document of the world bank for official use only · rdp regional development plan (plano...

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 46397-BR

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$39.5 MILLION

TO THE

STATE OF RIO DE JANEIRO

WITH THE GUARANTEE OF

THE FEDERATIVE REPUBLIC OF BRAZIL

FOR A

RIO DE JANEIRO SUSTAINABLE RURAL DEVELOPMENT PROJECT

August 6, 2009

Sustainable Development Department Brazil Country Management Unit Latin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of October 31, 2008)

Currency Unit = Brazilian Real US$1.0 = R$ 2.15

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CEASA State Supply Center (Centrais de Abastecimento do Rio de Janeiro) CEDRUS State Sustainable Rural Development Council (ConselhoEstadual de Desenvolvimento

Rural Sustentável) CPS Country Partnership Strategy EA Environmental Assessment EIRR Economic Internal Rate of Return EMATER State Rural Extension Agency (Empresa de Assistência Técnica e Extensão Rural do

Estado do Rio de Janeiro) EMBRAPA Brazil’s Agricultural Research Enterprise (Empresa Brasileira de Pesquisa

Agropecuária) EMF Environmental Management Framework ESS Economic Sustainabilty System FIPERJ State Research Instutions (Fundação Instituto de Pesca do Estado do Rio de Janeiro) FM Financial Management FUNDENOR North Fluminense Regional Development Foundation (Fundação Norte Fluminense de

Desenvolvimento Regional) GAP Good Agicultural Practice GDP Group Development Plan (Plano de Desenvolvimento Coletivo) GoRj Rio de Janeiro State Government ICB International Competitive Bidding ICR Implementation Completion Report IDP Individual/Farm Development Plan (Plano Individual de Desenvolvimento) IFR Interim Unaudited Financial Report IKM Information Knowledge and Management ISP Institutional Sustainability Plan IT Information Technology M&E Monitoring and Evaluation MAPA National Ministry of Agriculture, Fisheries, and Supply (Ministério da Agricultura,

Pecuária e Abastecimento) MDA National Ministry of Agrarian Development (Ministério do Desenvolvimento Agrário) MDC Microcatchment Development Committee (Comitê Gestor da Microbacia) MDP Microcatchment Development Plan (Plano Executivo da Microbacia) MIS Management Information System MTR Mid-term Review MuDC Municipal Development Council (Conselho Municipal de Desenvolvimento Rural

Sustentável) MuDP Municipal Development Plan (Plano Municipal de Desenvolvimento Rural Sustentável)

FOR OFFICIAL USE ONLY

This document has a restricted d istribution and m ay be use d by recipi ents only in the perform ance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

NCB National Competitive Bidding NNWF North and Northwestern Fluminense region OM Operational Manual PDO Project Development Objective PESAGRO State Agricultural Research Enterprise (Empresa de Pesquisa Agropecuária do Estado

do Rio de Janeiro) PIU Project Implementation Unit (Secretaria Executiva do Projeto) PNTD Participatory and Negotiated Territorial Development POA Annual Operating Plan (Plan Operativo Anual) Project Rio de Janeiro Sustainable Rural Development Project PRONAF National Smallholder Agriculture Program (Programa Nacional de Fortalecimento da

Agricultura Familiar) PRONAT Sustainable Rural Development Territories Program (Programa de Desenvolvimento

Sustentável de Terrotórios Rurais) QBS Quality-Based Selection QCBS Quality and Cost-Based Selection RAP Resettlement Action Plan Rio GEF Project

Rio de Janeiro Sustainable Integrated Ecosystem Management in Production Landscapes of the NNWF GEF Project

RDC Regional Development Committee (Comitê Regional de Microbacias) RDP Regional Development Plan (Plano Territorial de Desenvolvimento Rural Sustentável) RPIS Regional Project Implementation Sub-unit (Secretaria Executiva Regional) RNS Innovation, Technology, and Sustainable Services Research Network System RPF Resettlement Policy Framework RSC Regional Steering Committee (Comitê Regional de Microbacia) SBD Standard Bidding Document SBP Sustainable Business Plan (Plano de Negócio Sustentável) SEA State Secretariat of Environment (Secretaria de Estado do Ambiente) SEAPPA SEAPPA/SDS

State Secretariat of Agriculture, Fisheries, and Rural Development (Secretaria de Estado de Agricultura, Pecuária, Pesca e Abastecimento) Superintendence of Sustainable Development (Superintendência de Desenvolvimento Sustentável) within SEAPPA

SEDEIS State Secretariat of Economic Development, Energy, Industry, and Services (Secretaria de Estado de Desenvolvimento Econômico, Energia, Indústria e Serviços)

SEEDUC State Secretariat of Education (Secretaria de Estado de Educação) SESDEC State Secretariat of Health and Civil Defense (Secretaria de Estado de Saúde e Defesa

Civil) SOE Statement of Expenditure SoRJ State of Rio de Janeiro SRD Sustainable Rural Development TA Technical Assistance TCE State Court of Accounts TOR Terms of Reference

Vice President: Pamela Cox Country Director: Makhtar Diop

Sector Director: Laura Tuck Sector Manager: Ethel Sennhauser

Sector Leader: Mark Lundell Task Team Leader: Alvaro Soler

iv

BRAZIL Rio de Janeiro Sustainable Rural Development Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1A. Background and Agricultural Sector Overview (see Annex 1) .......................................... 1

B. Rationale for Bank Involvement ......................................................................................... 3

C. Higher Level Objectives ..................................................................................................... 4

II. PROJECT DESCRIPTION ................................................................................................. 5A. Lending Instrument ............................................................................................................. 5

B. Project Development Objective and Key Indicators ........................................................... 5

C. Project Components (see Annex 4) ..................................................................................... 7

D. Project Costs by Components and Financiers (in US$ thousands) ..................................... 9

E. Lessons Learned .................................................................................................................. 9

F. Alternatives Considered .................................................................................................... 10

III. IMPLEMENTATION .................................................................................................... 11A. Institutional and Implementation Arrangements (see Annex 6) ....................................... 11

B. Monitoring and Evaluation of Outcomes (see Annex 3) .................................................. 12

C. Sustainability ..................................................................................................................... 13

D. Critical Risks ..................................................................................................................... 15

E. Loan Conditions and Covenants ....................................................................................... 17

IV. APPRAISAL SUMMARY ............................................................................................. 18A. Economic and Financial Analyses (see Annex 9) ............................................................. 18

B. Technical (see Annex 4) ................................................................................................... 19

C. Fiduciary (see Annexes 7 and 8) ....................................................................................... 19

D. Environment (see Annex 10) ............................................................................................ 19

E. Social (see Annex 10) ....................................................................................................... 20

F. Safeguard Policies (see Annex 10) ................................................................................... 21

G. Policy Exceptions and Readiness ...................................................................................... 21

v

Annex 1: Country and Sector or Program Background ......................................................... 22

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 27

Annex 3: Results Framework and Monitoring ........................................................................ 29

Annex 4: Detailed Project Description ...................................................................................... 38

Annex 5: Project Costs ............................................................................................................... 74

Annex 6: Implementation Arrangements ................................................................................. 75

Annex 7: Financial Management and Disbursement Arrangements ..................................... 86

Annex 8: Procurement Arrangements ...................................................................................... 96

Annex 9: Economic and Financial Analysis ........................................................................... 103

Annex 10: Safeguard Policy Issues .......................................................................................... 113

Annex 11: Project Preparation and Supervision ................................................................... 124

Annex 12: Documents in the Project File ............................................................................... 126

Annex 13: Statement of Loans and Credits ............................................................................ 127

Annex 14: Country at a Glance ............................................................................................... 131

Annex 15: Map of Project Area ............................................................................................... 133

vi

BRAZIL

RIO DE JANEIRO SUSTAINABLE RURAL DEVELOPMENT PROJECT

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSAR

Date: August 6, 2009 Team Leader: Alvaro J. Soler Country Director: Makhtar Diop Sector Manager: Ethel Sennhauser

Sectors: General agriculture, fishing and forestry sector (80%); Other social services (20%) Themes: Participation and civic engagement (P); Other rural development (P)

Project ID: P101508 Environmental screening category: Partial Assessment

Lending Instrument: Specific Investment Loan

Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m): 39.5 Proposed terms: The Loan would be US Dollar-denominated Flexible Loan with a variable spread, with a four-year grace period and 23 years of total loan term with all the conversion options.

Financing Plan (US$m) Source Local Foreign Total

Borrower 21.4 0.0 21.4 International Bank for Reconstruction and Development

39.4 0.1 39.5

Beneficiaries 18.1 0.0 18.1 Total: 78.9 0.1 79.0 Borrower: Secretaria de Estado de Fazenda Rua da Alfândega, 42 - 2º andar Centro, Rio de Janeiro, RJ, 20.070-000 Brasil Tel: 55-21-2334-4300 / 4599 http://www.fazenda.rj.gov.br Responsible Agency: State Secretariat of Agriculture, Fisheries, and Rural Development Alameda São Boaventura, 770

http://www.fazenda.rj.gov.br/�

vii

Fonseca, Niterói, RJ, 24.120-191 Brasil Tel: 55-21- 2601-6076 /3607-5599 /3607-5562 http:// www.agricultura.rj.gov.br

Estimated Disbursements (Bank FY/US$m) FY 2010* 2011 2012 2013 2014 2015

Annual 5.0 7.7 9.6 9.6 6.6 1.0 Cumulative 5.0 12.7 22.3 31.9 38.5 39.5 * Includes partial use of the available retroactive financing of up to US$5.9 million for eligible expenditures incurred after January 16, 2009 but not earlier than twelve months prior to loan signing. Project implementation period: six years Expected effectiveness date: November 30, 2009 Expected closing date: November 30, 2015

Does the Project depart from the CAS in content or other significant respects? [ ]Yes [X] No Does the Project require any exceptions from Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board?

[ ] Yes [X] No [ ] Yes [ ] No [ ] Yes [X] No

Does the Project include any critical risks rated “substantial” or “high”? [X] Yes [ ] No Does the Project meet the Regional criteria for readiness for implementation? [X] Yes [ ] No

The project development objective (PDO) is to increase the adoption of integrated and sustainable farming systems approaches in specific areas of the Borrower’s territory, thus contributing to the higher-order objective of increasing small-scale farming productivity and competitiveness in those areas. The Project will support the following three components: 1. Support to Small Farmer Production and Competitiveness (US$66.1 million) will provide

assistance to rural beneficiaries (Beneficiaries) to operate changes in rural production processes within a framework of market-driven agricultural development focused on sustainable and increased productivity of small farmers, value added and market linkages through: a) pre-investment activities; and b) investment activities.

2. Institutional Frameworks (US$5.2 million) will improve the Borrower’s institutional frameworks supporting market-driven agricultural development by: a) strengthening rural institutions and coordination mechanisms; b) improving public and private financial support mechanisms; and c) undertaking participatory research

3. Project Coordination and Information Management (US$7.6 million) will support: a) the

Borrower’s overall project management and coordination, monitoring and evaluation, as well as; b) dissemination of key sustainable rural development information under the Project.

http://www.agricultura.rj.gov.br/�

viii

Which safeguard policies are triggered? - Environmental Assessment (OP 4.01) - Natural Habitats (OP/BP 4.04) - Forests (OP/BP 4.36) - Pest Management (OP 4.09) - Physical Cultural Resources (OP 4.11) - Involuntary Resettlement (OP 4.12) Significant, non-standard conditions: Board presentation: There are no conditions for Board Presentation. Loan/credit effectiveness: The Additional Legal Matter consists of the following (a) the Technical Cooperation Agreements have been duly authorized or ratified by the Borrower and by EMATER and PESAGRO, and are legally binding upon all said parties in accordance with their terms; and (b) the Loan has been registered with the Guarantor’s Central Bank. Dated Covenants applicable to project implementation: - Final institutional arrangements with SEA, SESDEC, SEEDUC, SEDEIS and other partners

(currently EMBRAPA and FUNDENOR) within six months of effectiveness (to be included in the Project Operational Manual);

- External auditors hired within six months after effectiveness; - Annual procurement audit of Subprojects; - Transfer of road equipment and machinery acquired under the Project to selected consortia of

municipalities by January 31, 2013; - Mid-Term Review by November 30, 2012 or such other date as the Bank shall agree upon

following effectiveness.

1

I. STRATEGIC CONTEXT AND RATIONALE A. Background and Agricultural Sector Overview1

(see Annex 1)

1. Overall Context. During 15 years of working in Southern and Southeastern rural Brazil, the Bank has supported a number of projects that fit into a strategy where operations have evolved along the following continuum: (i) initially, a narrow focus on soil conservation; (ii) a more comprehensive focus on land management (soil and water) and farmer organization within micro-watersheds; (iii) adding the dimension of environmental sustainability, including biodiversity conservation and river basin management; (iv) combining the previous activities with a more proactive approach emphasizing poverty reduction and social services; and (v) using the capacity built at the local level to leverage the coordination, integration, and sustainable development impact of the project and other programs. Throughout this time, a serious commitment to, and support for, local-level capacity building for participatory rural development and environmental management has been a central pillar of rural operations in Brazil.

2. Previous rural interventions have proven very effective in achieving important social

gains. In particular, increased awareness among beneficiaries about key productive and environmental issues that affect their livelihoods, as well as improved social cohesion and increased power for communities to be active participants in local decision-making and development processes, are key successes. In recent years, however, the need to concentrate related interventions within a market-driven approach to agricultural development has become evident, and new projects should use and expand the productive and social base to allow for this sharper focus in support of Sustainable Rural Development (SRD).

3. The Rio de Janeiro Sustainable Rural Development Project (the “Project”) will be the

first large-scale Bank-supported rural intervention in the State of Rio de Janeiro (SoRJ). The Rio de Janeiro Sustainable Integrated Ecosystem Management in Production Landscapes of the NNWF GEF Project (Rio GEF Project), which became effective in 2006, is ongoing and will effectively complement activities of the new operation, as it has now entered the phase of full-fledged field investments after completing the organizational and planning phase. As a result, the design of the Project reflects the lessons of prior experiences in Brazil. Specifically, the Project will focus on enhancing the entrepreneurial capabilities of, and opportunities available to, small farmers for sustained improvements in their socioeconomic conditions via a participatory and decentralized organizational framework that will enhance their competitiveness. Within this approach, the Project will build on the local and central institutional structures established under the Rio GEF Project to offer comprehensive and innovative support that addresses key rural sector challenges in the SoRJ. To this end, the Project will introduce and mainstream a new, integrated, and coordinated approach to public and private interventions within the core agricultural areas of the SoRJ to maximize the impact and sustainability of activities supported.

1 Unless otherwise stated, all data in this section is derived from the Rio de Janeiro State Government’s Secretary of Planning and Institutional Coordination (SESCI).

2

4. Agricultural Sector Context. The SoRJ is one of Brazil’s 26 states and is located in the

geopolitical region of the Southeast. The state has a total area of 43,864 square kilometers with approximately 15.4 million inhabitants.2

The state economy is driven by the industrial and service sectors, which contribute to 51% and 42% of state gross domestic product (GDP), respectively. Overall the SoRJ accounts for 15% of national GDP (US$139.0 billion in 2006).

5. Although a comparatively small proportion of state GDP (0.5%), the agricultural sector is important to the SoRJ’s economy. Outside of the metropolitan area of the city of Rio de Janeiro, agriculture’s contribution to GDP rises to nearly 5%, and when included with agro-industrial activities, agriculture represents over 25% of state GDP. The importance of agriculture is further demonstrated in terms of rural employment (it accounts for over 40%) and land use (more than 60% of total state area is dedicated to agricultural activities).

6. Agriculture is especially vital to economic and social well-being in the three

administrative regions that constitute the agricultural powerhouse of the state. These include: the North and Northwest administrative regions, also known as “North and Northwestern Fluminense” (NNWF), and the Serrana administrative region. These three regions house more than half of the state’s rural population (about 300,000 out of a state total of 550,0003) and are responsible for 60% of agricultural employment in the state. They also have the state’s largest concentration of family farms (an estimated 37,000 out of a state total of 42,9004

) whose main occupation and source of income is agriculture. Furthermore, small family farms represent some 80% of total land holdings in the NNWF and Serrana regions, over half of which correspond to holdings of ten hectares (ha) or less.

7. Despite its importance, the agricultural sector in the SoRJ faces a number of pressing challenges, including: low productivity, poor linkages to markets with high demand for agricultural products, a weakened natural resources base, poverty, and the inability of public institutions to adapt to the evolving demands of the rural sector (see Annex 1 for details). The factors commonly attributed to this situation are largely interrelated and include, inter alia: weak farmer organization; the widespread use of inefficient and unsustainable agricultural practices; poor infrastructure; the incipient nature of regional industrialization, markets, and agro-industrialization processes; and the limited scope of public policy in rural areas. While, paradoxically, some of these factors along with specific support from the GoRJ have lessened the impact of the financial crisis on the small farmer economy, a structural, comprehensive and sustainable solution to the challenges cited is required to ensure the economic and social well-being of this segment of the economy in the long run.

2 Estimated Population Count 2007. Brazilian Institute of Geography and Statistics (IBGE). 3 Estimated Population Count, 2007, Brazilian Institute of Geography and Statistics (IBGE). 4 Family Agriculture Data Bank. National Institute of Agriculture Reform (INCRA).

3

8. The Project is designed to address these aforementioned challenges by supporting interventions to improve small farmer productivity, enhance linkages with local and national markets, strengthen the natural resources base, enhance the living conditions and incomes of small farming families, and improve the ability of public institutions to adapt to the evolving demands of the rural sector (see Section II B below for details).

9. Government Strategy. Brazil’s state and federal governments have established a policy

agenda that supports rural poverty reduction by integrating sustainable environmental and social practices and increasing the agricultural production and diversification of family farming. The Government of Rio de Janeiro (GoRJ) has recognized the importance of supporting small-scale agriculture in the context of increased competitiveness and market access. This is especially relevant to the NNWF and Serrana regions which produce the majority of the state’s agricultural goods. For this reason, the GoRJ grants significant and increasing shares of its supply of agricultural credit (46%) and agricultural TA (38%) to these regions.

10. The GoRJ has taken actions to put its rural development strategy into practice by

implementing the Rio GEF Project (P075379). The US$14.95 million5

operation was designed to support pilot activities that promote the long-term conservation and rehabilitation of agro-ecosystems, as well as the implementation of sustainable land management practices that provide environmentally-sustainable economic opportunities for rural communities. After a slow initial start-up period following its effectiveness in 2006, the Rio GEF Project has achieved solid advances in community organization and is now beginning to implement local development plans and investment subprojects. Moreover, the Rio GEF project has laid the basic groundwork to promote successful implementation of the proposed project, since approximately 65 % of the proposed project will geographically overlap with the Rio GEF project. Hence, most of the institutional and operational structure is already in place, and local groups and the Project Implementation Unit (PIU) have gained important coordination and implementation experience through it. The GoRJ is also implementing a number of other programs in support of its rural development strategy, including: (i) the State Credit Program for Agricultural Production and Diversification (Moeda Verde), (ii) the State Microcatchment Program for Sustainable Rural Development (Rio Rural), and (iii) the National Smallholder Agriculture Program (PRONAF).

B. Rationale for Bank Involvement 11. There are four main reasons that justify Bank involvement in the Project. Foremost is its

knowledge and experience with international best practices. The valued added that the Bank provides is based on an array of subject matters acquired through its analytical and project work both in Latin America and other regions of the world. Among topics central to the Project include: small farmer productivity, value added, market linkages, Payment for Environmental Services (PES), decentralization, social accountability, and long-term financing instruments for SRD activities.

5 US$6.75 million from the GEF and US$8.2 million in counterpart funds.

4

12. A second reason for Bank involvement is its in-country knowledge and experience. The Bank has acquired knowledge of local and participatory development in Brazil through both economic sector work and project implementation, particularly in South, Southeast, and Northeast Brazil.

13. A third reason for Bank involvement is government interest. The GoRJ considers that

the Bank’s ability to bring coordinated multi-sectoral technical expertise and involvement will enhance the opportunity to test and mainstream the development, demonstration, and evaluation of mechanisms to adopt a more integrated territorial approach to rural development in specific areas of the SoRJ. This includes a number of organizational, productive, and environmental innovations for which it has requested Bank support.

14. Bank involvement is further justified to complement and build on ongoing activities in

the SoRJ. These include pilot activities supported under the GEF, donor-funded rural and environmental operations (i.e., KfW’s Pro-Atlantic Forest Program, SOS Mata Atlântica Foundation, Conservation International-Brasil, and the Critical Ecosystem Partnership Fund), and state-funded programs (i.e., Rio Rural and Frutificar e Cultivar Orgânico). As this list demonstrates, there is an overwhelming focus on natural resources management and environmental protection activities within the donor community and initiatives supported by the SoRJ. Consequently, the Project has a unique opportunity to complement these strategies with a producer-focused, strongly market-oriented, agricultural operation that simultaneously supports the protection of important global biodiversity resources.

C. Higher Level Objectives 15. The project’s objective and strategy are fully in line with the World Bank Group’s Brazil

Country Partnership Strategy (CPS) 2008-2011 (Report # 42677) discussed by the Executive Directors on May 1, 2008.6

While the Project will contribute to all three of the pillars as outlined in the CPS, the main focus will be on promoting the third pillar, a Competitive Brazil. Here, main activities will be related to better linking small farmers to markets by supporting the formation of agricultural business groups and networks; strengthening the capacity of small farmers to implement and manage sustainable production processes, improve product quality, and increase output; and identifying and supporting the development of new markets (regional and national). Ancillary services will also promote education for innovation and growth by facilitating participatory adaptive research activities and transferring technology to small farming communities and enterprises, and providing capacity building for innovative agricultural products and sustainable processes. Moreover, the Project will support improved governance by strengthening the public management of the rural sector via decentralization activities, as well as by providing incentives to create and strengthen multi-sectoral alliances and interventions.

6 See page 14 of the Brazil Country Partnership Strategy (CPS) 2008-2011 (Report # 42677) discussed by the Executive Directors on May 1, 2008.

5

16. In addition, the Project will support the first and second pillars of the CPS. It will contribute to an Equitable Brazil by focusing on poor farmers at the bottom of the pyramid, as well as by strengthening accountability and participatory monitoring. It will also contribute to a Sustainable Brazil by implementing sustainable production systems, including mechanisms for PES and certifying sustainable agribusiness.

II. PROJECT DESCRIPTION

A. Lending Instrument 17. The total project cost is US$79.0 million with a Specific Investment Loan of US$39.5

million. Counterpart financing from the SoRJ through SEAPPA totals US$21.4 million, in addition to US$18.1 million in private investments.

B. Project Development Objective and Key Indicators 18. The PDO is to increase the adoption of integrated and sustainable farming systems

approaches7

in specific areas of the Borrower’s territory, thus contributing to the higher-order objective of increasing small-scale farming productivity and competitiveness in those areas.

19. The key impact indicators at the beneficiary level will measure increases in: (i) small farmers transitioned towards more productive farming systems; (ii) product quality; (iii) farmers included in (or with improved links to) at least one value chain; (iv) agricultural lands under improved production systems; and (v) tertiary roads restored and maintained. Indicators will be measured in beneficiaries participating in project-supported activities versus control groups according to baseline studies carried out before and after the implementation of all activities (see Annex 3).

20. The target population consists of approximately 37,000 small-farming families (some

150,000 people in total) in the SoRJ. This corresponds to roughly 30% of the total rural population in the state. The target population primarily resides in three main regions that include the North, the Northwest,8

7 A farming systems approach is based on an understanding of the farm-household, the environment in which it operates, and the constraints it faces, together with identifying and testing potential solutions to those constraints. A farming system is defined as a population of individual farms systems that have broadly similar resource bases, enterprise patterns, household livelihoods, and constraints, and for which similar development strategies and interventions would be appropriate. Their analysis emphasizes horizontal and vertical integration, multiple sources of household livelihoods, and the role of the community, the environment and support services. The primary objective of this approach is to improve the well-being of individual farming families by increasing the overall productivity of the farming system in the context of both the individual and community goals, given the constraints imposed by the factors that determine the existing farming system. Thus, it is based on the development principles of improving productivity, increasing profitability and ensuring sustainability, as well as improved distribution of the final value of production.

and Serrana administrative regions, which represent a

8 The North and Northwestern administrative regions are also known as the “North and Northwestern Fluminense” (NNWF). The NNWF is the target area of the Rio GEF Project and its two administrative regions overlap with existing territories already established by the Ministry of Agrarian Development (MDA). Each MDA territory

6

total area of about 23,000 square kilometers (53% of the total area of the state). Replication activities will also be carried out in clusters of municipalities located in other administrative regions of the SoRJ (see map in Annex 15). Overall, interventions will concentrate in nine municipalities in the North, 13 municipalities in the Northwest, and 14 municipalities in the Serrana; replication activities will be carried out in 23 municipalities located across the four other administrative regions.9

As a result, the Project will impact a total of 59 municipalities (out of 92 in the SoRJ). The selection and prioritization of municipalities, as well as participating communities within those municipalities, will be based on production potential, along with environmental and social criteria (see Appendix 1 to Annex 4 for details). Eighty-four percent of project funds (or US$66.1 million) will be directed to small farmers within the selected communities via planning, capacity building, and investment activities.

21. Project components have been designed to address, either separately or in synergy with one another, some of the key agricultural sector challenges in the SoRJ (as outlined earlier in Section I A and detailed in Annex 1). Specifically, the Project will support:

a) productive planning, training and capacity building (1.1), as well as investments in

agro-ecological and natural resource management activities (1.2), to strengthen the longer-term impact on sustained agricultural productivity at a larger scale;

b) financial incentives (subcomponent 1.2) and extension and adaptive research activities (1.1 and 2.3) to improve small the efficiency of rural production processes;

c) the promotion of value added and development of new value chains10 (1.2), the unblocking of rural roads infrastructure and logistical bottlenecks (1.2), and better insertion of small farms in existing value chains, as well as the coordination and alignment of public policies in support of territorial development11

d) rural sector institutional changes (2.1), the creation of a long-term financing mechanism for SRD activities (2.2), and a state-wide participatory research network to improve the ability of public institutions to adapt to the evolving demands of the rural sector.

(2.1), to enhance market linkages;

22. A Participatory and Negotiated Territorial12

consists of a cluster of municipalities that share cultural and socioeconomic similarities. Given that territories are social constructions, the Project is adopting a similar concept by defining the territory as a system of various levels (community/microcatchment, municipal, and regional) where different actors compete and eventually cooperate and negotiate. See Appendix 2 to this Annex for details.

Development (PNTD) approach will be used (and adapted whenever required) to improve regional dialogue and management to

9 The other administrative regions include: South, Coastal Floodplains, Metropolitan, and Paraíba River Middle Valley. 10 For purposes of the Project, a value chain is defined as: the sequence of activities performed to design, produce, market, deliver, and support a product or service, whereby the chain of activities gives the product or service more added value than the sum of added values of the separate activities. 11 The Project is not invoking a typical European LEADER-type multi-sectoral territorial development approach. On the contrary, the Project will promote a focused rural-only territorial development approach in areas of the SoRJ that share common economic and resource base characteristics. See Appendix 2 to this Annex for details. 12 See Appendix 2 to this Annex for a definition of the territorial concept adopted for the purposes of the Project.

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unleash the agricultural production potential and competitiveness in specific territories of the SoRJ while promoting sustainable practices and improving the socioeconomic conditions of small farming communities. This approach is predicated on comprehensive diagnostic and planning exercises across different levels (i.e., local, municipal, and regional) with a wider scope beyond project activities. Because decentralization of planning and decision-making responsibilities is fundamental to the PNTD approach, the Project will build on the strategy currently being implemented by the Rio GEF Project, which is characterized by a participative municipal and microcatchment-level planning model, as well as the full involvement, empowerment, and self-management of community-based organizations. The Project will therefore continue to consolidate these processes. It will also promote complementary strategies focused on promoting productivity, value added, and increased market access for small farmers, as well as on strengthening institutional capacity and networking to more effectively and efficiently respond to the arising, better articulated, and integrated demands at the local level. See Appendices 2 and 3 to Annex 4 for details regarding the PNTD approach and the conceptual overview of the Project.

23. The operational strategy is as follows. First, the Project will establish an institutional

framework in support of PNTD and promote decentralized interventions to increase the organization and capacity of small farmers. Second, the Project will support, based on the above, the transition to more productive, efficient, and sustainable production systems through financing different categories of investment proposals and promoting coordination with other agricultural-related programs. Lastly, the Project will promote the replication of this methodology throughout the SoRJ by intervening in areas outside of the targeted priority regions (i.e., the NNWF and Serrana regions) with the aim of mainstreaming public policies in support of SRD.

C. Project Components (see Annex 4) 24. The Project will be implemented over a period of six years and will have the following

three components to achieve its objectives: (1) Support to Small Farmer Production and Competitiveness, (2) Institutional Frameworks, and (3) Project Coordination and Information Management.

25. Component 1: Supporting Rural Production and Competitiveness (US$66.1 million). It will provide assistance to rural beneficiaries (Beneficiaries) to operate changes in rural production processes within a framework of market-driven agricultural development focused on sustainable and increased productivity of small farmers, value added and market linkages by working with community groups across local, municipal and regional levels in order to increase organizational and participation skills for project implementation through capacity-building and planning activities by supporting:

1.1 Pre-investment activities to strengthen organization and capacity for agricultural productivity through training and planning activities in favor of Beneficiaries to enable them to identify and diagnose, based on their initial status, key production challenges to transition towards more profitable and sustainable farming systems, and elaborate

8

investment proposals with special emphasis on production and competiveness to gradually overcome those challenges with the support of technical assistance; and 1.2 Investments to implement demand-driven activities (Subprojects) through the provision of grants (Grants) aimed at improving sustainable and productive farming systems (Productive Subprojects); compliance with environmental regulation and adoption of agro-ecological and environmentally sound practices (Environmental Subprojects); and erosion control and rehabilitation and maintenance of rural roads (Rural Roads Subprojects).

26. This subcomponent will finance grants to eligible beneficiaries and communities to

implement approved investment proposals, as well as small works, equipment, and materials to carry out rural roads rehabilitation and maintenance activities. According to estimations made on the basis of related farm models and the experiences of the Rio GEF Project, subcomponent 1.2 will support an estimated 24,400 investment proposals with a total cost of about US$52.7 million. This includes approximately US$31.7 million to support productive subprojects, US$10.9 million to support environmental conditioning of productive units’ subprojects, and US$9.6 million to support rural roads-related subprojects to address logistical bottlenecks. The latter activity will also include the establishment of an institutional framework for sustainable road maintenance through the creation of Inter-municipal Road Consortia.

27. Component 2: Strengthening Institutional Frameworks (US$5.2 million). The objective of

this component is to improve the Borrower’s institutional frameworks supporting market-driven agricultural development by:

2.1 Strengthening rural institutions and coordination mechanisms through capacity-building for the Borrower’s agencies (Beneficiaries) to more quickly and effectively respond to rural sector demands, providing better services and coordination with other public and private sector stakeholders through, in the short term, the implementation of specific activities (Institutional Subprojects) identified in an institutional sustainability plan (the Institutional Sustainability Plan, ISP) and, in the long term, by contributing to the implementation of a national policy in support of territorial development.

2.2 Improving public and private financial support mechanisms through the enhancement of linkages between the supply and the demand of financial resources for sustainable rural development activities by the development of an economic sustainability system, with participation of public and private sector representatives, to: promote awareness of and access to the existing supply of public and private financial support resources to Beneficiaries; promote a better flow of financial resources in favor of Beneficiaries; and facilitate the exchange of information between the parties involved.

2.3 Undertaking participatory research to establish a new and effective operational system (the Sustainable Services Research Network System) to conduct, in general, agriculture-related research and induce innovation and interaction between research bodies and stakeholders in the identification, discussion and prioritization of key issues in

9

the agricultural and food sector in the Borrower’s territory and, specifically, provide direct support to the implementation of short and medium-term research demands identified by Beneficiaries through a participatory process.

4. Component 3: Project Coordination and Information Management (US$7.6 million). This component will support the Borrower’s overall project management and coordination, monitoring and evaluation as well as dissemination of key sustainable rural development information under the Project by financing:

3.1 Project coordination through the strengthening of the organizational and operational structure of the Project Implementation Unit; and 3.2 Information management through the development and implementation of a management information system that ensures widespread access and adequate information flows to impact stakeholder decision making in support of sustainable rural development as well as through the promotion of the use of digital and other information technology tools among Project stakeholders and Beneficiaries.

D. Project Costs by Components and Financiers (in US$ thousands)

Components

IBRD GoRJ Beneficiaries Total Amount % Amount % Amount % Amount %

1. Support to Small Farmer Production

32,606.9 49.3 15,371.5 23.2 18,159.0 27.4 66,137.4

83.7

2. Institutional Framework

2,985.9 57.9 2,167.8 42.1 - - 5,153.7 6.5

3. Project Coord. and Info. Management

3,827.5 50.0 3,820.9 50.0 - - 7,648.3 9.7

Total Project Costs 39,420.2 49.9 21,360.2 27.1 18,159.0 23.0 78,939.4 99.9 Front-end fees 98.8 100.0 - - 98.8- 0.1- Total Disbursement 39,519.0 50.0 21,360.2 27.0 18,240.0 23.0 79,038.2 100.0

E. Lessons Learned 28. The Project is designed to reflect a number of lessons from the implementation of Bank

projects in the rural sector in Brazil, especially given the numerous socioeconomic, cultural, and technical similarities between the project area in the SoRJ and areas targeted by Bank-supported operations in other Brazilian states. The design also builds on the global lessons compiled in the Bank’s 2008 World Development Report on “Agriculture for Development.”13

These are described in the following.

29. Decentralization. Decentralizing project implementation and supervision responsibilities to the municipal level can enhance implementation success and the sustainability of investments. However, the impact of a decentralized strategy depends on effective capacity

13 In particular, see Part II of the 2008 WDR, “What Are Effective Instruments for Using Agriculture for Development?” - Chapter 5 (Bringing Agriculture to the Market) and Chapter 6 (Supporting Smallholder Competitiveness through Institutional Innovations).

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building and flexibility that allows greater decision-making authority at local levels, as well as consistency with rural diversity and specific farmer needs.

30. Market Orientation. Verifiable market opportunities must underpin support for poor rural

producers. Effective mechanisms to achieve this include: pre-defining markets and value chains in the eligibility criteria for productive investment subprojects, conducting private sector consultations during project design, and carefully analyzing areas where government can play a catalytic role based on current and future market conditions.

31. Incentives. Addressing (temporary) market failures through (one-time) matching grants, in

addition to improving the policy environment and investment climate, help economic agents manage up-front transaction costs and risks associated with technology adoption and organizational innovation (as in the case of farmers investing in farmer organizations and agribusinesses in developing value chains). Moreover, such an approach mandates a “positive list” of well-crafted, practical incentives, which is representative of the real demands of the rural poor and able to effectively mobilize families, gain their support, and attract indirect stakeholders (i.e., local governments).

