PROJECT EVALUATION

People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

September 2006

Via del Serafico 107 - 00142 Rome, Italy Tel: +39 06 54592048 - Fax: +39 06 54593048 E-mail: [email protected] Web: www.ifad.org/evaluation Document of the International Fund for Agricultural Development

People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

September 2006 Report No. 1785-CN Photo on cover page: People’s Republic of China Farmers dispossessed by the creation of reservoirs have been trained in fish farming as an alternative means of livelihood. Photo by Roger Norman People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project Loan No. 451-CH

Completion Evaluation

Table of Contents

Exchange Rate iii Weights and Measures iii Abbreviations and Acronyms iii Map v Agreement at Completion Point vii Executive Summary xi

I. INTRODUCTION 1 A. Background of the Evaluation 1 B. Approach and Methodology 2

II. MAIN DESIGN FEATURES 2 A. Project Rationale and Strategy 3 B. Project Area and Target Group 3 C. Goals, Objectives and Components 4 D. Implementation Partners and Arrangements 5 E. Major Changes in Policy and Institutions during Implementation 5 F. Design Changes during Implementation 6

III. SUMMARY IMPLEMENTATION RESULTS 6

IV. PERFORMANCE OF THE PROJECT 10 A. Relevance of Objectives 10 B. Effectiveness 11 C. Efficiency 12

V. IMPACT ON RURAL POVERTY 14 A. Impact on Physical and Financial Assets 14 B. Impact on Human Assets 16 C. Impact on Social Capital 17 D. Impact on Food Security 17 E. Impact on the Environment and Communal Resource Base 19 F. Impact on Institutions, Policies and the Regulatory Framework 20 G. Impacts on Gender 20 H. Sustainability 22 I. Innovation and Replication 23 J. Overall Impact Assessment 24 VI. PERFORMANCE OF PARTNERS 24 A. Performance of IFAD 24 B. Performance of the Cooperating Institution 24 C. Performance of the Government and its Agencies 25 D. Performance of Non-Governmental and Community Based-Organizations 25 E. Performance of the Cofinancier 26

VII. OVERALL ASSESSMENT AND CONCLUSIONS 26

VIII. RECOMMENDATIONS 27 A. Strategic Issues 27 B. Agricultural Development 28 C. Environmental Issues 28 D. Women’s Development 28 E. Credit Operations 29 F. Management Issues 29

TABLES

1. Investment by Component 5 2. Principal Physical Achievements 7 3. Summary of Loan Details during Project Cycle 9 4. Estimated Number of Beneficiary Households by Component 14 5. Percentage Increases in Per Capita Income and Grain Availability by County, 1997-2003 15 6. Movements between Poverty Categories 18 7. Women’s Share of Loans 21 8. Project Performance and Impact Ratings 27

APPENDICES

1. Implementation Results (tables) 31 2. Credit Management under the SWAIADP 37 3. Agricultural Extension Services in the Project Area 43

ii Exchange Rate

Local Currency = Yuan (Y) USD 1.00 = Y8.2 (July 2005) Yuan = USD 0.12 (July 2005)

Weights and Measures

1 hectare = 15 mu 1 mu = 0.066 ha 1 kg = 2 jin 1 jin = 0.5 kg

Abbreviations and Acronyms

ABC Agricultural Bank of China ACWF All-China Women’s Federation AWPB Annual Work Plan and Budget GDP Gross Domestic Product FCSU Finance and Credit Support Unit IFI International Financial Institution IGA Income Generating Activity LGOPA State Council Leading Group Office for Poverty Alleviation and Development M&E Monitoring and Evaluation MOA Ministry of Agriculture MOF Ministry of Finance PCR Project Completion Report PBC People’s Bank of China NRDC National Development and Reform Commission PLG Project Leading Group PMO Project Management Office PRA Participatory Rural Appraisal RCC Rural Credit Cooperative RCF Revolving Credit Fund SAR Staff Appraisal Report SOCB State-Owned Commercial Bank SWAIADP Southwest Anhui Integrated Agricultural Development Project TVEs Township and Village Enterprises UNOPS United Nations Office for Project Services VDP Village Development Plan VIG Village Implementation Group WFP World Food Programme

iii iv v vi People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

Agreement at Completion Point

I. INTRODUCTION

1. The Southwest Anhui Integrated Agricultural Development Project (SWAIADP) co-funded by the Government of China, the International Fund for Agricultural Development (IFAD) and World Food Programme (WFP), was implemented between December 1997 and June 2004 and aimed at reducing the chronic food shortages among half a million people living in the poorest mountainous areas of Anhui province. IFAD’s Office of Evaluation (OE) undertook an evaluation of SWAIADP between May and September 2005, with fieldwork conducted between 23 June and 15 July 2005.

2. For this completion evaluation a Core Learning Partnership (CLP) was set up, consisting of the people and institutions that would have a stake in the recommendations of the evaluation and/or responsibilities and decisional power to implement them. This CLP has provided overall guidance to the evaluation team at different stages. In particular, it was invited to review and comment on the proposed evaluation process and methodology, participate in key discussions, as well as review and comment on various outputs from the evaluation such as the approach paper and draft evaluation report. The CLP consisted of representatives of the Ministry of Finance, the Anhui province Commission of Agriculture, the Project Management Offices (PMO) of Jinzhai, Huoshan, Yuexi, Qianshan, Taihu counties, WFP, UNOPS, and IFAD’s Division for Asia and the Pacific.

3. This Agreement at Completion Point is the final step in the evaluation process, and defines the main findings and recommendations drawn from the evaluation, agreed upon by the Ministry of Finance, the Commission of Agriculture of Anhui province and IFAD’s Division for Asia and the Pacific. OE has facilitated the process leading up to the conclusion of this agreement.

II. MAIN EVALUATION FINDINGS

4. The SWAIADP was a successful project: well-designed, well-managed and effectively implemented. It has been of great benefit to the project area as a whole, and to the vast majority of the households living within it. The keys to its success were the commitment and efficiency of government departments at all levels, and the very good lines of communication, official and unofficial, combined with true partnerships and a strong sense of ownership by all, including the beneficiaries. Moreover, the design of SWAIADP was highly relevant, partly because the idea for the project and its chief elements were home-grown and also because the formulation was carried out largely by local consultants with a close understanding of how things function at the various levels of the administration.

A. Strategic Issues

5. Reaching the poor. The project targeted the rural poor geographically, as it was carried out in the 34 poorest townships of the five poorest counties of Anhui province. Project assistance, particularly credit, was not directed towards the poorest households in the first place. Instead, an approach was used where active, progressive, and often better-off farmers were directly involved in project activities to serve as models for poorer households. Because this approach was used in a relatively homogeneous area as far as poverty is concerned, with relatively few inequalities between households, also because the poorer households were consulted for the preparation of the Village

vii Development Plans through Participatory Rural Appraisal techniques, and, finally, because measures were put into place to ensure that poorer households had access to project services (food-for-training, collateral-free loans…) the SWAIADP was gradually capable of reaching the poorer households.

6. Learning and replication. IFAD’s initiative in attempting to mainstream loan funds through the existing network of Rural Credit Cooperatives (RCC), instead of utilizing government bureaus, has been a significant contribution to the development and sustainability of the rural finance sector in China, clearly recognized by the Ministry of Finance as well as the provincial finance bureaus. While the PMOs bore the credit risk and kept a final say in the approval of loans, the RCCs in the project area have enhanced their loan management capacity and enlarged the scope of their activities to include the delivery of a microfinance service to poor households. Later IFAD-funded projects such as the ongoing Rural Finance Programme have learned from the SWAIADP experience, putting even more emphasis on strengthening RCC capacities and enabling RCCs to independently provide microfinance services under a poverty reduction programme.

B. Operational Issues

7. Market risks. In some townships there are indications that market saturation of raw silk and tea may pose a risk to the economic sustainability of project interventions. The Government is aware of this risk, and has prepared certain measures to safeguard the cultivators. Some townships are planning to re-direct the focus of loans away from these two commodities.

8. Agricultural extension. With the increasing cultivation of various new cash crops in the project area and the need for continued diversification, greater resources and capacities are required for extension services. The approach to extension has also been changing rapidly to reflect the needs and priorities of farmers operating within a market economy.

9. Training for women. Training programmes for women were popular and well-attended, but more can be done to design courses to suit the specific needs of women. A lot of emphasis was put on traditional literacy training, substituting, in part, the existing government-supported programme, while functional literacy and skills training received less attention. The manuals used for skills and technical training consist of too much text and not enough illustration. Credit training was found useful, but most women had no previous experience with banks and bank loans and some were puzzled by interest rates and repayment planning. Healthcare training was also appreciated, but doctors do not always make good teachers. In general, class sizes were large, and included people of very different levels of education and teaching requirements.

10. Loan recovery. At present, the loan recovery rate in actual credit operations of the RCCs is relatively lower than expected at appraisal. PMOs claim the recovery rate will gradually improve over the coming years, as defaulters are expected to repay their loans in due course. However, it appears that the only available sanction for defaulters today is the refusal of further loans.

11. Forest management. Farmers with permits to fell trees from their wood lots often select those trees with round and straight trunks to harvest for sale first. The mission findings suggest that harvesting at a later stage could reap higher prices and benefits to the farmers, subject to market conditions.

C. Management Issues

12. Baseline survey. The baseline survey seemed over-complicated given the ample statistics available from the State Bureau of Statistics, including surveys of all the poorest households collected at the village level. The questionnaire for the baseline survey ran to many pages and included superfluous data. At the same time, and perhaps as a corollary of this, the sample of households included in the survey had to be kept too small to be representative.

viii 13. Approval of the Annual Work Plans and Budget (AWPB). To be approved, the AWPB passed through three levels of aggregation and approval before entering the donor approval process involving IFAD, WFP and UNOPS. This made for a lengthy and cumbersome procedure, with IFAD’s approval sometimes taking up to one month. On one occasion the provincial PMO found it necessary to start implementation before approval was received.

14. Monitoring and evaluation. While the prescribed reporting procedures were carefully followed for monitoring project activities, the analysis of impact during project monitoring and evaluation appeared inadequate. Data on the incidence of disease was collected during check-ups by the township health workers, but was not effectively utilised.

15. Translation. Donor-funded projects require an ever increasing amount of documentation and reporting in English. The series of missions, observers and workshops also require interpretation and translation services. SWAIADP placed this burden – without perhaps being aware of its full extent – on the provincial level M&E officer, who had her own considerable portfolio to manage.

III. RECOMMENDATIONS

A. Strategic Issues

16. Reaching the poorest. If the “model farmer” approach is applied, measures need to be put in place to ensure that the process of dissemination is encouraged and continued. Therefore, the following recommendations are given: (i) priority should be given by the RRCs and Village Implementation Groups (VIGs) to smaller “pro-poor” loans, especially those intended for the replication of successful low-cost, labour-intensive production models; (ii) visits to such successful models should be organized for the poorer households by the township PMOs, and the farmers having successfully adopted such models should be stimulated to share their experience at meetings and trainings organized for the poorer households by the township PMOs through the VIGs; (iii) VIGs should try to understand what prevents certain poor households from borrowing and search for solutions; and (iv) further capacity building in bottom-up participatory approaches for planning at the village level and targeting of the poor should be envisaged. Exchanges on how to better reach the poor between VIGs and the RCC of a township, as well as between RCCs of different townships, could be beneficial.

17. Learning and replication. In view of the great efforts made by the provincial authorities and the valuable experience they have gained in planning and implementing IFAD-funded activities, continuing contact between the Fund and the province is highly desirable and elements of this project should be replicated elsewhere. Support to pilot schemes for the latest generation of microfinance approaches and/or the proposed Village Development Funds, in which planning and management of schemes are devolved to village level, would be suitable ways of continuing IFAD’s interest in Anhui province. It is also desirable that the Anhui provincial authorities, with the assistance of the IFAD Liaison Office, actively encourage workshops and study tours in the project area in order to disseminate the project’s achievements. On the other hand, Anhui province could also benefit from learning, in particular from the later generation of IFAD projects that support the development of sustainable microfinance services in the rural areas of China. In those projects, RCCs are supported to develop their capacity for microfinance and to operate in an autonomous way in collaboration with a poverty reduction programme.

B. Operational Issues

18. Market risks. The diversification of income does not consist of a single, irreversible measure, but must be seen as an ongoing process sensitive to market needs and changes and requiring further support. This support, provided by county and township agricultural departments, should include appropriate training programmes for agricultural extension officers and ready access to market information for producers. Continuing efforts should also be made by the provincial agricultural

ix commission to introduce better quality crop and animal varieties, especially varieties indigenous to other regions of China.

19. Agricultural extension. The substance of agricultural extension, in terms of training and services, should be expanded to include broader concepts, such as regular communication between farmers, the need for ‘informal’ agricultural education, and the challenges posed by a market economy. This process should be promoted and guided by the Anhui province’s Agricultural Commission. An increase in resources (in terms of both human resources and funding) will be required to enable the extension services to meet the new challenges.

20. Training for women. The All-China Women’s Federation should be involved to help assess women’s needs and organize small-scale training programmes. The traditional literacy training provided by the project should be replaced by functional training, and its content focused on women’s needs. The training programme should be complemented by technical and household skills training as well as courses on loan management. As for all training activities, appropriate content and training methodology should be developed to suit different types of trainees. More illustration, a less densely- presented text and a larger font would assist the illiterate and semi-literate. Training courses need also to be more frequent and shorter and classes need to be smaller. To improve the quality of the training courses, the instructors should be trained in adult pedagogy and participatory training methodology.

21. Loan recovery. The aim of reaching close to 100% loan recovery by the RCCs should be re- emphasised. How it can be achieved requires analysis and discussion at the county and township levels. The provincial PMO could engage in consultations with RCCs. Workshops, staff training and a review of current operational procedures could be considered as proven tools to address this issue with success.

22. Forest management. The provincial Forestry Department is encouraged to continue their good work while exploring the potential to support the development of high quality woodlots of farmers, for example through appropriate training and systematic dissemination of information in wood marketing, where appropriate.

C. Management Issues

23. Baseline survey. For comparable IFAD projects in the future, the baseline questionnaire should be reduced in length and simplified to the essential, while the size of the sample should be increased in order to make the baseline survey more representative. Key ‘qualitative’ impact indicators should be included in the survey.

24. Approval of AWPB. Simultaneous submission of the AWPB to all administrative levels in China and the donors would make a more participatory discussion possible and accelerate the process of approval.

25. Monitoring and evaluation. In project monitoring, more attention should be given to analysing collected data, so as to enable a better understanding of ongoing development processes and a more qualitative evaluation of project performance in terms of impact on poverty. For example, after each medical check-up, the township healthcare workers should summarize the results and submit them to the township PMOs. With the technical support of township hospitals, the PMOs could then analyse the incidence of diseases in each village, investigate the causes of high rates of disease in particular villages and tailor the healthcare training in the villages accordingly.

26. Translation. Future IFAD-funded projects should stipulate the recruitment of a dedicated translator/interpreter.

x People’s Republic of China

Southwest Anhui Integrated Agricultural Project

Completion Evaluation

Executive Summary1

Introduction

1. The completion evaluation mission is conceived as an independent yet consultative exercise and designed as a service to the Southwest Anhui Integrated Agricultural Project (SWAIADP) as well as to IFAD’s ongoing and future operations in China. The evaluation also served the purpose of accountability of IFAD to its governing bodies. The Mission visited China from 23 June to 15 July 2005.

2. Methodologies utilised included field-level questionnaires, focus group discussions, interviews with key informants and direct observation of some 25 project sites. The evaluation adopted the prescribed framework of the IFAD Office of Evaluation.

3. SWAIADP was the thirteenth of seventeen IFAD projects in China, all of which have concentrated on agricultural development or rural credit or both. Six of these, including SWAIADP, have been co-funded by the World Food Programme (WFP). Total IFAD investment in China has now reached USD 400 million. The main thrusts of IFAD’s Strategic Framework in the country are equitable access to natural resources, finances and markets, and the strengthening of grassroots institutions.

4. China has experienced a spectacular expansion of its economy in the 25 years since the initiation of market liberalisation and land reforms, during which time the average annual growth in GDP was nearly 10%. This has been achieved against radical structural shifts: from central planning to a market economy, from agriculture to manufacturing and services, from a closed to a globally integrated system.

5. SWAIADP was a USD 56 million project, financed by an IFAD loan of USD 26 million, counterpart funding of USD 22 million, local contributions valued at USD 5 million, and WFP food- for-training equivalent to USD 3 million. The bulk of the IFAD loan (68%) was directed to the provision of micro- credit. The project was declared effective in December 1997 and closed on 30 June 2004 after an extension of one year. Supervision and loan administration were carried out by UNOPS.

6. The main goal of the project was to reduce the chronic food shortages among half-a-million people - 123 400 households - living in the 34 poorest townships of the five poorest counties in the mountainous area of southwest Anhui province. An estimated 80% of households were categorised as poor or very poor at appraisal.

7. The project was implemented through seven components:

. infrastructure (27% of base cost) – irrigation, roads, drinking water and flood control;

1 The completion evaluation mission was composed of: Mr Roger Norman, team leader; Mr Pham Quang Hoa, agriculturalist; Mr Yusaf Mahmood, management and institutions specialist; Ms Han Zheng, gender and targeting specialist. Mr Flemming Nichols, then OE Evaluation Officer, was overall responsible for this evaluation and joined the mission in its final week in the field.

xi . food crops (25%), development of arable land; . tree crops (26%), tea, mulberry, bamboo, chestnut; . livestock and fisheries (9%), . women’s development (4%), training in literacy, health care and agricultural techniques; . social support (4%) and . institutional support (5%).

The provision of micro credit for poor households constituted the main instrument for implementation.

8. The Anhui Department of Agriculture was the chief implementing agency, under the control of the Ministry of Agriculture in Beijing. Project Management Offices (PMOs) were established at the level of Province, Prefecture, County and Township, assisted by the relevant technical departments. The management and delivery of credit funds was to be handled by the existing Rural Credit Cooperatives (RCCs) at township level, the first instance in China of this innovative approach. A new institution, the Village Implementation Group (VIG), was created to promote and supervise village- level activities.

