ADB TA 7230 BAN: PPTA for the Second Crop Diversification Project

FINAL REPORT

PREPARED FOR

The Ministry of Agriculture, the Department of Agricultural Extension, and the Asian Development Bank

November 2009

CURRENCY EQUIVALENTS (As at 22 October 2009)

Currency Unit - Bangladesh taka (TK) $1.00 - TK68.70 TK1.00 - $0.14556

ABBREVIATIONS

AD – Additional Director (DAE, Regional Level) ADB – Asian Development Bank AEO – Agricultural Extension Officer ASPS II – Agricultural Sector Program Support Phase II (DANIDA) BABA – Basic Bank BADP – Bangladesh Agribusiness Development Project BARI – Bangladesh Agricultural Research Institute BBS – Bangladesh Bureau of Statistics BME – Benefit Monitoring and Evaluation (Survey Report) CAR – Capital adequacy ratio DAE – Department of Agricultural Extension DANIDA – Danish International Development Agency DD – Deputy Director (DAE District Level) DD – Deputy Director (DAE, District Level) EB – Eastern Bank GAP – Gender Action Plan HDTC – Horticulture Development Training Center HES – Horticultural Extension Specialists HVC – High value crops IFAD – International Fund for Agriculture Development ISO – International Standards Organization LGED – Local Government Engineering Department MFI – Micro Finance Institutions MMC – Market management committee MOA – Ministry of Agriculture MOF – Ministry of Finance NAP – National Agricultural Policy NATP – National Agricultural Technology Project NCDP – North West Crop Diversification Project NFPP – National Food Policy Plan NGO – Non Government Organization OFSSI – On Farm Small Scale Infrastructure PIU – Project Implementation Unit PKSF – Palli Karma-Sahayak Foundation PMU – Project Management Unit PPMS – Project Management Unit PPTA – Project Preparation Technical Assistance RCS – Rural Credit / NGO Specialist RDA – Rural Development Academy RDRS – Rural Development RRF – Rural Reconstruction Foundation (NGO) RRP – Report and Recommendation to the President SAAO – Sub Assistant Agricultural Officer t – Metric tonne UAO – Upazila Agricultural Officer

NOTE(S)

$ refers to United States Dollars Government refers to the Peoples Republic of Bangladesh

CONTENTS

Page

LOAN AND PROJECT SUMMARY i

MAP OF PROJECT AREA vi

I. INTRODUCTION 1 A. Background 1 B. Definitions of terms used in this report 1

II. THE PROPOSAL 2

III. RATIONALE: SECTOR PERFORMANCE, PROBLEMS AND OPPORTUNITIES 2 A. Performance Indicators and Analysis 2 B. Analysis of Key Problems and Opportunities 3

IV. THE PROPOSED PROJECT 10 A. Impact and Outcome 10 B. Outputs 11 C. Outputs 11 D. Special Features 21 E. Project Investment Plan 21 F. Financing Plan 22 G. Implementation Arrangements 23

V. PROPOSED TECHNICAL ASSISTANCE 28

VI. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISK 28 A. Benefits and Impacts 28 B. Risks and Mitigation Measures 31

VII. ASSURANCES AND CONDITIONS 31 A. Specific Assurances 31 B. Conditions for Loan Effectiveness 32 C. Conditions for Disbursement 33

APPENDIXES 34

1 Design and Monitoring Framework 34

2 Summary of Agriculture Sector Analysis 38

3 External Assistance to Agriculture and Rural Development 48

4 Credit Line Delivery Through MFIs and Wholesale Banks 49

5 Cost Estimates and Financing Plan 53

6 Implementation Schedule 55

7 Procurement Plan 57

8 Outline Terms of Reference for Consultants 58

9 Outline Terms of Reference of TA Consultants 71

10 Project Justification and Economic Analysis 73

11 Summary of Initial Environmental Examination 79

12 Summary Poverty Reduction and Social Strategy (SPRSS) 85

13 Gender Action Plan (GAP) 92

14 Project Implementation Arrangements 94

15 Project Management Staffing 100

16 Project Management Structure 102

SUPPLEMENTARY APPENDIXES (available on request)

A Detailed Sector Analysis B Calculation of Interest Rates for Lending C Evaluation of NGO-MFI and Financial Wholesalers D Agricultural Sector Credit Delivery E Detailed Cost Estimates F Economic and Financial Analysis G Initial Environmental Examination H Environmental Assessment & Review Procedures I Social and Gender Development Action Plan J Indigenous Peoples Development Assessment K Detailed TOR for TA Consultants (Climate Change) L Financial Management Questionnaire

LOAN AND PROJECT SUMMARY

Borrower Peoples Republic of Bangladesh.

Classification Targeting classification: General intervention. Sector: Agriculture and Natural Resources. Sub sectors: Agricultural production, agroprocessing, agribusiness. Themes: Sustainable economic growth; gender and development; private sector development. Location impact: Rural (high impact), and national (medium impact)

Environment Assessment Category C – An initial environmental examination was undertaken. A summary of the IEE is attached to this report under Appendix 11

Project Description The Second Crop Diversification Project (SCDP) is a “follow on” Project to the ADB financed North West Crop Diversification Project (NCDP). The Project will reduce poverty by improving farmers’ incomes in 16 Districts and 39 Upazilas in the South and South West of Bangladesh; and in 9 Districts and 9 Upazilas in the north west of the country. The Project is market orientated and demand driven and will foster the commercialization of agriculture through interventions to promote diversification into high value crop (HVC) production and value addition. The Project will also strengthen institutional capacity in the agricultural sector. Project impact, outcome and outputs will be achieved through the implementation of 5 components, viz;

1: HVC Production Support; 2: Value Addition Support; 3: Credit Support; 4: Institutional Strengthening; 5: Project Implementation Support

Project implementation plans respond to the needs of farmers at grass roots level, which will be identified in a “bottom” up participatory manner. The primary focus of the Project is the improvement of farmers’ capacity and knowledge to produce HVC and access markets, efficiently.

Rationale The Project conforms to the Government’s priority agenda in national poverty reduction strategy, with agriculture sector development and diversification into HVC a key area of strategic focus under rural development activities. The Project focuses on the North West and South West areas of the country, South and West of the Jamuna, Padma and Ganges rivers, which contains some of its poorest people and least developed areas. The regional focus of the Project helps address the growing East/West divide in the incidence of poverty and economic development of the country, which is a growing Government concern. Furthermore, whilst the NCDP had positive outcomes, it was limited in its geographical scope, supply side driven, and did not place sufficient emphasis on marketing and the integration of the value chain. The SCDP will address these issues in its outputs.

Impact and Outcome The Project’s impact will reduce rural poverty and increase economic development in the Project areas of the North West and South West of Bangladesh. The Project’s outcomes are improved high value crop production, value addition, and marketing efficiency by small and medium farmers.

Project Investment Plan The investment cost of the Project is estimated at $ 45.95 million equivalent including taxes and duties of $ 1.7 million.

Financing Plan A loan not exceeding $ 40 million will be provided from ADB’s Special Funds resources

Project Financing Plan in $ millions

Source Total %

ADB 40.00 87 Government 5.62 12 Community investors 0.33 1

Total 49.95 100

Allocation and Relending It is proposed that financing be provided from ADB's Special Funds Terms resources with a loan maturity of 32 years, including a grace period of 8 years, and with an interest charge of 1% during the grace period and 1.5% thereafter.

Period of Utilization Until December 2016

Estimated Project July 2016 Completion Date

Executing Agency (i) The Department of Agricultural Extension (DAE) of the Ministry of Agriculture (MOA); and (ii) The Bangladesh Bank (BB).

Implementation The implementing agency for components 1, 2, 4 and 5 will be the Arrangements DAE. BB is the implementing Agency for Component 3. Both DAE and BB were the implementing agencies for the NCDP. Credit will be channelled to beneficiaries through wholesale banks and MFI’s Overall Project supervision and inter agency coordination will be undertaken by a Project Steering Committee (PSC), established under the auspices of the Ministry of Agriculture. A Project Management Unit (PMU) will be established in Dhaka, and 2 regional Project Implementation Units (PIU) established at Jessore, and Bogra, covering the South West and North West Project areas respectively. Project implementation arrangements will be supported by DAE field offices throughout the Project area, and, additionally, the Project will form partnerships with private sector agribusinesses and other interested stakeholders through service provision contracts.

Procurement Procurement of all goods and services under the Project will be in accordance with ADB’s Procurement Guidelines (2008, as amended from time to time). All small and widely dispersed civil works of up to $30,000 will be undertaken by the community, following the community participation guide. Shopping will be used for works exceeding $30,000 but no more than $100,000. For works valued at more than $100,000 but no more than $1,000,000, civil work contracts will be required and procured by PMU on the basis of national competitive bidding in accordance with the Government’s procurement procedures acceptable to ADB. Supply contracts for equipment or materials exceeding $1.0 million will be procured following international competitive bidding, and those not exceeding $1.0 million but more than $100,000 will be awarded on the basis of national competitive bidding. Shopping will be used for procuring readily available off-the-shelf goods valued at up to $100,000.

Consulting Services The selection and engagement of all consulting services will be in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) and other arrangements satisfactory to ADB for engaging national consultants. A team of consultants will be recruited through an eligible and qualified consultancy firm to fit in critical areas where DAE has insufficient capacity: (i) post harvest handling techniques, value addition, and agricultural marketing; (ii) results based monitoring and evaluation; (iii) designing and managing post harvest, and community group training packages; (iv) gender mainstreaming in agriculture; (iv) farmer group organization and capacity building. The consultants, comprising 96 person-months international and 246 person-months national will be recruited by PMU through a firm using quality- and cost-based selection with quality-cost ratio of 80:20. The Government will undertake advance action for recruiting consultants to facilitate the Project’s start-up. The Government has been advised that approval of advance action does not commit ADB to finance the Project.

Project Benefits and The Project will engender significant benefits by fostering the Beneficiaries equitable and sustainable commercialization of agriculture and the diversification of production into HVC. The main benefits of the SCDP will be (i) increased farmers’ incomes through improved productivity and profitability of HVC; (ii) improved rural employment opportunities through the growth of the commercialization of agriculture; (iii) reduced rural poverty and improved rural household living standards; (iv) greater empowerment of poor women through gender mainstreaming in farming enterprises; (v) enhanced food security, safety and improved nutritious and diverse diets for consumers; and (vi) the stimulation of the rural economy in the western region of Bangladesh, which contain some of the country’s poorest divisions, viz, Rajshahi in the north west, and Barisal, Khulna in the South West

The Project’s main beneficiaries will be small and medium farmers with land holdings between 0.2 ha and 3 ha; and marginal farmers with land holdings between 0.02 – 0.2 ha). Furthermore, the Project will benefit poor women in rural areas; and indigenous peoples in areas where it has an impact on their livelihoods.

Risks and Assumptions To achieve its impact and benefit the Project makes several assumptions including, Government will maintain and improve the enabling environment, particularly regarding private sector participation in the sector and their essential involvement in the commercialization of agriculture; rural infrastructure will be developed and improved and sustained to support HVC production and market access; built in sustainability mechanisms for ongoing implementation and post Project activity will be developed during the lifetime of the Project.

The following risks have been identified as having a potential negative impact on Project progress and sustainability; natural disasters such as floods and cyclones and the overall impact of’ climate change; fluctuating staple food and input price negatively affecting the diversification into HVC production; and, the commercialization of agriculture; poor progress in building capacity and efficient coordination amongst the Ministry of Agriculture line agencies.

Technical Assistance To enhance the sustainability of the Project and ensure a prompt Project start up, it is proposed that the ADB, will provide technical assistance grant support in the amount of $ 270,000 for the following sub Projects:

(i) Identification of appropriate HVC and farming systems for adaption to the impact of climate change; (ii) Management and administrative support to Project inception and start up activities.

Funds have not been identified as yet to support this proposal.

MAP OF PROJECT AREA

I. INTRODUCTION

A. Background

1. The consultant’s final report (FR) for the design of the Second Crop Diversification Project (SCDP) is presented in the format of a Report and Recommendation to the President (RRP), suitably adapted, and with no page restrictions, and incorporates feedback from stakeholders on the Draft Final Report (DFR) submitted in September 2009. The DFR was discussed at a Tripartite Meeting in the Ministry of Agriculture’s (MOA) Head Office, Dhaka, on 15 October 2009, attended by representatives of the Government, key stakeholders and the ADB.

2. Whilst the name of the proposed Project is the “Second Crop Diversification Project”, a change of name to the Crop Diversification and Commercialization Project (CDCP) is strongly recommended as being a more realistic reflection of the objectives of a demand-driven Project supporting the commercialization of agriculture.

B. Definitions of terms used in this report

3. Whilst the agricultural sector includes livestock (principally cattle, sheep, goats, swine and poultry), and mixed farming of crops and animals is an important element in Bangladesh farming systems, for the purpose of this report agriculture covers crop production only.

4. High value crops (HVC) are defined as agricultural crops which will give a higher rate of return to the farmer, per hectare (ha), than high yielding boro rice.

5. Food security has been defined by the FAO as: “Food security exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life. Household food security is the application of this concept to the family level, with individuals within households as the focus of concern”.

6. Agribusiness and the commercialization of agriculture may be broadly defined as involving a wide range of complex and interlinked activities including inputs, related to the commercial production of agricultural commodities, their transformation into products; and, their marketing and distribution. The above definition encompasses four major activities:

(i) Agricultural farm inputs, e.g., planting material, fertilizers, pesticides and herbicides, farm services and supply; (ii) Commercial farm production – planting, husbandry, harvesting and post harvest on-farm activity; (iii) Primary and secondary production – storage, transport, logistics, processing, marketing, wholesaling and retailing and exporting; (iv) Services – Research and development, extension; technology demonstration and transfer and outreach; education; banking and finance; investment; and technical assistance.

7. The value chain approach to agricultural development is defined as follows: “The integration of the value chain, enabling forward and backward linkages between farmer and consumer, is an important tool in the improvement of marketing efficiency to the benefit of

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farmers. Basically, the value chain is a connected string of companies, groups and other actors, including farmers, working together to satisfy market demand for a particular product or group of products. Analysis of the value chain will also indicate the various price determination points along the chain and the extent to which the value added represents actual transaction costs and profit. It should be noted that an integral component of the value chain is the agricultural supply chain, and in the literature on this subject the terms “value chain’ and ‘supply chain” (and “marketing chain’) are often used interchangeably, as they are closely related”.

8. Commercial agriculture and agribusiness activity differs from basic farming systems in that it is, by definition, commercially oriented and implies organized linkages among different stakeholders in the value chain. Therefore, subsistence level agriculture would not fall within this definition. Furthermore, commercial agriculture and agribusiness, as defined, implies close coordination between both the public and private sector; and particularly the different public sector institutions, such as government ministries, departments, and statutory bodies, involved with agriculture and rural development, commerce and trade, and industry. Finally, it is widely acknowledged worldwide that the commercialization of agriculture and agribusiness must be led by the private sector in order to succeed.

II. THE PROPOSAL

9. This report and recommendation on a proposed loan to Bangladesh for the Second Crop Diversification Project is submitted to the ADB and the MOA for consideration.

III. RATIONALE: SECTOR PERFORMANCE, PROBLEMS AND OPPORTUNITIES

A. Performance Indicators and Analysis

10. Bangladesh is a small country1 with a large population located in the North East corner of the South Asian sub-continent and is one of the poorest countries in the world with a per capita gross domestic product (GDP) of approximately $329 in constant 1995/96 prices, and $5992 in current prices. The two major problems faced by the country are (i) the large population, estimated at 144.5 million in July 2008, with a current growth rate of 1.39% per annum3 and a population density of 1007 people per square kilometer; and (ii) susceptibility to environmental hazards such as cyclones, floods, droughts, arsenic groundwater contamination and seismic activity. Bangladesh is also considered to be at particular risk from climate change particularly due to its low lying position on the edge of the Bay of Bengal. The country is predominantly an agrarian society with over 75% of the population directly or indirectly engaged in agriculture, with the incidence of poverty tending to be higher in rural farming areas than in urban centers.

11. Land and its cultivation is Bangladesh’s most basic resource and is the mainstay of the country’s primarily agricultural economy. Agriculture provides employment to 48.4% of the total labor force in the country;4 its staple food (rice) is consumed by virtually 100% of the population; and 28.7% of total income emanates from agricultural outputs. Earnings from agricultural wages5

1 147,570 sq km in area, with 6.7% consisting of rivers and inland waterways – Reference: K.B Sajjadur Rasheed, “Bangladesh: Resource and Environmental Profile”, January, 2008 2 Bangladesh Bureau of Statistics (BBS), 2008 3 Population is expected to rise to around 180 million by 2025, with a density of around 1200 persons per sq km - Reference: K.B Sajjadur Rasheed, “Bangladesh: Resource and Environmental Profile”, January, 2008 4 BBS, 2008 5 Household Income and Employment Survey ( HIES) BBS 2005

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accounts for 28.1% of the total income of rural households. The agricultural sector accounts for 20.87% of gross domestic product (GDP) at constant prices which shows a slightly decreasing trend, compared to the share of the other major sectors of the economy, viz, industry and services.

12. Total crop production in 2008 of 54.16 million t showed an increase of 6.75 million t or 12.47% over the 2007 figure. The area under crop cultivation in 2008, at 13.71 million ha, showed a decline of 0.35 million ha from the 2007 figure of 14.05 million ha. .Rice is the dominant crop with a production of 28.93 million t in 2008, or 46.53% of the total for that year. Other significant major crops, with 2008 production in million t shown in brackets, are maize (1.47), wheat (0.844), and jute (0.832). Bangladesh has made substantial progress in enhancing food security with rice contributing most to self sufficiency in food grains and hence food security. However, the emphasis placed on rice production has resulted in increased dependency on imported foodstuffs, particularly fruit which remains unaffordable to many poor consumers. Therefore the increase in HVC production including fruit is of critical importance in reducing imports, and enhancing affordable and varied nutritious diets for poor people.

13. Per capita production of HVC, such as potato, banana, tomato, onion, garlic, turmeric and ginger, has been increasing to meet growing demand; however, consumption is also increasing at faster rates for crops other than rice. Therefore a production/consumption gap has been developing for many of the HVC selected for promotion under the SCDP. With improving economic development and consequent income growth, particularly amongst the growing urban middle class, the market demand for HVC, which provide an improved and more varied and nutritious diet, is expected to increase.

14. A major economic challenge currently facing Bangladesh is the regional divide between the east and the west of the country in terms of employment and economic growth. The eastern region, comprising Dhaka, Sylhet and Chittagong Divisions, has a headcount ratio, indicating the incidence of poverty, of between 32% and 34%. By contrast the Western Region, comprising Barisal, Khulna, and Rajshahi Divisions, has a headcount ratio of between 47% and 52%. Therefore, the Project will focus on the North West and South West of the country, which contains some of its poorest people and least developed areas. Furthermore, the South West region in particular, bounded in the North by the Ganges River and in the East by the Padma River has been traditionally isolated with poor access to critical agricultural inputs, technology, and markets. The planned construction of the Padma Bridge will open up the potential for new investments and ease access to major urban markets such as Dhaka and Chittagong.6

B. Analysis of Key Problems and Opportunities

15. The major issues facing the agricultural sector in general, and the HVC sub sector in particular, are the need to provide adequate food and balanced nutrition to a growing population within the constraints of, (i) a decline in the availability of cultivable land, (ii) increases in input costs, (iii) the leveling off of production growth based on limited practice of crop rotation techniques and the intensification of farming; and (iv) potential losses of land and crops as a result of climate change. An analysis of the sector’s key problems and opportunities is summarized hereunder and elaborated in more detail in Appendix 2 (Summary of Agricultural Sector Analysis), and Supplementary Appendix A (Detailed Sector Analysis).

6 Reference: Report in the Star Newspaper, 20 October 2009.

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1. Constraints to the commercialization of agriculture

16. The lack of available land for HVC production: Agricultural land is progressively diminishing on account of the expansion of both urban settlement and infrastructure. Data from the 2001 census reveal that 52.39% of households possess their own agricultural land, a decline from 61.30% in 1981.7

17. Sector structural change towards smaller farm units: Farm ownership is characterized by small and fragmented land holdings with some 88.50% of total farm sizes being under 1.0 ha, occupying 60% of the total farm land area; the trend is towards greater fragmentation and subdivision, and thus smaller individual farm units. The structural trend, over the last 2 decades in the size of individual farm holdings, with an ever greater number of farms being classified as small and marginal has implications for the development of HVC production. While the growing demand for HVCs is evident from available statistical data, land potentially available for increasing HVC production tends to be owned by medium and large farm households. Small farmers have only limited potential for allocating land to HVC production, due to necessity of meeting the demand for rice, the staple food of Bangladesh. Consequently, the changing pattern in farm holding over time is an important factor in determining the development potential of introducing HVC, and may be a constraining factor to growth.

18. The availability of critical agricultural production inputs: The Poor availability of affordable and suitable HVC seeds and planting material is a constraint to the development of HVC production. Most of the HVC grown by the farmers are from their own seeds, which are, in most cases of traditional and indigenous varieties, and not necessarily the most appropriate in terms of yield and quality characteristics. The availability and affordability of suitable quality fertilizer is a perennial sector issue. Most HVC, particularly vegetables require the proper application of phosphate and potash fertilizers to achieve their yield potential. Therefore, In order to promote and increase HVC adequate supply of appropriate essential fertilizers is of crucial importance. Furthermore, the mechanization of agricultural land preparation, planting, harvesting and in post harvest handling, in order to reduce production costs, reduce labor inputs and increase farming efficiency and productivity, is poorly developed.

19. Stagnant or declining farm productivity: Crop production growth is stagnant due, mainly, to the intensification of farming, limited application of improved crop production technologies including poor crop rotation practices, and lack of available cultivable land. The application of insufficient organic animal manure and compost and the over tillage of the soil is also contributing to the gradual loss of fertility in the field.

20. Deficient post harvest practices and facilities at farm level: Poor post harvest handling techniques and facilities, such as washing, drying, sorting, grading, and storage facilities, contribute towards high levels of losses at field level, and contribute to poor quality crop production, and hence restricted marketing access and options. However, the Project addresses this issue through technical training and financial support to post harvest handling technology and the construction of on farm small scale infrastructure facilities.

21. Inefficient and underdeveloped marketing systems: Market access is a difficult hurdle for small and medium farmers in Bangladesh to overcome with the majority of them selling their surplus produce to traders at the farm gate, or nearby roadside markets, if available. At farm

7 Reference: BBS

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level prices are variable and comparatively low. Prices for agricultural commodities always tend to fluctuate widely on a seasonal basis, particularly in the case of HVC such as horticultural and floriculture products, which have a high level of perishability. The long value chain between farmer and final consumer, with a plethora of actors performing economically inefficient functions within the chain, results in the farmer receiving a lower percentage of the end price than is considered acceptable by many. However, unless farmers form groups to take advantage of, inter alia, economies of scale and bulking of crop volumes, and assume some of the economic functions being performed by middlemen, it is difficult to the break the traditional long value chain that exists in Bangladesh. The Project will support value chain integration and marketing initiatives in order to support HVC community interest groups in increasing market knowledge and accessing new markets.

22. Inefficient institutional arrangements: The sector Institutional framework requires rationalizing to improve efficiency and cut costs, particularly as the MOA’s line agencies are under resourced and lack the ability to sustain Project activities following Project completion. The leading MOA line agency implementing agricultural Projects is the DAE and its mandate and capacity needs to be broadened to improve its extension services to include effective post harvest handling at farm level. The Project addresses this issue through provision of institutional support to the DAE.

23. Access to Finance: The investment required for HVC diversification will exceed the savings of most small farmers8 therefore, access to credit will be needed to enable HVC investment to proceed. BB is providing credit facilities to banks to onlend to farmers but banks do not have service outlets close to farmers and, generally, require collateral that is difficult for many smaller farmers and sharecroppers to provide. Related to these constraints, the loan repayment rates of farmers have been sub-standard and this has discouraged banks from using their own funds for lending to farmers. NGO-MFIs, on the other hand, have an extensive rural branching network and operate close to their borrowers and many of these NGO-MFIs are efficient financial intermediaries with well-performing agricultural loan portfolios. The Project proposes to use financial institutions, banks and NGO-MFIs that are financially viable now and will remain so post-Project.

2. Project opportunities and new initiatives

24. Increased rural incomes: Income studies of households during the NCDP showed that HVC can provide a much higher return per hectare to farmers than traditional crops such as cereals. Furthermore, HVC are labor intensive and offer the potential for greater employment opportunities for the rural poor, particularly the landless and women.

25. A wide range of potential marketing opportunities: Bangladesh possesses a significant and growing domestic consumption base, with an emerging middle class demanding a wider range of safe nutritious food, both fresh and processed. With regard to exports markets, (i) There is large Diaspora of overseas Bangladeshis favorably disposed to purchasing familiar fruit, vegetable and other HVC products from their ethnic homeland; (ii) the Indian states bordering Bangladesh represent an easily accessible market for HVC products, given normal trade relations with that country; (iv) proximity to export markets of South and Southeast Asia and the Middle East.

8 NGO subborrowers rarely have more than TK1,500 in savings. HVC investment for 0.18 ha requires TK12,000 on average.

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26. Improved market efficiency and value chain integration: The current dominant agricultural marketing system in Bangladesh may be described as traditional with the vast majority of marginal, small and medium farmers selling their produce at the farm gate, and traders and wholesalers operating as buyers and sellers in established market places. Whilst the existing traditional marketing system is well established, has its merits and is widely accepted, there is a need to introduce greater forward and backward linkages between producers and consumers enabling a more direct sales system. The traditional system has an economic role and serves its purpose, however, access to a wider range of sales opportunities for producers, and buying opportunities for retailers and exporters is desirable. In this context sector stakeholders, and in particular private sector agribusiness entrepreneurs, and to a lesser extent larger NGO’s, are examining and implementing new marketing system innovations, which will diversify trading opportunities and enhance market efficiency to the benefit of all, including farmers. For the most part these innovations adopt the value chain approach, which is defined in Section I, B above, and involve greater quality, standards and grading and packaging control close to production areas. Contract farming between producers and large retailers/supermarkets, and exporters, is also being introduced, albeit slowly.

27. Agro processing and value addition: HVC’s such as fruit and vegetables, and spices lend themselves to further processing and value addition thus raising the potential for higher farm incomes through wider market access to agro processors. Opportunities also exist for low cost, small scale processing of fruits, vegetables and coconuts at community level.

28. Import substitution: Bangladesh has become increasingly dependent on non foodgrain imports, particularly fruits. Increased HVC production will cut imports and save foreign exchange.

29. Agricultural lending: There are banks that wish to expand their loan portfolios but they lack knowledge of farmers and their communities and have difficulty in making small agricultural loans. NGOs have this knowledge and have demonstrated that they are able to make and recover microloans and small loans made to farmers. There is, thus, the opportunity for a working partnership between banks and NGOs in the provision of credit to small-scale farmers.

3. Government Policies and Programs

30. The Government document for economic planning in Bangladesh is the second Poverty Reduction Strategy Paper (PRSP) entitled ‘Moving Ahead: National Strategy for Accelerated Poverty Reduction (NSAPR) II (2009), which is a sequel to a previous document, viz, “Unlocking the Potential: National Strategy for Accelerated Poverty Reduction (2005)”. The Government has given the development of the agriculture sector the highest priority in addressing poverty and its rapid alleviation. The national poverty reduction strategy identified four key focus areas of agriculture and rural development, viz:

1 Intensification of the cultivation of major cereal crops, particularly rice; 2 Crop diversification into high value non-cereal crops (HVC) – particularly fruit, vegetables, pulses, spices and floriculture; 3 Development of non crop agriculture (fisheries and livestock); 4 Promotion of rural non-farm activities (rural infrastructure, transport, and services).

31. Since agriculture remains the single largest economic activity in the country, agriculture and the associated rural economy are recognized as the key drivers of the pro-poor growth

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strategy. The Government’s vision of the agriculture sector is to ensure growth through development and dissemination of sustainable technologies which are, ecologically adaptable; economically profitable; capable of generating employment; conducive to crop diversification, favorable for developing agri-business services; and capable to ensure food security for all, especially the poor. This vision is reflected in the Government’s National Agriculture Policy (NAP) of 1999, the overall objective of which is to make the nation self-sufficient in food through increasing production of all crops including HVC, and ensure a dependable food security system. Some of the salient objectives of the NAP are to:

• ensure a profitable agricultural production system and increase the real income of farmers; • reduce excessive dependence on any single crop to minimize the risk of crop failure; • preserve existing biodiversity of different crops; • undertake programs for the introduction, utilization and extension of biotechnology; • take necessary steps to ensure environmental protection as well as ‘environment-friendly sustainable agriculture through increased use of organic manure and strengthening of the Integrated Pest Management (IPM) program

32. The National Food Policy Plan of Action, 2008-2015 (NFPP) sets out 3 core objectives and 26 strategic areas of intervention for attaining national food security through the coordinated implementation of the programs of all ministries and agencies involved in the plan. The 3 core objectives of the plan are:

1 The adequate and staple supply of safe and nutritious food 2 Increased purchasing power and access to food of the people 3 Adequate nutrition for all individuals, especially women and children

33. The Project supports Government policy on food security, particularly with regard to the following areas of intervention (AOI) and action priorities under core objective 1 above:

AOI 1.1: Agricultural Research and Extension - Developing and disseminating demand driven crop and non crop new technologies; and expanding demand led and pro poor extension services.

AOI 1.4: Agricultural Diversification - Increasing and improving management production of HVC, (and fish and livestock products).

AOI 1.5: Agricultural Credit and Insurance – Increasing formal credit to agriculture, especially small and marginal farmers, (and improving coverage of financial loss due to production failures).

AOI 1.6: Physical Market Infrastructure Development – Improving private storage, market and transportation facilities, and improving market connectivity at local, national and international levels.