32. Multi-sectoral Interventions. Continued political support and integration of project activities

with other rural development programs, including the simultaneous promotion of private productive investments and public socioeconomic investments, enhances project impact and sustainability.

33. Territorial Approach. A territorial approach that effectively links micro and meso levels

increases the likelihood of successfully overcoming constraints related to standalone, local-level approaches, including weak linkages to markets, promotion of value added, bottlenecks in key production chains, sustainable incentives policy, and legal framework. As a result, solutions to employment and income improvement, as well as to broader economic and social development of rural areas, require that local microcatchment and municipal development plans be aggregated and integrated into a territorial approach.

F. Alternatives Considered 34. One level of decision-making regarding project alternatives was the financing instrument to

be used. At first, the design of a rural competitiveness project in the form of an Adaptable Program Loan was discussed. While the longer-term approach and commitment that an Adaptable Program Loan afforded was certainly positive, it was decided that a Specific Investment Loan, given increased Bank responsiveness and the flexibility of available instruments, could yield similar benefits while, simultaneously, providing more flexibility to refocus or scale up replication activities at a later date.

35. Another level of decision-making regarding project alternatives considered the general

approach to be taken. One alternative was to follow a more centralized development model. However, past experiences demonstrate that centralized approaches to planning and implementation lack flexibility and are not effective in dispersed rural areas. Other alternatives involved operations that focused solely on public sector investments, rural

11

finance, or the development of value chains. After extensive discussion, however, it was agreed that the implementation of either one of these standalone approaches could not promote the desired outcome of increased farming productivity and competitiveness in specific territories of the SoRJ. It was therefore decided to use the integrated approach as promoted by the present design.

III. IMPLEMENTATION

A. Institutional and Implementation Arrangements (see Annex 6) 36. Overall project management and implementation will be the responsibility of the SEAPPA.

Within SEAPPA, the State Extension (EMATER) and Research (PESAGRO) agencies will play a central role in the implementation of project activities in the areas of management, capacity building, rural extension, investments planning, and research and studies. The Technical Cooperation Agreements with EMATER and PESAGRO were signed and sent to the Bank, along with their respective legal opinion, prior to negotiations. Furthermore, key collective activities foreseen under the Project will be developed in partnership with civil society organizations and municipal governments in the project area. Other implementing partners foreseen comprise key public institutions, including the State Secretariats of Environment (SEA), Health (SESDEC), Education (SEEDUC) and Economic Development (SEDEIS) for project-induced coordinated multisectoral activities and, currently, EMBRAPA and FUNDENOR as providers of technical assistance for project monitoring. SEAPPA will sign cooperative agreements with these institutions no later than six months after Loan Effectiveness.

37. SEAPPA will act as the Director of the Project and will delegate implementation

responsibilities to its Sustainable Development Superintendence (Superintêndencia de Desenvolvimento Sustentável) where the PIU will be established. The PIU will be headed by a Project Manager and composed of a team of qualified professionals that mostly belong to the cadre of SEAPPA staff. The PIU will be an expansion of the existing PIU of the Rio GEF Project, with the addition of new staff needed to cover new and expanded activities. Specific responsibilities will be delegated to four units in the PIU, including the Institutional Coordination Unit, the Technical Coordination Unit, the Information Management Unit, and the Administrative and Financial Unit.

38. The project’s central executive structure will be supported by implementation structures

across regional, municipal, and local levels. Regional Project Implementation Sub-units will be directly linked to the PIU and responsible for implementing project activities at the regional level. In addition to the two established under the Rio GEF Project in each of the NNWF administrative regions, three more will be created for the other targeted administrative regions. At the municipal level, EMATER, through its local offices, and municipal governments will be responsible for implementation activities with specific obligations to be defined via agreements to be signed in PY1. At the local level, rural extensionists will support the implementation of project activities in each of the 270 participating microcatchments.

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39. To complement the aforementioned implementation structures, the Project will support a series of coordination structures across different territorial levels. The existing State SRD Council (Conselho Estadual de Desenvolvimento Rural Sustentável) will be responsible for strategically articulating the Project within the overall rural development process at state and country levels. Regional Development Committees, consisting of representatives from participating municipalities and multi-sectoral institutions, will be responsible for coordinating project activities at the regional level. In addition to the one established for the Rio GEF Project in the NNWF administrative regions, two more will be created for the other targeted regions. Existing MuDCs, which were created under PRONAF in all of the 59 municipalities targeted in the Project, will be responsible for coordinating project activities at the municipal level. And MDCs in the 270 participating microcatchments will coordinate the elaboration of different development plans and the implementation of subprojects at the local level.

40. Financial Management (FM) Arrangements. Annex 7 provides details on the flow of funds

and accountabilities related to the FM aspects of the Project. The FM arrangements consider: relevant experiences gathered under the ongoing Rio GEF Project; the high degree of commitment and ownership of the FM staff in the PIU; analyses of the SoRJ’s FM institutions and processes; and the inherent FM risks and weaknesses related to the Project. These are reflected in the design of the FM system through the creation of a FM Area within the PIU’s Administrative and Financial Unit to execute FM activities, as well as in the development of a comprehensive fiduciary framework.

41. Procurement Arrangements. Annex 8 provides the details of the project’s procurement

arrangements, which take into consideration the following factors: relevant experiences gathered under the ongoing Rio GEF Project; analyses of the SoRJ’s legal and institutional procurement framework; the overall country procurement risk; and the fact that a large portion of project procurement will be executed through local (CDD-type) procedures. These are reflected in the design of the project’s procurement arrangements through: resorting to the extent possible on traditional procurement methods; incorporating procurement provisions and covenants aimed at mitigating procurement risks within the Loan Agreement; utilizing an oversight mechanism over subprojects through a concurrent audit; procurement training for staff at the central level; and the hiring of a Procurement Advisor and four full-time assistants in the Procurement Area of the PIU to execute related activities.

B. Monitoring and Evaluation of Outcomes (see Annex 3) 42. The Project will support the development of a decentralized monitoring and evaluation

(M&E) system to support project planning and management. To do so, it will build on the existing information systems and data banks for the ongoing Rio GEF Project to establish a Management Information System (MIS). At the beginning of project implementation, additional baseline data on control groups will be collected to complement existing information generated by the Rio GEF Project. This will include the collection of easily available quantitative data, as well as baseline surveys and studies to measure the higher level outcome indicators at project start-up, including: the situation of beneficiary families to be assessed through a socioeconomic survey, and the level of stakeholder participation within

13

different development groups. The MIS will monitor project performance with respect to the baseline situation by, inter alia: tracking inputs, outputs, intermediate outcomes, and progress towards the PDO; providing information to impact decision making across all intervention levels of the Project and allowing for any necessary adjustments during implementation; promoting accountability for resource use against objectives; providing and receiving stakeholder feedback; and generating inputs for the dissemination of project results and lessons learned.

43. The M&E system will continuously monitor productive, socioeconomic, and environmental

aspects in all of the focal and replication areas of the Project. Specifically, detailed monitoring will measure: (i) water quality and quantity; (ii) other relevant environment indicators (i.e., vegetation cover, soil-water content, soil biodiversity, and adoption rates of environmental-friendly practices by farmers); (iii) socioeconomic factors (including household improvements and political and community-level commitment to multi-sectoral interventions in support of SRD); and (iv) economic values, to the extent possible, of external impacts of sustainable land management (i.e., reduced sedimentation, reduced pesticide runoff, and other impacts on downstream users). The monitoring frequency in the targeted microcatchments will depend on the parameters to be measured, as some will take place on a monthly basis and others only during or coinciding with baseline studies, the MTR, and/or the final evaluation.

44. The Information Management Unit in the PIU will have overall responsibility for the

project’s M&E system. It will be headed by a Unit Coordinator and supported by five full-time staff. This will include a M&E Advisor who will work closely with the PIU’s Technical Coordination Unit and the Regional Project Implementation Sub-units, as well as with local level offices and committees involved in implementation. Local project staff (especially extensionists), beneficiary organizations (i.e., MDCs and MuDCs), beneficiary groups (i.e., businesses and producer organizations), EMATER and other implementation partners (including contracted institutions, municipal governments, NGOs, etc.) will also play a critical role in supporting data collection, processing, and reporting activities of the Project.

C. Sustainability 45. The Project has incorporated an array of mechanisms to achieve sustainable impacts. These

are described in the following. 46. Borrower Commitment. The GoRJ has demonstrated its commitment for the Project through

a number of concrete actions during preparation, which include: complying with all issues agreed in Aide-Memoires from preparation missions, mobilizing the support of various state agencies, securing co-financing for project preparation, systemizing existing information and diagnostics, consolidating a geo-referenced project database, and providing leadership during a series of project preparation meetings and workshops. Moreover, the GoRJ has confirmed that improving small farmer productivity, within a participatory framework of poverty reduction and environmental protection, is a key government priority both through the implementation of the ongoing Rio GEF Project, as well as through its prioritization of the Project (i.e., it was included in SIGEN as the most important rural initiative in the SoRJ

14

which ensures increased monitoring of activities and the availability of budget resources). The operation is part of a longer-term strategy concentrated in specified territories with state-wide replication activities, which, based on performance, could be scaled up.

47. Design of Outcomes. The Project builds on the lessons learned from other rural development

operations in Brazil, as well as the experiences of the ongoing Rio GEF Project. By doing so, the design incorporates key success factors, which include: (i) increasing the capacity and knowledge of small farmers and beneficiary organizations; (ii) providing direct financial support to beneficiaries and ensuring their access to resources beyond the life of the Project; (iii) empowering beneficiaries through their participation in the design of all project-supported activities; (iv) supporting new production management models, diversified economic activities, value added, and increased market access to augment rural income; (v) implementing a participatory adaptive research system focused on family farmers; (vi) capitalizing on existing municipal and state-level institutions to organize, coordinate, and implement multi-sectoral interventions in targeted areas; and (vii) decentralizing project implementation and supervision responsibilities to local levels. See also lessons learned in Section II D.

48. Technology. The Project will build on the innovative productive and conservationist

technologies being piloted under the Rio GEF Project, which will result in the wide-spread adoption of more environmentally-friendly practices while lowering production costs, increasing productivity, and, ultimately, leading to more sustainable production systems. In addition, IT tools will be made available to small farmers to improve their access to market information and enhance their digital capabilities.

49. Environmental Focus. The Project will improve the environmental management of targeted

areas and, hence, the environmental sustainability of the Project through, inter alia: enhanced environmental awareness among beneficiaries, improved policy instruments and strengthened institutions to facilitate the adoption of sustainable land management concepts and practices, financial mechanisms to promote the transition to sustainable livelihood activities as well as support to the development of long-term strategies to facilitate this transition, increased erosion control along rural roads, and the development of an operational base for PES.

50. Institutional Strategy. The Rio GEF Project has already had a positive impact on SEAPPA,

especially regarding its experience and mainstreaming of participatory approaches to natural resources management and environmentally-sustainable productive activities. However, as further improvements are still required, the Project will devote significant resources to strengthen key rural institutions, including SEAPPA and its agencies, promote multi-sectoral coordination mechanisms, and provide technical training to enhance the long-term ability of rural institutions to effectively respond to changing rural sector demands. In addition, the existing PIU for the Rio GEF Project, which will be expanded under the Project, is not an isolated entity staffed by consultants, but rather is integrated within SEAPPA’s Directorate of Sustainable Development and nearly 100% staffed by civil servants from SEAPPA working at local, regional, and central levels. Thus, all investments under Component 3 will serve to strengthen SEAPPA’s long-term institutional capacity. Moreover, long-term institutional

15

structures and financial mechanisms will be established to ensure stable and continuous support for SRD activities beyond the life of the Project.

51. Financial Viability. The analysis of expected benefits at the farm level indicates that

improved practices will yield greater returns per ha than traditional ones (see Annex 9). Improved financial returns, product diversification, and access to new markets will act as important incentives for farmers to continue employing project-promoted practices indefinitely.

D. Critical Risks

Description of Risk Mitigation Measures Risk Rating

with Mitigation

- Decentralization as required by the project’s approach (i.e., transfer of powers from SEAPPA’s center to its regional and sub-regional offices, especially with key on-the-ground implementers, including EMATER and PESAGRO).

- To strengthen initial buy-in and commitment to decentralization, capacity-building activities provided across all territorial levels of the Project will offer specific support to the decentralization agenda promoted by the Project. Moreover, the geographical area of the Project mostly overlaps the area of the Rio GEF Project, and much of the institutional framework and capacity at the decentralized (local) levels are already in place.

M

- Delayed action and non-performance as a result of the inability of key state implementing agencies and their regional and local-level staff to engage directly with communities on a regular basis.

- Extensive project resources will be allocated to strengthen the capacity of key implementing agencies at local and regional levels to ensure timely and proper implementation of project activities to mitigate this risk. The project’s design also incorporates partnership models via NGOs, farmer/producer organizations, and the private sector for the provision of commercial and advisory services for SRD activities.

M

- Beneficiary reluctance to adopt new approaches and practices (which stems from a combination of cultural factors, risk-averse strategies used by the poor, and bad experiences with more traditional models of rural extension in the past).

- The utilization of a highly participatory approach to the delivery of technical assistance, which emphasizes strengthening local organizations, learning exchanges, and beneficiary empowerment, will be used to overcome associated risks. Moreover, the strategy partially builds on the experiences promoted by the GEF, and

M

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with Mitigation

the Social Assessment showed a great interest and receptivity on the part of potential beneficiaries to receive better TA and training in SRD technologies and practices.

- Market risks associated with prices,

production, honoring contracts, etc. hamper productive investments.

- Although the Project cannot control market risks, it will equip poor small farmers with deeper awareness of market demands and more integrated production systems that are better able to react and adapt to changing market conditions and accompanying risks.

M

- Poor implementation capacity at the central level.

- The implementing agency, SEAPPA, is the same as that of the Rio GEF project. The proposed project will build on SEAPPA’s already good capacity, by further strengthening it and by introducing improved administrative and management information systems.

M

- SEAPPA’s departure from its current policy focus on family agriculture impedes the enabling environment objectives of the Project.

- This policy risk is low considering the scope of activities and the historical trend of resource allocation within SEAPPA to this segment of the producer spectrum.

L

- Delays and reliability issues related to the various IT systems used by the implementing agencies, as well as the multiple agencies involved in project implementation, may cause weak and slow reporting that result in slow disbursements.

-

- Improvement of the IT system for reporting, to allow for automatic data transfer between different subsystems, as well as empowering all implementing agencies in accessing the FM management system, should overcome delay and reliability issues. In addition, FM and procurement training to be provided by Bank specialists will strengthen reporting capacities of all of the implementing agencies involved in the Project.

-

S

- Corruption and weak internal controls.

- FM and Procurement capacity assessments were carried out for SEAPPA and the main implementing entities (EMATER and PESAGRO), and specific transparency and internal control measures were recommended

S

17


with Mitigation

and adopted. Moreover, activities under subcomponent 2.1 (to be framed within an ISP) will strengthen M&E, management, administration, and internal control systems.

- Cumbersome procurement procedures

and disbursement arrangements (i.e., multiple steps to be completed).

- This risk is currently being addressed by the GoRJ as well as by Bank staff through the adoption of recommendations to streamline procedures. The increasing familiarity with related processes under the Rio GEF Project is further mitigating this risk.

M

- Counterpart funds fail to be disbursed on time or in a sufficient amount.

- Close supervision both by the GoRJ (through SIGEN, given the priority status of the proposed project) and the Bank will be carried out to ensure that disbursement targets are met. In addition, the disbursement profile reflects the numerous lessons from the implementation of the Rio GEF Project

M

- Poor implementation of EA procedures and compliance with social and environmental safeguards in project municipalities not included in the ongoing Rio GEF Project, as a result of insufficient institutional capacity.

- SEAPPA has already developed the necessary skills for the ongoing Rio GEF Project, whose target area will overlap with much of the target area under the new operation. Nevertheless, the Project will provide safeguards capacity building for rural extensionists, and intensive supervision will be carried out during the first year to ensure safeguard compliance.

L

Overall Risk Rating M * Rating of risks on a four-point scale (L=Low, M=Moderate, S=Substantial, and H=High) according to the likelihood of occurrence and magnitude of potential adverse impact. E. Loan Conditions and Covenants 52. Board presentation: There are no conditions for Board Presentation. 53. Loan/credit effectiveness: The Additional Legal Matter consists of the following (a) the Technical Cooperation Agreements have been duly authorized or ratified by the Borrower and by EMATER and PESAGRO, and are

18

legally binding upon all said parties in accordance with their terms; and (b) the Loan has been registered with the Guarantor’s Central Bank. 54. Covenants applicable to project implementation include the following: - Final institutional arrangements with SEA, SESDEC, SEEDUC, SEDEIS and other partners

(currently EMBRAPA and FUNDENOR) within six months of effectiveness (to be included in the Project Operational Manual);

- External auditors hired within six months after effectiveness; - Annual procurement audit of Subprojects;

Transfer of road equipment and machinery acquired under the Project to selected consortia of municipalities by January 31, 2013;

- Mid-Term Review by November 30, 2012 or such other date as the Bank shall agree upon following effectiveness.

IV. APPRAISAL SUMMARY

A. Economic and Financial Analyses (see Annex 9) 55. It is expected that, at a minimum, the Project will improve natural resources management

(soil conservation practices) and productivity among approximately 19,000 small farmers, or approximately 50 % of the all of the small farmers in the focal area, who have an average farm size of 14.9 has. It is also expected that approximately 50% of those households will move beyond rehabilitation activities to other production practices and activities to transition towards more sustainable and integrated production systems during the six years of project implementation.

56. Thirty-three farm models representative of the most prevalent small-scale farming activities

in the focal and replication areas of the Project were identified and used to estimate the impact of project-supported activities on farm profits when conservative estimates of production improvements were incorporated. Based on these simulations, per ha increases are significant and vary from a nine percent increase per ha for pineapples, to a 31% increase per ha for sugarcane, to a 50% increase per ha for coffee, to a 181% increase per ha for tomatoes.

57. Based on the above, the aggregate Economic Internal Rate of Return (EIRR) for the Project

was estimated at 33.6%. This is a conservative estimation, as it focuses on a low-case scenario that does not take into account benefits from investments in higher-level value-adding activities. To measure the robustness of the EIRR to changes in costs and benefits, a sensitivity analysis demonstrated that the Project is robust to possible negative events. Returns will remain positive under input price increases up to 46%, product price decreases up to 27%, and up to a 17% combined input price increases and product price decreases. As a result, it may be concluded that the Project is economically viable and quite stable to worsening macroeconomic conditions, including large negative independent and combined shifts in input costs and product prices.

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B. Technical (see Annex 4) 58. The project is deemed technically sound since its design is based on the foundation provided

by the socioeconomic and environmental studies undertaken during preparation. Complementing the experience garnered through the implementation of the Rio GEF project, the methodology adopted by these studies identified the relevant productivity and environmental issues, their consequences and key constraints to be overcome, in order to design an appropriate way for the project to address them. Key issues have been addressed in the organization and capacity building approach for increased efficiency and competitiveness of production systems, and in the technical sub-sectoral focus and strategy of the project. The technical strategy of the project will expand on that of the Rio GEF project. The basic technologies for the improvement of farming systems are quite well known and already promoted by EMATER. Adaptation of these technologies to the specific conditions of project beneficiaries will continue under ongoing and incremental participatory research activities. Key constraints and the project activities that address each one are detailed in Annex 4.

C. Fiduciary (see Annexes 7 and 8) 59. FM Assessment. The Project has moderately satisfactory FM arrangements in place to meet

the Bank’s minimum requirements. The GoRJ needs to develop capacity in relation to improved internal controls, compliance with the terms of the Rio GEF Project and PHRD grant agreements, and archives security (see Risk Assessment Matrix in Annex 7 for details). The overall residual FM risk associated with the Project is rated as substantial. A FM action plan was discussed and agreed with SEAPPA and other co-implementing agencies to implement actions related to identified areas of improvement, including: inter-institutional coordination capacity, linkage between multi-annual plan and annual budget execution, internal controls, information technology, and transparency and public dissemination of project accounts.

60. Procurement Assessment. An assessment of the procurement capacity of the implementing

agencies was carried out, which included a review of the institutional structures, procedures, and personnel, as well as the nature of procurement activities to be undertaken. Based on the assessment, the inherent project risk for procurement is rated high. This reflects a number of issues and risks related to: legal aspects, management practices of the procurement cycle, support and control systems, record-keeping, procurement information system, staffing, professional experience, and planning and monitoring of activities. Remedial actions have been identified and agreed to by the Bank and the client to effectively mitigate key risks, and a Procurement Plan has been elaborated and found acceptable by the Bank.

D. Environment (see Annex 10) 61. The Project is expected to produce highly positive environmental impacts. According to the

Environmental Assessment (EA) and Environmental Management Framework (EMF), which were submitted by the Borrower in October 2008, the most significant positive impacts foreseen include: the restoration of degraded areas, riparian zones, and biodiversity corridors; better soil fertility; improved water quality; reduced pesticide use; greater biodiversity within

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riparian zones and forest corridors; improved management of land and natural resources; better environmental governance; and enhanced overall environmental quality of livelihoods in targeted areas. Therefore, the project is classified as Category B regarding environment.

62. Activities carried out in subprojects supported under subcomponent 1.2 could, however,

generate small negative impacts at the local level. Specifically, the impacts of any misdirected support for productive investments could potentially result in soil erosion and/or water pollution. As subprojects cannot be identified a priori because of the demand-driven nature of interventions, specific impacts cannot be anticipated, but all subprojects will be subjected to a rigorous screening process to ensure maximum environmental benefits and to prevent or minimize unintended negative environmental impacts. As a result, no large-scale, significant, and/or irreversible impacts are foreseen under the Project.

63. The EA and EMF have been prepared by the Borrower, and the final versions were approved

before appraisal. The EA describes the organizational framework for safeguards, which builds on the capacity established within the implementation agency for the ongoing Rio GEF Project. It also lists all activities with potential negative impacts and specifies time, extension, intensity, scope, risk of occurrence, and potential persistence of the impacts. The EMF addresses the potential positive and negative impacts identified in the EA and proposes a plan for avoiding, minimizing, and mitigating such impacts, which includes subproject environmental impact categories. The EMF also includes a framework for screening project activities in relation to potential negative impacts on cultural property, as well as a Resettlement Policy Framework (RPF).

E. Social (see Annex 10) 64. The Project is expected to have highly positive social impacts due to its decentralized,

participatory strategy which strengthens social capital and rural institutions, and also provides improved TA and extensive training opportunities in new technologies and practices and in subproject preparation and implementation. The potential risk of beneficiary reluctance to adopt new technologies and practices will be mitigated by the emphasis on financial sustainability and appropriate incentives. Further, stakeholders demonstrated strong receptivity to TA and training during project preparation consultations.

65. During project preparation, a Social Assessment was carried out in the NNWF and Serrana

administrative regions utilizing secondary data and involving numerous meetings with key project stakeholders across 22 municipalities. The Social Assessment reconfirmed that the NNWF and Serrana regions present the lowest socioeconomic indicators in the SoRJ, analyzed key social variables, and assessed local organizations and networks. The report also documented the key concerns of the rural population, which include: deepening poverty, increasing outmigration, the fragility of rural organizations, lack of TA and of effective technical training opportunities, and health concerns related to contaminated water. The Social Assessment concluded that there is great interest and receptivity among the beneficiary population in strengthening local organizations and receiving effective TA that focuses on sustainable and productive technologies and practices. The results of the Social Assessment are reflected in the project’s design.

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66. One notable reflection of the Social Assessment’s results is the elaboration of a Resettlement Policy Framework (RPF) for the unlikely event that rural roads rehabilitation activities supported may involve small amounts of land acquisition, especially with respect to right-of-ways. The RPF will serve as the guide to the site-specific formulation of Resettlement Action Plans, which should most likely be Abbreviated Plans due to the relatively small numbers of people affected and relatively minor impacts, if any, expected. Another reflection of the Social Assessment’s results is related to the Social Assessment’s examination of gender and age among the beneficiary population. Here, the Social Assessment concluded that more women and youth (with somewhat higher educational levels) seek economic betterment by migrating from rural areas to provincial urban places with more infrastructure and services to absorb them. Most women and youth interviewed stated that the single key factor that would keep them from migrating was whether there were more income-generating opportunities in the rural areas. In this regard, existing women’s production organizations were exceptionally well organized although few in number. Correspondingly, the project will specifically target the involvement of women and youth.

F. Safeguard Policies (see Annex 10)

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [X] [ ] Forests (OP/BP 4.36) [X] [ ] Pest Management (OP 4.09) [X] [ ] Physical Cultural Resources (OP 4.11) [X] [ ] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Indigenous Peoples (OP 4.10) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects on International Waterways (OP/BP/GP 7.50) [ ] [X] Projects in Disputed Areas (OP/BP/GP 7.60) [ ] [X]

G. Policy Exceptions and Readiness 67. There are no Policies Exceptions. From an operational point of view, the project is ready to

immediately start implementation as the main institutional and operational structure components are already in place: the State Rural Development Council and the Municipal Development Councils for the focal area are already in place; the PIU is already staffed; the Technical Cooperation Agreements have been duly ratified by the Borrower and by EMATER and PESAGRO; and technical filed staff have already been trained. Once the Loan is approved by the Bank, it will be registered with the Guarantor’s Central Bank, thus allowing for immediate beginning of field activities.

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Annex 1: Country and Sector or Program Background BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Background and Agricultural Profile14

1. Overall Context. During 15 years of working in Southern and Southeastern rural Brazil, the Bank has supported a number of projects that fit into a strategy where operations have evolved along the following continuum: (i) initially, a narrow focus on soil conservation; (ii) a more comprehensive focus on land management (soil and water) and farmer organization within micro-watersheds; (iii) adding the dimension of environmental sustainability, including biodiversity conservation and river basin management; (iv) combining the previous activities with a more proactive approach emphasizing poverty reduction and social services; and (v) using the capacity built at the local level to leverage the coordination, integration, and sustainable development impact of the project and other programs. Throughout this time, a serious commitment to, and support for, local-level capacity building for participatory rural development and environmental management has been a central pillar of rural operations in Brazil.

2. Previous rural interventions have proven very effective in achieving important social gains.

In particular, increased awareness among beneficiaries about key productive and environmental issues that affect their livelihoods, as well as improved social cohesion and increased power for communities to be active participants in local decision-making and development processes, are key successes. In recent years, however, the need to concentrate related interventions within a market-driven approach to agricultural development has become evident, and new projects should use and expand the productive and social base to allow for this sharper focus in support of SRD.

3. The Project will be the first large-scale Bank-supported rural intervention in the SoRJ. The

Rio GEF Project, which became effective in 2006, is ongoing and will effectively complement activities of the new operation, as it has now entered the phase of full-fledged field investments after completing the organizational and planning phase. As a result, the design of the Project reflects the lessons of prior experiences in Brazil. Specifically, the Project will focus on enhancing the entrepreneurial capabilities of, and opportunities available to, small farmers for sustained improvements in their socioeconomic conditions via a participatory and decentralized organizational framework. Within this approach, the Project will build on the local and central institutional structures established under the Rio GEF Project to offer comprehensive and innovative support that addresses key rural sector challenges in the SoRJ. To this end, the Project will introduce and mainstream a new, integrated, and coordinated approach to public and private interventions within the core agricultural areas of the SoRJ to maximize the impact and sustainability of activities supported.

14 Unless otherwise stated, all data in this section is derived from the Rio de Janeiro State Government’s Secretary of Planning and Institutional Coordination (SESCI).

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4. Agricultural Sector Context. The SoRJ is one of Brazil’s 26 states and is located in the geopolitical region of the Southeast. With a total area of 43,864 square kilometers, it is divided into eight administrative regions include: (i) North; (ii) Northwest; (iii) Serrana; (iv) South; (v) Coastal Floodplains; (vi) Metropolitan; (vii) Paraíba River Middle Valley; (viii) and Grande Bay Island. With a total of 92 municipalities, the SoRJ has approximately 15.4 million inhabitants15

(about 9% of the national population), of which 90% live in urban areas. The state economy is driven by the industrial and service sectors, which contribute to 51% and 42% of state GDP, respectively. Overall the SoRJ accounts for 15% of national GDP (US$139.0 billion in 2006).

5. Although a comparatively small proportion of state GDP (0.5%), the agricultural sector is important to the SoRJ’s economy. Outside of the metropolitan area of the city of Rio de Janeiro, agriculture’s contribution to GDP rises to nearly 5%, and when included with agro-industrial activities, agriculture represents over 25% of state GDP. The importance of agriculture is further demonstrated in terms of rural employment (it accounts for over 40% and includes an estimated 157,492 individuals16

) and land use (more than 60% of total state area is dedicated to agricultural activities).

6. Three administrative regions, including the NNWF and the Serrana region, are the agricultural powerhouse of the SoRJ. With 36 municipalities and nearly 2.0 million inhabitants17

(over 10% of total state population), they produce the majority of agricultural goods in the state (66%). This includes coffee (21,000 tonnes or 99% of the state total), sugarcane (5.7 million tonnes or 97% of the state total), cereals (43,000 tonnes or 90% of the state total), vegetables (630,000 tonnes or 67% of the state total), milk (2.5 million liters or 54% of the state total), and fruit (195,000 tonnes or 42% of the state total).

7. Agriculture is thus vital to economic and social well-being in the SoRJ. This is especially true in the NNWF and Serrana regions, which house more than half of the state’s rural population (about 300,000 out of a state total of 550,00018) and are responsible for 60% of agricultural employment in the state. These regions also have the state’s largest concentration of family farms (an estimated 37,000 out of a state total of 42,90019

) whose main occupation and source of income is agriculture. Further, small family farms represent some 80% of total land holdings, over half of which correspond to holdings of ten ha or less, and small-scale farming employs roughly twice the number of people per unit area than the larger holdings.

B. Agricultural Sector Challenges 8. Despite its importance, the agricultural sector in the SoRJ faces a number of pressing

challenges. Foremost is low productivity. Average yields on sugarcane, for example, which is the state’s most important agricultural product, are only 58 tonnes/ha compared to 80

15 Estimated Population Count 2007. Brazilian Institute of Geography and Statistics (IBGE). 16 Agricultural Census 2006. Brazilian Institute of Geography and Statistics (IBGE). 17 According to the 2005 census, the NNFW regions have 22 municipalities and 1,064,484 inhabitants while the Serrana region has 14 municipalities and 519,071 inhabitants. 18 Estimated Population Count, 2007, Brazilian Institute of Geography and Statistics (IBGE). 19 Family Agriculture Data Bank. National Institute of Agriculture Reform (INCRA).

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tonnes/ha in the neighboring states of São Paulo and Paraná; its quality is also comparatively poor.20 Similarly, coffee productivity is well below the national average at 15 sacks/ha, and cattle farming produces low returns.21

Major causes for the low levels of productivity in the agricultural sector include: the use of simple technology, sugarcane and coffee production dominated by “boom and bust” cycles, weak farmer organization, and the widespread use of traditional, inefficient practices, especially by small farmers.

9. A second challenge facing the sector is poor linkages to markets with high demand for agricultural products. Despite its proximity to a number of large markets, which include both internal (i.e., with other administrative regions within the SoRJ, especially the metropolitan area of Rio de Janeiro) and national markets (i.e., São Paulo and Minas Gerais), the majority of agricultural products in the SoRJ are locally consumed. A recent study by the State Secretariat of Agriculture, Fisheries and Rural Development (SEAPPA) identified four key contributing constraints: (i) poor conditions of rural roads, making transport difficult and expensive; (ii) limited market information inhibiting the ability of market forces to impact producer decisions; (iii) undeveloped value chains restricting product variety and price; and (iv) limited scope of public policy in rural areas, which has failed to stimulate appropriate production and commercial incentives via multi-sector and territorial interventions. The result is significant untapped potential in both local and national markets.

10. A weak natural resources base is a third major challenge facing the agricultural sector in

the SoRJ. Although home to an extremely diverse and unique mix of vegetation and forest types, including globally-important resources in the case of the Atlantic Forest (Mata Atlântica),22

such areas continue to be under severe pressure primarily as a result of de-forestation (related to land conversion and charcoal production, among other things) and soil erosion (caused by, inter alia, deforestation, overgrazing, and poor agricultural practices). Indeed, the SoRJ had the highest rate of deforestation (about 17%) of all of the Brazilian states covered by the Atlantic Forest from 1990-2000. Recurrent droughts and some preliminary evidence of climate change also contribute to a weak natural resources base. These patterns are particularly relevant to the NNWF and Serrana regions, which have the state’s largest remaining stands of the Atlantic Forest.

11. A fourth key challenge facing the agricultural sector is poverty. The NNWF and Serrana regions, in particular, have some of the state’s lowest socioeconomic indicators, which are comparable to Brazil’s poorest region, the Northeast. Over 60% of the state’s rural population lives in poverty (an estimated 185,000 people), and about one-third of those are in conditions of extreme poverty.23

20 Rio de Janeiro Technical Assistance and Rural Extension Institute (EMATER), 2006.

Per capita income in these regions is estimated to be just 32% of the state average and 39% of the national average. Other basic education and health indicators follow suit. Factors to which this situation is commonly attributed include: the lack of technological dynamism that results in and perpetuates a vicious poverty cycle; poor infrastructure common to these regions; continued economic dependence on a rudimentary

21 Ibid. 22 The SoRJ has the highest percentage of the Atlantic Forest with respect to total area among all of Brazil’s states. 23 Rio de Janeiro End of Hunger Map, 2004, Center for Social Policy, Getulio Vargas Foundation. This critical poverty assessment combines two elements in its definition of the poverty line: (i) less than half of the minimum wage; and (ii) additional per capita income needed to ensure the minimum amount of calories as reflected by WHO requirements.

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agriculture predominately based on monoculture and cattle ranching; and the incipient nature of regional industrialization, markets, and agro-industrialization processes.

12. A final challenge is the inability of public institutions to adapt to the evolving demands

of the rural sector. Over the past decade, the dynamic forces and interactions between the market, the environment, and people have placed new demands on the rural sector. Foremost, agriculture has undergone a significant paradigm change where producers must “produce what they can sell” as opposed to “selling what they can produce.” In other words, markets are increasingly “dictating” the evolution of production systems, as well as the focus of rural policies, including extension, research, and other ancillary services. Second, environmental concerns command increasing attention and priority, especially relating to carrying capacity and the implementation of sustainable production systems. Third, democratization has opened up spaces for new actors to participate in local-level decision-making bodies and, importantly, policy dialogue.

