Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 32367-EAP

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT FROM THE

GLOBAL ENVIRONMENT FACILITY TRUST FUND

IN THE AMOUNT OF us$7 MILLION

TO

the kINGDOM OF Thailand, the PEOPLE'S REPUBLIC OF China, the SOCIALIST REPUBLIC OF Vietnam, and the FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

FOR A

Livestock Waste Management in East Asia Project

February 10, 2006

CURRENCY EQUIVALENTS

(Exchange Rate Effective January 20, 2006)

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

East Asia And Pacific

Livestock Waste Management in East Asia Project

Contents

Page

Map GEF 34271 (Project Area)

East Asia and Pacific

Livestock Waste Management In East Asia

Project Appraisal Document

East Asia and Pacific

EASRD

1. STRATEGIC CONTEXT AND RATIONALE

   1. Country and sector issues

The proposed project addresses one of the most significant and rapidly growing sources of land-based pollution of the South China Sea – environmentally unsustainable intensive and geographically-concentrated livestock¹ production in China, Thailand and Vietnam.

The South China Sea² is a locally, regionally and globally significant body of water bordered by countries that are experiencing rapid population and economic growth and facing similar major environmental challenges. This bio-geographic region is one of the world’s most biologically diverse shallow-water marine areas. However, this biological richness is seriously threatened by two major environmental problems - over-fishing and land-based anthropogenic pollution. Without wide-scale preventive action, livestock production would become the single most important source of organic and chemical pollution of the main catchments draining into this international water.

A recent Bank report³ reveals that land-based run-off and other inland discharges are currently estimated to contribute 44 percent of pollution to the South China Sea. The chemical oxygen demand (COD) from untreated piggery waste alone in the coastal regions of Central-south, South-west and East China accounted for 28 percent of current urban-plus-industrial COD loads in 1996, and this is projected to rise to as much as 90 percent by 2010.

The East Asia region is the world’s biggest pig and poultry production area with China, Thailand and Vietnam accounting for over 53 percent of all pigs and 28 percent of all chickens in the world in 2004. The shares of East Asia and the three participating counties in world livestock production is expected to continue to grow rapidly over the next decades fuelled by a growing population, rising incomes and urbanization. This, coupled with economic and technological evolution, is causing significant change in the scope and the structure of the livestock industry. In particular, very intensive forms of livestock production are appearing rapidly and driving much of the sector’s development. Large-scale industrial production accounts for about 80 percent of the total production increase in livestock products in Asia since 1990. In the future, most livestock production especially of pigs and poultry is projected to come from large-scale industrial production, and the majority of these intensive production farms will be located around major urban centers that lie in or close to the coastal regions of the South China Sea.

Concentrated livestock production is a major threat to human health, as evidenced by the recent Severe Acute Respiratory Syndrome and Avian Influenza outbreaks. It also causes significant local, regional and global environmental damage, particularly to freshwater and marine aquatic systems. Current waste management practices in these participating countries lead to the predominately direct or indirect discharge through streams and rivers into the South China Sea. The main sector issues are:

(a) The lack of technical solutions to address and deal with the problem of nutrient imbalance. In all three participating countries, there is limited government support for basic livestock waste management investments. Moreover, these investments address only the immediate impacts or symptoms of the problem as perceived at the local level and do not even begin to address the problem of nutrient imbalance. About 26 percent of the total area in East Asia suffers from significant nutrient surpluses which emanate mainly from agricultural sources. Without new initiatives and technical solutions, countervailing tendencies to concentrated livestock production would be too weak to overcome the incentives driving it. Consequently, the imbalance between the level of nutrient inputs and the absorptive capacity of the land would worsen progressively with rapidly growing industrial livestock production.

(b) The lack of policy instruments and replication strategy for livestock waste management. In all three participating countries there are national-level general environmental policies with supporting standards but no replication strategy for livestock waste management exists. In such policies, the components dealing with industrial livestock production and waste management are either missing or very recent and general with little effective enforcement. The agencies charged with enforcement generally lack coordination and resources committed to monitor and enforce the regulations.

2. Rationale for Bank involvement

The project is fully consistent with the Global Environment Facility (GEF) International Waters Focal Area Strategic Priorities, in particular with: (a) IW-1 catalyzing financial resource mobilization for implementation of reforms and stressing reduction measures through agreed Trans-boundary Diagnostic Analysis and Strategic Action Plans; and (b) IW-3 innovative demonstration of removing the barriers to sustainable industrial livestock management.

The project is fully consistent with GEF OP10 Contaminant-based Operational Program. Specifically, the project would: (a) demonstrate how to address land-based pollution (paragraph 10.2); (b) position the GEF to play a catalytic role in demonstrating ways to overcome barriers to best practice in limiting contamination of international waters (paragraph 10.5); (c) address a threat that is imminent, of high priority, and on which neighboring countries want to take collaborative action (paragraph 10.5); (d) stress pollution prevention over remediation (paragraph 10.7); (e) leverage private investment (paragraph 10.9); (f) involve close cooperation with other GEF agencies (paragraph 10.9); and (g) be replicated regionally and globally (paragraph 10.11). The project would contribute to the objective of the GEF Focal Areas of climate change, OP2 Costal, Marine, and Freshwater Ecosystems.

The project is also consistent with the objective and potential eligibility criteria of the proposed GEF/World Bank Strategic Partnership Investment Fund for Land-based Pollution Reduction in the Large Marine Ecosystems of East Asia that is under development. The objective of this Partnership Investment Fund would be to reduce pollution discharges that have an impact on the seas of East Asia by leveraging investments in pollution reduction through removal of technical, institutional and financial barriers. The Partnership Investment Fund is expected to focus on both urban waste-water treatment and agricultural pollution reduction.

3. Higher level objectives to which the project contributes

The project is consistent with the goal of the Bank’s Country Assistance Strategies (CASs) in China, Thailand and Vietnam reflecting the need for rapid economic growth that is environmentally sustainable.

In China, the CAS (25141-CN, December 19, 2002) aims at assisting the government in poverty reduction and supporting investments in environmentally sustainable agricultural and livestock development. As reflected in the CAS, protecting the environment is an overarching objective for support by the Bank to sustain rural income growth while maintaining the natural resource base. This proposed project would contribute towards these specific CAS goals by promoting investment on selected livestock farms in an environmentally sustainable manner to protect the environment around the farms and towards the South China Sea.

In Thailand, the CAS (25077-TH, January 22, 2003) aims at supporting the government by complementing its development partnership at the country level with work on regional and global public goods. The Bank is already actively involved in a number of regional initiatives and would strengthen its support for these programs in the coming years. The Bank would also help share Thailand's development experience through cooperation with other countries in the region. This proposed project would contribute towards these CAS goals by promoting an integrated regional approach in project preparation, implementation and sharing of experience.

In Vietnam, the CAS (27659-VN, February 19, 2004) sets out three broad objectives: (a) high growth through a transition to a market economy; (b) an equitable, socially inclusive and sustainable pattern of growth; and (c) adoption of a modern public administration, legal and governance system. The proposed project is in line with these broad objectives by introducing a replication strategy into the livestock production sector to promote environmentally sustainable growth.

The project’s regional approach will maximize its contribution to the two regional GEF Action Programs by ensuring that: (a) the region’s three most important countries, in terms of livestock production and waste pollution, are all involved; (b) their common interest in protecting ecosystems of the South China Sea is emphasized; (c) important cross-country synergies are promoted; and (d) experience from the project demonstration could be replicated throughout the region.

The proposed project would demonstrate technically, agronomically, geographically, economically and institutionally workable solutions to protect the environment under widely different political structures and social conditions. All three participating countries have recognized the negative effects of industrial livestock production on the environment and have endorsed the proposed project as a means to tackle these issues and as a national priority for GEF support.

2. PROJECT DESCRIPTION

   1. Lending instrument

The proposed project would be financed by a full size, stand-alone GEF Grant.

2. [If Applicable] Program objective and phases

Not applicable.

3. Project development objective and key indicators

1. Project Development Objective

The project’s development objective is to reduce the major negative environmental and health impacts of rapidly increasing concentrated livestock production on water bodies and thus on the people of East Asia. Its global environment objective is to reduce livestock-induced, land-based pollution and environmental degradation of the South China Sea.

2. Key Indicators of Project Performance

Achievement of the project’s development objective would be monitored by the following key performance indicators (see also Annex 3, Results Framework and Monitoring):

1. Demonstrated Livestock waste management practices in the participating farms/villages within the project area;

2. Reduced livestock production related surface water pollution in the project area, including nitrates, phosphates, biological oxygen demand (BOD), COD and E. coli bacteria;

3. Development of a Replication Strategy and other policy measures for addressing livestock waste management, and their local and national adoption and enforcement;

4. Development of plans, programs and capacities to achieve a spatial distribution of livestock production better aligned with environmental and health objectives;

5. Reduced human health risk as a result of improved risk management of pathogens, antibiotics and virus transmission from livestock to humans; and

6. Increased public awareness and regional exchange of information on pollution threats and health problems from livestock waste.

4. Project components (see Annex 4 for a detailed description and Annex 5 for a detailed cost breakdown)

On-the-ground demonstrations of innovative, cost-effective livestock waste management technologies by private livestock producers and development of a replication strategy will be the project’s principal outputs. Reflecting this emphasis, nearly 60 percent of total project cost is budgeted for livestock waste management technology demonstration activities.

The project design is tailored to fit the specific livestock-rearing conditions in the three participating countries, particularly the different average size of pig farms. In Thailand and China, large industrial pig farms are dominant, while in Vietnam pig farms are typically small, involving confined household-based production that is concentrated in particular villages. This structure of Vietnamese rural society requires that the project’s demonstration activities be conducted on a communal (village) rather than individual farm basis. The demonstration farms would all be located within the concentrated livestock production jurisdictions bordering the South China Sea.

The proposed project takes a comprehensive approach to integrate technological solutions, policy development and enforcement, capacity building and regional synergy to achieve the development objective. The project would be integrated into the governments’ mainstream programs and based on existing institutional mechanisms. The project will support activities under four components to be implemented over a period of five years.

Component 1: Livestock Waste Management Technology Demonstration (US$14.2 million)

This component, comprising two sub-components: (a) Technology Demonstration; and (b) Training and Extension, would finance consultant services and training, and finance goods and civil works (through sub-grants) related to the development and construction of cost-effective and replicable livestock waste management systems and facilities and the implementation of effective waste management approaches in areas with a high concentration of intensive pig farms. Its goal is to demonstrate technically, geographically, economically and institutionally workable solutions to reduce regionally-critical livestock waste pollution caused by industrial or concentrated livestock production. The livestock waste management strategies will focus on reducing excess nutrients (nitrates and phosphates in particular) and human health risks.

The methods to be used would include: (a) reducing through better feeding practices the volume of nutrient emission; (b) returning nutrients to the crop cycle locally or in other areas once processed and packaged; (c) converting the nutrients to plant-available forms; (d) destroying the nutrients; and (e) taking measures to minimize potential human health risks associated with livestock waste management practices. The actual physical demonstration of improved livestock waste management would be carried out on farms or in villages (in Vietnam) proposed on a yearly basis by each participating country according to agreed selection criteria.

The demonstration activities would be supported by training and extension to provide (a) farmers with the essential skills and technical support needed to improve their on-farm manure management practices and (b) training for capacity building. Activities would include training of livestock extension agents, farmer associations and planning officers, study tours for participating farmers on demonstration farms, preparation of training manuals, collaboration with livestock extension projects, etc. Details are specified in the master capacity building development plan prepared by each participating country.

Component 2: Policy and Replication Strategy Development (US$4.4 million)

This component, comprising two sub-components: (a) Policy Development and Testing; and (b) Awareness Raising, would finance consultant services, training and workshops to support the establishment of a policy and regulatory framework for environmentally sustainable development of livestock production in each country that will induce further policy reforms and encourage farmers to adopt improved manure management practices. This will be achieved through the development and testing of a Replication Strategy and other policy measures in each country. Replication potential of alternative livestock waste management technologies as related to farm scale, affordability, operational capacity, material availability, reduction of public health risks and compatibility with the waste-handling methods of the local farm communities would be assessed to achieve widespread replication of the tested manure management practices. Specific activities may vary among participating countries, but the focus would remain on addressing waste management through: (a) development and introduction of codes of practice (COP); and (b) development and implementation of policy measures to direct the geographic focus of future intensive livestock production. Both would be coordinated with respective national legislation/programs and tested in synergy with the Livestock Waste Management Technology Demonstration and Project Management and Monitoring components. Other activities would include: (a) the review and revision of existing regulations; and (b) the development and introduction of livestock waste recycling and discharge standards. Specific policy packages would be tested in sub-national jurisdictions and testing experience would be incorporated in the finalized respective Replication Strategy.

This component would also support activities to raise awareness on development, testing and implementation of the Replication Strategy focusing on policy measures, environment and public health issues associated with inadequate manure management.

Component 3: Project Management and Monitoring (US$3.9 million)

This component, comprising two sub-components: (a) Project Management; and (b) Monitoring and Evaluation, would finance consultant services, training, office equipment and incremental operating costs to support efficient project management. The project would support the establishment and operations of a national (provincial in China) Project Management Office (PMO) in each participating country as the secretariat of, and reporting directly to, the respective National Steering Committee. The PMO, comprising a project director supported by competent staff and based on existing administrative structure and physically located within the main implementing agency of each participating country, would be responsible for day-to-day project administration. Institutional capacity, monitoring and evaluation skills of the implementing agencies at local levels would also be strengthened.

The component would also support effective project monitoring and evaluation of the social, economic, environmental, human health risks and other changes brought about by the project, and the dissemination of project outcomes within the respective participating country. Monitoring on human health risks associated with the project would focus on measures taken to minimize potential transmission of pathogens, antibiotics and their resistant strains from livestock to humans. Specific activities would be detailed in project monitoring and evaluation plans developed by each participating country.

Component 4: Regional Support Services (US$1.5 million)

This component, comprising two sub-components: (a) Capacity Building Support; and (b) Coordination and Facilitation Support, would finance consultant services, training, workshop, office equipment and incremental operating costs to provide: (a) capacity-building support to strengthen the participating countries’ institutional capacity in project implementation; and (b) regional coordination and facilitation support to ensure regional coordination and achieve cross-country synergies and regional replication.

This component would respond to the participating countries’ need for an easily accessible source of support for capacity building, including support for: (a) decision tools development; (b) evaluation of project activities and outcomes; and (c) development of training modules and packages. This component would focus on regional coordination, facilitation amongst the three participating countries and the dissemination of project outcomes, decision support tools, technical guidelines and standards within the three participating countries and to other countries bordering the South China Sea.

5. Lessons learned and reflected in the project design

Key lessons learned from the World Bank’s rural environmental and livestock operations, the Livestock, Environment and Development Initiative (LEAD)⁴ earlier Area-Wide Integration (AWI) pilot projects in China, Thailand and Vietnam, and the government programs are reflected in the proposed project design and include the following:

1. The lack of industrial livestock production and waste management policy instruments and replication strategy, weak policy enforcement and poor coordination among concerned government agencies are the key weaknesses in policy frameworks.

2. The lack of effective analytical tools, appropriate technical solutions and coordinated inter-agency approaches are the major lessons in addressing the worsening livestock waste management issue.

3. Strong government commitment in compliance, enforcement, and provision of incentives, and the full involvement of key stakeholders in project preparation and implementation are critical to ensure ownership, sustainability and success of the project.

4. Mitigation measures to reduce nutrient load must yield tangible benefits for key stakeholders, specifically farmers and local communities, to ensure adoption and replicability.

5. The effective implementation of well-developed monitoring and evaluation plans are the major instrument for assessing project impact.

6. The capacity building of project implementing agencies and regulatory institutions through training, technical assistance and specialized support is the key to ensure efficient and effective project implementation.

6. Alternatives considered and reasons for rejection

In designing the project, the following alternatives were considered as possible approaches to reduce and prevent pollution from livestock production but rejected as unfeasible.

(a) Approach to use exclusively regulatory forces. Regulatory measures could include: (i) capping or reducing the number of farm animal; and (ii) forced relocation or closing down of existing farms. These measures may potentially run into major economic, social and political problems in all participating countries. Widespread capping or reducing the number of farm animal is likely to hit the pig production industry hard as well as to reduce the attraction for investment in livestock farming. Forced relocation or closing down of existing farms are rarely successful and acceptable options despite a few cases of large modern farms established in Thailand where redirection to more suitable areas was achieved. Such control measures should be reserved only for the most serious problem cases and used only as a last resort.

(b) Approach to involve all littoral countries bordering South China Sea. This approach was rejected based mainly on the limited GEF Grant available for the project. Involving all countries bordering on the South China Sea (i.e. extending it to include Cambodia, Malaysia and The Philippines) in the project would probably result in: (i) the increased complexity of regional coordination; and (ii) the diminished interest of countries due to much smaller average GEF Grant allocation to each participating country.

