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Smallholder Agribusiness Partnerships (SAP) Programme Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Main report and appendices Document Date: 1-Feb 2017 Programme No. 2000000929 Asia and the Pacific Division Programme Management Department Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Contents Currency equivalents iii Weights and measures iii Abbreviations and acronyms iv Map of the programme area v Executive Summary vii Logical Framework xiii I. Strategic context and rationale 1 A. Country and rural development context 1 B. Rationale 6 II. Programme description 10 A. Programme area and target group 10 B. Development objective and impact indicators 14 C. Outcomes/Components 14 D. Lessons learned and adherence to IFAD policies and the SECAP 22 III. Programme implementation 25 A. Approach 25 B. Organizational framework 26 C. Planning, M&E, learning and knowledge management 28 D. Financial management, procurement and governance 29 E. Supervision 32 F. Risk identification and mitigation 32 IV. Programme costs, financing, benefits and sustainability 34 A. Programme costs 34 B. Programme financing 35 C. Summary benefits and economic analysis 35 D. Sustainability 36 List of Tables Table 1: Key determinants of the financial sector Table 2: Key determinants of liquidity Table 3: Programme risks and risk mitigation measures Table 4: Programme costs by component Table 5: Programme components by year Table 6: Programme components by financiers i Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Appendices Appendix 1: Country and rural context background 39 Appendix 2: Poverty, targeting and gender 49 Appendix 3: Country performance and lessons learned 65 Appendix 4: Detailed programme description 69 Appendix 5: Institutional aspects and implementation arrangements 123 Appendix 6: Planning, M&E and learning and knowledge management 151 Appendix 7: Financial management and disbursement arrangements 157 Appendix 8: Procurement 165 Appendix 9: Programme cost and financing 169 Appendix 10: Economic and Financial Analysis 183 Appendix 11: Draft programme implementation manual 189 Appendix 12: Compliance with IFAD policies 191 Appendix 13: Contents of the Programme Life File 215 ii Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Currency equivalents Currency Unit = Sri Lankan Rupee (LKR) US$1.0 = LKR 150 Weights and measures 1 kilogram = 1000 g 1 000 kg = 2.204 lb. 1 kilometre (km) = 0.62 mile 1 metre = 1.09 yards 1 square metre = 10.76 square feet 1 acre = 0.405 hectare 1 hectare = 2.47 acres iii Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Abbreviations and acronyms 4P Public-Private-Producer Partnerships AG Auditor General AWPB/ PP Annual Work Plan and Budget/ Procurement Plan BP Business Plan CBSL Central Bank of Sri Lanka COSOP Country Strategic Opportunities Programme CRIB Credit Referene Information Bureau DA Designated Account DPM Deputy Programme Manager EDB Export Development Board EIRR Economic Internal Rate of Return FMAQ Financial Management Assessment Questionnaire FO Farmer Organization GAP Good Agricultural Practices GDP Gross Domestic Product GII Gender Inequality Index GOSL Government of Sri Lanka HNB Hatton National Bank IFAD International Fund for Agricultural Development KM Knowledge Management LBW Low Birth Weight LOC Line of Credit LPA Lead Programme Agency LTB Letter to the Borrower M&E Monitoring and Evaluation MASL Mahaweli Authority of Sri Lanka MFI Microfinance Institution MIS Management Information System MOF Ministry of Finance MONLAR Movement for Land and Agricultural Reform NADEP National Agribusiness Development Programme NGO Non-Governmental Organization NPV Net Present Value NRM Natural Resource Management NSC National Steering Committee NSVC Nutrition-Sensitive Food Value Chains PFI Participating Financial Institutions PMU Programme Management Unit RDD Regional Development Department RIMS IFAD Results and Impact Monitoring System SAP Smallholder Agribusiness Partnerships Programme SECAP IFAD's Social, Environmental and Climate Assessment Procedures SLEDP Sri Lanka Export Development Board SPENDP Smallholder Plantations Entrepreneurship Development Programme SUN Scaling Up Nutrition Movement TA Technical Assistance TOT Training of Trainers WB-ASMP World Bank Agiculture Sector Modernization Programme iv Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Map of the programme area IFAD maps v Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report vi Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report Executive Summary1 Background. IFAD’s country programme and investments in recent years have been refined and refocused in support of the