AOI 1.7: Agricultural Marketing and Trade - Reducing marketing costs of agricultural products and strengthening market integration.

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4. ADB Policies and Supports

34. The ADB Country Strategy and Program (2005 -2010) under its assistance for strategic priorities is supporting the promotion of sustainable economic growth. Assistance will be directed at agriculture and natural resources; transport and communications; energy, and the financial sector including SME’s. The agricultural sector is being supported by fostering a vibrant and diversified rural economy, with ADB assistance contributing to (i) intensification, diversification, and value addition of crops to boost agricultural productivity, improvement of food security, and fostering rural nonfarm enterprise development; (ii) strengthening farm-to-market linkages; and (iii) sustained growth of agriculture and agribusiness to generate productive on-farm and off-farm employment to raise rural income.

35. ADB is supporting the Government's efforts to develop and adapt productivity-enhancing technologies, and to improve rural infrastructure and local governance. A commercial, agribusiness-orientation to address critical constraints to financing, production, and marketing is being promoted. Policy and institutional reform is being pursued, along with capacity building to encourage greater community participation in planning and implementing rural development initiatives. In addition, private sector participation in rural service delivery is being fostered.

36. ADB has provided support to the agricultural sector through the North West Crop Diversification Project, 2003-2009 (NCDP), and the Bangladesh Agribusiness Development Project, 2006 -2011 (BADP). The SCDP will build on the support areas fostered in the NCDP and BADP, particularly through promoting value addition to HVC, strengthening value chain integration by fostering backward and forward linkages between farmers and consumers, and including Project service provision by private sector agribusinesses and technically qualified NGO’s.

5. External Assistance to Agriculture and Rural Development

37. Current and recent external donor assistance to the agriculture sector continues to be supported, mainly by the ADB, World Bank, DANIDA and IFAD. The most recent and active Projects and programs that have synergies with the SCDP and from which lessons can be learned have been taken into account in the new Project design. The key external assistance with relevance to new Project design are (i) ADB’s “Northwest Crop Diversification Project (NCDP: 2001 -2009)”, “Bangladesh Agribusiness Development Project (BADP: active)”; and Participatory Small Scale Water Resources Project (SSWRP - active); (ii) the World Bank’s “National Agricultural Technology Project (active)”; (iii) IFAD’s “Microfinance and Technical Support Project (2003 -2007)”, “Smallholder Agricultural Improvement Project (2003 – 2007)”, and Microfinance for Marginal and Small Farmers’ Project (active)”; and, (iv) DANIDA’s “Agricultural Sector Program Support Phase II (ASPS: active); A current and recent list of major agricultural sector, and rural development and infrastructure Projects and programs implemented in Bangladesh is provided in Appendix 3.

38. SCDP implementation should actively pursue liaison and cooperation with current rural development and infrastructure Projects that have synergies with the SCDP’s objectives. The following Projects have particular synergies, and beneficiaries, and are operating in many of the Upazilas selected by the SCDP:

(i) NATP under its “Agricultural Extension Support” component is providing training to small farmers’ groups and is supplying vehicles and equipment to Upazila Agricultural Offices on a needs basis. Under its Agricultural Research Support component it is undertaking adaptive crop

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research including HVC. Under its “Development of Supply chains” component it is strengthening farmer/market linkages. It should be noted that the NATP, whilst complementary to the SCDP, unlike the SCDP does not include the provision of loans to farmers to develop HVC production and value addition. However, this Project will support the sector and add value through its extension, research and supply chain development and integration activities.

(ii) SSWRP has developed some 600 Water Management Cooperative associations, all with agricultural sub committees, and has based a Community Organizer, with sociology qualifications, at each Upazila.

(iii) ASPS has organized some 9000 small Integrated Crop Management (ICM) farmers groups (earlier organized as Integrated Pest Management (IPM) clubs).

(iv) BADP promotes small and medium enterprise (SME) development in a range of agribusiness activities including HVC processing.

39. Given the SCDP’s objectives of mobilizing community groups for production and value addition training and support; the provision of on farm small scale infrastructure facilities including agro processing; and gender awareness development, it is strongly recommended that the PMU has close liaison with the above Projects and benefits from their experience and contacts.

6. Lessons learned

40. The design of the Project takes into consideration lessons learned from previous Projects in the agricultural sector, including the following;

(i) Externally assisted agricultural Projects and programs have tended to be supply side driven and have focused more on the transfer of crop production technology than developing the skills needed by farmers to link them to a range of markets and move successfully into commercial agriculture. Viewing agricultural development mainly from the perspective of crop production tends to prevent commercialization objectives from being achieved.

(ii) Project partnerships with NGO have proved successful in the NCDP and other donor supported sector Projects and these models can be adapted and improved, particularly in the realm of coordination between DAE and NGO’s, in the SCDP;

(iii) More cooperation between the public and private sector is necessary to ensure progress towards the commercialization of agriculture. Traditionally, MOA line agencies have had total responsibility for Project implementation, but in the main, they do not have the knowledge, background, or capacity to foster forward and backward linkages along the value chain, or the understanding to work effectively with the private sector, which involves a recognition of the importance of “profit’ in successful business enterprises;

(iv) Project planning and implementation should involve local stakeholders at “grassroots” level and a “top down” approach should be avoided;

(v) Farmer training should be followed up by improved extension services, on an ongoing basis.

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IV. THE PROPOSED PROJECT

A. Impact and Outcome

41. The overall impact of the Project will reduce rural poverty and increase economic development in 25 Districts of the North West and South West of Bangladesh.

42. Furthermore, the Project will (i) increase small and medium farmers’ incomes through improved productivity and profitability of cash crops; (ii) improve rural employment opportunities through the growth of the commercialization of agriculture; (iii) empower poor women through gender mainstreaming in farming enterprises; (iv) enhance food security, safety and improved nutritious and diverse diets for consumers; and (v) stimulate the rural economy in the Western region of Bangladesh, which contain some of the country’s poorest districts.

43. The Project’s outcome will be improved production, profitability, value addition, and marketing efficiency of HVC, such as fruits, vegetables, flowers, cereals, pulses and spices within the Project area.

44. The proposed Project area comprises 9 districts, and 9 Upazilas of Rajshahi Division in the north west of the country, and 16 districts, and 39 Upazilas of Khulna and Barisal Divisions, and part of Dhaka Division, in the south west of the country. A major economic challenge currently facing Bangladesh is the regional divide between the east and the west of the country in terms of employment and economic growth. The eastern region, comprising Dhaka, Sylhet and Chittagong Divisions, has a headcount ratio, indicating the incidence of poverty, of between 32% and 34%. By contrast the western Region, comprising Barisal, Khulna, and Rajshahi Divisions, has a headcount ratio of between 47% and 52%. Therefore, the Project will focus on the North West and south west of the country, which contains some of its poorest people and least developed areas.

45. The following overall methodology, criteria and rationale were used to determine areas to be covered by the Project:

• An assessment and analysis of the agro climatic, edaphic, agronomic, social, and environmental conditions in the new Project areas being considered; • The physical accessibility and infrastructure (particularly roads and transport, power and water situation) of the area being considered. It should be borne in mind that the new Project is not intended to be a rural infrastructure development Project, and it is important that the Project management and implementation units are able to access Project beneficiaries easily; • The level of risk in a potential new Project area is related to both environmental factors (e.g., the negative impact of climate change, susceptibility to natural hazards and catastrophes such as floods, cyclones, tsunamis), and law and order/conflict. It is important that the areas included in the new Project are not considered too risky by the Project’s participatory financial institutions; • The extent of poverty of the area being considered, and potential for mainstreaming women in the new Project; • The establishment of a short list of key Project focus crops based on the results and recommendations of the NCDP together with the addition of potential new (non NCDP) HVC crops in the South West region;

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• Linkage of the conditions needed to improve the production of the Project’s focus HVC with the agronomic suitability of the new areas being considered for inclusion in the new Project.

46. The Project area selected includes approximately 1.6 million households and a potential 240,000 farmer beneficiaries of HVC technical training, demonstration and dissemination assuming a Project “take up” of around 20%. An estimated 52,000 ha will be converted to the production of HVC.

47. The districts and Upazilas included are as follows:

NORTH WEST Division District Upazila RAJSHAHI Dinajpur Birampur Lalmonirhat Hatibandha Kurigram Nageswari Gaibandha Sadullapur Bogra Sonatala Nawabganj Sadar Rajshahi Godagari Nator Bagatipara Pabna Pabna Sadar TOTAL 9 9

SOUTH WEST Division Districts Upazilas DHAKA Faridpur Sadar, Madhukhali, Nagarkanda Gopalganj Muksudpur, Tungipara Rajbari Sadar KHULNA Kushtia Sadar, Mirpur Jessore Jhikorgachha, Sadar, Monirampur, Sarsha Satkhira Sadar, Debhata Magura Sadar, Sreepur Jhenaidah Harinakunda, Sadar, Kotchandpur, Maheshpur, Chuadanga Sadar, Damurhuda, Jibannagar Meherpur Sadar, Mujibnagar Narail Sadar Khulna Daulatpur, Dumuria Bagerhat Sadar, Mollahat, Fakirhat BARISAL Barisal Babuganj, Gournadi, Sadar, Ujirpur, Agailjhara Jhalakathi Sadar Pirojpur Nazirpur, Nesarabad (Swarupkathi) TOTAL 16 39

B. Outputs

C. Outputs

1. Project Components

48. The Project outputs include (i) the increased sustainable production of HVC; (ii) the reduction of post harvest losses, improved product quality, value addition, and enhanced market efficiency; (iii) enhanced capacity of public sector institutions and participating Project partners in

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supporting farmers to increase their incomes; and (iv) increased participation of women in commercial agricultural activities. Project outputs will be delivered through 5 components, viz:

Component 1: HVC Production Support

Component 2: Value Addition Support

Component 3: Credit Support

Component 4: Institutional Strengthening

Component 5 Project Implementation Support

49. Safeguards regarding gender awareness development and environmentally sustainable farming and post harvest practices are incorporated in all components. At the start of the Project the PMU will conduct an extensive promotion and awareness campaign throughout the Project areas to apprise beneficiaries of the Project’s support interventions for HVC diversification and commercialization, and encourage farmer and community interests, motivation and needs.

50. Further details concerning implementation arrangements are given in Section IV F hereunder and in Appendixes 14 Implementation Arrangements, Appendix 15 Project Management Staffing, and Appendix 16 Management Structure

Component 1 — HVC Production Support

51. Implemented by DAE, this component primarily comprises training, demonstration, dissemination and extension activities that provide small and medium farmers with the latest HVC production technology consistent with good sustainable agricultural practice. The most appropriate types of technology for development of HVC production by farmers will be determined using the lessons learned in NCDP and needs assessment consultation with farmers. Technologies investigated will include IPM techniques; reduced and zero tillage practices; green and organic manuring; net house usage; controlled environment agricultural technology (CEAT) such as green houses, net houses, and cloches; and mechanization for land preparation harvesting and post harvest handling. The Project will determine how HVC production technology can be best disseminated to farmers including a review of current HVC training methodology and extension.

52. Under the NCDP a total of 33 different crops were identified in an attempt to diversify crop production in the north-west. These were considered to be of high value in terms of profitability per hectare in comparison to high yielding boro rice varieties. Over the implementation period of NCDP, 11 crops emerged as more prominent and suitable for commercialization, due to their popularity in terms of area coverage and marketability. An assessment and analysis of the suitability of these crops, and other HVC more suitable to the South West region, in terms of the agro climatic, edaphic, agronomic, social, and environmental conditions pertaining in the new Project areas, has been undertaken and verified.

53. The Project will support the production of a range of HVC, but in particular, focus will be given to the following crops that have a proven market demand and potential for commercialization:

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Vegetables Spices Fruits Others - Summer Tomato - Onions - Banana - Maize (relayed - Brinjal (Egg plant) -Garlic (Zero tillage) - Litchi with potato)/ - Bitter gourd - Ginger - Jujube mung beans - Pointed gourd - Chili - Mango - Coconut - Country bean - Onion seed - Guava - Flowers - Papaya Source: PPTA Team Specialists and DAE Field Staff

54. The above list is a guide and other crops may be introduced during Project implementation if they meet the key criteria of farmer acceptance and need, suitability to the location, enhanced profitability per hectare through yield potential, price and market demand. However, in any single Upazila not all HVC are grown. Therefore, the Project should not promote too large a range of HVC in any one Upazila. It is proposed that the Project adopts a ceiling of the number of HVC to be promoted in each Upazila determined by, say, the most popular and profitable crops in each Upazila.

Activities and outputs

55. Project promotion and training of trainers (TOT): DAE staff and other participating implementation agency staff will be involved in Project implementation through the following:

56. Project promotional and awareness campaigns: DAE staff at all levels including District and Upazila level will participate, with other participating implementation agencies, in extensive Project promotional and awareness campaigns organized by the PMU, and undertaken at union and village level throughout the Project area and aimed at individual farmers and community groups. The campaigns will be an essential first step in Project implementation and will specifically inform potential beneficiaries of the opportunities available to them in HVC production diversification, value addition, improved market access and rural credit.

57. Training of trainers (TOT): DAE staff at District and Upazila level participating NGO’s: will be trained in the latest HVC production techniques and innovations, methods of demonstration, dissemination and technology transfer to farmers. They will also be trained in the facilitation of small scale community group formation for the purpose of training and credit access, making use of the input from other agencies such as MFI's and complementary donor Projects. Under this activity curriculum for institutional and field based farmer training, together with HVC promotional material, including “farmer friendly” manuals will be developed. Training materials will include the latest techniques in HVC production post harvest handling, including plant protection practices with an emphasis on precautions in handling and storing of chemicals at home and in the field. Methodology for ensuring the safety of children, and necessary remedial action to minimize the toxic effect of agricultural chemicals shall be included.

58. Project motivation: the following activities are aimed at motivating DAE staff, and in particular, Sub Assistant Agriculture Officers (SAAOs) involved in the day to day implementation of the Project.

59. DAE workshops: Workshops will be held annually in Dhaka, and at regional level (Bogra and Jessore) on Project progress towards achieving its objectives, and to discuss any problems of direction, implementation and motivation.

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60. SAAO workshops: Workshops, specifically for SAAOs, on Project progress towards achieving its objectives, and to discuss any problems of implementation and motivation, will be held annually in each District covered by the Project.

61. SAAO extension tours: Tours of Project areas will be arranged specifically for SAAOs to assist them in understanding the needs and motivating farmers involved in the Project.

62. Farmer support: Around 220,000 small and medium farmers will participate in the Project’s HVC training programs. Training will also be available to marginal farmers on a needs and motivation basis. Farmers will be trained in HVC production through the following activities:

63. Community group identification and formation: During the promotion and awareness campaign, surveys will be undertaken to identify existing community groups representing Project beneficiaries. Additionally, through a participatory basis with farming communities, meetings will be held to establish farmers’ needs and motivation to diversify into HVC production. Small groups of farmers with common interests, will be supported for the purpose of training and, where needed, credit application.

64. Farmer training: Training courses in HVC production for men and women will be undertaken using the curriculum and training materials developed by the DAE TOT. Each training session will be organized for a maximum of 25 farmers, with duration of at least one full day for one single HVC.

65. Demonstration plots: Ongoing field demonstrations on specific HVCs (e.g., a newly introduced variety or a crop management practice) will be undertaken using a suitable plot of a willing and eligible farmer. The plot must be on a roadside, properly signposted to enable large number of farmers to benefit. Guidelines for conducting demonstrations will be developed.

66. Farmer field days; Regular field days will be organized at critical times such as harvest for groups of 40 to 60 farmers, linked to the demonstration plots described above.

67. Rural credit: Farmers who have been trained in HVC production methodology and techniques will be eligible to apply to MFIs for credit.

68. Farmer motivational tours: Farmers wishing to learn from the examples of growing or improving HVC production will be provided motivational tours to neighboring locations.

69. Agricultural fairs: From 2011, two agricultural fairs, promoting HVC diversification and commercialization of HVC will be held each year in Bogra and Jessore respectively. The fairs will promote the activities of the Project, and publicize to farmers the benefits of diversification into HVC.

70. Extension services: “Follow on”, improved, comprehensive, regular and timely extension services in HVC production techniques will be provided to HVC farmers by the DAE, as required under their mandate

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71. Planting material: Appropriate, high quality HVC varieties of planting material will be supplied to farmers at affordable cost, on a needs and availability basis, from Horticulture Development Training Center (HDTC)9 nurseries.

Component 2 — Value Addition Support

72. This component will be implemented by DAE with support from a range of service providers. Component 2 will provide farmers and farmers’ community groups with training and awareness-raising in value addition options to enable groups to take the right production and marketing decisions so as to increase their profitability. The decisions taken by beneficiaries will result in the Project activities and outputs detailed below.

Activities and outputs

73. Training of trainers (TOT): The following TOT courses including participatory workshops, will be delivered to DAE officers (UAO’s, and SAAO's), Service Providers, Community Facilitators and selected Community Group Leaders. It is proposed that the courses are developed with reference to the latest version of “Horticultural Marketing – a resource and training manual for agricultural extension officers; FAO Agricultural Services Bulletin 76, 1998.”

(i) Value Addition Course A - post harvest handling technology for delivery to community group management, committees and their individual farmer members.

(ii) Value Addition Course B - community group management and administration, and agricultural marketing for delivery to group management staff and committee members.

74. Farmer community group support: Groups will be supported through the following activities:

75. Community group identification and formation: Farmer communities interested in the options for value addition improvement offered by the Project are expected to develop voluntarily based on needs and motivation, following Project promotion and awareness campaigns, and participatory appraisal. It is expected that many community groups, already formed under Component 1 and other donor Projects with the same beneficiaries as the SCDP (such as the IPM groups under DANIDA’s ASPS) and water management groups (under ADB’s PSSWRP), will be interested in Project participation.

76. Community group training, and awareness raising in value addition options: Field based training and awareness programs will be undertaken under (i) Value Addition Course (VAC) A - post harvest handling techniques and; (ii) Value Addition Course (VAC) B - community group management and administration agricultural marketing. Farmer awareness will be raised in the following areas of farming business endeavor:

77. Under VAC A (i) the importance of quality in the price determination of HVC; (ii) pre harvest quality maintenance; (iii) best practice in harvesting and post harvesting techniques including, harvesting equipment, the organization of the harvest, transportation to collection points, washing, sorting, grading, packaging, grading, produce branding, and on farm storage.

9 The Project will rehabilitate and upgrade 6 HDTs in the South West of Bangladesh under component 4. HDTC’s in the North West were upgraded and rehabilitated in the NCDP.

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78. Under VAC B – (i) group self analysis to assess group strengths and comparative advantages over other producers and traders; (ii) group organization and capacity building including management, administration, bookkeeping, accounts, report writing, to enable transparency within the group; (iii) understanding the importance of agricultural marketing information and where to find it; (iv) understanding the agricultural value chain and supply chain to demonstrate that different markets have different prices and calculate arbitrage opportunities; (v) understanding the cost of production and transaction costs of HVC and their implication for profit margins and the establishment of price bargaining opportunities; (vi) the importance of networking, bargaining and negotiation skills in accessing optimum markets; (vii) understanding the rights, duties and responsibilities of the respective parties involved in contract farming arrangements.

79. Improved market access and efficiency: The raising of farmers’ awareness of the value addition options open to them will result in the following outputs:

(i) informed and optimum pre-season decisions on what crop to plant based on agricultural market knowledge and trends in production and consumer preferences;

(ii) informed and optimum decisions on the timing of crop planting and harvesting in order to spread sales based on knowledge of seasonal price trends;

(iii) the acquisition of innovative post harvest technology and on farm small scale infrastructure facilities to reduce losses and improve quality. The right decision will be based on farmer knowledge of the comparative benefits and risks and the potential price premiums that will result from the investment;

(iv) the signing of seasonal or long term supply contracts with large traders, seed merchants, retailers, agro processors and exporters, based on networking and the capacity and knowledge of the contractual requirements to negotiate and fulfilling of such contracts;

(v) the signing of seasonal out-grower contracts with large farmers to take advantage of premium prices offered by larger operators able to take advantage of economies of scale;

(vi) selling branded produce at premium prices through the establishment of a recognized name in the market.

80. Rural credit: Farmers’ groups, jointly or individually, will be eligible to apply for credit to cover their working capital requirements to bulk and transport produce to distant markets; for example, covering, particularly at the beginning of a season the time lag between initial payments to farmers and the receipt of proceeds from buyers. Subject to loan repayment capacity, credit will also be available for the purchase of capital items required for improved value addition and group operation, such as harvesting tools and equipment, vehicles and motorcycles, computers and communication equipment.

81. On farm small scale infrastructures (OFSSI): A key element in increasing value addition at farm level is investment in low cost OFSSI facilities. OFSSI can include (i) on (or near) farm collection and post harvest handling centers; (ii) community based small scale cool / cold / dry storage, packaging, and market related transport facilities; (iii) small scale low cost agro processing facilities, e.g., coir and virgin coconut oil production, and fruit and vegetable processing. The Project will provide technical support, primarily, through its participating service providers, to community groups seeking assistance in the design and construction management

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and operation of OFSSI. It is expected that there will be good demand for basic OFSSI involving the construction of a covered shed, washing, drying, sorting, grading, and packaging, facilities. This type of facility will cost around $5000. However, more sophisticated and costly facilities, involving cold store facilities and/or agro processing machinery and equipment, would also be eligible for investment support.

82. It is envisaged that the farmer community groups themselves, supported by Project service providers and the Local Government Engineering Department (LGED), if and when required, will be responsible for the identification, design, construction, management, maintenance and operation of basic infrastructure facilities. It is assumed that applicants for OFSSI support will avail themselves of the post harvest, value addition and group management training and awareness programs offered by the Project.

83. The land required for each OFSSI is expected to be very small and will be provided by farmers in the communities themselves, or placed on community-owned land.

84. Farming communities, within the Project area, will be eligible to apply for the financing of OFSSI investments on a cost sharing basis with the Project, based on selection criteria detailed under Appendix 14 (Implementation Arrangements).

85. The following activities will be undertaken in order to establish a functioning OFSSI facility.

86. Identification and feasibility study preparation: Through participatory, needs based, appraisal, service providers, DAE, and LGED (if required) will provide support to community groups in identifying and designing appropriate OFSSI’s. Activities involved will include land surveys, costing of construction labor, building materials and equipment, and, the assessment of any legal or regulatory contractual obligations to Government or third parties involved in establishing and operating the facility. A feasibility study on the sustainability of the investment including a 5 year business plan will be prepared by the applicants, with advice and assistance from service providers. The feasibility study will form part of the application to the Project for grant support to implement the investment.

87. OFSSI construction: Following approval by the PMU, the community groups, with technical advice from service providers, and the LGED, if required, will arrange construction of the OFSSI using, to the extent possible, local constructing firms, their own and/or local labor, and building materials.

88. OFSSI operation: The community group will form a small dedicated committee, and depending on the size of the operation employ qualified staff to operate the OFSSI.

89. The outputs expected from investing in OFSSI are improved relative net produce prices and individual farmer profitability as a consequence of improved quality and reduced post harvest losses.

Component 3 — Credit Support

90. This component will be implemented through wholesale banks and NGOs acting as microfinance institutions (MFIs). Credit support of up to $25.5 million will be provided to around 175,000 HVC farmers through financially sound MFIs experienced in agriculture credit. The phasing of credit will follow and be linked to DAE farmer training, the establishment of

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demonstration plots, and the holding of farmer field days. SAAOs, community facilitators, and MFI field staff will liaise closely at the field level so as to coordinate extension and credit services. Similar coordination will occur at the PMU and PIU levels with relevant DAE and MFI staff.

91. Farmer loan sizes will usually be in the range of TK5,000 - 20,000 and up to a current MFI loan size ceiling of TK300,000. This range in loan sizes will cover all farmers with land areas up to 3.0 ha. Except for lending for tree crops, most of the lending will be seasonal with a term of 4-7 months. Loan terms and conditions will be set by each MFI credit supplier and will fit Microcredit Regulatory Authority (MRA) requirements. Prior to obtaining loans, HVC farmers will have either attended training courses on HVC production provided by DAE or be able to demonstrate proven experience in HVC production. MFI staff will have participated in farmer training courses and will have discussed loan terms and conditions with farmers attending these courses. While loans to farmers will be on an individual basis, loan repayments will be facilitated through the formation of borrower groups. Component outputs will be (i) a well-performing HVC loan portfolio of at least $25.5 million, (ii) HVC farmers with ready and convenient access to credit, and (iii) MFI credit suppliers with built-in expertise in HVC loan management.

Component 4 — Institutional Strengthening

92. This Component, to be implemented by DAE, will support the strengthening and capacity building of DAE, to enable the department to implement the Project to optimum effect. The component comprises training in gender awareness development, upgrading and rehabilitation of DAE District offices and HDTC’s, vehicle and equipment provision, and a feasibility study on a quality standards and certification system (QSC) to be operated by DAE. The construction work required under this component’s activities will be contracted out by the PMU to local contractors, or undertaken by LGED as determined by the PMU in consultation with DAE.

Activities and outputs

93. The following activities will be undertaken under Component 4

(i) Training: DAE staff will be trained in gender awareness and environmental concerns including the impact of climate change on agricultural sector activities. Details are included under sub section B, 2 below; (ii) DAE Staffing: DAE will identify and recruit additional staff at District and Upazila level, needed for efficient implementation of the Project. The costs involved form part of the Government’s contribution to the Project; (iii) Rehabilitation and upgrading of DAE offices: The building facilities at DAE District and Upazila offices in the Project’s South West localities will be surveyed and assessed in terms of condition, utility, and suitability for Project implementation. Provision is made for upgrading and rehabilitation, which may require some minor construction work. (iv) HDTC’s rehabilitation, upgrading and training: Each HDCT in the South West will be surveyed and needs assessed. The following general needs have already been identified, (a) upgrading training rooms and dormitories; (b) upgrading nurseries; (c) upgrading of roads and construction of boundary walls; (d) provision of equipment, and (e) training in nursery management and tissue culture. (iii) Vehicle and equipment provision: A survey and needs assessment of vehicle and equipment required for Project implementation will be undertaken at District and Upazila level. The assessment will take into account the condition and suitability of existing

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vehicles and equipment and any items, in serviceable condition, supplied by other donor Projects. The Project will provide double cabin pickup trucks, jeeps, minivans, and motorcycles as needed. The equipment to be provided will include, as needed, computers, photocopiers, multimedia Projectors, fax machines, television sets, cameras, air conditioners, fans, refrigerators and freezers, and auxiliary power suppliers. (v) QSC feasibility study and follow up: A feasibility study will be undertaken by an International and a National consultant on setting up a QSC system for fruits and vegetables to be administered by DAE. This proposal is based on the system being operated in Vietnam at provincial level by that country’s Department of Agriculture and is known as the “Safe Vegetable and National Good Agricultural Practice Certification Scheme.” Should the outcome of the feasibility study be positive the DAE will initiate the scheme and provision has been made for basic laboratory equipment and necessary technical advisory services.

Component 5 — Project Implementation Support

94. The following activities will be undertaken by the PMU under Component 5:

(i) Service provision: The PMU will undertake the selection and appointment of service providers to implement component 2; and, a consultancy firm for the provision of the national and international consultancy team;

(ii) Project promotion and awareness: The PMU will design and undertake campaigns at village level, in collaboration with participating Project executing and implementing agencies, to promote the Project’s technical and financial support options to beneficiaries;

(iii) Baseline surveys: Baseline surveys will be undertaken in all Project Districts and Upazilas on socio – economic conditions (e.g., households and family composition, education, gender and environmental community awareness, employment, occupations, income, expenditure, membership of community organizations, land ownership); current status of agricultural training and extension; agricultural credit distribution and utilization; crop production; and agricultural marketing systems;

(iv) Feasibility studies: Feasibility studies will be undertaken on QSC, and other areas of Project concern such as innovative HVC production techniques, HVC marketing options, and environmental, poverty and gender issues;

(v) Monitoring and evaluation: Project HVC farmers’ production and sales, and incidences of pest and disease will be monitored on a weekly basis. Training programs at all levels will be monitored on a monthly basis. An annual monitoring report on progress in all Project activities will be produced. A Benefit Monitoring and Evaluation (BME) survey will be undertaken at midterm and at the end of the Project. A Project completion report will be undertaken and submitted to the ADB at the end of the Project;

(vi) Vehicle and equipment provision: Vehicles and equipment will be provided to the PMU and PIU’s. A survey and assessment of the condition of all vehicles and equipment supplied to the NCDP management units will be undertaken in order to assess the new Project’s requirements. All ex NCDP vehicles and equipment will be handed over to the new Project management and implementation units.

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95. Component 5 will be implemented by DAE who will appoint and/or dedicate appropriate and suitable Project implementation staff under their Project contribution commitment.

2. Safeguards

96. Gender awareness development: A gender action plan is included in this report under Appendix 13. Specifically, the following activities will be undertaken to promote the mainstreaming of women in HVC production and value addition.

97. DAE staff gender awareness training: At the outset of the Project implementation DAE staff at Head office, Regional, District and Upazila level will receive gender awareness training geared to the appreciation of mainstreaming women in HVC production and value addition activities, and the impact of better gender awareness on poverty reduction and social development. Community facilitators will be hired to enhance community and women’s participation in the Project.

(ii) Training of trainers (TOT) in gender awareness for farmers: Trainers will be taught ways to frame training course topics so that they are inclusive of, and do not cut across issues of, gender awareness. The role and importance of women in HVC production will be identified and promoted in the training courses. (iii) Farmer household training in gender awareness; Husbands will be encouraged to participate with their wives in the gender awareness training (iv) below. (iv) Training for women in gender awareness: Women will receive awareness training on their rights and responsibilities and ways to enhance their role in the community. (v) Gender awareness promotional material: Training flipcharts, handbooks for trainers and community facilitators, and pamphlets addressing key topics will be prepared for distribution to DAE staff, community leaders, and SCDP farmers. (vi) Women’s’ discussion groups: Community facilitators and SAAOs will encourage the formation of women’s discussion groups and lead them in the discussion of identified issues and topics and assist them in taking follow up actions. (vii) Awards to lead women farmers: It is recommended that lead women farmers be identified on a competitive basis and that these women receive a prize in cash or in kind and that these women act as “champions” in the promotion of the role of women in HVC production in particular and society in general.