3. IMPLEMENTATION

   1. Partnership arrangements (if applicable)

Not applicable.

2. Institutional and implementation arrangements

2.1 Regional Coordination Group (RCG). Project implementation would be coordinated and facilitated by a RCG which would consist of representatives of each participating country and FAO. The RCG’s principal role would be: (a) to review project progress and make recommendations to the steering committees in the three participating countries and to the regional facilitation office for a coordinated project implementation; (b) to review the regional facilitation office’s annual work plan; (c) to ensure the inclusion of the issue of manure management on the political and budgetary agenda of each country; (d) to facilitate the gradual adoption of common policies and practices among participating countries; and (e) to disseminate and publicize the project achievements in countries and regional organizations connected to the South China Sea. The RCG would normally meet twice a year during the first year of project implementation and once a year thereafter.

2.2 National Steering Committee (NSC). A NSC has been formed by each participating country at the national level with overall responsibility for project preparation and implementation. Its members are from key government ministries (e.g. agriculture, environment and public health) within each country involved in livestock waste management. The principal functions of each NSC would be: (a) to review and approve project annual work plans and budgets in their respective countries; (b) to provide guidance on national policies and priorities related to livestock waste management and to help resolve related issues; and (c) to integrate the activities of various agencies involved in the project and ensure an inter-agency coordinated approach to project implementation. To provide immediate guidance to Guangdong PMO, a Project Leading Group (PLG) has been established at Guangdong provincial level.

2.3 National Project Management Office. A national (provincial in China) PMO has been established in each country as the secretariat of, and reporting directly to, the respective NSC. The PMO would be responsible for day-to-day project administration. Its staff composition, specific responsibilities, financial budgets and physical location were decided by the respective NSCs and are acceptable to the Bank.

2.4 Local Institutional Arrangement. The project management structure below the national level would vary from one country to another and is described in detail in Annex 6. Local governments would make practical institutional arrangements involving various government agencies for preparation and implementation of respective project activities. With guidance and support from national PMOs (and the provincial PMO in Guangdong) and training, local level agencies would take the primary responsibility for project implementation within their jurisdictions.

2.5 Stakeholder Involvement. All key stakeholders have been involved in project preparation and will be continuously involved in implementation. Stakeholder participation plans have been prepared by the participating countries which: (a) identified main stakeholders; (b) specified their major roles; and (c) established the participation and consultation mechanisms tailored to facilitate the participation of all stakeholders especially the private sector and industrial pig producers. The private sector will be responsible for implementation of the demonstration farms and in villages.

2.6 Implementation Arrangements for the Regional Support Services Component. FAO would be responsible for implementation of the Regional Support Services component. A Regional Facilitation Office (RFO), located in FAO’s Regional Office in Bangkok, would be set up prior to the effectiveness date of the Grant. RFO would consist of FAO’s regular program staff serving as Regional Project Coordinator and the Operations Coordinator, supported by short-term consultants as needed. Its main functions would be: (a) to prepare an annual work program to be reviewed by the RCG; (b) to manage the project activities as agreed with the Bank; and (c) to serve as the secretariat of the RCG.

A detailed description of the project’s institutional and implementation arrangements is presented in Annex 6 and included in the Project Implementation Plans (PIPs).

3. Monitoring and evaluation of outcomes/results

A Monitoring and Evaluation (M&E) Plan has been prepared by each participating country and included in the country-specific PIPs. These M&E Plans have been reviewed by the Bank. Process indicators, stress reduction indicators and environmental status indicators relevant to International Waters projects are included in the M&E Plans. The M&E Plans specify the details of the scope of and activities for monitoring and evaluation. The scope would include: (a) nitrate, phosphate, BOD, COD and E. coli bacteria discharge at the end-of-pipe of the individual farms or community and at critical downstream locations; (b) the number of standing pig population (SPP) covered by farms adopting sound livestock waste management systems; and (c) the extent of awareness and regional exchange of information on pollution threats and health problems from livestock waste.

The activities would include: (a) progress monitoring, including the monitoring of the status of project implementation progress indicators; (b) livestock waste management system monitoring which would include, at farm and community level, the monitoring of system efficiency and the effect of the project manure management interventions on public and animal health; (c) environmental monitoring, which would include monitoring of the major physical, chemical and biological characteristics of unit processes, or surface- and ground-water measurement, where applicable, within project areas (micro-watersheds) and at the end-of-pipe on demonstration farms; and (d) project impact monitoring, which would include monitoring of the implementation of stakeholder participation plans, annual social impact review and public consultation, impact on human health, and long-term project impact. Annex 3 provides a detailed description of the monitoring framework. Specific plans for monitoring the long-term project impact would be developed during project implementation and finalized at project completion.

4. Sustainability and replicability

4.1 Sustainability

The project is designed to be sustainable in several respects. To the extent possible, it would be based on technologies that are cost-effective, replicable and environmentally sustainable. For technologies such as improved feed efficiency or fertilization techniques that lower production cost, sustainability would be inherent. The project would ensure that manure treatment systems promoted would have sufficiently low operation and maintenance costs to be financially sustainable by livestock producers as estimated for the demonstration farms under the first year’s implementation. Financial analysis concluded fair financial returns for medium and large-sized industrial pig farms which are the targeted farms under this project with a higher standard of systems in manure management.

To a large extent, the project’s long-term sustainability would be ensured through the strengthening of policy frameworks for the livestock sector. While there are risks of insufficient enforcement, the project would attempt to mitigate such risks in several ways: (a) sufficient incentives to ensure the private sector’s willingness to invest in livestock waste management technologies would be sought through increased stakeholder participation in the decision-making process, including favorable pricing policies for livestock waste management systems’ outputs such as , electricity and organic fertilizer, local public health risk reduction programs, and introduction of carbon fund; (b) raising of public awareness would encourage local communities to seek more consistent enforcement of environmentally-friendly solutions; and (c) the strengthening of public institutions and systematic monitoring of livestock development policies, including their environmental impact, would lead to improvements in each country’s capacity for sustainable livestock development as well as benefits for the global environment. The project’s M&E plans would ensure that its environmental and social benefits are adequately measured, valued and disseminated which would further promote its sustainability. The governments of the participating countries have provided assurances about the priority nature of this project and their commitment to ensure adequate government support, including financial resources for sustainability beyond the completion of this project.

4.2 Replicability

The project is expected to yield only limited direct impact on water quality of the South China Sea because the selected demonstration areas represent negligible fractions of the total pollution load. Consequently, it has been designed to maximize replicability beyond its immediate impact areas. A noticeable pollution reduction in the South China Sea catchment areas, therefore, can be achieved through the replication of the demonstrated livestock waste management practices throughout the participating countries and in other countries bordering the South China Sea. Specific project activities for replication of improved livestock waste management approaches would include: (a) the development and implementation of a replication strategy; (b) specialized training, cross-visits and study tours for interested farmers, local officials, decision makers, etc.; (c) engaging farmers groups, local communities, NGOs, government agencies and other stakeholders; (d) support for local pressure through public-awareness building; and (e) the dissemination of demonstration results through training, targeted workshops and the development of an internet portal for in-country and regional replication.

The aim of the project’s replication strategy is the eventual integration of the project’s successful demonstrations into each country’s overall livestock waste management strategy and their scaling up. During this process, opportunities for integrating livestock waste management activities in future Bank and other donor-supported investments would be sought. Through the regional dissemination activities, which would target primarily the three participating countries but eventually also other countries draining into the South China Sea, other countries in the region could benefit from the knowledge and experience gained under the project. The project would also provide valuable experiences beyond the East Asia region. Close cooperation with other international livestock management projects and assistance agencies would ensure that a successful project approach can be replicated in other regions that face similar environmental problems from industrial livestock production. The project would ensure that all aspects of its design and implementation are well documented and easily publicly available to support dissemination and replication efforts.

5. Critical risks and possible controversial aspects

The proposed project would address challenging environmental issues in the countries of the East Asia region. No controversy is envisaged. Potential risks may include:

1. Inadequate collaboration among key agencies. agricultural, environmental and public health ministries in the countries involved have sometimes non-compatible interests and priorities and are not accustomed to working together;

2. A lack of participation by and weak support from local populations and civil society, as well as a weak partnership with the private sector;

3. Failure in coordination among participating countries due to ineffective regional coordination arrangement, lack of country ownership, failure to observe commitments, etc.;

4. Operational failure resulting from: (i) inadequate financial incentives provided for the private sector to invest in waste management systems; (ii) inadequate political will and human resources to enforce nutrient management regulations; (iii) a lack of local community and farmers support for maintaining communal systems; (iv) operational and management support by PMOs not available or inadequately accessible, (v) government co-financing contributions not available in sufficient amount or in a timely manner;

5. Technical failure occurring as a result of: (i) inappropriate choice of technology and system; (ii) design, equipment or material failure; or (iii) farm expansion; and

6. The potential transmission of pathogens, antibiotics and their resistant strains from livestock to humans under the project.

1. Loan/credit conditions and covenants

1. The RCG and RFO would be established before Grant effectiveness.

2. Project management organizations, including the RCG, the RFO, the NSCs, the National (Provincial in China) PMOs and Guangdong PLG would be maintained throughout the project implementation period with composition, staffing and terms of reference acceptable to the Bank.

4. APPRAISAL SUMMARY

   1. Economic and financial analyses

1.1 Range of analysis. Although nearly 60 percent of the project’s total cost represents on-farm investments for demonstration of improved livestock waste management technologies, the main benefits would be environmental, health and institutional. Consequently, the appropriate economic analysis is a cost-effectiveness analysis to determine whether the project could achieve its development objective at the least economic cost. A second important aspect relates to the financial attractiveness to project participants of technologies and approaches to be promoted.

1.2 Economic analysis. The cost-effectiveness analysis examines potential alternative technical solutions for reducing fluxes of selected critical nutrients (N and P) and BOD and COD of livestock waste into the target environment and estimates the unit cost of their removal from the chain. The analysis confirms that, in terms of reducing the flow of critical pollutants to the South China Sea, the range of technical solutions to be promoted under the project is cost-effective.

1.3 Financial analysis. The financial analyses for all participating countries find that Level 1 (meeting minimal domestic requirements) types of manure management are affordable or profitable for all livestock production farms. However, the higher standard type of systems in manure management as proposed under the project are affordable for medium and large-scale industrial pig farms which are the targeted farms under this project. Smaller farms in villages can also afford the technologies provided that they are successful in defraying part of the costs through manure sales, fish production or similar means under the support of the project. In the short term, sufficient financial incentives would be needed to help early adopters of such technologies. In the long run, production costs would be reduced through productivity improvements and by shifting farms away from towns to areas where land for recycling and other factors of production, such as labor, energy and clean water, are likely less costly.

2. Technical

Technical design of the project focused on introducing technical solutions to address the key issue of nutrient imbalance in livestock waste management. The design, reflected in the Livestock Waste Management Technology Demonstration component, was based on: (a) the cost-effectiveness of proposed technologies to the waste handling methods of pig farms; (b) the expected environmental performance of the proposed technologies relative to the nutrient management goals of the project; and (c) the replication potential relative to the financial, material and labor skill availability in the participating countries.

The project would introduce a package of technology options for each selected demonstration farm and village to consider. These manure management technologies are in wide use, including European and North American countries, and have been proved to be effective. Locally, technologies have also been developed but there is a lack of monitoring data for evaluation of their environmental, agronomic and economic effectiveness. The actual technologies to be used would be tailored to fit specific conditions of each selected demonstration farm and village.

3. Fiduciary

3.1 Financial management. In each of the three participating countries and FAO, a financial management assessment was conducted to determine whether the financial management capacity will be able to meet the requirements of BP/OP10.02. The assessments concluded that the proposed implementing agency in each country and for the project’s Regional Support Services component has the ability to satisfactorily manage the accounting and disbursement of the Grant and to meet the minimum financial management requirements of the Bank. The Financial Management Action Plan (Annex 7) addresses weaknesses and the actions to be taken to strengthen the financial management arrangements. After mitigation, the project’s overall financial management risks are considered moderate. Each implementing agency will maintain the financial accounts and records and issue financial management reports for the project activities for which they are responsible. Semi-annual financial monitoring reports and annual financial statements will be submitted to the Bank by each country and by the FAO for the Regional Support Services component of the project. The annual financial statements will be audited by auditors acceptable to the Bank and the audit reports will be submitted to the Bank within six months of the end of the fiscal year for each country’s project activities. For the project activities under the Regional Support Services component, audit reliance will be placed on the assurance on the use of the project funds through the audited biannual financial statements of the FAO. However; if the Bank has reason to believe that there is a cause for a specific audit examination of the Regional Support Services component, the Bank may request FAO to undertake a project specific audit.

3.2 Procurement capacity assessment. Separate procurement capacity assessments were carried out by the Bank's procurement specialist for each country. These assessments revealed that the capacity of China is generally adequate since it has both qualified procurement staff and good experience with Bank procurement while that of Thailand and Vietnam is relatively weak. Accordingly, the procurement risk rating for China is moderate and for Thailand and Vietnam is high. The overall procurement risk of the project is rated high. Specific recommended actions to build up the procurement capacity of individual PMOs are summarized in Annex 8.

3.3 Procurement arrangements. Procurement for the proposed project would be carried out in accordance with the Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004 and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreements. General procurement arrangements for the project are provided in Annex 8. Separate Procurement Plans covering the first 18 months of project implementation have been agreed by the Bank with each participating country which will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. These Procurement Plans for the initial period of the project are included in respective PIPs.

4. Social

Field-level surveys were conducted in the selected demonstration sites during project preparation. The social assessment team collected data, reviewed reports and provided extensive inputs to the project preparation and design. Target groups were disaggregated based on gender, economic class and ethnicity. The nature and quality of the interactions between various target group constituencies and local agencies that regulate, support and influence the engagement of the primary beneficiary groups in livestock production and manure management were analyzed. The extent to which negative impacts cause social conflict varies between the countries and different demonstration sites. Detailed assessment findings are presented in Annex 10.

5. Environment

During project preparation, national procedures and the Bank’s safeguard policies were diligently followed. The Environmental Assessments (EAs) have been carried out in all three participating countries. The EA documents and the Environmental Management Plans (EMPs) have been prepared, incorporating the Bank’s comments, and found to be satisfactory. The project is designed to reduce nutrient loading, mainly nitrates and phosphates, and the BOD and COD that are polluting the international waters and causing significant environmental and social impact including increased eutrophication, fish kills, destruction of natural mangrove and coral reef ecosystems of the coastal zone of the South China Sea. It would also decrease the incidence of water-borne and zoonotic diseases, not only within the livestock raising communities but also for other water users living downstream of the livestock-raising areas. The overall impacts of the project are expected to be both significant and positive. The majority of identified negative impacts are believed to be short-term and reversible.

6. Safeguard policies

Triggered safeguard policies by the project include: (a) Environmental Assessment; (b) Involuntary Resettlement; and (c) Indigenous Peoples. The project was classified as a Category B project based on the Task Team’s environmental screening and stakeholders discussions.

6.1 OP4.01 Environmental Assessment. EAs were carried out for the project in each country. No major critical negative environmental impacts of the project are foreseen. Since the project is aiming to reduce nutrient loading and other pollutants present in livestock manure and to improve the environmental condition of the livestock-producing communities and downstream water users, it should not have any significant and/or long-lasting negative environmental impacts. Potential impacts on human health have been assessed and specific measures to minimize the potential transmission of pathogens, antibiotics and their resistant strains will be taken by all participating farms. The proposed EMPs have fully considered potential project impacts on the natural and social environments and have proposed a detailed plan to ensure that positive environmental impacts are further enhanced and the negative impacts are kept to minimum.

6.2 OP4.12 Involuntary Resettlement. Respective Resettlement Policy Frameworks (RPFs) have been developed and approved by participating countries that comply with the requirements of the Bank’s OP4.12 Involuntary Resettlement. Based on the task team’s visits to the selected project sites, no land acquisition is foreseen at these sites. Thus, the preparation of a Resettlement Plan is not required for the first year of project implementation. However, specific Resettlement Plans would be required from individual countries in subsequent years of project implementation when additional project sites are selected which necessitates the process. Respective RPF will apply.

6.3 OD4.20 Indigenous Peoples. A Strategy for Ethnic Minority Development (SEMD) plan has been developed and approved by each participating country that complies with the requirements of the Bank’s OD4.20 Indigenous Peoples. The social assessment carried out in three participating countries confirmed that the selected demonstration sites do not involve any indigenous peoples. Thus, preparation of an Ethnic Minority Development Plan is not required for the first year of project implementation. However, specific Ethnic Minority Development Plans would be required from individual countries in subsequent years of project implementation when additional project sites are selected which necessitates the process. Respective SEMD will apply.

