Nepal Integrated Livestock and Horticulture Development Project (LHDP) Project Identification Mission

{August 17 -27, 2015)

Aide Memoire

I. Introduction

I. A World Bank preparation mission1 led by Puma Bahadur Chhetri (Task Team Leader) was undertaken from August 17-27, 20 I 5 to support the Government of Nepal (GoN) in the preparation of the proposed Livestock and Horticulture Development Project (LHDP)2. The mission would like to thank the officials of the GoN for their support and engagement in moving forward with project preparation. List of persons met is included in Annex I.

2. During the mission, the Bank Team held extensive consultations with the government officials, as well as with relevant Development Partners (DPs) and Civil Society Organizations including NGOs and private sector.

3. This Aide Memoire (AM) summarizes the mission's main findings and recommendations which was discussed at a wrap up meeting chaired by Mr. Uttam Kumar Bhanarai, Secretary, Ministry of Agriculture Development (MoAD) on August 28, 2015 at the Ministry of Agriculture Development and incorporates suggestions made at that time. Main actions that were agreed during the mission has been provided in provided in Table I under para 26.

II. Proposed Project Objectives, Guiding Principles, Components

4. During the mission, project design was tentatively conceived which included defining the Project Development Objective (PDO), identification of project components and activities, and the target project districts.

5. The proposed PDO is to "Improve productivity and market access for smallholder farmers engaged in selected high value livestock and horticulture commodities in the targeted districts". The proposed beneficiaries will include target women, youth, Janajatis, Dalits, poor and other disadvantaged groups. Proposed result indicators are: (i) increased productivity of target commodities, (ii) increased productivity of target livestock products, (iii) increased volume of selected commodities marketed in targeted areas(% increase), (iv) Increased volume of selected livestock products marketed in targeted areas (% increase), and (v) increased inclusion of nutrient rich fruits, vegetables and livestock products in the diets of target households3

•

6. In terms of identification of proposed districts, it has been agreed to include 14 districts that have minimal level of support from other development partners (DPs). Currently, most development programs are targeted towards western, mid-western, far-western and eastern regions. There are very few DP supported agricultural projects in the eastern and central regions of Nepal. Based on DP concentration, opportunities for enhancing competitiveness, population concentration, market linkages, road access, the

1 The World Bank m1ss1on included Helen Leitch (Senior Livestock Specialist, consultant), Prahlad Thapa (Horticulturist, Consultant), Rohan Selvaratnam (Operational Analyst), Karishma Wasti (ETC), Annu Rajbhandari (Environment, Consultant), Bandita Sijapati (Social, consultant) and Tara Shrestha (Program Assistant) 2 This is a working title and thus subject to change 3 The indicators are tentative and are subject to revision at the time of appraisal

102666P

ublic

Dis

clos

ure

Aut

horiz

edP

ublic

Dis

clos

ure

Aut

horiz

edP

ublic

Dis

clos

ure

Aut

horiz

edP

ublic

Dis

clos

ure

Aut

horiz

ed

proposed project will be implemented in two clusters covering 14 districts from States I, 2 and 34• Since

the clusters have been taken along the north-south gradient, they have access to both China in the north and India in the south for possible market in future. Out of 14 districts, six earthquake affected districts (four hard hit districts- Rasuwa, Nuwakot, Dhading, Makawanpur; and two moderately hit districts -Solukhumbu, Okhaldhunga) will be covered in these two clusters.

Cluster 1: Rasuwa, tluwakot, Dhadin9, ltlakawanpur, Bara, Parsa, Chitwan

Cluster 2: Solukhumbu. Okhaldhunga, Khotong, Udayapur, S<1plari, Sh.iha, Oh.mush.-.

