|1. Project Data:
ICR Review Date Posted:
Project Costs(US $M)
Loan/Credit (US $M)
|Agriculture and Rural Development
Cofinancing (US $M)
Board Approval Date
|Animal production (69%), Agricultural extension and research (27%), Crops (3%), Sub-national government administration (1%)|
|Other rural development (29% - P)
Rural services and infrastructure (29% - P)
Climate change (14% - S)
Rural policies and institutions (14% - S)
Technology diffusion (14% - S)|
||ICR Review Coordinator:
|John R. Eriksson
||Robert Mark Lacey
|2. Project Objectives and Components:|
a. Objectives:According to the Project Appraisal Document (PAD, p.4), the Project Development Objectives are: (1) “to improve the financial viability of existing and new dairy operations in selected areas of Heilongjiang province” and (2) “to demonstrate innovative technologies to reduce GHG emissions and increase carbon sequestration.”
According to the Loan Agreement, the Project Objective is to: “(i) improve the financial viability of dairy operations in selected areas of Heilongjiang Province; and (ii) demonstrate innovative technologies to reduce greenhouse gas emissions and increase carbon sequestration in selected areas of Heilongjiang Province.”
The Loan Agreement definition is adopted.
b. Were the project objectives/key associated outcome targets revised during implementation?
c. Components:The project had four main components:
1. Dairy Production Development (US$148.2 million; US$118.12 million actual)
Increase scale, efficiency and quality of milk production through household and dairy park-based production programs. There were six separately costed sub-components:
(1) Household Dairy Farms (US$88.9 million; US$68.54 million actual)
2. Dairy Cattle Breed Improvement (US$6.5 million; US$4.35 million actual)
(2) Milk and Collection Stations (US$6.7 million; US$5.93 million actual)
(3) Dairy Parks (US$ 28.9 million; US$24.36 million actual)
(4) Demonstration Farms (US$21.3 million; US$18.98 million actual)
(5) Training and Technology Transfer (US$2.1 million; US$0.27 million actual)
(6) Dairy Farmer Association (US$0.3 million; US$0.05 million actual)
This component was intended to improve the genetic base of the Heilongjiang dairy stock and thereby increase the efficiency of milk production and milk quality. It was to be achieved by establishing a comprehensive Dairy Herd Improvement Program, including recording of milk and livestock management data, bull breeding and progeny testing. The program was to be implemented in the following steps: (1) initial capacity building; (2) broadening and accelerating genetic improvement; and (3) establishing a system for local genetic evaluation.
3. Environmental Protection and Climate Change Mitigation ($9.5 million; $8.87 million actual)
The aim of this component was to demonstrate innovative technologies to increase carbon sequestration and reduce greenhouse gas (GHG) emissions resulting from the expansion of livestock production in Heilongjiang. The project would finance specialized equipment, civil works, technical assistance and training of staff and project beneficiaries to pilot innovative technologies in: (a) pasture improvement; (b) treatment of crop residues to improve their usage in animal feeding and decrease methane emissions and reduce on-field burning of residues; (c) treatment of animal manure to reduce methane emissions and convert it into a salable fertilizer; and (d) research programs to assess climate change experimental technologies.
4. Project Management and Support ($1.1 million; US$0.6 million actual)
This component was intended to improve the management, monitoring and evaluation of the project through financing technical assistance, training and equipment for the Provincial Project Management Office and the county Project Management Offices.
d. Comments on Project Cost, Financing, Borrower Contribution, and DatesProject cost.
US$33.36 million was scaled back as part of restructuring after the Midterm Review in November 2009, but the project objective was not changed. The actual total project cost at US$132.19 million (including US$0.25 million front end fee) was US$46.76 million less than the estimate at appraisal (or 73.9% of the total cost at appraisal).Financing
The operation was financed by an IBRD loan of US$56.91 million and a grant from the Italian Government of US$5.32 million. The share of total financing accounted for by the IBRD declined from 55.9% at appraisal to 43.1% actual (ICR, Annex 1, p. 24R). This resulted from the scaling back of the project and the cancelation of a portion of the IBRD loan. Conversely, the share contributed by the Italian Grant increased from 3.1% at appraisal to 4.0% actual and the beneficiary share (Government central and sub-borrowers and local farmers) increased from 41.0% at appraisal to 52.9% actual (p.24, ICR).