7. Policy exceptions and readiness

This project complies with all applicable Bank policies. Demonstration farms and villages for the first year’s implementation have been selected. Engineering design documents for the first year’s activities are being completed prior to Grant effectiveness. The project procurement documents for the first year’s activities are being completed prior to Grant effectiveness. The draft PIPs have been reviewed by the Bank and found to be realistic and of satisfactory quality.

Annex 1: Country and Sector or Program Background

East Asia And Pacific: Livestock Waste Management in East Asia Project

A. REGIONAL BACKGROUND

The South China Sea is a locally, regionally and globally significant body of water surrounded by countries that are experiencing rapid population and economic growth and facing major and similar environmental challenges. This bio-geographic region is one of the world’s most biologically diverse shallow-water marine areas. Of the three major near-shore marine habitat types - coral reefs, mangroves and sea grasses - the South China Sea has 45 mangrove species out of a global total of 51, almost all 70 currently-recognized coral genera, and 20 of 50 known sea grass species, as well as several endangered shellfish species. However, this biological richness is seriously threatened by two major environmental problems; over-fishing and land-based anthropogenic pollution. Pollution run-off and inland discharges to the South China Sea are estimated to contribute 44 percent of marine pollution, followed by atmospheric depositions (34 percent), marine transportation (12 percent) and others (10 percent). Land-based pollution reaches marine ecosystems by three main routes: rivers, drains and direct discharge. It is severely degrading seawater and sediment quality (e.g., causing “red tides”) and damaging marine habitats (including coral reefs, mangroves and sea grasses).

The United Nations Environment Program (UNEP)/GEF Reversing Environmental Degradation Trends in the South China Sea and Gulf of Thailand Project estimates that agricultural wastes are the second largest land-based source of marine pollution (after human sewage). The GEF/United Nations Development Program (UNDP)/International Maritime Organization (IMO) Regional Program on Partnerships in Environmental Management for the Seas of East Asia has also identified agriculture, and particularly livestock production, as a major source of land-based pollution of its target ecosystems.

Livestock production is such a major source of land-based pollution in East and South East Asia because the region is the world’s most important livestock production area. East Asia is particularly dominant in the pig and poultry sectors, which are the two biggest livestock-based sources of water (and other) pollution. Today, East Asia accounts for considerably more than half of the world’s stock of pigs and more than one-third of the world’s stock of poultry⁵. In 2004, China, Thailand and Vietnam alone accounted for over 53 percent of all pigs and 28 percent of all chickens in the world.

These shares of East Asia in world livestock production are rising fast. Fuelled by a growing population, rising incomes and urbanization, demand for livestock products in the region is growing at an extremely high rate and will skyrocket over the next decades. This rise in demand, coupled with economic, technological and political evolution, is causing significant change in the scope and the structure of the livestock industry. In particular, very intensive forms of livestock production are growing rapidly and driving much of the sector’s development. In fact, large-scale industrial production accounts for roughly 80 percent of the total production increase in livestock products in Asia since 1990. In the future, most livestock production, especially of pigs and poultry, is expected to come not from traditional production systems that have characterized the region for centuries but from large-scale industrial production.

The vast majority of these intensive pig farms are located around the major urban centers that lie in or close to the coastal regions of the East and South China Sea (cf. Map 1). The reason for this geographic concentration of production is that it is advantageous for the farms to be close to the consumer and feed input market, given that, in most countries, infrastructure (including roads, cold chains, marketing and handling facilities) is still under development.

Map 1: Estimated pig densities in Asia (1998 to 2000)

D
ue to the high animal concentration and the insufficient agricultural land destined to the production of feed within these peri-urban areas, most feed inputs are brought from elsewhere. Considering that a large proportion of the nutrients contained in feed are not retained in the animal’s body but excreted in urine and manure, the result is an excessive concentration of nitrogen and phosphorus compounds in the periphery of the urban areas which results in significant water, land and air pollution. An initial estimate indicates that 26 percent of the total area in East Asia suffers from significant nutrient surpluses which emanate mainly from agricultural sources.

Preliminary estimations of nutrient mass balances in the region, which include manure and chemical fertilizers as source of nutrients and crops as the main nutrient sink, have been made for a coastal band of 50 km from the South China Sea (cf. Map 2). These estimates indicate nitrogen and phosphorus overloads on the coastal land, with hotspots in the Mekong Delta (7.2 and 3.1 tons per km², respectively), the mouth of the Red River (6.3 and 4.0 tons per km², respectively) and the whole Chinese coast of the South China Sea (3.1 and 2.4 tons per km², respectively). Currently, animal manure is estimated to account for 47 percent of the phosphorus supply and 16 percent of the nitrogen supply. With the dramatic expected increase in demand for meat and milk, this share will continue to grow.

M
ap 2: Estimated P₂O₅ mass balance for agricultural land in Asia (1998 – 2000)

Source of Maps 1 and 2: Bioresource Technology Volume 96, Issue 2, January 2005 by Pierre Gerber, Pius Chilonda, Gianluca Franceschini and Harald Menzi.

In greenhouse gas emissions, livestock contributes about 20 percent of global methane emission and 10 percent of global N₂O (nitrous oxide, a much more aggressive greenhouse gas) emission. The table below presents a summary of a study conducted in the framework of project preparation.

Estimated Nitrogen and Phosphorus Fluxes and Their Main Inland Sources

The LEAD provided financial and technical assistance to China, Thailand and Vietnam to help them begin to address this problem by carrying out AWI pilot projects during 2001 to 2003. The results clearly indicate the environmental degradation that industrialized livestock production is causing to freshwater ecosystems and to the seas of South and East Asia. However, the studies in all three countries also show that they lack effective tools and institutions to address this problem. The measures being introduced mainly seek to mitigate the symptoms (end-of-pipe pollution) but do not address the underlying cause of excessive concentration of livestock production. Despite an increasing awareness of the issue in these countries, technical solutions and policy instruments are still to be developed and implemented.

B. COUNTRY BACKGROUND

In all three participating countries, national-level environmental policies with supporting standards are in place. The components dealing with livestock pollution are recent (within the last 5 years), tend to be rather arbitrary and are not yet effectively enforced in general. China and Vietnam are in the process of revising major parts of the national legislation.

The agencies charged with enforcement (Environmental Protection Bureau - EPB in Guangdong, the Pollution Control Department - PCD in Thailand and the Environmental Protection Agency - EPA in Vietnam) lack the resources to monitor and enforce the regulations. Currently, the PCD in Thailand has 10 staff for some 60,000 farms and the EPA in Vietnam has 22 stations. Guangdong provincial EPB has equally limited resources to undertake extensive monitoring. In Thailand, farmers can refuse access to PCD monitors necessitating a court order to gain access.

Provincial regulations in China and Vietnam are somewhat stricter than the national regulations and possibly more realistic in terms of enforcement. In Thailand, provincial and local authorities are permitted to develop their own environmental management plans under the Enhancement and Conservation of National Environmental Quality Act of 1992 (ECNEQA) but none appears to have yet done so for livestock operations. In all provincial and sub-provincial jurisdictions in the region, monitoring and resources designated for these activities are far from adequate. Local-level enforcement is compromised by a combination of weak enforcement capacity, overriding importance assigned to immediate economic and employment issues, and the influence of entrenched commercial interests that conflict with good environmental management.

Concern and complaints are mainly focused on odor rather than on water pollution. There is a common lack of widespread awareness and comprehension of the scale and consequences of pollution. In all three participating countries there is a general preference for targeting enforcement of regulations on medium-sized and large producers but to exempt small producers. Farmers are generally focused on commercial and production interests and are less responsive to environmental concerns. The countries’ key polices and programs to address environmental degradation from livestock production on which this project would build are:

China

The Government of China is in the process of establishing guidelines for limiting the impact of intensive livestock production on the environment. The government intends to use a combination of command and control regulations and other economic instruments to get producers to reduce the amount of pollution coming from livestock. In 1996, the Ministry of Agriculture introduced a regulation requiring that all new large livestock farms establish environmental facilities and storage facilities for manure. The Ministry has also presented a draft for national standards (how much) for pollution from livestock production and drafted a detailed regulation (how to do and size of fine) to implement the standards. In 1998, the State Environmental Protection Agency (SEPA) set up a facility to evaluate pollution from livestock production. In 1999, a rural division of SEPA was established with the objective to focus on environmental pollution. A new regulation by SEPA on "Discharge Standard of Pollutants from Livestock and Poultry Breeding" became effective on January 1, 2003.

The Chinese People’s Political Consultative Conference has appealed to the provincial government to take action against pollution from agriculture. In May 2001, the government established environmental management regulations affecting the livestock industry and in January 2002 it established pollutant emission standards with regard to the breeding industry. In addition, a government program on renewable energy promotes the formulation of from livestock waste. In its next ten-year plan, the Ministry of Agriculture plans to construct around 300 demonstration projects based on the local specific requirements on environment and factors such as the availability of crop fields, farming systems, and climate.

Thailand

The Government of Thailand is in the process of establishing regulations to reduce the negative impact of livestock production on the environment. Currently, there are five types of plans: (a) the National Economic and Social Development Plans; (b) the Enhancement and Conservation of National Environmental Quality Act; (c) the Policy and Plan for National Environmental Quality Preservation and Promotion; (d) the Environmental Quality Management Action Plan; and (e) the Energy Conservation Promotion Act. In the 9^th National Economic and Social Development Plan, provisions were added that required the use of zoning for animal production, the registration of animal and other farms, and the education of farmers on livestock waste management.

Based on the water pollution in Tha Chin River, the PCD of the Ministry of Natural Resource and Environment listed pig farms in February 2001 as a point-source pollution that needs to be regulated. The PCD defines pig farms in three categories: group A (pig farms with more than 5,000 SPP), group B (pig farms with 500-5,000 SPP) and group C (pig farms with 50-500 SPP). The waste-water standards differ by group. A grace period of one year was applied and the above standards were expected to be enforced from February 2002. As of February 2002, only pig farms of groups A and B are being enforced and monitored. As for group C and small-sized pig farms, these regulations will not be enforced but used only as guideline for promotional incentives.

Aside from the PCD’s control of waste-water from pig farms, the Department of Livestock Development (DLD) of the Ministry of Agriculture and Cooperatives established farm standards in 1999 for the pig, poultry and cattle farms. These farm standards are voluntary and are rarely observed by the farm owners except the poultry farmers with products for export. These farm standards have had no impact on the practices of pig farms with products for the domestic market only.

Vietnam

In Vietnam, the issue of animal waste has received serious attention from senior policy makers. While few policies at the national level are directed specifically to agriculture and the regulations are based on industrial pollutants, there are a number of regulations at the provincial level that are currently being implemented. For instance, Long An province has implemented regulations to relocate large-scale livestock farms and slaughter houses out of the urban areas. In July 2000, Dong Nai province also developed regulations to protect the environment from livestock production activities. These regulations define the size (small, medium and large) of the livestock farm and the regulation on treating dead animals, animal waste and the introduction for waste-water treatment methods. Binh Duong province has developed a master plan that identifies specialization areas for livestock production. Newly-established large-scale livestock farms are required to have an appropriate waste treatment system. In Ho Chi Minh City, the state-owned pig farms are in the process of relocation.

C. SECTOR BACKGROUND IN EACH COUNTRY

China

National Policy Framework

National environmental policy is expressed through the Law of Environmental Protection (1989). National regulations relating specifically to livestock management are discussed below under the heading of Environmental Protection.

Promotion of Livestock Development. Prior to the mid-1990s, when large livestock farms were normally state- or collectively-owned and located in the suburbs of large cities, subsidization of large farms was a very popular policy tool. The main goal was to ensure the survival of the inefficient production systems and to provide the urban population with sufficient meat, milk and eggs. This was seen as crucial for social and political stability during times of food shortage. This practice has since been discontinued and the industry operates on a free market basis.

Environmental Protection. The national regulations relating specifically to the management of livestock manure have only been promulgated in the very recent past. They consist of: Decree of Control and Management of Pollution by Livestock Production (SEPA Decree 9-May 2001); Discharge Standards of Pollutants for Livestock and Poultry Breeding (GB18596-2001); Decree on Collection and Use of Waste Discharge Fees (July 1, 2003); Decree on Fee Standards for Waste Discharge (Decree 31); Decree on Use of Waste Discharge Fees (Decree 17); Law of Environmental Impact Assessment (October 28, 2002). Decree No. 9 has several weaknesses including the fact that it applies only to relatively large operations (more than 500 SPP, 15,000 broilers, 20,000 layers, 100 dairy cows or 200 beef cattle). It is currently being revised on behalf of the State Council as a new Regulation for Protection from and Control of Pollution from Livestock Production. The revision of the discharge standards is desirable, with a focus on nutrient loading into water bodies rather than simply concentrations of contaminants.

Enforcement. While China has made great strides recently in framing environmental policies relative to intensive livestock operations, enforcement and therefore compliance has yet to catch up with the regulations. In practice, given the great variety of climatic, geological and other environmental conditions across the country, it would be more appropriate to have general statements of intent at the national level with more specific regulations at provincial level. Although the use of manure as a source of soil nutrients is generally popular with Chinese farmers, it should be noted that chemical fertilizer is exempted from the value added tax. This helps keep the price of chemical fertilizer at an artificially low level and makes livestock manure less competitive with its relatively lower nutrient content and higher labor requirement for spreading. Pelleted compound fertilizer containing both artificially produced nutrients and manure components would also be tax exempted and might be an attractive alternative to chemical fertilizer.

Provincial Policies

Guangdong Province has been under considerable pressure to regulate land use and pollution resulting from land-based activities in the Pearl River Delta. This originates from concerns over the level of pollutants in the river and also specifically over the issue of Hong Kong’s water supply. As a result, several regulations have been passed by the Provincial People’s Congress which include: (a) Regulation on Agricultural Environmental Protection (June 1998); (b) Pearl River Water Quality Protection Regulation (January 1999); (c) Han River Water Quality Protection Regulation (March 2001); and (d) Eastern (Dong) River Water Quality Protection Regulation (May 2002). There are also provincial regulations such as the “Reform on the Prevention and Control of Pollution by Livestock in the Pearl River Valley”, prepared by the Department of Agriculture (April 3, 2003). Many of the existing and non-compliant operations existed prior to the promulgation of these regulations and there is no clear timetable for closing them down, although some progress is being made in this direction in specific problem areas. The Environmental Protection and Energy Station within the Department of Agriculture provides some technical assistance in the siting and design of production facilities. The problems of pollution stem primarily from: (a) incorrect selection of production sites; and (b) insufficient availability of both land and water. The Environmental Protection and Energy Station estimates that only about 50 percent of manure can be applied on the land in Guangdong due to the location of production sites and natural climatic conditions.

Major policy measures with respect to livestock include: (a) relocation of livestock farms from densely inhabited areas and areas protected as drinking water sources; (b) strict control of the size of existing livestock farms (in principle, no new livestock farms will be approved in the Pearl River Delta); (c) encouraging livestock farms to move to hilly areas and to promote efficient water use; (d) requiring existing livestock farms to undertake EAs within a specified time; and (e) any new livestock farms must undertake EAs before construction. Agricultural taxes are to be abolished by the end of 2005, which should assist farmers to invest more in manure management.

Substantial expenditures are being made by GEF and the Bank in the implementation of the Comprehensive Plan for Improving Pearl River Water Quality (November 2003). The Pearl River Water Resources Commission, on which both the Hong Kong Environmental Protection Department and Guangzhou EPB are represented, would prepare water resources control plans under terms of the 2002 Water Law. Guangdong’s strategic plan for waste-water management in the Pearl River Delta is the ‘Pearl River Cleanup Campaign’ which sets out phased targets for improvements in water quality in river reaches in the Province and urban areas; the proportion of domestic and industrial waste-water to be treated; and the investments for environmental protection. Additionally, point source pollution from urban and industrial wastes is addressed under a parallel Bank/GEF-financed Guangdong Pearl River Delta Urban Environment Project.

Thailand

National Policy Framework

No specific policies are applied to the promotion of the pig industry. Rather, its development has been driven primarily by market forces and the strength of the Thai feed and meat processing industry.

The Enhancement and Conservation of National Environmental Quality Act of 1992 is supported by a series of standards such as Surface Water Quality Standards; Effluent Standards for Pig Farms; Coastal Water Quality Standards; Ground Water Standards and Industrial Effluent Standards. The Department of Water Resources is studying 25 watersheds to explore the possibility of establishing a zoning system. The National Environment Board has been established to monitor and control the implementation of the ECNEQA at the national level.

The DLD has farm and slaughterhouse certification procedures which are administered by the Bureau of Livestock Standards and Certification. The certification focuses mainly on operational considerations (feeding practices, health protocols, livestock management, worker welfare and training) and does not include any environmental standards. For slaughter houses to be certified, they must meet the standards of the ECNEQA. It seems that farms are exempted, at least for the time being. Slaughter houses also have to meet the standards of the International Organization for Standardization. Supermarkets will only accept meat from certified slaughter houses, although there is still a substantial informal market. The PCD is developing centralized manure treatment centers under a Prime Minister’s directive.