98. Environmental sustainability of HVC diversification: A summary of the Project’s initial environmental examination is included in this report under Appendix 11. Furthermore, technical assistance (TA) has been proposed on climate change impact assessment and adaption options with regard to HVC production and value addition. The few potential adverse impacts of low to medium magnitude, which have been identified, relate to soil on HVC farms, fertilizer use and pesticide use. More specifically, the following mitigating measures will be promoted in environmentally sustainable farming and post harvest practices:

• Against soil erosion; (a) regular surveillance of erosion prone sites, and (b) tree plantation along the aisles of farm plots and their caretaking by locally organized community workers; • To mitigate against imprudent chemical fertilizer use by encouraging; (a) organic manure; (b) composting and vermiculture; (c) green manures; and (d) blue-green algae and microbial solution;

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• Mitigation of any potential adverse environmental effects consequent on the operation of OFSSI’s, eg, on pollution to the water supply, and on the health and sanitary facilities of nearby communities.

D. Special Features

99. The proposed Project has the following special features which differentiate its focus from previous support to the sector.

(i) The Project focuses on the seamless integration of agricultural production and post harvest and marketing activities and is demand driven. The Project has a two dimensional thrust, supporting forward and backward linkages between stakeholders. Firstly, farmers’ capacity will be supported to increase production, profitability and interrelate with market participants in order to improve their efficiency and negotiating skills; Secondly, private sector agribusiness are supported through service provision service contracts in order to foster backward linkages from the market to the small farmer sector. Value addition through improved quality packaging, branding, and agro-processing together with the development of value chain integration and linkages, with improved transparency, is a key aspect of the Project. Previous support to the sector has tended to be supply side and production oriented.

(ii) The Project focuses on a core group of high value crops in the horticulture, floriculture, and spices sub sectors which have proven market demand, are suitable and acceptable to small and medium farmers, and have a high profitability per hectare.

(iii) The Project includes measures to ensure the participation of the rural poor and disadvantaged such as marginal farmers and the landless, and also to encourage greater participation of women in all aspects of agricultural production and marketing.

(iv) The Project integrates its technical and financial services to farmers and fosters a strong partnership between DAE, NGOs, and services providers with close working relations in the field on supporting farmers.

E. Project Investment Plan

100. The estimated Project cost is $45.95 million, inclusive of physical and price contingencies, taxes and duties, and interest and service charges during construction. The foreign exchange cost is estimated at $9.04 million plus a further $0.99 million in interest during implementation. Foreign exchange costs are 22% of the total cost. The local currency cost is estimated at $35.92 million, 78% of the total cost. Local currency costs include an estimated $2.44 million equivalent for taxes and duties.

Table 1: Cost Estimates ($ millions)

Item Total Cost

A. Base Cost 1. HVC Production Support 5.56

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2. Value Addition Support 2.59 3. Credit Support 25.50 4. Institutional Strengthening 6.44 5. Project Management 3.80 Subtotal (A) 43.89 B. Contingencies 1. Physical 0.81 2. Price 1.26 Subtotal (B) 1.07 C. Interest charge during implementation 0.99 Total 45.95

Source: PPTA consultants cost estimates

F. Financing Plan

101. The financing plan is outlined in Table 2. This calls for a loan from ADB of $40.0 million to complement $5.62 million in Government financing and $0.33 million in community investment. The ADB loan, financing $10.03 million in foreign costs and $29.97 million in local costs, represents 87% of total Project investment. The Government would be responsible for taxes and duties related to building rehabilitation, furniture, equipment and vehicles. It is recommended that the Government provide grant funding for post-harvest value addition facilities of approximately $0.99 million, out of funds borrowed from ADB so as to stimulate community interest and investments in post-harvest value addition. Community investors will provide total investments of $0.33 million in cash or in kind. Project costs and financing do not include equity investments required by BB of the wholesale banks and MFI’s to maintain proper debt: equity ratio and cover the increase in risk assets under the credit support component.

Table 2: Financing Plan ($ millions)

Item Total Percent Cost Cost

Asian Development Bank 40.00 87 Government 5.62 12 Community investors 0.33 1 Total 45.95 100

Source: PPTA consultants cost estimates

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G. Implementation Arrangements

102. The proposed management structure is given in Appendixes 16. Details of Project component implementation are provided in Appendix 14, and PMU and PIU staffing arrangements in Appendix 15.

1. Project Implementation and Management

103. Executing agencies: The principal executing agency is DAE, who have had considerable Project management experience particularly with the recently concluded NCDP, and who will be responsible for the implementation of components 1, 2, 4 and 5. Bangladesh Bank will be the second Executing Agency and, through the Agriculture Credit and Special Programs Department (ACSPD), will manage the credit line described in component 3. The daily management of the credit line will be through two wholesale banks that take the funds from BB and on lend to NGOs that directly lend to HVC’S farmers and investors in post-harvest facilities. The wholesale banks will be responsible for the final selection of NGOs to which they will lend. The credit risk will be borne by the wholesale banks who will manage their Project-funded loans to the NGOs and provide reports as required to ADB, BB and the PMU.

104. MFI Involvement: The PMU will establish a shortlist of MFI’s willing to participate in the Project. For inclusion in the shortlist, the MFI’s will need to (i) hold a license issued by the Microcredit Regulatory Authority, (ii) show operations in agricultural credit delivery for at least three years and an average expenses to revenue ratio (E/R) over this time of less than 90%, (iii) show experience in, and a satisfactory record of, managing donor and Project funding for at least three years, (iv) have a total loan portfolio of at least TK100 million and an agricultural loan portfolio of not less than TK20 million and not less than a total 15,000 active borrowers, (v) have classified loans of less than 10% of total loan portfolio, (vi) have a net worth of not less than TK50 million and a CAR of at least 15%, (vii) have not less than 10 head office professional staff and 40 field credit staff, (viii) have an appropriately qualified board of directors, and (ix) have an executive director and chief financial officer with at least five years of satisfactory experience in microcredit and hold relevant academic qualifications. An initial shortlist includes six NGOs: BURO Bangladesh, Shakti Foundation, BRAC, ASA, TMSS and RDRS.

105. Generally, credit will be provided to individual farmers within groups with each group having an average 20 farmers.10 The location and selection of group members will be implemented so as to simplify the process of loan repayments by the farmers. Many of the groups are already in existence with group members involved in traditional agriculture. Loan disbursements will take place at the MFI branch. Lending will be on an individual farmer basis. The amount of credit to a borrower will depend on the types of HVC, their areas, their profitability, and the credit history of the farmer.

106. MFI’s will set out three year programs for lending to HVC farmers showing general locations, numbers of farmers, and financing requirements from the Project. These plans, to be updated each six months, will be supported by forecast balance sheets and income statements. The plans will then be submitted to the wholesale bank(s) that will assess the financial feasibility of the plans, determine the amount of Project financing and repayment capacity, and set out terms and conditions for lending. The MFI’s will then meet together under the coordination of the PMU to select and agree on which Upazila or union each MFI will service under the Project and

10 This was the average group size under NCDP. Some of the new NGO participants have much smaller group sizes but then combine 6-8 groups into centers.

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broadly set out numbers of HVC farmers that it expects to reach in each six months. The PMU will coordinate similar meetings and reviews each six months.

107. Project management unit (PMU): A PMU will be established in Dhaka, within DAE, to facilitate and coordinate and supervise Project activities. Two Project Implementation Units (PIU) will be established in Jessore, to cover the South West Project area, and in Bogra to cover the North West Project area. The PIU’s will be responsible for Project coordination with day to day “hands on” Project implementers, viz, DAE District officers, Upazila officers, SAAO’s and Community Facilitators. The PIU’s will be located at the DAE District offices, and report to the PMU and work under their guidance. It is recommended that the Project engages those members of the former NCDP and the SCDP DAE TA counterpart team, who have considerable relevant Project experience, when selecting PMU and PIU staff.

108. Details of proposed Project staffing are provided in Appendix 15.

109. Interagency Coordination: Overall coordination among agencies will be achieved through a Project steering committee (PSC) chaired by the Secretary of the Ministry of Agriculture, and consisting of those agencies involved in the Project, together with the Economic Relations Division of the Ministry of Finance, the Planning Commission, the Implementation Monitoring and Evaluation Division of the Ministry of Planning, the Bangladesh Bank, the Eastern Bank, the BASIC Bank, and a representative of each of the Divisional Commissioners of the Rajshahi, Khulna, Barisal and Dhaka Divisions.

2. Implementation Period

110. The Project will be implemented over 6 years, beginning on 1 July 2010. a Project implementation schedule is provided in Appendix 6.

3. Procurement

111. The PMU will be responsible for the procurement of all goods, related services, and civil works under the Project in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). All small and widely dispersed civil works of up to $30,000 will be undertaken by the community, following the community participation guide. Shopping will be used for works exceeding $30,000 but no more than $100,000. For works valued at more than $100,000 but no more than $1,000,000, civil work contracts will be required and procured by PMU on the basis of national competitive bidding in accordance with the Government’s procurement procedures acceptable to ADB. Supply contracts for equipment or materials exceeding $1.0 million will be procured following international competitive bidding, and those not exceeding $1.0 million but more than $100,000 will be awarded on the basis of national competitive bidding. Shopping will be used for procuring readily available off-the-shelf goods valued at up to $100,000.

4. Consulting Services

112. The selection and engagement of all consulting services will be in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) and other arrangements satisfactory to ADB for engaging national consultants. A team of consultants will be recruited through an eligible and qualified consultancy firm to fit in critical areas where DAE has insufficient capacity: (i) post harvest handling techniques, value addition, and agricultural marketing; (ii) results based monitoring and evaluation; (iii) designing and managing post harvest, and community group training packages; (iv) gender mainstreaming in agriculture; (iv)

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farmer group organization and capacity building. The consultants, comprising 96 person-months international and 246 person-months national will be recruited by PMU through a firm using quality- and cost-based selection with quality-cost ratio of 80:20. The Government will undertake advance action for recruiting consultants to facilitate the Project’s start-up. The Government has been advised that approval of advance action does not commit ADB to finance the Project.

5. Anticorruption Policy and Measures to Enhance Governance

113. ADB’s Anticorruption Policy (1998, as amended to date) will be explained to and discussed with the Government Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy will be included in the Project loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

114. The proposed Project design includes Project specific measures to enhance governance and prevent corruption during implementation. Good governance measures include (i) setting out clear criteria for the identification and participation of wholesale banks and MFIs, (ii) the establishment of transparent procedures for financial transactions, and the requirement of the Bangladesh Bank for the supervision of wholesale banks and, through them, the MFIs; (iii) the regular monitoring and reporting of the activities of contracted service providers through a Project performance monitoring system (PPMS) to be operated by the PMU, and PIU’s; and (iv) the appointment of a MFI Credit Management Officer in the PMU to liaise with MFIs and other Project service providers and deal with any specific concerns and complaints relating to MFI/service provider interaction with Project beneficiaries. The PMU and PIUs will follow Government-set rules and procedures for all expense and revenues items including the handling of cash and the proper and accurate maintenance of financial records. As outlined in the Financial Management Questionnaire, all accounts will be scrutinized by the independent accounting section established in DAE and subject also to review by the DAE internal audit section that reports to the Director of DAE.

115. Project expenditures will follow ADB SOE procedures and be subject to independent external audit in the case of private sector expenditures, and Government procedures and internal audit in the case of disbursements authorized by and made through the PMU. Procurement procedures outlined in Appendix 7 will be followed strictly and be subject to ADB oversight. Project services will be described by the PMU, with the assistance of consultants, in pamphlets that are distributed among local government, rural communities, farmers, and social service and financial service providers. At the completion of each training course and motivation tour, trainees will be asked to complete an evaluation of the course. These evaluations will follow a format agreed upon by consultants and ADB and will be kept on file and made available for inspection. All reporting, including surveys and reviews, required by Government and ADB will follow formats agreed in advance by oversight bodies. The provision of reports will be diarized showing dates of their completion and names and signatures of recipients of the reports. A report distribution list will specify reports to be distributed to government, Upazila and union representatives, and private sector parties. Credit services will be subject to three levels of oversight: BB, the wholesale banks and external auditors of banks and MFIs. Subborrowers will be computer coded and identifiable to enable in-field verification of, and interviews with, loan recipients. Financial performance indicators have been set so as to monitor the efficiency and

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correctness of financial services. Community investments will be subject to approval and acceptance by at least three independent parties: a respected community representative, a community-service agency, a financing MFI (who may also be the community mobilizer), and the PMU following prescribed procedures established and approved by consultants and ADB.

6. Disbursement Arrangements

116. Immediately after Loan Effectiveness, the Government will open and maintain two imprest accounts in BB for the Project: one to be managed by BB as the executing agency for the credit line and the other managed by DAE for all other components. To access imprest account funds, BB and the PMU established in DAE will be responsible for preparing disbursement Projections, collecting supporting documents, and preparing withdrawal applications. BB will be responsible for sending withdrawal applications to ADB in accordance with ADB’s Loan Disbursement Handbook (as amended from time to time).

117. The applications for the first tranche of funds for withdrawal from the imprest accounts shall not exceed either the Projected expenditures for the first six months of the Project or 10% of credit line costs for the BB account and 10% of total remaining component expenditures for the DAE account, whichever is the lesser. ADB’s statement of expenditure (SOE) procedure will be used to liquidate advances from the imprest accounts. The maximum individual payment permitted under SOE procedure is $200,000 equivalent. Supplementary Appendix D (Evaluation of NGO-MFIs and Financial Wholesalers) provides the financial management reports.11

7. Financial Accounting, Auditing and Reporting

118. The wholesale banks will follow their normal practice of hiring external auditors to examine and verify the correctness of their accounts as presently required by their shareholders and BB. The MFI annual financial statements and the operations of the Project credit line through the MFI’s will be subject to external audit by firms acceptable to the wholesale banks and BB. The MFI’s will maintain computerized records that show loans made under original disbursement and loans made through funds accessed from the revolving funds set up in each MFI. All audit reports and certified financial statements will be submitted to ADB within six months of the close of the year under audit. In addition, the wholesale banks and NGOs will provide quarterly reports to ADB and the , through BB, detailing amounts and numbers of Project loans disbursed for that quarter and cumulatively, and numbers of active borrowers and amounts of loans outstanding. Wholesale bank credit line disbursements will be reviewed as part of their external audit and, separately, certified as being correct. The PMU will provide quarterly reports to Government and ADB in a format acceptable to both parties. Copies of all studies and surveys conducted through PMU will also be provided to both parties. The Government will submit audited annual financial statements of the Project to ADB within six months of the close of the year under review. Project accounts will be audited by the internal auditors of MOA and also of BB and the Comptroller and Auditor General’s Office.

119. Cost sharing grants provided for investment in post-harvest facilities will be subject to a range of conditions including (i) signed verification of the investment by an involved NGO, a PMU representative, and an acknowledged community leader not directly involved in the investment, (ii) evidence that the facility will benefit not less than 20 farmers, (iii) a clear and satisfactory statement concerning the purpose, ownership and management of the facility, and

11 A financial management report for Bangladesh Bank will be submitted following a decision of the Governor of Bangladesh Bank to allow the Bank to participate in the Project as an executing agent.

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(iv) a named and numbered bank account into which funds are to be disbursed. The PMU will be responsible to monitor and report on the performance and outreach of these facilities each six months.

8. Project Performance, Monitoring and Evaluation

120. Results based monitoring and evaluation of Project performance against baseline and budgeted targets will be scheduled, reviewed and reported to the ADB on a quarterly basis. A Project performance management system (PPMS), designed by the Benefit Monitoring and Evaluation (BME) Specialists, will be established within 12 months of Project commencement. A monitoring team will be established within the PMU and the regional PIU’s to ensure the operation of the PPMS under all Project component activities. Within 9 months of Project inception the PMU will have identified realistic baseline indicators through surveys and discussion with DAE officers at Head Office, Regional, District level, Upazila, and field (SAAO) levels; and with MFI’s and other contracted participating component service providers.

121. A comprehensive BME survey on Project performance will be undertaken by an eligible, qualified and independent organization, external to the DAE at midterm and at the end of the Project.

122. Regular and comprehensive records will be undertaken of farmer beneficiaries’ HVC plantings, harvests, yields, sales prices, together with agricultural chemical applications, pest and disease outbreaks other relevant production and marketing data required for results based performance monitoring. Details of all training programs, participants and evaluation will be recorded and transferred regularly to the PMU/PIU monitoring team..

123. The MFI’s will maintain records showing numbers and amounts of loan disbursements, loan repayments and outstanding loan balances of its subborrowers. Data will be maintained showing the area of land used by each borrower and the area allocated to HVC and the loan amount provided for each category of HVC and post-harvest investment. All data will be gender disaggregated. These data will be submitted on a quarterly basis to the PMU and each wholesale bank.

124. The wholesale banks will maintain records of the loan disbursements made to NGOs, and repayments received both under the first tranches out of Project credit line and also the revolving funds established by each MFI borrower. The wholesale banks will closely monitor the financial situation of each MFI and update key performance indicators of the MFI’s each six months. The indicators will cover the ability of the MFI to offset risk and earn a satisfactory margin to ensure there is no deterioration in earnings or in their debt to equity ratio.

125. BB will advise the PMU in its analysis of the performance of the credit line and alert the PMU to potential concerns. BB will execute disbursements from and repayments to Government and ADB and maintain records of disbursements and repayments that occur through the wholesale banks within the Project. BB will also closely monitor the disbursements of funds accounts through the wholesale banks to ensure they operate on a timely and proper basis.

9. Project Review

126. ADB and the Government will review the Project on a semi-annual basis. Particular attention needs to be given to the timely establishment of operating and monitoring procedures, the fielding of consultants, and training programs for farmers and NGO staff. A comprehensive

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mid-term review of the Project will be undertaken by the Government, MOA, BB and ADB 36 months after the date of Project effectiveness. The review will (i) evaluate the Project scope, design and implementation arrangements, (ii) review the monitoring and evaluation system and reporting, (iii) assess the progress of Project implementation; (iv) assess compliance with loan conditions, and (v) identify problems and constraints and recommend remedial action. In addition, there will be review missions scheduled as required in liaison between Government and ADB over the life of the Project.

V. PROPOSED TECHNICAL ASSISTANCE

127. Grant funding has not yet been identified for the inclusion of TA programs in the Project, however, if such funding is available it is proposed that the following TA programs are undertaken:

1 Project Inception Management and Administrative Support TA: To ensure a prompt and efficient Project start up and initial implementation activities.

2 Climate Change Impact: To enhance the sustainability of the Project and identify appropriate HVC farming systems and practices for adaptation to the impact of climate change

128. In order to implement the above sub Projects the ADB will provide a technical assistance grant support in the amount of $ 270,000 for the following:

TA Grant Costs

A. Consultants months

1. Project Specialist 3 months 3 2. Climate change specialists 2 at 18 months 36 Total months 39

Consultants cost at $6,000 per month $234,000

B. Training 16 courses for Upazilas staff @ $1,500 per course $ 24,000

C. Contingencies $ 12,000

Total TA costs $270,000

129. TA Outline terms of reference are provided in Appendix 9.

VI. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISK

A. Benefits and Impacts

1. Economic and Financial Benefits

130. Details of the Project justification and financial and economic analyses are provided in Appendix 10, and Supplementary Appendix G. The Project will lead to increased HVC

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production, greater diversification of sources of income and higher net returns for small and medium farmers. These benefits will be achieved through improved access to HVC technologies and associated training and extension, value addition to farm produce through investments in on-farm processing facilities, and easier access to credit. Direct Project beneficiaries will be 240,000 farm households of which 175,000 will require and receive credit for HVC production and on-farm infrastructure investments.

131. The Project is expected to generate more than 15,000 person years of annual employment and much of this increase in employment will be among landless rural workers including women. Secondary benefits are expected from community-supported investments in on-farm infrastructures that will strengthen the bargaining position of farmers in the sale of their produce. DAE services will be strengthened so as to raise the quality and outreach of extension services partnered to farmer credit supports from NGOs. The unit prices of increased HVC production will remain at satisfactory levels as there is a substantial unsatisfied demand for HVC produce from higher income urban consumers.

132. Using appropriate conversion factors, the EIRR of the Project over 15 years is estimated at 29% and the NPV, at a discount rate of 12%, is TK1,287 million. Sensitivity analyses incorporating a range of feasible risks have been conducted showing EIRRs in the range of 16- 23%. These risks cover a 20% increase in Project costs, cyclone damage each third year, delays in Project implementation, and a 20% reduction in number of participating farmers. The EIRRs indicate the Project is robust and attractive from an investment point of view.

2. Poverty Reduction Impacts

133. The Project will create 3.9 million person days of labor and raise incomes of farmers by TK40,000 per ha of HVC. The poverty incidence of 47% indicates a total of 750,000 poor farmer households in the Project area. Among the participating HVC farmers, 35%, or 84,000 farm households, have less than 0.6 ha and are poor. These households will benefit from increased labor employment of TK1,800 per household and TK8,000 per household from increased crop income based on an average 0.2 ha per poor household and 16,800 ha of the Project area of 52,000 ha. In total this represents an increase in income of TK9,800 per household: a 22% increase in income based on a 2009 adjusted poverty line of TK43,500 per household.12 The remaining 666,000 agricultural households that rely heavily on casual labor will benefit from the 2.66 million person days of labor generated by the Project. This is estimated at TK319 million each year. Assuming one casual labor household being employed by 156,000 non poor farmers would indicate a wage of TK2,045 per laborer household: a 5% increase in income.

3. Gender and Social Development

134. A summary of poverty reduction and social strategy (SPRSS) and a gender action plan (GAP) is provided in Appendix 12 and 13, and a social and gender development action plan in Supplementary Appendix I.

135. The Project will have a positive impact on gender and social development, through the implementation of a GAP and the SPRSS. It is expected that a key impact of the mainstreaming of women in all Project components, will be to increase the number of women involved in agricultural activities by 10% by the end of the Project in 2016. Women will also improve their

12 The rural poverty line was TK630.53 per capita per month in 2005. The figure has been adjusted for 4.8 persons per household and inflation of 20% over four years.

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knowledge and capacity to undertake agricultural production, post harvest handling, and marketing activities through comprehensive institutional and field based training courses offered by the Project. Furthermore, women’s applications for credit, and therefore access to rural finance to enable them to participate in high value crop production and marketing, will be increased by 20% by 2016.

136. Through the Projects gender awareness, poverty reduction and social development training programs, to be delivered by community facilitators to male and female headed farming households, women’s involvement and participation in family and in business decisions will be improved. Social harmony within the family will also be improved resulting in the decrease of violence and discrimination against women. The Project is also expected to have a positive impact on the poverty level of female headed farming households, which is currently far worse than that of male headed households.

137. The Project will also provide training for DAE and participating NGO staff to raise gender awareness in all aspects of Project implementation. In this context, the training given should result in a reduction in discrimination against women participating in the agricultural sector, and in particular in the sales prices of their produce in markets, which are usually discounted against that offered by men.

4. Environmental Impacts

138. The Project is classified as category C. A summary of the initial environmental examination (SIEE) is given in appendix 11, and the initial environmental assessment (IEE) and review is provided in Supplementary Appendixes G and H respectively. The IEE for the proposed Project was carried out in accordance with the environmental assessment (EA) requirements of the ADB, supplemented by the guidelines of the Government of Bangladesh. The IEE has determined that the Project actions will not have any significant negative environmental impacts. Measures to mitigate minor and non-significant potential adverse effects and monitoring and compliance tasks have been outlined in this report. Special consideration was given to the potential impacts of climate change on the Project goals to promote HVCs, and the IEE has suggested certain adaptation options to deal with changing climatic conditions including developing and disseminating new climate change resilient crop species. Finally, several actions and measures are suggested to strengthen the in-house capacity of the DAE in dealing with environmental issues with special reference to the climate change impacts.

5. Sustainability

139. Farmers will be encouraged to continue to grow HVCs through their Project-assisted experience in growing HVCs that yield much higher incomes. The large number of HVCs available to be grown, and in demand by consumers, also provides farmers with the opportunity to vary their cropping rotations so as to maintain soil fertility and reduce the risk of plant disease and insects. A greater volume and variety of HVC produce will attract more private sector services that will complement DAE supports enhanced and so provide a better long term range of production supports to farmers. Value addition supports will raise the awareness of farmers of the scope for, and activities that will lead to, an increase in the sale price of their produce. Furthermore, investments in on-farm infrastructures related to value addition will be assessed and selected to ensure their profitability and ability to return a satisfactory long term return on their investment.

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140. The risk of credit default among farmers will be lessened through their ability to sell a more diversified range of crops and also obtain higher incomes. As a result, MFIs will be encouraged to maintain credit services to HVC farmers and will, themselves, have received valuable technical expertise through the Project on HVC production and risks. Prior to Project startup all short-listed MFIs and the two nominated wholesale banks are in a sound financial position and financial indicator triggers have been set to ensure these institutions maintain their sound position during and after the Project.

141. Following the end of the Project, the Government should continue to provide adequate funding to the DAE for the employment of dedicated staff, maintenance of Project equipment and vehicles and the upkeep of training facilities. Furthermore, the Government should ensure that income generated by the HDTC’s through training courses and planting materials is returned to ensure self-sufficiency of these establishments by the end of the Project.

B. Risks and Mitigation Measures

142. To achieve its impact and benefit the Project makes several assumptions including, Government will maintain and improve the enabling environment, particularly regarding private sector participation in the sector and their essential involvement in the commercialization of agriculture; rural infrastructure will be developed and improved and sustained to support HVC production and market access; built in sustainability mechanisms for ongoing implementation and post Project activity will be developed during the lifetime of the Project.

143. The following risks have been identified as having a potential negative impact on Project progress and sustainability; (i) natural disasters such as floods and cyclones and the overall impact of’ climate change; (ii) fluctuating staple food and input prices negatively affecting the diversification into HVC the production and commercialization; (iv) poor progress in building capacity and efficient coordination amongst the Ministry of Agriculture line agencies

144. The implementation of the credit line is based on the NGOs being able to charge an interest rate on their lending to enable full cost-recovery by the NGOs. An assurance is required that Government will allow NGOs to charge an interest rate, determined by the participating NGOs, that is consistent with full cost recovery. The provision of a credit line under the Project of $25.5 million is based on the assumption that the Government will not extend other below- market cost loans to small and medium farmers

VII. ASSURANCES AND CONDITIONS

A. Specific Assurances

145. In addition to the standard assurances it is assumed that the Government and Bangladesh Bank will have given the following assurances which will be incorporated into the legal documents

(i) Government will establish within the DAE the PMU at Dhaka and 2 PIU’s at Jessore and Bogra respectively. The Government will ensure that throughout the Project the PMU and PIU’s are staffed adequately with competent, full time personnel, according to the staffing schedule agreed with the ADB. (ii) Government will establish the Project Steering Committee (PSC) to be chaired by the Secretary MOA. The PSC will comprise representatives of MOA, MOF, Planning

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Commission, Bangladesh Bank, Basic Bank Limited, Eastern Bank Limited, representatives of participating MFI’s and service providers, and the Project Director. (iii) Government will ensure that adequate financing is made available in DAE’s annual budget for the operation of the PMU, PIU’s, HDTC’s and participating DAE District and Upazila offices throughout Project implementation. (iv) Government will not plan or grant any debt amnesty, or forgive loan repayment obligations of subborrowers under the Project’s credit line. (v) Government will ensure that throughout the Project implementation and operation of the credit line, the wholesale banks including BASIC Bank Limited and Eastern Bank Limited will be required to comply with prudential financial indicators set by Bangladesh Bank, including among others, classified loans less than 10% of total loans outstanding. In addition the wholesale banks will maintain a credit rating not less than AAA-. MFI’s will need to maintain (a) a capital adequacy ratio of not less than 15%, (b) a loan portfolio with classified loans less than 10%, and (c) ensure net loans outstanding are not less than 1.35 times borrowings. (vi) Government and the wholesale banks will ensure that no material organizational changes (financial, operational, or structural), or any change in ownership of the Project facilities will be approved or implemented without prior approval of ADB; if such changes would affect their ability to perform their respective obligations under the Project. (vii) Government, wholesale banks and MFI’s will establish and maintain separate accounts under the Project. Independent auditors acceptable to ADB will audit such accounts and related financial statements. The auditors’ reports, with the audited accounts and financial statements, will be submitted annually to ADB through the PMU. (viii) Government and wholesale banks will ensure that satisfactory procedures and operational policies for supervision and monitoring sub loans will be established and maintained to ensure the achievement of the Project objectives and will cause the participating MFI’s to do the same. (ix) Government, wholesale banks and MFI’s will ensure compliance with all applicable environmental laws and regulations of Bangladesh and ADB’s Environmental Policy 2002 and the established environmental assessment and review procedures. Any Project activities that harm the environment will not be utilized for financing. (x) Government, wholesale banks and MFI’s will ensure that no Project activity will entail land acquisition or any involuntary resettlement impact including relocation. (xi) Government, wholesale banks and MFI’s will adopt and fully carry out the Gender Action Plan (GAP). GAP implementation will be documented in the PMU monitoring and evaluation documents and completion report and advised to the ADB.

B. Conditions for Loan Effectiveness

146. Before loan effectiveness, two conditions must be met:

(i) PMU and the two PIUs will have been set up and made operational in a manner satisfactory to ADB;

(ii) Subsidiary loan agreements between MOF and BB and between BB and the wholesale banks BASIC Bank and Eastern Bank will have been signed and delivered to ADB in a form and substance satisfactory to ADB. These agreements will have become effective and binding upon the parties, in accordance with their terms, subject only to the effectiveness of the Loan Agreement.

