Report No. PID Project Name China-Gansu And Xinjiang Pastoral... Development Project. Region East Asia and Pacific Region

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1 Report No. PID10511 Project Name China-Gansu And Xinjiang Pastoral... Development Project Region East Asia and Pacific Region Sector Livestock; Natural Resources Management Project ID CNPE65035 Borrower(s) Implementing Agency(ies) PRC Ministry of Agriculture - Foreign Economic Cooperation Center - Livestock and Fisheries Project Division Contact Person: Mr. Tang Zhishao Tel: Fax: ztang@public.east.cn.net Agriculture and Animal Husbandry Department, Gansu Province Address: 1 Qing'an Lu, Lanzhou, China, Contact Person: Mr. Cao Zanghu Tel: Fax: Wanzhanquan@Westl63.Com Animal Husbandry Deparment, Xinjiang Uyigur Autonomous Region Address: 23 Xinhua Nan Lu, Urumqi, China, Contact Person: Mr. Silajitin Tel: Fax: Liuxinh@Mail.Xj.Cninfo.Net Environment Category B (Partial Assessment) Date PID Prepared June 22, 2001 Projected Appraisal Date February/2002 Projected Board Date August/ Country and Sector Background Since the early 1980s, with the decollectivization of the agricultural sector, China has achieved remarkable agricultural and rural growth, greatly reduced poverty and addressed many environmental and natural resource degradation problems. Replicating these accomplishments and improving sustainability in the future however, will be more difficult as many of the potential gains from the transition reforms have been achieved and weak demand has now slowed growth. Weak aggregate demand is also affecting rural areas where incomes have been affected by falling prices for farm products and stagnant growth in non-agricultural rural employment. Future productivity gains in the agricultural sector will have to come from greater efficiencies of production, stimulated by market forces, and greater

2 productivity of scarce natural resources through improved natural resource management and introduction of new technologies. Sustained agricultural development and rural economic growth will also require more dynamic and effective rural institutions and financial systems, improved land tenure with marketable land-use rights, improved incentives for investing in agricultural development, liberalization of production, pricing and marketing policies, promotion of a market environment, and better targeted investments in rural infrastructure and public services. In China's northwestern pastoral areas, the challenges for rural development are daunting. Despite the political and strategic importance of the region, economic and rural growth has not been very significant. Grassland degradation is a serious problem with almost fifty percent of the proposed project areas classified as moderately to severely degraded. Hillsides being often especially badly degraded. Poverty is pervasive. Xinjiang and Gansu together make up almost 15 percent of China's total poor. Widespread poverty inhibits livestock development as well as the capacity of the region to seize new economic opportunities. Stimulating agricultural growth, reducing poverty and managing the environment are major development objectives in the proposed project areas. Government's emphasis on animal husbandry in the pastoral areas is necessary since this will remain the major source of livelihood and real economic growth in the foreseeable future. However, in order to be sustainable, livestock development will have to adopt an approach that views animal raising as just one important aspect of an overall natural resource management strategy for the pastoral areas. Given the seriousness of the problems related to livestock production in the semi-arid grassland areas of northwest China, new approaches to livestock production efforts need to be better integrated with improved grassland management (including pastoral risk management), and more efficient marketing of livestock and livestock products. The key issues for sustainable development in the pastoral areas are: (i) widespread rural poverty; (ii) grassland degradation; (iii) unsustainable livestock production practices; (iv) poor market development; (v) inadequate community participation; and (vi) lack of integration in addressing the problems. 2. Objectives The development objective of the proposed project is to improve the lives and livelihoods of herders and farmers in the project areas, through establishment of improved livestock and marketing production systems, while sustaining the natural resources. The proposed project would empower farmer and herder households and pastoral associations in the project counties to better manage their rangeland resources, thereby increasing their incomes through more efficient livestock production, sufficient to meet basic needs and to generate marketable surplus to improve living standards. Establishment of improved livestock marketing systems in project counties would also increase the efficiency of the livestock production system and help raise the living standards of farmers and herders. 3. Rationale for Bank's Involvement The proposed project is designed to be a "second-generation" rural development project. It would give China the opportunity to pilot a "quality" focused integrated livestock development system that could substantially - 2-

