Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

Bosnia and Herzegovina

RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

Main report and appendices

Document Date: 15-Aug 2013 Report No: 3028-BA

Near East, North Africa and Europe Division Programme Management Department

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

Contents

Currency equivalents iii Weights and measures iii Fiscal year iii Abbreviations and acronyms iv Map of Bosnia and Herzegovina v Executive Summary vii I. Introduction 1 II. Country Context 1 A. Economic, Agriculture and Rural Poverty Context 1 B. Policy, Strategy and Institutional Context 5 III. LESSONS FROM IFAD‘S EXPERIENCE IN THE COUNTRY 8 A. Past Results, Impact and Performance 8 B. Lessons Learned 9 IV. STRATEGIC FRAMEWORK FOR IFAD 9 A. IFAD‘s Comparative Advantage 9 B. Strategic Objectives 11 C. Opportunities for Innovation and Scaling-Up 13 D. Targeting Strategy 14 E. Policy Dialogue 14 V. PROGRAMME MANAGEMENT 15 A. COSOP Monitoring 15 B. Country Programme Management 15 C. Partnerships 16 D. Knowledge management and communication 17 E. PBAS Financing Framework 17 F. Risks and Risk Management 18

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Appendices

Appendix 1: RB-COSOP Formulation and Consultation Process 21 Appendix 2: Country Economic Background Sheet- Bosnia and Herzegovina 23 Appendix 3: RB-COSOP Results Management Framework 25 Appendix 4: Previous COSOP Results Management Framework 29 Appendix 5: CPE Agreement at Completion Point 31 Appendix 6: Baseline Poverty Analysis 33 Appendix 7: Agriculture and Rural Development 45 Appendix 8: Strengths and Weaknesses of the National Poverty Reduction Strategy 55 Appendix 9: Project Pipeline during the RB-COSOP period 61 Appendix 10: Scaling up Framework for Bosnia and Herzegovina 75 Appendix 11: Strategic Environmental Assessment 79 Appendix 12: Implication of EU Accession for the Small Holder Farmer 83 Appendix 13: List of People Met 95 Appendix 14: Stakeholder Workshop 105

Key Files

Key File 1: Rural Poverty and Rural Sector Issues 111 Key file 2: Strengths, Weaknesses, Opportunities and Threats (Swot Analysis) 117 Key File 3: Complementary Donor Initiative/Partnership Potential 121 Key File 4: Target Groups for the COSOP and Proposed IFAD Response 128

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Currency equivalents

Currency Unit = BAM Convertible Mark US$ 1.00 = BAM 1.5 BAM 1.00 = USD 0.666

Weights and measures

1 kilogram = 1000 g 1 000 kg = 2.204 lb. 1 kilometre (km) = 0.62 mile 1 metre = 1.09 yards 1 square metre = 10.76 square feet 1 acre = 0.405 hectare 1 hectare = 2.47 acres

Fiscal year

1 January – 31 December

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Abbreviations and acronyms

APCU Agriculture Projects Coordination Unit AWPB Annual Work Plan and Budget BDS Business Development Services BiH Bosnia and Herzegovina CAP Common Agricultural Policy COSOP Country Strategic Options Paper DRC Domestic Resource Cost EFSE European Fund for Southeast Europe ERP Effective Rate of Protection EU European Union FBiH Federation of Bosnia and Herzegovina GDP Gross Domestic Product GNI Gross National Income HACCP Hazard Analysis and Critical Control Points IPA Instrument for Pre-accession Assistance (to the EU) IPARD Instrument for Pre-Accession Rural Development KM Convertible Mark LAMP Linking Agricultural Markets to Producers Project (of USAID) LED Local Economic Development LRFDP Livestock and Rural Finance Development Project LSMS Living Standard Measurement Survey MAFWM Ministry of Agriculture, Forestry and Water Management MAWMF Ministry of Agriculture, Water Management and Forestry MCO Microcredit Organization MoFT Ministry of Finance and Treasury MOFTER Ministry of Foreign Trade and Economic Relations MTDS Medium-Term Development Strategy NRP Nominal Rate of Protection OFID OPEC Fund for International Development PA Producers Association PCU Project Coordination Unit PFI Participating Financial Institution PRSP Poverty Reduction Strategy Paper RS Republika Srpska REEP Rural Enterprise Enhancement Project SCO Savings and Credit Organization (in the RS) SDC Swiss Agency for Development and Cooperation UNFCCC United Nations Framework Convention on Climate Change UNDAF United Nations Development Assistance Framework UNDP United Nations Development Programme USAID United States Agency for International Development USD United States Dollar VAT Value Added Tax

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Map of Bosnia and Herzegovina

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

Executive Summary

This Results Based-Country Strategic Opportunities Programme (RB-COSOP) for Bosnia and Herzegovina (BiH) covers the six year period from 2013 to 2018. The current strategy is the outcome of a participatory process of consultation with all key stakeholders involved in rural and agriculture development in the country. A Strategic Environmental Assessment (SEA) was also undertaken as an integral part of the country strategy formulation process. The RB-COSOP was attuned to the key Government priorities as outlined in its rural and agriculture development strategies, as well as with the IFAD Strategic Framework and the various relevant IFAD policy guidelines. The COSOP formulation mission discussed its findings with the Government at the State and Entity levels, all key multilateral financing agencies, bilateral donors and implementing partners. A validation workshop was organized at the end of the mission to which more than 100 participants were invited. BiH ranks as an upper middle-income country. Its population is estimated to be about 3.8 million. Smallholder farms continue to dominate agriculture production; out of an estimated number of 500.000 farms in BiH, 50% own less than 2 has and 89% own less than 5 has1. The small size of farm holdings, low yields, relatively low level of mechanization, and limited access to credit with affordable terms and unreliable wholesale linkages for processing, bulking, storage and marketing constrain farmers to realise their competitive potential and expand their businesses. The risks in the agriculture sector have increased due to climate change and increased weather variability. The transition from a centralized to a free-market economy has triggered many changes in the business operating environment for smallholders and agro-processors. Firstly, there are the changes associated with the European integration process: new production standards for agricultural produce (e.g. animal welfare), technology and investments in order to attain Southern European productivity levels, technological innovations required to meet processing standards (e.g. EUREPGAP, ISO, HACCP,..), investments to upgrade logistics (buildings, warehouses, etc.), necessary institutional reforms in order to comply with EU regulations (land registry, paying agency). Secondly, there are important changes in markets and consumer demands: agricultural markets are undergoing a fundamental reorganization process; the signature of the interim SAA2 and CEFTA3 agreements are leading to increased competition on behalf of agro-industrial clusters (e.g. from Croatia, Serbia, Macedonia), a growing importance of non-tariff barriers, changing consumer demands (food safety, nutritional value, brands) and raising market power for large supermarket chains. A third driver relates to impendent policy reforms: domestic support policies will have to be revised (e.g. EU harmonisation on the use of production subsidies versus income support, on the incorporation of environmental standards, animal welfare,...), and local actors are increasingly willing to contribute to shaping sector policies (through public-private partnerships, civil society networks,..). Lastly, climate change and its associated hazards (droughts, floods, fires, diseases and pests infections just to name a few), are already driving up production costs, and considerable investments will be required in order to adapt (agricultural) production systems. While the BiH agriculture sector is potentially well positioned with several comparative advantages, the country is not reaping the full benefits of the on-going trade liberalization processes. For example, due to the absence of EU-compliant food safety institutions and a compliant regulatory framework, a range of BiH products have difficulties to access EU markets whereas the increased competition from CEFTA agribusinesses is effectively crowding out domestically produced food products. The country‘s complex governance structure and still limited coordination between the various levels of government, hinders BiH from making effective use of EU pre-accession assistance.

1 BiH Agriculture, Food and Rural Development Harmonization Strategic Plan 2008-2010. 2 Stabilization and Association Agreement. 3 Central European Free Trade Agreement.

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Smallholders are not only expected to evolve from subsistence to commercial agriculture, but they have to do so in a market and policy environment that is fast changing and increasingly complex. IFAD is one of the few agencies in the country working with the poorest smallholder farmers on any appreciable scale in under-developed municipalities. IFAD‘s assistance to BiH commenced in 1996, soon after peace was restored in the country and has to-date comprised six projects valued at US$ 167.0 million of which IFAD funding to the Government was worth US$ 70.0 million. Since the previous COSOP period (2005-2008), two projects were fully implemented and one is still on-going. These have benefited over 116,000 households (or some 394,000 people), representing nearly 18% of the country‘s rural population. IFAD‘s projects experiences have demonstrated the high impact of working with smallholder farmers and off-farm entrepreneurs, presenting the opportunity for scaling up these successful interventions. IFAD‘s programme in BiH has gradually evolved to help smallholder households strengthen their organizations (about 90 Farmers Organizations established/supported, reaching more than 12,500 members) and has enabled them to enhance their productivity through access to improved infrastructure (about 300 sub-projects financed), agriculture technologies and financial services (more than 5,800 loans disbursed to individual farmers and Small and Medium Enterprises by Partner Financial Institutions, for a total value of US$ 29 million). More recently IFAD projects also focussed l income diversification and employment generation by including small scale agro-based enterprises, agro-tourism and non-farm enterprises in the approach. These interventions especially benefitted youth and women both of whom have high unemployment rates.

IFAD‘s experience in working with non-commercial and commercial smallholder farmers and off-farm entrepreneurs remains an interesting scope for IFAD‘s continued operations in BiH. The process of supporting the graduation from non-commercial farming to viable commercial enterprises, attractive to youth and rural poor, is also a key Government priority .

The overall development goal of this RB-COSOP is to enable poor rural people to improve their food security, raise their incomes by supporting non-commercial and commercial farmers, as well as on and off-farm enterprises in BiH. In alignment with the BiH Development Strategy (2008-2013), Strategy of Social Inclusion (2008-2013), and IFAD‘s Strategic Framework (2011-2015), the RB- COSOP will strive to contribute to reducing poverty in a manner that enables a more sustainable and efficient use of natural resources, diversifies and improves rural livelihoods, and helps to mitigate risks posed by climate change - in particular to the most vulnerable people. In order to pursue these goals, the RB-COSOP would have three strategic objectives which are elaborated below. Gender equity and environmental sustainability would be pursued as two important cross-cutting issues, through the IFAD country programme.  Strategic Objective 1: Farmer organizations (FOs) and their apex organizations are effective in supporting farmers in their transition from non-commercial to commercial agriculture.  Strategic Objective 2: Clusters of smallholders (both non-commercial and commercial), FOs (Producer Associations, Agricultural Cooperatives), and SMEs are able to access - on a sustainable basis - technological innovation, business development and financial services in order to attain long-term competitiveness.  Strategic Objective 3: Smallholders‘ and off-farm entrepreneurs‘ access to markets is improved through upgraded public and collective marketing infrastructure. The RB-COSOP will replicate experiences through its on-going operations that are recognized as innovative in the country and have proved successful. The Country programme will scale up its positive experience of establishing value chain linkages for smallholders through their organizations. It will encourage innovation by financial services and commercial business service providers in terms of improving their outreach and adapting their services to the poorest segments of the rural population. In this context, IFAD will also explore the possibilities to structure and broker credit ‗demand‘ to the private sector. The country programme will test and build the capacity of smallholder farmers in the

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collective management of marketing infrastructure through their organizations. Over the next six years the country programme is expected to reach 150,000 households. The target group for the country strategy will include: (i) non-commercial (subsistence) and commercial (young) smallholder farmers, both men and women; (ii) Producer Associations and Agriculture Cooperatives with an outreach to non-commercial smallholder famers; (iii) women and unemployed youth interested in non-farm employment and enterprise development; and (iv) on-farm and off-farm small enterprises with the potential to grow and enhance their productive potential and contribute to rural employment. This RB-COSOP covers two Performance Based Allocation System (PBAS) cycles, namely: 2013 to 2015 and 2016 to 2018. BiH has scored 4.04 on its rural sector performance in 2012. Based on this performance and its GNI, the country has approximately US$ 12.7 million available for the cycle 2013- 2015. The allocation for the next cycle is likely to at least match this allocation. Additional funding from the Adaptation Fund will be mobilized to tackle environmental and climate- change related issues relevant for the implementation of the foreseen pipeline interventions (RCDP and its Second Phase)

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

I. Introduction 1. This Results Based-Country Strategic Opportunities Programme (RB-COSOP) for Bosnia and Herzegovina (BiH) covers the six year period from 2013 to 2018. The previous IFAD country strategy was formulated in 2005. In view of the significant changes in the socio-economic and institutional context the strategy reformulation exercise is not only expected to test the validity of previous development approaches, but also to strengthen IFAD‘s result-oriented approaches ultimately leading to enhanced quality and impact on the ground. IFAD‘s Ninth Replenishment consultation agreed on a series of operational, institutional and financial commitments to strengthen the Fund‘s contribution to achieving the first Millennium Development Goal of eradicating poverty and hunger and to deepen its focus on gender equality and women‘s empowerment, thereby enhancing its value-for money. 2. The current strategy is the outcome of a participatory consultation process with the key stakeholders involved in rural and agriculture development in the country. A COSOP design mission visited the country between November 12th and 29th, 2012 to discuss some of the country‘s key challenges as regards to rural development and its impact on sustaining rural livelihoods. The mission reviewed the priorities identified at the State level and in the agriculture and rural development strategies of the State Governments as well as the strategies outlined to deal with social inclusion. Extensive consultations were held with smallholder farmers, farmer organizations, Municipal Governments, State and Entity-level Government representatives, and key donor agencies, to ensure synergies with the IFAD strategy and the country programme. A Strategic Environmental Assessment (SEA) was also undertaken as part of the country strategy formulation process, and natural resource management and climate change issues were incorporated as a cross-cutting theme of the strategy. The design mission‘s preliminary RB-COSOP report and its main conclusions were discussed with the representatives of the State Council of Ministers and the two Entity Governments of the Federation of Bosnia and Herzegovina and Republika Srpska. The mission also facilitated a Stakeholder Workshop to discuss its main findings (Appendix I).

II. Country Context

A. Economic, Agriculture and Rural Poverty Context

Country Economic Background 3. With a per capita Gross National Income (GNI) of US$ 4,700 in June 20114, BiH ranks as an upper middle-income country5 Its population was estimated to be 3.8 million in July 20116, and 58% of the people live in rural areas. The long inter-ethnic war in BiH caused widespread destruction of the economy, of infrastructure and livelihoods, and has also damaged the social fabric of society. The destruction of rural infrastructure, housing and public utilities has considerably hampered growth and development; production decreased by 80% from 1992 to 1995 and unemployment rose to unprecedented levels. After a period of successful post-conflict reconstruction, the economy has picked up and the Gross Domestic Product (GDP) growth has averaged 6% for the past five years with a low inflation rate. The service sector is the largest contributor to employment, with 49.3%, followed by the industry sector at 31%, and agriculture with 19.7% in 20107. The country has however fallen back on its MDG indicators, especially with regards to employment and women‘s share in the non-farm sector. Official or registered unemployment for women now stands at just above 40%8, and unemployment amongst young people is also reported to be approximately twice as high as among

4 The World Bank, June 2011. 5 World Bank. Country Classifications. 2011. 6 World Bank. 2011. 7 Agency for Statistics of Bosnia and Herzegovina: Bosnia and Herzegovina in Figures 2010. Sarajevo, 2010. 8 Progress Towards the Realization of the Millennium Development Goals in Bosnia and Herzegovina 2010. Ministry of Finance and Treasury and the United Nations Country Team. Sarajevo. July-August 2010.

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the population as a whole9. Appendix II gives an overview of the key economic indicators for the country. 4. In June 2008, the EU and BiH signed the Stabilization and Association Agreement10 (SAA). Pending completion of the process for the SAA to enter into force, an Interim Agreement now regulates trade relations. The EU is the main trading partner of the country representing 63% of total imports and 73% of total exports. The majority of Bosnian products can enter the EU duty-free. BiH is however not reaping the full benefits of these agreements as, due to the absence of EU-compliant food safety institutions and an overall lack of compliance to the EU regulatory frameworks, a broad range of products still remains banned from entering EU markets, and upon Croatia‘s entry to the EU in June 2013, BiH may well not be able to export some products to this country anymore (this trade represents 14,6% of BiH‘s total exports).

Agriculture and Rural Poverty 5. Agriculture contributes to just under 10% of the GDP of the country. Cultivable land amounts to 1 million ha11 but less than 20% of agricultural land is suited to intensive agriculture, most of this located in lowland river valleys. Due to underdeveloped irrigation infrastructure, only about 1% of the arable land benefits from some kind of irrigation. As a consequence of this, the sector is considerably exposed to climate change related risks12. 6. Smallholder farms continue to dominate agricultural production in BiH. There are some 515,000 privately-owned smallholder farms13 engaged primarily in cereal production for home consumption, and small-scale horticulture and livestock production. It is estimated that landholding size is about 0.59 ha per capita. Livestock production is very important and contributes to about one third of the agricultural sector production14. Recognizing the importance of livestock, in terms of poverty reduction and provision of a safety net for vulnerable rural populations, IFAD consistently supported restocking15 efforts after the war. 7. Overall agriculture sector‘s productivity is very low16. Crop and livestock yields are below those technically possible (vegetable yields are one-fifth of those in the Southern European member states with similar geographic and climate conditions) while labour productivity is also limited – amongst other factors – by the size of the landholdings and the relatively low levels of mechanization. 8. Limited access to technological innovation and to effective business development services (BDS) further constraints smallholders from reaching their competitive potential in 2000. Extension offices were established throughout BiH with EU support17. Their responsibilities included designing business plans and providing other advisory services for farmers. In the RS, the system is still in place and includes 9 regional-based advisors in most areas, assisted by a central support unit in Banja Luka. Though appreciated, the service is poorly equipped, underfunded and understaffed. In FBiH, the system was originally established at the canton level with no central service. It is largely non- operational due to limited interest from the cantons. In November 2008, the FBiH parliament adopted the Law on Extension, which envisages the establishment of a central Extension Agency. Some municipalities financed their own extension officers to implement their municipal action plan for agriculture and livestock.

9 UNDP: Human Development Report: The Ties that Bind, Social Capital in Bosnia and Herzegovina, 2009. 10 The SAA is signed with countries that have made sufficient progress in terms of political and economic reform and administrative capacity. 11 BiH Strategic Plan for Harmonization of Agriculture, Food and Rural Development, 2008-2011. 12 Drought incidences have increased and these events can decrease yields by 30% to 95%, according to the UNDP Climate Change Assessment. 13 Dimitrievski, D. Agriculture in the process of adjustment to the common agricultural policy, Skopje, 2010. 14 European Commission, Agricultural and Rural Development, Bosnia and Herzegovina, July 2009. 15 Thereby increasing the proportion of foreign breeds such as Simmental cattle. 16 WB: Protecting the Poor during the Global Crisis: 2009 Bosnia and Herzegovina Poverty Update, 18 Dec. 2009. 17 WB, Agricultural Sector Policy Note for Bosnia and Herzegovina - Trade and Integration Policy Notes, May 2010.

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9. The agriculture sector has consistently suffered from a lack of investment, resulting in outdated and deficient rural (market) infrastructure. The lack of storage, processing and transport facilities is considered one of the main obstacles to developing value-adding activities. 10. The transition from a centralized to a free-market economy has induced many changes in the business operating environment for both non-commercial and commercial smallholders18 and agro- processors. Trade liberalization (with the corresponding removal of custom duties), has not necessarily resulted in better ‗terms of trade‘ for the smallholders. Input prices have actually increased, whereas the improved market opportunities have often been captured by the traders and exporters19. Difficult access to markets also further constraints smallholder‘s ability to respond to market signals. Over the last decades, the agricultural and livestock subsectors have suffered from a lack of investments and the disappearance of well-established marketing linkages. Unreliable wholesale linkages for processing, bulking, storage and marketing are now a main obstacle for farmers to expand their business. Government support to the sector is mainly targeted at expanding agricultural production20 on commercial farms and forcibly reduced in times of economic downturn. Uncertainties related to shifting policies and annual subsidies are further eroding farmers‘ incentives to respond to market opportunities. These subsidies were also used as social safety net to target the rural poor. 11. Government support to the sector is mainly targeted at increasing agricultural production (e.g. using crop-related subsidies21) and thus forcibly reduced in times of economic downturn. Uncertainties related to shifting policies (e.g. crop subsidies are often changing on a yearly basis) are further eroding farmers‘ incentives to respond to changing market demands. 12. Access to credit with affordable terms22 is limited because of the uneven coverage of financial institutions, with most of them concentrated in urban areas and better-off municipalities, but also by a pattern of risk avoidance by commercial banks; these difficulties are even more pronounced when it comes to agricultural credit or financing for off-farm enterprises. 13. Notwithstanding the above the agricultural sector is relatively well endowed; the country benefits from a moderate continental climate with favourable conditions for a range of crop and livestock enterprises, climatic conditions allow for an earlier agricultural season than most European countries, shipping costs are relatively low and land and labour costs remain competitive. BiH also benefits from competitively-priced electricity, with a significant proportion generated by renewable sources (i.e. hydropower). However, despite these advantages BiH remains a net importer of agricultural and food products with only 35 to 40% of its needs covered by local produce (with the exception of potatoes, eggs and lamb meat). As BiH has not yet achieved self-sufficiency there is still significant growth potential for the development of local agricultural value chains that cater for the needs of local markets and improve national food security. 14. In order to preserve their preferential market access to EU and other export markets, farmers will need to adjust their production systems and technologies to meet the required quality and food safety standards and preserve their existing market share. To seize new opportunities in high value niche markets23, farmers will have to innovate at the technological level and adapt the business model to those specific market requirements. For example to grow market share in high-value frozen berry markets, technological innovation, market responsiveness and positioning of their products will be

18 The classification into ‗commercial‘ and ‗non-commercial‘ is mainly based on the availability of assets and production factors – e.g. holdings that have less than 5 cows are considered non-commercial. 19 World Bank, Agricultural Sector Policy Note for BiH, May 2010. 20 For the period 2005-2010 between 50 to 70% of the agriculture budget has been used in subsidies while measures for market support and to agriculture in general remained modest making up only 10% of the budget. 21 For the period 2005-2010 between 50 to 70% of the agriculture budget has been used in subsidies while measures for market support and to agriculture in general remained modest making up only 10% of the budget. 22 Currently, MCOs charge interest rates from 8%-20%, while commercial banks charge interest rates between 6% and 8%. These rates are considered to be unaffordable by both commercial and non-commercial smallholders. BiH is a post-conflict country with many of its smallholders still in the learning mode. They cannot be competitive in the EU market in their current state with higher than average costs of production. 23 Berries, dried mushrooms, nuts, organic products or off-season greenhouse vegetables.

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key. For high-value meat and dairy products (cheeses, butters) marketing will be essential (geographical indication). Appendix VII outlines the agriculture and rural development issues in the country. 15. BiH has relatively strong social indicators and most of the population has access to water, sanitation and health care. The country is placed 74th in UNDP‘s Human Development ranking, with a value 0.733 in 201124. Poverty in BiH is not so much about absolute destitution but it is rather defined by social-exclusion and a lack of access to the basic services that make up an acceptable standard of living. The most recent analysis of poverty in the country indicates that while there is little or no ―extreme (food) poverty‖ in BiH, between 19 to 21 % of the households (HH) suffer from chronic material deprivation and between 20 to 30% are ―at risk‖ of falling into material deprivation25. Table 1 (below) provides an overview of the changing profile of poverty in the country. Table 1: Absolute poverty rate in BiH

Absolute poverty rates in BiH, in per cent 2001 2004 2007 2010a 2011/2012 2015 Target Total 19.1 17.7 14 16 17.9b 12 Urban 14.5 11.3 8.2 10 NA Rural 19.4 22 17.8 21 NA Source: a: computations from the LSMS-2001 and HBS. b: HBS 2011 preliminary data.

16. During the recent period of strong growth (2004-2007), poverty in BiH dropped from 17.7% in 2004 to 14.0% in 2007 but has increased to 16% in 2010 and 18% in 201126. The country is thus unlikely to achieve its Millennium Development Goals regarding the eradication of poverty and extreme hunger and unemployment set for 2015. Many of the poor households have a high dependency ratio, lower levels of educational attainment, limited access to a regular source of cash income from formal employment, pension or remittances. Of these poor households, 75% live in rural areas (based on 2007 Household Budget Survey estimates). 17. Despite overall improvements in terms of poverty alleviation, progress has been uneven between urban and rural areas and rural communities suffer from a number of limitations constraining agricultural production and general well-being (harsh climatic conditions, ineffective agricultural technologies, underdeveloped rural infrastructure). In particular, rural poverty correlates strongly with altitude and uneven access to land, irrigation, agricultural equipment, finance and advisory services. In BiH rural poor are: (i) unemployed or with limited employment opportunities, especially affecting rural youth, (ii) households (HH) with insufficient assets or without access to pensions or remittances and (iii) female-headed HH who earn on average 20% less than male-headed HH. Appendix VI provides a Poverty Analysis and Key File 1 gives an overview of rural poverty, agricultural and rural sector Issues.

Cross-Cutting Issues: Gender and the Environment 18. Gender equity was actively pursued in the former Yugoslavia . The recorded female participation rate in economic activity is 43.1% (compared to 60% for male), though this figure does not comprise rural women‘s contribution as unpaid workers (e.g. farming, animal husbandry). However women in BiH capture only 27% of total earned income with women earning less than men in both the formal and informal sectors . Women are further constrained by their low levels of participation in political and economic decision-making, weak participation in the labor market, and cultural factors . Female-headed households (FHHs) constitute about 19% of rural households in the country (although many more are de facto heads of households when men migrate on a medium to long-term basis). However, in the case of BiH, there is no evidence of the FHHs being poorer than the male headed households . The prospect of EU integration has prompted significant advances towards gender equity in BiH. The new Gender Equity Legislation and corresponding institutions are among

24 UNDP: HDI 2011 online, accessed November 2012. 25 Pre-design study – Gender-sensitive poverty and livelihoods analysis. IFAD. January 2011. 26 This figure does not include the Household Budget Survey 2007 according to which 2 million people are considered vulnerable.

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the most progressive gender mainstreaming bodies in Europe . However, the structures for enforcing the new Gender Equity Law are not yet functioning effectively. 19. There are several natural resource management issues that confront the country as a whole and especially related to smallholder households and rural areas. These include: (i) uncontrolled grazing and unsustainable management of pastures and parts of forests, leading to the degradation of pasture and forest resources ; (ii) inappropriate farming techniques, especially on sloping lands, resulting in the increase of soil erosion; (iii) poor water resource management practices; and (iv) uncontrolled collection of valuable and edible medical and aromatic plants, reducing countries‘ biodiversity while depleting resources. 20. BiH has also been experiencing, particularly since the 1990s, serious droughts and flooding incidences, with severe economic consequences. According to the Initial National Communication (INC) of BiH under the UNFCC , climate change is likely to have a considerable impact on key economic sectors such as agriculture, forestry, and energy (hydropower), thus threatening current development efforts and the livelihoods of the rural households and communities. 21. As far as the agriculture sector is concerned, a regional analysis on climate change-induced changes, identifies the following impacts in South-Eastern Europe: (i) increasing temperatures are likely to (a) accelerate the development rate of all winter crops such as wheat, which therefore might face extreme events, (b) increase the probability of crop failure from frost damage, (c) increase the number of hot days and decrease rainfalls or irrigation, which could also reduce yields; (ii) the total growing season may be reduced for some crops; (iii) warmer winters could reduce the yields of stone fruits that require winter chilling (moderate coldness); and (iv) livestock would be adversely affected by greater heat stress. In 2012 drought and high temperatures demonstrated some of the negative impact of climate variability and change in the country as agricultural production fell, while widespread and devastating forest fires led to soil degradation, erosion and a disruption of the hydrological balance of watersheds. The worst impact of the drought was on fodder availability and animal conditions. Smallholder livestock farmers reported a three-fold increase in the price of fodder, which led to an increase in production cost and significant loss in the dairy sector. The SEA, which explores some of the issues connected with climate change especially for the smallholder and rural areas, is presented in Appendix XI. 22. In 2005 the Danube River Protection Convention came into force for BiH . Along with this convention, the EU Water Framework Directive (WFD) is also a strong policy driver concerning water management in the country.

B. Policy, Strategy and Institutional Context

National Institutional Context 23. Following the Dayton Peace Agreement, BiH has a complex governance structure consisting of a Council of Ministers at the State-level and two autonomous Entities - the Federation of Bosnia and Herzegovina (FBiH), and the Republika Srpska (RS) – as well as the self-governing Brcko District (BD) under State sovereignty. The complex institutional and political environment leaves scope for frequent political gridlocks, which in turn have negatively affected economic reform processes and the creation of a state-level institutional infrastructure supportive of a market economy and EU integration. 24. At the local administrative level, the country has 142 municipalities: 79 in the FBiH, 62 in RS and 1 in BD. The municipalities of FBiH are organized into 10 cantons, whereas RS does not have an administrative tier at the canton level. The municipalities are extremely variable in terms of size and population. Municipalities (as well as cantons in FBiH) play a key role in the self-governance system in BiH. Although municipalities are not directly in charge for defining policies and supporting agricultural / rural (or economic) development, many of them support rural development (mostly agriculture). Their support varies and can be characterized as ‗standard‘ or ‗enhanced‘. ‗Standard‘ includes support to the formulation of local development strategies (including rural/agricultural, the main problem with these documents/policies being their weak implementation), provision of small

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scale subsidies to producers, assistance to apply for subsidies and provision of municipal land for agriculture to individuals and companies / cooperatives. ‗Enhanced‘ development support – often characterized by a close cooperation with other development actors – can include support to agribusiness incubators and small scale bulking centres for fruits vegetables or milk, channelling support services to producers (support to processing, soil analysis, basic business advisory, ..) or even setting up a credit guarantee fund or cover part of the interest rates. Considerable investments has been made in strengthening their capacity as drivers for local development and municipalities (and cantons) have represented the entry-point for the implementation of IFAD interventions. 25. The State-level Ministry of Finance and Treasury (MOFT) keeps oversight of donor supported programmes and coordinates with the Entities‘ Ministries of Finance, which are responsible for externally-funded projects. The country however lacks a state-level Ministry of Agriculture which hinders policy formulation or coordination at state level. The State Ministry of Foreign Trade and Economic Relations (MOFTER) nevertheless plays an active role in coordinating donor programmes in the country working closely with the donors in the agriculture and rural development sector. 26. The overall responsibility for coordination and management of IFAD projects is vested in the two Entities through their respective Ministries of Agriculture, Water Resources and Forestry. Project coordination, implementation and monitoring is undertaken by two Project Coordination Units: the PCU in FBiH and the APCU in RS. Key File 2 provides an analysis of the strengths, weaknesses, opportunities and threats of the key partner organizations expected to be involved in the management and implementation of the country programme.

National Rural Poverty Reduction and Rural Development Strategies 27. In 2001, with the support of the World Bank and the UNDP, BiH prepared its first Medium Term Development Strategy (MTDS, 2004-2007) . Upon expiration of the MTDS and as part of the EU accession process, BIH prepared its national Strategy for Development (SD) and its Strategy of Social Inclusion (SSI, 2008-2013). These strategic documents benefitted from a broad stakeholder consultation process. A key goal for the SSI is to increase the participation of inactive and discouraged populations and fostering their re-integration in social life and in labour markets through ‗equal opportunity‘ policies. Gender-sensitive and inclusive employment programmes are of high priority in this strategy . According to UNDP27, the implementation of the SSI and planned improvements on social protection (in terms of targeting the real needs of beneficiaries) will speed up poverty reduction. Appendix VIII outlines the strengths and weaknesses of the national poverty reduction strategy. 28. The SD identifies five strategic objectives: (i) Macro-economic stability; (ii) Competitiveness; (iii) Employment; (iv) Sustainable Development; and (v) European integration. The ‗Sustainable Development‘ objectives are pursued through the following: faster and more efficient development of agriculture and of rural areas, environmental management and renewable energy, as well as transport infrastructure and communications. The ‗Competitiveness‘ objective is meant to be attained through fostering of local business chains, strengthening research and development, upgrading workforce skills, establishing a supportive business infrastructure and fostering of sector-specific industrial clusters. 29. FBiH. The Medium-Term Strategy of Agricultural Sector in FBiH (2006-2010) supports: (i) the return of refugees and displaced persons; (ii) sustainable development of natural resources; (iii) improvement of the profitability and competitiveness of agriculture and food industries; (iv) the strengthening of cooperatives, enterprises and other production organisations and linking them with the food industry; (v) the development of land markets through support to land consolidation; (vi) the increasing of quantity and quality of food to meet domestic and export demands; (vii) the institutionalisation of the sector in line with European requirements; (viii) state-level agriculture and rural development policies; and (ix) the promotion of exports of agricultural and food products.

27 National Human Development report – social inclusion in BiH, UNDP 2007.

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30. RS. The RS Rural Development Strategy (2009-2015) includes the RS Strategy for Agriculture Development. Its general objective is to improve the wellbeing of rural households, and to strengthen rural communities via measures that will increase employment on and outside farms and increase the quality of rural life and work in general . The strategic objectives of the RS foresee the following: (a) improvement of the competitiveness of agriculture and forestry; (b) rational management of natural resources; and (c) rural economic diversification. Within this frame the key priorities include: (i) on- farm investments; (ii) investments in processing and marketing of agricultural products; (iii) support to organisations of farmers; (iv) human resource enhancement in rural areas; (v) support the rural finance sector especially for capital investments in agriculture; (vi) diversification of non-agricultural and agricultural activities in countryside; (vii) the set-up and development of micro, small and medium- sized enterprises; (viii) the construction and maintenance of rural infrastructure; (ix) the improvement and development of rural tourism services; and (x) the support for local rural development initiatives. 31. In conclusion, the above-mentioned strategic programmes of FBiH and RS are essentially construed around similar strategic priorities namely: (i) improving the competitiveness of the agricultural and food sector; (ii) institutional development and improvement of the legal frameworks in order to stimulate agricultural and rural development, (iii) conservation and sustainable use of natural resources; and (iv) improvement of rural livelihoods and diversification . 32. An entity level budget analysis illustrates the importance of production-related expenditures. Funding earmarked to rural development and environmental protection are also often targeted towards direct production support. When it comes to support for non-commercial farmers, funding is rather limited as registration as commercial farmer is a precondition for most categories of support. As registration may require certain costs smallholder may refrain from doing so. The latter group can increase its possibilities of mobilizing funds by joining a FO, seeking support and grants from NGOs, or by diversifying sources of livelihood or enhancing production.

Harmonization and Alignment 33. At the country level, IFAD coordinates its work with the different tiers of Government (municipalities), donor agencies and the United Nations Agencies. The Ministry of Foreign Trade and Economic Relations (MoFTER) has established a donor forum for the Agriculture sub‐sector. Although IFAD has not been able to partner in these meetings (mainly due to the absence of a country office), the IFAD Country Team has been actively liaising with the government and donors during implementation support to compensate for this absence. All design and supervision missions liaise with key donors such as the World Bank , European Union, IFC, EBRD, USAID, Swedish Embassy, Czech Embassy, Swiss Development Cooperation, etc. IFAD and the European Fund for South-East Europe (EFSE) have also agreed to coordinate closely and make use of each other‘s impact assessments and gap analysis studies in BiH and in other regional countries. 34. IFAD partners with UNDP within the context of the United Nations Development Assistance Framework (UNDAF) for BiH, which provides a framework for coordinated United Nations (UN) development assistance for the period 2010-2014. UNDP and IFAD would work much more closely in the future to coordinate their activities on the ground, share lessons and develop a joint strategy for knowledge management and communication through the UN‘s Communication Office in Sarajevo. 35. The IFAD country programme will align itself with the EU Instrument for Pre-Accession Assistance (IPA), which aims at facilitating the process of adapting to EU standards, legal regulations and procedures, institutional infrastructure, economic competitiveness, market reforms, etc. 36. The country programme would also capitalize on the Agriculture and Rural Development Project of the World Bank, aimed at strengthening BiH‘s capacity to deliver more efficient and effective agricultural services . In the identification of its projects IFAD works closely with all key donors and the Government to share lessons and avoid duplication of efforts.

