People's Republic of Bangladesh Preparatory Survey for Food Value
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People’s Republic of Bangladesh Ministry of Industries (MoInd) Bangladesh Infrastructure Finance Fund Limited (BIFFL) People’s Republic of Bangladesh Preparatory Survey for Food Value Chain Improvement Project Final Report January 2021 JAPAN INTERNATIONAL COOPERATION AGENCY JAPAN ECONOMIC RESEARCH INSTITUTE INC. KAIHATSU MANAGEMENT CONSULTING, INC. 4 R JR ( P ) 21- 002 EXCHANGE RATE USD 1 = JPY 109.56 = BDT 84.9 BDT 1 = JPY 1.29 As of the end of November, 2019 Executive Summary 1. Objective of the Survey This Preparatory Survey (the Survey) aims to formulate detailed Yen Loan Project (the Project) plan for Improvement of food value chain through provision of concessional loan and technical assistance programs. 2. Outline of the Project The proposed outline of the Project is described as follows. Project Name Food Value Chain Improvement Project in People’s Republic of Bangladesh Background and Rationale of the Project In Bangladesh, processed food domestic market has been growing fast in accordance with recent GDP growth and the increase of middle income group. However, while Bangladeshi food processing industry has huge growth potential, it has also challenges such as high post-harvest losses, low added value, insufficient quality and food safety management system, which impede the country from fully take advantage of market opportunities. In addition to the above challenges, financial issues should be also addressed. According to the interviews with food processing companies in the Survey, although almost all companies have 1 capital investment plans, high loan interest rate tends to discourage their actual investment . Objective of the Project The objective of the Project is to improve credit access for agribusiness and food processing industries and to enhance their capacity in business development, food processing, and food safety by providing concessional financing through Two-Step Loan (TSL) and technical assistance, thereby contributing to the improvement of food value chain in Bangladesh. Project Components (1) TSL for Agribusiness and Food Processing Industries 1) Proposed Fund Flow 1 As of November 2019, loan interest ranges from 12 to 15% in private commercial bank. Regarding interest rate, please refer to Bangladesh Bank website (https://www.bb.org.bd/fnansys/interestlending.php). i The proposed fund flow of the Project is illustrated in the following figure. Source: The Survey Team As illustrated in the figure above, after converted to Bangladesh Taka (BDT), the Project’s TSL fund is on-lent with 2.0% interest rate to Bangladesh Infrastructure Finance Fund Limited (BIFFL) as Implementing Agency which provide On-Lending Loans to end-borrowers with 2 interest rate up to 6.0% per annum . 2) Terms and Conditions of On-Lending Loan The eligibility and conditions of On-Lending Loans are proposed as follows: Legal eligibility of Legal entity established in Bangladesh which belongs to one of the following 3 end-borrowers categories: (i)Public limited company; (ii)Private limited company; (iii)Private proprietor; (iv)Partnership and (v)Cooperative Eligible purpose (i) Long term capital investment in agribusiness and food processing 4 industries (only for new equipment, machinery and production line) (ii) Technical know-how such as necessary expense for obtaining accreditation related to food safety and food processing including ISO, HACCP and halal certification On-Lending currency Bangladesh Taka (BDT) Loan amount Maximum loan amount is BDT 500 million for one end-borrower Loan term Two to ten years (including grace period up to two years) 5 Interest rate Maximum interest rate is set at 6% per annum 2 As a result of the consultation during the JICA’s appraisal, the ceiling on the interest rate could be changed to 5.0% per annum as per the MoInd’s request on condition of the MOF’s written communication to MoInd explaining such a lower interest rate should function properly. 3 Please refer to 5.2.2 for the definitions of the legal eligibilities. 4 The eligible sub-sectors are: food processing industries (including fruit, vegetable, spice, rice, wheat, bean, and edible oil); seed manufacturing; organic fertilizer manufacturing; warehouse/ logistics; wholesale; transportation and retail industries. 