Implementation

9. The overall level of financial achievement at project closure stood at over 90%, with the outstanding 10% largely accountable to a faulty estimate of likely exchange rate fluctuations. In terms of physical achievements, around 16 000 ha of land was improved or put under new or rehabilitated cultivation, 320 km of roads were built or upgraded, 1 500 gravity tanks and wells were constructed for drinking water, 122 km of irrigation canals, 870 irrigation ponds and over 200 km of flood protection barriers were built, all of which matched or exceeded the physical targets planned at appraisal.

10. Credit management was handled jointly by PMOs and RCCs, with the PMOs normally bearing the credit risk and having the final say in loan approval. This arrangement was accepted by the People’s Bank of China, which regulates cooperatives, and by the supervision missions. Nearly 100 000 households received credit under the project, or around 77% of all households in the project area. The largest proportion (46%) of the total loan amount was utilised for the cultivation of “economic trees”, followed by short-term seasonal credit (25%). Overall recovery rates stand at around 85%.

11. Training programmes had a budget of nearly USD 2.5 million and included literacy and healthcare training specifically for women, technical training for farmers for the new crops, and loan management training for all households accessing loans. Some of the training materials and methods were found to be inappropriate for the illiterate and semi-literate. The WFP food-for-training acted as an effective incentive for attendance at the training sessions.

Relevance, Effectiveness and Efficiency

12. Project objectives were relevant to the causes of poverty in the project area, namely a shortage of cultivable land, low yields, lack of infrastructure, limited access to markets and poor levels of education, literacy and health, especially among women. SWAIADP was a ‘home-grown’ project, first proposed by the Anhui Department of Agriculture and formulated largely by local consultants. However, the county PMOs argued with some cogency that the ‘menu’ and extent of new crops might more usefully have been left to them.

13. Overall, SWAIADP was a highly effective and successful project in that it met or exceeded the planned targets. Supervision missions expressed reservations, however, regarding the targeting of the poorest and the effectiveness of the M&E system in capturing the impact of the project in this respect. The response of the PMOs was that in an area where virtually all households were poor, the example

xii of more active and resourceful households would have the desired multiplicative effect. By project completion, 91% of targeted households had received loans, which appears to legitimise the PMO approach.

14. The prescribed monitoring and reporting systems were scrupulously followed but the Project Completion Report acknowledged some weaknesses: too much emphasis on quantitative data collection at the expense of data analysis, and difficulty in applying the results of M&E to the modification of village development plans, which accorded with the present Mission’s verdict that there was a lack of qualitative impact monitoring and analysis.

15. The investment cost per beneficiary household was relatively low, at around USD 400, and the expected ERR, at 34.2% comfortably exceeds the appraisal figure of 22.6%. Management costs were far lower than comparable projects, a mere 2.8% of project expenditure. The major recurrent costs including salaries and transportation, as well as the provision and maintenance of buildings and offices, were met from existing government budgets. The commendable decision to maintain previous levels of government support in the project area meant that the operation of the SWAIADP constituted a genuine addition, rather than a partial replacement.

16. Some ‘collective’ schemes were implemented, in which the planning and some of the inputs were provided by the implementing agencies. Plots are managed individually and the loans made to individual households, but the overall execution of the schemes was managed by officials. Instead of the mosaic of small plots with a variety of crops envisaged at appraisal, larger areas of monoculture have been established. The system was commended by UNOPS consultants and the Evaluation Mission was impressed by the efficient utilisation of scarce land resources.

17. Loan defaults of 15% indicate an area for concern. At appraisal, it was suggested that 80% recovery would be an acceptable rate initially but would be expected ultimately to rise to 98.5%, with the remaining 1.5% covered by the risk fund. The PMOs claim the recovery rate will gradually improve, but the only available sanction is the refusal of further loans.

Impact

18. The signs of increased prosperity were apparent everywhere: well-maintained metalled roads, renovated two-storey houses, well-stocked shops and markets. Rice, soybean, maize, mulberry, tea and chestnut plantations, wherever located, look uniformly healthy and productive. The total number of households reached by all activities represents 92% of households in the project area, comfortably exceeding the appraisal target. Nearly 5 000 ha of poor and unusable land has been improved by levelling, soil replacement and drainage, with areas of waste land transformed into highly productive orchards.

19. Per capita income and grain availability have been the main impact indicators utilised by the project. The average increases by county were 36.8% for income and 13.3% for grain availability between 1997 and 2003. From one mu2 of tea, a household can generate an income of Y 2 000 p.a., and from one mu of mulberry Y 10 000 from four annual silkworm harvests. Chestnuts were a successful option for households with a shortage of labour capacity, since the trees need only minimal tending.

20. Determining the extent of food insecurity is hampered by the lack of recent official records, which were abandoned as food became freely available at markets. Income and grain availability figures deal in overall averages, which might increase due to large gains made by the better-off. Much emphasis has therefore been placed by supervision missions on reporting the ‘graduation’ of households in terms of the three categories of poverty. According to PCR figures, the percentage of

2 There are 15 mu to a hectare.

xiii households in the ‘poorest’ category has fallen from 15.1% in 1997 to 2.6% in 2003, while that of the better-off households has risen with increasing rapidity.

21. Overall grain availability rose from 135 kg per person per year to 281 kg during project life according to PCR figures, 280 kg being the approximate yearly requirement in China for an adult with an average workload. There is of course inequality in terms of food availability, but no household met by the Mission, even the poorest, was unable to afford daily meals. Further, household diets were richer in protein and fresh vegetables.

22. SWAIADP loans were the first experience of borrowing for the majority of households. Project officials stated that their greatest problem in the early days was the suspicion and hostility among all but the most progressive households to the notion of borrowing. In all villages visited by the Mission, project-funded loans were found to be familiar and sought after, and the disciplines of loan management and repayment had become part of everyday life.

23. Particular importance was given to women signing for loans for mulberry cultivation, silkworm raising, animal husbandry, primary tea processing and other IGAs. This may not have been an appropriate emphasis in the case of southwest Anhui. Questions on this subject provoked an emphatic response from men and women alike: it was immaterial who signed the loan. Many loans signed by husbands were in fact utilised by women.

24. Rural Credit Cooperatives have benefited from the project credit operation, mostly without risk to themselves. Their deposits have increased, their clientele base has been broadened and their capacities in terms of loan approval and recovery have been enhanced. They are now aware of the potential of small loans made to poor people, provided the costs are covered by the interest charged.

25. The question mark hanging over the RCCs is whether they now have the capacity to carry out credit delivery, loan approval and recovery and to bear the credit risk in line with the original design. The feeling among the PMOs is clearly that the first responsibility of non-governmental cooperative institutions such as the RCCs will be to their members, and their primary aim will be profitability. IFAD is now testing this in the ongoing Rural Finance Programme.

26. The Mission did not see a single trace of deforestation or soil erosion in all areas visited. An extraordinary degree of care is taken in the terracing and cultivation of the slopes. Soybeans are grown on terrace verges for maximum utilisation of the soil and the prevention of erosion. In fruit orchards, mulch is commonly used for moisture retention. All maize, mulberry and tea crops are grown at reasonable density to maximize benefits and minimize surface run-off water. Protected ‘niches’ have been created for farmers to develop their land by the ‘bombing’ of hilltops and mountains with the seed of pinus species. Field-to-forest conversion is subsidised.

27. Rural women have been key participants in project activities. The PCR assigns 40% of loans to women, apparently a mix of signature and utilisation. Their income from mulberry and silkworms, from tea cultivation and primary processing, from chestnuts and improved livestock breeds average at more than Y 2 000 p.a. Health awareness and disease prevention have improved. In terms of workload, women told the Mission they are busier than before, and content that it should be so in view of their increased income.

28. Greater awareness of disease, hygiene and nutrition was reported by women participants in healthcare classes. The declining incidence of gynaecological diseases is indicated by township data and confirmed by doctors, and staff of the Women’s Federation. The consumption of meat, eggs, fresh vegetables and edible oils has greatly increased according to household interviews.

29. Lessons learned from SWAIADP by government departments include: (i) the advantages of ‘loan money’ over ‘grant money’ through the disciplines of repayment and the emphasis on sustainability; (ii) the usefulness of PRA techniques in needs assessment; (iii) the importance of

xiv compiling gender disaggregated data. SWAIADP has also boosted agricultural extension in terms of the range of services, with ‘strategically important’ crops such as rice, wheat and maize being joined by cash crops including tea, mulberry, bamboo, chestnuts, gingko, kiwi, pears, peaches, plums, melons and grapes.

30. SWAIADP has built-in advantages in terms of sustainability: (i) the operation of the revolving credit fund for a further 15-20 years; (ii) the Government commitment to continued support through Food-for-work, increased funds for farmer training, further investments in rural infrastructure, and the provision of market information; (iii) agro-industrial initiatives (notably in Huoshan county) including primary and secondary processing and marketing, for tea, silk and bamboo; (iv) the survival of experienced PMOs, albeit reduced in size; and (v) above all, an environment well-protected against soil erosion and deforestation.

31. Innovations of the project include: the successful utilisation of the RCCs, in a somewhat restricted role, in the management of microcredit; the WFP food-for-training (as opposed to the well- tested food-for-work); the successful twinning of household choice and village-level planning regarding economic trees; the creation of the project-specific VIGs, which are now regarded as permanent institutions in villages.

Performance of Partners

32. IFAD can be commended for an intelligent project design, the boldness of the new approach to credit delivery and the strong personal support of the then Country Portfolio Manager, mentioned by staff at all levels. It can be criticised for the lack of an initial survey of RCC capacities, which might have given advance warning of the problems in that sphere. In addition, the counties commonly requested more autonomy concerning the stipulations as to areas and outputs of new or expanded cultivation and the lifting of the Y 3 500 ceiling for loans.

33. UNOPS fielded six supervision missions, the first two of which were longer in the field, visited all five counties and produced more detailed and objective reports. The PMOs recommended a greater technical expertise in the membership of Supervision Missions, but generally appreciated the collaboration. The 2001 mid-term review was critical regarding the targeting of the poorest, inappropriate training for illiterate farmers and inadequate support for women’s IGAs.

34. The provincial level PMO was the nerve-centre of the project. The contacts between administrative levels are frequent and the managerial ethos is marked by enthusiasm and frankness. PMO leaders at county level have a strong sense of ownership of the project. The Mission visited 12 out of 34 townships, where informative reports were presented and even searching questions answered without confusion or hesitation. As for the VIGs, the Mission’s initial doubts as to whether the necessary capacities existed at this level proved unfounded.

35. As co-financiers, the WFP took a close interest in the project and its supervision. The WFP office in Beijing provided IFAD with in-country representation. The management of the food aid was effectively organised and losses in transit kept to a minimal level.

Recommendations

36. Pilot schemes for the latest generation of microfinance approaches and/or the proposed Village Development Funds might be appropriate ways of building on IFAD’s investments in Anhui province.

37. The experience of SWAIADP indicates that with time the ‘model farmer’ approach to targeting was capable of reaching the poorest households. Where the necessary degree of homogeneity and social cohesion exists in villages, inclusion of all households is to be preferred. Microcredit lent to the poorest households should have more favourable conditions attached, such as longer terms and a greater number of instalments.

xv 38. Saturation in the markets for raw silk and tea may pose a risk to the economic sustainability of project interventions. The diversification of income must be seen as an ongoing process sensitive to market needs and changes and as requiring further support, notably through appropriate training programmes for agricultural extension officers and ready access to market information for producers.

39. The training offered to women has not always been appropriate to their educational level and needs. Recommendations include: the replacement of traditional literacy training by simplified functional training; technical and credit training specifically for women; training materials with more illustration, a less densely presented text and a larger font; the training of trainers for more effective healthcare programmes; shorter and more frequent sessions; and smaller classes.

40. Data on the incidence of disease is not effectively utilised. Healthcare workers should submit the results of medical check-ups to the township PMOs who, with the assistance of the hospitals, can investigate the causes of high rates of disease in particular villages and tailor the healthcare training accordingly.

41. The aim of 100% loan recovery should be re-emphasised and ways of achieving it investigated and discussed at county and township level.

42. The baseline survey was over-complicated. The questionnaire ran to many pages and included superfluous data. Perhaps as a corollary of this, the sample of households (250 in all) was too small to be representative. For comparable IFAD projects in the future, a shorter questionnaire and a larger sample is recommended.

43. The approval of the AWPB required a cumbersome process, passing through three levels of aggregation and approval prior to the donor approval process involving IFAD, WFP and UNOPS. Simultaneous in-country approval of the AWPBs for ongoing projects should be mooted to ensure a more participatory consideration of the AWPB by all parties simultaneously, as well as the abbreviation of the process.

xvi People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

Main Report

I. INTRODUCTION

A. Background of the Evaluation

1. The Completion Evaluation of the Southwest Anhui Integrated Agriculture Development Project (SWAIADP) undertaken by the IFAD Office of Evaluation is conceived as an independent yet consultative exercise and designed as a service to the SWAIADP as well as to IFAD’s ongoing and future operations in China. The Evaluation also served the purpose of accountability of IFAD to its governing bodies. The main objectives of the Completion Evaluation were set out in the Approach Paper circulated to partners in spring 2005 and clarified during a one-week reconnaissance mission to the project area in the month of May.

2. Mission itinerary. The full Mission was in China from 23 June to 15 July 2005. In Hefei, the provincial Project Management Office (PMO) made a presentation of the recently translated version of the Project Completion Report (PCR) by way of self-assessment. The field itinerary included visits to all five counties of the project area and by all or some mission members to 12 townships and 15 villages.1 The five counties as well as the townships visited presented progress reports specially prepared for the Mission. Interviews were held with the staff of PMOs and technical departments at provincial, prefectural, county and township levels. At village level, interviewees included village leaders and a broad selection of beneficiary households. The Mission’s work was completed by a presentation and discussion of initial findings and recommendations at provincial level on July 14, followed by a de-briefing with the Ministry of Finance in Beijing.

3. China in figures. The population of China was estimated in 2004 at 1.3 billion persons, with an annual growth rate of around 0.7%, a decline from the 1.6% average of 1970-1990. Overall life- expectancy in 2002 stood at 71 years and the under-5 mortality rate at around 40/1000 live births in 2000. Primary education is effectively universal and the literacy rate is 89%. Some 75% of the population have access to safe water. The fertility and age structure of the Chinese population are increasingly similar to those of high income OECD countries. According to the official poverty lines2, the number of poor has fallen from about 250 million persons in 1978 to 30 million in 2000. Related to the rural population, this means a decline in incidence from 30.7% to 3.6%.

4. The economy. China has experienced a spectacular expansion of its economy in the 25 years since the initiation of reforms which included land use rights for farm households and the gradual liberalisation of markets. Further sectoral reforms were tested on a limited scale and subsequently extended to the whole country. These included market pricing, the development of the financial sector and the privatisation of state enterprises. China became a member of WTO in 2001. With an average annual growth of GDP of around 9.5% between 1979 and 2004, combined with declining population growth, per capita GDP (1990 prices) rose from Y 729 in 1979 to Y 4 674 in 2003, an annual average increase of 8%, or a doubling of GDP per capita every ninth year. The 2003 GDP per head in current prices was estimated by the IMF to be equivalent to USD 1 087. These results were achieved against a

1 ‘Village’ is used in this report to mean ‘administrative village’. There are generally around 10-15 ‘natural villages’ included in an administrative village. 2 The indicator used is the income required to procure a minimum diet and non-food items, Y 625 for rural households in the year 2000.

1 backdrop of enormous structural shifts: from central planning to a market economy, from agriculture to manufacturing and services, from a closed to a globally integrated system.

5. The agricultural sector. The share of the agricultural sector in GDP declined from 27% in 1990 to 15% in 2002, but over 60% of the population still reside in rural areas and the agricultural sector employs around half of the total labour force. Over half of all arable land is planted to cereals, but there has been some diversification towards higher value crops. The fall in the cereal production area has been more than compensated by yield increases, with overall cereal production per person increasing by 88% between 1961 and 2002. There was a twelve-fold increase in meat production during the same period. These impressive increases should be seen in the context of the progressive distribution of land use rights to individual households (negotiable 30-year leases have been granted since 2003) as well as the rapid development of township and village enterprises, an increasing number of them under private ownership. These TVEs now employ 28% of the total rural labour force.

6. IFAD in China. SWAIADP was the thirteenth of seventeen IFAD projects in China, all of which have concentrated on agricultural development or rural credit or both. Six of these, including SWAIADP, have been co-funded by the World Food Programme (WFP). Total IFAD investment in China has now reached USD 400 million. One significant development has been IFAD’s decision to utilise the Rural Credit Cooperatives (RCCs) for the delivery of rural credit, thus becoming the first international financial institution to utilise existing financial service providers in the management of microcredit in China. SWAIADP represented the first effective instance of this innovative approach.

7. Strategic framework. The Government of China has made the alleviation of poverty in rural areas a high priority in recent development plans, operating within the current ten-year Poverty Reduction Programme for Rural China (2001–2010). The objectives of the programme are to be achieved through ecologically sound agricultural development, the strengthening of marketing and financial services for the poor and the development of off-farm economic activities. These fields dovetail with the main thrusts of IFAD’s Strategic Framework – equitable access to natural resources, finances and markets, and the strengthening of grassroots institutions.

B. Approach and Methodology

8. The evaluation follows the IFAD Methodological Framework for Project Evaluations, which outlines the main evaluation criteria for IFAD programmes and provides a rating system. The objectives of the framework are to systematise the evaluations, not least the impact assessment, and facilitate the consolidation of the findings of different evaluation exercises. The framework is articulated in three main blocks: the programme’s impact on rural poverty, the performance of the programme and the performance of partners.