7. The guiding principles of the project are to: (i) target commodities that have the best potential for meeting both the local market and import substitution (this would mean being guided by the Government of Nepal's Agriculture Development Strategy), (ii) select commodities that have the best opportunity for value addition and diversification, (iii) attract private sector interest and investment, (iv) promote public­private partnership, and (v) build on the success of the previous projects and leverage from ongoing ones, particularly Project for Agriculture Commercialization and Trade (PACT), Poverty Alleviation Fund (PAF) and Agriculture Food Security Project. The integration of the two sub sectors is expected to contribute to improving soil fertility and productivity, decreasing cost of production, improving food safety by reducing chemical (pesticide/ fertilizer) contamination of food and water and opening the door for high value products such as organic products.

8. The following four components have been tentatively identified:

4The new Constitution ofNepal has divided the country into seven states. The States are yet to be named. The selected districts fall under two former development zones.

2

Component A: Demand-based P roductivity Enhancement

9. Slow growth in agricultural productivity over the last two decades is accorded one of the significant constraints facing agriculture in Nepal. Though there is potential to increase productivity substantially, inferior livestock breed, use of low quality seeds, Jack of timely access to quality inputs and advisory services, post-harvest losses, weak value chain, inadequate infrastructure, and weak institutional capacity are the key factors impeding agriculture development, particularly livestock and horticulture, the two sub sectors identified as the drivers of economic growth through the ongoing Economic Sector Work. This component will provide target beneficiaries with technology including time saving technology for women (who are now faced with increasing workload with maJe migration outside of the country in search of jobs), access to inputs, financial and advisory services, capacity building support that will support productivity enhancement and competitiveness. Activities supporting this component are as follows:

I 0. Livestock: This sub-component will support (i) asset creation through livestock breed improvement, fodder seeds, shelters and feed storage, (ii) infrastructure development, mechanization and service delivery through building public and private capacity through farmer resource centers and agrovets supporting breeding, feeding & nutrition, animal and public health including food safety, and financial, services (credit, insurance), and (iii) training and extension including skills and knowledge of Department of Livestock (DoLS) staff, service providers and farmers, use of Information and Communication Technology (ICT, study and exposure visits and demonstrations, and iv) integration of livestock and horticulture with a focus on nutrient cycling specifically vermicomposting to support improved productivity, profitability, food safety and market opportunities through organic, climate smart and good agricultural practices (GAP).

11. Horticulture: The horticulture sub-component will focus on (i) supporting horticulture Research and Development (R&D) to identify, develop and provide quality seeds and saplings that are disease tolerant and climate friendly, (ii) capacity enhancement of extension agents and agrovets on special skills to support farming following GAP, food safety measures and adaptation to climate change, and (iii) support relzabilitatio11 a11dlor establishment of fruit orchards (including walnut, apple, citrus, mango, peach, plums and new promising fruits) with high quaJity heaJthy saplings and support the component

Component B: Value Chain and Market Development

12. Incentives to adopt productivity enhancing options are contingent upon well-functioning producer­market connectivity and supportive policies. Lack of basic infrastructure such as collection centers and storage facilities has resulted in agricultural transactions through informal systems, thus undermining the profitability and competitiveness. Only about 20 percent of the produce is traded through a formaJ system. The sector, being dominated by small and scattered producer farmers, needs to achieve economies of scale and have timely access to inputs, markets, and services and vaJue addition potential for the sector to be productive and profitable. Lack of business development services and quality monitoring has affected quality of food. It has negatively affected the competitiveness of the produce in the major urban markets.

13. Livestock: Activities to be funded under this component include five sub-components: (I) producer organizations strengthened and established to enable economies of scale, access to inputs and services and strengthen forward and backward market linkages; (2) capacity building, traini11g and skills development through partnership with leading international institutions for technologies, information, training, technical staff exchanges, and internship programs for value chain stakeholders; (3) supply chain infrastructure which will include connector roads to support collection and chilling facilities, collection centers, storage facilities; and (4) agribusiness enterprise facility for identification and promotion of business opportunities and models (e.g. contract, franchise, etc), support business planning and financing, advisory including policy reform, incubation including identification of enterprises for scale out, and (5)

3

post-harvest support such as processing, distribution and marketing - would help financing support upgrade, expansion facilities (including micro processing for communities in more remote areas).