3 contribute to improve livelihoods of its herder population. Bank support for the proposed project is justified through its mandate to lend for development-oriented activities with a strong element of public goods, such as environmental management, public information systems, training, extension, and research. Provision of these kinds of basic services in the project will provide a firm foundation for future sector investments by the private sector as well as improve the utilization of scarce public resources (financial and technical) creating a basis for increased government revenues for future development. The project approach is consistent with the recently revised rural development strategy of the Ministry of Agriculture and with the Bank's rural strategy for China initiating the second generation of rural development projects in the country. The proposed project would support activities for the medium and long-term growth of the sector as opposed to simple revenue generating activities. The Bank's extensive experience would add value to the Borrower's efforts to provide an enabling environment for future economic growth in Gansu and Xinjiang while accelerating the transition process of its livestock sector into a modern social market economy. 4. Description General. The proposed project's main features include: (a) a geographic concentration of an integrated series of activities in a county; (b) integration of grassland management, livestock improvement and marketing activities at the herder level; (c) vertical integration of livestock production activities the markets; and (d) the active participation of herders and farmers in the planning and implementation of activities to enhance their capacity to better manage rangeland resources. The components of the proposed project would be closely linked together in order to: (i) ensure optimum use of the investments in grassland management and improvement, livestock breeding and production, and marketing components of the project; (ii) promote more effective participation of the herders and farmers; and (iii) address inappropriate policies towards pastoral areas and policy-induced market distortions. The proposed project has three main components: (1) Grassland Management and Improvement; (2) Sheep and Livestock Production; and (3) Marketing. In addition, Project Management, Monitoring and Evaluation is treated as a separate component. 1. Grassland Management and Improvement Component. A major constraint to improving livestock production and farmers' and herders' incomes is ensuring animal access to quality forage/feed throughout the year. In the pastoral areas of northwest China, where livestock is dependent on grassland forage for all or most of their annual forage/feed needs, the current degraded condition of much of the grassland is a major concern. The Grassland Management and Improvement component would support the development of improved grassland management techniques which are adapted to local environmental conditions as well as being socially and economically appropriate to the ethnic minorities residing in the project areas. The specific objectives of the component are to: ensure sustainable use of grassland resources for livestock production; improve grassland management (especially on slopes); establish a well functioning pastoral risk management system, including a herder credit program; and improve grassland-related research and extension services. The component would fund technical interventions and institutional -3 -

4 strengthening activities that would attempt to halt and reverse the trend of grassland degradation through: (i) grassland survey and inventory; (ii) grassland monitoring; (iii) development of range resource management plans at local levels; (iv) grassland improvement (artificial pasture, rodent control, fencing, irrigation development); (v) forage seed production (including collection, evaluation and seed production of native forage germplasm); (vi) training; (vii) extension; (viii) grassland and forage related applied research; (ix) outreach and networking; and (x) strengthening public institutions (such as Prefecture and County Animal Husbandry Bureaus and Grassland Stations) so they can better monitor and maintain the grasslands and provide extension services to farmers. In addition, there would be a sub-component devoted to herders' and producers associations for improved community-based grazing management and animal husbandry, and for marketing of livestock products that would include: (a) strengthening and establishment of herders' associations to facilitate the participation of herders in the implementation of projects, to improve the government's understanding of pastoral production systems and to reduce the level of government resources required for monitoring grassland use; (b) the development of credit packages for herders' associations; and (c) brand recognition for marketing of products produced by herders' associations. Where ever possible, existing groups would be used. 2. Sheep and Livestock Production Component. The full benefit from raising sheep can only be achieved if the productivity of sheep can be improved. This requires that breeding sheep (both fine wool, coarse wool and meat-type breeds) are more readily available to farmers and herders; technical packages for improved sheep production are developed and extended to farmers/herders; and training is provided to technicians and farmers/herders in how to use such packages. This component will assist in the improvement of sheep production, increasing the availability of breeding stock for farmers/herders, supporting applied research to overcome sheep production constraints, strengthening the capacity of the extension system to develop and deliver improved technical packages to farmers/herders, and training technicians and farmers/herders in their use. The specific objectives of the Sheep and Livestock Production Component are to: (i) strengthen sheep breeding, selection and multiplication programs; (ii) improve sheep management and feeding; improve the quality of sheep products (wool and mutton); (iii) improve the infrastructure and skills for sheep shearing and wool handling; and (iv) establish commercial input supply systems for the sheep production sector. The component would include: (a) animal husbandry and management (feeding, animal health, livestock management); (b) breeding (sheep breeding strategies and systems for fine and coarse wool/mutton sheep, conservation of domestic sheep genetic germplasm, multiplier systems). Support would be provided to Artificial Insemination (AI) stations that also would begin to act as advisory centers and information delivery nodes; (c) wool production, shearing and handling; (d) mutton production; (e) input supply systems; (f) training for herders and technicians; (g) extension; (h) applied research; and (i) outreach and networking (information delivery and gathering from various sources). 3. Marketing Component. The lack of a well functioning modern wool and - 4 -