9. The methodology utilised by the Mission for impact assessment focused on the analysis of county and township level data for income, production and yield increases, elaborated by extensive one-to-one household interviews and focus group discussions, and direct observation of around 25 different sites where project activities had been implemented. A 15-point questionnaire was circulated to the RCCs of the 34 participating townships to provide up-to-date information on credit delivery and loan utilisation.

II. MAIN DESIGN FEATURES

10. SWAIADP was a USD 55.67 million project, financed by an IFAD loan of USD 26.50 million, counterpart funding of USD 21.6 million, a contribution by local communities valued at USD 4.8 million, and WFP food-for-training equivalent to USD 2.82 million. The bulk of the IFAD loan (68%) was directed to the provision of microcredit, while government funds accounted for 65% of infrastructural investment. The project was approved on 11 September 1997, declared effective in December 1997 and closed on 30 June 2004 after an extension of one year. A WFP extension project of one year provided an additional 6 474 tons of food-for-training. Supervision and loan administration were carried out by UNOPS.

2 A. Project Rationale and Strategy

11. Anticipating the first Country Opportunities and Strategy Paper (COSOP) for China, the SWAIADP focussed on the targeting of poorest areas, the preparation of participatory Village Development Plans utilising PRA techniques3, and support for sustainable microfinance institutions, in this case the township level RCCs. The improvement of food security for poor rural households was to be achieved by raising the capacity for on-farm food production as well as off-farm incomes. Food- for-training financed by WFP was to provide the incentive for the poorest households to participate in project activities, and the provision of collateral-free loans was to be the primary instrument in the development of cash crops, animal husbandry, and fish-farming where appropriate. Infrastructural investments were designed to improve communications, irrigation and drinking water supply systems as well as to provide cheaper and more rapid access to markets.

12. Around USD 18 million of the USD 26 million IFAD loan was designed to be made available as incremental credit at township level. Loan approval and credit delivery was to be managed by the RCCs, which were also to bear the credit risk. Capacity building programmes were aimed at enabling the RCCs to undertake these responsibilities. SWAIADP was only the second IFAD-funded project to adopt this strategy, which has since become a central plank in IFAD operations in China.

B. Project Area and Target Group

13. The project area covers the five poorest counties in the mountainous area of southwest Anhui province, namely Taihu, Qianshan, Yuexi, Huoshan and Jinzhai. The annual per capita income in the project counties was Y 678 (USD 82) in 1995, less than half the national average. The 34 townships selected for project support (out of the five-county total of 136) had average per capita incomes averaging only Y 521, compared to the then national poverty line of Y 530.4 SWAIADP targeted a total of 123 400 households in the five counties, or just over half-a-million people in 438 administrative villages. The Staff Appraisal Report (SAR) stated that ‘priority will be given to those households in the bottom three socio-economic groupings who are physically able and capable to participate in the project activities.’5

14. According to the SAR, farming households in the project area suffered from food shortages of 5- 6 months in a year, without the skills or financial resources to increase crop production and incomes. An estimated 80% of all households belonged to the ‘poor’ and ‘very poor’ category according to the SAR poverty profiles.6 Around 10-15% of households were classified as ‘extremely poor’ on the grounds of insufficient labour or chronic debilities among family members. Only an estimated 5-10% of households were able to fulfil their daily food requirements, but these could not be considered ‘better off’ since their annual incomes amounted to less than Y 700, still under half the national average.

15. Women constituted a significant part of the target group, which included all women from poor families in rural areas, an estimated 190 000 persons. The female illiteracy rate was 34% in 1995 and few women had any knowledge of agricultural technology and healthcare, even though they provided the backbone of the family economy and its daily life. Much time and effort was expended in fetching

3 PRA techniques were employed in SWAIADP village-level planning from the year 2001. 4 Staff Appraisal Report, June 1997, para 41: henceforth referred to as SAR I (Main Report) and SAR II (Working Papers). 5 SAR I, 1997:12. 6 The poverty lines adopted at appraisal were an outcome of the perceptions of local households according to a field survey. The four groups were: less poor (income per capita of Y 650-700), poor (Y 550-600), very poor (Y 500), poorest (Y 100-200). In dollar terms at 1997 rates, these figures correspond to around USD 80, 70, 60 and <25. The SAR emphasised that ‘there is no large difference amongst households’ within individual villages (SAR II, Working Paper 1, para 53.)

3 drinking water and fuelwood from considerable distances. Poor women and children were the focus of WFP-funded training in literacy, healthcare and nutrition.

C. Goals, Objectives and Components

16. The overall goal of the SWAIADP was to reduce the persistent household food deficiency of the targeted farming households in the project area, while assisting the borrower in its Poverty Alleviation Programme.

17. The specific objectives were to:

(i) increase household food production and raise land productivity through water storage and irrigation development, combined with land levelling and terracing; (ii) ensure long term sustainability of the farming systems through improved technologies, better cropping practices, training, extension advice and on-farm demonstrations; (iii) assist and strengthen a farmer-oriented, sustainable, rural financial intermediary to facilitate and increase access to credit; (iv) raise household cash income through credit for investments in economic trees, livestock, and other income opportunities, particularly for women; (v) improve the skills and living conditions of women through literacy courses and technical skills training, better health care and nutritional support during childbearing; and (vi) improve social conditions through the construction of village roads, the provision of clean drinking water supplies.

18. The project was designed to be implemented through seven components: infrastructure (27% of base cost), food crops (25%), tree crops (26%), livestock and fisheries (9%), women’s development (4%), social support (4%) and institutional support (5%). The three directly agricultural activities were expected to account for around 60% of total costs. The bulk of the infrastructural investment, as well as the support for social services and management, were to be covered by counterpart funding. WFP resources were targeted mainly at women’s development and social support. Management costs, including support for the RCCs, were envisaged as accounting for a modest 5% of the total.

19. The rural infrastructure component was to concentrate on the provision of irrigation systems, access roads, water supplies and erosion control measures such as dykes. The food crops component was concerned principally with land development, seasonal credit and agricultural extension. The livestock and fishery component focused on credit and technical support. Under tree crops (also referred to as ‘economic trees’), the main activities were to be the development of tea, mulberry, bamboo and chestnut production and harvesting. Under women’s development were to be included literacy classes as well as credit access and technical training. Under support to social services were training courses in healthcare and nutrition. The institutional support was to be targeted at project management units and the RCC.

4 Table 1. Investment by Component Approx. Planned Percentage Actual Estimated USD Investment Achieved Investment Beneficiaries Equivalent Rural Infrastructure 162.98 19.9m 92% 149.15 62 608

Crop Production 134.59 16.4m 89% 119.83 101 950

Livestock and Fishery 46.95 5.7m 100% 47.40 42 512

Economic Trees 145.14 17.7m 87% 126.2 75 908

Women's Development 23.5 2.9m 104% 24.41 84 267

Social Support 22.26 2.7m 93% 20.66 90 341

RCC and PMO Support 19.46 2.4m 73% 14.16 n/a

Totals 554.88 67.7m 90% 501.81 457 586

Source: PCR; currency unit: Y ‘000.

D. Implementation Partners and Arrangements

20. Overall responsibility at central level was in the hands of the Ministry of Agriculture in Beijing. At provincial level, implementation was managed by the Anhui Department of Agriculture7 through Project Management Offices (PMOs) established at the level of Province, Prefecture, County and Township, with the assistance of technical committees consisting of appointees from the relevant departments. The management and delivery of credit funds were to be handled by the existing RCC at township level. At the level of province, prefecture and county, Project Leading Groups (PLGs) composed of leading local government officials were set up for the purposes of policy guidance and coordination. A new institution, the Village Implementation Group (VIG), was created at village level in order to publicize, promote and supervise project-funded activities as well as to prepare a village development plan and to act as the conduit for farmer’s credit application proposals. The VIG consists of the village leader, the head of the All China Women’s Federation and the village accountant, together with elected farmers’ representatives.

E. Major Changes in Policy and Institutions during Implementation

21. Development of Government policy. Government policy on the reduction of poverty in rural areas considerably developed during the life of the project. Under the overall aegis of the Poverty Reduction Programme for Rural China, various measures have been undertaken to increase agricultural production, improve the basic living conditions in poor areas, expand rural infrastructure and improve the environment. These measures include: reduction of agricultural taxes; guaranteed minimum prices for rice and wheat; subsidies for field-to-forest conversion; the expansion of microfinance, in particular of concessional loans for agriculture, processing, marketing and infrastructure development. These are in addition to the long-established grants available to the poorest households under the Poverty Alleviation Fund. The ten-year programme focuses on poor villages within an adjusted set of 592 Poverty Counties, to which resources amounting to Y 25- 30 billion p.a. have been allocated.

7 Now renamed the Anhui Agricultural Commission.

5 22. Prefectural responsibilities. The institutional arrangements at provincial, county and township level remained consistent during project implementation. The decision was taken, however, to omit the prefectural level from the flow of funds, leaving the Prefectures with a limited role of coordination and support. This limited role reflects the fact that only two or three counties of the Prefectures concerned were involved in the project8, with a consequent emphasis on the provincial rather than the prefectural authorities in terms of project monitoring and coordination.

F. Design Changes during Implementation

23. RCCs and PMOs. The respective roles of township RCCs and PMOs varied in practice. At the start of the project, the RCCs assumed the credit risk and took the lead in loan approval, as envisaged at design. It was the view of the government authorities, however, that since the responsibility for repayment of the IFAD loan ultimately lay with the government, the PMOs should bear the credit risk, which in turn meant that they should have the final say in the approval of loans. It was also felt that the capacities of many RCCs were still underdeveloped9 and that they had little or no experience of lending to poor farmers. The outcome in most cases was a collaboration between RCCs and PMOs, whereby the management of credit delivery remained with the cooperatives, the approval and recovery of loans was a joint procedure and the credit risk reverted to the local government.10 The Subsidiary Loan Agreements required due modification.

24. Project extension. A one-year extension of the project was recommended by the 2001 Supervision Mission to enable the project to reach the poorest sectors of the population, a primary objective that had not been realised in the opinion of the supervisors. A one-year extension project for WFP food-for-training was also implemented. The revised completion date for both projects was 30 December 2003.

III. SUMMARY IMPLEMENTATION RESULTS

25. Overall financial achievement. The overall level of financial expenditure over 90% of funds and the outstanding 10% were largely accountable to a faulty estimate of likely exchange rate fluctuations at the time of appraisal. The IFAD-funded budget component was reduced from Y 257.2 million to Y 196.4 million – a reduction of Y 60.8 million. At the time of project formulation, a fall in the exchange rate was anticipated, from Y 8.20 = USD 1.00 to Y 10.98 = USD 1.00. In practice, the exchange rate remained more or less constant. The majority of the funds had been expended by the end of 2002 (the original completion date), leaving meagre resources for the final year of the project.

8 Taihu, Qianshan and Yuexi counties belong to the Anqing Prefecture and Huoshan and Jinzhai counties to Lian Prefecture. 9 SAR I permits PMOs temporarily to undertake management of the credit fund in cases where RCCs lack the required capacity (SAR I para 110). 10 This arrangement was examined and accepted by the authors of the Thematic Study on Rural Financial Services carried out by the IFAD OE in 2001. Further discussion of the matter can be found in Appendix III to this report.

6 Table 2. Principal Physical Achievements Component Description Unit Target Achievement Percentage Rural Infrastructure Irrig. Ponds No. 871 777 89 Irrig. Canals Km 122 124 102 Dykes Km 17 25 147 Roads (new & rehab) Km 320 320 100 Gravity Tanks no. 438 782* 179 Crop Production Land Levelling Mu 12 960 12 170 94 Cold Water Drainage Mu 49 660 49 212 99 Dry Land Conversion Mu 6 160 5 795 94 Livestock and Fish Cattle No. 8 105 6 618 82 Pig No. 26 220 26 484 101 Goat No. 38 290 25 549 67 Fishfarm Nets No. 7 608 6 634 87 Economic Trees Tea (new & rehab) Mu 58 640 53 680 92 Chestnut (ditto) Mu 38 300 39 063 102 Bamboo (ditto) Mu 63 530 47 220 74 Mulberry (ditto) Mu 40 100 43 244 108 Women's Development Literacy Training p/day 1 388 069 1 016 528 73 Technical Training p/day 244 183 566 866* 232 Credit Training p/day 151 507 396 718* 262 Social Support Health Training p/day 345 846 522 704 151 Medical Treatment Person 632 085 381 431 60 Institut. Support Training p/day 15 604 14 381 92 (RCCs & PMOs) Equipment Units 993 959 97 Adapted from PCR, Annex 5 * Includes WFP extension project.

26. Rural infrastructure. The chief infrastructural schemes constructed under the project have been roads, irrigation systems, flood protection ‘dykes’, pumping stations, small bridges and drinking water schemes, selected in accordance with the priorities expressed at township and village level. The total investment in infrastructure was Y 163 million. A total of 1 500 gravity tanks and wells were constructed for drinking water, 122 km of irrigation canals, 870 irrigation ponds and 25 km of flood protection dykes were built, all of which matched or exceeded physical targets. Around 92% of the component budget was expended. A total of 68 kms of new roads have been built and a further 252 kms rehabilitated, matching the targets at design. The average cost of road building varied between Y 100 000 and 200 000 per km depending chiefly on the terrain. The standards of design and construction of a selection of schemes were inspected and found satisfactory. Maintenance of village level schemes is the responsibility of the local communities, led by village committees that form part of The project constructed over 25 km of flood protection barriers the existing village organisation. to prevent flooding in towns in the project area. The resulting system appears very Photo by Roger Norman thorough and the upkeep of the schemes inspected was good.

7 27. Drinking water schemes have been part-funded by individual household loans. For example, a drinking water supply system was constructed in Gubei township (Jinzhai county) involving 300 households from nine small settlements. The cost of the scheme (Y 180 000) was financed by 20% counterpart funds, 40% labour contribution and 40% individual household loans. SWAIADP loans were not expected to be utilised for non-productive (although essential) purposes. However, repayment does not seem to have been a problem, with the poorest households involved able to obtain assistance from the government poverty fund.

28. Crop production. An overall total of approximately 16 000 ha of land was improved or put under new or rehabilitated cultivation. This included the levelling of 12 000 mu (800 ha) for crop cultivation; the draining of 49 000 mu (3 270 ha) of cold, waterlogged paddy land; the conversion to arable land of 6 000 mu (400 ha) of marshy and dry land for economic tree plantation. Activities under this component also included seed multiplication of high-yielding varieties of rice and maize and the establishment of demonstration plots and pilot schemes for new technologies.11 The relevant training took place at each village in turn; experimental plots were usually established on extension station land, whereas demonstration plots were sited on farms convenient for visits. The technology and material inputs were supplied by the extension station and the labour by the selected farmers.

29. Livestock and fish. The main ingredient of the livestock component has been the provision of household credit for the purchase of goat and pig, and to a lesser extent cattle. The overall result of these activities has been the loan-financed purchase of nearly 60 000 animals, 45% of them pigs and 44% of them goats. The average livestock holding of each family increased by 0.75 animals during the project cycle. Over six and a half thousand fish cages have been constructed in townships with suitable bodies of water and the appropriate training provided to fish-farmers.

30. Economic trees. For the purposes of income diversification and increased production, 22 000 mu (1 470 ha) of new bamboo plantations have been established and 26 000 mu of poor bamboo rehabilitated. A further 27 000 mu (1 800 ha) of land have been planted with chestnut trees and 12 000 mu (800 ha) of poor chestnut plantation upgraded. The corresponding figures for mulberry are 19 000 (1 270 ha) and 24 000 mu (1 600 ha). Smaller areas of other economic crops such as kiwi and gingko have also been introduced. In each case, the achievements represent 90% or more of targets at appraisal. In some areas, the cultivation of other crops such as melons, pears and plums have been promoted. The Mission found that all interventions visited had been effectively implemented as per project design.12 On average, every household in the project area has obtained around 1.5 mu (0.1 ha) of additional land for planting either food crops or economic trees.

31. Women’s development. Training programmes included literacy courses, technical courses (mostly agricultural) and classes in loan management. Most of the training activities were conducted in the village, at the school or the offices of the village committees. The total investment in women’s development activities was Y 24.4 million, 104% of the original target, with an estimated 84 000 beneficiary households. Around 2.6 million workdays of training were provided. The implementation of activities was planned and organized by the PMOs at county and township level with the assistance of the All-China Women’s Federation (ACWF) and the technical input of extension stations, hospitals, RCCs and the department of education.

32. Institutional support. Institutional support costs covered the establishment of PMO offices and the provision of equipment (including 48 computers), furnishings, training materials and eight motor vehicles. Support for the RCCs was mostly in the form of training programmes but also included some equipment.

11 See Appendix IV for details of Agricultural Extension. 12 But see paras 51-52 for variations in village level planning.

8 33. Credit.13 A total of nearly 100 000 households have received credit under the project, or around 77% of all households. The largest proportion (46%) of the total loan amount was utilised for the cultivation of economic trees, followed by short-term seasonal credit (25%). Nearly 300 000 loans were given to nearly 100 000 households, an average of three loans per household. Loan applications were submitted to VIGs on a voluntary basis, and neither PMOs nor VIGs interviewed had pressed non-applicants to take loans. The applications were screened jointly by the PMO and the RCC, the amount of the loan depending on the activity involved and the planning of the village development activities. In the areas visited by the mission, the majority of poor households had obtained loans. Among households whose per capita annual income was below Y 625 and were therefore receiving subsidies from the government poverty fund, households with some labour capacity also received loans. Some townships reported that up to 90% of all households in their area had obtained loans, which contrasts very favourably with reports from supervision missions of three and four years ago. Overall recovery rates are running at around 85%.

Table 3. Summary of Loan Details during Project Cycle

Percentage of Total Average Size Loan of Loan No. of No. of Amount Amount (USD equivalent Activities Loans Households* Disbursed at current rates)

Agricultural Equipment 6 686 4 588 Y 6 392 293 4.4% Y 956 ($117)

Economic Trees 93 075 64 064 Y 67 539 071 46.2% Y 726 ($88)

Livestock and Fishery 33 392 26 765 Y 27 157 462 18.6% Y 813 ($99)

Seasonal Credit 157 435 64 280 Y 38 690 341 26.5% Y 245 ($30)

Women's IGAs 8 349 6 363 Y 6 281 780 4.2% Y 752 ($92)

Total 298 938 96 280 Y 146 060 947 100% Y 488 ($60)

Source: Adapted from PCR Annex 13.