13. The March 2008 “Institutional Diagnosis” carried out by SEAPPA highlights the failure of

the existing institutional setting in the SoRJ’s rural sector to effectively adapt to these new demands. In particular, public institutions do not have the appropriate mechanisms to react to market forces with fixed norms and policies, and current institutional arrangements demonstrate that local stakeholders are not yet considered a key part of the institutional arrangements. As a result, there is a pressing need to develop public institutions that facilitate dialogue with market forces, as well as with a new constituency that is open to a wide-range of stakeholders (including smallholders) and not just limited to historic market actors.

14. The Project is designed to address these aforementioned challenges by supporting

interventions to improve small farmer productivity, enhance linkages with internal and national markets, strengthen the natural resources base, enhance the living conditions and incomes of small farming families, and improve the ability of public institutions to adapt to the evolving demands of the rural sector (see Annex 4, Section A for details).

C. Government Strategy 15. Brazil’s state and federal governments have established a policy agenda that supports rural

poverty reduction by integrating sustainable environmental and social practices and increasing the agricultural production and diversification of family farming. The GoRJ recognizes the importance of supporting small-scale agriculture in the context of increased competitiveness and market access. This is especially relevant to the NNWF and Serrana regions which produce the majority of the state’s agricultural goods. For this reason, the GoRJ grants significant and increasing shares of its supply of agricultural credit (46%) and agricultural TA (38%) to these regions, and has also taken important steps to overcome critical environmental and food security challenges. For example, a 2006 policy forbids the expansion of sugarcane and other biofuel production in subsistence farming areas. Despite this progress, further work is required to better leverage support for productive activities in unison with environmental concerns by promoting tighter coordination and planning with other sectors.

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16. The GoRJ has recently taken actions to put its rural development strategy into practice by implementing the Rio GEF Project (P075379). The US$14.95 million24

operation was designed to support pilot activities that promote the long-term conservation and rehabilitation of agro-ecosystems, as well as the implementation of sustainable land management practices that provide environmentally-sustainable economic opportunities for rural communities. The global environment objectives of the Rio GEF Project include: (i) 1,900 farmers in 40 communities adopted sustainable land management practices; (ii) a regional coordinating committee and 40 local coordinating committees established with significant stakeholder representation; (iii) 32,000 has changed by biodiversity-friendly agricultural practices that enhance soil structure stability; (iv) 1,240 has biodiversity conservation-friendly land use mosaics established; and (v) 40 rural community organizations created and strengthened. It is also promoting a number of innovations, including: integration of public policies, self-management of natural resources, Community Conduct Statutes, PES, governance for SRD, and a focus on sustainable value chains. After a slow initial start-up period following its effectiveness in 2006, the Rio GEF Project has achieved solid advances in community organization and is now beginning to implement local development plans and investment subprojects. Importantly, the Rio GEF Project has already established the basic institutional structure which the Project will continue to build on and improve.

17. In addition to the Rio GEF Project, the GoRJ is implementing other programs in support of its rural development strategy. These include: (i) the State Credit Program for Agricultural Production and Diversification (Moeda Verde), which includes credit lines for fruit and livestock, agro-ecological, and agro-processing production and diversification; (ii) the State Microcatchment Program for Sustainable Rural Development (Rio Rural), which provides rural extension and infrastructure to rehabilitate microcatchment resources (i.e., erosion control for rural roads); and (iii) the National Smallholder Agriculture Program (PRONAF), which provides credit and assistance to smallholders to help increase their productive capacity. The Project will therefore directly support the GoRJ’s rural development strategy and build on and complement ongoing state programs to address the key agricultural sector challenges in the SoRJ.

24 US$6.75 million from the GEF and US$8.2 million in counterpart funds.

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Annex 2: Major Related Projects Financed by the Bank and/or other Agencies BRAZIL: Rio de Janeiro Sustainable Rural Development Project

Table 1: Status of Related Bank-financed Projects in Brazil

Project Name Project ID

Amount (US$

millions)

Main Sector Issues Addressed Status

Latest IP

Rating

Latest DO

Rating Rio de Janeiro Sustainable Integrated Ecosystem Management in Productive Landscapes of the North-Northwestern Fluminense (GEF)

P075379 6.8 Agriculture, fishing, and forestry Active MS MS

Santa Catarina: Natural Resources Management and Rural Poverty Project

P043869 62.8 Agriculture, fishing and forestry; Social services

Active S S

Parana Biodiversity Conservation Project (GEF) P070552 8.0 Biodiversity

Conservation Active S S

São Paulo: Land Management Project P006474 55.0 Agricultural extension and research; General public administration

Active S S

Ecosystem Restoration of Riparian Forests in São Paulo Project (GEF) P088009 7.75

Agriculture, fishing, and forestry; Agri-cultural extension and research; Sub-national administration

Active S S

The Critical Ecosystem Partnership Fund II (GEF) P100198 20.0 Biodiversity

Conservation Active S S

P050875 Ceará Rural Poverty Reduction Project 37.5 Rural Poverty

Reduction Active S S

P050880 Pernambuco Rural Poverty Reduction Project 30.1 Rural Poverty


P052256 Minas Gerais Rural Poverty Reduction Project 35.0 Rural Poverty


Ecological Corridors Project - Rain Forest Pilot Program P006572 8.4 Biodiversity Protection Active MS MU

Additional Financing of Santa Catarina: Natural Resources Management and Rural Poverty Project


Proposed NA NA

Parana: Social Inclusion and Sustainable Development Project in Rural Areas


Proposed NA NA

São Paulo: Sustainable Rural Development Project P108443 78.0

Agriculture, fishing and forestry; Agricultural extension and research

Proposed NA NA

National Environmental Project P099469 22.1 Sub-national government administration

Proposed NA NA

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Table 2: Other Major Rural Development Projects in the Project Area

Project Name Financier Amount (US$ millions) Start Close

States and DF Administration Modernization I (BR0405) IDB 11.0 2006 2011

IIRSA Strategic Plan Sustainable Development Rio de Janeiro Metropolitan Bypass (BR-T1053) IDB 1.3 2007 2009

Pro-Atlantic Forest Program KfW 20.4 2006 2010 Sustainable Land Management in the Semi-Arid Sertão IFAD/GEF 11.0 2004 2010

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Annex 3: Results Framework and Monitoring BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Results Framework Matrix

PDO

Project Outcome Indicators

Use of Outcome Information

To increase the adoption of integrated and sustainable farming systems approaches in specific areas of the Borrower’s territory, thus contributing to the higher-order objective of increasing small-scale farming productivity and competitiveness in those areas.

By the end of the project: At least 50 % of small farmers in targeted areas25 transitioned towards more productive farming systems26

Improved27

- Number of beneficiary farmers adopting Good Agricultural Practices (GAP)

product quality in at least 50% of beneficiaries receiving investment support as measured by:

- Number of small farmers or enterprises certified28

- Number of agro-processing and artisanal enterprises adding value

Improved market access by at least 10% of beneficiaries receiving investment support as measured by their inclusion in (or with improved links to) at least one value chain

At least 50% of the targeted small farmer agricultural lands under improved production

Evaluate engagement of farmers and rural communities; re-evaluate strategy if less than 50 % of farmers are transitioning towards more productive and sustainable farming systems by MTR Evaluate whether new instruments are enough to achieve the PDO

25 The estimated overall number of small-farmers in project focal areas is 37,000. 26 “Improved production systems” are those that result in sustainably better agro-forestry, crop or livestock quality and yields. For example, an improved food crop production system could be associated with the introduction of Conservation Agriculture (CA, through adoption of crop rotations, minimal soil disturbance -zero or minimum tillage- and permanent soil cover) and GAPs. Monitoring the switch to this improved system would be done through field reports with on-line insertion of one or two of the following typical realizable outcomes of CA observed at farm level: i) labor, time and farm power are saved through reduced cultivation and weeding requirements; ii) lower costs associated to reduced operations and external inputs, the latter related to lower demand for fertilizers, pesticides, and energy; iii) yields are usually increased and/or more-stable, particularly in dry years because more nutrients and moisture are available to the crops; iv) labor savings provide opportunities for diversification of enterprises into other activities. 27 All improvements tracked by project outcome indicators are referred to the baseline situation to be determined at the beginning of the project. 28 The project would support technical and financial assistance to farmers or enterprises to be certified in: i) organic agriculture; ii) production of certified forestry products. Certification of organic products of farmers or their enterprises adopting organic farming would be provided by the Association of Organic Farmers of Rio de Janeiro (ABIO). Volunteer certification of forestry products would be given by one of the certifiers available in Brazil, either a national certifier (Cerflor - Programa Brasileiro de Certificação Florestal) or an international entity (such as the Forest Stewardship Council).

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systems Length (km) of tertiary roads restored and maintained

Intermediate Outcomes Intermediate Outcome Indicators

Use of Results Monitoring

Intermediate Outcome 1: Capacities built and investments implemented across individual, community, municipal, and regional levels to improve production systems and rural livelihoods

Number of investment proposals elaborated as a result of IDPs, SBPs, GDPs, MDPs, MuDPs, and RDPs Number of investment proposals financed (i.e., individual, business, group, community, municipal, and regional) Number of project implementers and technicians trained in key project concepts Number of beneficiaries trained in key project concepts Number of beneficiaries participating in capacity-building activities Number of stakeholders participating in development committees across local, municipal, and regional levels

Number of new MDCs and RDCs established and existing MDCs, MuDCs, and RDCs strengthened

Number of MDPs, MuDPs, and RDPs formulated (or updated) and negotiated with stakeholders across all relevant levels.

Inter-municipal Road Consortia established by clusters of municipalities

Verify number of proposals developed each year; If targets not being met, review implementation strategy and adjust accordingly Confirm if targets being met Evaluate annual training activities and targets; Adjust interventions as necessary to enhance impact Evaluate annual capacity-building activities and targets; Adjust interventions as necessary to enhance impact Confirm if targets being met

Confirm if targets being met

Verify number of plans developed each year; If targets not being met, review implementation strategy and adjust accordingly

Verify whether road consortia are established and functioning by PY3; If not, diagnose obstacles

Intermediate Outcome 2: More effective

A strategy and action plan (ISP) formulated

If ISP not designed by PY1, review strategy

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institutional arrangements and capacities at state and decentralized levels to support sustained agricultural development throughout the SoRJ

Number of institutional strengthening subprojects implemented within SEAPPA

Number of cooperation arrangements established between relevant municipal, state, and federal rural development entities to implement joint activities (i.e., extension, road maintenance, and pooling funds for different rural interventions) Number of multi-sectoral interventions carried out in support of SRD (i.e., productive alliances, digital technology, and water cadastres)

Number of small farmer investment proposals financed (and amount of financial resources supplied) with the participation of the ESS

Number of participatory research projects carried out under the RNS

Confirm if targets being met

Confirm signing of cooperation agreements; If not, review strategy

Verify number of multi-sectoral cooperation arrangements established (involving at least four state Secretariats) by PY1 and number of working groups established by PY2 Confirm establishment of initial mechanisms for ESS by PY2 and number of proposals tested by PY3 Confirm annual number of beneficiaries participating in the RNS and the research activities being undertaken

Intermediate Outcome 3: Project management functioning and able to effectively implement and monitor project activities across all territorial levels, as well as to disseminate and share SRD knowledge and information to influence decision-making processes of key stakeholders.

PIU structure implemented and effectively functioning across local, municipal, regional, and central levels M&E system established and effectively collecting and analyzing relevant project information A MIS established to facilitate the collection, storage, analysis, and dissemination of SRD-related information that impacts economic decision-making at all levels

Analyze project management structure during PY1 Confirm if M&E system is established in PY1 and producing related reports and evaluations in a timely fashion If project impact monitoring system is not defined or sufficiently detailed in PY1, increase efforts

B. Monitoring and Evaluation System 1. The Project will support the development of a MIS to guide M&E activities of the Project.

To do so, it will build on the existing information systems and data banks for the ongoing Rio GEF Project. After upgrading and expanding the current system to meet the demands of the new operation, the MIS will monitor project performance with respect to the baseline

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situation by, inter alia: tracking inputs, outputs, intermediate outcomes, and progress towards the PDO; providing information to impact decision making across all intervention levels of the Project and allowing for any necessary adjustments during implementation; promoting accountability for resource use against objectives; providing and receiving stakeholder feedback; and generating inputs for the dissemination of project results and lessons learned.

2. At the initiation of project implementation, additional baseline data on control groups will be

collected to complement existing information generated by the Rio GEF Project. This will include the collection of easily available quantitative data, as well as baseline surveys and studies to measure the higher level outcome indicators at project start-up, including: the situation of beneficiary families in terms of household sanitation and community infrastructure (to be assessed through a socioeconomic survey29

), and the level of stakeholder participation within different development groups. The baseline surveys and evaluations will be contracted out, although some coordination activities and field surveys will be carried out by state and federal institutions (with their recurrent costs covered). Moreover, related activities will largely follow the model adopted by the Rio GEF Project in which: EMATER (the state extension agency) conducts socioeconomic household surveys, EMBRAPA (agricultural research firm) conducts soil and production system surveys, FEEMA (state environmental agency) conducts surface water surveys, and UENF (a state university) conducts biodiversity surveys. Initial baseline surveys will be carried out as soon as the microcatchments are selected to participate in the Project early in PY1.

3. During PY1 and PY2, input and output indicators may be refined and validated with local partners and beneficiaries as more detailed information about the baseline situation becomes available. As implementation proceeds, the MIS may support additional specific studies to measure outcome indicators and the project’s achievement towards higher level objectives. However, most of the project-related information will be collected and measured at three points in time: (i) during baseline data collection and as part of studies carried during the design of investment subprojects supported under Component 1; (ii) during the MTR; and (iii) during the final evaluation.

4. The MIS will provide stakeholders with a comprehensive framework for participatory M&E.

In addition to their direct participation in monitoring activities across different territorial levels, this will include stakeholder assessments of the achievement of project objectives, as well as the effect of project activities on stakeholder attitudes towards key elements of SRD in targeted areas. Moreover, by ensuring that information flows are widely accessible (see below), the MIS will empower stakeholders to: understand the limitations of current production and marketing practices and the current state of the natural resources base; recognize information and capacity-building gaps and obtain the necessary training and tools to effectively use information needed to identify areas and priorities for interventions; understand and promote best SRD practices; identify and implement cost-efficient targeted interventions to enhance production and marketing practices and increase income; and

29 Experience with socioeconomic surveys gathered during the Rio GEF Project will be very valuable for the baselines to be carried out under the Project. In 2007, EMATER carried out a survey, which consisted of a sample of three microcatchments with a total of 521 households that included information on living standards, as well as agricultural output (by crop).

33

monitor changes in the natural resources base (either associated to natural processes or human interventions) and improve NRM practices.

5. Characteristics. The M&E system will expand on the existing MIS for the ongoing Rio GEF

Project through activities under Component 3 and will be a key part of the information management strategy of the Project. The M&E system will both retrieve from and provide feedback to the project’s broad-based MIS in support of project management, which will be supported under subcomponent 3.2. By including M&E information into the MIS, related activities, such as data collection, storage, and processing, will not be an additional burden for the Project, but rather part of regular exercises of information generation and dissemination that will take place throughout implementation and can later be replicated in other areas of the SoRJ.

6. As part of the MIS, M&E will be facilitated by the use of a web-based, customized computer

application to be used by both internal and external audiences. Through this application, the Project will support the development of an electronic databank that will be available for beneficiary user groups to access project information and exchange knowledge. An information quality team will monitor postings and digital activities, and EMATER’s local offices, Agro-environmental Reference Centers, and local community centers will be established and/or provided with Internet and IT tools to ensure widespread access and use of the databank. Moreover, the MIS will ensure widespread access to and knowledge of the Internet and digital tools among project participants by providing technicians and beneficiaries with relevant informational materials and training (i.e., digital applications, online commercialization tools, distance education, and online TA).

7. In addition to physical project-based (i.e., input and output) and financial monitoring, the

M&E system will continuously monitor productive, socioeconomic, and environmental aspects in all of the focal and replication areas of the Project. Detailed monitoring will measure: (i) water quality and quantity; (ii) other relevant environment indicators (i.e., vegetation cover, soil-water content, soil biodiversity, and adoption rates of environmental-friendly practices by farmers); (iii) socioeconomic factors (including household improvements and political and community-level commitment to multi-sectoral interventions in support of SRD); and (iv) economic values, to the extent possible, of external impacts of sustainable land management (i.e., reduced sedimentation, reduced pesticide runoff, and other impacts on downstream users). The monitoring frequency in the targeted microcatchments will depend on the parameters to be measured, as some will take place on a monthly basis and others only during or coinciding with baseline studies, the MTR, and/or the final evaluation.

8. Operation. The Information Management Unit in the PIU will have overall responsibility for

the project’s M&E system (see Annex 6). It will be headed by a Unit Coordinator and supported by six full-time staff. This will include a M&E Advisor, one Remote Sensing Specialist, one Communications Officer, and one Information Management Specialist. These officers will work closely with the PIU’s Technical Coordination Unit and the Regional Project Implementation Sub-units, as well as with local level offices and committees involved in implementation. Local project staff (especially extensionists), beneficiary

34

organizations (i.e., MDCs and MuDCs), beneficiary groups (i.e., businesses and producer organizations), and other implementation partners (including EMATER, contracted institutions, municipal governments, NGOs, etc.) will also play a critical role in supporting data collection, processing, and reporting activities of the Project. Extension officers and MDCs will receive training in M&E during PY1 to support these efforts.

9. The PIU will submit quarterly reports to the Bank that cover technical and fiduciary

activities. This will include: status of implementation of planned activities (i.e., inputs, outputs, and results), financial statements, procurement plans, environmental and social issues, and actions taken to ensure satisfactory implementation. These quarterly reports will facilitate effective and up-to-date M&E of project activities, provide timely information needed to reformulate the project strategy, if needed, support the dissemination of specific experiences and key lessons stemming from the Project, and be shared with policy makers.

35

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38

Annex 4: Detailed Project Description BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Project Overview 1. The PDO is to increase the adoption of integrated and sustainable farming systems

approaches30

in specific areas of the Borrower’s territory, thus contributing to the higher-order objective of increasing small-scale farming productivity and competitiveness in those areas.

2. The key impact indicators at the beneficiary level will measure increases in: (i) small farmers transitioned towards more productive farming systems; (ii) product quality; (iii) farmers included in (or with improved links to) at least one value chain; (iv) agricultural lands under improved production systems; and (v) tertiary roads restored and maintained. Indicators will be measured in beneficiaries participating in project-supported activities versus control groups according to baseline studies carried out before and after the implementation of all activities (see Annex 3).

3. The target population consists of approximately 37,000 small-farming families (some

150,000 people in total) in the SoRJ. This corresponds to roughly 30% of the total rural population in the state. The target population primarily resides in three main regions that include the North, the Northwest,31 and Serrana administrative regions, which represent a total area of about 23,000 square kilometers (53% of the total area of the state). Replication activities will also be carried out in clusters of municipalities located in other administrative regions of the SoRJ (see map in Annex 15). Overall, interventions will concentrate in nine municipalities in the North, 13 municipalities in the Northwest, and 14 municipalities in the Serrana; replication activities will be carried out in 23 municipalities located across the four other administrative regions.32

30 A farming systems approach is based on an understanding of the farm-household, the environment in which it operates, and the constraints it faces, together with identifying and testing potential solutions to those constraints. A farming system is defined as a population of individual farms systems that have broadly similar resource bases, enterprise patterns, household livelihoods, and constraints, and for which similar development strategies and interventions would be appropriate. Their analysis emphasizes horizontal and vertical integration, on multiple sources of household livelihoods, and on the role of the community, the environment and support services. The primary objective of this approach is to improve the well-being of individual farming families by increasing the overall productivity of the farming system in the context of both the individual and community goals, given the constraints and potentials imposed by the factors that determine the existing farming system. Thus, it is based on the development principles of improving productivity, increasing profitability and ensuring sustainability, as well as improved distribution of the final value of production.

As a result, the Project will impact a total of 59

31 The North and Northwestern administrative regions are also known as the “North and Northwestern Fluminense” (NNWF). The NNWF is the target area of the Rio GEF Project and its two administrative regions overlap with existing territories already established by the Ministry of Agrarian Development (MDA). Each MDA territory consists of a cluster of municipalities that share cultural and socioeconomic similarities. Given that territories are social constructions, the Project is adopting a similar concept by defining the territory as a system of various levels (community/microcatchment, municipal, and regional) where different actors compete and eventually cooperate and negotiate. See Appendix 2 to this Annex for details. 32 The other administrative regions include: South, Coastal Floodplains, Metropolitan, and Paraíba River Middle Valley.

39

municipalities (out of 92 in the SoRJ). The selection and prioritization of municipalities, as well as participating communities within those municipalities, will be based on production potential, along with environmental and social criteria (see Appendix 1 to this Annex for details). Eighty-four percent of project funds (or US$66.1 million) will be directed to small farmers within the selected communities via planning, capacity building, and investment activities.

4. Project components have been designed to address, either separately or in synergy with one

another, some of the key agricultural sector challenges in the SoRJ (as described in Annex 1). Specifically, the Project will support:

a) productive planning and training (1.1), as well as investments in agro-ecological and

natural resource management activities (1.2), to strengthen the longer-term impact on sustained productivity at a larger scale;

b) financial incentives (subcomponent 1.2) and extension and adaptive research activities (1.1 and 2.3) to improve small farmer productivity;

c) the promotion of value added and development of new value chains33 (1.2), the unblocking of rural roads infrastructure and logistical bottlenecks (1.2), and better insertion of small farms in existing value chains, as well as the coordination and alignment of public policies in support of territorial development34

d) rural sector institutional changes (2.1), the creation of a long-term financing mechanism for SRD activities (2.2), and a state-wide participatory research network to improve the ability of public institutions to adapt to the evolving demands of the rural sector.

(2.1), to enhance market linkages;

5. A PNTD35

33 For purposes of the Project, a value chain is defined as: the sequence of activities performed to design, produce, market, deliver, and support a product or service, whereby the chain of activities gives the product or service more added value than the sum of added values of the separate activities.

approach will be used (and adapted whenever required) to improve regional dialogue and management to unleash the agricultural production potential and competitiveness in specific territories of the SoRJ while promoting sustainable practices and improving the socioeconomic conditions of small farming communities. This approach is predicated on comprehensive diagnostic and planning exercises across different levels (i.e., local, municipal, and regional) with a wider scope beyond project activities. Because decentralization of planning and decision-making responsibilities is fundamental to the PNTD approach, the Project will build on the strategy currently being implemented by the Rio GEF Project, which is characterized by a participative municipal and microcatchment-level planning model, as well as the full involvement, empowerment, and self-management of community-based organizations (which includes the active participation of women and youth). The Project will therefore continue to consolidate these processes. It will also promote complementary strategies focused on promoting productivity, value added, and increased market access for small farmers, as well as on strengthening institutional capacity and networking to more effectively and efficiently respond to the arising, better articulated,

34 The Project is not invoking a typical European LEADER-type multi-sectoral territorial development approach. On the contrary, the Project will promote a focused rural-only territorial development approach in areas of the SoRJ that share common economic and resource base characteristics. See Appendix 2 to this Annex for details. 35 See Appendix 2 to this Annex for a definition of the territorial concept adopted for the purposes of the Project.

40

and integrated demands at the local level. See Appendices 2 and 3 to this Annex for details regarding the PNTD approach and the conceptual overview of the Project.


framework in support of PNTD and promote decentralized interventions to increase the organization and capacity of small farmers. Second, the Project will support, based on the above, the transition to more productive, efficient, and sustainable production systems through financing different categories of investment proposals and coordinating agricultural-related programs. Lastly, the Project will promote the replication of this methodology throughout the SoRJ by intervening in areas outside of the targeted priority regions (i.e., the NNWF and Serrana regions) with the aim of mainstreaming public policies in support of SRD.

B. Project Components 7. The total project cost is US$79.0 million with a Specific Investment Loan of US$39.5

million. Counterpart financing from the SoRJ through SEAPPA totals US$21,4 million, in addition to US$18,1 million in private investments. The Project will be implemented over a period of six years and will finance the following three components to achieve its objectives: (1) Support to Small Farmer Production and Competitiveness, (2) Institutional Frameworks, and (3) Project Coordination and Information Management.

8. A detailed explanation of each component objective and activities, expanding on the

condensed, legally negotiated version that appears in the main text, follows.

9. Component 1: Supporting Rural Production and Competitiveness (US$66.1 million, 83.7% of total project cost). The objective of this component is to support changes in rural production processes within a framework of market-driven agricultural development focused on sustainable and increased productivity of small farmers, value added, and market linkages. To do so, this component will begin by working with community groups across local, municipal, and regional levels to increase local organization and participation for project implementation via capacity-building and planning activities. As part of this process, individuals and groups will identify and diagnose key production challenges and develop proposals to overcome those with the support of project extensionists. Once the proposals are approved, eligible beneficiaries will receive grants to implement demand-driven investments. Activities under Component 1 will be carried out through two subcomponents: (1.1) Pre-Investment and (1.2) Investments.

a) Main Outcomes: Investments implemented across individual, community, municipal, and

regional levels to improve production systems.

b) Target Group: Small farming families, rural residents (including women, youth, elderly, fishermen, and artisans), formal and informal community groups and organizations, and municipal governments.

41

i) Subcomponent 1.1: Pre-investment

(1) The first subcomponent will strengthen organization and capacity for agricultural

productivity-focused on market-driven development across community, municipal, and regional levels, thus serving as the basic building block for investments supported under subcomponent 1.2. Specifically, this subcomponent will prepare beneficiaries and project staff for the implementation of the project’s technical strategy through training and planning activities. Project-supported activities will build on existing institutional structures and will serve to identify and develop investment proposals with special emphasis on production and competitiveness-related themes. The training and planning strategies are described in the following.

(2) Training. The project’s training strategy builds on activities being carried out in

the 24 municipalities in the NNWF that are participating in the Rio GEF Project.36 Many training activities were also elaborated during project preparation in a detailed capacity-building plan, which outlines key training needs to support the achievement of the project’s objectives.37

Demands for specific training activities will be articulated by different development committees across all levels of the Project (see below) and incorporated into a Training Framework, which will serve as the basis for the elaboration of annual Training Plans. All training activities will be designed to address operational, strategic, and beneficiary aspects of project implementation. See Appendix 4 to this Annex for an overview of specific activities.

(3) Capacity building. In coordination with training activities, capacity-building activities will focus on better linking small farmers to markets by supporting the formation of community networks and agricultural business groups; strengthening the capacity of small farmers to implement and manage sustainable production processes, improve product quality, and increase output; and identifying and supporting the development of new markets (local, regional and national). Ancillary services will also promote: education for innovation and growth by facilitating participatory adaptive research activities and transferring technology to small farming communities and enterprises, and providing capacity building for innovative agricultural products and sustainable processes; environmental education to boost stakeholder awareness regarding the need for and commitment

36 Examples of training activities that have been carried out under the Rio GEF Project since implementation began in 2006 include: land-use planning, support instruments for the sustainable management of natural resources, environmental licensing, agro-ecology trainings, soil and water management and conservation, rural roads maintenance, M&E methods, and participatory research. The Rio GEF Project has also carried technical exchanges between project implementers and relevant partners within the SoRJ, as well as with similar entities in São Paulo, Paraná, and Santa Catarina (i.e., UENF (Universidade Estadual do Norte Fluminense), EMBRAPA, and PESAGRO). 37 Key training needs identified include: principles and practices of participatory rural diagnosis, group formation, participatory planning and stakeholder monitoring, and technical courses (i.e., sustainable land management, product diversification and certification, agro-processes, and GAPs).

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to addressing environmental problems to improve the productive and living environment; support to improved local governance by raising stakeholder awareness and preparedness for greater decision-making authority at local levels within a decentralization and improved local governance framework.

(4) Planning. The project’s planning strategy involves the promotion of planning

tools via rural extension services provided by EMATER. Specific activities will be carried out across local, municipal, and regional levels through different stakeholder committees to identify and elaborate investment proposals. The planning strategy will also promote the adoption of agricultural activities with a focus on higher productivity, value added, and market insertion, as well a support the establishment of Inter-municipal Road Consortia to improve rural road maintenance.

(5) At the local level, the Rio GEF Project’s participative microcatchment planning

model38 will be adopted to create a decentralized framework that links the micro level (community/microcatchment) with the meso level (municipality and region). Following the selection of microcatchments (see Appendix 1 to this Annex for details), campaigns will be carried out to mobilize participating communities and to familiarize them with the technical strategy of the Project. The Project will then establish 220 new MDCs,39 in addition to the existing 50 MDCs established under the Rio GEF Project, for a total of 270 MDCs in the project area. Ultimately, the MDCs, with the support of EMATER technicians, will be responsible for elaborating Microcatchment Development Plans (MDP) that propose strategic actions to overcome production challenges.40

As a final product, the MDPs will detail a specific action plan involving investment subprojects, which will be reviewed by MDCs and sent to respective MuDCs for final evaluation. Once approved, subproject-types proposed in the MDPs will be eligible for project resources under subcomponent 1.2.

(6) The Project will support other planning activities to develop specific investment proposals at the local level. These include: (i) Individual/Farm Development Plans (IDP) (similar to those being developed under the Rio GEF Project), which will define integrated activities to be implemented within production units; (ii) Group Development Plans (GDP) (also similar to those being developed under the Rio GEF Project), which will define formal and informal group activities that support more productive, sustainable, and market-oriented activities; and (iii) Sustainable Business Plans (SBP) (new planning instruments), which will identify

38 On average, two to three communities form a cluster of one microcatchment. 39 MDCs were piloted in the SoRJ in 40 communities under the Rio GEF Project. Based on their success in catalyzing community development and capacity-building, the proposed project will build on the MDC model at the local level. 40 Each MDP will contain: (i) a summary of information presented in a participatory rural appraisal, which will be carried out in each microcatchment to feed into the design of the MPD; (ii) pertinent maps (i.e., actual use and vegetation cover, preserved and protected areas, and environmental dynamics); (iii) potential partnerships; (iv) goals, timelines, and costs of proposed subprojects; and (v) a list of each individual and organization involved in subprojects and their corresponding responsibilities.

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activities to overcome common production problems among formal and informal agricultural business associates.41

All eligible individual and group beneficiaries will be oriented to relevant public policies and potential financing resources, including resources under subcomponent 1.2, as well as state credit programs and opportunities identified through the ESS under subcomponent 2.2. EMATER technicians will support individuals, groups, and business associates in the elaboration of IDPs, GDPs, and SBPs, which will identify investment subprojects to be submitted to government programs and/or subcomponent 1.2 for financing.

(7) At the municipal level, the processes for planning and developing investment proposals will be similar to those at the local level. The institutional framework for the development of activities at the municipal level, however, will build on existing institutional structures that were established through PRONAF some eight years ago in all of the project’s 59 municipalities. As a result, MuDCs will receive support to review/update existing Municipal Development Plans (MuDP), in order to integrate action plans and investment subprojects from MDPs into MuDPs. Additional planning activities at this level will focus on rural roads-related logistical bottlenecks. They will bring together municipalities, technicians and communities to discuss and establish new a institutional arrangement, the Inter-municipal Road Consortia, to implement road rehabilitation and maintenance on a participatory and environment-friendly basis. The consortia will receive training, machinery and equipment to prepare and implement demand-driven road rehabilitation and maintenance projects financed under subcomponent 1.2.

(8) At the regional level, planning activities will involve the elaboration or updating

of Regional Development Plans (RDP) in each of the three major regions targeted by the Project. After establishing and/or strengthening RDCs42, Regional Facilitators43 will work with communities and municipalities to develop RDPs through the use of PNTD methodologies and planning activities.44 The RDPs will reflect the different demands of diverse actors and will be developed by the RDCs. Draft RDPs and their proposed, eligible interventions will be sent to the PIU for review.45

Once approved, activities will be eligible for financing under subcomponent 1.2 within a value chain approach.

41 Examples of SBPs could include: carrying out small construction works, acquiring production equipment, and increasing capacity for sustainable resources management. 42 The RDCs will include: one already establish under the Rio GEF Project for the NNWF administrative regions, one to be formed for the Serrana, Coastal Floodplains, and Metropolitan administrative regions, and one for the South and Paraíba River Middle Valley administrative regions. 43 In addition to supporting the development of the RDPs, the Regional Facilitators will also be responsible for accompanying implementation activities, supporting the dissemination of information, encouraging dialogue and mediation, promoting the participatory management of initiatives, and generating evaluation reports. 44 The different planning phases include: vision (identification of actors, historical analysis, territorial analysis), horizons (defining coherent and realistic proposals to promote SRD), negotiation (process of creating consensus), implementation of a social-territorial pact, and M&E. 45 In accordance to the territorial development policies of the MDA and its Secretariat of Territorial Development.

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(9) Specific activities within IDPs, GDPs, SBPs, MDPs, MuDPs, and RDPs are included in Appendix 5 to this Annex.

(10) Financing: This subcomponent will finance training, workshops and exchanges,

expert services (TA for local and regional development), and goods (equipment and materials).

(11) Main Outputs: (i) 27,000 investment proposals elaborated as a result of IDPs,

SBPs, GDPs, MDPs, MuDPs, and RDPs; (ii) 400 project implementers and technicians trained in key project concepts; (iii) 50,000 beneficiaries trained in key project concepts; (iv) 5,000 stakeholders participating in development committees across local, municipal, and regional levels; (v) 220 new MDCs and 2 new RDCs established, and 50 existing MDCs, 59 existing MuDCs, and 1 existing RDC strengthened; and (vi) 270 MDPs, 59 MuDPs, and 3 RDPs elaborated (or updated) and negotiated with stakeholders across all territorial levels.

(12) Beneficiaries: This subcomponent will directly benefit approximately 4,000

stakeholders (400 project implementers and technicians, 3,300 local beneficiaries involved in project implementation, and 270 community leaders) and roughly 50,000 beneficiaries through training in key project concepts. This subcomponent will indirectly benefit an estimated 150,000 rural residents (the entire target population of the Project) through different planning activities.

ii) Subcomponent: 1.2 Investments

(1) Subcomponent 1.2 will implement demand-driven investments identified and

developed in the context of different planning activities under subcomponent 1.1. Through the use of grants, investments will be financed to directly support improvements in farming systems and production processes within a framework of market-driven agricultural development. In most cases, the Project will finance a maximum of 80% of investments, as beneficiaries will be eligible to apply for project resources based on beneficiary typology and activity to be supported. Three types of individual and group subprojects will be eligible for support:

(a) Productive, which includes increasing sustainable productivity (on-farm

focus), promoting value added, and developing value chains46

46 Based on a study carried out during preparation, the Project will initially look at the whole product chain of six pre-identified production chains (involving both market studies and adaptive research activities) as mentioned above, and the Project will support the inclusion of small farmers within those chains to increase the efficiency and quality of production. Moreover, the financing of investment proposal under this category will serve as seed money for entrepreneurs to take risks at all stages of the value chain. As a result, in addition to the pre-identified value chains, a flexible design will allow for the financing of other entrepreneurial ideas that may arise during implementation (i.e., artisan products and tourism).