5 As previously stated, the ceiling on the interest rate could be set at 5.0% per annum. ii Maturity The maturity and collateral will be determined by BIFFL in compliance with and collateral the rules and regulations prevailing in Bangladesh. Source: The Survey Team (2) Technical Support and Capacity Building (Consulting Service) 1) Consulting Service for Implementing Agency (BIFFL) TSL project management Sector analysis for agribusiness and food processing industries TSL project monitoring 2) Consulting Service for Agribusiness and Food Processing Industries Strengthening of management and financial capacity Improvement of food processing technology Improvement of food safety Study trip to other country and marketing support such as exhibition in overseas Organization for Project Implementation The project implementation structure is proposed as follows: Source: The Survey Team iii Project Cost Estimation (1) Funding Needs by Agribusiness and Food Processing Industries The investment needs and funding needs by the targeted agribusiness and food processing industries are shown in the following table. (Unit: million USD) Investment needs Funding needs Business Replace- Small / Total Large Medium Total Expansion ment micro Mango processing 27.3 40.6 67.8 43.2 18.3 0.3 61.8 Tomato processing 0.9 1.8 2.7 1.7 0.7 0.0 2.4 Potato processing 28.9 25.2 54.1 34.5 14.6 0.3 49.3 Spice processing 22.1 45.3 67.4 42.9 18.2 0.3 61.4 Wheat processing 8.1 5.8 14.0 1.4 0.7 2.5 4.6 Edible oil production 9.9 15.7 25.6 3.7 0.3 4.0 8.0 Organic fertilizer 5.9 2.4 8.3 0.0 4.7 0.5 5.2 production Cold storage facilities 95.6 554.3 649.9 0 16.5 0.0 16.5 Freezing, refrigerated 43.1 47.5 90.6 90.6 0.0 0.0 90.6 and insulated vans Retail industries 23.6 30.7 54.4 13.4 0.6 8.0 22.0 Total 265.4 769.3 1,034.6 231.4 74.7 15.9 321.9 Source: Estimate of the Survey Team (2) Project Cost This section is not available for disclosure. Implementation Schedule of the Project The implementation schedule of the Project is proposed as in the following table. Pledge March 2020 Loan Agreement August 2020 Effectuation of the L/A October 2020 Selection of Consultant for PIU October 2020 to November 2021 Consulting Services for PIU November 2021 to November 2026 Provision of Funds to end-borrowers November 2021 to November 2026 Project completion date November 2026 Source: The Survey Team iv 3. Environmental and Social Consideration Sub-project Selection Standards All the factories operating in Bangladesh has to acquire Environmental Clearance Certificate (ECC). ECC is categorized in Green, Orange-A, Orange-B and Red, and food processing industries as the main target sector of the Project belong to Orange-B and JICA Category B. In addition, other target sectors of the Project have been confirmed as not belonging to Red or JICA Category A. The Sub-project selection standards in Environmental and Social Consideration is proposed as: 1) Exclusion from the Red category of ECR and JICA Category A; 2) Exclusion for sectors listed on the Bangladesh Bank’s exclusion lists of Guidelines on Environmental & Social Risk Management for Banks and Financial Institutions in Bangladesh (ESRM) and BIFFL’s Environmental and Social Management System (ESMS); and 3) Having valid ECC, factory licenses, and fire licenses. Strengthening Environmental and Social Monitoring Framework BIFFL has appropriate capacity for environmental and social consideration as it has extensive project experiences with international donors such as ADB and JICA and has unique ESMS called Environmental and Social Monitoring Framework (ESMF). On the other hand, the above BIFFL’s ESMF has not incorporated check system for assuring food safety which is critical for improving food value chain in the Project. In addition, BIFFL does not have enough expertise on Environmental and Social Due Diligence (ESDD) in food processing sector. In this regard, BIFFL needs to use ESDD checklist that covers food safety 6 items tailored for the Project as well as to receive training on food safety. 6 Such checklist has been prepared by the support from the Survey Team. v Table of Contents 1. Overview of the Survey ....................................................................................................................... 1 1.1. Background................................................................................................................................... 1 1.2. Objective of the Survey ................................................................................................................ 2 2. Outline of Policy and Government Institutions Related to Agribusiness and Food Processing Industries in Bangladesh ......................................................................................................................... 3 2.1. Outline of National Policy and Policy related to Agribusiness and Food Processing Industries . 3 2.1.1. Perspective Plan of Bangladesh 2010-2021 ........................................................................... 3 2.1.2. Seventh Five Year Plan, (FY2016-FY2020) .......................................................................... 4 2.1.3. Industry Policy 2016 .............................................................................................................