Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 35297 September 2006

Proposed Loan and Asian Development Fund Grant Lao People’s Democratic Republic: Northern Region Sustainable Livelihoods through Livestock Development Project

CURRENCY EQUIVALENTS (as of 1 August 2006)

Currency Unit – kip (KN)

KN1.00 = $0.0000985

$1.00 = KN10,148

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund AFD – Agence Française de Développement

(French Development Agency) ASEAN – Association of Southeast Asian Nations AusAID – Australian Agency for International Development CDD – community driven development CETDU CGIAR CIAT

– – –

Central Extension Training Development Unit Consultative Group on International Agricultural Research Centro Internacional de Agricultura Tropical (International Center for Tropical Agriculture)

DAFEO – District Agriculture and Forestry Extension Office DLF – Department of Livestock and Fisheries EA – executing agency EGDP – ethnic groups development plan EIRR – economic internal rate of return EU – European Union GDP – gross domestic product GMS – Greater Mekong Subregion GTZ – Gesellschaft für Technische Zusammenarbeit (Partnership for Future

Development) ICB – International competitive bidding IFAD – International Fund for Agricultural Development JICA – Japan International Cooperation Agency LEAP – Lao PDR Extension in Agriculture Project LECS – Lao PDR Expenditure and Consumption Survey LFNC – Lao Front for National Construction LWU – Lao Women’s Union MAF – Ministry of Agriculture and Forestry NAFES – National Agricultural and Forestry Extension Service NAFRI – National Agriculture and Forestry Research Institute NCB – national competitive bidding NCO – National Coordination Office NGO – nongovernment organization NGPES – National Growth and Poverty Eradication Strategy O&M – operation and maintenance PAFO – Provincial Agriculture and Forestry Office PCC – provincial coordination committee PIU – provincial implementation unit PPA – participatory poverty assessment

PSC – project steering committee RIMS – Result and Impact Management System QCBS – quality and cost-based selection SAPE – Sector Assistance Program Evaluation SDC – Swiss Agency for Development and Cooperation SSS – single source selection TA – technical assistance TAD – Transboundary Animal Diseases

GLOSSARY

Appropriate technology

– Technologies that meet the needs of smallholders and are within their resource capacity to adopt.

Biosecurity – Processes and structures that prevent the transmission of disease between individual and groups of livestock.

Cold chain – Cold chain or “controlled temperature chain” is maintaining vaccines within the required temperature range from the point of manufacture to the moment of delivery.

Confinement – Livestock movements are restricted by a corral, pen, or shed for significant periods.

Core and expansion villages

– Villages that participate in the first and second years of the Project—core villages—receive more intense extension efforts. Based on experience with core villages, and using their successes for demonstration, the Project will move more rapidly to a larger number of expansion villages in later years in each district.

Enterprise development

– Enterprise development comprises the creation of options for smallholders and others to: (i) sell livestock or livestock products on a regular basis; (ii) provide input and output services including males for breeding services, seeds, chemicals, hardware, drugs, and vaccines; (iii) transport feed and livestock; (iv) construct pens and fences; and (v) process meat and livestock products.

Extension worker – Staff of District Agriculture and Forestry Extension Offices (DAFEOs) dedicated to working with smallholders to identify problems with their agricultural production systems, and to introduce technologies to help with these problems.

Forages – Grasses and legumes that can be used for feeding livestock. Mass organizations – Organizations including Lao Women’s Union (LWU), Lao

Youth Union (LYU), and Lao Front for National Construction (LFNC), which have outreach among remote communities and are responsible for a variety of aspects of community life and development—including women’s participation, youth activities, and participation of ethnic groups in development.

Mortality rate – Livestock mortality rates are expressed as the proportion of the population at risk that has died during an interval of 1 year. The mortality rate is given as a simple percentage.

Off-take – A breeding herd comprises mature males and females and their offspring. As the population ages, breeding females and males need to be replaced. These older animals and younger animals not needed for breeding stock can be sold. This surplus to requirements—the number of stock “taken off” the breeding herd—is the off-take. The same word is used for all species.

Participatory approach

– A participatory approach involves farmers and extension workers in a learning cycle that identifies problems, introduces technical options, and reviews progress.

Shifting cultivation – Involves rotation among cleared plots in cycles of 3–15 years, depending on soils and other conditions.

Smart feeding – The application of improved knowledge on feeds and feeding requirements of livestock.

Stylo – The common name of Stylosanthes guyanensis forage Swidden – See shifting cultivation. Technology options – The proposed extension approach is to allow smallholders to

evaluate proven technologies and make their own decisions about which ones are appropriate for their situation.

NOTE

In this report, "$" refers to US dollars

Vice President C. L. Greenwood, Operations Group 2 Director General R. M. Nag, Southeast Asia Department (SERD) Director U. S. Malik, Agriculture, Environment, and Natural Resources, SERD

Team leader Team members

M. Mitra, Senior Social Development Specialist, SERD A. Tayyab, Senior Natural Resource Management Specialist, SERD N. Ikemoto, Environment Specialist, SERD A. Musa, Financial Specialist, SERD Y. Kudo, Counsel, Office of the General Counsel (OGC)

CONTENTS Page

LOAN, GRANT, AND PROJECT SUMMARY i

MAP

I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1

A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3

III. THE PROPOSED PROJECT 8 A. Impact and Outcome 8 B. Project Outputs 8 C. ADF IX Grant Component 11 D. Special Features 11 E. Project Investment Plan 12 F. Financing Plan 13 G. Implementation Arrangements 13

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 18 A. Benefits and Impacts 18 B. Environment Impacts 18 C. Economic and Financial 18

V. SPECIFIC ASSURANCES 19 A. Special Assurances 19 B. Conditions for Loan and Grant Effectiveness 20

VI. RECOMMENDATION 20

APPENDIXES 1. Design and Monitoring Framework 21 2. Chronology 26 3. Problem and Objective Tree Analysis 27 4. Sector/Subsector Analysis 28 5. External Assistance to the Livestock Sector 32 6. Summary Cost Estimates and Financing Plan 36 7. Procurement Plan 38 8. Implementation Schedule 40 9. Financial and Economic Analysis 41 10. Financial Management Assessment 47 11. Summary Poverty Reduction and Social Strategy 49 12. Gender Action Plan 51 13. Ethnic Groups Development Plan 52 14. Outline Terms of Reference 58

SUPPLEMENTARY APPENDIXES (available on request) A. Financial Management Assessment B. Detailed Project Cost Estimates C Revolving Fund Guidelines D. Infrastructure Fund Guidelines E. Relevant Projects and Lessons Learned F. Summary of Initial Environment Examination G. Initial Environmental Examination H. Consultants’ Terms of Reference I. Implementation Arrangements J. Sector Analysis K. Detailed Terms of Reference for LWU L. Institutional Analysis M. Ethnic Group Development Plan N. Gender action Plan O. Village Selection P. Problem Tree Analysis Q. Procurement Packages R. Economic and Financial Analysis S. Monitoring and Evaluation

LOAN, GRANT, AND PROJECT SUMMARY Borrower/Recipient Lao People’s Democratic Republic (Lao PDR)

Classification Targeting classification: Targeted intervention Sector: Agriculture and natural resources Subsector: Livestock Themes: Sustainable economic growth, inclusive social development, and gender and development Subthemes: Developing rural areas and indigenous people, and gender equity in livelihood opportunities

Environment Assessment

Category B An initial environmental examination was undertaken.

Project Description Lack of access to adequate productive resources and marketing opportunities leads to the absence of sustainable livelihoods for the predominantly poor upland ethnic groups in northern Lao PDR. The principal constraints faced by the predominantly Lao Theung and Lao Sung ethnic groups in the project area relate, among other issues, to (i) falling productivity from upland agriculture, (ii) lack of adequate land and forest for food production and gathering, and (iii) lack of access to appropriate technologies and marketing opportunities for improved livestock production and trade. Given the dependency of upland communities on swidden agriculture, and its falling productivity and land availability constraints, there is an urgent need to shift to higher value production per hectare and per unit of labor. Improved livestock production provides such an option. Livestock production provides within a context of small farms in upland areas, an opportunity to capture higher value added per hectare than crop-based agriculture. The growing connectivity of Lao PDR also places it in an advantageous position vis-à-vis regional trade to supply the growing demand for livestock from neighboring countries. It holds out promise of improved nutrition and food security for groups that are particularly vulnerable to food shortages and lack of protein in their diets. The role of livestock rearing in resource-poor upland households is highly significant, as it contributes to food security and more than one third of cash income derived from agriculture. Livestock productivity has been severely constrained by the lack of appropriate production technologies, household labor availability and inefficiencies, financial and extension services, and access to markets. Against this background, the Project proposes to: (i) enhance village livestock systems by (a) improving on farm livestock productivity,; (b) market linkages and enterprise development to support livestock rearing; and (c) an enhanced participatory extension network; (ii) support capacity building for community driven development (CDD); and (iii) support for project management and implementation.

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Rationale

The majority of the population in the project area, predominantly Lao Theung and Lao Sung ethnic groups, is poor and lacks access to productive resources essential for subsistence. At least 60% of the population is poor, with much higher levels of poverty and food shortages in particular areas. Education levels among the Lao Theung and Lao Sung ethnic groups are low, especially among women. Literacy rates in the project area vary from 33% to 75% but are considerably lower among women and upland communities. Most households experience food shortages for several months each year. Lao Theung and Lao Sung ethnic groups are increasingly facing the loss of traditional livelihoods, which has created “new poverty” and food shortages. Livestock rearing is an integral part of the upland farming system and its development will impact favorably on the poor and on women. Although livestock improvement was the topmost priority identified by them during the Participatory Poverty Assessment of Lao PDR, (PPA), these communities have had little support until now.Their access to extension support for livestock rearing has been limited on account of lack of technical and financial resources at field level, as well as lack of culturally responsive extension methods and widespread illiteracy among ethnic groups. Upland livelihoods can be improved from present levels by increasing livestock productivity, better nutrition, disease control, improved management, biosecurity measures (to reduce risk of disease), and better marketing. These steps are expected to lead to increased returns to labor and improved food security and nutrition of vulnerable groups, as well as in building up productive assets for the poor in upland areas.

Impact and Outcome

The Project is highly relevant in a context where traditional upland livelihoods, based on swidden agriculture and forest resources, are facing a growing crisis. Livestock is the one productive asset that households possess that clearly belongs to them. By improving livestock management practices, and addressing the factors affecting low productivity—including poor extension services, lack of adequate livestock assets, lack of organization, and lack of access to markets—the Project can ensure significant gains in upland livelihoods with relatively small investments. It can also reduce demands on household labor, improve its efficiency, and lead to greater food security and cash incomes for poor upland communities. The Project area consists of approximately 1,500 villages in 18 priority poor districts of five northern provinces of Lao PDR. Of these only about 650 have various degrees of physical access. The Project directly targets approximately 408 villages, which are relatively easier for extension staff to access throughout the year. The total population of these 408 villages is 146,880 persons in 24,480 households. Of these the Project is likely to impact directly upon 17,000 households. Among the 17,000 households, assuming a 30% adoption rate of appropriate technologies provided by the project, by rearers of pigs and larger livestock, the

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Project Investment Plan Financing Plan

Project is likely to result in increased incomes of up to $1400 per annum for approximately 7,000 households. By including smallholder poultry rearers, the number of beneficiary households will increase by approximately 10,000, bringing the total number of beneficiary households to 17,000. Of these approximately 50% are expected to be poor. In addition, it is expected that communities living in the remaining 250 villages which are relatively accessible for parts of the year, are likely to benefit through peer group exchanges of information, and increasing interactions with trained extension staff. With and without Project comparisons show that the Project enables the poor households to come out of poverty permanently by adopting the new production and management technologies. Lao Theung and Lao Sung ethnic groups will benefit significantly from the Project (80% of all beneficiaries)—including Khmu (38%), Hmong (18%), Akha (10%), and smaller ethnic groups (14%). Tai Kadai or Lowland Lao comprise the remainder (20%). At least 50% of all beneficiaries will be women, given the Project’s focus on (i) improving management of small livestock, and (ii) providing equitable opportunities and support for ethnic women in particular to participate in project activities. The outcome of the Project will be (i) greater sustainability of upland livelihoods; (ii) reduced poverty; (iii) improved commercial prospects in the area for livestock production aimed at export and domestic markets; (iv) improved nutrition and food security among the poor; and (v) increased self-reliance of the upland communities, particularly women. The total investment cost of the Project is estimated at $18.4 million including contingencies, taxes, and duties.

($ million)

Item Total Percent ADB Loan 9.3 50.5 ADF Grant 0.7 4.0 Government 1.1 5.8 Beneficiaries 0.8 4.4 SDC 3.5 19.0 IFAD 3.0 16.3 Total 18.4 100.0 Percent 100.0

ADB = Asian Development Bank, ADF = Asian Development Fund, IFAD = International Fund for Agricultural Development, SDC = Swiss Agency for Development and Cooperation. Source: Asian Development Bank estimates.

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Loan Amount and Terms Period of Utilization Estimated Project Completion Date Executing Agency Implementation Arrangements

The Asian Development Bank (ADB) will provide a loan of various currencies equivalent to $9.3 million from its Special Funds resources. The loan will have a maturity term of 32 years including a grace period of 8 years, an interest rate of 1% during the grace period and 1.5% during the principal amortization, and other terms and conditions set forth in the loan agreement and the project agreement. 31 December 2012 30 June 2012 Ministry of Agriculture and Forestry(MAF) A national project steering committee (PSC) will be established with representation from relevant departments of MAF, including the Department of Livestock and Fisheries (DLF)National Agricultural and Forestry Extension Service (NAFES), National Agriculture and Forestry Research Institute (NAFRI), ministries of finance and foreign affairs, and governors’ representatives from the five participating provinces. It will be chaired by the vice minister of MAF. The PSC will be responsible for reviewing project implementation and guiding the Executing Agency (EA) on issues relating to policy and interdepartmental cooperation. A regional office, headed by the national project director, will be established in the Provincial Agriculture and Forestry Office (PAFO) precincts in the province of Luang Prabang to supervise

project activities. Financial management will require close coordination with the Department of Livestock and Fisheries (DLF) in Vientiane. Due to the location of the RO at Luang Prabang, financial management will be performed by existing staff from within the Administration Division of DLF, to be appointed to a National Coordination Office (NCO) in Vientiane to address ADB loan withdrawal and replenishment. Provincial Implementation Units (PIUs) and associated provincial coordination committees (PCCs) chaired by the provincial vice governor with members from relevant departments, will be established, in order to coordinate implementation in each province. The PCCs will be common for all livestock projects at provincial level. The PIUs will be established within the existing livestock section of each PAFO. The District Agriculture and Forestry Extension Office (DAFEO) in each participating district will implement the Project at grassroots level through extension workers (EWs). The EWs will form the frontline for the transfer of appropriate technologies using participatory methods, to village communities organized for the purpose into groups. Project activities will be incorporated into DAFEO work plans and collated into annual PAFO work plans that will be approved by the PCCs, DLF, and subsequently MAF and the PSC. Project management structures are designed to work within existing institutional structures of

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national and provincial administrations to ensure sustainability after project completion. Project activities will start gradually in several villages in six districts—one in each province plus two in Houaphanh in the first year, expanding by six in the second year and a further six in the third year. By the end of the Project, activities will cover about 408 villages in 18 districts as targeted by the sixth year of project implementation.

The technical assistance (TA) for Capacity Building for Smallholder Livestock Systems Project, which began in November 2005, will be responsible for training DAFEO staff in all first year districts of the Project. The government extension service will be responsible for facilitating the introduction of new technologies. The Swiss Agency for Development and Cooperation (SDC) will provide grant funding through joint cofinancing for capacity building of extension workers, subject matter specialists and consultancy contracts for organization, mobilization, and training of village communities. Capacity building at several levels will be implemented by consultants engaged under the Project, supervised by the regional office.

Coordination with other externally aided livestock projects being implemented in the same districts and provinces will be an important aspect of project implementation. This will be ensured through the provincial and national committees which will also review implementation of other livestock projects.

Procurement Vehicles, equipment, contract services to be financed from the proceeds of the ADB loan will be procured in accordance with ADB’s Procurement Guidelines. Civil works comprise small contracts not exceeding $100,000, typically for building renovation and construction (district offices and the regional office) in the more remote district centers and for small-scale civil works carried out in remote village locations. As such, civil works will be procured in accordance with national competitive bidding procedures among private local contractors acceptable to ADB.

Consulting Services The Project will fund a total of 64 person-months of international consultants and 402 person-months of national consultants in both short and long-term assignments to be recruited through a firm and /or individual contracts. Consulting services are funded entirely through grant financing. ADB in consultation with the Government of Lao PDR, SDC and the International Fund for Agricultural Development (IFAD) will directly recruit consultants funded under the Asian Development Fund IX (ADF IX) grant. These include project management, expertise related to smallholder poultry production, livestock marketing and trade, and monitoring and evaluation related inputs. The SDC grant funded consultant services for livestock improvement inputs, community mobilization, and gender and development, will be recruited by the

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Government, in consultation with ADB, SDC and IFAD. The level of consulting services identified under the Project is considered critical, in view of the crucial gaps in capacity. That is the rationale for SDC support, which is aimed entirely at providing critically required inputs to improve livestock sector performance at all levels. Close monitoring of consultant service delivery and outputs will be undertaken by the EA and ADB review missions. In addition to the above, consultancy services will be provided under the SDC grant, through contracts negotiated by the RO with provincial and district units of Lao Women’s Union (LWU), to facilitate CDD. Consultants will be selected and engaged in accordance with ADB’s Guidelines on the Use of Consultants.

Project Benefits and Beneficiaries

The Project has an estimated economic internal rate of return of 17%. The results obtained are robust to adoption rates declines for appropriate technologies, declines in farm gate prices, decreases in the number of villages impacted, and project cost increases. The majority of the beneficiaries will be the poor and women, drawn mainly from Lao Theung and Lao Sung communities. The bulk of project benefits will come from incremental production. Women in these communities will benefit from improved returns to labor, access to knowledge, financing services, and improved marketing channels. Nonquantifiable benefits include (i) sustainable livelihood systems; (ii) improved nutrition of vulnerable groups, including children and young mothers, the sick, and the elderly; (iii) inclusive social development; (iv) improved gender equity; (v) impacts on participating institutions in terms of effective coordination, improved communication, guidance and technical support; and (vi) reinforcement of the role of DLF as the lead agency responsible for planning and reviewing progress of livestock sector objectives.

Environmental impacts will be positive, with improved livestock production providing a real alternative to environmentally damaging shifting cultivation, where fallow periods have reduced dramatically. Greater confinement of livestock will reduce damage to forest areas and the possibility of soil erosion through overstocking of pastures, as well as provide opportunities for better management and use of manure, with potential benefits for crop production. Negative concerns are small and localized for which there are mitigating measures (under the Project) to prevent any negative environmental impact. Through improved market links and enterprise development, domestic and international trade in livestock will be facilitated. This will contribute to greater transparency regarding trends in market demand and pricing of livestock, resulting in fair returns to smallholders.

Risks and Assumptions Limited access to financial services is a risk that may limit the full realization of benefits to the poor from improved productivity.

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Access to investment funds is essential for production and risk management. Improvements in land use planning, particularly ownership rights for ethnic minority communities, along with improved access to financial services under the Project, will ensure sustainable gains to the beneficiaries. Highly pathogenic avian influenza (HPAI) is not expected to be a risk in hilly and thinly populated areas of the Project. Improved management of smallholder poultry is expected to improve biosecurity and reduce any risks of avian influenza.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed loan, (ii) a proposed grant, both to the Lao People’s Democratic Republic (Lao PDR) for the proposed Northern Region Sustainable Livelihoods through Livestock Development Project,1 (iii) the proposed administration by the Asian Development Bank (ADB) of a grant provided by the Government of Switzerland to Lao PDR for the proposed Northern Region Sustainable Livelihoods through Livestock Development Project, and (iv) the proposed administration by ADB of a loan provided by the International Fund for Agricultural Development (IFAD) to Lao PDR for the proposed Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

1. Poverty, Agriculture and Livestock

2. Lack of access to adequate productive resources, culturally appropriate livelihoods support, and weak links with markets lead to the absence of sustainable livelihoods2 for the predominantly ethnic populations in northern Lao PDR. Sustainable livelihoods imply access to capital, resources, and capabilities, which together provide individuals and households with food security and resources to meet their present and future needs, increase well-being, and reduce vulnerability to sudden shocks that may lead to poverty and deprivation. By improving livestock productivity,the proposed Project aims to address some of the key constraints faced by poor upland communities, women, and other disadvantaged groups, in improving the sustainability of their livelihoods in 18 of the priority poor districts located in five northern provinces. 3. Lao PDR is one of the poorest countries in Asia, with 31%3 of all households assessed as “poor”. Steady economic growth of approximately 5% per annum has been maintained since 2000, reducing overall poverty. However, the level of rural poverty is high (on average about 52.5%) in the northern region, and is significantly higher than urban poverty. Rural poverty is characterized by a lack of sustainable livelihoods (vulnerability to food shortages, reduced ability to meet family subsistence requirements, low levels of asset formation, and low education and health levels), and is mainly found in upland areas of the northern provinces, among the largely ethnic population.4 The upland ethnic communities have gradually faced reduced access to productive resources, including land and forest, contributing to a growing lack of sustainable livelihoods. Among upland ethnic groups, poverty—seen as “new poverty”—is measured5 in terms of declining rice sufficiency (upland rice production has declined by about 30,000 hectares [ha] per year over the past 3 years), and incomes that are insufficient to meet 1 The Project was prepared under ADB. 2004. Technical Assistance to the Lao PDR for Participatory Livestock

Development. Manila (TA No. 4287-LAO). Directed at reducing poverty in the upland areas of the northern region of Lao PDR, the Centro Internationale Agricultura Tropicale (CIAT) and International Livestock Research Institute, which have extensive experience and involvement in livestock development in Lao PDR, undertook the study.

2 The sustainable livelihoods framework developed by IDS, Sussex, and adopted by the Department for International Development (DFID) of the United Kingdom, puts people at the center of development and views them as operating in a context of vulnerability. It provides a very useful and relevant analytical framework to (i) understand the multidimensional nature of poverty, as defined by people themselves; and (ii) analyze their access to the various types of capital (financial, physical, social, human, natural) and their ability to combine and utilize these assets as individuals, households, in ways that may enable them to ensure their access to adequate subsistence and well-being—including improvements therein in future, without undermining the natural resource base. Conversely, the absence of any of these can lead to poverty, vulnerability to loss of subsistence, and well-being. For further details, refer to, among others, Chambers, R., and G. Conway. 1992. Sustainable Rural Livelihoods: Practical Concepts for the 21st Century. (IDS) Discussion Paper 296. Sussex: IDS.

3 Lao PDR Expenditure and Consumption Survey III. 2005. Vientiane. 4 Lao PDR is culturally diverse; 48 diverse ethnic groups are recognized by the Government but anthropologists

estimate approximately 230 groups and subgroups. 5 ADB. 2002. Participatory Poverty Assessment (PPA). Lao PDR.