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III. LESSONS FROM IFAD‟S EXPERIENCE IN THE COUNTRY

A. Past Results, Impact and Performance 37. IFAD‘s assistance to BiH commenced in 1996, soon after peace was restored in the country. To date, IFAD‘s BiH portfolio comprises six projects valued at US$ 167.0 million, of which IFAD funding amounts to US$ 70.0 million. The first two IFAD-supported projects, focused on emergency relief and rehabilitation, were aimed at the reestablishment of the livestock sector which has been decimated by the war. These projects contributed significantly to the post-war revival of rural livelihoods through herd restocking (introduction of over 15,000 high quality dairy cows and 13,000 sheep of improved breeds). IFAD‘s second generation projects have mainly focused on the poorer and disadvantaged regions of the country. In these municipalities, support to smallholders28 has mainly been operationalized through the provision of basic organizational and technical support to producer associations (e.g. support on how to develop the association‘s activities, on how to improve milk quality etc.). The Livestock and Rural Finance Development Project (LRFDP), for example, has succeeded in developing farmer‘s small-scale commercial livestock operations by strengthening the market linkages along the dairy chain. This approach was replicated with horticultural crops, non- timber forest products and organic produce, in subsequent IFAD interventions. In line with the 2005 COSOP, the most recent generation of IFAD projects supported income diversification, strengthening of rural livelihoods in the context of economic transformation and post-conflict stabilization, and preparing to meet the new requirements introduced by the EU accession process. Projects included the Rural Enterprise Enhancement Project (2008-2012), the on-going Rural Livelihoods Development Project (2010-2015) and the soon-to-be initiated Rural Business Development Project (2014-2018). 38. Taken together, these projects have29 benefited over 116,000 households or some 394,000 people or nearly 18% of the country‘s rural population. They have established or supported 85 Producer Associations and Cooperatives, with a total membership of 12,581 men (78%) and 3,551 women (22%) in their endeavours to link up with the dairy, meat, fruit and vegetable value chains and markets. These have disbursed 5,687 smallholder loans (valued at US$ 22 million) and 146 SMEs30 loans (valued US$ 6.6 million). The interventions have funded the construction of 285 small rural infrastructure schemes (196 feeder roads with a total length 285.5 km, 14 small bridges, 52 village water supply systems and 20 animal watering points31), aimed at improving market linkages and rural living conditions. 39. In terms of impact, these projects32 resulted in an increase in average monthly agricultural income for beneficiary households of over 60%, mainly as a result of increased sales of milk, meat and fruits. The increases in annual milk (+51%) and meat production (+17%) was mainly the result of an increase in animal ownership (+32%), but also through increases in milk yields per lactation (+16%)33. Fruit production has also increased by 57%. The volume of smallholder milk production marketed to dairies has increased by 58%34, and sales of fruit and vegetables has increased by 57%. As a result, the overall food security situation has improved and rural livelihoods have become more diverse, strengthening their resilience in dealing with climate change induced variability. See also Appendix IV for a summary of Previous COSOP Results Frameworks 40. FOs, comprising PAs and ‗Agricultural‘ Cooperatives supported by the project, have also played a noteworthy role in influencing public policy to the benefit of certain sub-sectors. For instance, these

28 The classification into ‗commercial‘ and ‗non-commercial‘ is mainly based on the availability of assets and production factors – e.g. holdings that have less than 5 cows are considered non-commercial. 29 REEP, RLDP and LRFDP. 30 These comprise on- and off-farm enterprises (also including processing companies and cooperatives), such as in the wood industry, poultry producers, animal feed processing and others. 31 Output and Impact data for LRFDP from PCR, Output data for REEP and RLDP from M&E system and Supervision Reports and Impact data for REEP from Panel Impact Surveys in both FBiH and RS. 32 It was not possible to gauge the effect of individual components (PAs, credit and infrastructure). 33 However, average milk yields at 3,282 lt/cow/lactation are still far below potential. 34 Under the Livestock and Rural Finance Development Project, annual milk deliveries by beneficiaries to dairy plants increased from 2.5 million litre to 11.3 million litre.

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have played an important role in the creation of incentive schemes for dairy producers and subsidies or the creation of a supportive legal framework for apiculture. The IFAD-supported projects have also assisted farmer organizations in their negotiations with commercial banks and microcredit organizations encouraging them to increase their presence in rural areas and offer financial services for poor rural households.

B. Lessons Learned 41. Through its investments in rural disadvantaged municipalities, IFAD‘s country programme has considerably contributed to the rejuvenation of rural livelihoods and invigoration of smallholder farming. Support to PAs and Agriculture Cooperatives has provided smallholders with a pathway to start realizing economies of scale and to access markets on a competitive basis. IFAD experience has thus shown that (non-commercial and commercial) smallholders that joined producer groups in the milk and fruit value chains, were able to increase their market share as well as their incomes. The value chain approach proved to be effective in the nurturing of commercial linkages between small- scale producers and the private sector. The investments in market infrastructure (e.g. rural roads, small bridges), benefitting an important number of rural households, has also spurred rural growth. Access to finance, allowing for the start-up of new enterprises or the expansion of existing businesses, contributed to the creation of rural employment opportunities for young men and women. This either directly through the development of new agro-based industries or indirectly through multiplier effects contributed to agricultural growth in the rural economy. 42. Additionally, in terms of emerging lessons, it has become clear that: (i) PAs, Agriculture Cooperatives and rural SMEs, though already operational as instruments in helping (non-commercial) smallholders to access improved production technologies and markets, will need to become much more service- and business-oriented to be able to respond to changing markets and benefit their constituencies; (ii) financial services providers, key for rural growth and employment generation, will need to further extend the range, appropriateness, and affordability35 of their services to rural areas; (iii) rural BDS will be crucial to facilitate the PAs transition from not-for profit into for-profit cooperatives and to support cooperatives in making realistic plans regarding the scale of their trading and their processing activities, their capacities in terms of service provision and the financial viability of their activities; (iv) investment in small scale rural market infrastructure can be catalyst for both agriculture growth and small enterprise development. 43. IFAD has used its grants programme to test innovations and learn lessons, and to scale these up within its loan-financed programmes. The use of regional and in-country grants, has helped sharpen its focus on gender and environment. The Regional Capacity Building and Knowledge Management for Gender Equality grant (2009) was developed to enhance gender mainstreaming and the Capacity Building for Farmers‘ Organizations grant (2010) was used to further strengthen approaches for smallholder organization. The Renewable Energy Technologies in Albania and Bosnia and Herzegovina grant (2011) aims at providing poor rural people with an asset base that is more resilient to climate change and stimulating market transformation through the testing of various renewable energy technologies. The regional Smallholders Farmers‘ Access to Markets in Egypt and Bosnia and Herzegovina grant (2013) seeks to improve the livelihoods of rural poor communities by improving smallholders‘ profitable participation in efficient value chains.

IV. STRATEGIC FRAMEWORK FOR IFAD

A. IFAD‟s Comparative Advantage 44. IFAD‘s experience in working with non-commercial (subsistence) and commercial smallholder farmers and off-farm entrepreneurs has had significant impact and presents an important area of work for IFAD‘s continued operations in the country. IFAD‘s programme in the country has gradually evolved from help to individual smallholders, to strengthening of farmer organizations and increasing

35 Affordability implies that financial services are provided under quasi-market conditions

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productivity through improved agricultural technologies, rural infrastructure and access to financial services. While the process of transforming smallholder farming from subsistence (non-commercial) to viable commercial enterprises is still far from being completed, several emergent issues are raising the stakes for smallholder agriculture: how to improve farmer‘s productivity in order to remain competitive in globalising markets, how to ensure that smallholders increase their market share in the most promising value chains, how to ‗upgrade‘ food value chains (e.g. processing) so that they meet local and regional consumer expectations as regards to quality and food safety (compliance with EU standards) and how to mitigate smallholders‘ exposure to climate change induced variability and risks. IFAD is one of the few agencies in the country working on these issues with smallholder farmers on an appreciable scale. 45. IFAD has supported technological and institutional innovation processes supporting the emergence of FOs and their apex organizations, strengthened value chains and contributed to economically conducive environments at municipal level. To foster new economic initiatives, an increasing number of municipalities are using incentives based on tax breaks, investment support and partial grant financing for promising business ideas. IFAD‘s recent investments have furthermore expanded the scope of its interventions by incorporating new economic agents (e.g. small scale agro- based enterprises) and including support to non-farm activities (e.g. agro-tourism) in its rural development approach in order to address issues of under- and unemployment in rural areas. Moreover, throughout its work with municipalities that have set up ‗green‘ business zones36, IFAD also gained an important experience in public-private partnerships with marginal and under-developed municipalities. 46. As part of its supported activities, IFAD projects have facilitated access to Business Development Services (BDS). Business Development Service (BDS) providers are mainly offering (i) mandatory or legally regulated services (accounting, bookkeeping and tax-reporting), (ii) ‗commodity- related‘ advisory services (mostly geared towards obtaining government support and subsidies), or (iii) strategic services that assist enterprises in enhancing their general ‗market preparedness‘ and business competitiveness. These strategic services can be provided by municipal/local economic development organizations (LED)37, independent local development organizations or by private consulting companies. There are also a number of Regional Development Agencies (e.g. SERDA for the Sarajevo region) and some international donors have also supported the set-up of specific entrepreneurship development structures (e.g. Local Action Groups). Frequently LEDs are facing capacity problems leading to a relatively weak understanding of entrepreneurship whereas donor-led initiatives are often not sufficiently coordinated with already operating (local) actors. 47. Specialized private consultants are also hired on an ad hoc basis to help in solving particular business problems or to boost recipients‘ competitiveness. These private consultants are however unaccustomed to catering their services to ‗poor rural‘ clients and their services are rarely available to micro-businesses and associations (the IFAD target groups). 48. FOs are increasingly becoming aware of the need for appropriated BDS support, although they may lack a proper understanding of their specific requirements in accordance with their level of organizational and business development. 49. The above reveals two key challenges: firstly, how to strengthen current service providers so they can offer the appropriate strategic services (business training, marketing support, market information and knowhow, technology development and transfer) and how to ensure that public and private service providers effectively reach out to the IFAD target groups. 50. IFAD‘s country programme would capitalise on these opportunities by deepening and scaling up its support to smallholders (BDS, technological innovation and access to finance), to Producer

36 In order to foster the development of new economic activities, an increasing number of municipalities are setting up incentives structures based on tax breaks, investment support and partial grant financing for the most promising business ideas. 37 Whereas there is no agency at state level in the RS, the SME development agency leads an official network of LEDs in RS, whereas in FBiH several municipalities have set up their own LEDs.

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Associations (organisational and business development), to Cooperatives (business development, technological innovations, access to financial services), to agriculture-based SMEs (business development), to innovative off-farm economic activities (business development and access to finance), and to municipalities (conducive environments for local development, market infrastructure). The IFAD country programme would also scale up the successful efforts of other partners in terms of farm advisory services (WB), technological innovation, value chain development and rural growth (USAID), and employment and sustainable local development processes (UNDP). For the future, IFAD believes that its comparative advantage lies in continuing to work closely with non-commercial and commercial smallholder farmers, non-farm small-scale entrepreneurs, women and unemployed youth in rural areas. 51. Based on successful experiences as regards to empowerment of smallholder farmers through farmer organizations IFAD will continue participate in public policy dialogue on issues of inclusiveness, farmer support services (BDS systems) and Public-Private Partnerships.

B. Strategic Objectives 52. The overall development goal of the RB-COSOP is to enable poor rural people to improve their food security, raise their incomes by supporting non-commercial and commercial farmers, as well as on and off-farm enterprises in BiH. In alignment with the BiH Development Strategy (2008-2013), Social Inclusion Strategy (2008-2013), and IFAD‘s Strategic Framework (2011-2015), the RB-COSOP will strive to contribute to reducing poverty in a manner that enables a more sustainable and efficient use of natural resources, diversifies and improves rural livelihoods, and helps to mitigate risks posed by climate change, in particular to the most vulnerable people. The RB-COSOP will help BiH meet the range of EU directives for transforming agriculture and help the country meet its food safety and production standards which are part of the EU accession targets. In order to pursue these goals, the RB-COSOP has three strategic objectives, which are elaborated below. Gender equity and environmental sustainability will be pursued as two important cross-cutting issues, through the IFAD country programme. Appendix III outlines the RB-COSOP‘s Results Management Framework while Appendix IX concerns the project pipeline. This project concept note was developed in November 2012 in consultation with in-country counterparts and government representatives involved during the RB-COSOP design missions. 53. Strategic Objective 1: Farmer organizations (FOs) and their apex organizations are effective in supporting farmers in their transition from non-commercial to commercial agriculture. Since FOs are providing an effective pathway out of poverty by addressing some of the constraints related to small scale agricultural production, these organizations need to be strengthened and their skills, capacities and capabilities continuously upgraded, as their ‗graduation‘ - from Producer Associations to business-oriented cooperatives or to SMEs requires the attainment of specific organizational capabilities and management skills. Producer Associations, Agricultural Cooperatives and emerging rural entrepreneurs will thus require support at technological (e.g. how to upgrade production and comply with EU standards), organizational (e.g. how to increase the inclusion of ‗non-commercial‘ farmers so as to build up the necessary social capital) and managerial level (e.g. how to set up viable business ventures). IFAD-financed projects would be designed to work closely with those FOs that effectively support non-commercial smallholder farmers in their efforts to capture market opportunities and meet the requirements posed by local and foreign markets (e.g. food safety standards) - also see Appendix XII for some of the implications for smallholders in BiH on EU accession. 54. Strategic Objective 2: Clusters of smallholders (both non-commercial and commercial), FOs (Producer Associations, Agricultural Cooperatives), and SMEs are able to access - on a sustainable basis - technological innovation, business development and financial services in order to attain long-term competitiveness. SO2 will be geared towards the coordinated delivery of services in order to support the development of functional and reliable market linkages between smallholders, aggregators and SMEs. Supply and capacity of these services will – among others - be enhanced by networking service providers at municipal, regional and national level. Technological

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support at farmers‘ level will be warranted through technical assistance (e.g. on IPM, post-harvest handling, risk management and reduction of CC induced vulnerability). Technological innovation aimed at improving quality and quantity of produce will be sourced to agricultural research partners (e.g. as the production of certain high-value crops heavily relies on access to irrigated land38, technological innovations in this area will be key to success). Technological support at FO level will essentially aim at ensuring a stable and timely supply of produce and the producers‘ compliance to those food standards required by the local, regional and international markets (e.g. Organic, HACCP, ISO, GlobalGAP, Halal requirements). To this effect, the interventions will also support beneficiaries‘ acquisition of – but not limited to – collecting, grading, sorting, packaging equipment, as well as specific investments equipment for highly perishable commodities such as milk (e.g. lacto-freezers) or horticulture products. 55. With regards to ‗strategic‘ BDS, IFAD will favour a multi-prong approach based on: (i) networks of local economic development (LEDs) and private service providers actively involved in upgrading their rural development/BDS (e.g. setting up agro-business incubators); (ii) supporting resource sharing among network partners in a structured way including exchange of technical expertise, joint planning and bidding, joint marketing; and (iii) strengthening the demand (and competition) for such services by providing the necessary resources to producer organizations seeking to acquire specific ‗strategic‘ BDS. 56. Given the breath of on-going initiatives to provide rural financial services and including government and donor-supported investments, IFAD will target initiatives that facilitate access to small loans and will support interventions that create the necessary conditions for the setup of sustainable finance systems by stimulating the demand side (e.g. by facilitating between market- oriented FOs and the more commercially-oriented individual smallholders to the private banking sector). IFAD will help smallholders, non-farm enterprises39 linked to the agriculture sector and small rural entrepreneurs, in accessing these financial services. Special graduation programmes will be developed to ensure access of unemployed youth in rural areas to start-up financial support, to enable them to initiate productive enterprises. 57. In order to strengthen rural livelihoods and create rural employment, the IFAD country programme will also foster the development of innovative initiatives and new business ventures in non-farm rural sectors (agro-tourism, food processing, handicrafts or the service sector). Such initiatives are not only valuable for their capacity to generate employment for rural youth and women, but also because of their backward linkages to the agricultural sector. 58. Strategic Objective 3: Smallholders‟ and off-farm entrepreneurs‟ access to markets is improved through upgraded marketing infrastructure. Rural marketing infrastructure (e.g. for harvesting and processing) and logistics are crucial in developing efficient value chains and ensuring cost-efficient linkages of farmers‘ products to final markets. These investments are also crucial for the rural private sector (including smallholders and their organizations) to increase their preparedness for EU-accession and the required increased competitiveness. Poor rural infrastructure heavily constraints growth and development in the agri-food sector by imposing significant costs on producers and processors (limited public transport in rural areas may, for example, restrict temporary labour). Furthermore, the needs of isolated rural communities in terms of rural roads, bridges, and water sewage systems remain still largely unmet, also given the limited availability of Government funds. Investments in marketing infrastructure will be complementary to efforts made under SO2. This infrastructure will aim at upgrading logistical arrangements to improve commodity flows along the supply chains. Such collective or municipal infrastructure will include – but will not be limited to – (cold) storage facilities, collection points for products‘ aggregation, rural roads, and other investments, according to the demands as expressed by IFAD beneficiaries. Such infrastructure will help smallholders to seize new market opportunities, achieve economies of scale and increase the overall competitiveness of the sector. Investments in basic rural infrastructure will also expand opportunities

38 Less than 3,000 ha are actually irrigated – often limited by poorly maintained drainage systems. 39 Agro-tourism, food processing, handicrafts, service sectors etc. strongly related -through backward growth linkages - to the agriculture sector.

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for small entrepreneurs to set up businesses such as agro-tourism. Given the proven success, relevance and high socio-economic return from investments in market infrastructure, IFAD will help address some of these small scale market and economic infrastructure needs by leveraging contributions from municipalities, beneficiaries and other donors (such as WB, OFID, etc..). 59. Cross-cutting issues: Securing gender balance and environmental sustainability would be emphasized in all IFAD initiatives. IFAD‘s strategy will ensure that gender issues are addressed throughout its programme through an effective and active gender mainstreaming policy. This will give considerable emphasis to restoring women‘s capacity to contribute to economic growth, through explicit support, investment and training for rural women and in particular younger women, thus enabling them to participate in improving their households‘ incomes. Off-farm investments for women in training and credit and the development of micro and small enterprises will play a major role in improving gender balance and restoring women‘s equality. All IFAD investments would have gender- specific targets and ensure the allocation of adequate budgets to pursue these targets and monitor and supervise them on a regular basis. The agriculture sector is expected to be increasingly vulnerable to climate change impacts, mainly due to higher frequency and intensity of extreme weather events, pronounced water scarcity during the summer, and changes in the seasonal distribution of precipitations. Forest fires and floods may put at risk complementary sources of revenues for poor-asset farmers and increase the risk of erosion and pollution, affecting agriculture production and taking heavy tolls on infrastructures and lives. IFAD‘s strategy will ensure that these risks are properly addressed, by favouring, whenever possible, the adoption of sustainable farming practices based on water saving, minimal soil disturbance and reduced use of agrochemicals, and the adoption of better adapted crop varieties and livestock breeds. IFAD will also promote adaptation measures such as land use diversification and the introduction of resilient economic activities that build on the country‘s natural assets. Whenever infrastructure investments are made, IFAD will ensure that environmental assessments are built into formal operational procedures governing investment decision-making, thus ensuring that Project interventions conform to the principles of sustainable management of natural resources. Additional funding from the Adaptation Fund will be mobilized to tackle environmental and climate-change issues related to the implementation of the foreseen pipeline interventions (focused on livelihood diversification and building up long term competitiveness).

C. Opportunities for Innovation and Scaling-Up 60. Strategic Objective 1: The COSOP will replicate experiences that are recognized as innovative in the country and have proven successful. Appendix X outlines a framework which incorporates these lessons and provides a pathway for incorporating them for scaling up in on-going and future investments. The country programme will scale up its positive experience of establishing value chain linkages for smallholder farmers (non-commercial and commercial) with the private sector through PAs and Agriculture Cooperatives. These links help to put in place innovative arrangements for access to markets and financial services (linked to SO2) for the smallholder farmers through tripartite arrangements between financial services providers, agro-processors and FOs. The country programme will facilitate these arrangements through its implementing agencies as a regular feature of its on-going and pipeline projects. The IFAD country programme would assist smallholders, FOs and rural entrepreneurs to meet the EU standards (food safety, environmental standards) and in collaboration with FOs and the private sector, the country programme would also explore the potential for commercialisation based on concepts such as geographic marketing and product branding of specialty cheeses, honey, wines, non-timber forest products, organic products, etc. 61. Strategic Objective 2: coordinated service delivery will have to be constructed upon effective partnerships and networks. Strengthened coordination will be required at two levels 1) within clusters - among value chain actors and 2) between service providers (including local institutions, ‗production- related‘ advisory services and ‗strategic‘ BDS). 62. In order to deliver - in a coordinated and sustainable manner - technological innovation, BDS and financial services the public sector actors (Ministries, LED agencies, Regional Development

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Agencies, Municipalities), private sector actors (private LEDs, associations of entrepreneurs) and civil society actors (FOs) will have to acquire the necessary skills, capacities and strategic knowledge. Strategic skills will relate to business development and business planning, innovation management, contract farming, or even the use of programmatic approaches towards agricultural development. Capacity strengthening will require enhanced coordination and knowledge transfer between policy makers, research and extension organizations whereas strategic knowledge relates to organic production and certification, geographical indications and marketing, compliance to EU standards, etc... 63. In order to support the sector in acquiring the necessary knowledge and skills and foremost in order to catalyse effective networking between LEDs, private service providers, municipal resource centres, civil society actors and others IFAD would explore the possibility to outsource some of the tasks at hand. 64. With regards to financial services, IFAD will continue the fostering of innovation by commercial banks and microcredit organizations in order to improve the outreach, and enhance the rural poor‘s access to affordable financial services. IFAD will cooperate with commercial banks so as to stimulate competition between financial service providers. 65. Strategy Objective 3: The Country programme will strengthen the capacity of smallholder farmers to manage public or collective market infrastructure through their organizations. In order to maximize the success rates of these arrangements, criteria will be put in place in order to ensure effective governance systems. IFAD will support initiatives from Municipal Governments that are effectively contributing to the creation of an enabling environment for private investments while leveraging co-financing from other partners, including donors and private actors (such as agribusinesses), in order to finance market infrastructure.

D. Targeting Strategy 66. The target group for the country strategy will include: (i) non-commercial (subsistence) and commercial (young) smallholder farmers, both women and men; (ii) Producer Associations and Agriculture Cooperatives with an outreach to non-commercial smallholder famers; (iii) women and unemployed youth interested in non-farm wage employment and enterprise development; and (iv) on- farm and off-farm small enterprises with the potential to grow and enhance their productive potential and contribute to rural employment. 67. The targeting approach that the strategy will follow will include: (i) Geographic targeting by prioritising the poorest municipalities including those which have not benefited from previous IFAD projects; (ii) targeting of value chains that are attractive to smallholders and rural poor; (iii) direct targeting for women, youth, rural households and pro-poor institutions; and (iv) self-targeting by requiring individual interest in participating in IFAD project financed activities as a pre-requisite for participation. The IFAD portfolio will target value chains that are labour-intensive, have a clear comparative advantage in the region, have the potential to ensure a decent income on a small plot of land or a small farm.

E. Policy Dialogue 68. IFAD‘s policy dialogue agenda will be derived from its strategic objectives and its focus on the inclusion of non-commercial farmers in business clusters, FOs, BDS delivery systems, public-private partnership for marketing infrastructure, the promotion of dynamic rural enterprises (farm and non- farm), marketing chain linkages and fostering of sustainable rural livelihoods. In identifying its policy agenda for the country, the RB-COSOP will keep track of BiH‘s efforts in the frame of the EU accession process (legislative and institutional alignment to the EU ‗acquis‘) 40..The World Bank and IFC are also pursuing a strong policy agenda through a series of Development Policy Operations

40 Bosnia and Herzegovina 2012. Progress Report. Communication from the Commission to the European Parliament and The Council. Enlargement Strategy and Main Challenges 2012-2013. European Commission. Brussels. 10.10.2012.

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(DPO) that support macroeconomic stability, public expenditure reform, regulatory reform and regulatory simplification as well as investment policies. IFAD will follow up on those policy processes especially as regards to agriculture and rural development (e.g. from production to income support, market support and FOs) in order to align its efforts with the country‘s broader policy reform efforts. 69. IFAD will use several opportunities for enhanced policy dialogue with the Government These opportunities include: (i) fact-driven policy dialogue (resulting from project implementation and impact evaluation) on how to strengthen their efforts to create an enabling policy and legal framework; (ii) participation with other donors in the Agriculture Sector Group; and (iii) strengthening the capacity of smallholder farmers, FOs and their apex organizations to lobby with the Government on policy issues of concern to them. These opportunities would be exploited as much as possible. IFAD will also provide support through country grants to undertake thematic studies. 70. IFAD recognizes that a supportive policy framework is in place to support the growth of Producer Associations and Agriculture Cooperatives. However, the Agriculture Cooperatives in RS need policy support to resolve the issue of land titles and asset ownership inherited from the previously state-owned cooperatives. An approach which has worked well in this regard is to strengthen the Cooperative Unions and Producer Associations and enable them to lobby for their own rights.

V. PROGRAMME MANAGEMENT

A. COSOP Monitoring 71. The RB-COSOP management and monitoring will be undertaken through an annual review organized by the Country Programme Management Team. These annual reviews will aggregate the key indicators outlined in the RB-COSOP results management framework (which is outlined in Appendix III) for each of the Strategic Objectives. Project Coordination Units in the two Entities will report on the on-going projects‘ contribution to key output and outcomes. Outcome indicators will report on results such as numbers of people benefiting from membership in FOs, access to technological innovation and BDS, market infrastructure, access to rural financial services and the increase in production and evolution of market share of agricultural produce and non-farm outputs and employment. Milestone indicators would document immediate outputs such as the number of organizations established, people trained, local level BDS and technological innovation networks operational, number and types of infrastructure constructed and number of active borrowers. All output and outcome data would be gender disaggregated. The annual reviews will also be used as an opportunity to update the log-frame based on any modifications in projects under implementation. A RB-COSOP mid-term review would be undertaken in 2015, and arrangements for self-evaluation at RB-COSOP completion would be undertaken in 2018.

B. Country Programme Management 72. The Country Programme Manager (CPM) will be expected to play a principal role in ensuring that the opportunities which become available during the RB-COSOP period are capitalised upon, for both lending and non-lending activities. The CPM has the primary responsibility for ensuring that the teams designing new projects pursue the strategic objectives outlined in the RB-COSOP systematically and that their progress towards their achievement is monitored and evaluated during IFAD design, supervision and annual review missions. The CPM will organize CPMT meetings to review progress in implementation, hold knowledge exchange seminars and workshops on topics of interest to the country programme, identify issues related to innovation, scaling up and draw lessons from successes and failures. The CPM will also play a key role in ensuring continued donor coordination and identify opportunities for partnering in both lending and non-lending activities such as policy dialogue, co-financing, knowledge management, and others.

15 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

C. Partnerships 73. IFAD has forged a range of partnerships with the Government at the State, Entity and Municipal level, as well as with financial institutions, the private sector and FOs. At the State level, IFAD will work closely with the Ministries of Finance and Treasury and the Ministry of Trade and Economic Relations to understand the overall Government priorities and coordinate the agreements for the implementation of the overall country programme. At the Entity level, IFAD will work in close partnership with the two Ministries of Finance and the Ministry of Agriculture to identify priority areas of investment, geographical location of investment and the scope of projects. Municipal Governments have been important partners for IFAD and have played a key role in identifying and financing part of the costs of physical and market infrastructure in rural areas. They would also help to facilitate opportunities for rural employment generation through a host of measures such as creation of special business zones, part financing, and access to facilities and incentives. IFAD would capitalise on these opportunities to catalyse rural growth and employment creation. IFAD will actively support Local Economic Development organizations (private and public) to strengthen their capacity to deliver BDS. 74. The IFAD country programme provides an opportunity to build synergies with other donors and financing agencies. IFAD will work closely with the European Union to identify opportunities to assist the smallholder farmers in meeting EU production standards through targeted investments (e.g. market infrastructure). The country programme will coordinate closely with the UN, World Bank, EBRD, EFSE and USAID in sharing lessons from their investments in the provision of financial services, infrastructure and agriculture value chain development. IFAD will build on the positive experiences of USAID‘s FARMA and LAMP projects and the work of the Czech Development Agency, Swedish Embassy and the Swiss Development Cooperation, EU, World Bank and IFC‘s investments in technical capacity building regarding Food Safety Standards in the country will be utilized for the benefit of smallholders by IFAD projects. 75. The country programme will also engage in partnerships which can help to promote sustainable use of natural resources through the provision of co-financing opportunities or provision of technical assistance. Additional financing sources available through the Global Environment Facility, the Special Climate Change Fund, and the Adaptation Fund will be explored. The IFAD country programme will explore the potential for partnership with the European Fund for South East Europe which has introduced a new investment vehicle called Green for Growth Fund, that finances investments in energy efficiency and renewable energy sources. The country strategy will encourage the leveraging of IFAD resources as far as possible for a higher level of impact on the target beneficiaries. Through its projects, IFAD will provide financing which is complementary to EFSE and the World Bank SME Project, as it will focus on loans for agriculture and agribusiness and rural enterprise development whereas these other initiatives focus on housing loans, medium sized enterprises and do not finance start-ups. 76. Agriculture Cooperatives and Producer Associations are emerging as important organizations that help link the smallholder producers to markets. These organizations have proved very effective in collection and processing of a range of products such as dairy and horticulture products from smallholders. IFAD will support performing agricultural cooperatives in reaching out to subsistence smallholder farmers and to exploit competitive markets. 77. The private sector engaged in the provision of BDS (private consultancies), financial services, agro-processing, marketing and export will be an important partner in IFAD‘s country strategy. Through its projects, IFAD will create opportunities to encourage collaboration between the private sector and smallholder farmers and rural entrepreneurs. Commercial banks and microcredit organizations would be a key partner in providing financial services to the IFAD target group. In facilitating access to loans, IFAD will also explore the possibility to structure and support the demand for credit to the private banking sector41. For example, IFAD will strengthen its partnership with banks such as the Ziraat Bank and the Bosna Bank International (the latter is already one of the Partner

41 thus leveraging specific ‗agricultural and employment generation‘ credit lines under quasi-market terms and contributing to the expansion of their outreach to rural areas.

16 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

Financial Institutions as part of IFAD‘s on-going projects)42. This in order to improve smallholders access to competitive loans and foster Public Private Partnerships in rural areas.

D. Knowledge management and communication 78. Knowledge management and communication is expected to be an on-going process during the RB-COSOP period. Since beginning operations in BiH, IFAD has used its loan and grant programme to generate and share lessons and would continue to do so in the future. The key sources of knowledge generation are found to be at several levels. At the beneficiary level, IFAD will encourage farmers, rural households, FOs and small entrepreneurs to share their experiences of participating in IFAD-financed activities through documenting case studies and exchange visits. At the level of implementing agencies, IFAD expects that all key implementing agencies will document their learning from the implementation of different project components. The PCU/APCU will hold regular Inter-Entity workshop to share these experiences, and IFAD will also document these during the supervision and review processes. At the level of donors, IFAD will share its experiences with those of other donor agencies working in the agriculture and rural development sector. IFAD will also explore opportunities for knowledge management through its partnership with the UN country Team in the UN Development Assistance Framework (UNDAF). UNDP has offered its Communication Office in Sarajevo as a focal point to disseminate the successful experiences of IFAD in-country investments and to play a more active role in profiling these experiences systematically through its good offices. IFAD will more actively engage the University of Sarajevo, University of Banja Luka and the Faculty of Agriculture of East Sarajevo in its knowledge management activities and provide grant financing for documenting lessons in specific sectors. IFAD would sponsor knowledge products and build the capacity of its implementing partners to better document and share its experience with a wider audience through active engagement with the electronic and print media in the country.

E. PBAS Financing Framework 79. The current RB-COSOP covers two Performance Based Allocation System (PBAS) cycles 2013 to 2015 and 2016 to 2018. Bosnia and Herzegovina has scored 4.04 on its rural sector performance in 201243. Based on this performance and its GNI, the country has approximately USD 12.7 million available for the first three-year period between 2013 and 2015. The allocation for the next cycle is likely to at least match this allocation and will finance the Rural Competitiveness and Diversification Project (RCDP). In addition to this PBAS allocation, the Rural Business Development Project (RBDP) was approved by the Dec 2011 EB and will initiate in 2014. This project will complement efforts and present a similar strategic approach foreseen under this RB-COSOP. This implies that the total IFAD investment portfolio during 2013-2015 will amount to USD 26.2 million, or USD 50.0 million by including funds leveraged by other co-financiers including Government and beneficiaries' contributions (approx. USD 5.0 million), other donors (possibly OFID, approx. USD 10.0 million), the Adaptation Fund (approx. USD 8.0 million). Table 2: PBAS Scores 2012

42 The Turkish Ziraat Bank of Bosnia and the Bosna Bank International (BBI) are implementing a ten year EUR 100 million credit line project. Project objectives are to (i) support returnees, especially those involved in agricultural activities; and (ii) stimulate rural employment by offering them loans with an interest rate up to 3.99%. 43 A score of 5 is the highest that can be obtained and shows proactive steps to improve the rural policy framework and initiatives, while a score of 2 shows restrictive policies that hinder rural and agriculture growth and development.

17 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

Combined Indicator score Average A(i) Policy and legal framework for rural organizations 17.0 4.25 Dialogue between government and rural A(ii) organizations 17.0 4.25 B(i) Access to land 16.0 4.00 B(ii) Access to water for agriculture 16.0 4.00 Access to agricultural research and extension B(iii) services 12.0 4.00 Enabling conditions for rural financial services C(i) development 16.0 4.00 C(ii) Investment climate for rural businesses 12.0 4.00 C(iii) Access to agricultural input and produce markets 11.5 3.83 D(i) Access to education in rural areas 17.0 4.25 D(ii) Representation 12.0 4.00 Allocation and management of public resources for E(i) rural development 16.0 4.00 Accountability, transparency and corruption in rural E(ii) areas 16.0 4.00

Sum of combined scores 178.5 48.58 Average of average scores 14.87 4.04

F. Risks and Risk Management 80. With respect to Strategic Objective (SO) 1, several risks were identified. Firstly, there is a risk of inefficient targeting of poor farmers or elite capturing by the strongest FAs or some members. This risk will be mitigated through (a) disaggregation of M&E data by type of farms (registered and non- registered; (b) capacity building of a wide range of members to ensure transparency, good governance and management systems, and focus on cooperatives that have sufficient members. Secondly, farms in BiH should become competitive in a regional context to survive as viable units. The IFAD country programme will help smallholders to accelerate growth and technology adoption. 81. As far as environmental and climate change-related risks are concerned, investments will ensure that use of water resources and land are adapted to climate variability, that natural assets and energy are used efficiently. IFAD will engage in policy dialogue to favour the adoption of institutional support and policy measures that can help to speed up climate change adaptation measures in agriculture, mainly by alleviating constraints and providing farmers with the required support and incentives. 82. The key risk in meeting SO2 regarding access to business development and financial services is the low appetite of commercial providers to offer their products to smallholder farmers and rural enterprises. Therefore financial services will be provided through a range of institutional arrangements including both commercial banks and micro-credit organizations which have a broader outreach and through partnerships between the private sector and farmer organizations to enable them to establish financing arrangements along value chains which can reduce the risk of participating financial institutions and enhance their appetite for rural lending. With respect to reported over-indebtedness in Bosnia and Herzegovina, a credit bureau is now in place and offers the possibility of cross checking the debt profile of potential borrowers as well as providing technical assistance to potential borrowers to ensure that they have a sound business plan prior to making investments. The participating microcredit organizations have also put in place risk mitigation strategies and have strengthened their capacity to screen loan applications. Non-financial development services will be promoted through public-private partnerships with LEDs. 83. With respect to SO3, investments in collective privately-owned infrastructure and equipment run the risk of not being managed properly. To mitigate this risk, support would only be provided to organizations which co-finance a major share, have a large number of members and with sound internal management capacity.

18 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME

84. With respect to project organization, the complex governance structure and resulting time- consuming intra-Entity and State-level consultation constitute a risk to IFAD‘s investment in the country leading for example to delays in ratification processes. Although IFAD‘s past experience have been positive, risks will be mitigated by allocating funds for each Entity and allowing phased disbursements. 85. With regards to fiduciary aspects and financial management, the inherent risk of the country is medium and has shown improvement in the past years. According to the Corruption Perception Index published by Transparency International, Bosnia and Herzegovina improved from 3.2 in 2011 to 4.2 2012 increasing its ranking from 91 (out of 182) to 72 (out of 174). With the objective of accelerating the EU integration process, Bosnia and Herzegovina has also made progress in the area of public financial management, including accounting, auditing, government budget transparency, treasury management etc.. Similarly, the on-going IFAD projects in the country have shown adequate financial management capacity and compliance with the underlining covenants of the financing agreements including submission of satisfactory project financial statements and audit reports in a timely manner. The main country risks with respect to the fiduciary aspects, include i) the complex governance structure of the country (dating back to the Dayton Agreement), ii) lack of a uniform and consistent budget discipline across the system of public resource management, iii) weak compliance with procurement laws, iv) weak capacity of internal audit and v) widespread corruption. Additionally, increasing the capacity of practising accountants and auditors to ensure full compliance with International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) is an area that requires attention. The Supreme Audit Institutions of the country have achieved significant results in a complicated environment and with very limited resources, but their financial independence remains unsecured. In accordance with the Paris Declaration, IFAD will continue to explore possibilities to further increase the use of country systems while ensuring that IFAD‘s minimum requirements are met in a timely manner. The World Bank is currently undertaking the first Public Expenditures and Financial Accountability (PEFA) assessment in Bosnia and Herzegovina, which will allow IFAD to obtain more information of the state of the public financial management.

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 1: RB-COSOP Formulation and Consultation Process

Appendix 1: RB-COSOP Formulation and Consultation Process

RB-COSOP FORMULATION AND CONSULTATION PROCESS Initiation of the RB-COSOP Approval and Formulation Process: 1. The process for planning for the RB-COSOP was initiated in November 2010 when preparatory studies and a background and strategic note in the context of scaling up was undertaken. In September 2012 a Country Programme Management Team was set up at headquarters and planning for the in-country work mission was initiated. A three member strategy formulation mission visited the country between November 11 and November 29, 2012 under the guidance of the Country Programme Manager. The mission was also joined by a team undertaking a Strategic Environmental Assessment for the country to assess how environmental and climate change aspects could be incorporated as an integral part of the country strategy. The COSOP Design Mission also benefitted from the findings of the Supervision and Implementation Support Mission in the country to supervise the Rural Enterprise Enhancement Project (REEP) and the Rural Livelihoods Development Project (RLDP). 2. The RB-COSOP design mission met key stakeholders in the country including Government representatives at the State level and the and two Entity levels, donor agencies investing in the agriculture sector, potential implementing partners, farmer organizations, small holder farmers and rural entrepreneurs. To build government ownership for the process and make them a key partner in the preparation of the new RB-COSOP, meetings were held with the Ministry of Foreign Trade and Economic Relations and Ministry of Finance and Treasury at the State level to keep them informed of the process. At the Entity level, meetings were held in the Federation of Bosnia and Herzegovina with the Ministry of Agriculture Water Management and Forestry and in Republika Srpska meetings were held with the Ministry of Agriculture, Forestry and Water Management and the RS Ministry of Finance. Meetings were also held with all main donors such as the World Bank, the European Commission, the European Bank for Reconstruction and Development, Internal Finance Corporation, UNDP, USAID, Swedish Embassy, Swiss Development Cooperation, etc. A list of people met is attached at Appendix Table 1.1. 3. Members of the RB-COSOP mission participated in two workshops. The first was conducted on November 17, 2012 as part of the consultation process for the Strategic Environmental Assessment. The COSOP mission made a presentation to share the process of identifying overall strategic objectives at the country level and invited participant feedback on some of their key constraints in enhancing agriculture growth and productivity and other issues in the rural areas of the country linked specifically to environmental and natural resource management issues. A stakeholder workshop dedicated exclusively to the RB-COSOP design was held on November 27th, 2012 in Sarajevo to share the findings of the mission and the strategic objectives of the country strategy and other key parameters. Wrap-up meetings were held at the Entity and State level to finalize the main elements of the RB-COSOP for Bosnia Herzegovina and identify pipeline projects. 4. The draft COSOP was submitted for review to members of the CPMT in December 2012. After formal peer review by the OSC Secretariat on May 30, 2013 and incorporation of all comments received, the RB-COSOP was further fine-tuned, and the final version was discussed and validated during an in-country wrap-up meeting held on July 18, 2013. The document would then be submitted to the Executive Board for Approval in December 2013.

