8/3/2019 Project AB

1/23

Report on Agribusiness Sectors Development Project

8/3/2019 Project AB

2/23

February 12, 2011

CURRENCY EQUIVALENTS

(as of February 12, 2011)

Currency Unit Bangladesh takaTaka 1.00 = $0.0140

$1.00 = Taka 71.00

ABBREVIATIONS

ADB Asian Development Bank

ASF Agribusiness Support Fund

BDS business development services

BSF Business Support Fund

DAE- Department of Agriculture Extension

FIRR Financial Internal Rate of Return

SCA Seed Certification Agency

GDP gross domestic product

DLS Department of Livestock Services

DOF Department of Fisheries

MoF Ministry of Food,

MoA Ministry of Agriculture,

MoFL- Ministry of Fisheries and Livestock

PCG Partial Credit Guarantee

PFI Participating Financial Institution

BARI Bangladesh Agriculture Research Institute

PIO Project Implementation OfficePMU Project Management Unit

RSP Rural Support Program

BB Bangladesh Bank

SME Small and Medium Enterprise

SMESDP Small and Medium Enterprise Sector Development Program

SPS Sanitary and Phytosanitary Measures

WTO World Trade Organization

NOTES(i) The fiscal year (FY) of the Government ends on 30 June. FY before a calendar

year denotes the year in which the fiscal year ends. For example, FY2004 begins

on 1 July 2003 and ends on 30 June 2004.

(ii) In this report, "$" refers to US dollars.

8/3/2019 Project AB

3/23

This report is prepared by AHM Zahid Karim

CONTENTS

LOAN AND PROJECT SUMMARY iii

I. THE PROPOSAL

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

B. Analysis of Key Problems and Opportunities

III. THE PROPOSED PROJECT

A. Impact and Outcome

B. Outputs

C. Special Features

D. Cost Estimates

E. Financing Plan

F. Implementation Arrangements

IV. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Economic Benefits

B. Environmental and Social Impacts

C. Risks

V. ASSURANCESA. Specific Assurances

B. Condition for Loan Effectiveness

VI. RECOMMENDATION

APPENDIXES

1. Agribusiness Sector Analysis

2. Outline Terms of Reference for Consulting Services

8/3/2019 Project AB

4/23

LOAN AND PROJECT SUMMARY

Borrower Peoples Republic of Bangladesh

Classification Targeting classification: General intervention

Sector: Agriculture and natural resourcesSubsector: Agriculture production, agroprocessing, and

agribusiness

Themes: Sustainable economic growth

Subthemes: Developing rural areas, private sector

investment, public-private partnerships

Project Description

The project interventions focus on increased productivity, productquality, and value added by

removing constraints facingagribusiness that occur throughout the product value chain from

production and input supply to processing and exports. This will be achieved by (i) creating an

agribusiness support fund (ASF) to provide farmers, farmer groups, and entrepreneurs with

demand-driven technical and managerial services on a matching grant basis to improve their

productivity, competitiveness, and creditworthiness to access financing for their enterprises; (ii)

increasing access to agribusiness finance available from financial institutions to agro-

enterprises; (iii) revising and updating the agribusiness regulatory framework; (iv) strengthening

and upgrading testing and certification facilities for seeds, nurseries, and crops; (v) streamlining

the collection and dissemination of market information; (vi) strengthening agribusiness

technical training capacity and the capability of related training institutions; (vii) formulating a

national agribusiness policy and provincial horticulture policies.

RationaleThe Project rationale is to address constraints that impede development of the sector, and

exploit domestic and export market opportunities in the agribusiness sector, thereby

contributing to increased economic growth and rural employment. The Project will promote the

realization of these opportunities by (i) improving the managerial, production, and processing

skill levels of entrepreneurs and farmers; (ii) supporting participating financial institutions (PFIs)

to increase agribusiness lending ; (iii)reorienting government institutions to become facilitators

of agribusiness development, using public private partnerships; (iv) improving the policy,

regulatory, and financial environment and (v) establishing the framework and standards

ObjectiveThe Projects impact is to support economic growth and employment generation through

agribusiness development. The outcome is to develop a competitive and sustainable

agribusiness sector.

8/3/2019 Project AB

5/23

Cost Estimates

The total project cost is estimated at $49 million equivalent, comprising $8.3 million of foreign

exchange costs, and $40.7 million equivalent of local currency. Component investments include

(i) agribusiness support service provision, (ii) agribusiness finance development, (iii)

agribusiness capacity building, (iv) agribusiness policy and enabling environment development,

and (v) project management support.

Financing Plan ($ million)a

Source Foreign Exchange Local

Currency

Total

Cost

%

Asian Development Bank 8.3 22.7 31 63

Government 0.0 6.9 6.9 14

Agribusiness Enterprises 0.0 10.4 10.4 21

Private Sector Institutions

Beneficiaries 0.0 .1 0.1 0Total 49.0 100

a Figures may not add up due to rounding.

b Includes duties and taxes of about $3.6 million.

Source: Asian Development Bank cost estimates.

Loan Amount and Terms

A loan of Special Drawing Rights 20,165,000 ($31 million equivalent) will be provided from the

Special Funds resources of the Asian Development Bank (ADB). The loan will have a 32-year

term including a grace period of 8 years, and an interest rate of 1% per annum during the grace

period and 1.5% per annum thereafter.