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household health and education expenditure, and lack of livestock. Upland communities measure relative wealth through their livestock holdings6 although livestock holdings are small. About 93% of villagers raise poultry, 74% of villagers raise pigs, 8% raise goats, 31% raise cattle, and 41% raise buffalo. The average number of animals per animal-raising household is 1 cow and buffalo, 3–4 pigs, and 3–5 hens plus their young. The causes of poverty are seen by the people as: (i) shortages of land for swidden cultivation; (ii) falling productivity of upland cultivation, caused by increasing population pressures and policies aimed at reducing shifting cultivation; (iii) lack of livestock assets; (iv) prevalence of animal diseases; (v) lack of technical production and management knowledge; (vi) lack of communications, both physical and for technology and information transfer; (vii) lack of market access; and (viii) lack of capital for investment, among others. Given the extent of poverty and regular incidences of food shortages, and the diminishing prospects under swidden cultivation systems, the livestock subsector can play a critical role in improving the sustainability of upland livelihoods.7 It can provide a source of food security and nutrition for vulnerable groups, as well as a source of income in rural poor households. It can help to improve women’s access to improved livelihoods; increase food security; and improve the nutritional status of vulnerable groups, especially children, young mothers, the elderly, and the sick. It can strengthen the overall economic and social position of women in the family and the community. 4. In the northern provinces, livestock production has remained relatively static over the past 10 years. Livestock are an integral part of the assets of most rural inhabitants, with about 90% of all farm households raising one or more livestock species. About 95% of all livestock traded are produced by smallholders from holdings of just over 1 ha (excluding communal grazing areas). Livestock rearing and cropping activities are integrated, with livestock providing inputs into crop production such as draught power for soil preparation, manure for soil fertilization, and in the transportation of goods. In turn, cattle, buffalo, pigs, goats, and chickens graze on recently harvested cropped areas or are fed by-products from rice milling for part of their diet. 5. Livestock production systems vary between lowland and upland areas, where animals are raised for different purposes. In the uplands, livestock form a vital part of the rural household’s physical and social capital. They are reared both for draught power and as a source of manure, and are a vital form of savings.8 In upland areas, livestock are also a source of food security, given the ever-present risk of food shortages. Smaller livestock such as poultry9 and pigs provide food security to poor households. Livestock production strategies are oriented toward dealing with limitations imposed by low availability of capital, technical knowledge and know-how, and limited household labor. In this scenario, animals graze and forage with minimal supervision and are exposed to predators, disease, theft, and road accidents. However, in spite of all limitations imposed by the current situation, livestock production plays a key role in household income earning; the sale of cattle, buffalo, pigs, and poultry accounts for about 50% of annual household cash incomes in upland areas and about 30% nationally.10

6 Agriculture remains the leading sector of the economy, accounting for 51% of gross domestic product (GDP), while

livestock plays a significant role within the sector with 36% of agricultural GDP. The contribution of livestock to agricultural GDP has increased steadily over the past 10 years in response to increasing prices and export and domestic demand.

7 In the participatory poverty assessment (PPA), ethnic groups listed improvement of livestock productivity as one of their top priorities for poverty reduction.

8 There are hardly any formal financial services available. 9 “Sale of a hen can help us procure rice for several days’ consumption by an individual. If there is an outbreak of

disease, all our assets can be wiped out very quickly. We need to reduce risks of disease in order to safeguard our animal assets.” Field research conversation of the Fact-Finding Mission with Khmu women’s group, recorded in Xieng Khouang Province, 2006.

10 ADB. 2002. Review of the Livestock Sector of Lao PDR. Manila.

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B. Analysis of Key Problems and Opportunities

1. Role of Upland Livestock Production Systems

6. Under upland farming systems, livestock achieve low growth rates, are susceptible to infectious and parasitic diseases, and have low fertility rates that result in low off-take, generating low household returns. Mortality rates of livestock are very high in the northern provinces,11 severely affecting productivity. Given the extent of these communities’ dependence on livestock rearing and the poor performance of the livestock subsector to date, opportunities for improving productivity and thereby the sustainability of upland livelihoods are apparent in terms of improving feeding and management technologies and improved links with financial services and markets. 7. In the uplands, there is widespread familiarity and considerable local knowledge in rearing livestock, which is part of the rich cultural tradition of the ethnic communities in northern Lao PDR. However, lack of knowledge of animal nutrition, disease prevention, and improved livestock management, among others, pose a risk to improving the performance of the subsector and its role in further enhancing rural livelihoods. Upland ethnic communities often lack access to adequate financial resources which are required to improve their access to livelihood assets, help them adopt improved management, and enable them to invest in adequate nutrition and health for livestock. There is a need to develop flexible and culturally appropriate financial services that can meet these requirements in a sustainable manner. There is also a need to support the adoption of improved livestock management practices that are effective while not adding to the already overtaxed household labor. Improved extension services need to be developed with culturally appropriate and gender-responsive participatory methods to deliver know-how and appropriate management practices. The situation is made more complex by the frequent lack of a working knowledge of the Lao language among upland ethnic communities. Literacy levels in the Lao language among ethnic groups are low, with even lower percentages of literacy among women. 12 There is a need to support upland ethnic communities, particularly women, with Lao language and numeracy training; translation support for extension; and opportunities to participate in training, credit, and enterprise promotion programs. 8. The advantageous situation of Lao PDR regarding regional integration in the Greater Mekong Subregion (GMS), with increased trade and transport linkages being promoted, can provide opportunities for poor rural communities to improve their incomes through increased market-oriented production and higher prices. Smallholder poultry production has the potential to provide food security and improved nutritional levels for poor households and vulnerable groups. While smallholder poultry markets tend to be local ones, there is a growing domestic demand in urban centers for smallholder poultry products, which needs to be passed on to smallholder poultry producers in the northern region. There is also a growing potential demand for pigs, goat, and cattle from urban areas within Lao PDR as well as in the GMS region. 9. With their present limited access to financial, physical, social, human, and natural and information capital,13 the risks associated with increased livestock production to meet increasing

11 These average approximately 67% for pigs, 16% for goats, 40% for cattle, 20% for buffalo, and 67% for chicken

(footnote 10). 12 Gender inequality is rife among ethnic groups, with almost 80% of women remaining illiterate. Girls assume

household responsibilities at an early age, which precludes their education and reduces their chances to improve their livelihoods by learning improved technologies or accessing financial resources and markets.

13 A sixth kind of capital—information capital—has been added to the original list in view of the crucial gaps that can be created by its absence for rural households in terms of their ability to take advantage of improved technologies and opportunities. See Odero, K. 2004. Extending the Sustainable Livelihoods Framework. University of Zimbabwe.

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demand have been too high for the majority of smallholders. Without a significant change in the orientation of smallholder production systems—that leads to greater labor efficiency with better extension and improved management techniques, better access to capital, reduced risk of disease and mortality, and improved market links—the future scenario will mean a continuation of this constrained and inefficient extensive production system, which neither guarantees food security nor adequate incomes from livestock rearing. Conversely, by increasing productivity from current levels, the development of livestock has the potential to bring about sustainability of upland livelihoods and reduce poverty significantly. It also offers one of the few alternative income-generating options for shifting cultivators to substitute their diminishing returns from labor-intensive upland cropping activities. It provides a viable option for increasing food security among food insecure households and improving the nutritional levels of vulnerable groups. 10. Reducing poverty in these uplands, through developing sustainable rural livelihoods, requires improving the productivity of the livestock subsector. The upland ethnic communities are characterized by high levels of poverty, estimated at an average of 68%, with much higher levels in Houaphanh (92%) and parts of Xieng Khouang (62%). These communities are facing a livelihood crisis. Given the overall constraints in developing other livelihoods activities, enhancing livestock production provides upland ethnic communities with a viable opportunity to improve livelihoods while conserving their natural resource base. Improving livestock productivity has the potential to address the four elements of poverty in the uplands: (i) increasing food security and improving the nutrition of vulnerable groups, (ii) reducing vulnerability of the poor to sudden shocks, (iii) increasing smallholders’ assets, and (iv) contributing to the empowerment of women and the poor.

2. The Government’s Strategy for the Livestock Subsector

11. The Government recognizes the importance of the livestock sector for poverty reduction and achieving commodity diversification in regional trading patterns. One of the key objectives of the National Growth and Poverty Eradication Strategy (NGPES) is to improve food security. The NGPES14 seeks a multisector approach to poverty reduction and recognizes the pivotal role of agriculture in this area. Public investment through development projects has been targeted at 47 districts identified for priority investment among 72 poor districts identified in the NGPES. The Government has identified relevant initiatives for livestock development as part of its objective of improving the food security and nutrition of vulnerable groups, promoting diversification of livelihoods, and redressing the specific hardships of upland farming communities. These initiatives include strengthening the disease monitoring capabilities of the Department of Livestock and Fisheries (DLF), supported by an increased distribution of vaccines, associated with farmer training in their application, and the strengthening of livestock extension services, coupled with improved information networks for disease control and market information. The NGPES also emphasizes participatory planning for the livestock subsector, improved technical assistance (TA) for private sector breeding, production of livestock and livestock products, and improved market linkages for rural producers—in order to reap the benefits of increasing trade. It notes the need for improved availability of financial and physical resources in upland areas to enable producers to acquire livestock assets and make critical investments in improved feeding, animal health, and livestock management, for better incomes. 12. Another strategic government document relevant to livestock development15 states that the development goal for the livestock subsector in the medium term is “to improve returns to producers and export earnings through the environmentally and economically sustainable improvement of livestock productivity” (footnote 15). The Vision for Livestock Development in Lao PDR to the Year 2020 suggests that regional demand for livestock products provides an 14 Lao PDR. 2004. National Growth and Poverty Eradication Strategy. Vientiane (June). 15 DLF. 1998. Vision for Livestock Development in Lao PDR to the Year 2020.

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incentive for development of livestock, where regional and domestic prospects for trade in live cattle, buffaloes, and meat are sound.16 Improved smallholder poultry production is expected to lead to improvements in food security and nutrition of vulnerable groups. The key constraints to livestock development are identified17 as low productivity caused by limited technical support and feed supplies, low capital formation, and links to markets, and a situation where producers are trapped in a system of low inputs and low outputs.18 Incremental productivity is anticipated to come from key investments in Government’s prioritized program and action plan, together with improved capacities of technical extension staff and better access to credit.19

3. Lessons Learned and External Assistance to the Sector

13. Lessons Learned from Donor-assisted Projects in Lao PDR. External assistance20 to the sector consists mainly of grant projects, providing capacity building and improved technologies for forage production, disease control and monitoring, extension and training, monitoring and evaluation, legislation, and private sector participation. The experience of donor-assisted projects indicates that project design should incorporate only proven technologies that are compatible with the socioeconomic conditions of beneficiaries. A highly relevant lesson for Lao PDR, with its limited budgetary resources, is that only those activities that can be sustained over the long term through an appropriate institutional framework21 should be supported. It is clear that project design should not only strengthen the capacity of the government extension network but also develop associated private sector activities that are expected to be self-sustaining where the opportunity arises. In the area of agricultural extension, experience points to the importance of adopting a participatory, pro-poor, culturally compatible, and gender-responsive approach to change. The approach also needs to be holistic in its assessment of the sustainability of livelihood activities at the household level. The experiences of the Lao PDR Extension for Agriculture Project (LEAP) assisted by the Swiss Agency for Development and Cooperation (SDC), the Livestock Farmer Support Project assisted by the European Union (EU), and the Forages and Livestock Systems Project assisted by the Australian Agency for International Development (AusAID), demonstrate the gaps in the knowledge and current practices of extension staff with regard to participatory approaches, extension techniques, and technical skills. 14. While LEAP developed the “Lao Extension Approach”, which has been successfully applied in lowland cropping systems, the LEAP includes among other aspects, the building blocks for further development in order to respond to the needs of more complex upland farming systems. Project interventions must respond to poor smallholders’ needs and demands if new technologies are to be widely adopted. There is also a demonstrated need for culturally compatible rural financial services to support poor smallholders’ access to financial resources. Without access to capital for investment in breeding/rearing stock, critical production needs (such as feed supplements), and animal health requirements (such as vaccines), poor households will not be able to achieve sustainable livelihoods through livestock development. 16 DLF. 1998. op cit.Protein consumption levels are estimated to increase from 22 kilograms (kg) per capita per

annum in rural areas (33 kg in urban areas) to 50–70 kg per head per annum by 2020. 17 DLF. 1998. Ibid 18 Government of Lao PDR, DLF. 2002. Vision for Livestock Development in Lao PDR to the Year 2020. Vientiane. 19 Veterinary legislation is based on the Prime Ministerial Decree, 1993, and three Ministry of Agriculture and Forestry

(MAF) documents. Changes were proposed to these under the Lao European Union project that provided assistance in drafting a revised veterinary law in 2002. The draft veterinary law has been approved by the Council of Ministers and is awaiting consideration by the National Assembly.

20 Appendix 5 contains a detailed review of externally aided projects that are not included in the memorandum of understanding (MOU).

21 The approach to the institutional framework to be adopted for improved livestock subsector performance, as well as under this proposed Project, is based on the Paris Declaration on Aid Effectiveness (2005), wherein it is agreed that “donor(s) will base their overall support on receiving countries’ national development strategies, institutions and procedures”.

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Rural poor households require access to flexible financial services, physical and enhanced social capital, which facilitate participatory decision making by borrowing households, to improve their livelihoods in a sustainable manner. 15. Lessons from the ongoing Oudomxay Community Initiatives Support Project22 show the importance of (i) flexibility of design; (ii) building the technical and financial capacity of village households, formed into groups for self-management; and (iii) the timely combination of technical training, extension, and microfinance to support poverty reduction in a sustainable manner. The project also demonstrates the impacts of (i) support to smaller livestock production on the poor, and the (ii) significance of reliance on the village revolving funds groups in terms of promoting sustainable and transparent financial systems. The role of management and monitoring support from government line departments and project staff is critical to ensure the success of the interventions. Project benefit monitoring and evaluation PBME is critical to monitor project outcomes regularly against representative indicators, including assets structures and nutrition levels, in order to take corrective actions within the project. 16. ADB highlighted the significance of the livestock subsector for the livelihoods of ethnic groups in Lao PDR through the PPA i.e. (footnote 5). In 2005, ADB conducted the Sector Assistance Program Evaluation (SAPE) for the Agriculture and Natural Resources Sector in Lao PDR,23 which pointed to the diffused nature of ADB assistance in the agriculture and natural resources sector in Lao PDR. The SAPE made the following recommendations, among others: (i) the need for greater selectivity of sectors for ADB participation, in terms of composition and spread, (ii) the need to reflect government priorities, (iii) the division of roles and responsibilities among development partners, (iv) the need for strategic partnerships with other development partners, (v) the past performance of ADB supported projects and comparative advantages of ADB and the skills mix requirements. The Government has taken these recommendations positively and the Project is designed to address concerns identified by the SAPE. The Government also recognizes the key role played by ADB in providing direction to the livestock subsector through its policy and strategic papers.24 The Project has been included as a firm project in ADB’s pipeline for Lao PDR since 2004. 17. ADB’s Medium-Term Strategy II (2006–2008) points to the need for greater selectivity of sectors for ADB participation and forging partnerships with other development partners to increase knowledge-based project design and implementation—in order to improve the chances of greater success and sustainability of project outcomes. It also points to the need for partnership with other knowledge institutions in order to increase the relevance of project interventions, greater sustainability, and mutual learning. The Project is partnering with SDC and IFAD, which have extensive experience in designing and implementing sustainable pro-poor livelihoods projects in Lao PDR and the region—concentrating on livestock components aimed at reducing poverty, and improving the food security and nutrition of the poor. The Project is strengthened by the ongoing ADB ( 2004) Technical Assistance for (the) Capacity Building for Smallholder Livestock Systems,Manila (TA 4406-LAO) approved on 4 November 2004) which is being implemented by the International Center for Tropical Agriculture (CIAT), an institute of the Consultative Group on International Agricultural Research (CGIAR), at its Asia headquarters in Vientiane. 25 CIAT is implementing the TA with DLF, training selected staff from the five Provincial Agriculture and Forestry Offices (PAFOs) and six District Agriculture and Fisheries 22 Supported by IFAD, Government of Belgium, Government of the Lao PDR, and World Food Program. 23 Operations Evaluation Department, ADB. 2005. Sector Assistance Program Evaluation for the Agriculture and

Natural Resources Sector in the Lao People’s Democratic Republic. Manila. 24 Since 1989, after the adoption of the New Economic Mechanism, ADB has provided policy and program support

through a mix of program lending, investment projects, and TA. A number of policy and strategy papers have been prepared, including the ADB. 1999. Strategic Vision for the Agriculture Sector. ADB. 2004. Northern Region Development Strategy.

25 CIAT was set up to reduce hunger and poverty while protecting natural resources in developing countries.

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Extension Office (DAFEOs), targeting the first six districts where the Project will be implemented starting in the first year. The Project will also draw on the ongoing regional technical assistance for the Control of Transboundary Animal Diseases in the GMS.26 18. Lessons Learned from Projects Assisted by ADB and IFAD elsewhere in the region. Lessons learned from ADB projects in the livestock subsector in the Asia-Pacific region illustrate the need to adopt participatory, poverty-focused, gender-sensitive project design and strategies. Recent ADB-assisted projects that have been highly successful in the livestock subsector include the Bangladesh Participatory Livestock Development Project and the third Nepal Livestock Project. These projects demonstrate positive impacts on poverty reduction and women. They have had clear objectives and strategies centered on the needs and capabilities of the poor and women, and build on their strengths and capacities. Lessons from earlier projects point to the need to (i) avoid top-heavy, unsustainable implementation structures; (ii) advocate rational and sustainable approaches to management structures, staffing levels, staff deployment, and staff management; and (iii) ensure better project design, which should reflect the Government’s priorities and a realistic assessment of the capacity to adopt and implement suggested strategies. 19. These projects have demonstrated a clear need for strong and sustained government commitment toward institutional change and development as well as ADB’s continued support for project administration and supervision on a regular basis. The lessons illustrate the need for close cooperation with development partners. In instances of cofinancing, they emphasize the need for harmonized project management, supervision, and appropriate and timely fielding of consultants and TA inputs. Most importantly, they demonstrate the clear role for participatory approaches; the importance of promoting farmer/producer organizations; gender responsiveness; partnership with the private sector, NGOs, and mass organizations; and a systems approach. Lastly, they emphasize the need for incorporation of strong PBME from the outset to help the process of learning and adaptation, and provide a solid basis for assessing the impacts of projects, according to objectives and indicators adopted in the project. These lessons have been discussed with the Government and reflected in the design and implementation arrangements adopted under the proposed Project.

4. Comparative Advantages of the Northern Region

20. Livestock enterprises are important livelihood activities in upland rural areas, and have the potential to improve the sustainability of household incomes and reduce poverty. Given the low population densities, small farms, mountainous terrain, and poor infrastructure, smallholder systems are more suited to livestock development. There are opportunities to increase animal productivity in the uplands significantly by building upon established technologies in livestock nutrition, improved rearing and management practices, increasing market orientation, and promoting access to services and markets. A good starting point is the inclusion of smaller livestock—including poultry, pigs, and goat rearing—which can include poor households effectively. Participatory strategies and flexible financial services can enable resource-poor households to move to larger livestock eventually. This can be done through the dissemination of technical know-how and extension support, village-based revolving funds for microcredit, and marketing support strategies. Such gains in livestock productivity and incomes can be achieved by building the capacity extension workers through training in improved technologies, and

26 ADB 2004. Technical Assistance to Cambodia, People’s Republic of China, Lao People’s Democratic Republic,

Thailand and Vietnam for Transboundary Animal Disease Control in the GMS. Manila. (TA 6192-REG). The TA is working to develop regional and national capacity to address chronic and emerging zoonotic diseases of livestock in the GMS. It has developed strong regional collaboration within the GMS, including a regional MOU to combat livestock diseases, as well as with other donor assisted projects.

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participatory and culturally appropriate extension approaches; and by mobilizing and organizing farmers, including women, for training, extension, credit, production, and marketing. 21. Domestic consumption of meat and livestock products (including poultry products) is increasing, particularly in urban areas. Export markets for buffalo, cattle, goats, and black pigs are growing in neighboring countries. Opportunities for trade in livestock are expected to increase with the development of regional road networks throughout the GMS, several of which cut across northern Lao PDR, and regional trade and transport agreements. To address these emerging market opportunities, upland livestock systems must become more productive and efficient.

III. THE PROPOSED PROJECT

A. Impact and Outcome

22. The impact of the Project will contribute to improved sustainability of livelihoods for upland smallholders in northern Lao PDR. The immediate outcome is to improve livestock productivity and profitability under integrated upland farming systems through (i) enhanced productivity of village livestock systems, (ii) capacity building for community driven development (CDD), and (iii) support for implementation management. The Project will contribute to sustainable livelihoods through improved cash incomes, food security, and nutrition for some of the poorest segments of the population. It will achieve this by providing access to appropriate technology, management and marketing systems, rationalizing household labor requirements, and improving returns to labor. It will contribute to gender equity by providing upland ethnic women with opportunities and support to participate in the selection and implementation of community and household investments in livelihoods improvements. It will provide literacy in the Lao language, and numeracy training. It will support organization of village communities into small groups, training in credit management, and technical training in livestock rearing. Women will participate equitably in all training, group formation, and activities aimed at improved extension, production, and marketing. Environmental benefits are expected from the stabilization of shifting cultivation, improved hygiene, introduction of cut-and-carry systems, and environmental health—through waste management, disease control, and controlled animal movements. B. Project Outputs

23. To achieve the outcomes of sustained livelihood through livestock development, three outputs are proposed: (i) enhanced productivity of village livestock systems; (ii) capacity building for community driven development (CDD), and (iii) implementation management. The first output is further disaggregated into the essential elements required to achieve improved incomes from livestock production, including: (i) on-farm livestock productivity, (ii) market linkages and enterprise development to support livestock rearing, and (iii) an enhanced participatory extension network. Designed in this manner, the constraints identified above can be addressed within the framework of a livelihood approach, which addresses the need for improving production skills among poor smallholders, helps develop closer market linkages so that farm gate price signals reflect the growing demand for livestock products, provides new incentives for the adoption of improved production technologies, develops extension workers’ skills to facilitate change among poor livestock producers, and resources extension activities. The second output is directed at enhancing capacity of upland communities for CDD through participatory mobilization and organization of community-based groups for production, revolving funds, and infrastructure development. The third output addresses implementation management of a multifaceted project, involving the cooperation of a number of government agencies, village-based producer/revolving fund groups, and private organizations and individuals.