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 2: Country Economic Background Sheet- Bosnia and Herzegovina

Appendix 2: Country Economic Background Sheet- Bosnia and Herzegovina

Land area (km2 thousand) 2010 1/ 51 GNI per capita (USD) 2010 1/ 4 700 Total population (million) 2010 1/ 3.76 GDP per capita growth (annual %) 2010 1/ 1 Population density (people per km2) 2010 1/ 74 Inflation, consumer prices (annual %) 2011 1/ 4

Social Indicators Economic Indicators 0 Population growth (annual %) 2010 1/ GDP (USD million) 2010 1/ 16.58 Crude birth rate (per thousand people) 2010 1/ 9 GDP growth (annual %) 1/ 5.5 Crude death rate (per thousand people) 2010 1/ 10 Agriculture growth 0.8 Infant mortality rate (per thousand live births) 2010 1/ 8 Life expectancy at birth (years) 2010 1/ 75 Sectoral distribution of GDP 2010 1/ Total labour force (million) 2010 1/ 1.48 % agriculture 10 Female labour force as % of total 2010 1/ 40 % industry 26 Education % services 64 School enrolment, primary (% gross) 2010 1/ 17 Adult illiteracy rate (% age 15 and above) 2010 1/ n/a Consumption 2010 1/ Government expenditure (as % of GDP) 21 Nutrition Household final consumption expenditure, etc. (as % of GDP) 80

Child undernourishment 1.6% Gross domestic savings (as % of GDP) -1

Malnutrition prevalence, height for age (% of children under 5) 2008 n/a 1/ Malnutrition prevalence, weight for age (% of children under 5) 2008 1/ n/a Balance of Payments (USD million) Merchandise exports 2010 1/ 4 803 Merchandise imports 2010 1/ 9 223 Health Health expenditure, total (as % of GDP) 2011 1/ 5.6 Balance of merchandise trade -4 420 Physicians (per thousand people) 2010 1/ n/a Population using improved water sources (%) 2010 1/ 99 Current account balances (USD million) Population using adequate sanitation facilities (%) 2010 1/ 95 before official transfers 2010 1/ -3 505 after official transfers 2010 1/ -1 008 Agriculture and Food Foreign direct investment, net 2010 1/ 188 Food imports (% of merchandise imports) 2010 1/ 18 Fertilizer consumption (kilograms per ha of arable land) 2010 1/ n/a Government Finance

Food production index (2004-2006=100) 2010 1/ n/a Cash surplus/deficit (as % of GDP) 2010 1/ -2 Cereal yield (kg per ha) 2010 1/ 3 858 Total expense (% of GDP) a/ 2010 1/ 41 Present value of external debt (as % of GNI) 2010 1/ 37 Land Use Total debt service (% of GNI) 2010 1/ 8 Arable land as % of land area 2010 1/ 20 Forest area as % of total land area 2010 1/ 43 Lending interest rate (%) 2010 1/ 8 Agricultural irrigated land as % of total agric. land 2010 1/ n/a Deposit interest rate (%) 2010 1/ 3 a/ Indicator replaces "Total expenditure" used previously. 1/ World Bank, World Development Indicators database CD ROM 2012 -2013

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 3: RB-COSOP Results Management Framework

Appendix 3: RB-COSOP Results Management Framework

Country Strategy Alignment Key Results for RB-COSOP Milestone indicators Strategic Objectives Outcome that RB-COSOP is showing progress RB-COSOP Institutional, Policy (SOs) expected to influence. towards SO Objectives BiH‘s Development Strategy: (i) SO 1: FO (PAs and Likelihood of sustainability of 180 PAs/ cooperatives/ Given the rather supportive policy sustainable development (SD); (ii) Cooperatives) and their PAs/cooperatives/SMEs SMEs, grouping 12,000 framework for PAs and Agriculture employment generation; and (iii) apex organizations are Strengthened organizational skills and subsistence and Cooperatives, policy dialogue will European integration. Agriculture effective in supporting capabilities enable 180 Agricultural commercial smallholders, focus on ensuring that non- and Rural Development (ARD) is farmers in their Cooperatives, PA and SMEs to youth and women, are commercial farmers (subsistence) under SD – FbiH is currently transition from provide effective services to their strengthened in their remain included and benefit from developing ARD strategy whereas subsistence to members and ‗cooperants‘. organizational state-led support initiatives, in RS has recently updated. Both commercial agriculture capabilities . particular the unemployed youth Inclusion of non-commercial farmers, ARD strategies are prioritising: (i) In order to include and women competitiveness and improvement women and youth is ensured by supported FOs. subsistence smallholders, of the agricultural and food sector, FOs adopt specific (ii) institutional development and Strengthened organizational skills approaches. improvement of the legal allows FOs and SMEs to meet market framework in order to stimulate requirements (local and foreign) in N. of PAs (or % of total) that graduate into agricultural and rural development, terms of quantity and quality of (iii) conservation and sustainable produce business-oriented use of natural resources, and (iv) Cooperatives or SMEs. improvement of rural livelihoods and diversification. SD strategies seek to enhance SO 2: Clusters of Improved performance of service N. of FOs and SMEs that Policy dialogue on setting up long term competitiveness of the smallholders (both non- providers to selected clusters have access to techn. strategic BDS networks while agricultural sector. Support in the and commercial), FOs Networks of BDS providers are: (i) innovation and „strategic‟ strengthening the demand side for RS is organized through (Producer Associations, coordinating private and public (e.g. BDS these services. centralized systems; in FBiH, Agricultural LED) ‗strategic‘ BDS providers; and 180 FOs and 600 SMEs support is structured through Cooperatives), and (ii) supporting the continuous benefit from specialised municipalities and cantons. SMEs are able to access improvement of their performance. technical assistance and Support to rural financing - on a sustainable basis - ‗strategic‘ BDS to expand technological FOs and SMEs are able to select and especially for capital investments contract out the necessary strategic their businesses. is also identified as a priority. innovation, business development and BDS. 400 young men and 200 financial services to Networked private/public service young women trained in attain long-term providers are offering ‗strategic‘ BDS business skills for rural competitiveness. to PAs, Cooperatives and SMEs. entrepreneurship.

25 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 3: RB-COSOP Results Management Framework

Technological innovation to be N. of farmers adopting provided: (i) at farmer level through economically viable and qualified TA (e.g. production environmentally sound technologies for high-value crops); (ii) production technologies at FO level through specialised TA 18,000 smallholder farmers (e.g. on compliance to food standards (non-commercial and required by the local, regional and commercial, including 25% international markets) combined with women) are adopting targeted investments (e.g. for storage, technological innovations grading, sorting, packaging). that (i) improve labour Improved access of the rural poor to productivity, (ii) raise crop affordable financial services. yields and (iii) improve the Smallholders, FOs, small rural productivity of their entrepreneurs and non-farm livestock and respond to enterprises are able to access cost- market and environmental effective and quasi-market based requirements (e.g. those financial services. Rural unemployed related to EU food safety). youth enabled to initiate productive N. of active borrowers enterprises. 4000 households (including Creation of employment 400 female-headed) and opportunities 250 rural entrepreneurs Innovative initiatives and new (30% women and youth) business ventures in off-farm rural obtain loans and expand sectors (agro-tourism, food their production capacity by processing, handicrafts or the service 30%. sector) generate employment . Off-farm employment Beneficiaries adopt sustainable 600 jobs (of which 200 for agricultural practices, are less women and youth) created vulnerable to climate change, and use in rural areas through the water and energy efficiently. initiation of 200 rural enterprises, using natural resources sustainably. % change in water and energy efficiency.

26 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 3: RB-COSOP Results Management Framework

Investment in rural (including SO 3: Smallholders‟ and Producers benefit from improved N. of market Policy dialogue on supporting market) infrastructure is a key off-farm entrepreneurs‟ access to markets infrastructure private-public partnerships and priority of the two Entity access to markets is 150,000 people (50% women) benefit constructed or ensuring that environmental Governments. improved through directly from market infrastructure. rehabilitated concerns are included into the upgraded market 330 market infrastructure design. infrastructure. Likelihood of sustainability of market infrastructure (e.g. storage schemes constructed or facilities, collection points, rural rehabilitated. roads) N. of groups Likelihood of sustainability of formed/strengthened to groups managing infrastructure manage infrastructure

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 4: Previous COSOP Results Management Framework

Appendix 4: Previous COSOP Results Management Framework

Project LRFDP (Note 1) REEP (Note 2) RLDP (Note 2) Project Status Closed (2001-2008) Closing (2006-2012) On-going (2010-2015) Project Area 21 poorer and disadvantaged Municipalities (10 in 25 poorer and disadvantaged municipalities (14 in FBiH 29 poor and disadvantaged municipalities (15 in FBiH FBiH and 11 in RS) and 11 in RS) and 14 in RS) USD 29.45 million (IFAD US$ 14.04 US$ 26.9 million (IFAD US$ 11.9 million, OFID US$ 6.0 USD 25.7 million (IFAD US$ 11.11 million OFID US$ million OPEC Fund USD 5.0 million Italian FFAM Grant million, Government US$ 2.8 million, Beneficiaries US$ 6.0million, Government US$ 2.5 million, Beneficiaries Total Project Cost US$ 0.77 million Government USD 6.38 million CEN 4.0 million, PFIs US$ 2.3 million) $ 3.9 million, PFIs US$ 2.1 million Gender Grant USD 0.10 million beneficiaries USD 3.15 million) Beneficiary 38,600 48,300 29,100 households

OUTPUTS

Established/supported 23 PAs and I cooperative Established/supported 36 PAs and cooperative Established/supported 25 associations and  Total members 3,396 (39% women)  Total members 7,044 (17% women) cooperatives  100 milk collection centres (65,000 litre capacity)  Training provided to 13,734 persons (18% women)  Total members 1,590 (14% women)  Milk sold to dairies increased from 2.5 to 11.3 in milk hygiene, silage, vegetable and berry  Training in animal husbandry provided to 1,386 million litre/annum (between 2004 and 2008) production and beekeeping trainees (31% women) Farmer Organisation  Training milk production/ hygiene provided to  Milk collected by project supported PAs from 3,701  Training in fruit production provided to 298 4,150 trainees (25% women) producers and sold to one diary processor and 2 trainees (20% women) cheese processors amounted to litre 32.1 million (2011)  6 SMEs supported introduced international food safety standards (HACCP, ISO, Global GAP and HALAL) 9 commercial banks and 2 micro-credit organisations 5 commercial banks and 5 micro-credit organisations collaborated with project and delivered: collaborated with project and delivered:  3,462 Farm and off farm enterprise loans for total  2,842 Farm and off-farm micro loans for total amount of BAM 14.7 million (US$ 9.8 million) amount of BAM 18.8 million (US$ 12.5 million) Access to Finance  71 SME loans for total amount of BAM 6.4 million  98% of farmer and micro loans are of less than BAM (US$ 4.3 million) 10,001 (US$ 6,600) compared to GNI/capita of US$ 4,770  73 SME loans for total amount of BAM 3.5 million (US$ 2.3 million)

29 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 4: RB-COSOP Results Management Framework

 Women borrowers received 46% of the number of loans and 35% of the loan amount  88% of the loan amount disbursed by MCOs and 12% by commercial banks Financed 139 market linking sub-projects Financed 134 market linking sub-projects Financed 25 market linking sub-projects  cost of US$ 10.5 million  Total cost of BAM 18.4 (US$ 12.3 million)  Total cost BAM 2.9 million (US$ 1.9 million)  97 feeder roads (163.9 km)  Beneficiaries contributed BAM 6.1 million (33% of  Beneficiaries contributed BAM // million (//% of Market Linking  5 small bridges and stream crossings total cost) total cost) Infrastructure  17 Village water supply systems  84 feeder roads (112.9 km)  13 feeder roads (15.7 km)  20 animal watering points  9 small bridges and stream crossings  6 Water supply  29 village water supply systems  6 other  12 miscellaneous other investments

EFFECT and IMPACT

Project LRFDP REEP (Note 3) RLDP Average livestock ownership/household Average livestock ownership/household  From 2.5 to 8.4 cows  From 2.1 to 5.5 cows Average milk yield/cow/lactation/year Average milk yield/cow/lactation/year  From 1,750 to 2,744  From 2,800 to 4,500 Total Job creation by SME obtaining project loans Total Job creation by 50 SME which received BAM 2.68  83 full time and 420 part time million of project loans Household agricultural income  116 full time and 81 part time jobs (BAM 13,500 per  Data from one dairy company (Agrocentar in job created) FBiH) show individual producers increased annual Average monthly household agricultural income milk delivery to dairy from 3,000 to 6,000 litre  From BAM 11,700 to BAM 12,800 in 2011 and thus increased their milk sale revenue from KM 1,488 to 3,364 over 2002-2007 period (BAM/US$ average exchange rate about 1.5 BAM/1 US$ Note 1: Output and Impact data for LRFDP from PCR Note 2: Output data for REEP and RLDP from M&E system and Supervision Reports Note 3: Impact data for REEP from Panel Impact Surveys in both FBiH and RS

30 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 5: CPE Agreement at Completion Point

Appendix 5: CPE Agreement at Completion Point

There has been no Country Programme Evaluation conducted for Bosnia and Herzegovina. As such there is no agreement at completion point.

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis

Appendix 6: Baseline Poverty Analysis

A. Data sources 1. Whereas a plethora of poverty related data is readily available, the last population census was carried out in 1991 and hence not allowing an accurate analysis of the population structure in BiH. The UNDP commissioned Rural Household Survey, part of the preparation process for the UNDP‘s National Human Development Report of 2012, remains under preparation. The main information sources used to undertake the baseline poverty analysis presented in this Appendix are the Household Budget Survey 2004 (HBS-2004), the HBS-2007, the set of preliminary data from the HBS-2011, Annual Labour Force Surveys 2006-2010 (LFS), LFS 2012, and the 2009 World Bank Poverty Update. In addition, some of the documentation relies on the Living Standard Measurement Survey (LSMS) which were carried out in 2001-2004 and replaced by the HBS from 2004 onwards.

B. Introduction 2. Bosnia is an upper-middle income country, where poverty mainly occurs as a rural phenomenon. The country has relatively high social indicators and most of the population has access to water, sanitation and health care. The country has experienced a steady 6% annual growth between 2000 and 2008, which has increased to 18% in 2011. 3. BiH ranks 74 in the UNDP HDI index, with an HDI of 0.733 in 2011 having increased from 0.717 in 200544. It also ranks well with respect to inequality, with a Gini coefficient of 0.64945. It has a positive record with respect to education with 9 years of mean schooling and a literacy rate of 98%. Its Gini Coefficient is 36.246 which also indicates a low level of inequality, though the current economic crisis is widely believed to be worsening the situation. In 2006, the BiH Human Social Exclusion Index (HSEI) was 50.32%, indicating that half of the BiH population is, in some way, excluded within the society, i.e. being left outside the mainstream and denied access to social, economic and political rights afforded to others.

C. General Poverty Situation 4. As mentioned above, BiH has not had a population census since 1991, shortly before the Civil War which tore the country apart between 1992 and 1995. Since then the three constituent parts have been unable to agree on the information to be collected. However, agreement has apparently been reached and a census is due to take place in April 2013. Meanwhile all agencies operate on the assumption of a total population of 3.5 million in 2007, increased to 3.75 million according to 2011 estimates. This figure is substantially lower than the 1991 figure of 4.38 million. About 200,000 people were killed during the war and many more remained disabled. The war also resulted in a change in the ethnic composition throughout the country, with a visible decrease in Croats residing in BiH. 5. The overall population and poverty situation as reflected in the HBS-2007 was distributed as follows: Table 1. Population and poverty estimates 2007 FBiH RS BD BiH Total population 2 213 783 1 166 173 67 200 3 447 156 Households 657 984 374 715 21 914 1 054 613 % Rural/peri-urban 58.8 65.2 53.2 60.8 % Poor households 16.3 21.7 23.6 18.4 % Poor individuals 17 20.1 25.8 18.2 % rural poor* 23.6 23.9 32.5 23.9 % poor HH with agriculture main activity 26.6 24 40.3 25.2 *the HBS table 8A of Poverty and living conditions volume does not specify whether discussing individuals or households for this aspect

44 All data in this sentence from UNDP: HDI 2011 online, accessed November 2012. 45 UNDP: HDI 2011 online, accessed November 2012. 46 Ibid.

33 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis

6. As is clear from the data above, overall poverty is around 18%. Preliminary data from the 2011 Household Budget Survey (HBS-2011) indicates that there has been very little change since 2007 with an overall poverty rate of 17.9% poor individuals and 17.2% poor households (inclusive of a decrease of 14.8% poor households and 14.4% poor individuals in RS, and a largely unchanged situation in the FBiH with 16% poor households and 17.1% poor individuals47). A recent World Bank study suggests that the food, fuel and financial crisis could have increased the number of people living under the national poverty line and that the proportion of vulnerable population (at-risk of falling under the poverty line) has in fact increased48. Among the main ways in which BiH is affected are:  A decrease in remittances from the EU;  A reduction in emigration opportunities to the EU; the forthcoming accession of Croatia (mid- 2013) is likely to worsen rather than improve this situation;  Decreased opportunities for exports to the EU, particularly processed and fresh agricultural produce, together with reduced purchasing power in the EU, particularly of the kind of niche and high-value products exported from BiH (including raspberries, blueberries and mushrooms). However, given that BiH imports most of its food, a strong argument exists in favour of improving food security at the national level, by focusing on food production and processing for the local market. 7. Although the poverty rate is relatively low, once the vulnerable49 are included, the situation is far worse: overall it is estimated that 45% of the population of the country is vulnerable, with a much higher ratio in RS than in the Federation [46% to 39%]50. 8. Overall, the main issues regarding rural poverty reduction in BiH are related to (i) a relatively high percentage of the population still employed in the agricultural sector (43% of the informal workforce and 20% of the formal workforce), directly resulting in lower incomes in a largely informal subsistence agriculture; (ii) a skewed age structure of the rural population in which the elderly are overrepresented in farming activities, thus restraining the dynamics and pace of farming commercialization; and (iii) limited off-farm employment opportunities and generally low skills and educational level of the rural population. Food insecurity and malnutrition have virtually disappeared from the country context. The latest MICS survey from 2006 and the progress Report regarding the MDGs in 2010 estimates child undernourishment at 1.6% and projects that the country is likely to achieve the MDG objective of total eradication of undernourishment by 2015. 9. Over 90% of the households surveyed in 2007 (HBS-2007 and MICS 2006) owned their main dwelling; almost 100% had electricity51, 94% had access to drinking water from a public system and 93% had an internal bathroom. Ownership of durables was high for: modern cookers (91%), heating (85%), refrigerator/freezer (98%), clothes washers (86%), and water heaters (86%). Fewer households had a dish washer (9.7%) or air conditioning (5.2%). Ownership of recreational equipment was high for television sets (97%), moderate for HiFi systems (63%) and video recorders/DVD (57%), but low to very low for personal computers, musical instruments, nautical craft and satellite dishes. Ownership of mobile phones had soared from 46% in 2004 to 71% in 2007, but rose only moderately for land lines (70% to 77%). Ownership of vehicles had also increased slightly (47.5% to 52%). None of the sample surveys collected data on housing characteristics.

47 Handout of preliminary results from the 2011 HBS, BiH Statistical Department for all data in this sentence. 48 WB 2009: Poverty Up-Date. 49 Out of the total BiH population, about 2.0 million people are considered vulnerable. This group comprises, among others, the following: households with elderly people, disablement of households‘ main income earners, households whose assets have been destroyed or damaged during the war, poor households not receiving social security support. 50 HBS 2007 p 47. 51 This figure does not take into account the disconnect with the national electricity grid in some remote rural (and also peri- urban) areas, often home to returnees and rural poor, where the basic energy needs are not met.

34 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis

Table 2: Poverty incidences for BiH, 2001, 2004 and 2007 LSMS 2001 HBS 2004 LSMS 2007 HBS 2007 Poverty lines - BAM/person/year(a) 2 198 -- 2 460 -- - BAM/adult equiv/year (b) -- 3 732 -- 4 632 Poverty Incidences using the Official relative poverty lines, ORPL (b) - BiH (national) 17.7 18.3 14.0 18.2 - FBiH (entity) 18.6 18.8 13.3 17.0 - RS (entity) 16.5 17.8 15.0 20.1 Poverty Incidences using General poverty lines (c) - BiH (national) -- 17.9 -- 18.6 - FBiH (entity) -- 18.5 -- 17.4 - RS (entity) -- 17.5 -- 20.2 (a) Based on LSMS data (2001-2005) actualised using prices data (b) ORPL = 60% of median consumption per adult equivalent using HBS 2004-2007 (c) Calculated on the basis of HBS findings in 2004 and 2007. Source: WB/DEP Poverty Update 2009

10. Entity-level differences in poverty levels have been statistically insignificant during the reference period of 2004-2007. Nevertheless, the poverty levels have declined faster in the FBiH compared to RS, and as about two-thirds of the poor live in the FBiH, this decline has been the main driver of poverty reduction at the national level. There are several possible explanations to the faster poverty reduction between 2004 and 2007 in the FBiH, such as the faster growth of private transfers, faster industrial output growth, and increase in average salaries. Household Characteristics 11. According to the HBS 2004, the average household in BiH had 3.29 members: rural households had 3.63 members, and urban ones 3.06 members. In 2007 the average structure size at the state level was 3.27 members: rural/semi urban regions were larger with 3.40 members and urban ones had 3.08 members52. However, the RHS of 2012 found a significantly different situation with average household size being only 2.93 members. This survey found that there is a high percentage of large households: 41.3% of the rural households have 3 or 4 members, 13.%have five or more members (13.3%), nearly 1/3 of the rural households have 2 members, and 12.5% are single person households53. Rural Living conditions and Typologies of poor households 12. As mentioned above, basic energy requirements are seldom met in the more marginalized rural areas, home to returnees and rural poor. Water is the one service which is still problematic in some isolated areas. While 83% of rural households have water in their house, 27% have it in the yard, and 28% get their water from well, spring or river, which may be quite distant54. 13. Integration in the market economy of rural households is still very limited: 78% of rural households do not market any of their produce (82% in FBiH and 73% in RS)55 while 9% sell their produce in the local market (6% FBiH, 13% RS)56. The main constraint to marketing quoted by participants in the survey is the price offered for their produce, followed by (in descendant order): low quantity, poor market linkages, transport constraints, and poor quality57. 14. Poorer rural households whose farming is marginal. This group comprises rural households, many of whom are former urban ones, of people who have returned to the villages after the war, or who were employed in the industrial sector and have found themselves destitute after the closure of their factories and the introduction of the market economy. Many of these benefited from the

52 The largest rural households were in FBiH (3.62 members) followed by RS households with 3.10 members and DB households (3.07 members) (HBS 2007). 53 UNDP 2012, Social Context of BiH Rural Development Z. Kovac, J. Jodic, Background study for the 2012 National Human Development Report p 22 [henceforth referenced as background study]. 54 UNDP NHDR 2012 Table 4, Services. 55 UNDP NHDR 2012 Table 10 Marketing. 56 Ibid 57 Ibid.

35 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis distribution of one or two cows supported by a variety of international development (including IFAD) and aid agencies after the war. Some of these new farms have failed to expand and become commercial and have become unviable with the increasingly high standards demanded by the market. Among them, some have sunk into destitution while others have added other activities to survive. Such activities include handicrafts, some food processing and collection of NTFPs. These households are likely to represent one of two main demographic situation:  households composed of a single or a couple of elderly people who may also receive a pension, but whose labour force is insufficient to maximise the potential of their holding and who have no adult aged 25-59 able to take major responsibility for income generating activities.  The other main household profile would be that of a larger family with 3 or more children, low levels of education of the household head and other adults, as well as low agricultural skills and weak access to information, markets and facilities. They may also be far from facilities such as schools and health services, and their children are likely to also be brought up in deprivation and marginalisation. 15. While their conditions are difficult, they have in the past formed a major part of IFAD‘s target group and need continued assistance if they are to be lifted out of poverty. Facilitating their participation in Farmers‘ Organizations through inclusion in PAs and Cooperatives, enhancing their access to advisory services and rural finance, will be among the approach to contribute to their long- term empowerment. Smallholders on a pathway to commercial farming. 16. The second type of households includes both livestock keepers and crop growers. The cattle owners increased the number of cattle to a more viable number (4 or 5) in the course of the past decade. However it is important to note that, while all focus on the number of cows kept, there is far too little concern and focus on the fundamental issue of the yields and productivity of the animals whose average production is 2000l/annum. Some smallholders, with or without livestock, have also taken up cultivation of high value crops marketable locally and internationally (raspberries, fruit). Many of them have found it useful and effective to join Producers‘ Associations and Cooperatives to improve their access to markets. 17. Their household composition is better balanced with adults of working age as well as one or two children, who may be teenagers or young adults able to contribute significantly both to labour demands and to management capacity of the farm. They may also have access to better physical infrastructure, and may not yet have an effective Producers‘ Association or Cooperative able to assist them with their marketing and other activities better implemented on a group basis. 18. Improved market infrastructure, strengthening of their organizations (as well as support to graduate from PAs to the more business-oriented Cooperatives), increased access to ‗strategic‘ BDS, technical, and financial services, will be some of the responses to facilitate their transition to commercial farming. Dynamics of Rural Poverty 19. While during the socialist period the country was highly industrialised and almost all adults included in the labour force either in the productive or services sector, this situation has been completely transformed as a result of a) the breakup of Yugoslavia; b) the war; and c) the post- socialist governance model adopted in all the new states. The first resulted in the production chains being destroyed (i.e. a factory which obtained its spare parts or raw materials from a different part in the past, found that these were now in a separate country, with customs and complex administrative procedures to organise supply or distribution), and the war has displaced many thousands of families, in addition to the thousands killed. The third factor resulted in people being left without jobs or income, and the shrinking of the civil service as well as closure of factories and reform of the agriculture sector have sent people back to their rural family areas of origin and dependence on something akin to subsistence agriculture, regardless of whether they had previous experience in agriculture.

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20. Millennium Development Goals: BiH‘s target with respect to the achievement of the goals for MDG1 - eradicating extreme poverty and hunger - are all unlikely to be met, whereas those for other MDG goals are mostly either achieved or likely to be so. The target of reducing the percentage living below the absolute poverty line to 12% is the most unlikely to be achieved, with 17.9% poor in 201158. BiH uses two measures of unemployment, and is unlikely to achieve its goals under either: on the basis of ILO definition, the unemployment target for 2015 is 22% and the current rate is 28%; on the basis of registration, the target is 30% and the current rate 43%59. Youth unemployment60 (15-24 age group) is the most problematic: the target is to bring it down to 12% and the current rates for 2011/12 are 56% for young men and 60% for young women. Who are the poor? 21. There are a number of factors which increase the likelihood of poverty, including the following:  Household size: Larger households of four or more members (43.5% in FBiH and 62.4% in RS). Among those, households with more than 3 children are the poorest with an incidence of 57% and 71% in FBiH and RS respectively61. Households composed exclusively of older people are also inclined to be poor, or are at the very least vulnerable.  Employment: Employment rates have been dropping in recent years, at 32% in 2011, compared to 32.5% in 2010 and 33% in 200962. Unemployment in rural areas is significantly higher than for the country as a whole (38% compared to 28%)63. Unemployment amongst young people64 is, approximately, twice as high as among the population as a whole. The 2010 LFS found 57.5% unemployment among young persons (aged 15-24 years).  Households with insufficient assets, for example those with less than 3 cattle and less than 3 ha of rain-fed land, and lacking additional income are poor, given the small milk yields and the limited amount of produce marketed. Without substantial pensions or remittances, such households are poor.  Households without regular income from pensions are another category of poorer households, this situation is particularly relevant for older people who do not have the ability to take employment and are therefore reliant on their weaker labour power to manage their crops and livestock.  Female-headed households. Though not systematically poorer, it is worth noting that on average, female-headed households have incomes 20% lower than those of male-headed households. Where are the poor? 22. Poverty is primarily rural. While 58% of all households are found in rural areas, 75% of the poor are rural65. There has been no notable change in this over the past decade, and this has been confirmed both in the 2009 data and the 2012 Rural survey. Rural people spend 4 times less than urban ones66. Three quarters of the rural unemployed live in households with a monthly income under BAM67 500, and 18% with incomes of BAM 501 to 1000. Only 8% have incomes over BAM 1000, at a time when the poverty line consumer basket was over BAM 140068. 23. The rural poor are found throughout the country, but are particularly found in areas which are resource poor, such as high altitude areas and where soils are of low fertility, where there are few employment opportunities and where pay is low. While no detailed poverty analysis has been made of specific locations in FBiH, there is a classification of development levels for RS. When selecting

58 UNDP preliminary data (Nov 2012). 59 Ibid. 60 Ibid. 61 HBS 2007 p 47. 62 UNDP NHDR Background Study p 24. 63 UNDP NHDR Background Study p 25. 64 UNDP: Human Development Report: The Ties that Bind, Social Capital in Bosnia and Herzegovina, 2009. 65 HBS 2007 p 40. 66 UNDP NHDR 2012 Background study p 38. 67 BAM/US$ average exchange rate is about BAM 1.5/ US$ 1. 68 UNDP NHDR 2012 Background study p 39-40 for data in last two sentences.

37 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis project locations, this will be taken into consideration. But at the State level, the only analysis which uses the same criteria for both entities is the UNDP‘s Regional Disparity Assessment, and its classification of municipalities is listed below69 (including those with the greatest level of disparities and need for support, the underdeveloped and most underdeveloped municipalities in 2010).

Underdeveloped Municipalities Municipality Canton/region Bosanski Petrovac Una-Sana Ilijaš Sarajevo Vareš Zenica-Doboj Ribnik Banja Luka Srebrenik Tuzla Donji Vakuf Central Bosnia Zavidovići Zenica-Doboj Jajce Central Bosnia Doboj-Istok Tuzla Trnovo Sarajevo Prnjavor Banja Luka Kladanj Tuzla Gradaĉac Tuzla Usora Zenica-Doboj Doboj-Jug (South) Zenica-Doboj Maglaj Zenica-Doboj Teslić Doboj Stolac Hercegov.neretvanski Nevesinje Trebinje Višegrad East Sarajevo Olovo Zenica-Doboj Prozor Hercegov.neretvanski Tomislavgrad Canton 10 Bugojno Central Bosnia Sapna Tuzla Busovaĉa Central Bosnia Šamac Doboj Buţim Una-Sana Gornji Vakuf – Uskoplje Central Bosnia Ţepĉe Zenica-Doboj Derventa Doboj Novi Travnik Central Bosnia Velika Kladuša Una-Sana Sanski Most Una-Sana Bosansko Grahovo Canton 10 Cazin Una-Sana Glamoĉ Canton 10

Extremely underdeveloped municipalities Vlasenica Bijeljina Pelagićevo Doboj Lopare Bijeljina Kalesija Tuzla Foĉa - Ustikolina Bosnian-Podrinje Kalinovik Foca Berkovići Trebinje Odţak Posavina Jezero Banja Luka Pale -Praĉa Bosnian-Podrinje Osmaci Bijeljina

69 UNDP, 2010, Regional disparities in BiH, Main Findings, p5-6

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Rudo East Sarajevo Krupa na Uni Banja Luka Ustipraĉa Foca Šekovići Bijeljina Kljuĉ Una-Sana Srebrenica Bijeljina Bratunac Bijeljina Teoĉak Tuzla Kupres Banja Luka Domaljevac - Šamac Posavina Drvar Canton 10 Ĉelić Tuzla Trnovo Foĉa Vukosavlje Bijeljina Petrovo Doboj Oštra Luka Banja Luka Istoĉni Stari Grad East Sarajevo Donji Ţabar Bijeljina Dobretići Central Bosnia Petrovac Banja Luka Istoĉni Mostar Trebinje Ravno Hercegov.neretvanski Istoĉni Drvar Banja Luka Why are they poor? 24. Despite having far more diversified livelihoods, with a multiplicity of incomes, rural households are the poorest. They usually combine livestock keeping, some crop cultivation, supplemented with pensions or some processing or handicrafts. The structure of rural household incomes indicates the high level of diversification and the mixed economy of rural households. It is distributed as follows:  Employment 51%.  Own business 25%.  Property 7%.  Transfers from abroad 1%.  Income from relatives in country 2%.  Pensions and social welfare 15%70. 25. However, these different incomes are clearly insufficient to ensure an adequate standard of living. There are a number of contributing factors which worsen the likelihood of poverty, including:  Low productivity of existing activities including very low milk yields of the majority of cattle (approximately 2000l/annum), low quality wool from sheep, low crop yields for cereals, low incomes from handicrafts production.  Mediocre marketing mechanisms and infrastructure. Access to markets and processing are essential to increase incomes from agriculture. Smallholders cannot make the necessary investments which, in any case, would not be economically viable for the production of individual small producers.  Low educational standards and inadequate or inappropriate skills. Although literacy is almost universal in BiH, and overall educational facilities are widespread, rural people have significantly lower levels of education than the urban: 10% fewer rural people have completed primary school71. Vocational skill training and advisory services are dispersed and do not provide the skills most in demand in the 21st Century.

70 UNDP NHDR 2012 Background study p 87 71 UNDP NHDR 2012 Background study p 30

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 Lack of employment opportunities. Few new enterprises have been opened in rural areas, thus limiting the employment opportunities at home in large modern institutions. SMEs are also few and, by definition, provide very few jobs.  Lack of confidence and trust. This results in reluctance to join Associations and Cooperatives, thus reducing the potential for strengthened bargaining position in the markets, as well as joint input and machinery acquisition. Only 15% of rural people are members of associations72  Difficulties in accessing financial services for running costs and investment capital. The uneven coverage of finance institutions affects the ability of people to access financial services: 79% of rural households are more than 3 km away from a bank, while only 18% have a bank within 3km of their homes73. Furthermore, the collateral demands of banks and the interest and repayment conditions of financial institutions are not designed to facilitate borrowing by small producers. In particular repayment schedules to agricultural producers do not take into consideration the seasonality of income.  Inadequately targeted social assistance support: although 4% of GDP is spent on social assistance, including pensions and support to veterans, much of this is not targeted in such a way as to support the poorest. In addition to war destruction, this is a further contributing factor to poverty.  Discouragement is another factor which affects many people of all ages, but particularly the young and the older people. The former see no future while the latter long for a return to the security of employment and living conditions of the past. Neither is convinced of the value of trying to initiate new activities in an environment where success is rare. Vulnerability and shocks 26. As mentioned earlier, about 45% of the population of BiH are vulnerable to poverty through a variety of causes; that represents over 2 million people. While on the one hand, vulnerability is a factor dependent on specific household events, there are other factors of vulnerability which are of a collective nature. 27. The household level vulnerabilities include:  the inability and disablement of main income earners;  serious illness which can affect any household member; although that does not involve cash expenditure due to the health insurance available in the country, this may also take time and energy from other household members, thus depriving them of income;  destruction and damage of household assets during the war;  unsuitably targeted social security support. 28. Collective vulnerabilities and risks are the following:  extreme climatic events, such as droughts and flood, which affect yields and cost of inputs;  economic developments in the main trading partners of BiH, in particular possible continuation and worsening of the crisis in the EU and other neighbours;  stalling of economic and political reforms in BiH affecting support from the international community;  social tensions within and between communities reducing their ability to cooperate in their joint economic interests. Trends 29. Immediately after the war, as a result of both the war and the disintegration of the previous economy with its full employment policy, many people returned to their rural areas of origin and tried to eke out a living from the available local resources. In particular many started a subsistence agriculture based on one or two cows and vegetable and cereal cultivation for home consumption. At that time, IFAD intervened with its first programme which, alongside other support programmes,

72 UNDP NHDR 2012 Background study p 70 73 UNDP NHDR 2012 Background study p 44

40 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis distributed free cattle to poor rural households, women in particular. This was very successful insofar as it enabled households to survive and at least be adequately nourished. 30. Over the decade and a half since then, both rural conditions and IFAD interventions have evolved towards a more developmental approach. All BiH policies are now turned towards the process of accession to membership of the EU. These changes in the poverty profile have implications for the IFAD strategy. The smallholders who have increased their holding to a minimum of viability are now faced with far tougher market conditions than previously, and are by no means out of poverty. The demands of the EU accession process are very high and many of them will have great difficulty in complying, thus risking a fall back into subsistence agriculture and poverty.