34. Training. The investment in training under SWAIADP was considerable, nearly USD 2.5 million, and the variety of training programmes was wide, from literacy and healthcare training specifically for women, to technical training for farmers for a number of different crops, to credit and loan management training for all households which took out a SWAIADP loan. In Fuzilin township in Huoshan county, for example, 100 000 person/days of training were carried out, an average of 12 days of training for every inhabitant of the township.

35. The WFP food packages were distributed to trainees from eligible households and acted as an effective incentive for attendance at the training sessions. The VIG members informed the villagers of the sessions and all those interested were welcomed, even though only the poorest qualified for the WFP food. The uptake of training sessions appears to have been very positive. The gender of the participants depended on the task division within households. For example, it was normally women who participated in training for tea harvesting, silkworm cultivation and animal husbandry, and men in training for rice cultivation.

36. Monitoring and evaluation. The project has meticulously followed the reporting requirements of IFAD, UNOPS, and WFP, in addition to the host country requirements, utilising M&E tables which were by definition quantitative in nature. Much time and effort was given to the collection, collation

13 See Appendix III for an account and analysis of the SWAIADP credit operation.

9 and verification of quantitative data and the preparation of project monitoring output reports. The project management reported that these formats were revised twice during the life of the project entailing the readjustment of data collection and collation at all levels.

37. The financial and physical progress reports reviewed were voluminous. For example, the 10- page Project Progress Report for January-June 2003 provided detailed information on inputs and outputs, including command area before and after, skilled and unskilled labour, materials etc., for all seven components further subdivided into subcomponents and activities. Such reports are initiated at county level based on an aggregation of the 6-8 township reports. The five county level progress reports are compiled as one provincial level report covering the whole project.

IV. PERFORMANCE OF THE PROJECT

A. Relevance of Objectives

38. The main causes of poverty in the project area according to the SAR were: (i) limited resource endowment, including low land availability and waterlogged paddy fields; (ii) low productivity, lack of effective infrastructure and limited access to markets; (iii) lack of knowledge of modern agricultural techniques; (iv) poor levels of education, literacy and health, especially among women. The component elements of SWAIADP addressed these problems through land improvement measures and infrastructural investment, the introduction of higher-yielding crop varieties, the diversification of agricultural production and an extensive series of training programmes in technical, social and financial fields, many of which targeted women.

39. The evolution of SWAIADP took place over a number of years, having been originally conceived by the Anhui Agriculture Department as a response to the critical problems of the most impoverished areas of the province. It was thus from the start a ‘home-grown’ project, with goals specific to the problems of the area. Formulation was carried out by a team of mostly Chinese experts and the provincial PMO claims that the project as finally implemented was little different in its main essentials to the original proposal made four years previously. Certain elements were added or embellished: the insistence on village-level planning and participatory processes; the food-for-training incentives provided by WFP; and above all the emphasis on loans rather than grants, with all levels of the society, down to the farmers themselves, obliged to learn and accept the disciplines of repayment.14

40. In accordance with their respective briefs, IFAD and WFP supported a number of gender- oriented targets including the promotion of women’s income generating activities and the provision of training in literacy and healthcare for women. Particular importance was given to women signing for the loans within their sphere of responsibility, for example mulberry cultivation and silkworm raising, animal husbandry, and tea harvesting and processing. This emphasis is in line with IFAD interventions elsewhere, being designed to protect women’s control of the funds as well as their legal rights in case of dissension or divorce. However, there are strong reasons for supposing that it was not an appropriate emphasis in the case of southwest Anhui. In various interviews at various levels – and especially at household level – the response to questions posed by the Mission was immediate and emphatic: the household was an integral whole, men and women worked together and it was immaterial who signed the loan. This finding, even though contentious, must be duly recorded. In practice, little importance was given either by project authorities or by the householders themselves as to who signed the loans and many loans signed by husbands were in fact utilised by women.

41. The design targets for new crop development were limited to four main crops: around 200 000 mu of tea, mulberry, bamboo and chestnut, with smaller areas of gingko and kiwi planned for Yuexi county. The PMOs of all five counties argued to the Mission that these targets were

14 The system in China – unusual to IFAD-funded projects – of devolving the responsibility for loan repayment to the various levels tends to reinforce these disciplines.

10 unnecessarily specific15, and that it would have been more helpful to them if the matter and extent of new cultivation had been left to the planning departments at various levels. The counties highlighted in particular the absence from the original ‘menu’ of medicinal herbs and off-season vegetables (‘mountain vegetables’). In practice, the supervision missions were open to new suggestions in terms of produce. Pears, peaches, plums and grapes were planted with project support and in Qianshan county, there was a substantial and profitable expansion of melon cultivation.

B. Effectiveness

42. Overall, the Mission assesses the effectiveness of SWAIADP – its success in reaching the stated objectives – very highly. This was a well-designed, well-managed and well-implemented project that has been of immense benefit to the project area as a whole and to the great majority of the households living within it. Successive supervision missions had, however, expressed some reservations, chief among which were the targeting of the poorest households and the effectiveness of the M&E system in capturing the impact of the project on the very poor. It is probably fair to say that the one major question mark hanging over project performance has been a combination of these two related issues.

43. Targeting of loans. The rather critical Supervision Report of 2001 stated: ‘It was apparent from the field visits and discussions with project staff that PMO staff, and staff of the technical agencies, in particular at county and township level, did not fully understand the overall project strategy of targeting the poorest and poorer households in planning and implementing project programs’.16 The same report noted: ‘the majority of the households provided with project assistance, particularly credit, were not the project’s intended priority beneficiaries’, and also commented on the lack of evidence that the project ‘had pro-actively sought out to target the poorer households to determine their training and credit needs and consequently to devise appropriate strategy for training and credit delivery.’ The response of the PMOs to this criticism, given in the 2002 Supervision Report, was robust: ‘Satisfied with the rapid economic development in the province PMOs felt that the poverty alleviation effort of the province has been on the right track – giving assistance to develop models that can show successful results so that they can be used to motivate others to follow suit. As such, targeting the poorest by giving them loans they might not be able to pay back contradicts the provincial strategy.’ To this should be added their reminder, given more than once to the current Mission, that the whole project area was designated poor at the time of project inception.

44. Two different approaches to poverty alleviation are at stake here. Project design stipulated priority for the poorest; the PMOs believed that the example of more active and resourceful households would have the desired multiplicative effect. Four years on from the 2001 criticism, the figures for loan delivery by poverty category show that the PMOs were correct in their assumption. A total of 96 280 households had received loans by project completion, representing 91% of the targeted households and 78% of all households in the project area.

45. This statistic was tested by the Mission at all levels. In Yuexi, Taihu and Jinzhai counties, over 94% of the poorer households took advantage of project loans. In Zhong Quan township of Yuexi county, 81% of households took loans and in Bao Hua village of Beili township in Taihu county, 85%.17 The Project Status Report of August 2004 states that 64% of all loans had been made to households categorised as the poorest (Category A). This was borne out by figures supplied to the present Mission by the counties. For example, Qianshan county figures showed that 67% of the cumulative loan amount has been loaned to ‘A’ households. Jinzhai, Qianshan, Huoshan and Yuexi counties reported that no better-off households received project-funded loans. In Taihu county, 36% of better-off households received loans, but the total number of households involved was only around 700.

15 See summary of Physical Targets, SAR I, p. 20. 16 SR 2001, Annex 2: Technical Report: 46. The Loan Covenant Schedule 4, Section A8 states: ‘In selecting households, first priority shall be given to the poorer households’. 17 ‘Those who did not were either better-off or simply not interested,’ according to the VIG.

11 46. Categories of poverty. In the SWAIADP, as in other comparable projects, there were problems with the categorisation of households by poverty level. The original fourfold proposal in the SAR, ‘extremely poor’, ‘very poor’, ‘poor’ and ‘less poor’ was made after consultation with farming households but seemed unnecessarily elaborate, given that the great majority of households were ‘poor’ according to both national and international indices. Around 65-70% were ‘very poor’ (with an income of below Y 500) according to the SAR categories. As a result of the concern of supervision missions over the targeting of the poorest (see above), a simpler threefold division was adopted in 2001 as a tool to refine the targeting. This was based on household income as follows: category A, households with an annual per capita income below Y 730; category B, households with an annual per capita income between Y 730 and Y 1 500; category C, households with an annual per capita income over Y 1 500.18 This categorization was duly applied in project monitoring but PMOs complained that it was too rigid to capture progress made in villages where the starting levels were atypically low.19

47. Effectiveness of M&E. In October 2001 a UNOPS Technical Report stated: ‘What was lacking were the qualitative aspects in the project reporting system that would help the PMO to evaluate effectiveness of project activities and their impact on project beneficiaries … it is difficult to analytically use the PMOs monitoring reports to extrapolate project impact and project outcomes.’ The PCR also acknowledged some weaknesses in this respect: too much emphasis on quantitative data collection at the expense of data analysis during project monitoring, and difficulty in applying the results of M&E to the modification of village development plans. The Mission found that the prescribed reporting systems were scrupulously followed, but agreed that the analysis of impact was inadequate. The PCR pointed to weak capacities of M&E units at township level and below, resulting in some inaccuracies and misunderstandings.

C. Efficiency

48. Costs and returns. The overall investment cost per beneficiary household of the SWAIADP was around USD 400, a relatively low figure which is set to decrease further as the operation of the credit revolving fund continues over the next fifteen years. The overall ERR for the project was calculated at appraisal as 22.6%, with a margin of around 3% allowed for adverse movements of up to 10% in terms of benefits and costs. This high rate of return reflected the low level of agricultural inputs in the pre-project period. Project M&E has calculated that the ERR will reach 34.2% by the time the credit revolving fund ceases operation which would represent a very healthy return on SWAIADP investments.

49. The efficiency of project management. A notable feature of the SWAIADP was the modest budget for management support. Institutional support costs, which also include training and equipment for RCCs, are far lower than the usual levels for comparable projects of 10 to 15%. At project completion, the total cost amounted to Y 14.2 million, a mere 2.8% of project expenditure compared with the SAR figure of 5%. Around 86% of institutional support costs have been funded by counterpart funds. In addition, the major recurrent costs of management – salaries, transportation, telecommunications, stationery and so on – have been met from the existing government budgets, as have the provision and maintenance of buildings and offices. The effect of this ‘hidden cost’ has been to make a substantially larger proportion of project funds available for productive investments in rural infrastructure and agricultural production.

50. Maintenance of Government funding levels. It might have been expected (for it is the case in many comparable projects elsewhere) that the Government would take the decision to suspend or

18 Y 730 is equivalent to c. USD 90, and Y 1 500 to c. USD 180, at current rates. 19 There is also the notorious difficulty of establishing poor farmers’ incomes with any accuracy. For example: consumption of home-grown produce does not count as income, but if that same produce is sold, it does. A household that scrimps on its daily consumption in order to sell ‘surplus’ produce to pay school fees, for example, is theoretically better-off – according to income figures – than one that eats better. The changes during project life in the definition of absolute poverty add to the problem.

12 reduce the existing funding of poverty alleviation in the project area through such mechanisms as the Poverty Fund. In fact, the decision was taken deliberately to maintain the previous levels of support, so that the operation of the SWAIADP constituted a genuine addition, rather than a partial replacement. This commendable decision reflects the extent of Government commitment, which was the most significant factor in the efficiency and effectiveness of the management of this project.

51. ‘Collective’ planning. The intention at project design was that individual farming households would make their own selections from the menu of activities offered. In practice, the initiative was often taken by the implementers to identify zones suitable for the cultivation of particular crops (tea, mulberry), to plan larger scale schemes involving all the farmers holding land in those zones, and to supply seedlings and guidance. The plots are managed individually and the loans were given to individual households, but the overall planning and execution of the schemes has been managed by officials. At many sites, instead of the mosaic of small plots with a variety of crops, which the SAR appears to have envisaged, larger areas of monoculture have been established.

52. This development does not match the project’s insistence that the selection of activity should rest with the individual household. However, it has been a feature of project activities in a number of townships since the early years of the project20 and was welcomed by supervision missions. For example, the collective mulberry plantation at Zhong Ming Village (Li Shui township, Qianshan County) involving 31 households was described in the 1998 Supervision Report as ‘a sound demonstration of good planning for the productive use of hill land’21 and it was soon possible to establish a cocoon purchasing station within the village. The largest scheme of this kind visited by the mission was a collectively planned tea plantation at Zhongxing village (Wu He township, Yuexi County) involving 1 500 mu and over 1 000 households. The most impressive aspect of the initiative was the thoroughness and exactness of the land levelling and terracing works over 100 hectares of difficult land. There can be little doubt that these ‘collective’ schemes have led to a more efficient use of resources.

53. Loan recovery rates. Overall recovery rates are running at around 85% which seems to be considered satisfactory by PMOs and RCCs. In fact, defaults running at 15% indicate an area for concern. Part of the problem seems to have been a misunderstanding of the relevant section in the SAR which suggested that 80% recovery would be an acceptable rate initially but would be expected ultimately to rise to 98.5%, with the remaining 1.5% covered by the risk fund. The PMOs claim that the majority of defaulters are expected to repay their loans in due course and the recovery rate will therefore gradually improve. There is 22 Nearly 2 000 ha of new tea plantations were financed by micro no way to test this claim . Most of credit provided by the SWAIADP. In many cases, this involved the loans are collateral-free and the careful terracing of steep slopes. punitive sanctions, even if feasible, Photo by Roger Norman would be considered unacceptable where poor households are involved.

20 It was also, of course, a ‘natural’ outcome of many years of collective farming. 21 This site was revisited by the current mission. The 31 participating households had all succeeded in repaying their three-year Y 2 800 loan. 22 The Mission notes, however, that the recovery rate has fallen from a high of 91% in 2002.

13 The PMOs and RCCs are active in cases of default, and their expectation is that continued pressure, even if only verbal, will bear fruit.

V. IMPACT ON RURAL POVERTY

54. At the end of six years implementation, the coverage of the project had been comprehensive. The beneficiary figures by component compiled at provincial level were impressive, and they were amplified and confirmed by the figures given to the Mission at county level. The total number of households reached by all activities (112 915) represents 92% of households in the project area, comfortably exceeding the appraisal target (Table 4).

55. The coverage of agricultural activities in terms of the total arable area is hard to gauge given that some of these activities were located in land previously barren or uncultivable. However, the figure of around 240 000 mu of land (16 000 ha) affected by the various interventions can be usefully set against the figure of 246 000 mu (16 400 ha) of cultivated land in the pre-project period. Viewed in this admittedly partial fashion, the extent of project-funded activities is remarkable.

Table 4. Estimated Number of Beneficiary Households by Component Achievement as Activities Appraisal Achieved Percentage of Target Rural Infrastructure 63 383 62 608 99

Crop Production 106 666 101 950 95 Livestock and Fishery 40 688 42 512 104

Economic Trees 88 305 75 908 86

Women's Development 91 703 84 267 92

Social Support 89 591 90 341 101 Overall* 110 700 112 915 102 * Many households benefited from more than one component. Source: PCR, December 2003

A. Impact on Physical and Financial Assets

56. Visual impression. The signs of greatly increased levels of prosperity were evident in every township area visited by the mission. There are well-maintained metalled roads, two storey brick built houses, many of them recently built or renovated, and well-stocked shops and markets. Rice, soybean, maize, mulberry, tea and chestnut plantations, near or far from the villages, in narrow terraces around the hills, in tiny plots of land or in larger fields, in the central or marginal regions of the project area – all look uniformly healthy and productive. These visual impressions can be contrasted with the overwhelming anecdotal evidence for the severely impoverished conditions of the pre-project era, as well as the detailed poverty profile to be found in the SAR.

57. Income and grain. The two main impact indicators utilised by the project have been per capita income and grain availability, for which a complete set of annual figures exist, down to township level. The increases in both have been substantial, although the tendency to take 1995 as the starting point has produced exaggerated impressions, since 1995 was a year of drought, floods and poor harvests. Comparing the year of project effectiveness (1997) with the year of completion (2003), the average increases were 36.8% for per capita income and 13.3% for per capita grain availability. The performance of the counties was uneven, with Yuexi and Taihu counties showing very substantial

14 increases and Huoshan and Jinzhai much more modest increases. Qianshan showed a substantial income increase but a modest increase in grain availability.

Table 5. Percentage Increases in Per Capita Income and Grain Availability by County, 1997-2003 Grain County Income Availability Huoshan 12.6 4.7 Jinzhai 10.6 6.0 Yuexi 76 27.6 Taihu 59.7 23.6 Qianshan 53.7 4.7 Average 36.8 13.3 Adapted from PCR, Annexes 16 and 17

58. New sources of income. Sources of household income in the pre-project era were limited to grain production and animal husbandry. After project implementation, income sources were diversified to include tea, silkworms, fisheries, economic trees and improved livestock breeds. From 1 mu of tea, a household can generate an income of Y 1 500-2 000 p.a., and from 1 mu of mulberry, as much as Y 10 000 from four annual harvests of the silkworm cocoons. Chestnuts were a particularly successful option for households with a shortage of labour capacity, since the trees need only minimal tending. The estimated yield from a three-year-old tree is around 10-15 jin, and from a mature tree 15-25 jin.23 Extension officials reported that it would be possible for a small household to subsist on the income from 30 mature (ten-year-old) trees alone, but some project households have planted 150-200.