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C. Conditions for Disbursement

147. Withdrawals will not be made from the loan account for the credit line component of the Project until ADB has received at least one executed on lending agreement from each of the selected wholesale banks between it and at least one MFI borrower, in a form and substance satisfactory to ADB.

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APPENDIXES

1 DESIGN AND MONITORING FRAMEWORK

Design Performance Data Sources and/or Assumptions Summary Targets and/or Reporting and Risks Indicators Mechanisms Impact • Government statistics Assumptions Reduced rural poverty and • Headcount ratio of (BBS) on agricultural • Effective Project increased economic indication of rural production and implementation by DAE and development in the poverty in Western productivity, trade and participating NGO’s & Project areas of North Bangladesh reduced household incomes; service providers West and South West by 4% from 47%/52% • Surveys of Project area Bangladesh (2008) to 43% /46% by households Risks 2016; • Natural disasters, and • Increased incomes of negative impact of’ climate small and medium change; farmers by 30% by 2016; • Employment in the agricultural sector in Western Bangladesh increased by 5% against 2010 baseline • Contribution of HVC to agricultural sector GDP increased by 10% by 2016 against 2010 baseline Outcome Assumptions Improved production, • Farmers HVC net • Project results-based • Government will maintain profitability, value addition, price percentage of monitoring / regular BME and improve the enabling and marketing efficiency wholesale retail price reports; environment for the of HVC by small and improved by 10% by • District, Upazila, union commercialization of medium farmers 2016 against 2010 and village level agriculture; baseline; Government • Rural infrastructure will be statistics/accounts; developed/improved and • Review missions; sustained to support HVC • Project progress reports production and market and completion report; access; • Review missions • The Padma bridge to the South West will be operational by 2013; • The Project will ensure built in sustainability mechanisms for ongoing implementation and post Project activity

Risks • Poor progress by in building capacity and efficient coordination amongst the MOA line agencies implementing the Project;

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Outputs Assumptions 1. Increased sustainable • Area primarily • Regular monitoring of • Willingness of potential production and devoted to HVC production statistics by beneficiaries to participate in commercialization of HVC production increased PMU, PIU’s, & DAE field Project; by 52,000 ha by Officers; 2016; • PMU quarterly and • 2150 TOT days of annual reports on Project Risks HVC production & progress • Fluctuating food and input extension training prices negatively affecting courses completed diversification into HVC for DAE staff and participating NGO’s by 2016; • 436,000 person days of farmer training completed by 2016; • 10,000 HVC demonstration plots set up • 2500 farmer field day conducted by 2016; • 6 HDTC’s in the South West upgraded & operational for institutional training courses & nursery management by 2013 2. Reduction of post • Post harvest losses • Regular monitoring of Assumptions harvest losses, improved reduced by 10% by production & sales • Willingness of potential product quality, value 2016; statistics by PMU, PIU’s, beneficiaries to participate in addition, and enhanced • 240 on-farm small & participating NGO’s; Project and apply market efficiency; scale infrastructure • PMU quarterly and knowledge transfer in post facilities established annual reports on Project harvest handling & & operational by progress marketing techniques; 2016; • At least 25 Farmers’ Risks community groups to have established • Low relative prices & lack direct linkages with of incentive for farmers’ retailers through groups to develop forward seasonal linkages along the value contracts/contract chain farming by 2016;

3. Enhanced capacity of • DAE’s extension • Regular monitoring of • Government policies public sector institutions services improved in production & sales support role of NGO’s in and participating Project terms of number & statistics by PMU, PIU’s, disbursing credit to farmers at partners in supporting regularity of farm & participating NGO’s; full cost recovery farmers to increase their advisory visits for • PMU quarterly and incomes; HVC production, annual reports on Project against a baseline progress established in 2010; • Financial statements of • Loan portfolio of banks & NGOs plus $25.5 million for quarterly and annual 175,000 farmer reports borrowers • Farmer quality, standards & certification system for fruit & vegetables,

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established at the DAE, and accepted by domestic retailers by 2016

4. Increased participation • 1914 days of gender • Regular monitoring of of women in commercial training conducted production & sales agricultural activities by 2016; statistics by PMU, PIU’s, • Number of & participating NGO’s; applications for HVC • PMU quarterly and production credit by annual reports on Project women farmers progress increased by 20% compared to a baseline established in 2010 • Percentage of women involved in agricultural activities increased by 10% by 2016 against 2010 baseline

Activities with Milestones (Assumed Project start in July 2010) Inputs

Project Start Up Period a. PSC established by end July 2010 b. Management TA on Project start up completed by September 2010 c. Interagency coordination/agreements, etc signed by September 2010 ADB: $40.00 million d. PMU & PIU’s set up and operational by end August 2010 equivalent e. Appointment of consultants by PMU by November 2010 f. MFIs selected by BB & Wholesale banks by December 2010 g. Agreements and operating arrangements with wholesale banks and participating Government $5.62 MFIs finalized by December 2010 million equivalent h. Inception report submitted by PMU in September 2010

1. HVC Production Support Community Investors 1.1 First TOT courses for DAE and participating MFI staff started by December 2010 $0.33 million equivalent and completed by June 2011 1.2 Institutional farmer training started by January 2011, and ongoing 1.3 Farmer field days/demonstration plots started by January 2011 1.4 First agricultural fairs held in Jessore and Bogra by July 2011, 1.5 First DAE project review workshop held in Dhaka by July 2011 and in Jessore/Bogra by September 2011 1.6 First SAAO workshops held by March 2011 1.7 First SAAO motivational tours held by September 2011 1.8 First farmer motivational trips held by September 2011

2 Value Addition Support 2.1 First participating community groups identified by December 2010 2.2 First group post harvest training & awareness raising in value addition held by January 2011 2.3 First applications from communities for on farm small scale infrastructure support received by March 2011 2.4 First constructions of OFSSI facilities by September 2011 2.5 First OFSSI groups fully operational by January 2012

3 Credit Support

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3.1 Design & publish Project credit related information by December 2010 3.2 Field workshops on credit issues held by December 2010 3.3 Financing plans agreed by March 2011 3.4 Agreement with MFIs on project locations by March 2011 3.5 Start up of farmer training workshops on credit by January 2011 3.6 Credit funds obtained from BB/ADB by April 2011 3.7 First tranche of credit disbursed to farmers by April 2011

4 Institutional Strengthening (Component 4) 4.1 Dedicated Project staff appointed & new staff recruited by September 2011 4.2 DAE staff training (project management, gender awareness & environmental issues) started by January 2011 4.3 Rehabilitation of DAE offices started in January 2011 & finished by June 2012 4.4 Upgrading of HDTC’s started by January 2011 & finished by June 2013 4.5 Quality standard & feasibility study complete by July 2013 4.6 GAP implementation started by December 2011

5 Project Implementation Support (Component 5) 5.1 Community Facilitators (Upazila based ) selected & appointed by December 2010 5.2 Advertising, short listing, & appointment of Component 2 implementation private sector “service providers “ by June 2011 5.3 Project area wide promotion and awareness programs started by October 2010, and completed by December 2011 5.4 Project implementation planning completed by March 2011 5.5 Mid Term Review completed by end December 2013 5.6 Independent BME reports completed and submitted by September 2013 and March 2016

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2 SUMMARY OF AGRICULTURE SECTOR ANALYSIS

I INTRODUCTION

148. The contents of this Appendix are a summary of the detailed sector analysis provided in supplementary Appendix A, available on request.

149. Bangladesh is one of the poorest countries in the world with a per capita gross domestic product (GDP) of approximately $ 329 in constant 1995/96 prices, and $ 59913 in current prices. The two major problems faced by the country are (i) the large population, estimated at 144.5 million in July 2008, with a current growth rate of 1.39% per annum14 and a population density of 1007 people per square kilometer.; and (ii) susceptibility to environmental hazards such as cyclones, floods, droughts, arsenic groundwater contamination and seismic activity. Bangladesh is also considered to be at particular risk from climate change particularly due to its low lying position on the edge of the Bay of Bengal. The country is predominantly an agrarian society with over 75% of the population directly or indirectly engaged in agriculture, and the incidence of poverty tends to be high in rural farming areas.

150. Definitions of terms used: The following definitions of terminology related to the sector have been used.

High value crops (HVC) are defined as agricultural crops which will give a higher rate of return to the farmer, per hectare (ha), than high yielding boro rice.

Agribusiness and the commercialization of agriculture may be broadly defined as involving a wide range of complex and interlinked activities including inputs, related to the commercial production of agricultural commodities (including crops and livestock), their transformation of into products, and, their marketing and distribution. The above definition encompasses four major activities:

(v) Agricultural farm inputs, eg, planting material, fertilizers, pesticides and herbicides, farm services and supply. (vi) Commercial farm production – planting, husbandry, harvesting and post harvest on farm activity. (vii) Primary and secondary production – storage, transport, logistics, processing, marketing, wholesaling and retailing and exporting. (viii) Services – Research and development, extension; technology demonstration and transfer and outreach; education; banking and finance; investment; and technical assistance.

151. Commercial agriculture and agribusiness activity differs from basic farming systems in that it is, by definition, commercially oriented and implies organized linkages among different stakeholders in the value chain. Therefore, subsistence level agriculture would not fall within this definition. Furthermore, commercial agriculture and agribusiness, as defined, implies close coordination between both the public and private sector; and particularly the different public sector institutions, such as Government ministries, departments, and statutory bodies, involved with agriculture and rural development, commerce and trade, and industry. Finally, it is widely

13 Bangladesh Bureau of Statistics (BBS), 2008 14 Population is expected to rise to around 180 million by 2025, with a density of around 1200 persons per sq km - Reference: K.B Sajjadur Rasheed, “Bangladesh: Resource and Environmental Profile”, January, 2008

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acknowledged worldwide that the commercialization of agriculture and agribusiness must be led by the private sector in order to succeed.

II SECTOR BACKGROUND

152. Government Policy: The Government document for economic planning in Bangladesh is the second Poverty Reduction Strategy Paper (PRSP) entitled ‘Moving Ahead: National Strategy for Accelerated Poverty Reduction (NSAPR) II (2009), which is a sequel to a previous document, viz, “Unlocking the Potential: National Strategy for Accelerated Poverty Reduction (2005)”. The Government has given the development of the agriculture sector the highest priority in addressing poverty and its rapid alleviation. The national poverty reduction strategy identified four key focus areas of agriculture and rural development, viz:

3 Intensification of the cultivation of major cereal crops, particularly rice; 4 Crop diversification into high value non-cereal crops (HVC) – particularly fruit, vegetables, pulses, spices and floriculture; 3 Development of non crop agriculture (fisheries and livestock); 4 Promotion of rural non-farm activities (rural infrastructure, transport, and services).

153. Since agriculture remains the single largest economic activity in the country, agriculture and the associated rural economy are recognized as the key drivers of the pro-poor growth strategy. The Government’s vision of the agriculture sector is to ensure growth through development and dissemination of sustainable technologies which are, ecologically adaptable; economically profitable; capable of generating employment; conducive to crop diversification, favorable for developing agri-business services; and capable to ensure food security for all, especially the poor. This vision is reflected in the Government’s National Agriculture Policy (NAP) of 1999, the overall objective of which is to make the nation self-sufficient in food through increasing production of all crops including HVC, and ensure a dependable food security system. Some of the salient objectives of the NAP are to:

• ensure a profitable agricultural production system and increase the real income of farmers; • reduce excessive dependence on any single crop to minimize the risk of crop failure; • preserve existing biodiversity of different crops; • undertake programs for the introduction, utilization and extension of biotechnology; • take necessary steps to ensure environmental protection as well as ‘environment-friendly sustainable agriculture through increased use of organic manure and strengthening of the Integrated Pest Management (IPM) program

154. External Assistance to the Sector and Rural Development: Current and recent external donor assistance to the agriculture sector continues to be supported, mainly by the ADB, World Bank, DANIDA, IFAD, GTZ and the Netherlands Government. Some of the major ongoing Project and programs supporting the sector are described hereunder

1. ADB Agribusiness Development Project; The five year ADB-funded Bangladesh Agribusiness Development Project (BADP) is due for completion 31 December 2010. BADP, with national coverage, is promoting agribusiness activities that will generate employment and help alleviate poverty. BADP is supporting small-scale agribusiness activities by channeling credit through reputable, experienced nongovernment organizations (NGO), and by providing

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technical and marketing support to small-scale agribusinesses throughout the rural areas of the country.

2. World Bank National Agricultural Technology Project: The National Agricultural Technology Project (NATP), 2008 -2013, is the first Phase in the National Agricultural Technology Program. The overall objective of the long-term program is to support Government’s strategy to improve national agricultural productivity and farm income by revitalizing the national agricultural technology system. The NATP is funded jointly by the World Bank and IFAD. The NATP has four key components supporting agricultural development, viz: (i) agricultural research support; (ii) agricultural extension support; (iii) development of supply chains; and (iv) Project management and coordination.

3. IFAD’s Microfinance for Marginal and Small Farmers Project: The Microfinance for Marginal and Small Farmers Project (MMSFP) is a $29.7 million six year Project that commenced 2005. The Project covers 10 districts in the North West (plus 4 districts in the north central area) and is expected to reach 210,000 farming and agro-business households. Funds are being channeled through PKSF and partner MFI’s to farmers. DAE is providing extension and market information services. The targeted beneficiaries are the poorest farm households.

4. DANIDA Agriculture Sector Program, Phase II: The first Phase of the Agricultural Sector Program Support (ASPS) ended in September 2006, and a second phase of the program was initiated in at the same time. The second Phase, using lessons learned from the first Phase, has introduced a more programmatic approach to Project implementation, and is developing further synergies in the implementation of its fisheries and livestock component. ASP II covers 4 sub sectors, viz; (i) crop production; (ii) aquaculture; (iii) livestock; and (iv) rural development.

155. The Enabling Environment: The country’s macroeconomic framework, including policy on foreign exchange rates, trade, interest rates on credit, wage rates, and terms of trade, has a strong influence on the relative growth potential of the agricultural sector. Despite agriculture’s relative decline in contribution to GDP since independence, the sector, given a supportive enabling environment, has high growth potential and can be revitalized in order to make a greater contribution to the country’s economy. Increased private sector investment in agribusiness enterprises and public sector investment in rural infrastructure is essential to achieve rapid sector growth. The efficient mobilization of domestic physical, human and financial resources; private sector “friendly” taxation policies of “start up” agricultural enterprises; and the availability of accessible and affordable credit are all policy areas which can assist in revitalizing the sector. Furthermore, price policies regarding areas such as fertilizer distribution, import substitution, the holding and pricing of public stocks of staple foodstuffs must be carefully managed to encourage sector growth.

156. Bangladesh’s exchange rate and trade policy is influenced strongly by the fostering of import substitution. During the period July to December 2009 food grain imports declined by 35.8%15. Over the period from Jan 2008 and Jan 2009, the foreign exchange market remained relatively stable. These are sound policies which imply that there is little or no discrimination against the agricultural sector from Government exchange rate management.

15 Financial sector review, Volume -iv, No. 1, Jan 2009, Bangladesh Bank

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157. Indices for agricultural wage and food prices show an upward trend in line with nominal rate of inflation, implying a normal responsive regime for agriculture sector.16

158. Macroeconomic policy regarding the re-capitalization of financial structure of banks and financial institutions dealing with agricultural credit seems favorable for sustained development of the sector.

159. Sector Institutional Framework: The apex body for the agriculture sector in Bangladesh is the MOA. Given the importance of agriculture in the economy of the country, it is one of the largest and key ministries of Government. The ministry comprises seven wings with responsibilities covering policy formulation, planning, monitoring and administration. Additionally, there are 16 line agencies under the MOA responsible for the implementation of various plans, programs and Projects. The responsibilities of the MOA are to:

• develop agricultural policies, plans, legislation and regulation, to foster sustainable agricultural development and food self-sufficiency; • provide support in developing new agricultural technologies to boost agricultural production; • monitor the implementation of agricultural policies, plans, Projects, programs and regulations; • monitor the distribution of agricultural inputs and subsidies, and the marketing of the agricultural products in domestic and international markets; • develop the capacity of the professionals in the agricultural sector; • provide administrative and policy support to MOA line agencies for planning and implementation of development programs / Projects, and coordinate with donors and development partners for funding and technical assistance

160. The Department of Agricultural Extension (DAE), which was the implementing agency of NCDP and is proposed as the overall implementing agency for SCDP, is the largest public sector extension service provider in Bangladesh. Its mission is to provide need-based extension services to all categories of farmers and to enable them to optimize their resource use in order to promote sustainable agricultural and socio-economic development.

161. The Department of Agricultural Marketing (DAM), which was involved in the implementation of the NCDP, is mandated to provide improved marketing services to farmers to ensure fair returns to the growers for their produce and adequate supply to the consumers at reasonable prices. According to the NCDP’s Benefit, Monitoring and Evaluation Report, 2008, DAM impact on farmers marketing efficiency was negligible. Therefore, at present, they do not have the resources at field level, and capacity, to perform their mandate adequately.

162. Credit to the Sector: Over the period 2004-2008, there has been no increase in lending to agriculture after adjusting for inflation: in fact agricultural lending as a proportion of agricultural GDP has declined slightly to be 17.8% in 2008 compared to 18.9% in 2004. Over the same time, crop loans outstanding, through banks, has declined from 22.9% of crop and horticulture GDP to 18.7% in 2008. The annual increase in bank lending has averaged 18.8% for non-agricultural lending and 6.4% for agricultural lending. As a consequence, there has been a steady decline in the proportion of the agriculture loan portfolio held by banks compared to their total loan portfolio.

16 Table-3.3, Page-28, Bangladesh Economic review, 2009

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163. Census data show 28.67 million households in Bangladesh of which 14.72 million are agriculture households. BB data end of 2008 showed 5.96 million agricultural loan accounts indicating 40% of agricultural households had a bank loan. Statistically, there is a high level of outreach but, because many loans are bad and not revolving, the actual service outreach is much lower, therefore, it is very difficult for a farmer to obtain finance on time and for the required amount. A further factor in weakening the performance of the agriculture finance sector has been the policy of government to force down interest rates for agricultural lending. This is despite high production and credit risks due to cyclones and floods, despite farmers’ reluctance to repay loans due to a damaged credit culture, and despite the high cost of making small loans in rural areas. These factors have made lending institutions reluctant to disburse credit to rural people.

164. Most agricultural credit has been Project-driven with funds sourced mainly from World Bank, ADB and IFAD Projects with funding channeled either through NCBs or SBs or RAKUB, and channeled through MFI’s which have long experience in lending to livestock and fisheries farmers but have only recently started lending on a substantive scale for seasonal agriculture.

165. Constraints to the commercialization of agriculture: The following are the major issues constraining the development and commercialization of agriculture

1 The lack of available land for HVC production: Agricultural land is progressively diminishing on account of the expansion of both urban settlement and infrastructure. Data from the 2001 census reveal that 52.39% of households possess their own agricultural land, a decline from 61.30% in 198117.

2 Sector structural change towards smaller farm units: Farm ownership is characterized by small and fragmented land holdings. The structural trend, over the last 2 decades in the size of individual farm holdings, with an ever greater number of farms being classified as small and marginal has negative implications for the development of HVC production.

3 The availability of critical agricultural production inputs: The Poor availability of affordable and suitable HVC seeds and planting material is a constraint to the development of HVC production. Most of the HVC grown by the farmers are from their own seeds, which are, in most cases of traditional and indigenous varieties, and not necessarily the most appropriate in terms of yield and quality characteristics. The availability and affordability of suitable quality fertilizer is a perennial sector issue. Most HVC, particularly vegetables require the proper application of phosphate and potash fertilizers to achieve their yield potential. Therefore, In order to promote and increase HVC adequate supply of appropriate essential fertilizers is of crucial importance. Furthermore, the mechanization of agricultural land preparation, planting, harvesting and in post harvest handling, in order to reduce production costs, reduce labor inputs and increase farming efficiency and productivity, is poorly developed.

4 Stagnant or declining farm productivity: Crop production growth is stagnant due, mainly, to the intensification of farming, limited application of improved crop production technologies including poor crop rotation practices, and lack of available cultivable land. The application of insufficient organic animal manure and compost and the over tillage of the soil is also contributing to the gradual loss of fertility in the field.

17 Reference: BBS

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5 Deficient post harvest practices and facilities at farm level: Poor post harvest handling techniques and facilities contribute towards high levels of losses at field level, and contribute to poor quality crop production, and hence restricted marketing access and options.

6 Inefficient and underdeveloped marketing systems: Market access is a difficult hurdle for small and medium farmers in Bangladesh to overcome with the majority of them selling their surplus produce to traders at the farm gate, or nearby roadside markets, if available. At farm level prices are variable and comparatively low. Prices for agricultural commodities always tend to fluctuate widely on a seasonal basis, particularly in the case of HVC such as horticultural and floriculture products, which have a high level of perishability. The long value chain between farmer and final consumer, with a plethora of actors performing economically inefficient functions within the chain, results in the farmer receiving a lower percentage of the end price than is considered acceptable by many. However, unless farmers form groups to take advantage of, inter alia, economies of scale and bulking of crop volumes, and assume some of the economic functions being performed by middlemen, it is difficult to the break the traditional long value chain that exists in Bangladesh.

7 Inefficient institutional arrangements: The sector Institutional framework requires rationalizing to improve efficiency and cut costs, particularly as the MOA’s line agencies are under resourced and lack the ability to sustain Project activities following Project completion. The leading MOA line agency implementing agricultural Projects is the DAE and its mandate and capacity needs to be broadened to improve its extension services to include effective post harvest handling at farm level. The Project addresses this issue through provision of institutional support to the DAE.

8 Access to Finance: The investment required for HVC diversification will exceed the savings of most small farmers,18 therefore, access to credit will be needed to enable the commercialization of agriculture and diversification into HVC investment to develop.

166. Sector Development Opportunities and New Initiatives: Despite the constraints to agricultural commercialization mentioned above there a number of sector opportunities and positive initiates being undertaken by stakeholders, illustrated below.

1 Increased rural incomes: Income studies of households during the NCDP showed that HVC can provide a much higher return per hectare to farmers than traditional crops such as cereals. Furthermore, HVC are labor intensive and offer the potential for greater employment opportunities for the rural poor, particularly the landless and women.

2 A wide range of potential marketing opportunities: Bangladesh possesses a significant and growing domestic consumption base, with an emerging middle class demanding a wider range of safe nutritious food, both fresh and processed. With regard to exports markets, (i) There is large Diaspora of overseas Bangladeshis favorably disposed to purchasing familiar fruit, vegetable and other HVC products from their ethnic homeland; (ii) the Indian states bordering Bangladesh represent an easily accessible market for HVC products, given normal trade relations with that country; (iv) proximity to export markets of South and Southeast Asia and the Middle East.

18 NGO subborrowers rarely have more than TK1,500 in savings. HVC investment for 0.18 ha requires TK12,000 on average.

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3 Improved market efficiency and value chain integration: The current dominant marketing system in Bangladesh may be described a traditional with the vast majority of marginal, small and medium farmers selling their produce at the farm gate, and traders and wholesalers operating as buyers and sellers in established market places. Whilst the existing traditional marketing system is well established, has its merits and is widely accepted, there is a need to introduce greater forward and backward linkages between producers and consumers enabling a more direct sales system. The traditional system has an economic role and serves its purpose, however, access to a wider range of sales opportunities for producers, and buying opportunities for retailers and exporters is desirable. In this context sector stakeholders, and in particular private sector agribusiness entrepreneurs, and to a lesser extent larger NGO’s, are examining and implementing new marketing system innovations, which will diversify trading opportunities and enhance market efficiency to the benefit of all, including farmers. For the most part these innovations adopt the value chain approach and involve greater quality, standards and grading control, and packaging control close to production areas. Contract farming between large retailers/supermarkets and exporters is also being introduced, albeit slowly. The Improvement of storage facilities in production areas, both conventional and cold storage , and the investigation of the feasibility of using warehouse receipts as security, for certain appropriate crops, eg, potatoes and maize, to increase the ability to sell into peaks of the seasonal price cycle is also being investigated by some stakeholders

4 Agro processing and value addition: HVC’s such as fruit and vegetables, and spices lend themselves to further processing and value addition thus raising the potential for higher farm incomes through wider market access to agro processors. Opportunities also exist for low cost, small scale processing of fruits, vegetables and coconuts at community level.

5 Import substitution: Bangladesh has become increasingly dependent on non foodgrain imports, particularly fruits. Increased HVC production will cut imports and save foreign exchange

6 Agricultural lending: There are banks that wish to expand their loan portfolios but they lack knowledge of farmers and their communities and have difficulty in making small agricultural loans. MFI’s have this knowledge and have demonstrated that they are able to make and recover microloans and small loans made to farmers. There is, thus, the opportunity for a working partnership between banks and MFI’s in the provision of credit to small-scale farmers.

III STRUCTURAL CHANGES TO THE SECTOR

167. Structural Change in Land Usage and Farm Holdings: About 77% of Bangladesh’s total land area is utilized for agriculture; however, agricultural land is progressively diminishing on account of the expansion of both urban settlement and infrastructure. Data from the 2001 census reveal that 52.39% of households possess their own agricultural land, a decline from 61.30% in 198119. Farm ownership is characterized by small and fragmented land holdings with some 88.50% of total farm sizes being under 1.0 ha, occupying 60% of the total farm land area; the trend is towards greater fragmentation and subdivision, and thus smaller individual farm units.

168. The structural trend, over the last 2 decades, in the size of individual farm holdings, with an ever greater number of farms being classified as small and marginal has implications for the development of HVC production. While the growing demand for HVCs is evident from available

19 Reference: BBS, 2008

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statistical data, land potentially available for increasing HVC production tends to be owned by medium and large farm households. Small farmers have only limited potential for allocating land to HVC production, due to necessity of meeting the demand for rice, the staple food of Bangladesh. Consequently, the changing pattern in farm holding over time is an important factor in determining the development potential of introducing HVC.

IV SUPPLY AND MARKET DEMAND SITUATION

169. Crop Production: Rice is the dominant crop with a production of 28.93 million t in 2008, or 46.53% of total crop production for that year. Other significant major crops, with 2008 production in million t shown in brackets, are maize (1.47), wheat (0.844), and jute (0.832). Potatoes are also grown in significant quantities. The provisional estimate of total crop production in 2009 is 40.2 million t however the preliminary figures are incomplete, and a comparison with previous years is not realistic at this stage. However, total production in 2008 of 54.16 million t showed an increase of 6.75 million t or 12.47% over the 2007 figure. The area under crop cultivation in 2008, at 13.71 million ha, showed a decline of 0.35 million ha from the 2007 figure of 14.05 million ha. Production of HVC such as potato, banana, onion, garlic, turmeric and ginger, has been increasing to meet growing demand. Staple foodstuff production, such as rice and wheat; have experienced a compensating variation, with an increase in rice and a decrease in wheat during recent years.

170. Despite cyclone and flood crop damage in 2007/2008 Bangladeshi farmers have managed to adapt to the situation and have produced sufficient food and other crops to maintain stability in the sector. The ability of farmers to increase crop production in difficult circumstances is a strong indication that increase investment crop production will pay future dividends in developing the sector and its role in the economy. Furthermore, the growing production and consumption of cereals and HVC during recent years demonstrate that increased investment in HVC should not affect overall food security targets.

171. Market Demand: Official per capita consumption statistics for selected common foodstuffs are only available historically until 2004/2005, based on an estimated population of 137.1 million. The per capita consumption of rice at 188.4 Kg; wheat at 1.5 kg, and other food grains including minor cereals at 205.2 Kg are the major foodstuffs consumed in Bangladesh. Consumption figures have remained stable at the above levels over the 4 year period for which figures are available. Bangladesh society has been in a process of transition from lower to a higher livelihoods situation gradually. Along with other demand for upgraded consumption needs, the demand for higher calories from high value crops is also increasing with increased income. Per capita consumption of high value crops, along with other traditional crops has increased significantly over the past 5 years, with the per capita gap of consumption in certain popular HVC, such as tomato, onion, and banana, showing modest increases.

172. The Marketing System: The marketing of HVC and in particular horticultural and floriculture crops is complex and risky due to the perishable nature of the produce, the seasonality of production, and the logistical challenges of high weight-to-value shipments. The range of prices from grower to consumer tends to be unique for fruit and vegetables, compared with other agricultural crops. Furthermore, marketing arrangements at different stages in the value chain influence prices strongly as produce moves from farm gate to consumer. The agricultural market infrastructure in Bangladesh is better developed for food grains, than fruit and vegetables, where markets are usually not well developed, congested and often unhygienic.

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173. The HVC market is characterized by the presence of multiple actors, viz, local collectors, local traders, local market agents, urban wholesalers and their commission agents, rural and urban retailers Wholesalers and their agents mainly determine the market price of fresh produce. It is estimated that, in the process of marketing, as much as 10-40% of fresh produce is lost due to mishandling, improper packing and transportation. As market price is determined by the marginal cost of supply and demand and wholesalers are able to pass on their entire risks, partly to farmers in terms of lower farm gate prices, and partly to consumers in terms of higher wholesale prices than what would have been the outcome had the farmers been able to sell their produce in a more direct manor consumers. This factor partially explains the large differential between farm gate prices and wholesale/retail prices

The main agricultural markets in Bangladesh are:

Primary rural markets composed of farmers and small retail traders having few permanent shops, which are market places usually operating once or twice a week where traders from a wide area gather with a view to collecting marketable surpluses. Secondary markets are large market place composed of traders who operate nationally. Commission agents, wholesalers, processors, exporters are active in this market. Normally, such markets are easily accessible with good transport facilities available transport. With large numbers of permanent shops and service institutions, these markets operate on all working days. Urban wholesale markets are specialized markets, organized and operated by commission agents operating in particular categories of produce (e.g., rice, vegetable, and fruit, and which bridge the gap between wholesalers and large numbers of retailers. Urban retail markets where consumers purchase their daily food necessities directly from retailers..