For conversion of to electricity, the National Science Development Agency will provide subsidized loans through participating banks for the cost of the installation investment. The National Science Development Agency (rather than banks) does the financial feasibility analysis. Preference is given to the “Upflow Anaerobic Sludge Blanket” design of digester designed by the University of Chiang Mai. For generation of electrical energy exceeding one megawatt, energy has to be sold to the Electricity Generating Authority of Thailand, while energy is sold to Provincial Electrical Authorities for generation below one megawatt. The Energy Conservation Promotion Fund also promotes production. It provides subsidies of 40 percent for small producers (50-500 SPP) and 20 percent for medium- to large-sized producers (>500 SPP). Funding goes from the Ministry of Energy to Chiang Mai University, which provides the technical supervision. Small farmers generally install fixed dome systems and larger operations install “High Upflow Anaerobic Sludge Blanket” systems.

Provincial Practices

In Thailand, no provincial or local environmental management plans consisting of long-term environmental policies and plans or annual Provincial Environmental Quality Management Action Plans have been developed. Public participation is important to this process and a framework for action plans has been establishment which includes consideration of water quality, air quality, solid waste and hazardous waste. A Sub-Committee for Provincial Environmental Quality Management is to be established under the Committee for Provincial Development to advise on environmental management.

All provinces are required to prepare land use plans. Approvals for new enterprises at Tambon⁶ level are required to refer to the national level policies on health and environment. These are generally inadequately applied and considered only in the context of business licenses, with little or no technical input. There are incidences of conflict of interest with elected Tambon level officials also being major land holders and pig producers.

Vietnam

National Policy Framework

The environmental impacts of livestock operation in Vietnam are mainly regulated under the Law on Environmental Protection (December 27, 1993). The newly-promulgated Decree 67 (January 2004) on waste-water releases will impose fines on non-complying polluters and may have an immediate impact on larger livestock operations. The planned expansion of the pig industry from the present 23 million animals to 30 million by the year 2010 underscores the importance of revising the Law on Environmental Protection and enforcing Decree 67. Effective local statutes regulating livestock operations are generally lacking. The principal government agencies responsible for regulating the sub-sector are the Animal Husbandry Section within the Ministry of Agriculture and Rural Development (MARD), and the Department of Land Use and Environment within the Ministry of Natural Resources and Environment (MONRE). The Vietnam Environmental Protection Agency, working under the direction of MONRE, is likely also to have a role. The capacity of these agencies to regulate the livestock sub-sector is inadequate in general. However, the role of agriculture and particularly livestock production is yet to be well appreciated. Much greater concern is voiced about effluents from specialized industrial (handicraft) villages housing paper manufacturing and other polluting industries.

Promotion of Livestock Development. There have been several decrees and resolutions of the central government since 1991 aimed at promoting agriculture including: (a) Decision 125/CT (April 18, 1991); (b) Decision 225/QD-Ttg (December 10, 1999) on breed improvement of livestock, field crops and forest crops; (c) Resolution 03/2000/NQ-CP (February 2, 2000) on farm development; (d) Decision 166/2001/QD-Ttg (October 26, 2001) on pig production for export; and (e) Resolution 09/2000/NQ-CP (June 15, 2000) on economic restructuring and consumption of agricultural products. Resolution 03/2000/NQ-CP is designed to drive the transition from small-sized household based livestock production (primarily pigs) to larger-sized commercial production, while Resolution 09/2000/NQ-CP provides a framework for zoning export-oriented, high quality pig production towards areas with suitable environmental and hygiene conditions. In parallel, there have been favorable fiscal policies (Decision No 24/2000/ND-CP, July 31, 2000) to promote foreign and local investment in the livestock industry.

Environmental Protection. MONRE is primarily responsible for administering the laws relating to pollution by livestock farms. This is done primarily through the Law on Environmental Protection. In support of this is a Decree guiding implementation of the law (Decree No. 175-CP, 1994). The Law on Environmental Protection is now being revised and the revised law is expected to be adopted in early 2006. The law makes no concrete reference to livestock waste pollution but has stipulations on the prevention of pollution in general. Other important and relevant policy documents include: (a) National Strategy for Environmental Protection to 2010 with Vision to 2020 – signed by Prime Minister on December 2, 2003; (b) Agenda 21 for Vietnam – Sustainable Development Strategy for the 21^st Century (this forms an umbrella for all other legislation); (c) Comprehensive Poverty Reduction and Growth Strategy; and (d) Strategy for Social Development (Project until 2010). An ordinance on Veterinary Medicine (February 3, 1993) issued by MARD governs such things as the disposal of dead animals and measures to control the spread of pathogens. Under this ordinance, the application of untreated manure to crops is not permitted. Overall policies for environmental protection are in place but there is a general lack of appreciation of the contribution of livestock to pollution of aquatic systems and little or no enforcement compounded by inadequate monitoring capacity. Relocation of heavily polluting industries is possible under Decision 64/2003/QD-TTg on the treatment of seriously polluting units. This, however, may not apply to the agriculture sector.

Provincial Policies

The only two provinces in Vietnam with legislation targeted specifically at reducing the impact of livestock production on the environment are Dong Nai (participating province) and Tien Giang (non-participating province).

Dong Nai province placed livestock farms under Decision 1981/QD.CT.UBT (July 25, 2000) of the Chairman of the People’s Committee on “Regulation of Livestock Production Activities to Protect the Environment” in three categories: small (<100 SPP); medium (100-2000 SPP); and large (>2000 SPP). All farms have to conform to provincial land-use planning codes which include separation distances (>50m, >300m and >500m for small, medium and large farms, respectively) from schools, residential areas and other institutions. Medium and large farms must be located more than 300m from water sources and more than 500m from water pumping stations. Farms should also be large enough to have land for waste storage and treatment.

Ha Tay province has a General Law on the Environment (promulgated in 1997) but nothing deals specifically with livestock production. Nevertheless, large (>500 SPP) and medium-sized (>200 SPP) pig farms are required (under Decree 175, Circular 490) to submit EAs and to report quarterly (large farms) or semi-annually (medium farms).

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

East Asia And Pacific: Livestock Waste Management in East Asia Project

Project preparation incorporated experience and lessons learned from many other international and national initiatives and programs already existing or under way in the countries around the South China Sea and maintains close coordination with them. Major related projects and programs include the following:

1. Global Program of Action for the Protection of the Marine Environment from Land-based Activities (by GEF). This Global Program is a source of conceptual and practical guidance for devising and implementing sustained action to prevent, reduce, control and/or eliminate marine degradation from land-based activities.

2. Reversing Environmental Degradation Trends in the South China Sea and Gulf of Thailand Project (by UNEP). This GEF project, implemented by UNEP, aims to develop regionally coordinated programs of action designed to reverse environmental degradation particularly in the area of coastal habitat degradation and loss, halt land-based pollution and address the issue of fisheries over-exploitation.

3. Regional Program on Partnerships in Environmental Management for the Seas of East Asia (by IMO/UNDP). This is a GEF-financed program executed by the IMO and implemented by the UNDP. It focuses on building partnerships within and among governments of the region, as well as across public and private sectors of the economy. The goal is to reduce or remove barriers to effective environmental management, including inadequate or inappropriate policies, disparate institutional and technical capabilities, and limited investment in environmental facilities and services.

4. Mekong River Basin Water Utilization Project (by World Bank). This is a GEF financed project implemented by the World Bank.. It will assist the Mekong River Commission in promoting and improving sustainable water management in the Mekong River Basin, and in protecting the environment, aquatic life and the ecological balance of the basin.

5. Guangdong Pearl River Delta Urban Environment Project (by World Bank). This is a project financed by the World Bank and GEF. It will assist the government in addressing the environmental problems of the Pearl River Delta and the South China Sea through the improvement and rationalization of environmental service delivery based on a regional planning approach.

6. Global People, Land Management, and Environmental Change Project (by UNEP). This project will develop sustainable and participatory approaches to biodiversity conservation within agricultural systems.

7. AWI Pilot Projects (by LEAD). The objective of these pilot projects is to provide local institutions and decision-makers in China, Thailand and Vietnam with tools in order to ensure the sustainability of livestock development. Main activities included: (a) environmental impact assessment; (b) analysis of nutrient chains and manure market opportunities; (c) identification and selection of on-farm manure management; (d) spatial analysis and planning; and (e) policy dialogue.

8. Poultry Emergency Recovery Project in Vietnam (by World Bank). This project will support the short- and medium-term actions to be undertaken by the government to strengthen its veterinary surveillance and diagnostic infrastructure in order to avoid, or at least minimize the impact of, a recurrence of Avian Influenza that would further damage the poultry sub-sector.

9. Poland Rural Environmental Protection Project (by World Bank). The project’s long-term goal is to demonstrate effective mechanisms for improving environmental practices in agriculture by reducing the quantity of nutrients entering the Baltic Sea from agriculture in Poland. The project has been designed specifically to provide a model activity which can be replicated at other locations in Poland, the Baltic Sea region and Central and Eastern Europe. The project also supports Poland's move towards compliance with its national policies, European Union directives and international agreements. The project was completed in 2002.

Annex 3: Results Framework and Monitoring

East Asia And Pacific: Livestock Waste Management in East Asia Project

Results Framework

Arrangements for Results Monitoring

Annex 4: Detailed Project Description

East Asia And Pacific: Livestock Waste Management in East Asia Project

The proposed project would consist of four components. This design takes into consideration the specific local conditions of each country while maintaining coherence of the project development objective, project composition, criteria for selection of demonstration farms/villages and regional learning from experiences and coordination.

1. Livestock Waste Management Technology Demonstration Component (US$14.2 million)

1.1 COMPONENT STRATEGY

The LEAD’s AWI pilot projects have shown that as pig production moves towards larger, specialized, confined production in peri-urban areas, the increased amounts of manure are often improperly discharged leading to surface water and other environmental problems. As these modern production practices were developed (or adapted from countries where pig production has intensified earlier i.e., Western Europe and North America), many of the pollution control practices are unknown to the vast majority of farmers and extension officers using or promoting these production practices. Therefore, there are important needs for the following to be addressed by this component: (a) identifying and adapting existing manure management practices or new ones; (b) validating and demonstrating the agricultural, environmental and economic performances of these technologies; (c) fostering technology transfer and sustained positive change in the application of pig manure management practices among a wide constituency of farmers; and (d) training and capacity building of farmers and extension workers. This component is designed to demonstrate technically, geographically, economically and institutionally workable solutions to reduce regionally-critical livestock waste pollution caused by industrial or concentrated livestock production in participating countries. The livestock waste management strategies promoted under this component will focus on reducing excess nutrients, in particular nitrates and phosphates.

1. Project area

The project design is tailored to fit the specific livestock rearing conditions in the three participating countries, particularly the different average size of pig farms which are its main target. In Thailand and China, large-sized industrial pig farms are dominant while in Vietnam pig farms are typically small, involving confined household-based production concentrated in particular villages. This structure of Vietnamese rural society requires that the project’s demonstration activities be conducted on a communal (village) rather than individual farm basis. The targeted project demonstration farms/villages are all located within the concentrated livestock production areas bordering South China Sea. The following project areas have been agreed which may expand to cover other counties of Guangdong province in China and other provinces in Thailand and Vietnam during project implementation with the prior concurrence of the Bank.

• In China, the selected project area is Boluo county of Guangdong province. The county, situated northeast of the city of Guangzhou, has a rapidly-growing pig population as farms are relocating inland from the lower Pearl River delta. The project is strongly supported at county and province levels as pollution from pig production is affecting the quality of a raw water intake on the East River for delivery to Hong Kong that generates significant revenues for the province. Urgent remedial action has been mandated by the central and provincial authorities, making Boluo County an ideal first project area.

• In Thailand, the provinces of Ratchaburi and Chonburi have been selected as the project area. Ratchaburi (west of Bangkok) is the leading pig production province in Thailand, with a still dynamic growth. Chonburi (east of Bangkok) is the second highest pig producing province in Thailand, with a concentration of farms with poor livestock waste management. The project has very strong support from both Provincial Governors as well as from district governments.

• In Vietnam, the provinces of Dong Nai and Ha Tay have been selected as the project area. Dong Nai province is located in the Southern Vietnam, north-east of Ho Chi Minh City. Livestock production is very developed while agricultural land in this area is very limited. Animal density is 120 pigs and 315 fowls per hectare of agricultural land, in a heavily polluted peri-urban environment. Ha Tay province, located in the Northern Vietnam, south of Hanoi, is adjacent to the Red River. About 60 percent of pig-raising households produce compost while about 10 percent collect solid manure to market it fresh and untreated. It is estimated that nearly 80 percent of solid manures are used as fertilizer for crops and fish ponds or sold, and over 80 percent of the liquid effluents are released directly to surface water.

2. Demonstration farms/villages

The selection of demonstration farms and villages would be made according to selection criteria agreed with the Bank (attached at the end of this annex), and would be updated periodically during project implementation as needed and included in the PIP of each country. They would be selected on a yearly basis to allow the process of improved planning to adjust for changes and to incorporate lessons learned from demonstrations in earlier years of project implementation. To get ready for the first year’s implementation once the project is approved, two farms in Boluo county of China, three farms (two in Ratchaburi province and one in Chonburi province) in Thailand and two villages (one each in Dong Nai province and Ha Tay province) in Vietnam have been selected. Agreed manure treatment systems are summarized below and specific implementation plans are detailed in mini PIPs prepared by national PMOs for each selected farm and village.

3. Manure management strategies

Comparatively, livestock wastes are typically 10-100 times stronger in biodegradable organics than untreated sewage. This is an important factor recognizing that reducing biodegradable organic material is the first step in developing cost-effective waste management strategies that mitigate water pollution. As a first step, pre-treatment processes such as solids separation are often used to remove large particles that contain about 20 percent of the biodegradable fraction. These are followed by primary treatment processes that can utilize anaerobic or aerobic processes where each process results in a different cost and operating structure. Due to cost impacts, anaerobic processes are typically used for liquid and slurry wastes and aerobic processes (such as composting) are used for solid wastes. Additional steps referred to as secondary and tertiary treatment processes are added when additional nutrient removal, such as nitrogen, is desired.

Nitrogen removal is the result of a combination of settling and storage, and mineralization of organic nitrogen compounds with the latter followed by ammonia volatilization or nitrification/de-nitrification or both. Nitrogen can also be incorporated into biomass. Phosphorus removal is the result of either settling and storage, or chemical precipitation, or by incorporation into biomass. However, nutrient removal is often indicated as the only potential option for farms when the nutrient availability exceeds that of potential crop uptake.

Nutrient recycling covers a range of options where the basic goal is to use the nutrients present in manure for other growing activities, such as cropping and fish farming. Treatment can minimize animal and human health risk concerns and make manure recycling and use easier, more effective and less environmentally offensive. The AWI pilot projects have illustrated the interest of recycling where local conditions are adapted, both from economic and environmental perspectives. Recycling of treated manure is a basic principle of this component.

This component is primarily based on local stakeholder participation. The benefit of manure management technology will be both real and demonstrable to justify the efforts and cost of implementation. The demonstrated technologies will deal with current environmental issues but also fit into future production patterns. Demonstration may be implemented in both: (a) traditional pig production areas, where livestock is currently responsible for water pollution that has to be mitigated; and (b) future production areas, where high growth rates of production will probably lead to water pollution if manure management practices are not improved. As such, this should ensure:

• engagement of farmers in the selection of technologies to be demonstrated;

• offering of a package of technology options to selected demonstration farmers and villages;

• training of farmers in the operation and maintenance of the technologies and in the assessment of success; and

• coordination between technology demonstration with the development and implementation of a replication strategy to enable farmers to adopt relevant technologies over the long-term.

1.2 COMPONENT DESCRIPTION

Sub-component 1: Technology demonstration (US$13.1 million)

The manure management strategies considered under this project have been selected according to the expected ultimate use of the manure and include methods that either: (a) reduce, through better feeding practices, the volume of nutrients emission; (b) get the nutrients back into the crop cycle locally or in other areas once processed and packaged; (c) convert the nutrients to plant available forms; (d) destroy the nutrients; or (e) take measures to minimize potential human health risks associated with livestock waste management practices.

Sub-component 2: Training and extension (US$1.1 million)

The demonstration activities would be supported by training and extension to provide: (a) farmers with the essential skills and technical support needed to improve their on-farm manure management practices; and (b) training for capacity building. The training and extension approach is to provide technical consultation and advice first to farmers participating in the project, then to other livestock farmers in the project areas, and finally to livestock farmers in other parts of the country. Capacity building is crucial to the effort to address livestock waste pollution issues and to test the feasibility and replicability of livestock waste management practices and technologies. Activities would include: (a) training of animal husbandry extension agents, farmer associations and planning officers; (b) study tours for participating farmers on demonstration farms; and (c) the preparation of training manuals, collaboration with livestock extension projects, etc. Details are specified in the master capacity building development plan prepared by each participating country.