Period of Utilization Until 31 March 2015

Estimated Project Completion Date December 30, 2014

Executing Agency Ministry of Food,

Ministry of Agriculture,

Ministry of Fisheries and Livestock

Consulting Services

Consultants will be selected and engaged in accordance with ADB Guidelines on the Use of

Consultants by ADB and its Borrowers and other arrangements satisfactory to ADB for engaging

domestic consultants. A total of 221 person-months of international and 128

person-months of domestic consulting inputs will be financed. Consulting services will be

engaged in two packages. Of the three contracts under the first package, one will be issued for

8/3/2019 Project AB

6/23

agribusiness support fund promotion, and project management and studies. ADB will select the

consultants. A second contract will provide agribusiness capacity building, and agribusiness

policy and regulatory framework development. ADB will select the consultants. A third contract

will focus on building awareness of agribusiness finance and monitoring.

Project Benefits and BeneficiariesThe Project seeks to address market failures leading to inadequate financial and technical

support for the private sector to initiate agribusiness enterprises, failures in institutional

capacity, and the absence of consistent and coherent agribusiness policies. This will result in (i)

increases in efficiency by reducing transaction costs, and (ii) an increased supply of the services

demanded by agribusiness clients. The Project will improve service delivery, institutional

capacity, and the agribusiness policy environment in a comprehensive and systemic manner

throughout the value chain.

Risks and Assumptions

Project implementation involves a number of agencies and the private sector, and could

encounter delays. This risk is addressed through the establishment of strong oversight,

implementation coordination, and governance provisions in the implementation arrangements.

To facilitate effective coordination and timely implementation, the project management unit

will recruit well qualified staff through an open and competitive selection process

8/3/2019 Project AB

7/23

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to

the Peoples Republic of Bangladesh for the Agribusiness Development Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. Bangladeshs agriculture sector, accounting for 23% of gross domestic product (GDP),almost

63% of employment, and about 25% of exports, is at a crossroads. Growth of the sector, which

is dominated by traditional food (wheat, rice) and industrial (jute, cotton, sugarcane) crops,

declined to an average annual rate of 2.4% with sharp year-to-year fluctuations from 1990 to

2002, as compared with the overall rate of 3.5% achieved from 1960 onward. Yields of major

crops have largely stagnated for the past decade. Diversification into commercially oriented

crops and dynamism in the livestock subsector is encouraging, but the dominance of the major

crops in agricultural GDP has slowed the performance of the agriculture sector as a whole.

Rural poverty remained high at 48.9% in 2002, exacerbated by periodic drought.

3. The stagnating performance and persistence of high poverty in agriculture stand in

contrast with the potential growth opportunities provided by domestic and international

markets. With the Government targeting 8% GDP growth in the medium term, and with wide-

ranging macroeconomic and sector (including financial) reforms well under way, the country is

poised for a period of sustained economic expansion. In Bangladesh, as in all other rapidly

growing developing countries, sustained growth is universally accompanied by changes in food

demand, as consumers shift away from diets dominated by starchy staples and unprocessed

foodstuffs toward much more income-elastic horticulture and livestock products.

4. Agribusiness enterprises range from micro-scale village based operations to large-scale,

nationally recognized companies. Small and medium-scale agribased enterprises in the informal

sector employ an estimated 1.5 million people. As the smaller enterprises are labor-intensive

and generally located in or close to rural areas, the potential for direct and indirect (through

linkages to farms) growth and employment generation is much greater than for the large firms.

B. Analysis of Key Problems and Opportunities

5. While markets provide economic opportunities, commercial agriculture and agribusinessdevelopment in Bangladesh is constrained by poor infrastructure (energy, transport, and

storage); sector institutions and policies, and governance practices; as well as access to modern

technology and to financial and business development services. No single project can address

all these constraints. Through an ambitious public investment program, the People's Republic

of Bangladesh is committed to rapidly developing major infrastructure to support broad-based

economic growth.

8/3/2019 Project AB

8/23

6. The constraints facing agribusiness are present throughout the product value chain from

input supply to processing and exports, leading to low productivity and value added. The

following key constraints, identified during the project preparatory technical assistance,3 must

be removed: (i) market failures, including limited availability of business development services

(ii) institutional constraints, including weak public-private partnerships, weak institutional

capacity, poor coordination between government agencies, and an absence of demand-drivenagricultural research and extension; and

(iii) the lack of a guiding national policy and long-term strategy aimed at developing a dynamic

and competitive agribusiness.

7. Market Failures. The lack of a vibrant small and medium enterprise (SME) subsector for

agribusiness is largely a result of market failure. Technical, managerial, marketing, financial, and

legal advisory services to agribusiness by the private sector are almost nonexistent. Several of

the systemic constraints to sector developmentincluding low levels of technical and

managerial capacity, low product quality and market penetration, limited access to market.

8. Other developing countries have effectively improved the provision of BDS by

establishing time-bound, cost-sharing grant schemes that provide funding for enterprises to

access BDS, and for BDS providers to develop and upgrade the type of service that they provide

to agribusiness clients. Well-conceived and implemented BDS can (i) lower barriers to entry; (ii)

facilitate the establishment of new agribusiness enterprises; (iii) lower unit costs of production,

transport, and marketing; (iv) increase marketable surpluses; (v) encourage and facilitate

innovation at the enterprise and sector levels.

9. Institutional Constraints. Agro-enterprises require enhanced technical skills, greater

marketing orientation and networking, better market information, and better linkages with

service providers to enable them to contribute more significantly to economic growth.TheDepartment of Agriculture Extension (DAE) is responsible for providing market information.

Available market information does not correspond to the needs of entrepreneurs or producers.

Private sector demand for the provision of commercial information services is increasing,

demonstrated by agro-enterprises subscribing to commercial market information services.

10. Lack of Integrated Agribusiness Policy. The few national and provincial public agencies

related to agribusiness work largely in isolation. An integrated and well-coordinated

agribusiness strategy is needed to (i) support and promote the growth and performance of

agribusiness, including enterprise start-up and expansion, value-chain integration, and product

specialization; and (ii) incorporate the informal sector into the agribusiness mainstream,particularly in the context of globalization, international competitive pricing, the need for

investment incentives, and world trade issues. Also, no province-specific horticulture policies

prioritize specific local product opportunities and the use of limited public financial resources.

8/3/2019 Project AB

9/23

III. THE PROPOSED PROJECT

A. Impact and Outcome11. The impact of the Project is agribusiness growth. The outcome is to develop a more

competitive and sustainable agribusiness subsector. Project activities will focus in particular onimproving access of agribusiness enterprises to BDS, strengthening BDS providers to enhance

skills throughout the agribusiness subsector, expanding access to agribusiness finance, and

developing institutional capacity. The Project seeks to create a flexible private sector service

delivery mechanism driven by market demand. The Project will concentrate on horticulture and

hortibusiness; interventions to improve the livestock and dairy institutional framework will also

be supported. The project interventions will contribute to strengthening and developing private

sector capacity, involvement, and investment in agribusiness. This will ultimately lead to a

strong foundation for SMEs operating in the sector.

B. Outputs

12. The Project comprises five components: (i) agribusiness support service provision, (ii)

agribusiness finance development, (iii) agribusiness capacity building, (iv) agribusiness policy

and enabling environment development, and (v) project management support.

1. Agribusiness Support Service Provision

13. The Project will facilitate increased access to BDS by agribusiness enterprises by

financing eligible services for capacity building, including technical, managerial, financial, and

marketing skills. The Project will establish an agribusiness support fund (ASF) to provide funds

to eligible agribusiness enterprises, farmers, research and extension service providers, and BDS

providers. Eligible services for ASF finance include (i) capacity-building and related assistance to

existing agribusiness enterprises and for enterprise start-ups, but excluding the financing ofcapital equipment; (ii) support to individual farmers and farmers groups for the formation of

legally registered agribusiness enterprises that can then obtain ASF support for other eligible

services; (iii) demand-driven research by private or public sector research institutions leading to

increased and better quality production and improved production processes, or to meet an

identified market demand; (iv) development of private sector extension services to be provided

to small-scale farmers proposing to supply raw materials to agribusiness enterprises; and (v)

support for private sector BDS providers to enhance the availability and quality of services

provided to agribusiness enterprises.

2. Agribusiness Finance Development14.Cooperation with PFIs will be implemented using the services of international consultants,

first through awareness building, and second, through specific in-house consulting services

provided to PFIs. The first phase will involve the selection of private sector financial institutions

(predominantly commercial banks) having an interest in developing an agribusiness loan

portfolio, according to selection criteria to be agreed with the Bangladesh Bank (BB).8 The

awareness-building phase will identify a shortlist of PFIs to be given guidance in preparing a

proposal to access capacity-building support from the Project, including an agribusiness finance

8/3/2019 Project AB

10/23

strategy and work plan. Proposals will be submitted to SBP for review. Based on the review, 35

PFIs will be selected to receive customized, in-house support to develop their

agribusiness finance capacity. In the capacity-building phase, separate teams of international

consultants will work with each selected PFI to refine its strategy and work plan, and identify

market opportunities.

3. Agribusiness Capacity Building15. Capacity building for agribusiness will focus on horticulture and hortibusiness, but will also

support project activities to be undertaken in the livestock and dairy subsector. The component

will seek to increase the private sector participation in the provision of services currently

provided by public sector institutions. To facilitate agribusiness development and international

compliance, the Project will support the rationalization, restructuring, and coordination of

relevant Ministry of Agriculture, Food and Livestock (MoA, MoF,MoFL) agencies and offices

concerned with alignment with WTO regulations and international product standards. The

project preparatory technical assistance identified eight commercial banks and two

microfinance institutions having an interest in developing an agribusiness lending function.

16. Market Information. The Project will improve the availability of market information,

identified as a significant constraint to agro-enterprise expansion. The Project will promote the

development of information on private sector markets through outsourcing by DAE. An

appropriate private sector provider will be supported to develop a system that will initially

focus on the 11 major wholesale markets in the country, and Bangladesh s major export

markets for fruits and vegetables. DAE will continue to provide market information for other

horticultural crops not covered by the private sector provider. The outputs of this

subcomponent will be to (i) establish a private sector market information system providing

reliable, impartial market information on a commercially viable and sustainable basis; (ii)

provide agribusiness stakeholders with market information that meets their needs; and (iii)

improve market efficiency and competitiveness by providing easily available and improvedmarket information.

17. Export Quality Certification. Support will be provided to strengthen the capacity of DAE in

export quality certification by (i) providing international training for key DAE staff; (ii) revising

and updating national quality standards consistent with international standards; (iii) upgrading

DAEs export certification centers; and (iv) introducing operating procedures of international

standard for sampling, inspection, and quality monitoring systems. Subject to statutory

requirements, the Project may support DAE to contract quality certification services to the

private sector through public-private partnerships.

18. Seed and Planting Material Certification. The Project will help strengthen the Seed

Certification Agency (SCA) by (i) establishing and equipping nine regional testing laboratories;

(ii) developing a systematic and quality-oriented approach to the production of fruit and

vegetable propagation materials; (iii) introducing internationally accepted standards; (iv)

training staff in field inspection techniques; (v) improving operating systems; (vi) training

nursery producers in improved production techniques, and better plant propagation and

8/3/2019 Project AB

11/23

hygiene practices; and (vii) reviewing and updating existing vegetable seed and fruit tree

seedling certification standards and legislation.

19. Training. The BARI horticulture unit training coordinator, supported by provincial

training coordinators, will organize training to (i) develop curriculum and course contentspecific to agribusiness; (ii) build the capacity of private sector trainers and the institutions or

service providers that will provide training to entrepreneurs; (iii) improve technical and

managerial skills in agribusiness enterprises; (iv) improve product output, quality and

uniformity, and continuity of supply at the farm level; and (v) provide agribusiness training to

provincial and special area staff.

20. Bangladesh Agriculture Research Institute (BARI). To develop more effective linkages

between the public sector and private agribusiness, the Project will establish a horticulture unit

within the private-sector-led BARI. The BARI unit will help implement project activities in the

horticulture subsector, and facilitate interaction with agribusiness enterprises.

21. Department of Livestock Services(DLS). The Project will support the establishment of a

livestock and dairy development board (DLS) as a corporate body, which will play a similar role

to that of BARI in the livestock sector. The responsibilities of DLS will be to (i) coordinate

national and provincial activities in livestock and dairy, (ii) promote investment in the sector,

and (iii) promote livestock as the primary vehicle for poverty reduction among small and

landless farmers, especially women.

4. Agribusiness Policy and Enabling Environment Development

22. This component will assist the Government to develop an appropriate policy and

enabling environment for private-sector-led agribusiness development. The farmer field schoolconcept is basically integrated crop management through training of trainers and facilitators.

Farmers have begun to pay for such services in selected areas. A PMU and consultants will

supervise the task force in its activities. The policy will cover (i) definition, vision, and strategy;

(ii) institutional framework and scope of government facilitation; (iii) sector objectives including

priority subsectors and products to exploit comparative and competitive advantages; (iv) a

time-bound action plan for implementing the strategy with key production targets; and (v)

other key issues identified by the task force.

C. Special Features

23. The Project will establish market-based approaches to agribusiness development andenhance technical and managerial capacity in the subsector. It will dismantle barriers to entry

for new enterprises, or expansion of existing enterprises enabling them to operate more

effectively, penetrate new markets, and improve profitability, with significant multiplier effects

throughout the agribusiness production and marketing chain. The introduction of greater

market orientation in agribusiness will be accompanied by the mobilization of domestic

financial resources to improve the delivery of financial services, in particular credit to

agribusiness.

8/3/2019 Project AB

12/23

D. Cost Estimates

24. The estimated project cost is $49 million equivalent, inclusive of physical and price

contingencies, taxes and duties, and interest and service charges during implementation(Table1). The foreign exchange cost is estimated at $8.3 million, 17% of the total cost. The local

currency cost is estimated at $40.7 million equivalent, 83% of the total cost. Local currency

costs include an estimated $3.6 million equivalent in taxes and duties to be paid by the

Government. The detailed project cost estimates and financing

Table 1: Cost Estimates ($ million)a

Item Foreign Exchange Local Currency Total

Cost

A. Base Costb

1. Agribusiness Support Service

Provision

2. Agribusiness Finance

Development

3. Agribusiness Capacity Building

4. Agribusiness Policy Formulation

and Enabling Environment

Development

5. Project Management Support

1.4

2.7

1.9

0.2

0.9

22.4

1.8

8.6

0.4

6.5

23.8

4.5

10.5

0.6

7.4

Subtotal (A) 7.2 39.7 46.9

B. Contingencies

1. Physical Contingenciesc

2. Price Contingenciesd

0.4

0.0

0.9

0.0

1.3

0.0

Subtotal (B) 0.4 0.9 1.3

C. Interest Charge during

Implementation

0.8 0.0 0.8

Total 8.3 40.7 49.0

a Figures may not add up due to rounding.

b Cost estimates at February 2011.

c Physical contingencies applied at 5% for all goods and services.

8/3/2019 Project AB

13/23

d Estimated at 4.3% for 2011, 0% for 20122013, and 0.6% for 2014 for foreign exchange costs;

and 4% for 2011, and 5% for 20122013 for local currency costs. Price contingencies have not

been applied to Agribusiness Support Fund funds. Includes duties and taxes of about $3.6

million.

Source: Asian Development Bank estimates.

E. Financing Plan25. The Government has requested a loan of $31 million equivalent from ADB's Special

Funds resources to help finance the Project. The loan will have a 32-year term, including a grace

period of 8 years, and an interest rate of 1.0% per annum during the grace period and 1.5% per

annum during amortization. The loan will fund the entire foreign exchange cost of $8.3 million

and $22.7 million equivalent of the local currency cost (56% of the total local currency cost).

The Government will provide $6.9 million equivalent, or 14% of the project cost. Agribusiness

enterprises including BDS and private sector research and extension providers will fund $10.4

million (21% of total project costs) as their matching contribution to the services to be

supported by the ASF, including training costs. Private sector institutions (market information

service providers, market committees, and PFIs) will finance $0.6 million (1% of total project

costs) as their contribution to operating costs of the services that they provide under the

Project.

Beneficiaries (farmers) will finance $0.1 million (0.2% of project costs) by contributing to the

costs of training received under the Project. The use of ADB's Special Funds resources and local

cost financing is justified because the project components provide capacity building as a

catalyst to develop agribusiness and enhance skill levels. The financing plan is in Table 2.

Table 2: Financing Plan($ million)a

Source Foreign Exchange Local

Currency

Total

Cost

%

Asian Development Bank 8.3 22.7 31 63

Government 0.0 6.9 6.9 14

Agribusiness Enterprises 0.0 10.4 10.4 21

Private Sector Institutions

Beneficiaries 0.0 .1 0.1 0

Total 49.0 100

a Figures may not add up due to rounding.

b Includes duties and taxes of about $3.6 million.

Source: Asian Development Bank cost estimates.

F. Implementation Arrangements

1. Project Management and Execution

26. MoA and MoFL will be the Executing Agency for the Project.12 It will oversee the

establishment of the ASF until its board of directors is appointed. Thereafter, the ASF will

operate as an autonomous private sector company independent of government. BB, as the

8/3/2019 Project AB

14/23

Implementing Agency for the agribusiness finance development component, will be responsible

for (i) establishing PFI eligibility criteria, (ii) approving PFIs that will benefit from capacity

building in agribusiness finance, and (iii) coordinating the selection and recruitment of the

capacity-building consultants for agribusiness finance awareness and agribusiness finance. BARI

and DLS will also be important project implementation partners and facilitators, particularly in

identifying potential applicants to the ASF.13 BARI will be especially important given itsextensive network in the horticulture subsector and allied industries. A project steering

committee, chaired by the MoA secretary, has been established to approve the appointment of

key PMU personnel; approve the annual work plan and budget; review project performance

and provide guidance on required project modifications; provide policy, strategic, and

regulatory advice and oversight; and facilitate coordination among the participating agencies.

27. The PMU, PIOs, and other project-related institutions will promote the ASF and link

potential ASF clients to it. Rural support programs may be contracted through the ASF to

identify existing farmer clients wishing to form a legally registered farmer group enterprise, and

support them through enterprise incorporation and establishment procedures. Following their

establishment as an enterprise, the farmers will be able to submit applications to access ASF

funds for eligible services. In all cases, responsibility for completing grant applications will be

that of the grant applicant. All contractual arrangements relating to approved grants will be

made between the ASF and grant recipients, and will not involve any intermediary or agent.

Details of the scope, management, and operation of the ASF.

2. Implementation Period

29. The Project will be implemented over 5 years . Year 1 will be spent establishing the project

management and implementation framework, including the PMU, BARI horticulture unit, and

PIOs. The ASF will be incorporated within 9 months of loan effectiveness. Immediately upon its

incorporation, the ASF will process a limited number of applications to enable fine-tuning of

procedures and processes, and to ensure that the administrative capacity will not beoverwhelmed in the early stages. This will allow the client base to be built in a gradual and

focused manner.

3. Procurement

30. Goods and related services financed by ADB will be procured following ADB Guidelines for

Procurement. Supply contracts for equipment or materials are not expected to exceed

$500,000, but should such a contract be required it will be awarded on the basis of

international competitive bidding. Those costing less than the equivalent of $500,000 (other

than minor items) will be awarded on the basis of local competitive bidding, or as applicable,

internationalshopping. Direct purchase will be used for small or off-the-shelf items valued atless than$100,000.

4. Consulting Services

31. Consultants will be selected and engaged in accordance with ADB Guidelines on the Use of

Consultants by ADB and its Borrowers and other arrangements satisfactory to ADB forengaging

domestic consultants. A total of 221 person-months of international and 128 person monthsof

domestic consulting inputs will be financed under the Project. Consulting services will be

8/3/2019 Project AB

15/23

engaged in two packages. The first package will have three contracts. One contract will be

issued for agribusiness support fund promotion, and project management and studies. ADB will

select the consultants.

5. Disbursement Arrangements

32. The loan proceeds will be disbursed in accordance with ADB Loan Disbursement Handbook.For the timely release of funds, imprest accounts will be established at the National Bank of

Bangladesh for the use of the ASF, MoA, MoF, MoFL, BARI, and BB.18 The imprest accounts will

be established, managed, replenished, and liquidated in accordance with ADB Loan

Disbursement Handbook and detailed arrangements agreed to by the Government and ADB.

The initial cumulative amount to be deposited in the imprest accounts will not exceed 6 months

of estimated expenditure or 10% of the total loan amount, whichever is less. Any individual

payment to be reimbursed or liquidated under statement of expenditure procedures will not

exceed the equivalent of $100,000.

6. Accounting and Auditing

33. ASF, MoA,MoF, MoFL, BARI, and BB will prepare and maintain separate accounts for

project-related disbursements. ASF, BARI, and BB, as implementing agencies, will prepare and

submit their accounts to MoA. MoA will consolidate the accounts and, after audit, submit them

to ADB. MoA will establish an audit review process and commission financial and performance

audits of the PMU by an audit agency in accordance with auditing standards acceptable to ADB.

ASF, BARI, and BB will establish similar audit procedures using auditing firms associated with

internationally recognized firms, or an audit agency acceptable to ADB, in accordance with

auditing standards acceptable to ADB.

7. Project Performance Monitoring and Reporting

34. The PMU, assisted by consultants, will use a project performance monitoring program to

ensure that project activities and facilities are managed efficiently, and that target groupsreceive the intended benefits. The PMU and its consultants will submit a detailed plan for

monitoring performance on a gender-disaggregated basis for ADBs review and concurrence

within 9 months of loan effectiveness. A baseline survey will be completed within the first 6

months.

.

8. Project Review

35. In the first 3 years of the Project, ADB will carry out semiannual reviews to determine

whether the implementation and monitoring arrangements are appropriate and effective.

These reviews will monitor relevant indicators, to be identified at the beginning of project

implementation, to assess whether the process-oriented approach is working. During year 3, adetailed study will review project progress before the ADB comprehensive midterm review to

assess performance; identify any problems and constraints affecting project implementation,

including changes in the policy and institutional environment; and reach agreement on required

changes to address any shortcomings.

IV. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Economic Benefits

8/3/2019 Project AB

16/23

36. The Project seeks to address (i) market failures leading to inadequate financial and technical

support to the private sector to initiate agribusiness enterprises, (ii) failures in institutional

capacity, and (iii) the absence of consistent and coherent agribusiness policies and direction.

The Project will encourage investment by the private sector in new or upgraded enterprises.

Agribusiness clients (primarily horticulture agro-enterprises and farmer groups) will gain greater

power in product and service markets, thereby improving access at lower costs, accountability,and service delivery. About 2,000 agro enterprises in the formal and informal sectors are

anticipated to benefit from ASF operations, which will include up to 12,500 farmer

entrepreneurs incorporated into agribusiness enterprise groups over the 5-year Project.

B. Environmental and Social Impacts

37. The Project is classified as category FI in accordance with ADB Environmental Assessment

Guidelines. The Project's focus is on capacity building, so the Project will not have adverse

impacts on resettlement, indigenous peoples, or the environment, and thus will not trigger

mitigating measures in accordance with ADB policies on indigenous peoples and on involuntary

resettlement . Nonetheless, initial environmental examinations were carried out on potential

agro-enterprises as part of project preparation.

C. Risks

38. The Project involves a number of agencies and the private sector, and could encounter

delays. This risk has been addressed through the establishment of strong oversight,

implementation coordination, and governance provisions in the implementation arrangements.

The PMU, BARI, and PIOs will help to facilitate effective coordination and timely

implementation, and all three will recruit well-qualified staff from the private sector.

V. ASSURANCES

A. Specific Assurances39. In addition to the standard assurances, the Government has given the following assurances,

which are incorporated in the legal documents:

(i) Within 1 month of loan effectiveness, the Government will establish a project

implementation coordination committee to be chaired by the Secretary of MoF and include as

members, the project director, project coordinator, representatives of SCA, PFIs, BARI, PIOs, BB,

the private sector, and each of the provinces and special areas.

(ii) Within 3 months of loan effectiveness, the Government will establish in each province and

special area, a horticulture and livestock coordination committee to be chaired by the

secretaries of agriculture and livestock as appropriate, with members comprising the PIO

coordinator; representatives of the agriculture, finance, industries, livestock, planning anddevelopment departments in the respective province or special area; the private sector; and

other concerned agencies such as SCA, DLS, and BARI.

(iii) Within 3 months of loan effectiveness the PMU, and within 6 months of loan effectiveness,

the horticulture unit of BARI, and PIOs will be respectively established, adequately staffed, and

assigned powers and functions to the mutual satisfaction of the Government and ADB.

(iv) Within 6 months of loan effectiveness, the Government will ensure that the ASF general

manager is recruited.

8/3/2019 Project AB

17/23

(v) Within 6 months of loan effectiveness, a first year work plan for the Project will be prepared

and submitted for ADB approval.

(vi) Within 6 months of loan effectiveness, the Government will ensure that the memorandum,

articles of association, and other required documents to incorporate ASF are prepared.

(vii) Within 9 months of loan effectiveness, the Government will ensure that the ASF is

incorporated as a not-for-profit company under Section 42 of the Companies Ordinance withthe board of directors comprising eight members (five from the private sector and three from

project-related government agencies).

(x) Within 12 months of loan effectiveness, the Government will either (i) submit to its Cabinet

for approval and submission to Parliament a bill to establish DLS as an autonomous statutory

agency, or (ii) incorporate DLS as a not-for-profit company with responsibility to promote the

development of the livestock and dairy subsectors.

(xi) Within 15 months of loan effectiveness, the Government will either (i) submit to its Cabinet

for approval and submission to Parliament a bill to establish BARI as an autonomous statutory

agency, or (ii) incorporate BARI as a not-for-profit company with responsibility to promote

horticulture development and exports.

(xii) Within 2 years of loan effectiveness, the Government will submit to its Cabinet for approval

and submission to Parliament the amendment of the relevant laws, including those specified in

para. 31, to achieve alignment with the requirements under the WTO commitments.

(xiii) The Government will ensure that throughout implementation of the Project, adequate

budgetary allocations of the required counterpart funds are approved and released in a timely

manner to ensure proper project implementation.

(xiv) The Government will ensure that the Project will not cause any involuntary resettlement

and negative impact on indigenous people. The Government will also ensure that none of the

loan proceeds will be utilized for land acquisition purposes.

B. Condition for Loan Effectiveness

54. The competent authority of the Government will have duly approved the PC-1 for theProject.

VI. RECOMMENDATION

40. I am satisfied that the proposed loan would comply with the Articles of Agreement of the

Asian Development Bank (ADB) and recommend that the Board approve the loan in various

currencies equivalent to Special Drawing Rights 20,165,000 to the People's Republic of

Bangladesh for the Agribusiness Development Project from ADBs Special Funds resources with

an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum

thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and

conditions as are substantially in accordance with those set forth in the draft Loan and ProjectAgreements presented to the Board.

8/3/2019 Project AB

18/23

AGRIBUSINESS SECTOR ANALYSIS

A. Introduction

1. Agribusiness is a complex of interlinked activities related to the commercial production of

agricultural commodities (including crops, livestock, fisheries, and forestry); the transformation

of agricultural commodities into products; the provision of inputs to the production of

agricultural commodities (including planting and genetic material, agrochemicals, equipment,

and pharmaceuticals); and the marketing, distribution, and trade of agricultural commodities

and products. Agribusiness in the context of the Project refers to horticulture and hortibusiness

development, with selected interventions to improve the livestock and dairy institutional

framework and support selected enterprises.

B. Sectoral Constraints and Issues

4. Although markets provide the economic opportunities, constraints to commercial

agriculture and agribusiness development in Bangladesh encompass infrastructure (energy,

transport, and storage); sector institutions and policies, and governance practices; and access

to modern technology and to financial and business development services. No single projectcan address all these constraints. Through an ambitious public investment program, the

Government of Bangladesh is committed to rapidly developing major infrastructure to support

broad-based economic growth. Similarly, in part with Asian Development Bank (ADB) support,

the Government is moving to improve governance, accelerate private sector development and

decentralization, and improve the performance of the financial sector. The Project will

complement these initiatives through a set of carefully targeted interventions specific to the

needs and constraints of agribusiness.

5. Market Failures. The horticulture subsector and its agro-enterprises are not classified as an

industry and do not have access to competitive loans for enterprise establishment. Risk

aversion among the private sector financial institutions is high, with low lending comfort levels.The subsector is at a distinct disadvantage as compared with other subsectors such as industrial

crops. The bulk of agro-enterprises are family owned, and are characterized by investment

based on internal sources of funding and organic growth. One outcome of recent financial

sector reforms is a significant increase in private sector credit, including credit delivery in the

agriculture sector.

8/3/2019 Project AB

19/23

7. Institutional Failures. Hortibusiness and agro-enterprises require enhanced technical skills,

greater marketing orientation and networking, better market information, and better linkages

with service providers to enable them to contribute more significantly to economic growth.

MoF has the mandate for (i) market information services; (ii) quality control and grading

standards, which includes international standards compliance; and (iii) agricultural commodity

research. However, it needs to promote private sector involvement inthe provision of some of these services, particularly market information services, and

commodity research. The private sector cannot develop fully unless an environment is created

that allows it to enter into service areas currently being provided by government.

8. All agricultural and agribusiness research in the country is funded by the public sector. Fiscal

constraints affect operational research funding, with 90% of all funds assigned to staff salaries,

and only 10% available for operational activitiesgrossly insufficient to conduct tangible

research activities. Research institutes are not commercially oriented; they are not even

allowed to sell their germ-plasm and breeding materials to the private sector. The extension

service has a comparatively high cost, lacks efficiency and quality, with fiscal sustainability a

major problem. The agriculture extension services main focus is on the major staple and

industrial crops, and primarily on production, with little work in the field of postharvest

technology and processing. Farmers lack knowledge and awareness of modern production

techniques, and need practical training and extension to support development. The approach of

the farmer field school has proven to be highly successful in providing farmers with improved

agronomic, postharvest, and integrated pest management practices, and leads to formation of

farmer groups that are able to access required extension advice from private sector providers.

12. Lack of Agribusiness Policy. Although a few national and provincial public agencies are

related to agribusiness, these agencies work largely in isolation. An integrated and well

coordinated agribusiness strategy is needed to (i) support and promote the growth andperformance of the agribusiness subsector, including enterprise start-up and expansion, value

chain integration, product specialization; and (ii) incorporate the informal sector into the

agribusiness mainstream, particularly in the context of globalization, international competitive

pricing, the need for investment incentives, and world trade issues.

C. Government Policies and Plans

13. MoA has stated that a number of policy issues need to be addressed by the Government in

agriculture and agribusiness. Those relevant to agribusiness include (i) making agriculture a

priority area to address issues of rural unemployment, poverty reduction, and economic

growth; (ii) providing a policy focus for sustainable food security, increasing productivity,

commercial agriculture, import substitution, income diversification, and export orientation; (iii)increasing farmer productivity and profitability; (iv) prioritizing the private sector's role in

leading public-private sector partnerships; (v) restructuring the institutional services of

agricultural research and extension to raise farmer productivity and profitability; (vi)

establishing new markets in areas where the marketing structure is weak; and (vii) building

capacity on WTO issues.

D. Lessons Learned

8/3/2019 Project AB

20/23

8/3/2019 Project AB

21/23

OUTLINE TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Background

1. Given the generally low level of capacity in agribusiness, the Project requires a significant

input of consulting services both at the institutional and enterprise levels. Given the need toenhance Bangladeshs agribusiness quality standards to international levels, the innovative

nature of the Agribusiness Support Fund (ASF), and the Projects approach to agribusiness

finance development, a major part of consulting services will be provided by international

consultants. A total of 221 person-months of international and 128 person-months of domestic

consulting inputs will be financed under the Project. A high degree of flexibility will be written

into each consulting contract to allow implementing agencies to recruit consultants according

to needs determined as project implementation proceeds.

B. Agribusiness Support Service Provision

2. International and domestic consultants will be engaged at the start of project

implementation to prepare and implement a nationwide promotion campaign for the ASF.