(off-farm focus). Examples of activities that could be supported include: facilitating the transition to more efficient, value-driven, and sustainable production systems by improving crop, livestock/grazing, agro-forestry, and agro-processing

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practices; improving management, production, handling, quality, and scales of productivity; and increasing the efficiency of key product chains (i.e., coffee, milk, sugarcane, aquiculture, horticulture, and fruit production) through the purchase of equipment needed to overcome critical value chain constraints.

(b) Environmental conditioning of productive units, which includes complying

with environmental laws and adopting environmentally-sound and agro-ecological practices. Examples of activities that could be supported include: protecting, conserving, and restoring natural resources in private legal reserves and preservation areas (as required by environmental legislation); and adopting environmentally-friendly agriculture by small farming families.

(c) Rural roads-related logistical bottlenecks, which includes erosion control,

rehabilitation, and maintenance works to improve input/output flows via year-round transitability of key stretches of rural roads.

(d) In all, subcomponent 1.2 will support an estimated 24,400 investment

proposals with a total cost of about US$52.7 million. This includes approximately US$31.7 million to support productive subprojects, US$10.9 million to support environmental conditioning of productive units’ subprojects, and US$9.6 to support rural roads-related subprojects to address logistical bottlenecks. The latter activity will also include the establishment of an institutional framework for sustainable road maintenance through the creation of Inter-municipal Road Consortia. Appendix 5 to this Annex provides complete details regarding beneficiaries, eligibility requirements, subproject examples, estimated numbers and costs of subprojects, and subproject cycles.

(e) Financing: This subcomponent will finance grants to eligible beneficiaries and

communities to implement approved investment proposals, as well as small works, equipment, and materials to carry out rural roads rehabilitation and maintenance activities.

(f) Main Outputs: (i) 24,400 investment proposals financed; and (ii) two Inter-

municipal Road Consortia established by clusters of municipalities.

(g) Beneficiaries: Approximately 25,000 rural residents will directly benefit from individual and community subprojects, and roughly 170,000 rural residents will benefit from improved rural roads networks.

10. Component 2: Strengthening Institutional Frameworks (US$5.2 million, 6.5% of total

project cost). The objective of this component is to improve the medium to long-term policy and institutional frameworks supporting market-driven agricultural development in the SoRJ. Specifically, Component 2 seeks to: enhance the ability of rural development-related institutions and their staff to adapt to the evolving paradigm of market, environmental, and social interactions; contribute to multi-sectoral coordination and consultation mechanisms

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for territorial development promoted by the GoB through the MDA; promote improved access to long-term financing mechanisms for small farmer activities; and establish a new, more efficient and proactive operational approach to conduct agri-food systems-related research.. These will be carried out through three subcomponents: (2.1) Strengthening Rural Institutions and Coordination Mechanisms, (2.2) Improving Public and Private Financial Support Mechanisms, and (2.3) Participatory Research.

a) Main Outcome: more effective institutional arrangements and capacities at state and

decentralized levels to support sustained agricultural development throughout the SoRJ in the long run.

b) Target Group: Key actors include: SEAPPA and SEAPPA’s agencies staff; technicians

from other State Secretariats and local governments; and NGOs and other local partners; rural residents in local communities (i.e., small farmers, community organizations, cooperatives, women, and youth), members of MDCs,. Key institutions include: SEAPPA and its agencies, SEDEIS, SEEDUC, SEA, and SESDEC.

iii) Subcomponent 2.1: Strengthening Rural Institutions and Coordination Mechanisms

(1) This subcomponent will strengthen the capacity of SEAAPA and its agencies

(EMATER, PESAGRO, CEASA, CASERJ, and FIPERJ) to more quickly and effectively respond to rural sector demands through improved services provision and better coordination of activities with other public and private sector stakeholders. In the short term, this subcomponent will further increase SEAPPA’s ability to implement the Project by supporting the development of an Institutional Sustainability Plan (ISP). The ISP will allow SEAPPA not only to align its organizational and budget structures with its institutional priorities, missions and objectives, but also to assess and address the efficiency of its methods in order to achieve the desired results. The project will support the implementation of measures arising from the plan, including improvements to internal management instruments and staff skills, which promote increased efficiency of internal processes and effectiveness of service delivery. Based on the ISP, institutional strengthening subprojects will be developed that may focus, among other things, on: simplifying and enhancing the efficiency of main administrative processes in coordination with SEPLAG (Secretaria de Estado de Planejamento e Gestão); improving managerial capacity through staff training and the implementation of performance agreements in accordance to state human resources policy, in line with SEPLAG’s proposed PROGESTAO project being developed with Bank assistance; increasing overall M&E capacity, and strengthening commercial and advisory services to assist the adoption and scaling up of good agricultural and processing practices by small farmers.

(2) In the long term, this subcomponent will contribute to the implementation of a

national policy in support of territorial development. The National Ministry of Agrarian Development’s (MDA) Sustainable Development of Rural Territories Program (PRONAT) is a new policy instrument that is predicated on elaborating

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Rural Territorial Development Plans in regions that are dominated by small farmers. Based on these, multisectoral interventions in support of territorial agricultural development (i.e., infrastructure, services, capacity building, diversification, commercialization) are designed, and their implementation is supported by federal programs. This subcomponent will complement PRONAT by feeding beneficiary diagnosis and planning activities into Rural Territorial Development Plans supported by the policy.

(3) In addition, subcomponent 2.1 will further contribute to the aforementioned

national policy by promoting synergy, coherence, and complementarity of actions between different state government sectors and actors that intersect in the rural ambient. It will do so by supporting the coordination of multi-sectoral interventions in the project area, via cooperation agreements, through working groups among four different State Secretariats, including Economic Development, Energy, Industry, and Services (SEDEIS); Education (SEEDUC); Environment (SEA); and Health (SESDEC). The Project will only support the coordination and planning of activities, and the respective Secretariats will finance the resulting interventions through their own line budgets. In special cases, however, the Project could provide small co-financing amounts (but not exceeding US$350,000 in total support). Although the resulting activities will not constitute a project outcome, and the external resources will not constitute part of the project counterpart, the expectation is that they will contribute to leverage the developmental impact of the Project.

(4) Contributing actions by participating State Secretariats include the following:

(a) SEDEIS will support activities to identify and develop economic opportunities

at the local level, especially within local productive alliances. It will foster the establishment of partnerships and necessary training to strengthen beneficiaries and their associations.

(b) SEEDUC will support activities to enhance access to educational resources

and environmental information at the local level. A pedagogical program will be implemented via community-based courses in five pilot areas, which include a strong emphasis on digital technology.

(c) SEA will facilitate partnerships between local water users within

microcatchments and corresponding river-basin committees. It will also enhance the existing water cadastre, especially related to issuing water rights.

(d) SESDEC will support interventions to reduce the health risks associated with

working, housing, and environmental conditions in rural communities, with a special emphasis on rural laborers. It will also carry out epidemiological studies in targeted communities to improve the provision of health services to small farming families, as well as monitor water quality (for human consumption) and agro-toxins.

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(5) Financing: This subcomponent will finance studies, TA for expert services,

workshops, and goods and works (related to institutional strengthening subprojects).

(6) Main Outputs: (i) a strategy and action plan (ISP) formulated; (ii) 10 institutional

strengthening subprojects implemented within SEAPPA; (iii) four cooperation arrangements between relevant local-level, municipal and state entities to implement four multi-sectoral interventions carried out in support of SRD.

(7) Beneficiaries: Approximately 4,000 individuals will directly benefit from

institutional strengthening subprojects (300 community leaders, 400 project implementers and technicians from different State Secretariats and other organizations involved in the institutional arrangements of the Project, and 3,300 rural residents involved in project implementation).

iv) Subcomponent 2.2: Improving Public and Private Financial Support Mechanisms

(1) The second subcomponent will develop an Economic Sustainability System (ESS)

focused on promoting a larger intersection between demand and supply of financing in support of small-farm production, as a result of more flexible and responsive financial support arrangements in response to evolving demands. It will do so by enhancing, through a facilitating arrangement with participation of public and private sector representatives, the linkages between the supply and demand of financial resources for SRD activities. The objective of the arrangement is to: promote awareness of (and access to) the existing supply of public and private financial support resources by small-farmers; promote a better flow of this supply of financial resources in support of small-farmers activities; and; facilitate the exchange of information between the parties involved to gradually induce a shift towards more receptive financial support arrangements for small-farming demands. By doing so, this subcomponent will promote sustained support to SRD activities beyond the life of the Project.

(2) Development of the ESS will be based on four principles: (i) a long-term vision

and commitment to SRD in the SoRJ; (ii) active government support for a mechanism that allows for flexible public-private sector collaboration outside direct government control; (iii) willingness of a critical mass of key stakeholders to innovate and work together to promote SRD (government, private sector, local communities, civil society, etc.); and (iv) legal, financial, and management transparency (including banking, auditing and contracting). Figure 1 captures schematically the ESS and its relationship to the Project.

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(3) The ESS will be based on facilitating access by small farmers to resources from

four funding areas: (a) Public uni and multi-sectoral initiatives (i.e., state and nationally-funded

programs; (b) PES,47 which includes resources to compensate individuals/groups that

“provide” environmental services;48

(c) Agricultural credits (public and private); and

(d) Private initiatives (i.e., social-environmental responsibility programs).

(4) To facilitate the necessary links to effectively channel the aforementioned sources to small farmers, the ESS will incorporate a facilitating arrangement consisting of advisory and operational bodies. To guide the design and development of the ESS, an Advisory Committee within the State SRD Council will be created. The Advisory Committee will be responsible for: ensuring that the ESS complies with rules and regulations of the GoRJ, as well as with the procedures agreed to by the Bank to achieve its objectives; overseeing the implementation of the ESS; approving annual operating plans (POA); and suggesting adjustments based on M&E results.

(5) To operationalize the ESS, the PIU will competitively select an external entity

(i.e., NGO, foundation, or non-profit) during PY1 to act, alongside public-sector representatives, as a “broker” with extensive experience in working with SRD and small farmers. Specifically, the “brokerage scheme” will be responsible for: analyzing opportunities, bringing relevant actors together promoting flexible arrangements within and between the public and private sectors, and catalyzing resources for SRD investments.

(6) The operationalization of the ESS will further be supported by the PIU, which will be responsible for: overseeing the FM of project resources in the ESS, carrying out viability studies (including, for example, a study to benefit small farmers for reduced carbon emissions as a result of adopted SRD practices), and monitoring investments supported through the ESS. By the end of the Project, it is envisaged that the structure of the ESS will be consolidated and able to effectively link the supply and demand of resources in support of SRD in the SoRJ, with an estimated 45 subprojects financed through resources from the ESS.

(7) The ESS will operate under the following guidelines: (i) financial and

administrative autonomy and transparency; (ii) flexibility in acquiring resources; 47 The PES will build on the design being piloted under the Rio GEF Project. 48 Specific examples of PES that could be supported by the project include: lower watershed users pay upper watershed communities for land management practices that ensure continued supply of freshwater; public monies pay farmers to adopt rural conservation practices; land users investing in activities that reduce soil and water salinity (i.e., tree planting) are issued salinity credits that can be sold to point source polluters; carbon-polluting companies pay for tree planting and forest conservation activities; tour operators pay landowners for access to scenic areas; governments give tax breaks to people setting aside land for conservation; and consumers pay for environmentally-friendly food products.

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(iii) professional management; (iv) advised by external administrators and asset managers; (v) complementary financial incentives; (vi) private partnership incentives; (vii) external technical counsel; (viii) support to family agriculture SRD projects; (ix) support to environmental rebates in agricultural credit projects; and (x) integration with the market for environmental services. It is expected that a minimum of 45 subprojects will be financed through the ESS during the final four years of project implementation.

(8) Financing: This subcomponent will finance expert services (i.e., the “broker”) and

studies.

(9) Main Outputs: (i) 45 small farmer investment proposals financed (and US$450,000 supplied) with the participation of the ESS.

(10) Beneficiaries: Rural communities, farmers, women, youth, community organizations, and cooperatives will directly benefit from access to resources in the ESS.

v) Subcomponent 2.3: Participatory Research

(1) The third subcomponent will establish a new, more practical and effective

operational system to conduct agriculture-related research and induce innovation, that more efficiently fills key information and communication gaps by promoting the interaction of different research bodies and stakeholders in the identification, discussion, and prioritization of key issues in the agri-food sector in the SoRJ. This will be achieved by establishing a RNS throughout the SoRJ involving key research institutions (PESAGRO, EMBRAPA, universities, technical schools, etc.) and extension agencies (i.e., EMATER, municipal governments, producer associations/cooperatives, and NGOs). Ultimately, the RNS will support the adaptation and development of effective technical changes that improve production chains and processes. The RNS will also be responsible for systemizing technologies in a Technical Manual to be used by project technicians for investment planning and implementation activities supported under Component 1. A Technical Council will be formed to oversee the RNS during the early years of the Project, and PESAGRO will be responsible for coordinating subcomponent activities, especially for garnering the support of key partnerships and employing participatory research techniques.

(2) Identifying and channeling research demands to the RNS will be based on a

participatory process across different territorial levels. At the local level, producers will diagnose key problems as part of planning activities supported under subcomponent 1.1. These demands will be discussed through periodic exchanges, discussions, meetings, and forums across different levels involving major stakeholders (including the abovementioned institutions, as well as other agricultural, technical, commercial, and consumer organizations) to define partnerships, responsibilities, research priorities, and strategies for producing and

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disseminating materials and other resources (technical articles and bulletins, audiovisual materials, Internet sources, etc.).

(3) Once defined, the RNS will support 37 short-term (one to two years) and five

medium to longer-term (three to four years) adaptive research activities. Short-term activities will focus on improving the types of investments supported under subcomponent 1.1 (i.e., value chain development, value added promotion, sustainable increased productivity, agro-ecological incentives, and natural resources management), especially in cases where proposed technologies are not readily available and/or fully affordable to land-users. Operationally, short-term activities will be carried out by groups of farmers in partnership with local organizations and supported by PESAGRO. Groups will be selected by corresponding MDCs, and members will receive appropriate training from project technicians.

(4) Medium to longer-term research activities, on the other hand, will be aligned with

the main value chains to be initially supported by the Project (i.e., coffee, milk, sugarcane, aquiculture, horticulture, and fruit production), as well as other priority chains that may arise during implementation. By doing so, these activities will focus on solving bottlenecks along the different links of production chains to secure their long-term sustainability (i.e., production, processing, packaging, transporting, and logistics). Operationally, the longer-term research activities will be led by PESAGRO’s five regional offices and implemented by research stations under those offices in partnerships with other local institutions. Longer-term research activities will be wholly financed by counterpart funds.

(5) Financing: This subcomponent will finance TA for expert services (on-farm trials

and network design), exchanges and meetings, studies, publications, goods (equipment and materials), and dissemination activities.

(6) Main Outputs: (i) 42 participatory research projects carried out under the RNS (37

short-term and five medium to longer-term activities).

(7) Beneficiaries: Approximately 37,000 small farmers will directly benefit from research and dissemination activities. Roughly 200,000 individuals will indirectly benefit from the adaption of new technologies (i.e., rural residents, project managers, professors, and students).

11. Component 3: Project Coordination and Information Management (US$7.6 million, 9.7% of

total project cost). The objectives of this component are to promote effective project management and efficient information flows, both internally and with other local, municipal, state, and national programs. Specifically, Component 3 will: expand the decentralized and participatory management model, based on the ongoing structure of the Rio GEF Project, across different levels (i.e., local, municipal, regional, and state) to guarantee the achievement of the project’s objectives; monitor and evaluate project activities, outputs, and outcomes (M&E system); systemize and disseminate project results

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and those of related initiatives; and promote the use of digital and other IT tools among project beneficiaries. Activities will be carried out through two subcomponents: (3.1) Project Coordination, and (3.2) Information Management.

a) Main Outcomes: Project management functioning and able to effectively implement and

monitor project activities across all territorial levels, as well as to disseminate and share SRD knowledge and information to influence decision-making processes of key stakeholders.

b) Target Group: Members of the PIU, members of implementing and coordinating

institutions across the SoRJ, and project beneficiaries.

vi) Subcomponent 3.1: Project Coordination

(1) The first subcomponent will promote the management and coordination of project implementation activities. The Project will build on the existing PIU structure within SEAPPA for the Rio GEF Project, and SEAPPA will continue to be responsible for operative planning, supervision, administration, FM, and general oversight of the Project (see Annex 6 for details). As a result, this subcomponent will support: the expansion of existing organizational and operational structures of the Rio GEF Project to meet the demands required by the new and expanded activities under the Project; the operational capacity of implementing structures; the establishment and/or strengthening of decentralized and deliberative mechanisms to maximize the participation of all actors involved in implementation activities; and the management of physical goals and resources of the Project.

(2) Financing: This subcomponent will finance TA for expert services (related to

M&E, planning, infrastructure, procurement, auditing, etc.), goods (equipment and materials), and civil works.

(3) Main Outputs: (i) PIU structure implemented and effectively functioning across

local, municipal, regional, and central levels.

(4) Beneficiaries: Members of the PIU and those of implementing institutions.

vii) Subcomponent 3.2: Information Management

(1) The second subcomponent will support the development of a MIS to guide M&E activities of the Project. The M&E system will expand on the existing MIS for the ongoing Rio GEF Project and will be a key part of the information management strategy of the Project. After upgrading and expanding the current system to meet the demands of the new operation (supported under subcomponent 3.1), the MIS will monitor project performance with respect to the baseline situation by, inter alia: tracking inputs, outputs, intermediate outcomes, and progress towards the PDO; supporting specific studies; providing information to impact decision

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making across project levels and allowing for any necessary adjustments during implementation; promoting accountability for resource use against objectives; and generating inputs for the dissemination of project results and lessons learned. Support to knowledge management and information provided by the MIS will strengthen SEAPPA’s capacity to provide timely information and share knowledge to beneficiaries and decision makers across all territorial levels hence supporting the achievement of objectives under subcomponents 2.1 and 2.2. By retrieving key information and providing feedback, the MIS will also link to and support training and planning activities under subcomponents 1.1, the efficient implementation of subprojects under subcomponent 1.2, and research activities under subcomponent 2.3.

(2) The MIS will be based on a comprehensive framework that promotes stakeholder

participation within key M&E activities across different territorial levels (see Annex 3). This will include stakeholder assessments of the achievement of project objectives, as well as stakeholder awareness towards key elements of SRD in targeted areas. Moreover, the MIS will empower stakeholders to better understand production and marketing practices and the importance of the natural resources base, as well as to impact their decision-making processes in support of SRD.

(3) The MIS will be facilitated by the use of a web-based, customized computer

application to be used by both internal and external audiences. Through this application, the Project will support the development of an electronic databank that will be available for beneficiary user groups to access project information and exchange knowledge. An information quality team will monitor postings and digital activities, and EMATER’s local offices, Agro-environmental Reference Centers, and local community centers will be established and/or provided with Internet and IT tools to ensure widespread access and use of the databank. Moreover, the MIS will ensure widespread access to and knowledge of the Internet and digital tools among project participants by providing technicians and beneficiaries with relevant informational materials and training (i.e., digital applications, online commercialization tools, distance education, and online TA).

(4) To ensure sustainability, information management activities will be decentralized,

integrated, and community-organized. MDCs and RDCs will be responsible for producing relevant materials and updating the on-line portal and databank with news and project information, as well as for facilitating information flows to beneficiaries. These activities will be guided by an Information Knowledge and Management (IKM) Plan. The IKM Plan will link rural communities and diverse local actors in the SoRJ, as well as local, national, federal, and international institutions, so that they can exchange experiences regarding different SRD projects and initiatives. The IKM Plan will identify different information management activities to be supported by this subcomponent, which could include: technical cooperation networks, on-line portals, local magazines and newspapers, radio and television programs, videos, congresses and forums, etc.

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(5) Financing: This subcomponent will finance TA for expert services (baseline studies, periodic evaluations, MIS design, graphic design, media campaign, technical monitoring, etc.), goods (electronic equipment and databases), works (to improve local offices and centers), training and dissemination materials and activities (i.e., publications and workshops).

(6) Main Outputs: (i) a M&E system established and effectively collecting and

analyzing relevant project information; and (ii) a MIS established and facilitating the collection, storage, analysis, and dissemination of SRD-related information.

(7) Beneficiaries: Approximately 20,000 rural residents, technicians, project

implementers, and members of participating institutions will directly benefit from activities involving the MIS, including the use of related information centers and business units. An estimated 200,000 rural residents will indirectly benefit from information related to environmentally-sustainable practices and natural resources conservation.

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Annex 4, Appendix 1 Targeting

A. Overview of Project Area

1. The Project will impact the entire SoRJ, which includes an area of 43.697 km² that can be divided into 92 municipalities, 6 meso-regions, and 18 micro-regions. According to the 2007 census, the state has 15,420,375 inhabitants,49 of which 90% live in urban areas. An estimated 157,49250

individuals in the SoRJ are involved in agricultural activities. The Project will be implemented in 270 microcatchments across 59 municipalities, and will consist of three priority regions.

2. The North, Northwest, and Serrana administrative regions will be the main priority areas for project interventions (70%). With approximately 2.0 million inhabitants, an estimated 46,800 families51 in these regions are classified as rural whose main occupation and source of income is agriculture. Historically, this sector has been characterized by the use of simple technology and low productivity cattle farming, as well as sugarcane and coffee production dominated by “boom and bust” cycles. These traditional land use patterns have contributed to severe environmental pressure on the natural resources base of the three aforementioned priority regions. Combined with low organizational levels among farmers and limited TA, poverty is one of the most pressing issues for rural households. This directly affects an estimated 125,000 people in the three priority regions, of which approximately 32 % live in conditions of extreme poverty.52

Project interventions in the administrative regions outside of the three priority regions will be focused in areas that share similar socio-economic and environmental characteristics. These other administrative regions include: Metropolitan, Coastal Floodplains, South, and Paraíba River Middle Valley. Table 1 below provides an overview of the priority and replication areas.

Table 1: Priority and Replication Areas

Target Areas # of Municipalities

# of Microcatchments

# of Families

Area (km2)

% of the total area in SoRJ

Priority Areas: North, Northwest, and Serrana

36

224

28,330

22,113

51.4

Replication Areas 23 46 8.374 11.323,6 25.8

Totals 59 270 36,704 33,437 76.2 49 Estimated Population Count 2007. Brazilian Institute of Geography and Statistics (IBGE). 50 Agricultural Census 2006. Brazilian Institute of Geography and Statistics (IBGE). 51 Estimated Population Count 2007. Brazilian Institute of Geography and Statistics (IBGE). 52 Mapa do Fim da Fome: Rio de Janeiro, 2004, Centro de Policitas Sociais, Fundação Getulio Vargas. This critical poverty assessment combines two elements in its definition of the poverty line: (i) less than half of the minimum wage; and (ii) additional per capita income needed to ensure the minimum amount of calories as reflected by WHO requirements.

57

B. Targeting Criteria: Municipalities

3. Fifty-nine municipalities have been pre-selected to participate in the Project. These include the 24 municipalities already participating in the Rio GEF Project in the NNWF administrative regions, as well as 35 others across other administrative regions in the SoRJ. The targeting of all municipalities was based on the application of criteria that combines the following considerations: the importance of family agriculture in the local economy, environmental degradation, and poverty. Table 2 below describes the different indices, as well as the point and weight scales, that were applied to all of the 92 municipalities in the SoRJ.

Table 2: Indices Applied to Select Municipalities

Indices Evaluated Classification of Municipalities

(class and limits) Points Weight

Number of Family Farmers Source: Banco de Dados da Agricultura Familiar (http://www.mda.gov.br/saf/)

Class 1 – (0966 to 2726) Class 2 – (0417 to 0688) Class 3 – (0205 to 0350) Class 4 – (0048 to 0197) Class 5 – (0001 to 0031)

5 4 3 2 1

1 1 1 1 1

Number of Low-income Family Farmers Source: Banco de Dados da Agricultura Familiar (http://www.mda.gov.br/saf/)

Class 1 – (411 to 828) Class 2 – (162 to 317) Class 3 – (081 to 158) Class 4 – (043 to 072) Class 5 – (001 to 036)

5 4 3 2 1

2 2 2 2 2

Municipal Human Development Index Source: Fundação CIDE, Índice de Desenvolvimento Humano Municipal (2000)

Class 1 – (0,723 to 0,712) Class 2 – (0,747 to 0,724) Class 3 – (0,792 to 0,752) Class 4 – (0,886 to 0,796)

5 4 3 2

1 1 1 1

Concentration of Rural Population (%) Source: Instituto Brasileiro de Geografia e Estatistica, Censo Demográfico (2000)

Class 1 – (41,72 to 83,54) Class 2 – (19,67 to 36,77) Class 3 – (09,29 to 18,30) Class 4 – (05,13 to 08,91) Class 5 – (00,00 to 04,63)

5 4 3 2 1

1 1 1 1 1

Participation of Agricultural Sector in Municipal GDP (%) Source: Fundação CIDE, PIB por setor de atividade econômica em RJ (2004)

Class 1 – (23,37 to 41,80) Class 2 – (10,44 to 20,29) Class 3 – (04,77 to 09,24) Class 4 – (02,07 to 03,28) Class 5 – (00,00 to 01,91)

5 4 3 2 1

1 1 1 1 1

Municipal Environmental Quality Index Source: Fundação CIDE, IQM Verde (2005)

Class 1 – (0,0863 to 0,0043) Class 2 – (0,2248 to 0,1148) Class 3 – (0,4664 to 0,2354) Class 4 – (0,5189 to 1,0000)

5 4 3 2

1 1 1 1

4. Based on the application of the different indices described above, 35 municipalities were

selected to participate in the Project, in addition to the 24 municipalities currently participating in the Rio GEF Project. The 35 municipalities selected for the expansion of activities under the Project, as well as their corresponding point totals, are listed below in Table 3.

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Table 3: List of Municipalities Selected by Region and Point Totals

Region

Municipalities Points

Serr

ana

Cos

tal F

lood

plai

ns

Sumidouro 35 São José do Vale do Rio Preto 33 São Sebastião do Alto 32 Bom Jardim 30 Duas Barras 30 Cantagalo 27 Teresópolis 27 Nova Friburgo 25 Carmo 24 Araruama 25 Rio Bonito 25 Tanguá 25 Silva Jardim 24 Petropolis 24 Cordeiro 22 Macuco 21 Cachoeiras de Macacu 21 Casimiro de Abreu 20 Saquarema 20 Cabo Frio 19

Para

íba

Riv

er M

iddl

e V

alle

y M

etro

polit

an

Sout

h

Sapucaia 28 Paty do Alferes 25 Vassouras 24 Magé 25 Seropédica 22 Itaboraí 21 Mangaratiba 20 Itaguaí 19 São Gonçalo 19 Paracambi 18 Rio Claro 29 Valença 24 Rio das Flores 20 Quatis 19 Piraí 18

5. The 24 municipalities currently participating in the Rio GEF Project include:

a. Nine municipalities in the North administrative region: Campos dos Goytacazes,

Carapebus, Cardoso Moreira, Conceição de Macabu, Macaé, Quissamã, São Fidélis, São Francisco do Itabapoana, and São João da Barra; and

b. Fifteen municipalities in the Northwest administrative region: Aperibé, Bom Jesus

do Itabapoana, Cambuci, Italva, Itaocara, Itaperuna, Laje do Muriaé, Miracema, Natividade, Porciúncula, Santo Antônio de Pádua, São José de Ubá, and Varre-Sai, as well as two municipalities located in the adjacent Serrana region as a result of poverty levels and reasons of strategic location (at the headwaters of an important watershed).

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C. Targeting Criteria: Microcatchments 6. While all 50 microcatchments involved in the Rio GEF Project will participate in the

Project, an additional 220 new microcatchments will be selected during PY1. MuDCs to be established and/or strengthened under the Project will be responsible for the selection and prioritization of specific microcatchments. While each municipality must have a minimum of two microcatchments participating, the number of microcatchments per municipality will be distributed as follows: a. North and Northwest administrative regions: up to 14 microcatchments per municipality

totaling 172 microcatchments (i.e., all microcatchments with at least 20 small farmer families).

b. Serrana administrative region: up to 6 microcatchments per municipality totaling 52 microcatchments.

c. Replication areas in other administrative regions in the SoRJ: 2 microcatchments per municipality totaling 46 microcatchments.

7. The microcatchment selection process will be based on the following factors: a. Concentration of family agriculture (microcatchments that have the highest percentage

of family farmers will receive the most points) b. Level of community organization (microcatchments that already have an existing form of

organization will receive the most points) c. Biodiversity prevalence (microcatchments that have remnants of native vegetation that

can be rehabilitated will receive the most points) d. Presence of water sources, including springs or other sources of surface or ground water

(microcatchments whose water sources have been depleted or that supply the largest number of habitants will receive the most points)

8. Each microcatchment in the pre-selected municipalities will be given a score to determine eligibility. The score will be based on a points system outlined in Table 4 below.

Table 4: Microcatchment Prioritization Points System

Criteria

Microcatchments that: Points

Family Agriculture

Possess less than 40 families 1 Possess between 40 and 60 families 2 Possess more than 60 families 3

Community Organization

Do not possess producer associations 1 Have at least one producer association 2 Have at least one producer association and a representative in a MuDC or other water resources management council 3

Biodiversity

Do not have remnants of native vegetation 1 Possess at least one remnant of native vegetation 2 Possess remnants of native vegetation and have an active conservation unit/body 3

Water Sources Do not have inhabitants dependent on its water supply 1 Possess at least one community dependent on its water supply 2 Supply water to urban areas 3

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9. In the case of a tie under the abovementioned point system, the following two factors will be used to select microcatchments to participate in the Project: (i) the microcatchment that scores the highest number of points in the family agriculture criterion (if this results in a tie, then the microcatchment that has the highest number of small farming families); and (ii) the microcatchment that scores the highest number of points in the water sources criterion (if this results in a tie, then the microcatchment that has the highest number of people dependent on its water supply). If a tie still persists after the tiebreaker factors, then additional criteria will be used, including: (i) the microcatchment that has the longest-standing producer organization; and (ii) the microcatchment that has the largest number of has of remnants of native vegetation. The targeting criteria for beneficiaries are included in Appendix 5 to this annex.

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Annex 4, Appendix 2 Participatory and Negotiated Territorial Development

A. Theoretical Background

1. The PNTD53

approach recognizes and seeks to overcome key rural development challenges. This includes five broad categories of challenges. The first is weak awareness and capacity among local actors. Local actors need to be aware of and have the capacities to protect their rights and livelihood choices, overcome constraints and reduce the effects of global changes (i.e., climate changes, pollution, and land degradation), and react to new institutional arrangements (decentralization), as well as creation of new spaces for different groups to shape these processes (i.e., private sector actors). A second challenge is understanding and dealing with transformations and changes. Rural areas face a changing economic, social, and political environment, which requires a redefinition of the parameters of their development as well as the capacities to face the challenges emerging from these changes (i.e., gender relations, demographic trends, and cultural identities).

2. A third challenge facing rural development is decentralization and disengagement of the State. Traditionally, these ongoing processes have resulted in severe gaps in the fulfillment of key state functions, including the ability to enforce law and order, redistribute welfare, collect taxes, and provide basic services. Another challenge is inefficient local resource use and management. This often results when powerful actors influence decisions without participating in social dialogue and includes the private sector, powerful policy-makers, landlords, etc. A final challenge facing the rural sector is interdependencies within and between territories. Because there are limited resources within a given territory, actors inevitably compete for their use. Similarly, the dynamics and flows within a territory and between territories make it difficult to limit the scope and scale of a territorial intervention.

3. The PNTD approach sets out a territorial development strategy to address the

abovementioned challenges. This strategy includes: (i) building credibility between private and public actors, by establishing and maintaining social dialogue within a territory and restructuring and/or strengthening territorial institutions; (ii) strengthening social cohesion, by creating agreement on territorial development goals, which includes the participation of powerful actors that have little interest in dialogue; (iii) improving the management and use of natural resources, by harmonizing the diversity of interests; and (iv) using the territory as an arena for dialogue and negotiation, by enabling vertical and horizontal integration between territorial scales and levels (i.e., geographic, socioeconomic, and administrative) and focusing on the assets, the potential, and constraints of the territory. The principles of the PNTD approach are outlined below in Box 1.

53 FAO. 2008. Participatory and Negotiated Territorial Development, More than a Methodology: A Strategy for Territorial Interaction and Integration. Land Tenure and Management Unit.

62

Box 1: Key Principles of the PNTD Approach B. PNTD Rationale for Project

4. The ongoing Rio GEF Project, as well as other microcatchment-focused projects throughout Brazil, has shown that the microcatchment approach is not always able to address key issues that go beyond the scope of the microcatchment. While these projects have demonstrated that microcatchment “clusters” are useful building blocks for action where a significant number of rural producers who adopt sustainable land management practices contribute to the gradual development of more sustainable landscapes and increased social capital, those landscapes are not necessarily on a large-enough scale for other types of achievements. As a result, shortcomings have emerged under the microcatchment approach that relate to: linking to markets, promoting value added, sustainable incentives policy, and legal frameworks in support of SRD. A complementary approach, such as PNTD, is therefore required to link the micro level (community) with the meso levels (municipal and regional) so as to contribute to the long-term sustainability of project-supported activities and SRD more generally. Such a complementary approach increases the likelihood of successfully addressing the broader shortcomings of earlier interventions.

5. Hence, territories are social constructions (and not administrative ones), and, for purposes

of the Project, a territory is defined as a system of various levels where different actors compete and eventually cooperate and negotiate (community/microcatchment, municipality, and regional level). Actions undertaken at any of these levels should target the improvement of the capacities of weaker actors to allow them to react to the changing demands of the markets, but also a political environment where negotiations are taking place in a more open and participatory setting.

− Actor Based: Recognition of the heterogeneity of the actors’ interests and visions of the territory.

− Territorial Based: Based on the territories as spatial units of analysis, shaped by the social and historical relations between the actors and the territory.

− Dynamic: Understanding of and learning from the complexity of a changing environment to support positive patterns of change and help mitigate negative patterns.

− Systemic: Assumption of the complexity of a territorial context and the interdependencies within and between territories.

− Multi-sectoral: Integration of the environmental, social, economic, political, cultural dimensions of the actors’ visions of the territory.

− Multi-level: Integration of different territorial levels and scales in the governance system.

− Participatory and Negotiated: Notion of the territory as a negotiation arena to strengthen dialogue and mutual trust, and increase bargaining power.

63

C. Government Support

6. There is very good initial buy-in to the PNTD approach in the SoRJ. This largely stems from the appropriateness of the strategy, as it encompasses the key rural sector political objectives of the Project and fits into the history of agrarian interventions in Brazil. Agrarian interventions have been supported in Brazil since 1991 through an integrated approach called the Agrarian Systems Diagnostic (ASD). ASD activities initially began in the National Agrarian Reform Institute (INCRA) and the Ministry of Agriculture (MAPA), after which efforts were expanded in several states via state land institutes and, finally, within the MDA after its creation. The ASD approach was instrumental in preparing the National Smallholder Program (PRONAF), which is being implemented by the MDA. As PRONAF expanded, however, the need to adopt management systems that embrace comprehensive and multi-sectoral approaches became evident.