14. Horticulture: Support to horticultural activities will aim at: (i) strengthenillgfarmer organizations so that they are able to aggregate to create economy of scale, (ii) strengthening market information and advisory services to analyze the market dynamics and establish functional linkages between producers and traders, (iii) providing post-harvest support to minimize losses at the harvest, storage and transportation, (iv) supporting value addition/product diversification through processing to enhance the edible life of the produce, (v) capacity building of value chain stakeholders for technology adoption, quality and food safety, and marketing, and (vi) market development and post-harvest support. Market development will focus on finding a new market with specialized products for niche markets. Branding and producing niche products for niche markets will be emphasized for market development. Branding will be focused on apples, mandarin oranges and potatoes. For example, apples, oranges and potatoes from the hills of Nepal fetches higher value in towns in northern India close to Nepal border as they are branded as Himalayan produce.

15. In both livestock and horticulture, returning youths will be encouraged to take up agribusiness enterprise and will be provided with required training to acquire appropriate skill sets and access to financial resources.

16. To achieve competitiveness there will be a need to support community to renovate/rebuilt their physical as well as human capital. This is particularly of significance in those districts namely - Rasuwa, Nuwakot, Dhading, Makwanpur, Solukhumbu and Okbaldhunga - that have been affected by the earthquake of April 25 and 26, 2015. Thus, as identified and recommended by the Post Disaster Assessment Report (PDNA) the project will support activities that will help the farmers and local communities rebuilt their assets - both hard and software.

Component C: Project Management, Monitoring and Learning

17. Project management will target for efficient delivery of goods and services targeted to enhance competitiveness. Project management will enhance demand side of the project goods and services (producers, processors and traders) capacity to understand the project modality and maximize their benefit from the project. On the other hand, project management will also enhance the capacity of supply side of the project goods and services (Department of Livestock Services and Department of Agriculture) to deliver project goods and services to the right holders as shows in the figure below.

18. As there are two important components to be integrated, the executing agency will be the Ministry of Agriculture Development (MoAD). Implementing agencies will include DoLS, DoA and international organizations engaged through Memorandum of Understanding (MoU). A Project Steering

Project Efficient supply of management body ,__ _______ _

• PISU, DOLS, DOA

pro sand

Identify target group, process to reach them, their

needs and priorities, and

Effective demand Right holders • target group

(Demand side of project goods and

)

Project provisions,

eligibility criteria and accessing

Figure I: Improving project governance through capacity enhancement

4

Committee will oversee project implementation, provide policy support including scaling-up of project results. The steering committee will be led by Secretary MoAD and will be represented by key stakeholders that include private sector, civil society and farmers' organizations. MoAD will coordinate joint planning and monitoring of project activities at the national level. At the district level, the District Agriculture Development Committee (DADC) will coordinate the integration, joint planning and monitoring of project activities.

19. The business/market oriented focus of the project is innovative and will require the establishment of an agribusiness facility. This facility will require international partners in its establishment and to facilitate strong capacity building, training and to ensure best feasible/practical global practices are mainstreamed into this project. The agribusiness facility will also help organize and build the capacity of farmer producer organizations which will be fundamental to the long term sustainability of project results.

20. A Management Information System (MIS) will be developed that will support Monitoring and Evaluation (M&E) which will facilitate learning and support evidence based decision making. Preparation

Progress to Date

21. The government has formed a project formulation team. The team had extensive consultations with MoAD, DoA, DoLS, Dairy Development Corporation (DDC), Dairy Development Board, key DPs that include FAO, IF AD, and ADB, and international non-government organizations (INGOs). In addition, following tasks were accomplished during the mission:

• Appointment of focal persons, one each from MoAD, DoA and DoLS. • Identification of target districts, activities and priority commodities which include dairy cattle for

milk and milk products, goat for meat and import substitution, pig for domestic market, and horticultural crops such as citrus, onion, potato, garlic and seasonal and off season vegetables, and spices like ginger, turmeric.