At restructuring of the project in December 2011, as a result of lower than anticipated farmer demand and restrictions on semen imports and the movement of animals, as well as the slow pace of project implementation, the borrower requested a reduction in project scope and a cancellation of US$30 million of the original IBRD loan of US$100million. At the time of the final disbursement on April 30, 2012, an additional US$11.38 million was canceled owing to weak demand or assessed inability to pay by some counties (ICR, pp.4-5). (This implies a final IBRD loan amount of US$58.62 million, which exceeds by US$1.71 million the IBRD loan amount of $56.91 million shown in ICR, Annex 1, an unexplained discrepancy).Borrower contribution
The borrower contributed US$24.29 million; sub-borrowers, US$26.48 million; and farmers, US$19.19 million. These contributions were, in each case, over 90% of the respective appraisal estimates of US$25.5 million, US$27.8 million, and US$20.2 million (ICR Annex 1). Dates
To provide additional time to make up for previous implementation delays, there was a one-year extension of the project, from 12/13/2010 to 12/31/2011. Implementation had been delayed at various points due to external events and shocks (decline in farm gate prices shortly after project approval, dampening farmer investment in dairy production; a global economic downturn denting confidence and demand for dairy cattle; major contamination of milk powder with industrial melamine in October 2008; a ban on movements of livestock within and between provinces from December 2009 to July 2010). There were also delays in procurement, a result of using International Competitive Bidding (ICB), which turned out not to be feasible for procurement of large numbers of livestock. During implementation, ICB was over time replaced by the Community Participation in Procurement methodology, which turned out to be more cost-effective, expeditious and preferred by farmers. (ICR, pp.5, 9)
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives:Relevance of Objectives is rated Substantial.
The objectives of the operation remained relevant to China's economic and social development priorities with regard to the dairy industry at project closure. The demand for dairy products was projected to continue to grow relatively rapidly. Notwithstanding market fluctuations, especially for milk, dairy production was assessed as feasible and promising for small farmers, especially if they joined in associations that gave them some protection against market fluctuations. The Bank's Country Partnership Strategy (CPS) for 2013-2016 points to continuing Chinese priority being given to reducing poverty in rural areas and Bank priority to assistance focused on increasing agricultural productivity, identifying improved technology and farmers' associations among the means to achieve this goal.
b. Relevance of Design:The Relevance of Design is rated Substantial.
The first project objective - to improve the financial viability of existing and new dairy operations in selected areas of Heilongjiang province - is clear and the project components were designed to achieve it. The dairy production and breeding and genetics components aimed at improving the efficiency and quality of production, thus contributing to the achievement of this first project objective. While Heilongjiang was already the major milk producing province in China, it lacked productive technology and efficient organization. This included identified weaknesses in the quality of genetic stock and breeding services, adequacy of infrastructure and management, and access to long term credit for investment, especially for smaller scale producers. Addressing these weaknesses, as the project intended, had the potential to raise smallholder incomes (perhaps also reducing rural-to-urban migration, an objective of Government).
The second project objective - to demonstrate innovative technologies to reduce Green House Gas (GHG) emissions and increase carbon sequestration – is also clearly stated and the climate change mitigation component contained activities that would contribute to the objective. These included the installation of biogas generators, composting units to produce organic fertilizer and drying units to make fuel bricks, together with leak proof storage facilities.
However, there were several potentially adverse exogenous factors which were only partially taken into account in the design of the components for the first objective, but which could have potentially affected the financial viability of dairy production. Important among these could be short term external shocks, which may cause sharp price fluctuations in the dairy market. These in turn could affect the demand by farmers for the improved livestock and techniques offered by the project. Introduction of minimum support prices early in the project could have been expected to mitigate such price fluctuations, but they did not feature in the design. Design might also have anticipated and addressed the consequences of other policies and measures that could have been expected to influence farmer incomes, such as those regarding semen imports, movement of animals, livestock procurement issues and alternatives (International Competitive Bidding vs. Community Participation in Procurement) and the timing of delivery of animals. Design did provide for project support for the formation of dairy farmers’ associations in order to give farmers a measure of influence over some exogenous factors.
|4. Achievement of Objectives (Efficacy) :|
The first objective, to improve the financial viability of dairy operations in selected areas of Heilongjiang Province, is rated Modest.
Smallholder dairy farms, dairy parks and demonstration farms established. From a baseline of zero, the original targets set at appraisal were 5,500 smallholder farms, 50 new and 20 existing dairy parks, and 7 demonstration farms. These were reduced at restructuring to 4,000, 40 and 1, and 5, respectively. According to the team, the project was scaled back by almost 25% after the midterm review. Actual achievements at closure were 3,600 smallholder farms, 41 new and 1 existing dairy parks, and 5 demonstration farms. While these achievements represented a reduction from original smallholder farm targets of 35% and from dairy park targets of 40%, the respective reductions from restructured targets were 10% (4,000 vs. 3,600) and an increase of 2% (41 vs. 42).
Number of dairy farmer associations established. From a baseline of zero, the original target was 100 associations. This was scaled back to 82 and the actual achievement was 84 associations.
Number of technicians and farmers trained. From a baseline of zero, the original target was 1,070 technicians and 12,750 farmers trained. These were scaled back to 700 and 8,000 respectively, and the actual achievements were 1,000 technicians and 9,000 farmers trained.
Number of cows under milk recording. From a baseline of zero, the original target was 150,000. This was scaled back to 120,000 and the actual achievement was 130,000.