7. As the paradigm changes as mentioned earlier in Annex 1 began to emerge (i.e., the

market’s dictation of production systems, increasing attention to environmental concerns, and democratization), a progressive rethinking of ASD led to the conceptualization of the PNTD approach as an alternative approach for rural development. The initial approach by the Secretariat of Territorial Development of MDA (SDT/MDA) was partly influenced by FAO documents on negotiated territorial development. Subsequently, the SDT/MDA made the internal decision to adopt an approach based on large territorial bases to develop a large number of territorial plans (approximately 140 all over the country). However, as this strategy became operationalized, it became clear that negotiation between different levels and sectors of government institutions, as well as dialogue with the private sector, in the development of these plans was perhaps insufficient. The result suggests that there may have been a shortage in terms of what to do next with existing plans that are oftentimes a simple shopping list or priority measures, however, not necessarily with a systemic vision that promotes the sustainable development of the smallholder sub-sector.

8. Based on this recent experience, the Project seeks to build on the decentralized experience

being promoted by the GEF, as well as other similar Bank-supported projects in Brazil, to link the micro and meso levels to address broader issues (i.e., weak linkages to markets, value added, and sustainable incentives policy) and contribute to long-term, SRD in the targeted areas of the Project.

D. Implementation Challenges

9. There are a number of key challenges to implementing the PNTD approach, which are derived on the experiences of the Rio GEF Project and other projects in southern Brazil. These include: improving micro and meso level linkages, upgrading the multi-sectoral approach being piloted under the Rio GEF Project to the broader project area and an array of relevant sectors, and strengthening institutional capacity to respond more effectively to the evolving paradigm. These challenges are specifically addressed in the project’s design in Components 1 and 2.

64

Ann

ex 4

, App

endi

x 3

Con

cept

ual O

verv

iew

of t

he P

roje

ct

65

Annex 4, Appendix 4

Training Activities

10. The following provides an overview of the operational, strategic, and beneficiary training activities that the Project will support.

11. Operational training for project managers and technicians will focus on key economic,

environmental, and social issues to promote widespread beneficiary participation in the design, implementation, and evaluation of project activities. As a result, project managers will be equipped with strategic and contextual information, as well as beneficiary prioritization and coordination frameworks. Project technicians, on the other hand, will be trained in promoting the adoption of SRD practices and planning for coordinated implementation and use of resources.

12. Strategic stakeholder training will focus on members of MDCs, MuDCs, and RDCs, as

well as other important stakeholders responsible for the implementation of the project’s strategy. Related training activities will revolve around key project themes, such as environmental legislation and licensing procedures, subproject evaluation, participatory M&E, PNTD concepts, etc. This subcomponent will also sponsor trainings for other strategic stakeholders in areas related to environmental education and communication and networking techniques.

13. Beneficiary training will focus on increasing capacity to understand, participate, and

effectively contribute to SRD activities. Examples of the diverse activities that the Project will support include: meetings to stimulate motivation and involvement in local communities, capacity building to promote the adoption of improved and more efficient production techniques along with socio-environmental activities within production units, self-management activities, exchanges (at local, municipal, and regional levels), and environmental education activities in schools. Training and rural extension activities will be implemented through visits, community meetings, exchanges, didactic events, courses, competitions, seminars, special community days/weeks, campaigns, and other events that correspond to the demands as expressed by MDPs and MuDPs.

66

Annex 4, Appendix 5

Detailed Description of Subcomponent 1.2 A. Overview

14. Subcomponent 1.2 will provide grants to finance demand-driven investments identified and developed in the context of different planning levels54

under subcomponent 1.1. The grants will directly support improvements in farming systems and production processes within a framework of market-driven agricultural development. In most cases, the Project will finance a maximum of 80% of investments, as grantees will provide at least 20% in-kind contribution. In all, subcomponent 1.2 will support an estimated 24,400 investment proposals with a total cost of about US$52.7 million. This includes approximately US$31.7 million to support productive subprojects, US$10.9 million to support environmental conditioning of productive units’ subprojects, and US$9.6 to support rural roads-related subprojects to address logistical bottlenecks. The latter activity will also include the establishment of an institutional framework for sustainable road maintenance through the creation of Inter-municipal Road Consortia (see Section F below).

15. Beyond its immediate effect, the design of the grants system under subcomponent 1.2 seeks to influence prevailing credit lending and application practices within the rural sector in the SoRJ. While local banking credit for operating recurrent costs is readily available for farmers, financing for investments is not. Moreover, difficulties in obtaining legal guarantees and meeting collateral demands make financing for small farmers difficult and rare. By providing grants and TA for comprehensive investment planning, the Project will therefore improve the financial conditions of small farmers and lower their perceived risks on the part of rural financial institutions.

B. Beneficiaries

16. Beneficiaries will include:

a) Individuals. Individual beneficiaries will be comprised of family farmers, as defined by PRONAF,55 in the project area who hold and produce on a maximum of four fiscal modules56

54 At the farm and community level (i.e., IDPs, GDPs, and SBPs within MDPs), the municipal level (MuDPs), and the regional level (RDPs).

of land (or six fiscal modules for family cattle farms). All individuals (small farmers, rural workers, artisanal fishermen, rural women and youth) these criteria will be eligible to apply for grants to undertake any type of subproject (i.e., productive or environmental conditioning of productive units). Individual beneficiaries who do not fulfill the abovementioned requirements (i.e., market-oriented farmers who hold and

55 According to PRONAF, family farmers: (i) hold ownership, possession, or renting rights to the land or be partners or concessionaires of Agrarian Reform; (ii) reside on the property or in a nearby settlement; and (iii) comprise the productive unit’s primary workers. 56 According to Brazilian regulations, fiscal module size varies from five to 35 has; the most common fiscal module size in the project area is ten has.

67

produce on more than four fiscal modules of land) will only be eligible to apply for productive subprojects that involve increasing sustainable productivity (on-farm focus).

b) Groups of Beneficiaries. Formal and informal groups of individual farmers , which can

verify member registration, in targeted areas of the Project, as well as existing cooperatives or other types of producer associations, will be eligible to apply for grants. Legally recognized groups are eligible if they: consist of members of different small farming families, and are registered as a formal association, cooperative society, or joint ownership. Informal groups are eligible if they: are comprised of at least three members of different small farming families, and have an internal regulation (term of commitment) that establishes participatory and equal decision making between all members.

c) Municipal Governments. Municipalities, which include at least one targeted

microcatchment, will be eligible for support to participate in a Roads Maintenance Consortium. In addition, they will be the implementers of community subprojects under the rural roads-related logistical bottlenecks category if they: prepare and approve a MuDP and verify their fulfillment of duties to state and federal governments.

C. Eligibility Requirements

17. To be eligible, subproject proposals must be consistent with activities designated as priorities in the corresponding plans. They must also fit under the eligible categories and types of subprojects as earlier described. Moreover, individuals, formal and informal groups, and municipal governments must meet the following criteria in order to be eligible to apply for project resources under subcomponent 1.2:

18. Individuals must:

- be a resident of a targeted microcatchment; - elaborate a development or business plan supported by the Project; - demonstrate that activities are environmentally sustainable (i.e., no negative

impacts); - sign Terms of Commitment to carry out proposed investments; - participate in local capacity-building courses, training activities, and planning

exercises - abide by the guidelines defined by MDCs or MuDCs; - agree to permit the use of the productive unit for the diffusion of the practices

carried out; - allow fiscal auditing of resources; and - comply with the national environmental legislation and specific environmental

procedures established by the Project.

19. Groups, in addition to the aforementioned, must: - have a minimum of 80% of its members from a targeted microcatchment; and

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20. Municipal Governments that want to participate in a Road Consortium must: - formalize interest; - be capable of managing and utilizing machines and equipment; - provide their own resources for supporting road crews; - support the participation of technicians, managers, and machine operators in project

courses and trainings; - participate in the development and management of plans that identify and prioritize

critical stretches of rural roads to be improved, as well as commit to implementing agreed plans with local communities;

- commit to implementing the road rehabilitation and maintenance norms and good practices established by the Project (and included in the OM to minimize negative environmental effects and comply with Bank safeguards) and by the PIU (operational aspects);

- agree to abide by the rules established in the Resettlement Framework developed by the Project; and

- demonstrate fiscal responsibility and agree to audits. D. Subproject Examples

21. Three types of individual and group investments will be eligible for financing under subcomponent 1.2:

a) Productive, which includes increasing sustainable productivity (on-farm focus),

promoting value added, and developing value chains57

(off-farm focus).

(1) Sustainable increased productivity (on-farm focus) investments will facilitate the transition to more efficient, value-driven, and sustainable production systems by improving crop, livestock/grazing, and agro-forestry practices. Examples of activities that could be supported include: product diversification, improved animal and plant health systems, certification of forest products, developing and stocking small fish farms (one ha or less) and nurseries, improving small-scale irrigation systems, promoting integrated cropping practices (i.e., zero or minimum tillage, crop rotation and permanent soil cover, contour cropping, planting consortia, and agro-forestry), supporting more sustainable rangeland/pasture and management practices (i.e., pasture rotation and the introduction of silvopastoral systems), and promoting the use of productive equipment and pollution control systems (i.e., organic fertilizer and liquid manure disseminators, beekeeping kits, animal tracking and protection systems, advanced fishing materials, breeding

57 Initially, the Project will look at the whole product chain of six pre-identified production chains as mentioned above, and the Project will support the inclusion of small farmers within those chains to increase the efficiency and quality of production. Moreover, the financing of investment proposal under this category will serve as seed money for entrepreneurs to take risks at all stages of the value chain. As a result, in addition to the pre-identified value chains, a flexible design will allow for the financing of other entrepreneurial ideas that may arise during implementation (i.e., artisan products and tourism).

69

tools, small refrigeration tanks, low-cost stoves, quality seeds, fodder for planting, etc.

(2) Value added promotion investments will improve management, production,

handling, quality, and scale of productivity. Examples of activities that could be supported include: drying and storage structures for agricultural products; coffee classification laboratories; small-scale ice factories; holding chambers for fish and other products; product conditioning and packaging through the use of equipment for harvesting, selecting, storing, processing, and drying of agricultural products; materials and equipment for small-scale artisan works; and agro-industrial processing of raw materials.

(3) Value chain development (off-farm focus) investments will support activities to

increase the efficiency of key product chains. As part of project preparation, a study was undertaken that identified six main value chains in the targeted areas that are characterized as having significant bottlenecks. These include: coffee, milk, sugarcane, aquiculture, horticulture, and fruit production. To help overcome major bottlenecks within these product chains, the following types of activities could be supported by the Project: small-scale harvesting and agro-processing tools and machines, micro-tractors, refrigerated transport vehicles, wastewater treatment from coffee processing, recirculation and/or treatment of effluents in pond farms, etc. With regard to these investments, the Project will initially focus on enabling producers to overcome bottlenecks and capture more of the value added within the well-established and pre-identified product chains mentioned above. The Project will then support the development of new production and marketing opportunities.

(4) As a result, value chain analysis (to build on implementation) will be

benchmarked for different areas of the SoRJ to identify: opportunities, strategic investments that reduce costs, and areas of value added that could be captured at the farmer/farmer association level. This will translate into different types and levels of activities to be supported, depending on the specific characteristics of the beneficiaries, products, geographical areas, and product and value chains involved (the latter referring to how well farmers work with other economic actors, as well as the private sector’s willingness to be more integrated). While the Project intends to work with the main product chains within regional and consumption markets to maintain focus and ensure certain results, the design is flexible and open to new ideas and opportunities that may arise during implementation.

b) Environmental Conditioning of productive units, which includes complying with

environmental laws and adopting environmentally-sound and agro-ecological practices.

(1) Complying with environmental laws investments will protect, conserve, and restore natural resources in private legal reserves and preservation areas as required by environmental legislation. Examples of activities that could be supported include: environmental licensing, legalizing reserves, protecting

70

springs, rehabilitating riparian forests, forest fire prevention, planting native trees, and protecting internal roads and corridors.

(2) Environmentally-sound and agro-ecological investments will promote the

adoption of environmentally-friendly agriculture by small farming families. This could be carried out within a certification system that includes the adoption of agro-ecological practices, such as: organic fertilizer use, integrated pest management to reduce or eliminate reliance on pesticides, installation of manure storage systems, effluent treatment systems, stable and stall improvements, and the promotion and use of biofertilizers, compost, and green manure.

c) Rural roads-related logistical bottlenecks, which includes erosion control,

rehabilitation, and maintenance works to improve input/output flows via year-round transitability of key stretches of rural roads. Examples of works that could be supported include: strengthening on-farm and off-farm gullies, simple grading and re-gravelling, improving drainage systems and intersections, and constructing small culverts and soakage pits.

D. Estimated Numbers and Costs of Subprojects

22. As all investment subprojects will be fully demand-driven, it is not yet possible to determine the specific number of subprojects and beneficiaries. However, on the basis of farm models and the experiences of the Rio GEF Project, estimations were made with regard to the number of subprojects for each type of category and activity, as well as the average costs (see Table 1 below). As a result, the amount of financing supported by the Project for individual/group subprojects will range from about US$600 to US$4,250. In all, subcomponent 1.2 will support an estimated 23,795 investment proposals with a total cost of about US$52.7 million. This includes approximately US$31.7 million to support productive subprojects, US$10.9 million to support environmental conditioning of productive units’ subprojects, and US$9.6 million to support rural roads-related subprojects to address logistical bottlenecks (the latter which also includes the costs of creating an institutional framework for sustainable road maintenance, as described in Section F below, but not the US$3.7 million pre-investment required to acquire machines, vehicles and topographic equipment, which is included in subcomponent 1.1).

Table 1: Estimated Numbers and Costs of Subprojects by Category

Investment Category Estimated # of

Subprojects° Average

Cost (US$) Total Expected

Cost (US$ millions) Productive 13,570 - 31.7 Sustainable increased productivity (on-farm focus) 12,000 2,200 26.4 Value added promotion 1,300 3,300 4.3 Value chain development (off-farm focus) 270 3,900 1.1 Environmental Conditioning 10,000 - 10.9 Complying with environmental laws 6,600 1,230 8.1 Agro-ecological incentives 3,400 820 2.8 Rural Roads-related Logistical Bottlenecks 795 - 9.6

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Investment Category Estimated # of Subprojects°

Average Cost (US$)

Total Expected Cost (US$ millions)

Materials: Consumables (non-durable) 795 4,750 3.8 Resurfacing materials (durable)- subprojects 795 1,975 1.6 Works (special structures) 795 2,125 1.7

Services 795 3,025 2.4 Machinery Upgrading - - 0.1

Totals 24,365 52.7 °Estimations were made for the sake of project design and evaluation purposes, and these numbers are not binding as far as implementation is concerned.

E. Subproject Cycle: Productive and Environmental Conditioning activities

23. Grants provided under subcomponent 1.2 for productive and environmental conditioning subprojects will be characterized by a decentralized project review process to facilitate a rapid response to assistance requests and to maintain close contact with local beneficiary needs. Relevant subproject proposals, which will be discussed and agreed by project beneficiaries and prepared by them with the support of extension activities provided under subcomponent 1.1, will initially be endorsed by MDCs and sent to the corresponding RDC for review. Once approved at the regional level, proposals will be sent to the PIU’s Technical Coordination Unit for technical clearance.

24. Once receiving the PIU’s official approval, grant funds will be transferred directly to the

beneficiary or beneficiary group (see Annex 7 for details regarding financial flows). MDCs and local extensionists will be responsible for supervising subproject activities and monitoring the use of project resources. If implementation problems are encountered, the corresponding RDC, with the support of an Inspection Committee, will issue recommendations for appropriate adjustments or sanctions. A final evaluation will be produced after implementation activities are completed. Importantly, environmental responsibilities will be shared between the Technical Coordination and Information Management Units within the PIU, as well as with local and regional EMATER offices; the EA and OM provide detailed institutional arrangements for environmental screening, approval, and monitoring of subprojects.

25. Figure 1 provides an overview of how the subproject cycle will operate for productive and

environmental conditioning subprojects. Complete details are included in the OM.

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Figure 1: Subproject Cycle Overview

SUBPROJECT IDENTIFICATION

► 1. Identification of investment subproject framed within MDPs,

via IDPs, GDPs, SBPs

SUBPROJECT PREPARATION ►

1. Preparation of subproject proposal by individual or group with the support of local extensionist, including collection of baseline data (as applicable)

2. Subproject proposal undergoes technical evaluation and environmental screening by EMATER local office

3. Subproject proposal submitted to corresponding MDC for endorsement

4. Subproject proposal submitted to corresponding RDC for approval

5. Subproject proposal submitted to Technical Coordination Unit in PIU for approval

6. Grant funds transferred to individual or group through Banco do Brasil

SUBPROJECT IMPLEMENTATION ►

1. Physical and financial implementation begins 2. Supervision/monitoring carried out and supported by

corresponding local extensionist (physical implementation) and MDC (use of resources)

3. Subproject activities completed and final technical evaluation produced.

4. If implementation problems encountered, the RDC, with the support of an Inspection Committee, issues recommendations for appropriate adjustments or sanctions

5. Subproject activities completed and final evaluation produced F. Subproject Cycle: Rural Roads-related Logistical Bottlenecks

26. For rural roads related activities, the Project will begin by strengthening three Rural Engineering Offices of EMATER during PY1, one in the North and another in the Northwest administrative regions, through the provision of complementary equipment required to carry out specific road maintenance works. Beneficiaries, working together with EMATER, will then identify and prioritize critical stretches of rural roads to be improved (an average of nine kilometers/microcatchment). Once identified, subproject proposals will be prepared by EMATER technicians, which will include environmental screening processes to be carried out by the corresponding EMATER local office. Once finalized, subproject proposals will be submitted to the PIU’s Technical Coordination Unit for clearance and final approval, after which the PIU will transfer funds to EMATER to carry out planned activities. Supervision and monitoring responsibilities will be charged to EMATER and relevant MDCs. If implementation problems are encountered, the corresponding RDC, with the support of an Inspection Committee, will issue recommendations for appropriate adjustments or sanctions. A final evaluation will be produced after implementation activities are completed for each subproject supported.

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27. To complement the implementation of rural roads subprojects, the Project will support the

creation of an institutional framework for sustainable road maintenance. To do so, two Inter-municipal Road Consortia (one in each of the administrative regions in the NNWF) will be established during PY1 based on the experiences of other existing Road Consortia in the SoRJ. The Inter-municipal Road Consortia will work closely with the road maintenance works carried out by EMATER’s Rural Engineering Offices during which an estimated 50 municipal administrators, 50 operators, 50 technicians, and 2,000 beneficiaries will be trained in the management, maintenance, and conservation of rural roads. Investments in road maintenance technologies and integrated management structures for the implementation of this subcomponent will serve as a benchmark for local governments and private companies through which the Project will gradually transfer full implementation responsibilities. Once the Road Consortia possess the human capital, equipment, and institutional capacity needed to effectively meet the demands identified by their constituent municipalities over the long-term, which is expected by PY3, road rehabilitation and maintenance responsibilities will be transferred from EMATER to the Road Consortia. However, the Road Consortia will continue to receive support from and be supervised by EMATER throughout the life of the Project.

28. Figure 2 below provides an overview of how the subproject cycle will operate for rural

roads-related logistical bottlenecks subprojects. Complete details are included in the OM.

Figure 2: Subproject Cycle Overview

SUBPROJECT IDENTIFICATION

► 1. Identification of stretches of rural roads to be improved within

the framework of MDPs

SUBPROJECT PREPARATION ►

1. Preparation of subproject proposal by EMATER, including environmental screening by EMATER local office

2. Subproject proposal submitted to Technical Coordination Unit in PIU for approval

3. PIU transfers funds to EMATER

SUBPROJECT IMPLEMENTATION ►

1. EMATER begins physical implementation 2. Supervision/monitoring and final inspection carried out and

supported by EMATER (technical) and corresponding MDC. 3. If implementation problems encountered, the RDC with the

support of an Inspection Committee, issues recommendations for appropriate adjustments or sanctions

4. Subproject activities completed and final evaluation produced

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Annex 5: Project Costs BRAZIL: Rio de Janeiro Sustainable Rural Development Project

Project Cost By Component Local US$

million

Foreign US$

million

Total US$

million 1. Support to Small Farmer Production and Competitiveness 61.6 0.0 61.6 - Pre-investment 12.5 12.5 - Investments 49.1 49.1 2. Institutional Frameworks 4.7 0.0 4.7 - Strengthening Rural Institutions and Coordination Mechanisms 2.6 2.6 - Improving Public and Private Financial Support Mechanisms 0.5 0.5 - Participatory Research 1.6 1.6 3. Project Coordination and Information Management 7.0 0.0 7.0 - Project Coordinationt 5.1 5.1 - Information Management 1.9 1.90 Total Baseline Cost 73.3 0.0 73.3 Physical Contingencies 0.5 0.0 0.5 Price Contingencies 5.1 0.0 5.1

Total Project Costs1 78.9 0.0 78.9 Front-end Fee - 0.1 0.1

Total Financing Required 78.9 0.1 79.0 1 Identifiable taxes and duties are US$2.3 million, and the total project cost, net of taxes, is US$76.7. Therefore, the

share of project cost net of taxes is 97%.

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Annex 6: Implementation Arrangements BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Overview 1. Overall project management and implementation will be the responsibility of the SEAPPA in

partnership with key rural development and environmental institutions, including the State Secretariats of Environment (SEA), Health (SESDEC), Education (SEEDUC), Economic Development (SEDEIS) and, currently, EMBRAPA. SEAPPA will sign cooperative agreements with these institutions no later than six months after Loan Effectiveness. Within SEAPPA, the State Extension (EMATER) and Research (PESAGRO) agencies will play an active role in the implementation of project activities in the areas of management, capacity building, rural extension, and research and studies. The Project will also develop partnerships with civil society organizations and municipal governments in the project area to implement key collective activities foreseen under the Project. Moreover, building on the lessons learned and experiences from the ongoing Rio GEF Project, the executive and operational structures of the Project (described below) will be based on four key themes:

a) Participatory Management: this will maximize participation and decision making by

beneficiaries and facilitate the transfer of these different levels of responsibilities and project accountability to the lowest practical implementation levels. This will be carried out by supporting transparent and fully open deliberation mechanisms for the management of project resources across local and municipal levels, especially via planning exercises (i.e., the development of PRAs) and the active involvement of beneficiaries in discussion forums at community and regional levels (via MDCs and RDCs), which will be critical to ensuring the sustainability of beneficiary gains achieved under the Project.

b) Decentralization: this will promote the empowerment of local and regional actors in

decision-making bodies (via MDCs and RDCs) and implementing agencies to ensure effective coordination of project activities.

c) Integration: this will promote the participation of both public and private-sector

agricultural and non-agricultural stakeholders in the management and implementation of project activities in coordination with other sectors activities, especially key environment, education, and health actors, through their involvement in decision-making committees and processes. .

d) Sustainable Management: the aforementioned key themes will converge to promote a

long-term perspective of project-supported strategies and activities within relevant institutional structures to ensure the continuity of achieved progress after the life of the Project.

2. Most of the institutional arrangements for the Project already exist under the ongoing Rio

GEF Project. While the Rio GEF Project is currently rated as moderately unsatisfactory, this is customary for this type of project, which is heavily focused on laying a solid basis for

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future performance by carrying out extensive key preparation activities. The pace of implementation was also partially sluggish as a result of issues beyond the control of the PIU, such as administrative and budgetary slowdowns in 2007 during the consolidation of the new state administration. More important, however, is the more extensive and intensive-than-expected training requirements for new technical staff (due to a large turnover of extensionists following the initiation of an early retirement plan by EMATER) and inexperienced technical staff, as well as for community leaders.

3. With a strengthened technical team and adequate budget in CY08, implementation

performance has already markedly improved. As a result, the new institutional arrangements for the Project will benefit from the ongoing operational momentum and the key start-up lessons of the Rio GEF Project, which have been vital to developing a stronger and more realistic training strategy for all stakeholders under the new operation. Moreover, the Project will improve the existing institutional arrangements of the PIU through: (i) the elaboration of a strategic plan (the ISP) (under subcomponent 2.1); (ii) the implementation of institutional strengthening subprojects based on this plan (both within and outside of SEAPPA) (under subcomponent 2.1); (iii) the effective decentralization of implementation activities (i.e., continuing the transfer of power to regions and municipalities which began under the Rio GEF Project but needs to be further mainstreamed within institutional frameworks and not merely exist on an ad hoc basis) (under Components 1 and 2); and (iv) the strengthening of institutional and implementation capacity at the central level, including the establishment of a MIS to support project administration and information management, as well as specific training activities (under Component 3).

B. Project Executive Structure 4. SEAPPA will act as the Director of the Project and will delegate implementation

responsibilities to its Sustainable Development Superintendence (Superintendencia de Desenvolvimento Sustentável) where the PIU will be established (just as in the Rio GEF Project). The PIU will be headed by a Project Manager and composed of a team of qualified professionals that mostly belong to the cadre of SEAPPA full-time staff. The PIU will be an expansion of the existing PIU of the Rio GEF Project with the addition of new staff for new and expanded activities (see Figure 1 below).

5. The specific responsibilities of the PIU are outlined in the following.

- Manage project implementation to ensure that targets are met - Consolidate and analyze regional demands as presented by RDCs - Carry out periodic meetings with different coordination and implementation structures of

the Project to discuss and define strategic activities - Manage and disburse financial resources according to timelines as established in

approved POAs, as well as supervise and evaluate financial implementation - Oversee accounting procedures and facilitate external audits - Promote multi-sectoral collaboration and interventions among relevant state institutions - Implement training activities for all project stakeholders

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- Represent the SoRJ in administrative, technical, and financial issues related to the Project, as well as act as an intermediary between the SoRJ and the Bank during implementation

- Manage the implementation of project-supported activities and studies - Receive proposals submitted by the RDCs, include them within the POAs, and send them

to the State Secretariat of Finance to be inserted in the budget - Manage the bidding and contracting processes for all goods and works in accordance

with Bank standards - Promote and coordinate key SRD partnerships - Advise the State SRD Council - Monitor and evaluate project activities

6. To efficiently and effectively undertake the various general management (i.e., planning,

coordination, administration, etc.), technical, and normative functions as required by the Project, the PIU will delegate responsibilities across four units at the central level:

a) Institutional Coordination Unit. This unit will be headed by an Institutional Coordinator

and supported by an Institutional Assistant and an Economic Sustainability Assistant responsible for the implementation and supervision of activities under Component 2: Institutional Frameworks.

b) Technical Coordination Unit. This unit will be headed by a Technical Coordinator and

will consist of five areas:

(1) Planning Area, which will include a Planning Advisor and one Planning Assistant responsible for the implementation and supervision of relevant planning activities of subcomponent 1.1 Pre-Investment.

(2) Training and Environmental Education Area, which will include a Training Advisor and two Assistants (Training and Environmental Education) responsible for the implementation and supervision of relevant training and education activities of subcomponent 1.1 Pre-Investment.

(3) Territorial Facilitation and Social Networks Area, which will include a Territorial Facilitation Advisor, a Social Networks Advisor and a Community Organization Assistant, responsible for the implementation and supervision of relevant activities of subcomponent 1.1, especially dealing with community networks and sustainable rural enterprises.

(4) Incentives Area, which will include an Incentives Advisor and an Infrastructure Assistant responsible for the implementation of activities under subcomponent 1.2 (Promotion of Increased Productivity and Value Added, Healthy Productive Environment, and Sustainable Road Maintenance).

(5) Research and Studies Area, which will include a Research and Studies Advisor responsible for all related activities supported by the Project.

c) Information Management Unit. This unit will be headed by an Information Management

Coordinator and will consist of two areas:

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(1) Integration, Support, and Evaluation Area, which will include an Integration, Support, and Evaluation Advisor and a Monitoring and Evaluation Assistant responsible for the implementation and supervision of all activities supported by the Project.

(2) Information Area, which will include an Information Advisor, a Communication Assistant, and a Geo-processing Assistant responsible for the implementation and supervision of subcomponent 3.2 Information Management.

d) Administrative and Financial Unit. This unit will be headed by an Administrative and

Financial Coordinator and will consist of three areas:

(1) Procurement Area, which will include a Procurement Advisor and four Assistants (Legal, Contracting, Acquisitions, and Supplies) responsible for acquiring goods, contracting services, and selecting consultants needed for the implementation of project activities.

(2) FM Area, which will include a FM Advisor and two Assistants (Accounting and Administrative) responsible for settling project accounts.

(3) Disbursement Area, which will include a Disbursement Advisor responsible for preparing and declaring statements of expenses for disbursements during the Project.

e) An overview of the central project executive structure is provided below in Figure 1.

Figure 1: Central Project Executive Structure

* Existing positions under the Rio GEF PIU structure

PROJECT IMPLEMENTATION UNIT (PIU)

- 1 Project Manager* -

INSTITUTIONAL COORDINATION UNIT

- 1 Unit Coordinator -

1 Institutional Assistant

1 Economic Sustainability Assistant

TECHNICAL COORDINATION UNIT

- 1 Unit Coordinator* -

A. Planning Area 1 Planning Advisor* 1 Planning Assistant B. Training and Environmental Education Area 1 Training Advisor* 1 Training Assistant 1 Environmental Education Assistant C. Territorial Facilitation and Social Networks Area 1 Territorial Facilitation Advisor and Social Networks Advisor 1 Community Organization Assistant D. Incentives Area 1 Incentives Advisor* 1 Infrastructure Assistant E. Research and Studies Area 1 Research and Studies Advisor

INFORMATION MANAGEMENT UNIT

- 1 Unit Coordinator -

A. Integration, Support, and Evaluation Area 1 Integration, Support, and Evaluation Advisor* 1 Monitoring and Evaluation Assistant B. Information Area 1 Information Advisor 1 Communication Assistant 1 Geo-processing Assistant

ADMINISTRATIVE & FINANCIAL UNIT

- 1 Unit Coordinator* -

A. Procurement Area 1 Procurement Advisor* 1 Legal Assistant 1 Contracting Assistant 1 Acquisitions Assistant 1 Suprimentos Assistant B. Financial Management Area 1 Financial Management Advisor* 1 Accounting Assistant 1 Administrative Assistant C. Disbursement Area 1 Disbursement Advisor*

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C. Other Implementation Structures

7. At the decentralized level, the project’s central executive structure will be supported by implementation structures at regional, municipal, and local levels.

a. Regional Level. Regional Project Implementation Sub-units (RPIS) will be

directly linked to the PIU (see Figure 2 below) and responsible for implementing project activities at the regional level. Two RPISs were established during the implementation of the GEF, one for each of the NNWF administrative regions. Three more will be created for the other targeted administrative regions (i.e., Serrana, Coastal Floodplains/Metropolitan, and South/Paraíba River Middle Valley) to bring the total number to five to correspond to EMATER’s Regional Offices. Each RPIS will consist of one Executive Regional Sub-secretary (from EMATER) supported by one Technical Assistant and one Administrative Assistant. Specifically, the RPISs will, inter alia: analyze proposals submitted by eligible communities and municipalities, including IDPs, MDPs, and POAs; promote cooperation and coordination between different implementers at the regional level; support the technical, financial, and administrative development of subprojects; promote and participate in regional training activities; coordinate subcomponent activities; and disseminate results.

Figure 2: Decentralized Structure of the RPISs within the PIU

* Existing RPISs

b. Municipal Level. EMATER, through its local offices, and municipal governments will be responsible for the implementation of project activities at the municipal level. Specific obligations will be established via agreements defined by EMATER, municipal governments, and the PIU. Municipal-level implementing bodies will, inter alia: observe the objectives of the Project; support the process of selecting and prioritizing participating communities together with MuDCs; support the implementation of municipal-level activities; consolidate the demands as expressed municipal actors; carry out periodic reports of municipal activities; support the implementation of activities identified in IDPs, GDPs, SBPs, MDPs, and POAs; and disseminate project results.

PIU

RPIS North Fluminense*

RPIS Northwest

Fluminense*

RPIS Serrana

RPIS South / Paraíba River Middle Valley

RPIS Coastal Floodplains / Metropolitan

80

c. Local Level. Rural Extensionists will be responsible for implementing project activities at the local level. One Rural Extensionist will be selected (in agreement by EMATER’s local offices, the respective municipal governments, and the PIU) to work in each of the 220 microcatchments selected to participate in the Project, in addition to 50 already working in the microcatchments under the Rio GEF Project. Specifically, the Rural Extensionists will, inter alia: mobilize communities to participate in the Project; support the formation of the MDCs; support the development and implementation of MDPs together with the MDCs; present MDPs to the MuDCs; support the development and implementation of IDPs, SBPs, and GDPs; support the development of POAs together with MDCs; produce periodic reports regarding the physical and financial aspects of local implementation; and disseminate the results of local-level activities.

D. Project Coordination Structure

8. In addition to the aforementioned implementation structures, the operational structure will be supported by a series of coordination structures across central, regional, municipal, and local levels. These are described in the following.

a. Central Level. The existing State SRD Council will be responsible for

strategically articulating the Project within the overall rural development process at state and country levels. The State SRD Council is based on: (i) its mandate to guide and oversee SRD in the SoRJ; and (ii) its composition, which includes representatives from project-relevant State Secretariats, rural workers’ and farmers’ trade unions, civil society, and farmers’ and fishermen’s associations. The State SRD Council will oversee general project implementation progress and facilitate the project’s integration with state and national rural development strategies, as well as among partner institutions and relevant state and national programs.

b. Regional Level. RDCs will be responsible for coordinating project activities at the

regional level. In addition to the one existing RDC in the NNWF administrative regions, which was created for the Rio GEF Project, two other RDCs will be established to cover the other administrative regions involved in the Project. Each RDC will consist of representatives from corresponding municipalities, including project-relevant State Secretariats, municipal governments, rural workers’ and farmers’ trade unions, NGOs, local universities, river basin committees, and farmers’ and fishermen’s associations. RDCs will be responsible for, inter alia: promoting the Project in their respective regions; analyzing and discussing submitted IDPs, SBPs, GDPs, MDPs, MuDPs, and POAs; evaluating and providing technical support to the implementation of project-supported activities; assessing the participation and engagement of municipalities in the Project; mediating disagreements among the MuDCs; and informing the State SRD Council about project activities.

