INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC2501. Date ISDS Prepared/Updated: 03/01/2007 I. BASIC INFORMATION. A. Basic Project Data

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Date ISDS Prepared/Updated: 03/01/2007 I. BASIC INFORMATION A. Basic Project Data INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC2501 Country: Indonesia Project ID: P Project Name: Agricultural Exports Competitiveness Project Task Team Leader: Shobha Shetty Estimated Appraisal Date: March 12, 2007 Estimated Board Date: September 20, 2007 Managing Unit: EASRE Lending Instrument: Specific Investment Loan Sector: General agriculture, fishing and forestry sector (65%);Agricultural marketing and trade (30%);Agro-industry (5%) Theme: Export development and competitiveness (P);Rural policies and institutions (P);Other rural development (S) IBRD Amount (US$m.): IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower JAPAN: Ministry of Finance - PHRD Grants B. Project Objectives [from section 2 of PCN] The overall development objective of the project is to increase the access of Indonesian smallholders to export markets for selected agricultural commodities centered on the use of a public private partnership approach to trade development. This would be achieved by improving smallholder and producer/trader access to technical and market information and finance, improving the enforcement of quality standards, streamlining export procedures and improving access to selected export markets. C. Project Description [from section 3 of PCN] The Ministry of Trade (MoT)is the Implementing Agency. MoT will work closely with the key technical directorates in the Ministry of Agriculture (MoA). The project interventions that are necessary for attaining the objectives are grouped into the following components: Component 1: Strengthening Institutional and Regulatory Frameworks ($3.7M)

2 This component will address institutional and regulatory reform for export development by improving the enforcement of agreed norms and standards related to quality control, engaging in trade facilitation and promotion ( e.g. through improved harmonization agreements), facilitating public/private sector collaboration in addressing trade constraints and piloting the institutional infrastructure for warehouse receipting. This component will be implemented by Directorate General, Foreign Trade, Ministry of Trade. Component 2: Support to Selected Commodities ($40 M) This component will help farmers and other stakeholders in commodity value chains to increase their income and livelihoods through strengthening their capacity to access information on improved technology and agribusiness management practices and to develop partnerships. Measures will primarily include agricultural extension and research, farmer empowerment (farmer group formation, training ) institutional reforms and technical assistance. This will be carried out for cocoa and Arabica coffee. This component will be implemented by the relevant agricultural services (dinas) in the district and province levels, the provincial research institutes, under the guidance of the technical directorates (agricultural processing and marketing; estate crops) in MoA. Component 3: Improved Access to Finance ($2 M) The IFC s Program for Support to SMEs in Eastern Indonesia (PENSA) has piloted some models for improving access to finance in selected commodities (e.g., maize-poultry). In addition, the IFC s Promoting Enterprise Access to Credit (PEAC) program has facilitated $11 million in loans to over 150 SMEs in Indonesia but this model has not yet been focused on agribusiness/farmers. AECP would be an opportunity to scale up its A2F pilots. However, the models that will be scaled up need to be robust. Lessons learned from the mid-term review of PENSA indicate that IFC will need to work more closely with banks rather than intermediaries as it is currently doing. In order to ensure that the models that will be scaled up under the project are viable, the access to finance component will initially be limited to technical assistance under existing donor funds focused on linking farmers to banks. While the mission has had favorable discussions with Rabo Bank, Danamon, and BRI among others, the magnitude of the financing needs and the nature of the problem in the project areas need further analysis. The successful implementation of working regulations for the new warehouse receipts law under Component 2 may also then offer some opportunities for the piloting of warehouse receipt financing with interested commercial banks under this component. IFC?s investment arm will subsequently work with the team to develop guarantee instruments (with appropriate risk-sharing arrangements) with local banks on a commercial basis. The A2F component will be thus, scaled down from the proposed $10 million (at identification stage) to $2 million (IFC donor technical assistance only) which will focus on developing robust models for scaling up under the project. No lines of credit are recommended under World Bank financing. Component 4: Project Management ($4.3 M) Project Management support will be provided to ensure appropriate collection, monitoring, evaluation and consolidation of data and information for reporting and management purposes.