V SECTOR CONTRIBUTION TO FOOD SECURITY

174. The National Food Policy Plan of Action, 2008-2015 (NFPP) sets out 3 core objectives and 26 strategic areas of intervention for attaining national food security through the coordinated implementation of the programs of all ministries and agencies involved in the plan. The 3 core objectives of the plan are:

4 The adequate and staple supply of safe and nutritious food 5 Increased purchasing power and access to food of the people 6 Adequate nutrition for all individuals, especially women and children

175. The sector supports Government policy on food security, particularly with regard to the following areas of intervention (AOI) and action priorities under core objective 1 above:

AOI 1.1: Agricultural Research and Extension - Developing and disseminating demand driven crop and non crop new technologies; and expanding demand led and pro poor extension services. AOI 1.4: Agricultural Diversification - Increasing and improving management production of HVC, (and fish and livestock products). AOI 1.5: Agricultural Credit and Insurance – Increasing formal credit to agriculture, especially small and marginal farmers, (and improving coverage of financial loss due to production failures).

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AOI 1.6: Physical Market Infrastructure Development – Improving private storage, market and transportation facilities, and improving market connectivity at local, national and international levels. AOI 1.7: Agricultural Marketing and Trade - Reducing marketing costs of agricultural products and strengthening market integration.

VI SECTOR IMPACT ON THE RURAL ECONOMY

176. Land and its cultivation is Bangladesh’s most basic resource and is the mainstay of the country’s primarily agricultural economy. Agriculture provides employment to 48.4% of the total labor force in the country20; its staple food (rice) is consumed by virtually 100% of the population; and 28.7% of total income emanates from agricultural outputs. Earnings from agricultural wages21 accounts for 28.1% of the total income of rural households.

177. The agricultural sector accounts for 20.87% of GDP at constant prices compared to the share of the other major sectors, viz, industry and services of the economy. Bangladesh has been experiencing a decline in agriculture’s share of GDP for many years, but it should be noted that this trend is not unusual in developing countries as they develop economically and the industry and services sectors expand.

VII CONCLUSIONS

178. The current situation in the agricultural sector and agrarian economy of Bangladesh is characterized by the following main features and trends:

• almost all arable land in the country is being used and there is little scope for any significant expansion of cultivation into new areas; • small and fragmented land holdings with 88.50% of total farm sizes being under 1.0 ha, and occupying 60% of the total farm land area; the trend is towards greater fragmentation and subdivision, and thus smaller individual farm units; • agricultural activity is primarily focused on producing food crops to ensure food security for the country’s growing population; • rice is overwhelmingly the dominant crop produced, and is grown on some 75% of the total cultivated area; seasons, viz, (i) Kharif I (pre monsoon); (ii) Kharif II (monsoon), and Rabi (winter or dry); • the practice of agricultural intensification is widespread through multiple cropping, using high yielding seed varieties, and the extensive use of agricultural inputs, particularly fertilizers and pesticides; • whilst the sector is dominated by the cultivation of cereals, particularly rice, there is a growing trend towards replacing cereals with HVCs, where this practice does not endanger overall food security.

179. In conclusion it should be stated that Bangladesh has been experiencing decline in agriculture’s share of GDP for many years: this trend is not unusual in developing countries as they develop economically and the industry and services sectors expand.

20 See Table: 4.05, Page 149, Statistical Pocket Book Bangladesh, 2008, BBS 21 21 See Table: 4.3, Page 30, HIES 2005, BBS

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3 EXTERNAL ASSISTANCE TO AGRICULTURE AND RURAL DEVELOPMENT

Project Title Duration Executing Agency Donors Donor Funding ($ millions) North West Crop Diversification Project 2001-2008 DAE/BB ADB 46.3 Agribusiness Development Project 2006-2010 DAM ADB 60.00 Participatory Small Scale Water 009 -2017 LGED ADB 38.6 Resources Project IFAD 12.7 Netherlands 16.2 National Agricultural Technology Project 2008-2013 MOA/MOFL World Bank 70 Microfinance and Technical Support 2003-2007 MOF IFAD 11.57 Project (2003 -2007)”, Microfinance for Marginal and Small 2005 - current MOA IFAD 29.7 Farmers’ Project Agricultural Sector Program Support 2009 - current MOFL, MOFL, LGED DANIDA 119 Phase II Rural Livelihood Project 1999-2006 BRDB ADB 42.6 Second Participatory Livestock 2004-2010 PKSF/Department of ADB, DANIDA 20.5 Development Project Livestock Services Participatory Livestock Development 1997-2003 Department of ADB, DANIDA 30.6 Project Livestock Services Rural Infrastructure Improvement Project 2003-2008 LGED ADB, GTZ, KfW 76.9 Third Rural Infrastructure Development 1998-2005 LGED ADB, 139.6 Project IFAD,SIDA,JBIC Farm to Market Enterprise Development 1998-2002 DAE CIDA 14.0 Project Agricultural Market Information 2002-2003 DAM FAO 0.257 Improvement Project Integrated Horticulture and Nutrition 2000-2005 DAE FAO 5.7 Development Project Bangladesh Seed Development Project 1997-2004 BADC GTZ 7.5 Agricultural Diversification and 1997-2004 DAE/LEGD IFAD 18.9 Intensification Project Agricultural Services and , Innovation and 1999-2003 DAE/HORTEX World Bank, 12.4 Reform Project DFID, FAO

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4 CREDIT LINE DELIVERY THROUGH MFIs AND WHOLESALE BANKS

A. Selection Criteria for MFIs and Wholesale Banks

180. The PMU will establish a shortlist of MFIs willing to participate in the Project. For inclusion in the shortlist, the MFIs will need to (i) hold a license issued by the Microcredit Regulatory Authority, (ii) show operations in agricultural credit delivery for at least three years and an average expenses to revenue ratio (E/R) over this time of less than 90%, (iii) show experience in, and a satisfactory record of, managing donor and Project funding for at least three years, (iv) have a total loan portfolio of at least TK100 million and an agricultural loan portfolio of not less than TK20 million and not less than a total 15,000 active borrowers and classified loans of less than 10% of total loan portfolio, (v) have a net worth of not less than TK50 million and a capital adequacy ratio (CAR) of at least 15%, (vi) have not less than 10 head office professional staff and 40 field credit staff, (vii) have an appropriately qualified board of directors, and (viii) have an executive director and chief financial officer with at least five years of satisfactory experience in microcredit and hold relevant academic qualifications.

181. MFIs that fit the above criteria include BURO Bangladesh, Shakti Foundation, BRAC, ASA, TMSS and RDRS. There are smaller MFIs that fit some of these criteria but their borrowing capacities in the range of $0.1-0.3 million limit their level of Project involvement. Many other MFIs are over-extended in their borrowing at present and would be unable to participate in the Project as providers of credit-services within the nest 2-3 years. All MFIs are described in Supplementary Appendix D (restricted circulation).

182. For continued participation during the Project, the MFI will need to:

(i) maintain a total loan portfolio that is at least 1.35 times borrowing so as to reduce the risk of excessive debt; (ii) maintain classified loans at less than 10% of loan portfolio. This is to ensure the quality of the loan portfolio and that subborrower loan repayments are maintained at a satisfactory level; (iii) maintain a CAR that is never less than 15% so as to ensure the risk assets of the MFI are within reasonably safe bounds; (iv) have operating expenses to revenue ratio of not more than 90%. This is to ensure the MFI is able to meet operating expenses out of revenues including a margin for risk; (v) maintain liquid funds (cash and demand deposits) always more than 10% of the total of savings and borrowing liabilities. This is to ensure the MFI is able to disburse credit and is able to service debt and meet deposit withdrawal demands on a timely basis; (vi) present satisfactory audited financial statements within six months of the close of the financial year.

183. Failure to meet any one of these conditions may result, at the option of the wholesale lending bank(s), in the demand for immediate repayment of Project credit line funds.

184. For Project participation, wholesale banks (WB) will need to satisfy the following criteria for inclusion in the Project as a wholesaler of funds to the MFIs:

(i) hold a bank rating (such as from Credit Rating Information and Services Limited - CRSIL) in the A category (A- to A++);

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(ii) have at least three years experience in lending to not less than five MFIs and hold a current loan portfolio of not less than TK700 million in MFI lending with aggregate classified MFI loans of less than 5%; (iii) be prepared to enter into Project-related loan agreements with MFIs of not less than 16 years; and (iv) be acceptable to ADB.

185. At present, BASIC Bank Limited and Eastern Bank Limited satisfy these criteria.

B. Credit Line Terms and Conditions

186. Funding for the credit line will be managed and held in an imprest account by BB as the credit line executing agency. BB will borrow funds under a subsidiary loan agreement with Ministry of Finance in domestic currency at a cost of 2.00% for a term of 16 years including a grace period of eight years. BB will on lend these funds to designated wholesale banks at the rate of 3.00% for 16 years including a grace period of six years.22 The wholesale banks will on- lend these funds to the MFIs at a rate of 6.00% 23 per annum during Project implementation. The timing and amounts of credit line funds to be requested will follow the programs agreed by the MFIs, wholesale banks and PMU. BB will request these funds from ADB and will disburse the funds to the wholesale banks within five working days following receipt of funds from ADB. The wholesale banks will disburse the funds to the MFIs within three working days of receipt of funds from BB. The wholesale banks will take the credit risk in lending to MFIs and MFIs will absorb the credit risk in lending to subborrowers.

187. The first tranche withdrawal, of up to $2.5 million in aggregate or 10% of the credit line whichever is the lesser, will be based on the plan for disbursements for the first six months submitted by the MFIs and agreed by the PMU and wholesale banks. Later withdrawals will be based on statements of expenditure (SOE) submitted by the MFIs to their financiers. Funding for new subborrowers and increases in loan size will be requested from ADB until the limit of the credit line is reached. Re-financing of prior subborrowers will be facilitated through the establishment of revolving fund accounts in each MFI. There will be two types of SOE: one for loans to new subborrowers and one for repeat loans to prior subborrowers. The annual external audit commissioned by each MFI will contain a report and verification that Project funds, including the revolving fund, are being used properly.

188. At the close of the Project, the outstanding loan balance of each MFI participating MFI) will be converted to a 10 year term with equal six monthly repayments of interest and principal. These loans will be subject to annual review by the wholesale banks and can be called up at any time, in full or in part, if the wholesale bank, in its sole discretion, considers the credit risk of the MFI to be excessive. If there is premature call-up, the wholesale bank will repay to BB, within three months, the amount of principal received from the MFI. Under normal conditions, principal repayments received by the wholesale banks from the MFIs will be paid to BB within five working days and BB will, in turn, pay these amounts within five working days to the Ministry of Finance.

22 Under NCDP the margin for BB is 1.5% and BB manages the revolving fund. In this proposal the revolving funds will be managed by the MFI’s under the oversight of the wholesale banks. 23 This rate is on the basis that loan loss provisioning for unclassified loans on lending to MFIs will be at the same rate (1%) as for SMEs and not 5% as for agriculture and microcredit.

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189. Generally, credit will be provided to individual farmers within groups with each group having an average 20 farmers.24 The location and selection of group members will be implemented so as to simplify the process of loan repayments by the farmers. Many of the groups are already in existence with group members involved in traditional agriculture. Loan disbursements will take place at the MFI branch. Lending will be on an individual farmer basis. The amount of credit to a borrower will depend on the types of HVCs, their areas, their profitability, and the credit history of the farmer.

190. Participating MFIs will follow their own lending procedures, terms, conditions and pricing in making loans to subborrowers. The rate charged to the subborrower will take into account cost of funds (debt and equity funding), administration expenses, provision of grace periods, Project supports such as in-house training, delays in Project reimbursement, and subborrower credit risk. The lending rate to subborrowers will be subject to the Microcredit Regulatory Authority-set ceiling. Should the ceiling be reduced further, MFIs will be entitled, without penalty, to withdraw from the Project and repay borrowing from the Project within a term of two years from the notified date of withdrawal. Most HVC loans will be for duration of around six months.

191. Sample crop budgets for the new Project are outlined in Tables 11a and 11b in the Supplementary Appendix Project Costs. The average size of HVC plot is estimated at 0.18 ha and this indicates that most of the credit will be in the range of TK7,000-18,000 per borrower with an average of TK12,000. These loan size estimates assume there will be no lending for labor costs that comprise 25-30% of investment. An assessment of NCDP lending showed that 14.2% of all farmers in the Project Upazila were NCDP credit recipients. Based only on smallholdings (less than 2.5 ac), the percentage was 18.6%. The 48 Upazila initially selected in the NW (9) and SW (39) have a population of 1.4 million agricultural households of which 1,080,000 are smallholders. The estimated credit recipients based on 14.2% of total households or 18.6% of smallholder households provides an estimate in the range of 198,800-201,500 borrowers in the Project. Based on NCDP data, a 95% confidence interval for percentage of participating households shows a range of 12.6-15.8%. Since the SW area is generally less conducive to HVCs the lower percentage is used in the estimate of participating farmers taking credit. This provides an estimate of 175,000 farmers. The credit line required for these farmers is estimated to reach $25.5 million by the final year of the Project. Additionally, it is estimated that a further 65,000 farmers will grow HVC without credit for a total 240,000 farmer beneficiaries under the Project.

192. For on-farm infrastructure investments, three feasible investment and credit models have been reviewed (Supplementary Appendix E, Detailed Cost Estimates, Tables 12 & 13). These are (i) potato purchase, storage, and sale, (ii) a collection center with grading, washing and packing facilities, and (iii) a collection center that purchases, processes and sells various crops. Investments are in the range of Tk 200,000-350,000. While up to 75% of the fixed asset investment may be grant funded under the Project, there may be a need for additional working capital investment and this would be within the financing capacity of medium to large MFIs. The estimated rate or return calculations for these investments are in the range of 24-35%.

Assuming five processing centers in each Upazila would indicate a total of about 240 centers. At an average investment of $5,000, this number of centers would require a total investment of $1.2 million. This number and size of centers would serve around 5% (5,000) of Project farmers.

24 This was the average group size under NCDP. Some of the new MFI participants have much smaller group sizes but then combine 6-8 groups into centers.

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It is envisaged that, subject to a set of conditions, including community benefit and acceptance, 75% of the investment cost (excluding land) be provided as a grant out of loan funds. It is recommended that a mid-term review assess the demand for these investments and, if necessary, devote additional funds to on-farm infrastructure investments.

C. Monitoring Arrangements

193. MFI’s will maintain monthly and cumulative records showing numbers and amounts of loan disbursements, loan repayments and outstanding loan balances of its Subborrowers. Data will be maintained showing the area of land used by each borrower and the area allocated to HVC and the loan amount provided for each category of HVC and post-harvest investment. All data will be gender disaggregated. These data will be submitted on a quarterly basis to the PMU and each wholesale bank.

194. The wholesale banks will maintain records of the loan disbursements made to MFIs and monitor the revolving funds maintained by each MFI borrower. The wholesale banks will monitor and update key financial performance indicators of MFIs each six months and report these to BB and the PMU. The indicators will cover the ability of the MFI to offset risk and earn a satisfactory margin to ensure no deterioration in earnings or in their debt to equity ratio.

195. BB will advise the PMU on the performance of the credit line and alert the PMU to potential concerns. BB will execute disbursements from and repayments to Government and ADB and maintain records of the amounts and timeliness of disbursements and repayments that occur through the wholesale banks within the Project. BB will ensure that the wholesale banks and MFIs provide reports in a well formatted, accurate and timely manner to ADB and the PMU.

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5 COST ESTIMATES AND FINANCING PLAN

(Local) (US$)

% % Total % % Total Foreign Base Foreign Base Local Foreign Total Exchange Costs Local Foreign Total Exchange Costs

1. HVC production Support 138,914,482 244,584,165 383,498,648 64 13 2,013,253 3,544,698 5,557,951 64 13 2. Value Addition Support 101,910,000 76,670,000 178,580,000 43 6 1,476,957 1,111,159 2,588,116 43 6 3. Credit Support 1,759,500,002 - 1,759,500,022 - 58 5,500,000 - 25,500,000 - 58 4. Institutional Strengthening 198,320,308 245,741,392 444,041,700 55 15 2,874,207 3,561,180 6,435,387 55 15 5. Project Implementation Support 241,805,700 20,661,900 262,467,600 8 9 3 ,504,430 299,448 3,803,878 8 9

Total Baseline Costs 2,440,450,512 587,637,457 3,028,087,969 19 100 35,368,848 8,516,485 43,885,333 19 100 Physical contingencies 28,033,625 27,743,200 55,776,825 50 2 406,284 402,075 808,360 50 2 Financial contingencies 136,788,644 112,210,485 248,999,130 45 8 146,191 121,489 267,680 45 1

Total Project Costs 2,605,272,782 727,591,142 3,332,863,924 22 110 35,921,323 9,040,050 44,961,373 20 102 Interest during implementation - 71,471,668 71,471,668 100 2 - 988,429 988,429 100 2

Total Costs to be Financed 2,605,272,782 799,062,610 3,404,335,592 23 112 35,921,323 10,028,479 45,949,802 22 105

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Table 2: Disbursement Accounts by Financiers

The Government ADB Community Total Foreign Local (excl Duties & Investors Exchange taxes) Taxes Amount % Amount % Amount % Amount %

Recurrent costs 3,312,483 100 - - - - 3,312,483 7.2 - 3,312,483 - Consultant expenses - - 43,800 100.0 - - 43,800 0.1 21,945 21,945 - HDTC Rehabilitation 610,853 50 610,853 50.0 - - 1,221,706 2.7 610,853 366,512 244,341 DAE Office Rehabilitation 810,407 50 810,407 50.0 - - 1,620,814 3.5 810,407 486,244 324,163 Certification standards - - 101,268 100.0 - - 101,268 0.2 50,634 50,634 - Processing investments - - 993,225 75.0 331,075 25.0 1,324,300 2.9 794,580 264,860 264,860 Training & Extension - - 2,899,561 100.0 - - 2,899,561 6.3 1,652,750 1,246,811 - Gender Awareness - - 418,217 100.0 - - 418,217 0.9 238,384 179,833 - Community mobilization - - 1,548,681 100.0 - - 1,548,681 3.4 387,170 1,161,510 - Consultants - - 3,809,796 100.0 - - 3,809,796 8.3 2,576,933 1,232,863 - Vehicles 579,209 28 1,489,394 72.0 - - 2,068,603 4.5 1,241,162 248,232 579,209 Furniture & equipment 305,77528 786,279 72.0 - - 1,092,054 2.4 655,232 31,046 305,775 Credit Line - - 25,500,000 100.0 - - 25,500,000 55.5 - 25,500,000 -

5,618,727 12.5 39,011,571 86.8 331,075 0.7 44,961,373 100.0 9,040,050 34,202,976 1,718,348 Interest during implementation - - 988,429 100.0 - - 988,429 2.2 - - -

5,618,727 12.2 40,000,000 87.1 331,075 0.7 45,949,802 100.0 9,040,050 34,202,976 1,718,348

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6 IMPLEMENTATION SCHEDULE

Activity / Component Implementation Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Project Start Up Period PSC established Management TA on Project start up Interagency coordination/agreements PMU & PIU’s set up and operational Appointment of consultants by PMU MFIs selected by BB & Wholesale banks Agreements and operating arrangements with wholesale banks and MFIs 1.8 Inception report submitted by PMU ♦ 1: HVC Production Support 1.1.TOT courses for DAE & MFI staff 1.2. Institutional farmer training 1.3. Farmer Field days/demonstration plots 1.4. Farmer community based training 1.5. Agricultural fairs in Bogra & Jessore 1.6. DAE workshops 1.7 .SAAO workshops 1.8. SAAO motivational tours 1.9 Farmer motivational tours 1.10.Follow up extension work by the DAE 1.11. Revision of training programs 2: Value Addition Support 2.2.Community group identification 2.3. Group post harvest training & awareness raising of value addition options 2.4. Improving market access & efficiency 2.5. Identification and design of OFSSI 2.6. Submission of plans & loan applications for OFSSI 2.7. PMU OFSSI approvals 2.8. Construction of OFSSI facilities 2.9. Operation of OFSSI facilities 3: Credit Support 3.1. Design & publish Project credit related information 3.2.Field workshops on credit issues 3.3. Financing plans agreed

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3.4. Agreement with MFIs on project locations 3.5. Start up of farmer training workshops 3.6. Credit funds obtained from BB/ADB 3.7. First tranche of credit disbursed 4: Institutional Strengthening 4.1. Recruitment of DAE staff 4.2. DAE Staff training 4.3. Rehabilitation/upgrading of DAE offices 4.4.Upgrading of HTDC’s in south west 4.5. Vehicle & equipment provision 4.6. Quality Standards & certification feasibility study 4.7. Gender awareness training of DAE staff 4.8 Gender awareness plan implementation 5: Project Implementation Support 5.1.Promotion & awareness campaigns 5.2. Staffing & equipping of PMU 5.3.Staffing & equipping of regional PIU 5.4. Consultancy firms short listing 5.5. Consultancy firm selection (DAE/ADB) 5.6. Consultancy contract agreement 5.7. Consultancy start up 5.8. Project implementation planning 5.9.Advertising, short listing, & appointment of Component 2 implementation private sector “service providers “ 5.10. Recruitment of community facilitators 5.11. Project management activities 5.12. Project benefit monitoring & evaluation 5.13. Submission of midterm report ♦ 5.14. Participation in midterm review 5.15. Preparation of completion report

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7 PROCUREMENT PLAN

Project Information Project Name Bangladesh: Second Crop Diversification Project Project Number Project Cost $49.5 million Of Which ADB Grant Amounts $40.0 million Executing Agency Department of Agriculture Extension, Ministry of Agriculture Approval Date of Original Procurement Plan Approval of most recent Procurement Plan Publication for Local Advertisements Target in third Quarter of 2010 Period covered by this Plan Project implementation 2010-2016

Table A.1: Procurement Thresholds for Goods & Related Services, Works and Supply Procurement Method Threshold (US$) Goods International Competitive Bidding (ICB) >1,000,000 National Competitive Bidding (NCB) >100,000 and 1,000,000 NCB >100,000 and 30,000 and

Table A.2: Procurement Thresholds for Consulting Services Procurement Method Threshold (US$) Quality Cost Based Selection (QCBS) >200,000 Consultants Qualifications Selection (CQS)

Table A.3: Goods and Works Contracts in Excess of $100,000 Estimated Cost Number of Procurement Expected Date of Prior Review Contract Description ($ millions) Contracts Method Advertisement (Yes/No) Civil Works 1.64 Multiple LCB June 2011 Yes Vehicle 2.44 Multiple LCB October 2010 Yes Equipment 1.22 Multiple LCB October 2010 Yes

Table A.4: Consulting Services Contracts in Excess of $100,000 Estimated Cost Number of Procurement Expected Date of Prior Review Contract Description ($ millions) Contracts Method Advertisement (Yes/No) Consultants 4.08 1 QCBS June 2010 Yes

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8 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

Technical Staff Input – Person Months International International 1. Team Leader / Agricultural Economist 54 2. Agricultural Marketing Specialist 9 3. Benefit Monitoring & Evaluation Specialist 3 4. Floriculture Specialist 12 5. Seed Production Specialist 12 6. Quality, Standards, & Certification Specialist 6 Total International Consultants 96 National National 1. Post Harvest Technology & Marketing Specialist/Deputy Team Leader 54 2. Floriculture Specialist 24 3. Horticulture Production Specialist (Vegetables and Spices) 36 4. Fruit Production Specialist (Fruit) 24 5. Benefit Monitoring and Evaluation Specialist 12 6. Gender Specialist 24 7. Community Development and Mobilization Specialist 36 8 Training Management Specialist 24 9. Food Safety & Quality Specialist 12 Total Domestic Consultants 246 GRAND TOTAL 342

INTERNATIONAL CONSULTANTS TERMS OF REFERENCE (TOR)

1. Team Leader / Agricultural Economist: (54 person months)

1 The consultant will work closely with the Project management and implementation units (PMU/PIUs), participating banks and participating non government organizations (NGOs), and private sector service providers to assist the HVC farmers under the Project and link them to extension and credit services. Reporting to ADB and the Project Director of the SCDP, the consultant will:

(i) advise the Project Director on Project planning and implementation issues, providing assistance with work planning, scheduling and coordination of inputs, determination of priorities and management of Project resources; (ii) provide overall team leadership for supervision and coordination of activities of the consultants, including briefing consultants on their arrival and jointly formulating individual work plans consistent with those of the Project; (iii) review the recommendations of the Project Facilitation (TA) advisor and recommend solid actions for PMU/PIUs to address all identified issues; (iv) take recommendations of consultants and, with DAE counterparts, ensure recommendations are acted upon; (v) assist DAE and consultants in the review and analysis of studies undertaken by the Project and assist in implementing recommended actions;

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(vi) identify and include in training and work actions farmers may take to improve their incomes from the production and marketing of HVCs; (vii) prepare selection criteria for post-harvest investment proposals/requests and assist PMU in reviewing and selecting the proposals for support funding; (viii) assist in developing and delivering capacity enhancement activities to DAE and its field network; (ix) supervise the development of training materials and courses on gender awareness and HVC production; (x) work with the Project Benefit, Monitoring and Evaluation Specialists (PBME) to establish reporting formats and institutionalize them; ensure the preparation and timely submission of Project reports, studies and promotional materials/activities, including the quarterly Project progress reports and Project completion report to the Government and ADB, and ensure that standards of quality and timeliness are properly met; (xi) assist in sorting out any issues or problems which may develop between the consultants or between the consultants and other Project staff and keep the Project Director and the ADB Project Officer advised of any such developments and discuss with them the appropriate action to take; (xii) participate in the supervision and review of the implementation of activities funded by the Project; assist in the update of the Project performance management system; keep the ADB appraised, through regular reports, of progress in the implementation of the Project and especially of any issues or delays arising, and provide advice on appropriate remedial measures; and (xiii) undertake any other duties as may be reasonably assigned by the Project Director.

2 The consultant will prepare a work plan for approval by the Project Director and ADB Project Officer within 10 days of signing of the contract. Work progress, discussions, sharing of issues should be done on a continuous basis and as and when required or asked for. The consultant will need to submit quarterly reports. The content of the reports should clearly highlight Project progress, and issues and solution taken, both quantitatively and qualitatively.

3 The consultant will have master or higher degree in areas of agricultural economics, finance, processing, marketing and resource management. He/she should have wide experience in rural development and farm production and marketing linkages. He/she will have at least 10 years experience in advising government on policies and strategies and be familiar with ADB Project implementation and management procedures.

2. Agricultural Marketing Specialist: (9 person months)

1 The Agricultural Marketing Specialist (AMS) will provide intermittent consultancy inputs to the service providers implementing Project Component2 (Post Harvest Handling and Market Support). He/she will report to the OPD, PMU, and work closely with the National Post Harvest Technology and Marketing Specialist, and be supported by the PMU Agricultural Marketing Officer.

2 The AMO will have the following general responsibilities under the TOR:

(i) Conduct an initial and detailed review and analysis the current marketing systems prevailing in Bangladesh for HVC., particularly fruit and vegetables, floriculture products, spices, and coconut products, The review should include Bangladesh’s current status

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regarding meeting domestic and international quality requirements, demand potential for the Project’s focus crops, and, the availability of timely and appropriate agricultural marketing information to farmers; (ii) Value chain analysis should be conducted for the main HVC being promoted by the Project, gaps identified in the chain, and the forward and backward linkages that may be developed to the benefit of the Project’s main beneficiaries, viz, small and medium farmers, and their groups; (iii) Design appropriate marketing training courses for farmers groups, to include post harvest quality control, price bargaining and negotiation, longer term seasonal contract rights and obligations, strategies to sell into higher price periods in the seasonal cycle through storage and forward commitments.

3 Qualifications: the AMO should hold a PHD Masters Degree or in agricultural development, economics or marketing and be have at least 15 years experience in providing similar consultancy advice in South and South East Asia.

3 Benefit Monitoring and Evaluation Specialist (3 person months)

1. The consultant will work with the Project management and implementation units (PMU and PIUs) of the SCDP, the Department of Agriculture Extension (DAE), Bangladesh Bank, the two wholesale banks, and the participating NGOs to formulate a comprehensive Project benefit monitoring and evaluation framework and related schedule of activities for the Project. This work will be performed in conjunction with a national Project Benefit Monitoring and Evaluation Specialist (PBME). The framework will enable the (i) evaluation of Project progress and outcomes achieved so far, (ii) assessment of performance of the Project implementing agencies, and (iii) the review and analysis of utilization of the subborrower credits. The consultant will:

(i) review and report on the current system of collecting and reporting of indicators described in the Loan Agreement and the Project Agreement and in the Project Design and Monitoring Framework; (ii) set out a monitoring and reporting framework that provides for the collection of all data required for monitoring and evaluating Project progress and impact by source of, and responsibility for, data specifying also the timing, content and distribution of reports to Project stakeholders; (iii) in collaboration with other consultants, and Project Director, ensure that the framework design contains all necessary data required for Project monitoring and the Project completion report; (iv) with respect to data concerning HVC varieties, advise on and set out a process so that data can be assembled so as to monitor the areas of HVCs and supporting credit disbursement; (v) ensure the collection and reporting of data is computerized along with data checks to ensure the accuracy of reporting and deadlines for the submission of data; (vi) review and advise on the effective and efficient collection of data at the field level taking into account the costs of data collection, the avoidance of bias in the collection of data, and the timeliness of data collection; (vii) review the process of data collection and dissemination of information by Department of Extension (DAE) and advise on how the system of data collection and monitoring under the Project could be incorporated into the DAE monitoring system;

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(viii) work with the Project Director, Consultant Team Leader and PBME Specialist to set out the required activities of the PBME Specialist over the nine months of his/her assignment; and (ix) provide a final report that sets out the PBME framework and provides instructions for the collection, assembling, analysis and reporting of data over the remaining period of the Project.

2. The consultant will have appropriate tertiary qualifications in finance, and agricultural economics. He/she will have at least 5 years of BME experience with at least 3 years in agriculture and, preferably, at least one year experience of working with financial institutions and NGOs. Experience with externally funded development programs involving government agencies would be desirable, preferably with experience in agricultural production and improved market linkages.

4. Floriculture Specialist: (12 person months)

1 The Floriculturist will undertake the following:

(i) prepare the detailed production technology of the selected flowers (rose, tuberose, gerbera, gladiolus, marigold and others including pot and cut flowers) of SCDP in relation to appropriate varieties and their suitability for different locations, input use, cultivation techniques, intercultural operations, different crop care activities, critical times of growth, sensitivities, special requirements, pest management, harvesting and post-harvest handling and care required by the growers; (ii) provide suggestions/recommendations for required measures or practices to solve or tackle various problems encountered in production of the selected flowers/ornamentals that may be assessed through a short survey among growers producing those in the SCDP areas; (iii) prepare, in the same way, the guidelines for DAE’s demonstration plots with the selected flowers in selected spots of the SCDP Upazilas; (iv) investigate the potential and improvement of flowers and ornamentals in the market and suggest appropriate additional activities to introduce and/or popularize new items, such as pot plants and other ornamentals; (v) prepare training manuals for the selected flowers for the DAE and other personnel of SCDP as required and conduct training sessions on these, as and when required/planned; (vi) liaise and consult with other such specialists in the country or abroad through internet or correspondences, as will be applicable, for technology updates and problem-solving; (vii) incorporate principles of good agriculture practice (GAP) for the production programs and demonstrations; (viii) assist the Training Management Specialist in planning and conducting Training of Trainers (TOT) courses for the flowers and ornamentals production training programs, in a way that local expertise of international standards grow in related production; (ix) undertake periodic regular visits of the SCDP areas to ascertain that appropriate technologies are followed in the DAE’s Demonstration Plots, and farmers’ training sessions are conducted as per required quality and content; (x) work in close association with the PMU and other specialists in the team and report his duties and submit all reports and deliverables to the Team Leader.

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2 Qualifications: The selected Floriculturist (International) will have:

- at least an M.Sc. with specialization in floriculture or ornamental horticulture; - at least 10 years practical experience in production or rose, tuberose, gerbera, gladiolus, marigold and others, including pot and cut flowers; - thorough knowledge of the working and management of covered houses like lath house, shade houses, net houses, glass houses, etc;. - a sound knowledge of Bangladesh and/or South/South East Asian agriculture with experience of floriculture in similar agro climatic and social environment; - a thorough knowledge of flower harvest and handling, packaging, carrying, storing, waste prevention and related marketing skills; - required expertise in manual and guidelines development and conducting training classes; - ability to appreciate the local customs, social and institutional environments, their dynamics, role of NGOs and the private sector, relevant global issues and the constantly evolving market; - ability to work in a team, collaborate with people and organizations of diverse backgrounds

5. Seed Production Specialist: (12 person months)

1 The Seed Production Specialist will undertake the following:

(i) prepare the detailed technology for production of onion seeds and other vegetable seeds as will be determined by SCDP; detailing their input use, cultivation techniques, intercultural operations, different crop care activities, critical times of growth, sensitivities, special requirements, pest management, harvesting and post-harvest handling and care required by the farmer; (ii) provide suggestions/recommendations for required measures or practices to solve or tackle various problems encountered in selected seeds production that may be assessed through a short survey among farmers producing those in the SCDP areas; (iii) prepare, in the same way, the guidelines for DAE’s demonstration plots with the selected seed crops in selected spots of the SCDP Upazilas; (iv) provide guidance in construction and management of special structures like, greenhouses, net houses, shade houses for necessary seeds, planting materials, plants and crops; (v) prepare training manuals for all the relevant seeds production for the DAE and other personnel of SCDP as required and conduct training sessions on these, as and when required/planned; (vi) liaise and consult with other such specialists in the country or abroad through internet or correspondences, as will be applicable, for technology updates and problem-solving; (vii) incorporate principles of good agriculture practice (GAP) for the production programs and demonstrations; (viii) assist the Training Management Specialist in planning and conducting ‘Training of Trainers’ (TOT) courses for the relevant training programs, in a way that local expertise of international standards grow in related vegetable seed production;

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(ix) undertake periodic regular visits of the SCDP areas to ascertain that appropriate technologies are followed in the DAE’s Demonstration Plots, and farmers’ training sessions are conducted as per required quality and content; (x) work in close association with the PMU and other specialists in the team and report his duties and submit all reports and deliverables to the Team Leader

2 Qualifications: The selected Seed Production Specialist (International) will have:

- at least a Ph.D. in Plant Breeding or Seed Science; - at least 10 years practical experience in quality seed production, processing and storage of onion and vegetable seeds; - a thorough knowledge of construction and management of structures, such as, net houses, shade houses, and glass houses; - a thorough knowledge of seed quality, phytosanitary standards, and rules, and their application procedures; - a sound knowledge of Bangladesh and/or South/South East Asian agriculture with experience of seed production in similar agro climatic and social environment; - required expertise in manual and guidelines development and conducting training classes; - ability to appreciate the local customs, social and institutional environments, their dynamics, role of NGOs and private sector, the global relevant issues and the constantly evolving market; - ability to work in a team, collaborate with people and organizations of diverse backgrounds.

6. Quality, Standards, & Certification Specialist: (6 person months)

1 The Quality, Standards, & Certification Specialist (QSC) will provide intermittent inputs to the DAE under Component 4 (Institutional Strengthening), and work closely with the National Food Safety and Quality Specialist. The QSC will undertake a feasibility study on establishing a Quality and Certification service for fruit and vegetables within the DAE. The QSC will investigate the following:

(i) the current status of food safety certification in Bangladesh, and the institutions with a mandate to undertake such activities, together with their acceptability to consumers, retailers and exporters; (ii) the demand from retailers for certification, by DAE, of farmers’ group’s produce in term of safety related to controlled inputs of pesticides, herbicides and fertilizers. (known elsewhere in the region as “:safe fruit and vegetables” certification); (iii) The capacity and resources required by DAE in terms of qualified staff and laboratory and other testing equipment; (iv) estimate the costs of follow on activities during the SCDP should the feasibility study prove positive; (iv) the demand and potential for developing future compliance with overseas export certification, e.g., GAP, HACCP, organic certification and others in the international fruit and vegetable sector; and which are the appropriate Bangladesh institutions to handle international certification and whether DAE has a role to play, other than at farm level.

2 Qualifications: Advanced degree in Food Technology, and experience in quality standards and certification systems in the South and South East Asian Region.

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NATIONAL CONSULTANTS TERMS OF REFERENCE (TOR)

1. Post Harvest Technology & Marketing Specialist/Deputy Team Leader: (54 person months)

1 The National Consultant will work to the same terms of reference as the International Agricultural Marketing Specialist with additional responsibilities in post harvest technology training and overall Project management.

2 Qualifications: the AMO should hold tertiary qualifications in agricultural marketing, and post harvest technology and have at least 10 years experience in providing similar consultancy advice in Bangladesh. Similar experience South and South East Asia will be an advantage.

2. Floriculture Specialist: (24 person months)

1 The National Floriculturist will work to the same Terms of Reference as the International Floricultural Specialist

3 Horticulture Specialist (Vegetables & Spices): (36 person months)

1 The Horticulture Specialist (Vegetables & Spices) will undertake the following:

(i) prepare the detailed production technology of selected high value vegetables and spices of SCDP in relation to appropriate varieties and their suitability for different locations, input use, cultivation techniques, intercultural operations, different crop care activities, critical times of growth, sensitivities, special requirements, pest management, harvesting and post-harvest handling and care required by the farmer; (ii) prepare the above guidelines for the SCDP areas (Upazilas) considering the suitability in terms of the soil, land and climatic conditions of the areas and their variations. S/he will need to consult the latest data on the agro-ecological parameters and make the recommendations accordingly; (iii) S/he will also provide suggestions/recommendations for required measures or practices to solve or tackle various problems encountered in production of the selected vegetables and spices that may be assessed through a short survey among farmers producing those in the SCDP areas; (iv) Investigate the potential and improvement of vegetables and spices in the market and suggest appropriate additional activities to introduce and/or popularize new crops/varieties; (v) prepare, in the same way, the guidelines for DAE’s demonstration plots with high value vegetables and spices in different spots of the SCDP Upazilas; (vi) prepare training manuals for the selected vegetables and spices for the DAE and other personnel of SCDP as required and conduct training sessions on these, as and when required/planned; (vii) liaise and consult with other such specialists in the country through internet, meetings, visits, seminars and workshops at BARI, BAU, BSMRAU, other agricultural institutes, regional research stations, etc. for vegetables and spices production technology updates and problem-solving; (viii) incorporate principles of good agriculture practice (GAP) for the production programs and demonstrations;

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(ix) assist the Training Management Specialist in planning and organizing Training of Trainers (TOT) courses for vegetables and spices production training programs; (x) undertake periodic regular visits of the SCDP areas to ascertain that appropriate technologies are followed in the DAE’s Demonstration Plots, and farmers’ training sessions are conducted as per required quality and content; (xi) work in close association with the PMU and other specialists in the team and report his duties and submit all reports and deliverables to the Team Leader.

2 The selected Horticulture Specialist (Vegetables & Spices) will have:

- a Ph.D. with specialization in Floriculture; - at least 10 years experience in research and production of vegetables and spices; - a thorough knowledge of the horticulture production sector with emphasis on vegetables and spices, policies, constraints, and potentials; - thorough knowledge and understanding of the standards in food quality and safety requirements; - required expertise in manual and guidelines development and conducting training classes; - ability to understand the social and institutional environments, their dynamics, role of NGOs and private sector, the global relevant issues and the constantly evolving market; - ability to work in a team, collaborate with people and organizations of diverse backgrounds.

4. Horticulture Specialist (Fruit): (24 person months)

1 The Horticulture Specialist (Fruit) will undertake the following:

(i) prepare the detailed production technology of the selected fruits of SCDP in relation to appropriate varieties and their suitability for different locations, input use, cultivation techniques, intercultural operations, different crop care activities, critical times of growth, sensitivities, special requirements, pest management, harvesting and post-harvest handling and care required by the farmer; (ii) prepare the above guidelines for the SCDP areas (Upazilas) considering the suitability in terms of the soil, land and climatic conditions of the areas and their variations. S/he will need to consult the latest data on the agro-ecological parameters and make the recommendations accordingly; (iii) provide suggestions/recommendations for required measures or practices to solve or tackle various problems encountered in production of the selected fruits that may be assessed through a short survey among farmers producing those in the SCDP areas; (iv) investigate the potentials and improvement of fruits in the market and suggest appropriate additional activities to introduce and/or popularize new fruits/varieties; (v) prepare, in the same way, the guidelines for DAE’s demonstration plots with the selected fruits in different spots of the SCDP Upazilas; (vi) prepare training manuals for the selected fruits for the DAE and other personnel of SCDP as required and conduct training sessions on these, as and when required/planned; (vii) liaise and consult with other such specialists in the country or abroad through internet or meetings, visits, and workshops, as will be applicable, for technology updates and problem-solving;

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(viii) incorporate principles of good agriculture practice (GAP) for the production programs and demonstrations; (ix) assist the Training Management Specialist in planning and conducting ‘raining of Trainers’(TOT) courses for the selected fruits production; (x) undertake periodic regular visits of the SCDP areas to ascertain that appropriate technologies are followed in the DAE’s Demonstration Plots, and farmers’ training sessions are conducted as per required quality and content; (xi) work in close association with the PMU and other specialists in the team and report his duties and submit all reports and deliverables to the Team Leader

2 The selected Horticulture Specialist (Fruit) will have:

- a Ph.D. in pomology, preferably from abroad; - at least 20 years practical experience in research and production of fruits, university professors may be preferred; - a thorough knowledge of the horticulture production sector with emphasis on fruits, policies, constraints, and potentials; - thorough knowledge and understanding of the standards in food quality and safety requirements; - required expertise in manual and guidelines development and conducting training classes; - ability to understand the social and institutional environments, their dynamics, role of NGOs and private sector, the global relevant issues and the constantly evolving market; - ability to work in a team, collaborate with people and organizations of diverse backgrounds

5 Benefit Monitoring and Evaluation Specialist: (9 Person Months)

3. In conjunction with the International BME Specialist and under a scheduled and agreed upon work program, the consultant will:

(i) set out a monitoring and reporting framework that provides for the collection of all data required for monitoring and evaluating Project progress and impact by source of, and responsibility for, data specifying also the timing, content, format and distribution of reports to Project stakeholders; (ii) collaborate with other consultants to ensure relevant data relating to training, gender, and institutional capacity building are incorporated into the monitoring framework; (iii) test the assembly and reporting of data to ensure it is computerized along with data checks to ensure the accuracy of reporting and deadlines for the submission of data; (iv) review and advise on the effective and efficient collection of data at the field level taking into account the costs of data collection, the avoidance of bias in the collection of data, and the timeliness of data collection; (v) review the process of data collection and dissemination of information by Department of Extension (DAE) and advise on how the system of data collection and monitoring under the Project could be incorporated into the DAE monitoring system; (vi) prepare necessary instruction manuals and provide training to staff monitoring Project progress and collecting data; and

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(vii) provide a final report that sets out the PBME framework and provides instructions for the collection, assembling, analysis and reporting of data over the remaining period of the Project.

2 The consultant will have appropriate tertiary qualifications in economics, agricultural economics, marketing or business management. He/she will have at least 3 years of agricultural experience and, preferably, at least one year experience of working with financial institutions and NGOs. Experience with externally funded development programs would be desirable, preferably with experience in agricultural production and improved market linkages.

6 Community Development and Mobilization Specialist: (30 person months)

1 It is envisaged that the Project will use 6-9 MFI’s in the disbursement and management of the credit line and, possibly, a about 4-5 MFI’s in developing community support for post- harvest facility investments. It is expected that at least three MFI’s will also be involved in developing post-harvest facilities. The consultant would work in the first three years of the Project for a period of 30 months. Specifically, the consultant will:

(i) work with the wholesale banks and the MFI’s to ensure Project activities proceed smoothly and in a coordinated manner; (ii) liaise with and coordinate plans of the MFI’s for the provision of credit services in each of the Project Upazila; (iii) advise the PMU, PIUs and wholesale banks on the implementation of plans and constraints to implementation as they are identified; (iv) work with PMU and MFI’s in the identification of communities that have a potential to invest in and operate post-harvest facilities; (v) assist the PMU in arrangements and drafting agreements to hire MFI staff, or staff of other organizations, to work with communities; (vi) assist the MFI’s and private sector investors in the preparation and implementation of post-harvest facilities; (vii) advise the PMU on ways to facilitate post-harvest facility investments; (viii) advise the PMU on the provision of matching grants for post-harvest facilities; and (ix) advise the PMU and BB as necessary on the selection of additional MFI’s and NGOs for credit-service delivery and for community support mobilization

2 The selected consultant must possess an academic qualification in business administration, economics or social sciences. A minimum of 10 years of experience at a senior level in an NGO and/or in Project management is also required with at least five years experience in rural credit. Preferably, the consultants will have at least 5 years experience working in international donor-funded Projects. S/he must possess report writing skills and computer literacy.

7. Gender Specialist: (24 person months)

1 The Project will recruit a Social and Gender Specialist to be responsible for ensuring the rights and safety of women engaged in HVC production and marketing activities being promoted and supported by the Project and also making sure that women are especially able to benefit from the opportunities presented by the Project. The major duties of the Social and Gender Specialist will be:

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(i) orient DAE, NGOs and Project staff on the Gender Action Plan, related gender and social issues in agribusiness and on their roles in promoting gender equality; (ii) review the programs of DAE and participating NGOs and encourage them to focus on and involve women to the maximum extent possible. Make constructive suggestions to NGOs as to how this might be done so that they can be incorporated into their business and operational plans; (iii) publicize the Project among women’s groups and associations and carry out continuous promotion among women’s groups and associations, encouraging them to apply for credit under the Project; (iv) publicize the successes of women farmers under the Project to encourage others to come forward and take advantage of the Project’s potential benefits. (v) conduct studies to assess current situation of public market management and impediments to women in accessing the market and suggest remedial measures; (vi) determine training needs of the women farmers and organize training programs for them; ensure women's participation in training opportunities for women farmers and entrepreneurs interested in improving production to market linkages ventures; (vii) orient DAE and Project staff on 'Gender and Agribusiness' – develop module and impart training. (viii) Work with DAE and interested organizations to develop in-house trainers to impart training on entrepreneurship development including the development of manuals, provision of illustrations and materials and implementation of training courses. (ix) conduct a baseline survey on sample Project beneficiaries from gender dimensions; (x) work with the PBME Specialist to develop a data base with appropriate gender based monitoring indicators to highlight Project effects on women development, livelihood improvement and social development; (xi) highlight Project effects through case studies that illustrate women empowerment dimensions of the Project beneficiaries. (xii) Undertake any other duties as may be reasonably assigned by the Project Director.

2 The Specialist will prepare a work plan for approval within 10 days after signing of the contract. Work progress, discussions, sharing of issues should be done on a continuous basis and as and when required or asked for. The consultant will need to submit quarterly reports. The content of the reports should clearly highlight women entrepreneurship development aspects both quantitatively and qualitatively.

3 The Specialist will have demonstrated ability over at least five years to work with and effectively promote the participation of women entrepreneurial activities. He/She will have appropriate qualification in any discipline of social studies, or development studies with demonstrated experience in (i) gender development and social inclusion practices; (ii) training management/facilitation, designing extension materials/publications and institutional networking; and (iii) working with bureaucratic as well as private sector and NGO stakeholders and systems is needed.

8 Training Management Specialist: (4 person-months)

1 The Training Management Specialist will carry out the following responsibilities:

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(i) consult and cooperate with the different Horticulture and other production specialists for the whole program of training so that the courses can be of quality and effective to meet the required objectives of the Project; (ii) lead the training needs assessment (TNA), guide the specialists accordingly and define the benchmark in the TNA report, (iii) lead and coordinate the design and development of training contents with in- house expertise, and other authoritative sources on the basis of the TNA for use in training courses; (iv) particularly emphasize improved training methodology for the training to be of quality delivery to have a lasting effect; (v) work with trainers in the structuring and development of training covering farmer field days, motivational tours, training of DAE staff, training of DAE extension staff and the training of NGO credit staff; (vi) revise courses and curriculum periodically as required to make them relevant to attendees and relevant to the goals of the Project; (vii) assist NGOs to prepare their staff training programs for HVC lending and suggest links between NGOs and other sources of HVC expertise for training purposes; (viii) oversee the implementation of the training programs ensuring that courses are held, that attendees are properly chosen, and that follow up courses are provided for the attendees after the initial exposure; (ix) develop a system of post-course evaluation by trainees (at the closing of the training and of sample trainees in the field after a reasonable period of time) so as to assess the effectiveness of extension and training; (x) assist in the development of a cadre of in-house trainers of DAE to impart training on HVC development – assist in the production of manuals, illustrations, materials and impart training; (xi) prepare and submit regular reports, and ensure that standards of quality and timeliness are properly met; (xii) write a final report setting out an analysis of training programs and recommendations for their improvement; (xiii) undertake any other duties as may be reasonably requested by the PMU or Team Leader.

2 The selected Training Management Specialist will have:

- at least a masters degree in either agriculture economics or any discipline of social science having very good knowledge of agriculture; - at least 10 years practical working experience with NGOs, government agencies or commercial enterprises in the field of human resources development; - a thorough knowledge and skill in TNA, curriculum development, training design & methodologies, presentation, evaluation, and feed-back implementation; - required expertise in manual and guidelines development and conducting training classes; - ability to appreciate the local customs, social and institutional environments, their dynamics, role of NGOs and private sector, the global relevant issues and the constantly evolving market; - Ability to work in a team, collaborate with people and organizations of diverse backgrounds.

9. Food Safety &Quality Specialist: (12Person Months)

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1 The National Consultant will work with and with to the same TOR as the International Quality Standards and Certification Specialist.

2 Qualifications: A minimum of a Masters degree in food safety and technology, and 10 years experience in Bangladesh public or private sector institutions implementing food safety and quality and standard certification.

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9 Outline Terms of Reference of TA Consultants

I Climate Change Impact: 2 Domestic (36 person months)

1 The implementation of the SCDP will require a team of 2 (two) TA consultants for inputs on climate change impact assessment and adaptation options for HVCs as well as on institutional strengthening of the staff of the Department of Agricultural Extension (DAE) on environmental issues (including dealing with climate change impacts).

2 The two TA consultants with climate change and environmental expertise will be employed to work with the DAE in Project implementation. They will work in collaboration with the Project Management Unit (PMU) in advising the implementing team of the DAE on climate change impact issues, on mitigating actions, and adaptation strategies or options.

3 Each of the two TA consultants will have input of 36 person-months – intermittent over the Project’s implementation schedule of 2010 to 2016.

4 One of the TA consultants will have a Masters degree in agriculture/horticulture, while the other consultant will have a Masters degree in environmental science or a related discipline, but both of them should have at least five years of experience in climate change related studies, and in preparing training modules on environment.

5 The consulting services will consist of the following tasks, but not limited to:

(a) review periodically the impacts of the Project actions on local and regional environment, and determine the nature and extent of environmental impacts; (b) conduct surveillance of the environmental status of the HVC farms in respect to soil structure and erosion, state of chemical fertilizer and pesticide uses, availability and use of organic manure, and evaluate the efficacy or success of IPM practices; (c) assess the potential impacts related to changing climate conditions on different HVCs in terms of soil health, flooding, drought, salinity, and atmospheric warming; (d) advise and suggest to the Project implementation agency (DAE) mitigation and adaptation options to cope with climate change impacts; (e) carry out environmental analysis of all Project actions and prepare an annual environmental monitoring report; (f) assist in facilitating participatory planning and participatory governance activities, and in implementing the IEE recommendations; (g) prepare guidelines and manuals (in English and Bengali) on climate change impacts and adaptation for the mid and senior level officers of the DAE as well as for field level staff; (h) advise and support the DAE in building its in-house capacity for environmental assessment; (i) prepare training modules and organize interactive training workshops – at least 2 to 3 every year for each of the two groups, viz. district level DAE officers and Upazila level officers for the SCDP area; (j) train the Upazila level DAE officers in the TOT (training of trainers) format on climate change impacts and adaptation so that the DAE staff can train and motivate HVC farmers on all aspects of the changing climate in the region.

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2 Project Management Advisor: 1 Domestic (3 person months)

1 The full and timely implementation of Projects is often adversely affected by delays in setting up Project procedures and in the hiring of consultants. With SCDP there will be one PMU and two PIUs within the Ministry of Agriculture and also the implementation of the credit line through BB, two wholesale banks and six NGOs. Coordination of effort will be required among these agencies and institutions. It is proposed to hire a TA consultant to work with the Project Director and the implementing agencies to facilitate Project startup in a timely and complete manner. The consultant will:

(xiv) assist the executing agencies in the establishment of imprest accounts for the Project and setting out procedures to access and disburse funds; (xv) assist the Government in the selection and recruitment of consultants required for Project implementation; (xvi) assist the PMU in following procedures required for the purchase of vehicles and equipment; (xvii) set up the necessary reporting system and accounts required by ADB and Government for the accounting of Project funds; (xviii) work with the PMU in reviewing the proposed implementation schedule for Project activities and setting out budget needs for Project activities for inclusion in the Government ADP; and (xix) liaise with, and report to, ADB and Government concerning the progress of Project startup.

2 The consultant will have had at least 10 years of experience in donor Project management preferably with at least five years if this experience on ADB-funded Projects. The consultant will hold an academic degree and must have demonstrated the ability to work effectively with senior-level Government officials.

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10 Project Justification and Economic Analysis

A. Introduction

196. The Second Crop Diversification Project (SCDP) is designed primarily to benefit small and medium farmers while providing scope for the marginal and the landless to participate. Through the promotion of HVCs, the Project will (i) add more value to the agricultural GDP than added normally by Boro paddy (without reducing paddy area), (ii) increase incomes of small and medium farmers producing HVCs, (iii) create employment opportunities and increase incomes of marginal farmers, landless and the disadvantaged women in the locality, (iv) provide opportunities to HVC growers for adding value to their produces through cleaning, sorting, grading, packaging, storage, transportation and marketing, (v) provide opportunities for value chain development, involving private investment at larger scale to ensure supply chain and quality of produces, and (vi) provide access to farm credit to small and medium holders.

B. Project Justification and Beneficiaries

197. The rural economy of Bangladesh is dominated by households with agriculture listed as the occupation (57.6%). Poverty among the landed households in rural areas prevails among 65.7% for marginal, among 33% for small and among 3.6% for large holders25. Average Bangladeshi per capita income is $329 at constant (1995-1996) prices. Share of agricultural income to total income of rural households has been falling gradually since 1990’s and HIES (2005) recorded it to be only 28.7%.26 Share of agriculture as a sector to GDP has been falling from 23.47% in 2002-2003 to 20.87% in 2007-2008.27 Acceleration of growth for agriculture sector and generation of small and medium farmers’ income require a strong commercial front of high value crops side by side with the common front of safeguarding the nation’s food self- sufficiency at large. Growth and strengthening of commercial agricultural activities will enhance rural income and employment; promote farm (production of selected HVCs) and non-farm activities (post harvest handling, agro-processing, marketing, agribusiness services).

198. Farmers, particularly, small and medium farmers (i) already practicing in a small scale and at a low efficiency and (ii) interested in HVC production, will be the primary beneficiaries. HVCs like vegetables, spices, fruits, and flowers will be the main focus of support because these have already proved to have highly promising markets for semi urban and urban consumers who have moderate to high income elasticity of demand for these crops. The 61 Upazilas under sixteen northern districts located in the NCDP area have already brought about 81,000 ha. under HVC production and farmers have increased their income 28 by practicing HVC. SCDP is to continue these activities into other promising but unserved Upazilas in the North West and introduce these into the southwestern parts of the country (parts of Khulna, Barisal and Dhaka Division) which are also similarly poverty stricken areas. Barisal has the highest incidence of poverty, 54.1% using the upper and 37.2% using the lower poverty line, while the national average figures are 43.8% and 28.6% respectively.29 Similarly, the poverty gap is also very adverse for Barisal which shows a poverty gap ratio of 16.3 and 9.6 using upper and lower line respectively. The rural population of Khulna also has similar poverty incidences, higher than

25 Table-6.9, HIES, BBS, 2005 26 Section 4.3, Page-29, HIES, BBS 2005 27 Table 10.03, Page-290, Statistical pocketbook, BBS, 2008 28 Report of the Evaluation Mission, ADB on NCDP dated July, 2009 29 Table 6.2, HIES, BBS, 2005

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national levels.30 The Project design follows the lessons from NCDP and gives special emphasis to marketing support in terms of small scale infrastructures around the farm gate for cleaning, sorting, grading, packing, transporting of produces too far and near markets. Moreover, Government agricultural sector policy 31 provides the enabling environment by including a component of Crop Production Policy in view of emphasizing intercropping and crop diversification to enhance farmers’ income and living standards.

199. Subsistence and semi-commercial farm households produce only enough for their existence at present. Members of small and medium agricultural households, with initiative, take part in local processing and trading of agricultural commodities either periodically or seasonally. They are the target groups of this Project to enhance their leadership faculties for volunteering local resources for developing small scale infrastructures needed for post harvest activities. These activities will reduce post-harvest crop losses and add value instead through improved and assured quality of produce. These households along with other leading ones, will benefit from an array of activities such as HVC production, post harvest cleaning and sorting of produce, marketing, use of credit, business management, transportation, storing, accounting and book keeping, and management and use of information on markets and market prices. Credit for production and marketing support will be provided by the Project. Technology will be disseminated among the farmers and other associated stakeholders for effective utilization of the facilities.

200. Economically, raising agricultural productivity in a sustainable mode is important to achieve much needed economic growth of the country. The deteriorating quality of agricultural land due to soil degradation, diminishing land base due to urban spread and expanding population, riverbank erosion, and intrusion of brackish water and organic matter depletion are threatening Bangladesh agriculture at large. The introduction of appropriate crops, particularly HVCs, can produce direct results from research and extension. Technology dissemination process will become diversified through this Project, raising access to, and benefits from, technology. A competitive regime along the production and marketing chain will further strengthen the distribution of benefits among the poor.32 To meet the country’s MDGs, an annual economic growth of 6% to 7% will be needed and agriculture will need to grow at a rate of at least 4%. The present trend of a declining agricultural contribution to GDP can be compensated for by producing HVCs which will add more value to GDP than traditional low value crops. The Project will enhance opportunities for consumers to purchase HVCs at fair prices and create demand related to the high elasticity of income of these consumers. Income will increase in a multiplier effect for all stakeholders of the value chain and supply chain. The rural economy will experience forward and backward linkage effects of more demand for HVCs, resulting in more employment and income from post harvest handling activities, including processing, marketing, transportation, and storage. From economic perspectives, the Project will ensure sustainability of growth of the agricultural sector at large by expanding HVCs further into viable areas of the country.

30 Ibid 31 Government’s Agricultural Policy, 1999 32 Thirtle, C, Lin, L, and Piesse, J: “The Impact of Research-led Agricultural Productivity Growth on Poverty Reduction in Africa, Asia and Latin America.” Research Paper 016, Management Center Research Papers, King’s College, University of London, November, 2002.

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C. Indicative Project Analysis

1. Approach and methodology

201. The Project is designed for the promotion of production and marketing of HVCs in the agriculture sector. The following components have been proposed:

1. HVC production and value addition support 2. On-Farm infrastructure investments 3. Credit support to farmers 4. Strengthening of stakeholder institutions 5. Project implementation support

202. The components are proposed to be demand–driven. An appropriate mix of scale and nature of Project intervention cannot be foretold at this stage, nor is it practical. Therefore, a typical but representative assessment of costs and benefits of probable interventions has been done.