• Implementation modality (MoAD will be the executing agency with DoA and Department of Irrigation as implementing partners)

• Identification of team members from the Bank (social, environment, finance, procurement, livestock specialist and horticulturist).

Economic and Financial Analysis

22. The economic and financial analysis will estimate rate of return along with Net Present Values and their sensitivity by comparing relevant cost and benefits over the project life.

Fiducia ry

Financial Management

23. The mission provided necessary guidance for a financial management system under the proposed project. Given the nature of the project and the need for inter-agency coordination, it has been agreed that as the project design matures, a draft financial management manual will be prepared by February 2016.

5

Procurement

24. The mission suggested that all procurement of works, goods and services will have to be done in accordance with World Bank Procurement Procedures and Guidelines. These procedures and guidelines are easily accessible from the Bank's website. Once the technical components are well defined and the implementing entities are clearly identified, the Bank shall organize a training workshop on procurement for project staff and other relevant authorities from various implementing agencies. The mission advised that before starting any procurement activity which is intended to be financed by the Bank against the proposed credit, the project will be required to prepare the General Procurement Notice (GPN) which shall indicate the scope of procurement in accordance with Procurement Guidelines/Consultant Guidelines. The GPN will need to be published in UNDB online, after it is cleared with the Bank.

25. It has been agreed that the Bank will carry out the procurement and financial management capacity assessment wi II be by January 30, 2016.

Safeguards (Environment and Social)

26. The project will focus on livestock activities and will integrate horticulture supporting production of vegetables, spices, fruit and flowers. As of now, the geographical coverage of the project has been conceptualized considering mainly the district road corridors and major highways in the central and eastern region of the country. This would help ensure that the harvested crops and the livestock reach the market in a reasonable amount of time. However, sub-projects will be scattered all over the targeted region, encompassing variation in altitudinal gradient from the steep mountain slopes to the gentle terraced slope of middle bills and the flat terrain of Terai. Likewise, given the social demography of Nepal, incligenous people are likely to be present in the targeted region in varying degree. Thus, the impacts/issues associated with project will thus depend on the physical characteristics of the location and project interventions/ activities. The environmental specialist of the Bank Team discussed and provided clarifications on the objectives, scope and methodology of the Environment Assessment. The mission emphasized that the safeguards related mitigation actions should be integrated with the technology package that will be developed and delivered under the project.

27. In consideration of the current concept envisaged for the project, four safeguard policies: Environmental Assessment (OP4.0l), Pest Management (OP4.09), Indigenous People (OP4. l 0) and Involuntary Resettlement (OP4. l 2) will be triggered. The applicability of other policies viz, Natural habitats (OP4.04) would be determined during the course of project preparation. The mission highlighted the need to commence the Environmental and Safeguard Assessment at the earliest, as completing this exercise and disclosing it publicly is a preconclition for project appraisal. The mission will provide technical guidance in developing the Terms of Reference (ToR) for the assessment that will cover both environmental and social issues related to safeguards.

Greenhouse Gas Accounting

28. The mission had detailed discussions with the project preparation team on the Green House Gas (GHG) accounting analysis for the proposed Project and the associated data requirements. The analysis will be undertaken using the Ex-Ante Carbon Balance Tool (EX-ACT) developed by F A05

• This exercise is in response to the Bank Group's Environment Strategy (2012-20) which requires GHG accounting of investment projects starting in FY13. The Bank's Agriculture Global Practice began implementing GHG

~ EX-ACT is composed of five modules: Land Use Change, Crop Production, Grassland Livestock, Land Degradation, and Input Investments. The interventions of the project will be captured in three of the modules: Land Use Change, Crop Production, and Input Investments.