59. Land improvement. Nearly 70 000 mu. (c. 4 650 ha) of poor, degraded or unusable land has been improved by land levelling, soil replacement or drainage. At many sites, the measures undertaken Silk processing is a rapidly growing have been extensive and laborious, involving a sector in the project area, largely to the combination of levelling and draining the land, increase in mulberry cultivation constructing irrigation channels, and replacing of supported by the project. stony and barren soils by soils brought in from The silk processing plants provide elsewhere. The results have sometimes been quite employment for many of the spectacular, with areas of waste land transformed into farming households. highly productive garden and orchard areas. Examples Photo by Roger Norman visited by the Mission included an area of 260 mu (17 ha) at Peng Lin village (Mi Tuo township, Taihu county) which is now capable of generating an income of Y 200 000 p.a. from grain and economic trees.

23 One jin = 500 grams

15 B. Impact on Human Assets

60. Healthcare. The training in healthcare provided by the project was stated by many women as among the most useful of all project interventions. Women interviewed by the mission claimed that they had a much greater awareness of disease and hygiene and of how and when to access the health services. This is especially important in a region where the women are subject to gynaecological infections which were not spoken of in the past and were therefore simply tolerated. Many women are now prepared to see the doctor about these and other conditions. All medical records are kept in township hospitals and the Mission was only able to examine a small selection, but based on a meeting held with doctors from township hospitals and staff of the ACWF, the incidence of gynaecological diseases is decreasing. In Huaishuwang township of Jinzhai County, the incidence of female diseases in 1999 was 29% among women undergoing medical check-ups, while in 2003 it was 18.9%. The main reason given for the improvement was better knowledge of hygiene and healthcare among women.

61. Nutrition. The healthcare training also included some instruction on childcare and nutrition, and women interviewed said they now appreciated the importance of a balanced diet. At the same time, a greater variety of foodstuffs has become available in many households. Household interviews revealed that the consumption of meat, eggs, vegetables and edible oils has greatly increased and children are fed fresh green vegetables and protein-rich foods absent from their diet in the past.

62. Education. No direct educational activity was undertaken under the SWAIADP. However there has been an indirect impact in this sphere, unquantifiable but unarguable. School fees are a major concern in many households (see case studies below) and the great majority of people interviewed by the mission gave the payment of school fees as the most important expense beyond mere subsistence. Thus all income increases can be assumed to have had an effect on the take-up of educational opportunities and the continuation of schooling beyond primary level.

Four Case Studies

Mrs. Xu De Liang, farmer from Gue Ming village, Beizhong township, Taihu county. This family has one daughter and one son. The girl works in a shoe factory in Hefei City while the son is studying in a university, also in Hefei. With the help of a loan from SWAIADP, the family has developed 2 mu of mulberry, and 2 mu of tea. They also keep one cow and two pigs. “Before the project, we could produce food just enough for the family’s daily consumption. But now, we can support our son’s study at university. We are happy with this although our life has become lonelier when our children are not with us, especially during festivals.”

Mrs. Chen La Hua is 51. Her family has three members: herself, her husband and their son. The son works in Huainan Prefecture. Mrs Chen took loans of Y 270 to grow chestnut and Y 120 to purchase rapeseed. She also received a total of 100 kgs through WFP’s food-for-training. The family also has 7.8 mu of forest land. To plant one mu of pinus trees in one mu, the family received a grant of Y 120 from the Forestry Division. The trees now belong to the family. Their one concern is that their son may not return to the village on completion of his training.

Mr. Xu Hui Lun, farmer from Gue Ming village, Beizhong township, Taihu county. There are four people in his family: his wife, himself and their two sons. The sons are studying at college in Hefei City. Xu is 54 years old and his wife, 50. In 1999, the household took a SWAIADP loan of Y 1600 in order to cultivate mulberry and tea and to install a biogas facility. The family also received assistance from the Forestry Division to establish 1.3 mu of pinus trees. The family started repaying the loan in 2004. According to them, mulberry and tea have become the main sources for cash with which to finance their sons’ studies.

16 In the village of Feng Xiang of Zhong Quan township in Yuexi county, the IFAD loans were for many households their first ever experience of borrowing. One farmer told the mission that he had ‘hesitated for a very long time’ before taking out a loan of Y2 000 (USD 244). He bought 30 goats with the loan, now has a herd of 50 and an annual income of Y 4-5 000. He paid off this loan without difficulty and took out a second loan, this time to install a biogas facility at his house. This was a three-year Y 3 000 loan. ‘The only households in this village who have not taken out loans,’ he told the Mission, ‘are those where the men migrate for employment so there is no available labour within the household.’

C. Impact on Social Capital24

63. First-time borrowers. Perhaps the most important impact under this heading has been the gradual acceptance even among poor villagers that credit can be a useful tool for them in the improvement of their incomes and living standards. For the majority of households interviewed, the SWAIADP loan had been their first experience of bank loans, and for many of them the first experience of any borrowing, formal or informal. Township officials, VIG leaders and RCC staff constantly reiterated that the greatest obstacle faced by the project in the early days was the suspicion and hostility among all but the most progressive households to the notion of borrowing. Over time, the efforts of energetic VIGs and the successful example of the first applicants for loans has had its effect, and in all villages visited by the Mission, project-funded loans were found to be familiar and popular, and the disciplines of loan management and repayment had become part of everyday life. All borrowers under SWAIADP were given some basic training in these disciplines.

64. Officials pointed out to the Mission that farmers in these areas had been accustomed only to grants (in the form of government subsidies and relief funds). The idea of a loan, which required planning and commitment and diligence to pay back, was something quite new to them. Many of the villagers met by the Mission had taken out a second and third SWAIADP loan, and the overall statistics (around 300 000 loans taken by 100 000 households) indicate that this is indeed the trend.

65. Village implementation groups. Despite being a project-specific institution, the VIGs already give the impression of being a permanent part of the institutional landscape. Their lifetime is anyway assured for the duration of the revolving fund (a further fifteen years), and all VIG members consulted by the Mission were adamant that the VIGs would continue indefinitely after that. If the production of the Village Development Plans is their first task, their responsibility for promoting project activities, encouraging community participation, and improving, screening and submitting development proposals has also been significant. VIG leaders interviewed by the Mission appear to have played a seminal role in the proliferation of credit.

D. Impact on Food Security

66. Determining food insecurity. Improvements in food security constituted one of the primary goals of the SWAIADP, but food security figures are no longer compiled by the government, the rationale for this being that since the liberalisation of markets, foodstuffs are everywhere available for purchase. Previously a given household might have had the necessary income but have been unable to find food to purchase, but this is no longer the case. It is therefore argued that income figures combined with grain availability now provide sufficient indicators. The problem with this approach is that net income and grain availability deal only in averages, so that it might be possible for the average to increase substantially due to the large gains made by the better-off, while still leaving the poorest in the same state.

24 The inclusion of a ‘borrowing mentality’ has been included under the heading of social capital since the effect goes beyond the purely financial implications, marking a radical change from the idea of ‘government hand-outs’ which were taken for granted. The VIGs, the vehicle for participatory planning, are dealt with under the heading of institutional impact.

17 67. ‘Graduation’. Much emphasis has therefore been placed by supervision missions on reporting the ‘graduation’ of households in terms of the three categories of poverty. Only in these statistics is it possible to see the progress made specifically by the poorest households. According to PCR figures (Table 6), the overall results have matched expectations, with the percentage of households in the ‘poorest’ category falling at a fairly steady 2% per year, from 15.1% in 1997 to 2.6% in 2003, and that of the better-off households rising, gradually at first but with increasing rapidity to over 30%. These figures are based on township and village level surveys carried out by the State Bureau for Statistics and incorporating the findings from the baseline survey carried out by the project.

Table 6. Movements between Poverty Categories Category A ‘Poorest’ B ‘Poor’ C ‘Better-off’ Income up to Y 730—1 5 00 Above Y 1 500 Y 730 (c.USD 90) (USD 90 –182) (Over USD 182) Year HH % HH % HH % 1997 18 635 15.1 97 124 78.7 7 651 6.2 1998 16 537 13.4 95 396 77.3 11 477 9.3 1999 14 562 11.8 95 643 77.5 13 205 10.7 2000 11 847 9.6 92 804 75.2 18 758 15.2 2001 11 107 9 81 944 66.4 30 359 24.6 2002 9 009 7.3 78 736 63.8 35 665 28.9 2003 3 209 2.6 80 093 64.9 40 108 32.5

Source: PCR (Dollar equivalents at current rates)

68. Evidence from supervision reports. Information from supervision missions on this matter is sparse but suggestive. An extempore mid-term survey (2000) carried out at a training session (in Shuanglong) came up with the following results: 37% of trainees had no food deficit, 23% suffered from a two-month deficit, 23% from a three-month deficit, and 17% from four months or more. A survey the same year of 347 households in Wu Liu He village (Huoshan County) found only 10% suffering from food deficit. In 2003, anecdotal evidence in Taihu and Huoshan counties suggested that the average food deficit had been reduced from around 4-6 months at the start of the project to 1-2 months, a substantial improvement. ‘Most households, with the exception of the poorest of the poor,’ ran the report, ‘had sufficient income from other sources such as economic trees or off-farm work, to purchase food to cover the deficit.’25

69. The evidence of grain availability. The PCR estimates that overall grain availability rose from 135 kg per person per year in 1997 to 281 kg in 2003. WFP’s criterion for the provision of food aid was a maximum of 180 kg per person per year, 280 kg being the approximate yearly requirement in China for an adult with a light to average workload. The Mission found that households also eat vegetables and meat, and that generally their diet is more varied, so with the current level of food availability, food deficits ought to be a thing of the past. There is, of course, inequality in terms of food availability, but the Mission did not encounter a single household, even among the poorest, unable to afford daily meals. The steady conversion of fields from wheat cultivation to economic trees is further evidence of the improvement. Some farming households no longer cultivate any cereals for themselves, relying entirely on income from cash crops.

25 See Supervision Report of 2003, paras. 27-29 and Table 5.

18 E. Impact on the Environment and the Communal Resource Base

70. All farmers and officials interviewed were emphatic that the environment in the project area had greatly improved during the last ten years. Total forest cover in the project area has increased by 6% since 1995, and the Mission did not see a single trace of deforestation or soil erosion in all areas visited. Field observations revealed an extraordinary degree of care taken by farmers in their cultivation of the slopes. On steeper slopes, the land has been perfectly terraced with rocks used to support the earthen walls. Most farmers grow soybeans on the edges of the terraced rice fields for maximum utilisation of the soil and the prevention of erosion. In fruit orchards, mulch is commonly used against soil erosion and for moisture retention. All maize, mulberry and tea crops are grown at reasonable density and proper layout to maximize benefits and minimize surface run-off water.

71. Organic options. Agricultural Extension staff recommends farmers to restrict the use of chemical fertilizers and to maximize the use of organic fertilizer. The introduction of the biogas facility has also done much to extend the use of fully decomposed organic matter in those areas where biogas installation has been promoted. The government authorities maintain a strict control of the supply of both seeds and chemicals. It is stipulated that anyone wanting to retail these agricultural inputs must possess the relevant qualifications and apply for an official licence. He or she must then follow the instructions and recommendations of the Agricultural Bureau to ensure that the goal of chemical-free agricultural products is achieved.26

72. Protected niches. The Government of China has made great efforts to create protected niches for its farmers to develop their lands and crops by using aeroplanes to ‘bomb’ the entire area of hilltops and mountains with the seed of pinus species. The Government also offers subsidies to farmers to plant forest trees on lands near their settlements. For every one mu of afforestation, in addition to free seedlings, each household is given Y 120 for maintenance. The planted trees then become legal property of the planters. The result of this is not only that government plantations are untouched, but that farmers’ woodlots are well cared for. The Mission’s only concern in this respect is the tendency among farmers to harvest the best trees (those with the straightest and roundest trunks) instead of first harvesting the poorer trees and leaving the good ones to grow into profitable high quality timber.

73. Household hygiene. Many farming households lack suitable outhouse toilets, which are not only poorly designed but wrongly located. The result can be breeding grounds for flies and disease as well as objectionable odours. Even some government stations, which need to act as models Beneficiary farmers with their crop of mulberry, in such respects, patently fail funded by SWAIADP micro credit. to do so. Photo by Pham Quang Hoa

26 The positive findings of the Mission in this respect run counter to the conclusions of the OE thematic study on the subject. It must be assumed that the performance of the agricultural department of Anhui Province has been above average,

19 F. Impact on Institutions, Policies and the Regulatory Framework

74. The lessons learned. Government officials at the four administrative levels who have been involved in the project, point to certain clear lessons learned through the planning and implementation of SWAIADP: (i) the advantages of ‘loan money’ over ‘grant money’ in educating officials as well as farmers in the disciplines of repayment and the importance of sustainability; (ii) the fact that household loans can be made at a sustainable rate of interest and still be accessible to very poor people; (iii) the usefulness of PRA techniques, first introduced for village level needs assessment in 2001; and (iv) the importance of compiling gender disaggregated data in order to identify and resolve the problems specific to women.

75. SWAIADP-funded activities have given a considerable boost to the range of assistance offered to farmers by the agricultural extension services. The traditional agricultural extension focussed on technology transfer to farmers in relation to ‘strategically important’ crops, particularly rice, wheat and maize. With the structural and strategic adjustments introduced by the project, the emphasis has shifted to include the production of cash crops including tea, mulberry, bamboo, chestnuts, gingko, kiwi, pears, peaches, plums, melons and grapes.

76. Rural credit cooperatives. In view of the ‘agent arrangements’ between PMOs and RCCs, the latter have been able to reap benefits from the operation of the revolving credit fund without – in most cases – undergoing any risk. As a direct result of the credit operations, the amount of deposits at RCCs has increased and their clientele base has been substantially broadened. Their capacities in terms of loan approval and loan recovery have been enhanced. They have been introduced to the concept that small loans made to poor people living in remote areas can be a normal part of the portfolio of a microfinance institution, provided the costs are covered by the interest charged. At the time of project inception, most RCCs (by their own admission) were meanly accommodated and their business was mostly restricted to the state-run Township and Village Enterprises. By project close, many of the RCCs had moved into new or renovated premises with modern equipment and facilities. This development must be seen as an outcome of a general increase in trade and prosperity in rural areas, but the operation of SWAIADP has undoubtedly been an important influence. RCC officials interviewed by the Mission expressed themselves satisfied with the division of duties and responsibilities agreed with the local PMOs.

77. Impact on the rural finance sector. IFAD’s initiative in attempting to mainstream loan funds through the existing network of RCCs, instead of utilising government bureaus, has been a significant contribution to the development and sustainability of the rural finance sector, clearly recognised by the central level Ministry of Finance (MOF) as well as the provincial finance bureaus. Given the generally weak capacities of the RCCs at the time of project inception, it could hardly be expected that this should be achieved without the problems that resulted in a modification of the terms of the subsidiary loan agreements. Later IFAD-funded projects such as the ongoing Rural Finance Programme have learned from the SWAIADP experience, putting more emphasis on strengthening RCC capacities.

G. Impacts on Gender

78. Loans to women. The involvement of women in project activities and their share in project benefits are inextricably bound up in the operation of the project as a whole.27 The fact that many loans were signed by men and utilised by women has led to a certain statistical confusion. The PCR figures (PCR, Annex 13) yield percentages for the share of women of the total loan amount (35%), of the number of loans (32%) and of the receiving households (40%). These statistics were broadly reflected in the questionnaire circulated by the Mission to the township RCCs, which showed the proportion of women borrowers as ranging between 45% (Taihu and Jinzhai counties) and 24% (Qianshan). However, discussions at township level revealed a lack of a uniformity in the calculation

27 Partly for this reason, some of the material gathered here under the heading of gender can be found elsewhere in the report.

20 of these figures, which apparently include a mix of signature and utilisation. The 2001 Supervision Report found that there were ‘less than 10%’ of women signatories in Taihu county, but this gives a very false picture of the actual utilisation and management of loans. The present Mission talked to many women who said that their husbands had signed the loan but they themselves managed it. The significant finding is that women do now have access to microcredit for activities that they control, whether the loan comes through their husbands or themselves.28 Table 7 reproduces the provincial figures for women’s share of the total loan amount by component – nearly 60% of loans for livestock and 28% for economic trees.

Table 7. Women’s Share of Loans Component Total No. Percentage of Loans to Women Agricultural Equipment 6 686 17.6 Economic Trees 93 075 28.1 Livestock and Fishery 33 392 59.2 Seasonal Credit 157 435 25.6 Women’s IGAs 8 349 98.9 Total 298 938 32.0 Adapted from PCR, Annex 13.

79. Household food security. Before the project started, the average household food deficit was two to three months in a year and in some places five to six. Crop yields have almost doubled thanks to land improvement, irrigation expansion and technical training, the households in the project area have enough food to eat and women do not need to be anxious about how to feed their families any more. Some women now prefer to plant economic trees in their arable land and buy food from the market.

80. Income. The income sources of the households in the project area used to be limited to grain production and some livestock raising. After project implementation, income sources were diversified, including tea, silkworm, fishery, livestock, chestnut, processing. As the principal source of labour for many of the income-generating activities, women can now make a significant contribution to the livelihood of the household. According to the Mission’s discussions with groups of women during the mission, it was found that the income generated from a SWAIADP loan averages at more than Y 2 000 p.a., and women raising silkworms are earning as much as Y 10 000 a year from three or four harvests.

81. Food consumption. With the increases in food availability and incomes and the improved knowledge of healthcare that women have gained from the training courses, household diets are much more varied than in the past. The consumption of meat, eggs, fresh vegetables and edible oils has much increased, and the family diet is richer in proteins.

82. Health. Though there are no complete statistics on the improvement of women’s health and nutrition, records in some townships show a decline that the incidence of gynaecological disease. Most women interviewed appeared to have a sound understanding of basic hygiene and their awareness of disease prevention and cure has been enhanced.

83. Workload. Most women find themselves busier than before because they are taking care of tea plantations, silkworms and livestock, as well as doing household chores. However, they are pleased at the increased workload because their work is worthwhile and profitable.29 They enjoy their busy lives of today much more than when they had nothing to do but worry about the daily meals. They report that different activities generally demand their attention at different seasons and if the workload

28 This finding must be seen in the light of the prior discussion of the signatory issue (para 40). 29 One supervision consultant reported the opposite, criticizing the SWAIADP for increasing women’s workloads. It seems that the finding was based on a single interview.