203. The economic analysis has been accomplished by establishing a realistic database of present HVC practices in selected districts and Upazilas. Secondary statistics (particularly, BBS reports) related to HVCs in practice have been studied and net expected coverage under SCDP has been calculated taking into account outreach under NCDP. Incremental yields and returns have been projected on a modest basis in line with Project supports to enable the achievement of targets.

204. Sensitivities have been tested against a feasible range of risks identified by stakeholders in workshops and in direct interviews with HVC farmers, supermarket stores, ordinary market sellers, and NCDP market operators. Identified risks are as follows: a. delay in Project implementation and increase in Project implementation cost; b. damage to HVCs due to natural disasters and calamities; c. discouragement among farmers and reduction of area to grow HVCs due to lack of material supply such as fertilizers and proper seeds; d. benefit deferred due to delay or lack of dissemination of correct technology as and when needed; e. reduction of farmers’ net returns due to fall of HVC prices.

205. ADB guidelines for economic analysis33 have been followed using COSTAB software to analyze costs. Farm budgets and their analysis for selected crops have been prepared on a standardized basis of secondary statistics and NCDP experience. Based on an Investment Budget Model, revenues and costs have been detailed into outputs and inputs. Cash flows have been projected for 15 years from FY 2010-2011, priced at constant 2008 prices in BDT. An average mid 2008 official exchange rate of BDT 68.5 per dollar was used to convert foreign exchange costs to their local currency equivalent. The analytical frame includes the following:

33 ADB, 1997, Guidelines for the Economic Analysis of Projects, Manila

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(i) All prices, benefits and costs are adjusted to 2008 constant values using a GDP deflator for all local currency benefits and costs (ii) For the domestic cost escalation factor, 6.5% for 2010, and 6.0% for the remaining years have been used. (iii) For the international cost escalation factor, 1.0% for 2010, 0.0% for 2011, 0.3% for 2012, and 0.5% for the remaining years have been assumed. (iv) A threshold discount rate of 12% is applied to find the NPVs (v) Financial costs and benefits have been converted to economic ones using conversion factors for respective items (particularly, 0.66 for vehicles, 0.70 for local manufactured and extracted materials, 0.7 for community based infrastructure maintenance, and 0.9 as the SCF (vi) A shadow rural wage rate of 0.8 is assumed and applied to agricultural labor to weigh the of unemployment in the rural sector. (vii) A foreign exchange premium of 1.02 has been used to weigh $ equivalents in BDT.

2. Results of Economic Analysis

206. The net incremental benefit analysis approach is followed for demonstrating potential prospects for performance improvement of all participating elements of the high value crop agriculture value chain. Indicative results of the Project analysis are presented in the following Table 1 which demonstrates that investments proposed to be made on market-oriented high value agriculture activities under the Project will be economically viable.

Table 1: Project Appraisal Results

Project Analysis Factors EIRR NPV (%) (BDT Million) 1. Base Case Analysis 29 1,286.83 2. Sensitivity Analysis 2a. Investment cost increased by 20% 21 951.75 2b. Full damage of HVCs every 3rd year due to 17 94.93 climate change disasters 2c. Benefit deferred by 1 year 22 659.04 2d. Reduction of benefits by 10% due to fall of HVC 16 103.52 prices 2e. Area reduced by 20% due to discouraged 23 694.78 farmers lacking technological and material supports

207. Developing community-based small scale on-farm infrastructures will enable the Project to address one of the major constraints in marketing: improved and equitable linkages between primary growers or farmers and buyers and consumers. Farm households will be informed of benefits of forming marketing groups and motivated to develop small scale low cost infrastructure (following indigenous technology and on farm concept), to be owned and constructed by the groups themselves, using local materials and contractors. The Project will also provide demonstration plots and field days for HVC production technology transfer and training for post harvest handling of agricultural produce. These activities will (i) identify community needs, (ii) encourage and require community responsibility for the management and maintenance of the proposed facilities, (iii) enhance the ability of all stakeholders to participate in value chain propagation and marketing activities, (iv) improve the distribution of benefits

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equitably among group members, and (v) encourage a more positive attitude of group members so as to recognize and share the positive externalities of value chain development by providing employment to the landless and disadvantaged men and women in the community.

208. The small-scale infrastructures will (a) achieve economy of time and costs involved in produce marketing, (b) reduce damage and loss due to unskilled handling and transportation, (c) improve quality and safety of produce, and (iv) increase revenues of farmers. Farmers and traders will benefit from incremental farm production due to higher yields and better links with markets. In summary, the Project is expected to bring about positive impacts on small and medium farmers’ income, and income of landless and destitute women and men through the creation of employment in production, post-harvest activities, storage, transportation and marketing.

209. The Project area contains 1.6 million agricultural households. A 15% uptake for HVC adoption is assumed which gives a number of 0.24 million farm households benefitting from the Project.

D Overall Project Impacts

210. The economy of Bangladesh is experiencing reduced contribution of agriculture sector to GDP at large. The National Agriculture Policy (1999) emphasizes expansion of HVCs and improvement of agriculture marketing. All these policy objectives will be positively impacted by this Project. Moreover, the MDGs of poverty reduction will be addressed through creation of employment in HVC agriculture sector. Moreover, depletion of agricultural contribution to GDP will be compensated for by producing HVCs which will add more value to GDP than traditional paddy (usually Boro paddy) or other low value crops. The Project will enhance opportunities for high income groups to consume HVCs at fair prices and create demand for HVCs with higher elasticity of income of the group. Income will increase in multiplier effect for all stakeholders in the value chain and supply chain. The rural economy will experience forward and backward linkage effects of more demand for HVCs, resulting in more employment and income from production and post-harvest handling activities including processing, marketing, transportation, and storage. There are other economic benefits such as: a. Greater diversification of sources of income rather than sole reliance on cereal crops; b. Stronger research-extension-farmer household-primary market-central market linkages; c. Stronger public-private partnership (PPP) development in production, post harvest, processing, marketing, and extension training.34 While private spending averages only 6% in developing countries (in Bangladesh it is very low), it is about 55% in developed countries.35 d. High value crops are direct results of research and extension. The technology dissemination process will become more diversified through this Project and have a significant and beneficial effect on recipient farmers. A competitive regime among the

34 CGIAR (2005) “Science for Agricultural Development Changing Contexts, New Opportunities” CIGAR Science Council, Rome 35 Meinzen-Dick, R, Adato, M, Haddad, I, and Hazel, P” Impacts of Agricultural Research on Poverty: Findings of an integrated Economic Analysis.” EPTD Discussion Paper No. 111 and FNCD Discussion Paper No. 164, IFPRI, Washington D.C., October, 2003

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production and marketing chain will further strengthen the distribution of benefits among the poor.36

36 Thirtle, C, Lin, L, and Piesse, J: “The Impact of Research-led Agricultural Productivity and Growth on Poverty Reduction in Africa, Asia and Latin America.” Research Paper 016, Management Center Research Papers, King’s College, University of London, November, 2002.

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11 Summary of Initial Environmental Examination

A. Introduction

211. Bangladesh is a densely populated agrarian country, with about 148.6 million people (mid-2009 estimate) squeezed in an area of 147,570 sq km. The population density – around 1007 persons per sq km – is one of the highest in the world. Despite intensified population control efforts, Bangladesh’s population is expected to be near 180 million by 2025, when the population density will rise to over 1200 persons per sq km. About three fourths of the country’s population is directly or indirectly dependent on agriculture for their livelihood, although this sector contributes only 16.23 percent to the Gross Domestic Product (GDP) at constant prices. Urban population in the country now accounts for nearly 26 percent of the total national population, and it is growing at the rate of about five percent per annum.

212. Poverty is the key socioeconomic issue in Bangladesh. About 40 percent of the total population remains below the upper poverty line (with a per capita daily intake of less than 2122 calories), while a fourth of the population is classified as ‘absolute poor’ or living below the lower poverty line (with a per capita daily intake of less than 1805 calories). Poverty is more pronounced among women. The expected outcomes of the Sustainable Crop Diversification Project (SCDP) are enhanced food production and value addition to high value crops, higher levels of farm incomes, greater employment opportunities, and higher levels of food security.

213. The principal objectives of the SCDP are (a) to replicate and broaden some of the successful components of the NCDP in Rajshahi division in the northwest and (b) to expand the activities to parts of southwestern districts with high crop value potential. The specific objectives of the SCDP are (a) technology demonstration and dissemination; (b) farmers’ group formation and credit support; and (c) post harvest storage and marketing support. Since the Project actions under the SCDP are believed to be benign and they do not involve infrastructure construction, their potential environmental impacts are expected to be limited and minimal. Nonetheless, in accordance with the Asian Development Bank’s (ADB) requirements, it was considered essential to carry out an environmental investigation in the Project area with a view to identifying and assessing potential negative impacts. In consideration of the nature of the SCDP’s Project actions and the completion of the ADB’s Rapid Environmental Assessment (REA) checklist, the Project is classified as ‘Category C.’ An Initial Environmental Examination (IEE) report was prepared with a view to reviewing the environmental implications of the Project.

214. The scope of the IEE included: (a) review of the policies and guidelines of the Asian Development Bank and the Government of Bangladesh; (b) an examination of the salient bio- physical and socioeconomic conditions of the Project area; (c) an identification of the relevant environmental parameters in the Project area through scoping and literature review; (d) an assessment of the magnitude of the potential impacts of the Project actions; (e) assessment of the potential climate change impacts on the Project, and evaluation of response strategies and adaptation measures; and (f) preparing the Initial Environmental Examination (IEE) report and the Summary Initial Environmental Examination (SIEE) report in the ADB format. Two documents of the Bank provided the basic framework for the IEE, viz., Environmental Policy of the ADB (2002) and ‘Environmental Assessment Guidelines (2003). Field investigations at sample sites were done in August 2009.

B. Description of the Project

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215. The Second Crop Diversification Project (SCDP) is a ‘follow on’ Project to the Northwest Crop Diversification Project (NCDP), which was completed on 30 June, 2009. The SCDP area comprises 39 Upazilas in 16 districts in Southwestern Bangladesh (south and southwest of the Ganges-Padma River): three districts of Dhaka Division, three districts of Barisal Division, and 10 districts of Khulna Division, and nine Upazilas in nine districts in Northwestern Bangladesh. The total number of Upazilas for Project intervention is 48. The proposed SCDP is expected to take off in July 2010, and will be completed in six years, i.e., in June 2016.

C. Description of the Environment

216. The area included within the SCDP varies significantly in terms of agro ecological characteristics. The nine districts in the northwest primarily include four agro ecological zones, demonstrating significant differences in soil, relief and physiography. These zones are Old Himalayan Piedmont Plain, Teesta Meander Floodplain, Karatoya-Bangali Floodplain, and Ganges River Floodplain. The 16 districts in the southwest mainly fall into three agro ecological zones (AEZ): High Ganges River Floodplain (Kushtia, Meherpur, Chuadanga, Jessore, Jhenidah, Magura and parts of Narail); Low Ganges River Floodplain (Rajbari and Faridpur); and Ganges Tidal Plain (Satkhira, Khulna, Bagerhat, Barisal, Jhalakathi and Pirojpur). In addition, pockets of Gopalganj-Khulna Beels (lowlands) AEZ are included in Gopalganj and northeastern parts of Khulna districts.

217. The climate of the Project area can be described as Tropical Monsoon – characterized by warm, humid summers and cool, dry winters. Mean temperatures in the northwest range from 16O – 18O C in January (in the northern districts of Rajshahi Division) to 28O – 29O C in July (in the southern districts of Rajshahi Division), although the temperature in April may rise above 40O C in Rajshahi and Nawabganj districts. Mean temperatures in the southwest range from 18O – 19O C in January to 27.5O – 29O C in July, with April temperature often rising above 40O C in Chuadanga and Kushtia districts. The amount of rainfall generally diminishes from west to east. The average annual rainfall varies from 2000 mm in the districts of Pirojpur and Jhalakati to less than 1400 mm in Rajshahi and Nawabganj districts. Nearly 80 percent of the rainfall is concentrated in the months of June to October. The northwest occasionally experiences drought periods in the pre-monsoon months (March-May), which is likely to become more frequent and severe under climate change impacts. The southwestern districts frequently experience devastating tropical cyclones – originating from the Bay of Bengal – accompanied by 5-10 meter high storm surge.

218. The total area of the SCDP is 13,012 sq km (10,288 sq km in the southwest and 2,724 sq km in the northwest), which is about 8.8 percent of the total area of the country. The SCDP area is inhabited by 13.72 million people (2009 estimate) (2.75 million in the northwest and 10.97 million in the southwest), which is about 9.3 percent of the national population. Generally speaking, the Project area has population density close to or lowers than the national average of around 1007 persons per sq km (based on the 2009 estimated population of 147.86 million).

219. The dominant form of economic activity in the Project area is agriculture – focused on rice cultivation. The favorable physical environment with fertile floodplains has helped to produce a high intensity of agricultural land use. Besides rice farming (aus, aman and boro), other crops grown in these areas include jute, cotton, sugarcane and a variety of vegetables, fruits and spices – some of the last three groups of crops are labeled as ‘high value crops’. Transport infrastructure in the Project area is reasonably well developed with a network of National Highways, Regional Highways, Zila and Upazila roads along with feeder routes of Union roads.

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D. Forecasting Environmental Impacts and Mitigation Measures

220. A scoping process was used to identify the major environmental issues/parameters/components relevant to the Project actions, and prepare the field survey checklist for field assessment. Scoping was done through using rapid rural appraisal (RRA) methods, integrating knowledge from the ADB guidelines, relevant literature and the DAE personnel, discussions with horticultural extension specialists, opinions from concerned people, and information obtained from the local people (respondents). Field assessment using the REA checklist was completed at 11 sample sites in the northwestern districts in the second week of August, while in the southwestern districts, 16 sample sites were covered in the fourth week of August.

221. Based on field visits, assessments done on potential impacts of Project actions and the people’s perception about environment and climate change are summarized below.

222. Soil erosion potential is low; however, on raised or higher grounds, protection and monitoring of soil erosion are necessary. There is no likelihood of any significant problem with land levels in the Project area for HVC cultivation. Some parts of the SCDP area in the southwest like the districts of Faridpur, Rajbari and Gopalganj experience both rainwater and riverine flooding, while the southern districts of Satkhira, Khulna, Bagerhat, Pirojpur, Jhalakathi and Barisal are tidally flooded (with saline water). Hence, in these districts, caution will be required in selecting the sites for HVCs. The large scale cultivation of HVCs is not expected to deplete either surface or ground waters, or cause any problem in water resources management nor alter the regional hydrology. In the southern districts of the SCDP area, however, salinity in both water and soil is a problem in the dry season, where some vegetables, which are not salt- tolerant, may not be successfully grown. Horticulture in the winter or dry season requires irrigation in most parts of Bangladesh. An informal water market has emerged in the rural areas, where water is sold by shallow tubewell (STW) owners to those who do not have them.

223. All respondents, without exception, said that they regularly use chemical fertilizers. Some respondents do recognize the probable harmful effects of excessive use of chemical fertilizers, though they do not foresee any significant alternative inputs. The respondents view the use of pesticides as indispensable for a successful harvest, even though many of them accept the fact that widespread and indiscriminate use of pesticides are harmful to human health. It is understood that the IPM practices are not fully ingrained into the psyche of the farmers.

224. Older respondents unanimously agree that the physical environment of their habitat has changed in recent decades, mostly for the worse. The local population is, however, unsure as to the causes of such decline of environmental health nor can they differentiate between natural and anthropogenic causes. The majority of the respondents, especially the younger persons, have heard about global climate change and its implications for Bangladesh through mass media. The older population is least concerned with it since the phenomenon is a distant possibility and they are mostly preoccupied with immediate livelihood concerns. When the recurrence of such events like high intensity rainfall, frequent floods and drought, warmer winters, increased frequency of cyclones and storm surges (in the coastal districts) are mentioned to the younger people, most of them are in agreement with the increased incidence of such environmental hazards, but they are unable to relate to or perceive them as climate change impacts.

Mitigation Measures

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225. The IEE of the proposed Project actions indicates that they will not have any major negative impact on the environment. The few potential adverse impacts of low to medium magnitude, which have been identified, relate to soil erosion, fertilizer use and pesticide use. The suggested mitigating measures against soil erosion are (a) regular surveillance, and (b) tree plantation along the aisles of farm plots.

226. The use of chemical fertilizers can be reduced with progressive introduction of organic manures. These include animal manure (cow dung and litters), composting, green manure (leguminous plants), blue-green algae, and microbial solution. Greater emphasis on integrated pest management (IPM) practices would reduce the pesticide use in the Project area. Such practices include use of resistant varieties and indigenous knowledge including mechanical and physical devices, and biological, cultural and chemical management.

E. Issue of Climate Change

227. Bangladesh is likely to be one of the most severely affected countries in the world to climate change impacts, and the poor in the country will be the most serious sufferers. Agriculture in Bangladesh is highly vulnerable to variations in weather patterns and climate variability. Under a climate change scenario, warmer temperature, milder winter, heavy rainfall, drought, excessive or inadequate soil moisture, increasing soil and water salinity in the south, and flooding will disrupt food production and rural livelihoods in Bangladesh.

228. As a result of climate change impact, the increase of monsoon rainfall in the Ganges- Brahmaputra-Meghna (GBM) basins (northern South Asia including Bangladesh) is predicted to be larger from around 4-8 percent by the 2020s and to 9-10 percent by the 2050s, while winter rainfall is expected to reduce by 4-5 percent by the 2050s. High intensity rainfall will become more common, and this would cause increased soil erosion. Droughts are a regular phenomenon in northwestern Bangladesh (between November and May), which are predicted to be more frequent and acute due to climate change impacts.

229. Sea level rise from global warming will significantly alter the agricultural ecosystem of the southern districts of Bangladesh. The realistic (‘best estimate’) assumption is that sea level will probably be at least 40-45 cm higher than today’s level by 2100; and possibly as high as one meter in the worst case scenario. The SCDP districts which will be affected by sea level rise related hazards are Satkhira, Khulna, Bagerhat, Pirojpur, Barisal and Jhalakathi. As a result of climate change, warmer sea surface temperatures in the Indian Ocean and the Bay of Bengal will generate more intense cyclones that move toward the Bangladesh coast, and have a landfall with wind speeds of more than 220 km per hour accompanied by storm surges.

Adaptation Strategies and Options

230. The suggested adaptation options/strategies for the SCDP in respect to climate change impacts are: (a) Community based adaptation; (b) Disaster preparedness; (c) Micro financing of vulnerable households; (d) Zero or no-tillage; (e) Household vegetable gardens; (f) Water conservation; (g) Change in planting/ harvesting times; (h) Cropland protection measures; (i) Reorganizing crop basket and practices; and (j) Research in developing new climate resilient crop species.

F. Institutional Requirements and Environmental Monitoring Plan

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231. It is understood that several environmental training courses were conducted for the Department of Agricultural Extension (DAE) personnel in the past under different Projects, although – due to lack of continuity and linkage – no institutional memory has been built up on environmental assessment tasks. The ‘Disaster Risk Management and Climate Change Adaptation Core Group’, headed by the DAE’s Director General should be made more proactive to develop in-house environmental expertise of the organization. It is proposed in this report that, as part of DAE’s institutional strengthening activity, there should be an input of Technical Assistance (TA) environmental consultants (with climate change impact expertise), who will be engaged in Project actions intermittently over the Project period, especially devoted to the issue of climate change impacts on HVC cultivation. Environmental monitoring will be carried out during both the Project implementation phase and the post-Project (long term) phase under the baseline (current) scenario as well as under the climate change scenario (medium to long term).

G. Public Consultation and Disclosure

232. Two workshops were held to disseminate the information about the proposed Project actions and learn from the participants their views on the Project objectives and actions. The first workshop was the Inception Workshop, held in Dhaka on July 8, 2009, while the second workshop was the Regional Stakeholders’ Workshop in Jessore on July 30, 2009. The Regional Stakeholders’ Workshop in Jessore was more interactive with all participants getting an opportunity to express and share their thoughts with the entire group in an open discussion forum. During the workshop, all participants were unanimous in expressing their opinion that the SCDP actions are not expected to cause any significant adverse environmental impact in the region.

233. Participatory consultations also formed an integral part of field assessment of the environmental impacts and climate change issues in the sample sites. The use of RRA methods enabled the investigator to interact with 61 respondents (27 in the northwest and 34 in the southwest) in 27 sample sites of 20 Upazilas. These interactions included informal interviews with local people (farmers, housewives, retailers, vendors, school teachers, roadside tea shop owners and other key informants).

H. Findings and Recommendations

234. An IEE was carried out to review the environmental implications of the Project and screen the potential adverse impacts (if any) of the Project interventions and suggest avoidance/mitigation measures. Environmental issues and parameters that are relevant to the Project were identified through literature review and scoping. Scoping and field visits to 27 sample sites, using the field survey checklist, evaluated the probable impacts of such parameters as soil, land levels, drainage, irrigation and water availability, flood proneness, general environmental health, use of chemical fertilizers and pesticides, and climate change awareness. Field assessments confirmed that the Project actions related to soil, fertilizer use and pesticides are the only three parameters which have minor negative environmental impacts. Mitigation measures through extension services promoting different types of organic manure (like animal wastes, compost and green manure), and IPM practices (like biological and mechanical controls, use of resistant varieties of crops and indigenous knowledge) are recommended.

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235. Since the current scientific evidence of global climate change is unequivocal, it was necessary to examine its impact on the agriculture sector in Bangladesh, and explore the potential adaptation options, especially with regard to HVCs. Field visits, discussion with horticulture specialists and literature review have helped to identify some doable adaptation options/strategies for the SCDP in respect to climate change impacts. As part of institutional strengthening of the DAE, the present ‘Disaster Risk Management and Climate Change Adaptation Core Group’, headed by the organization’s Director General must be made proactive to develop in-house environmental assessment expertise.

236. An environmental monitoring plan is also proposed, to be carried out during both the Project implementation phase and the post-Project (long term) phase. Monitoring tasks will focus on soil erosion and health, water logging and drainage, water availability, surveillance of fertilizer and pesticide use, IPM promotion and organic manure use, awareness building of climate change impacts and dissemination of adaptation strategies.

237. On the basis of the findings of the IEE – including through public consultations at the workshops and in the field - it is concluded that the Project is not expected to impact the environment adversely, and that a detailed Environmental Impact Assessment (EIA) is not required for this Project. Hence, this IEE, along with its mitigation, monitoring and institutional programs, becomes the completed environmental assessment (EA).

I. Conclusions

238. The IEE for the proposed Project was carried out in accordance with the environmental assessment (EA) requirements of the ADB, supplemented by the guidelines of the Government of Bangladesh. The IEE has determined that the Project actions will not have any significant negative environmental impacts. Measures to mitigate minor and non-significant potential adverse effects and monitoring and compliance tasks have been outlined in this report. Special consideration was given to the potential impacts of climate change on the Project goals to promote HVCs, and the IEE has suggested certain adaptation options to deal with changing climatic conditions – including developing and disseminating new climate change resilient crop species. Finally, several actions and measures are suggested to strengthen the in-house capacity of the DAE in dealing with environmental issues with special reference to the climate change impacts.

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i 12 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY (SPRSS)

Summary Poverty Reduction and Social Strategy as per ADB guideline

I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy

Bangladesh, despite being one of the poorest counties in the world, has made considerable progress in its poverty reduction efforts. The principal Government document for economic planning in Bangladesh is the second Poverty Reduction Strategy Paper (PRSP) titled “Moving Ahead: National Strategy for Accelerated Poverty Reduction II, 2009-11” (NSAPR) and the Household Income and Employment Survey 2005 (HIES) observed a sharp decline in poverty reduction between 1995-1996 and 2005 from a headcount of poverty incidence from 50.1 % to 40 % at national level. The trend for rural households in the same period was 43.8% in 2005 compared to 54.1% in 1995-96.

A major economic challenge facing Bangladesh is the regional divide between the East and the West of the country in terms of employment and economic growth. The Eastern region, comprising Dhaka, Sylhet and Chittagong Divisions, has a headcount ratio, indicating the incidence of poverty, of between 32% and 34%. By contrast the Western Region, comprising Barisal, Khulna, and Rajshahi Divisions, has a headcount ratio of between 47% and 52%. Therefore, the SCDP will focus on the North West and SW of the country, which contains some of its poorest people and least developed areas, eg, Barisal district. In the SCDP selected area the percentage of female headed household is 2.8 % of total households.37

The incidence of poverty in rural areas is nearly double than that of urban areas, although there are poverty pockets where absolute urban poverty is higher than rural poverty. Moreover the poverty of female headed households is greater than that of male headed households. Females in general are poorer than males due to the country’s discriminatory inheritance laws which state that women inherit their father’s property in the ratio 2:1 (Male: female). However, in practice women rarely, if ever, own any property due to social, religious and customary practices. Therefore women are mostly landless. Developing an appropriate strategy in this context should be a Project’s focus

The NSAPR has identified several pro - poor and hard core poverty strategies to address poverty reduction issues especially in the context of women. Poverty reduction through agriculture sector development is one of them. Agricultural development not only increases food security but also increases rural incomes and generates employment. The majority of the country’s poorest people lives in rural areas and depends on agriculture for their livelihood, with the sector employing about 63% of the rural population. Therefore strengthening the agriculture sector and improving agricultural production and marketing have been identified as important strategies for poverty reduction. In this poverty analysis the poverty of women has been identified as an important concern.

ADB, under the country partnership strategy for Bangladesh for 2006-2010,38 has focused on interventions in crop intensification and diversification, agribusiness development, livestock entrepreneurship development, and water resources management, aiming to increase farm

38 ADB 2005 Country Strategy and Program (2006-2010): Bangladesh ,Manila

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productivity, enhance income of small and marginal farmers and ultimately benefit the rural poor.

The SCDP will be build on lesson learned from, among others, the ADB assisted North West Crop Diversification Project (NCDP), the Agribusiness Development Project (BADP); the World Bank assisted National Agriculture Technology Project (NATP), the interventions in the sector by the Danish International Development Agency (DANIDA), and the United States Agency for International Development (USAID).

B. Poverty Analysis Targeting Classification: ______GI______

1. Key Issues :

The poverty analysis reveals that in the Project areas 55% of households suffer from absolute poverty and 22% from hard core poverty.39 Poverty incidence is 67 percent among the landless and households with less than 0.05 acres of land. The key issues of poverty analysis are that the household poverty is associated with (i) the small size of land holdings, or landlessness, (ii) low productivity of land (iii) low produce prices, (iv) unstable or casual employment, and (v) farmers’ limited access to markets and marketing process

In the rural areas involvement in casual labor is an increased burden leading to poverty. It is assumed that approximately half of the poor population lives in households where the occupation of the household head is in casual wage employment. The incidence of poverty is 75% for casual labor compared to an average of 53% for non-casual labor in rural areas.40

In the Project areas the number of women-headed households is quite a feature viz, 2.8% of the total households are headed by women. Poverty is more acute for women than men due to lack of ownership of land and other assets, with no control over resources to develop farms. For women farmers the problem is due more to their low participation in marketing, poor access to market related information, weak bargaining power, and a discriminatory wage system for those who work as daily laborers. Discriminatory pricing is also visible for women producers. (Buyers give a lower price to the women who sell directly to the markets as revealed during in field trips).

2. Target beneficiaries

The target beneficiaries of the Project are small and medium farmers (men and women) with 0.2-3.0 ha land. Socially marginalized men and women, including the landless.

3. Design Features.

Project design will focus particularly on increasing the production, value addition and hence farm incomes from HVC and facilitate greater movement towards the commercialization of agriculture.

The potential contribution of HVC production to the reduction of poverty is acknowledged. In addressing production and income issues the Project design will focus on supporting small and medium farmers through (i) HVC production and value addition; (ii) strengthening financial support with credit facilities, and (iii) improving the marketing environment. Extension services will be expanded through production and value addition training, exchange visits, and field demonstrations. The ultimate

39 BBS 2005 & HIES 2008 40 ibid

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aim is to increase crop production, reduce post harvest losses, increase farmer’s income and reduce poverty of both men and women.

In all cases the composition of target beneficiaries are both men and women farmers. Using the lesson of NCDP that women empowerment enhances the effectiveness of the Project, the SCDP designing gives due considerations towards women’s social and gender issues. The Project is designed bearing in mind that half of beneficiaries will be women. Therefore addressing women’s needs and benefits have been considered in the Project design. Women will be significantly involved in floriculture production and nursery development on a business basis, and will be even more involved in on farm activities.

With regard to IP the NCDP experience, however, showed that IPs benefited from the same interventions and support as were provided to the mainstream beneficiaries and there is no need to develop separate interventions or plans for the IPs. II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis: Key socio economic Issues ( i.e. profile of primary and secondary beneficiaries, poor and vulnerable, their needs, demands and constraints and capacity )

A participatory situation analysis was undertaken in the proposed South West Project to assess the beneficiary profiles, their needs and social situation, as well as their constraints and capacity. The study areas were Manirampur Upazila of Jessore district, Fakirhat & Mollarhat Upazila of Bagerhat district, Mathbaria and Vandaria Upazila of Pirojpur district The total number of participants covered under the study were186 of which 26 were men and 160 were women.

Key findings were:

In these areas except Pirojpur a positive environment for women’s participation in agriculture is visible. This is more likely for those belonging to the poorer classes or marginalized groups.

The social situation is moving positively towards women’s participation in agriculture production. The majority of the participating women in focus group discussions were housewives but they were also engaged in agricultural-related labor either in the homestead or in the field, and also assisted their husbands in the field. The majority of participants have small holdings of land, including the household, which varies from 50 -100 decimals and mainly are sharecroppers. The size of shared land is 26-52 decimals. Usually the ratio of 2:1 represents the share for cultivators and landowners respectively.