5 mutton marketing system is a severe constraint to sheep development. Insufficient market knowledge and information, limited awareness of markets by herders, a weak extension system that focuses on yield potential rather than profitability for herders, limited marketing options due to lack of storage, transport, grading and other facilities, and a competitive imbalance between herders and the first buyers of their products are some of the problems this component would assist the project to overcome. The specific objectives of the Marketing Component are to: (i) improve the competitiveness of Chinese wool and sheep meat; (ii) develop standard product descriptions for wool; (iii) improve the capacity of wool testing laboratories; (iv) to increase awareness in the Chinese wool textile industry of the potential for using more Chinese fine wool; and (v) ensure that herders and other wool producers receive the full market price for their wool. The component would include: (a) improving wool and meat marketing competitiveness through sales based on standard product descriptions and samples; (b) developing product quality standards that are consistent with international standards; (c) improved wool testing system; (d) development of new pricing and payment system; (e) establishment of a comprehensive wool and meat market information; (f) establishment of herders' associations to overcome the limitation imposed by small product volumes, limited ability of herders to invest and service debt, and imbalances in the marketing chain; (g) support to developments in wool marketing being pioneered by the Xinjiang Fine Wool Producers Assocation, and the extension of those developments to herder housedholds; and (h establishment of a information campaign to promote Chinese fine wool, carpet wool and mutton/lamb. 4. Project Management, Monitoring and Evaluation. The objective of this component is to develop and strengthen the overall project implementation capacity of project management offices and promote more effective participation of herders and farmers in project activities. The component would include: (i) strengthening of the provincial Project Management Offices (PPMOs); (ii) establishment of PMOs at prefecture, county and township levels; (iii) training of project management and monitoring staff; (iv) development of a monitoring and evaluation system that includes social and environmental indicators; and (v) establishment of herder advisory/participation groups. 5. Financing Total ( US$m) BORROWER IBRD Total Project Cost Implementation General. The proposed project would be executed through the Foreign Cooperation Center in the Ministry of Agriculture. The Foreign Cooperation Center has managed a number of Bank projects before. Project Management Structure. Project Leading Groups (PLG), Project Management Offices (PMOs) and technical committees at all levels (province, counties and townships) would be established. The integrated approach of the proposed project would be reflected in the project management, in which the various stakeholders, including the beneficiaries, various government levels, - 5 -