21 becomes excessive, they can hire someone to help with the income earned from their various enterprises.

84. Biogas installations. The installation of biogas units was undertaken as an extension of the livestock component and has proved extremely popular with all households visited by the mission where the installations existed, and especially among the women. Some households have simultaneously installed hygienic toilets and purpose-built pigpens. The biogas facilities have four immediate benefits: the hygienic condition of the household is improved; the living quarters are smoke-free; pig manure is readily available as fertiliser; the workload involved in fuelwood collection has been reduced by as much as four-fifths.30

85. Self-confidence. With SWAIADP support for many activities in which women can play the major role, women are now obliged to tackle a variety of activities, entailing greater exposure to modern technologies and new information – through training courses, loan access, consultation with other women, working in processing factories and so on. Interviews revealed that women are now aware that they are as capable as men of contributing to the family livelihood, resulting in a new sense of self-confidence.

86. Empowerment: In each PMO, there are female staff, and ACWF representatives are ex officio members of PMOs at the different levels. In each VIG, there is at least one female representative and in many cases more than one. Four VIG leaders are women. Women representatives are involved in the overall planning of the project activities and assist in the implementation of women activities. The PCR contains a table of all female participants in project decision-making bodies, totalling 286 out of 1 224 positions or 23.4%, a clear advance on the pre-project situation.

H. Sustainability

87. The main positive elements of sustainability can be readily summarised:

(i) The operation of the revolving credit fund in the 34 townships for 15 years after project completion. This entails the continued recycling of the loan among poor households to finance both the activities envisaged at appraisal as well as new activities proposed in village and township development plans and approved by the PMOs; (ii) The continuation of strong government support. The central Government has committed itself to continued support through such schemes as Food-for-work and increased funds for farmer training as well as the ongoing poverty alleviation funds. Included in local government plans are further investments in rural infrastructure, especially roads, and the provision of technical and market information to farmers in addition to the normal extension services; (iii) The strong initiatives in terms of the regreening of the hills. These have created protected niches for cultivation and an environment guarded against erosion and deforestation, perhaps the essential condition for sustainable agriculture; (iv) Steps being taken (notably in Huoshan county) to establish appropriate agro-industrial chains including cultivation, primary and secondary processing and marketing, for such products as tea, silk and bamboo; (v) The very evident financial success of economic trees ensures its replication and expansion if the market allows. New items such as medicinal plants and off-season (mountain) vegetables are being added to the ‘menu’; (vi) The improvement of livestock breeds. This is a process with its own dynamics, but further support is also included in county planning;

30 In other words, the fuel wood required is only around one-fifth of what was needed before. The biogas initiative has been pursued more vigorously in some counties than others. Taihu County reported the installation of biogas in around 4 000 households and Huoshan in only 400. A clear ripple effect can be noted both within and between counties and Huoshan plans to double the number of installations in the coming year.

22 (vii) The survival of the PMOs, reduced in size. This not only ensures the ongoing supervision of the revolving fund by experienced staff but also a continuity of direction in terms of poverty alleviation initiatives at local level; and (viii) The likely survival of the VIGs as village-level planning institutions.

88. Equitability. Equitability, or social justice, constitutes a key element of sustainability, sometimes neglected. The Mission was particularly struck by two examples, both concerning fishfarming. One was the provision by the Government of fishfarming loans and technical assistance to communities who lost land as a result of dam/reservoir construction, and the other was a community-based initiative to ensure that the benefits of a second fishfarming scheme were equally shared by all. In general, Impressive regreening of the landscape has been achieved by the Mission was very much the intensive cultivation of the slopes with project-supported crops including paddy rice, tea and bamboo, and also by the impressed by the collective sense ‘bombing’ of the hilltops with pinus seeds. of responsibility and civic duty Photo by Roger Norman conspicuous at all levels of society and government.

89. Risk of market saturation. In some townships, there are indications that saturation in the markets for raw silk and tea may constitute a risk to the economic sustainability of project interventions that have led to a rapid expansion of the cultivation of mulberry and tea. The Government has prepared certain measures to safeguard the cultivators, and some townships are planning to re-direct the focus of loans away from these two commodities. This is a reminder that the diversification of income does not consist of single, irreversible measures but must be seen as an ongoing process sensitive to market needs and changes.

I. Innovation and Replication

90. The delivery of credit through the RCCs was not strictly an innovation, having been first implemented in Sichuan province, but the latter case was not a success due to the weakness of RCC capacities, so the SWAIADP can be said to have been the first successful example of the mainstreaming of microcredit through existing institutions.31 The WFP food-for-training (as opposed to the well-tested food-for-work) had not previously been implemented in China. The successful twinning of household choice and village-level planning regarding economic trees (see paras 51-52) was a first and deserves replication wherever the necessary opportunities exist. The VIGs constituted an important and successful institutional innovation and undertook a rather demanding and extensive list of tasks for a village-level institution. The VIGs are regarded as permanent institutions in villages, and have already outlived the term of the project.

91. SWAIADP has had an undoubted influence on the Provincial and County Government, many of whose senior officials have taken a keen interest in its progress. This effect has been extended by an impressive series of visits and workshops enabling visitors from other regions and other countries to

31 Even though the management of credit was not carried out as per design, the collaboration between PMOs and the still significant role of the RCCs was successful, and new. SWAIADP can be seen as an important stage in an ongoing process (see also para 77).

23 learn from the SWAIADP experience. How far this will result in replication remains to be seen, but the contacts have been made.

J. Overall Impact Assessment

92. As the foregoing clearly indicates, the impact of the SWAIADP was very positive and by the end of its cycle was succeeding in reaching even very poor households. The “model farmer” approach favoured by the PMOs was vindicated, in the view of the Mission, by the results. What is harder to gauge is the contribution of the project to the various improvements. Most areas of the province have evidently benefited from the liberalisation of the economy and the substantial investments made by the Government in rural infrastructure, as well as from the increased assistance to poor farmers in terms of direct subsidies and guaranteed minimum prices for staple crops. Townships reported that an average of 20-30% of their total investment budgets were accounted for by project funds during the project period, but this statistic conceals the undoubted catalytic effect of SWAIADP interventions.

VI. PERFORMANCE OF PARTNERS

A. Performance of IFAD

93. IFAD. The Fund can be commended on the following counts: an intelligent project design and the sensible decision to involve mainly local consultants in formulation; the boldness of the new approach to credit delivery; the strong personal support and assistance of the then Country Portfolio Manager, confirmed by staff at all levels, and useful strategic papers (the COSOP of 1999, and the draft COSOP of 2004, which is complete with a perceptive commentary on the development of the Chinese economy and the gaps in the national poverty programme).

94. Some criticisms can also be raised. First, the lack of an initial survey of RCC capacities, which might well have given advance warning of some of the problems of that area of project design, was a surprising omission. Second, the project seems over-designed in some respects, particularly with regard to the detailed stipulations for crop areas and expected production increases. In practice, the ‘menu’ of crops was not rigid, and new initiatives were added with the approval of the supervisors. Yet the counties certainly felt somehow constrained by the very exact stipulations, and the most frequent of recommendations given to the Mission at county level was for more ‘flexibility’. It may well be that what they were in fact requesting was more autonomy. This is a complex issue, and perhaps IFAD was not initially aware of the unusual competency of the Anhui Agricultural Department and the other technical departments and bureaus.

B. Performance of the Cooperating Institution

95. UNOPS fielded six supervision missions to the project, the first two of which (1998 and 1999) visited all five counties. The duration of the supervision missions after 1999 was reduced from 14 to 10 days. The first two reports appear more detailed and objective. Together the six missions visited only half of the 34 townships, for reasons of time and distance no doubt, budgetary limitations bear always an issue in supervision. For their part, the PMOs said that a greater technical expertise and more consistency in the membership of Supervision Missions would have been helpful. These are familiar issues to IFAD which require no elaboration here.

96. The MTR. The 2001 Supervision Mission had an expanded brief as the Mid Term Review and was allotted 14 days with seven consultants including WFP and government experts. It was this mission that recommended a one-year extension of the project beyond December 2002. Its report was critical, not only regarding the targeting but also inappropriate training for illiterate farmers and inadequate emphasis on women’s income-generating activities.

24 C. Performance of the Government and its Agencies

97. The central Government. For all of the implementation period, the MOA was in charge of central level coordination. Since it was the Anhui Department of Agriculture that was in effective control of implementation, this arrangement was logical and its workings were smooth. In 2004, after project completion, the central level responsibility was shifted to the MOF. This was in line with a general policy directive, but may not have been in the best interests of the post-project activities connected with the continuation of the revolving fund. Although 80% of IFAD funds were utilised as household loans, SWAIADP was not primarily a microfinance project – in other words the aim of supporting sustainable microfinance institutions was a subsidiary one. As its name suggests, SWAIADP was first and foremost an agricultural project, with loan delivery as its instrument. At provincial level, it was quite rightly coordinated by the Agricultural Department, with the assistance of other technical departments including finance. The lines of communication between a provincial department and a different central level ministry are inevitably difficult. However, this is a mere quibble compared with the forthright and helpful nature of central level policies regarding rural development and regeneration, which have already been outlined in this report.

98. The PMOs. The provincial level PMO was the nerve-centre of the project. Its key members have now been working on SWAIADP and its preparatory stages for ten years and are thoroughly acquainted with its design, its history, its problems and its achievements. The contacts between provincial and county level are very frequent and the managerial ethos appears to be one of enthusiasm and frankness. Perhaps as a result of this, the PMO leaders at county level also have a strong sense of ownership of the project. Each county has produced a video film of the SWAIADP activities in their counties, made to professional standards. Even without the benefit of subtitles, the sense of pride in the project achievements was very apparent to the Mission. However, it is in the townships that the day-to-day implementation of the project was carried out. Generalisations at this level are difficult. The Mission visited 12 out of 34 townships, but some of these visits were necessarily brief. Each township had prepared a lengthy and informative report; even searching questions were answered without confusion or hesitation; documents were quickly produced when required. One township had even made its own video film.

99. The village implementation groups. The quality and commitment of the VIG leaders has been the key to the successful interface of the project with the rural poor in the five counties, which has been a very difficult area of implementation in other countries. The list of tasks and responsibilities belonging to the VIG is daunting and the Mission began with serious doubts as to whether the necessary capacities would exist at this level. In the event, village leaders and committee members interviewed were characterised by energy, enthusiasm and competence.

D. Performance of Non-Governmental and Community-Based Organisations

100. The All China Women’s Federation. ACWF has been involved in project implementation at county, township and village level. With representatives on the PLGs, PMOs and the VIGs, ACWF staff have participated in project designing, planning and organization, played an important role in mobilizing women to participate in the project activities, and recruited technical experts to provide training under the various training programmes for women. The project has had the effect of strengthening the role and position of ACWF in the project area by providing training and equipment and by funding operational costs. Supervision missions have argued that ACWF has not been as actively involved in project activities as had been envisaged at appraisal. The present Mission feels that ACWF could usefully assist the PMOs to conduct needs assessment among village women and provide the results to technical agencies for them to tailor the training programmes more accurately.

101. The rural credit cooperatives. The large question hanging over the RCCs is whether they now have the capacity to carry out credit delivery, loan approval and recovery, and to bear the credit risk, in line with the original design. The feeling among the PMOs is clearly that the first responsibility of non-governmental cooperative institutions such as the RCCs will be to their members, and their

25 primary aim will be profitability. It is their view that the management of pro-poor credit programmes will always require the intervention of government agencies, whose brief is to serve the community. IFAD is now testing this in the ongoing Rural Finance Programme. As recommended in the following chapter, the Fund may also wish to continue learning from and contributing to the experience in Anhui.

E. Performance of the Co-financier

102. World Food Programme. As co-financiers, the WFP took a close interest in the project and its supervision. The WFP office in Beijing provided IFAD with the next best thing to a country presence and facilitated all central-level contacts and exchanges. The management of the food aid was effectively organised and losses in transit kept to a minimal level. The provision of food parcels as an incentive to the poorest farmers to attend training seems to have been an unqualified success. The WFP’s concern, expressed to the Mission, was that the next crucial step – the access of the poorest trainees to the SWAIADP loans – may not have been taken. As explained elsewhere in this report, this concern may well have been valid in the early years of the project, but the situation has considerably ameliorated.

VII. OVERALL ASSESSMENT AND CONCLUSIONS

103. The SWAIADP was a very successful project, well-designed, well-managed and effectively implemented. It has been of immense benefit to the project area as a whole and to the great majority of the households living within it. In the opinion of the Mission, the key to this success was the commitment and efficiency of provincial government departments at all levels and the very good lines of communication, official and unofficial, that exist between them. With the commitment has gone a sense of ownership, which has made the job of supervision and loan administration rewarding. The notion of ‘partners’, sometimes a euphemism, was real enough in this case. It should be added that the beneficiaries themselves, with their active desire for self-betterment, their enthusiasm for training, their readiness to try new farming technologies and, mostly for the first time, to put themselves in debt to banks, have been the most important partners of all.

104. The very success of the project has produced a certain blandness in the present report. There is much to commend and not a great deal to criticise. The Mission has carefully followed up the issues raised by supervision reports and has found in the main that the problems have been resolved. In particular, the pragmatic approach adopted by the project to targeting the poorest has been vindicated by the eventual results.

105. In the experience of the Mission consultants, which collectively extends to many different projects in many different countries, there are aspects of the SWAIADP that are very unusual and perhaps unique. The majority of IFAD projects are designed with a great deal of caution regarding the existing capacities and motivations of the implementing agencies. The design has to be very specific and very detailed in order to obviate misunderstandings and mistakes. The design of SWAIADP was rather different, partly because the idea for the project and its chief elements was home-grown and also because the formulation was carried out largely by local consultants with a close understanding of how things worked at the various levels of the administration.

106. Even so, the Mission feels that the project design might have gone further in allowing a greater freedom of manoeuvre to the local authorities. This is not quite the same as the current trend in development projects to, as it were, leapfrog the intermediate levels and make funds available directly to villages, through such mechanisms as village or community development funds. These certainly represent a commendable attempt to enable farmers and their leaders to plan and manage schemes for themselves, with the necessary technical advice. But to date, they account for only a limited proportion of the total loan. The larger-scale planning of road networks, water supply coverage, watershed management and market research can only be handled at higher levels than the local community. In other words, much will always depend on the competence and motivation of government agencies at the various levels. It is here that a greater autonomy of decision-making may be allowed in cases

26 where there is no doubting the integrity of the officials and the efficiency of the existing systems. Whether the situation in the province of Anhui in these respects is typical of other provinces in the country, the Mission is not in a position to judge.

107. As per IFAD evaluation procedure, the Mission has rated the performance of the project under sixteen different headings on a six-point scale, as follows: 6 – highly successful; 5 – successful; 4 – moderately successful; 3 – moderately unsuccessful; 2 – unsuccessful; 1 – highly unsuccessful. Table 8 gives the ratings. The final column lists the paragraphs where the detailed arguments behind each rating can be found.

Table 8. Project Performance and Impact Ratings Domain Heading Rating Refer to Project Performance Relevance 5 IV: para 38-41 Effectiveness 6 IV: para 42-47 Efficiency 5 IV: para 48-53 Impact Domains Physical and Financial Assets 5 V: para 55-58 Human Assets 4 V: para 59-61 Social Capital 5 V: para 62-63 Food Security 5 V: para 64-67 Environment 6 V: para 68-71 Institutions and Policies 5 V: para 72-75 Overarching Factors Innovation 5 V: para 88 Replication 4 V: para 88, 89 Sustainability 5 V: para 85-87 Gender 5 V: para 76-84 Performance of Partners IFAD 5 VI: para 91-92 UNOPS 4 VI: para 93-94 Government 6 VI: para 95-97

VIII. RECOMMENDATIONS

A. Strategic Issues

108. The future. In view of the great efforts made by the provincial authorities and the valuable experience they have gained in planning and implementing IFAD-funded activities, continuing contact between the Fund and the province is highly desirable, even if further direct investment by IFAD in the project area seems unlikely given the great strides made in terms of income and food availability. It is also desirable that elements of this most successful project should be replicated elsewhere.

 Support to pilot schemes for the latest generation of microfinance approaches and/or the proposed Village Development Funds, in which planning and management of schemes is devolved to village level, would be suitable ways of continuing IFAD’s interest in Anhui province.  Further national and international workshops and study tours in the project area should be actively encouraged in order to disseminate the project’s achievements.

109. Reaching the poorest. The choice between the priority targeting of the poorest and the adoption of a “model farmer” approach to targeting whereby it is accepted that active, progressive and, often, better-off farmers will act as instigators and models for poorer households is an old dilemma in terms of the targeting strategies of the Fund. The experience of SWAIADP indicates that the second model was capable of reaching the poorest, even though it was necessarily a gradual process. However, measures do need to be put in place to ensure that the process of multiplication is encouraged and continued.

27  Targeting strategies should depend on the degree of homogeneity and social cohesion in villages, which is everywhere different. Where it is high, the inclusion of all households within the community is to be preferred.  Microcredit lent to the poorest households should have more favourable conditions attached, such as longer terms and a greater number of instalments.  VIGs should now actively seek out the non-borrowers among very poor households and satisfy themselves as to the reason, whether lack of labour capacity or lack of interest.

B. Agricultural Development

110. Market risks. In some townships, there are indications that saturation in the markets for raw silk and tea may pose a risk to the economic sustainability of project interventions. The Government is cognisant of this risk and has prepared certain measures to safeguard the cultivators. Some townships are planning to re-direct the focus of loans away from these two commodities.

 The diversification of income does not consist of single, irreversible measures but must be seen as an ongoing process sensitive to market needs and changes and requiring further support, notably in terms of appropriate training programmes for agricultural extension officers and ready access to market information for producers.  Continuing efforts should also be made to introduce better quality crop and animal varieties, especially varieties indigenous to other regions of China.