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a. Enhanced Village Livestock Systems

24. Activities proposed here will be funded by the ADB loan, ADF IX grant, SDC grant, and IFAD loan. The activities identified here seek to change the current perspective of low input-low output systems, making smallholders more market-oriented. Such a change requires persistent guidance given the long tradition prevalent among upland ethnic communities, of risk-reducing upland farming systems, and requires a problem-solving approach to introduce proven technologies to modernize production systems. 25. Productivity Initiatives. The Project will through the first part of its outputs: (i) improve growth of larger livestock through the introduction of forages from contracted nurseries (initially 2 ha per district) supported by the Project; supply seed and planting material; provide training in forage establishment, management, and feeding to livestock; and develop other animal feed sources; (ii) improve livestock survival through better management of livestock movements, improved disease monitoring, and support for emergency vaccinations (together with the ongoing regional technical assistance project for the Control of Transboundary Animal Diseases in the GMS i.e. (footnote 27), and the EU-funded Livestock Farmer Support Project);27 (iii) improve livestock productivity through smallholder training and demonstrations using equipment supplied by the Project; (iv) improve the access of poor livestock rearers, particularly women, to improved smallholder poultry and piggery production and management techniques, and improve biosecurity measures to control livestock disease—by building on the lessons of past and ongoing projects; and (v) improve small and large livestock management practices through farmer training, demonstrations of livestock management (exclusion techniques, fencing, and breeder management) using equipment and materials provided by the Project. Small livestock production will be used as a strategy to include resource-poor households in the Project. Training will be provided to women in particular in improving feeding and management of smallholder poultry and piggery by providing supplementary feeding, improved housing, and use of exclusion techniques for smallholder poultry stocks. These measures will be essential for livestock productivity gains and will act as insurance against disease, as biosecurity measures can help to reduce the risk of infection considerably. Productivity increases in smaller livestock can also help to significantly improve the incomes and nutrition of vulnerable groups among upland communities.28 Women poultry workers will be trained and deployed at village level. The Project will support village revolving funds,29 to be channeled through village-based socially homogenous revolving fund groups. This will primarily support the access of the poor and women to improved livelihood assets. Potential borrowers organized in groups will undergo training in improved livestock rearing and management, credit, and savings programs. They will decide on the purposes for their borrowings in their groups. They will prepare business plans, which will be vetted by the groups and community facilitators30 prior to being funded. They will undertake a savings programs for at least 9 months before becoming eligible to borrow from project funds. The Project will support continued monitoring and technical backstopping of these revolving funds through consulting services contracts with district teams at local level. Detailed guidelines for the village revolving funds are in Supplementary Appendix C.

27 Houaphanh is not included in the EU project. 28 ADB. 2004. Technical Assistance to the Lao People’s Democratic Republic for Participatory Livestock

Development. Manila. 29 These funds will be drawn from the imprest account by the service organizations into district bank accounts to be

maintained by them. Based on approved business plans from the village groups, funds will be released for disbursement to the groups. All groups will be provided with safe deposit boxes for savings and loan repayments to be stored prior to deposit in district bank accounts. The service providers will submit accounts to MOF for funds drawn by them. The Committee on Investment and Planning has developed guidelines for such funds, which form the basis of these guidelines. Guidelines for these funds are in Supplementary Appendix C.

30 To be appointed by the organizations to be contracted to promote village household based groups.

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26. Market Linkages and Enterprise Development. The second part of Project outputs will (i) improve market efficiency and enterprise development by promoting input supply businesses (feed, inputs, veterinary products, breeders etc.). (ii) It will support the establishment of private livestock trading farms at critical markets and border crossing points to assist farmers with export-oriented development, supply local breeders, and develop contract supply mechanisms with smallholders. (iii) The Project will also support smallholder group31 marketing activities to improve farm gate returns for livestock; (iv) provide increased bargaining power to producers and improved efficiencies in marketing; and (v) contract appropriately qualified institutions32 to provide group marketing support, among others, and promote small enterprises in rural communities. (vi)The Project will promote farmer and trader contacts through workshops at market centers; (vii)support market studies and surveys, farmer study tours; and, (vii) in cooperation with the EU Livestock Support Project, support upgrading of selected existing market centers used by large numbers of villages—in order to promote livestock quarantine, health checks, and certification for export, among other initiatives. Microenterprises, which are largely likely to be women’s enterprises (including local feed production and sale, egg sales, chick sellers), will be supported through the village revolving funds for improved income earning. The Project will fund small village infrastructure to improve links with markets, reduce household labor requirements, and improve returns to labor. These may include among others the rehabilitation or establishment of essential transport, water supply, and other small-scale village infrastructure (e.g., gravity-fed water supplies); and improve market access (pathways and bridges). Women will be fully involved in decision making regarding funding of investments in village infrastructure improvements. Detailed guidelines on village infrastructure funds are in Supplementary Appendix D. 27. Participatory Extension Network. The Project will support the Government’s extension service through capacity building, and by providing the resources needed to introduce changes to the livestock farming systems. It will address gaps in technical skills; and develop participatory, gender-responsive, and culturally sensitive pro-poor extension techniques for existing and newly appointed extension workers in DAFEOs of participating districts and extension staff in the village clusters. Village women poultry workers will be trained and deployed to provide the first level of support to poultry rearers, who are mainly women and the poor. The Project will adopt a problem solving approach to extension and training, where livestock producer groups will be asked to identify constraints and opportunities, and examine/try a set of interventions to address them. This approach will provide extension workers with skills to interact with smallholders, deal with any species, and respond progressively as there is increased demand from smallholders for extension services. It will develop the technical skills of subject matter specialists in PAFOs that provide support to field extension workers. Training will also be provided in the management of extension activities through a training and peer review process at provincial and district level. b. Capacity Building for Community Driven Development 28. This output,33 to be funded by the SDC grant, will fully support the previous output by building community capacity to identify, manage, and implement village investments for improved livelihoods. The regional office will enter into contracts with Lao Women Union (LWU) units at the provincial and district levels, which will have the necessary skills and experience to

31 These groups will be based on the same principles of social homogeneity and will be supported through

mobilization and training to be included under Project, see paragraph 28. 32 Refer to paragraph 28. 33 In the context of the Project, CDD implies the development of socially inclusive community groups with the capacity

to select activities, technologies, and infrastructure based on their priorities; and take decisions to invest village funds, which will be made available under the Project. The pattern of CDD is based on the NGPES, which calls for CDD as a way to allocate resources to priority needs and projects.

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provide support for community-based group formation in developing participatory procedures and managing village revolving funds. These LWU units will be contracted to provide training and organizational capacity building to participating village communities for CDD. The contracted provincial and district LWU units will be responsible for community mobilization and the formation of community-based groups such as producer groups for livestock management training and extension, group-based microenterprises, marketing groups, and revolving fund groups, among others. These community-based groups will be based on self-selection by members, according to principles of social homogeneity and gender equity. Both women and men are expected to participate fully in the groups, and be trained in decision making and management of project resources (i.e., numeracy, accounting, simple bookkeeping) to be invested at village level (i.e.,village revolving funds and infrastructure funds.) To set up the village revolving funds, the village based revolving funds groups will enter into contracts with the service organizations. The LWU units will submit regular progress and financial reports to the regional office, provincial coordination committee (PCC), and project steering committee (PSC), on the outcomes and sustainability of the village revolving fund program. Detailed terms of reference for LWU are in Supplementary Appendix K.

c. Implementation Management

29. The third output will ensure efficient project implementation and management by providing resources to support the management structure at national and provincial levels, which will be established within existing government institutions.34 It will also provide technical support services in project management, monitoring and evaluation (ADF grant-funded), extension training, community development and gender awareness, livestock production, animal health, and livestock trade development (donor-funded). A summary design matrix is in Appendix 1. C. ADF IX Grant Component

30. Lao PDR is the poorest country in the GMS but the incidence of poverty in the project area of 52.5% is significantly above the national poverty incidence of 31%. The Project deserves grant funding as much as possible. Given the limited availability of ADB grant for this Project, it is proposed to use any available grant to finance extension and participatory approaches. There is sufficient justification for providing $0.7 million in grant funding under ADF IX, as Lao PDR qualifies for the ADF grant program35. The ADF IX grant will be used to finance consulting services required for capacity building in project management, smallholder poultry improvements, monitoring and evaluation of project outcomes, and marketing and trade development. D. Special Features

1. Participatory Approaches to Sustainable Livelihoods, Social Inclusion, and Gender and Development

31. The Project is expected to stimulate participatory development and inclusive social development. Project measures to address this include: (i) mobilizing and organizing ethnic

34 The Appraisal Mission for the proposed loan has had discussions with the Government of the Lao PDR and

Embassy of Japan in Lao PDR with a view to preparing a proposal for possible financing by the Japan Fund for Poverty Reduction (JFPR) for sustained capacity building of provincial and district staff and mass organizations in project management, pro-poor livestock development approaches, and credit and savings management, among other areas. It is also proposed to include the services of a cultural anthropologist as adviser to the regional office to advise on culturally appropriate project approaches to the diverse ethnic groups in the project areas. ADB will prepare the draft proposal for review by the Government and ADB.

35 As per Staff Instructions, memo of DG SPD 16 November 2004, approved by President, up to 50% of total program assistance to Lao PDR can be provided as grant.

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group smallholders into village-based production and village revolving funds groups for CDD, by providing training and extension, access to revolving credit, mobilizing savings, microenterprise promotion, and market orientation; (ii) facilitating improved access to resources for better management and marketing of livestock products; (iii) developing audiovisual extension materials in ethnic group languages for radio broadcasts in project areas; and (iv) building the capacity of extension workers to develop social, gender, and cultural skills to enable them to work with diverse cultural communities. An ethnic groups development plan (EGDP), which lays out the objectives and strategies for their equitable participation in project outcomes and impacts, has been prepared. 36 The Project will develop appropriate technologies and methodologies for training and extension. It will build on the significant ongoing work supported by other donors, in particular the LEAP, adding additional features as required for upland communities; and facilitate their spread through village-based training for women and men livestock rearers. It will support the recruitment and training of selected upland ethnic staff; provide Lao language training programs, as well as training in numerical skills in upland ethnic communities, aimed at women, to reduce their gender-based disadvantages and improve their capacity to absorb new technology. It will work with LWU and other suitable organizations to develop gender sensitivity and participatory approaches at all levels, starting from village communities. It will organize upland ethnic women, among others, into village revolving fund groups and producer groups—for improved access to training and extension, market information, and better returns from livestock production.37 Attention will be paid to women’s participation in training, extension, and revolving funds. 32. Gender action plan. This addresses particular gender-based disadvantages faced by ethnic women in poor upland communities in improving their livelihoods. It tries to address these by including the following: (i) progressively increasing participation of women in all village-based training programs for livestock production improvements, especially programs aimed at small livestock production and management; (ii) village-based Lao language training and numeracy training programs to overcome their initial disadvantage; (iii) women’s participation in the management and operation of village-based revolving funds; and (iv) women’s access to village infrastructure funds for drudgery reduction and improved returns to their labor. Gender and development training will be provided to staff of the Implementing Agency and all project entities. Further details are provided in Appendix 12. E. Project Investment Plan 33. The total Project cost is estimated at $18.4 million, comprising $11.8 million for investments in the Enhancement of Village Livestock Systems; about $3.4 million for Capacity Building for CDD Component, about $0.5 million for Implementation Management, about $0.8 million unallocated budget38 and $0.4 million for financial charges during implementation, as given in Table 1. The detailed cost estimates by Expenditure Category and Detailed Cost Estimates by Financiers are given in Appendix 6 and Supplementary Appendix B.

36 See Appendix 12. 37 It is likely that a proposal may be prepared for submission to the JFPR, for support to poor ethnic group women to

improve their access to livestock resources, and other productive resources, and strengthen their social and economic status.

38 The detailed allocation of $0.8 million will be discussed during the Inception Mission.

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Table 1: Project Investment Plan ($ million)

Item Amountsa A. Base Costb 1. Enhance Village Livestock System 11.08 2. Capacity Building for Community Driven Development 3.40 3. Implementation Management 0.50 4. Unallocated 0.80 Subtotal (A) 16.50 B. Contingenciesc 1.50 C. Financing Charges During Implementationd 0.40 Total (A+B+C) 18.40

a Includes taxes and duties of $ 0.8 million. b In mid 2005 prices. c Physical contingencies computed at 5% of base costs. Price contingencies computed at 1.6% in 2006, 2.8%

for 2007, 1.2 for 2008 and 3 years after on foreign exchange costs and 5% on local currency costs in the next six years; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Includes interest charges. Interest during construction has been computed at one percent per annum the ADF offered rate.

Sources: The Government and Asian Development Bank estimates. F. Financing Plan

34. The Government has requested ADB to provide a loan of $9.3 million from Asian Development Fund (ADF), and an additional ADF IX grant of $ 0.7 million. The loan will have a 32 year term, including a grace period of eight years, an interest rate of 1% during the grace period and 1.5% during principal amortization and such other terms and conditions set forth in the draft loan and project agreements. The ADB loan will finance about 50% of total project costs. The ADF IX grant will provide the equivalent of $0.7 million. SDC will finance a grant of $3.5 million and IFAD will finance about $ 3 million loan. 35. The Government will fund $1.1 million representing about 5.8% of the total cost. The beneficiaries are estimated to contribute about $0.8 million to project costs mainly in kind (in the form of labor, locally available materials), and in contribution to savings associated with the village revolving funds. Based on these arrangements, the financing plan is given in Table 2.

Table 2: Proposed Financing Plan ($ million)

Source Total Percent ADB Loan 9.3 50.5 ADF Grant 0.7 4.0 Beneficiaries 0.8 4.4 Swiss Agency for Development and Cooperation 3.5 19.0 International Fund for Agriculture and Development 3.0 16.3 Government 1.1 5.8 Total 18.4 100.0

ADB = Asian Development Bank, ADF = Asian Development Fund, IFAD = International Fund for Agricultural Development, SDC = Swiss Agency for Development and Cooperation.

Sources: The Government and Asian Development Bank estimates. G. Implementation Arrangements

1. Project Management

36. The Ministry of Agriculture and Forestry (MAF) will be the Executing Agency (EA) of the Project. DLF will be the overall Implementing Agency (IA) to coordinate the activities of the

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National Agricultural and Forestry Extension Service (NAFES) and National Agriculture and Forestry Research Institute (NAFRI) at the national level, and the provincial and district institutions involved in implementation. A regional office, to be responsible to DLF, will be established within the premises of the PAFO in Luang Prabang Province to provide overall day-to-day management and coordination of the Project. It will be headed by the national project director, assisted by an assistant director and support staff, and will form the regional arm of DLF’s existing Project Management Division. The national project director will be responsible for overall project implementation and management. The national project director will coordinate with the provinces and ensure the finalization of project work plans based on DAFEO and PAFO work plans, budgets, and contracts. S/he will be responsible for finalization and submission of all progress reports and financial reports to DLF. Five provincial implementation units (PIUs), to be established within the existing Livestock Section of each PAFO, will be set up to coordinate implementation in each province. The PIUs (comprising existing Livestock Section personnel where resources are available to perform necessary functions, and possibly supplemental staff where resources are insufficient), will comprise one provincial coordinator (PAFO director on a part-time basis), one full-time officer responsible for provincial implementation, and the necessary administrative support staff from the PAFO Administration Section. Project activities will be incorporated into annual DAFEO work plans and collated into annual PAFO work plans, which will be approved by provincial authorities, the PCC, DLF, and subsequently MAF. Due to the geographic location of the regional office, financial management will be effected through existing staff from within the Administrative Division of DLF, who will be appointed to a National Coordination Office (NCO) in Vientiane. The NCO will undertake coordination regarding fund flows and financial reporting to the Ministry of Finance in order to facilitate ADB, IFAD loan withdrawal and replenishments. In keeping with the push to harmonization of donor support with receiving countries national development priorities, institutions and procedures 39 , Project management structures are designed to work within existing institutional structures of national and provincial administrations to ensure sustainability after project completion. 37. The regional office, headed by the national project director, will work under the overall direction of the national PSC, which will comprise representatives from NAFES, NAFRI, the ministries of finance and foreign affairs, and governors’ representatives from participating provinces. The PSC will meet on a semiannual basis or as required to approve and review annual project work plans and implementation progress; and advise on any outstanding issues. It will receive consolidated progress reports and financial reports from the national project director. The Government will invite the participation of donors (ADB,SDC and IFAD) in the PSC as it deems fit. At the provincial level, PCCs convened by the provincial vice governors, drawing membership from relevant provincial departments, mass organizations,will meet quarterly and approve annual PIU work plans and budgets (incorporated in the PAFO work plans), review implementation, and guide provincial activities.

2. Implementation Period

38. The implementation period will be 6 years from 2006 to 2012. The first year will be dedicated to setting up the necessary management systems—including procurement, accounting, disbursement, and performance monitoring and evaluation—and lay the foundation for project implementation. An implementation schedule is in Appendix 8. Project activities will commence in one target district per province. The Project will be implemented in phases, at first in districts with close proximity to where forage technologies were fostered under the Forages and Livestock Systems Project (para. 13) and where trained extension workers have been prepared under the Capacity Building for Smallholder Livestock Systems TA.40 There will also 39 Refer to Rome Declaration on Harmonization. February 2003. Paris Declaration on Aid Effectiveness. March 2005. 40 ADB. 2004. Technical Assistance to the Lao People’s Democratic Republic for Capacity Building for Smallholder

Livestock Systems. Manila.

15

be overlap between districts where capacity is being built under the ongoing regional technical assistance project for Control of Transboundary Animal Diseases in the GMS i.e. ( footnote 25).

3. Procurement

39. Goods and services financed from the proceeds of the ADB loan will be procured in accordance with ADB’s Procurement Guidelines. Vehicles, equipment, materials, and services will be procured by national competitive bidding (NCB) as the cost is valued from the equivalent of $100,000–$500,000. Civil works comprise small contracts not exceeding $100,000, typically for building renovation and construction of district and provincial office buildings as well as small-scale infrastructure. As such, civil works will be procured in accordance with NCB procedures among private local contractors acceptable to ADB. Where there are few local suppliers, equipment, materials, or services valued at less than the equivalent of $100,000 may be procured by shopping, as will be the case for negotiated community facilitation contracts with appropriate individuals or organizations. Supply of veterinary medicines and vaccines must be accompanied by quality guarantee certificates. Supply of planting material and breeding stock for smallholders will be procured by shopping with due consideration for quality assurance. The project procurement plan is in Appendix 7 and final details will be determined during project implementation as appropriate.

4. Consulting Services

40. The Project will fund a total of 64 person-months41 of international consultants and 40242 person-months of national consultants in both short and long-term assignments to be recruited through a firm. The level of consulting services identified under the Project is considered essential in view of the limited human resource capacities and technical expertise available in the Government at central, provincial, and district levels. Consultant services are required to reorient extension workers to adopt a more participatory approach in understanding smallholder problems and needs. This is necessary for extension workers to become more relevant change agents in the diverse upland farming systems, where cultural and gender barriers often pose a barrier to the adoption of improved livestock management practices. The consultants will be selected and engaged in accordance with ADB’s Guidelines on the Use of Consultants. Advance action for procurement of consulting services is proposed to minimize any delay in commencement of project activities. A simplified technical proposal and quality and cost-based selection (QCBS) will be adopted. 41. In addition to the above, national consultant services will be provided to facilitate CDD through village based initiatives to train communities in group formation, the operation and administration of revolving funds, and to promote increased market awareness and small enterprise development. While DAFEO staff have the potential to develop into effective change agents in areas of livestock production, they frequently lack the pro-poor and gender-responsive livelihood development orientation required for community capacity building and revolving funds and small enterprise development. LWU will be directly selected, based on its unique experience and outreach into remote villages in the project area. LWU will be the most effective option for the kind of work to be done, and will be contracted by the regional office using single source selection (SSS) to provide consultant services under negotiated contracts. 41 In the fields of project management and rural development (15 person-months), rural poultry (3 person-months)

extension training (20 person-months), community mobilization (6 person-months), monitoring and evaluation (6 person–months), non-specified livestock as required (8 person-months), and marketing and trade development (6 person-months). In addition, it is proposed to include, under a draft proposal for submission to the JFPR, the services of a cultural anthropologist to advise the Project on culturally appropriate approaches to the diverse ethnic groups in the project area.

42 Consultant inputs are proposed in extension training (44 person-months), rural poultry production (50 person-months), and community development and gender (33 person-months), plus five provincially based extension training consultants in each province for 55 person-months.

16

5. Anticorruption Measures

42. ADB’s Anticorruption Policy (1998) was explained to and discussed with the representatives of the Government of Lao PDR, and the EA. Consistent with its commitment to good governance, accountability and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations/grant regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.The subsidiary records of fixed assets and stocks will be kept up to date and reconciled with control accounts. Periodic physical inventories of fixed assets and stocks will be conducted. Except for vehicles, other assets will not be sufficiently covered by insurance policies. The Project will establish controls and procedures for flow of funds, financial information, accountability, and audits to ensure that information among the different offices flows in an accurate and timely manner. It will also ensure that periodic reconciliations will be performed among the different offices. The Project will also advise employees, beneficiaries, and other recipients to whom to report if they suspect fraud, waste, or misuse of project resources or property.

6. Accounting, Auditing, and Reporting

43. The Ministry of Finance will establish two imprest accounts with the Bank of the Lao PDR on behalf of the Project after loan effectiveness—one for the ADF IX loan and the other for the IFAD loan. Both the imprest accounts will be subjected to the annual audit. The finance and accounting function of the Project will be staffed adequately. However, most staff will not be sufficiently qualified and experienced so the Project will provide training and written guidelines, especially in following ADB procedures; and prepare written position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all officers, managers, and staff. The following responsibilities will be performed by different units or persons: (i) authorization to execute a transaction; (ii) recording of the transaction; and (iii) custody of assets involved in the transaction. The bank reconciliation will be prepared by someone other than those who approve payments. MAF has developed an accounting system that allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds. The Project will follow the system to support the harmonization for projects funded by various international funding agencies, and update the existing project financial manual to be applicable for the Project and acceptable to ADB. Monthly and quarterly financial reports will be submitted by the EA to ADB. The accounts will be audited annually by an independent auditor acceptable to ADB and audit reports will be forwarded to the Government and ADB not later than 6 months after the close of each financial reporting period to coincide with the Lao PDR fiscal year (30 September).Monthly and quarterly financial reports will be submitted to ADB. A project completion report will be submitted to the ADB within 3 months after completion of the Project.

7. Disbursement Arrangements

44. To expedite disbursement, the Ministry of Finance will establish two imprest accounts with the Bank of the Lao PDR as stated above in paragraph 43, on behalf of the Project after loan effectiveness—one for the ADF IX loan and the other for the IFAD loan. The imprest accounts will be managed in accordance with ADB’s Loan Disbursement Handbook and detailed arrangements agreed by the Government and ADB. The advance to be deposited to each of the imprest accounts will be based on an estimated 6 months of project expenditure or a

17

maximum of 10% of the ADB/IFAD loan, whichever is lower. The Director of the Treasury Department of the Ministry of Finance will be the designated signatory to sign disbursement orders based upon official requests from DLF. Ministry of Finance will provide operational costs to the regional office and the PIUs on a monthly basis based on approved workplans and budgets. Assuming that conditions for use of the statement of expenditure procedures are met 43, ADB’s statement of expenditure procedures may be used to reimburse expenditures and liquidate the imprest accounts for all individual payments not exceeding the equivalent of $100,000. The imprest accounts will be replenished and liquidated on a monthly basis to ensure liquidity of funds or when the accounts are drawn down by 20% of the initial deposit. The imprest accounts and statements of expenditure will be audited annually by auditors acceptable to ADB. The coordination staff of the National Coordination Office set up at the DLF, the regional office, and five PIUs will need further training in financial management and ADB procedures. The Ministry of Finance will operate the imprest accounts for project-related expenses in accordance with an annual work plan to be prepared by the regional office and/or DLF and approved by the PSC, and in accordance with ADB’s Loan Disbursement Handbook. The ADF IX grant and the SDC grant will be disbursed by ADB in agreement with development partners and the EA44. Further details on the financial management of the Project are in Appendix 10 and Supplementary Appendix A. 8. Project Performance Monitoring and Evaluation

45. Project performance monitoring and evaluation will be undertaken for each project component to ensure that project facilities are managed efficiently and benefits are realized. Support for designing PBME including local consultant support, will be provided to design and establish computer-based BME procedures. A baseline survey, including both qualitative and quantitative research, will be undertaken upon the acceptance of each village entering the Project for which IFAD’s Result and Impact Management System (RIMS) will be used. The RIMS contains two mandatory indicators to measure project impact: (i) a household asset index (as a proxy for poverty), and (ii) malnutrition among children less than 5 years. Other project impact indicators may include female/male literacy, and access to safe water and adequate sanitation. There will be repeat surveys at midterm evaluation and project completion, using the same methodology.