3 The central PMU will also be responsible inter alia, for coordinating the supervision missions, mid-term review, overall M&E, and the preparation of the Implementation Completion Report. The central PMU will be located in the Directorate-General, Foreign Trade. D. Project location (if known) The project will work with smallholders producing cocoa and arabica coffee and a small horticulture component. Coffee and cocoa share some common areas of production (Sulawesi, Flores, Sumatra, Papua), the fruit crops are produced mainly in West, Central and East Java, Bali and South Sumatra. The exact locations and number of districts will be confirmed during project preparation but about 8-10 provinces and about districts are expected to participate. From a physical environmental perspective, the project will cover a range of agro-ecological production zones, including areas of differing natural resource related environmental stress. The principal zones include: upland rain-fed mixed cropping; smallholder tree crops; and agroforestry. Within these zones, a wide variety of farming systems have evolved, many of which are facing problems relating to monoculture, decline in soil fertility and ground water quality as well as increasing incidence of pests resulting from poor farming practices. In downstream processing, environmental awareness has been improved by donor funded projects, however, standards of liquid and solid waste management, warehouse and processing hygiene and transport efficiency for retention of product quality still require vigilance. Some of the project areas may have isolated vulnerable groups and all of the areas will have vulnerable disadvantaged groups such as poor women, landless and minority ethnic farmers. These include farmers that work as share-croppers or do tumpang sari farming in production forests or plantations. Although isolated vulnerable groups are unlikely to be found in West, Central, East Java and in South and North Sumatra, they could be found in other areas covered under the project. Both categories of vulnerable groups are likely to be under-represented in farmer group activities and farmers? associations, while at the same time being disproportionately impacted by the environmental issues described above. E. Borrower s Institutional Capacity for Safeguard Policies [from PCN] Environmental management capacities within the key implementing partners (Ministry of Agriculture, Ministry of Trade) and the other partner agencies - National Center for Agricultural Extension, Kecamatan Extension Centers, Provincial Agricultural Research Institutes - are generally low. In the case of the Ministry of Agriculture, while sufficient human resource capacity exists, the necessary institutional structures to bring this experience to bear are lacking. Furthermore provincial and district level environmental authorities (Bapedaldas) have limited capacity in environmental management of agricultural development projects. The project proposes to address these weaknesses via a combination of institutional strengthening measures in environmental management for project implementing agencies, combined with additional capacity built into the project?s own oversight and project management functions. More recent evaluations of the performance of IPM indicate that the uptake by farmers has been weak and this is largely considered to result from poor and/or inconsistent extension service provision which would be addressed under the public private partnership approach to extension of component 2 and also through investments in longer term research on clonal development for

4 insect resistance in coffee and cocoa. In addition, the project will work closely, inter alia, with IPPHTI, the national network of IPM farmers to expand its outreach.. The borrower has been successful in addressing social safeguards aspects in several previous projects including the DAFEP ( ), which implemented farmer managed activities for smallholders including women and disadvantaged groups and the Bengkulu Regional Development Project ( ) which provided a sustainable model for development of village level savings and loans groups with long term links to commercial credit providers. Reviewing the DAFEP project, the Borrower has been relatively successful in encouraging grass-roots participation and the involvement of poor women farmers. It is less clear how far it has been able to address the other vulnerable disadvantaged groups. Consequently the training manuals for the extension and farmer empowerment activities of component 2 will put more emphasis on encouraging the involvement of landless farmers (which in many cases are also minority isolated groups and the poorest farmer) such as farmers engaged in tumpang sari farming in production forest area. F. Environmental and Social Safeguards Specialists Mr James Orehmie Monday (EASRE) Mr Isono Sadoko (EASRE) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) The project is Category C recognizing that it is unlikely to lead to significant and widespread negative environmental impacts, given a primarily?development software? approach involving institutional and human resource development, upgrading of technology, research capabilities and information systems. The project will not be financing any major physical investments but mostly capacity building capacity building measures, farmer empowerment services and possibly small-scale agricultural processing operations/services through local private institutions. At this stage no line of credit through financial intermediaries is envisaged. The support for processing and marketing is likely to be small scale in nature since the project will not subsidize the private sector, but improve its access to finance and to technical information for efficiency improvement. As a result, it is unlikely to lead to significant direct negative environmental impacts and in fact, has the potential to lead to net environmental benefits by helping to introduce more sustainable and efficient farming, marketing, transport and processing practices than currently exist. The project activities are not expected to lead to land conversion, the destruction of environmentally sensitive areas or historically significant sites and/or other cultural resources. The project will result in farmers achieving a greater level of control over farming techniques, including the minimum application of agricultural inputs compared to cultural techniques such as pruning, grafting, varietal change, improved storage and transport. The project will not finance any inputs whatsoever. Training and awareness raising programs will place the need for agricultural development within the context of existing environmental constraints and capabilities, with a specific focus on upland, rain-fed, mixed arable zones which face wide ranging environmental constraints. The project will assist the local institutions to develop their