111. Agricultural extension. With the increasing cultivation of various cash crops in the project area and the need for continued diversification, greater resources and capacities are required of the extension services, which were previously concerned only with ‘strategically important’ crops such as rice, wheat and maize. The approach to extension, too, has been changing rapidly to reflect the needs and priorities of farmers operating within a market economy.

 The substance of agricultural extension, in terms of training and services, should be expanded to include broader concepts, such as regular communication between farmers, the need for ‘informal’ agricultural education, and the challenges posed by a market economy.  An increase in resources (in terms of both manpower and funding) may also be required to enable the extension services to meet the new challenges.

C. Environmental Issues

112. Forest management. It was noted by the Mission that farmers with permits to fell trees from their wood lots often select those trees with round and straight trunks to harvest for sale, although these trees have the potential of producing high quality timber that can later be sold at higher prices.

 The forestry division should introduce better silvicultural techniques for farmers in the project area to manage their wood lots more profitably.

113. Household hygiene. Many households use outhouse toilets which are ill-designed and wrongly located. The result can be breeding grounds for flies and disease as well as objectionable odours. Even some government stations suffer from this problem.

 It is strongly recommended that urgent action be taken to improve the design and where possible shift the location of outhouse toilets. This can be done in conjunction with the expansion of the biogas installations.

D. Women’s Development

114. Training for women. Training programmes were popular and well-attended, but more can be done to design courses to suit the specific needs of women. Traditional literacy training is not the most helpful approach, especially given the prior existence of government-supported programmes of this

28 kind. The manuals used for skills and technical training consist of too much dense text and not enough illustration. Credit training was found useful, but most women had no previous experience of banks and bank loans and some were puzzled by interest rates and repayment planning. Healthcare training was also appreciated, but doctors do not always make good teachers. In general, class sizes were large, and included people of very different levels of education and intelligence.

 Traditional literacy training should be replaced by simplified functional training, and its content focused on what women need and request.  On-demand technical and household skills training should be included in the programme, as well as specific courses on loan management for women.  Methodology and content of the courses should be developed to suit women’s learning requirements and adapted to suit the different educational backgrounds of participants. More illustration, a less densely presented text and a larger font would assist the illiterate and semi-literate.  The training of trainers is a necessary prerequisite for successful healthcare training.  ACWF should be utilised to assess women’s needs and organize small-scale training programmes.  Training courses need to be more frequent and shorter (with a suggested maximum of 60-90 minutes) and classes need to be smaller.

E. Credit Operations

115. Loan recovery. The PMOs claim the recovery rate will gradually improve, but the only available sanction is the refusal of further loans and the trend does not currently point upwards.

 The aim of 100% loan recovery should be re-emphasised. How it can be achieved requires investigation and discussion at county and township level.

F. Management Issues

116. M&E. Data on the incidence of disease is collected during check-ups by the township health workers, but is not effectively utilised.

 After each medical check-up, the township healthcare workers should summarize the results and submit them to the township PMOs, who can then analyse the incidence of diseases in each village.  With the technical support of township hospitals, the PMOs should investigate the causes of high rates of disease in particular villages and tailor the healthcare training accordingly.

117. Baseline survey. The baseline survey seemed over-complicated given the very full statistics available from the State Bureau of Statistics, including surveys of all the poorest households collected at village level. The questionnaire for the baseline survey ran to many pages and included superfluous data. Perhaps as a corollary of this, the sample of households (only 250 in all) was too small to be representative.

 For comparable IFAD projects in the future, both the length of the baseline questionnaire and the size of the sample need to be reconsidered with a view to simplification of the questionnaire and the inclusion of key ‘qualitative’ impact indicators.

118. Approval of AWPB. The AWPB passed through three levels of aggregation and approval before entering the donor approval process involving IFAD, WFP and UNOPS. This made for a lengthy and cumbersome procedure, with IFAD approval sometimes being awaited for as long as one month. On one occasion, the provincial PMO found it necessary to start implementation before approval was received.

29  In-country donor approval of AWPB should be considered for future projects in China, with the approval of all ongoing projects timed to coincide to allow for the attendance of the Country Programme Manager. This would ensure a more participatory consideration of the AWPB by all parties simultaneously, as well as accelerating the process of approval.

119. Translation. Donor-funded projects require an ever increasing amount of documentation and reporting in the English language. The series of missions, observers and workshops also require interpretation and translation services. SWAIADP placed this burden – without perhaps being aware of its full extent – on the provincial level M&E officer, who had her own considerable portfolio to manage.

 Future IFAD-funded projects should stipulate the recruitment of a dedicated translator/interpreter.

30 APPENDIX 1 People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

Implementation Results

Appendix 1 - Table 1. Details of Physical Achievements by Component

Appraisal Target Achievement Percentage I. RURAL INFRASTRUCTURE A. Irrigation 1. Reservoir No. 24 24 100% 2. Irrigation Pond No. 871 777 89% 3. Irrigation Canal Kms 122 124 102% 4. Diversion Weir No. 298 246 83% 5. Flood Protection (dykes) Kms 17 25 147% 6. Irrigation Pumping Station No. 41 35 85% 7. Portable Irrigation Pump No. 650 665 102% 8. Training P/day 112 059 430 157* 383% B. Rural Roads 1. New Road Kms 68 68 100% 2. Road Upgrading Kms 252 252 100% C. Drinking Water 1. Gravity Water Tanks No. 438 782* 179% 2. Water Purification (Wells) No. 160 730 456%

II. CROP PRODUCTION A. Land Development 1. Land Levelling Mu 12 960 12 170 94% 2. Cold Water Drainage Mu 49 660 49 212 99% 3. Dryland Conversion Mu 6 160 5 795 94% B. Production Credit HH 542 989 285 300 53% C. Seed Multiplication Mu c. 800 (est.) 2 901 D. Extension 1. Institution No. 40 35 88% 2. Training P/day 440 918 1 528 902* 347% Sources: Staff Appraisal Report and Project Completion Report

31 Appendix 1 - Table 1 (continued)

Target Achievement Percentage III. ECONOMIC TREES A. Bamboo 1. New Mu 28 250 21 430 76% 2. Rehabilitation Mu 35 280 25 790 73% B. Chestnut 1. New Mu 26 000 26 777 103% 2. Rehabilitation Mu 12 300 12 286 100% C. Tea 1. New Mu 30 640 27 937 109% 2. Rehabilitation Mu 28 000 25 743 111% D. Mulberry 1. New Mu 17 000 18 794 111% 2. Rehabilitation Mu 23 100 24 450 106% E. Kiwi 1. New Mu 1 700 1 700 100% 2. Rehabilitation Mu F. Gingko 1. New Mu 2 500 2 500 100% 2. Rehabilitation Mu G. Credit for Economic Trees HH 126 035 98 951 79% H. Training P/day 667 342 1 496 635* 224%

IV. LIVESTOCK AND FISHERY A. Livestock 1. Cattle Head 8 105 6 618 82% 2. Pig Head 26 220 26 484 101% 3. Goat Head 38 290 25 549 67% 4. Training P/day 120 621 348 272* 289% 5. Institution Strengthening No. 37 24 65% B. Fishery 1. Nets 7 608 6 634 87% 2. Training No. 13 298 52 066* 391% 3. Institution Strengthening P/day 3 8 267% C. Credit for Livestock and Fishery No. 42 697 33 866 79% D. Recurrent Cost HH 37 20 54%

32 Appendix 1 - Table 1 (continued)

Target Achievement Percentage

V. WOMEN'S DEVELOPMENT

A. Women's Training 1. Literacy P/day 1 388 069 1 016 528 73% 2. Village Technical Training P/day 211 094 488 118* 231% 3. Township Technical Training P/day 33 089 78 748* 238% 4. Credit Training P/day 151 507 396 718* 262%

B. Credit for Income Generating Activities HH 8 049 6 363 79% C. ACWF Strengthening No. 5 9 180%

VI. SOCIAL SUPPORT AND SERVICE

A. Village Healthcare Training P/day 345 846 522 704 151% B. Township Healthcare Training person 64 400 57 081 86% C. Gynecological Treatment person 632 085 381 431 60% D. Strengthening Healthcare Service No. 477 249 52%

VII. INSTITUTIONAL SUPPORT

A. RCC 1. Staff Training P/day 3 950 3 298 83% 2. Equipment No. 452 435 96%

B. PMO 1. Staff Training P/day 11 654 11 083 95% 2. Monitoring and Evaluation No. 37 31 84% 3. Equipment No. 541 524 97% 4. Food Handling Ton 13 447 9 983 74% 5. Recurrent Cost No. 548 947 173%

* These figures include additional support under the WFP Extension project.

33 Appendix 1 - Table 2. Areas of New and Improved Cultivation Activities Target (mu) Achievement Comparison Drainage for cold water logging 49 660 49 212 99.1% Area benefited by new irrigation schemes 171 000 n/a Area of new tea establishment 30 640 27 937 91.2% Area of tea garden rehabilitation 28 000 25 743 92.0% Area of new mulberry establishment 16 000 18 974 118.6% Area of mulberry rehabilitation 22 100 24 450 110.6% Area of new chestnut establishment 6 000 26 777 446.3% Area of chestnut rehabilitation 12 300 12 286 99.8% Area of new bamboo establishment 28 250 21 430 75.8% Area of bamboo rehabilitation 35 000 25 790 73.6% Area of new kiwi and ginkgo establishment 4 200 4 200 100.0% Source: Adapted from PCR.

Appendix 1 - Table 3. Expenditure by Component and by Source

Government IFAD WFP Farmers Total

1、Rural Infrastructure 98 475.0 36 115.9 1955.3 26 436.0 162 982.2 2、Crop Production 47 376.8 70 308.7 3319.0 13 586.7 134 591.3 3、Livestock and Fishery 4 824.2 40 652.0 1474.6 - 46 950.8 4、Economic Trees and Fishery 33 668.3 9 7847.0 4441.6 9 178.7 145 135.6 5、Women's Development 7 285.3 6 866.2 9346.7 - 23 498.2 6、Social Support and Service 12 890.5 0.0 9373.6 - 22 264.0 7、RCC and PMO Support 14 093.8 5 366.5 - - 19 460.3 Total 218 613.8 257 156.5 29 910.8 49 201.4 554 882.5

34 Appendix 1 - Table 4. Proportion of Women among Management Officials

Total Number of Women Officials Percentage of Officials ( Women Officials Provincial 9 3 33.3 Prefectural 12 2 16.7 County 84 26 31 Township 347 91 26.2 Village 2 669 1 056 39.5 Total 3 121 1 178 37.7

Appendix 1 - Table 5. Women in Policy-making, Management and Activities

Percentage of Men Women Total Women

A. Policy-making/PLGs

Head 36 6 42 14.3

Member 266 39 305 12.8

Subtotal 302 45 347 13

B. Project Management

Director 38 4 42 9.5

Vice Director 46 5 51 9.8

Administrative 138 48 186 25.8

Technical 126 64 190 33.7

Supporting 71 45 116 38.8

Food Delivery 217 75 292 25.7

Subtotal 636 241 877 27.5

Total 938 286 1 224 23.4

35 Appendix 1 - Table 6. Monitoring Formats and Frequency (Counties)

Format Frequency 1. Project Progress Report Six monthly 2. Commodity Data Report Three monthly 3. WFP Workdays Six-monthly 4. Socio-economic Profile Annual 5. Project Quality Assessment Annual 6. Project Credit Operation Bi-monthly

Appendix 1 - Table 7. Provincial Level Monitoring Formats (March 2003)

Format Frequency 1. Summary Financial Progress by Financier Six-monthly - ditto - (cumulative) Annual 2. Project Output and Workdays Six-monthly 3. Commodity Data Quarterly 4. Project Credit Operation Six-monthly - ditto - (cumulative) Six-monthly Credit Revolving Fund (cumulative) Six-monthly - ditto - by Household Category Six-monthly 5. Government Contribution Annual 6. Food Beneficiaries by Age and Gender Six-monthly 7 Project Beneficiary Households Annual - ditto – (cumulative) Annual 8. Gender Participation in Mgt. and Implement. Annual

36 APPENDIX 2

People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

Credit Management under the SWAIDP

1. Microfinance strategy in China. A central plank of IFAD’s strategy in China – articulated in the COSOP of 1999 and further developed in the draft COSOP of 2004 – is the support for sustainable microfinance solutions in rural areas. The established practice for donor-supported projects of channelling credit through local government authorities (the PMOs) was seen as unsustainable, since the channel would remain open only as long as the external funding was available. The RCCs, although mostly concerned with lending to Township and Village Enterprises and (increasingly) private enterprise, were chosen for IFAD support on the basis of their wide distribution in rural areas and their position as primary formal source of credit finance for better-off farmers. The integration of IFAD funds into the RCC system was designed to develop the RCC’s capacity for the full range of financial services.

2. Significance of credit operations in SWAIADP. No less than 68% of the total IFAD loan was directed towards the provision of incremental credit to be delivered as loans to individual households. The purpose of the loans was to finance the various productive activities promoted and supported by SWAIADP, and thus the operation of the credit revolving fund served as the essential engine for the entire project. The total credit budget was USD 18 million. This represents around Y 150 million, Y 30m per county or Y 4-5 million per township.

3. The design of credit operations. According to the SAR, the township RCCs were to be ‘fully responsible for project credit funds, which are channelled through them, their delivery, utilization, recovery, repayment, loan approval and credit risk’ (SAR I, para 111). One small loophole was left for alternative arrangements: ‘where RCCs do not yet have sufficient capacity, the township PMOs shall temporarily maintain and manage the said revolving account’ (para 110).

4. Capacities of RCCs. Surprisingly, no formal survey of the existing capacities of the 34 RCCs in the project area was undertaken. The ‘loophole’ referred to above indicates there may have been some doubt in the minds of the appraisers in this regard, but it seems to have been assumed that the support to be given to the RCCs by the project would be sufficient to make good any shortcomings. The total budget for RCC training was only USD 4 420 – or approximately USD 130 per township, nor was it to be concentrated in the first year of the project. This seems an inadequate provision in view of the fact that capacities in at least some of the RCCs was reportedly very weak initially. It would have been more realistic to assume that only by the end of the project might the RCCs have the capacity to manage the RCF.

5. Respective roles of RCCs and PMOs. In practice, the RCCs have been responsible for credit delivery, while loan approval and loan recovery have been jointly undertaken with the township PMOs and the credit risk is normally borne by the township and not by the RCC. At Appraisal, all these elements were to have been handled by the RCC. There has been much discussion of this shift, which does not comply with the Subsidiary Loan Agreements as originally drawn up. The matter was expertly investigated by the evaluation mission for the Thematic Study on Rural Financial Services carried out by the IFAD OE in 2001, which appears to have accepted the description of the People’s Bank of China that this was an acceptable agent arrangement between the PMOs and the RCCs. The present mission found that the arrangement suited both PMOs, who felt that it was imperative for the local governments to bear the credit risk since it was they who were ultimately responsible for the

37 repayment of the IFAD loan, and RCCs, who have made substantial gains in capacity and outreach without financial risk to themselves.34 If the credit risk remains with the PMOs, it goes without saying that they will have the final say in loan approval. As the Thematic Study put it: ‘If funds reach the county and township level as loan funds to be repaid, it is too optimistic to assume that the local governments will hand over funds for the credit component to the RCCs’ (para 104).

6. Targeting of loans. A total of 96 280 households had received loans by project completion, representing 91% of the targeted households and 78% of all households in the project area. In the areas visited by the mission, the majority of poor households had obtained loans. Some townships reported that up to 90% of all households in their area had obtained loans, which contrasts very favourably with reports from supervision missions of three and four years ago. The rather critical Supervision Report of 2001 stated: ‘It was apparent from the field visits and discussions with project staff that PMO staff, and staff of the technical agencies, in particular at county and township level, did not fully understand the overall project strategy of targeting the poorest and poorer households in planning and implementing project programs’.35 The same report noted: ‘the majority of the households provided with project assistance, particularly credit, were not the project’s intended priority beneficiaries’, and also commented on the lack of evidence that the project ‘had pro-actively sought out to target the poorer households to determine their training and credit needs and consequently to devise appropriate strategy for training and credit delivery.’

7. The response of the PMOs to this criticism, given in the 2002 Supervision Report, was robust: ‘Satisfied with the rapid economic development in the province … PMOs felt that the poverty alleviation effort of the province has been on the right track – giving assistance to develop models that can show successful results so that they can be used to motivate others to follow suit. As such, targeting the poorest by giving them loans they might not be able to pay back contradicts the provincial strategy.’ To this should be added their reminder, given more than once to the current Mission, that the whole project area was designated poor at the time of project inception.

8. The overall loan statistics were broadly confirmed by random sampling at all levels. In Yuexi, Taihu and Jinzhai county, over 94% of the poorer households took project loans. In Zhong Quan township of Yuexi county, 81% of all households took loans. In Bao Hua village of Beili township in Taihu county, 85% of all villagers took loans.36 The 2003 Supervision Report records the total loan amount disbursed to households at June 2003 as Y 171.45 million, of which Y 103.79 million (60%) was disbursed to the poorest households (Category ‘A’), with a negligible Y 873 741 to the ‘C’ category. The Project Status Report of August 2004 states that 64% of all loans had been made to households categorised as the poorest (‘A’). This was borne out by figures supplied to the present Mission by the counties. For example, Qianshan county figures showed that 67% of the cumulative loan amount has been loaned to ‘A’ households. Jinzhai, Qianshan, Huoshan and Yuexi counties reported that no better-off households received project-funded loans. In Taihu county, 36% of better- off households received loans, but the total number involved was only 702.