6

accounting for all its investment operations on July 1, 2014. A preliminary GHG analysis was carried out by the Bank team; a more detailed analysis will be conducted after all required data are collected.

Next Steps

29. The following actions were discussed and agreed to at the wrap-up to move the preparation forward :

S.No Activity Responsibility T imeline 1 Review and confirm the list of districts to be Mo AD November 15, 2015

supported by the Project 2 Identification of key sectors to be suppo1ted under Mo AD November 30, 2015

the project in the project districts 3 Make relevant documents and studies available that Mo AD December 15, 2015

need to be referred for project preparation 4 Apply for Project Preparation Facility to initiate MoAD,MOF November 30, 2015

studies and assessments required for readiness. 5 Identification of focal persons, formulation of Mo AD February 20]6

project management unit and Steering Committee 6. By appraisal carry out procurement and financial WB February 2016

management capacity assessment 7. By aooraisal prepare 18 months' procurement plan MOAD February 2016 8 Appraisal mission WB March 10, 2016

30. In terms of project processing, following schedule has been tentatively agreed:

December, 2015 March, 2016

June 30, 2016 October 30, 2016

Pro· ect Effectiveness December 2016 Project Launch Worksho January 2017

7

Ministrv of Agriculture Development Mr. Uttam Kumar Bhattarai, Secretary Dr. Rajendra Adhikari, Joint Secretary Mr. Yogendra Karki, Joint Secretary

List of Persons Met

Mr. Mahendra Paudel, Sr. Agriculture Economist Mr. Binod Bhattari, Sr. Agriculture Economist Mr. Basudev Subedi, Sr. Veg. Development Officer

Department of Irrigation Mr. Madhav Belbase, Director General

Department of Agriculture Dr. Yubak Dhoj G.C., Director General Mr. Basudev Suvedi, Sr. Vegetable Development Officer

Department of Livestock Services Dr. Keshav Prasad Premy, Director General Dr. Bijaya Kanta Jha. Deputy Director General Dr. Vijaya Chandra Jha. Programme Director, Animal Health Dr. Mukul Upadhyaya, Sr. Livestock development Officer

Agricultu re Food Security Project Mr. Shyam Prasad PoudyaJ, Project Director Mr. Surya Prasad Baral, Sr. Horticulture Development Officer Mr. Shib Prakash Acharya, Sr. Livestock Development Officer Dr. Prabhakar Pathak, PACT

Agro Enterprise Centre Mr. Pradeep Maharjan, Executive Director Dr. Ram Mani Paudel, Livestock Specialist

Dairy Development Corporation Mr. Ganga Timsina, General Manager Dr. Shatrughana Prasad Shaha, Technical Manager

National Dairy Development Board Mr. Babu Kaji Panta, Executive Director

Central Diary Co-operative Association Ltd Mr. Ram Prasad Acharya, General Secretary

Kharipati Dairy Pvt. Ltd (Aroma Ice cream) Mr. Vishwa Ram Khadka, Executive Director

Annex 1

8

Heifer International Dr. Shubh Narayan Mahato, Country Director Ms. Neena Joshi, Director of Programs Mr. Tirtha Regrni, Director of Programs Mr. Krishna Prasad Paudel, Sr. Associate Director of Resource Mobilization Ms. Sumnima Shrestha, Communications and Resource Mobilization Manager

Food and Agriculture Organization Dr. Somsak Pipoppinyo, Representative Dr. BinodSaha, Assistant F AO Representative (Programme) Mr. ShrawanAdhikary, Program Officer

USAID Ms. Danielle Knueppel, FTF Team Leader Mr. Navin Hada, AID Project Dev. Specialist/Agriculture, Social, Env. and Economic Dev. Officer

International Fund for Agricultural Development CTFAD) Mr. Bashu Arya!, Country Program Officer

Asian Development Bank (ADB) Mr. Govinda P. Gewali, Sr. Project Officer

9