3. COMPONENT ACTIVITIES

The following are common activities for all three participating countries:

1. Selection of farms or villages

• Selection of farms/villages according to selection criteria agreed by the Bank;

• Design of financial incentives schemes (e.g., eligible investments, level of funding);

• Preparation of contract procedures with farmers and with companies; and

• Financial estimation.

2. Preparation

• Preparation of farm assessment documentation;

• Preparation of brief information sheet for distribution to farmers;

• Launch of workshop and meetings;

• Initial farm contacts (via local representatives if appropriate);

• Program of visits to farmers;

• Assessing local potential for manure recycling;

• Drawing up plans for monitoring strategy; and

• Preparing farm dossiers.

3. Choice of technologies

• Agreement on targets and constraints, in terms of which pollution parameters (such as phosphate, nitrate, COD, BOD) are required and what percentage level of abatement is necessary;

• Sub-dividing and grouping farms on the basis of general circumstances; and

• Assigning manure management packages to the various groups;

4. Designing and contractual implementation

• Carrying out survey of cropping systems (where relevant);

• Establishing demonstration plots for manure use on crops, and d deciding what gaps of knowledge must be filled to produce reliable recommendations for manure and effluent use on crops; and

• Preparation of a mini PIP for each farm or village to include required general information, geographical and statistical data, manure management systems, total cost estimates and cost-sharing plan, and evidence of farmer commitment.

5. Construction and commissioning

• Drawing up construction schedule;

• Allocating construction work; and

• Progress monitoring.

6. Technical support and evaluation

• Nominating contact person;

• Preparing operation guides, one for each farm or village;

• Assembly and training of a monitoring team;

• Arranging for the analysis of samples taken and the collation of all data collected;

• Carrying out monitoring of farm sites;

• Assessment of crop production with manure;

• Evaluation of manure treatment techniques, and objective comparison of experiences of different farms with the purpose of establishing best management practices;

• Cost analysis - actual costs incurred as a direct result of the implementation of manure handling technologies; and

• Recommendations and guidelines, preparation of interim and final detailed reports setting out the principal findings from the results. Give the best manure management practice for the various farm scenarios covered in the project field work.

2. Policy and Replication Strategy Development Component (US$4.4 million)

2.1 COMPONENT STRATEGY

Generally ineffective enforcement of the existing regulations on livestock waste management is mainly caused by: (a) the absence of an effective policy framework clearly linking environmental concerns to the operational considerations of livestock production; (b) poor enforcement and general disregard of the existing legislation; (c) the lack of capacity at lower levels of government to monitor effluents, enforce regulations or advise farmers on appropriate management approaches; and (d) widespread ignorance of the cumulative environmental impacts, public health risks and negative externalities (high social costs, lost resource access, etc.) associated with inadequately managed manure disposal. These have resulted in a failure to commit adequate public and private funding with which to take pollution prevention measures in the first place and then to remedy pollution that has already occurred. From this, it is evident that more creative and credible approaches have to be adopted in designing initiatives to achieve a greater degree of compliance. For these to succeed, however, there has to be strong support from government at all levels as well as from farmers.

This component would support setting up a policy and regulatory framework for environmentally sustainable development of livestock production in each country that will induce further policy reforms and encourage farmers to adopt improved manure management practices. This component is expected to lead to the development, testing and implementation of more effective policies for livestock production development and waste management with strengthened and better-enforced policy measures, strengthened institutions and financial incentives for enforcement and compliance. It is also expected to raise awareness about livestock waste management issues among the line agencies and general public to support environmental policies enforcement.

2.2 COMPONENT DESCRIPTION

Sub-component 1: Policy Development and Testing (US$2.4 million)

This sub-component would consist of elements aimed at developing a policy and regulatory framework for effective application. This will be achieved through the development and testing of a Replication Strategy and other policy measures in each country. Replication potential of alternative livestock waste management technologies as related to farm scale, affordability, operational capacity, material availability, reduction of public health risks, and compatibility to the waste handling methods of the local farm communities would be assessed to achieve widespread replication of the tested manure management practices throughout the participating countries. Specific activities would vary among participating countries but the focus remains on addressing waste management through (a) development and introduction of COPs; and (b) the development and implementation of policies to direct the geographic focus of future intensive livestock production. The development of both would be coordinated with respective national legislation/programs and tested in synergy with the Livestock Waste Management Technology Demonstration and Project Management and Monitoring components. Other activities would include: (a) the review and revision of existing regulations; and (b) the development and introduction of livestock waste recycling and discharge standards. An essential part of the policy development activities would, therefore, be the establishment of a dialogue with the principal stakeholders on the proposed regulations and standards.

This sub-component would address the regulatory and participatory aspects of the COPs preparation to ensure no duplication of the COPs with local existing standards or criteria. The participatory dialogue would involve all stakeholders especially in the private sector in an exhaustive review and negotiation of technical solutions and management options that might be adopted. Specific policy packages, including regulations for manure marketing (contracting, norms for manure content, transport authorization, etc.) and relocation of farms, would be tested in sub-national jurisdictions and testing experience would be incorporated in the finalized respective Replication Strategy.

Sub-component 2: Awareness Raising (US$2.0 million)

This sub-component would support public awareness raising activities, focusing on replication strategy and other policy measures, and on environment and public health issues associated with inadequate manure management. This will focus the attention of national and local governments on livestock waste management policy and regulatory enforcement and facilitate further assistance with this challenge from other donors. The target group essentially consists of the general public and governmental agencies at national level and in project areas. They would receive training in various aspects through a variety of approaches.

3. COMPONENT ACTIVITIES

Policy development and policy testing activities are country-specific, while awareness-raising activities are mostly similar across countries.

1. Country specific activities

In China, the project would be implemented solely in Guangdong province. It is, however, essential to involve national level institutions. Central Ministries, particularly the Ministry of Agriculture, have a coordination role and substantial technical and financial resources that can be utilized by the project. Two national-level activities are envisioned: (a) continued dialogue with the Ministry of Agriculture (MOA) and SEPA; and (b) the integration, expansion and improvement of the existing LEAD virtual centre Chinese platform. At province level, it is anticipated that the policy development activities will focus on creating a policy framework combining a strong element of public compliance with the necessary tools for enforcement. Major activities as part of this pillar include:

• Development and implementation of a Replication Strategy;

• Research and drafting of a new draft policy by an expert group. This would include the identification of appropriate incentives to support policy framework, the development of licensing procedures and the formulation of a code of practice;

• The delivery of the draft to national and provincial governments, a policy dialogue through workshops in which the new draft policy and code of practice would be reviewed, and the testing of those approved. The participants would be government officials from the national, provincial and local levels, farmers, and researchers not involved in the expert group;

• Development and implementation of plans, programs and capacities to achieve an improved spatial distribution of livestock production, including installation of Geographic Information System (GIS) tools and data collection and the development of maps for zoning. It is anticipated that national experts may be involved but most of the responsibility will fall on staff of the provincial agricultural department;

• Development of relevant maps for implementing/enforcing policy zoning (including hardware and software needs);

• Improvement of policies and COPs through round table discussions or workshops involving the expert group as well as national and provincial officials; and

• Promulgation of regulations, requiring inputs from government agencies at all levels.

Policy testing would initially focus on Yuanzhou town of Boluo county. The development of COPs will provide a learning experience and ensure that future documents are the products of real experience and do not represent arbitrary rules established in isolation from producers and other stakeholders. In a context of dynamic land use changes, options for farms relocation may also be assessed.

In Thailand, the implementation of the policy development pillar would be the responsibility of the NSC which would be chaired by a former Permanent Secretary of the Ministry of Agriculture and Cooperatives (MOAC). The focus will be on developing a more robust policy framework with a sound basis for enforcement. It is intended that compliance should be increased by engaging in a dialogue with the stakeholders (producers, slaughterhouses, feed mills, local authorities and other interest groups) on the selection of the policy framework to be applied. It is also suggested that guidelines for the design and operation of intensive livestock operations be developed through the mechanism of best practices that will be converted into formal legislation/regulation once it has been tested and validated among stakeholders. An option identified during project preparation would be to convert the best practices in a COP that will be enshrined in the revised Standard Farm Regulation. The new regulation would also benefit from inputs derived from spatial analysis of potential production areas. It is therefore important that GIS training be carried out early in the project in order to facilitate this activity. The following activities will be undertaken:

• Development and implementation of a Replication Strategy;

• Development of relevant maps for provincial level and for implementing and enforcing policy zoning at the national and provincial levels, implementing GIS tools and capacity building in spatial analysis at the national level;

• The NSC will develop a dialogue with all departments, including the department of town and country planning and pig producers, on a policy framework;

• The NSC will involve the Pig Board (pig development committee), as a major interest group, in the dialogue on environmental policy development;

• The DLD will cooperate with the Energy Conservation Promotion Fund for pollution control in conjunction with the national Energy Conservation program. This will potentially bring additional funds into the project, particularly for initiatives involving large bio-digesters;

• The DLD will request the Pig Board and Energy Conservation Promotion Fund to provide funds for promotion;

• The DLD will revise the Standard Farm Regulations through the Provincial Livestock Office (PLO) in consultation with local communities;

• Identifying appropriate instruments to support policy framework, including licensing, certification and tax incentives;

• Analysis and workshops to include environmental criteria in Revised Standard Farm Regulations;

• Submission and implementation of revised Standard Farm Regulations as Livestock Farm Act; and

• Strengthening policies for supporting manure marketing.

In Thailand under ECNEQA, provincial and local authorities are permitted to develop their own environmental management plans. The development of these revised Standard Farm Regulations is envisaged as part of this process and as an opportunity to introduce meaningful and enforceable regulations to the Tambons. These have the responsibility for permitting new Intensive Livestock Operations but no capacity to enforce design or operating standards. Once working models for the revised Standard Farm Regulations have been developed and applied in the demonstration sites, it is envisaged that the process of developing new ones will primarily be the responsibility of the provincial level government agencies. They will be assisted as necessary by members of the national-level working group. It is anticipated that facilitators will be employed to assist with the farmer dialogue and negotiation process and that these facilitators will require training in participatory procedures. The dialogue with farmers or farmers’ groups will involve extensive review and negotiation over technical and management options that might be incorporated into the revised Standard Farm Regulations.

In Vietnam, policy development will consist of four separate elements involving: (a) regulations on environmental protection in livestock production (at national and local levels); (b) the development of livestock waste discharge and recycling standards; (c) master planning of livestock production (at national and provincial levels); and (d) policies for the promotion of organic fertilizer production. The leading agencies involved in the implementation of these activities will be MONRE, MARD and the Ministry of Finance (MOF) at the national level and DONRE, the Department of Agriculture and Rural Development (DARD), the Department of Finance (DOF) at the provincial level. The major activities associated with these elements will be:

• Development and implementation of a Replication Strategy;

• Formation of working groups at National and Provincial level;

• Study of experience in foreign countries;

• Drafting of a policy outline;

• Review of the outline by national and international experts;

• Drafting the policies by national and international experts;

• Developing and implementing plans, programs and capacities to achieve an improved spatial distribution of livestock production, including installation of GIS tools and data collection and the development of maps for zoning;

• Implementing incentives to support policy framework;

• Implementing new policies and enforce existing regulations; and

• Adjustment and promulgation.

Policy packages would be tested in the two project provinces (Dong Nai and Ha Tay) and would be done in conjunction with Component 1 activities. This will ensure that future documents are the products of real experience and do not represent arbitrary rules established in isolation from producers and other stakeholders.

2. Common activities

• Training of livestock development and environmental protection staff in spatial analysis, environmental impact assessment, monitoring of manure management environmental impacts, use of decision-making tools (such as GIS) and nutrient management;

• Creation of a nation-wide network of related research institutions and agricultural universities;

• Development of monitoring capacity among environmental agencies;

• Private sector integration to provide technology and services;

• Study tours and workshops involving local government staff, producers and general public;

• Communication programs and promotion materials (booklets, brochures, flyers, fact sheets, spots or programs on TV, radio, CD, VCDs), website, etc.;

• Publication of tested COPs; and

• Public awareness campaign about environmental and human health issues related to livestock production to reach local population in project areas.

3. Project Management and Monitoring Component (US$3.9 million)

3.1 COMPONENT STRATEGY

This component would finance consultant services, training, office equipment and incremental operating costs. It includes two sub-components (a Project Management sub-component and a Monitoring and Evaluation sub-component). This component would provide for efficient project management and effective monitoring and evaluation of the social, economic, environmental and other changes brought about by the project. Replication potential of alternative livestock waste management technologies as related to farm size, affordability, operational capacity, material availability and compatibility to the waste-handling methods of the local farm communities would be assessed to achieve widespread replication of the tested manure management practices throughout the three participating countries.

3.2 COMPONENT DESCRIPTION

Sub-component 1: Project Management (US$1.7 million)

The project would ensure that all aspects of its design and implementation are well documented and easily and publicly available. This sub-component would support a national (Guangdong Provincial in China) PMO in each participating country to be established as the secretariat of, and reporting directly to, the respective NSC. The PMO, comprising a project director supported by competent staff and based on an existing administrative structure, would be responsible for day-to-day project administration including technical support, financial management, procurement, accounting, and monitoring and evaluation of all project activities. Its staff composition, specific responsibilities, financial budgets and physical location would be decided by the respective NSC and would be acceptable to the Bank.

Sub-component 2: Monitoring and Evaluation (US$2.2 million)

This sub-component would include monitoring and evaluation activities specified in the M&E Plans prepared by the participating countries and included in the country-specific PIPs. Specific plans for monitoring the long-term project impact will be developed during project implementation.

Three types of project evaluation are planned: (a) periodic evaluation studies made internally by the PMOs in each country with technical assistance provided by the project’s RFO under the Regional Support Services component; (b) annual audit reports; and (c) evaluations carried out by the Bank during supervision missions, at the mid-term review and at the implementation completion. Through extensive reporting of the findings of project M&E, necessary adjustment or amendment would be made and lessons learned would be used to improve the project performance in each country. The major areas to monitor change in qualitative or quantitative values of environmental and social indicators that have been established during baseline studies would include:

1. Implementation progress monitoring. This would include monitoring of the status of project implementation progress indicators and of policy and regulatory development indicators.

2. Livestock waste management system monitoring. This would include, at the farm and community level, the monitoring of system efficiency and the effect of the project manure management interventions on public and animal health, including nitrate, phosphate, BOD, COD and E. coli bacteria discharge and volumetric outflow at the end-of-pipe of the individual farms or community and at critical downstream locations. Process-based characterizations are recommended to measure the environmental performance of waste management systems.

3. Environmental management monitoring. This would include monitoring of the major physical, chemical and biological characteristics of unit processes or surface- and ground-water measurement (where applicable) within project areas (micro-watersheds) and at the end-of-pipe on demonstration farms. Surface-water monitoring would follow the process-based approach and ground-water monitoring could be implemented on pollutant sampling from wells in comparison with baseline data collected. Appropriate experimental designs, protocols and cost estimates are detailed in the country-specific EMPs which have been prepared and are included in the project EA report. Effort has been made to prevent duplication of monitoring between EMP and Component 1 activities.

4. Project impact monitoring. This would include monitoring of the implementation of stakeholder participation plans, annual social impact review and public consultation, impact on human health, and long-term project impact.

5. Other monitoring of additional parameters required for achieving project objectives. Specific plans for monitoring the long-term project impact will be developed during project implementation.

Demonstration farm specific baseline data will be collected after the farms or villages are selected but prior to their physical construction. Component 1 will concentrate on monitoring system efficiency and the effect of the project manure management interventions on public and animal health. The proposed monitoring and evaluation program would carry out the following major activities:

1. Review and assessment of the capacity of laboratories in project countries for conducting required soil, water and public health monitoring sample analyses;

2. An extensive water quality testing program to be established for the proposed demonstration areas to monitor the changing quality of surface- and ground-water bodies that eventually drain into the South China Sea in response to the implementation of the improved livestock waste management practices;

3. Baseline data collection to establish the existing environmental and social conditions prior to project implementation, including baseline surveys/inventories of surface- and ground-water quantity and quality, and public and animal health conditions;

4. Stakeholder/farmer-led M&E to determine the “buy-in” and replicability of the proposed manure management systems. While this may feed into other types of evaluation, farmer/stakeholder-led evaluation will have its “own” purpose of building support and enhancing replication as a “stand-alone” activity. In addition, ad hoc thematic social evaluation and review will be budgeted;

5. Development of timelines and site-specific technical, environmental and social indicators for each project area;

6. Establishment of technical assistance and training programs for respective line agencies involved in project management, monitoring and evaluation; and

7. Evaluation of the success of project implementation through detailed examination of identified performance indicators (cf. Annex 3).