D. Gender, Youth And Marginalised Groups Gender Aspects 31. As a formerly socialist country, the gender situation is notably different from that found in some other societies. Women‘s literacy and educational levels are still very high, and women‘s integration into the labour force was also very high. The past twenty years and the social, psychological and economic effects of the war have had a significantly negative impact on the country‘s gender situation. In particular, attitudes and culture have become far more male-dominated than previously. However the economic situation of women in recent years has deteriorated more than that of men and there is now a need for active intervention to assist women to practically achieve their constitutional rights and re-establish a greater level of equality with men in economic life. Rural women in particular are disadvantaged in an environment of widespread unemployment. 32. BiH is a signatory to the main UN conventions aimed at ensuring women‘s equality. Formally women have equal rights: gender equality is guaranteed by Constitution and the Law on Gender Equality was adopted in 2003. Institutional mechanisms were established for its implementation at all levels of government in BiH, and the BiH Gender Action Plan (GAP) was adopted to define strategies and objectives74. Despite this, gender imbalance has become a significant reality. 33. The Gender Development Index (GDI)75 value for BiH in 2004 (the last year for which the index is available) is 0.801, reflecting mild gender inequality, particularly in economic activities. Life expectancy at birth is 77.7 years (2007) for females and 72.4 years for males. Primary school enrolment is almost universal. The adult literacy rate is 94.4% for females and 99.0% for males. The youth literacy rate for females is almost identical to that of males at 99.7%, indicating that the achievements during the earlier period are still being maintained. The recorded female participation rate in economic activity is 43.1% (only 60% of that of males), though this figure does not take account of the enormous contribution of rural women to the economy as unpaid workers for farming, animal husbandry, etc. The child and old age dependencies for 2010 are estimated at 21.4% and 19.6%, respectively. 34. While 81% of rural households in BiH are male-headed, only 19% are female-headed76. The overwhelming majority of women household heads are widows (85.1%) and only 4.3% are divorced, and 5% single77. This is clearly the result of the very heavy male death rate during the war. There are also clear gender disparities with respect to income: rural male-headed households have a median net annual income 20% higher than that of female-led households78. 35. Employment is another sector where women‘s participation has dropped: only 29% of women are employed, while 30% are unemployed79. Women in BiH are mostly inactive, in particular women from poor households. Differences with respect to women‘s employment range from 18,3% in Brcko

74 Social Inclusion Strategy p 18. 75 UNDP: National Human Development Report, Social Inclusion in Bosnia and Herzegovina, 2007. 76 UNDP NHDR 2012 background study p 23. 77 UNDP NHDR 2012 background study p 24 . 78 UNDP NHDR 2012 background study, p 41. 79 UNDP NHDR 2012 background study p 26.

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District to 29,4% in RS80. Those most affected by cash poverty includes single mothers and others, as women, in practice, run 25% of all households81. Many women are de facto heads of households when men have migrated on a medium to long-term basis. 36. Discrimination and the accompanying social exclusion, spanning from education to health system, has a variety of manifestations, but there are three times as many women (17%) than men (6%) without education82. While 67.3% of rural men have completed secondary school only 50% of women have done so; 42% of women have either completed or dropped out of primary school, but that is the case for only 24.2% of men. While 3.5% of men have no formal education83, this is the case for 11% of women. 37. With specific reference to rural life, women have additional disadvantages: few of them have titles to land and therefore collateral for bank loans. Even livestock is formally owned by men in most cases. Most decisions are taken by men who attend most public meetings and events. This is so despite the fact that women do the vast majority of the work with livestock, and particularly cattle, as well as at least 50% of the work in crop cultivation. Youth 38. Youth in BiH are confronted with very difficult choices. Born during or after the war, and with their employment prospects limited at home. They account for 17.8%84 of the total population in BiH, a ratio somewhat higher than the EU average (EU-25 is 12.7%85). In 2009, the youth unemployment rate (15-24) was 48.9% (62.4% in 2006) and almost three times higher than the EU 27 (15.4% in 2008). About 50% of job seekers were searching for their first job, and long-term unemployment is a major problem, affecting 78.7% of unemployed young people86. Unemployment affects people‘s ability to get married: 36% of persons aged 25 – 34 are unmarried (46% men). This situation, combined with inadequate housing, has an influence on the very low fertility rate87. 39. Interest in addressing the problems of youth is increasing in BiH. The country does not have a Ministry devoted exclusively to addressing the concerns of young people, either at State or Entity level, but responsibility for young people is dispersed between various line ministries, from Education to Culture and Employment. However, some NGOs are beginning to develop programmes to improve the integration of young people into social and economic life and assist them in participating in their community‘s life, as well as providing some skills and confidence building activities. This is particularly important given youth‘s social and psychological alienation from the society around them. There are already a few examples of young people who have taken up opportunities in agriculture and have been able to marry and start reasonable lives at home. Returnees and Internally Displaced People 40. At the time of the Dayton Agreement, there were 1.0 million internally displaced persons and 1.2 million refugees outside the country. By the end of 2008, over 1.0 million people had returned to their places of origin (72% in FBiH and 26% in RS). There has been considerable donor assistance to encourage the return of these people and there is an on-going programme to bring home the remaining IDPs and refugees. However this process is not proceeding with any speed due to the on- going separation of the entities and in particular the ‗nationally‘ based education programmes of each entity. While some returnees have taken advantage of the assistance provided from abroad to rebuild their houses, few of them have actually settled back there; others have sold the rebuilt houses or just use them for visits. However returnees are considered an important socially marginalised group and their integration into development programmes is seen as a potential means to contribute to reconciliation within BiH and help the nation‘s rebuilding.

80 Social Inclusion Strategy, 2010, p 18. 81 Ren Kukanesen, United Nations in Bosnia and Herzegovina, Female Headed Households, 2003. 82 Social Inclusion Strategy p 18. 83 UNDP NHDR background study 2012 p31. 84 BiH Agency for Statistics, Labour Force Survey, 2007. 85 Eurostat, Structural Indicators, 2006. 86 Social Inclusion Strategy, 2010, p 21. 87 Social Inclusion Strategy, 2010, p 22.

42 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 6: Baseline Poverty Analysis

41. Despite the fact that separation between entities at the levels of institutions and government continues unabated, it is good to notice that, in the field, and in current IFAD supported projects, returnees participate in reasonable ratios in Producers‘ Associations and other economically oriented organisations. This is contributing towards a rebuilding of confidence between the communities, to some extent, at least at the village level. The Roma 42. Roma people are a very marginalised group throughout Europe. In BiH they are estimated to represent about 2% of the national population. They have suffered marginalisation and even strong discrimination: only 3% of them have jobs and their main sources of income are collection and sale of used materials, mostly metals, and street begging. As many as 76% of the Roma have either never attended or completed primary school88.

E. The Target Group The Target Group for the coming RB-COSOP period 43. The target groups for the forthcoming period will include the following main categories: (i) non- commercial (subsistence) and commercial (young) smallholders farmers, both women and men; (ii) Producer Associations and Agriculture Cooperatives with an outreach to non-commercial smallholder farmers (as members and cooperants); (iii) women and unemployed youth interested in non-farm wage employment and enterprise development; and (iv) on-farm and off-farm small enterprises with the potential to grow and enhance their productive potential and contribute to rural employment. Those rural poor who have either abandoned their agricultural activities or remained poor within the agricultural/livestock sector (considered as the non-commercial farmers), will remain within IFAD‘s priority target group, given that they need much support to raise their living standards above poverty. IFAD projects will give priority to the following:  landless poor rural people who are able to work and become economically self-sufficient;  rural poor people who have given up livestock and are reliant on crop production only on less than 3 ha;  smallholders with up to 5 cattle and/or 3 ha of rain-fed land;  Rural women, particularly poorer women;  Rural youth;  Micro and small entrepreneurs (on-farm and off-farm);  Organisations of rural and agricultural small operators, such as Producers‘ Associations and Cooperatives, to improve the bargaining position of rural producers and to give them the opportunity to benefit from economies of scale. IFAD niche to address rural poverty 44. As the main financier primarily involved with rural areas and with its mandate to address issues of rural poverty, IFAD plays an important role in BiH, a role which is widely appreciated. IFAD‘s support to its target group will be primarily designed to assist the rural poor develop their income generating capacity and improve their integration into selected value chains, through a number of related and complementary investments:  Strengthening the technical and managerial capacity of individual producers and micro and small entrepreneurs, as well as their Producers‘ Associations and Cooperatives.  Providing financial services and particularly credit facilities for the upgrading/acquiring of equipment, to start enterprises and to develop and expand their existing farming activities.  Improving the advisory services to increase yields and productivity of both crops and livestock, both being extremely low by comparison with other countries with similar agro- ecological conditions.

88 Social Inclusion Strategy 2010 pp 19-20

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 Advisory services and training for non-agricultural rural poor to develop alternative activities and in particular to become involved in high income rural enterprises, including agro- tourism, handicrafts and niche processing of high value NTFPs. 45. IFAD‘s strategy during the coming (6) years will give considerable emphasis to restoring women‘s capacity to contribute to economic growth, through explicit support in investment and training for rural women and in particular younger women, thus enabling them to participate in improving their household‘s incomes. IFAD investments in livestock-related activities will concentrate on ensuring that the women who are driven out of livestock production have adequate new alternative sources of income and that others produce enough (through increased yields and increased numbers of animals) to have viable small commercial farms. Thus off-farm investments for women in training and credit and the development of micro and small enterprises will play a major role in improving gender balance and restoring women‘s equality. 46. With respect to youth, in addition to providing technical advice, training and working towards easing their access to financial services, IFAD investments will also work to assist them develop greater confidence and ability to overcome the constraints they face with a variety of awareness raising and confidence building seminars and other types of group training which will be implemented at the municipal level, and will help ease them into active participation in their local communities‘ social and economic life.

44 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development

Appendix 7: Agriculture and Rural Development89

Agriculture‟s Role in the Economy of Bosnia and Herzegovina 1. The agriculture sector is a small but important part of the economy. Agriculture‘s share in BH‘s economy decreased from 15.1 percent in 1999 to 9.8 percent in 2007, while the service and industry sectors now take up 63.9 percent and 26.2 percent of the economy, respectively. Although agriculture food sector growth has been positive, it has lagged in comparison to overall economic growth. Agricultural GDP grew by 0.8 percent per year, on average, between 2000 and 2007, compared to overall GDP growth of 5.4 percent. 2. Agriculture sector employment still absorbs a large share of the economically active population. In November 2008, officially recorded employment in the agri-food sector amounted to 2.7 percent of total employment. However, this figure significantly underestimates the actual share of the labor force that is active in the sector. The 2008 Labor Force Survey, which follows International Labor Organization standards for defining employment levels, estimates that the agriculture sector accounts for as much as 20.6 percent of employment in BH, compared to 47 percent in the services sector and 32.5 percent in the industry sector. Similarly, while 41.2 percent of the labor force was officially registered as unemployed in November 2008, actual unemployment is much lower. The 2008 Labor Force Survey points to an unemployment rate of 23.4 percent, suggesting the existence of a large informal economy in BH. A 2004 World Bank sponsored Living Standards Measurement Survey (LSMS) found that subsistence agriculture plays an important role as a social buffer in this informal economy. It estimated that the agriculture sector accounts for 43 percent of working-age people employed in the informal economy in BiH; the rest are more or less equally divided between the industrial and service sectors. 3. The population of BH is declining, and the rural population is becoming older, on average, as young people migrate to urban areas. The working-age population is projected to fall from 3.3 million in 2009 to 3.2 million in 2025 and 2.7 million in 2050. Many people who have returned to rural areas following the war are very young or elderly, leaving the most economically active segment of the population underrepresented in farming. This is the group that would normally have the capacity and creditworthiness to develop viable commercial farming enterprises. 4. Agricultural yields and labor productivity remain low. Strong economic growth since the transition in BiH has not translated into higher agricultural yields or improved agricultural labor productivity. Yields per hectare have remained virtually stagnant. In 2006, vegetable yields in BiH were one-fifth of those in the EU Member States of Southern Europe (Portugal, Spain, Italy, and Greece), which have similar geographic and climate conditions. Significant gaps in yield levels can be observed for other product categories as well, including fruit, beef, and cow‘s milk. Agricultural labor productivity levels are also lower in BiH, where, agricultural value-added per worker in 2005 was US$ 10,051 (at constant 2000 prices) as compared to US$ 14,755 in Southern Europe.

Opportunities for Agriculture in BH 5. The agri-food sector has good growth potential due to growing demand and a number of comparative advantages. Like other countries in the Western Balkans region, BiH has seen annual GDP growth above 5 percent over the last decade. Higher incomes lead to changing consumer preferences. Consumers are reallocating their food budget toward higher-value foods such as fruits, vegetables, and animal products; thus, the market for these products is growing. Relatively high international food prices mean that markets for agricultural products are increasingly valuable. Moreover, BiH‘s agri-food sector has potential comparative advantages due to favorable prices for land and labor, ample labor supply as a result of low overall employment, good climate, and a

89 This paper is extracted from the Agricultural Sector Policy Note for Bosnia and Herzegovina. Trade and Integration Policy Note. The World Bank. May 2010.

45 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development strategic location for producing high-value products for domestic and wealthy Western European markets. 6. Agricultural land and labour are relatively cheap, especially compared with Southern Europe. Systematic data on the price of agricultural land are limited. Anecdotal evidence suggests that agricultural land in BiH is less expensive than land with a similar climate and growing season in Southern Europe, but more expensive than land with a similar temperate climate in Hungary and Poland. These differences may be due in part to underdeveloped land markets and fragmentation in BiH. Data on average gross monthly labour costs for industry and services suggest that labour costs in BH are about 20 percent of those in Southern Europe and almost half of those in Croatia, Hungary, and Poland, though higher than elsewhere in the Western Balkan region. Agricultural wages tend to be lower than average wages in BiH, partly because of the large amount of informal and household labour going into primary production. 7. Climate conditions offer natural advantages in bringing agricultural products to the market earlier and longer. The Western Balkans region is warm and has a longer growing season than the rest of Europe. Analysis of daily minimum temperature data over the period 1993–2007 reveals more frost-free days (with a daily minimum temperature above 0° C) than in the Eastern Balkans and parts of Southern Europe. Similarly, the first planting date falls early in the southern part of the Western Balkans, similar to that in Portugal and Spain. Whereas the central and northern parts of BH have a more continental climate, in Herzegovina the planting season can start as early as the beginning of March. This is especially important for lucrative early-season vegetable and fruit production. BH also has relatively abundant freshwater supplies, with an average per-capita availability of 9,067 cubic meters—higher than the world average of 6,778 cu. m. per capita, but somewhat lower than the Europe and Central Asia (ECA) average of 11,473 cu. m. Rainfall is highly seasonal, with a dry summer period from June through August. The frequency of droughts has 90 increased in the country . 8. BiH‟s geographic location in the heart of Europe yields advantages in shipping costs to high-value markets in Western Europe. BiH ranks better than its neighbors on the Trading Across Borders sub-index of the Doing Business rankings, at 63th out of 183 countries (only Romania ranks better among the countries in the region). In addition to satisfying growing demand in domestic and regional markets, BiH may also have opportunities to export agricultural products to wealthy Western European markets. The country can also take advantage of its location to produce for alternate markets. 9. These endowments could give BiH a comparative advantage in labour-intensive products that can exploit the long growing season. Such products include early- and late season fruits and vegetables. About 66 percent of the territory of BiH is considered mountainous or hilly. In general, the country‘s geography does not lend itself well to large scale cereal production, with the exception of the plains in the northern part of the country. Only 20 percent of the total land area is arable land. High availability of grassland and pastures, however, suggests the potential for successful livestock and dairy production. The country is also well placed to take advantage of consumer trends toward organic produce and niche products (due to availability of labor) or possibly food with a relatively low carbon footprint due to BiH‘s proximity to the EU market.

Key Challenges Facing the Agri-Food Sector 10. Agricultural trade liberalization will create a more competitive business environment. In addition to its application for World Trade Organization (WTO) membership in May 1999, BiH has entered into a number of bilateral and regional trade agreements in recent years. While these agreements provide access to high-value EU markets for agri-food products, they will expose BiH to more food imports from the EU and other countries in the Western Balkans region, increasing the pressure on farmers and processors to become more competitive. The small-scale subsistence farmers, who dominate the agriculture sector today, currently cannot match the prices and quality of

90 UNDP Climate Change modeling. November, 2012.

46 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development imported agricultural products. Unless agriculture producers become more competitive, they will lose market share both domestically and abroad, and fail to take advantage of opportunities presented by liberalization. 11. Despite potential comparative advantages, farmers and processors are unable to compete on the domestic market due to their inability to adapt to changing consumer and retail demands. Farmers, processors, and retailers need to consolidate and integrate vertically and horizontally to improve quality standards, reduce costs, and boost competitiveness. Although driven thus far by stringent food quality and safety standards in line with EU regulations, food safety in BH will increasingly be driven by consumer preferences and the retail sector. Consumer preferences are shifting toward higher-quality and safer food products. A still huge trade imbalance in the agri-food products signals that BiH is not reaping the benefits of its low resource costs. As consumers demand safer food, retailers demand that their suppliers produce under hygienic conditions, support traceability and deliver products at the right time and in sufficient quantity and quality. Increasing competition from imports will force farmers and agro-processors to adapt through better coordination and logistics in the food chain or to leave the market. 12. The BH agriculture sector faces a lengthy modernization process. The structure of the agriculture sector resembles that of Southern Europe about 30 years ago, and yields are generally much lower than in the EU today. To substantially improve agricultural labour productivity in BiH, and hence enable higher agricultural wages, yields must increase and the share of the labour force in agriculture must shrink. This, in turn, means that opportunities in alternative sectors must grow. The competitiveness of commercially oriented producers and processors will need to be further enhanced through consolidation and investments in modern production technologies, and a new future for non- productive farmers must be designed through effective rural development programs. The country can move this modernization process forward by adjusting and strengthening its agriculture policies and institutions and aligning them with EU requirements. 13. Climate change will increasingly threaten the competitiveness of agriculture. BiH‘s relatively mild climate provides a natural comparative advantage, especially compared to northern European countries. However, the latest climate models predict that as a result of climate change, BiH will over time experience higher average temperatures, and reduced and more variable precipitation. Projections for the period 2041–2060 show that, on average, temperatures are expected to increase by up to 3° C, with precipitation decreasing by 50–100mm, or up to 10 percent, across most of the country. Seasonally, the greatest impact is expected in the fall, with precipitation declining significantly—by up to 25 percent. This change in precipitation could have important implications for winter wheat production, for example. There is ample evidence that climate change is already happening and that its impact is already being felt, as illustrated by the devastating forest fires that have swept the Balkans in recent summers and the frequency of droughts. 14. Not only will BH become hotter and drier, but extreme events will also become more common. A recent study investigating the future risk of extreme events like floods, droughts, and heat waves predicts that BiH will be more heavily affected by such events than other countries in the ECA region. The extreme event index combines the average additional number of one-in-twenty-year events for hot, dry, and wet years; hot, dry, and wet summers; and hot, dry, and wet winters projected over the 2070–2100 period relative to the 1961–1990 period. The implication is that agriculture will become riskier over time, with yields varying more widely from year to year. 15. Climate change has important implications for agriculture in BH. The Stern Review on the Economics of Climate Change estimates significant economic impacts from climate change, resulting in reduced welfare ―by an amount equivalent to a reduction in consumption per head of between 5 and 20%.‖ Because of its dependence on weather and the natural resource base, agriculture is a highly climate-sensitive sector. Projections of potential rain-fed maize yields for 2025 and 2050, developed by the International Institute for Applied Systems Analysis (IIASA) for the World Bank, show that over time, the main maize-growing regions in the north of BiH could suffer yield declines of 10-25 percent. In the south, where fruit and vegetable crops are more common, the projections indicate that, without irrigation, crops could suffer even more. While the projections show the potential for significant yield increases in the center of the country, it should be noted that they do not take

47 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development topography into account, and much of central BH would be ill-suited to large-scale crop production due to the mountainous terrain of the Dinaric Alps.

Constraints to Growth and Competitiveness 16. Fragmented arable land undermines the viability of many agricultural producers. Farms in BiH are generally small and fragmented. The majority of farms in the country consist of 2–3 ha of landholdings, which are then subdivided into 6–8 plots. At 2.03 ha, the average farm size is smaller than it was in Southern Europe in 1970, and smaller than it is in most other Western Balkan countries today. While large farms are not necessarily more efficient, small farms have greater difficulty producing enough to be commercialized, integrating with value chains, and investing in modern production methods. 17. Poorly defined property rights and weak institutions that encourage informal transactions continue to limit the development of rural land markets, which in turn hampers land consolidation. Despite a long tradition of private land ownership, BiH, like the other countries of the former Yugoslavia, has struggled with privatizing collective farms. The assets of many larger, previously state-owned farms remain idle as a result. Land may have been sold, subdivided, or passed on to children without registering the transaction, or property records may have been destroyed. Approximately 47 percent of arable land in BiH remains unused due to uncertainties regarding land ownership, landmines, and displacement of landowners following the war. Land consolidation is further complicated by the absence of a uniform legal framework governing land ownership in BiH, which, for example, hinders the scaling-up of small land consolidation pilot initiatives countrywide. Even land rental, which has been used effectively to consolidate farmland in other ECA countries, has proven daunting. 18. Farmers in BH receive low prices for their outputs, which means that their products are implicitly taxed. A measure of how domestic prices deviate from international prices is the nominal rate of protection coefficient (NRP). The NRP is a standard measure of domestic market distortions relative to world markets, and is defined as the degree of protection given to a good by tariffs and other restrictions on imports. When a commodity‘s NRP is positive, the domestic farm price is above the international parity price; that is, there is positive protection. A negative NRP conversely indicates that the farm gate price is less than the comparative international price, which can be interpreted as negative protection or implicit ―taxation.‖ The analysis of NRP for BiH for maize, plum, apple, paprika, tomato, milk, and lamb meat show that, to a varying extent for all domestically produced fruits and vegetables, farmers receive less for their produce than they should by international market standards. Domestic farmers are thus implicitly ―taxed‖ on their sales of these products, resulting in lower farm incomes. 19. The low prices received by farmers are largely the result of market failures. For example, small producers participating in the domestic market have low bargaining power, reducing the prices they can receive for their products. In addition, there is a lack of post harvesting facilities for storage and packaging, with the exception of the milk industry, which is heavily subsidized in both the Federation of Bosnia and Herzegovina (FBH) and Republika Srpska (RS) and benefits from a minimum price guarantee. The milk industry thus receives a higher price than it would outside of BiH. Other market failures include costly and limited availability of quality inputs, fragmented supply chains and costly logistics, little access to affordable finance, and lack of adequate food safety institutions. 20. Low quality, limited availability, and excessively priced inputs pose obstacles to productivity improvements and supply-chain participation. It is difficult to find modern and specialized inputs, such as for organic production, and prices are elevated due to high transport costs and traders‘ margins. Despite the development in recent years of domestic production of seedlings, this is not enough to cover domestic demand in terms of quantity and varieties. The result is a lack of access by farmers to the latest plant genetic resources, which embody much of the technology of modern agriculture. This has implications for productivity as well as market access, in the latter case because opportunities to participate in formal supply chains often require farmers to produce specific varieties. Farmers also complain about the poor quality of inputs (such as seeds, fertilizers, and pesticides) available on the local market, which further contributes to lower agricultural productivity. 21. Complicated import regulations further limit access to inputs. The import of production inputs is complex and lengthy, as most agricultural inputs are subject to special import procedures

48 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development and must be included in a list approved by the BiH Ministry for Foreign Trade and Economic Relations (MFTER). Detailed documentation must be submitted to the Ministry to obtain import permits. This lengthy process results in significant costs to foreign suppliers, yet the small size of the BiH market often does not offer adequate incentive to go through these processes. In addition, the lists of seeds and seedling varieties and other inputs are not always kept up to date as a result of weak institutional capacity. In general, the current system encourages sales of illegally imported inputs, often under false labeling. Since the farmer cannot hold anyone accountable for the inputs purchased, the farmer bears the entire risk rather than sharing the risk with input suppliers. 22. Farmers do not benefit from lower input prices, despite past removal of customs duties. Instead, traders seem to be the main beneficiaries of trade liberalization. Calculation of the effective rate of protection (ERP), which measures combined distortions in input and output prices, confirms this finding. The ERP uses international price data to estimate the economic price of fertilizer and other tradable inputs. Somewhat simplified, it estimates the ratio between the value added calculated using domestic market prices, compared to the value added calculated using border prices. Positive values indicate that the product is subsidized, whereas negative values imply in effect a new tax on the product. High negative values of ERP indicators in comparison to NRP are a consequence of the problems with agricultural input markets. An example is lamb, which had a slightly positive output NRP but a highly negative ERP, implying that inputs for lamb production are very expensive relative to international prices due to poorly functioning input markets in BiH. 23. Fragmentation of supply chains raises production costs and reduces competitiveness. Transition has affected primary producers, agro-processors, and retailers, and splintered the supply chain from primary producers to retailers. The processing sector that has emerged from the transition is extremely fragmented. For example, BH had only 18 large-scale flour and feed mills in 1995; today it has 78, an increase driven mainly by the establishment of small private mills after the war. This reduces the scope for economies of scale and increases the cost of livestock production. In the milk sector, there were 53 dairies in BiH most of which are relatively small-scale and non-specialized in terms of product assortment. As most of these small dairies focus on fresh produce with a short shelf life, bringing their products to market implies high transaction costs. The production of milk is also highly scattered, making both logistics and quality control expensive. By contrast, the less-fragmented tobacco and beer industries have recovered and grown, and newly established mineral water production and juice factories have expanded substantially. 24. Despite having gained duty-free access to the EU market, BH is missing out on trade opportunities due to insufficient food safety institutions and inadequate safety and quality assurance among domestic producers. While steps have been taken to improve the legal and institutional framework in line with EU requirements in the fields of food safety and veterinary and phytosanitary services, the capacity of key institutions—including the Food Safety Agency, the State Veterinary Office, the Administration of Plant Protection and Plant Health, and Entity Inspectorates— remains underdeveloped, and there is insufficient cooperation and coordination between the state- and entity-level institutions. Due to insufficient food safety infrastructure (both legal and institutional), BiH is currently not allowed to export a number of fruits and vegetables, nor any kind of animal products, except for fish to the EU. As a result, the country is missing out on the opportunity presented by its early planting season to export to high-value markets in northern Europe. Moreover, many producers and processors in BiH are unlikely to meet EU requirements for the infrastructure and organization of agri-food value chains. Bringing agrifood businesses up to EU standards will pose a major challenge for the private sector, requiring substantial investment. 25. It is increasingly necessary for processors to apply private standards in order to remain competitive on domestic and international markets. As a result of consumer demands and their own quality control needs, retailers—especially the modern supermarket chains—increasingly require producers and processors to adhere to private production and labeling standards. The inability to apply good hygiene and manufacturing practices and quality assurance schemes, including the HACCP system; poor marketing information; and inadequate packaging and labeling all have a negative impact on the BiH agri-food sector‘s ability to compete with foreign suppliers. 26. High-quality rural infrastructure is needed to efficiently link producers and processors to domestic and foreign markets. Substandard rural infrastructure, including roads, irrigation and drainage systems, and electricity, constrains growth and development in the agri-food sector by imposing significant costs on producers and processors. Limited public transport in rural areas restricts the labor supply. In 2005, insufficient water supply implied higher losses for businesses in BiH

49 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development than in any other country in the ECA region. Although BiH is considered a water-rich country with high potential for hydropower generation, some areas face localized water shortages. For example, lack of irrigation is a key factor limiting the development of high-value crops in the region close to the Adriatic Sea. World Bank experience from across the world has shown that benefits normally exceed costs when there is a demand for irrigation from water users. In the past few years, however, limited rehabilitation and development of irrigation systems has taken place in BiH. At present, fewer than 3,000 ha are irrigated. Previously constructed drainage systems have been abandoned and have deteriorated. Finally, while access to electricity is generally not a problem in BiH and power shortage is not an issue, the costs of gaining access and of electricity are relatively high compared to other countries in the Balkans. 27. With modern value chains and global markets, logistics are needed to realize potential comparative advantages in the agri-food sector. Logistics, including efficient customs, good transport and information technology, and timely shipments, ensure that goods are delivered predictably, efficiently, and in a cost-effective manner. They also increase competition among traders, processors, and retailers, ultimately enabling primary producers to take a larger share of retail prices. BiH faces several disadvantages related to logistics, with missed opportunities for supplying both domestic and international markets. The country is in the bottom half of the world in overall performance of logistics infrastructure, ranking 88th out of 150 countries in the World Bank‘s Logistics Performance Index. 28. Investors are discouraged from investing in BiH as a result of the poor business environment. The constraints to business development are reflected in limited access to finance, inadequate legislation and regulation for facilitating the formation of business partnerships and professional associations, slow and costly business and property registration, and weak contract enforcement systems. Improving the business environment remains an important priority, including for agriculture. For instance, farmers who are registered as business entities receive reimbursement for the value-added tax (VAT). Yet, owing to complicated and costly registration procedures, many farmers are not properly registered and cannot benefit from VAT returns. As a result, farmers— particularly small household farmers—are in effect taxed at a higher rate than enterprises in other sectors. Slow, complicated, and costly land registration processes are also likely to act as adisincentive for farmers to formally register their businesses. 29. Limited access to affordable agriculture finance hinders investment in this sector. Commercial banks continue to charge high interest rates to primary agricultural producers relative to businesses in other sectors due to the difficulty banks have in conducting proper risk assessments of agricultural production. This obstacle is not specific to BiH, but it imposes severe constraints to agriculture sector investment. Given the long-term nature of the agricultural production cycle and the problems farmers have in using their property as collateral due to uncertainties regarding land ownership, commercial banks tend to perceive rural lending as a high-risk operation. Interviews with farmers suggest that larger farms also perceive access to finance as an obstacle to further investment and expansion especially with regard to extensive collateral requirements. Some commercial banks are participating in subsidized credit schemes set up by the entity-level agricultural ministries to address this issue. 30. Agricultural support programmes send confusing signals to agricultural producers and processors. The programmes include production and interest subsidies that are determined mainly on an ad hoc basis, thus introducing a significant degree of uncertainty in the long-term investment planning process of agricultural producers. The measures seem to be directed at supporting rural incomes in the short term, rather than improving the sector‘s long-term competitiveness. Cross- country research shows that allocating public expenditure to the agriculture sector is critical to its performance, and reallocating expenditures from subsidies to support for investment in essential public goods yields substantial contributions to growth. This is the case even without increasing the total amount of public spending, and more so than increasing total public spending without reallocating from subsidies. Specifically, investment in rural infrastructure, such as irrigation and roads, together with the generation and dissemination of new technologies demonstrate a significant positive impact on agricultural growth. In addition, support to private investments contributes more to growth than do direct subsidies. BiH‘s current public expenditure focus therefore contributes much less to agriculture sector modernization than it could. Coordination is limited at the entity level and between the cantons in the Federation, resulting in a fragmented system.

50 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development

31. Public expenditures in the agriculture sector are poorly targeted to support agricultural growth. A public expenditure review (PER) of the agriculture sector was carried out by the World Bank and Food and Agriculture Organization (FAO) in 2006 and early 2007, covering the period 2000–2006. An analysis from that review and more recent data shows that public expenditures in BiH are administered at state, entity, canton, and municipal levels. In the absence of any type of body or institution responsible for monitoring or collecting agriculture sector public expenditure data, it is difficult to obtain a complete overview of public expenditures in BiH. Public expenditures in BH‘s agriculture sector are low relative to other countries. Based on data gathered for the 2007 PER, total agricultural spending was estimated at KM 99.6 million in 2004, or about 1.35 percent of total public spending. By 2007, the figure had risen to KM 208.3 million, or about 2.13 percent of total public spending. Though the definition of what falls into the category of agricultural spending varies, the current expenditure level is low compared to an average of about 6–8 percent of total public spending in developing countries, and 3–5 percent in developed countries. BiH‘s public spending in the agriculture sector is also low as a share of total GDP, increasingly slightly from about 0.7 percent in 2004 to nearly 1 percent in 2007. Countries with similarly sized agriculture sectors tend to spend more as a share of GDP, closer to 1.5–2 percent. 32. The composition of subsidies in BH is heavily weighted toward direct production rather than investment. The WTO reporting system, which includes the so-called ―green box‖ and ―amber box‖ classifications of agricultural subsidies, provides an overview of where, how, and to whom these subsidies are allocated. In 2007, amber box support, which comprises direct production subsidies, accounted for KM 125 million, or 60 percent of total agricultural expenditures, as compared with KM 60.3 million, or 63.5 percent of total spending in 2005 . Hence, total allocation of agricultural expenditures has increased while the composition of the support has changed only marginally. Meanwhile, green box expenditures, which tend to be more growth enhancing, constituted only 40 percent of the total. The single largest expenditure in the agriculture subsidy budget is milk production subsidies, which absorbed as much as 70–80 percent of total subsidies distributed by the FBH Ministry of Agriculture during 2003–2006. Given that 80 percent of milk producers have three cows or less, on average, this subsidy takes on the characteristics of a social transfer rather than productive support to the agriculture sector. BiH‘s support system is also inconsistent with the current direction of the EU‘s Common Agricultural Policy (CAP), which has moved away from subsidies tied to production and is gradually moving toward investment grants (through Pillar II). The EU Instrument for Pre- Accession Assistance for Rural Development (IPARD), for which candidate countries become eligible, is also based on investment grants. 33. Existing public services related to agriculture education, research, and information systems are weak and do not sufficiently promote competition and quality orientation. Agricultural education systems are currently unable to meet the rising demand for skills as better technologies are introduced and markets become more discerning. Many agricultural schools and faculties still focus curricula, education, and qualification standards on large farms and public sector jobs rather than on the new community of small- and medium-sized farmers and rural service providers. The stand-alone nature of most agricultural faculties limits interdisciplinary studies, which are important for know-how related to EU policies (such as cross-compliance, environmental issues, and rural development). The level and quality of research expenditures is insufficient. Most research has limited relevance to the new class of smaller private farmers and tends to focus on on-station rather than on-farm trials, due in part to funding limitations. Immediate action is needed to improve agricultural statistics for sound planning and decision making in the agriculture sector. Available information on ownership, size, and operational structures of farms; numbers of livestock; and labor in agriculture is insufficient. 34. Furthermore, the extension system is not fully functioning. Existing extension systems in BH are not yet in a position to provide the services needed to help farmers increase competitiveness and productivity, to better manage their businesses, or to respond to new circumstances such as changing market requirements, food safety concerns, and climate change. Moreover, the current thinking on rural advisory services favors a wholly public system, without competition from the private sector, which would be expensive and difficult to staff properly in times of fiscal restraint and public wage ceilings. Experience from other countries has demonstrated that purely public advisory services can be inefficient and insufficiently responsive to farmers‘ needs. Current good practice recommendations favor pluralistic institutional approaches that include roles for NGOs, producer organizations, and the private sector.

51 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development

35. BH faces an “adaptation deficit” that will increase with the projected climate change. Like many countries in the ECA region, BH is vulnerable to climate change as a result of a legacy of environmental mismanagement and the collapse of agricultural services. These issues increase the threat to the agriculture sector from climate risks, and reduce its ability to take advantage of opportunities that may emerge. BiH has recently made progress in integrating environmental considerations into agriculture and forestry, for example by establishing inter-ministerial working groups to discuss the nexus between agriculture and environment. Environmental protection is not yet fully incorporated into agricultural development policies. Poor coordination between state and entity agencies is delaying implementation. In addition, environmental monitoring in agriculture is limited; nutrient analysis, for example, is based on estimates. Environmental management issues could undermine the sustainability of agricultural production and limit access to high- value EU markets (such as those that demand organic or GlobalGAP certification), thereby limiting growth potential.

Key Public Policy Actions 36. The agriculture sector in BiH has potential comparative advantages in a number of products, but faces important constraints in competing domestically and internationally. Large parts of the country enjoy a favorable climate for agricultural production, and domestic factor prices are lower than in many comparable countries. However, distortions in input and output markets result in small profits for agricultural producers. Together with stagnating land markets, limited access to credit, inadequate provision of rural services and infrastructure, inappropriately focused public expenditures, and weak institutional capacity, this limits opportunities and incentives for much-needed agricultural investments. 37. BH‘s agriculture sector is at a crossroads. In order for the country to catch up with the rest of Europe and survive increasing competition from the EU and other neighbouring countries, new agricultural and rural development reforms will need to be implemented. Some of these reforms can be realized relatively quickly and with little or no cost to public finances, while others will take years to complete. If they are to take full advantage of available opportunities, BiH farmers need to be able to operate in an environment that is similar to that of EU farmers. This will require strengthening institutions and creating a favourable business environment. It will be important, therefore, to maintain an agenda that encourages growth and participation in the sector, while preparing institutions for possible EU accession in the future. 38. Targeting public expenditures toward the provision of public goods and services will be essential to support growth and development in BiH‘s agriculture sector. International experience shows that investment in public goods—such as institutions, agricultural education, research and extension services, food safety, market infrastructure, natural resource management, and information systems—is important for growth. Investment in agricultural research and development has shown particularly high returns to growth. Extension strategies, need a multifaceted approach for service delivery that involves the public sector, NGOs, rural producer organizations, and private sector service providers. Although a fully private system is not feasible now, approaches based on public funding of services contracted to private local suppliers may be an effective avenue for meeting the needs of small farmers. Agricultural research spending needs to focus on clearly identified priorities and farmer needs. In the short run, emphasis should be on applied research, including on-farm and on-site trials with farmer involvement, as well as storage, packaging, and marketing technologies. Coordinating investments and sharing resources (such as people, equipment, and ideas) with other countries and institutions would increase economies of scale. 39. Existing subsidies in the agriculture sector should be better targeted to maximize their contribution to growth. Changing the composition of BH‘s agricultural subsidies will be vital if they are to effectively contribute to agricultural and rural growth. In the highly fragmented milk-producing sector, for example, it would be economically advisable to identify investments and services that could contribute to growth in the dairy sector (such as modern barn and milking facilities, cooling tanks, and quality assurance equipment) and to reallocate the current milk subsidies to support such investments. This sector is likely to have many non-viable milk producers that depend on production subsidies for their livelihood, but that do not have incentives to invest further in their farming activities. It is thus important for the Ministries of Agriculture to work in parallel with the Ministries of Social Affairs to ensure that alternative safety nets are in place, at least for a transition period.