A sustainable system of milk recording, with a plan for bull selection and progeny test, was to be put in place. At baseline the existing system was not functional. The original target was for a sustainable system of bull selection and progeny testing to be functioning. At restructuring, the target was revised to be: "A sustainable system of milk recording is functional, with a plan for bull selection and progeny test in place." This was achieved.
Number of crop treatment for feed (silage) facilities established. From a baseline of zero, the original target was 5 facilities, which was raised to 9 at restructuring and the actual achievement was 9 facilities.
Number of research topics funded. From a baseline of zero, the original target was 6 topics, which was raised to 16 at restructuring and the actual achievement was 16. A listing of the research topics is not included.
Anticipated increase in dairy productivity at household and parks dairy levels achieved. This target is shown as another output indicator for the first objective. It is identical to the outcome indicator discussed below, with the same baseline, targets and achievements, except that quality is not mentioned.
Targeted dairy farmers participating in smallholder and Dairy Park-based milk production sell more high quality milk. The ICR reports an achievement of 17.5 liters per day (Results Framework Analysis, pp. vi, vii, main text p.13) against a target of 15.5 liters and a baseline of 13 liters (13% above target and 35% above base) . The latter two figures are is consistent with the PAD, which indicates a baseline of 13 liters and a target of 15.5 to be reached by project year 5 (2011) (Annex 3, p.28). The derivation of these figures is not explained and there are some inconsistencies and gaps. For example, the ICR Results Framework Analysis for this indicator (p.vi) states, contrary to the PAD, that "no baseline was set, so (a) productivity baseline (13 litres per day) was used as proxy" and that "no target was specified in the PAD" (but rather was "added at restructuring in December 2010"). The ICR points out that the magnitude of this achievement is misleading since the number of dairy units was significantly lower than had been targeted at project design (p.13 and as indicated under Outputs, above). The ICR also draws explicit attention to the absence of quality measurement: "Note that no measure for quality was included" (p.vi).
The second objective, to demonstrate innovative technologies to reduce GHG emissions and increase carbon sequestration in selected areas of Heilongjiang Province, is rated Modest.
Number of manure/waste treatment plants established. According to “Intermediate Outcome Indicator 6,” in the ICR Results Framework Analysis (p,viii), 16 plants were established (original target of 20 plants, scaled back at restructuring to 16 from a baseline of zero). (The Safeguards section reports that by the ICR’s completion date in June 2012 all plants were "near completion" (p.11). According to “PDO Indicator 3” of the Framework (p.vi), 16 “targeted dairy demonstration farms and parks were equipped with functioning manure treatment units and selected pastures” (original target of 27 (7 demo. farms & 20 parks) from a baseline of zero). From these two not entirely consistent reports, it is impossible to distinguish treatment plants “established” from those “functioning” (which might be interpreted as an “intermediate outcome”). Moreover, even if all 16 plants were functioning, no information is provided as to how effective they were in reducing GHG emissions or sequestering carbon, which would represent the intended outcomes for this objective.
Efficiency is rated substantial. As compared with the ex ante economic rate of return (ERR) estimated by the PAD at 23%, the ex-post ERR was estimated at 17%. The latter took into account incremental benefits and costs of milk production of individual farms and dairy parks financed by the project. The ICR concludes that this value indicates that the project is viable (compared, according to the project team, with the commonly assumed opportunity cost of capital of 12%). Other benefits deemed significant by the ICR (p.16) but not quantified include (i) improved pasture management, animal feeding practices, and use of treated animal manure as a saleable fertilizer; (ii) increased employment created in the dairy parks, milking stations, and demonstration farms; (iii) improved breeds and better artificial insemination services for the province’s dairy herd; (iv) social benefits derived from the establishment of farmers’ associations and (v) benefits from carbon sequestration and GHG emission reduction. Financial analysis was carried out for the two major types of production entities. The model for individual households is based on an initial representative investment of five cows and that for dairy parks is based on an average capacity of 300 cows. The FRR for the representative household farm is 16%,while that for dairy parks is 17%, which the ICR deems financially profitable and attractive to farmers.
However, as noted at the beginning of Section 4, the scale of the project was reduced substantially from effectiveness to closure. There are several reasons why farmer participation did not meet expectations. Farmers selected for the project were those with the requisite skills in dairy management, though with few animals (generally less than 10). These requirements may have excluded the poorest households which likely did not have these skills. Project household members from these villages had generally higher educational attainment than nonproject households (ICR, p.17). Moreover, according to the project team, by the time of the midterm review, county governments were concerned that many project farmers were no longer as willing or able to pay back debt as they were at project inception.
Project closure was delayed for a year owing to the implementation delays described in section 2-d above.
Taking these considerations into account, efficiency is rated substantial.
If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return(FRR) at appraisal and the re-estimated value at evaluation:
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated