INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Public Disclosure Copy Report No.: ISDSC5246 Date ISDS Prepared/Updated: 11-Sep-2013 Date ISDS Approved/Disclosed: 13-Sep-2013 I. BASIC INFORMATION A. Basic Project Data Country: Uzbekistan Project ID: P133703 Project Name: Horticulture Development Project (P133703) Task Team Dilshod Khidirov Leader: Estimated 15-Oct-2013 Estimated 11-Feb-2014 Appraisal Date: Board Date: Managing Unit: ECSAR Lending Specific Investment Loan Instrument: Sector(s): Crops (50%), Agricultural extension and research (50%) Theme(s): Rural markets (100%) Financing (In USD Million) Total Project Cost: 110.00 Total Bank Financing: 100.00 Financing Gap: 0.00 Public Disclosure Copy Financing Source Amount BORROWER/RECIPIENT 10.00 International Development Association (IDA) 100.00 Total 110.00 Environmental B - Partial Assessment Category: Is this a No Repeater project? B. Project Objectives The development objective of the proposed project is to strengthen the horticulture subsector by: i) facilitating investments along the value chain in order to improve productivity on the farm, improve quality and reduce post-harvest loss, and reduce food safety hazards; ii) improving the flow of information about best practices on farm and along the value chain; iii) facilitating the adoption of a supportive policy framework for the subsector. C. Project Description The area to be covered by the project was discussed with the Ministry of Agriculture and Water Resources and it was tentatively agreed to include the following five regions: Tashkent, Jizzak, Samarkand, Kashkadarya, and Namangan. The project is proposed to be implemented over a 6-year Public Disclosure Copy period, and will include three components as described below. Component 1: Agricultural Support Services - Providing Public Goods As discussed in the Horticulture Policy Note for Uzbekistan Strengthening the Horticulture Value Chain, Uzbekistan’s horticultural sector has grown rapidly, fueled by growing domestic and export demand, and by rates of on-farm profits that are high relative to alternative crops. The rapid expansion has brought with it a new set of market participants on the farm and along the marketing chain, straining the capacity of existing institutions. The general market for agricultural input and output services is less extensive than in similar-sized agricultural sectors elsewhere. This is in part because the governance structures of dehkan and private farms growing horticultural produce are different from those under which private wheat and cotton farms operate. Grain and cotton producers occupy 84 percent of the arable land in Uzbekistan and are given production quotas by the state, and are supplied with pesticides and fertilizer. In contrast dehkan farmers make their own arrangements for purchasing fertilizers, pesticides, machinery, planting materials, etc. and organize the sale of their outputs. As a consequence, agricultural input and output markets are not fully mature in Uzbekistan and the large number of farmers growing horticultural subsector for the first time are unfamiliar with many of the technical aspects of growing the crop and with market-reliant activities. Entrepreneurs entering to provide inputs or down-stream services lack experience as well for many of the same reasons. All of this creates a knowledge gap, which current institutions are unable to close in a timely way. The scale and variety of threats from pests and disease has increased rapidly with the import of planting material and the expansion of cultivated areas. Moreover, it is important for the research Public Disclosure Copy centers to fully document the genetic material present in the traditional local varieties of fruit and vegetables and to document and preserve the genetic material present in Uzbek forests, since these may be the building blocks for improving future varieties. To respond to the above challenges, the following set of activities is proposed to be included in this component in order to strengthened two research institutes: • Provide assistance to assure improved planting materials, disease and pest identification and soils tests by supporting labs and training personnel • Identify and document genetic material available in the wild and material found in local varieties non-commercial varieties • Develop the capacity to map pests and diseases as outbreaks occur in order to coordinate actions to stem related crop losses • Promote and support ecologically sustainable pest management, safe pesticide handling/use/ disposal, and avoid exceeding maximum pesticide residue levels on/in crops • Support demonstration farms and media-based mechanisms for disseminating information about mechanical and biological on-farm technologies, including information about varieties, irrigation, greenhouses and post-harvest equipment • Develop modular training programs for farmers and traders for all areas, including storage, post-harvest handling, packing and marketing, and food hazard controls • Develop and disseminate basic materials to help farms manage the business-side of farming, including basic information on record keeping, marketing, and business plans. • Explore and disseminate information about alternative energy technologies, including solar Public Disclosure Copy energy and energy based on agricultural by-products • Support study tours for leading farmers The following set of activities would be funded in order to strengthen the public-private institions that facilitate agricultural input and output markets: • Build the capacity of voluntary associations along the value chain with the goal of drawing up quality standards, codes of conduct, and organizing marketing campaigns, drawing on the successful experiences of other countries • Improve market information, including price information gathering and reporting, about domestic regional markets and destination markets in Russia and the Ukraine • Undertake market studies of potentially interesting fruit and vegetable markets for Uzbek producers to help farmers improve profitability; • Undertake market-channel studies identifying bottlenecks and opportunities for new private sector investments (e.g. collection points for processors, new packaging, new crops, etc.) • Provide technical support in marketing via publications of articles, video and coordinated events at demonstration plots with information about packing, volume, quality and food safety requirements along various marketing channels. • Participate in national and international trade shows for fruit and vegetable stakeholders to promote investments and exports, and to improve quality of production, marketing and investment decisions. • Establish opportunities for stakeholders and policy makers to learn from countries with advanced horticultural subsectors about successful policies As discussed in the Policy Note, food safety hazards often emerge as marketing chains become more Public Disclosure Copy complex and these pose a public health threat to domestic consumers. In addition, quality and food safety assurances become increasingly important in export destination markets. In recent years, supermarkets, fast-food restaurants and other buyers of horticultural products impose their own private-sector standards on suppliers in order to protect their reputation and core business. To date, Uzbekistan’s horticultural exports, especially exports to Russia, have grown rapidly because of their high quality and early availability. However, the ability of Uzbek exporters to penetrate high end markets may become more limited because of weak food hazard controls, as Russia implements its obligations under the WTO and as supermarkets and restaurants capture a larger share of the produce market. For example, more than 90% of Uzbekistan’s fresh produce has been traditionally sold in Russia and not many of these fruits and vegetables have entered supermarket chains due to inadequate packaging, sorting and grading of produce. In Russia supermarkets are winning in competition with traditional open markets and thus, the size of Russian market for produce from Uzbekistan has decreased twofold in the past five years, while local production continued growing. Furthermore, a study prepared under the Bank-financed Central Asia One Health Project in 2011 identified a number of recommendations to strengthen the national food safety structure controls and reduce the risk of food borne diseases. The recommendations and conclusions are divided into three sections: legislative framework, administrative and institutional structures and operational aspects of the food chain. Implementation of these recommendations will be important for improved food safety and public health in Uzbekistan, and for enhanced export potential of horticulture products. Public Disclosure Copy The following set of activities would be financed under this component to protect local consumers should be protected from unsafe products and improve their access to higher quality products. They would also help farmers, processors and traders manage their reputational risks and improve the image of Uzbek produce outside of the country, thereby improving access to the most attractive marketing channels. o Assist developing good production and handling practices according to GlobalGAP, HACCP and other internationally recognized food safety systems; o Help Uzstandart translate into Uzbek various international fruit & vegetable quality requirements; o Develop manuals of quality and packaging requirements for various products in various countries where products from Uzbekistan are or could be sold. o Work with private-public voluntary associations to gather and disseminate information about private-sector standards in domestic and destination markets Component 2: Facilitating Private Investment - Access to Credit While knowledge gaps contribute to many problems along the horticulture market chain, private sector investments are often required to solve the problems. By way of example, it is estimated that over 30% of vegetable and fruit crops are wasted due to lack of proper storage and the inability to process crops that do not find their way into fresh produce markets. Although there is no data to show the total capacity of the country’s cold storage, field visits suggest that the majority of the horticulture farmers, mainly dehkan farmers, do not have access to the modern post harvest pre- cooling and cold storage facilities. Fresh farm produce cannot maximum its shelf life without pre- cooling after harvest even the transportation with refrigerator is available for export market. Public Disclosure Copy The agro-business sector in Uzbekistan remains constrained by the lack of capital in general, but investment capital in particular. Whereas the banking sector has in recent years registered significant gains in the availability of short-term lending resources, long term resources remain limited. Demand for agricultural financial services is high and is not currently being sufficiently met. Consequently, banks and leasing companies still need long-term funds in order to respond to investment demands from their clients. The objective of the Access to Credit component is to enhance access to financial services for agribusinesses operating in Uzbekistan’s horticulture sector, in particular towards enhanced competitiveness of the sector, improved quality and food safety standards, and establishment of market linkages. The component would finance such investments as new cultivar, seeds/seedlings, water-saving irrigation facilities (such as drip irrigation), cold storage and other cold chain facilities, and value added handling/processing equipment and facilities. The project will build on the experience gained during RE SP II which has achieved sizeable results with provision of financial services to Uzbekistan’s agricultural enterprises. RESP II also supported capacity building of the participating banks to improve their skills in appraising agriculture-related investment loans. The component would further expand the access to the investment financing through additional lending resources for use by banks and leasing companies for on-lending agribusiness. The project would also support introduction of new financial products to support value chain development in the sector. Line of Credit for Banks and Leasing Companies. This sub-component will finance investment Public Disclosure Copy activities, principally for enterprises operating in the horticultural sector, through qualifying commercial banks and leasing companies. The current needs of agribusinesses for financing far exceed the long-term funds available to commercial banks, as shown by the high demand for investment funds under RESP II. Particularly, attention will be focused on investments supporting the enhanced competitiveness of the sector, access to new technologies, value addition in the sector, and improved market access through establishment of market linkages. In addition, the project would introduce a range of innovative structured finance products, to support development of market linkages and value chains. These products are expected to take the focus of the financial sector off the traditional forms of collateral, help agribusinesses borrow to deliver under signed contracts, and develop relationships between farmers, agro-processors, wholesalers, retailers, etc. Similar to RESP II, the Credit Line will be extended through qualified commercial banks and leasing companies, the Participating Financial Institutions (PFIs). A PFI will be a commercial bank or a leasing company selected on the basis of a set of PFI Eligibility Criteria, which include compliance with banking laws and prudential norms and regulations, maintenance of a healthy financial status and sound lending policies and procedures. The credit line will be open to all interested commercial banks which qualify through the due diligence process. Leasin g companies are also encouraged to undergo the due diligence procedure, as leasing arrangements may be more attractive than loans in some cases due to lesser collateral requirements. An operational manual for the credit line (similar to the Rural Enterprise Investment Regulations under the RESP II) will set forth the eligibility criteria for PFIs, sub-borrowers and sub-projects to be financed and the procedures for all parties involved in the implementation of the credit line. Capacity building program for Financial Institutions. Given the novelty of the non-traditional financial products to support value chain development, the project will implement a capacity building program for the financial institutions involved in the project. The PFIs will receive training on Public Disclosure Copy applicability of the new financial products in lending to agriculture, assessing the suitability and effectiveness of these new financial products, and on mitigation of the related risks. The PFIs will receive hands-on training in practical application of the new financial products through long-term (resident) TA, training and a study tour to a country with a developed agricultural finance system and application of value chain finance in agriculture. Component 3: Project Management The component will be focused on strengthening the MAWR’s and RRA’s capacity for Project management, monitoring and evaluation through the provision of goods, consultant services, Training, and financing of Incremental Operating Costs. This component will (i) support operation of the RRA, and finance overall project management, as well as contract administration, procurement, and financial management; and (iii) establish a robust performance based Management Information System (MIS) and arrange for data collection and reporting on key performance output and impact indicators, through baseline surveys, participatory assessments, mid-term review and final evaluation. D. Project location and salient physical characteristics relevant to the safeguard analysis (if known) The area to be covered by the project was discussed with the Ministry of Agriculture and Water Resources and it was tentatively agreed to include the following five regions: Tashkent, Jizzak, Samarkand, Kashkadarya, and Namangan. E. Borrowers Institutional Capacity for Safeguard Policies Public Disclosure Copy The HDP is proposed to be managed and implemented by the Rural Restructuring Agency (RRA), an institution that is currently implementing the Second Rural Enterprise Support Project, GEF Climate Change and Land Degradation Project, and other donors’ projects. The RRA has already established office premises in the country’s capital, with trained and professional staff that have experience implementing agriculture and rural development projects. Due to the complexity of the implementation of the large number of components under the RESP II, the necessity to directly liaise with regional and district government, and the importance of constant access to project beneficiaries (farmers in project regions), the RRA has also established small offices in the seven project regions. At present the regional offices provide day-to-day management of implementation activities, as well as fulfilling monitoring and reporting functions. The RRA has adequate capacity and sound track record under the RESP II that ensures sufficient experience and capacity to effectively implement the HDP. It will recruit additional specialists (Procurement, Financial Management, Environment, M&E, etc.) and they will be trained in Bank’s procedures. The Bank will continue to provide regular implementation support. As of today, compliance with the Environmental Management Framework under the RESP II&GEF project has been generally satisfactory. The performance of the RRA environmental specialist will be closely monitored with additional support provided if needed. The GoU and RRA have good track record in supporting biological control and other IPM methods in the past, including an IPM Institute with field offices/training centers (although it should be noted that these have been focused on the cotton sector with limited applicability to horticultural crops). Training and advisory services on integrated pest management (IPM) and safe handling and use of agricultural chemicals has been and is currently being provided to farmers and agribusiness personnel under the Rural Training and Advisory Services Component of RESP II. In addition, Public Disclosure Copy previous Bank-funded projects in the agricultural sector addressed IPM issue through involving of international consultants and organizations that prepared a program on strengthening and expanding the use of IPM techniques, which integrated biological, chemical and cultural practices. They also included the development of equipment for improved production and dispersal of beneficial insects and improved application of chemical pesticides. Additionally, training materials in IPM that were produced by these projects were commonly used over the years among the agricultural producers. While RESP II did not trigger any social safeguards (like the current project), the project unit has done a commendable job of addressing a range of other social issues such as gender (jobs for women) and monitoring of child labour. The project team will continue this effort to build capacity on social issues with the project unit. F. Environmental and Social Safeguards Specialists on the Team Roxanne Hakim (ECSSO) Arcadii Capcelea (ECSEN) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment OP/ Yes This policy is triggered as the project will BP 4.01 support a series of activities which will generate some environmental and social impacts. While Public Disclosure Copy generally the project will provide many environmental and social benefits (such as increased food security and farmer income due to higher agricultural productivity, enhanced agricultural competitiveness, improved farmer skills in land conservation and IPM practices or increased opportunity for engagement in small scale agri-businesses by farmers), it may also cause some negative impacts. Expansion of areas under horticulture and intensified horticulture practices could result in increased water use and use of inputs, including pesticides and chemical fertilizers. The project may also support import of alien varieties of fruits, nuts and vegetables, which could result in loss of native species biodiversity and introduction of new pests and diseases, which could be aggravated by climate change effects already being seen in Uzbekistan. Sub-projects anticipated for financing under the credit line if not adequately implemented, may cause some environmental impacts related to: (a) increased pollution of ground and surface waters due to soil erosion, use of fertilizers and pesticide, as well as the processing of agricultural products; Public Disclosure Copy (b) threats to human health and wildlife due to poor handling of fertilizers and pesticides; (c) increased siltation of water bodies due to soil erosion; (c) solid wastes during processing of agricultural products. To address these potential negative impacts the borrower will update the Environmental Management Framework (EMF) prepared under the current Second Rural Enterprise Support and associated GEF Climate Change and Land Degradation Projects which support similar activities. This document covers: rules and procedures for environmental screening; guidance for conducting subprojects EIA and/or preparing simple EMPs as well as of EMP Checklist; possible mitigation measures for different proposed activities and types of sub- projects to be supported by the credit line; requirements for monitoring and supervision of implementing of EIA/EMPs requirements. The EMF will be fully revised and adjusted to the HDP before appraisal, as well as will be disclosed and consulted in the country. The EMF will also specify capacity building Natural Habitats OP/BP 4.04 TBD No important wildlife and wildlife habitats are expected to be found in the vicinity of the potential locations for the implementation Public Disclosure Copy project activities and subprojects to be supported under the credit line. Forests OP/BP 4.36 No This policy will be not triggered as all project activities will be implemented on existing agricultural lands. Pest Management OP 4.09 Yes The OP 4.09 is triggered. A separate Pest Management Plan will be prepared which will provide a platform for a thorough review of existing pest management issues, practices and capacity (among the research institutions and other support services as well as the target farmers) and to set out a specific program of monitorable activities and targets addressing both project components. These activities/ targets will include promoting and supporting ecologically sustainable pest management, safe pesticide handling/use/disposal, and avoiding exceeding maximum pesticide residue levels on/ in crops. Furthermore, the PMP will analyze if there are sufficient natural pollinators in the project areas, and whether there is a need for special measures to protect and encourage wild pollinators and/or to promote beekeeping as part of the technology package. Public Disclosure Copy Physical Cultural Resources OP/ No There will be no impact on physical cultural BP 4.11 resources as all proposed activities will be implemented on existing agricultural lands and/ or within the laboratory facilities. Indigenous Peoples OP/BP 4.10 No N/A Involuntary Resettlement OP/BP No As with RESP 2 it is unlikely that there will be 4.12 any activities that will warrant triggering of OP 4.12. The project will not support activities and sub-projects that might result in resettlement. The EMF and the Project Operational Manual will clearly indicate that any infrastructure constructed under the project will be: a) located on land already owned by participants, or will be bought or leased on a willing buyer-willing seller basis, and, b) will be screened to ensure that it is free of legal encumbrance, or informal use or occupation by others who lack formal title. Hence the project will not support projects on land that is acquired involuntarily or triggers the policy in any other way. The EMF and Operations Manual will reflect this. Safety of Dams OP/BP 4.37 No N/A Public Disclosure Copy Projects on International No Not triggered because the project will not Waterways OP/BP 7.50 support rehabilitation of irrigation systems or financing for expansion of irrigated land Projects in Disputed Areas OP/BP No N/A 7.60 III. SAFEGUARD PREPARATION PLAN A. Tentative target date for preparing the PAD Stage ISDS: 30-Dec-2013 B. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing1 should be specified in the PAD-stage ISDS: The EMF and PMP documents will be revised before appraisal. Their disclosure will be done via Internet and by submitting the draft documents to key stakeholders for review and comments. After that (in about 14 days) the EMF and PMP will be consulted at a special workshop with participation of all stakeholders and representatives from broad public and NGOs. All relevant consultation documents including invitations, announcement, list of attendees, minutes and summaries of comments received will be attached to the EMF and PMP for Infoshop disclosure. IV. APPROVALS Task Team Leader: Name: Dilshod Khidirov Approved By: Regional Safeguards Name: Date: Public Disclosure Copy Coordinator: Sector Manager: Name: Dina Umali-Deininger (SM) Date: 13-Sep-2013 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.