9. Project Review

46. The Government and ADB, along with the cofinancing partners IFAD and SDC, will undertake periodic project reviews (at least twice a year) of the Project to ensure smooth implementation. IFAD will provide a pro-poor livestock consultant for these reviews. CGIAR institutions including the International Livestock Research Institute and CIAT based in Lao PDR will be consulted from time to time (footnote 43). A comprehensive midterm review will be carried out to critically review project performance. The midterm review will address the actual physical and financial progress of the Project, social and gender impacts, progress in the implementation of the EGDP, implementation procedures, procurement performance, as well as compliance with loan covenants, among others. In particular, it will include an assessment of the Project’s likelihood of fulfilling its expected outcomes by project completion.

43 ADB. 2001. Loan Disbursement Handbook. Manila. 44 ADB will make direct payments to consultants from both the ADF IX and SDC grant accounts, based on withdrawal

applications to be periodically submitted by Ministry of Finance.

18

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS A. Benefits and Impacts 47. Poverty Reduction and Sustainable Livelihoods. The Project will impact positively on the incomes of at least 17,000 ethnic households in 408 villages by improving livestock production and marketing.It will also have positive impacts on household incomes of at least another 1,500 households in additional 250 villages. Income increases are expected to approximately $1,400 per beneficiary household per annum. At least 50% of all beneficiaries are likely to be poor households that currently suffer from food shortages and lack of cash incomes for meeting basic requirements. The Project will improve social and human capital and, by supporting CDD, will help to create greater opportunities for participation in livelihood improvement by sections that have been marginalized until now, particularly upland ethnic groups and women. The Project will develop human capital in terms of production knowledge, management practices, extension approaches, among others, at the level of institutions such as DAFEO and PAFOs. 48. The proportional benefit within the ethnic groups will vary according to their interest and capacity to assimilate project technologies. Ethnic groups will benefit from appropriate technology transfer, group formation and provision of financial services and village infrastructure development. Women in particular are expected to benefit from training and improved access to resources and markets.It will promote socially inclusive development, and address gender gaps among these communities for access to resources and opportunities. It will facilitate private sector development in livestock production and trade. Highly pathogenic avian influenza is not expected to be a risk in the hilly and thinly populated areas of the Project. B. Environment Impacts

49. The Project is classified as environmental category B. The initial environmental examination shows that the overall environmental impacts of the Project are expected to generate substantial environmental benefits. Potential positive impacts include potential stabilization of shifting cultivation because of improved livestock productivity and resulting stability of income; and improved hygiene and environmental health through waste management, disease control, and controlled animal movements. Since the Project aims to improve animal productivity from improved inputs and efficient use of land and resources, only a small increase of livestock numbers is anticipated. Appropriate manure and waste management will reduce the risks of water pollution. Soil and water quality testing will be conducted to monitor quality and develop any necessary measures to minimize negative impacts. C. Economic and Financial 50. The Project addresses technological, information, human capital, and infrastructure deficiencies that prevent the realization of the full potential of livestock farming in the northern provinces of Lao PDR. The project interventions are consistent with the development priorities of MAF. The representative livestock models, developed to analyze the financial and economic feasibility, show that pig and cattle fattening and goat and poultry breeding are financially profitable for the adopting households. Proposed technological packages for each type of livestock either reduce or maintain the current labor allocation for livestock activities while significantly improving labor productivity and returns for labor. With and without-project comparisons show that the Project enables poor households to come out of poverty permanently by adopting new production and management technologies. About 50% of the beneficiaries of the Project are poor and most of them belong to upland ethnic groups. Successful implementation of the village revolving funds—targeting the poor, women, and ethnic groups who do not have initial capital to undertake livestock rearing activities—will increase the percentage of poor benefiting from the Project significantly.

19

51. The economic analysis of the Project estimates the net present value at KN27.5 billion at a discount rate of 12% over a 25-year period. This indicates that the project benefits far exceed its cost. Further, the economic internal rate of return is estimated to be 17.2%, which is significantly higher than the cost of capital. Sensitivity analysis shows that these results are robust to changes in the key variables of delayed benefits, increased costs, and reduced adoption rates of proposed technologies. The project performance is sensitive to price changes of livestock products. However, in the face of increasing demand for livestock and livestock products in Lao PDR and neighboring countries, price declines below current levels are extremely unlikely, particularly for large ruminants. Overall, the economic analysis shows that the proposed Project is a sound investment for Lao PDR that will generate significantly higher benefits than the incurred costs. A summary economic and financial analysis is in Appendix 9.

V. SPECIFIC ASSURANCES A. Special Assurances

52. In addition to the standard assurances, the Government has also given specific assurances that have been incorporated in the Loan Agreement:

(i) Only suitably qualified organizations and /or individuals will be engaged through consultancy contracts, to provide capacity building and support to upland communities for CDD.

(ii) The Project will promote women's participation in village based training programs to incorporate approximately half of all trainees.

(iii) The Project will encourage women's representation and participation in revolving fund groups up to at least 50% of all beneficiaries.

(iv) All implementing agencies will fully comply with the EGDP in keeping with ADB’s policy on indigenous peoples.45

(v) All implementing agencies will ensure that land to be acquired for any small-scale civil works in villages and district centers is clear of occupation and not under any use as defined by ADB’s policy on involuntary resettlement.

(vi) In addition, all implementing agencies will fully comply with ADB’s safeguard policies related to involuntary resettlement46 and the environment47.

(vii) The Project will comply with ADB’s Anticorruption Policy48, particularly in respect of the sections of ADB’s Procurement Guidelines and ADB’s Guidelines on the Use of Consultants that relate to fraud and corruption. The Project will accordingly develop adequate safeguards to protect assets from fraud, wastage, and abuse.

53. In addition to the specific assurances, the Government and the DLF have given the following assurances and/or covenants to be incorporated in the Loan Agreement:

(i) Counterpart fund requirements shall be estimated 12 months in advance of the anticipated expenditure. Funds shall be allocated in the respective national and provincial budgets and be released in a timely manner and in adequate amounts to allow efficient implementation of the Project.

54. In respect of disbursements for village revolving funds;

(i) Village revolving funds can be disbursed through revolving funds groups on the basis of a minimum group saving to revolving fund ratio of 20:80.

45 ADB. 1998. Policy on Indigenous Peoples. Manila. 46 ADB. 1995. Policy on Involuntary Resettlement. Manila. 47 ADB. 2002. Environment Policy of the Asian Development Bank. Manila. 48 ADB. 1998. Anticorruption Policy. Manila.

20

(ii) The average loan size shall be less than $300 with a ceiling per individual borrower of $500.

(iii) Clear guidelines and criteria on village and borrower selection should be provided by the Project before withdrawing the revolving funds to each village.

(iv) Clear agreements will be entered into between the revolving fund groups and service providers at district level for disbursement of ADB loan funds from the imprest account into village revolving funds, in order to ensure full understanding of all parties, and proper maintenance of accounts and full repayment.

B. Conditions for Loan and Grant Effectiveness 55. A national project director acceptable to ADB will be designated by MAF.49 The regional office will also be set up prior to the proposed loan and grant effectiveness. ADB loan and grant effectiveness will be related to the effectiveness of the cofinancing.

VI. RECOMMENDATION

56. 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 (i) the loan in various currencies equivalent to Special Drawing Rights 6,256,000 to the Lao People’s Democratic Republic for the Northern Region Sustainable Livelihood through Livestock Development Project from ADB’s 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 Financing Agreement presented to the Board; (ii) the grant not exceeding the equivalent of $700,000 to the Lao People’s Democratic Republic, from ADB’s Special Funds resources, for the Northern Region Sustainable Livelihoods through Livestock Development Project with such terms and conditions as are substantially in accordance with those set forth in the draft Financing Agreement presented to the Board; (iii) the administration by ADB of a grant not exceeding the equivalent of $3,500,000 to be provided by the Government of Switzerland to the Lao People’s Democratic Republic for the Northern Region Sustainable Livelihoods through Livestock Development Project; and (iv) the administration by ADB of a loan not exceeding the equivalent of $3,000,000 to be provided by the International Fund for Agricultural Development (IFAD) to the Lao People’s Democratic Republic for the Northern Region Sustainable Livelihoods through Livestock Development Project. Haruhiko Kuroda

President 6 September 2006

49 The Government has already established the national steering committee for the ADB Project, the EU Project, and

the Technical Assistance to the Lao People’s Democratic Republic for Capacity Building for Smallholder Livestock System.

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK Design Summary Performance Targets/Indicators

Data Sources/ Reporting

Mechanisms Assumptions

and Risks

Impact Sustainable livelihoods of upland farmers from livestock development in five selected provinces

5 years after project completion: • Poor households in target

districts reduced by at least 12%

• Household incomes from

livestock production increased by 20%

• Annual value of formal exports

of live animals increases by 10%

• Project

completion report and project performance audit report

• National livestock

census • Annual trade

statistics

Assumptions • Private investment is not

constrained by overregulation • Animal diseases are

controllable Risk • The poor do not want to

participate in livestock initiatives

Outcome Enhanced village livestock systems

After project completion: • Increased number of

households raising larger livestock: 30–35% (cattle); 40–45% (buffalo)

• Increased number of poor

households rear healthier smaller animals

• Village livestock off-take rates

increased by 20% • Mortality of livestock declines

by 10% • Price margin for livestock is

increased by 10% • Increase in the number of

cattle owned by target group households with data disaggregated by gender of the head of the household

• % of male and female children

under 5 years malnourished (weight for age), chronically malnourished (height for age), and wasted (weight for height) compared to the level found at baseline survey

• % of target group households

with improved food security (months per year) with data disaggregated by gender of the head of the household

• NGPES

monitoring surveys and Lao Expenditure and Consumption Survey

• Project-

generated monitoring reports

• KAP surveys

conducted in project BME activities

• Baseline survey

and subsequent impact surveys prior to the midterm review and project completion review

Assumptions • Smallholders have better

access to livestock markets • Forage nurseries and

demonstration plots are operating commercially

Risks • Unwillingness of smallholders

to change their traditional livestock management

• Vaccines unavailable at

affordable prices

Outputs: 1. Village livestock

After project completion in 5 selected provinces

Appendix 1

22

Design Summary Performance Targets/Indicators

Data Sources/ Reporting

Mechanisms Assumptions

and Risks

systems improved

• On-farm livestock production technologies are improved

• Forage nurseries are well

developed in18 districts

• Livestock forage technologies are adopted by 30% of smallholders in target villages

• Larger numbers of poor households adopt better management practices for smallholder poultry and piggery, as well as goat rearing

• Farmer visits for sharing experience on livestock management by farmer groups from target villages

• Farmers in 200 villages have adopted trained livestock handling (animal crushes, fences, etc.)

• 75% livestock disease outbreak in the five selected provinces have been properly responded to

• Guidelines from media extension for livestock have been adopted by about 408 villages

• About 408 target villages have trained women poultry workers

• Illiteracy rate among all ethnic farmers has been reduced by 10%

• Lessons from community-based livestock development training have been adopted by 20% of participants

• At least 8,000 loans have been advanced and repaid by smallholders from village revolving fund groups, and 50% of borrowers are women

• 20% of the capital managed by the village revolving fund groups are collected from farmers’ savings

• Project-

generated monitoring reports

• Various reports

generated by PAFOs and DAFEOs

• Attendance at

workshops • Project

monitoring reports and village recording mechanisms

• Revolving fund

disbursements • Village credit and

savings groups records

• Baseline survey

and subsequent impact surveys prior to the midterm review and project completion review

Assumptions • Farmers are fully involved in

encountering disease epidemics

• Smallholders find the

technologies appropriate • Loans drawn for livestock

rearing purposes • Meeting, training, and

extension services are provided in local language and at village level

Risks • Poor financial capacity to

absorb the project intervention • Lack of women’s participation

in poultry training Assumption • Appointed community support

service contractors have the necessary skills to carry out their duties

Risks • High arrears of credits to

farmers • Unavailable livestock

management manual in local language and at village level

Appendix 1 23

Design Summary Performance Targets/Indicators

Data Sources/ Reporting

Mechanisms Assumptions

and Risks

• Routine livestock vaccinations are increased by 25%

• Increase in the number of cattle owned by target group households as indicated by the baseline and repeat surveys, with data disaggregated by gender of the head of the household

• % of male and female children

under 5 years malnourished (weight for age), chronically malnourished (height for age), and wasted (weight for height) compared to the level baseline stage

• No. of target group households

with improved food security (months per year), with data disaggregated by gender of the head of the household

• Market efficiency and

livestock enterprises are developed

• Livestock-related infrastructure

such as water supply for livestock, track/feeder road, have been established by farmers in target villages

• Livestock entrepreneurs from

districts have been trained in improving livestock business

• 5 provinces have worked with

LWU and the private sector to empower farmers in livestock marketing

• Farmer study tours conducted • Selected markets upgraded • livestock trading farms

developed and utilized effectively by traders and farmers

• Project-generated monitoring reports

Assumption • Community support contracts

are negotiated with suitably qualified institutions

Risks • Inadequate financial capacity

of entrepreneurs to participate in the commercial investments

• Lack of cost-effectiveness in

project interventions

• Participatory

implementation and extension networks are strengthened

• 5 PAFO offices and 18 DAFEO

offices have been properly renovated, staffed, and equipped

• Project

monitoring reports and village recording mechanisms

Assumptions • Extension workers are

appointed in a timely manner • 50% of the extension workers

are women, with skill in local language and culture

Appendix 1

24

Design Summary Performance Targets/Indicators

Data Sources/ Reporting

Mechanisms Assumptions

and Risks

• Staff of PAFOs and DAFEOs have been trained for livestock extension services

• Management and livestock

specialization training/ workshops for DAFEO staff have been conducted and attended by extension staff

• Monthly provincial coordination

meeting attended by staff of 18 DAFEOs

• Training records • Quarterly

progress reports

Assumptions • Livestock media extension in

local language properly disseminated

Risk • Insufficient suitably qualified

ethnic language speaking extension workers to appoint to the positions

2. Capacity building for

CDD

• 5 provincial service contracts

established by regional office with provincial and district units of LWU

• In about 408 villages,

community-based groups (including poor and women) formed and trained to undertake investment and infrastructure development using project funds, i.e. village revolving funds and infrastructure funds provided under output a of the Project

• Literacy, numeracy, accounts

training provided • Savings mobilization • Business plans prepared and

funds disbursed • Technical backstopping by

service providers

• Reports

generated by service provider organization

• Project progress

reports • Village group

reports • ADB supervision

mission reports

Risk • It may be difficult to locate a

suitable organization with good understanding of CDD and village outreach

Assumption • The Project will identify a mix

of mass organizations with outreach and individuals with appropriate skills to provide the type of capacity building

3. Implementation management and support

• Regional office and five PIUs

established • PSC established, regular

meetings • PCCs established, regular

meetings • Timely consultant recruitment

• Program reports • ADB supervision

mission reports

Assumption • Delays in the establishment of

the project implementation structure are not foreseen and these are embedded within existing government policies and administration set-up

25 Appendix 1

Activities with Milestones Inputs A. 1. Village Livestock Production Systems are Improved 1.1 Develop forage nurseries and distribute forage materials to villages 1.2 Demonstrate feeding packages for livestock management at village level 1.3 Conduct study visits among villagers for sharing experience and learning 1.4 Demonstrate village livestock handling such as animal fences, transport system, etc. 1.5 Prevent and respond potential disease outbreaks from provincial to village levels 1.6 Provide literacy training on livestock management 1.7 Develop and monitor revolving funds 1.8 Support community organizers for livestock development 1.9 Conduct community development training for livestock-based livelihood

improvement 2. Market Efficiency and Livestock Enterprises are Developed 2.1 Rehabilitate and develop livestock-related village infrastructure such as track/small road improvement, water for livestock, land terracing for forage, etc 2.2 Train entrepreneurs in livestock management and marketing 2.3 Develop livestock marketing networks 2.4 Contract LWU provincial and district units for organizing smallholders 2.5 Provide microfinance services for livestock development through LWU 2.6 Conduct marketing surveys and studies 2.7 Conduct farmer study tours and marketing workshops 2.8 Upgrade selected livestock market facilities 2.9 Develop LTFs in partnership with the private sector 3. Participatory Implementation and Extension Networks are Strengthened 3.1 Rehabilitate and/or construct and equip 5 PAFO and 18 DAFEO facilities 3.2 Appoint incremental extension workers and staff to PAFOs and DAFEOs 3.3 Establish, equip, and operate a national and provincial management

structure 3.4 Provide technical and management support for overall implementation 3.5 Train extension workers and villagers in conduct of farmer field schools for identifying constraints and opportunities in livestock management 3.6 Disseminate various media extension for livestock development at village level 3.7 Provide training practicum for final year students 3.8 Support provincial coordination committee B. Capacity building for CDD 4.1 Enter into 5 service contracts with LWU for community mobilization and training 4.2 Provide training and support for community mobilization through community facilitators C. Implementation Management 5.1 Set up regional office and PIUs 5.2 Set up and support PSC and PCC 5.3 Set up imprest accounts 5.4 Prepare work plans 5.5 Appoint national and international consultants 5.6 Develop curriculum for training program 5.7 Conduct monitoring and evaluation 5.8 Conduct baseline survey, midterm review, and project completion report

Total Project Costs: $18.4 million

• ADB Loan: $ 9.3 million

• The Government: $1.1 million

• Beneficiaries: $ 0.8 million

• ADF Grant: $ 0.7 million

• SDC Grant: $ 3.5 million

• IFAD Loan: $ 3.0 million

ADB = Asian Development Bank, ADF = Asian Development Fund, BME = Benefit Monitoring and Evaluation, CDD = community driven development, DAFEO = District Agriculture and Forestry Extension Office, Equip. = equipment, IDC = interest rate during construction, IFAD = International Fund for Agricultural Development , KAP = Knowledge and Attitude, LECS = Lao Expenditure and Consumption Survey, LWU = Lao Women Union, NGPES = National Growth and Poverty Eradication Strategy, O&M = operation and maintenance, PAFO = Provincial Agriculture and Forestry Office, PCC = Provincial Coordination Committee, PIU = Provincial Implementation Unit, PSC = Project Steering Committee, SDC = Swiss Agency for Development and Cooperation.

Appendix 2

26

CHRONOLOGY OF THE PROJECT

1. In 2003, the Government of the Lao People’s Democratic Republic (Lao PDR) requested the Asian Development Bank (ADB) for technical assistance (TA) to finance a project preparatory TA for the formulation of a livestock development project directed at reducing poverty in some of the poorest districts of the northern region of Lao PDR. 2. ADB approved the TA on 18 December 2003, simultaneously preselecting the International Center for Tropical Agriculture (CIAT) in association with the International Livestock Research Institute to undertake the study. 3. The design team was mobilized on 27 September 2004 and submitted an inception report on 31 October 2004, an interim report on 31 March 2005, and a draft final report on 3 June 2005. Following each of these progress reports, tripartite meetings were conducted with the Government, ADB, and the consultants to provide guidance for subsequent design activities. 4. After submission of the draft final report, additional inputs were provided from ADB-appointed consultants, particularly on social, gender, and environmental aspects. Continued consultations by the team were conducted with relevant government agencies—Ministry of Agriculture and Forestry (MAF), Department of Livestock and Fisheries (DLF), National Agriculture and Forestry Research Institute (NAFRI), National Agriculture and Forestry Extension Service (NAFES), as well as provincial and district administrations. 5. A series of provincial visits were undertaken to discuss final design issues with participating provincial agriculture and forestry office (PAFO) staff and representatives from the target district agriculture and forestry extension offices (DAFEO). Detailed description of project objectives, activities, and implementation arrangements were discussed. 6. Following these discussions, a final report was submitted by the consultant to the Government and ADB in July 2005. This was circulated to ADB senior management, after which the fielding of the loan fact-finding mission was authorized. 7. The Management review meeting was held on 14 March 2006. The pre-appraisal mission was fielded in May 2006, followed by briefing of the vice president. 8. The Vice President authorized the appraisal mission, which was undertaken in June 2006. The staff review committee meeting was held on 4 August 2006. 9. Loan and grant negotiations took place on 28-29 August 2006, followed by Board submission. ADB approval is expected in September 2006, followed by loan and grant effectiveness by the end of 2006.

Appendix 3 27

Figure A3.1: Objective Tree

Resource poor smallholders have limited land, labor, capital, and market access. They have limited access to community.

Mai

n Pr

oble

ms Low Livestock

Productivity, Production Knowledge, Technical

and Participatory Skills of Extension Workers

Limited Labor Resources in the Upland

Households for Livestock

Limited Capital and Access to Credit,

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organization

Limited Market Access and Low Market Efficiency

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Impa

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Obj

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Improved Livestock Productivity and Turnoff

Improved Production Incentives, Prices and Marketing Options

Improved – Household Food Protein Value of Livestock Assets Household Incomes Capacity of Working Animals Household Labor Productivity

Northern Region Sustainable Livelihoods through Livestock Development Project

Cap

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Appendix 4

28

SECTOR/SUBSECTOR ANALYSIS 1. Nationally, agriculture remains the most important sector in the economy, contributing 48.6% of gross domestic product (GDP)1 and 19% of the value of total commodity exports (mainly timber, wooden products, and to a lesser extent, coffee). It employs 86% of the workforce in a population of 5.68 million, of whom 80–85% reside in rural areas. An estimated 627,000 households are located in rural areas (72% of the 2002/03 population);2 of these, an estimated 80% practice small-scale, subsistence agriculture in diverse agroecological environments comprising both irrigated and rain-fed farming systems, the latter by far the more significant. Within the farming systems, the dominant activity is subsistence rice production. In the south, tree crops and vegetables are grown extensively in the upland plateaus to generate cash. In all areas, livestock provide draught power, dietary protein, a store for family wealth (a reserve or safety net in the event of family disaster), and cash income to pay for household expenses. Livestock are also important for ceremonial and social occasions.

2. Within agriculture, cropping is the main activity—contributing 57% of agricultural GDP compared to 36% for livestock and fisheries and 7% for forestry. Cropping is dominated by rice with 2.5 million tons produced in 2004, 2.3 million tons (78%) from lowland areas and the remaining 0.2 million tons from rain-fed upland areas. Some 14% of total rice production comes from irrigated paddy land. The area of rice harvested in 2004 was 770,300 hectares (ha), of which 10% comprised irrigated paddy land and 14% nonirrigated upland. 3 Upland rice production has declined steadily in response to government policy to reduce shifting cultivation, declining by about 30,000 ha per year over the past 3 years. Other field and industrial crops grown include coffee, maize, peanuts, cassava, sugar cane, and tobacco, which each have planted areas in excess of 5,000 ha. In addition, large areas are planted to fruit trees (particularly bananas) and other vegetable crops. Lao PDR is now self-sufficient in rice production for its population, which is increasing by about 2.8% per annum.

