enterprise, which is now selecting the best cooperation partner. In a word, enterprise reform will be continued after the project completion. (v) Abundant raw material resources. All the raw materials needed by the project are available locally. As a major agricultural province, raw material supply is guaranteed, hence sustainable development is ensured.
- 33 - - 34 -