81

c. Municipal Level. Existing MuDCs, which were created under PRONAF in all 59 municipalities participating in the Project, will be responsible for coordinating project activities at the municipal level. Specifically, the MuDCs will, inter alia: promote the Project at the municipal level, including the participation of municipal governments; select communities to participate in the Project; review MDPs as presented by Rural Extensionists; support the implementation of project activities in conjunction with the respective RDC; mediate municipal disagreements; and facilitate the integration of project activities with other existing municipal projects and programs.

d. Local Level. MDCs will be responsible for coordinating project activities at the

local level. MDCs will serve to support the development of IDPs, SBPs, GDPs, MDPs, and POAs. In addition to reviewing and approving finalized proposals, MDCs will also serve as co-implementers by managing all aspects (including financial and M&E) of local subprojects. One new MDC will be established in each of the additional 220 microcatchments, in addition to the 50 MDCs already functioning under the Rio GEF Project, for a total of 270 participating in the Project. The MDCs, together with representatives from all segments of their respective communities, will define specific committee functions and positions based on local demands. Specifically, the MDCs will, inter alia: promote the Project at the local level together with farmers and rural residents; participate as co-implementers in developing IDPs, SBPs, GDPs, MDPs, and POAs; facilitate local discussions regarding the Project; accompany and monitor implementation activities; and ensure local actors and organizations remain informed of project activities.

e. Figure 3 below provides an overview of the coordination and implementation

structures of the Project across all levels.

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Figure 3: Project Coordination and Implementation Structures

Regional Development Committees(RDC) (3)

State SRD Council (1)

Municipal Development Committees(MuDC) (59)

Microcatchment Development Committees

(MDC) (270)

COORDINATON IMPLEMENTATION

CENTRAL

REGIONAL

MUNICIPAL

LOCAL

SEAPPA

EMATER Local Offices (59)

Rural Extensionists (270)

Regional Project Implementation Sub-unit

(RPIS) (5)

Project Implementation Unit

(PIU) (1)

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E. Specific Implementation Arrangements by Component

9. The implementation arrangements for each subcomponent to be supported by the Project are described in the following. An overview of the implementation arrangements for the key activities of the Project is also provided in Appendix 1 to this Annex.

a. Subcomponent 1.1: Pre-investment. For the training of staff and project

implementers (i.e., members of the PIU and RPISs, field production and environmental extension agents, social workers, teachers, and health promoters), responsibility will lie with SEEAPA/SDS (the Secretariat’s Superintendence on Sustainable Development). For the training of project beneficiaries, SEAPPA/SDS will sign Working Agreements (Convenios) with EMATER and PESAGRO entrusting them with the responsibility for coordinating and implementing related activities. For planning activities, SEEAPA/SDS will be responsible for hiring consultants, including territorial facilitators, required to carry out specified activities. In addition, SEAPPA/SDS will sign a Working Agreement (Convenio) with EMATER entrusting it with the implementation of training activities related to: promoting beneficiary mobilization and participation in the Project, selecting microcatchments, establishing MDCs and RDCs, and planning at different levels (IDPs, GDPs, SBPs, MDPs, MuDPs, RDPs, and POAs).

b. Subcomponent 1.2: Investments. Beneficiary producers will be the primary

implementers of the subprojects supported by this subcomponent. Terms of commitment will be signed between SEAPPA/SDS and each beneficiary/group of beneficiaries whose investment proposal is approved. SEAPPA/SDS will authorize payments to beneficiaries and be responsible for supervising field activities and monitoring the use of funds. For activities related to rural roads, SEEAPA/SDS will be responsible for the development of the Inter-municipal Roads Consortia in the NNWF administrative regions. SEAPPA/SDS will sign a Working Agreement (Convenio) with EMATER, entrusting it with the responsibility for coordinating and implementing rural roads improvement activities, as well as for the training of consortia members for road maintenance.

c. Subcomponent 2.1: Strengthening Rural Institutions and Coordination

Mechanisms. SEEAPA/SDS will be responsible for the development of the ISP. Implementation of the actual institutional subprojects, as well as other demand-driven activities emanating from the ISP, will be carried out by SEAPPA and its agencies (i.e., EMATER and PESAGRO).

d. Subcomponent 2.2: Improving Public and Private Incentives Mechanism.

SEEAPA/SDS will be responsible for the development of the ESS, including its design and implementation.

e. Subcomponent 2.3: Participatory Research. SEAPPA/SDS will sign a Working

Agreement (Convenio) with PESAGRO, entrusting it with the coordination and

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partial implementation of research activities supported under this subcomponent. Subsequently, PESAGRO will be responsible for establishing the RNS, producing the technical documentation to contract outsourced research, and implementing adaptive research activities. SEEAPA/SDS will be responsible for hiring consultants or establishing the partnerships required to carry out outsourced research activities.

f. Subcomponent 3.1: Project Coordination. Overall administrative and FM

activities (including procurement and auditing) will be the responsibility of the Administrative and Financial Unit within the PIU. This unit will also be responsible for contracting consultants to upgrade the existing financial/administration system, which was developed under the Rio GEF Project. As part of the Working Agreements to be signed with EMATER and PESAGRO (who will be implementing various activities under Components 1 and 3), these agencies will be responsible for keeping records of financial resources provided to them by the Project, for goods and services that may be procured up to the limits allowed under shopping and pregão electrônico agreements, and for physical implementation and activities under their responsibility.

g. Subcomponent 3.2: Information Management. For the MIS, SEAPPA/SDS will be

responsible for establishing and implementing the system in partnership with the Centro de Tecnologia da Informação e Comunicação do Estado do Rio de Janeiro (PRODERJ). For M&E activities, the PIU’s Information Management Unit, through its team working in the Integration, Support, and Evaluation Area, will be responsible for coordinating related activities under this subcomponent. In addition, SEAPPA will, as currently foreseen, establish cooperation agreements with EMBRAPA and the Fundação de Desenvolvimento do Norte Fluminense (FUNDENOR) to undertake technical monitoring of the Project. SEAPPA will also contract consultants to carry out socioeconomic surveys and other specific evaluations. EMATER will assist SEAPPA in overall supervision and review of socioeconomic surveys. For communication activities, the PIU’s Information Management Unit will be responsible for the development of materials and media campaigns to disseminate project activities and results.

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Annex 6, Appendix 1

Implementation Responsibilities 10. Below is a summary of the responsibilities of the project’s implementing partners by project

activity.

Project Activities

Implementing Institutions/Actors

♦ = Overall Responsibility for Activity

= Primary Implementer

○ = Implementing Partner SE

APP

A/S

DS

EMA

TER

PESA

GR

O

EMB

RA

PA /

FUN

DEN

OR

*

SEA

SED

EIS

SED

UC

SESD

EC

Ben

efic

iarie

s

Comp. 1: Support to Small Farmer Production and Competitiveness 1.1 Pre-Investment

1.1.1 Training ♦ ○ 1.1.2 Planning ♦

1.2 Investments 1.2.1 Productive ♦ ○ 1.2.2 Environmental Conditioning ♦ ○ 1.2.3 Rural Roads-related Logistical Bottlenecks ○

Comp. 2: Institutional Frameworks 2.1 Strengthening Rural Institutions and Coord. Mechanisms ♦ ○ ○ ○ ○ 2.2 Improving Public/Private Fin. Support Mechanisms ♦ 2.3 Participatory Research ♦ ○ Comp. 3: Project Coordination and Information Management 3.1 Project Coordination ♦ ○ ○ 3.2 Information Management ♦ ○ ○ ○ ○ ○ ○ ○ ○ * currently

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Annex 7: Financial Management and Disbursement Arrangements BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Overview 1. A FM Assessment of the Project was undertaken in accordance with OP/BP 10.02 and the

FM Practice Manual (issued by the FM Sector Board in November 2005). The objective was to assess SEAPPA’s capacity to effectively execute the FM and monitoring of the Project. The assessment was based on field work led by Bank staff. The institutions visited included SEAPPA and EMBRAPA, and meetings were also held with EMATER and PESAGRO.

2. The Project has been improving its FM arrangements, aiming at meeting the Bank’s

minimum requirements. Indeed, the project is facing the following FM issues: weak internal controls; low compliance with the terms of the Rio GEF Project and PHRD grant agreements (and slow implementation of those); and insecure archives. The Risk Assessment Matrix (see below) presents the potential project FM risks. The residual overall FM risk associated with the Project is rated as substantial. An FM action plan was discussed and agreed with the SEAPPA and other co-implementing entities to implement actions related to the identified areas of improvement. These include: inter-institutional coordination capacity, linkage between multi-annual plan and annual budget execution, internal controls, information technology, and transparency and public dissemination of project accounts.

B. Financial Management Arrangements 3. Fiduciary arrangements include: one initial reimbursement for retroactive financing,

followed by an advance and subsequent disbursements supported by centralized Statements of Expenditures (SOE)/Records prepared by the PIU within SEAPPA on behalf of the PIU and the other two co-implementing entities that will receive Bank funds. The use of Bank advances for eligible expenditures under the Project will be reported to the Bank as described below.

4. To achieve its objectives, the Project will finance three components: (1) Support to Small

Farmer Production and Competitiveness, (2) Institutional Frameworks, and (3) Project Coordination and Information Management. The descriptions of each component are described in Annex 4.

5. The Borrower will be the SoRJ. The Project will be jointly implemented by the SEAPPA,

EMATER and PESAGRO (both within SEAPPA), along with the Beneficiaries (under Components 1 and 2 of the Project), and other implementing partners including SEA, SESDEIS, SEDUC,SESDEC and, currently, EMBRAPA and FUNDENOR which will not receive Bank funds and be using only Counterpart funds, under the coordination of the PIU, with guidance and supervision from the SEAPPA.

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6. The PIU will carry-out financial and administrative tasks of the Project, using the SoRJ policies, practices, and procedures. Commitment of expenditures (“empenho”) will be registered in the SoRJ FM system (SIAFEM) by each participating entity, while accounting and disbursement of vendor payments will be carried out by SEAPPA’s financial services. The current structures of the implementing entities are well staffed with qualified professionals. However, the Project has moderately satisfactory FM arrangements in place to meet the Bank’s minimum requirements because of: weak internal controls; low compliance with the terms of the Rio GEF Project and PHRD grant agreements; and insecure archives. In order to further strengthen cross-team efficiency, monthly meetings will be established for financial professionals involved in the Project (including the FM and procurement specialists) under the coordination of the administrative and financial coordinator in the PIU. An institutional strengthening specialist/coordinator, with experience in the evaluation of results, will be assigned to support the coordination of the co-executing entities participating in the Project. The FM Action Plan should be thoroughly implemented.

C. Financial Risk Assessment 7. The Risk Assessment Matrix below presents the potential risks, mitigation measures, and

residual risk for the program from a FM perspective. The residual overall FM risk associated with the Project is rated substantial because of: multiple agencies involved in project implementation; high staff rotation; unsatisfactory external audit arrangements; and the need to strengthen internal controls, IT systems and reporting, archives security and the compliance with the terms of the Rio GEF Project and PHRD grant agreements. Improvement opportunities are included in the FM Action Plan.

8. The following actions will mitigate identified FM risks: increased inter-institutional

coordination; review of the internal controls; assignment of regular staff as specialists to the project’s FM activities within the co-executing entities; improvement of the IT systems including capacity and availability; improvement in the internal controls; preparation of an OM; training and guidance from the FM, Disbursement, and Procurement teams; close supervision by the Bank’s FM team (at least during the first year of project implementation); and implementation of the agreed FM Action Plan. The risks and mitigation measures are detailed below.

Risk Risk Rating Risk and Mitigation Measures Residual

Risk Inherent Risks S M

Country Level L Brazil’s federal government system provides reliable information. Adequate systems exist to manage and track the receipt and use of funds and there is a high level of fiscal transparency, both of which will support any lending program. The risk to both Bank and country funds is low. The government is committed to addressing its PFM weaknesses. Federal FM laws and regulations applicable to sub-nationals provide a strong PFM framework for sub-nationals.

L

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Risk Sub-national (state) Level

S The accounting system and reporting in the SoRJ are generally satisfactory. The financial information technology used (SIAFEM) is acceptable. However, this system is meant to be used only for accounting functions. Each entity uses tailored systems, not communicating with the official SIAFEM, for planning and budgeting, procurement, reporting, and assets control. Mitigation measures include the implementation of the FM Action Plan.

M

Entity Level S Three main implementing entities, many municipalities, various subprojects, and six “associated” entities, using only counterpart funds with: weak coordination; weak internal controls; low reporting capacity for subproject beneficiaries; and use of multiple non-integrated IT systems. Mitigation measures include internal controls and financial reporting described below to be reflected in the OM.

M

Project Level S Multiple implementing agencies and subproject beneficiaries, with low FM capacity,. Mitigation measures include increased inter-institutional coordination and financial reporting.

M

Control Risks S S

Budget

S Weak multi-annual and annual planning and budgeting quality observed during the implementation of the Rio GEF Project and PHRD grants. Mitigation measures include the implementation of the FM Action Plan.

S

Accounting L Good treasury management and accounting procedures using the SIAFEM system. No mitigation measures required.

L

Internal Controls

H Weak internal controls and enforcement to ensure compliance with the grant agreements (GEF and PHRD). Mitigation measures include updated internal controls design, their review by the external auditors and Bank FM missions, as well as implementation of the recommendations of the assessment.

S

Funds Flow S Multi-agency project may cause weak and slow reporting with high outstanding balances that could result in slow disbursements. Mitigation measures include high qualified FM professional in all the implementing agencies and training to be provided by the Bank FM and disbursement teams.

M

Financial Reporting

S The PIU uses generally satisfactory multiple IT systems for reporting. Delays and reliability issues may occur when considering the various IT systems used by the co-executing agencies. Mitigation measures include improving the PIU’s IT system to allow for automatic data transfer and empowering all entities in accessing the FM management system.

S

Auditing H Delayed audit reports for the GEF and PHRD grants. Mitigation measures include improving the timeliness of the project’s actions in hiring the external auditor, while the audit terms of reference will be a condition of negotiations and a dated covenant will be added to the Legal Agreement: the audit firm will be hired within 6 months after

S

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Risk effectiveness.

H-High, S-Substantial, M-Moderate, L-Low D. Flow of Funds and Disbursement Arrangements 9. The Bank will finance 100% of specifically identified expenditures according to the

following table:

Allocation of Loan Proceeds

Category Amount of Loan Allocated (in US$ m) Bank Financing

1. Goods, works, non-consultant services, consultant services, and training under Project

18,711,250

100%

2. Goods, works, non-consultant services, consultant services for Subprojects under Components 1 and 2 of the Project

20,690,000

100% of amounts

disbursed

3. Front-end fee (0.25%) 98,750 Total Loan Proceeds 39,500,000

10. Flow of Funds. Bank loan proceeds will flow from the loan account to a Designated

Account denominated in Brazilian Reais at the Banco do Brasil bank in Rio de Janeiro in the name of the SEAPPA. An Operating Account will also be opened at the Banco do Brasil bank to receive counterpart funds transferred by the single Treasury account. The PIU, EMATER, and PESAGRO will proceed with the commitment of funds while the related payments will be made by SEAPPA’s financial services from the Designated Account and the Operating Account for counterpart funds. Moreover, the PIU, through SEAPPA’s accounting services, will make transfers to beneficiaries of subprojects. The other participating entities in the Project will make payments only with counterpart funds, other than the funds transferred to the Operating Account. The flow of funds chart will be confirmed during Negotiations and included in the Project’s OM (see below).

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Procurement Plan and Reporting

Flow of funds

11. Pre-financed project eligible expenditures will be reimbursed by the Bank against

withdrawal applications supported by SOE’s/Records. The retroactive financing will be up to an aggregate amount not to exceed US$ 5.925,000 million equivalent for payments made during a period not exceeding 12 months prior to signature of the Loan Agreement for Eligible Expenditures under Categories (1) and (2). The Bank will reimburse the funds from the loan account to the SEFAZ single treasury account in Brazilian Reais.

12. Disbursement Arrangements: During project implementation, the disbursement methods

that will be used are the following: advances; direct payments, and reimbursement (for retroactive financing). The documentation of the uses of advances will be through SOE’s/Records.

World Bank

Providers of goods and services

SEAPPA

Project Coordination

Rio de Janeiro Sustainable Rural Development Project

Disbursements made in Reais Withdrawal

applications supported by SOE’s/Records

Subprojects’ Operating Accounts

Banco do Brasil

Counterpart Funds SEFAZ – RJ

(R$)

Commitment of funds made by each entity

(SEP/SEAPPA, EMATER and PESAGRO), and

payments made by SEAPPA, through SIAFEM

Local Currency Designated Account

SEAPPA – Bank Banco do Brasil-RJ

(R$)

Other Implementing Agencies

Providers of goods and services

Counterpart Funds Operating Account –SEAPPA

– Bank Banco do Brasil-RJ (R$)

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13. The PIU will request disbursements directly in Brazilian Reais. In this case, the funds will

flow from the Loan Account to the Designated Account directly in Reais for final payments from SEAPPA, through SIAFEM, and for transfers to the bank accounts of eligible beneficiaries for subprojects implementation. In accordance with normal Bank procedures, disbursements will be for eligible expenditures incurred or to be incurred under the Project. Project’s withdrawal applications will be supported by customized SOE’s/Records reporting realized expenses –paid out of the Bank advances. The subproject expenditures will be reported on and considered as being documented after they are documented and approved by SEP/SEAPPA, ensuring that the transferred funds were exclusively used for eligible expenditures.

14. The Project should design detailed procedures for the management of the bank accounts,

which include acceptable internal controls, as well as procedures for the transfer of resources from the Designated Account to the beneficiaries’ accounts to be opened at the Banco do Brasil bank, including the reporting process, and incorporate those in the Project Operational Manual.

15. Budgeting Procedures and Impact on Flow of Funds. The annual state budget (Lei do

Orcamento) is approved by the state assembly in December of each year and promulgated and published in January of each year.

16. The consolidated POAs and budgets will be prepared in the SIGO (Sistema de Gestão

Orçamentária) and will be transmitted to the Bank (before November 30 of each year) for clearance. More detailed information about the process will be developed in the Project’s OM. Based on POAs, the PIU will consolidate the annual procurement plans before the end of each fiscal year. Annual operating plans and annual procurement plans will then be used for the preparation of quarterly and monthly budgets and disbursements plans for the Project.

17. The budgetary control will consist of: timely preparation and approval of annual programs

and budgets; and verification that budget information is entered and available in the accounting system to allow for the timely recording of commitments, payments, and accruals.

E. Financial Reporting 18. The reports will be prepared in the SIG (Sistema de Informações Gerenciais), which will

include extracted financial data from the SIAFEM, including the Bank and the local Counterpart funds, including the Other Implementing Agencies, as described in Part II. Project Description, section D of the PAD. Project Costs by Components and Financiers of the PAD, and the tracking of physical and financial progress. The ability to produce Interim Unaudited Financial Reports (IFR) has been verified during the implementation of the Rio GEF Project, and these reports can be adjusted during project implementation. The description of the IFRs is indicated below, and the final format of the reports will be attached to the minutes of Negotiations and included in the OM.

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- IFR 1. Sources and Uses of Funds, by category; cumulative (project-to-date, year-to-date)

and for the last calendar trimester; - IFR 2. Uses of Funds by project components, cumulative (project-to-date, year-to-date)

and for the period, showing budgeted amounts versus actual expenditures, (i.e., documented expenditures), including a variance analysis, and

- IFR 3. Monitoring table with the transfers and documentation of the subproject beneficiaries, tracking advances made to the subproject beneficiaries, subsequently documented amounts and outstanding balances.

F. Accounting Policies and Procedures 19. The SoRJ’s accounting system will be used to record loan proceeds. Loan proceeds

transferred to the Designated Account will be immediately recorded and accounted under the budgetary code for receipt of external or foreign funding/financing sources. All project budgeting and accounting transactions will utilize the SoRJ’s and PIU’s tailored FM systems. All transactions will run through the public state accounting system (SIAFEM). All payments will follow the official commitment (empenho) and payment (liquidação) routine. These functions are carried out by the Administration and Finance Department of each spending entity or level of government. Individual project transactions are usually processed through a Work Plan (Programa de Trabalho), which is a cost center specifically designated for the Project, which will be utilized by the participating entities in the SoRJ. All project costs are recorded according to the State Chart of Accounts. As is customary in federal and state projects, an exclusive project cost center will be established in SIAFEM. Loan proceeds and government funds will be recorded in the project cost center and therefore linked to program expenditures. Each payment will be registered in SIAFEM identifying the Project and activities agreed during preparation and reflected in the legal agreement.

20. Project financial statements will be prepared quarterly utilizing cash-basis accounting.

These statements will be prepared in accordance with Brazilian legislation (Law 4.320) and SoRJ accounting rules and procedures. The OM will include a detailed description of procedures and guidelines for disbursements, payments, approvals, commitments, and payments and be shared with all the implementing entities.

G. Safeguard over Assets 21. Based on the project’s design, investment in fixed assets is expected to be relatively high.

During implementation, all the assets will be property of the Project. Any implementing entity will be responsible for the management of these assets. All fixed assets to be acquired under the Project should be registered in each implementing entity’s fixed assets inventory system and consolidated in the PIU’s system, while the PIU will monitor all the project assets. The fixed asset management procedures will be based on national norms. Subsidiary records of fixed assets and stocks should be kept up to date and reconciled with control accounts and periodic physical inventories.

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H. Oversight, Control, and Audit

22. Internal Audit. The Project will be subject to internal audit by the State General Auditor’s office. The internal auditor in SEAPPA is subordinated to the Secretariat titular (decreasing somehow his/her degree of independence), and reports technically to State General Audit Office (Auditoria Geral do Estado), the entity responsible for all government internal control. The major internal control procedures are organized by two state decrees 37.924 (published in 1996) and 43.948 (published in 2005). Furthermore, any disbursal must be authorized by the Secretary (maximum authority in the Secretariat) according to the legal procedures and requirements, which involves committing and liquidating expenditures. All payment procedures may last up to three days, and then the funds are released from state treasury.

23. External Audit. All the finance and accounting reports are annually sent to the State Court

of Accounts (TCE). SEAPPA will request a special annex to the TCE concerning all project funds to be attached to SEAPPA’s annual audit report. However, the TCE has not yet been accredited by the Bank. Therefore, external auditors will be hired. According to the audit terms of reference, to be approved by the Bank, the auditors will be required to issue a single opinion on the project’s financial statements, including the fulfillment of the covenant in the Loan Agreement within six months after the end of the fiscal year. The Bank’s “Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities” (2003) provide relevant information and guidance on audits. The auditor will be responsible for preparing a management letter identifying internal control weaknesses and following up in subsequent audits on all entities’ implementation of corrective actions.

24. The fourth quarter report (IFR) that will be used for monitoring purposes will also be the

project’s annual financial statements and should include notes to the financial statements. The auditors should have access to all supporting records and make on-site examination. As normally done, the auditors will perform at least one interim audit per year to review internal controls and identify areas related to accounting and/or internal control that require attention of project management.

25. After each interim visit, a memorandum on internal controls (management letter) will be

produced to ensure that corrective actions are addressed on a timely basis. A copy of the memorandum will be sent to the Bank by the end of the year. The audit terms of reference will seek assurance that the expenditures paid with Bank financing were eligible and in compliance with the Bank financing percentage.

I. Financial Management Supervision 26. During PY1, Bank FM supervision will be carried out at least twice. Supervisions will

review PIU agreed actions signed in Aide Memoires, the FM Action Plan, and other controls and transactions, as appropriate. This will be complemented by desk reviews of the quarterly IFRs and annual audit report. The frequency of Bank FM supervision will be reviewed annually. The period prior to project closing will be monitored closely to ensure that expenditures are not incurred after the closing date. Interim visits may also be needed to

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follow up on desk reviews. Important guidelines for FM will be included in the OM to be agreed with the Bank (before Negotiations). The FM team may visit the Project prior to effectiveness and confirm that FM capacity continues to be in place and that the OM can be effectively implemented. Items in the FM Action Plan are not expected to require effectiveness conditions.

J. Financial Management Action Plan

Activity Responsible Target Date Current Status

Flow of Funds Final Flow of Funds design SEP /

SEAPPA / Bank

Prior to negotiations Accomplished

Flow of Funds Chart SEP / SEAPPA


Training in FM, including planning and budgeting

Bank Prior to negotiations Accomplished

Organization and Staffing Updated PIU Organization Chart: Appointment of a Project accountant and a procurement assistant

SEP / SEAPPA

Before March 30, 2007

Accomplished

Participation of Project Financial Administration and Internal audit staff in Bank Disbursement, Procurement, and FM Training

Bank / SEP / SEAPPA

Before signature

Accomplished

Operational Manual Submission of a satisfactory draft Manual to the Bank for review including institutional arrangements, flow of funds design, staff functions, accounting policies and procedures, basis of accounting, chart of accounts tailored to include project components, disbursement categories and financing source, internal controls, segregation of duties, fixed assets and records management procedures.

SEP / SEAPPA


Provision of comments and recommendations.

Bank Prior to effectiveness

Ongoing

Submission of revised draft to Bank to provide its no-objection.

SEP / SEAPPA

Prior to effectiveness

Pending

External Audit Preparation of draft TORs for audit and submission to Bank for no-objection.

SEP / SEAPPA

Inclusion in the Operational Manual

Accomplished

Appointment of external auditors. SEP / SEAPPA

Within six months after effectiveness

Pending

Internal Controls Implementation of own internal control SEP / To be reviewed by Pending

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Activity Responsible Target Date Current Status

mechanism SEAPPA the external auditors during first year’s MTR

Safeguard over Assets (physical and information) Implementation of Fixed Asset Policies and Procedures, including physical inventories, storage/transfer/distribution/ retirements of assets, etc.

PIU Inclusion in the Operational Manual

Accomplished

Financial Reporting and Monitoring Submission of format of FMRs and procedures for data collection and report generation of same, for the Bank to provide its no-objection.

PIU Before Negotiations (to be attached to the minutes)

Accomplished

Integrated FM System Integrated Information systems updated and operational. To evaluate the possibility of including the Planning and Budgeting functions To create a module for FMRs

PIU Three months after effectiveness

Ongoing

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Annex 8: Procurement Arrangements BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Overview 1. Procurement for the Project will be carried out in accordance with the World Bank’s

“Guidelines: Procurement under IBRD Loans and IDA Credits” (published in May 2004 and revised in October 2006) and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” (published in May 2004 and revised in October 2006), as well as the provisions stipulated in the Loan Agreement. The general description of various items under different expenditure categories is described below. For each contract to be financed by the loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works. Works to be procured under the RJ SRD include: rural upgrading,

rural roads improvements, rural roads maintenance, environmental conditioning (e.g., effluent treatment) systems. International Competitive Bidding (ICB) procurement will be done using the Bank’s Standard Bidding Documents (SBD). National Competitive Bidding (NCB) procurement will be done using standard bidding documents acceptable to the Bank. For small value civil works, shopping will be used using quotation documents included in the Operational Manual.

3. Procurement of Goods. Goods procured under the Project include: IT equipment and

software, vehicles, office equipment and furniture, laboratory equipment, air conditioners, multimedia equipment, tractors, heavy agricultural equipment, and equipment for small production subprojects. International Competitive Bidding (ICB) procurement will be done using the Bank’s Standard Bidding Documents (SBD). National Competitive Bidding (NCB) procurement will be done using standard bidding documents acceptable to the Bank. For small value goods and procurement of construction materials to carry out small civil works on rural roads, office buildings, etc., shopping procedures will be followed, using quotation documents included in the Operational Manual.

4. Procurement of goods following NCB procedures may also be carried out in accordance

with the method known as “pregão eletrônico,” under Brazilian Law 10,520 of 2002, through the electronic system of Banco do Brasil (licitacoes-e).. Scattered printing services, small technical services, computer equipment and peripherals, office equipment and furniture, sundry items, air tickets, and logistics for training events and workshops have been identified to be procured under this method.

5. Procurement of Non-consulting Services. Non-consulting services procured under the

Project will include logistics and transportation for seminars and workshops, printing services, training materials, video production, communication campaigns, and telecommunication costs. The procurement will be done using: (i) Bank SBDs for all ICB;

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and (ii) NCB SBDs acceptable to the Bank.. For small value services, shopping procedures may be followed, using quotation documents included in the Operational Manual.

6. Selection of Consultants. The Project will finance consultant services by firms and

individuals to conduct the following tasks: support to project implementation; studies on local economic development strategies, cluster business plans, engineering designs, construction supervision, etc.; design and implementation of training and facilitation of access to SRD programs and productive infrastructure for small farmers; infrastructure management studies; and environmental management plans. Short lists of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Consulting services estimated to cost US$200,000 or more will follow Quality and Cost-Based Selection (QCBS) procedures. Single source selection may be used, with the Bank’s prior approval, and in exceptional circumstances, as provided for in the Guidelines and as approved by the Bank.

7. During project preparation, direct contracting of Softcomex was identified to be required for

information system upgrade services. 8. Procurement under Subprojects. Under subcomponent 1.2, three types of individual and

group subprojects would be eligible for support: (i) productive, which includes activities to increase sustainable productivity (on-farm focus), promote value added, and develop value chains (off-farm focus); (ii) environmental conditioning of productive units, which includes complying with environmental laws and adopting environmentally-sound and agro-ecological practices; and (iii) rural roads-related logistical bottlenecks, which includes erosion control, rehabilitation, and maintenance works to improve input/output flows via year-round transitability of key stretches of rural roads.

9. According to estimations made on the basis of related farm models and the experiences of

the Rio GEF Project, subcomponent 1.2 will support an estimated 24,400 investment proposals with a total cost of about US$52.7 million. This includes approximately US$31.7 million to support productive subprojects, US$10.9 million to support environmental conditioning of productive units’ subprojects, and US$9.6 to support rural roads-related subprojects to address logistical bottlenecks. The latter activity will also include the establishment of an institutional framework for sustainable road maintenance through the creation of Inter-municipal Road Consortia.

10. For the procurement of goods, works, and non-consulting services to be carried out by

community participation (par. 3.17 of the Guidelines) whose estimated contract amounts do not exceed US$25,000 the procurement procedures would be elaborated in the Procurement Plan.

C. Assessment of Capacity to Implement Procurement 11. An assessment of the capacity of the executing agencies to implement procurement actions

for the Project was carried out by Anemarie Guth Proite (Bank Procurement Specialist)

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from July 21-25, 2008 and from October 23-24, 2008. The assessment reviewed the organizational structures for project implementation in each of the three bidding commissions (comissões de licitações), the Procurement Area of the PIU, and the interaction between the staff responsible for the procurement (bidding committees) and the respective Administrative and Financial Unit in the PIU.

12. Procurement activities will be carried out by SEAPPA, through the PIU, EMATER and

PESAGRO. The electronic procurement in SEAPPA is carried out by the DGAF, where the Comissão do Pregão is installed with three full-time procurement staff and an experienced procurement consultant. Similar to SEAPPA, EMATER’s bidding committee has three full-time staff and PESAGRO’s has two. The Procurement Area of the PIU is staffed by two employees that report directly to the Administrative and Financial Unit Coordinator. The Administrative and Financial Unit will supervise and monitor the three Comissões do Pregão.

13. The overall risk assessment for the implementing agencies is rated as high. The issues that

have been identified include staff’s little previous experience with Bank’s procurement procedures, lack of SBDs, and the level of decentralization of procurement. Remedial actions have been identified and agreed between the Bank and the client to effectively mitigate those risks. These actions and their status are outlined in the Procurement Action Plan in Table 1 below.

Table 1: Procurement Action Plan

# Action Plan By

Whom Timeframe Approval / Review

1 Prepare a procurement plan for the first eighteen months of project implementation Client Before appraisal

(accomplished) Bank

2

Prepare an Operational Manual, which should include, inter alia, the entire procurement cycle and arrangements including clearances and approvals and description of the roles of all participant agencies; procurement plan, standard bidding document and contract models, model TOR for procurement audits; subproject and municipality procurement procedures and bidding documents.

Client Before appraisal (accomplished) Bank

3

Establish a procurement group of 5 staff within the PIU to coordinate procurement implementation for the Project (one expert senior consultant and 4 junior staff)t

Client By negotiations (accomplished) Bank

4 Establish special bidding committees in the PIU, EMATER, and PESAGRO Client By negotiations

(accomplished) Bank

5 Prepare Terms of reference for the Annual independent audit of procurement carried out under subprojects and by municipalities.

Client By negotiations (accomplished)

Bank to review TOR

6 Train procurement staff on Bank’s procurement policies Client By project launch

(accomplished) Bank

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# Action Plan By Whom Timeframe Approval /

Review

7

Upgrade the MIS to generate the procurement plan, procurement implementation monitoring reports, including reports needed for Bank post reviews.

Client By project launch (not yet due)

Client / Bank

D. Procurement Plan 14. The implementing agencies are preparing their procurement plans for the activities to be

carried out during the first 18 months of project implementation. Upon completion, these plans will be consolidated by SEAPPA prior to submission for Bank’s approval and filed in the project files, which will also be available in the project’s database and in the Bank’s external website. The procurement plans should consist of: (i) goods, works, and non-consulting services, including contract packaging, applicable procedures, and process scheduling; and (ii) a consultant and training provider’s selection process plan for the projects’ training and consultant services, including contract packaging, applicable procedures, and selection criteria.

15. The procurement and consultant selection process plans will be updated annually. Such

updating shall include: (i) list of contracts completed, under execution, under procurement, to be procured in the upcoming calendar semester, and, tentatively in the subsequent semester; (ii) costs of completed and under execution contracts, estimated costs for upcoming contracts; (iii) bidding schedule; and (iv) particular methods of procurement of goods, works, and non-consulting services or selection of consultants in accordance to a format agreed with the Bank. The working instructions shall be detailed in the OM indicating the standard bidding documents and request for proposals to be used, the samples for reporting on procurement, forms of contract, timetables, TOR model, and any other relevant information related to procurement for each particular operation.

16. The Procurement Plan is required to reflect the actual project implementation needs and

improvements in institutional capacity. It is expected that the procurement plan will be approved and will be part of the clearance of the final package before project negotiations.

E. Procurement Supervision

17. Prior Review. The proposed prior review thresholds are US$250,000 for goods and non-

consulting services, US$1.0 million for works, and US$100,000 for consulting services with firms. In all cases of single-source selection (contracts with firms), the Bank should give the

“no objection” to the selection process for the proposed assignment. See Table 2 below.

Table 2: Thresholds Summary 18. Advertising. A General Procurement Notice for hiring of consultant services, and the ICB

for goods and works, should be published in the United Nations Development Business and

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Market. Specific Procurement Notices and Request for Expressions of Interest will be advertised in accordance with the provisions of the Guidelines.