1. Livestock Subsector

3. The contribution of livestock to agricultural GDP has increased steadily over the past 10 years in response to increasing prices and export and domestic demand. Cattle, buffalo, and pig numbers have remained relatively static during that period (Table A4.1). Pig numbers have declined in the north, mainly in Bokeo and Oudomxay, while numbers in commercial enterprises have remained static at 0.2 million. Numbers of household poultry have increased from 15.3 million in 2002 to 18.5 million in 2004 whereas commercial poultry numbers declined from 1 million to 3 million over the same period, possibly in response to the threat of avian influenza. Commercial production units are found on the periphery of urban Vientiane and Luang Prabang and other provincial capitals. These intensive units depend almost entirely on imported parent and growing stock, feed, and veterinary supplies. 4. Livestock production systems vary widely throughout the country and between lowland and upland areas where animals are kept for different purposes, since livestock rearing and cropping activities are integrated and complementary activities. Livestock provide organic manure (sometimes composted) and draught power (mainly buffalo) for soil preparation while cattle and buffalo are used to transport goods collected from forest areas and produce grown in smallholder plots, to villages and markets. 1 National Statistics Centre. 2003. Statistical Yearbook 2003 Lao PDR. Vientiane, Committee of Planning and

Investment (Table 19). 2 National Statistics Center. 2003.Lao Expenditure and Consumption Survey 2002/03, Vientiane, Committee of

Planning and Investment. (Table 2.1). 3 National data on crop production, harvested areas, and livestock numbers were extracted from the Ministry of

Agriculture and Forestry, Department of Planning and Cooperation, 2004 Annual Statistical Publication.

Appendix 4 29

Table A4.1 : Livestock Numbers by Region (1995 and 2004)

Lao PDR = Lao People’s Democratic Republic. Sources: Department of Livestock and Fisheries, Department of Planning and Cooperation, and The Government of Lao PDR. 5. In return, cattle, buffalo, pigs, and goats graze on recently harvested crop areas, or are fed by-products from rice milling, especially bran and broken grain, as part of their diet. Production systems are typically low input and low output, with animals confined at certain times of the year—during the wet season to protect the crops or when they may need closer attention, typically during perinatal periods or when animals are sick. Otherwise, uncontrolled grazing and foraging with minimal supervision (the most common practice) exposes animals to attacks by predators, disease, theft, and even death from road accidents. Over 95% of all livestock are produced by smallholders from an average farm size of just over 1 ha. The sale of cattle, buffalo, pigs, and poultry accounts for about 50% of the annual household cash incomes in upland areas.4 Therefore, livestock enterprises are important livelihood activities in rural areas and have the potential to improve household incomes and reduce poverty.

6. Marketing patterns vary between species, with the smaller animals (poultry, pigs, and goats) being slaughtered and consumed closer to the area in which they are produced. Large ruminants are walked or transported greater distances by vehicle to urban centers within the country and across borders to People’s Republic of China, Thailand, and Viet Nam. Like the rest of Southeast Asia, per capita consumption of both red and white meat 5 is increasing as disposable incomes increase and urban populations grow. Export demand, particularly for live cattle and buffaloes, is increasing steadily and is currently estimated at 100,000 head per annum in Thailand (20% of their live cattle and buffalo imports) and Viet Nam across borders with few controls. There is also a significant unrecorded and uncontrolled trade in animal hides and skins with Thailand. Increased awareness of the dangers associated with live animal and animal product trade has focused greater attention on quarantine procedures in Lao PDR, which 4 ADB.2002. Technical Assistance to the Government of Lao PDR for a Review of the Livestock Sector of Lao PDR.

Manila. 5 National Statistics Center. 2003. Lao Expenditure and Consumption Survey III, Vientiane. Committee of Planning

and Investment (CPI), Government of Lao PDR . In 2002/03, monthly household consumption was estimated at KN1.1 million. Food represented 55% and meat consumption, both home-produced and purchased, was 22.3%, which represented an increase from 16.1% in 1997/98 (Data extracted from LECS III Survey, Chapter 3)

1995 2004 1995 2004 1995 2004 1995 2004

Northern Region 366.1 342.5 304.5 327.9 158.5 88.4 903.7 743.1 4,830.6 7,571.1Phongsaly 29.4 33.6 17.3 20.2 1.4 2.1 68.9 71.2 291.8 364.7Luang Namtha 19.7 23.3 21.2 21.3 6.6 5.5 73.6 55.5 213.5 287.8Oudomxai 41.5 37.2 41.6 33.6 26.9 20.8 159.1 89.9 537.1 1,683.6Bokeo 28.5 21.3 27.8 23.3 62.0 4.5 94.5 48.7 303.9 420.4Luang Prabang 64.2 55.2 34.1 34.6 22.7 24.9 156.4 140.9 964.1 1,102.3Houaphanh 55.6 65.6 30.0 48.3 18.6 13.5 160.7 155.6 972.2 1,500.7Xayaburi 73.2 62.4 57.6 63.9 5.0 7.7 106.8 103.6 1,029.5 1,707.2Xieng Khouang 54.0 43.9 74.9 82.7 15.3 9.4 83.7 77.7 518.5 504.4

Central Region a - 496.0 - 661.4 - 28.3 - 621.7 - 7,652.7

Southern Region - 273.0 - 245.2 - 22.7 - 363.2 - 4,257.2

Lao PDR 1,191.4 1,111.5 1,145.9 1,234.5 226.4 139.4 1,723.6 1,728.0 11,438.4 19,481.0

a For this table, Xieng Khouang is considered a northern province.

Cattle('000s head)

Poultry('000s head)

Region/Province

Goats('000s head)

Pigs ('000s head)('000s head)

Buffalo

2004 1995

Appendix 4

30

will most likely result in additional sanitary and phytosanitory regulations being imposed by importing countries. Lao PDR must respond to these if it is to supply this rapidly growing market in the longer term. Livestock marketing is chaotic, with price signals failing to be passed on to producers. Many traders (some of them opportunist) in rural areas play an important role in linking producers to domestic and international markets. These links are often corrupted by local administrations in their attempt to apply illegal controls to preserve the area’s breeding herd which, at least in the case of large ruminants, they perceive to be threatened by live trade.

a. Production Systems

7. Livestock production is predominantly a smallholder activity in mixed farming systems where crop production and livestock rearing are integrated in complex ways, each making demands on the limited land, labor, and capital of smallholders as they pursue subsistence livelihood activities. The role of livestock in these farming systems is critical for generating cash incomes and providing food security, particularly in the resource poor upland households. Constraints in the upland production systems are expressed through low growth rates, greater susceptibility to infectious and parasitic diseases (often with high mortalities), low fertility rates, low off-take rates, depressed farm gate prices. These are the outcomes of generally less than optimal use of resources allocated to livestock enterprises, generating low returns from smallholder inputs. About 74% of villagers raise pigs, 8% raise goats, 31% raise cattle, 41% raise buffalo, and 90% raise poultry. Livestock management varies from extensive systems where animals are allowed to scavenge around houses in the village and surrounding forest areas, to partial and even complete confinement in the case of pigs to prevent damage to crops or for disease control. Some smallholders keep their pigs outside the village area where the threat of disease is lower. Even under partial free range conditions, pig production is very labor–intensive, with supplementary feed being collected from forest areas, prepared (usually boiled), and fed on a daily basis. Cattle are less labor demanding and animals are often released to the forests for free grazing so they remain away from cropped areas, only being confined at parturition or when animals are sick. Buffaloes are grazed closer to the village for draught power. Goats and chickens roam the village area at will.

b. Sector Performance

8. The most easily collected and reliable indicator of overall productivity of a flock or herd is the mortality rate. Less obvious are the nonfatal effects on production from disease and poor nutrition on surviving females, which are less capable of conceiving and carrying a calf while surviving males are also less fertile. Mortality rates have been estimated at 10–20% for young buffalo, 5–10% for young cattle, 20–25% for pigs, and 25–35% for poultry, resulting from irregular epidemic disease outbreaks which are common. 9. Sustained low growth rates, high incidence of disease, and low fertility rates indicate that the sector’s performance has been disappointing, and highlight opportunities for improvement. Market signals of increased demand for livestock products are not being translated into benefits for producers; or, if they are, the risk associated with increasing production to meet this demand is too high for the majority of smallholders to respond. Market linkages have not been sufficiently developed to encourage smallholders to produce at levels that exceed their immediate subsistence requirements. In addition, incremental production is difficult to achieve when the feeding strategies used are essentially laissez-faire (with the exception of pigs) and labor resources available in smallholder households limit smallholder ability to consider increased production. Without a significant change in the orientation of smallholder production systems, the future scenario will be a continuation of this constrained and inefficient extensive livestock subsector.

Appendix 4 31

10. Performance at the international level appears more successful although less well-documented because of the unofficial nature of the trade. It is clear that traders are active in sourcing large animals in the north for trade with Thailand and Viet Nam, to the extent that provincial administrations have decided to restrict the movement of breeder stock because they are concerned at the loss of breeding capacity in large ruminant herds.

c. Constraints to Production

11. The major constraints to increasing livestock production include: (i) limited labor resources available in households to collect sufficient supplementary feeding; (ii) incidence and frequency of diseases; (iii) low fertility of breeding animals of all species; (iv) limited smallholder knowledge of livestock production and management techniques; and (v) limited access to input supplies, animal health and production services, and markets. 12. In upland areas, smallholders do not always identify feed as a major constraint in improving livestock productivity despite the time taken to herd animals to and from distant grazing areas and to collect and prepare feed for confined animals, particularly in the dry season. Poor nutrition results in poor animal production and contributes to lower animal resistance to disease. The high incidence of livestock disease has been attributed to: (i) poor nutrition and sanitation, (ii) uncontrolled movement of animals, (iii) movement of diseased animals, (iv) lack of correct disease diagnoses, (v) poor access to information on how to control and treat diseases, (vi) restricted coverage of and ineffective vaccines, (vii) weak veterinary support services, and (viii) inappropriate management practices. While there is a great deal of experience and local knowledge in rearing livestock, management skills are lacking and their knowledge of the cause of disease and the measures to protect against disease are nonexistent. Technical information is difficult or impossible to access in the right medium or language. It needs to be delivered by extension workers and/or commercial interests who are trained in learning techniques and information sharing. Existing extension services are under-resourced and has limited skills since personnel has limited technical knowledge of livestock production and animal health. 13. Two aspects of market access constrain livestock development: (i) lack of physical access imposed by the rugged terrain, and (ii) institutional barriers that interfere with the price mechanism under free market conditions. While cattle, buffalo, and even pigs can be walked long distances to collection points on national routes where lower transport rates apply, smallholders become price receivers after investing time and effort to relocate their animals, and are reluctant to make the return journey with unsold animals (usually in poorer condition). Local regulations require complex procedures for approval to move animals from, or through, provinces that have promoted the establishment of trading cartels, enabling collusive behavior when dealing with ill-informed producers. 14. The Government’s disease monitoring activities are constrained by limited budgets, and smallholders have limited capacity to pay for diagnostic services as they do not see value in these services. Difficult terrain leads to poor quality vaccines (no cold chain) being administered by poorly trained village veterinary workers, leading to a lack of confidence in preventative treatments for livestock. The landlocked nature of the country makes it difficult to enforce quarantine regulations as borders are extremely porous, adding to threat of the spread of disease. The Government is committed to retain domestic production of vaccines, but it is not competitive because of the comparatively low capacity so it is a high cost producer. It is also constrained by limited funds for its operation, which make quality control difficult in spite of attempts to conform to standards of the Association of Southeast Asian Nations (ASEAN).

32 Appendix 5 EXTERNAL ASSISTANCE

Project Executing Agency Duration Funded by Objectives Area

Micro-Projects Development Though Community Participation

Department of International Cooperation (DIC), Ministry of Foreign Affairs (MOFA)

March2002–April/2007

European Union (EU)

Poverty alleviation and promotion of equitable economic growth through sustainable use of natural resources and reduced environmental degradation

Luang Namtha (Long and Viengphoukha districts) Luang Prabang (Chomphet and Viengkham districts)

Nam Ha Watershed Poverty Reduction Project

Ministry of Agriculture and Forestry (MAF)

July/2005–July/2008

Asian Development Bank (ADB) $1.5 million

Community development and sustainable land use

Nine villages of Viengphoukha district, Luang Namtha

Rural Development in Mountainous Area of Northern Lao PDR

DIC, MOFA January/2004–January/2008

GTZ (Partner for the Future. Worldwide)

Improve the economic and social living conditions of the target group with the help of provinces and district administrations in a sustainable manner

Sing and Nalea districts, Luang Namtha; Nam Nhu and Paktha, Phaoudom, Tonpheung districts, Bokeo; Hongsa, Khop, Ngeun, Xayabury, Xienghone districts

Long Alternative Development Project

MAF 2004–2009

Norwegian Church Aid (NCA)

To reduce opium plantation and drugs by improving education, Public health, agriculture, crop production, livestock, rice cattle and vaccine banks, community training

40 villages in Long district

Nam Chouam and Meung Rural Development Project

Bokeo Provincial Agriculture and Forestry Office (PAFO)

2004–2009

NCA Develop education; public health; agriculture, including crop production, livestock (cattle and buffalo), the establishment of rice, cattle and vaccine banks; and community development training

Meung and Nam Chouam Area district

Project for Better Livelihood of Ethnic Minorities Villages

MAF 12/2003–12/2005

France Euro 682,500

Health, education, agriculture including low land vegetables, seeds and tools, livestock, water supplies and irrigation development and rehabilitation

Long and Nalea districts.

Special Program for Food Security

National Agriculture and Forestry Extension Service (NAFES)

2001–2006

Japan/Food and Agriculture Organization (FAO $2.6 million

Support farmers in food production improvement such as: • crops, fruit tree and rice production • livestock production (pigs, poultry

and animal health) • irrigation water management and

construction • nurseries for quick-growing trees nurseries for quick-growing trees

Luang Namtha district

Forest Management and Community Support Project

NAFES 2005–2008

Japan International Cooperation Agency (JICA)

Increase the forest resource diversity and improve living conditions of villagers

30 villages from Luang Prabang, Xayabury, Bokeo, Houaphanh, Luang Namtha, and Vientiane

Appendix 5 33

Project Executing Agency Duration Funded by Objectives Area

Lao-Vietnam Cooperation Agriculture and Forest Development Project

MAF 2001–2005

Viet Nam KN376.2 million

Farmer training in agricultural extension for maize, rice seed, soy bean, and garlic

Northern provinces of Lao PDR

Sustainable Agriculture Project

PAFO 2000–2006

VECO of Belgium $100,000

Poverty reduction through crop production, village livestock revolving funds, and new irrigation development

Bokeo

Forage and Livestock System Project

National Agriculture and Forestry Research Institute (NAFRI) and PAFOs in Luang Prabang and Xieng Khouang

7/2000–6/2005

Australian Agency for International Development (AusAID) $2 million

Integration of forage and improvements in animal management practices in upland farming systems

Four districts of Luang Prabang and two in Xieng Khouang

Lao-America Cooperation Project for Opium Free Areas

MAF 12/2004–12/2009

United States Agency for International Development (USAID)

Eradication of opium plantation and addiction through integrated rural development activities

Ngoy and Viengkham districts, Luang Prabang

Northern Community Managed Irrigation Project

Department of Irrigation, MAF

2005–2011

ADB $10 million

Reduce rural poverty in 11 districts of the northern region through sustained growth of agricultural production, by developing community-managed irrigation schemes with strong community ownership

Northern provinces of Lao PDR: Houaphanh, Xieng Khouang, Luang Prabang, and Xaysomboun Special Zone

Government Public Administration Reform

Prime Minister‘s Office

2004–2005

United Nations Development Program - Swiss Development Agency for International Cooperation (SDC)

Strengthening the capacities at district levels through improved governance

Phonexay district, Luang Prabang

Aquaculture Improvement and Extension Project Ph II

Department of Livestock and Fisheries (DLF), MAF

2005– 2010

JICA Extension of aquaculture suitable for local conditions is started in the target provinces

5 provinces: Oudomxay, Sayabouli, Savanakhet, Saravan, and Vientiane province

Nam Ngum River Basin Development Project

Water Resources Coordination Committee, Office of the Prime Minister

2003– 2006

ADB $15m with $3.5 million grant from the French Development Agency (AFD)

Enhance government capability to manage natural resources, especially in the water sector

Vientiane province, Xaysomboun Special Region, and Xieng Khuang.

Livestock Farmer Support Project

DLF, MAF 2005– 2008

EU €5.2 million

The overall objective is to improve the rural livelihoods of poor households by increasing the value of their assets and their agricultural output

6 northern provinces: (Bokeo Luang Namtha, Luang Prabang, Oudomxay, Xieng Khuang and Xayabury)

Xieng Khouang Agricultural MAF 1999– International Fund • Poverty alleviation and reduction in Xieng Khouang

34 Appendix 5

Project Executing Agency Duration Funded by Objectives Area

Development Project (Phase II)

6/2005 for Agricultural Development (IFAD) $6.9 million with $0.9 million grant provided by United Natoins Office of Drug Control UNODC

opium production • Involved cattle and buffalo

distribution program and development of holding farm

Participatory Research for Development in the Uplands

MAF 2003– 2006

International Fund for Agricultural Development (IFAD) $1.48 million

• Introduce emerging technologies that increase food supply and income, and provide alternatives to shifting agriculture

• Increase the capacity of rural communities to manage their own development and of government services to provide a sustained input into agricultural development

• Develop approaches to complement indigenous knowledge and practices with new knowledge and ideas for increasing productivity and improving land management; and support government personnel working with IFAD loan projects

Oudomxay and Xieng Khuang

Small-scale Agro enterprise Development in the Uplands of Lao PDR and Vietnam

NAFRI and the provincial and district agriculture offices in Oudomxay and Xieng Khouang

2003– 2006

SDC, Hanoi $2.59 million

• Identify and evaluate market opportunities for agro-enterprise development with local stakeholder groups

• Design and facilitate the implementation of agro-enterprise initiatives with supply chain actors

• Strengthen local capacity for promoting agro-enterprises and strengthening local business support services

• Institutionalize the agro-enterprise development process at district, provincial, and national levels

Xieng Khouang (Khoune, Pek,, Phoukoud) Luang Prabang (Pak Xeng, Xiengngen)

Program National Agro-Ecology

National Agriculture and Forestry Research Institute (NAFRI)

2000– 2008

AFD • Food security for farmers • Soil quality preservation to reduce

negative affects to the environment, increase productivity and quality of production with reduction of cost and labor

• Improve Xieng Khouang Plateau to

Vientiane capital city, Botene, Kenethao, and Paklay districts, Xayabury and Pek, Kham and Nonghet districts, Xieng Khouang

Appendix 5 35

Project Executing Agency Duration Funded by Objectives Area

become a forage field for livestock, and production area for main crops for farmers

s Lao Economic Acceleration Program for the Silk Sector

PAFO 2009– 2017

AusAID • Vocational women development • Silk production and quality

improvement

20 villages of Kham, Khoun, Nonghet, and,Pek, districts, of Xieng Khouang Province. 20 villages of Sobbao, Xamneua, Xamtay, Xiengkhor, and districts, Houaphanh.

Rural Development and Poverty Reduction Project

Ministry of Labor and Social Welfare

2004– 2008

Christian Reformed World Relief Committee, Belgium $700,000

Integrated rural development (agriculture, public health, education, and public communication)

Khoun and Kham districts, Xieng Khouang Vienphoukha district, Luang Namtha

Shifting Cultivation Reduction Project

MAF 1999– 2005

ADB Reduce shifting cultivation, eradicate opium production, and shifting from slash-and-burn upland cultivation to crop and livestock production

Xamneua district, Houaphanh

Decentralized Irrigation Development and Management Project

Irrigation Department, MAF

2001– 2006

ADB Loan and AFD grant

• Strengthening irrigation water users’ associations

• Irrigation system rehabilitation of irrigation schemes

• Capacity building

Luang Prabang district, Luang Prabang

Lao Extension for Agriculture Project

NAFES 2005– 2008

Swedish Agency for International Development Cooperation (SIDA)/SDC

Integrated rural development (agriculture, livestock, and forestry), improving agricultural extension capacity of NAFES and extension workers

6 northern provinces

Lao Swedish Upland Agriculture Research Program

NAFRI 2005– 2009

SIDA $300,000

Research on agricultural system in the northern provinces of Lao PDR

Phonxay district, Luang Prabang; Namor district, Oudomxay; and all research centers in Lao PDR

Phoukhoun District Aurora Target Area Development Project

PAFO 2005– 2017

World Vision Australia

Poverty reduction by improving agriculture, public health, and education

Phoukhoun district, Luang Prabang,

Community Managed Livelihood Improvement Project

NAFES 2003–2006

ADB $100,000

Poverty reduction through rural areas Bolikhamxay, Houaphanh, Vientiane, Xieng Khouang

Lao Red Cross-Danish Red Cross Primary Health Care Program

Ministry of Health 1998–2013

Denmark Develop public health; agriculture including crops, livestock, and village veterinary workers and education

Houaphanh, Xieng Khouang,

Source: Asian Development Bank estimates.

36 Appendix 6

SUMMARY COST ESTIMATES AND FINANCING PLAN

Table A6.1: Detailed Cost Estimates

(Kip Ten Thousand) ($ '000) % Foreign % Base Item Local Foreign Total Local Foreign Total Exchange Costs I. Investment Costs A. Civil Works 1,162,870 1,162,870 2,325,740 1,129.0 1,129.0 2,258.0 50 14 B. Vehicles and Equipment 1. Vehicles 163,358 245,037 408,395 158.6 237.9 396.5 60 2 2. Motorcycles 104,978 194,958 299,936 101.9 189.3 291.2 65 2 3. Equipment 114,374 212,409 326,783 111.0 206.2 317.3 65 2 Subtotal (B) 382,710 652,404 1,035,114 371.6 633.4 1,005.0 63 6 C. Extension Materials 331,285 141,979 473,264 321.6 137.8 459.5 30 3 D. Consultant Services 1. International Consultants 0 1,563,540 1,563,540 0 1,518.0 1,518.0 100 9 2. National Consultants 1,122,607 0 1,122,607 1,089.9 0 1,089.9 0 7 3. Consultancy Support 0 107,379 107,379 0 104.3 104.3 100 1 Subtotal (D) 1,122,607 1,670,919 2,793,526 1,089.9 1,622.3 2,712.2 60 16 E. Contract Services 716,200 238,733 954,934 695.3 231.8 927.1 25 6 F. Revolving funds 2,919,844 0 2,919,844 2,834.8 0 2,834.8 0 17 G. Surveys and Studies 49,440 12,360 61,800 48.0 12.0 60.0 20 0 H. Farmer Training 632,575 0 632,575 614.2 0 614.2 0 4 I. Agency Training 484,643 0 484,643 470.5 0 470.5 0 3 J. Supervision 1. Government Staff 274,886 0 274,886 266.9 0 266.9 0 2 2. Unallocated* 1,633,406 0 1,633,406 1,585.8 0 1,585.8 0 10 3. Unallocated* 715,842 174,325 890,167 695.0 169.2 864.2 20 5 Subtotal (J) 2,624,134 174,325 2,798,460 2,547.7 169.2 2,717.0 6 16 K. Vehicle and Equipment O&M 199,745 299,617 499,362 193.9 290.9 484.8 60 3 L. IFAD - marketing and poultry 1,856,060 0 1,856,060 1,802.0 0 1,802.0 0 11 Total Investment Costs 12,482,113 4,353,209 16,835,321 12,118.6 4,226.4 16,345.0 26 99 1. Civil Works Recurrent Costs 27,810 0 27,810 27.0 0 27.0 0 0 2. Labor Recurrent Costs 154,846 0 154,846 150.3 0 150.3 0 1 Total Recurrent Costs 182,656 0 182,656 177.3 0 177.3 0 1 Total Baseline Costs 12,664,769 4,353,209 17,017,977 12,295.9 4,226.4 16,522.3 26 100 Physical Contingencies 338,313 134,114 472,427 328.5 130.2 458.7 28 3 Price Contingencies 1,875,158 596,015 2,471,173 759.3 246.5 1,005.8 25 6 Total Project Costs 14,878,240 5,083,338 19,961,578 13,383.7 4,603.1 17,986.8 26 109 Interest During Implementation 0 409,514 409,514 0 382.5 382.5 100 2 Total Costs to be Financed 14,878,240 5,492,851 20,371,092 13,383.7 4,985.6 18,369.3 27 111

IFAD = International Fund for Agriculture Development, O&M = operation and maintenance. Note:* will be discussed further during Inception Mission Source: Asian Development Bank estimates.