national priorities, and as outlined in the Sri Lanka 2015-2020 COSOP. On the basis of the partnership experience between IFAD and the Government, in particular recent efforts to promote agribusiness and facilitate private sector and financial sector engagement through the National Agribusiness Development Programme (NADeP), the Government has requested IFAD’s support to finance a new programme towards modernization of the agricultural sector, with strengthened engagement of producer/ farmer organizations and the mobilisation of private and financial sector investment; in complement, Government has also requested IFAD support to establish a more conducive and regulatory environment for rural finance. Theory of change. The theory of change of the programme is based on a fundamental premise that a market-driven approach is needed to help smallholder farmers sustainably increase their income and improve their livelihood. This is operationalized by public sector facilitation of mutually beneficial (win- win) Public-Private-Producer Partnerships (4Ps) between smallholder farmers and private companies in response to clear market opportunities; by strategically combining public and private sector funds and advice to address smallholders’ needs in terms of access to market, technology, organization and scale, good agricultural practices, and affordable credit; and by creating a favorable policy and regulatory environment for the agribusiness and financial sector to expand outreach towards rural clients and become overall more competitive. Subsequently, the development hypothesis and theory of change is that smallholder producers, through tailored support, including for their organization, are primed to benefit (in terms of income, livelihoods, assets and social capital) as key actors in viable 4P arrangements/ models aimed at improved marketing and (quality) product enhancement to meet current market demands, and overall contributes to national agricultural competitiveness. This approach necessarily requires better organization and capacities of smallholder farmers, towards their graduation into functional producer/ farmer organizations, improving their technological and business skills, and linking them to agribusiness partners, markets and financial services. A crucial dimension of sustainability will be to formalize and strengthen these organizations, by improving their outreach, managerial capabilities, services and enhancing their market engagement. Rationale and approach. On the basis of Government’s request for IFAD assistance, the SAP programme would serve as a key IFAD and Government instrument to achieve priorities under the national policy framework and in the evolving rural (business) and institutional environment. Vis-à-vis the inclusion of, and benefits to smallholder producers, the justification for the programme lies with the following: (i) it is responsive and aligns itself to the rural development agenda and priorities – i.e. enhancing agricultural/ rural sector competitiveness for inclusive growth; (ii) the institutional environment is increasingly supportive and conducive towards establishing and scaling-up of public- private-producer partnerships (4Ps); (iii) the programme is primed to capture existing and emerging market (and business) opportunities, further demonstrated by the private sector's growing interest in 4Ps – including leveraging and mobilizing financial investment; (iv) the results and lessons learned from NADeP can be applied to make the 4P model more effective and beneficial to the rural poor/ target group; and (v) the programme represents a major opportunity to promote dialogue amongst national stakeholders around the policy environment for smallholder-sourced agribusiness. 1 Detailed and completion design mission composition: Hubert Boirard, Country Programme Manager; Marco Camagni, Lead Advisor, PTA; Tamara Lampe, Team leader and institutional specialist; Patrick Nugawela, Value chain specialist; Alok Kumar, Rural finance specialist; Michael Marx, Rural finance specialist;l Erkan Özçelik, Economist; Beatrice Gerli, Gender and targeting specialist, PTA; Ed Heinemann, Policy specialist, PTA; Roberto Longo, FO specialist, PTA; Virginia Cameron, Finance officer, FMD; Juliane Friedrich, Nutrition specialist, PMD; Pahan Prasada, Environment and NRM specialist; Bodhi Wanniarchchi, M&E specialist; and the NADeP PMU. vii Sri Lanka Smallholder Agribusiness Partnerships (SAP) Programme Final project design report The overarching principles that frame and govern management and coordination of the SAP programme are the following: (i) alignment with, and support for Government
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