4. Regional Support Services Component (US$1.5 million)

4.1 COMPONENT STRATEGY

In each of the participating countries, it is evident that a growing awareness of environmental and public health issues associated with livestock waste mismanagement is often not translated into action because of a lack of knowledge and experience about how to deal with the issue. On the other hand, many of the analytical tools and approaches required to address the issue would be the same or very similar in Thailand, Vietnam and China, as well as in other countries bordering the South China Sea. These provide the base to draw on cross-country synergies, skills and economies of scale in pursuing the achievement of the project development objective through a regional component serving each of the participating countries.

4.2 COMPONENT DESCRIPTION

Sub-component 1: Capacity Building Support (US$0.5 million)

This sub-component would respond to the participating countries’ need for an easily accessible source of support for capacity building which is critical for implementation of a range of project activities under the countries’ responsibility. Specifically, this would include the following supports.

1. Support for decision support tools development. This activity would involve the development and adaptation to local contexts of common decision support tools and technical standards for improved livestock waste management, and their translation into national languages. These tools, tailored to local conditions while maintaining harmonization across provincial and country boundaries, would be in the form of handbooks, calculation sheets or software. Such decision support tools would include:

• Tools for spatial planning of livestock development, such as GIS-based programs incorporating multiple criteria for zoning of livestock production at national and local levels;

• Nutrient flux models for calculation of pollutant and nutrient loading balances on agricultural land at farm, village, catchment and higher levels;

• Technical validation of on-farm manure management technologies especially for confined pig raising;

• Tools for monitoring socio-economic and environmental impacts of livestock production; and

• Tools for monitoring public health aspects of livestock production and its ancillary activities.

2. Support for evaluation of project activities and outcomes. The project would build a regional pool of experts and develop a cost-effective and credible evaluation methodology for use in evaluations, as required, at the initiative of the participating countries. Periodic and ad hoc evaluation missions would be organized at the request of the participating countries. In addition to project activities and outcomes, evaluations would recommend on needs for decision-support tools development and other capacity building.

3. Support for development of training modules and packages. The project would involve development of training modules and related technical training packages which would be closely coordinated with training plans for capacity building by participating countries. Training packages would be developed for various targeted audiences including primarily farmers, extension agencies, local- and national-level decision makers, the project implementing agencies and trainers, who would be trained in use of these training packages.

Sub-component 2: Coordination and Facilitation Support (US$1.0 million)

This sub-component would focus on regional coordination, facilitation amongst the three participating countries and the replication of project outcomes through dissemination, decision support tools, within the three participating countries and to other countries bordering the South China Sea. Coordination with other major projects in the region would be ensured. Specifically, this sub-component would include the following activities:

1. Regional facilitation. Regional facilitation, through a RFO headed by a Regional Project Coordinator, would include activities to: (a) deliver the support services for capacity building and dissemination of project outcomes according to an agreed annual work program to be approved by the project’s RCG; and (b) facilitate RCG in performing its functions (e.g. support for organizing annual RCG meetings).

2. Regional coordination. Regional coordination would focus mainly on key related projects and programs already existing or underway in the region through the regular exchange of information, invitation to workshops, and consultation on key issues. Details would be included in the PIP for the Regional Support Services Component.

3. Regional dissemination. Regional dissemination would target primarily the three participating countries but eventually also other countries draining into the South China Sea for replication. It would consist of: (a) the exchange of experience and results through study tours and workshops for officials, experts and policy makers at local and national levels, as well as selected farmers and other key stakeholders; (b) the development and maintenance of an internet portal on “livestock waste management in East Asia” based on the LEAD’s virtual center to include updated information on the project, documents and data, forums, expert roster and links; and (c) publications. Other countries in the region would be invited to participate in selected project workshops in order to benefit from knowledge and experience gained under the project.

Attachment to Annex 4

Farm/Village Selection Criteria

Guangdong province, China

• The farm shall comply with provincial government regulation. In particular, it should not be located within the lower delta (red line). The farms have to be located in blue or green line;

• Pig production should be one of the dominant causes of water pollution in the area;

• There should be an increasing or steady trend of livestock activity;

• Willingness to participate from local authorities and farmers, with a potential counterpart fund and environmental management capacity;

• The selected farms are representative of the various pig production technologies in Guangdong Province;

• Large farms according to national standards (at least 200 sows or 3000 finishers);

• The selected farms for demonstration should possibly be clustered;

• The farm is well managed and can prove satisfactory financial situation;

• The farm should currently be polluting a stream (river or canal) that is a primary or secondary tributary of the Pearl River.

Thailand

• Large farms according to national standards (at least 600 livestock units - 1000 sows or 5000 finishers);

• Farms are located in Eastern or Western provinces of Thailand (18 Provinces as a whole);

• The farms should be located near agricultural area where application of water from treatment system on the crop is possible;

• There should be an increasing or steady trend of pig production activity in the area;

• Willingness to participate from stakeholders and farmers, with a potential counterpart fund and environmental management capacity;

• The selected farms are representative of the various pig production technologies in large scale operations in Thailand;

• The farm is well managed and can prove satisfactory financial situation.

Vietnam

A. Selection of demonstration area (District)

• Pig production should be the dominant cause of water pollution in the area;

• There should be an increasing or steady trend of livestock activity;

• The selected area should ideally represent an entire water catchment area;

• Willingness to participate from local authorities and farmers, with a potential counterpart fund and environmental management capacity;

• Various types of pig production operate in the area, such as large modern facilities, small family farms, community schemes, etc.;

• The selected areas should complement each others and be representative of different agro-ecological zones, and the main crops should be different.

B. Selection of beneficiaries

1. Village or cluster of households involved in pig production

• The selected area should ideally represent an entire catchment area, with no flow of water into the study area from other neighboring regions;

• A large majority of households is willing to participate;

• Effective community support and commitment to potential counterpart fund for investment, operation and maintenance;

• Suitably size of the demonstration area, within 50,000 to 150,000 pigs;

• The farm owners commit to comply with national production regulation;

• The village or cluster of households should currently be polluting a stream (river or canal);

2. Individual farm

• Large farms according to national standards;

• Willingness to participate, with a potential counterpart fund;

• The farms commit to comply with national production regulation;

• The farm is well managed and can prove satisfactory financial situation;

• The farm should currently be polluting a stream (river or canal).

Annex 5: Project Costs

East Asia And Pacific: Livestock Waste Management in East Asia Project

Project Cost Estimate Summary (US$ 000)

Project Aggregated

China

Thailand

Vietnam

FAO

*The totals may not tally due to rounding.

The total project costs were estimated based on information provided during the project preparation. Project base cost is expressed in December 2004 prices in US dollars. Total project costs include physical and price contingencies. Physical contingencies are based on an average of 5 percent of sub-grants and goods. Price contingencies are estimated based on an annual international price inflation index of 0.7 percent, 0.7 percent, 1.1 percent, 1.0 percent and 1.0 percent for the period 2006-2010. Identifiable taxes and duties are US$2.8 million and the total project cost, net of taxes, is US$21.2 million. The share of project cost net of taxes is 88 percent of total costs. It is estimated that during the period 2005-2015, about US$47.8 million of leveraged investment in on-farm livestock waste management would be made as a consequence of the project.

Annex 6: Implementation Arrangements

East Asia And Pacific: Livestock Waste Management in East Asia Project

The overall project implementation arrangements would be made at regional, national and local levels. At the regional level, a RCG represented by each participating country and FAO would be established to provide coordination and facilitation. A NSC has been formed by each participating country with members from key government ministries (agriculture, environment, public health, etc.) within each country at national level with overall responsibility for project preparation and implementation. A national PMO has been established as the secretariat of and reporting directly to respective NSC. The PMO will be responsible for day-to-day project administration including preparing funding requisitions and handling funds received from GEF. Its staff composition, specific responsibilities, financial budgets and physical location would be decided by the respective NSC and would be acceptable to the Bank.

The specific project implementation arrangement structure, particularly below the national level would vary from one country to another with different country and local environment and conditions. It may include District Project Implementation Units in Vietnam, PLOs and Tambon Administrative Organizations (TAOs) in Thailand, and the County Leading Groups and Township Executive Committees in Guangdong, and is described below.

China

In China, project implementation is expected to be carried out mostly in Guangdong province. Within the framework of the overarching institutional arrangement of the project, specific institutions would be established for project implementation as follows:

NSC. Although Guangdong is the only province of China currently involved in this project, China’s NSC consists of national-level ministries (MOF, MOA and SEPA) and Guangdong Provincial Department of Finance. The NSC is headed by a Director under MOF who is also the country’s GEF focal point. The principal reasons to adopt this structure were (a) to ensure that the national ministries are kept informed of progress of the project so they may identify successful project initiatives for replication in other provinces; (b) to provide a mechanism for support from the central government; and (c) to recognize that the South China Sea constitutes international waters which in China come under national authority.

National Expert Group (NEG). The NEG would consist of national professionals in the related disciplines. A group leader would be designated to assist the provincial PMO to coordinate the professional work involved in implementing the project. The major functions of the NEG are, at the request of the provincial PMO, to provide professional expertise throughout the implementation of the project including policy research, technical proposals, development of training materials, participating in training activities special survey design and implementation, and other related professional support activities. The NEG members would be nominated and selected by the provincial PMO and accountable to provincial PMO. At different stages of project implementation, non-NEG experts might be needed. However, activities of those non-NEG professionals will be short-term while the work of NEG will be of a relatively longer nature to ensure consistency and efficiency.

Project Leading Group. Within Guangdong province, a provincial PLG has been established, headed by the director of provincial PMO who is also a member of the NSC. PLG members would include representatives from the provincial Department of Finance, Department of Agriculture, the EPB, and Department of Public Health. The PLG is a policy-setting and decision-making body at provincial level with main function: (a) to provide immediate guidance and assistance to the provincial PMO to enable a smooth and successful implementation of the project in the demonstration area; and (b) to keep the NSC informed of the progress of the project. Through this involvement, NSC would benefit from the lessons learned and identify project initiatives that later are to be replicated elsewhere. Similar structures of county-level PLGs are expected. A county PLG would be chaired by a county chief and comprise members from the line agencies at this level (Environment, Agriculture, Livestock, Veterinary Services, Fisheries, Health, and Land Management) and farmers’ association representatives.

PMO. To facilitate project preparation and implementation in Guangdong province, a PMO at the provincial Department of Agriculture was set up consisting of representatives from governmental departments and related agencies in Guangdong province, including Department of Finance, Department of Agriculture, the EPB and Department of Public Health. The main functions of the PMO are coordination, organization and supporting functions at the operational level for the project. The provincial PMO would report to the provincial PLG on a regular or a request basis. To facilitate project preparation and implementation in Guangdong province, a PMO at the provincial Department of Agriculture would be set up. Establishment of a Township Executive Committee in participating townships is also expected.

During the implementation of the technology demonstration sub-component in Yuanzhou township of Boluo county, service suppliers will be contracted directly by the provincial PMO with supervision and support as needed. These services might be as varied as facilitation of the dialogue with farmers during preparation of COPs to technical and engineering services for the design and construction of manure management and treatment facilities. Eventually, and as a result of project-financed capacity development activities, the Township Executive Committee would take over these responsibilities under the supervision of a county-level PLG. Once the townships take over responsibility for project implementation within their jurisdictions, funds and implementation arrangements and policy matters will flow through them to the service providers.

Thailand

A NSC was set up at the outset of project preparation. The NSC was expanded to comprise 12 members from the MOAC, Chulalongkorn University and MONRE. The NSC is headed by a former permanent secretary of MOAC.

A national-level PMO has been established and located in MOAC. The national PMO would include a project director, a livestock waste management specialist, a procurement specialist, a financial management specialist, a financial accountant, and other staff as needed. The project director would be a senior individual with specific experience in project management and expertise in livestock waste management and related environmental issues. This person will be responsible for directing the operation of the national PMO, including recruitment and supervision of the other national PMO staff; establishment of financial management procedures; preparation of periodic technical and financial reports; liaison with the NSC; and liaison with provincial- and district-level officials. In consultation with the NSC, the national PMO would identify the technical assistance requirements of the project and make the necessary arrangements for its provision.

In response to the functional role conferred on provincial governments by the present national government, it is anticipated that most project activities would be focused on this administrative level and at Tambon level. For purposes of the delivery of Technology Demonstration sub-component, the focus would be specifically in Ratchaburi and Chonburi provinces. The Provincial Governors’ offices would play an important role in setting policy and coordinating technical inputs and technical support. Much of this would be done by the provincial level technical staff of the line ministries. The PLO would be responsible for project implementation at the provincial level. Project funds would flow through the PLO from the national PMO. For the demonstration farms, service suppliers would be contracted directly by the PLO. These services might be as varied as the facilitation of the dialogue with farmers during preparation of COPs to technical and engineering services for the design and construction of manure management and treatment facilities. Eventually, and as a result of project-financed capacity development activities, the TAOs are expected to take over these responsibilities. At that point, funds and implementation arrangements and policy matters would flow through TAOs to the service providers.

All key stakeholders including local administrations, communities, farmers, NGOs have been involved in project preparation and will be continuously involved in project implementation. A stakeholder participation plan is under preparation and will specify the participation and consultation mechanisms tailored to facilitate the stakeholder involvement in exhaustive review and negotiation of technical solutions and management options, proposed regulations, standards and COPs to ensure ownership, sustainability and replicability. Farmers’ associations would be invited to participate in the COP development committee on which the national PMO and participating departments would also be represented. The private sector will be responsible for implementation in the demonstration villages which would contribute to the cost of the installation of individual or community based manure management facilities and supported by the national PMO as well as by provincial level organizations institutionally, technically and financially.

Vietnam

Approved by the Prime Minister’s office, a four-member NSC has been set up comprising members from MONRE and MARD. The NSC is headed by the director-general of MONRE’s Department of Environment.

Approved by MONRE, a national PMO has been established and located in MONRE. The national PMO staffing would include a project director, a livestock waste management specialist, a procurement specialist, an accountant and other staff as needed. The project director would be a senior individual with specific experience in project management and expertise in livestock waste management and related environmental issues. This person will be responsible for directing the work of the national PMO, including recruitment and supervision of the other national PMO staff; establishment of financial management procedures; preparation of periodic technical and financial reports; and liaison with the NSC and with provincial and district level officials. In consultation with the NSC, the national PMO will identify the technical assistance requirements of the project and make the necessary arrangements for its provision. It is expected that the project director will assist the provinces and selected districts to establish the District Project Implementation Unit (PIU). Initially, the focus would be on Bien Hoa City of Dong Nai Province in the south and Thuong Tin District of Ha Tay Province in the north that have been selected for initial implementation. As the project progresses, this responsibility may extend to other provinces that join the project.

PIUs will initially require training to enhance their administrative and financial management capacities as well as their understanding of the technical and environmental issues involved. By the end of the training, they will have assumed responsibility for project implementation in their areas. In view of the weak capacity of the PIUs at initial stages, however, and to achieve the desired national coordination of project activities, the national PMO may directly contract service providers required for project delivery of the Technology Demonstration sub-component with supervision and support as needed. These services might be as varied as facilitation for the dialogue with farmers during preparation of COPs, to technical and engineering services for the design and construction of manure management and treatment facilities. The PIUs will be assisted as necessary with technical inputs from provincial level line agencies such as DONRE, DARD and Department of Science and Technology. In particular, it is anticipated that DONRE will provide the ongoing monitoring services that will be required to determine whether the project is having the desired impact.

All key stakeholders including local administrations, communities, farmer, and NGOs involved in project preparation would be continuously involved in project implementation. A stakeholder participation plan is under preparation and would specify the participation and consultation mechanisms tailored to facilitate the stakeholder involvement in exhaustive review and negotiation of technical solutions and management options, proposed regulations, standards and COPs to ensure ownership, sustainability and replicability. The private sector will be responsible for implementation in the demonstration villages which would contribute to the cost of the installation of individual or community-based manure management facilities and supported by the national PMO as well as by provincial level organizations institutionally, technically and financially.

Regional

Regional Coordination Group. The RCG’s principal roles are: (a) to review project progress and make recommendations to the NSCs in the three participating countries and to the RFO for a coordinated project implementation; (b) to review the RFO’s annual work plan; (c) to ensure the inclusion of the issue of manure management on the political and budgetary agenda within respective country; (d) to facilitate the gradual adoption of common policies and practices among participating countries; and (e) to disseminate and publicize the project’s achievements in countries and regional organizations connected to the South China Sea. The RCG would normally meet twice a year during the first year of project implementation and once a year thereafter.

Regional Facilitation Office. FAO would be responsible for implementation of the Regional Support Services component. Under such arrangement, the FAO has committed to financing at least US$0.5 million of the cost of the component, and has undertaken to seek additional bilateral funding to permit component activities to be adequately maintained over the full duration of the project. The RFO, located in FAO’s Regional Office in Bangkok, would be set up prior to the effectiveness date of the Grant. The RFO would consist of FAO’s regular program staff serving as the Regional Project Coordinator, Operations Coordinator supported by short-term consultants as needed. Its main functions would be: (a) to prepare an annual work program to be reviewed by the RCG; (b) to manage the project activities as agreed with the Bank; and (c) to serve as the secretariat of the RCG.