Appendix 6 37

ADB = Asian Development Bank, ADF = Asian Development Bank Fund, IFAD = International Fund for Agricultural Development, O&M = operation and maintenance, SDC = Swiss Agency for Development and Cooperation. Note: * will be discussed further during the Inception Mission. Sources: The Government and Asian Development Bank estimates.

Table A6.2: Expenditure Accounts by Financiers ($ '000)

Item ADB Loan IFAD

ADB - ADF

The Government Beneficiaries SDC Total For. Local (Excl.

Duties &

Amount Amount Amount Amount Amount Amount Amount Exch. Taxes) Taxes I. Investment Costs A. Civil Works 1,835 0 0 253 440 0 2,528 1,264 1,011 253 B. Vehicles and Equipment 1. Vehicles 275 0 0 148 0 0 424 254 21 148 2. Motorcycles 221 0 0 95 0 0 315 205 16 95 3. Equipment 273 0 0 68 0 0 342 222 51 68 Subtotal 769 0 0 311 0 0 1,081 681 88 311 C. Extension Materials 525 0 0 0 0 0 525 158 368 0 D. Specialist Services 1. International Consultants 0 0 471 0 0 864 1,335 1,335 0 0 2. National Consultants 0 0 185 0 0 1,170 1,355 0 1,355 0 3. Consultancy Support 0 0 0 0 0 111 111 111 0 0 Subtotal 0 0 656 0 0 2,145 2,801 1,446 1,355 0 E. Contract Services 111 0 0 0 0 945 1,056 264 792 0 F. Revolving funds 1,807 1,014 0 0 201 0 3,022 0 3,022 0 G. Surveys and Studies 67 0 30 0 0 0 97 19 78 0 H. Farmer Training 696 0 0 0 0 0 696 0 696 0 I. Agency Training 112 0 0 0 0 416 528 0 528 0 J. Supervision and Implementation 1. Unallocated* 1,782 0 0 301 0 0 2,083 0 2,083 0 2. Unallocated* 855 0 0 115 0 0 971 190 683 97 Subtotal 2,637 0 0 416 0 0 3,054 190 2,767 97 K. Vehicle and Equipment O&M 491 0 0 55 0 0 545 327 164 55 L. IFAD - marketing and poultry 0 1,827 0 0 0 0 1,827 0 1,827 0 Total Investment Costs 9,052 2,841 686 1,035 641 3,506 17,760 4,349 12,696 716 II. Recurrent Costs 1. Civil Works Recurrent Costs 0 0 0 30 0 0 30 0 30 0 2. Labor Recurrent Costs 0 0 0 0 173 0 173 0 173 0 Total Recurrent Costs 0 0 0 30 173 0 203 0 203 0 Total Project Cost 9,052 2,841 686 1,065 814 3,506 17,963 4,349 12,899 716 Interest During Implementation 230 153 0 0 0 0 383 0 0 0 Total Disbursement 9,281 2,994 686 1,065 814 3,506 18,346 4,349 12,899 716

38 Appendix 7

PROCUREMENT PLAN A. Project Information Country Lao People’s Democratic Republic Name of Borrower Lao People’s Democratic Republic Project Name Northern Region Sustainable Livelihoods through

Livestock Development Project Loan or TA Reference To be determined Date of Effectiveness To be determined Amount $ (total from all financiers): $18,369,000 Of which Committed, US$ To be determined Executing Agency Ministry of Agriculture & Forestry Approval Date of Original Procurement Plan 29 August 2006 Approval of Most Recent Procurement Plan 29 August 2006 Publication for Local Advertisementa To be determined Period Covered by this Plan 2006 - 2012 a General procurement notice, invitations to prequalify and to bid, calls for expressions of interest. B. Procurement Thresholds, Goods & Related Services, Works and Supply & Install Procurement Methods To be used above/below ($) ICB works At least $1,000,000 ICB goods At least $500,000 NCB works Less than $1,000,000 but more than $100,000 NCB goods Less than $500,000 but more than $100,000 Shopping Works Less than $100,000 Shopping Goods Less than $100,000 ICB = international competitive bidding, NCB = national competitive bidding Source: Asian Development Bank estimates. C. Procurement Thresholds, Consultants Services Procurement Methods To be used above/below ($) Quality Cost Based Selection (QCBS) At least $200,000 Consultants Qualifications Selection (CQS) At least $100,000 Least Cost Selection (LCS) Less than $100,000 Single Source Selection (SSS) Less than $400,000 Source: Asian Development Bank estimates. D. List of Contract Packages in Excess of $100,000, Goods, Works and Consulting Services Ref Contract

Description Estimated Costs ($)

Procurement Methods

Expected Date of

Advertisement

Prior Review

Y/N

Comments

1 Vehicles 275,000 NCB 1st Quarter 07 Y Financed by ADB 2 Motorcycle 213,000 NCB 1st Quarter 07 Y Financed by ADB 3 Various

Infrastructure 1,080,000

(54 packages) NCB 1st Quarter 08 Y Financed by ADB

4 Various Equipment

273,000 (6 packages)

NCB 1st Quarter 07 Y Financed by ADB

5 Consulting Services

2,854,000 371,000

QCBS SSS

1st Quarter 07 1st Quarter 07

Y Y

Financed by ADB, SDC, and IFAD

6 Contract Services

1,056,000 (18 packages)

SSS 1st Quarter 07 Y ADB & SDC

ADB = Asian Development Bank, IFAD = International Fund for Agricultural Development, NCB = National Competitive Bidding, QCBS = quality and cost-based selection, SDC = Swiss Agency for Development and Cooperation, SSS = single source selection.

Appendix 7 39

Table A7.1: Proposed Detailed Contract Packages

Description

Unit Number

of Contracts

Cost Estimate per Contract

Aggregated Total Cost Estimate

Mode of Procurement

Responsible Agency

A. Civil Works

1.Office a. Renovation b. New construction 2. Village infrastructure a. medium infrastructure b. small scale infrastructure

B. Goods and Services, Equipment 1. Vehicles 2. Motorcycles 3. Equipment 4. Extension materials

C. Village Revolving Funds

D. Consulting Services 1.Firm 2. Individual E. Contract Services

Total Contract Packages

packages packages

packages packages

packages packages packages packages

packages

packages packages

packages

185

54108

116

18

18

21

18

10,000 30,000

20,000 6,000

275,000 213,000 45,000 35,000

167.000

1,427,000 371,000

58,600

180,000 150,000

1,080,000 648,000

275,000 213,000 273,000 525,000

3,000,000

2,854,000 371, 000

1,056,000

10,225,000

NCB NCB

NCB Shopping

NCB NCB NCB

Shopping

SSS

QCBS SSS

SSS

PIU PIU

PIU PIU

DLF DLF

RO/PIU PIU

PIU

RO RO

RO

DLF = Department of Livestock and Fisheries NCB = National Competitive Bidding, QBS = quality and cost-based selection, PIU = project implementation unit, RO = regional office, SSS = single source selection. Sources: The Government and Asian Development Bank estimates.

ADF = Asian Development Fund, DAFEO = District Agriculture and Forestry Extension Office, M&E = monitoring and evaluation, PIU = project implementation unit, RO = regional office, SDC = Swiss Agency for Development and Cooperation.

Appendix 8 40

IMPLEMENTATION SCHEDULE

2006

Loan Approval Aug 06Loan Effectiveness Oct 06

Recruit RO management adviser (ADF IX funded)Recruit Consultants for SDC funded positionsIdentify RO director and staff and PIU directors and staffIdentify project management personnel and committeesRecruit incremental staff as requiredEstablish imprest accounts Familiarization workshops and district scheduling

Year 1 districts (six in five provinces) A. Enhanced Village Livestock Systems

Output A1 Improved Productivity A1.1 Establish district forage nurseries and prepare supply contractsA1.2 Village selection workshops in provincesA1.3 Village familiarization meetings - group identificationA1.4 Programmed interventions - demonstrations, cross visits, field days.A1.5 Introduce advanced livestock management technologiesA1.6 Establish revolving fundsOutput A2 Market Access and Enterprise DevelopmentA2.1 Identify village livestock handling equipmentA2.2 Identify small scale village infrastructureA2.3 Support marketing group activitiesA2.4 Assist in market chain studiesA2.5 Promote small scale livestock related enterprisesOutput A3 Participatory Extension NetworkA3.1 Rehabilitate and equip DAFEO facilitiesA3.2 Provide intensive and refresher mentored training to extension workersA3.3 Resource extension activitiesA3.4 Train in extension management

B. Community Mobilization and SupportB1 Appoint community mobilization facilitatorsB2 Train in revolving fund operationsB3 Facilitate identification of village infrastructure and livestock equipment

Year 2 Districts (six new districts commence activities)

Year 3 Districts (six new districts commence activities)

C. Implementation Management Establish management facilitiesRecruit technical specialists through a firmDevelop M&E system Baseline surveys Provincial and national review and coordination meetingsAnnual budget planning meetingProject Completion Survey

2010 2011 2012Project Year

2007 2008 2009

Representative activities in target districts

Item

Appendix 9 41

ECONOMIC AND FINANCIAL ANALYSIS 1. The Project is designed to improve smallholder livelihoods in upland areas through livestock development. To examine the possible financial and economic impacts of the Project, a selection of indicative household livestock enterprises are examined comparing “without project” and “with project” situations to estimate incremental production and income from project initiatives. The “with” and “without“ Project increments are extrapolated, based on (i) anticipated adoption rates of the technologies, and (ii) the number and size of villages that are expected to be impacted. 2. In the northern Lao People’s Democratic Republic (Lao PDR), smallholders use a wide variety of approaches to raising their livestock. A general characteristic of the present practice is that animal feed is inadequate in quality, if not in quantity. Animals are often allowed to range free to find their own food or, if confined for a period, feed must be found in the forest and carried back to an animal enclosure. As a result, diet is generally unbalanced and animal health and growth rates are poor. The Project will introduce a package of technologies to improve livestock productivity, including cultivation of forage to improve animal nutrition, better disease control, better animal management practices such as selection of breeding stock, better housing, and weaning and culling practices. It can be expected that households which choose to adopt project technologies will do so in a variety of ways. Therefore, the indicative livestock models included in this financial and economic analysis are abstractions from the wide variety of existing livestock management practices and the various ways in which households may adopt new technologies. Four models have been developed for pigs, goats, cattle (representing large ruminants), and chickens (representing poultry in general). A. Methodology

3. To develop the various livestock enterprise models, certain assumptions are made regarding future practice (both “with” and “without” the Project) and about the valuation of inputs and outputs. In order to assess the Project’s contributions to the economy of Lao PDR, financial values have been converted into economic equivalents. Basic assumptions for such conversions include: (i) the use of a domestic price numeraire; (ii) for tradable commodities (food grains and fertilizers), economic values are based on border parity prices; (iii) for non-traded goods and services, a standard conversion factor of 0.9 is used; (iv) for rural labor, a shadow wage rate factor of 0.8 is used, reflecting the low productivity of rural labor in the area; and (v) transfer payments, such as taxes and subsidies, are excluded in the calculation of economic values. It was assumed that the production increases are not large enough to suppress prices. B. Indicative Household Livestock Models

1. Pig Fattening

4. Pigs are raised in 77% of rural households in northern Lao PDR.1 While the breeding of free range pigs is common, pig fattening is a growing practice. Building on this situation, a model of “with” versus “without” Project pig fattening has been developed. One reason for this selection is that it can be accessible to the poorest smallholders who have limited means to purchase animals. Such poor households can provide the labor and feed inputs for pig owners

1 From the comprehensive village data collected by the District Agricultural and Forestry Extension Offices

(DAFEOs), 2003.

42 Appendix 9

and share in the profits. For households that prefer to breed (rather than fatten) pigs, improvements similar to those for pig fattening can also be expected from forage technologies. 5. The difference between the “with” and “without” Project scenarios is due to the increased labor efficiency that enables additional pigs to be reared as well as the shorter period to achieve marketable weights (from 6-12 months). Under the “without” Project scenario, the financial gross margin (revenue less cash inputs) is KN0.4 million per year, a return per labor day of KN3,729 . If labor inputs are valued at their market price, net revenue is actually negative. With the Project, the annual gross margin (includes two cycles of fattened pigs) increases to KN4.2 million and the return per labor day to KN59,802. Net revenue becomes positive at KN3.5 million per year. Incremental household financial net revenue is KN4.2 million) when comparing the “with” and “without” Project situations. In economic terms, incremental net revenue of this household enterprise is KN3.7 million. Project-wide, assuming that at full implementation 13% of the households in project villages adopt the improved technology, financial incremental net revenue per year from pigs is expected to be $1.15 million. In economic terms, this annual increment would be $1.01 million.

2. Cattle Fattening

6. About 32% of households in the target districts raise cattle and 43% raise buffalo.2 Typically, the animals are allowed to graze freely requiring minimal herding (labor) input. Growth is slow and animals are kept well beyond the time when they could best be sold. Cattle, even more than other livestock, are kept more as a store of wealth than as a source of income. Some households, however, are now buying young cattle to hold until they are ready for sale. A model of cattle fattening has been selected here for reasons similar to those used in the case of pigs. As with pigs, those households that prefer to breed cattle rather than fatten them should be able to experience similar benefit levels because of the adoption of forage technologies and other livestock management technologies. 7. The difference between the “with” and “without” Project scenarios is due to the level of labor required to confine, feed, and water animals compared to the current laissez-faire situation. Given the shortages of household labor, substitution is needed from an alternate activity—assumed to be upland maize cropping—to make labor resources available for fattening of cattle. The production of forages also has associated labor requirements for cutting and feeding but, with the higher nutritional value, it is possible (i) to increase the number of head fattened from three to five, and (ii) for market condition to be achieved in 12 rather than 24 months. A household cattle fattening operation without the Project is likely to have a financial gross margin of KN3.6 million per year and a return per labor day of KN19,946. Net revenue (including labor costs) would be KN2.7 million. With the Project, gross margin would increase to KN11.1 million and return per labor day would rise to KN53,728. Net revenue would become KN9.1 million per year. Incremental household financial net revenue, when including one hectare (ha) of maize as an additional “without” Project activity, is KN6.2 million ($605). In economic terms, incremental net revenue for this household cattle enterprise would be KN5.5 million ($532). By including an allowance for the maize that would no longer be grown, cattle fattening results in annual incremental net revenue of KN8.8 million ($852). For the entire Project, assuming that 8.4% of the households adopt the improved technologies at full implementation, financial incremental net revenue per year from cattle fattening is expected to

2 This information is derived from the comprehensive village data collected by DAFEOs in 2005. Many households

raise both cattle and buffalo.

Appendix 9 43

be KN13.4 billion ($1.30 million). In economic terms, this annual increment would be KN11.8 million ($1.14 million). 3. Goat Breeding

8. At present, 8% of households in the target districts raise goats. Goat rearing is becoming more popular and there are opportunities to increase goat productivity through the introduction of forage and other technologies. “With” and “without” Project scenarios are based on a breeding model in which the number of goats increases under the influence of assumed growth rates, mortality rates, and kidding intervals that are achievable given the proposed interventions. The model compares a 4 doe ‘without Project’ breeding model with an 18 doe ‘with Project’ model. This increase is due to application of the new technological packages together with more labor efficiencies for goat rearing enterprises. 9. The financial gross margin enterprise in the “without” Project scenario is KN0.7 million a year (from the second year). The return to labor is KN9,931 per day, which is about the level of the rural wage rate. Including the cost of labor (at the rural wage rate), the net revenue for the enterprise is about zero. “With” the Project, on the other hand, gross margin per year is KN4.0 million, the return per labor day is KN40,829, and enterprise net revenue improves to KN3.6 million per year. Annual incremental household financial net revenue is KN3.6 million ($352). In economic terms, incremental net revenue for this smallholder enterprise is KN3.2 million ($311). As is the case for large ruminants, the models assume that another enterprise (maize) will be reduced given the limitations on family labor. When comparing the net effect of goat breeding results in financial terms, it is expected to contribute to an annual financial incremental net revenue of KN3.5 million ($337)—and economic incremental net revenue of KN3.1 million ($303) per year. For the entire project area, assuming that at full implementation 3.6% of the households adopt the improved goat breeding enterprises, financial incremental revenue per year from goats will be KN2.7 billion ($0.27 million). In economic terms, this annual increment would be KN2.5 billion ($0.24 million). 4. Chicken Breeding

10. Almost all (93%) rural households raise chickens or other poultry, depending on market access. For the most part, these birds range freely around the village scavenging on whatever they can find. Their numbers are, in part, limited by this scavenging feed resource base, while occasional outbreaks of Newcastle Disease and Fowl Cholera temporarily destroy village flocks. The feed utilized is of low quality but has little cost—a very real advantage for poor households. Given the risks involved in raising poultry, significant investment in improving poultry production is probably beyond the means of most smallholders. As a result, the Project is likely to encourage the adoption of more modest chicken housing and management techniques, while the scavenging feed resource base remains the source of feed. 11. The “without” Project scenario, with production in 3 out of every 4 years, would generate an average household financial gross margin of KN0.5 million per year. Financial net revenue (after accounting for the small amount of household labor involved) would be KN0.4 million. “With” the Project, gross margin would increase to KN1.1 million and net financial revenue to KN1.0 million. Incremental net revenue, then, would be KN0.54 million ($52) per year in financial terms and KN0.46 million ($44) in economic terms. Project-wide, assuming that at full implementation 50% of households adopt the “with” Project poultry management improvements, an increment in financial net revenue can be expected to be KN6.0 billion ($0.59 million). Economic incremental net revenue would be KN5.0 billion ($0.5 million).

44 Appendix 9

12. The four representative models described above show that adoption of the proposed technological package is financially profitable. Therefore, there is adequate profit incentive for households to adopt the proposed technological packages. C. Economic Analysis

1. Adoption of Project Interventions

13. It has been assumed that smallholders previously raising a particular type of animal are more likely to adopt new technologies than households not previously raising that species. In addition, a limit of 25% has been placed (in this analysis) on the total of the project village households adopting any of the larger animal (pig, goat, or cattle) interventions. The resultant full population adoption of the improved pig technology is 13%, 3.6% for goats, and 8.4% for cattle. The adoption rate for the modestly improved poultry technology has been assumed to be 25% by itself—very possibly involving many or all of the adopters of the larger animal management improvements. 2. Project Benefits 14. The project-wide incremental economic benefits of the household adopters of the pig, goat, cattle, and chicken improved technologies (Table A9.1) can be aggregated and extrapolated through the years of expected project life to create a benefit cash flow These incremental benefits increase over the first several years as extension worker capacities are developed and new villages are introduced to the Project, and the adoption of new technologies extends within existing villages.

Table A9.1: Financial and Economic Benefit Estimates Livestock Holding Statistics Poultry Pigs Goats Cattle

Sources: Government and Asian Development Bank estimates.

Proportion of HHs with animals a 93% 77% 9% 32%Average number of animals per HH with animalsa 15.5 3.7 3.9 3.4

Financial Incremental Returns per Household for Indicative Animal Enterprises (Kip)

Households previously raising a type of animalIncremental Net Revenue per year 538,610 4,221,759 3,621,331 6,229,450 Incremental Gross Margin per year 573,610 3,839,396 3,261,331 6,203,345 Incremental Return per Labor Day 51,305 56,073 30,898 30,208

Households not previously raising a type of animalc

Incremental Net Revenue per year 3,387,659 3,467,331 8,770,650 Incremental Gross Margin per year 2,897,796 2,627,331 8,444,545 Incremental Return per Labor Day 48,561 29,587 31,244

Economic Incremental Returns per Household for Indicative Animal Enterprises (Kip)

Households previously raising a type of animalIncremental Net Revenue per year 456,799 3,717,887 3,206,007 5,479,221 Incremental Gross Margin per year 484,799 3,411,996 2,918,007 5,458,337 Incremental Return per Labor Day 42,243 49,691 27,632 26,588

Households not previously raising a type of animalc

Incremental Net Revenue per year 2,889,509 3,124,507 7,702,095 Incremental Gross Margin per year 2,497,619 2,212,507 7,441,211 Incremental Return per Labor Day 42,345 25,328 27,116

Appendix 9 45

3. Project Costs

15. In financial terms, project costs total $15.4 million (KN158.5 billion), which includes taxes, price contingencies, and other factors which do not reflect economic values in 2005 currency terms. After adjusting for these factors, this total cost becomes $12.4 million (KN127.7 billion), spread over the 6 years of implementation. After the implementation period, there will also be operation and maintenance costs for some project-related infrastructure.3 All costs over the years of project life form a cost cash flow. 4. Economic Project Returns 16. The Project’s net economic revenue cash flow can be calculated from the benefit and cost cash flows. Given the increments calculated in the various indicative animal enterprise models and the assumed adoption rates of the improved technologies, the economic net present value is KN27.5 billion ($2.8 million), assuming a discount rate of 12%. The economic internal rate of return (EIRR) is 17.2% (Table A9.2), indicating that the Project has the potential to be a sound investment for the Government.