6 private sector and civil society, would participate. Project Leading Group. The PLGs, headed by the Executive Vice Governors of the provinces are currently been formed. Representatives of the Provincial Finance Bureau and Planning Commission would function as deputy heads of the PLGs. To ensure broad ownership for implementing the integrated approach of the proposed project, all relevant agencies including Water Resources, Agriculture, Foreign Trade; The Committees of Agriculture, and Economic and Trade; Agricultural Bank of China (ABC) and People's Bank of China; Poverty Reduction Office, and Women's Federation would be represented in the PLG. Project Management Office. Provincial PMOs (PPMOs) have been formed to be in charge for the preparation of the project. The institutional capacity of project management will be strengthened during preparation and implementation of the proposed project. Most importantly, PMO staff at all levels will receive specific training (including training in consultation techniques) in order to better meet the demands of the integrated approach of the project. Technical Committee. Technical Committees (TC) would be established at the provincial levels to make recommendations on technical aspects and provide technical advice to the provincial PLGs and PMOs The TC would be composed of technical specialists and engineers from technical bureaus, cooperating research institutes and other agencies involved in the proposed project, and representatives of Producers' Associations (e.g. Xinjiang Fine Wool Producers Assocation). The TCs would be represented by smaller TC groups at county levels to enable timely participation by beneficiaries. 7. Sustainability Several factors are critical to project sustainability. First, institutional sustainability is important, and is being pursued by building consensus on the project design among a wide range of stakeholders and adopting a participatory process. Most of the implementing institutions are at the local level and only strong participation of all stakeholders during planning and implementation can bring long-term sustainability to project investments. Second, financial sustainability would be pursued by promoting investments and activities that would generate income streams over time, and which rural communities and producers' organizations themselves would be capable of managing and maintaining. The increased animal productivity and higher financial returns would be important incentives to sustain better pasture and grasslands management activities. Furthermore, the project would aim to increase the financial sustainability through supporting linkages between markets and producers and establishing conditions for effectiveness with which market signals pass from markets to producers. During the project preparation, the availability of counterpart funds will be reviewed. Third, a high level of ownership of the planning and implementation process by project beneficiaries is critical for the project success. For example, the sustainability of the investments into grassland and pasture improvement depend upon the functioning of the relevant resource users' associations being able to generate revenues for operation and maintenance and organize members to contribute labor. Implementation of project investments and activities will thus go in parallel with capacity building at the local level through a participatory approach. Particular attention would be paid to supporting the beneficiaries in building capacity to take on this responsibility for sustainable management of natural resource base. 8. Lessons learned from past operations in the country/sector The proposed project would benefit from the Bank's extensive experience in livestock and rural development in China and other countries around the world - 6 -

7 (more specifically in East Africa, Morocco, and Iran). More generally, the proposed project would build on lessons learned from among others, Loess Plateau Projects (I and II), Western Poverty Reduction Project, Shaanxi Agricultural Development Project, Smallholder Cattle Development Project in China; Sheep Development Project in Kyrgyz Republic; and Sustainable Livelihoods Project in Mongolia. Achieving the multiple objectives of the proposed project requires a departure from sectoral approach. Fore example, successful integrated approach requires that technological improvements of productive assets must be combined with improved management of natural capital with simultaneous improvement of human and institutional capital, while fully taking into account market opportunities and economic sustainability. As such, the Project takes a multidisciplinary approach, addressing issues of institutional development, natural resources management, and access to credit and markets, which are all expected to improve the productivity of sheep production in the short and long-run. A key lesson from Bank financed projects in general is that commitment by governments and the active participation of beneficiaries and other stakeholders (village, township and county governments) in project implementation ensures smooth implementation, success and sustainability of the project. The nature of the proposed project requires in particular that it is driven by entrepreneurial individuals in design, preparation and implementation. 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues Environmental Issues. The overall objective and tentative design of the proposed project suggests that the net environmental impact of the project will be positive. The proposed project would bring environmental benefits, through improved management and a more efficient use of natural resources. There is a risk for a negative environmental effect on the grasslands if the project would lead to an increased number of animals. Marketing becomes a vital component to mitigate this risk along with work with the herders and officials to develop improved stocking rate guidelines and to work to balance livestock numbers with available forage. The forage development (artificial pastures) under the proposed project would be established on existing cropland. No natural grasslands would be converted to artificial pasture. The forage development would primarily consist of perennial legumes (alfalfa) and annual legumes (vetches) and annual forages (oats). Organic fertilizer in the form of manure will be applied to these fields, and there would be little or no use of chemical fertilizers, pesticides or herbicides. The proposed project would also promote the testing and evaluation of a wide range of forage cultivars and varieties, including native species, to make eventual use of a wide germplasm base. Social Issues. The main targeted beneficiaries in both Gansu and Xinjiang are ethnic minority semi-sedentary herders (sedentary in winter, nomadic during summer) and farmers belonging to the Dongxiang, Hui, Kazakh, Mongol, Sala, Uygyur, Tibetan, and Yugu ethnic groups. The social assessment work will pay close attention to appropriateness of the project activities relative to the different ethnic minorities as to make sure that all activities are culturally appropriate and in accordance with their wishes. Initial Consultations. A set of Participatory Rural Appraisals (PRAs) were - 7 -