Expenditure Category

Contract Value Threshold

(US$ thousands)

Procurement Method

Contracts Subject to Prior Review

Works >10,000 ICB All processes >500 <10,000 NCB All processes <500 Shopping First process

Goods

>500 ICB All processes

>100 <500 NCB First one and all processes above $250,000

<100 Shopping First process

Non-consulting Services (includes training and communication)

>500 ICB All processes

>100 <500 NCB First one and all processes above $250,000

<100 Shopping First process

Consulting (firms)

>100 QCBS/FBS/LCS All processes <100 FBS/LCS/CQS First process for each selection method

Direct Contracting - All cases regardless of the amounts involved

Sole source All processes F. Frequency of Procurement Supervision 19. In addition to the prior review supervision to be carried out from Bank offices, the capacity

assessment of the executing agencies has recommended for the first two years of project implementation to visit the field to carry out post-reviews of procurement actions, and annually from there on. The procurement supervision plan should recommend that independent post reviews of procurement be carried out, if appropriate, giving the number and scope of such reviews, and propose whether the supervision plan should include special missions for procurement supervision at critical points of project implementation.

20. Ex-Post Reviews. Post reviews should be conducted bi-annually. The size of the sample for

post-review will be one in five, on average. This ratio may be adjusted during project implementation depending on the performance of the agencies and the results of the reviews. All bidding processes regardless of their value are subject to ex-post procurement review. All documentation included but not limited to: terms of reference, bidding documents and request for proposals, bids or proposal received, correspondence on all bids either prior or following of award of contract and any subsequent amendments should be maintained until at least two years following the closing of the projects.

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21. Annual independent procurement audits. In order to mitigate the high risk of this proposed project, besides the post reviews, a yearly procurement audit will be required for the procurement carried out under subprojects and by municipalities.

G. Details of the Procurement Arrangement Involving International Competition 22. Goods, Works, and Non Consulting Services. Table 3 below states the list of contract

packages to be procured following ICB and direct contracting.

Table 3: List of Contract Packages for ICB and Direct Contracting

1

2 3 4 5 6 7 8 9

Reference#

Contract (Descrip-

tion)

Estimated Cost

Procure-ment

Method

P-Q Domestic Preference

(yes/no)

Review by Bank

(Prior/Post)

Expected Bid-

opening Date

Comments

1 Vehicles US$1.1 M ICB No tbd Prior tbd 2 Machines US$3.1 M ICB No tbd Prior tbd

23. All contracts for goods and non-consulting services estimated to cost above US$500,000

per contract and all direct contracting will be subject to prior review by the Bank. 24. All contracts for works estimated to cost above US$10.0 million per contract and all direct

contracting will be subject to prior review by the Bank. 25. Consulting Services. All consultancy services estimated to cost above US$100,000 per

contract and all Single Source selection of consultants (firms) will be subject to prior review by the Bank. Short lists of consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. See Table 4 below for further information regarding consulting services.

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Table 4: Consulting Services Overview

Executing Agency

Ref. #

Description of

Assignment

Estimated Cost (US$)

Selection Method

Review By Bank

Expected Proposals

Submission Date

SEAPPA

1 Levantamento de Investidores 300,000 QCBS Prior Tbd

2

Procurement Agent (to contract individual

consultants for the Project)

1.7 million QCBS Prior

Tbd

3 Capacity building 219,000 QCBS Prior Tbd

EMATER 4 tbd Tbd tbd tbd Tbd

PESAGRO 5 tbd Tbd tbd tbd Tbd

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Annex 9: Economic and Financial Analysis BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Project Benefits

1. The PDO is to increase the adoption of integrated and sustainable farming systems approaches in specific areas of the Borrower’s territory, thus contributing to the higher-order objective of increasing small-scale farming productivity and competitiveness in those areas. The Project will do so within a context of increased production efficiency and value added, along with environmental accountability and social equity..

2. To attain its objectives, the project’s implementation strategy will be based on the

following elements:

a. Use of appropriate, more productive, efficient, and profitable farming systems, including: more environmentally sustainable practices, introducing more diversified production patterns, and promoting value added and improved commercial mechanisms.

b. Supporting an improved enabling environment (resource base) through the rehabilitation and conservation of natural resources and increasing access to basic services and infrastructure.

3. Poor crop yields and low farm incomes among poor small-scale producer communities, on

one hand, and environmental and soil degradation, on the other, are connected phenomena that are strongly related to the prevalence of inappropriate agricultural practices and cropping patterns. The transition towards more profitable and sustainable systems thus involves a process aimed at first reaching productive rehabilitation and then sustainable, diversified, and more valuable production. This will be a path that not all farmers will be able to complete during the project period, and the initial steps to be taken along this path will depend on the initial status of each individual farmer.

4. Rehabilitation (i.e., restoration of the productive capacity of the natural resources base) of

farming systems that currently show environmental degradation and low productivity is the highest priority. Available simple but efficient technological practices (the use of lime to lower soil acidity, basic fertilizing, contour cropping, etc.) generate great productive and environmental impacts. Achieving sustainable farming systems in the long term is a higher and more ambitious goal, under which households will reach sustained higher levels of production and income in a context of natural resources preservation. Innovation and product diversification are crucial elements of the project’s strategy to achieve this. Technologies and markets required for crop diversification (i.e., vegetables) are available locally and regionally, and the additional volumes to be put in the market should not affect prices. Table 1 below outlines the main features and objectives of the current and proposed conversion stages.

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Table 1: Features and Objectives of Conversion Stages

Agricultural and Environmental Practices Social Exclusion Production, Marketing,

Employment, and Income Main Features of Current Stage (most common practices at present): Seasonal agriculture Soil management based on extracting nutrients without replacement Chemical pest control No investments in environmental protection

Little community organization Insufficient access to social services Low quality housing and basic infrastructure such as sanitation Low women and youth participation in economic activities

Low productivity, no diversification, and limited market-oriented production, including lack of attention to product quality and engagement in value chains Traditional marketing and high transaction costs absorbed by intermediaries Low employment or underemployment of labor force Low incomes

First step - Strategies for Achieving Productivity Recovery and Environmental Protection: Degraded soils: soil improvement, contour cropping (slopes >2%), subsoiling, acidity correction - liming (as needed), basic fertilizing, green fertilizing Minimum tillage cropping Summer and winter rotation crops for soil protection and fertilizing Implementation of IPM Improved animal production Agro-forestry systems Restore/establish permanent protection areas to comply with legal requirements and to complement improved integrated production systems

Social awareness activities and training Promotion of community and microcatchment organization Community participation in diagnostics, planning and implementation of project activities

Incipient diversification Implementation of GAPs Promote innovative procurement and marketing mechanisms aimed at reducing transaction costs and improving access to new markets

Second step - Strategy for Achieving Sustainability through Diversification and Innovation: Market-driven and product supply chain, focused diversification

Consolidation of local organization in its different levels (community,

Development of more diversified and integrated production systems (crop

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Agricultural and Environmental Practices Social Exclusion Production, Marketing,

Employment, and Income Post-harvest management Product processing Product certification

microcatchment, municipality) and improved self management Full participation of beneficiaries in planning, M&E, and implementation activities

rotation and association) Associative management of marketing, market information, community investments, etc. Commercial alliances for accessing new markets and products Economic diversification

5. It is expected that a minimum of 50% of small-scale producers in target areas will receive

direct project support. Hence, the Project will improve natural resources management (soil conservation practices) and productivity on approximately 19,000 farms.58

It is also expected that approximately 50% of those households will move beyond rehabilitation activities to other production practices and activities (including innovation, diversification and improved product quality) to transition towards more sustainable and integrated production systems during the six years of project implementation. Within this continuum, approximately 9,500 are expected to develop innovative and diversified sustainable production systems, based on GAPs, consistent with intrinsic land capabilities. In addition, 1,570 are expected to further value added to production, including certified production processes and some degree of processing of primary production.

B. Economic and Financial Analysis

6. Parameters Used. The Project will provide direct support to approximately 19,000 producers with an average farm size of 14.9 ha, which totals 55 % of all of the small-farmers in the project focal area and covers 13% of the area under pasture and crop production in the SoRJ.

7. The Project will be active in two main areas. While focal areas will cover the NNWF and

Serrana administrative regions, replication areas will concentrate in a group of homogeneous municipalities (albeit not a contiguous area) located across other administrative regions in the SoRJ (including: South, Coastal Floodplains, Metropolitan, and Paraíba River Middle Valley).

8. According to IBGE’s annual municipal agricultural production survey, the most prevalent

crops in the SoRJ in terms of gross production value are: tomatoes, pineapples, sweet potatoes, and sugarcane, which account for approximately 84% of temporary crops, and bananas coffee, oranges, and coconuts, which account for approximately 76% of permanent crops. Milk production is the largest animal production activity in the SoRJ.

58 The total number of farmers in targeted microcatchements is estimated to be approximately 32,000, and the area of microcatchments eligible to receive project assistance is 664,000 has.

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While there are a total of 23,645 establishments engaged in annual production across the state, 14,985 (or 63.3%) are dedicated to milk production. Because of its importance, milk production represents 62.3% of the activities identified in the representative models of the Project.

9. Illustrative Base Farm Models. To assess the financial and economic impact of the project

strategy on the current status of intervention areas, 33 farm models representative of the most prevalent small-scale farm types in the focal and replication areas, as well as one farm model representative of a collective value-adding system, were identified. These include eight production system models for each region within the focal areas of the Project (the NNWF and Serrana administrative regions) and nine models for the replication areas.

10. Tables 2-5 below briefly outline the most prevalent farm models by region. They represent

the current situation and provide a base for likely beneficiary choices to be made in response to activities and incentives provided under the Project and simulate the transition towards improved production systems and the resulting economic and financial benefits.

Table 2: Farm Models in North Region

Models / Activities Farm area (ha) Benefici

aries Productive uses

Other uses Total

NO-MOD1 - Milk (18 ha) 18.0 2.0 20.0 1,074 NO-MOD2 - Sugarcane (12 ha) 12.0 3.0 15.0 677 NO-MOD3 - Sugarcane (10 ha), Milk (7 ha) 17.0 3.0 20.0 273 NO-MOD4 - Milk (8 ha), Banana (3 ha) 11.0 3.0 14.0 93 NO-MOD5 - Coconut (2 ha), Milk (6 ha) 8.0 4.0 12.0 122 NO-MOD6 - Milk (5 ha), Yucca (2 ha) 7.0 1.0 8.0 143 NO-MOD7 - Pineapple (2 ha), Sugarcane (10 ha) 12.0 3.0 15.0 226 NO-MOD8 - Fishermen - - - 84

Table 3: Farm Models in Northwestern Region


aries Productiveuses

Other uses Total

NR-MOD1 - Milk (18 ha) 18.0 2.0 20.0 1,166 NR-MOD2 - Milk (16 ha), Tomato (2 ha) 18.0 2.0 20.0 557 NR-MOD3 - Milk (5 ha), Coffee (7 ha) 12.0 1.0 13.0 451 NR-MOD4 - Coffee (11 ha) 11.0 1.0 12.0 808 NR-MOD5 - Milk (12 ha), Tomato (1 ha), Jiló (1 ha) 14.0 1.0 15.0 264 NR-MOD6 - Milk (13 ha), Tomato (2 ha), Peppers (1 ha) 16.0 2.0 18.0 355 NR-MOD7 - Okra (2 ha), Milk (10 ha) 12.0 1.0 13.0 333 NR-MOD8 - Artisan Fishery - - - 28

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Table 4: Farm Models in Serrana Region


aries Productiveuses

Other uses Total

SE-MOD1 - Persimmon (3.5 ha), Sweetpotato (1 ha), Peppers (0.5 ha), Cauliflower (0.5 ha) 5.5 4.5 10.0 148

SE-MOD2 - Milk (18 ha) 18.0 2.0 20.0 1.031

SE-MOD3 - Lettuce (0.5 ha), Watercress (0.2 ha), Scallion (0.1 ha), Cauliflower (0.3 ha), Sweetcorn (0.3 ha) 1.4 1.6 3.0 483

SE-MOD4 - Chuchu (0.7 ha), Greenbeans (0.5 ha), Miniature Pumpkin (0.5 ha), Cauliflower (0.3 ha) 2.0 2.0 4.0 395

SE-MOD5 – Peppers (0.5 ha), Jilo (0.7 ha), Cauliflower (0.5 ha), Tomato (0.3 ha) 2.0 2.0 4.0 756

SE-MOD6 - Milk (8 ha), Banana (3 ha) 11.0 3.0 14.0 179 SE-MOD7 - Milk (5 ha), Coffee (7 ha) 12.0 8.0 20.0 88 SE-MOD8 - Milk (5 ha), Manioc (2 ha) 7.0 1.0 8.0 185

Table 5: Farm Models in Replication Areas


aries Productive uses

Other uses Total

RP-MOD1 - Milk (18 ha) 18.0 2.0 20.0 904 RP-MOD2 - Milk (16 ha), Tomato (2 ha) 18.0 2.0 20.0 208 RP-MOD3 - Peppers (0.5 ha), Jilo (0.7 ha), Cauliflower (0.5 ha), Tomato (0.3 ha) 2.0 2.0 4.0 126

RP-MOD4 - Milk (5 ha), Manioc (2 ha) 7.0 1.0 8.0 444 RP-MOD5 - Milk (10 ha), Citrus (3 ha) 13.0 2.0 15.0 375 RP-MOD6 - Sugarcane (10 ha), Milk (7 ha) 17.0 3.0 20.0 146 RP-MOD7 - Coconut (2 ha), Milk (6 ha) 8.0 4.0 12.0 246 RP-MOD8 - Okra (2 ha), Milk (10 ha) 12.0 1.0 13.0 119 RP-MOD9 - Milk (8 ha), Banana (3 ha) 11.0 3.0 14.0 401

11. Activity-level Profitability. Gross margin or activity profitability is the result of income

from product sales less operational costs. It has a significant importance in investment analysis, given each activity’s contribution to cash flow and to total incremental farm gross margin. The table below shows the expected increase in profitability per main activity detected when investments in first-step-type actions are undertaken. They provide a low-case scenario of productivity improvement, and the basis for the estimation of minimum economic and financial impact of project implementation.

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Table 6: Current and Estimated Profitability of Project-Supported Activities

Activities Profitability Per Ha (R$) Increase Per Ha Current Proposed R$ %

Pineapple 6.199,0 6.774,0 575,0 9,3% Miniature Pumpkin 392,0 785,0 393,0 100,3% Watercress 16.875,0 23.640,0 6.765,0 40,1% Manioc 2.755,0 4.182,0 1.427,0 51,8% Lettuce 18.690,0 37.100,0 18.410,0 98,5% Banana* 869,0 1.066,2 197,2 22,7% Sweet potato 13.898,0 15.934,0 2.036,0 14,6% Coffee* 1.551,4 2.322,2 770,8 49,7% Sugarcane* 692,5 906,4 213,9 30,9% Persimmon* 26.333,0 32.043,8 5.710,8 21,7% Chuchu 5.620,0 7.190,0 1.570,0 27,9% Orange* 4.882,15 8.545,60 3.663,45 75,0% Coconut* 6.167,2 8.274,6 2.107,4 34,2% Cauliflower 16.180,0 18.240,0 2.060,0 12,7% Jiló 1.580,0 2.790,0 1.210,0 76,6% Milk 273,5 346,5 73,0 26,7% Sweet corn 215,0 332,0 117,0 54,4% Artisan fishing** 13.930,0 18.695,0 4.765,0 34,2% Bell Pepper 15.840,0 17.450,0 1.610,0 10,2% Okra 1.120,7 1.774,3 653,6 58,3% Scallion 9.600,0 24.000,0 14.400,0 150,0% Tomato 3.632,0 10.223,4 6.591,4 181,5% Green beans 12.435,0 14.810,0 2.375,0 19,1%

Source: Project data * Average return over the project’s life (20 years) ** Per fisherman

12. Farm-level Profitability. Farm-level profitability was estimated on the basis of the average

investment support available to beneficiary producers, the current product mix for each base farm-model, and the abovementioned expected change in activity-level profitability. The results for each different area targeted by the Project are summarized below in tables 7-10.

Table 7: Indicators of Economic and Financial Viability for Farm Model in North Region

Farm Model

Economic Financial IRR NPV (R$) IRR NPV (R$)

Milk (18 ha) 23,80% 3.801,46 12,40% 235,89 Sugarcane (12 ha) 51,90% 12.857,20 34,40% 10.716,69 Sugarcane (10 ha), Milk (7 ha) 55,80% 13.528,99 30,90% 10.358,62 Milk (8 ha), Banana (3 ha) 15,50% 1.529,60 7,40% (3.921,49) Coconut (2 ha), Milk (6 ha) 38,20% 19.030,23 30,40% 16.783,33 Milk (5 ha), Manioc (2 ha) 91,60% 18.030,75 54,40% 16.135,90 Pineapple (2 ha), Sugarcane (10 ha) 78,60% 18.301,96 33,40% 13.637,65

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Farm Model Economic Financial

IRR NPV (R$) IRR NPV (R$) Artisan Fishery 241,90% 29.578,51 237,70% 29.550,88

Table 8: Indicators of Economic and Financial Viability for Farm Model in Northwest Region

Farm Model

Economic Financial TIR VPL TIR VPL

Milk (18 ha) 23,80% 3.801,46 12,40% 235,89 Milk (16 ha), Tomato (2 ha) - 101.179,55 - 101.894,55 Milk (5 ha), Coffee (7 ha) 16,10% 10.397,45 10,40% (6.323,16) Coffee (11 ha) 16,10% 15.490,82 10,40% (9.228,03) Milk (12 ha), Tomato (1,0 ha), Jiló (1,0 ha) - 58.802,18 - 59.322,26 Milk (13 ha), Tomato (2 ha), Peppers(1 ha) - 111.569,54 - 114.149,41 Okra (2 ha), Milk (10 ha) 43,30% 9.203,36 18,00% 4.150,33 Artisan fishery 241,90% 29.578,51 237,70% 29.550,88 Table 9: Indicators of Economic and Financial Viability for Farm Model in Serrana Region


TIR VPL TIR VPL Persimmon (3,5 ha), Sweet potato (1 ha), Pepper (0,5 ha), Cauliflower (0,5 ha) 197,30% 141.761,46 226,20% 139.357,28

Milk (18 ha) 23,80% 3.801,46 12,40% 235,89 Lettuce (0,5 ha), Watercress (0,2 ha), Scallion (0,1 ha), Cauliflower (0,3 ha), Sweet corn (0,3 ha) - 88.483,29 95,50% 73.394,99

Chuchu (0,7 ha), Green beans (0,5 ha), Miniature pumpkin (0,5 ha), Cauliflower (0,3 ha) 85,30% 17.149,35 581,80% 19.596,63

Pepper (0,5 ha), Jilo (0,7 ha), Cauliflower (0,5 ha), Tomato (0,3 ha) 224,50% 28.789,95 - 31.489,22

Milk (8,0 ha), Banana (3,0 ha) 15,50% 1.529,60 7,40% (3.921,49) Milk (5 ha), Coffee (7 ha) 16,10% 10.397,45 10,40% (6.323,16) Milk (5,0 ha), Manioc (2,0 ha) 91,60% 18.030,75 54,40% 16.135,90

Table 10: Indicators of Economic and Financial Viability of Farm Models in Replication

Areas


TIR VPL TIR VPL Milk (18 ha) 23,80% 3.801,46 12,40% 235,89 Milk (16 ha), Tomato (2 ha) - 101.179,55 - 101.894,55 Peppers(0,5 ha), Jilo (0,7 ha), Cauliflower (0,5 ha), Tomato (0,3 ha) 224,50% 28.789,95 - 31.489,22

Milk (5,0 ha), Manioc (2,0 ha) 91,60% 18.030,75 54,40% 16.135,90 Milk (10,0 ha), Orange (3,0 ha) 43,3% 53.298,66 37,1% 50.841,39 Sugarcane (10 ha), Milk (7 ha) 55,80% 13.528,99 30,90% 10.358,62 Coconut (2 ha), Milk (6 ha) 38,20% 19.030,23 30,40% 16.783,33

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Okra (2 ha), Milk (10 ha) 43,30% 9.203,36 18,00% 4.150,33 Milk (8,0 ha), Banana (3,0 ha) 15,50% 1.529,60 7,40% (3.921,49)

13. Project-level Results. Project-level economic and financial returns were calculated on the

basis of the flow of project expenditures and the estimated changes in cash flows at the farm level derived from incremental revenues minus incremental costs of production, distributed according to the planned scheduled entry of beneficiary investments during project implementation. The opportunity cost of capital used is 12%, and the flows were discounted over 20 years. The results of the returns are listed in Table 11 below.

Table 11: Indicators of Economic and Financial Viability of the Project

Analysis

IRR NPV

Economic

33.6% R$193.8 million

Financial

72.2% R$284.4 million

14. Sensitivity Analysis. The recent evolution of the overall macroeconomic context has shown sharply contrasting phases in the last few years. First, it showed a strong global and domestic growth alongside a generalized increase in commodity prices and agricultural sector growth in Brazil. More recently, however, the ongoing global financial crisis is affecting Brazil’s economy as a consequence of lower rates of global economic growth, reduced demand for agricultural products, and an increase in production costs as a reflection of the depreciation of the Real, among other things.

15. Given this unstable overall scenario, a sensitivity analysis was carried out to determine the

cut-off points of overall project rates of return under different independent and combined situations of input price increases and product price decreases. The analysis shows that project economic returns are more stable to input price increases than to product price decreases or to a combination of both situations. Returns will remain positive under input price increases up to 46%, product price decreases up to 27%, and up to a 17% combined input price increases and product price decreases. Table 12 below summarizes the findings of the sensitivity analysis.

Table 12: Sensitivity Analysis

Scenario IRR NPV

Base expected scenario 33.6% R$193.8 million

Reduction of 3% in products prices 31.2% R$172.2 million



Reduction of 27% in products prices 11.9% R$-0.5 million

Increase of 5% in inputs prices 31.0% R$172.6 million

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Scenario IRR NPV

Increase of 10% in inputs prices 28.4% R$151.3 million

Increase of 46% in inputs prices 11.8% R$-1.6 million Reduction of 3% in products prices and increase of 3% in inputs prices 29.6% R$159.5 million

Reduction of 5% in products prices and increase of 5% in inputs prices 27.1% R$136.6 million

Reduction of 10% in products prices and increase of 10% in inputs prices 20.8% R$79.3 million

Reduction of 17% in products prices and increase of 17% in inputs prices 11.9% R$-0,7 million

16. In summary, it may be concluded that the Project is economically viable overall and quite

stable to worsening macroeconomic conditions, including large negative independent and combined shifts in input costs and product prices.

17. Value Adding Activities. In addition to supporting investments in first-step-type activities,

the focus of the Project will ultimately be to promote added value through, inter alia, on-farm product quality enhancement and off-farm product storage and processing, as well as group purchasing and marketing arrangements. Table 13 below shows a partial list of equipment that may be purchased with project support for group value-adding activities.

Table 13: Equipment for Value-adding Activities

Types of Equipment

Estimated Unit Cost R$ US$

Storage/conditioning/drying facilities 3,520 1,637 Sorting/processing/drying equipment 2,240 1,042 Small agro-industry facility 4,800 2,233 Cold chamber for fish 1,200 558 Temporary storage chamber for fish 400 186 Ice factory and silo 880 409 Coffee classification laboratory 256 119 Packaging/labeling equipment 1,470 684 Sugar cane harvester 3,920 1,823 Coffee conditioning equipment 1,600 744 Coffee sorting equipment 1,600 744 Small tractor with cart 1,468 683 Medium-sized vehicle with isothermal trunk 2,200 1,023

18. Although there can be no detailed analysis of the mix and types of undertakings that will

be supported based on the demand-driven nature of investments, initial estimates for simple value-adding activities indicate that income may increase anywhere from 3.5% (i.e., from improved product quality as a result of purchasing cooling tanks for milk storage) up to 20% (i.e., with the installation of cold storage or the use of an ice factory to reduce losses in fish). These types of undertakings, such as conditioning and storage facilities and equipment, are mostly focused on capturing the portion of the product’s final

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value that usually goes to middle-men. Also noteworthy is that the vertical integration or reduction of product intermediation is the result of the producer’s product being closer to the final consumers, which may also have important (and positive) impacts for the consumer via lower transaction costs for such products. Table 14 below describes the expected returns that can result from value-adding activities.

Table 14: Expected Returns for Value-adding Activities

Activities Group

size Increased

Gross Income(*)

IRR Sensitivity Analysis

Sale price Costs

Milk – Use of refrigerated tank (quality improvement) 10 1,861 48% -11% 54% Production of banana and guava sweets (artisan processing) 10 1,350 45% -22% 36% Production of brown sugar and molasses (artisan processing) 8 2,153 49% -17% 22% Classification and packing of vegetables (value added) 60 1,680 68% -5% 8% (x) Expected average annual increase in gross income per beneficiary

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Annex 10: Safeguard Policy Issues BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Project Description 1. The target population consists of approximately 37,000 small-farming families (some

150,000 people in total) in the SoRJ. This corresponds to roughly 30% of the total rural population in the state. The target population primarily resides in three main regions that include the North, the Northwest, and Serrana administrative regions, which represent a total area of about 23,000 square kilometers (53% of the total area of the state). Replication activities will also be carried out in clusters of municipalities located in other administrative regions of the SoRJ. Overall, interventions will concentrate in nine municipalities in the North, 13 municipalities in the Northwest, and 14 municipalities in the Serrana; replication activities will be carried out in 23 municipalities located across the four other administrative regions. As a result, the Project will impact a total of 59 municipalities (out of 92 in the SoRJ). The selection and prioritization of municipalities, as well as participating communities within those municipalities, will be based on production potential, poverty, and environmental criteria.


framework in support of PNTD and environmental awareness, and promote decentralized and multi-sectoral interventions to increase the organization and capacity of local farmers. Second, the Project will support, based on the above, the transition to more efficient production systems, the sustainable use and conservation of the natural resources base, and social development through financing different categories of investment proposals and facilitating multi-sectoral coordination and interventions. Lastly, the Project will promote the replication of this methodology throughout the SoRJ by intervening in areas outside of the targeted priority regions (i.e., the NNWF and Serrana regions) with the aim of mainstreaming public policies in support of SRD.

3. To achieve its objectives, the Project will finance the following three components:

a. Support to Small Farmer Production and Competitiveness (US$66.1 million) will support

the transition to more efficient and competitive production systems by strengthening the capacities and organization of key actors in the targeted area and financing individual and group investment subprojects;

b. Institutional Frameworks (US$5.2 million) will improve governance for SRD by

strengthening public institutions in the rural sector, improving multi-sectoral coordination, establishing a long-term SRD financing mechanism, and creating a participatory research network throughout the SoRJ;

c. Project Coordination and Information Management (US$7.6 million) will support overall

project management, including the design and implementation of a management information system.

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B. Environmental Aspects 4. Overview. Environmental considerations are incorporated in key aspects of the Project,

which include: the objective, the targeted area and beneficiaries, beneficiary eligibility criteria, individual and group investment typologies to be financed, and implementation tools. On balance, the Project is expected to produce highly positive environmental impacts. However, activities carried out in subprojects supported under subcomponent 1.2 (i.e., the implementation of small-scale productive investments and the rehabilitation and maintenance of tertiary roads) could generate small, negative impacts. The Project design includes mechanisms to prevent negative impacts during implementation, implementation, and monitoring of subprojects.

5. Positive Environmental Impacts. The Project is expected to have highly positive

environmental impacts. According to the EA, the most significant impacts foreseen are positive, including, inter alia: the restoration of degraded areas, riparian zones, and forest connectivity biodiversity corridors; better soil fertility; improved water quality (both surface and ground water); reduced pesticide use; greater biodiversity within riparian zones and forest corridors; improved management of land and natural resources; better environmental governance; and enhanced overall environmental quality of livelihoods in targeted areas. These positive impacts will be achieved through: supporting environmental management in targeted areas; financing sustainable production systems; direct investments in the sustainable use and conservation of natural resources (i.e., connection of forest fragments and certifying sustainable agribusiness and forestry activities); enhancing environmental awareness among stakeholders; promoting improved policy instruments (i.e., PES); scaling-up successful innovative production and conservation technologies piloted under the Rio GEF Project; supporting the development of long-term strategies to facilitate the transition to environmentally sustainable livelihoods; and improving multi-sectoral coordination and consultation mechanisms in rural, environmental matters.

6. Potential Adverse Environmental Impacts. Because project activities are designed to be

environmentally sustainable, with special attention to the conservation of biodiversity and natural resources, they are expected to have minor negative impacts on the environment. Negative effects could be expected at the local level as a result of subprojects financed under subcomponent 1.2 (i.e., productive investments, small-scale agro-processing activities, and small infrastructure works for road rehabilitation and maintenance). The impacts of any misdirected support for these investments could include soil erosion and water pollution (i.e., sediments and use of fertilizers or pesticides, even if not directly procured by the Project). As subprojects (and their locations) that will be financed cannot be identified a priori because of the demand-driven nature of interventions, specific impacts cannot be anticipated.

7. No significant indirect, long-term, or cumulative impacts are foreseen. Subprojects under

subcomponent 1.2 will be subjected to a rigorous screening process to ensure maximum socioeconomic and environmental benefits. The screening process will also serve to prevent or minimize unintended negative environmental impacts, including those eventually associated to secondary, indirect, and/or long-term effects. The EA/EMF recommends that a

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case study be carried out during the mid-term review in order to consider indirect and/or long-term and cumulative positive or adverse affects.

8. Environmental Management Framework. The EA/EMF for the Project was publicly

disclosed and discussed in country and completed in October 2008, and the final version approved by the Bank and submitted to the Infoshop before appraisal. The EA lists the main activities with potential negative impacts, specifying time, extension, intensity, scope, risk of occurrence, and potential persistence of the impacts. It also proposes prevention and mitigation mechanisms to ensure that small works are subjected to adequate EA processes (so that they do not create any serious adverse impacts), and that appropriate mitigation measures are included in the design and implementation of all activities supported.

9. The EMF addresses the potential positive and negative impacts identified in the EA and

proposes a plan for avoiding, minimizing, and mitigating such impacts, as well as identifies the costs and responsible parties for implementing the specific measures. The EMF also details the strategy adopted for the implementation of the proposed measures, which include the following:

• Strict screening of subprojects, with evaluation, approval, and monitoring procedures

mainstreamed in the subproject cycle; • Review of the legal and institutional framework at the country and state-level relevant to

the Project; • Environmental licensing procedures to be required for some of the investments financed

under Component 1 in order to comply with national and state legislation; • Description of the process for setting up fully accountable management practices for

preventing and mitigating impacts, including eventual cumulative impacts; • Incorporation in the M&E system of specific processes to detect and measure any

negative environmental impact, which builds on the existing M&E system of the Rio GEF Project;

• A guidance section for the adoption of integrated pest management practices in project-supported activities;

• Environmental management guidelines for roads rehabilitation, including monitoring mechanisms (attached as a mandatory requirement to agreements with road maintenance consortia and contractors);

• Guidelines for site selection, design construction, and monitoring arrangement for infrastructure works;

• A detailed plan for strengthening the capacity of stakeholders in environment matters; • Adoption of an organizational framework to mainstream the measures proposed in

project management, budgeting, and disbursement; • Clear guidelines regarding direct and indirect impacts on natural habitats, as well as a

strategy to ensure close coordination with other activities aimed at conserving the Atlantic Forest within the SoRJ; and

• A list of activities suggested for consultations with stakeholders and beneficiaries, including discussions regarding the potential environmental impacts and benefits associated with the Project.

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10. Mainstreaming EA Procedures. Subproject investments and their locations will be defined during implementation. The EMF includes screening criteria and procedures (including operational rules) that will be used to identify and avoid or minimize any adverse environmental impacts. As a result, subprojects financed under subcomponent 1.2 will go through a screening process. Depending on the nature and magnitude of their potential impacts, proposals will be classified into a specific impact category. Preliminary subproject screening, evaluation, approval, and monitoring procedures are incorporated in the project’s design within the subproject cycle so that the proposed mitigation measures are cost-effective and not overly burdensome. These procedures, detailed in the EMF, have been included in the project cycle and inserted into the OM.

11. Subproject Environmental Impact Categories. The EA/EMF organizes the main types of

subproject proposals into four categories according to the relevance of their potential environmental impacts:

a. Category 1 covers subprojects with expected positive environmental impacts, which will

require measures to maximize positive impacts; b. Category 2 covers subprojects that have very low or no impacts, which will be subject to

prevention measures within the EMF; c. Category 3 covers subprojects with potentially negative impacts that are object of

specific legislation, which will be submitted to due environmental licensing procedures in addition to the adoption of project EA procedures and associated measures; and

d. Category 4 covers subprojects with potentially negative impacts, which will require detailed environmental assessment or specific studies (i.e., to design waste water treatment for a small-scale coffee-processing plant). Corresponding neutralization or mitigation measures would be incorporated into the subproject design before being submitted for approval and will furthermore be subjected to the provisions of Brazilian legislation related to environmental assessment, water resources, and forests (i.e., rehabilitation of tertiary rural roads and drainage works).

12. Responsibility for EA and Institutional Arrangements. The Project will build on the existing

EA capacity established within the organizational framework of the implementation agency for the ongoing Rio GEF Project, which will be strengthened with additional staff at all levels to support the implementation of the EMF, including EA screening procedures and EA training associated with the review and approval of investment proposals (i.e., in the subproject cycle). A core group of professionals working for SEAPPA within the PIU (at central and regional levels) and in EMATER’s local offices (at municipal and microcatchment levels) will share EA-related responsibilities. Project extension officers working at the microcatchment and municipal levels will be responsible for the EA screening of investment subprojects (environmental categorization) and assisting beneficiaries in mainstreaming environmental considerations into subproject proposals. Supported by the PIU staff at regional and central levels, they will also be accountable for recruiting and carrying out EA-related reports before submitting investment proposals to the MDCs and then to the Technical Coordination Unit in the PIU. One PIU officer at each of the Regional Project Implementation Sub-units (RPIS) (the Technical Assistant to the Executive Regional Sub-Secretary) and four officers at the state/central level located in the

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PIU (three from the Technical Coordination Unit and one from the Information Management Unit) will be accountable for carrying out the overall EA review and technical endorsement of investment proposals before their submission for final approval. For details of the subproject review and approval cycle, see Appendix 5 to Annex 4.

13. Strengthening EA Capacity. In addition to the inclusion of specific responsibilities for EA

and to the institutional arrangements mentioned above, the EMF includes provisions for the strengthening of capacity to carry out EA activities, as well as for establishing mechanisms to monitor implementation and measuring impacts. Specifically, the EA/EMF includes a detailed capacity building proposal, which was mainstreamed into training activities supported under subcomponent 1.1) to train relevant technicians and disseminate the project’s environmental requirements and procedures among beneficiaries, stakeholders, municipal authorities, and other relevant institutions and organizations at municipal and territorial levels.

C. Social Aspects 14. Overview. The Project is expected to have highly positive social impacts, which includes a

participatory and decentralized strategy that strengthens social capital and rural institutions, as well as provides improved TA and extensive training opportunities in new technologies and practices and in subproject preparation and implementation. The potential risk of beneficiary reluctance to adopt new technologies and practices will be mitigated by both the receptivity demonstrated during project preparation consultations to TA and training, and the emphasis on financial sustainability.

