A: Project Development Objective

1. Global and project development objectives and performance indicators (see Annex 1):

Global Environmental Goal. The long-term goal of the project is to improve the quality of the water of the Baltic Sea by reducing non point source pollution from agriculture. Project activities are directly linked to the implementation of the Baltic Sea Joint Comprehensive Environmental Program which provides a framework for regional cooperation for protection of this important international water body. The project also supports Poland’s move towards compliance with its national policies and with international legal agreements. These include the Helsinki Convention and the environmental directives of the European Union (EU), which will apply to Poland as part of the process of joining the Union.

Project Development Objective. The project’s specific objective is to develop interventions which motivate farmers to reduce the release of organic matter and nutrients entering water bodies in target project areas. GEF funding will help remove institutional, financial and knowledge barriers which currently serve as disincentives to farmer adoption of environmentally sustainable agricultural practices.

Demand-Driven, Flexible Approach. The project is modeled on the approach taken by social investment funds which are flexible funding mechanisms that respond to requests from communities or local groups. Thus the project will respond to demands from eligible farmers for support, rather than targeting specific farms or farmers. It will be flexible, so that project design can be adapted during implementation according to feedback from beneficiaries and local communities. In this way, it takes a highly participatory approach by involving farmers and farmers’ representatives in the decision-making processes.

The project is a “learning and innovation loan” (LIL), which emphasizes flexibility, testing and learning with the aim of scaling up the project into a larger program in the future. The Government plans to use the project implementation experience to develop a nationwide program to integrate environmental concerns into agricultural and rural development practices and improve the quality of Poland’s water bodies.

Field Tested Technology. The technical issues involved are well understood and have been field tested in Poland under three internationally funded pilot operations - sponsored by the USEPA, EU (Phare) and Sweden - and by a major Polish NGO. This project will test barrier-removal mechanisms which over time will allow for scaling demonstration activities up into a comprehensive program. It will also test the beneficiaries’ willingness to pay for services and investments to improve their agricultural management practices. The financial and economic impact of the adoption of new farming and other agricultural practices will be closely monitored and results will feed back into the program design.

Key Performance Indicators.

Key project and global environmental indicators will be:

• Number of applications for support from farmers.

• Satisfactory construction and maintenance of on-farm environmental infrastructure.

• Establishment of an adequate system for monitoring quality of international waters, particularly in the Vistula and the Odra Lagoons, and agreed baseline.

• Completed financial analysis of the impacts to farmers of improving their environmental management practices.

Monitoring arrangements are:

• The NFEP will monitor project effectiveness through beneficiary assessment, economic and financial evaluation, and monitoring of key indicators.

• The MEP and the Regional Water Boards (RWBs) will establish a baseline for ongoing long-term monitoring of the environmental effects of the interventions.

• Special monitoring programs and environmental indicators are currently being developed for the Vistula and Odra Lagoons which would be used for these special transboundary areas.

2. GEF Program Objective addressed by the Project

The Joint Comprehensive Environmental Action Program for the Baltic Sea, a regional strategic action plan developed under the leadership of the Helsinki Commission, provides a sound technical basis for a project under GEF Operational Program Number 9, “Integrated Land and Water Multiple Focal Area Operational Program.” The objective of this Operational Program is to support “more comprehensive approaches for restoring and protecting the international waters environment.” This is often accomplished through measures to support “better use of land and water resources management practices on an area wide basis and in which land degradation is an important element.” Consistent with this approach, the project would support innovative activities which address the role of agriculture, through direct activities with farmers in waste management and ecological protection of watercourses, coastal zones and marine environment.

Projects in this program area address the “types of measures needed to ensure that the ecological carrying of the water body is not exceeded,” which is the focus of this project, as it supports measures to incrementally reduce the input of nutrients from agriculture. The project provides an opportunity for the GEF to be a “catalyst for action to bring about the successful integration of improved land and water resource management practices on an area wide basis” by supporting implementation of a model project. GEF support would buy down the cost of adopting innovations and help overcome barriers in moving from demonstration level activities to operational projects for agricultural non-point source pollution. 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. It is anticipated that the experience gained from this project can be applied in the ongoing GEF supported programs for the Danube River Basin and the Black Sea, in which non-point source pollution from agriculture is a major transboundary issue. Therefore, the proposed project also provides an opportunity to assess the usefulness of the Strategic Action Program (SAP) concept and to derive lessons learned which can be applied in other locations.

Project activities will support complementary linkages with measures being undertaken by both government and nongovernmental organizations for the “conservation of important biological diversity” in wetlands and coastal lagoons. Activities would be linked with the management of the transboundary Vistula Lagoon shared between Poland and Russia, and later the Odra Lagoon shared between Germany and Poland. Implementation of the project will include as an integral element “community involvement and stakeholder participation” through the direct involvement of rural communities and farm families in the cooperative identification of measures to be undertaken at the watershed level, the adoption and use of Good Agricultural Practices, and their role in the financing, construction and operation of on-farm investments (see Annex 4 for transboundary analysis).

B: Strategic Context

1. Country Assistance Strategy (CAS) goal supported by the project (see Annex 1):

CAS document number: 16484 - POL Date of latest CAS discussion: April 14, 1997

One of the CAS’s four overarching objectives is to achieve environmental sustainability. Specifically, the CAS describes the Bank’s objectives of helping the Government to increase the focus on reducing pollution from non-point sources and to move towards compliance with EU directives and international agreements in a cost-effective manner. This project directly addresses each of those objectives.

2. Main sector issues and government strategy:

At the international level, Poland as a Contracting Party to the Helsinki Convention has an obligation to undertake measures to reduce pollution of the Baltic Sea from both point and non-point sources. In this context, the recent “Recommendations for Updating and Strengthening” of the Baltic Sea Environmental Action Program prepared by the Helsinki Commission identifies actions to reduce non-point source pollution from agriculture and rural settlements as a high priority for regional and country specific actions in the context of the Program. More recently, as part of the preparations for joining the European Union, much of the domestic policy agenda is being driven by the need to move into compliance with the EU environmental directives. The EU has a directive specifically aimed at reducing nitrate pollution from agriculture (the Nitrates directive). Furthermore, the draft Framework Directive for Community Action in the field of Water Policy includes measures for classifying the quality of water in certain water bodies.

At the national level, Poland is committed to managing and conserving its water resources and coastal zone. In the nine years since the transition to a market economy it has made significant progress through a sustained commitment to environment as an integral part of its national priorities. Poland has domestic legislation to reduce pollution from agriculture and a draft law is under review which would require farmers to invest in proper manure and slurry storage. In the National Environmental Strategy issued in 1990, the Government set an objective of reducing pollution entering the Baltic Sea from Polish rivers by 80 percent by the year 2020. In order to realize these objectives the Government has actively sought international cooperation to develop the required knowledge and experience for preparation and implementation of agricultural non-point source pollution programs based on Western European and North American experience.

3. Sector issues to be addressed by the project and strategic choices:

This project will address the following sector issues:

• Assisting integration of environmental concerns into agricultural practices in order to reduce nutrient pollution entering Polish surface and ground waters.

• Moving towards compliance with both the Helsinki Convention and the EU Nitrates directive in a cost-effective manner.

• Strengthening water management at the level of the river basin, through a basin-based approach to the strategy study and by working with the RWBs to monitor the environmental effects of the project.

C: Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 6 for a detailed cost breakdown):

The project has two components. The first will provide technical assistance to farmers, to encourage them to improve their environmental management practices, and financial support for on-farm investments. The second involves public outreach, developing a strategy for replicating the project, monitoring and project management.

Component 1. On-Farm Environmental Improvements (US$11.7 million or 81% of total cost)

Outreach, Technical Assistance and Training (US$1.5 million or 10% of total cost). NGOs, institutes or private firms will work with farmers, farmers’ families and rural communities to discuss options for and demonstrate benefits of environmental management on farms. This will include cropping, tilling, manure spreading, buffer strips, fertilizer application practices, constructed wetlands etc. The outreach agents will also explain the terms of investment support offered under the project. An element of this process would be review of the economic benefits to farmers and their communities from adoption of these practices. The outreach workers will coordinate their technical advice with local extension agents (ODRs). The MAFE will collaborate with the PIU to ensure consistency of approach.

Infrastructure Investments (US$10.2 million or 71% of total cost). The subcomponent will channel financial support to eligible farmers to invest in facilities to store manure, urine, slurry and silage correctly. The financial support will consist of credits or a mix of grants and credits. During the first phase of implementation, the project will be limited to supporting slurry and manure storage facilities. It will support these activities to eligible farmers with grants on a cost-sharing basis. In these first stages the project will provide flat grants of US$4,000 to participating farms. The farmers will provide their share in a mix of labor, materials and direct payments. Both the levels and terms of support may be adapted during the course of implementation. Eligibility criteria for farmers will include: having between 15 and 50 l.a.u., agreeing to use facilities for at least 5 years, being in targeted areas.

Component 2. Outreach and Management (US$2.7 million or 19% of total cost)

Public Awareness & Outreach (US$0.5 million or 3% of total cost). The subcomponent will support a public awareness and outreach program to widen understanding of the importance of agriculture and environment issues in Poland. This program will work with local groups to promote environmentally sound agricultural practices and to highlight the critical role of the farmer as an “environmental manager.” It will include information on the agronomic and economic benefits of improved practices and the cost savings which can be obtained from the substitution of chemical fertilizers by the properly times application of slurry. The program will disseminate good practices,

results from demonstrations, new approaches and information about incentive programs. It will also be used for dissemination of information to facilitate project replication and lessons learned from the implementation process.

Monitoring (US$0.7 million or 5% of total cost). The NFEP will monitor project performance. This component will involve a social assessment, including ongoing beneficiary assessment, to ensure that the project is meeting the needs of its clients in rural Poland and to suggest modifications to project design and implementation. RWBs, Voivodship Environmental Authorities and SANIPED will monitor the long-term environmental benefits from reduced discharges of pollutants to surface and groundwater, and agree with MEP and Ministry of Health on methods to standardize data collection.

Replication. (US$0.8 million or 6% of total cost) The project will include five activities aimed at project replication: (i) a strategy for replicating the project which will include economic and financial evaluation of project activities; (ii) assessment of the individual, local and national benefits of integrating environmental concerns into agricultural and rural development practices; (iii) development of lessons learned and good practices; (iv) an outreach and dissemination program; and (v) learning from international experience including the EU and the United States (study tours, lessons learned etc.). At the mid-term review, the Government and the Bank will decide whether to prepare the next phase in the national program, and the basic principles on which that will be based.

Management (US$0.7 million or 5% of total cost). The NFEP will manage the project. In the project areas, local implementation bodies will be selected to appraise subproject applications, supervise implementation, and manage the process at the local level.

The project will potentially be active in four areas, all of which are sensitive to nitrate pollution. They are also representative of different farm types, soil types, and will be in different parts of the country to enable maximum demonstration effect.

As the project focuses on learning and testing approaches, it is designed to be flexible and to adapt to experience during implementation. It will therefore rely on an Operational Handbook. The project documents will include broad principles for the project. Implementation will be based on detailed plans and criteria set out in the Operational Handbook. As implementation proceeds, these can be changed in agreement with the implementation agency, the World Bank and cofinanciers without the need to amend legal agreements.

2. Key policy and institutional reforms supported by the project:

Reducing pollution from agriculture and rural communities is key to the Government’s agricultural and environmental strategies. Thus, rather than seeking policy changes, this project will assist the Government to develop an effective mechanism to implement existing policies.

3. Benefits and target population:

Reducing the level of nutrients entering the Baltic Sea will, over the long term, bring significant international and national benefits by decreasing eutrophication. International experience shows that improving environmental practices on farms is also likely to bring benefits to individual farmers over the long run. They will have access to safer drinking water, cleaner local streams and lakes, and a reduced need for fertilizer. Many improved practices can also increase soil productivity. This project will explicitly calculate and disseminate these benefits in order to reduce the barriers to other farmers of adopting these practices.

The benefits of this project will be considerable on many different levels:

• Improved quality of local streams, lakes and ultimately rivers, coastal lagoons and the Baltic Sea, with benefits for quality of life, fisheries and tourism in certain areas.

• Reduction of nitrates reaching Poland’s water bodies and ultimately the Baltic Sea, of approximately 300 kg per farm per year for approximately 1500-2000 farms.

• Farms investing in manure storage can use the manure as fertilizer and thus can save $150-200 per year on chemical fertilizer. Over the long run, the farmer may also see productivity improvements. In fact, excessive slurry spread on grazing land generates toxic levels of potassium in grass. Improved storage of animal wastes will reduce odor and inconvenience and improve hygienic conditions on participating farms.

• Quantification and demonstration to farmers of these benefits.

• Demonstration of an effective mechanism for channeling investment for environmental protection in rural areas.

• Progress towards meeting Poland’s water quality targets and its obligations under the Helsinki Convention as well as towards compliance with the European Union directive on prevention of pollution from nitrates.

• Improved health for families in the project areas over the long run, by reducing nitrates entering groundwater.

The target populations for this initial activity are families and rural communities in a maximum of four potential areas: Elblag, Ostroleka, Lublin and Gorzow Wielkopolski. They have been chosen because they are sensitive to nitrate pollution, representative of different farm types, have a variety of soil types, and are well distributed within the country. The project will start by targeting two voivodships—Elblag and Ostroleka. Elblag borders the Vistula Lagoon which is shared by Poland and Russia and is a highly sensitive international water body. Farmers in this area have experience from a Swedish-supported program and are prepared to proceed with a larger effort. Ostroleka is in the lower Vistula River basin and has participated in the largest and longest running pilot demonstration activity, supported by the US Government and EU (Phare). The local farmers are already sensitized to the issues and interested in participating. During implementation, the project may expand into the other pre-identified areas in agreement with the World Bank, the PIU and cofinanciers.

An independent technical review was prepared by a STAP roster expert (see Annex 5). The reviewer endorsed the project in positive terms and noted that it was of “substantial importance.” The reviewer made a number of constructive suggestions for further strengthening of the proposal. These proposals have been incorporated into the present text, as described below.

The reviewer suggested that the presentation should make more explicit the linkage between farmers adopting improved practices for storing and application of slurry to crops, the economic benefit to the farmers from these practices and the environmental benefit to the community resulting from these actions. The reviewer noted that the project would assist in making the internalization of costs, which in GEF terms are incremental, broadly recognized over the long term as economically beneficial to farmers, communities and the global environment..

The reviewer also noted that to the extent that synthetic fertilizers play a role in Polish non-point source pollution, there is a potential to demonstrate the economic benefits which could be obtained from the substitution of stored manure slurry for synthetic fertilizers.

4. Institutional and implementation arrangements:

NFEP will implement the project on behalf of MEP. The project will be decentralized to the participating project areas. Annex 2 contains details of the implementing arrangements, and the Operational Handbook will spell these out further.

The institutional arrangements include:

• Project Steering Committee. At the national level, a Project Steering Committee (PSC) will coordinate the project. This will be chaired by the NFEP, and include representatives of the MOF, MAFE, MEP, relevant RWBs, and possibly the Chambers of Agriculture, NGOs and representatives from the project areas.

• Project Implementation Unit (PIU). The NFEP will manage the project; promote project activities; disburse funds and maintain the account; monitor project impacts and propose improvements; and prepare quarterly and annual reports.

• Local Implementation Team (LIT). The project will select local bodies (possibly NGOs, institutes or farmers’ chambers) to implement the project at the local level, who will make up the LIT. They will manage the project at the local level, including appraising and deciding upon the individual subprojects that the project will support. They will also prepare project reports and accounts; receive and appraise sub-project requests; visit the project sites prior to approval and disbursements; and coordinate work with ODRs and other technical services.

Potential Administrative Changes. It is possible that during the life of the project a new structure for regional and local government may be introduced in Poland; in this case the composition and responsibilities of the various project management units may require adjustment. At any time the Operational Handbook may be revised to reflect these administrative changes.

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

• Full-Scale National Program. While the demonstration programs have generated significant experience in technical and social aspects, the administrative mechanism for delivering support for the investments is less developed. Therefore, a full-scale program would not be justified at this stage. This project will be the first phase of a national program and will allow for development and testing of management, financing and outreach systems which could be expanded in geographical coverage over time. A phased approach will also allow for a more precise calculation of the direct and broader social benefits of the interventions, which will be an important element in generating support for a larger program of interventions.

• On-lending to farmers for environmental infrastructure. Passing a proportion of the funds to the farmers as loans was considered, in order to test the farmers’ willingness to borrow for investments of this type. This option was rejected for the first stage of the program for three reasons. First, because the projects bring very little private benefit to the farmer, but rather benefits that are mostly regional, national and international. Thus a large grant component will be necessary in any case. Second, because the administrative costs of managing large numbers of small loans ($1,000-3,000) are likely to be very high and cause delays in the project. Third, because the project can test willingness to pay (or borrow) by cost sharing with the farmers and varying the proportion of grant funds versus farmer contribution. The possibility of passing loans to farmers will be considered as the project develops.

• Targeting larger farms. The team decided against targeting larger farms, since they are more financially viable and need less subsidies. This project aims to create a model that will allow efforts to reach a majority of Polish farmers, and that can be applicable to small farms.

2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned):

The Environment Management Project supported various activities to strengthen environmental management capacity in several areas of Poland.

In addition, the design of the proposed project has benefited from experience gained through field-based studies and demonstration programs addressing management of pollution from agriculture and rural settlements conducted since the early 1990s in the Baltic Sea region.

Sector issue	Project	Latest Supervision (Form 590) Ratings
		(Bank-financed projects only)
		Implementation Progress (IP)	Development Objective (DO)
Bank-financed
Strengthen Environmental Management at central and local levels	Environment Management Project	HS	HS
Other development agencies
US Government, EU (Phare) and other bilateral government financed demonstration activities of on-farm environmental improvements

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

Key lessons learned from agricultural and environmental projects in Poland, as well as regional initiatives to protect the Baltic Sea include:

• The need for a long-term commitment to address agriculture and environment issues through phased programs of interventions and a broad-based partnership.

• The need to focus on working with farmers through field-level outreach activities to encourage them to think of themselves as environmental managers at the farm level.

• The importance of calculating and disseminating the benefits of improved environmental management in rural areas at local and national levels in order to sustain support for the program.

• The high capacity of local and national Government officials for innovation and effective management.

• The importance of adequate counterpart training and specialized support for procurement, disbursement and supervision.

• The benefits from working within the existing policy environment rather than using the project to push for major policy reforms.

In addition, the Bank’s experience with social funds in over forty countries worldwide has generated important lessons for establishing the mechanism for implementing this project. These include:

• The need for an established framework for project management in the form of an Operational Handbook which can be updated on the basis of implementation experience;

• The importance of agreeing in advance on clear, flexible approaches to administrative procedures such as procurement and disbursement;

• The benefits in project quality associated with careful attention during the early phases of innovative projects to the provision of specialized support for implementation activities.
  
  

STAP Reviewer’s Comments. The STAP reviewer was very supportive of the project’s objectives and activities. He fully endorses the project concept and its importance in the Region. His chief concern was that the link was not clear between the technical assistance to farmers on the one hand, and the financial and economic impact of the adoption of new technologies on the other. We fully agree that this link must be made--clearly, precisely, and with solid analysis-- and is critical to the success of the project and its replicability. This section has been more precisely described in the text, and is a key indicator to project success.

4. Indications of borrower commitment and ownership:

MEP and MAFE have been working throughout the 1990s on on-farm environmental pilot initiatives in cooperation with EU (Phare), Sweden and the United States. Both MEP and MAFE recognize the success of the farm-level demonstration programs and have expressed repeatedly the need to broaden these successful pilots into larger programs. As an indication of this, when US Government funding ended for the first pilot operation, MAFE independently applied for EU (Phare) funding to enable it to continue the program.

In addition, the Government is committed to demonstrating its seriousness in moving towards compliance with EU agricultural and environmental policies and directives and its pollution reduction goals for the Baltic. The Government is aware that significant pre-accession resources will become available for environmental and infrastructure activities and wishes to develop a mechanism to ensure that these resources are used efficiently and equitably.

5. Value added of Bank and GEF support in this project:

The principal value added of GEF support for this project comes from providing additional funds to address the top priority transboundary water problem in the Baltic Sea. GEF funds will specifically help reduce the barriers to farmers adopting environmentally sensitive practices and will allow the Government of Poland to consider scaling early pilot operations up to a larger scale. Without GEF support to coordinate these activities, Poland would undertake a series of small activities in different parts of the country to address these issues. It would lack a mechanism to coordinate the financing, approaches and geographical targeting of activities. Without support from the GEF, the project would lack sufficient resources to accelerate the program, to demonstrate measures on a wide range of farm types and to undertake a public outreach program. The GEF is thus leveraging funds from the donors, stimulating a program to coordinate activities, increase coverage and generate larger impact.

Because of their international scope, the World Bank and GEF can provide funds and finance the incremental costs for replicating such activities both within Poland and in other countries in the region. This is particularly important as agricultural pollution is a major local and transboundary problem in most countries in the ECA region, particularly those in the Baltic, Danube and Black Sea drainage basins. Some level of financial support from the public sector and the international community will continue to be necessary, particularly in lower income countries, because these activities address externalities, affect transboundary pollution and involve an element of public good.

In addition, the World Bank has significant experience with a demand-driven mechanism that can usefully be applied to the problem of agricultural pollution, which requires a blend of outreach, technical assistance and investment for a large number of small polluters. This mechanism, applied in social funds, has given the Bank significant experience linking technical assistance, outreach, and beneficiary assessment with small grants for investments in social infrastructure.

E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 11)

1. Economic

The baseline cost without the GEF alternative for this activity includes ongoing government programs, bilateral donor funded activities and the project without GEF funding. The total baseline cost is U$12.2 million. With the GEF alternative, the cost is US$15.2 million. The baseline comprises activities related to, but not included in this project which total $0.8m. Total project costs described here are US$14.4 million, which includes US$3.5 million contribution from the beneficiaries and US$1 million counterpart funding (see Annex 3 for Incremental Cost Analysis).

Given the emphasis on learning and innovation, the project has included resources to review economic evaluation of the on-farm investments and the changes in farming practices in component 2 (outreach and management). Component 1 (investment in manure, urine and slurry storage) is unlikely to generate positive rates of return, at least in the short term, because the benefits will only be seen in the long term, will be diffuse and are extremely difficult to quantify.

2. Financial

This is a small loan focused on learning and innovation; it does not include ex ante financial analysis, but again will review financial implications of the on-farm environmental improvements during project implementation.

Experience in other countries indicates that improved manure storage, together with changing fertilization, tilling and cropping practices can generate positive financial rates of return. The project will specifically assess the conditions in Poland under which these positive FRRs can be established. Preliminary estimates suggest that proper storage of manure will save the average farmer participating in this project $150-200 per year in reduced need to purchase fertilizer.

Fiscal impact: This will also be developed over the course of project appraisal and implementation.

3. Technical:

Most of the technology that this project will use is simple and well tested in Poland and other countries in the Baltic Sea Region. The emphasis will be on the use of low cost on-farm infrastructure. Technical assistance activities will include support for construction, supervision and development of standardized design and specifications for commonly supported improvements. Experience from the three internationally-supported demonstration projects and the work of the Water Supply Foundation has been reviewed with regard to design and construction experience.

4. Institutional:

The NFEP will undertake the principal project management functions. In addition to its specialized technical staff, including water resources and water quality specialists, the NFEP will hire one person with specific expertise in outreach and technical assistance who can supervise the TA sub-component. This specialist will have experience working with individual farmers. During the project’s preparation, a consultant will be hired to assess NFEP’s accounts and MIS. During the project, the NFEP will submit quarterly financial statements and management reports on its operations, including liquidity and arrears. Its accounts will be audited annually by an independent auditor acceptable to IBRD, EU (Phare) and NEFCO.

5. Social:

While there has been no systematic social assessment, the field-based evaluations of joint Polish-United States supported demonstration projects for on-farm environmental improvements show positive social results. Farm families, particularly the farmers’ wives, were extremely supportive of the activities, because of increased farm productivity and the reduction in odor and inconvenience associated with improved manure storage. Communities in areas that depend on clean water for potential tourism development are particularly supportive of sanitation activities, and are prepared to contribute their own resources and labor to construct the facilities. The project will undertake a social assessment to evaluate social impacts of the on-farm investments, which will include ongoing consultations with beneficiaries.

6. Environmental assessment: Environmental Category [Proposed] [ ] A [X] B [ ] C

The project will support a series of complementary measures to improve environmental management in rural areas, with a focus on reducing pollution of surface and groundwater, leading to a beneficial impact on inland water, coastal water and the Baltic Sea. The primary environmental issues will be addressed in the Operational Handbook and include: (a) adoption of guidelines for design of manure pads and slurry tanks and for the use of their contents; and (b) guidelines for the development of buffer strips. The activities supported under the project will be subject to review by the local environmental authorities. The Environmental Data Sheet is provided in Annex 14.

7. Participatory approach [key stakeholders, how involved, and what they have influenced; if participatory approach not used, describe why not applicable]:

a. Primary beneficiaries and other affected groups:

The project is based on demonstration programs conducted throughout the 1990s with highly participatory approaches. They included field-based demonstrations, field days for farmers and farmers’ wives, participatory water quality monitoring with farmers and their families, outreach programs and extensive “farmer to farmer” visits. The project has been prepared jointly with officials involved in implementing these programs and in consultation with voivodship and gmina governments, extension agents, contractors, participating farmers and other members of rural communities. The team has also consulted extensively with the Water Supply Foundation, a major Polish NGO, which has an extensive record in cooperative development of rural infrastructure including the construction of manure pads. It has also collaborated with the Foundation for Development of Polish Agriculture and the National Association of Farmers.

During implementation, the project will be highly participatory with a social assessment providing a mechanism for incorporating the views and experiences of local communities and farmers on an ongoing basis. Project performance and impact monitoring will also use consultative processes where appropriate, including focus group meetings and surveys of cooperating parties.

b. Other key stakeholders:

The United States Environmental Protection Agency and Department of Agriculture, which were involved in designing and supervising the first pilot phases of this operation, have been key members of the project preparation team, including participating in preparation and appraisal missions. The cofinancing bodies, EU (Phare) and NEFCO, have also been involved in the project design processes, with NEFCO participating in project missions.

The team has prepared the project in close collaboration with representatives of the MAFE. The field review and design phases included the direct participation of representatives of the Foundation of Assistance Programs for Agriculture (FAPA).

The team has consulted with the representatives of the Helsinki Commission and the Baltic 21 Secretariat, both of which are involved in supporting measures at the regional level to improve environmental management in agriculture to reduce the degradation of rivers, wetlands, coastal zones and the marine environment in the Baltic Sea region.

Finally, the team benefited from ideas generated through discussions with representatives of the Coalition Clean Baltic (CCB) and the World Wide Fund for Nature (WWF).

F: Sustainability and Risks

1. Sustainability:

The site-specific feasibility studies for farmer investments will pay particular attention to operation and maintenance plans and to cost recovery. The proposed farm-level infrastructure investments will

use field-tested design approaches which allow for minimum investment and require limited expenditures for successful operation and maintenance. Social assessment and follow-up visits built into the technical assistance program will assess sustainability issues explicitly.

2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk	Risk Rating	Risk Minimization Measure
Annex 1, cell "from Outputs to Objective"
Targeted farmers are in the same watershed(s) to achieve maximum nutrient reduction in selected water bodies.	N	Eligibility criteria state that participating farmers must be in project areas, which will be selected on basis of being in sensitive watersheds, among other things.
Project management structure cannot adapt to changes in regional administrative structures and/or destroys local support.	M	Ensure project management structure is flexible and that all participating parties know that it may change in accordance with administrative changes. Details of project management structure outlined in Operational Handbook which can be adapted during project implementation. Review at mid-term. Ensure that benefits to farmers are clear to all participants and widely disseminated. If one local area loses interest, increase focus in other participating voivodships or move to another part of the country.
Annex 1, cell "from Components to Outputs"
Sustained Government commitment to the project.	S	Ensure that MEP and the NFEP receive recognition for their role in the initiative. Ensure that the benefits to the farmers are explicit and reported widely. Involve key stakeholders, such as National Farmers’ Union, Chambers of Agriculture, extension agents, NGOs to broaden support for initiatives of this type.
Government, Bank and cofinanciers can streamline procedures for project implementation.	H	Substantial efforts in project preparation and start-up phase for simplifying procedures. Key aspects in Operational Handbook rather than loan agreement, so that they can be adapted during implementation.
Other Government programs do not contradict project objectives.	N	Involve extension agents and other key services in outreach and training. Replication strategy led by MEP, NFEP. Ensuring broad government participation.
Appropriate farmers are selected.	M	Eligibility criteria are flexible and can be changed over course of implementation if appropriate. Regular revisions during implementation.
Project incentives are sufficient to motivate farmers to participate in the project.	H	Regular reviews during implementation. If problems occur, increase portion of project dedicated to outreach and training. Change levels of project support.
Overall Risk Rating	M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible Controversial Aspects:

It is not anticipated that the project will have any controversial aspects. The proposed interventions have formally been given high priority by the Helsinki Commission, European Union, Polish authorities and by international and national NGOs.

G: Main Loan Conditions

1. Effectiveness Conditions:

• Project and local steering committees appointed,

• Project staff in NFEP and in LIT appointed and ready to begin work,

• Operational Handbook drafted, satisfactory to the Bank, detailing eligibility criteria, levels of investment support, precise responsibilities of implementing agencies, guidelines for TA, arrangements for project supervision and monitoring activities, procurement arrangements, disbursement arrangements, environmental procedures.

Incremental Cost Analysis

Component	Cost Category	US$m		Domestic Benefit		Transboundary Benefit
1. On-Farm Environmental Improvement
(a) Technical assistance	baseline	1.9		Long run productivity on participating farms. Sustainable use of manure storage facilities
	With GEF	1.9				Increased understanding of farmers of economic benefits from improved practices creates an economic incentive to take actions which more rapidly reduce agricultural non-point source pollution.
	Incremental	0
(b) Investment support	baseline	7.7		Improved local quality of surface water in participating watersheds. Improved quality of groundwater over long run
	with GEF	10.2				Increased coverage of manure storage in project areas. Demonstration of effective mechanisms to reduce pollution from agriculture. Reduced pollution of the Baltic Sea from agricultural sources.
	incremental	2.5
2. Outreach and Management
(a) Public awareness and outreach	baseline	0.2		Limited increased farmer awareness of importance of environmental management
	with GEF	0.5				Wider understanding among Polish farmers and public of issues involved
	incremental	0.3
(b) Monitoring	baseline	1.1		Provision of information concerning response to project supported interventions at the national level which allows for establishment of trends and more effective national and local level management actions.
	with GEF	1.1				Provision of information concerning response to project supported interventions at the regional level which allows for establishment of trends and more effective regional level management actions by Helsinki Commission, European Union and other bodies.
	incremental	0
(c) Replication	baseline	0.6		Potential for national replication
	with GEF	0.8				Accelerate development of a strategy for replicating project both within Poland, Baltic Sea region and in other Central and Eastern European countries.
	incremental	0.2
(d) Project Management	baseline	0.7		Increased capacity for project management and awareness of agricultural pollution
	with GEF	0.7
	incremental	0
Total	baseline	12.2
	with GEF	15.2
	incremental	3.0

1The most directly relevant requirement is the Council Directive on the Protection of Waters Against Pollution caused by Nitrates from Agriculture (91/676/EEC), known as the Nitrates Directive. This aims to reduce or prevent the pollution of water caused by application and storage of fertilizer and manure on farmland, and is intended to safeguard drinking water supplies and to prevent ecological damage from eutrophication. The directive requires member states to designate areas that are sensitive to pollution from nitrates and to establish plans for reducing that pollution. It includes requirements for storage of livestock manure and for application of fertilizers.

1A recent study conducted in the upper Odra basin by Warsaw Technical University concluded that, however much Poland spent on reducing pollution from point sources, it would not be able to meet its current standards for water quality without addressing pollution from non-point sources.