52 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development

40. Shifting from production subsidies to more investment-oriented support would pave the way for possible EU pre-accession funds for rural development. These resources, under the EU IPARD program, would support on-farm investments, ease the transition toward non-farm activities—such as eco-tourism—for non-commercial farmers, and bring BiH closer to meeting EU accession requirements in the field of agriculture. This funding would also provide the means to support the agriculture sector in investing for future participation on the EU market. If and when BiH obtains full EU membership, it will eventually need to move completely away from direct product subsidies to rural support. 41. By maximizing the absorption and effective use of available EU pre-accession assistance, BiH can alleviate the financial burden posed by necessary reforms and investments. In the period 2007– 2011, €440 million had been allocated for BiH under the Instrument for Pre-Accession Assistance (IPA) to support its transition from a potential candidate country to a candidate country. Around 90 percent of the envelope is intended for projects supporting institutional reforms under IPA Component I: Transition Assistance and Institution Building. The remainder is to fund Cross-Border Cooperation Projects. With careful planning and attention to establishing appropriate absorptive capacity, IPA resources could significantly alleviate the financial burden associated with aligning BiH‘s institutions with EU requirements. The Instrument for Pre-Accession for Rural Development (IPARD) is one of five IPA components. The purpose of IPARD is to prepare candidate countries with policies and institutions to manage EU‘s CAP, while ensuring sustainable development of the countries‘ agriculture sectors. IPARD support to candidate countries is estimated at €880 million for the period 2007–2013. While BH is included under the IPA framework as a potential candidate country, it does not benefit from IPARD 2007–2013, which is exclusively for candidate countries. 42. It will be important to develop an EU-compliant food safety control system. The existing institutional framework needs to be streamlined, with national-level coordination and clearly defined responsibilities for all involved agencies. Effectively enforcing food safety legislation will require improved capacity in inspection services—particularly to support the transition to a risk-based inspection program and food businesses‘ ability to assess the application of good hygiene practices as well as the HACCP system. Enforcement will also depend on the implementation of effective controls at border inspection posts. Although a great deal of work is underway in this area, complying with EU food safety requirements will be a lengthy and costly process requiring significant private sector investment to upgrade production and processing facilities. Adopting EU food safety regulations would be a good start—particularly prior to future EU negotiations, since in the past negotiations have been delayed due to food safety issues. Appropriate regulation will include ensuring that state-level legislation is directly implemented in entity-level legislation. A second important measure would be to strengthen the capacity of the Administration of Plant Protection and Plant Health. Testing facilities will require major upgrades, modernization, and a new vision. This effort will require significant consolidation of infrastructure and functions. Importantly, an EU-compliant food safety system will require a single, state-level system. While inspection services may remain decentralized at the entity level, institutions like the State Veterinary Office, the Administration of Plant Protection and Plant Health, and the Food Safety Agency will need to be accountable for these services at the state level. Entity levels will have to comply with state-level legislation, as the current system will not be acceptable to the EU. 43. Investment in quality infrastructure and logistics will be important to link producers to domestic and foreign markets efficiently. NRP calculations show that farm gate prices are low and that market distortions impose implicit taxes on BiH farmers. Interviews with processors have also pointed to the problem of logistics throughout the supply chain. By themselves, however, these investments will not be enough to sustain agricultural and non-agricultural growth and competitiveness; only when based on local demand and combined with education and a better business environment can improved infrastructure services promote long-term sustainable growth and competitiveness. Some of these activities are being supported under the World Bank-financed Agriculture and Rural Development Project and other projects. Government and other donors like IFAD can improve farmer connectivity by supporting the establishment of producers‘ organizations to facilitate market participation for small- scale farmers. This can be accomplished by strengthening access to finance for the purposes of establishing organizational structures and investing in post-harvest infrastructure, as well as through technical support to small-scale agri-businesses. 44. Well-functioning land institutions are essential for the development of the agriculture and rural sectors. Clear land titling and ownership are crucial for ensuring optimal use of agricultural land and

53 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 7: Agriculture and Rural Development encouraging agricultural investment. Functioning land registration and cadastre systems and an IACS will be required to access EU IPARD funds intended for agricultural investment. Land registration and cadastral systems also need to be updated. It is important to note, however, that well-functioning land and rural property markets are by themselves often not enough to promote consolidation of agricultural land; voluntary, market-based land consolidation programs would also be helpful. The World Bank has identified a number of steps to establish good governance, protect rights, and improve land and property markets. These steps include establishing a secure and efficient real estate registration system, completion of the cadastre records for all property in BiH, increase the efficiency and reduce the costs of systems for issuing land use and construction permits, and update urban planning documentation to reflect the situation on the ground, finalize outstanding restitution claims from persons displaced during the war years and resolve the approach to be taken with respect to claims to property nationalized during the socialist period. Whereas a few of these activities are already ongoing under the Land Registration Project, others remain to be initiated. 45. Improved input markets will help farmers access competitive inputs. There is a need to address the limited number of plant varieties allowed into BH, to improve farmers‘ access to seeds and seedlings, and to establish a quality assurance system. The easiest way to solve these issues would be to adopt the EU Common Catalogue for Agricultural Plant Species, while maintaining a system to test common varieties and provide information and recommendations to farmers. This would open up the possibility for more importers to participate in the market, and even for farmers to import seeds and seedlings directly. Adopting the Common Catalogue would also be likely to lower input prices and improve the quality of available planting material, thereby increasing yield. Formal trade channels would be established, making producers and traders accountable for the products. In addition, fertilizers and pest management will be important for increased yields. Rigid import regulations and procedures need to be eased, within the limits of safety and hygiene. Given BiH‘s EU aspirations, regulatory changes should be in line with existing EU regulations, including the Nitrates Directive and other ―good agricultural practices‖ applied in EU countries. 46. In parallel, better information on alternative fertilizers and pest management methods should be provided. Manure management, green manure production, and integrated pest management (IPM) are all agronomic and economic good practices, in addition to being suitable for organic production. To apply these approaches properly, however, farmers need information and training. For IPM, it is necessary to assess risks and appropriate methods, and to understand what methods are applicable in different parts of the country and for different types of agricultural production. The type of crop for which green manure is suitable (for example, nitrogen-fixing crops like legumes) depends on climate conditions as well as market demand for the byproduct (such as beans or peas), which has to substitute for the crop forgone when planting the green manure. Animal manure management requires knowledge in storing and handling; relevant recommendations should be developed and practical training in these methods provided to farmers. Recommendations for different parts of the country can be developed in collaboration with the universities, and training can be provided through extension and advisory services, NGOs, or other mechanisms. 47. Finally, BH should integrate climate change adaptation and environmental sustainability into agricultural policies, programmes, and investments. Although the precise impact of climate change on agriculture remains uncertain, it seems likely that heat and water stress and extreme events will destabilize crop yields in many areas, while greater exposure to vector-borne pests and diseases will increase crop and livestock losses. These elements will also affect BH‘s water and land resources, biodiversity, and ecosystems. To succeed in agriculture, producers and governments will have to adapt. According to the latest advice from experts on the subject, the way to start is to focus on reducing agriculture‘s vulnerability to current climate variability. For example, improving water and soil management, and investing in improved research, extension, and weather forecasting are ―win-win‖ measures because they will generate a positive rate of return under today‘s conditions, and will be even more important in the face of climate change. The United Nations Framework Convention on Climate Change (UNFCCC), to which BiH is a party, recently released an EU White Paper on adapting to climate change which includes action to encourage the further development of National and Regional Adaptation Strategies.

54 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 8: Strengths and Weaknesses of the National Poverty Reduction Strategy

Appendix 8: Strengths and Weaknesses of the National Poverty Reduction Strategy

1. BiH developed a Poverty Reduction Strategy Paper/ Medium Term Development Strategy in 2004. Due to its involvement in the accession process for membership of the EU, this was followed by a Social Inclusion Strategy in 2009, based on a number of survey studies. The concept of social exclusion is a much broader notion than the notion of poverty. It is a process through which certain groups are placed into subordinate and unfavourable position due to discrimination on the grounds of ethnic background, race, religion, sexual orientation, position in the society, sex, age, disability, HIV status, migration status, and place of residence. Given its prioritisation of accession to the EU, BiH is not currently working within the framework of Poverty Reduction Strategies. Instead it has a Social Inclusion Strategy and a Development Strategy.

Introduction 2. BiH developed a Poverty Reduction Strategy Paper/ Medium Term Development Strategy in 2004. Due to its involvement in the accession process for membership of the EU, this was followed by a Social Inclusion Strategy in 2009, based on a number of survey studies. The concept of social exclusion is a much broader notion than the notion of poverty. It is a process through which certain groups are placed into subordinate and unfavourable position due to discrimination on the grounds of ethnic background, race, religion, sexual orientation, position in the society, sex, age, disability, HIV status, migration status, and place of residence. Given its prioritisation of accession to the EU, BiH is not currently working within the framework of Poverty Reduction Strategies. Instead it has a Social Inclusion Strategy and a Development Strategy.

Previous anti-poverty strategies 3. In 2001 a BIH Medium Term Development Strategy – PRSP was issued by the Office of the BIH Coordinator for PRSP. It is explicitly described as the PRSP as is clear from its official title. The strategy had three main goals91:  Creation of conditions for sustainable and balanced economic development;  Reduction of poverty; and  Acceleration of EU integration. 4. The priority activities92 it listed to reduce poverty are:  Implementation of fiscal reform to ensure more effective collection of public revenues and higher assistance to the poor;  Accelerate growth of private sector to increase employment;  Establish a more adequate system of social protection to ensure minimum of social rights and a more balanced distribution of social assistance for all categories of the poor in the entire country;  Reduce corruption, which mostly affects the poor;  Reduce the level of ‗informal economy‘ which will lead to increases in pensions and poverty reduction among the elderly;  Ensure safeguarding of human rights, to improve integration of returnee and Roma and reduce poverty levels among these categories;  Fully implement the Law on Gender Equality, to reduce gender effect on poverty level;  Implement reform of the education system, provide out-of-school education and make them accessible to persons with low levels of education.

91 MTDS, 2004-7 p10. 92 MTDS, 2004-7 p 33-4.

55 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period

5. The MTDS considered agriculture one of the priority sectors to reduce poverty. In this sector93, its goals were to develop active natural and human potential to increase employment.  Increase competitiveness of domestic agriculture;  Reduce agricultural imports;  Balance demographics of the regions in the country;  Develop rural areas as crucial factor in poverty reduction;  Promote preservation of the environment through the promotion of sustainable agriculture. 94 6. It identified the following main problems :  Ineffectiveness and fragmentation of administrative and inspection services, including border;  Unresolved issue of control and certification of goods in production and on the market;  Non-functional governing structures in FBiH;  Non-existence of the connected network of diagnostic and referent laboratories;  Lack of experts in key ministries;  Absence of competence and influence of both relevant entity ministries concerning a) import regulations, b) certification c) manufacturing industry and d) development of credit. 7. The priorities were the following  Strengthen legal and institutional framework;  Harmonize legal and institutional framework with EU regulations;  Define strategic products in animal production [milk, meat, fish and honey] in plants [seeds and seedlings, grain, vegetables, fruit, forage crops, industrial crops;  Improve the system of subsidies in agriculture;  Improve access to financial services;  Ensure adequate foreign trade regime to encourage domestic agricultural production;  Improve land management system;  Strengthen cooperatives and associations;  Improve ecological aspects;  Improve scientific research and education.

Current strategies 8. Upon expiration of the 2004-2007 Medium Term Development Strategy (MTDS), a process was initiated to formulate what was intended to be a new Country Development Strategy (2008 to 2013). This process produced two major documents: the BiH Development Strategy and the Social Inclusion Strategy (SIS), both issued in 2010. They guide the development of BiH for the forthcoming middle- term period. Both are designed to cover the period 2008-2013. 9. The Development Strategy has 5 strategic development objectives:(i) macro-economic stability; (ii) competitiveness; (iii) employment; (iv) sustainable development; and (v) European integration. While not primarily focused on poverty issues, the strategy mentions a number of poverty-related factors which influence its potential95, among which:  The global economic crisis and its repercussions for the main economic partners of BiH;  Changes of the demographic profile: aging population, increased life expectancy, lower birth rates with strong influence on pensions and the health system;

93 MTDS 2004-7, p 202. 4 MTDS 2004-7 p 204. 95 BiH Directorate for Economic Planning, 2009, Development Strategy of Bosnia and Herzegovina, p 12.

56 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 8: Strengths and Weaknesses of the National Poverty Reduction Strategy

 Long-term sharp international competition as a result of greater economic globalisation and the „medium income trap― as a threat to BiH and other countries at similar development level96. 10. The strategy has a strong focus on agriculture and rural development, as well as employment97, in particular the development of SMEs, which is in accordance with IFAD‘s past and future strategies in BiH. Its focus on education and in particular on lifelong learning98 and upgrading of education for the less educated also fits into the various activities proposed for the next RB-COSOP, in particular those aimed at providing vocational practical training to youth and women with lower levels of education. The Development Strategy proposes a focus on:  Development of entrepreneurship and fast SME growth (p 82, 85), including development of mechanisms for financial support to this sector (p 86), simplifying registration procedures, encouraging incubators;  Activities to improve employment: including flexibility of labour (p 87);  Promotion of public-private partnerships in entrepreneurship (p 93);  Intervention in gender equality in the legislative and regulatory framework to harmonize it with international standards (p 84). 11. The Development Strategy gives an important role to agriculture, and some of its proposed thrusts are fully compatible with the proposed IFAD RB-COSOP. It proposes to focus the development of agriculture on:  Increasing the volume of agricultural production and individual yields;  Higher degree of specialization and modernization of agricultural production, in order to reach a higher level of competitiveness;  Better and more comprehensive use of available natural resources for agricultural production;  Higher degree of processing of goods of agricultural origin;  Greater consumption of locally produced food;  Merging of small agricultural producers for more successful marketing;  Balancing of foreign trade balance of agricultural and food products;  Increasing material-financial support to local agricultural production and rural areas;  Establishment and strengthening of institutions required for successful development of local agriculture, and  Adoption of European standards and rules in agricultural production and food industry. 12. The strategy goes beyond the mere agricultural development and also wants to develop an approach to rural areas which would see them as ―living spaces for people, animals and plants‖ (p103). Here again, some of the foci are fully in accordance with the proposed IFAD strategy and, although not directly stated as poverty alleviation measures, will certainly contribute to a reduction of poverty if implemented within that spirit. The relevant proposed foci are:  ―Building of human resources in rural areas and improving of their information, skills and knowledge;  Improvement of production infrastructure and infrastructure for purchase of agricultural produce in rural areas;  Improving quality and safety of agricultural and food products;  Sustainable management of agricultural and forest land, livestock and, generally, of living space in rural areas;  Improving quality and accessibility of public services for rural population;  Construction and maintenance of rural infrastructure;  Protection and conservation of natural and cultural-historical heritage in rural areas;

96 According to UNSNA 2008, investments into research and development are not treated as investment into equipment and buildings any more, i.e., as an investment, instead of expenditure 97 Development Strategy ibid. 14 98 Development strategy, ibid, p 60-62

57 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period

 Diversification of agricultural and non-agricultural activities in rural communities;  Support to the establishment of all forms of micro, small and medium size enterprises in rural areas; and  Development of agro and rural tourism in rural areas. 13. The priorities listed include:  Improving cooperation in production and processing by linking primary and secondary production in the agriculture and food sectors (p 108), supporting organisation and training of agricultural producers (p108), improving rural infrastructure (p109), supporting the development of rural micro businesses and specific products, as well as increase employment, promoting rural tourism, women‘s entrepreneurship (p 110-1).

The Social Inclusion Strategy 14. Simultaneously with the Development Strategy, the BiH State also produced the Social Inclusion Strategy (SIS) which gives detailed attention to issues of social inclusion. This was as a result of its policy to operate according to EU documentation and policies, and the State now uses the concept of Social Inclusion, rather than that of poverty reduction. ―Social inclusion is a process that enables persons at poverty and social exclusion risk to gain opportunity and needed support for full participation in the economic, social and cultural life, as well as to enjoy socially acceptable standards 99 of living and wellbeing applied in the societies that they live in.‖ It is intended to reduce social exclusion which is defined as ―a much broader notion than the notion of poverty. It is a process through which certain groups are placed into subordinate and unfavourable position due to discrimination on the grounds of ethnic background, race, religion, sexual orientation, position in the society, sex, age, disability, HIV status, migration status, and place of residence‖100. 15. The excluded groups which the strategy aims to include are:  Women;  Returnees and IDPs;  National minorities and in particular the Roma;  Persons with disabilities;  Pensioners;  Youth (15-24);  Children (5-17). 16. ―Social inclusion is the basis of creating social policy in EU‖ and the use of this approach is the means for BiH to obtain pre-accession funds101. The Social inclusion strategy is thus the replacement for the PRSP, and the current state strategy for dealing with exclusion, a concept which largely encompasses poverty, as it is very rare for an excluded group to be less poor than others. The strategy has a number of goals. The first of them is employment related and is the most relevant for IFAD. It has the following priorities:  inclusion of socially excluded categories in the active labour market. This is to be achieved through 4 main measures: a) planning of inclusion, b) development of a support system to social entrepreneurship, c) use of incentives to develop self-employment programmes and d) reform of the social protection mechanism to stimulate active job seeking;  ensuring access to all goods, services, resources and rights which will improve active participation in the labour market through two measures a) improving instruments of the active labour market for inclusion of socially excluded categories and b) ensuring adequate information systems on public programmes to support social and labour integration;  Strengthening social dialogue mechanisms and develop partnerships and participation of all actors, including three measures: a) development to public private and civil partnerships in

99 Social Inclusion Strategy p 10 100 DFID, Reducing Poverty by Tackling Social Exclusion, 2005. P3. Quoted in SIS p 16. 101 SIS p 25

58 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 8: Strengths and Weaknesses of the National Poverty Reduction Strategy

financing the social inclusion programmes, b) enhancing policies of social inclusion and c) establish institutional dialogue framework compliant with EU principles;  Improve targeting of social transfers to the poor and vulnerable categories of the population, including four measures a) develop system based on need, b) strengthen social protection system c)develop social protection networks through inter-sectoral cooperation and d) develop services to prevent social exclusion102. 17. The other main goals concern various welfare provisions, such as the improvement of the position of families with children, improvements of education, health care, and the pension system, as well as support for disabled persons. It is clear from this summary that the focus of the Social Inclusion Strategy is on welfare provisions, while its concerns with employment are those most relevant to IFAD‘s strategy. It is also clear that the Development Strategy is the document of greatest interest to IFAD.

Strengths of the Development and Social Inclusion Strategies 18. As seen above, the main strength of the SIS is its ability to address poverty not only with respect to income and livelihoods but also to identify marginalised poorer people through other mechanisms, namely their level of inclusion/exclusion in overall society. This allows the strategy to have a broader approach, as well as one which may be more acceptable to the concerned groups as it does not ‗brand‘ them automatically as poor. 19. A second strength is the focus on employment and income generating activities, including the entire cycle of employment from education to enterprise. 20. A third strength of both SIS and the Development strategy is the presence of action plans at all levels, including those of cantons and municipalities, indicating the role of each agency in implementing the strategy. 21. A fourth strength is the fact that the SIS details what needs to be done for each excluded group in order to improve its degree of inclusion into society as a whole. 22. The main strength of the Development Strategy is its focus on rural development, rural employment and the development of SMEs, also complementarity with IFAD‘s development strategy in BiH.

Weaknesses of the Development and Social Inclusion Strategies 23. The fact that the SIS separates each excluded group means that the social separations and differentiations between socially excluded groups might be increased, rather than decreased 24. A second weakness of the SIS is the lack of differentiation between the various levels and extents of poverty, thus potentially limiting the likelihood of effectiveness for some of the poorer groups. 25. A third weakness of the SIS is the absence of specific targets with respect to increased incomes and increased integration, which means that its monitoring may be difficult. 26. The main weakness of the Development Strategy, with respect to poverty alleviation, is that its programme and proposals are not differentiated according to the proposed beneficiaries, i.e. there are few interventions which are specifically targeted to the poorer producers and households.

102 SIS p 124

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period

Appendix 9: Project Pipeline during the RB-COSOP period

Concept Note: BOSNIA AND HERZEGOVINA: Rural Competitiveness and Diversification Project (RCDP) A. Background 1. The complex governance structure in BiH and ineffective coordination between various levels of government not only hinders the country in making effective use of the EU‘s pre-accession assistance for the transposition and implementation of the EU ‗acquis‘ but also constraints the country in increasing its competitiveness and in improving its longer term economic perspectives. For this reason, given the 2013-2015 PBAS allocation, only one intervention is considered for the present lending cycle. Additional funding will also be mobilized103 to tackle environmental issues identified during the SEA exercise. 2. The present RB-COSOP will be assessed in 2015, and the country‘s progress as regards the EU-accession process will orient the intervention to be financed under the 2016-2018 lending cycle. 3. In close coordination with the State Government and the two Entity Governments, a project tentatively titled the ‗Rural Competitiveness and Diversification Project (RCDP)‘ has been pre- identified for financing by IFAD during the current RB-COSOP period. This project, identified by the two Entity Governments, aims to capitalize on the lessons from previous IFAD and other donors‘ investments. RCDP would replicate some of the most successful IFAD experiences in the country. These experiences relate to (i) strengthening of farmer organizations and rural enterprises; (ii) technological innovation, business development and financial services; and (iii) upgrading of market infrastructure. The intervention would also tackle environmental issues related to climate change. 4. IFAD would field a mission to the country in October/November 2013 to elaborate the design of the RCDP. The choice of specific geographical areas would be made during the project identification. 5. It is also foreseen that the pipeline projects (a second one to be identified in 2015) will keep on capitalizing on on-going interventions. In fact, during the 2013-2018 period, two interventions will still be under implementation: (i) the Rural Livelihood Development Project (RLDP); and (ii) the Rural Business Development Project (RBDP). RLDP is scheduled for completion in June 2015; RBDP is a five-year intervention that was approved by the IFAD Executive Board in December 2011, and the ratification process is, to-date, still underway. RBDP start-up is foreseen by beginning of 2014, and expected completion is in 2018. 6. Geography. BiH is a country in the southeast Europe on the Balkan Peninsula with an area of 51,129 km2 (47% of its area is covered with forests). It is virtually a land-locked country with a small (about 20 km) coastline on the Adriatic Sea and borders with Serbia, Montenegro and Croatia. Only some 20% of the total agricultural land can be classified as favourable for intensive agricultural production, mostly in lowland areas located in the valleys of the Una, Sava, Vrbas, Bosna, Drina, Sana and Spreca rivers. The geographical location and the complex mountainous reliefs lead to a diversity of climatic conditions across the country. Overall, BiH is located in two main climate zones. The southern part of the country has a Mediterranean climate characterized by sunny warm summers and mild rainy winters, and central and northern parts have continental climate that is characterized by hot summers and cold and snowy winters. The average annual temperature is 10.4°C. Summer is moderate, with an average temperature of around 16-17°C. Winters are quite harsh with average temperatures reaching below freezing for 2-3 months; the average winter temperature in Bosnia and Herzegovina is around –3°C. The annual average precipitation is about 800-1,000 mm. 7. Studies by the United Nations Framework Convention on Climate Change (UNFCC) suggest that current development efforts and the livelihoods of the rural households and communities – and key economic sectors such as agriculture and forestry more in general - are at threat due to climate

103 Possible sources of funding may comprise the Adaptation Fund.

61 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period change; noticeable droughts and flooding incidences have been experienced since the 1990s. A regional analysis of the South-Eastern Europe, also affecting BiH, found that among the most relevant climate change-induced alterations affecting the agricultural sector are (i) increasing temperatures (extreme weather events, frost damage, increases in hot days and decreases in rainfalls), (ii) reduced total growing season of some crops, (iii) reduced yields of stone fruits (due to warmer winters), and (iv) adverse effects on livestock (due to greater heat stress). 8. Population. BiH has not had a population census since 1991, shortly before the Civil War which tore the country apart between 1992 and 1995. Since then, the three constituent parts (i. Federation of Bosnia and Herzegovina – FbiH, ii. Republika Srpska – RS, and iii. Brcko District – BD) have been unable to agree on the information to be collected. However, agreement was apparently reached and a census was due to take place in April 2013. Meanwhile all agencies operate on the assumption of a total population of 3.5 million in 2007, increased to 3.75 million according to 2011 estimates. This figure is substantially lower than the 1991 figure of 4.38 million. About 200,000 people were killed during the war and many more remained disabled. The war also resulted in a change in the ethnic composition throughout the country, with a visible decrease in Croats residing in BiH. Furthermore, population estimates in 2010 showed that 64.2 percent of total people resided in FBiH, 33.8 percent in RS and 1.9 percent in BD. 9. History, political system, governance. The 1992-95 conflict in BiH caused almost complete destruction of the economy, infrastructure, livelihoods and the social fabric of rural life. As mentioned above, the conflict has resulted in about 200,000 people‘s deaths and many becoming disabled; it has also resulted in changes in the ethnic composition. BiH consists of a complex governance structure that was established in accordance with the Dayton Peace Agreement of 1995. It consists of a Council of Ministers at the State-level and two autonomous Entities - the Federation of Bosnia and Herzegovina (FBiH) and the Republika Srpska (RS) - plus the self-governing Brcko District (BD) under State sovereignty. The complex institutional and political environment leaves scope for political obstruction of many reforms and frequent political gridlocks, which in turn have impeded rapid advances on economic reform. This has retarded the development of a nationwide institutional infrastructure fully supportive of a market economy and EU integration. At the local administrative level, the country has 142 municipalities: 79 in the FBiH, 62 in RS and 1 in BD. The municipalities of FBiH are organized into ten cantons whereas RS does not have an administrative tier at the canton level. The municipalities are extremely variable in terms of size and population. Considerable investment has been made in the capacity of the municipalities for local development and governance. B. Strategic context and rationale for IFAD involvement, commitment and partnership

10. Poverty and rural development context. Poverty in BiH is not so much about absolute destitution but it is rather defined by social-exclusion and a lack of access to the basic services that make up an acceptable standard of living. BiH‘s Social Exclusion Index is 50.32%, indicating that half of the BiH population is, in some way, excluded within the society, being denied access to social, economic, and political rights. The country is placed 74th in UNDP‘s Human Development ranking, with a value 0.733 in 2011. The most recent analysis of poverty in the country indicates that while there is little or no ―extreme (food) poverty‖ in BiH, between 19 to 21 % of the households (HH) suffer from chronic material deprivation and between 20 to 30% are ―at risk‖ of falling into material deprivation. 11. During the recent period of strong growth (2004-2007), poverty in BiH dropped from 17.7% in 2004 to 14.0% in 2007 but has increased to 16% in 2010 and 18% in 2011. The country is thus unlikely to achieve its Millennium Development Goals regarding the eradication of poverty and extreme hunger and unemployment set for 2015. Many of the poor households have a high dependency ratio, lower levels of educational attainment, limited access to a regular source of cash income from formal employment, pension or remittances. Of these poor households, around 75% live in rural areas.

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12. Despite overall improvements in terms of poverty alleviation, progress has been uneven between urban and rural areas and rural communities suffer from a number of limitations constraining agricultural production and general well-being (harsh climatic conditions, ineffective agricultural technologies, underdeveloped rural infrastructure). In particular, rural poverty correlates strongly with altitude and uneven access to land, irrigation, agricultural equipment, finance and advisory services. In BiH rural poor are: (i) unemployed or with limited employment opportunities, especially affecting rural youth, (ii) households (HH) with insufficient assets or without access to pensions or remittances and (iii) female-headed HH who earn on average 20% less than male-headed HH. 13. Economy, policy and institutional issues. With a per capita Gross National Income (GNI) of US$ 4,700 in June 2011, BiH ranks as an upper middle-income country. The long inter-ethnic war in BiH caused widespread destruction of the economy, of infrastructure and livelihoods, and has also damaged the social fabric of society. The destruction of rural infrastructure, housing and public utilities has considerably hampered growth and development; production decreased by 80% from 1992 to 1995 and unemployment rose to unprecedented levels. After a period of successful post-conflict reconstruction, the economy has picked up and the Gross Domestic Product (GDP) growth has averaged 6% for the past five years with a low inflation rate. 14. The service sector is the largest contributor to employment, with 49.3%, followed by the industry sector at 31%, and agriculture with 19.7% in 2010. The country has however fallen back on its MDG indicators, especially with regards to employment and women‘s share in the non-farm sector. Official or registered unemployment for women now stands now at just above 40%, and unemployment amongst young people is also reported to be approximately twice as high as among the population as a whole. 15. In June 2008, the EU and BiH signed the Stabilization and Association Agreement (SAA). Pending completion of the process for the SAA to enter into force, an Interim Agreement now regulates trade relations. The EU is the main trading partner of the country representing 63% of total imports and 73% of total exports. The majority of Bosnian products can enter the EU duty-free. BiH is however not reaping the full benefits of these agreements as, due to the absence of EU-compliant food safety institutions and an overall lack of compliance to the EU regulatory frameworks, a broad range of products still remains banned from entering EU markets. 16. Following the Dayton Peace Agreement, BiH has a complex governance structure, as mentioned above. Municipalities (as well as cantons in FBiH) play a key role in the self-governance system in BiH. Although municipalities are not directly in charge for defining policies and supporting agricultural / rural (or economic) development, many of them support rural development (mostly agriculture). Their support ranges from formulation of local development strategies, to provision of small scale subsidies to producers, assistance to apply for subsidies and provision of municipal land for agriculture to individuals and companies / cooperatives. In tandem with other development actors, municipalities also provide support to agribusiness incubators, channelling support services to producers, or even setting up a credit guarantee fund or cover part of the interest rates. Considerable investments have been made in strengthening their capacity as drivers for local development and municipalities (and cantons) have historically represented the entry-point for the implementation of IFAD interventions. 17. The State-level Ministry of Finance and Treasury (MOFT) keeps oversight of donor supported programmes and coordinates with the Entities‘ Ministries of Finance, which are responsible for externally-funded projects. In addition, the State Ministry of Foreign Trade and Economic Relations (MOFTER) plays an active role in coordinating donor programmes in the country and works closely with the donors in the agriculture and rural development sector. 18. In 2001, with the support of the World Bank and the UNDP, BiH prepared its first Medium Term Development Strategy (MTDS, 2004-2007). Upon expiration of the MTDS and as part of the EU accession process, BIH prepared its national Strategy for Development (SD) and its Strategy of Social Inclusion (SSI, 2008-2013). These strategic documents benefitted from a broad stakeholder consultation process. A key goal for the SSI is to increase the participation of inactive and

63 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period discouraged populations and fostering their re-integration in social life and in labour markets through ‗equal opportunity‘ policies. Gender-sensitive and inclusive employment programmes are of high priority in this strategy. The SD identifies five strategic objectives: (i) Macro-economic stability; (ii) Competitiveness; (iii) Employment; (iv) Sustainable Development; and (v) European integration. The ‗Sustainable Development‘ objectives are pursued through the following: faster and more efficient development of agriculture and of rural areas, environmental management and renewable energy, as well as transport infrastructure and communications. The ‗Competitiveness‘ objective is meant to be attained through fostering of local business chains, strengthening research and development, upgrading workforce skills, establishing a supportive business infrastructure and fostering of sector- specific industrial clusters. 19. The two Entities have formulated their respective strategies for agricultural/rural development, the Medium-Term Strategy of Agricultural Sector in FBiH (2006-2010) and the RS Rural Development Strategy (2009-2015). These two strategic programmes are essentially construed around similar strategic priorities, and namely: (i) improving the competitiveness of the agricultural and food sector; (ii) institutional development and improvement of the legal frameworks in order to stimulate agricultural and rural development, (iii) conservation and sustainable use of natural resources; and (iv) improvement of rural livelihoods and diversification . 20. The IFAD Country Programme. IFAD‘s assistance to BiH commenced in 1996, soon after peace was restored in the country. To date, IFAD‘s BiH portfolio comprises six projects valued at US$ 167.0 million, of which IFAD funding amounts to US$ 70.0 million. The first two IFAD-supported projects, focused on emergency relief and rehabilitation, were aimed at the reestablishment of the livestock sector which has been decimated by the war. These projects contributed significantly to the post-war revival of rural livelihoods through herd restocking (introduction of over 15,000 high quality dairy cows and 13,000 sheep of improved breeds). IFAD‘s second generation projects have mainly focused on the poorer and disadvantaged regions of the country. In these regions, support to smallholders has mainly been operationalized through the provision of basic organizational and technical support to Producer Associations (e.g. support on how to develop the Association‘s activities, on how to improve milk quality etc.). The Livestock and Rural Finance Development Project (LRFDP), for example, has succeeded in developing farmer‘s small-scale commercial livestock operations by strengthening the market linkages along the dairy chain. This approach was replicated with horticultural crops, non-timber forest products and organic produce, in subsequent IFAD interventions. In line with the 2005 COSOP, the most recent generation of IFAD projects supported income diversification, strengthening of rural livelihoods in the context of economic transformation and post-conflict stabilization, and preparing to meet the new requirements introduced by the EU accession process. Projects included the Rural Enterprise Enhancement Project (2008-2012), the on- going Rural Livelihoods Development Project (2010-2015) and the soon-to-be initiated Rural Business Development Project (2014-2018). C. Possible geographic area of intervention and target groups 21. The specific municipalities in the two Entities where the project will be implemented will be selected based on: (i) municipalities‘ ranking in terms of socio-economic development (priority will be given to the most underdeveloped municipalities, including those that have not benefited from previous IFAD projects); (ii) potential for capitalizing upon the opportunities provided by the project; and (iii) willingness of the Municipal Government to contribute to the project activities. 22. The target group for the project would comprise the (i) non-commercial (subsistence) and commercial smallholder farmers, both women and men; (ii) Producer Associations and Agriculture Cooperatives with an outreach to non-commercial smallholder famers; (iii) women and unemployed youth interested in non-farm wage employment and enterprise development; and (iv) on-farm and off- farm small enterprises with the potential to grow and enhance their productive potential and contribute to rural employment. 23. Priority will be given to the following: (i) landless poor rural people who are able to become economically self-sufficient; (ii) rural poor people who have given up livestock and are reliant on crop

64 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period production only on less than 3 ha; (iii) smallholders with up to 5 cattle and/or 3 ha of rain-fed land; (iv) poorer rural women; (v) rural youth; (vi) micro and small on-farm/off-farm entrepreneurs; and (vii) organizations and rural and agricultural small operators, including Producers‘ Associations and Cooperatives. 24. The project will roughly cover 50 municipalities (about 25 in each entity), and will directly target 60,000 rural households. The final selection of municipalities – the geographic targeting - would be made during project design. As explained below (under the Project Components and activities section), the geographic coverage of the ‗network of specialized service providers‘ sub-component under the ‗Business Development Services and Competitiveness‘ Component (Component 2) will be nation-wide, as it will aim at creating a functioning and sustainable network of service providers in tandem with other local and international partners. D. Justification and Rationale 25. The justification for the Rural Competiveness and Diversification Project (RCDP) is based on the need to help smallholder farmers become more competitive and enable non-farm households to diversify their livelihoods. This is in line with the State and Entity level rural and agriculture development strategies, as well as the BiH Social Inclusion Strategy (2008-2013). This transformation is considered key for economic growth and rural development in the country. The IFAD financed investment will help smallholders capitalise upon the opportunities for production of niche products and assist rural households in undertaking a range of non-farm activities. The development hypothesis on which this project is premised is that organizing smallholder farmers and providing them technological, organizational and managerial skills, together with business development and financial services, and upgraded market infrastructure to enhance their access to markets can improve their competitiveness. 26. It is important to note that IFAD is one of the few agencies in the country working with the poorest segments of rural societies in under-developed municipalities; this is essentially IFAD‟s comparative advantage in Bosnia and Herzegovina. IFAD‘s previous project experience has demonstrated the high impact of working with smallholder farmers. 27. Taken together, IFAD projects have directly benefited over 116,000 households or some 394,000 people or nearly 18% of the country‘s rural population (the number of indirect beneficiaries is not included in this figure). The interventions have established or supported 85 Producer Associations (PAs) and Cooperatives, with a total membership of 12,581 men (78%) and 3,551 women (22%) in their endeavours to link up with the dairy, meat, fruit and vegetable value chains and markets. The Partner Financial Institutions have disbursed 5,687 smallholder loans (valued at US$ 22 million) and 146 on-farm and off-farm SMEs loans (valued US$ 6.6 million). The interventions have funded the construction of 285 small rural infrastructure schemes (196 feeder roads with a total length 285.5 km, 14 small bridges, 52 village water supply systems and 20 animal watering points), aimed at improving market linkages and rural living conditions. In terms of impact, these projects resulted in an increase in average monthly agricultural income for beneficiary households of over 60%, mainly as a result of increased sales of milk, meat and fruits. The increases in annual milk (51%) and meat production (17%) was mainly the result of an increase in animal ownership (32%), but also through increases in milk yields per lactation (16%). Fruit production has increased by 57%, while yield per hectare increased by 3%. The volume of smallholder milk production marketed to dairies has increased by 58% (and from 2.5 million litres to 11.3 million litres under the Livestock and Rural Finance Development Project), and sales of fruit and vegetables has increased by 57%. As a result, the overall food security situation has improved and rural livelihoods have become more diverse, strengthening their resilience in dealing with climate change induced variability. 28. IFAD experience has shown that Farmers Organizations (FOs), comprising PAs and ‗Agricultural‘ Cooperatives, supported by the project, have also played a noteworthy role in influencing public policy to the benefit of certain sub-sectors. For instance, these have played an important role in the creation of incentive schemes for dairy producers and subsidies or the creation of a supportive legal framework for apiculture. The IFAD-supported projects have also assisted FOs in their