In Pirojpur districts the people are more conservative minded and women’s involvement is limited to certain activities i.e. homestead based farming. (Details of the findings are available in the supplementary appendix on request)

In general, women are yet to receive financial recognition for their work. In spite of women’s significant involvement in different stages of agricultural activities, including crop diversification, they are viewed as household workers and are not paid. In some cases, where women play the role of hired labor they are paid less than male farmers (Tk.60 for women and Tk.100 for men). Although the demand for women agricultural labor is higher and their performance is found to be better than that of men.

The mobility of women is limited due to social barriers and less scope for outside involvement. Their involvement with NGOs in agriculture activities is also limited. Women’s problems in participating in agricultural activities were mainly related to finance. Therefore the needs for credit support and improved training were requested by the interviewee farmers.

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Women’s knowledge about gender and development, or formal training on women’s rights, or issues found at a very low level was due to limited/no programs delivered through NGOs or Govt.

Over all comments for the SW are:

• the land condition and crop pattern of the SW are different from the NW; • there are significant geographical variations in the land condition in different districts; • some areas are solely low lying land and rice is the predominant crop; • multicultural production of crops with new technology has started; • Jessore district has the most potential for HVC production; • To some extent women’s access to agriculture exists. Therefore, there is opportunity to enhance their participation in agriculture with training in new technologies; • local farmers are ready to accept new farming technologies; • farmers' do not see marketing as a problem as their present production is enough to meet local consumption and there remains very little surplus. • the farmers in the low caste Hindu groups or the indigenous people/Adivashi may be included with the mainstream people to address equity issues.

A number of direct benefits are expected by the Project interventions. These are as follows;

The Project will directly benefit approximately 230,000 small and marginal farmers through:

• creating production, employment and backward and forward market linkages in the value chain to improve produce prices for both men and women, which will have direct and indirect impacts on poverty reduction; • including 51,972 ha (north and south region together) for introduction and production of selected HVCs, provide marketing support to existing HVC –producing area of 42,347 ha in the same area. This will raise the net farm incomes and reduce rural poverty among the farmers;41 • creating about 2.27 million annual labor days; • developing small scale on-farm infrastructures and adding add post harvest value to the production of small and medium farmers; • assisting in improving the present state of rural poverty among the 1.4 million farm households by 30% to 40%. 42 • benefiting a number of women who will work as informal labor and whose involvement in agriculture labor has yet to be calculated in monetary form. • benefiting women through different income generation activities such as nursery development, and engaging in formal employment such as linking with commercial firms in packaging and labeling which, although small in nature, carry huge economic benefit ensuring fair wages; • giving credit and production opportunities for the share cropper or lease tenants will in long run help them in overcoming from present poverty situation; • Expanding extension services through production training, exchange visits, and field demonstrations. The ultimate aim is to increase crop production, reduce post harvest losses, increase farmer’s income and reduce poverty of both men and women; and • reducing non-income poverty through improvement in educational levels of children and women.

41 DFR Volume –II Supplementary Appendix -II Economic Analysis pg 55. 42 ibid

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Situation of Indigenous people (IP)

The IP situation was assessed in two ways i.e. present situation and future needs of the IPs in the South West and the impact of NCDP on the life of IP’s in the NW as NCDP beneficiaries. For more information please see the IP assessment, classification and IP plan.

• Situation of IP in the South West

In the SW, the socially excluded or marginalized people such as low caste Hindus are mainly termed Adivashi or IP by government and NGO personnel. The assessment was done with the Kaowra community (pig raising) and the Rishi community comprising mainly cobblers and hide traders in Manirampur Upazila, Jessore district, the Hindu fishermen community in Vandaria Upazila of Pirojpur district and other general Hindu groups treated as Adivashi or IP. Overall, it was found that these categories of people have shifted from their original occupations and are now involved in agriculture. While husbands play the primary role in agriculture, wives normally play a secondary role. In the groups every family has land of their own or are share croppers. The size of self-owned land varies for pig raisers from 0.52-1.06 acres and for the Rishi community from 0.26-0.52 acres. The size of share- cropped land for pig raisers varies from 0.26-1.04 acres and for the Rishis from 0.26-2.08 acres.

Women are not only involved in the post harvest agricultural activities but almost all are highly involved at the field level in farming as self or hired labor.

Produce is sold mostly on-farm, where the purchaser buys and makes on spot payment. There is little demand for further marketing support.

• Situation of IP in the North West

In the North West the study was done with the Santal men and women who are beneficiaries of NCDP. The findings indicate that agriculture is their main livelihood. Many of their ancestors have substantial land areas but these have diminished in the course of time. Presently they have small landholdings including their homestead. Women’s main involvement in agriculture activities is in assisting their male counterpart. In terms of women’s involvement in crop production, processing and marketing women’s double burden role is visible. But they do not have any voice in family decisions.

The Santal family is dominated by male members; women do not inherit any property from their parents and their position in cash control or decision making is similar to the mainstream Bangladeshi community. They are not allowed to dispose of ornaments received during their wedding. As a community they are poorer and lag behind in terms of education and other social facilities.

They do not have any specific territory inherited from their ancestors and do not have unique ties or attachment to traditional habitat and specific natural resources. Santal communities under the study were integrated into NCDP farmers groups. No special Project intervention was therefore required.

NCDP Project activities have had significant social and economic improvement impact. Everybody with school-going children sends their children to school and presently 95% attend a mainstream school in which both boys and girls participate at an equal percentage.

The people were termed locally as Adivashi. They do not have specific IP-related problems except that to some extent their access to services is limited.

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As an ex ante analysis it may be concluded that crop diversification has no negative effect on the lives of IPs or minority groups of men and women in the SW or in the NW.

Following their degradation in original occupations and given their present experience and skills in agriculture, there is enough opportunity to mainstream IP groups into high valued agriculture activities and their inclusion in the Project will help to establish equitable development, enhance their empowerment and ensure food security and social safeguards. These benefits have also been proven by the experience of NCDP. Details are available in the PPTA Interim Report.

B. Consultation and Participation 1. Provide a summary of the consultation and participation process during Project preparation.

2. What level of consultation and participation (C&P) is envisaged during the Project implementation and monitoring? x Information sharing Consultation x Collaborative decision making x Empowerment

3. Was a C&P plan prepared? Yes No

If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why.

A consultation and participation plan is prepared and attached herewith. No budget was required for the implementation of CP as it was mainly for information sharing and collaborative decision making.

C. Gender and Development:

1. Key issues: addressed in the Project are: • women’s poverty - women having no ownership on land and other economic resources are poorer than men; • unrecognized role : women’s contribution to production remains unrecognized; • women’s access to HVCs extension services: women being less exposed outside the family have no, or less, access to extension services; • women’s under-participation in post harvest crop production: due to social barriers women’s involvement in post harvest agriculture activities and in marketing is less than men which makes women more marginalized; • no aspiration for out of community marketing: women in the SCDP areas have a lack of interest in participating in formal markets; • discriminatory wage system: Women’s are victims of discriminatory wage system

The Project design will address the above issues through the implementation of GAP and other Project components.

2. Key Actions: Measures are included in the design to promote gender equality and women’s empowerment through access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:

Gender plan: YES Other actions/measures No action/measure

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A Gender Action plan(GAP) containing gender-related activities and targets is prepared as appendix 13 and a detail GAP containing performance targets, monitoring indicators, implementation arrangements is prepared which is attached in the supplementary appendix I. The resources required are allocated under the total Project budgets.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Issue Significant/ Strategy to Address Issue Plan or Other Measures Limited/ Included in Design No Impact Based on the N/A Full Plan Involuntary Project Short Plan Resettlement assessment there Resettlement will not be any Framework impact on √ √ No Action resettlement Indigenous Peoples Limited positive Inclusion within the IPD Plan impact mainstream groups under Other Action the same program activities Indigenous Peoples with some social awareness framework raising program √ No Action plan Labor Significant The Project will create √ Employment positive impact approximately 2.27 million Plan opportunities person day’s employment for Other Action Labor farm labor43. √ No Action retrenchment Core labor standards Affordability No negative Action impact No Action Other Risks and/or Vulnerabilities No impact Plan HIV/AIDS Other Action Human trafficking No impact √ No Action Others((Natural calamities and price Limited impact hike) IV. MONITORING AND EVALUATION Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during Project implementation? Yes √ □ No

43 PPTA team analysis - DFR

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13 GENDER ACTION PLAN (GAP)

239. A significant number of women participate in different agricultural sub-sectors including diversification into HVC, however, the contribution of women often remains unrecognized. The effective participation of women in HVC production and value addition is limited due, particularly, to their low access to training and extension activities. This gender action plan (GAP) considers gender awareness development and the increased participation of women in the agricultural sector. The GAP takes into account the lessons learned from previous support projects, particularly the NCDP, and address them under each Project component in order to promote the greater participation and contribution of women to all aspects of achieving the Project’s outputs. The GAP will support the expanded access of women in rural areas to HVC production training, awareness building, value addition options, credit, and new employment opportunities in the agricultural sector. The Project will seek to reduce poverty and increase economic development in 25 district of South West and North West Bangladesh. The Project’s outcomes will improve HVC production profitability value addition and marketing efficiency by small and medium farmers, which, in turn, will result in increased household incomes and resources. The key goal of the GAP is to increase women's effective participation in the HVC sub sector and thereby contribute towards their economic and social empowerment. 240. The objectives of GAP are to: 1 ensure and enhance women farmer’s increased participation in HVC production; 2 increase the capacity of women, through training, awareness, and the identification of options in value addition to participation in post harvest and marketing management; 3 support the raised profile, participation, and acceptance by men of women in agricultural enterprise decision-making through group cohesiveness and solidarity; and 4 develop women as important contributors to economic growth.

241. The GAP will have the following activities:

COMPONENT ACTIVITIES PARTICIPANTS WITH TARGETS 1.HVC Production 1.1 DAE training on HVC production technology for small and 50% women (on crop and Support medium farmers technology suitable for women) 1.2 GAD perspectives integrated in all training curricula In all curricula 1.3 Impart gender awareness training to farmers 85% small farmers (men and women) 1.4 DAE training for women farmers on floriculture and nursery Target to be decided based on development assessments. 2. Value Addition 2.1 Training and awareness raising of value addition options 30% of beneficiary women to Support be trained in value addition option awareness and agricultural business and market planning. 2.2 Investment in on-farm infrastructures Women group members will participate in ownership and management of OFSSI’s, on an equal basis with men, including in the signing of contractual documents 3. Credit support 3.1 Small and medium farmers are supported with credit facilities 50% will be women

3.2 farmers are trained in credit management 50% will be women

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3.3 Women farmers are trained on gender issues regarding the 80% women farmers aware access to, and control over money. and capable of controlling financial resources. 4. Institutional Capacity building and awareness raising Strengthening 4.1 Development of training curricula for basic GAD training for Curricula developed DAE, MFI, and participating service providers 1 book per trainer

4.2 3 days basic GAD training for DAE, MFI and service provider 300 DAE, MFI officers staff

4.3 Development of training curricula on TOT techniques for trainers 1 curriculum developed 1 book per trainer 4.4 3 days TOT for trainers to provide institution based GAD 50 Upazila DAE officers training. trained as trainers

4.5 Development of an operation manual handbook for community 1 handbook developed facilitators (CF) for conducting group- and community-based training 1 book per CF on gender, social and poverty issues 4.6 2 days TOT for CF on handbook use and conducting group Approx. 445 CF based training 4.7 Develop flip chart/training materials for farmer training 1 flip chart per group 4.8 Community-based awareness training on gender and social, and All women poverty issues in HVC production

4.9 Selected spouses are invited to attend the same training 10% of spouses attend discussions

4.10 Initiation of Women Farmers Forum among women farmers in Three forum (1 in North West SW and NW. and 2 in South West) consisting of at least one representative (Project farmer) from each Upazila. 5. Project Strengthening management capacity to ensure Gender and social empowerment Management (Implementation 5.1 DAE to form a gender focal point within PMU. 1 male and 1 female officer Support) within PMU 5.2 At least 10 best performers to be awarded for good performance 5 awardees will be women (men & women) approx TK10,000 each (cash or kind – source of funding yet to be agreed) 5.3 Develop gender based monitoring indicators and integrate in Selected indicators integrated Project management and information system (MIS) in Project MIS 5.4 Orient staff and ensure monitoring and reporting Regular data collection, analysis and reporting ensured

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14 PROJECT IMPLEMENTATION ARRANGEMENTS

A Implementation Arrangements for High Value Crop Production (Component 1)

242. The overall implementation of this component’s activities will be undertaken by DAE supported by participating MFI’s and service providers, and Upazila based contracted Project Community Facilitators (CF) as follows.

Project promotion and training:

243. Project promotion and awareness campaigns: The PMU, together with Project consultants, will design, plan and coordinate the campaigns. The campaigns will be implemented on a phased program throughout the Project area, at union and village level by the PIU’s, and DAE District and Upazila officers, supported by CFs and representatives of MFI’s and service providers as required. The campaigns should be completed by the end of the first year of the Project.

244. Training of Trainers (TOT): TOT will be undertaken by the International and National consultants in appropriate disciplines, who will design the course curriculums and deliver the training courses which will be coordinated by the PMU. Selection of course participants will be undertaken by the PMU, under guidance and recommendation of the DAE Head Office, Dhaka, and District offices. Training will be conducted at the Horticultural Development Training Centers (HDTC) located in the North West and South West Project areas. Preference will be given to conducting training courses at HDTC’s but other suitable agricultural training facilities, as identified by the PMU, will be used when HDTC facilities are unavailable. Wherever possible and appropriate the PMU will coordinate the timing and participation of Project TOT courses covering HVC production, value addition, and gender and environmental awareness

Project motivation

245. DAE workshops: The PMU will organize and implement workshops, to be held annually in Dhaka and at regional level (Bogra and Jessore), on Project progress towards achieving its objectives, and to discuss any problems of implementation and motivation

246. SAAO workshops: The PIU’S and DAE District and Upazila officers will implement workshops, specifically for Sub Assistant Agricultural Officers (SAAO), on Project progress towards achieving its objectives, and to discuss any problems of implementation and motivation. Workshops will be held annually in each District covered by the Project. Implementation will be supported by the International and National Consultants

247. SAAO extension tours: The PIU’s, assisted by the PMU Agriculture Marketing Officer, Gender Officer, and National Community Development Specialist, will organize and implement tours of Project areas specifically for SAAO’s to assist them in understanding the needs and motivation of farmers involved in the Project. Selection of participants will be undertaken by Upazila Agricultural Officers (UAO).

Farmer support

248. Community group identification and formation: Implementation of this activity will be driven by DAE officers at Upazila and SAAO level, and contracted Community Facilitators. Surveys of existing community groups will be designed by the Community Coordination

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(Development?)Specialist assisted by PMU staff and implemented by SAAO’s and CF’s. SAAO’s together with CF’s and participating MFIs will implement participatory appraisal sessions at union and village level with farming communities, to establish farmers’ needs and motivation to diversify into HVC production. The DAE will liaise and coordinate and cooperate with other complementary donor Project management officers at Upazila and District level as many community groups with the same beneficiaries as proposed in the SCDP, and in the same Upazila locations, have already formed. Other identified relevant donor Projects are DANIDA’s ASPS with some 6,000 IPM groups; and the ADB, IFAD and Government of Netherland’s PSSWRP with some 6,000 water management groups; and the World Bank, IFAD’s NATP which is training farmer groups in best agricultural practice and crop diversification. These existing groups may be interested in Project participation.

249. Farmer training: UPA’s and participating MFI’s and service providers will implement on- farm and community based training courses for men and women farmers using the curriculum and training materials developed for the TOT.

250. Demonstration plots and field days: SAAO’s will implement field training days at planting and harvest times for groups of 40 to 60 farmers, linked to using suitable roadside plots of specific HVC provided by lead farmers. Guidelines for conducting field days and demonstration plot presentation will have been developed in the TOT courses.

251. Rural credit: Training on rural credit loan application assessment and disbursement under this component (and components 2 – Value Addition Support and component 3 – Credit Support) will be implemented by participating MFI’s

252. Farmer motivational tours: SAAO’s supported by UAO’s, will implement farmers’ motivational tours to neighboring locations to enable them to learn from the examples of successful HVC production techniques. Farmers to be selected for participation in these tours will, primarily, be those that play a lead role in the farming community and who show an innovative approach to HVC production.

253. Agricultural fairs: From 2011, two agricultural fairs, promoting HVC diversification and commercialization will be held each year in Bogra and Jessore respectively. The fairs will be organized by the Regional and District offices of the DAE, and coordinated by the PMU and PIU’s.

B Implementation Arrangements for Value Addition Support (Component 2)

254. The overall administration and supervision of this component will be undertaken by DAE, with the implementation of activities undertaken by participating service providers. DAE staff will also be given training to enable them to participate with service providers in the implementation of post harvest handling techniques, basic agricultural marketing techniques for farmers, and community group management and administration. Specific activities will be implemented as follows.

Training of trainers (TOT)

255. Training of Trainers (TOT) in value addition: TOT courses in value addition will be implemented in a similar manner to TOT under other components,

Farmer community group support

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256. Community group identification and formation: This activity will be implemented in the same manner as in component 1 (HVC Production Support).

257. Community group training and awareness raising in value addition options: Service providers, supported by CF’s and UAO’s will implement field base training programs on post harvest handling techniques, group management and administration for community groups, and agricultural marketing.

258. Improved market access and efficiency support: Service providers and CF’s will provide ongoing networking, operational support and guidance to community groups in achieving their desired outputs.

On farm small scale infrastructure investment support (OFSSI)

259. Support to community groups wishing to invest in OFSSI, will be implemented primarily by contracted Project service providers with technical advice on design and construction, and compliance with local law and regulations, if considered necessary, by the Local Government Engineering Department (LGED).

260. Investment in on-farm infrastructures will be dependent on community participation and support and private sector investment and management. Substantial community and farmer group development has already been carried out and the Project will seek to leverage these social investments through the employment of CFs. Two forms of OFSSI investment by community groups are envisaged. The first is a community investment where facilities are erected on community-owned land. The second is a group of farmers’ approach where facilities are erected on land held by an individual and the individual enters into a land leasing agreement with specified individuals within a group who will finance the non-land investment.

261. Following a pre-feasibility study, that identifies an investment that has indicative community support, the PMU and proposed community group service provider would then discuss and agree on staffing and inputs required in developing a community-supported investment proposal. These preparatory support inputs would be fully financed by the Project. Within a specified time period, of around 3-6 months, a detailed outline of an investment proposal application would be sent by the promoter to the PMU for consideration. This proposal will set out the type and costs of the proposed investment, its activities, ownership, and proposed financing of the investment by the involved parties.

262. The PMU would review proposals and determine their eligibility for a matching grant. The disbursement of the matching funds will be dependent on identified investors commencing investment according to conditions set out by the PMU. Proposals will need to show a significant benefit to farmers. It is likely that an investment will include land that is owned or leased, fixed assets including buildings and machinery, and working capital required for operations. The grant would be dependent on an investment life of not less than 10 years and a sound and binding agreement between all participating parties.

263. The basic criteria for the eligibility of groups for Project investment support to be considered by the PMU should be as follows:

1 Existence as a farming group, informally or informally for a minimum of 1 year with the legal status to allow them to enter into contracts with third parties;

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2 Participation of lead farmer group members in the Project’s training courses on HVC production and value addition; 2 The investment Project must be market driven involving HVC with proven actual or potential demand, and illustrate backward and forward linkages along the value chain; 4 The involvement of women in the investment plan; and 5 The proposal should be accepted by the community as a whole, and have no environmentally negative effect.

264. Implementation support to investment groups will be undertaken by service providers in the following stages:

1 Participatory discussions on group needs, and feasibility of promoting an OFSSI investment and pre feasibility study; 2 Preparation of the feasibility study and business plan; 265. 3. Clear description of the procedures and responsibilities for the management and operation of the OFSSI; 4 Submission of the application to the PMU for approval; 5 Approval and receipt of Project funds and arrangement of loans, cash, or in-kind contribution; 6 Engagement of contractors 7 Work completion / and establishment of management and operation arrangements

C Criteria for Selection of Service Providers

266. Service providers will be appointed by the PMU to drive the implementation of component 2. Service providers will be selected from eligible NGO’s and MFIs, private sector agribusinesses, such as seed merchants, commodity traders, agro processors' agricultural producers and/or trade associations. Service providers will be eligible to apply for appointment as implementers of all, or part of the activities under component 2, in one or more Project selected Upazilas. The PMU will appoint service providers who meet the following criteria:

1. Proven experience of not less than five years in HVC production, post harvest handling technology, agricultural marketing and value chain integration; 2. Have a cadre of skilled staff able to carry out the proposed work; 3. Have a legal status that allows the service provider to operate as proposed; 4. Have at least three years experience in working with not less than 10 communities and have achieved the respect and trust of the communities in which they have worked; 5. Provide a proposal covering not less than five infrastructure investments in a minimum of five communities (the proposal may be for a single pilot test but must show the feasibility of and a program for widespread replication); 6. Have worked with farmers to achieve increased value of production output; and 7. Have the ability, with the participation of community investors, to carry out technical and financial feasibility studies of proposed investments and to assist the community investors in the implementation of their investment.

267. Under 6 and 7 above, potential service providers should also show that they have been involved in promoting forward and backward value chain linkages, to add value to agricultural

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production to farming communities through one or more of the following, or similar, examples, appropriate to their proposal:

1 The provision of marketing extension services and training to farming communities in post harvest technology and value addition options; 2 Establishment of produce collection and purchase centers for farmers; 3 Establishment, in production areas, of post harvest handling operations, including collection centers, washing, cleaning, sorting, grading, storage and distribution facilities; 4 Establishment of fruit and/or vegetables marketing Projects (pilot or otherwise) with the aim of linking production and post harvest treatment at farm level via value chain management more directly to end consumers through retailers, such as supermarkets.; 5 Establishment of low cost agro processing ventures for fruit vegetable, spices and coconuts, located in production areas; 6 The branding and promotion of agricultural produce for sale to premium markets

D Implementation Arrangements for Credit Line Implementation (Component 3)

268. MFI Involvement: The PMU will establish a shortlist of MFI willing to participate in the Project and that meet specific performance criteria and financial specifications. . For inclusion in the shortlist, the MFI’s will need to (i) hold a license issued by the Microcredit Regulatory Authority, (ii) show operations in agricultural credit delivery for at least three years and an average expenses to revenue ratio (E/R) over this time of less than 90%, (iii) show experience in, and a satisfactory record of, managing donor and Project funding for at least three years, (iv) have a total loan portfolio of at least TK100 million and an agricultural loan portfolio of not less than TK20 million and not less than a total 15,000 active borrowers, (v) have classified loans of less than 10% of total loan portfolio, (vi) have a net worth of not less than TK50 million and a CAR of at least 15%, (vii) have not less than 10 head office professional staff and 40 field credit staff, (viii) have an appropriately qualified board of directors, and (ix) have an executive director and chief financial officer with at least five years of satisfactory experience in microcredit and hold relevant academic qualifications. An initial shortlist includes six MFI’s: BURO Bangladesh, Shakti Foundation, BRAC, ASA, TMSS and RDRS.

269. Following their selection for Project participation, MFI’s s will meet together under the coordination of the PMU to select and agree on which Upazila or union each MFI will service under the Project and broadly set out numbers of HVC farmers that it expects to reach in each six months. The PMU will coordinate similar meetings and reviews each six months. MFI’s will set out three year programs for lending to HVC farmers showing Upazila locations, numbers of farmers, and Project financing requirements. These plans, to be updated each six months, will be supported by forecast financial statements that will then be submitted to the wholesale bank(s) that will assess the feasibility of the financial plans, determine the amount of Project financing for, and repayment capacity of, each MFI, and set out terms and conditions for lending.

270. Generally, credit will be provided to individual farmers within groups with each group having an average 20 farmers.44 The location and selection of group members will be implemented so as to simplify the process of loan repayments by the farmers. Many of the

44 This was the average group size under NCDP. Some of the new NGO participants have much smaller group sizes but then combine 6-8 groups into centers.

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groups are already in existence with group members involved in traditional agriculture. Loan disbursements will take place at the MFI branch. Lending will be on an individual farmer basis. The amount of credit to a borrower will depend on the types of HVCs, their areas, their profitability, and the credit history of the farmer.

E Implementation arrangements for the Gender Awareness Plan (GAP)

271. The implementation of the GAP, which is a cross cutting program included in all components, will be administered by the DAE under component 4 (Institutional Strengthening) and implemented by CF’s supported by UAO’s, at village and community level. More specifically, activities under the GAP will be implemented as follows:

(i) DAE staff gender awareness training: The Gender Specialist and Community Development Specialist, together with the PMU Gender Officer will design and deliver gender awareness courses, at the outset of the Project implementation, to DAE staff geared to the appreciation of mainstreaming women in HVC production and value addition activities, and its impact on poverty reduction and social development. Community facilitators will be hired by the PMU to enhance community and women’s participation in the Project. In order to implement the GAP training, flipcharts, handbooks for trainers and community facilitators, and pamphlets addressing key topics, will be prepared for distribution to DAE staff, community leaders, and SCDP farmers. Training materials will be designed by the Gender Specialist and Community Development Specialist, together with the PMU Gender Officer; (ii) Training of Trainers (TOT) in gender awareness for farmers: The Gender Specialist and Community Development Specialist, together with the PMU Gender Officer will design and deliver trainers’ courses on ways to frame training course topics so that they are inclusive of, and do not cut across issues of, gender awareness. The role and importance of women in HVC production will be identified and promoted in the training courses. Participants will be UAO and CF’s; (vi) Women’s’ discussion groups: Community facilitators and SAAOs will implement the formation of women’s discussion groups and lead them in the discussion of identified issues and topics and assist them in taking follow up actions.

F Institutional Strengthening Support (Component 4): DAE will implement this component.

G Project Implementation Support: The Project management structure and PMU/PMU staffing arrangements are provided under appendixes 15 and 16.

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15 PROJECT MANAGEMENT STAFFING

A Project Management Unit (PMU)

The following staffing arrangements are proposed for the PMU, to be located in the DAE offices, Dhaka.

Position No. Responsibilities 1.Project Director (PD) 1 Overall management & supervision of the implementation of SCDP; Coordination with the PSC; ADB, NGO’s; & other Project participating agencies; Management & direction of the PMU & PIU staff; Overall coordination of consultants inputs; Responsible for submission of Inception, Mid Term, and Completion Reports; Responsible for the management of the cost sharing fund set up to support on farm small scale Infrastructure (Component 2) 2 Deputy Project Director Assistance to the TL and act on his behalf in his absence 3. Senior Monitoring and Evaluation Officer SMEO) 1 Responsible for coordination of all BME activities, including poverty, gender, & environment impacts 4. NGO Credit Management Officer (NCMO) 1 Liaison with NGO’s disbursing credit to Project beneficiaries; and NGO’s with service contracts for the implementation of Component2 (Post Harvest Handling & Marketing Support); Liaison & coordination with the NGO/Coordination Consultant 5, Agriculture Marketing Officer (AMO) 1 Coordination of all post harvest handling & marketing activities under Component 1.2 (Value addition support); Coordination of Marketing, Quality Standards& Certification / Food Safety consultants inputs; Liaison with NGO service providers to Component2, in coordination with the NCMO. 6. Finance / Budgetary Control Officer (FO) 1 Responsible for preparation of annual budgets, financial control, preparation of annual accounts & reports; Supervision of monthly management accounts, disbursement of PMU related activity funds 7 Gender Officer (GO) 1 Working with the Gender Specialist to implement and monitor the progress of the GAP 8 Accounts Officer (AO) 1 Preparation and submission of accounts under supervision of the FO) 9. Monitoring and Evaluation Officers (MEO) 2 Assist the SMEO in the collection, compilation, and consolidation of relevant data from all SCDP activities 10 Information Technology Officer (IT) 1 To ensure the smooth operation and maintenance of Project computers and other communication equipment 11 Office Manager (OM) 1 Responsible for the day to day administration of the PMU, procurement of office supplies, maintenance of office equipment & supervision of PMU drivers & vehicles

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13. PA to the Project Director 1 Personal assistant to the PD; responsibility for PD appointments, arrangements of meetings, file & record upkeep, & PMU communication equipment 14. Drivers 5 I Driver for PD; 1 Driver for general PMU duties; 3 drivers for consultancy team 15 Ancillary Support Staff 4 2 Peons; 1Sweeper; 1 Night Guard TOTAL 22

2 Project Implementation Units

The following staffing arrangements are proposed for each regional PIU PMU, to be located in the DAE District offices at Bogra and Jessore Respectively.

Position No Responsibilities (x2)

1 Regional Project Manager (RPM) 1 Overall management, supervision and coordination of the implementation of field based Project activities in the region Coordination with the PMU; District DAE Staff; participating NGO’s & other Project participating agencies; Management & direction of PIU staff; Responsible for submission of monthly, quarterly, and annual Reports; 2 Community Liaison Officer (CLO) 1 Liaison with District and Upazila level Community Officers and SAAO’s 3 Monitoring and Evaluation Officer (MEO) 1 Assist the PMU SMEO & MEO’s in the collection, compilation, and consolidation of relevant data from all SCDP activities at field level 4 Accountant/Office Manger 1 Preparation of monthly and annual accounts to the PMU 5 Driver 1 Driver for PIU activities as required 6 Ancillary Staff 2 1 Peon; 1 Sweeper TOTAL 7 x 2 14

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16 PROJECT Management Structure

Project Steering Committee Ministry of Agriculture

Principal Executing Agency Executing Agency for Credit Management Department of Agricultural Extension Bangladesh Bank

Project Management Unit

Wholesale Banks

Regional Project Implementation Unit (2)

MFI’s

Service

Providers DAE District and Upazila Offices)

PROJECT BENEFICIARIES

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