Given the innovative nature of the ASF within the agriculture sector in Bangladesh and the need

for sound governance and management to ensure effective delivery of ASF funding, the ASF

manager will be recruited as an international consultant for the duration of the Project. The

consultant will initially be responsible for incorporating and establishing the ASF, preparing a

business plan and operating procedures, and coordinating the promotion campaign. Thereafter,

the consultant will be responsible for day-to-day management of the ASF and evaluating

funding applications.

C. Agribusiness Finance Development

3. Since the financing of agribusiness of the type to be supported by the Project is very

limited in Bangladesh at present, agribusiness finance development consultants will all berecruited internationally. The first phase will involve a program of awareness building within

potential participating financial institutions (PFIs) to discuss with them on a one-to-one basis

the constraints and opportunities for agribusiness finance development. These discussions will

result in the preparation of a shortlist of PFIs that demonstrate a commitment to developing

agribusiness lending with the support of the Project. From the shortlist, 35 PFIs will be

selected for the second, capacity-building phase. In the capacity-building phase, separate teams

of consultants will work with individual PFIs to avoid issues of confidentiality and conflict of

interest, and will negotiate individual contracts with the Bangladesh Bank, and subsidiary

agreements with the PFI they support. Consultants will review business plans for agribusiness

finance development prepared by the selected PFIs. Based on a strategy and work plan (withperformance targets and evaluation criteria) agreed with the PFI management, they will

establish an agribusiness lending unit within the PFI. Consultants will support the unit for up to

36 months, during which time they will develop loan products, prepare operating procedures

and manuals, and train PFI staff. At the end of the assignment, each PFI will have an operating

agribusiness finance unit that it can take over and operate itself. The participation of PFIs in the

Project is expected to be phased over the first 3 years of the Project.

8/3/2019 Project AB

22/23

4. Throughout the implementation of the capacity-building phase, independent international

consultants will monitor the performance of the international consultants in agribusiness

finance development in each PFI, in accordance with the targets agreed with each PFI.

Contracts between the capacity-building consultants and each PFI will stipulate actions to be

taken depending on the results of the performance monitoring review.

D. Capacity Building for Agribusiness

5. Capacity building in both public and private sector institutions is a priority to support

implementation of the enabling policy and regulatory environment, and to move agribusiness

toward a more private sector and market-oriented approach. An international institutional

restructuring and coordination consultant will be engaged in the first year of the Project to

support the reorganization of the Ministry of Food, Agriculture, and Livestock to enable it to

perform in a manner consistent with the new policies and regulatory framework. The Ministry

of Food will be supported by international consultants in the first year to enhance its export

certification. Domestic consultants employed intermittently over the first 3 years of the Project

will be responsible for coordinating staff training and dissemination of information on

department functions. International consultants will be engaged intermittently during the first

3 years to strengthen the role of the Federal Seed Certification and Registration Department in

improving seed and fruit nursery certification and enforcing germ-plasm standards and

uniformity.

6. The Project will implement a significant training of trainers program aimed at upgrading the

capacity of public sector training institutes and private sector providers to deliver training in

business management, technical skills, total quality management, and alignment with World

Trade Organization regulations. Senior staff and lecturers at vocational training institutes and

government commerce colleges will receive training in school management and training

delivery methods. A combination of international agribusiness training curriculum developmentand national curriculum development and training dissemination and coordination consultants

will be engaged to implement the training program. Curriculum and training program

development will be an ongoing exercise during the first 3 years of the Project to allow for

refinement of the training message and delivery mechanisms based on implementation

experience. In recognition of the potential for floriculture, an international floriculture training

consultant will provide training to vocational training institute and government commerce

college staff and other training providers in flower production and presentation for onward

training to flower growers and processors. The consultant will be engaged intermittently during

the life of the Project.

E. Policy Formulation and Enabling Environment7. International consultants supported by task forces comprising public and private sector

nominees will be engaged to develop a national agribusiness policy using a consultative

approach with relevant sector stakeholders. Provincial and special area horticulture policies will

be developed in a similar way using domestic consultants and public and private task forces. An

international consultant will be employed to develop an agribusiness regulatory framework and

to promote compliance with international quality standards among Bangladeshs agribusiness

institutions and enterprises. Both the agribusiness and horticulture policies and regulatory

8/3/2019 Project AB

23/23

framework will be completed in the first year of the Project in order to facilitate

implementation thereafter.

F. Project Management Support

8. An international consultant with experience of implementing similar projects with diverse

components and activities will be recruited to support the Ministry of Food, Agriculture, and

Livestock in the establishment of the project management unit, provincial projectimplementation offices, and project implementation procedures in accordance with Asian

Development Bank guidelines. A domestic monitoring and evaluation consultant will be

contracted to establish the project performance monitoring system and to assess project

impact during the life of the Project. Starting in the second year and for the duration of the

Project, a domestic environmental monitoring and evaluation consultant will assess the

environmental impact of project-supported interventions.

9. Domestic consultants will be engaged to undertake two studies identified as priorities for

supporting agribusiness development. These are a competitive and comparative advantage

study to identify horticulture products that may offer the greatest potential for development in

Bangladesh, and a livestock and dairy study to identify potential areas of growth and

investment.

10. To accommodate unforeseen consulting service needs, 6 months international and 12

months domestic consulting services have been included, but not allocated to any specific area

or task. These will be available at the discretion of the project management unit to supplement

consulting inputs as necessary.

G. Procurement of Consulting Services

11. Consultants selected must have proven international experience in relevant fields of

expertise and prior exposure in South Asia. Companies will be eligible to bid for providing

consulting services in more than one of the identified packages.