65 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period negotiations with commercial banks and microcredit organizations encouraging them to increase their presence in rural areas and offer financial services for poor rural households. Through its investments in rural disadvantaged municipalities, IFAD‘s country programme has considerably contributed to the rejuvenation of rural livelihoods and invigoration of smallholder farming. Support to PAs and Agriculture Cooperatives has provided smallholders with a pathway to start realizing economies of scale and to access markets on a competitive basis. 29. Experience has also shown that (non-commercial and commercial) smallholders that joined producer groups in the milk and fruit value chains, were able to increase their market share as well as their incomes. The value chain approach proved to be effective in the nurturing of commercial linkages between small-scale producers and the private sector. The investments in market infrastructure (e.g. rural roads, small bridges), benefitting an important number of rural households, has also spurred rural growth. Access to finance, allowing for the start-up of new enterprises or the expansion of existing businesses, contributed to the creation of rural employment opportunities for young men and women. This either directly through the development of new agro-based industries or indirectly through multiplier effects contributed to agricultural growth in the rural economy. 30. Additionally, in terms of emerging lessons, it has become clear that: (i) PAs, Agriculture Cooperatives and rural SMEs, though already operational as instruments in helping (non-commercial) smallholders to access improved production technologies and markets, will need to become much more service- and business-oriented to be able to respond to changing markets and benefit their constituencies; (ii) financial services providers, key for rural growth and employment generation, will need to further extend the range and appropriateness of their services to rural areas; (iii) rural BDS will be crucial to facilitate the PAs transition from not-for profit into for-profit cooperatives and to support cooperatives in making realistic plans regarding the scale of their trading and their processing activities, their capacities in terms of service provision and the financial viability of their activities; (iv) investment in small scale rural market infrastructure can be catalyst for both agriculture growth and small enterprise development. 31. In addition to capitalizing on lessons learned from previous IFAD (and other donors‘ experiences), the innovative aspect of this project would include a greater focus and more active engagement with the private sector and rural entrepreneurs in creation of incomes and employment in BiH. E. Key Project Objectives 32. The development objective of the project would be to help smallholder farmers enhance their productivity and become more competitive at local and international level, and help in developing the non-farm enterprise sector for rural employment and income generation. The project would be expected to directly benefit 60,000 rural households. The expected outcomes of the project would include: (i) sustainable and economically viable organizations of smallholders and non-farm enterprises; (ii) improved performance of service providers both for technological innovation and for BDS; (iii) increased access to productive opportunities through sustainable access to technological innovation, business development and financial services; (iv) improved access to markets through upgraded market infrastructure; (v) improved access to financial services; (vi) increased employment opportunities in the rural areas specially for youth and women. F. Ownership, Harmonization and Alignment 33. The project follows up on a request from the RS and FBiH for the entirety of the country allocation of the present cycle. Throughout the years IFAD has forged a range of partnerships with the Government at the State, Entity and Municipal level, as well as with financial institutions, the private sector and farmer organizations. At the State level, IFAD will work closely with the Ministries of Finance and Treasury and the Ministry of Trade and Economic Relations to agree and coordinate the implementation of the overall country programme. At the Entity level, IFAD will work in close partnership with the two Ministries of Finance and the Ministry of Agriculture to identify priority areas of investment, geographical location of investment and the scope of the projects. Municipal

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Governments have been important partners for IFAD and have played a key role in identifying and financing part of the costs of physical and market infrastructure in rural areas. They would also help to facilitate opportunities for rural employment generation through a host of measures such as creation of special business zones, part financing, and access to facilities and incentives. IFAD would capitalise on these opportunities to catalyse rural growth and employment creation. IFAD will actively support Local Economic Development organizations (private and public) to strengthen their capacity to deliver strategic BDS. 34. The IFAD country programme will carry on building synergies with other donors and financing agencies. IFAD will work closely with the European Union to identify opportunities to assist the smallholder farmers in meeting EU production standards. The country programme will coordinate closely with the UN, World Bank, EBRD, EFSE and USAID in sharing lessons from their investments in the provision of financial services, infrastructure and agriculture value chain development. IFAD will build on the positive experiences of USAID‘s FARMA and LAMP projects and the work of the Czech Development Agency, Swedish Embassy and the Swiss Development Cooperation. EU, World Bank and IFC‘s investments in technical capacity building regarding Food Safety Standards in the country will be utilized for the benefit of smallholders by IFAD projects. Through it projects, IFAD will provide financing which is complementary to EFSE and the World Bank SME Project as it will focus on loans for agriculture and agribusiness and rural enterprise development whereas these other initiatives focus on housing loans, medium sized enterprises and do not finance start-ups. IFAD will also build on its lessons from the grant provided to OXFAM Italia to pilot territorial marketing and explore the potential for branding products, expected to start in mid-2013. G. Project Components and activities 35. The RCDP would include four components (i) Organizational and skills development; (ii) Business Development Services and competitiveness; (iii) Improved access to markets; and (iv) Project management and coordination. The components are expected to work in close complementarity with each other to maximize impact on the targeted households. 36. Organizational and skills development. This component would aim at enhancing the organizational and skills of smallholders (non-commercial and commercial), Producers‘ Associations, Agriculture Cooperatives, and of on-farm and off-farm enterprises. Activities would include training, on-the-job mentoring, and provision of advice to farmers to enhance their productivity, marketability of products as well as profitability. In this regard, the project would promote the production of high-value products, also those suitable for niche markets (in this regard, the formulation will capitalize on the market studies undertaken during the formulation of the Rural Business Development Project, on dairy, meat and fruits and vegetables products).The component would result in the graduation from subsistence to commercial farming (at individual level) and from Producers‘ Association to Agriculture Cooperatives (at Farmers‘ Organization level). The project would target those Agriculture Cooperatives that interact with the primary project beneficiaries (smallholders), which can guarantee their inclusiveness in value chains, and help them adopt food safety standards. The project would also target those enterprises that are able to guarantee the employment of youth and women. 37. Business Development Services and competitiveness. This component would have two main sub-components: (i) networks (local and national) of specialized service providers; and (ii) Voucher Systems to improve access to service providers. The first one will aim at improving the capacity of local service providers, resulting in the provision of ‗specialized‘ services to the final client (namely smallholder farmers, their organizations, and related enterprises). In doing so, the project will also aim at fostering and setting up of a local (within the RCDP targeted municipalities) and then nation-wide network of service providers (through a phased approach); in this regard the geographic coverage of this sub-component would be wider in scope than that of RCDP, and for this synergies with other partners will be necessary to initiate a functioning network of BDS. The second sub- component would ensure beneficiaries‘ hiring and contracting of specialized services, including business, technological innovation services in order to improve competitiveness of their on-farm and off-farm enterprises. In this regard, and taking into account the natural comparative advantage of BiH in the area of non-timber forest products, medicinal aromatic plants and berries, the services would

67 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period foster and support these sectors also taking into account their benefits vis-à-vis gender empowerment and climate change adaptation and increased smallholders‘ resilience. 38. Improved access to markets. This component would aim at increasing access to markets and business opportunities of the on-farm (including smallholders, Producers Association, and Agriculture Cooperatives) and off-farm enterprises. This would include construction/rehabilitation of rural roads – considered a priority from the borrowing government -, and the provision of more market-specific infrastructure, including but not limited to collective warehouses, collection points, cold storage facilities, grading, sorting and packaging equipment. The market infrastructure would complement efforts under Components 1 and 2 of the project, and to enhance the efficiency of specific value chains with market potential. The dairy, meat, and fruits and vegetable sub-sectors have been analyzed during the formulation of the Rural Business Development Project; RCDP will capitalize on such studies to determine the most promising value chains, in terms of potential for improved competitiveness and market share. To this end, the project would also ensure that groups are in place that can collectively manage such equipment, to ensure their operations and maintenance (sustainability) after project end. In general, specific criteria will be put in place to ensure the right allocation of ‗sub-project‘ grants, in terms – for instance – of maximization of number of beneficiaries for each investment, technical feasibility of the sub-project including sound exit strategy, direct linkage to viable value chains and others. 39. Project management and coordination. The project will capitalize on existing management and coordination models of the previous and on-going IFAD interventions, and namely on the implementation structures represented by the two Project Coordination Units in the two entities - PCU and APCU. This would also allow for capitalizing on IFADs‘ interventions past experiences. H. Costs and financing 40. Based on past experience, it is estimated that the total project cost could range from USD 25.0 to USD 30.0 million. IFAD would provide a loan of USD 12.7 million approximately. IFAD would also try and secure a country grant associated with the loan (approximately USD 0.3 million). The Fund would try and mobilize additional funding (up to USD 10.0 million, e.g. from the Adaptation Fund) to integrate innovative technology contributing to climate change-related adaptation and mitigation efforts. The Government of Bosnia and Herzegovina would contribute part of the financing with Municipal Governments, Participating Financial Institutions, Farmer Organizations and small entrepreneurs contributing part of the share. IFAD would also assess the potential for co-financing or parallel financing opportunities in collaboration with other donor agencies during project design. The lending terms for BiH, as of April 2013, are Blend terms. I. Organization and management 41. The RCDP would be built on the tested and proven arrangements for project coordination and management already in place for the on-going IFAD supported projects in BiH. The State Government would pass the proceeds of the loan and IFAD grant, if any, to the two Entity governments of the FBiH and RS through two subsidiary loan agreements. In each Entity, project implementation would be entrusted to the existing PCU/APCU implementing the on-going IFAD projects and are well versed in the systems, procedures and requirement of government, service providers, IFAD and co-financiers. PCU/APCU will implement the project in accordance with annual work plans and budgets prepared in consultation with the target group representatives, municipalities and service providers and approved by IFAD. J. Monitoring and Evaluation indicators 42. The key monitoring indicators for the project would be refined during the project design. A tentative Project Logframe is attached (see Annex I of this Appendix). The relevant RIMS indicators would be identified once project components and activities have been finalised. The M&E indicators would try and capture the outputs, outcome and impact of the project. All data would be disaggregated by gender.

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K. Risks 43. There are no major risks identified for the project at this juncture. Specific risks and mitigation strategies will be identified during project design. L. Timing 44. It is expected that the project design would commence during the second half of 2013 and the project would be submitted to the IFAD Executive Board in September 2014. Tentative schedule includes the following: (a) Oct/Nov 2013: Project design and Quality Enhancement (QE) inputs (b) Dec 2013: PDR to QE (c) Mar/Apr 2014: Submission to QA Panel, finalization and President‘s Report (d) Jun/Jul 2014: Loan negotiations (e) Sep 2014: Presentation to the IFAD Executive Board

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 9: Project Pipeline during the RB-COSOP period

Annex I: Draft Project Logframe

Objective Hierarchy Key Performance Indicators Mean of Verification Risks/Assumptions Goal  Reduction in # of rural poor  Baseline survey  Stable macro-economic Rural poverty reduced and incomes  Increase in incomes of the rural  Mid-term review conditions increased poor  Impact survey  Stable political environment  Living Standard Measurement Survey  Household Budget Survey  Multi-Cluster Indicator Survey Programme Objective  Increased factor productivity  Baseline survey  Project outcomes stimulate Sustainable increase in productivity and  # of rural households reporting  Mid-term review economic growth competitiveness, as well as development increased incomes from agriculture  Impact survey  Reduced disruption of the of enterprises to generate employment and non-farm activities  Interviews/focus agricultural sector, including  Increased employment groups extreme weather events

opportunities  Living Standard  Stable political, economic The Project will directly benefit 60,000  Increased share of women in wage Measurement Survey and financial environment households employment  Participating  Increased share of youth in on- municipalities’ official farm/non-farm wage employment records  # of farmers graduating from subsistence to commercial Programme Outcomes Outcome 1: Sustainable and  Strengthened PAs and  Baseline survey  PAs are willing to shift to a economically viable organizations of Cooperatives  Impact survey more ‘entrepreneurial’ smallholders and non-farm enterprises  Improved organizational and  Mid-term review mindset to become capacity skills Agriculture Cooperatives  # of non-commercial farmers  PAs and Agriculture included in FOs Cooperatives are willing to  # of FOs and SMEs capable of integrate subsistence meeting market requirements farmers into their  % increase in farmers graduating businesses from subsistence to commercial, and of FOs graduating from PAs to Agriculture Cooperatives

Outcome 2: Improved performance of  # of service providers delivering  Baseline survey  Support system for service providers ‘strategic’ services  Impact survey ‘strategic’ training of  Creation of a Network of BDS  Mid-term review business service providers in

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providers  Interviews/focus place groups  Service providers are willing to receive training and form part of a Network Outcome 3: Increased access to  # of farmers, FOs and SMEs  Baseline survey  Support system for productive opportunities through accessing services  Impact survey ‘strategic’ training of sustainable access to technological  # of farmers, FOs and SMEs  Mid-term review business service providers in innovation, business development and adopting viable and  Survey and monitoring place financial services environmentally sound productive reports indicating technologies beneficiaries’ level of satisfaction and adoption rate  Production surveys indicating improved yields Outcome 4: Improved access to markets  # of farmers benefitting from  Baseline survey  Farmers are willing to improved access to markets  Impact survey collectively manage market  % increase in market share  Mid-term review infrastructure  # of groups formed/strengthened to collectively manage market infrastructure Outcome 5: Improved access to financial  # of active borrowers  Baseline survey  Stable political, economic services  Borrowers reporting cost-effective  Impact survey and financial environment and competitive financial services  Mid-term review  PFIs are supportive of  % increase in rural unemployed  PFIs interim and project activities yield able to initiate productive annual reports enterprises  Audits Outcome 6: Increased employment  % increase in youth employment  Baseline survey  Stable political, economic opportunities, especially for youth and  % increase in women employment  Monitoring surveys and financial environment women  # of rural enterprises  Impact survey  Favorable business enabling created/strengthened  Mid-term review environment Programme Components and Outputs Component 1: Organizational and skills development Output 1.1: Subsistence farmers  # of organizational and skills  Panel surveys graduate to commercial farmers and are development training  Baseline, mid-term, included in FOs  Improved organizational and completion reports capacity skills  Municipality reports  Increased availability of  FO reports ‘specialized’ advisory services  Improved production efficiency at farmer level  % increase in subsistence farmers included in FOs  % increase in surplus production sold

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Output 1.2: Producer Associations  # of PAs evolving into Cooperatives  Panel surveys graduate to Agriculture Cooperatives  Improved competitiveness allows  Baseline, mid-term, for increased market share completion reports  Municipality reports  FO reports Output 1.3: Sustainable on-farm and off-  Increased sustainability of on-farm  Panel surveys farm enterprises and off-farm enterprises  Baseline, mid-term,  # of organizational ad skills completion reports development trainings  % of involved women and youth in enterprises  % increase in youth and women employment

Component 2: Business Development Services and competitiveness Output 2.1: Improved Capacity of Local  Performance of service providers  Panel surveys Service providers improved  Focus  Necessary ‘strategic’ advisory groups/interviews to services available to project assess extent and beneficiaries quality of beneficiaries’ access to services Output 2.2: Support to the creation of  Networks of Service Providers  Survey and Monitoring Networks of Service providers created and sustainable at local reports and national level

Output 2.3: Improved productivity and  # of farmers, FOs and SMEs  Panel surveys enterprise sustainability through improved accessing ‘specialized’ services  Survey and Monitoring access to ‘specialized’ business,  # of farmers, FOs and SMEs reports technological and financial services adopting viable and environmentally sound productive technologies  # of active borrowers  Borrowers reporting cost-effective and competitive financial services Component 3: Improved access to markets Output 3.1: Construction/rehabilitation of  # of rural roads  Progress reports rural roads constructed/rehabilitated  Panel surveys  # of beneficiaries reporting  Supervision reports improved access to markets through improved roads

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Output 3.2: Market infrastructure  # of market infrastructure  Progress reports (including collective warehouses, constructed/rehabilitated  Panel surveys collection points, processing facilities)  % decrease in post-harvest loss  Supervision reports constructed/rehabilitated  % increase in production meeting market requirements  % increase in certified products  % increase in farmers’ products placed in markets Output 3.3: Group  # of groups formed and trained to  Progress reports formation/strengthening for collective maintain the market infrastructure  Panel surveys management of the market infrastructure  Supervision reports Component 4: Project Management and Coordination 4.1 Programme efficiently and effectively  All Programme management and  Progress reports  Staff turnover managed co-ordination mechanisms are put  Supervision reports in place and operational

74 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 10: Scaling up Framework for Bosnia and Herzegovina

Appendix 10: Scaling up Framework for Bosnia and Herzegovina

The IFAD country program pioneered an approach for the rejuvenation of rural livelihoods and commercialization of smallholder production through a range of synchronized investments in disadvantaged rural municipalities. The focus on Producer Associations and Agriculture Cooperatives offers a significant pathway for smallholder to access markets and realize economies of scale; the value chain approach provides an effective opportunity to develop enhanced commercial linkages between small-scale producers and the private sector; investments in market infrastructure facilitates easier and more economic links to produce markets; and access to finance helps financing on-farm capital accumulation, expanding existing businesses, finances the growth of existing and the initiation of new Intervention being enterprises, and creates rural employment opportunities for young men and women in scaled up agro-based industries as well as through the multiplier impact of agriculture growth. The ideas outlined have emerged from the collective experience of smallholder farmers, farmer organizations, municipality Governments. These have also been adopted by the Entity Ministries of Agriculture and Finance and supported by the State Ministry of Finance Whose idea and Treasury and incorporated by IFAD in its project design. The approach was piloted under the Livestock and Rural Finance Development Project in 21 poor and disadvantaged municipalities during 2001-2008, modified and refined under the Rural Enterprise Enhancement Project in 25 additional municipalities during 2007-2012, Piloting/ testing/ then replicated and scaled up under 2 further projects, the on-going Rural Livelihood evaluation Development Project (2010-2015) and the yet to start Rural Business Development Project. The vision is to replicate and scale-up the experience with smallholder producers Vision throughout the rural and disadvantaged BiH municipalities. Drivers Four internal catalysts have been: (i) the aftermath of the break-up of Yugoslavia which altered the social and economic fabric of the country and magnified the role of agriculture as a social safety net; (ii) the transformation of the economy from centrally planned to market-driven; (iii) the need of smallholder farmers to achieve economies of scale, enhance their bargaining power and access to a range of marketing and financial services; (iv) the need for reforms in Catalysts production systems and institutions to meet the EU accession requirements. Funding received from IFAD and OFID and the commitments of Governments to external partners has been a decisive catalyst/driver. Significant external partners have also been External catalysts the World Bank, UNDP, EU, USAID and SIDA. Drivers at the local level consist of the: (i) smallholders desire to improve returns to factors of production through improved productivity; (ii) the imperative of improving access to today‘s sophisticated markets to benefit from improved productivity; (iii) the need to upgrade marketing infrastructure for easier access; (iv) unmet demand for credit by producers/entrepreneurs; (v) State, Entity and local Governments development strategies and plans for rural development; (vi) leaders and members of local Associations and Local drivers Cooperatives; (vii) service providers (NGOs, consultants, MCOs, banks).

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Significant incentives comprised the articulation and focus on the community demand driven dimension of development and the specific project incentives and accountabilities at the level of the individual (staff and producers) and the level of the institutions. Specific project incentives included: (i) material support to PAs; (ii) cumulative productivity gains that helped increase livestock and agricultural production and quantities of marketed produce; (iv) building of capacities and provision of technical and business advice to primary producers, PA boards, and SME through training; (v) construction of over 298 micro-projects to facilitate market linkages, providing social and economic benefits to over 116,000 small producer rural households (nearly 18% of the rural population); (vi) injection of over BAM 33 million of credit funds through MCOs and commercial banks to fund over 6,200 smallholder loans (98% of which were of amount of BAM 10,000 and less) to finance on and off-farm investments thereby enabling beneficiaries to increase asset ownership Incentives and income; (vii) creation of new full and part-time rural jobs. Spaces

(i) Economic and rural development strategies and Strategy for Social Inclusion at the State and Entity levels; (ii) Stabilisation and Association Agreement (SAA) between EU and BiH and the Interim Agreement on trade and trade related matters entered into by EU and BiH Political, policy, pending the ratification of SAA, (iii) signature / ratification of project legal agreements with legal and IFAD and OFID to finance on-going and future projects; (iv) Banking laws, Cooperatives regulatory space law, Microfinance laws, RS law on SCAs. Financial/fiscal space of US$ 82 million for 2 on-going and one approved but not yet started Financial and projects, including US$ 36 million of IFAD funding and US$ 20.8 of OFID funding, and fiscal space contributions by Entity governments, PFIs and beneficiaries. Establishment of: 2 project coordination units (PCU and APCU); producers associations (PAs) and cooperatives; community infrastructure committees; community based SCAs (for RS only); processors associations; ‗FBiH Chamber of Agriculture‘, Cooperative Unions at State and Entity levels, ‗RS Goat and Sheep farmers Association‘, ‗Union of Beekeepers of Institutional space Bihac Region‘. IFAD-supported projects abide by all environmental safeguards stipulated in the country legislation and designed to bring it closer to EU environmental standards. IFAD projects secured sustainable access to improved drinking water thereby improving community hygienic conditions and the health of children and adults. They also raised farmers‘ Natural resource / awareness of the importance of protecting natural resources and environment to protect environmental underground and surface waters from pollution; soil fertility from erosion, forest products space from over exploitation. Partnership External partnership space for IFAD with: EU, WB, UNDP, USAID, SIDA, CGAP. Implementation and supervision arrangements set by IFAD and PCU/ APCU created a learning space by strengthening capacity for mutual learning and enhancing ‗learning by doing‘; Procedures suitable to the specific interventions are reflected in Project documents and Working Papers; The FBiH and RS project M&E systems provide information of what works and what doesn‘t work and the knowledge produced is shared by partners through six-monthly /annual progress reports, supervision and completion reports, interim reviews and impact surveys; New knowledge is shared among donors and government agencies and passed on to beneficiaries during training of the members and leaders of the PAs, committees, SCAs, SMEs and farmers; The success in the scaling up of the intervention has been enhanced by local and international technical assistance that visit the projects for specific purposes and the conduct of studies and surveys on thematic, diagnostic and other topics. Regular monitoring and evaluation and feedback from beneficiaries, communities Learning space and field-based staff are very important for learning to take place.

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The sequencing of innovations being implemented include 3 scaling up pathways: (i) Supporting producer organisations to play an effective role in linking small producers with the commodity markets of today and in articulating sectoral requirements and concerns at the market and policy levels, and using them as vehicles to transfer modern skills and practices to the producers using capable service providers to provide pro-poor demand- driven advice, ensuring more sustainable mechanisms for the delivery of services to farmers and entrepreneurs; (ii) construction of economic rural infrastructure to improve the rural living environment and to facilitate more economic access to markets; and (iii) development /strengthening of rural enterprises through affordable investment lending by PFIs (both banks and MFIs), with PFIs assuming a significant part of investment lending (20-35%) to entice them to Pathways mainstream rural lending into their own portfolios in the future. Time horizon 16 years, 2001 – 2018 The key determinant for success in the scaling up pathway of the value chain approaches and the technical and business support services will be institutional i.e. the creation of appropriate institutional space. The unmet demand for rural economic infrastructure and the size of the financial space to be created, i.e. the amount of money to be made available for construction /rehabilitation of infrastructure projects will be the most important drivers in the scaling up pathway for the economic rural infrastructure pathway. In the investment lending scaling up pathway, the most important driver will be the unmet credit demand and the size of the financial space to be created i.e. the amount of funds to be made available Role of drivers and for credit, with IFAD being the important external catalyst in pushing PFIs to participate with spaces a significant share of own funds in rural investments. IFAD‘s role has been significant with the Country Team (led by the Country Program Manager, CPM) being the key driver in the scaling up pathway. CPM followed up persistently and liaised intensively with State and Entity Governments and other stakeholders to find solutions and put the Projects in the right implementation track, and maintain the pace of implementation and scaling up at high level. IFAD supervision and follow up missions provide invaluable implementation support on technical, financial and policy matters and ensure that recommendations are implemeted in a timely manner. IFAD IFAD‘s role also speedily carries out necessary modifications to legal documents. There have been significant achievements with positive impact on the rural poor, including: (i) significant cumulative productivity gains that helped increase in annual milk and meat production by 51% and 17% and fruit production by 57%, (ii) increase in quantities of smallholder produce marketed including an increase of 58% (by volume) in smallholder milk sold to dairies, and 57% increase in volume of marketed fruit and vegetables; (iii) construction of over 280 market and social infrastructure improved rural living conditions and facilitated profitable market access; (iv) improved availability of credit assisted in improving productive asset ownership (e.g. dairy cow ownership increased from 2.5 to 8.4), and facilitated investments in value chains; (v) as a result of the above, there was a cumulative increase in household agricultural income over the past 5 years of 60%; (vi) farmer organizations, including PAs and Cooperatives played a significant role in influencing government policy towards the rural sector especially in policies related to government incentive schemes, subsidies, taxation policy, investment incentives for dairy value chain, and in obtaining a supportive legal framework for the sector. The overall impact of IFAD program is that it has diversified rural livelihood sources in the program areas thereby enhancing small producer‘s food security through increased Impact of scaling agricultural production and incomes and strengthened their ability to respond more up process resiliently to climatic adversities.

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 11: Strategic Environmental Assessment

Appendix 11: Strategic Environmental Assessment

Constraints and opportunities in environment and natural resource management and climate change adaptation from the perspective of smallholder farmers, Producer Associations and Small Entrepreneurs

Climate Change Adaptation and Risk Mitigation 1. The agriculture sector in BiH will be increasingly vulnerable to climate change (CC) impacts, mainly due to higher frequency and intensity of extreme weather events (heavy rainfall, storms, hail, floods, drought, heat weaves and frost), and pronounced water scarcity during the summer (reduction of water/snow precipitations and changes in the seasonal distribution of precipitations affecting the flowering and maturity periods). As a result of these changes, the following can be expected:  Water constraints for rain-fed crops, irrigation and livestock will become higher, especially in the southern part of the country.  In mountain areas and along river valleys, agriculture soils will become more vulnerable to runoff erosion, fertility loss and lower water holding capacity.  Water quality will be reduced, with less oxygen and higher concentration of pollutants. 2. Unstable weather conditions and reduced water availability will cause increased inter-annual variability of crop yields, leading to higher economic risks for smallholder farmers and SMEs. Spatial conflicts might occur in land planning, i.e. on whether to use areas as agriculture land or for flood

79 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 11: Strategic Environmental Assessment protection. Moreover, heat weaves and forest fires – a growing threat with recent devastating consequences for the forests and wetlands of BiH – may put at risk complementary sources of revenues for poor-asset farmers – wood and Non Timber Forest Products (NTFP) – and increase the risk of soil run-off erosion, water and soil pollution, while magnifying the impact of floods affecting agriculture production and taking heavy tolls on infrastructures and lives. 3. Numerous regional and national assessments of climate change impacts and adaptation options recommend a shift from conventional agriculture to more environmental-friendly practices based on water saving, minimal soil disturbance and reduced use of agrochemicals, and the adoption of better adapted crop types/varieties and livestock breeds. Another important adaptation measure is land use diversification and the introduction of resilient economic activities – i.e. cultivation of medicinal and aromatic plants (MAP) and other NTFPs (berries or certain types of nuts), the use of wood for bio-energy and the promotion of grazing in high fire risk areas. These measures mitigate territorial vulnerability to CC while increasing food security – reducing dependence to one single asset and diversifying sources of income and employment opportunities for smallholder farmers. 4. In certain parts of BiH, Conservation Agriculture (CA) could represent an interesting opportunity to increase the resilience of agro-ecosystems and reduce CC-induced risks. CA includes a set of management principles such as minimal/no tillage, permanent soil surface cover with mulching and cover crops, and crop rotation. These measure offer a higher adaptability to climate change because of: (i) a more effective water infiltration and greater soil moisture-holding capacity, that help minimise the impact of extreme weather events such as water stress during drought, run off erosion and flooding during torrential rain events; (ii) the reduction of surface soil extreme temperatures and fluctuations help minimise the effect of frequent and intense heat weaves and frost periods; (iii) crop rotation and diversification have a positive effect on food security; (iv) the reduced use of fossil fuel and the increase of soil carbon has an important CC mitigation effect. The combination of organic and conservation agriculture principles can further enhance resilience, by helping minimize the use and environmental impact of agrochemicals. Additionally, any improvement in agriculture land management will help protect underground carbon stores, contributing to climate change mitigation. 5. Rural smallholders are among the most potentially vulnerable groups to CC-induced risk in BiH. The adoption of environmental-friendly agriculture systems and technologies will increase their capacity to achieve sustainable food sufficiency and initiate new value chains based on climate- adapted, higher value crops and animal production systems that can pave the way to new market opportunities. Moreover, it can help decrease the demand of labour and financial inputs, allowing farmers to become engaged in off-farm activities and pursue other livelihood options.

Areas for policy dialogue 6. Adequate institutional support and policies can greatly help to speed up the adoption of CC adaptation measures in agriculture, mainly by removing existing constraints and providing farmers with the required services, incentives and credit programmes for sustainable agriculture technologies and investments. The same can be said for the promotion of complementary income generation activities based on natural/forest products – wood, bio-energy and NTFP - and agro-tourist business. 7. IFAD could play an important role in assessing current policies and regulations that may facilitate or prevent sustainable agriculture and rural development options. The policy review will not only look at specific legal rules supporting agriculture development, farming and forestry approaches, but also at the coherence with existing legislation on cross-cutting policy issues such as climate change (adaptation of sectoral policies to climate scenarios and predicted changes), water (water use efficiency, water pricing, floods, droughts), land degradation, pollution (sewage treatment, use of herbicides, pesticides or other chemicals), energy (use of wood and agriculture waste for bio-energy), land tenure, forestry, nature protection, transport, etc. Agriculture and agro-forestry related incentives or subsidies and credit lines should be screened and evaluated, to ensure that they do not jeopardize the farmers‘ ability to adopt sustainable agriculture and sustainable non-farming complementary activities. The policy review would look at alignment with EU policy frameworks – i.e. Water Framework Directive (WFD), Floods Directive, Common Agriculture Policy (CAP) and agriculture

80 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 11: Strategic Environmental Assessment directives, Habitat Directive/Natura2000. It could also look at co-ordination mechanisms across entities, ministries, governmental agencies and departments to address mainstreaming and cross- compliance, and reduce the likelihood of conflicts in the implementation of measures. The adoption of broad consultation processes in order to gather the input and feedback of the civil society, the private sector and all concerned stakeholder is highly recommended.

Opportunities for enhancing ENRM sustainability throughout the IFAD Programme 8. At the agriculture production level:  Enhance the capacity of public administrations in weather forecasting and the timely transfer of relevant information incorporating CC-risk to farmers.  Test and adapt new technologies for Conservation Agriculture and Organic Agriculture CA/OA farming systems through on-farm demonstration trials as part of RLDP and RBDP interventions.  Develop a ―learning-by-doing‖ extension and applied research programmes using the and Field Farm Schools (FFS) approach together with a Training of Trainers (ToT) programme for extension agents, researchers, public servants and RLDP/RBDP implementation teams.  Assess market opportunities for exports (EU focus) and support the creation of new, short value chains on organic processed fruits, MAP, and other NTFP in the project intervention areas, as a way to diversify income sources and create employment opportunities for the poor (households with only one employed member), with a special focus on women who tend to be more involved in NTFP production (management of plant nurseries, processing and marketing NTFPs).  Organize learning tours to successful cases and best practices in Europe on sustainable agriculture systems and technologies, environmental-friendly agriculture production, NTFP and bio-energy.  Promote the participation of beneficiaries to international fairs on CA/OA/certified forest products in neighbouring and EU countries.  Assess opportunities to link intervention areas with neighbouring high value natural and cultural sites through agro-tourism schemes (food, handicraft, board & lodging and guiding services) and support poor farmers – focusing on unemployed young - to establish links with this sector and access related funding schemes.  Support participatory rural planning processes, assessing local vulnerability to CC-related risks and identifying adaptation measures, uses and management systems at local and territorial i.e. watershed level).  Strengthen cooperation with international agencies that support forestry, bio-energy, and agro-tourism and other sustainable development schemes in BiH. 9. At the Farmers‘ Association and SME level:  Provide extension support to farmer associations and SME on new farming systems and technologies to improve traditional value chains (i.e. the processing of imperishable products to overcome annual environmental constraints and increase the possibility to stock and access to markets in a longer period/new markets) and new complementary value chains (NTFPs cropping, processing and marketing).  Support/promote associations for CA/OA (i.e. RS and FBiH farmers federations for CA or OA).  Identify and support farm leaders among poor farmers to develop good demonstration cases on CA/OA and sustainable rural business that can trigger larger interest among farmers.  Promote networking among RS/FBiH farmer associations and CA/OA farmer associations from neighbouring countries and EU to exchange experiences and knowhow.

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10. At the Infrastructures level:  Support participatory planning processes to identify and GIS-map high-risk areas in territorial units – i.e. watersheds - and support decision-making about the most efficient landscape pattern distribution of infrastructures to increase rural resilience while supporting development activities.  Incorporate CC-risk criteria in the environmental impact assessment of all infrastructures.  Build capacity of public administrations (especially municipalities) and national/local civil works enterprises about the incorporation of CC-risks.  Promote the adequate land uses that can be coupled with infrastructure development in high-risk areas (i.e. clearing of road sides by supporting grazing activities in sensitive areas).  Organize learning tours to neighbouring/EU countries to visit successful best practice in infrastructure development and management.  Support the revision of national/local policies and regulations on infrastructure development to mainstream CC-related risk assessment. 11. At the Rural Finance Level:  Raise awareness and inform the business sector about CC-related risks affecting food security, and provide guidance to incorporate adequate sustainability criteria in the applications for loans.  Support the revision of governmental rural development policies to incorporate CC-risks in the provision of subsidies and selection of eligible measures/equipment.  Raise awareness and inform the private insurance sector about opportunities for CC-risk incorporation in insurance premiums in workshops and other private sector forums.

Gender and ENRM 12. As widely demonstrated in other countries with comparable social conditions, the promotion of the production, cultivation, processing and marketing of NTFP/MAP, including berries, nuts, mushrooms, and prepared products such as oils, liquors, jam, honey, cosmetics etc – as complementary agriculture activities can multiply employment opportunities for rural women. Women tend to be more open minded, eager and capable than men in sectors such as tree/plant nurseries, production of plants/seedlings, and management of MAP/NTFP. The adoption of sustainable agriculture practices and the diversification of revenues will allow a more efficient use of time and labour, creating good opportunities for households with more than one adult employed, which basically implies opening the labour market to women and youth. 13. Off-farm and complementary income-generation activities, such as agro-tourism and the set up of small bio-energy plants can also multiply job opportunities for the young population – i.e. as tour guides and workers in the bio-energy plant – and for women – i.e. as managers of rural guest houses and restaurants producers and marketers of NTFPs, and workers in bio-energy plants.

Potential for Additional Financing 14. During the past, IFAD has handled environmental issues mainly by ensuring the integration of environmental concerns and considerations into the planning and evaluation of its investments, and by monitoring the environmental compliance of its beneficiaries, especially at the level of municipalities, producers‘ associations and cooperatives. Beyond the allocations from the Performance Based Allocation System (PBAS), the IFAD country programme would explore additional financing sources for the development of projects that, while building on the core IFAD programme, have a specific ENRM. Potential sources include the Global Environment Facility (GEF), the Special Climate Change Fund (SCCF), and Adaptation Fund. IFAD could also become engaged in dialogue with private foundations working on ENRM and CC at the global or regional level. IFAD grants have been used to strengthen the smallholder‘s capacity to adapt to market and environmental factors in the past and could be used for similar activities in the future.

82 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 12: Implication of EU Accession for the Small Holder Farmer

Appendix 12: Implication of EU Accession for the Small Holder Farmer

Abbreviations ABP Animal By-Products BD Brcko District BIH Bosnia and Herzegovina BIP Border Inspection Post CAP Common Agriculture Policy EAFRD European Agriculture Fund for Rural Development EC European Commission EU European Union Global standard developed by supermarket chains on GLOBALGAP Good Agriculture Practice FBiH Federation of Bosnia and Herzegovina GAP Good Agriculture Practice GMO Genetically Modified Organism IDP Internally displaced person IFAD International Food and Agriculture Association IPA Instruments for Pre-Accession IPARD Instruments for Pre-Accession for Rural Development IPM Integrated Pest Management Liaison entre actions de développement rural LEADER Links between actions of rural development LFA Less Favourable Areas MoA Ministry of Agriculture NGO Non-Governmental Organization Results-based Country Strategic Opportunities RB-COSOP Programme RS Republik of Srpska UN United Nations

Introduction 1. By signing of the Stabilization and Association Agreement, BiH has committed to strengthen democratic institutions, to ensure the rule of law, to reform public administration, implement economic reforms, respect for human and minority rights, promotion of gender equality and non-discrimination, support for regional cooperation and reconstruction, contribution to poverty reduction and sustainable development and a high level of environmental protection. 2. In the area of agriculture and rural development obligations of BiH associated with European integration are related to the adoption and implementation of complete acquis of the European Union and compliance with the accession criteria. The main topics of compliance as defined in accession strategy (EU INTEGRATION STRATEGY OF BOSNIA AND HERZEGOVINA, Council of Ministers) in the field of agriculture are:  Domestic legislation should be harmonised with EU legislation in the area of agriculture and all the necessary laws and standards in agriculture and food, particularly in veterinary and phyto-sanitary protection, should be adopted.  Policies and programmes of agricultural development in BiH should be prepared, and the BiH agricultural development strategy should be drafted.  Adopt the necessary regulations on protection of land which is being destroyed and degraded, which is currently an economic and an environmental problem in BiH.  Define ownership and lease rules related to land.