9. Loan application and approval. Loan applications were submitted to VIGs on a voluntary basis, and neither PMOs or VIGs interviewed had pressed non-applicants to take loans. The initial step was normally a word-of-mouth application by the farmer to the VIG. The business of the VIG was to collect applications and submit them to the township, utilising a standard form. The SAR made it clear that the VIGs had no authority to turn down applications at this stage. In practice, the mission found that VIGs undertook a preliminary screening process. Some VIGs reported that up to 10% of applications were not forwarded to the PMOs on the grounds of ‘unsuitability’. This mostly meant

34 The Supervision Report of 2003 points out that ‘RCCs during the early years were themselves unwilling to take up the risks associated with full responsibility for the credit component’. 35 SR 2001, Annex 2: Technical Report: 46. The Loan Covenant Schedule 4, Section A8 states: ‘In selecting households, first priority shall be given to the poorer households’. 36 ‘Those who did not were either better-off or simply not interested’ according to the VIG.

38 misunderstanding by the applicants of project parameters. There was no suggestion that the ability to repay was considered at this stage.

10. Next, the applications were examined jointly by the PMO and the RCC. The amount of the loan depended on the activity involved and compatibility with the village development plan of the village concerned. A technical report was prepared for each loan and visits made by the RCC/PMO to the household in question. Only then was the application forwarded to county level for approval. The loan ceiling of Y 3 500 stipulated by the SAR seems to have been generally respected,37 even though many townships argued that it was unnecessarily restrictive. The most common reasons given by townships for the denial of loans were the disqualification of better-off households, ventures that were considered too risky, and the lack of labour capacity within the applicant household. However, among households whose per capita annual income was below Y625 and were therefore receiving a special government subsidy, households with a modicum of labour capacity also received loans.

Appendix 2 - Table 1. Utilisation and Size of SWAIADP Loans Percentage Average No. of Percentage of Total Size of No. of House- of Women Amount Loan Loan** Activities Loans holds* Signatories Disbursed Amount Agricultural Y 956 6 686 4 588 15.7% Y 6 392 293 4.4% Equipment ($117) Y 726 Economic Trees 93 075 64 064 26.8% Y 67 539 071 46.2% ($88) Y 813 Livestock and Fishery 33 392 26 765 57.2% Y 27 157 462 18.6% ($99) Y 245 Seasonal Credit 157 435 64 280 29.9% Y 38 690 341 26.5% ($30) Y 752 Women's IGAs 8 349 6 363 98.8% Y 6 281 780 4.2% ($92) Y 488 Total 298 938 96 280 40.2% Y 146 060 947 100% ($60) Source: Adapted from PCR, Annex 13. * Households overlap ** USD equivalent at current rates

11. Credit training. All households accessing loans were provided with training in loan management, an indispensable provision in view of the fact that the majority of households were taking out formal loans for the first time. The training covered such areas as interest rates, repayment conditions and credit discipline. All borrowers interviewed by the Mission said that they found the training useful but some appeared to have a rather vague understanding of interest rates, no doubt because the training courses were carried out in fairly large groups containing people of very different educational levels. This is a function of the available budget as well as the competence and experience of the trainers. Smaller classes divided roughly according to educational level would be a more effective strategy.

12. Interest rates. According to the SAR, interest rates charged to households were to match the then prevailing rates of the People’s Bank of China (PBC): 10.08% p.a. for a short-term loan (up to one year); 10.98% p.a. for a medium-term loan (1-3 year) and 11.7% p.a. for a longer term loan (three- five year)38. These rates were to be ‘periodically adjusted’ by the PBC, which serves as the regulatory body for the RCCs. In effect, interest rates even at the start of the project were less than the normal

37 In this respect as in others, the practice of different PMOs and RCCs was not entirely uniform. One township reported that the loan ceiling was treated as a guideline only and that exceptions were made. 38 SAR I, p. 33.

39 RCC lending rates, averaging at between 6.5 and 8% until July 2001 and falling to 5% for the remainder of project life. Since the closure of the project, the rate charged to households has matched the terms of the IFAD loan, a highly concessional 0.75%.

Appendix 2 - Table 2. Interest Rates

July 2001 - April 2004 - 1998 July 2001 – April 2004 Present IFAD to MOF 0.75% 0.75% n/a MOF to Anhui Province 4.5% 0.75% n/a Province to County 5.0% 1.25% n/a County* to Town 6.5% 2.75% n/a (*1.5% for risk fund) Loans to Farmers 6.5 – 8% 5% 0.75%

13. The Thematic Study described the interest rate issue as ‘contentious’, pointing out that ‘the project authorities still maintain that a low interest rate is an essential requirement for credit uptake by resource-poor households.’ Its own verdict, in line with current microfinance beliefs, was that ‘access to finance is more important than the rate of interest’ for poor households. Certainly, there is more discussion of interest rates among microfinanciers than among beneficiary households, who did not speak of the issue when discussing their experiences of SWAIADP loans. The annual repayment instalments at interest rates of 0.75%, 5% and 7% on a three-year Y 2 000 loan are Y 15, Y 100 and Y 140 (c. 2, 12 and 17 USD), respectively. These may be substantial differences for a very poor household taking out an emergency consumption loan and lacking the means to repay, but they are not significant for households earning incomes from productive activities.39 It is true that the normal annual interest rate for government-subsidised poverty loans has been around 2.9%, but the availability of such loans is limited. Civil organisations charge much higher rates (12-20%), and loans from informal sources such as shopkeepers and merchants are usually charged at around 2% per month or more.

14. The importance of the interest rate has much more to do with the sustainability of the microfinance institution. Presumably (although it is not stated in the SAR), the 10-12% interest rates recommended at appraisal were designed to cover the cost to the RCCs of the management of all aspects of the RCF, with an acceptable margin of profit. When the RCC role was reduced that of credit delivery only, the question of sustainability was no longer apposite and the RCCs were allowed a flat rate remuneration (normally 0.3% of the total credit delivered).

15. Loan guarantees and recovery rates. The stipulation at appraisal was the SWAIADP loans should not be subject to collateral or other guarantees. After the first year of the project – in other words by the time that the ‘agent arrangement’ between RCCs and PMOs had been worked out – this stipulation seems to have been respected in the great majority of cases.40 One or two townships reported that they required a guarantor for larger loans, but told the Mission that this requirement was abandoned if no guarantor could be found. Overall recovery rates were running at around 85.6% at project completion, which seems to have been considered satisfactory by PMOs and RCCs. In fact, defaults running at nearly 15% indicate an area for concern.

16. Part of the problem seems to have been a misunderstanding of the relevant section in the SAR which suggested that 80% recovery would be an acceptable rate initially but would be expected

39 See main report, Chapter V. 40 Initially, collateral was required for loans over Y 1 500.

40 ultimately to rise to 98.5%, with the remaining 1.5% covered by the risk fund.41 The PMOs claim that the majority of defaulters are expected to repay their loans in due course and the recovery rate will therefore gradually improve. There is no way to test this claim. Since the loans are collateral-free, and punitive sanctions, even if feasible, would be considered unacceptable where poor households are involved, concrete ways to improve the recovery rate are lacking. The PMOs and RCCs appear to be active in chasing up cases of default and their expectation is that continued pressure, even if only verbal, will bear fruit. During a discussion in Jinzhai county, the PMO reminded the Mission that the assistance to the poorest in loan repayment took a variety of forms, including tax cuts for farmers, school fee reductions, rice and wheat subsidies, seed subsidies, field-to-forest conversion subsidies and various government poverty alleviation schemes.

Conclusions

17. The SWAIADP credit programme has served as a highly successful ‘engine’ for the implementation of the project. Despite the reservations of some supervision missions, the coverage has been impressive, with even very poor households accessing loans, particularly in the latter stages of implementation. The impact of the loans on beneficiary incomes has been impressive.

18. Perhaps the most important impact of the credit operation has been the gradual acceptance even among poor villagers that credit can be a useful tool for them in the improvement of their incomes and living standards. For the majority of households interviewed, the SWAIADP loan had been their first experience of bank loans, and for many of them the first experience of any borrowing, formal or informal. Farmers in the project area had been accustomed only to grants (in the form of government subsidies and relief funds). The idea of a loan, which required planning and commitment and diligence to pay back, was something new to them. Township officials, VIG leaders and RCC staff constantly reiterated that the greatest obstacle faced by the project in the early days was the suspicion and hostility among all but the most progressive households to the notion of borrowing. Over time, the successful example of the first applicants for loans has had its effect, and in all villages visited by the Mission, project-funded loans were found to be familiar and popular, and the disciplines of loan management and repayment had become part of everyday life.

19. The various departures from project design – all of which relate to the reorganisation of the respective roles of RCCs and PMOs – should give IFAD some cause for thought. The lack of an initial survey of RCCs was crucial and was not made good by an intensive investment in RCC training in the early years of the programme. Equally, the attitude of the government authorities might have been anticipated, since ultimately the government was responsible for repayment of the loan. IFAD microfinance projects continue to support the management of credit by the RCCs as the only genuinely sustainable answer. Recent projects have attempted further to strengthen the RCCs, which anyway have benefited in most places from the general increase in prosperity resulting from the liberalisation of markets, the increase in trade and the reform of landholding. The reaction of local governments to the management of the loan being taken out of their hands remains to be seen elsewhere. The lesson from SWAIADP in this respect is that the collaboration between the PMOs and the RCCs in fact worked well and to the apparent satisfaction of both.

41 The risk fund had reached Y1.2m by Dec 2003.

41 42 APPENDIX 3

People’s Republic of China

Southwest Anhui Integrated Agricultural Development Project

Completion Evaluation

Agricultural Extension Services in the Project Area

A. A Short History of Agricultural Extension in China

1. Since the Chinese Communist Party came into power fifty years ago, the agricultural extension structure in China has been built on the centrally planned economy. There were basically four levels of the institutional administrative organization, starting from the top national level via provincial and county level down to township and village level. This top-down structure was related to the real circumstances at the time that the system was set up, such as the collective ownership of land and an under-developed consumer economy.

2. The development of the Chinese agricultural extension system can be described in four stages. The first stage started in the early 1950s soon after the People Republic of China was established. By the end of the fifties, more than half of the counties in China had agricultural extension stations. During the second stage (the 1960s), the newly developed agricultural extension system was influenced both by the Cultural Revolution and by severe natural disasters. Agricultural extension officers were reallocated and assigned to other tasks. In the 1970s, the third stage, the agricultural extension recovered and was further expanded. Besides thousands of agricultural extension institutes at county level, extension stations were set up at around 26 000 communes and 300 000 ‘production brigades’ (the lowest production unit at that time). At the top level, the Ministry of Agriculture was mainly responsible for the national agricultural extension activities. To a certain extent, the National Committee of Science & Technology and the National Committee of Planning were also involved. The fourth stage refers to the last two decades of economic reform. During this period, the agricultural extension system went through dramatic changes and this process is still going on.

3. The first impact came from the introduction of the ‘Household Responsibility System’, which claimed the individual farmers as the basic production unit, instead of the production brigades in the previous collective system. With the dismantling of the extension structures at both commune and brigade level, the whole extension system came in for a process of restructuring and readjusting. Several approaches have been tried, such as converting the governmental extension organizations into independent companies, and encouraging other organizations such as universities and research institutes to extend their research results. So from a top-down system, the agricultural extension in China today has been converted into a system driven by farmers’ needs. It has a new structure and new approaches in order to meet the new requirements of the farmers in the current circumstances in the country.

B. The Agricultural Extension System in the Project Area

4. The agricultural institutional structure in the five-county project area of Anhui is a complex network, both vertically and horizontally.

5. Administratively, the current agricultural extension system operates at four levels: province, county, township and village. The Agricultural Department (now the Agricultural Commission) is the top decision-making body in the Anhui agricultural sector. Its main function is to enact agricultural

43 policy for the province and to interpret and implement the national government’s policy. Within the department, there is an Agricultural Extension Centre whose main responsibility is to manage and implement extension activities. Within the Agricultural Bureaus at county level, there are extension stations with different functions, such as the agricultural technology extension station, the vegetable technology extension station, the plant protection station, the soil and fertilizer station, the environmental protection station, the seed station, the fishery station.

6. At township level, the organization of extension activities varies in accordance with the demands and actual circumstances of each township. In Beizhong township of Taihu county, there are five extension stations, namely the Agricultural Technology Extension Station, the Plant Protection Extension Station, the Animal Husbandry and Veterinary Station, the Forestry Extension Station and the Agricultural Machinery Supply Station. In Huashuwan township of Jinzhai county, a single centre, the Integrated Agricultural Technology Service Centre, was established to provide various services to the farmers including extension, plant protection, animal husbandry and veterinary services and input supply. At village level, at least one ‘pilot farmer’ has been selected to cooperate with the Extension Centre in establishing on-farm trials or demonstration plots for improved crop varieties or new technologies. Pilot farmers are also selected for other extension activities. Whereas the staff at the three upper levels belongs to governmental organizations, the extension workers at the villages are local farmers who receive certain subsidies for their work.

7. The number of extension staff at each township extension station varies, mostly in accordance with recruitment limitations. The Agricultural Extension Station in Beizhong township has 10 staff to serve 18 villages. In Da Hua Ping township (Huoshan county), the station also has 10 staff but has to serve 28 villages. In Huashuwan township, the station has only five staff who have to provide various extension services to farmers in 19 villages. The extension officers there reported that it was difficult to get college graduates to come to work in remote areas of the province. There is a lack of incentives to attract qualified people to the project area.

8. It is surprising and gratifying to learn that most extension officers do not stay for long periods in their offices but spend most of their time in the villages with the farmers. In the extension station at Beizhong, most of the staff work and stay in the field. In Mituo township (Taihu), this is true; ten out of the fourteen staff are at the agricultural extension station and four of the five at the Animal Husbandry and Veterinary Station. No station possesses a car and all staff have to use their own motor-bikes for travel. Few stations have a desk computer and even where a computer is available, there is no internet connection.

9. To prepare an annual workplan, the field staff consult the needs of farmers and then on the basis of guidelines from the upper levels, they formulate the workplan in such a way as to satisfy both the farmers themselves and the strategic development plan of the province. The annual workplan will be approved by the provincial PMO and implemented from February of every year. Because the leader of the PMO at a certain level is often also the vice-leader of the Administrative Commission, s/he is able to coordinate the relevant functions in the planning process to ensure that the agricultural extension encompasses all the necessary aspects (plant protection, animal husbandry, forestry issues, input supplies etc) and to obviate any overlapping between functions. To implement the approved annual extension plan, as well as participating in team-based activities, every extension officer is also given certain specific responsibilities in line with personal competency. At the end of the year, his or her achievements will be assessed and rewards (material and otherwise) given to good performers. It was reported that indicators used for the assessment include both the reaching of targets and the satisfaction of the farmers.

10. The chief methodologies used in agricultural extension include pilot experiments, field demonstrations, farmer-to-farmer study tours and dissemination of information via newspapers, booklets, radio and television. When required, extension officers at county level also participate in training and extension activities. When a new technology is introduced, training takes place at villages one by one. Experimental trials are usually established on extension station land, but demonstration

44 plots are sited on farmers’ lands at places convenient for visits by other farmers. The technology and material inputs are supplied by the extension station and the labour by the pilot farmers.

11. Because of the large number of farmers to be served, the number of demonstration plots is also very large. For example, in 2004, the Ni Shui township Agricultural Extension Station (with only five staff to serve seven administrative villages or 107 natural household settlements) has established 60 demonstration plots of high yield rice varieties, 20 plots of tea and 40 of mulberry, in addition a 2 mu trial of improved rice. The station even has a small silk processing factory where it employs local farmers to buy raw material from adjacent areas for primary processing before selling to finer processing factories in larger cities.

12. The workload of the extension officers is high, but the Mission found them extremely committed and also found that their work was held in high regard by farmers. This helps to explain why all rice, soybeans, maize, mulberry, tea, chestnut and forest plantations, be they located near or far from the villages, in narrow terraces around the hills or in a tiny plot of land or in larger fields, in the centre or marginal regions of the project area, all look uniformly healthy and productive. A poorly functioning and inadequately committed agricultural extension system would be incapable of generating such impressive results.

C. Challenges for the Agricultural Extension System

13. When asked by the Mission to identify the major constraints and challenges they faced, extension officers tended to focus on the following problems: . the length of time taken by farmers to adopt a new idea or improved technology; . the large extent and difficult terrain of the area of operations; . the lack of funds for carrying out adequate trials before dissemination of techniques; . the lack of certain essential facilities;42 . too few opportunities to equip staff with new knowledge and skills, especially for those who stay and work in the more remote areas.

14. With assistance from the SWAIADP, greater resources became available for the successful implementation of the extension plan, but there are unresolved issues to be faced in the post-project period, and two challenges in particular. The first is the changing role of farmers in the knowledge system. During the era of central planning, the central government designed the extension programmes and selected certain new agricultural technologies for nationwide extension. From the top to the bottom, all extension institutes were promoted these new technologies. At that time, the farmers were members of collectives without any decision-making power. Nowadays, however, farmers are independent decision-makers and their activities are profit driven. They only adopt new technologies if they can benefit from them. The top-down approach is no longer appropriate for agricultural extension and farmers’ wishes and demands are carefully considered. Is the Agricultural Extension System adequately prepared to take on this new role?

15. The other major challenge is posed by the limited scope of extension. The traditional agricultural extension not only focused on ‘transfer technology’ to farmers, but on certain ‘strategically important’ crops such as rice, wheat and maize. With the structural and strategic adjustments introduced by the project, more farmers have shifted to the production of cash crops such as tea, mulberry and chestnuts. Two resulting problems were noted by the Mission in field interviews and observations. Firstly, there is a danger of market saturation for some cash crops, especially tea and mulberry. Secondly, the required technologies for more diversified income sources seems to be still unavailable.

42 One veterinary worker reported that his station sometimes failed to prevent animal disease for lack of a portable refrigerator to contain vaccines.

45 16. The content of the agricultural extension should be expanded to include broader concepts, such as regular communication between farmers, the need for ‘informal’ agricultural education, and the challenges posed by a market economy. With the very limited resources (in terms of both manpower and funding), can the extension system expand and improve its operations? What needs to be done to upgrade the existing system and to prepare the extension staff to enable them to provide the appropriate training to prepare the farmers for these new challenges? These questions should have be given seriously consideration by the Agricultural Commission and duly integrated into the future development strategy for Anhui Province.

46