Annex 7: Financial Management and Disbursement Arrangements

East Asia And Pacific: Livestock Waste Management in East Asia Project

Summary

Assessment of the project’s financial management (FM) arrangements in each of the participating countries and for the Regional Support Services Component have been conducted to determine whether the financial management capacity would be able to meet the requirements of BP/OP 10.02. The FM and disbursements arrangements vary between the three participating countries due to different implementation arrangements and country/local environment and conditions. In summary, the FM arrangements for the project in each country and the regional support services component are considered adequate to meet the minimum requirements of the Bank, provided FM Action Plans are implemented.

Financial Management

Risk analysis

In China, the project risk is assessed as moderate as the project would have in place an adequate FM system that can provide, with reasonable assurance, accurate and timely financial information, and the project’s finances would be managed by staff with experience in Bank requirements. In Thailand, the risks associated with the project are considered high due to the limitations of the government financial system for supporting the project’s fiduciary requirements and the lack of experience in management of Bank-supported projects and FM requirements. In Vietnam, the risk for this project is assessed as substantial because of the decentralized nature of some activities which are to be partly financed by local households and communities in non-monetary terms and the lack of experience in implementing Bank supported projects and the Bank FM and disbursement requirements. The risks would be mitigated by the measures set out in the FM Action Plan. For the Regional Support Services component, the project FM risks are assessed as low as the implementing agency, the FAO, has experience in financial management of similar projects and adequate financial systems and procedures. The project risks would be mitigated through clear specification and documentation of procedures, use of government control procedures, appointment of qualified staff, where required, training of staff in the Bank procedures, regular audits and World Bank supervision. After mitigation, the FM risks are considered moderate for the overall project.

Implementing Arrangements

In each country, a PMO within the main implementing agencies would be established. A RFO would be set up within the FAO under its regional office in Bangkok which would maintain the regional services component accounts and records and would be responsible for the day-to-day financial management and reporting.

In China, the Grant would be implemented simultaneously with the Bank supported Guangdong Pearl River Environment Project. A provincial PMO has been established within the Guangdong Provincial Agriculture Department with responsibility for implementation of the project. Some project activities would be performed at county level. In these instances, county agriculture bureaus would be responsible for those activities and would report to the provincial PMO. The World Bank project operation management office in the Guangdong Provincial Finance Department would be responsible for project coordination, Special Account management and related issues. The project structure set out below and staffing plan are considered proper and satisfactory.

Provincial Finance Department

Provincial Agriculture Department

County Agriculture Bureau

In Thailand, the DLD under the MOAC would be the implementing agency. The DLD currently comprises sixteen divisions, two units and two provincial Livestock Offices. To facilitate project implementation, a national PMO within MOAC has been set up. The project would be managed centrally by the PMO, including project activities at provincial and district levels. A financial officer of the DLD would have responsibility for the day-to-day accounting and disbursement operations of the project. A part-time experienced accountant would be employed to provide guidance and undertake the more complex tasks such as report preparation and fund withdrawal applications. Since the project is small, incompatible functions between accounting and disbursement cannot be segregated. This risk would be mitigated through supervision by the project director including approval and authorization of checks coupled with regular reporting and annual auditing. The accounting consultant would be selected with qualifications and terms of reference acceptable to the Bank. These requirements are incorporated into the FM Action Plan.

In Vietnam, the project would be implemented through the national PMO established under the Department of Environment of the MONRE and two PIUs of Thuong Tin District, Ha Tay Province in the north and of Bien Hoa City, Dong Nai province in the south. The PIUs would implement most of the activities under Component 1 and some activities of Component 3. The national PMO would implement activities under Components 2 and 3 and would provide implementation support to PIUs.

As this is the first Bank-funded project that the MONRE and the People’s Committee of Thuong Tin District and Bien Hoa City are responsible for implementation, the agencies are not familiar with the Bank’s FM and disbursement policies and procedures. The accounting software in use for government budget implementation purposes is not able to analyze expenditure by different dimensions and so the use of separate accounting software for the project would be more effective than modifying the current software at different agencies. Each agency would be staffed with at least one chief accountant, one project accountant and one cashier. The chief accountant and the cashier could work on a part-time basis for the project, but the project accountant would be full time. The People’s Committees would employ additional resources from their accounting department for the project as required. The project accountant has been appointed for the Thuong Tin PIU and identified for the Bien Hoa City PIU and they have extensive experience in government accounting and reporting. However, FM staff has not been assigned to the national PMO and the overall FM system at the national PMO is yet to be set up. The project FM system must be set up before Grant effectiveness. This would include developing and adopting a project Financial Management Manual acceptable to the Bank, setting up information technology infrastructure for the FM system and appointing national PMO and Bien Hoa PIU FM staff with qualifications and experience acceptable to the Bank. These requirements are incorporated in the FM Action Plan.

World Bank

National PMO/PIU

(2)

(8)

(10)

(5)

(13)

(12)

(9)

Contractors Consultants

Legend

Fund flow

Document flow

1. National PMO/PIU submits withdrawal application to MOF for review and approval;

2. MOF reviews, approves and returns withdrawal application to national PMO/PIU;

3. National PMO submits withdrawal application to the Bank;

4. The Bank advances to or replenishes the Special Account or makes direct payment to contractor/consultant;

5. Contractor/consultant submits payment request and commercial invoice for goods/services delivered to national PMO/PIU;

6. National PMO/PIU verifies payment request and national PMO submits it to State Treasury for review and approval;

7. State Treasury authorizes payment to contractor/ consultant after review of the payment request;

8. State Treasury makes payment for counterpart share of eligible expenditure;

9. National PMO orders payment from Special Account;

10. The commercial bank remits the Bank share of eligible expenditure from Special Account;

11. Contribution in cash from beneficiaries is maintained in an account at the State Treasury; and

12. Contribution in cash from beneficiaries is recorded by national PMO/PIU.

Accounting Policies and Procedures

The project’s accounts and records would be maintained in accordance with the acceptable accounting standards and practices and with government regulations and procedures of each participating country and in accordance with the FAO financial policies and procedures for the Regional Support Services component.

In China, in order to streamline financial management of trust funds, the MOF issued, in July 2001, a set of financial and accounting regulations, providing detailed instructions for accounting setup and treatments, format and content of financial statements, internal control procedures and audit requirements. The project would operate in accordance with these regulations. For the project, the county Agriculture Bureaus would be responsible for maintaining the financial records of all the activities carried out at the county level and the provincial Department of Agriculture would maintain the records of all activities at the provincial level. The county would prepare financial statements based on their records and submit them to the provincial PMO. The provincial PMO would prepare the project’s consolidated financial statements. The audited consolidated statements would be submitted to the Bank by the Guangdong Provincial Audit Office.

In Thailand, the accounting and financial management system would be kept in accordance with sound accounting practices and would include the maintenance of accounts and supporting documents. The accounting system may computerized or manual (with spreadsheets) depending on the availability of system software and the capability of the project accountant. The basis of accounting would be cash and financial reports and would be prepared in accordance with the Thailand accounting standards which are compatible with International Accounting Standards. The project accountant and consultant would be responsible for preparing withdrawals and payments. Bank staff would provide training on procedures for withdrawals and disbursements and reporting.

In Vietnam, the project would use accounting policies and procedures acceptable to the Bank. For reporting, International Public Sector Accounting Standards would be used by the project. The project would rely as much as possible on the accounting and internal control procedures at the MONRE and two District/Provincial People’s Committees, especially in reviewing and approval of financial plans and expenditure by functional departments and authorization for payment by State Treasury. Additional and modified procedures would be established as necessary to comply with the Grant Agreement and the World Bank’s policies and procedures on financial management, and to ensure consistency at all levels of project implementation. The procedures would be documented in a project financial management manual.

For FAO, the RFO would maintain separate project accounts within the FAO financial system (which is acceptable to the Bank) to capture project transactions and balances. The project accounts and supporting records would be maintained at the RFO in accordance with the FAO financial policies and procedures.

Reporting and Monitoring

Separate Financial Monitoring Reports (FMRs) for the Regional Support Services Component and for project activities in Thailand and Vietnam would be produced and submitted semi-annually to the Bank within 45 days after the end of the period. The FMRs would be used by country project management teams, the FAO and the Bank to monitor project implementation and financial progress. The FMRs for Thailand and Vietnam would consist of reports of project expenditures by project component/sub-component and by disbursement categories compared to approved project plans/budgets and should provide adequate description and explanation of project progress and variances analysis. For the Regional Support Services Component, the format and content of the reports auto-generated from the system were reviewed and found to be acceptable. The reports include a statement summarizing project expenditures classified by FAO’s normal chart of accounts compared with the budget in year-to-date and cumulative project to-date and a listing of project expenditures which provides payment details by transaction. The FMRs are not required to be audited. The format of these FMRs has been agreed during negotiations.

Annual audited financial statements for the project activities in China, Thailand and Vietnam would be produced. The statements would be prepared in accordance with the accounting standards and policies for each country and the format/content would be agreed with the Bank. The annual financial statements prepared by each country’s implementing agency would include, as a minimum, Statements of Sources and Uses of Funds (implementation of the Grant Agreement), project financial position (Balance Sheet) and Statement of Special Account. For the Regional Support Services Component of the project, the annual financial statements would summarize sources and uses of project funds, use of funds by project sub-component and disbursement category for the year and project to-date. Its project financial activities would be incorporated in the FAO biannual financial statements.

Audit Arrangements

Each country’s annual financial statements and audit reports would be submitted to the Bank within six months of the end of each country’s fiscal year. Auditing fees, if applicable, may be financed by the Grant.

In China, in line with other Bank-financed grants, the project’s financial statements would be audited in accordance with International Standards on Auditing and the Government Auditing Standards of the People's Republic of China (1997 edition). The Guangdong Provincial Audit Office would conduct the audit and the annual audit reports would be issued in the name of Guangdong Provincial Audit Office.

In Thailand, the audit of the annual financial statements would be carried out by an independent auditor and according to terms of reference acceptable to the Bank. The auditor would be appointed within six months from the date the Grant becomes effective. The auditor would provide an opinion on the annual financial statements and a management letter addressing any deficiencies and weaknesses found during the course of audit. The financial statements will be prepared on a calendar year basis with the audit report due for submission by June 30 annually.

In Vietnam, the project’s financial statements would be audited annually in accordance with International Standards on Auditing by an independent accounting firm and with terms of reference satisfactory to the Bank. The Auditor would be appointed within six months from the date the Grant becomes effective. A management letter addressing internal control weaknesses of implementation agencies would also be provided by the auditor, together with the financial statements audit report.

For FAO, reliance would be placed on the audit assurance on the use of the project funds through the audited biannual financial statements of the FAO. However, if the Bank has reason to believe that there is a cause for a specific audit examination of the project, the Bank may request FAO to undertake a project specific audit.

FM Action Plan

In order to meet the Bank’s minimum financial management requirements, the following actions should be taken in Thailand and Vietnam.

Disbursement Arrangement

Allocation of Grant Proceeds

Disbursements of the Grant for the project in each country would be based on the traditional disbursement method through a Special Account and by direct payments. Disbursement arrangements for the project are summarized below in the tables “Allocation of Grant Proceeds”. For the participating countries: (a) sub-grants would cover up to 25 percent of the total costs of the construction of livestock waste treatment facilities at the selected demonstration sites which include expenditures for works and goods; (b) disbursement for goods would be at 100 percent of the foreign expenditures and 100 percent of local expenditures and 75 percent of local expenditures for other items procured locally for Thailand, 100 percent for China and Vietnam; (c) Standard Disbursement Percentage of 92 percent for Thailand, 100 percent for China and Vietnam would apply to consultant services; (d) disbursement would be made at 100 percent for overseas training and study tours and 80 percent for domestic training and study tours for Thailand, 100 percent for all training and study tours for China and Vietnam; and (e) disbursement would be made at 100 percent of incremental operating costs. For FAO, disbursement would be made at 100 percent for consultant services, training and workshops, and administrative fee.

Project Aggregated

China

Thailand

Vietnam

FAO

Use of Statement of Expenditures (SOE)

SOEs would be used for disbursements against: (i) goods and works under sub-grants and costing less than US$100,000 equivalent per contract; (ii) goods costing less than US$100,000 equivalent per contract; (iii) services of consulting firms costing less than US$100,000 equivalent per contract; (iv) services of individual consults costing less than US$50,000 equivalent per contract; (v) training and workshop expenses; and (vi) incremental operating costs. Supporting documents for SOEs would be retained by respective PMOs and made available for review by Bank supervision missions. In case of contracts for sub-grants, goods and consultant services exceeding these thresholds, disbursements would be made by direct payment against full documentation and signed contracts.

Funds Flow and Special Account

One Special Account in US dollars in each participating country would be established in a bank with terms and conditions acceptable to the Bank, with an agreed authorized allocation for each Special Account of US$200,000. Applications for replenishment of the Special Accounts, supported by appropriate documentation, would be made on the basis of Statements of Expenditure and Summary Sheets and submitted to the World Bank monthly or when the amount withdrawn equals or is less than 50 percent of the authorized allocation, whichever comes first. Payments from the Special Accounts are to be made for the Bank’s share of the project’s eligible expenditure, in accordance with the Grant Agreements and the Bank’s guidelines.

In China, funds for this GEF Grant would flow from the Bank to a Special Account which would be set up at and managed by the Guangdong Provincial Finance Department. The Department has accumulated extensive experience in processing withdrawal applications and is familiar with Bank disbursement procedures. The funds would flow from the Special Account to the provincial PMO for provincial activities and then to the county Agriculture Bureau to support county activities. The county Agricultural Bureau would submit withdrawal applications to the provincial PMO and the provincial PMO would then send them to the Guangdong Provincial Finance Department. Withdrawal applications would be submitted to the Bank by the Guangdong Provincial Finance Department.

In Thailand, a Special Account would be set up at and managed by the DLD which would be used mainly for project payments for workshops, training expenses, goods and small value consultant payments.

In Vietnam, a Special Account would be opened in a commercial bank as instructed by the State Bank of Vietnam which would be operated by the national PMO. Withdrawal applications would be made by the Special Account holder and approved by the MOF in accordance with the Bank procedures.

For FAO, the project funds and expenditures would be accounted for separately in the FAO’s accounting system, with the Grant proceeds being held in the FAO normal operation bank account centrally maintained in Rome. The report-based disbursement method would be used with disbursements based on six-monthly forecasts of eligible expenditures and quarterly reports of actual expenditures and funds remaining.

Retroactive Financing

To support final project preparation and timely start-up of the first year’s implementation, some project activities, costing about US$340,000 with an estimated GEF Grant financing of about US$320,000 (about 4.6 percent of the total proposed GEF Grant amount), have been requested for retroactive financing. These activities would include: (a) hiring of a technology consultant by Thailand PMO and associated local travel cost for Thailand; (b) purchase of office equipment, consultant services for baseline survey, policy development, procurement assistance, M&E activities, awareness raising and incremental operating costs for Vietnam; and (c) consultant services, training and incremental operating costs for FAO. The relevant procurement methods applicable to these project activities would be followed. These project activities started after August 1, 2005 and within 12 months of expected signing of legal agreements.

Project Financing Plan

Financing plan is based on total project cost including contingencies. The GEF Grant of US$7 million would cover about 29 percent of the total financing requirement for the project. Government financing (41 percent) would include budgetary allocations, specialized livestock waste management fund, renewable energy fund, livestock development fund and other funds from various sources at both national and local levels. Private sector contribution (28 percent) would be mainly from participating farmers and villagers. FAO would contribute a minimum of US$0.5 million (2 percent) in carrying out implementation of the Regional Support Services component. Contributions by the governments, private sector and FAO would be in the form of cash and in kind. Physical construction of livestock waste management facilities on demonstration farms and in demonstration villages would be co-financed by GEF Grant (25 percent), government (25 percent) and private sector (50 percent).

In addition, a parallel Japan PHRD Grant (US$750,000) for Livestock Waste Management and Climate Change Initiative in East Asia is provided to support the participating countries in use of appropriate methane recovery technologies through technical assistance and capacity building as a part of national efforts to mitigate the environment impact of livestock waste management.

Project Financing - Aggregated (US$ 000)

Project Financing - China (US$ 000)

Project Financing - Thailand (US$ 000)

Project Financing - Vietnam (US$ 000)

Project Financing - Regional (US$ 000)

*The totals may not tally due to rounding.