Table A9.2: Economic Revenue Cash Flows Lao PDR Kip (’10,000s)

Project Economic Project Benefits Costs Cash Flow Large Ruminants Poultry Pigs (Cattle) Goats (Chickens) Total Incremental Incremental Incremental Incremental Incremental Sens Economic Economic Economic Economic Economic Switch Net Revenue Net Revenue Net Revenue Net Revenue Net Revenue Plus

Year exchange 1 10,211 (2,362) (506) (6,165) 1,179 1.03 2,515,166 (2,513,987) 2 50,117 6,459 (9,089) (14,838) 32,649 1.03 1,686,986 (1,654,338) 3 139,875 52,680 (15,248) (13,665) 163,642 1.03 1,761,516 (1,597,875) 4 299,912 161,027 (17,845) 10,407 453,501 1.03 1,751,484 (1,297,983) 5 522,218 380,782 (13,743) 99,028 988,285 1.03 2,073,499 (1,085,214) 6 690,796 653,513 63,195 247,643 1,655,148 1.03 2,725,543 (1,070,395) 7 932,101 962,152 128,234 396,580 2,419,067 1.03 71,055 2,348,012 8 1,015,118 1,118,503 173,794 480,773 2,788,187 1.03 71,055 2,717,133 9 1,041,321 1,175,171 195,902 506,032 2,918,426 1.03 71,055 2,847,371

10 1,041,321 1,175,171 209,076 506,032 2,931,600 1.03 71,055 2,860,546 11 1,041,321 1,175,171 232,217 506,032 2,954,741 1.03 71,055 2,883,687 12 1,041,321 1,175,171 245,673 506,032 2,968,197 1.03 71,055 2,897,143 13 1,041,321 1,175,171 240,818 506,032 2,963,342 1.03 71,055 2,892,287 14 1,041,321 1,175,171 233,393 506,032 2,955,917 1.03 71,055 2,884,863 15 1,041,321 1,175,171 224,227 506,032 2,946,751 1.03 71,055 2,875,696 16 1,041,321 1,175,171 232,217 506,032 2,954,741 1.03 71,055 2,883,687 17 1,041,321 1,175,171 245,673 506,032 2,968,197 1.03 71,055 2,897,143 18 1,041,321 1,175,171 240,818 506,032 2,963,342 1.03 71,055 2,892,287 19 1,041,321 1,175,171 233,393 506,032 2,955,917 1.03 71,055 2,884,863 20 1,041,321 1,175,171 224,227 506,032 2,946,751 1.03 71,055 2,875,696 21 1,041,321 1,175,171 232,217 506,032 2,954,741 1.03 71,055 2,883,687 22 1,041,321 1,175,171 245,673 506,032 2,968,197 1.03 71,055 2,897,143 23 1,041,321 1,175,171 240,818 506,032 2,963,342 1.03 71,055 2,892,287 24 1,041,321 1,175,171 233,393 506,032 2,955,917 1.03 71,055 2,884,863 25 1,041,321 1,175,171 224,227 506,032 2,946,751 1.03 71,055 2,875,696

EIRR 17.2% NPV 12,535,214 8,780,012 3,755,203

EIRR = economic internal rate of return, NPV = net projected value. Sources: Government and Asian Development Bank estimates.

3 Infrastructure operation and maintenance has already been included in total costs during the 6 years of project

implementation.

46 Appendix 9

5. Sensitivity of Project Returns to Various Risks

17. While the EIRR for this Project seems to be adequately above the cut-off level of 12%, there are various risks associated with the validity of the information and assumptions used. Sensitivity tests have been run based on: (i) adoption rate decreased from 25% to 20%, (ii) livestock process falling by 20%, (iii) village coverage reduced by 20%, (iv) numbers of large ruminants involved decreased by 20%, (v) time to achieve marketable weights increased by 20%, and (vi) increase in project costs of 20%, among others. The tests indicate that the Project is robust, with the EIRR declining to 12.2% in the worst scenario (Table 9.3).

Table A9.3 Sensitivity Analysis

Item

Extent of Changes in

Project Outputs (% unless

otherwise stated)

EIRR (% unless otherwise

stated)

Switching Value

(% unless otherwise

stated)

Sensitivity

Base case 17.2 Adoption rates decrease 20 12.7 24.0 1.31 Animal prices decrease 20 11.6 18.0 1.62 Village coverage decrease 20 12.7 24.0 1.31 Larger animals decrease 20 13.3 31.0 1.14 Increase in fattening time with Project 20 12.2 21.0 1.44 Decrease in years of Project 5 yrs 14.9 10 yrs Incremental benefit decrease 20 12.7 24.0 1.31 Project cost increase 20 13.2 31.0 1.14 Postpone start in districts 1 yr 15.3

EIRR = economic internal rate of return. Source: Government and Asian Development Bank estimates. 18. Overall, the economic returns would appear to be fairly robust. None of the risk factors cause large effects upon the economic returns. Decrease of the livestock product prices may lead to reduce the EIRR below 12%. However, a substantial price drop caused by increase of livestock product supply because of project intervention is highly unlikely. D. Poverty Analysis 19. The poor can be expected to be at some disadvantage (compared to the nonpoor) in adopting improved livestock technologies. First, a smaller proportion of poor households are prior owners of any given type of livestock than is the case for nonpoor households. Secondly, even for prior livestock owners, the poor are likely to adopt at a somewhat lower rate than nonpoor households because they have more limited resources. In the project target districts, on average 68% of the households are poor and many of them have some livestock. Estimations indicate that 61% of chicken improvement adopters can be expected to be poor. Similarly, poor households are likely to represent 59% of pig adopters, 53% of goat adopters, and 38% of cattle adopters. When these percentages are applied to the total incremental project benefits built from the various indicative livestock models, the poor can be expected to receive 50% of overall incremental benefits. One of the main reasons for the smaller proportion of the poor to adopt the new technologies is lack of capital. The village revolving fund of the Project is aimed at removing this constraint. Once it is successfully removed, the adoption rate of the poor would increase and a there is a potential for a larger proportion of the poor to benefit from the Project.

Appendix 10 47

FINANCIAL MANAGEMENT ASSESSMENT A. Funds Flow Arrangements

1. The Executing Agency (EA) of the Project will be the Ministry of Agriculture and Forestry (MAF) and the Implementing Agency will be the Department of Livestock and Forestry (DLF). The following institutions will be established under DLF: a National Coordination Office (NCO) in Vientiane using existing DLF staff, a Regional Office in Luang Prabang, and five provincial implementation units (PIUs). For financial management of the Project, NCO will assist the Ministry of Finance to manage two imprest accounts—one for the Asian Development Bank (ADB) loan and one for the International Fund for Agricultural Development (IFAD) loan. The imprest accounts will have advance amounting to an estimated 6 months of project expenditure to be disbursed from ADB and IFAD loans or a maximum of 10% of the ADB and IFAD loans, whichever is less. These accounts will be replenished on a monthly basis to assure liquidity of funds or when the accounts are drawn down by 20% of the initial deposits. This account will be audited annually by an independent auditor acceptable to ADB. NCO staff needs further training to properly manage these accounts. 2. The Project will be financed by: (i) an ADB loan of $9.3 million mainly for civil works, vehicles, revolving funds, and equipment; (ii) an Asian Development Fund (ADF) grant of $0.7 million for three international consultants; (iii) the Government’s fund of $1.1 million for taxes and government staff; (iv) in kind and cash contribution of beneficiaries for civil works and savings; (v) a $3 million loan from IFAD for the revolving fund, marketing, and poultry development; and (vi) a $3.5 million grant from the Swiss Agency for Development Cooperation (SDC) for national and international consulting services. Regular monitoring and internal audit functions will be built up to monitor transactions along the line from central government to provincial, district, and village levels. Such control procedures will be documented in the project finance and administration manual. B. Financial and Accounting 3. The project finance and accounting function will be staffed adequately but most staff will not be adequately qualified and experienced. Therefore, the Project will provide training and written guidelines, especially in ADB procedures. The Project will also prepare terms of reference that clearly define the duties, responsibilities, lines of supervision, and limits of authority for all the officers, managers, and staff. The following responsibilities will be performed by different units or persons: (i) authorization to execute a transaction; (ii) recording of the transaction; and (iii) custody of assets involved in the transaction. The bank reconciliation will be prepared by someone other than those who approve payments. MAF has developed an accounting system that allows for the proper recording of project financial transactions. This includes the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds. The Project will follow the system to support the harmonization of project funding by various international funding agencies. The existing project financial manual will be updated to be applicable for the Project and acceptable to ADB. 4. Controls will be in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained. The chart of accounts will be adequate to properly account for and report on project activities and disbursement categories. The cost allocations to the various funding sources will be made accurately and in accordance with established agreements. The general ledger and subsidiary ledgers will be reconciled and in balance. The existing accounting software will also be

48 Appendix 10

upgraded to help the Project produce quarterly financial monitoring reports and annual financial statements in the format agreed by ADB. All accounting and supporting documents will be retained on a permanent basis in a defined system that allows authorized users easy access. 5. In accordance with ADB’s anticorruption policy, 1 the Project will develop adequate safeguards to protect assets from fraud, waste, and abuse—particularly regarding the sections of ADB’s Procurement Guidelines and Guidelines on the Use of Consultants. The subsidiary records of fixed assets and stocks will be kept up to date and reconciled with control accounts. Periodic physical inventories of fixed assets and stocks will be conducted. Except for vehicles, other assets will not be sufficiently covered by insurance policies. The Project will establish controls and procedures for managing fund flow, financial information, accountability, and audits to ensure information among the different offices will flow in an accurate and timely manner. It will ensure that periodic reconciliations will be performed among the different offices. The Project will also advise employees, beneficiaries, and other recipients to whom to report if they suspect fraud, waste, or misuse of project resources or property. C. Internal and External Audit and Reporting

6. Delayed audit and lack of consistent external audit standards and procedures are a critical problem in the Lao People’s Democratic Republic (Lao PDR). Therefore, external auditor acceptable to ADB will be appointed for the Project. The scope of audit and reports requirements will have to be identified and discussed with ADB before the effectiveness. The auditors will be selected from international auditing companies through competitive bidding procedures. The project audit will be conducted in accordance with the International Standards on Auditing. The Project is subject to any kind of audit from an independent governmental entity (e.g., NAO, the supreme audit institution) in addition to the external audit. The Project will prepare acceptable terms of reference for an annual project audit. 7. Financial statements will be prepared on a quarterly and annual basis, and the reporting system will have the capacity to link the financial information with the Project's physical progress. The separate systems will be used to gather and compile physical data. Controls will be in place to reduce the risk that the physical data may not synchronize with the financial data. The Project will also establish financial management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used. Financial management reports will be used by management for comparing actual expenditures with budgeted and programmed allocations. The financial management system will be partly computerized. The system will produce the necessary project financial reports, and the staff will be adequately trained to maintain the system. D. Conclusion and Recommendation

8. Based on the assessment, and past experience of ADB working with MAF, the current financial management arrangements are adequate for the Project. However, significant weaknesses in the accounting and financial management system need to be addressed to ensure that the Project will be effectively implemented and has sustainable development impacts. Detailed analysis of the financial management of the Project is in Supplementary Appendix A.

1 ADB. 1998. Anticorruption Policy. Manila.

Appendix 11 49

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkage to the Country Poverty Analysis Is the sector identified as a national priority in country poverty analysis?

Yes

No

Is the sector identified as a national priority in country poverty partnership agreement?

Yes

No

Contribution of the sector or subsector to reduce poverty in the Lao People's Democratic Republic (Lao PDR): The Government’s goals are to reduce poverty by 50% by 2005, to eradicate it by 2010, and to enable the Lao PDR to progress from being a least developing country to a developing country by 2020. The Lao CSP 2002-051 of the Asian Development Bank (ADB) and the Poverty Reduction Partnership Agreement signed by the Government and ADB in 2001 state that efforts will be directed to reducing poverty by broadening community participation and opportunities during the next 5 years. The operational priorities to achieve these goals are: (i) rural development and market linkages, (ii) human resource development, (iii) sustainable environmental management, and (iv) regional integration. The overall aim of the Northern Region Sustainable Livelihoods Development through Livestock Project is to contribute to government initiatives in poverty reduction through smallholder livestock development in the northern region of Lao PDR. This recognizes the Government’s priority to address widespread poverty in the northern region; the importance of livestock as a source of food protein and cash incomes for upland villagers; and that livestock raising is a profitable, smallholder production alternative to upland cropping that will allow shifting cultivators to maintain household income levels as they stabilize their production systems. Three immediate outcomes contribute to this aim: (i) enhanced village livestock systems, (ii) community development and capacity building, and (iii) enhanced project implementation and management. The first is further divided into three subcomponents that reflect the identified problem areas for livestock performance: (i) improved livestock productivity, (ii) improved market orientation and livestock enterprise development, and (iii) improved participatory extension network.

B. Poverty Analysis Targeting Classification: Targeted intervention What type of poverty analysis is needed? Of an estimated population of 5.1 million in Lao PDR, 38.6% live below the poverty line. This is defined as where a person cannot access the equivalent of 2,100 calories from foodstuffs (ranges from calorie intake of 1,200 calories per day for infants to 2,767 calories for adult males and 1,747 calories for females over the age of 60) or the equivalent of KN142,500 per month or less than $0.50 per day. The poverty line is 30% higher in Vientiane than the rural areas of Lao PDR. Poorest provinces. The project area comprises 18 priority poor districts in the five northern provinces of Bokeo, Houaphanh, Luang Namtha, Luang Prabang, and Xieng Khouang. This area was identified from among those districts where the number of poor households exceeded 50%, as classified in the National Growth and Poverty Eradication Strategy (NGPES). Poorest districts and incidence of poverty. Based on the NGPES classification, the incidence of poverty for the selected districts in the project area ranges from 55% in Nonghet to 92% in Houamouang. Among the 18 target districts, 10 districts participated in the socioeconomic survey undertaken during the preparation of the project, which included the district with the highest incidence of poverty as well as the lowest. The three main indicators of poverty were identified as: (i) rice security (shortage of rice), (ii) access to land, and (iii) insufficient large livestock.

50 Appendix 11

1 Asian Development Bank estimates.

C. Participation Process

Is there a stakeholder analysis? Yes No Is there a participation strategy? Yes No The strategy is to deploy contracted provincial and district units of the Lao Women’s Union (LWU) to provide mobilization, organization, and training support to participating communities. These LWU units will be contracted by the regional office to work at the village and district level in close collaboration with District Agriculture and Fisheries Extension Office (DAFEO) staff. They will organize gender representative groups, including the poor, to undertake decision making and implementation of activities related to improving livelihoods, village infrastructure, savings, and credit. Once trained, the groups will progressively handle responsibility for the use of project resources to be invested at village level, with backstopping from the service providers. Extension and training will also be provided through these groups using a problem-solving approach. DAFEO staff will be trained in participatory and gender responsive approaches. All benefit monitoring and evaluation will address the participatory aspects of the Project.

D. Gender Development Strategy to maximize impacts on women: The Project will support the full participation of ethnic women in all project outputs and impacts, including their organization into groups, training in livelihoods investments, revolving funds, appropriate technology transfer, microenterprise development, and group marketing. Women will be provided literacy training and translation services for extension and training programs. The Project will promote women’s participation in all village-based training programs to constitute approximately half of all trainees. They will be encouraged to participate in village revolving funds groups and village infrastructure committees, as well as community and household decision making on priority investments. Based on baseline data to be collected and analyzed prior to project start-up in villages, women will be progressively encouraged to constitute at least half of all members of village revolving funds groups. The Project will provide gender sensitization training at all levels of the project implementation structure, including the village. All monitoring and evaluation will be gender-responsive and collect and analyze data on gender differentials in access to project outputs and benefits. Has an output been prepared? Yes No

E. Social Safeguards and Other Social Risks Item

Significant/

Not Significant/ None

Strategy to Address Issues

Plan

Required

Resettlement

Significant

Not significant

None

Full

Short

None Affordability

Significant

Not significant

None

The Project will provide access to revolving funds to make available medicines and feed supplements to poor households. Improving management will lead to reduced risk of disease and greater profitability of livestock for the poor.

Yes

No

Labor

Significant

Not significant

None

The Project will introduce livestock management practices that will not lead to increased household labor demand. By supporting critical village infrastructure development, economies may be brought about in household labor use, i.e. women’s labor utilization.

Yes

No

Indigenous Peoples

Significant

Not significant

None

Approximately 80% of all project beneficiaries are ethnic groups. The project design is based on priorities identified by such communities and is completely geared to facilitating their full participation and benefit. The ethnic groups development plan (EGDP) spells out the strategies to address their priorities.

Yes

No

Other Risks and/or Vulnerabilities

Significant

Not significant

None

Yes

No

Appendix 12 51

GENDER ACTION PLAN

1. The gender action plan aims to facilitate the equitable participation of women, particularly poor upland ethnic women, in all project outcomes and impacts. Women among the target upland communities enjoy varying degrees of social recognition and rights to participate in decision making. The larger upland ethnic groups in the project area, comprising the Khmu and Hmong, are characterized by patriarchal economic and social structures within which women have heavy workloads and less status and decision making. However, all upland ethnic groups demonstrate growing poverty and insecurity of livelihoods, which affect women badly. 2. The Project will aim to improve women’s knowledge and their access to financial, physical, and social capital for improved livelihoods. Women will be targeted for literacy and numeracy training to eliminate their initial disadvantages. The Project will facilitate their mobilization and organization to improve their participation in community decision making, the participatory adoption and popularization of new technical practices, and marketing arrangements. Women will be supported through training for representation in village revolving/infrastructure funds management, and as beneficiaries of these funds. The Project sets progressive targets for the gender action to be implemented and monitored.

(i) The Project will facilitate women’s participation in village based training At least

50% of all trainees in village-based training programs are expected to be women. However, for training programs aimed at smaller livestock, women are expected to comprise about 70–80% of all trainees.

(ii) Women will be equitably represented in village revolving fund/infrastructure fund management structures.

(iii) Based on baseline data, women will form at least 30–50% of all beneficiaries under the village revolving funds.

(iv) At least 50% of all extension workers will be women. (v) Gender training will be provided to staff of the Provincial Agriculture and Forestry

Office (PAFO) and District Agriculture and Fisheries Extension Office (DAFEO). (vi) All BME will be gender-responsive and measure project impacts on women in

terms of returns to labor, improved productivity of livestock, participation in enterprise promotion, take of credit, membership of community based groups, extent of participation in training, etc.

52 Appendix 13

ETHNIC GROUPS DEVELOPMENT PLAN A. Introduction 1. The objective of the Project is to improve the sustainability of upland livelihoods through participatory livestock development. Lack of access to adequate productive resources and opportunities leads to the absence of sustainable livelihoods1 for the predominantly upland ethnic populations in the northern Lao People’s Democratic Republic (Lao PDR). This ethnic groups development plan (EGDP) aims to provide further information and analysis of these constraints, and ways in which the Project will target ethnic groups to ensure equitable access to project outputs and impacts. The EGDP is based on extensive consultations with ethnic groups in the project area. These consultations took the following forms:

(i) Socioeconomic surveys conducted during the project preparatory technical assistance in January/June 2005 in 40 villages in the 18 districts.

(ii) Participatory research and consultations in selected villages carried out in June–July 2005.

(iii) Workshops conducted during the project preparatory technical assistance. (iv) Participatory workshop conducted in Luang Prabang on 15 February 2006. (v) During pre-appraisal, it was also indicated that a greater stress on smallholder

poultry is a priority for poor households. (vi) After pre-appraisal, a local consultant engaged all 18 districts through

consultative workshops on social and environmental related to the Project. The report was submitted to the Asian Development Bank (ADB) in May 2006.

(vii) The Project and the EGDP are based on the outcomes of these discussions. B. Background 3. One of the main characteristics of the Lao PDR is its cultural diversity. For the purposes of the 1995 census, the Government recognized 47 main ethnic groups or categories and 149 subgroups, and the last revision of this list by the Lao Front for National Construction (LFNC) contained 49 categories and over 160 subgroups. Thus, the official terminology for describing the diverse population of the Lao PDR is “ethnic groups”. 4. In Lao PDR, all people are considered equal, irrespective of ethnic background. 2 Although almost 50 major ethnic groups are recognized by the national census, ethnic groups are conventionally divided into three major groups based on prototypical location: (i) Lowland Lao (Lao Loum) who tend to settle in valleys and flatlands, (ii) Upland Lao (Lao Sung) who prefer higher altitudes, and (iii) Midland Lao (Lao Theung) who tend to inhabit mid-level slopes. However, there are many exceptions to these stereotypic village locations so such universalities 1 The sustainable livelihoods framework developed by Institute for Development Studies (IDS), Sussex, and adopted

by the Department for International Development (DFID) of the United Kingdom, puts people at the center of development and views them as operating in a context of vulnerability. It provides a very useful and relevant analytical framework to (i) understand the multidimensional nature of poverty, as defined by people themselves; and (ii) analyze their access to the various types of capital (financial, physical, social, human, natural) and their ability to combine and utilize these assets as individuals/ households, in ways that may enable them to ensure their access to adequate subsistence and well-being—including improvements therein in future, without undermining the natural resource base. Conversely, the absence of any of these can lead to poverty, vulnerability to loss of subsistence, and reduced well-being. For further details, refer to, among others, Chambers, R., and G. Conway. 1992. Sustainable Rural Livelihoods: Practical Concepts for the 21st Century. (IDS) Discussion Paper 296. IDS. Sussex.

2 Government of Lao PDR. 1992. Resolution of the Party Central Organization Concerning Ethnic Minority Affairs in the New Era. Vientiane.

Appendix 13 53

must used with care3. Over two thirds of the national population is Lao Loum, which comprise 8 ethnic groups within the Lao-Tai language family. The upland or highland Lao make up about 10% of the population and comprise 7 groups within the Chine-Tibet language family and 2 groups within the Hmong-Lu Mien language family. Midland Lao account for 25% of the total population and comprise 32 groups within the Mon-Khmer language family (footnote 3).

Table A14.1: Ethnicity of the Population

Ethno-Linguistic

Topographical Language

Family

No. of Ethnic Groups

Proportion of

Population (%)

Tai Kadai Lao Loum Lao Phoutai 8 66.2 Austroasiatic Lao Theung Mon Khmer 32 23.0 Hmong-lu Mien Lao Sung Hmong Yao 2 7.4 Chine-Tibetan Lao Sung Tibeto Burman 7 2.5 Chine-Tibetan Lao Sung Hor Han 1 0.2

Sources: Chamberlain, J. and P. Phomsombath. 2002, Poverty Alleviation for All: Potentials and Options for People in the Uplands. Vientiane. Swedish International Development Agency (Sida).

5. Although there are various ethnic groups within the lowland Lao, only the upland and midland Laos are considered “ethnic groups”. Lao PDR policy emphasizes the multiethnic nature of the nation and, in many ways, works to reduce discrimination against midland and upland minorities. The use of the “three-ethnic group” emphasizes the commonality of Lao nationality “Lao First” 4 and is widely used in the country to refer to specific ethnicity. While there is participation in the political process, with a number of non-Lao ethnic people holding positions in government, there is no equal representation at all political levels when compared to their total numbers in the provincial populations. In Lao PDR, poverty, culture, and ethnicity are closely linked. 5 Often, due to remote location, ethnic people have comparatively less access to government services such as health, education, agricultural extension, and infrastructure. As a result, development impacts can be marginalizing on isolated and pre-market ethnic economies. Further, the higher incidence of poverty, particularly among minority groups, makes them more vulnerable socially and economically.6

D. Government of Lao PDR Policies towards Ethnic Groups 6. Review of Government Policy on Ethnic Groups. Since 1975, the Government has shown great interest in rural people and ethnic groups. The Central Committee for Ethnic Minorities was created in 1975 to develop a policy regarding ethnicity in Lao PDR.

7. The main policy of the Central Committee for Ethnic Minorities was to continue strengthening solidarity and conciliation among all ethnic groups and to create a unified force to protect the sovereignty of the nation and the development of the country. Its priority activity was to

3 Chamberlain, J. and P. Phomsombath. 2002. Poverty Alleviation for All: Potentials and Options for People in the

Uplands. Vientiane: Swedish International Development Agency (Sida). 4 Milloy, M. and M. Payne. 1998. My Way and the Highway: Ethnic People and Development in the Lao PDR.

Development or Domestication? Indigenous Peoples of Southeast Asia. D. McCaskill and K. Kampe (eds.) University of Washington Press.

5 ADB. 2001. Lao Peoples’ DemocraticRepublic Participatory Poverty Assessment. Manila. 6 State Planning Committee, National Statistics Centre, and ADB. 2001. Participatory Poverty Assessment Lao

Peoples’ Democratic Republic. Manila.