5 Safeguard Policies Triggered Yes No TBD environmental training curriculum for training of extension agents and also this project will help develop the content of the environmental extension services. The project will apply the following approaches to minimizing environmental risks and maximizing environmental benefits:? ensuring that extension agents are sufficiently well trained to address the environmental implications of the introduction of new cropping systems and farming technologies (for example by ensuring that information conveyed to farmers on the use of new pesticides to reduce losses from pests is accompanied by information and training on safe handling of chemicals, timing and dosage advice to optimize effectiveness);? ensuring that guidelines for accessing grants for farmer and trader managed activities at village and higher levels are revised to be (i) more equitable; (ii) gender-sensitive; and (iii) environmentally sustainable (use of negative environmental list and promoting the use of simple environmentally friendly technologies);? The project will help to revive interest and capacities in the application of Integrated Pest Management (IPM) in Indonesia. The experience of IPM in Indonesia has had some success, since its introduction in the mid 1980s followed by the national Bank-supported IPM Training Project ( ) which helped institutionalize the IPM concept and practices among farmers. AECP will help to strengthen and expand the capacity of IPPHTI, the national network of IPM farmers (formed under the previous Bank project), and provide a basis for specific and targeted interventions in IPM for the cocoa production sector. However, the approach taken recognizes that IPM is not a panacea, providing effective protection against pests and diseases under certain conditions. The responsible use of chemicals (minimum spray techniques) is equally viable provided that this is carried on the basis of adequate research and within the context of national policies and guidelines, including those of the World Bank. The project will undertake a capacity assessment of the national and sub-national regulatory and institutional frameworks to manage these issues, and then provide the necessary support through the project to address these issues, focusing mainly on technical assistance and farmer empowerment (i.e extension services). The project will therefore not prepare a stand alone IPM Plan.? The main social risks are that the vulnerable and disadvantaged groups such as poor women, landless and minority ethnic farmers who will be relatively excluded in the farmers groups decision making processes and their interest in Farmers Association may not be sufficiently well represented. Specific approaches to addressing these risks will include (i) development of appropriate guidelines (adapted from the recently-closed Decentralized Agricultural and Forestry Extension Project (DAFEP) and the upcoming ( ) Farmer Empowerment through Agricultural Technology and Information (FEATI) projects for integration of social concerns (including gender) into the extension activities of Component 2, and (ii) the introduction of appropriate selection criteria that would help to identify and reward farmer organizations that are more inclusive in decision making processes, and are keen to develop their capacities in this area.

6 Safeguard Policies Triggered Yes No TBD Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) NA Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Environmental Category: B - Partial Assessment III. SAFEGUARD PREPARATION PLAN A. Target date for the Quality Enhancement Review (QER), at which time the PAD-stage ISDS would be prepared: 07/02/2007 B. For simple projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A C. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing 1 should be specified in the PAD-stage ISDS. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing should be specified in the PAD-stage ISDS. Integrated Social and Environmental Assessment (including Environmental Management Plan)? March? April 2007 IV. APPROVALS Signed and submitted by: Task Team Leader: Ms Shobha Shetty 09/18/2006 Approved by: Regional Safeguards Coordinator: Mr Glenn S. Morgan Comments: Sector Manager: Mr Rahul Raturi Comments: 1 Reminder: The Bank s Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in-country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.

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