Annex 8: Procurement Arrangements

East Asia And Pacific: Livestock Waste Management in East Asia Project

A General

Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004 and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreements. The general descriptions of various items under different expenditure category are described below and summarized in Table A. For each contract to be financed by the GEF Grant, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame would be agreed between the Recipients and the Bank in the Procurement Plans. The Procurement Plans would be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement of Works (US$11.8 million): Works to be procured under the project would include construction of manure treatment systems, including facilities, anaerobic digestion units, aeration systems, on-farm roads, connecting canal and ditches, open storage ponds, manure drying/composting facilities, sedimentation, settlement and covered lagoons, and fish pond rehabilitation. These facilities would be constructed on individual or shared farms or on a communal basis. The civil works would involve small valued and geographically-scattered constructions only, and therefore are not suitable to be procured through International Competitive Bidding (ICB) procedures. They would be mainly procured using National Competitive Bidding (NCB) method. However, small works estimated to cost less than US$100,000 per contract may be procured through shopping procedures. Bidding documents for NCB contracts would follow the Model NCB Bidding Documents acceptable to the Bank for each country and Requests for Quotation for shopping contracts would follow the Model Requests for Quotation acceptable to the Bank for each country. The NCB procedures to be followed would be that in the respective national procurement regulations of China, Thailand and Vietnam, but subject to the waivers and modifications as provided in the Legal Agreement.

Procurement of Goods (US$0.7 million): Goods required under the project would include office equipment, monitoring equipment, GIS equipment and publications. Contracts for these goods costing US$200,000 or more each would be procured through ICB procedures, and the Bank's Standard Bidding Documents for Procurement of Goods dated May 2004 would be used. Goods estimated to cost less than US$200,000 per contract may be procured using NCB method. In such NCB contracts, bidding documents would follow the Model NCB Bidding Documents acceptable to the Bank for each country. The NCB procedures to be followed would be that in the respective national procurement regulations of China, Thailand and Vietnam, but subject to the waivers and modifications as provided in the Legal Agreement. Small valued goods under contracts below US$100,000 each may be procured using shopping procedures. Of the total goods required, about US$9,000 worth of office equipment for FAO would be funded by FAO’s own sources.

Workshops, Training and Study Tours (US$3.4 million): Various training, workshops and study tours for farmers, NGOs, extension agencies, government officials at various levels and other stakeholders involved in the project, all self-organized by the PMOs, would be procured using the applicable government procedures of each respective country acceptable to the World Bank on the basis of quality, efficiency and cost-effectiveness. With the Bank’s agreement on the scope, planning of activities and their budgets, these activities would be disbursed against reasonable actual costs. Of the total cost, about US$2.4 million would be non-GEF financed.

Selection of Consultants (US$6.1 million): Consulting services would generally include policy and replication strategy development, policy testing, awareness raising, technical assistance, training, capacity building, monitoring and evaluation, and financial audits. These services would be procured mostly through various selection methods including Quality and Cost Based Selection (QCBS), Quality Based Selection, Selection Based on Consultant Qualifications (CQS) and Individual Consultant depending on the value, nature and complexity of consulting assignments. The use of these methods for specific assignments would be subject to prior review and clearance with the Bank in the Procurement Plans. However, QCBS would generally be the applicable method for contracts estimated to cost more than US$100,000 equivalent each. CQS method would apply to assignments estimated to cost less than US$100,000 equivalent per contract. Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract for Vietnam, US$300,000 equivalent per contract for China or US$500,000 equivalent per contract for Thailand may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Individual consultants may be selected in accordance with the provisions of paragraphs 5.1-5.4 of the Consultant Guidelines. For FAO, it is expected that Services for assignments that meet the requirements set forth in the first sentence of paragraph 5.1 of the Consultant Guidelines will be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.2 through 5.3 of the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis, subject to the prior approval of the Bank. Of the total estimated cost for consulting services, about US$3.9 million is expected to be funded by non-GEF sources.

Incremental Operating Costs (US$1.9 million): Incremental operating costs for operation of PMOs that would be financed by the project may be procured using the respective governments' administrative and financial management procedures acceptable to the Bank on the basis of quality, efficiency and cost-effectiveness. Of the total estimated incremental operating cost, about US$1.6 million is expected to be funded by non-GEF sources.

FAO Administrative Fee (US$0.1 million): A total fee of $90,900 equivalent was charged by FAO for the administrative and operational costs incurred for the implementation of the project, including recruitment costs, financial reporting costs, procurement and purchasing services.

B. Assessment of the Agencies’ Individual Capacity to Implement Procurement

Procurement would be implemented by the following project implementing agencies (PIAs):

1. For China, the PIA is the provincial PMO established located at the Center of Rural Environment Protection and Energy Development under the Guangdong Provincial Department of Agriculture (hereinafter called "China-PMO").

2. For Thailand, the PIA is the national PMO established located at the DLD under the MOAC (hereinafter called "Thailand-PMO").

3. For Vietnam, the PIA is the national PMO established located at the Department of Environment under the MONRE (hereinafter called "Vietnam-PMO"). In addition, some procurement activities would be decentralized to two PIUs in Thuong Tin district (Ha Tay province) and Bien Hoa city (Dong Nai province).

Three separate procurement capacity assessments were carried out by the Bank's procurement specialists in Bank Offices in China, Thailand and Vietnam for their respective countries. These capacity assessments revealed that the capacity of China-PMO is generally adequate since it has both qualified procurement staff and good experience with Bank procurement, while that of Thailand-PMO and Vietnam-PMO/PIUs is rather weak because they lack Bank procurement experience. In addition, their procurement specialists have not been appointed. Accordingly, the procurement risk rating for China is moderate and for Thailand and Vietnam is high. The overall procurement risk under the whole project is rated high.

Specific recommended actions to build up the PIAs' procurement capacity are provided in detail in the procurement capacity assessment reports for each country being kept in the project files. These actions mainly include: (a) identification/appointment in PMOs of full-time qualified procurement staff with defined roles and responsibilities before Grant Effectiveness; (b) provision of training to PMOs on Bank procurement procedures, before Grant Effectiveness; (c) procurement technical assistance to PMOs as needed; (d) inclusion in each Legal Agreement an annex on Bank-accepted NCB procedures; and (e) timely procurement planning.

C. Procurement Plan

A Procurement Plan has been developed by each participating country covering the initial period of 18 months for their respective implementation which provides the basis for the procurement methods and implementation scheduling. These plans have been reviewed and agreed by the Bank and are available at the respective National (provincial in China) PMOs. These agreed Procurement Plans are also available in the project’s database and in the Bank’s external website. The Procurement Plans would be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Bank Review and Frequency of Procurement Supervision

The Bank's prior review shall apply to the following procurement:

4. All NCB contracts for works;

5. The first Shopping contract for works in each calendar year of project implementation for each country;

6. All ICB and NCB contracts for goods;

7. The first Shopping contract for goods in each calendar year of project implementation for each country;

8. The first consultant services contract for a firm and the first consultant services contract for an individual;

9. All contracts for consultant services in excess of US$100,000 for firms and US$50,000 for individuals; and

10. All contracts for consultant services through single-source selection.

As agreed with the FAO, the contracts for the employment of individual consultants shall be subject to Post Review by the Bank except as the Bank shall otherwise determine by notice to the Recipient.

All overseas training and study tours plans would be subject to the Bank’s prior concurrence. In addition to the above-mentioned prior review requirements, all other contracts would be subject to ex post review by the Bank. Supervision missions to visit the field, including carrying out post review of procurement actions, are recommended once every six months. Post-review percentage would be 25 percent (one in every four contracts).

E. Details of Procurement Arrangement Involving International Competition

1. Works and Goods (list of contract packages which would be procured following ICB method): The initial procurement plans of each country for the first 18 months of project implementation do not envisage any ICB procurement of Works and Goods.

2. Consulting Services (list of consulting assignments with short-list of international firms): The initial procurement plans of each country for the first 18 months of project implementation do not envisage any consulting assignment requiring international competition or shortlist of international firms.

Annex 9: Economic and Financial Analysis

East Asia And Pacific: Livestock Waste Management in East Asia Project

1. Introduction

The commercial pig raising industry is an important and rapidly growing component of the livestock sectors of Thailand, Vietnam and Guangdong province of China, where estimated total pig meat production of 4.4 million MT/year (2003) is valued at US$3 billion at producer prices, growing at around 5 percent annually (Table 1). Modern methods of pig production were introduced to these countries at different times (Thailand in the 1970s, China in the 1980s, Vietnam in the 1990s) and have tended to displace the traditional pig breeds and animal husbandry methods from the market, which cannot compete with the much higher productivity of the modern crossbred animals and the related feed industry. Commercial producers, defined as those of whatever scale who specialize in the confined raising of pigs using modern methods to some degree, already supply more than 50 percent of the pig meat market in each country, a major destination of urban consumer expenditure⁷, and are expected to continue to make further inroads into the respective domestic markets and possibly into regional export markets. With weak enforcement of environmental regulations, intensive modern producers generally do not pay for the negative externalities they create, although attention is increasingly being paid to mitigating and preventing these externalities, partially through the activities of this project. Allowing the present trend towards industrialization of livestock production to continue unabated with its demonstrably negative environmental consequences would undermine societal goals for improved rural living standards and public health.

Table 1 Basic Statistics of the Pig Industry in the Project Countries (FAOstat Nov. 2004)

2. Project Rationale and Objectives

In the absence of major change, rapidly increasing livestock production in the coastal regions bordering the South China Sea can only lead to increasingly severe environmental problems, both domestic and global. The project’s development objective is to reduce the major negative environmental and health impacts of rapidly increasing concentrated livestock production on the water bodies of and thus on the people of East Asia. The global environment objective is to reduce livestock-induced, land-based pollution and environmental degradation of the South China Sea. The desired project outcome/impact is reduced pollution originating from livestock production of waterways draining into the South China Sea.

3. Incentives for Improved LWM

The baseline (without-project) and GEF Alternative (with-project) scenarios for livestock waste management in the region, described in Annex 15, are the product of an interactive set of factors comprising: (a) market forces; (b) government regulatory action; (c) informal social pressure; (d) government incentives for certain types of waste treatment facilities (e.g., digesters), and (e) farmers having imperfect technical knowledge of manure management. The actual situation is one which presents environmental and public health risks in each of the three countries, falling short of governments’ expressed socio-economic and environmental objectives as well as being a serious threat to natural resources in international waters of the South China Sea.

By far the most important component of the existing incentive framework is that of market forces which determine the range and cost of manure storage and handling facilities that farmers can invest in and their options for sale or on-farm recycling of manure products. Whether separating and drying solid pig manure for use in orchards, on other crops, or in fishponds, as widely practiced in southern China, the use of solid manure is fairly widespread and its economic value appreciated. Intensive pig producers already use various manure management systems, but only up to a certain point as these systems are typically constrained by physical and market limitations, so tend to be overwhelmed when farms increase their stock numbers.

In all three countries, regulatory action on LWM has so far had a very limited impact on actual farm behavior, as documented in Annex 1. The project is designed to demonstrate that achieving much higher levels of compliance with regulatory standards is possible, provided that certain conditions are met (e.g., appropriate recycling and waste-water discharge standards; understanding and acceptance of such standards by farmers and the general public; adequate support for their enforcement from local authorities and communities; adequate staffing and technical training for extension and farm inspection staff).

It is difficult to generalize about the impact of social pressure on adoption of better LWM in the East Asia region. There are certainly instances reported where such pressure has made a difference (e.g., in the lower Pearl River Delta in Guangdong and in Nakhon Pathom province of Thailand), and conflict between livestock and crop farmers over a range of issues, including the nuisance created by manure storage and disposal especially where pig farms are concerned. The more typical situation, however, is one of laisser-faire, in which local communities passively accept environmental and health risks that would be considered unacceptable in some other countries. In the case of the numerous specialized pig production villages in Vietnam and China, such conditions are accepted because most of the population benefits financially from the activity. In the future, community pressure on livestock farmers to adopt a more environment -friendly code of practice can be expected to become stronger, as a result of better information and generally improving living standards. The project would seek to foster awareness-raising to this end, starting especially in the selected demonstration areas.

To date, financial incentives for improved LWM in each of the three participating countries have mostly been for installation of digesters, more for energy conservation reasons than for avoidance of soil, water and or air pollution. As described in Annex 4, is useful as a means for removing organic pollution (BOD), pathogens and odor, but does not remove most of the excess nutrients and other noxious compounds, such as heavy metals, which are mostly still discharged into streams and rivers, with some part carried to the South China Sea. Nevertheless, continuing to support the adoption of digesters would still be useful, as well as extending support to other forms of basic manure management such as construction of ponds and lagoons for storage.

In order to raise the standards of manure management on all intensive pig farms to a level acceptable by current domestic standards, it is estimated that LWM investments of the order of US$3-5 per head of the SPP are needed. Such standards would aim to prevent regular discharge of fresh manure and untreated waste-water into streams and the creation of environmental nuisance such as excessive flies and odor. This level of investment, and the environmental standards it aims to achieve, is referred to as “Level 1”. As existing knowledge and market barriers are overcome, subsidy for Level 1 investment should no longer be necessary for the majority of the intensive pig producers, who (as shown in the financial analysis) would generally be able to afford it themselves. Therefore, this standard could largely be achieved through technical training and stronger regulatory enforcement in conjunction with informal social pressure and market forces.

However, Level 1 standards of manure management, although attainable in principle by all specialized pig farmers, would not be sufficient to achieve the global environmental objective of the project which is to prevent excess nutrients (essentially, N and P) and other polluting compounds from livestock waste (especially heavy metals such as Cu, Zn and As) reaching the South China Sea. To achieve this objective, a significantly higher standard (Level 2)⁸ of livestock waste management is required that effectively prevents discharge of untreated livestock waste into the waterways. On average, the investment needed to attain Level 2 standard is estimated in the order of US$8-12 per head of the SPP (Table 2). Level 2 investment is necessary in order to achieve the global environmental objective, since there is technically no other way to prevent livestock waste from entering the environment and polluting the South Chin Sea in increasing quantities.

4. Economic analysis

The project would adopt a comprehensive approach by opting for the demonstration and replication of livestock waste management methods that combine waste treatment with waste recycling wherever feasible rather than using a technology-based approach relying exclusively on waste treatment. This comprehensive approach will only be adopted on a large scale in each country through the combination of policy development, capacity and institution building, demonstration and replication, and monitoring and evaluation activities undertaken by the project. For economic analysis of the project, the analysis of cost-effectiveness of these two approaches was selected to compare costs of reducing fluxes of critical nutrients (N, P) and organic matter (BOD) originating from livestock waste into the environment, using estimates of the unit cost of nutrient removal through different forms of treatment.

Table 2 presents investment and operating cost estimates for nine selected manure management systems suitable for farms in different situations that might be demonstrated under the project and compares the total cost per pig-cycle of seven different systems combining both treatment and recycling with those of two systems relying exclusively on treatment technology. The comparison indicates that the treatment-based systems cost on average US$2.80 per pig-cycle or twice as much as combined systems (average of US$1.40 per pig-cycle), confirming the innate cost advantage of the recycling option wherever this is feasible. In practice, recycling feasibility is limited by the availability of suitable cropland for liquid manure or slurry application within about 5 km of the farm because beyond that distance transport becomes too costly. However, land application may also be constrained by agronomic factors or lack of familiarity with using the product.

Table 2 Typical Costs for Improved Manure Management Systems (Level 2)

Source: Colin Burton, ‘Proposed Manure Management Systems for Given Farm Scenarios’ November 2004

In Table 3, estimates are provided of the nutrient removal capacity of four different types of livestock waste management systems, starting with the baseline situation for livestock farms with little or no on-farm manure storage and little or no cropland for manure application; two types of system considered representative of current improved livestock waste management practice (Level 1); and finally one type for the more effective systems (Level 2) that would be demonstrated under the project as a next step for farms already practicing Level 1.

Table 3 Nutrient Removal Capacity of Different Livestock Waste Management System

Source: Colin Burton, SRI, Pers: comm. November 29, 2004

In Table 4, estimated costs for different manure management systems (from Table 2) are combined with estimates for nutrient removal capacity (from Table 3) to give estimated costs for safe removal of two key nutrients/pollutants targeted for reduction under the project, nitrogen and phosphorus, as well as organic pollution (BOD). Where two of these pollutants are removed simultaneously costs are allocated equally to the two as there is no better way to allocate the costs of a joint process. The nutrient removal figures are presented in Table 4 in ‘steps’ which make it easier to see the marginal cost of removing an additional unit of a given nutrient. The results confirm that use of large, shallow lagoons reduces part of the BOD load but not nitrogen content, which is either volatilized into ammonia or discharged in waste-water. The same applies even more clearly to another widely-used manure management system, storage ponds and anaerobic digesters to produce: these are very efficient at removing BOD but just as inefficient as lagoons at removing N. The more effective Level 2 manure management systems to be promoted under the project have similar nutrient removal capacities and are therefore grouped together.

Table 4 Estimated Marginal Costs of Nutrient Removal under Different Livestock Waste Management Situation