8 carried out in a selected number of potential project counties in both Gansu and Xinjiang in the spring of Selection of PRA sites took into account ethnic minority representation in the project, subsistence format (e.g., semi-pastoral or full herding lifestyle), and economic level. Four PRA sites in each province were selected, each in a village of a different county, and each requiring one full week of consultations. The objective of these PRAs were to identify the needs and interests of possible project beneficiaries. Main issues and needs identified by the herders and farmers included the wish to increase their income from livestock production, lack of improved breeds, lack of adequate support services for livestock development and inadequate winter forage. Findings from the PRAs played an important role in shaping the proposed project as it currently stands. Social Assessment Process. In order to ensure effective project preparation and implementation, a social assessment (SA) process will be established. The overall purpose of the SA is to assist in designing and implementing the proposed project with the support and active involvement of individuals and groups most directly affected. It is anticipated that this participation will range from simple one-way communication, such as information disclosed in publicity campaigns and surveys, to more intensive interactions involving two-way discussions in which the informant's opinion is recorded and considered in the proposed project's design and implementation arrangements. The SA should be viewed as a continuous process of consultation to take place throughout the project's life cycle. It is anticipated that the SA process will encompass a broad set of activities to be conducted during three distinct phases of the proposed project (identification/preparation, implementation, and evaluation.) These activities involve a wide range of methodological tools reflecting the multifaceted nature of the issues to be addressed. Social issues already identified in the PRAs as being important for project design will be addressed in one or more components of the proposed project. Included as SA activities are also the consultations with project beneficiaries and affected groups and populations specifically outlined in the Beneficiary Participation Plans under preparation by the Provincial PMOs and data collection efforts for the purposes of monitoring and evaluation. Any issues that arise during the course of the proposed project as a result of the project or socioeconomic developments, that may have an adverse impact on one or more population groups, will be investigated and mitigated if necessary. Objective of the Social Assessment. The SA will focus on issues that directly and indirectly impact the key stakeholders in the proposed project. The range of issues that will be addressed by the SA include, but are not limited to: (a) affordability concerns: Can the proposed project households afford the anticipated financing terms and other expenses, such user fees; (b) land security: Are the leasing arrangements fair and provide farmer households with tenure security? Are leased lands and forests properly maintained from the viewpoint of farmer households?; (c) inclusion: Are there any groups residing inside the proposed area whose needs are not being addressed by the project or who stand to lose from one or more of the proposed project activities? How does the proposed project impact the poor, the elderly, and women? How are these groups involved in the project's decision-making?; (d) access to employment, credit, irrigated water, land: Do certain groups of the population have lower access to employment, credit, irrigated water or land than other groups? What is the reason for this differential access? Will these groups participate in the proposed project and if so, how is their access improved as a result of the project?; and (e) - 8 -

9 social cohesion, community decision-making: How are decisions made in the village? Do all residents of the village have an equal say in the matters that affect them? How are resources allocated within the village? Are there any community development projects in the village in which farm households contribute labor? 11. Contact Point: Task Manager Sari S-derstr-m The World Bank 1818 H Street, NW Washington D.C Telephone: Fax: For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending July 13,