54 Appendix 13

conduct research regarding all aspects of the nation's ethnic groups and report the results to the Central Party. 9. Various decrees and laws throughout the 1980s and 1990s aimed to strengthen protection of the rights of all ethnic groups in the country. Increasing emphasis was made on the importance of diversity, which is increasingly seen as a source of strength rather than a threat. 10. Ethnic Minority Affairs in 1981. By recognizing the lack of policy and attention to some ethnic groups, the Political Bureau issued a resolution in 1981 concerning the affairs of all ethnic groups, although it was aimed specifically the Hmong and became known as the “Hmong Policy”. The policy was primarily focused on shifting cultivation in rural development and required that the livelihoods of the people, both materially and mentally, be improved. In the case of Hmong, the policy required conditions to be in place to allow a solid basis for production and, over the next five-year period, various resettlements of highland groups were undertaken in an attempt to improve their food security. The policy also required consultation and a remedial approach to solving problems of land shortage, land disputes between Hmong and other ethnic groups, and problems created by resettlement during the war and through rural development (including those who wished to return to their original territory or move to new ones). The policy showed that the Government was aware of deficiencies in meeting the basic needs of the rural ethnic people, especially the Hmong, and proposed solutions which emphasized participation and consensus of traditional/local leaders as well as the people themselves. 11. The Third Party Congress (April 1982), while focusing on economic development and national defense, followed an agenda in relation to the development of ethnic minorities that included stabilization of shifting cultivation and relocation and resettlement of upland villages to lowland areas where there was potential for paddy rice cultivation. 12. Most of the resettlement projects failed to meet expectations because of insufficient preparation of both resettling and host communities, and inadequate resources and experience to support the policy. In some cases, they resulted in resettled villages moving back to their previous land within a few years. 13. The Fifth Party Congress (March 1991) reiterated the commitment to the maintenance of ethnic identities and the economic development of all groups. The Congress subsequently confirmed the adoption of a “new economic mechanism” and reaffirmed that transition from subsistence to a market economy must be accompanied by the progressive abandoning of slash and burn practices. 14. The Fifth Party Congress had two main achievements in relation to ethnic groups: (i) the adoption of the Constitution of the Lao PDR, which recognized citizens of all ethnicity (Section 2.1.2)7; and (ii) the recognition that implementation of the 1981 Ethnic Policy had been ineffectual, resulting in the 1992 Resolution on Ethnic Affairs in the New Era (footnote 7, Section 2.1.3). 15. The Constitution. The Constitution of the Lao PDR was passed in 1991 as a consolidation of the rights and responsibilities of the State and the people. Throughout the Constitution, the term “citizens of all ethnicity” is used. The Constitution states that all citizens have rights in education, health, land use and ownership, domicile of choice, and economic

7 Lao Peoples’ Democratic Republic. 1991. Constitution of Lao PDR. Vientiane.

Appendix 13 55

development regardless of sex, religion, social status, education, or ethnicity; as well as freedom of religion, freedom of speech, freedom to peacefully assemble and to protest. All citizens have the right to work and carry out their chosen livelihoods. Articles 8 and 22 guarantee that there will be no discrimination on the basis of ethnicity or gender.

16. These articles form the foundation of a policy signed by the President of Lao PDR in 19928 The Constitution was revised in 2003 and the relevant provisions are the new Articles 8 and 35.

17. The 1992 Resolution9. The Party Central Committee issued a resolution on Ethnic Affairs in the New Era in 1992. The first section of the resolution constitutes an evaluation of the implementation of the 1981 ethnic affairs policy. While acknowledging some progress, this section is essentially a strong critique of the lack of progress in most areas of implementation. It highlighted the lack of adequate attention to ethnic groups’ livelihood, education, training, and motivation, as well as the lack of coordination among concerned government agencies in addressing their problems.

18. This resolution was to be implemented through both political and economic development activities, which included halting shifting cultivation and the permanent settlement of the people who practiced it. This was to be followed by programs to improve their livelihoods.

E. ADB Policy on Indigenous Peoples

19. ADB's Policy on Indigenous Peoples 10 focuses on the circumstances of indigenous peoples (“ethnic minorities”) and on identifying and satisfying their needs and developmental aspirations. It emphasizes the participation of ethnic minorities in development, and the mitigation of its negative effects and impacts.

20. The policy stipulates that ADB-funded projects in which ethnic minorities are affected should be:

(i) consistent with the needs and aspirations of affected ethnic minority peoples; (ii) compatible in substance and structure with affected ethnic minorities’ culture

and social and economic institutions; (iii) conceived, planned, and implemented with the informed participation of affected

communities; (iv) equitable in terms of development efforts and impact; and (v) not imposing the negative effects of development on ethnic minorities without

appropriate and acceptable compensation.

21. The term “indigenous people” is generic and includes cultural minorities, ethnic minorities, indigenous cultural communities, tribal peoples, scheduled tribes, natives, and aboriginals. The definition 11, is encompassing and describes indigenous people as having the following characteristics:

8 Government of Lao Peoples’ Democratic Republic. 1992. Resolution of the Party Central Organization Concerning

Ethnic Minority Affairs in the New Era. Vientiane. 9 Ibid. 10 ADB. 1998. Policy on Indigenous Peoples. Manila. 11 ADB. 2004. Operations Manual, F3/BP. Manila.

56 Appendix 13

... (i) descent from population groups present in a given area before modern states or territories were created, and (ii) maintenance of cultural and social identities separate from mainstream or dominant societies or cultures. Additional characteristics include (i) self-identification and identification of others as being part of a distinct indigenous cultural group, and the display of desire to preserve that cultural identity; (ii) a linguistic identity different from that of mainstream or dominant society; (iii) social, cultural, economic, and political traditions and institutions distinct from mainstream or dominant culture; (iv) an economic system oriented more toward a traditional system of production than the mainstream system; or (v) a unique tie and attachment to traditional habitat and ancestral territory and natural resources.

22. The approach adopted by ADB in project and program development is to seek the greatest possible reduction in poverty among indigenous peoples and, in cases where adverse cultural effects are unavoidable, to minimize these effects through identification of appropriate mitigation measures. Furthermore, where indigenous people are to be affected by a project, it is important to incorporate mechanisms into project planning that will ensure the equal or enhanced enjoyment of project benefits by indigenous people. 23. This approach recognizes that even programs that are aimed at improving quality of life (i.e., poverty reduction projects) do not necessarily equally reach all sectors of the community, and invariably, indigenous people—for a variety of reasons—often bear a disproportionate burden of adverse social and economic effects of development. Therefore, project planning must include strategies to overcome such structural constraints and appropriate communication avenues are identified, particularly when conventional approaches to information dissemination may not be adequate. Any such strategy would also need to provide specific mechanisms for indigenous women’s concerns to be identified and addressed through the project process. To this end, OM F-3/BP notes that “...development interventions that will affect indigenous peoples should ensure that they have opportunities to participate in and benefit equally from the interventions”. 24. To ensure that people of ethnic minority groups are included in appropriate ways in the development process, OM F-3/BP requires the preparation of an indigenous peoples’ development plan. In the context of the Project, the process of facilitating the participation of ethnic minorities in the Project, and ensuring that they benefit equitably, is termed an ethnic minority development plan (EGDP). The EGDP lays out basic principles for ensuring the equitable participation of ethnic minority households/communities in development of sustainable livelihoods, with particular attention to the needs of ethnic minority women. F. Development Activities under the Project Components

1. Enhanced Village Livestock Systems 25. Activities proposed under this component seek to change the current perspective of low input-low output systems in improving the productivity of ethnic groups and rendering them more market-oriented. 26. Productivity Initiatives. The Project will: (i) improve livestock growth via the introduction of forages—through nursery development, supply of planting materials, training, and improved animal feeding; (ii) improve livestock survival through better management of livestock movements, improved disease monitoring, and support for emergency vaccinations; (iii) improve livestock fertility through smallholder training and improved management of smaller livestock; and (iv) improve management practices through farmer training, training of women

Appendix 13 57

(especially for smaller livestock production), and demonstrations of livestock management. It will support a village revolving fund to be administered by local village-based groups to be trained under the Project. All these outputs are expected to be delivered through participatory and culturally appropriate approaches to ensure that ethnic groups, particularly Lao Theung and Lao Sung ethnic groups, are able to participate fully in project activities. 27. Market Linkages and Enterprise Development. The second component will improve market efficiency and enterprise development. The Project will also provide smallholder training and support for group marketing activities. The Project will fund village infrastructure to rehabilitate or establish essential transport and other small-scale village infrastructure to improve market access (pathways and bridges) and village life (e.g., gravity fed water supplies). 28. Participatory Extension Network. The Project will support the government extension service through capacity building for technical know-how and participatory methodologies for extension using a problem solving approach. 2. Capacity Building for Community Driven Development 29. The Project will fund capacity building activities in upland communities through service contracts with Lao Women’s Union (LWU) in order to promote group formation for participatory technology transfer; and provide for literacy and numeracy training, particularly for disadvantaged groups—to ensure they share the benefits of the Project.

30. Monitoring and Evaluation. All project monitoring and evaluation will address the participation and benefits to non-Lao ethnic groups under all project components. The International Fund for Agricultural Development (IFAD) Result and Impact Management System (RIMS) will be used to monitor outcomes of the Project. This will include changes to asset structures of households and information on malnutrition and changes therein. A baseline survey will be conducted prior to implementation of project activities. Full-scale evaluations will be carried out on ethnicity and gender issues in improving livelihoods through livestock production at midterm (year four) and at the end of the Project.

G. Budget

31. The budgetary allocations that will directly support the implementation of the EGDP include the following:

Table A14.2: Budgetary Support to EGDP Project Outputs ($) Extension materials in ethnic group languages 473,264 International consultancy support for gender and community development

120,000

National consultancy support for gender and community development

105,000

Contract servicesa 954,934 Revolving funds 2,807,000 Farmer training 614,000 Total 5,074,198

EGDP = Ethnic Groups Development Plan. a These refer to contracts to be entered into by the Project with Lao Women’s Union (LWU) and mass

organizations/nongovernment organizations (NGOs) to provide capacity building services to village communities for group formation, technology transfer, credit and savings programs.

Source: Asian Development Bank estimates.

58 Appendix 14

OUTLINE TERMS OF REFERENCE OF CONSULTANTS A. International Consultants

1. Regional Office Advisor (Rural Development Consultant) (15 person-months)

1. The consultant will be recruited to support the Department of Livestock and Fisheries (DLF), in particular the national project director (NPD), in achieving project goals and objectives. S/he will assist the NPD in the overall coordination and management of implementation of the Project, and in particular will facilitate adherence to the progress and financial reporting requirement and all other procedures of the Asian Development Bank (ADB). S/he will oversee and coordinate the timings and inputs from the consultant team. 2. Among other activities, the consultant will do the following under the leadership of the NPD:

(i) Support and coordinate the regular implementation of the Project in terms of the functioning of all regional office staff, provincial implementation units (PIUs), and District Agriculture and Fisheries Extension Office (DAFEOs), in accordance with the project administration manual, and in terms of delivery of project outputs and outcomes.

(ii) Facilitate and support the integration of provincial work plans to be prepared under the Project, into annual Provincial Agriculture and Forestry Office (PAFO) work plans.

(iii) Facilitate the amalgamation of all provincial work plans into the overall project national work plan, demonstrating clear links between expected outputs ands outcomes, with monitorable indicators.

(iv) Coordinate and supervise all consultant deployment and inputs. (v) Facilitate the recruitment by the regional office of the Lao Women’s Union (LWU)

provincial and district units, under service contracts for each participating province, by negotiating suitable contracts.

(vi) Support the regional office in procedures related to procurement of equipment and vehicles in accordance with the methods to be used for purchase of supplies under the Project, ensuring that both ADB and Government of the Lao People’s Democratic Republic (Lao PDR) procurement requirements are followed, including preparation of invitations to bid, evaluation of bids, and assisting in contract negotiations.

(vii) Facilitate the preparation of quarterly financial reports for submission to the Executing Agency (EA) and ADB.

(viii) Assist the supervision of the release of funds from the Special Account in the Ministry of Finance to the Project as required, using standard procedures for replenishment of the imprest account in the Ministry of Finance.

(ix) Facilitate the development of project benefit monitoring and evaluation (PBME) procedures based on the International Fund for Agricultural Development (IFAD) Result and Impact Management System (RIMS) system, to be developed by the PBME consultant in order to collect baseline and repeat monitoring data for analysis.

(x) Facilitate regular monitoring of the implementation progress of the Project by the NPD, and assist in the preparation of quarterly progress reports for submission to DLF, the project steering committee (PSC), provincial coordination committee (PCC), ADB, and the EA.

(xi) Participate in PSC meetings upon invitation.

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(xii) Undertake regular visits to the provinces to for coordination and monitoring purposes.

2. Extension Training Consultant (20 person-months)

3. The consultant will continue the technical support currently being provided by the Capacity Building Project1 after its completion, continuing the capacity building initiatives for provincial and district extension related staff. 4. Among other activities, the consultant will:

(i) Review existing and complete training modules as required to meet the demands of the extension workers and beneficiaries, including coordination with the other extension projects being implemented and with the Central Extension Training Development Unit of the National Agriculture and Forestry Extension Service (NAFES).

(ii) Monitor implementation of extension activities in the field to guide the extension processes and ongoing development of extension workers and their training.

(iii) Plan extension and training activities on an annual basis, after reviewing activities and results achieved in the field during the previous year.

(iv) Monitor training activities to assess the effectiveness of training material and capacities of training teams.

(v) Develop guidelines and tools for broad-based extension mechanisms to be used according to the needs of specific sites.

(vi) Develop processes and tools that will enable “production groups” to self-monitor and assess further learning activities to improve their incomes from livestock production.

(vii) Establish extension management systems that will provide the opportunity for exchange and reflection at various levels, including district, province, and across the Project.

(viii) Develop a village livestock information system to provide a tool for extension workers to assess progress and identify champion smallholders.

(ix) Train and mentor the training teams and the provincial extension coordination office to be able to assess training needs, and develop training inputs on an on-going basis.

(x) Assist the regional office advisor (rural development consultant ) and community mobilization and gender consultant to design appropriate mechanisms for the disbursement of village revolving funds and the identification of infrastructure development initiatives, and the development of market orientation and farmer enterprise development.

3. Community Mobilization and Gender Consultant (6 person-months)

5. The consultant will develop procedures to ensure the participation of all vulnerable groups in the target communities in project activities and provide inputs to the composition of training modules for extension workers and other district and provincial staff in the areas of gender, ethnicity, and the poor. 6. Among other activities, the consultant will:

1 ADB. 2005. Technical Assistance to the Lao People’s Democratic Republic for Capacity Building for Smallholder

Livestock Systems. Manila.

60 Appendix 14

(i) Conduct extensive discussions with officials at all levels, including the Ministry of Agriculture and Forestry (MAF), NAFES, PAFO, and DAFEO; and villages on the means and ways of increased involvement of women, ethnic groups, and people of various socioeconomic classes in livestock production and related activities.

(ii) Ensure that gender and ethnicity considerations are included in selection criteria for the recruitment of extension workers.

(iii) Organize gender awareness and participatory assessment workshops for provincial and district staff, in cooperation with the LWU in all capacity building initiatives undertaken by the Project.

(iv) Design and produce a manual outlining procedures to be followed by community facilitators engaged under the Project.

(v) Organize workshops and field visits in the provinces and districts to train community facilitators according to steps developed in the manual, and to test adjustments in various village scenarios: mono-ethnic, multiethnic, and relocated villages, etc.

(vi) Prepare a plan of work for the community mobilization and gender aspects, detailing the most effective means of eliciting the participation of women, ethnic groups, and poor households in decision making for the use of village development funds and the village credit committee for the use of village revolving funds, as well as the village infrastructure fund

(vii) Work closely with the project benefit monitoring and evaluation (PBME) consultant and extension consultant to ensure that due consideration is given to gender issues. Guide the national community mobilization and gender consultant in the conduct of all training activities outlined above.

4. Monitoring and Evaluation Consultant (6 person-months)

7. The consultant will be recruited to assist in the establishment of a performance monitoring system and to generate the information to assist in determining its overall impact after completion. 8. Among other activities, the consultant will:

(i) Supervise the design and conduct of a baseline survey, including the sampling method used, the design of the questionnaire, and the requirements for data processing of the information collected.

(ii) Carry out a comprehensive analysis of the baseline survey and prepare a baseline report for the Project.

(iii) Design a PBME system for incorporation into the routine project review procedures to be carried out at provincial and national level. Items will include effectiveness indicators and efficiency indicators.

(iv) Establish the PBME system in DLF’s regional office and train the local staff in its use and operations. Develop an electronic mechanism for appending monthly records entered at the PIUs into a central database. Train provincial staff in the program for BME data entry.

(v) Design mechanisms and procedures for monitoring the use of village development assistance provided under the Project, detailing beneficiaries and impact from investment.

(vi) Design mechanisms and procedures for monitoring the use and repayment of loans from village revolving funds provided under the Project, detailing beneficiaries and impact from gaining access to the funds.

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(vii) Develop mechanisms for monitoring changes in the upland livestock production systems based on whole farm enterprise models, including impacts on household labor utilization. The changing systems should be based on the total resource base of the smallholder units rather than a partial budget approach where livestock activities are isolated from other livelihood activities. Pay particular attention to women’s participation and access to improved livelihoods as a result of project inputs.

(viii) Participate in regular reviews of project performance based on information generated from the PBME program designed.

(ix) Design a format for quarterly reporting progress to the Government, ADB, and the PSC in accordance with ADB guidelines.

(x) Assist in the preparation of a project impact survey within 2 months of project completion.

5. Livestock Production Consultant (8 person-months)

9. The consultants will be required to address unanticipated livestock production and animal health issues as arise from time to time. Consultant services will be recruited as required. 10. Among other activities, the consultant will:

(i) Provide on-the-job training for counterpart subject matter specialists and short training courses for project staff.

(ii) Consult with project staff on technical problems identified during implementation and provide options for their solution.

(iii) Identify new opportunities for technical intervention from a review of project successes and failures, experience of related projects in Lao PDR and the region, and knowledge of advances in livestock science and extension.

6. Marketing and Trade Development Consultant (6 person-months)

11. The consultant will be recruited to facilitate development of formal trade linkages, both domestically and internationally, in livestock and livestock products to improve overall market efficiency. 12. Among other activities, the consultant will:

(i) Offer guidance and advice on preparation of a strategic plan for improving Lao PDR’s competitive advantage, focusing specifically on Greater Mekong Subregion (GMS) member countries, Association of Southeast Asian Nations (ASEAN), and ASEAN+3.2

(ii) Provide on-the-job and in-service training to officials assigned on issues related to technical barriers to trade, and International Organization for Standardization standards, as well as trade directives of the European Union, and Lao PDR commitments following accession to the World Trade Organization.

(iii) Prepare and justify trade policy options in the form of recommendations for consideration by the Government, related to optimizing Lao PDR’s strategic land-linked position in Southeast Asia.

(iv) Formulate a package of fiscal and technical assistance incentives to encourage investment in livestock trading farms—working with representatives of the

2 ASEAN plus 3 comprises the 10 ASEAN member countries plus the People’s Republic of China, Japan, and South

Korea.

62 Appendix 14

ministries of finance, commerce, and agriculture and forestry—to be operated as small to medium enterprises by the private sector in and around the following locations: Houayxay, Bokeo; Nambak, Luang Prabang; Phoukhoun, Luang Prabang; and Nonghet, Xieng Khouang.

(v) Identify potential funding sources for the development of SPS mechanisms to support the developing trade in livestock in the northern region, including government services for disease monitoring, quarantine inspection, and other services demanded by importing countries.

(vi) Conduct stakeholder workshops with representatives of the business sector and provincial and district finance, commerce, and livestock officials to ensure all points of view are taken into consideration in the formulation of fiscal incentives to promote livestock trading farms.

7. Smallholder Poultry Consultant (3 person-months) 13. The consultant will be responsible for selecting an appropriate set of measures for improving smallholder poultry production, with a view to improving productivity and reducing risk of disease through improved biosecurity. Consultant services will be recruited as required. 14. Among other activities, the consultant will:

(i) Provide on-the-job training for counterpart subject matter specialists and short trainings for extension workers.

(ii) Consult with project staff regarding technical problems identified during implementation and provide options for their solution.

(iii) Identify ways to improve biosecurity from a review of project successes and failures, experience of related projects in Lao PDR and the region, and knowledge of advances in livestock sciences and extension.

(iv) Identify ways to improve the nutrition of vulnerable groups through improved smallholder poultry production, and relate these to the work of service providers in each province.

B. National Consultants

1. Extension Training Coordinator (44 person-months)

15. This consultant will have similar duties to those outlined for the international specialist but will work in close cooperation as the interface, focusing on technology transfer to provincially-based extension support consultants and target extension workers.

2. Community Mobilization and Gender Consultant (33 person-months)

16. This consultant will have similar duties to those outlined for the international specialist but will work in close cooperation as the local interface, focusing on technology transfer to district-based extension workers, and ensuring that community facilitators execute their responsibilities in the required manner. 3. Extension Support Consultant (55 person-months, 5 persons)

17. The consultants will be recruited to provide leadership and additional experience and resources at the provincial level to coordinate and deliver extension training in participating districts. 18. Among other activities, the consultant will:

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(i) Assist in the conduct of a training needs assessment of current extension workers in the target districts.

(ii) Assist in the coordination of training of extension workers based on material developed by the extension.consultant

(iii) Assist DAFEO heads to develop extension management programs for extension workers.

(iv) Assist in the conduct of annual “knowledge, attitude, and practice” surveys of extension workers that are active in the project area.

(v) Assist the monitoring and evaluation consultant in developing indicators to measure the overall impact of the Project.

(vi) Ensure that extension workers receive appropriate training in gender, poverty, ethnicity, and environmental issues.

4. Community Driven Development Facilitation Contracts (220 person-months)

19. Contracts will be negotiated by the regional office with provincial and district units of LWU to secure services that will appoint trained community facilitators to work under the supervision of district and provincially based staff, and who in consultation with the beneficiary community and in conjunction with the assigned DAFEO extension officers, will do the following:

(i) Provide full support to disadvantaged groups to participate in and benefit from project initiatives.

(ii) Support the formation of village households into socially homogenous groups based on their interest (e.g., livestock producer groups, marketing groups, enterprise groups, revolving fund groups, among others), ensuring that the poor and women are fully represented.

(iii) Provide training on group workings, organizing meetings, keeping records, planning, and reporting.

(iv) Provide training to revolving funds groups in the management of revolving funds, risk assessment, loan assessment, loan administration, accounts keeping, record keeping, loan monitoring, and economic management, among others.

(v) Assist DAFEO staff in participatory technology transfer to the groups, (vi) Support the gender inclusive village infrastructure committees in identifying

priority village infrastructure and facilities. (vii) Review marketing options for all livestock in cooperation with the PIU of the

province, and access where there are opportunities to expand market options for smallholders.

(viii) Work with the livestock producer groups and traders to improve coordination of livestock trade in areas where there is potential to improve livestock trade and profitability.

(ix) Assist in the development of small enterprises associated with the livestock subsector, including women’s enterprises.

(x) Provide overall support for community organization and participation of the disadvantaged groups within village communities, with particular attention to women’s participation.

5. Smallholder Poultry Production Consultants (50 person-months) 20. The consultants will have similar duties to those outlined for the international consultant but will work in close cooperation as the interface, focusing on technology transfer to the subject matter specialists and district-based extension workers, and ensuring that smallholder poultry producers are provided with full support under the Project.