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 Regulate loans for agriculture, subsidies of products and agricultural markets including purchase and prices. Build institutional capacities in the area of agriculture at the level of BiH to facilitate successful EU negotiations.  Build BiH institutional capacities in agriculture, to plan and use effectively the EU funds available to candidate countries, and later for EU member states.  Establish a quality control system for all priority products, taking into account horizontal Community legislation for food, vertical Community legislation and food standards (marketing regulations, common market regulations), UN recommendations.  Bring protection of domestic production closer to EU product protection.  Establish a Paying Agency at the level of BiH, once CAP funds become available.  Allow easier and more stimulation survey and trade in agricultural land.  Implement land reform making agricultural estates sustainable.  Consolidate estates and collectives, upgrade property for free market completion, and stimulate enlargement and amassment of estates.  Introduce regional stimulation of production in areas with less favourable economic conditions.  Establish a BiH Agricultural Advisory Service.  Upgrade land for larger production through quality work, application of mineral and organic fertilisers, and better plant protection from disease and parasites.  Upgrade university education in the area of agriculture 3. The European Commission is submitting a report on the progress of the country in terms of economic and political reforms and the implementation of EU standards. Progress is measured on the basis of decisions taken, legislation Adopted and measures implemented. In its report for the year 2011 EC, gives the following conclusions concerning the sector of agriculture and rural development:  Little progress was made on alignment with European standards in the field of agriculture and rural development policy. Overall, preparations in the fields of agriculture and rural development, food safety, veterinary and phytosanitary policy and fisheries remain at an early stage. No comprehensive strategy exists for aligning with the acquis on agriculture and rural development. State-level capacity for policymaking and coordination is weak.  Development of a functioning system to implement the food safety acquis remains a priority to increase trade in agricultural products. Official control capacity for the food safety, veterinary and phytosanitary fields and GMOs needs strengthening. 4. EU pre-accession aid supports projects that help the candidates prepare for accession, while familiarising the authorities and other relevant organisations with the methods used to implement EU support measures. The Instrument for Pre-Accession Assistance (IPA) stipulates that assistance for candidate countries should, inter alia, focus on the adoption and implementation of the full acquis communautaire, and in particular prepare candidate countries for the implementation of the Union's agricultural and cohesion policy [Regulation 1085/2006]. The Rural Development Component of IPA provides support in policy development as well as preparation for the implementation and management of the common agricultural policy. It contributes to the sustainable adaptation of the agricultural sector and rural areas and to the candidate countries' preparation for the implementation of the acquis communautaire concerning the common agricultural policy and related policies. It may in particular contribute towards the financing of the type of actions provided for under Regulation 1698/2005 [last amended by Regulation 1312/2011] on support for rural development by the European Agricultural Fund for Rural Development (EAFRD)104. As a potential candidate country BiH is not eligible for the IPARD component which has negative effect on the level of adaptation in the sector related to EU standards. However, BiH would get access to the funds if succeeds to establish Decentralized Implementation System, meaning institutional system for managing the funds. 5. Based on the above, we can conclude that the challenges in the process of EU integration for agriculture and rural development are manifold. They can be viewed in terms of institutional

104 http://www.europedia.moussis.eu/books/Book_2/6/21/05/05/index.tkl?all=1&pos=318

84 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 12: Implication of EU Accession for the Small Holder Farmer development, technical and technological progress, improving competitiveness, the availability of production sources, policy design and implementation, balanced regional and rural development, etc. 6. In this report, the implications of the EU accession process are presented from the point of impact on the development of small farms in Bosnia and Herzegovina. According to available information (B&H Agriculture, Food and Rural Development Harmonisation Strategic Plan (2008- 2010) number of farms in BiH is estimated at around 500,000. Participation of farms smaller than 2 hectares is 50% or about 250,000, while the share of farms smaller than 5 hectares is over 80%. The average size of farms in BiH is estimated at about 3.6 ha, which is further divided into 5-7 parcels. 7. A farm structures in BiH responds to the farm types that are in the EU labelled as semi subsistence or subsistence farms that produce primarily to satisfy domestic needs, and market only part of its production. Farm size in ha is not the only size indicator used in the EU105 but is the only way comparable with the BiH. Although the concept of small farms varies in individual EU Member States, the general consensus is that all farms of less than 5 hectares can be considered as small farms. In relation to this definition, over 80% of households in BiH would be considered as small farms, and hence the importance and the influence of European integration on their survival are of great importance.

What is the future of small farms in the process of European integration? 8. The future of small farms can go in three directions: a complete exit from the production and extinction, expansion of production and application of EU standards, reorientation to another activity, such as tourism and complementary activities. How many households will choose which path does not only depend on the impact of agricultural policy, but also on the general economic situation in the country and the economic restructuring of other industries. 9. Households that remain at the level of 1 ha in size will be automatically excluded from the system of direct payments under the rules of EUCAP, which at the end can accelerate extinction of such holdings. However, if we look at the number of farms smaller than 1 or 2 ha, who are currently in the system of incentives within Entity and BD budget106 we see that most of these little farms are not relying on measures of agricultural policy even now and its survival is likely based on another type of business or social help. 10. At the level of the entity and BD system of incentives distribution, there is no Rulebook on classification of holdings in commercial and non-commercial farms; however, the existing Rulebook sets minimum production volume, expressed in hectares of sown area or livestock numbers. Farms, which do not meet this criterion, have the right to apply for the measures for rural development. 11. Possible consequences: a large number of households remains beyond any kind of support from the agrarian and the budget for rural development, increasing regional disparities, rising rural poverty; 12. Necessary measures: designing special programs of support for the survival of small farms through the introduction of new measures, training of farmers to exploit the available measures, the introduction of an additional premium for households in poor areas of agricultural production, in advisory programs provide inclusion of vulnerable groups (often small farms) in programs training;

105 1. Physical measures, such as agricultural land and number of livestock and volume of inputs (e.g. labour), can define subsistence and semi-subsistence through thresholds. McConnell and Dillon (1997) have suggested that 0.5-2.0 ha of cultivated land might be a good proxy indicator for semi-subsistence farms. In Europe, there is a broad consensus that SSFs or small farms are those that operate on an agricultural area of 5 ha or less. 2. Economic size thresholds are applied widely for statistical and policy purposes throughout the EU, expressed in terms of European Size Units (ESU). For the EU Farm Structure Surveys (FSS) and Eurostat‘s corresponding series ―Statistics in Focus‖, farms smaller than 1 ESU are classified as subsistence. In addition to this, Eurostat defines farms smaller than 8 ESU as small farms 3. The third widely used approach to defining SFs and SSFs is based on a market participation criterion introducing a threshold of 50% of marketed output, classifying farmers selling more than zero but less than this as semi-subsistence, while labelling those above the threshold as semi-commercial and commercial 106 In RS Farm register there is 26% of registred beneficiaries with holdings smaller than 2ha.

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What challenges can be expected for small farms who want to expand their business? 13. Farms that have the ambition to stay and develop further in agricultural production will have to adapt to the demanding EU standards in production. These standards are mainly related to the standards on humans, animals and plant health, environmental protection, animal welfare, as well as standards on good agricultural and environmental practices. 14. To respond to these demands farms will have to undertake certain investments to improve facilities, technology, production, marketing, and investing in the acquisition of knowledge and skills needed to master the new conditions of production. Costs of adaptation are fully on the side of the farmers according to the polluters pay principle. 15. Thus, the main limitation of small farms that want to remain in production is access to new technologies, information and knowledge, access to sources of financing, access to productive resources such as farmland, pastures, etc.  Possible consequences: lack of financial resources for expansion of production, lack of access to land and other productive resources, inadequate access to advice and new technologies;  Necessary measures: promoting support programs specifically designed for small farms, providing support to small farmers in the processing of application and writing business plans, and applying for credit facilities, providing support to small farmers in introducing new technologies;

What are the consequences of EU integration process for the livestock sector? 16. Possible effects of the accession process to the main livestock production systems in BiH: cattle, sheep, pig and poultry farming are explored in detail in the IPARD sectoral analyses107. Analysis confirmed the fragmentation of livestock production. So, for the milk production sector analysis found that over 50% of households have only one cow. For such households it cannot be expected to cover the costs of adapting to EU standards. For other farms that have resources to stay in the production challenges of the accession process can be viewed as the fulfilment of standards in the areas of: animal health, animal welfare, animal identification, hygiene on the farm, manure storage.

Animal health 17. EU requirements in terms of animal health becomes even more important for those producers who want to export any live animals, meat and any animal products into the EU. Small farmers can also be affected by EU regulations if they are able to sell their produce buyers who are engaged in exporting to the EU market, which from 2013 will involve also those that export to Croatia. 18. These requirements apply to health certificate which must accompany all animal imports. In general these certificates must be signed by an official veterinarian of the competent authority of the exporting third country guaranteeing that the conditions for import into the EU have been met. On arrival in the EU, the animals and the accompanying certificates must be verified and checked by EU official veterinarians at a designated Border Inspection Post (BIP). Further checks on the animals may also be carried out at the final destination. Fulfilling these conditions will depend on the willingness of the state and its institutions to meet EU requirements. The current situation in the opinion of the EC may be improved in area of laboratory infrastructure, border inspection and the application of the legislation108.

107 http://www.fao.org/europe/publications/documents-and-reports/ipard-bih 108 Some progress can be reported in the field of veterinary sector. Implementing legislation on infectious diseases, control measures for animal diseases, trichinella, residues of veterinary medicinal products and prohibited substances was adopted. A

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Animal welfare 19. This area belongs to one of the elements of cross compliance109 requirements, mandatory requirements to be met by all farmers in the EU who want to exercise their right to direct payments. Requirements with respect to animal welfare would set before the vast majority of households in BiH obligation to invest in improving the facilities in order to meet the requirements stated above. Investments relate to meeting the requirements for space, ventilation, lighting, water supply, etc. These requirements are specific in particular for pig and poultry farms. 20. In 1998, Council Directive 98/58/EC on the protection of animals kept for farming purposes gave general rules for the protection of animals of all species kept for the production of food, wool, skin or fur or for other farming purposes, including fish, reptiles or amphibians. These rules are based on the European Convention for the Protection of Animals kept for Farming Purposes. Community legislation concerning the welfare conditions of farm animals lays down minimum standards.

Animal Identification 21. This segment of EU regulation in livestock sector will contribute to the regulation of the market in BiH and contribute to a better traceability and transparency in the sector. The basic objectives for Community rules on the identification of animals are the localization and tracing of animals for veterinary purposes, which is of CRUCIAL importance for the control of infectious diseases. Obligations for farmers in this regard will be the recording and reporting of all changes in the herd, animal birth, deaths of animals, selling of animal, slaughtering, and reporting of any movement of animals. Although the process of identification of animals is on-going in BiH, he has not yet experienced the full implementation in all sectors of the livestock, and the biggest problem is in the lack of updating of the changes in animal stock.

Hygiene on the farm 22. it is particularly challenging for dairy producers, and includes: hygiene of space for milking, hygiene of the milking processes, hygiene of the equipment and udder, hygiene of the space for the milk storage, hygiene during the transportation, etc. All these requirements imply a level of investment in rooms and milking equipment. No less importance is the training of farmers in maintaining hygiene, animal health, quality improvement, etc. 23. The organization of the milk collection system according to the quality of milk (RS, while the FBiH entity and BD have not yet switched to the system) has a positive impact on improving the quality of milk by farmers in the RS who, in order to retain existing subsidies and get the right to the premium for the extra class, have already taken steps to ensure the conditions for improving the quality of the product. According to the analysis of the MoARS, small farms supply milk of lower quality classes, compared to large farms. Small farms that have the potential and ambition to expand production will need the most support in reaching EU standards in terms of the need for extension services and financial resources.

Animal by-Products 24. by-products in livestock, such as cattle feed, manure, pesticides, leather, wool, blood, represent potential contaminants that can be hazardous to human and animal health, and are therefore subject

Decision on by-products of animal origin was adopted. The national residue control plan was significantly improved. Vaccination campaigns against brucellosis and classical swine fever were conducted. However, the State-level Veterinary Law remains to be amended to align it with the acquis and to harmonise legislation at Entity level. The financing for implementing the national residue control plan is not sustainable. National laboratories need further improvements to gain accreditation and to establish quality control systems for an effective residue control system. Coordination between the authorising bodies to ensure controls on the distribution and use of veterinary medicinal products on farms is limited. (Bosnia and Herzegovina 2011 Progress Report, European Commission) 109 Cross-compliance is a mechanism that links direct payments to compliance by farmers with basic standards concerning the environment, food safety, animal and plant health and animal welfare, as well as the requirement of maintaining land in good agricultural and environmental condition. http://ec.europa.eu/agriculture/envir/cross-compliance/index_en.htm

87 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 12: Implication of EU Accession for the Small Holder Farmer to special regulations which prescribe the rules in Production, Collection, Transportation, Storage, Use and Disposal of ABP (Animal By-Product). EU rules in this regard are particularly demanding in terms of manure management and represent an additional burden for farmers in the RS in terms of building adequate storage for manure. Sectoral analysis for IPARD Programme in BiH have also identified that the majority of small farms in particular does not have adequate storage facilities for manure.  Possible consequences: excessive investment requirements, too expensive administrative costs for production expansion, lack of financial resources, lack of state support, lack of technical support, loosen of the connections with food industry, insufficient institutional support;  Necessary measures: development of standard support program for small farms (2-5 cows, 10 cows, 20 pigs, 50 sheep) in the form of stimulus packages of financial support, the development of standard investment projects for facilities, equipment, creating of manuals relating to hygiene on the farm, animal health, animal welfare, animal identification, etc., providing technical support in the implementation of preventive measures to protect animal health and improve quality

What are the consequences of EU integration for the fruit and vegetable production sector? 25. Farms engaged in the production of fruits and vegetables in BiH will be confronted to EU standards which are part of the so called cross compliance requirements or standards related to agricultural and environmental practices, use of pesticides, use of the Nitrates Directive, the maintenance of agricultural land and other. General requirements for the horticulture sector are less exacting than for the livestock sector, especially in terms of exports. Proof of this is the increase in the export of fruit and vegetables from Bosnia in recent years, the increase in investment in planting new orchards and area under vegetables, growing interest in the certificate, etc.

Good Agriculture Practice 26. A multiplicity of Good Agricultural Practices (GAP)110 codes, standards and regulations have been developed in recent years by the food industry and producers organizations but also governments and NGOs, aiming to codify agricultural practices at farm level for a range of commodities. The objective of these GAP codes, standards and regulations include, to a varying degree: ensuring safety and quality of produce in the food chain, capturing new market advantages by modifying supply chain governance, improving natural resources use, workers health and working conditions, and/or, creating new market opportunities for farmers and exporters in developing countries. 27. Many private companies such as supermarket chains have accepted standards of GAP. In BiH majority of the chains require so called EUREPGAP111 standards. This standard includes rules related to: soil management, Fertilizer application, Irrigation, Crop protection, harvesting, post-harvest treatment, Lose and pollution management and reuse, Workers Health and Safety, Environmental issues. Costs of certification by the EUREPGAP standards in BiH amounts to 1500-2500 Euros annually (Sector Analysis in BiH) and more and more producers that have ambitions to export to the EU are adopting the standard. Still, meeting the standards of Good Agricultural Practice certification involves additional costs of investing in the areas that are subject to certification, such as, irrigation systems, storage room, technology application, etc.

110 Good Agricultural Practices are "practices that address environmental, economic and social sustainability for on-farm processes, and result in safe and quality food and non-food agricultural products" (FAO COAG 2003 GAP paper) (html). 111 GLOBALGAP is a private sector body that sets voluntary standards for the certification of agricultural products around the world. It consists of an equal partnership of agricultural producers and retailers who want to establish certification standards and procedures for Good Agricultural Practices (GAP), that is, pre-farm-gate-standards covering the process of the certified product from before the seed is planted until it leaves the farm.

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Integrated Pest Management: IPM management will be from 2014 year mandatory for all commercial producers in the EU. This means that the producers in BiH who want to export to the EU market are subject to the same rules and will be obliged to introduce IMP112. Applying IPM involves close cooperation between farmers, advisory or consulting services, forecast service, the plant protection service, research organizations and other competent bodies. In order to successfully prepare for IPM, domestic producers must first create a guide to IPM and then work on the networking of all links in the chain, so that producers receive adequate information on time, as well as advice on what pesticide to use for the purpose of plant protection and disease prevention.

Horizontal coordination: 28. the organization of the market in fruit and vegetables in the EU implies a very important role of producer organizations, which are the key element in the implementation of the so called Operational programs through which EU generates support for the farmers in this area. So, in order to benefit from the EU agricultural budget EU farmer has to be a member of producer organizations and producer organizations must meet the minimum criteria, like number of members, volume of collected produce, share of the market, etc. Such relationships have resulted in setting good horizontal integration in the field of horticulture in EU. Approaching such conditions for producers in BiH can bring multiple benefits: more efficient use of standards related to quality class, storage, packaging, branding, better organization of the market, etc. 29. However it should be noted that the horizontal connections are easily and efficiently achieved between larger commercial producers. Their organizations are stronger, economically clearly oriented, have a clear policy on quality and represent a significant player on the market. The only chance for small producers in BiH might be in establishing cooperative relations with these organizations or to choose other marketing methods in the marketing of fruits and vegetables such as organic production, on farm processing, selling at local markets and the like.  Possible consequences: excessive investment requirements, lack of financial resources, too high technology demands, too high competition in the market,  Necessary measures: development of operational programs for fruit and vegetable sector, offering to producers standard type of investment projects for orchards, cooling storage, etc., development of manuals related to IPM and GAP, strengthening of extension services in the sector, strengthening of producer organizations;

Does the EU integration exclude small farms from Agro-food chain? 30. The main partner to the farmers in Agro food chain are processors or food industries: dairy plants for milk producers, slaughter houses for cattle producers, processors of fruits and vegetables for horticulture growers. The process of EU integration is equally challenging for the food industry as well as for the primary sector and includes mostly the segments related to food safety. Reports of the European Commission to BiH show that progress in complying with EU standards in the field of food safety is still slow113. However, unlike the primary sector that is fragmented, economically weak, and

112 The new EU definition in Regulation concerning the placing of plant protection products on the market (2009) based on the new FAO definition provides an appropriate and recommendable definition: ―Careful consideration of all available pest control techniques and subsequent integration of appropriate measures that discourage the development of pest populations and keep plant protection products and other interventions to levels that are economically justified and reduce or minimise risks to human health and the environment. IPM emphasises the growth of a healthy crop with the least possible disruption to agro-ecosystems and encourages natural pest control mechanisms.‖ http://ec.europa.eu/environment/ppps/pdf/ipm.pdf 113 There was little progress in the field of food safety. Implementing legislation on certain food products, materials coming into contact with food, ionizing radiation and quick-frozen foodstuffs was adopted. However, the State-level legislation was transposed with differing provisions at Entity and Brcko District levels. The national food laboratory plan remains to be drawn up. Reference laboratories have yet to be designated. Responsibilities in the field of food safety remained fragmented. There was no progress in upgrading agri-food establishments. The capacity to implement official controls, including laboratory capacity, remains weak.

89 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 12: Implication of EU Accession for the Small Holder Farmer with, on average, low level of technological development, the food industry is economically stable, financially liquid and are market oriented within and outside of the borders. 31. Primary and secondary sector can‘t be separately adjusted to EU standards. They are both parts of the agro-food chain and in response to the requests for food safety they have to cooperate closely, because the gaps in one segment of the chain can jeopardize the whole chain. The problem is that due to the uneven development of the primary and secondary sectors, currently the food industry does not rely enough on domestic raw material base and often satisfy their needs through imports. Numerous factors have contributed to this situation, such as the already mentioned fragmentation of domestic production, poor quality and high prices of domestic products, free and cheap imports of raw materials from neighbouring countries and third world countries, poor control of border services, lack of cooperation and government stimulus programs in developing Agro food chain etc. 32. Purchase sector or consumer sector, meanwhile, concentrated in supermarket chains, which are mostly taken over by a European company, and have brought demands towards domestic agricultural and food products that are approximately equal to European standards. So, opposite to disorganized and non-concentrated farming sector in BiH, there is a vital food industry and strong purchase power of the supermarkets. In this situation, small farmers are often powerless and usually choose to exit the chain and sell products in local markets or to process it directly on the farm.  Possible consequences: more demanding processing and consumer sector as opposed to fragmented, unorganized farmers;  Necessary measures: Improving the competitiveness of the manufacturing sector through measures of quality improvement, product concentration through horizontal integration, adding value to products for local sale; stimulating the support of the state program for the development of business cooperation in the agro-food chain;To support the development of so called short supply chains and bringing small farmers closer to customers and vice versa.

Are farmers in BiH able to finance adaptation to EU standards? 33. There are several sources of financing investments in agriculture that farmers in BiH can use in the period prior to entry into the EU, and these are: own funds, credit funds, banks, micro-credit and savings and loan institutions, subsidies from national budgets, resources of local communities, EU IPARD funds and other resources. Smaller are the farms so is the availability of these funding lower, meaning that extra attention is needed, especially in the time of economic crisis, to provide sufficient amount of resources for the survival of small farms in agriculture. 34. Opportunities and constraints related to the financing of the agricultural sector are described in detail in the already mentioned sectoral analyses114. The conclusion is that the supply of different types of financial products in BiH is satisfactory, but that on the other the competition of different financial organizations had a little effect on the reduction of interest rates or requests to clients in securing loans. Farmers are faced with: the problems of providing guarantees, loan repayment problems, unprofitable production due to exorbitant financial resources relative to their productivity.  Possible consequences: small share of agriculture in the absorption of EU funds and credit, decline in investments in the sector, a decline in production, the fall in the value of return;

114 Self-employed individuals, particularly farmers, often have difficulties with providing security for loans and in most cases depend upon employed relatives or friends as guarantors. The increase in the number of outstanding credit obligations and general indebtedness has reduced the number of potential endorsers, which makes obtaining credit more difficult. Established registries of borrowers offer the ability to track the creditworthiness of borrowers and reducing credit risk. A guarantee fund has recently been established in the RS. The economic crisis has affected the level of lending, which fell by 3.9% in 2009. year and then rose 3.3% in 2010. year. The rate of unpaid loans has increased in recent years, so that lenders have increased provisions for potential credit losses. The total assets of banks is being reduced by 2% in RS and by 1% in the Federation in 2010. year, while at the same time deposits have fallen by 9% in the RS and increased by 2% in the Federation In order to mitigate the consequences of the crisis, the Central Bank reduced the required reserves to stimulate banks to activate as many of the deposits and to facilitate conditions for rescheduling of existing loans.

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 Necessary measures: offering favourable financial products for small farms, providing of trainings for financial service sector in investment in agriculture, training of service providers and users in exploiting IPARD funds, informing of farmers on IPARD funds and other sources of funding, drawing up guidelines for financing in agriculture, promotion of savings and lending,

Do farmers in BiH have access to extension services? 35. As providers of consulting and extension services in agriculture on the territory of BiH, appear representatives of the public extension service (RS and BD, and some cantons in FBiH), a private consulting service (RS), individual consultants (agricultural engineers), representatives of the input companies, representatives of research institutes and faculties. Again, as farms are smaller and placed in more remote areas, so is their access to information and advices more limited. An additional problem in BiH is the absence of the system between the representatives of the public sector, research organizations, consulting services and producer organizations. Such situation makes agriculture policy measures less efficient in achieving effects in the field. Also, weak links between research institutions and extension services (missing completely in some parts of the country) prevents recognizing the needs of the farmers for new technologies and product innovation on one side and on the other side minimizes the effect of applying research into the practice. 36. Creation of an adequate extension support system for the farming sector in the transfer of knowledge and new technologies will be a key factor in the preparation of the agricultural sector for the EU integration, in achieving competitiveness, in survival in the open market, etc. Special attention should be given to the prevention of discrimination in access to information for small farmers, women in rural area and other vulnerable groups.  Possible consequences: Lack of adequate professional support leads to a further decline in the efficiency of production, falling yields and total production of food and, ultimately, the survival of farms;  Necessary measures: strengthening of extension service, strengthening of the links between the advisors, farmers and research organizations, the introduction of competitive grants for new technologies and research, the production of professional materials, ensuring development of gender-sensitive training programs and access to information for vulnerable groups;

What impact of the EU accession process could be expected on domestic agricultural policy? 37. In front of the decision-makers in the field of agricultural and rural development policy, there is a long way on harmonizing domestic legislation and support systems with the EU CAP framework. The process is on-going and the report of the EC rates the process as being slow so far and in some elements, totally without improvements. Of course, the effectiveness of national policies to adopt and ability of institutions to build their capacities, ability for ensuring sufficient co-finance for the withdrawal of EU funds, will directly influence the level of preparedness in the farming sector. 38. What farmers can expect in area of agriculture policy is: gradually increase of the funding available to support agriculture and rural development (which has already happened in the past period, but has been slowed down by the consequences of the economic crisis), the introduction of new support measures – CAP like measures, the introduction of new requirements for accessing the funds (CAP like requirements), the separation of support measures for commercial and non- commercial farms, the introduction of support measures for areas with limited conditions for agricultural production (LFA measures), changes in the payment system (per ha or per farm) decoupled from production, increasing importance of the rural development measures, etc. 39. Bringing domestic policies closer to the CAP has already brought the most significant change in agricultural policy in Bosnia, and that is the inclusion of rural development measures of support in the agricultural budget. These are measures such as investment in farms, improvement of infrastructure,

91 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 12: Implication of EU Accession for the Small Holder Farmer support to other gainful activities, etc. However, implementation of the agriculture budget at all levels of government is still mostly on the side of production subsidies, while most of the funds from the rural development measures go to infrastructure development and investment. 40. Efficiency in implementing domestic policies will depend on the capacity of the institutions involved in its implementation. So far the implementation of agricultural policy is rather centralized in one entity (RS, exclusive jurisdiction within MoA) and too decentralized in another entity (FBiH where each canton has a Ministry of Agriculture). For the effective implementation of the measures, especially the rural development measures it is necessary to decentralize powers to the regional level and include representatives of civil and business sector in the design, implementation and management of rural development programs. Decentralization would spur the process of capacity building in the management of rural development programs at the local level. This practice would especially benefiting small farms, which could find their chance in certain rural development measures. 41. Harmonization with EU policies would also mean increasingly closer cooperation with other ministries with the objective of applying an integrated approach to rural development. So far these practices encountered in cooperation with the Ministry of Agriculture and the Ministry of Tourism (RS in the field of rural tourism) and individual departments in BD (support IDPs). The integrated approach will enable more efficient use of resources and this could prove especially useful in times of crisis.  Possible consequences: insufficient growth of domestic budgetary resources for agriculture, the introduction of new CAP like measures, lack of mechanisms for effective implementation on the ground, the lack of integrated and decentralized approach for implementing rural policies;  Necessary measures: The introduction of special measures or connecting existing agricultural budget to support farmers in producing closer to EU standards; Building capacity at the local level for participation in the programs of rural development; Lobbying for the greater share of the agricultural budget; Accelerating of the process of adoption and implementation of the accession requirements; Enhancing human resources for institutional reform; Need for monitoring and information system + analytical capacity to evaluate policy impacts; Implement effective rural development policies supporting agro- food restructuring and enhancing employment opportunities in rural areas; Provide public services that help agro-food chain to prepare for EU membership; build an extension, education and research system, provide market information system, etc.

What are the positive effects for small farmers in BiH in the process of European integration? 42. Despite the many challenges, the European integration process can bring development opportunities for small farms in BiH. These opportunities are reflected in a greater availability of financial resources, greater demand in the market, the larger amount of subsidies, stability of support measures115:  Increased policy predictability and budget stability over longer period  Enhanced transparency of the policy - transparent rules, procedures, eligibility criteria for potential beneficiaries  More efficient mechanisms for market and income stability. More active land and labour market, financial capital and information flow.  Compliance with highest standards of food safety and quality – benefits consumers  Rising importance of the environmental and natural resources protection. 43. Benefits for small farms can be found in stimulating rural development measures related to agro ecological measures and the development of complementary activities, as well as support from the LEADER program. Also, the measures of adding value to local products such as local foods, local

115 Siemen van Berkum and Natalija Bogdanov, 2012: Serbia on the road to EU accession, CABI, Cambridge, USA

92 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 12: Implication of EU Accession for the Small Holder Farmer customs, handicrafts, etc. have proved to be extremely effective in increasing the competitiveness of rural areas and the economic revival of the countryside. In this sense, it is desirable to positively promote the EU good practices in order to create a positive psychological effect on the many changes that the process of EU integration will necessary bring into the rural life

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Appendix 13: List of People Met

Results-Based COSOP Mission November 11 to 29, 2012

State Government of Bosnia and Herzegovina Mr Dusan Neskovic Asistant Minister Ministry of Foreign Trade and Economic Relations Bosnia and Herzegovina Musala 9 71000 Sarajevo Tel: 387-33-95-3500 Fax: 387-33-95-3501 [email protected] Miroljub Krunic Assistant Minister Ministry of Finance and Treasury Bosnia and Herzegovina Trg BiH 3, 71000 Sarajevo Tel: 387-33-703-085 [email protected] Svjetlana Vukojic Expert Assistant for EC Arrangements Ministry of Finance and Treasury Bosnia and Herzegovina [email protected] Mr Rijad Kovac, M&E Director, Directorate of Economic Planning, Bosnia and Herzegovina Mr Edon Sabanovic Deputy Director, BiH Agency for Statistics Bosnia and Herzegovina

Federation of Bosnia-Herzegovina Mr Jerko Ivankovic-Lijanovic Deputy Prime Minister- Minister of Agriculture Minister of Agriculture Water Management and Forestry Federation of Bosnia and Herzegovina Mr Suad Camdzic Advisor to Minister and Deputy Prime Minister Minister of Agriculture Water Management and Forestry Federation of Bosnia and Herzegovina

95 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Ms Ana Basic Advisor to Minister Minister of Agriculture Water Management and Forestry Federation of Bosnia and Herzegovina Mobile: 063-230359 Mr Anto Petric Savjetnik Minister Minister of Agriculture Water Management and Forestry Federation of Bosnia and Herzegovina Mr Samir Bakic Assistant Minister Ministry of Finance Federation of Bosnia and Herzegovina [email protected] Vedad Neziric Head of Department for borrowing and monitoring implementation Projects Tel: 387-33-25-34-40 Ministry of Finance Federation of Bosnia and Herzegovina [email protected] Mehmed Cero Assistant Minister, Environment Federal Ministry of Environment and Tourism Nedeljko Babic Assistant Minister, Tourism Federal Ministry of Environment and Tourism Enes Alagic Head of Water Management Sector Sava Watershed Agency Alexsandra Nikolic Professor Faculty of Agriculture, University of Sarajevo Ahmet Sejdic Director FBiH Forest Institute Osman Delic Director Protected Areas Unit, Canton Sarajevo Zeljko Majstorovic Director Sabina Hodzic Assistant Director for Applied Meteorology Esena Kupusovic Chief of Hydrology Department Hydro-meteorological Institute of FBiH

96 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Mr Halil Omanovic, Project Coordination Unit Federation of Bosnia and Herzegovina Sarajevo Staff of PCU Federation of Bosnia and Herzegovina Sarajevo Ms Lejla Sunagic, Former Gender Officer PCU FBiH

Republika Sprska Mr Zoran Kovacevic Assistant Minister Ministry of Agriculture, Forestry and Water Management Trg Republike Srpske 1 Banja Luka Tel: 387 51 338 430 [email protected] Dragana Aleksic Assistant Minister Debt Management Ministry of Finance Republic of Srpska Tel: 387-65-404-445 [email protected] Ms Nevenka Luburic Head of Department RS Ministry of Finance Trg Republike Srpske 1 Banja Luka [email protected] Ms Aleksandra Simic Senor Advisor Republic Agency for the Development of Small and Medium Enterprises Vuka Karadziva 4/7 78000 Banja Luka Tel: +387 51 247 440 [email protected] Ms Spomenka Krunic Director Republic of Srpska Government Gender Center – Center for Gender Equity and Equality Tel: +357 51 247 427 Ms Jelena Milinovic, Head of coordination, Gender Center Republika Srpska,

97 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Milos Jokic Assistant Minister, Project Coordination and Development Ministry of Physical Planning, Civil Engineering and Ecology Republic of Srpska Government Goran Zubic Minister Assistant, Forests and Hunting Ministry of Agriculture, Forestry and Water Resources Republic of Srpska Government Radenko Laketic Executive Production Manager Forestry Institute Republic of Srpska Government Milanka Jovanovic Senior Associate, Department of Forestry and Hunting Ministry of Agriculture, Forestry and Water Resources Republic of Srpska Government Milan Mataruga Associate Professor Faculty of Forestry University of Banja Luka Mr Radenko Jeftic Director Agriculture Project Coordination Unit Trg Republike Srpske 1 Banja Luka Tel: 387 51 338 734 [email protected]

Staff of APCU Repubika Srspsks Donor Agency Representatives Mr Yuri Afanasiev UN Resident Coordinator and UN Resident Representative Bosnia and Herzegovina United Nations Tel: 387-33-563-841 Mob: 387-61-160-549 [email protected] Zahira Virani UNDP Deputy Resident Representative United Nations 48 Marsala Tita, Sarajevo Bosnia and Herzegovina Tel: 387-33-563-820 Mob:387-61-488-163 [email protected]

98 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Ismar Ceremida Project Manager Value Chains for Employment project United Nations Development Programme Bosnia and Herzegovina Tel:387-33-5536-39 [email protected] Mr Aris Seferovic, UN Coordination Analyst, UN Coordinator Office United Nations Development Programme Bosnia and Herzegovina Raduska Kupac Project Manager, Climate Change United Nations Development Programme Bosnia and Herzegovina Mirjana Karahasanovic, Agriculture and Environment World Bank Country Office 1/17/B Tower 71000 Sarajevo , Bosnia and Herzegovina Tel: (387 33) 251-533,(500) [email protected] Ms Ruvejda Aliefendic Finance and Private Sector Development Specialist World Bank Country Office 1/17/B Tower 71000 Sarajevo , Bosnia and Herzegovina Tel: (387 33) 251-533,(500) [email protected] Ms Esma Kresco World Bank Country Office 1/17/B Tower 71000 Sarajevo Bosnia and Herzegovina Lada Busevac Senior Country Officer International Finance Corporation Europe and Central Asia Department Sarajevo Tel: 387-33-251-555 [email protected] Tarik Sahovic Project Manager Investment Climate Project International Finance Corporation Europe and Central Asia Sarajevo, BiH Tel: 387-61-473-200 [email protected]

99 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Mr Libor Krkoska Head of Office European Bank for Reconstruction and Development Fra Andejela Zvizdovica 1, B/15, 71000 Sarajevo Tel: 387-33-667945 Mobile: 387-62-346-724 [email protected] Lamija Marinjanovic Financial Management Specialist Tel: 387-33-251-513 World Bank Country Office 1/17/B Tower 71000 Sarajevo , Bosnia and Herzegovina Tel: (387 33) 251-533,(500) [email protected] Tamea Makra Programme Manager European Union Skendria 3a 71 000 Sarajevo Tel: 387-33-254-700 [email protected] Jelena Milos Programme Manager European Union Skendria 3a 71 000 Sarajevo Tel: 387-33-254-700 [email protected] Natasa Miskin Programme Officer Embassy of Sweden Sarajevo Tel: 387-61-215-979 [email protected] Steve Majors Program Officer USAID Tel: 7-777-779-4032 [email protected] Amira Vejzagic-Ramhorst Deputy Economic Development Officer USAID Tel: 387-33-704-436 Mpb: 387-61-228-645 [email protected] Mr. Benjamin Toric USAID/SIDA Chief of Party FARMA Email: [email protected] Tel.: 033 661 562 Website: www.bosniafarma.ba

100 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Bruce Brower USAID/SIDA Former Chief of Party, FARMA Email: [email protected] Tel: 033 661 562 Website: www.bosniafarma.ba Boris Erg Director IUCN, International Union for Nature Conservation, South East Europe

Financial Institutions Msa Lejla Huskic, Executive Secretary, LOK (Microcredit Organization) Skenderja 13 71000 Sarajevo Phone: +387 33 564 230 Ms Melnisa Begovic, Head of marketing, LOK (Microcredit Organization) Skenderja 13 71000 Sarajevo Phone: +387 33 564 217

NGOs and Private Sector Agencies Zravko Marinkovic Director Zvonimir Papoci Secretary for Agriculture and Food Processing Industry Ognjenka Lalovic Advisor for Multilateral Relations Tijana Slagalo Project Manager for Agriculture and Food Processing Industry Foreign Trade Chamber of BiH Mersida Musabegovic Director Organska Kontrola Rijad Tikvesa NGO EKOTIM, Sarajevo Nusret Dreskovic NGO Greenway, Sarajevo Mato Gotovac WWF, BiH Office, Livno Semra Fejzibegovic Branko Vucjak CESD Centre for Environment and Sustainable Development Sarajevo

101 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Safet Daut Director ODRAZ (Foundation for Sustainable Development) Obala Kulina bana 18 71000 Sarajevo Phone: +387 33 277 300 [email protected] Aleksandra Nikolic Faculty of Agriculture University of Sarajevo

Municipality Mr. Dalibor Vucanovic Mayor Kotor Varos Municipality Mr. Vladamir Dragoljevic Municipality Agronomist Kotor Varos Municipality Mr. Sasa Visnjic Municipality Agronomist Mr Darko Novakovic Local Economic Development Expert, Municipality of Rogatica, RS Ms Snezana Kanostrevac-Cvijetic, Local Action Group, Municipality of Rogatica, RS Ms Altijana Fejzic, Advisor ECON Sarajevo Ms Belma Gijo, Project Coordinator, Institute for Youth Development KULT Sarajevo

Agriculture Cooperatives and Producer Associations Nagib Hazic President State Cooperative Union Sarajevo Tel: 387-33-209-317 [email protected] Mr. Rajko Kuluga President Cooperative Union Republika Srspka

102 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 13: List of People Met

Ms. Nikolina Dragisic Secretary Cooperative Union Republika Srspka Mr. Dukic Milenko Member of Bee Keepers Producer Association Kotor Varos Municipality Ms. Silvana Stdanvic President Fruit Producers Producer Association Water Supply Scheme Maslovare Agriculture Extension Centre Obodnik

103

Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 14: Stakeholder Workshop

Appendix 14: Stakeholder Workshop

1. The RB-COSOP Stakeholder Workshop was held in Sarajevo on 27th November 2012. There were more than 80 participants present at the event and included a wide range of participants which included government officials from the State and Entity levels, municipal governments, donor representatives, non-governmental organizations, financial institutions, private sector and members of agriculture cooperatives and producers associations. The workshop agenda is provided as attachment I, and the detailed list of participants as Attachment II. 2. H.E. Mr. Jerko Ivankovic Lijanovic, Deputy Prime Minister & Federal Minister of Agriculture, opened the ceremony, highlighting the close alignment of IFAD-supported projects with the Ministry‘s agricultural strategy, and the close and continuous collaboration between the Ministry and IFAD. The Minister highlighted how IFAD-supported interventions support the agricultural sector along the value chain and start from the field and go all the way to the table. He also stressed the importance of the country‘s processing capacity, the constraints related to the fragmented nature of production and stressed the importance of aggregating production in order to enhance the competitiveness of the country‘s agricultural sector. He concluded by congratulating the PCU and APCU Directors and teams for their implementing performance, and thanked IFAD for its continued support in BiH. He outlined his concern for the delay in the ratification of IFAD‘s existing projects and highlighted the importance of ensuring that they were accorded timely approval. 3. Ms Bejta Ramović, Head of Department of the State Level Ministry of Finance & Treasury, explained how the IFAD-supported Rural Business Development Project is still in its ratification process, and the Rural Enterprise Enhancement Project is in its completion phase. She expressed her gratitude to IFAD and looked forward to receiving the finalized country strategy. Mr Radenko Jeftic, APCU Director from Republika Srspska conveyed the felicitations of the Minister of Agriculture of the RS who could not be here due to his previous commitments and conveyed Republika Srpska‘s support for IFAD-financed interventions. After these initial comments, H.E. Me Jerko Ivankovic Lijanovic declared the Workshop officially open. 4. Ms Maliha Hussein, RB-COSOP Mission Leader, greeted all Workshop participants and explained the purpose of this event as part of the RB-COSOP formulation process. She proceeded with a presentation of the event‘s agenda. She explained how the RB-COSOP design mission has assessed rural poverty alleviation priorities at state and entity levels, and how the key country documents had been thoroughly analyzed by the design mission to see where areas of complementarity with IFAD‘s mandate existed. A presentation was made of IFAD‘s operations in BiH, the different approaches adopted, the financing instruments used, and the geographical area covered. The development challenges confronting BiH were presented, including – among others – the fragile institutions, the need to comply with high standards of accession to the EU, land fragmentation, low yields, subsistence farming and others. Based on the analysis of this scenario, IFAD has developed its strategy for the next six years, and will mainly focus on assisting farmers to shift from subsistence to commercial farming, to enhance their competitiveness, and to create off –farm employment opportunities in collaboration with the private sector and rural institutions. In this context, IFAD aims at reaching 150,000 beneficiaries in the next six years. 5. Mr Abdalla Rahman, Rural Institution Specialist, presented the RB-COSOP‘s envisaged Strategic Objectives:  skills and organizational capacities of smallholders strengthened;  smallholders and off-farm entrepreneur‘s access to markets improved through investments in physical and marketing infrastructure; and  smallholders and off-farm entrepreneur‘s access to productive opportunities improved through access to sustainable financial services. 6. Ms Helen Lackner, Targeting and Gender Specialist, presented the characteristics of rural poverty in Bosnia and Herzegovina, clearly defining who are the poor, why are they poor and where

105 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 14: Stakeholder Workshop are they located. Gender and youth issues in the BiH context were also covered in this presentation. As a reaction to this presentation, a representative from the BBI Bank informed the Workshop participants and the IFAD delegation that the Bank is also supporting agricultural development as a means of creating employment especially for young people. Ms Nevenka Dalać, from MOFTER, informed the forum that the EU-financed project, which promotes rural women entrepreneurship, has been finalized. Also, a female rural development network – DUNJA - has been established and currently covers seven countries. 7. Mr Marco Pagliani, Environmental Specialist, presented the objectives of the Strategic Environmental Assessment, defined the main climate change and environmental issues in the country, and presented the main opportunities to enhance sustainability through IFAD interventions. Ms Silvana Grispino, from Oxfam Italia, informed the Workshop participants that the NGO has been working in BiH in the sectors of rural tourism and employment generation since 2003. Oxfam Italia is also currently implementing an IFAD grant on renewable energies. Ms Grispino added that, in the field of NRM, activities to raise awareness and advocacy are very much needed, and are within Oxfam‘s agenda for the next five years. 8. Ms Maliha Hussein reiterated that this strategy has been developed in very close collaboration with in-country partners, and the outline has been discussed and agreed upon by the government. She informed the audience on next steps, and thanked all in-country stakeholders for their continuous support. 9. The PCU and APCU Directors thanked IFAD and the RB-COSOP design team for their valuable contributions and support. Ms Bejta Ramović closed the Workshop thanking all workshop participants, the PCU and APCU Directors, IFAD and its delegation.