15. Summary of Social Assessment. During project preparation, a Social Assessment was

carried out in the NNWF and Serrana regions, which utilized secondary data and involved numerous meetings with key project stakeholders across 22 municipalities. The Social Assessment reconfirmed that the NNWF and Serrana regions present the lowest socioeconomic indicators in the SoRJ, as well as in all of Brazil (comparable to the Northeast), analyzed key social variables (including gender, age, and sub-cultural variations), and assessed local organizations and networks. The report also documented the key concerns of the rural population, which included: deepening poverty, increasing outmigration (especially among women and youth), the fragility of rural organizations, lack of TA and of effective technical training opportunities, and health concerns related to contaminated water. The Social Assessment concluded that there is great interest and receptivity among the beneficiary population in strengthening local organizations and receiving effective TA that focuses on sustainable and productive technologies and practices, as well as on improving income generation and overall quality of life. The Project has been specifically designed to address the abovementioned issues, and social indicators have been incorporated in the project’s M&E system.

16. Gender and Generation. The social assessment examined the implications of gender and

age among the beneficiary population. It concluded that more women and youth (with somewhat higher educational levels) seek economic betterment by migrating from rural areas to provincial urban places with insufficient infrastructure and services to absorb them.

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Most women and youth interviewed stated that the single key factor that would keep them from migrating was if there were more income-generating opportunities in the rural areas. Existing women’s production organizations were exceptionally well organized although few in number. The project will specifically target the involvement of women and youth.

17. Resettlement Policy Framework (RPF). In addition, an RPF was developed for the unlikely

event that rural roads rehabilitation activities supported may involve small amounts of land acquisition, especially with respect to right-of-ways. The RPF will serve as the guide to the site-specific formulation of Resettlement Action Plans, which should most likely be Abbreviated Plans due to the relatively small numbers of people affected and relatively minor impacts, if any, expected.

D. Compliance with Safeguard Policies 18. The Project is designed to comply fully with Bank safeguard policies as indicated below.

a. OP 4.01 Environmental Assessment. The Project is classified as Category B, which is the

appropriate classification for a project whose potential adverse environmental impacts on human populations or environmentally important areas are site-specific, reversible, and can be readily mitigated (OP 4.01, paragraph 8). Moreover, it is not expected that any subprojects to be supported by the Project will be classified as Category A due to their size, location, or expected impacts. In accordance with this classification, an EA, which includes an EMF, has been prepared, and, based on its results, the Project remains designated as Category B. The EA/EMF specifies the criteria and procedures (including operating rules) that will be used during implementation to avoid or minimize adverse environmental impacts. Some of the key aspects regarding Bank’s safeguards taken into consideration in the EA/EMF are described in the policies below.

b. OP 4.04 Natural Habitats. This safeguard is triggered because increased agricultural

productivity might indirectly result in adverse impacts on natural habitats. The Project will not result in significant conversion or degradation of critical or other natural habitats, as on-farm investments are expected to take place in areas that have been traditionally dedicated to agriculture and will not involve the conversion of natural habitats. Conversely, the Project will support natural habitat conservation since increased agricultural productivity will be a result of an integrated agro-ecosystem management approach and related practices, which are currently being tested and adopted by farmers participating in the Rio GEF Project. Moreover, the Project will support conservation practices and improved land use planning and management that should lead to sustainable use of agricultural lands, conservation of natural habitats, and the rehabilitation of degraded natural habitats. The EMF explicitly forbids any project activities in areas supporting critical natural habitats or inducing conversion. It also ensures that any activity in the buffer zone of a protected area will be designed to help reduce pressure on the protected area itself. Moreover, the EMF: includes criteria for screening subprojects to ensure that they will not cause any negative impacts on protected areas; establishes clear guidelines regarding direct and indirect impacts on natural habitats; includes measures in the monitoring plans to supervise habitat conversion or degradation; and

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provides a strategy to ensure close coordination with other activities aimed at conserving the Mata Atlântica in the SoRJ.

c. OP 4.36 Forests. This safeguard is triggered because the Project will support

reforestation with native species, natural forest regeneration, and environmentally-friendly production practices, hence promoting the transition away from degrading and unproductive agricultural practices while supporting biodiversity conservation and reducing carbon emissions. Examples of activities/practices that could be supported under subcomponent 1.2 that are related to forests include: safeguarding degraded lands (i.e., environmental licensing and legalizing private reserves), protecting springs, rehabilitating riparian forests, forest fire prevention, planting native trees, and protecting internal roads and corridors. The EMF provides guidance measures to implement these practices and includes specifications to comply with the two national laws that protect forests (riparian forests 20% of private rural lands and forests on slopes steeper than 45 degrees). The EMF also stresses the use MDPs and TPDs as tools to identify, map, and exclude natural reserves from production activities (although degraded lands will be rehabilitated with native species in the permanent preservation areas, such as riparian forests and slopes steeper than 45 degrees).

d. OP 4.09 Pest Management. The Project will not finance the procurement of any pesticides or other chemical amendments. Nevertheless, this policy is triggered because small amounts of pesticides will probably continue to be used by a small portion of farmers for which disposal containers may be requested by communities to reduce health and environmental risks associated with pesticide use. Therefore, a section on pest management has been included in the EA/EMF to provide guidance on how to minimize potential negative environmental impacts, as well as on training in safe pesticide use, handling, storage, and disposal. The Project will also support TA for the adoption of organic agriculture and of proven, economically, and environmentally-sustainable Integrated Pest and Plant Management (IPPM). This approach is designed to reduce input costs and human health risks, and to minimize adverse environmental impacts through the virtual elimination of pesticide use without significantly affecting yields. The IPPM approach will further improve the sustainability of agro-ecosystems by focusing on improving the knowledge and skills of farmers for sound resource management. The EMF includes screening procedures against the World Health Organization’s list of approved products. In addition, subcomponent 1.2 of the Project will promote training in good practices and IPPM information dissemination. The need to use pesticides will be assessed on an individual subproject basis, and any approved use must comply with Brazilian Law 7.802/89 and related state laws.

e. OP 4.11 Physical Cultural Resources. This policy is triggered. The Project will finance

small-scale works in already established agricultural zones where the likelihood of disturbing archaeological, paleontological, or other culturally significant sites is small. The Project is not expected to have negative impacts on cultural property, including movable or immovable objects, sites, structures, groups of structures, or natural features or landscapes with archeological, paleontological, historical, architectural, religious, aesthetic, or other cultural significance. The EMF includes a framework for screening

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project activities in relation to potential negative impacts of cultural property. In any case, such impacts will be avoided through the application of subproject eligibility criteria and the safeguards screening system based on Brazil’s well-developed legislative and normative framework, which is under the oversight of the National Institute for Protection of Historical and Archeological Sites (IPHAN). Moreover, the EMF defines that “chance find” procedures will be included in the contracts for any subproject involving works, as well as in the OM, in order to comply with this safeguard and with national legislation on cultural property.

f. OP 4.12 Involuntary Resettlement. OP 4.12 is triggered because subcomponent 1.2

includes the financing of erosion control works to improve the transitability of rural roads (also commonly referred to as farm or parish roads, many of which are dirt roads). Hence, activities supported may involve small amounts of land acquisition, especially with respect to right-of-ways. However, it is not anticipated that the Project will cause physical displacement of people. Since the exact locations of these small works will only be determined during the first year of the Project with activities to begin in the second year, the Client prepared a Resettlement Policy Framework (RPF) which is summarized in Appendix 1 to this Annex. The RFP was publicly disseminated and will form part of the OM. The RPF will serve as the guide to the site-specific formulation of Resettlement Action Plans, which in many cases will be Abbreviated Plans due to the relatively small numbers of people affected and relatively minor impacts.

g. OP 4.10 Indigenous Peoples. This policy is not triggered because all 59 targeted

municipalities have undergone a screening that confirmed that indigenous peoples are not present in the project area.

h. OP 4.37 Safety of Dams. This policy is not triggered.

i. OP 7.50 Projects on International Waterways. This policy is not triggered.

j. OP 7.60 Projects in Disputed Areas. This policy is not triggered. E. Public Consultation and Disclosure 19. Public consultations of the EA/EMF took place in early October 2008. A revised draft of the

EA/EMF was disclosed in-country on October 23, 2008 and sent to the Bank for comments, which were subsequently incorporated. The final version was approved by the Bank on January 14, 2009 before appraisal, disclosed in country and submitted to Infoshop and the Public Information Center for Bank disclosure on the same day. The Social Assessment and RPF were also disclosed in-country on October 23, 2008 and submitted to the Bank’s Infoshop on November 4, 2008. All of the aforementioned documents will be finalized during appraisal.

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Annex 10, Appendix 1

Summary of Resettlement Policy Framework59

A. Overview 1. OP 4.12 is triggered because subcomponent 1.2 includes the financing of erosion control

works to improve the transitability of an anticipated 1,300 kilometers of rural roads (also commonly referred to as farm or parish roads, many of which are dirt roads). Hence, activities supported may involve small amounts of land acquisition, especially with respect to right-of-ways. However, it is not anticipated that the Project will cause physical displacement of people. Since the exact locations of these small works will only be determined during PY1 with activities to begin in PY2, the Client has prepared a RPF, which was publicly disseminated and will form part of the OM. The RPF will serve as the guide to the site-specific formulation of Resettlement Action Plans (RAP), which in many cases will be Abbreviated Plans due to the relatively small numbers of people affected and relatively minor impacts.

2. The basic orientation of the Project is that site-specific activities are to be identified by local

demands and negotiated with all stakeholders to ensure the adequate resolution of any possible adverse impacts. The criteria that will be used to select target roads include both technical and social criteria, the social referring to the highly participatory involvement of communities throughout the process.

3. The RPF is guided by a set of policy principals to:

• minimize and mitigate potential negative social and economic impacts caused by the

project; • ensure that all affected peoples, regardless of their tenure condition, receive proper

compensation and/or assistance to replace assets lost and the restoration of livelihoods at an equal or superior level;

• make certain that affected people are informed about their options and rights, as well as consulted on the available choices;

• prepare a RAP consistent with the provisions of the Bank’s policy on resettlement for each subproject that will involve resettlement (such plans should be sent to the Bank for approval before the subproject is approved for financing).

B. Eligibility 4. Eligibility will be determined on a case by case basis once the necessary cadastres have

been done. This would include all types of rural inhabitants and/or formal or informal group, regardless of whether their lands and/or dwellings are legalized or not.

59 This summary is based on the framework prepared by SEAPPA in October 2008: Projeto Rio Rural - Marco Conceitual de Reassentamento Involuntário Para Projeto de Desenvolvimento Sustentável das Microbacias Hidrográficas.

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C. Legal Framework 5. The project’s RPF is consistent with the existing legal framework in Brazil. There are,

however, three main differences between the Bank’s Operational Policy on resettlement and the Brazilian legal framework. First, the Bank’s policy recognizes the right to assistance of those who have no recognizable legal right or claim to the land they are occupying at the time the census begins but have a claim to such assets. Second, the Bank’s policy considers support to affected peoples after displacement to restore their livelihood and standards of living (loss of income sources or means of livelihood). Third, the Bank’s policy considers effective compensation at full replacement cost for losses of assets attributable directly to the Project.

6. It should be noted that both the Bank’s and Borrower’s set of norms indicate that: (i)

involuntary resettlement (including land acquisition and displacement) shall be avoided or minimized when feasible; (ii) all viable alternative project designs should be explored; and (iii) where displacement is unavoidable, people losing assets, livelihoods, or other resources shall be assisted in improving, or at a minimum regaining, their former status of living at no cost to themselves.

7. Based on the analysis of these differences and common points, the Borrower has agreed to

implement the policy principles of the RPF as stated above for the activities to be financed by the Project.

D. Institutional Assessment 8. The SoRJ has an extensive network of rural roads networks, with approximately 16,330

kilometers of unpaved roads. The State Roads Department (DER-RJ) operates across the state, but not on rural roads. In the SoRJ, local rural roads are generally the responsibility of municipalities that oftentimes do not have sufficient funding or equipment to maintain and/or repair them. As a result, EMATER has been active in rural road repairs since the 1990s, oftentimes collaborating with municipal authorities. EMATER has accumulated considerable experience in this area, and in 2006, EMATER technical staff attended the Bank-implemented Rio GEF Project’s training on Rural Road Maintenance, along with municipal and private sector staff. EMATER further gained experience in 2007 when it assisted in a state program for emergency flood damage repairs for roads which they carried out in northern regions of the SoRJ in conjunction with municipalities.

9. The formulation and implementation of site-specific RAPs, when necessary, will be the

responsibility of EMATER which will work closely together with municipal governments and the PIU. EMATER will be able to contract specialized firms to formulate the RAPs in accordance with the project’s RPF.

E. Methodology 10. Site-specific RAPs will be formulated by a detailed set of activities as defined in the RPF.

This includes: (i) data collection, including a cadastre of affected families and a land

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cadastre; (ii) elaboration of a RAP, including a socioeconomic profile of affected families, evaluations of affected goods, qualitative and quantitative aspects of degrees of impacts, and refined definitions of options and eligibility criteria; and (iii) an action plan that includes institutional responsibilities, timetable, and budget. Once the draft RAP has been reviewed by the municipality to ensure consistency with municipal legislation, it will be sent to the Bank for review and “no objection.”

F. Grievance Procedures 11. It is expected that the formulation and implementation of road subprojects and any RAPs

will be highly participatory with respect to the communities involved. During the process of formulating and implementing site-specific RAPs, municipal governments will maintain an open channel of communication with potentially affected families. This will be carried out through the nomination of a staff member whose responsibility will include gathering data on any concerns or complaints, especially of the most vulnerable populations (such as the elderly and female-headed households), and seeking solutions. In the case that the complaints cannot be adequately addressed in this fashion, the municipal government will appoint a specialized interagency listening committee to attempt to resolve potential disputes.

G. Monitoring and Evaluation 12. EMATER, together with the PIU, will have the primary responsibility for monitoring the

implementation of the principles agreed under the RPF. This will also ensure that the RAP is prepared and implemented satisfactorily in the cases of resettlement including land acquisition. Bank supervision will closely follow progress during the design phase of subprojects through the inclusion of social and safeguard concerns. Monitoring will be done through regular reporting and field visits to ensure the enforcement of relevant safeguard frameworks, clauses, and satisfactory implementation of civil works contracts. The following indicators will be tracked to monitor progress: number of landholdings affected by land acquisition and number of RAPs effectively implemented.

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Annex 11: Project Preparation and Supervision BRAZIL: Rio de Janeiro Sustainable Rural Development Project

Planned Actual PCN review July 2008 August 18, 2008 Initial PID to PIC August 2008 September 8, 2008 Initial ISDS to PIC August 2008 September 8, 2008 Appraisal December 2008 January 16, 2009 Negotiations February 2009 June 1, 2009 Board/RVP approval September 10, 2009 Planned date of effectiveness November 30, 2009 Planned date of MTR March 30, 2012 Planned closing date November 30, 2015 1. Key institutions responsible for preparation of the Project: SEAPPA

2. Bank staff and consultants who worked on the Project included:

Name Title Unit

Alvaro J. Soler Sr Rural Development Specialist LCSAR Matthew Cummins Jr Professional Associate LCSAR Nestor Bragagnolo FAO/CP Agronomist, Consultant FAO/CP Kátia Medeiros FAO Sr. Environmental Specialist FAO/CP Judith M. Lisansky Sr Anthropologist LCSSO Isabella Micali Drossos Sr Counsel LEGLA Anemarie Guth Proite Procurement Specialist LCSPT Nicolas Drossos Financial Mgmt. Specialist - E T Consultant - LCSFM Luciano Wuerzius Procurement Specialist LCSPT Paolo Groppo FAO Land Tenure Officer FAO/CP Francisco Guimaraes FAO/CP Rural Economist, Consultant FAO/CP Aymeric-Albin Meyer Sr Transport Specialist LCSTR Gunars Platais Sr Environmental Economist LCSEN Evelyn Levy E T Consultant LCSPS Anna Roumani Consultant LCSAR Graciela Lituma FAO/CP Rural Development Sp., Consultant FAO/CP Alexandra Horst Jr Professional Associate LCSAR Carolina Cuba Hammond Program Assistant LCSAR Karen Ravenelle-Smith Language Program Assistant LCSAR

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3. Bank funds expended to date on project preparation: a. Bank resources: US$US$198,645 BBFAO resources: US$104,992 b. Trust funds: NA c. Total: US$303,638

4. Estimated Approval and Supervision costs:

a. Remaining costs to approval: US$15,000 b. Estimated annual supervision cost: US$75,000

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Annex 12: Documents in the Project File BRAZIL: Rio de Janeiro Sustainable Rural Development Project

A. Preparation Documents (produced by SEAPPA) - Rio de Janeiro Sustainable Rural Development in Microwatersheds Project Document - Operational Manual - Capacity-building Plan - Environmental Education Plan - Information and Technology Plan for SEAPPA and its Agencies - Targeting Strategy - Economic Analysis of Principal Production Systems in the SoRJ - Institutional Assessment - Results Matrix - Participatory Monitoring Strategy and Indicators - NNWF Key Production Chains Diagnostic - Involuntary Resettlement Framework - Rural Roads Analysis - SRD Research and Technology Diagnostic - Participatory Research Network System Proposal - Environmental Assessment - Rural Health Project (in partnership with SESDEC) B. Documents from Rio GEF Project (produced by SEAPPA) - Project Appraisal Document - Operational Manual - Monitoring and Evaluation Plan - Institutional Assessment - Social Assessment - Environmental Assessment (includes Environmental Management Plan) - Financial Management Assessment - Microbasin and Sub-basin Diagnostics - Community Statutes - Technological Stock - Management System - Incentive System - Communication System - Community Organization System - System for Payments for Environmental Services - Information Interchanges

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Annex 13: Statement of Loans and Credits BRAZIL: Rio de Janeiro Sustainable Rural Development Project

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P111996 2010 BR RJ Mass Transit II 211.70 0.00 0.00 0.00 0.00 211.70 0.00 0.00 P106663 2010 BR Sao Paulo Feeder Roads Project 166.65 0.00 0.00 0.00 0.00 166.65 0.00 0.00 P006553 2010 BR SP APL Integrated Wtr Mgmt 104.00 0.00 0.00 0.00 0.00 104.00 0.00 0.00 P106208 2009 BR Pernambuco Educ Results& Account. 154.00 0.00 0.00 0.00 0.00 154.00 0.00 0.00 P104752 2009 BR Paraiba 2nd Rural Pov Reduction 20.90 0.00 0.00 0.00 0.00 20.90 0.00 0.00 P099369 2009 BR Ceara Regional Development 46.00 0.00 0.00 0.00 0.00 46.00 0.00 0.00 P095205 2009 BR 1st Prog. DPL for Sust. Env Mgmt 1,300.00 0.00 0.00 0.00 0.00 1,300.00 0.80 0.00 P094315 2009 BR Municipal APL4: Sao Luis 35.64 0.00 0.00 0.00 0.00 33.49 -1.97 0.00 P088716 2009 BR Health Network Formation & Quality

Im 235.00 0.00 0.00 0.00 0.00 235.00 0.00 0.00

P110614 2009 BR: Sergipe State Int. Proj.: Rural Pov 20.80 0.00 0.00 0.00 0.00 20.75 2.00 0.00 P107843 2009 BR Fed District Multisector Manag. Proj. 130.00 0.00 0.00 0.00 0.00 130.00 0.00 0.00 P107146 2009 BR Acre Social Economic Inclusion Sust

D 120.00 0.00 0.00 0.00 0.00 104.00 -10.70 0.00

P106767 2009 BR RGS Fiscal Sustainability DPL 1,100.00 0.00 0.00 0.00 0.00 450.00 0.00 0.00 P106765 2009 BR Ceara Inclusive Growth (SWAp II) 240.00 0.00 0.00 0.00 0.00 165.25 -74.15 0.00 P089929 2008 BR RGN State Integrated Water Res Mgmt 35.90 0.00 0.00 0.00 0.00 33.78 15.97 0.50 P089013 2008 BR Municipal APL: Recife 32.76 0.00 0.00 0.00 0.00 32.76 7.19 0.00 P094199 2008 BR-(APL) RS (Pelotas) Integr. Mun. Dev. 54.38 0.00 0.00 0.00 0.00 42.91 -7.98 0.00 P088966 2008 BR Municipal APL3: Teresina 31.13 0.00 0.00 0.00 0.00 28.68 -0.37 0.00 P106038 2008 BR Sao Paulo Trains and Signalling 550.00 0.00 0.00 0.00 0.00 375.06 -22.97 0.00 P083997 2008 BR Alto Solimoes Basic Services and Sust 24.25 0.00 0.00 0.00 0.00 23.21 2.40 0.00 P095626 2008 BR (APL2)Family Health Extension 2nd

APL 83.45 0.00 0.00 0.00 0.00 83.45 10.35 0.00

P101324 2008 BR-Second Minas Gerais Dev't PArtnership

976.00 0.00 0.00 0.00 0.00 470.06 -503.50 0.00

P095460 2007 BR-Bahia Integr.Hway Mngmt. 100.00 0.00 0.00 0.00 0.00 95.00 12.20 0.00 P089793 2007 BR State Pension Reform TAL II 5.00 0.00 0.00 0.00 0.00 4.99 2.50 0.25 P089011 2007 BR Municipal APL1: Uberaba 17.27 0.00 0.00 0.00 0.00 15.60 9.38 0.00 P082651 2007 BR APL 1 Para Integrated Rural Dev 60.00 0.00 0.00 0.00 0.00 56.14 42.14 0.00 P081436 2006 BR-Bahia Poor Urban Areas Integrated

Dev 49.30 0.00 0.00 0.00 0.00 42.66 42.66 0.00

P082523 2006 BR HD Technical Assistance Loan 8.00 0.00 0.00 0.00 0.00 2.31 2.31 0.00 P052256 2006 BR-MG Rural Poverty Reduction 35.00 0.00 0.00 0.00 0.00 0.96 -4.49 0.00 P050761 2006 BR-Housing Sector TAL 4.00 0.00 0.00 0.00 2.70 1.27 3.47 0.00 P093787 2006 BR Bahia State Integ Proj Rur Pov 54.35 0.00 0.00 0.00 0.00 2.64 -2.33 0.00 P092990 2006 BR - Road Transport Project 501.25 0.00 0.00 0.00 0.00 309.01 254.26 152.76 P089440 2006 BR-Brasilia Environmentally Sustainable 57.64 0.00 0.00 0.00 0.00 29.76 24.00 0.00 P090041 2006 BR ENVIRONMENTAL SUST.

AGENDA TAL 8.00 0.00 0.00 0.00 0.00 5.25 5.17 0.00

P069934 2005 BR-PERNAMBUCO INTEG DEVT: 31.50 0.00 0.00 0.00 0.00 9.88 9.88 0.00

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EDUC QUAL IMPR P076924 2005 BR- Amapa Sustainable Communities 4.80 0.00 0.00 0.00 0.00 2.78 2.78 0.00 P087711 2005 BR Espirito Santo Wtr & Coastal Pollu 107.50 0.00 0.00 0.00 0.00 71.50 0.00 0.00 P083533 2005 BR TA-Sustain. & Equit Growth 12.12 0.00 0.00 0.00 0.00 8.52 8.52 0.00 P083013 2004 BR Disease Surveillance & Control APL 2 99.50 0.00 0.00 0.00 0.00 22.54 23.04 0.00 P060573 2004 BR Tocantins Sustainable Regional Dev 60.00 0.00 0.00 0.00 0.00 21.91 21.91 21.91 P087713 2004 BR Bolsa Familia 1st APL 572.20 0.00 0.00 0.00 4.36 8.67 13.03 0.00 P074777 2003 BR-Municipal Pension Reform TAL 5.00 0.00 0.00 0.00 0.00 1.80 1.80 -0.11 P076977 2003 BR-Energy Sector TA Project 12.12 0.00 0.00 0.00 0.00 7.43 7.43 0.00 P049265 2003 BR-RECIFE URBAN UPGRADING

PROJECT 46.00 0.00 0.00 0.00 0.00 11.98 11.98 11.98

P054119 2003 BR BAHIA DEVT (HEALTH ) 30.00 0.00 0.00 0.00 0.00 5.02 5.02 0.00 P051696 2002 BR SÃO PAULO METRO LINE 4

PROJECT 304.00 0.00 0.00 0.00 0.00 71.56 -23.20 -23.20

P060221 2002 BR FORTALEZA METROPOLITAN TRANSPORT PROJ

85.00 0.00 0.00 0.00 62.60 12.38 69.54 17.83

P066170 2002 BR-RGN Rural Poverty Reduction 45.00 0.00 0.00 0.00 0.00 21.77 -0.68 17.32 P050881 2001 BR BR-PIAUI RURAL POVERTY

REDUCTION 45.00 0.00 0.00 0.00 0.00 11.89 -10.61 11.89

P050880 2001 BR Pernambuco Rural Poverty Reduction 60.10 0.00 0.00 0.00 0.63 11.05 -18.32 3.43 P006449 2000 BR CEARA WTR MGT PROGERIRH

SIM 239.00 0.00 0.00 0.00 0.00 105.85 2.85 1.85

P038895 1998 BR FED.WTR MGT 248.00 0.00 0.00 0.00 63.00 22.75 35.87 35.87

Total: 8,579.21 0.00 0.00 0.00 133.29 5,226.52 - 30.82 252.28

BRAZIL

STATEMENT OF IFC’s Held and Disbursed Portfolio

In Millions of US Dollars Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2005

ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00

2005 ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2001 AG Concession 0.00 30.00 0.00 0.00 0.00 30.00 0.00 0.00 2002 Amaggi 17.14 0.00 0.00 0.00 17.14 0.00 0.00 0.00 2005 Amaggi 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 Andrade G. SA 22.00 0.00 10.00 12.12 22.00 0.00 10.00 12.12 2001 Apolo 6.04 0.00 0.00 0.00 3.54 0.00 0.00 0.00 1998 Arteb 20.00 0.00 0.00 18.33 20.00 0.00 0.00 18.33 2006 BBM 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 2001 Brazil CGFund 0.00 19.75 0.00 0.00 0.00 18.15 0.00 0.00 2004 CGTF 54.01 0.00 7.00 65.12 54.01 0.00 7.00 65.12 1994 CHAPECO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1996 CHAPECO 1.50 0.00 0.00 5.26 1.50 0.00 0.00 5.26 2003 CPFL Energia 0.00 40.00 0.00 0.00 0.00 40.00 0.00 0.00 1996 CTBC Telecom 3.00 8.00 0.00 0.00 3.00 8.00 0.00 0.00

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1997 CTBC Telecom 0.00 6.54 0.00 0.00 0.00 6.54 0.00 0.00 1999 Cibrasec 0.00 3.27 0.00 0.00 0.00 3.27 0.00 0.00 2004 Comgas 11.90 0.00 0.00 11.54 11.90 0.00 0.00 11.54 2005 Cosan S.A. 50.00 5.00 15.00 0.00 50.00 5.00 15.00 0.00 Coteminas 0.00 1.84 0.00 0.00 0.00 1.84 0.00 0.00 1997 Coteminas 1.85 1.25 0.00 0.00 1.85 1.25 0.00 0.00 2000 Coteminas 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0.00 1980 DENPASA 0.00 0.52 0.00 0.00 0.00 0.48 0.00 0.00 1992 DENPASA 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 Dixie Toga 0.00 0.34 0.00 0.00 0.00 0.34 0.00 0.00 1998 Dixie Toga 0.00 10.03 0.00 0.00 0.00 10.03 0.00 0.00 1997 Duratex 1.36 0.00 3.00 0.57 1.36 0.00 3.00 0.57 2005 EMBRAER 35.00 0.00 0.00 145.00 35.00 0.00 0.00 145.00 1999 Eliane 14.93 0.00 13.00 0.00 14.93 0.00 13.00 0.00 1998 Empesca 1.33 0.00 2.67 0.00 1.33 0.00 2.67 0.00 2006 Endesa Brasil 0.00 50.00 0.00 0.00 0.00 50.00 0.00 0.00 2006 Enerbrasil Ltda 0.00 5.50 0.00 0.00 0.00 0.00 0.00 0.00 2006 FEBR 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2000 Fleury 0.00 0.00 6.00 0.00 0.00 0.00 6.00 0.00 1998 Fras-le 4.00 0.00 9.34 0.00 4.00 0.00 6.04 0.00 2006 GOL 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 GP Capital III 0.00 14.00 0.00 0.00 0.00 0.14 0.00 0.00 GP Cptl Rstrctd 0.00 2.22 0.00 0.00 0.00 2.16 0.00 0.00 2001 GPC 0.00 0.00 9.00 0.00 0.00 0.00 9.00 0.00 GTFP BIC Banco 44.91 0.00 0.00 0.00 44.91 0.00 0.00 0.00 GTFP BM Brazil 4.22 0.00 0.00 0.00 4.22 0.00 0.00 0.00 GTFP Indusval 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997 Guilman-Amorim 18.08 0.00 0.00 14.37 18.08 0.00 0.00 14.37 1998 Icatu Equity 0.00 5.46 0.00 0.00 0.00 4.16 0.00 0.00 1999 Innova SA 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1980 Ipiranga 0.00 2.87 0.00 0.00 0.00 2.87 0.00 0.00 1987 Ipiranga 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 2006 Ipiranga 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Itambe 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Itau-BBA 12.86 0.00 0.00 0.00 12.86 0.00 0.00 0.00 2002 Itau-BBA 70.61 0.00 0.00 0.00 38.47 0.00 0.00 0.00 1999 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0.00 2005 Lojas Americana 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1992 MBR 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2006 MRS 50.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00 2002 Microinvest 0.00 1.25 0.00 0.00 0.00 0.82 0.00 0.00 Net Servicos 0.00 10.93 0.00 0.00 0.00 10.93 0.00 0.00 2002 Net Servicos 0.00 1.60 0.00 0.00 0.00 1.60 0.00 0.00 2005 Net Servicos 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0.00 1994 Para Pigmentos 2.15 0.00 9.00 0.00 2.15 0.00 9.00 0.00 1994 Portobello 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 2000 Portobello 4.28 0.00 7.00 0.00 4.28 0.00 7.00 0.00 2002 Portobello 0.00 0.90 0.00 0.00 0.00 0.90 0.00 0.00 2000 Puras 0.00 0.00 1.00 0.00 0.00 0.00 1.00 0.00

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2003 Queiroz Galvao 26.67 0.00 10.00 0.00 26.67 0.00 10.00 0.00 2004 Queiroz Galvao 0.60 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2006 RBSec 22.83 1.51 0.00 0.00 0.00 1.51 0.00 0.00 Randon Impl Part 2.33 0.00 3.00 0.00 2.33 0.00 3.00 0.00 1997 Sadia 2.55 0.00 2.33 3.28 2.55 0.00 2.33 3.28 1997 Samarco 3.60 0.00 0.00 0.00 3.60 0.00 0.00 0.00 1998 Saraiva 0.00 1.24 0.00 0.00 0.00 1.24 0.00 0.00 2000 Sepetiba 26.24 0.00 5.00 0.00 11.24 0.00 5.00 0.00 2002 Suape ICT 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1999 Sudamerica 0.00 7.35 0.00 0.00 0.00 7.35 0.00 0.00 2006 Suzano petroq 50.00 0.00 10.00 140.00 39.50 0.00 10.00 110.50 2001 Synteko 11.57 0.00 0.00 0.00 11.57 0.00 0.00 0.00 2006 TAM 50.00 0.00 0.00 0.00 17.00 0.00 0.00 0.00 1998 Tecon Rio Grande 3.55 0.00 5.50 3.71 3.55 0.00 5.50 3.71 2004 Tecon Rio Grande 7.87 0.00 0.00 7.76 7.59 0.00 0.00 7.48 2001 Tecon Salvador 2.95 1.00 0.00 3.10 2.95 0.77 0.00 3.10 2003 Tecon Salvador 0.00 0.55 0.00 0.00 0.00 0.55 0.00 0.00 2004 TriBanco 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2006 TriBanco 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 2002 UP Offshore 9.01 9.51 0.00 23.29 0.00 2.51 0.00 0.00 2002 Unibanco 16.89 0.00 0.00 0.00 16.89 0.00 0.00 0.00

Total portfolio: 1,164.15 253.88 144.84 503.45 703.91 223.86 141.54 400.38

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2000 BBA 0.01 0.00 0.00 0.00 1999 Cibrasec 0.00 0.00 0.00 0.00 2006 Ipiranga II 0.00 0.00 0.00 0.10 2002 Banco Itau-BBA 0.00 0.00 0.00 0.10

Total pending commitment: 0.01 0.00 0.00 0.20

131

Annex 14: Country at a Glance

BRAZIL: Rio de Janeiro Sustainable Rural Development Project

132

BALANCE of PAYMENTS1987 1997 2006 2007

(US$ millions)Exports of goods and services 28,073 59,870 156,908 168,002Imports of goods and services 17,749 77,269 120,243 139,394Resource balance 10,324 -17,399 36,665 28,608

Net income -11,699 -14,876 -27,489 -23,812Net current transfers -43 1,823 4,307 -135

Current account balance -1,418 -30,452 13,621 4,661

Financing items (net) 3,583 22,201 18,419 78,199Changes in net reserves -2,165 8,251 -32,040 -82,860

Memo:Reserves including gold (US$ millions) 7,458 52,173 85,839 169,445Conversion rate (DEC, local/US$) 1.43E-8 1.1 2.2 1.9

EXTERNAL DEBT and RESOURCE FLOWS1987 1997 2006 2007

(US$ millions)Total debt outstanding and disbursed 119,842 198,457 194,150 .. IBRD 9,384 5,743 9,694 9,676 IDA 0 0 0 0

Total debt service 11,957 41,243 62,145 .. IBRD 1,555 1,428 1,174 1,353 IDA 0 0 0 0

Composition of net resource flows Official grants 35 83 93 .. Official creditors 36 -1,186 -401 .. Private creditors -705 16,415 6,197 .. Foreign direct investment (net inflows) 1,169 19,650 18,782 .. Portfolio equity (net inflows) 61 5,099 7,716 ..

World Bank program Commitments 1,394 1,104 1,557 1,365 Disbursements 915 1,416 2,203 606 Principal repayments 867 1,049 743 805 Net flows 48 368 1,460 -199 Interest payments 688 380 432 548 Net transfers -641 -12 1,028 -747

Note: This table was produced from the Development Economics LDB database. 9/24/08

-6

-4

-2

0

2

4

01 02 03 04 05 06 07

Current account balance to GDP (%)

G:20,325

A: 9,694

D: 12,048

F:148,521

E: 3,562

A - IBRDB - IDAC - IMF

D - Other multilateralE - BilateralF - PrivateG - Short-term

Composition of 2006 debt (US$ mill.)

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