106 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 14: Stakeholder Workshop

ATTACHMENT I

Results Based Country Strategic Opportunities Programme Stakeholder Workshop for Validation of the Strategy

Holiday Inn, Sarajevo November 27, 2012

1045 hours Registration 1100 hours Welcome and Introduction by Mr Halil Omanovic, PCU of FBiH and Mr Radenko Jeftic, APCU, RS 1110 hours Opening Remarks 1120 hours Introduction to IFAD and Overview of Country Context by Maliha Hamid Hussein Mission Team Leader 1130 hours Feedback and Discussion 1150 hours Strategic Objectives by Mr Abdalla Rahman, Institutional Specialist 1200 hours Feedback and Discussion 1230 hours Cross-Cutting Issues: Gender and Poverty Targeting Approach by Helen Lackner, Gender and Targeting Specialist 1240 hours Feedback and Discussion 1300 hours Cross-Cutting Issues: Environment and Climate Change by Marco Pagliani, Environment Specialist 1310 hours Feedback and Discussion 1340 hours Next Steps by Maliha Hamid Hussein 1345 hours Closing Comments 1355 hours Formal Closing and Invitation to Lunch

107 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 14: Stakeholder Workshop

ATTACHMENT II

Stakeholder Workshop for Validation of the Strategy November 27, 2012

LIST OF PARTICIPANTS NO Organisation/Institution Name of participant Contact details 1 Federal Ministry of Agriculture, Emira Nuhić, protocol [email protected] WM&F 063 046 418 2 Federal Ministry of Agriculture, Jerko Ivanković – [email protected] WM&F Lijanović, Minister 063 329 100 3 Federal Ministry of Agriculture, Ana Bašić, Advisor to WM&F Minister 4 Federal Ministry of Agriculture, Suad Ĉamdzić, [email protected] WM&F Assistant of Minister 5 Federal Ministry of Agriculture, Sabaheta Ćutuk [email protected] WM&F 033 726 607 6 Ministry of For. Trade and Nevenka Dalać, Expert [email protected] Economic Relations Advisor 7 Ministry of Finance and Treasury Bejta Ramović, Head of [email protected] Department 8 Ministry of Finance and Treasury Svjetlana Vukojiĉić, [email protected] Head of Department 9 PCU FBiH; Sarajevo Halil Omanović, PCU Director 10 PCU FBiH; Sarajevo Aida Selimić, PA Coordinator of PCU 11 PCU FBiH; Sarajevo Midhad Sarić, PCU Finance Manager 19 PCU FBiH; Sarajevo Daria Šimunović, PCU Interpreter 20 PCU FBiH; Sarajevo Dţemal Omanović, PCU Driver and Courier 21 PCU FBiH; Mersija Selimović, PCU M%E Officer 22 APCU RS; Banja Luka Radenko Jeftić, APCU Director 23 APCU RS; Banja Luka Dragan Vuĉković, APCU PA Coordinator 24 APCU RS; Banja Luka Violeta Lemić, APCU Interpreter 25 APCU RS; Banja Luka Jelena Vlaĉić [email protected] 26 APCU RS; Banja Luka Nataša Kosić 27 Faculty of Agriculture, RS Gordana Rokvić 28 HEIS, RS Branko Vuĉijak [email protected] 29 PFI - ―MIKROFIN‖ MCF Banja Braco Erceg 051 230 353 Luka (RS) ―MIKROFIN‖ representative 30 Companies in Agriculture sector Boris Tadić, [email protected] from RS ―AGRONET‖ Company, Banja Luka; Fruit Study

108 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 14: Stakeholder Workshop

NO Organisation/Institution Name of participant Contact details 31 Project municipality, RS Bojan Samardţić, [email protected] Berkovići 059 860 111 32 Project municipality, RS Momĉilo Kudaĉina, [email protected] Berkovići 065 547 453 33 Project municipality, RS Dragoljub Sorajić, ljubinje@teol.net Ljubinje 34 Project municipality, RS Milivoje Ćorović, [email protected] Ljubinje 35 Project municipality, RS Jelena Babalj, Istoĉni Stari Grad 36 Project municipality, RS Snjeţana Joviĉić, Istoĉni Stari Grad 37 Project municipality, RS Saša Višnjić, Kotor Varoš 38 Project municipality, RS Silvana Stojanović, Kotor Varoš 39 Project municipality, RS Samdi Alić, Kotor Varoš 40 PA, RS Boris Gavrilović, Novo 058 430 177; Goraţde 065 310 200 41 PA Kalinovik, RS Ţeljko Djogo 42 WORLD BANK, Sarajevo Mirjana Karahasanović 43 SIDA Nataša Miskin 44 IFC, Sarajevo Indira Djugum [email protected] 45 OXFAM Italia, Office Sarajevo Silvana Grispino, Project [email protected] director 46 USAID Sanela Pašanovic [email protected] 061 347 352 47 Gender Centre of FBiH Vikica Sunjic [email protected] 48 BBI bank Mirsada Cengic 49 BBI bank Azra Colic 50 PFI - ―Privredna banka‖, Sarajevo Kerima Koĉo-Kurto [email protected] 51 PFI - ―Privredna banka‖, Sarajevo Hamida Kozić [email protected] 52 PFI - Vakufska banka Sarajevo Enisa [email protected] 061 200 252 53 PFI - BOR banka Elma Zuko [email protected] 061 154 616 54 PFI - ―LOK MIKRO‖ (FBiH) Lejla Huskić, ―LOK [email protected] MIKRO‖ MCF representative 55 ECON Altijana Fejzic [email protected] 56 Sara Visintin 57 OdRaz Safet Daut, Director [email protected] 58 OdRaz Rifet Dzambegovic 59 OdRaz Emira Alikadic 60 OdRaz Aziz Hatibovic 033 277 300 61 Agricultural Cooperative from Nisvet Balić, 061 767 876 FBiH Cooperative ―ŢUTI KLAS‖, Bosanski Petrovac 62 Cooperative of EKO, Vlašić Omer Mrakić [email protected] 63 PuĊa dairy, Livno Tomislav PuĊa, Director

109 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Appendix 14: Stakeholder Workshop

NO Organisation/Institution Name of participant Contact details 64 Dairy producer/dairy, Prozor- Ivan Baketarić 036 660 095 Rama 65 Cheese Producers‘ Association Marko Franjić, 063 352 966 Prozor-Rama 66 Companies in Agriculture sector Samir Muminović, ―M.S. from FBiH ALEM‖ Company, Bosanska Krupa 67 Project municipality (FBiH), Josip Juricic [email protected] Prozor-Rama 68 Project Municipality (FBiH) Asim Zec, Municipality [email protected] Mayor; Pale-Praĉa, FBiH 69 Project Municipality (FBiH) Vahid Bureković, Fojnica 70 Project Municipality (FBiH) Fojnica, Elma Kojĉin 71 Project Municipality (FBiH) Nihad Hadţiahmetović, Assistant to Mayor for Economy; Foĉa 72 Project Municipality (FBiH) Dragan Orozović, [email protected] Agricultural officer in 032 848 105 Municipality; Vareš 73 Project Municipality (FBiH) Muhamed Ramović, Municipality Mayor; Goraţde 74 Project Municipality (FBiH) Stipan Spajić; Jajce [email protected] 063 482 293 75 Project Municipality (FBiH) Faruk Mecavica, Jajce 76 COOR/CESD, Sarajevo Semra Fejzibegović, local consultant 77 RS Marko Govedarica, local [email protected] consultant 78 IFAD, Mission Leader (Pakistan) Maliha Hamid Hussein, IFAD Consultant 79 IFAD, Mission member (IFAD) Abdalla Abdel Rahman, IFAD Consultant 80 IFAD, Mission member (IFAD) Helen Lackner 81 IFAD, Mission member (IFAD) Tamara Nicodeme 82 IFAD, Mission member (IFAD) Marco Pagliani 83 IFAD, Mission member (IFAD) Elisa Di Stefano 84 Supervision Mission IFAD Avraam Louca 85 Supervision Mission IFAD Siegrid Giencke

110 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 1: Rural Poverty and Rural Sector Issues

Key File 1: Rural Poverty and Rural Sector Issues

Priority areas Affected group Major issues Actions needed116  Strengthen rural economic organisations, including PAs  Low labour productivity. and Cooperatives involved in production and marketing.  Smallholders -  Low milk and crop yields.  Maximise use of natural advantages in high-value subsistence producers  Unfavourable farm-gate prices and high input production. (e.g. non-commercial costs. smallholders combining  Improve competitiveness of BiH agricultural sectors  Fragmentation of agricultural holdings. dairy and crop (quality, cost, quantity, food standards). production).  Unclear land tenure and land usage rights.  Move away from direct production support to focus on  Smallholder - producers of  Agricultural education and training not suited to supporting structural changes in agricultural sector (rural high value crops. needs of smallholders. development - CAP second pillar).  Poorer women involved in  Technical weakness of extension services.  Integrate climate change adaptation to agricultural I. Agricultural farming and female-  Climate change (increased frequency of policies. income headed households. extreme events).  Improve farmers‘ access to technological innovation.  Upgrading and diversification of skills.  Contribution to the creation of an enabling business environment, for SME development.  Fostering the creation of small enterprises that offer  Returnees facing important difficulties to employment.  Youth. (re)build up their livelihoods.  Awareness raising and promotion of potential rural growth  Women.  Lack of rural job opportunities (skilled and sectors and activities (e.g. agro-tourism, NTFPs etc.). II. Rural  Returnees and internally unskilled).  Provision of grants117 for promising enterprises, Unemployment displaced people.  Limited access to specialized technical training. particularly those initiated by youth and women.

116 Actions needed are not exhaustive, and are essentially focussing on actions that can be supported by IFAD. 117 Matching grants with Municipalities in RS and Cantons in FBiH to establish assets with a public goods element for the benefit of the target groups and innovation grants with the private sector and possibly donors/NGOs to support research in value-addition and technological innovation uptake.

111 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 1: Rural Poverty and Rural Sector Issues

 Civil society organizations (e.g. PAs) are legally considered as non-for-profit. This constrains their possibilities to develop business ventures.  Characterized by: (i) poor record keeping of membership and assets; (ii) low level of business planning; (iii) strong focus on state support programmes and attracting donations; (iv) poor integration of members in decision making; (v) low level of transparency in accounting; (vi) low level of integration in the marketing chain.  Cooperatives - mostly operating similarly to limited liability share companies - active in marketing and input supply; - not inclined to open membership to small scale producers (this is even more so for the so-called ‗private (family) cooperatives‘); - often set up to capture subsidies. Characterized by: (i) weak identification with the needs of their members; (ii) poor level of business planning (based on donor funding); (iii) distinguish between founders and members (‗cooperants‘) in  Support farmers‘ transition from subsistence to transparent business and profit sharing; (iv) commercial agriculture, by ensuring the inclusion of non- weak links with agribusiness sector (direct commercial farmers in FOs. access to market is preferred).  Support to FOs and their organizational development. III. Smallholder  Databases on cooperatives are very poorly  Strengthen associative dynamics in both PAs and farmers facing a maintained and many cooperatives are inactive. Cooperatives of recent establishment (support their difficult transition  Small scale/subsistence  The ‗old‘ cooperatives also face lingering operations on sound business and on cooperative process producers constraints, e.g. unresolved property rights. principles).

112 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 1: Rural Poverty and Rural Sector Issues

 Under-developed extension services (RS: extension providers organized in an Agency; FBIH: extension providers organized at cantonal level).  Absence of structured information on operating privately-organized advisory services (and the provided services).  Lack of official policy, action plan and registry on the skills transferred – limited number of advisors.  Advisory services lack expertise (business planning, local development, PPP, marketing, managing producer organizations, ..), and strategy to build up capacity lacking.  Extension services essentially geared towards ‗commercial‘ (registered farmers) with a strong focus on ‗capturing‘ subsidies using the ‗subsidy rulebook‘.  Limited coordination between research and extension.  In RS an official network of government- constituted agencies exists, under the RS SME Development Agency. FBiH has no entity-level agency. In RS, the Agency‘s functionality remains constrained by lack of clear policies, implementation plans and financial support.  Underdeveloped factor and output markets, e.g.: poorly defined property rights leads to ‗thin‘ land markets and fragmented landholdings.  Unclear land tenure & land usage rights.  Limited infrastructure (rural roads, but also  Agricultural and business advisory services. market facilities such as storage and  Smallholders in warehousing), especially in the more remote  Technological innovation. agriculture and livestock. areas.  Investments in market infrastructure.  Isolated rural households.  Agricultural produce not compliant with EU  Improved market information systems (on price, quality, in IV.  Rural Micro and Small standards as regards food safety and required national and international markets). Competitiveness enterprises. export quality.  Support joint activities by farmers and small processors and innovation  New rural entrepreneurs.  Insufficient market information. through PAs and cooperatives.

113 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 1: Rural Poverty and Rural Sector Issues

 Lack of access to medium term loans for asset  Interactions and discussions with several MFIs and financing. commercial banks to boost competition by improving  Constrained liquidity especially to non- lending terms for the target group.  Subsistence producers. commercial smallholders.  Structure and facilitate linkages between smallholder and  Smallholder producers of  Relatively high interest rates and non-adapted the private banking sector in order to increase the high value crops. repayment schedules. outreach to the rural areas including to IFAD‘s target  Rural (on-farm and off-  Collateral requirements for asset-less youth group. V. Access to rural farm) entrepreneurs. and women.  Adaptation of repayment schedules to the timing of finance  Rural women and youth.  Limited outreach in the rural areas. cashflows of borrowers.  Promote the adoption of sustainable farming practices based on water saving, minimal soil disturbance and  Increased vulnerability of the agriculture sector reduced use of agro-chemicals, and the adoption of better to climate change. adapted crop varieties and livestock breeds.  Increased frequency and intensity of extreme  Promote adaptation measures such as land use weather events, such as: (i) pronounced water diversification and the introduction of resilient economic  Subsistence producers. scarcity during the summer; (ii) changes in the activities that build on the country‘s natural assets.  Smallholder producers of seasonal distribution of precipitations.  When possible, when infrastructure investments are high value crops.  Forest fires and floods: (i) put at risk made, ensure that environmental assessments are built  Rural (on-farm and off- complementary sources of revenues for poor- into formal operational procedures governing investment VI. Resilience to farm) entrepreneurs. asset farmers; (ii) increase the risk of erosion decision-making, to conform to the principles of climate change  Rural women and youth. and pollution. sustainable management of natural resources.  Existing policy framework supports the growth of PAs and Agriculture Cooperatives. Policy dialogue will be focused on how to ensure that non-commercial farmers keep on benefitting from state-led support initiatives to PAs and  Non-commercial farmers Cooperatives. (subsistence producers).  Agriculture Cooperatives in RS also need policy support to resolve the issue of land titles and asset ownership. An  Commercial farmers.  ‗Ad-hoc‘ agricultural support programmes. approach which has worked well in this regard is to  PAs and Cooperatives.  The composition and timing of subsidies: direct strengthen the Cooperative Unions and PAs and enable  Service providers. production support (incl. subsidies). them to lobby for their own rights.  Private sector operators.  Public expenditure mostly targeted to  Policy dialogue on designing, setting up, and funding VII. Policy  Sector development commercial farmers. stable and effective entity-level and local level systems for constraints perspectives.  Underexploited potential. technological innovation and business development. VIII. Social exclusion  Measures (targeting approach adopted by the phenomena in rural  Returnees and internally  Poverty, insufficient education, lack of ‗life‘ skills interventions) to ensure inclusion of the most vulnerable areas displaced people. or as a consequence of discrimination. groups.

114 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 1: Rural Poverty and Rural Sector Issues

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Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 2: Strengths, Weaknesses, Opportunities and Threats (Swot Analysis)

Key file 2: Strengths, Weaknesses, Opportunities and Threats (Swot Analysis)

Institution Strengths Weaknesses Opportunities Threats State-level Ministry of  Insufficient coordination between Foreign Trade and Economic Entity and State-level institutions in Relations (BiH-MOFTER).  Active role in coordinating donor programs in the country the planning and implementation of State-level Ministry of and works closely with the agriculture and rural development  Further political destabilization Finance and Treasury (BiH donors in the agriculture policies.  Enhanced intra-Entity through Entity-level political MOF). sector.  Lack of resources. dialogue. gridlocks.  Involvement in articulation of sector policies and plans. FBiH Ministry of Finance  RS-MOF strong (FBiH-MOF).  Inadequate capacity for informed involvement in RS Ministry of Finance (RS-  Main decision-makers in sector- follow-up and monitoring of development of rural  Inadequate appreciation of MOF). specific resource allocations. agricultural development programs. finance policy/institutions. constraints facing projects.  Direct support to production (60% ‗amber box‘ support measures).  Centralized approach to planning and implementation of rural development policies (all responsibilities in the hand of Agric. Ministry departments).  Political commitment for  Under-developed lower institutional sector modernization. level, in charge for implementing  EU and donor support. rural development policies.  Opportunities for benefit  Fragmented institutional from access to EU markets. FBiH Ministry of Agriculture, structure/Entity/Canton/ Water Management and and Municipality levels.  Possibility of replicating  Political tensions between the  Agricultural/rural development successful models for Entities rendering cooperation Forestry (FBiH-MoAWMF) in strategies.  Inadequate capacity for policy commercialization of and technological exchanges Sarajevo.  Experience working with IFAD analysis. smallholder production. difficult RS Ministry of Agriculture, and other donor projects.  Inadequate farm support services  Road map for growth,  Inability to effectively manage Forestry and Water  Well-established in extension/research. modernization and some of the natural resources Management (RS-MoAFWM) implementation arrangements  At project level: increased transformation in the such as land, pastures, in Banja Luka. for project coordination. transaction costs. context of EU accession. watersheds.

117 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 2: Strengths, Weaknesses, Opportunities and Threats (Swot Analysis)

 Continued donor support State Veterinary Office, Food  Donor-support towards (e.g. EU and WB) to further Safety Agency and alignment with EU food safety strengthen the existing  State-level coordination not Phytosanitary Agency. standards.  Slow alignment to the EU acquis. capacity. succeeding.  Lack of expertise and limited number of competent rural advisors.  Low level of institutional organization.  Lack of record keeping on knowledge and skills transferred.  Ineffective extension methods (e.g. emphasis on lectures).  Donor support (WB) for the  Limited opportunities for capacity strengthening of agricultural development. extension services.  RS-MoAFWM has established  Extension services focused on  EU alignment will require an agency for agricultural. obtaining agricultural subsidies. set-up of farmer advisory extension services (support to  Limited capacity to support farmers services (focussed on  Predominant direct production Agricultural extension and production). in developing their business compliance with EU support approach that orients business development  In FBiH production support activities (e.g. preparation of legislation as regards agricultural advisors to services, including services are structured at business plans, and understanding environmental standards, ‗administrative tasks‘ e.g. for organizational development. cantonal level. of entrepreneurial mindset). animal welfare, etc..). the obtaining of subsidies.  With support from EU further progress in building up capacity and management capabilities.  Possibilities of collaboration with IFAD project in rural infrastructure funding and O&M responsibility.  Despite systematic (donor) support  Municipal governments their managerial capacity remain have created ‗green‘ limited. business zones where they  Elected and accountable to  Limited funding for development provide special incentives  Pre-occupation with firstly local citizens. initiatives. such as tax breaks, improving local services may Local Government  Interaction/mobilization of local  Some municipalities focus only on investment support and undermine their desire to (Municipalities and Cantons). communities. ―commercial‖ farmers. partial grant financing. support development activities.

118 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 2: Strengths, Weaknesses, Opportunities and Threats (Swot Analysis)

 Capacity to deal directly with  Recognized as essential producers to aggregate instruments for linking small produce.  Relics from socialist system. producers to markets.  Large network.  Limited managerial capacity.  Facilitate exploitation of  Poor implementation of the  Large membership base.  Uncertain public confidence. economies of scale. cooperative law.  Appreciable assets in land and  Lack clear title to assets curtail  Good legal framework  Issue with the ownership of old Former Agriculture buildings. their use as collateral. exists. cooperative property remain unresolved. cooperatives.  Mostly deal with production.  Most inactive at present.  Apex organizations exist to articulate for supportive  Cash flow bottlenecks facing policies. cooperatives due to delays in  Government and donor receiving timely payment from  Mostly business-oriented.  Under-capitalized. support for capacity buyers and government  Many with professional  Some oriented to capture building. subsidies. management. support/subsidy and provide little  development of strategies  Apex organizations still have value added.  Generally involved in produce and business plans, limited policy influence. Newly established Co- aggregation and marketing.  Limited value adding activity. investment grants and  Difficulty of accessing credit for operatives.  Some value adding.  Limited access to credit. project funding. investments.  Inadequacy of existing framework which restricts their ability to operate on fully commercial basis.  Proven relevance for  Uneven level of participation of market linkages. poorer households and women.  Government and donor  Legal constraints on not-for-profit support for cooperatives for  Cash flow bottlenecks facing status on Producers Associations. capacity building, PAs due to delays in receiving This limits their scope to develop development of strategies timely payment from buyers  Large membership base. commercial activities. and business plans, and government subsidies.  Demonstrable success in  Most are service rather than investment grants and  Difficulty of accessing credit for Producer Associations. produce aggregation. business oriented. project funding. needed investments.

119 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 2: Strengths, Weaknesses, Opportunities and Threats (Swot Analysis)

 Multilateral and bilateral assistance in support of private sector development.  Restrictive business  Weak legal framework.  Efforts to improve business environment could constrain  Political commitment to private  Unfriendly business environment in environment. formation of needed new sector development. comparison to neighboring  Progress with registration of businesses and deter foreign  Over 30,000 registered and countries. property facilitates access direct investment. over 25,000 operating  Constrained access to finance and to finance.  Continuation of the economic enterprises. venture capital.  Need to create conditions to crises may undermine sector  Willingness to exploit  Proliferation of informal formalize informal confidence and lead to Private enterprises. opportunities. enterprises. enterprises. entrenchment.

120 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy

The Bank‘s new country partnership strategy The World Bank is focussing on improving the overall (FY 2012 to FY 2015) aims to support the macroeconomic and policy environment in order to make it process of EU integration through a series of conducive to sustained growth including the rural sector. measures designed to strengthen IFAD and the World Bank collaborate by exchanging competitiveness, environmentally sustainable information and seeking complementarities whenever growth and social inclusion. The World Bank operations overlap. supports a portfolio of 12 operations with The World Bank ARDP has strengthened the State commitments totaling US$302.3 million (June Veterinary Office and the Food Safety Agency, which will 30, 2011). These operations are financed by benefit all agricultural producers in the country marketing seven IDA credits totaling US$154 million, their produce by ensuring its conformity to local and three IBRD loans of US$130 million, and three international food safety and sanitary standards. It also aims GEF grants of US$18.3 million at improving the efficiency of state and entity level institutions World Bank operations relevant to IFAD to develop agricultural programs and accelerate eligibility of country program include: BiH for IPARD. Small Enterprise Access to Finance could be tapped for  Agriculture and Rural Development loans by SMEs and PAs/cooperatives supported under IFAD Project (ARDP) Country wide On-going projects.  Small and Medium Enterprises Access to Country wide On-going Finance Additional Finance Experience gained by World Bank from the Irrigation project World Bank  Enhancing SME Access to Finance Country wide Closing 2013 would also be helpful to IFAD if it becomes involved in small- Group  Irrigation Development Project Country wide Just started scale irrigation projects in the future. The EBRD‘s focus will be on infrastructure and the financial and enterprise sectors. Its operations include  In the financial sector, fostering small businesses, assisting of locally-owned banks and encouraging new investors  In the enterprise sector, activities range Farming is not a target for EBRD. However, EBRD from support to large enterprise operations in the financial and enterprise sectors will privatisations to advisory services for indirectly impact IFAD project beneficiaries who could also small businesses and energy efficiency benefit from development of new financial products and from EBRD investments Country wide On-going support given to small businesses.

121 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy UNDP and in close collaboration with other UN Agencies is focused on four key sectors in its BiH programme  Justice and Security  Social Inclusion and Democratic Governance Of particular relevance to IFAD is UNDP’s Rural and  Rural and Regional Development Regional Development Program which is helping 70  Energy and Environment. least developed municipalities to develop a The Rural and Regional development comprehensive approach to development at the local sector includes: level, where IFAD project operate in close  Improving local government capacity collaboration with local government (municipality) to plan, identify priorities and deliver authorities. results UNDP and IFAD would also collaborate in information  Stimulating economic recovery dissemination through innovative partnerships which through entrepreneurial activity and the UNDP has established with Al-Jazeera and investment, increasing the national Geographic to broadcast a series on rural competitiveness of local producers and income generation development.  Strengthening local priority UNDP Resident Representative has also offered to infrastructure highlight the work of IFAD in the country through his  Sustainable use of natural resources participation in local level events which show case UNDP and energy efficiency Country wide On-going IFAD investments at the municipality level.

122 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy Since 2007 BiH has benefited from about more than €295 million from the Instrument for pre-accession assistance (IPA) which aims at providing targeted assistance to countries which are candidates and potential candidates for membership to the EU. In the period 2007-2013 BiH could potentially benefit from more than €660 million worth of EU assistance. EU’s strong support is instrumental in bringing BiH closer to EU standards in social, political and  Reform public administration, economic affairs.  Carry out economic reforms Of particular relevance to small producers is EU  Respect for human rights and gender support to the country to develop and applying food equality safety and sanitary standards that would allow it  Support the development of civil continue to access the EU market. This is of society tremendous importance as almost 92% of BiH’s  Contribute to sustainable agricultural exports target EU or EU candidate EU development and poverty reduction Country wide On-going countries. USAID aim is to stabilize the country, closer to Euro-Atlantic integration. Of particular relevance to IFAD is the Program for  Democracy and governance work Fostering Agricultural Markets Activity (FARMA) focuses on accountable institutions finance jointly by USAID and SIDA. that meet citizens’ needs. FARMA provides assistance to agricultural  support economic growth which associations, cooperatives, market integrators and focuses on a competitive, market- small and medium enterprises in targeted sectors to oriented economy that provides take advantage of domestic, regional and better opportunities for all international market opportunities. FARMA has  In addition to the FIRMA and FARMA already delivered results in the form of (i) increased Projects implemented in partnership competitiveness of BiH farmers and agribusinesses; with SIDA (see below), USAID has initiated the Fostering and (ii) established new and profitable markets for Entrepreneurship in Rural Areas by BiH products. Improving Competitiveness and IFAD program has worked closely with FARMA in USAID Market Potential in BiH Project. Country wide On-going training project beneficiaries in milk hygiene. It uses

123 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy The target of Sweden’s co-operation of FARMA sectoral studies in Milk/meat, project in Bosnia is to combat poverty fruit/vegetables and MAPS to refine its approaches and to support the country in its move and its project beneficiaries can access FARMA towards joining the EU. technical and financial support.  SIDA contributes to the construction USAID/SIDA and Czech of organizations that work with Development Agency (CzDA) are also funding a joint microcredit. Increasing employment pilot project to build capacity within BiH veterinary and improving the conditions for laboratories and inspection services to help the growth for small and medium-sized country establish an EU-compliant food safety control enterprises is important. system. The project is important for all BiH  In collaboration with USAID it producers: Without it, BiH will not be able to export finances FARMA and Fostering products of animal origin to the European Union. Interventions for Rapid Market Advancement (FIRMA) projects. The CzDA support to cattle improvement, bee keeping projects target interventions in the and cooperative and private farming would also fields of: (i) market linkages; (ii) present IFAD program with opportunities to access to finance; (iii) technical coordinate with it for the benefit project area support and capacity building; and cooperatives and small producers. (iv) EU integration and standards. IFAD would identify opportunities with it on an on- The covered sectors include: (i) going basis through participation in donor dairy; (ii) MAP and honey; (iii) fruits SIDA and vegetables. Country wide On-going coordination meetings.

124 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy Recent examples of development cooperation include the following projects in transport, waste treatment, human health training, mining etc In the agricultural sector CzDA support is focussed on genetics fund and improvement of characteristics of cattle, introduction of environmentally friendly methods of bee breeding, and support of cooperative and private farming. It is also Czech collaborating with USAID and SIDA in Developm. the establishment of an EU-compliant Agency food safety control system. Country wide On-going GIZ operates on behalf of the German Federal Ministry for Economic Cooperation and Development. Its aim is transforming the country’s economy from a centrally planned system into a competition-based market economy Among GIZ priorities program are:  Achieving greater domestic stability  Furthering economic integration with IFAD would identify opportunities with it on an on- the EU going basis through participation in donor GIZ  Sustainable economic development Country wide On-going coordination meetings.

125 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy Italian Cooperation has focused its interventions towards the support to sustainable development, rural development, actions for institutional strengthening and the protection of the In the previous COSOP, Italian Cooperation most vulnerable category of the provided direct support to IFAD BiH program population through numerous through the Facility for Farmers Access to Markets initiatives of social nature. (FFAM) by helping PA establish milk collection In particular, the initiatives in networks, acquire new skills in modern milk the agricultural sector aim at collection technologies and exposed producers to facilitating the diffusion of sustainable the technologies and management practices of milk agricultural systems with a low producers in Italy. environmental impact, cooperatives, During the present COSOP, synergy and access to market and credit for small complementarity would be sought especially in the producers, the elaboration of national areas of diffusion of sustainable agricultural plans for the management of natural systems with a low environmental impact, Italian resources and the protection of cooperatives, access to market and credit for small Cooperation biodiversity. Country wide On-going producers, During and after the war (1992 to 1995), Switzerland provided emergency aid and reconstruction assistance. From 1999, the focus shifted to long-term support for market-economy and democratic reforms and to reconciliation among the ethnic groups. The SDC/SECO programme for SDC Bosnia program for 2013-2016 as proposed 20132016 is proposed to have three has provide opportunities for synergy and three main thrust complementarity with IFAD program in its Economic  Local government and Municipal and Employment thrusts which provide vocational services training to youth in agriculture, agro industries and  Health other artisanal skills needed in rural areas, as well as SDC  Economy and Employment Country wide On-going providing support to SME development

126 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 3: Complementary Donor Initiative/Partnership Potential

Donor Nature of Project Program Coverage Status Complementarity/Synergy The Royal Norwegian Embassy in BiH operates an Embassy Fund from which it gives grants for different types of projects. The size of grants ranges from PAs, Cooperatives and individual producers under the KM 10.000 to 50.000. There are specific IFAD program would be assisted to apply to support procedures for applying for grants under from the Norwegian Embassy Fund whenever Norway this \Fund. Country wide On-going appropriate.

127 Bosnia and Herzegovina RESULTS BASED-COUNTRY STRATEGIC OPPORTUNITIES PROGRAMME Key File 4: Target Groups for the COSOP and Proposed IFAD Response

Key File 4: Target Groups for the COSOP and Proposed IFAD Response

Typology Poverty Level and Cause Coping Actions Priority Needs COSOP Response  targeting to increase participation of the very poor in FOs.  support to their inclusion in PAs and Cooperatives (through a Severe targeting approach at PA and Very poor and vulnerable  loss of employment in  subsistence farming. Coop. level based on rural households with large, enterprises after  seasonal casual labour on  job opportunities. mobilisation, training, marginal farming activities collapse of Yugoslavia. and off-farm, including  retraining in technical empowerment). (mainly unemployed or  Returnees and Internally gathering of MAPs, NTFPs. and management skills.  access to advisory services. under-employed farmers Displaced People).  Remittances.  support to grassroots  micro credit to develop farm and with very small holdings; or  Drop in access to  migration to urban areas organisation and build- off-farm activities. landless, often use MAP productive assets and and international. up of social capital.  FOs with access to technical and and NTFP collection as rural job opportunities.  heavy reliance on  microloans / basic strategic business advisory income source).  household level crises. pensions. financial services. services. As above, plus: Severe  gender-targeting to ensure As above, plus: woman participation in project  social, economic activities (ensure 30% minimum exclusion. participation of women).  double burden of As above, plus.  women holding leadership domestic and farm  Targeted opportunities. positions in organisations support Very poor rural women labour.  Gender sensitisation of by the interventions. (a special case of the very  inadequacy of welfare institutions to increase  investment in labour saving rural poor). support system.  As above. commitment. infrastructure.

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Typology Poverty Level and Cause Coping Actions Priority Needs COSOP Response As above, plus: Moderate, variable  investment capital for  investment in market  small holdings. As above, plus: livestock, crops and infrastructure. Poor Rural households  high cost of inputs.  more, higher value equipment.  support to the organizational (involved in crop and/or remittances.  low productivity of  access to advice to development of PAs and livestock production and on animals and crop  international migration of improve output and Cooperatives. a pathway to commercial yields. youth. product quality.  access to technical and strategic farming, as well as primary  insufficient technical  involvement in  remunerative, reliable business advisory services for processing and off-farm knowledge. associations. links to markets, producers, FOs, SMEs. activities such as  insufficient of access to  involvement in commercial including information  enhanced and competitive handicrafts). markets and credit. agriculture. services. financial services. As above, plus: Moderate, variable  Special access to  absence of employment financing, reducing opportunities.  Migration to cities. collateral demands. As above, plus:  ambitions beyond local  Migration to EU, mostly  Technical training.  Foster development of innovative potential. nearby states, but many to  Information on initiatives in the non-farm rural  constraints on access Germany as a preferred advantages of rural life sector including agro-tourism, Unemployed Rural Youth. to capital and training. destination. at home. handicrafts, service sector.

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