China - Forestry Development

 ICRR 12504 Report Number : ICRR12504 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 09/13/2006 PROJ ID :P046952 Appraisal Actual Project Name :Cn - Forestry Development Project Costs 364.00 370.30 US$M ) (US$M) Country :China Loan/ US$M ) Loan /Credit (US$M) 200.00 192.90 Sector (s):Board: ): RDV - Forestry US$M ) Cofinancing (US$M) (86%), Micro- and SME finance (7%), Agricultural marketing and trade (4%), Irrigation and drainage (3%) L/C Number :CN039; L4325 FY ) Board Approval (FY) 98 Partners involved : Closing Date 12/31/2005 12/31/2005 Evaluator : Panel Reviewer : Division Manager : Division : Ridley Nelson Nalini B. Kumar Alain A. Barbu IEGSG 2. Project Objectives and Components a. Objectives The main objective was to develop forest resources in poor areas of central and western China on a sustainable and participatory basis to support poverty reduction, forestry development and improved environmental management . b. Components (or Key Conditions in the case of Adjustment Loans ): There were four components: 1. Timber Plantations (planned US$121.8 million, actual US$128.6 million) to develop forests (315,000 ha) to support poverty alleviation especially in mountainous areas . Community forest assessment planning techniques were used . 2. Economic Forest Crops (planned US$135.2 million, actual US$149.8 million) to generate faster income for the poor from forest-related crops (230,000 ha) while the slower growing forests were maturing . 3. Technical Support Services (planned US$81.5 million, actual US$86.3 million) to strengthen support for production of planting stock, and training and extension, including M&E . A national team of forestry experts for consultancy was also funded. 4. Township and Village Enterprise Development (TVED) (planned US$25.5 million, actual US$5.6 million) to carry out on-lending to expand small-scale forest product processing and manufacture and to generate employment . c. Comments on Project Cost, Financing, Borrower Contribution, and Dates As is evident from the cost figures above, the TVED component was substantially reduced following a logging ban in 1998 in natural forest areas which substantially reduced supply . Communities requested more tree planting and funds were reallocated from the TVED component to plantation activities . The logging ban reduced revenues for some counties reducing availability of local couterpart funds . There were also complex review processes for TVED activities and limited professional staff in project management offices both of which militated against this component . Reduced local public funding was compensated for mostly by increased farmer and planting entity investment .The project closed on schedule after seven years of implementation with a small undisbursed balance . Changes in the US$ exchange rate with respect to the SDR reduced the US$ value by US$ 1.57 million. 3. Relevance of Objectives & Design : The objectives were relevant to both the borrower's and the Bank's sector strategy and the design adequately reflected those objectives . The relevance lay in both poverty and environment areas . 4. Achievement of Objectives (Efficacy) : The objective of developing forest resources on a sustainable basis to support poverty reduction is likely to be achieved with the poverty alleviation element emerging as harvested volumes build . With respect to developing forestry, a total of 375,080 ha of plantation was established, about 120% of the PAD target. A participatory approach was adopted. This was the first time in the China forestry sector that it had been used and it appears to have been enthusiastically adopted by government agencies . With respect to poverty impact , 75% of the selected counties were poverty designated counties and nearly 900,000 households participated. The ICR notes that the overall poverty rate in the project counties declined from 40% to 17.5% at project closing. Poverty gains of this magnitude were CAS objectives rather than project objectives with project objectives specified more narrowly as beneficiary income gains . Given the staggered planting and the long gestation period of trees it is unlikely that much of the overall poverty achievement at county level is yet attributable to the project . Any poverty impact could be expected to build gradually . With respect to the objective of improving environmental management , an increased percentage of forest cover is claimed of nearly 8% over the 1997 actual base level, although the original PAD baseline forest cover estimate appears to have been erroneous . Data from the Bureau of Water Conservancy suggest substantially reduced run -off, implying reduced erosive forces . There was some problem with drought which in three provinces in 2002 contributed to some mortality, especially in younger trees . There was some fire impact in some areas . With respect to supporting project inputs (inputs in the evaluation sense ) there was a substantial achievement of technical support and training . About 1.1 billion seedlings were produced with some 400 million being made available outside the project households . Improved nursery management including tissue culture was adopted . About 50,000 person-days of management and technical training were given for staff . 3.3 million farmer training days were completed. About 30,000 ha of demonstration forests were established to demonstrate forest management techniques. The logging ban had some impact on the project since some land areas under the ban were to be used for plantation establishment. 5. Efficiency : The ERR for the project was estimated at about 26 percent, a good economic return by rural project standards . This compares to the approximately 24 percent at appraisal. The TVED component exhibited the lowest ex post ERR at about 15 percent. As noted above, this component was reduced in scale at mid -term. The Economic Forest Crops exhibited the highest ERR at about 28 percent. Productivity gains were greater than projected at appraisal . There is insufficient detail in the ICR Annex 3 to comment on the soundness of the methodology but there are no obvious errors. 6. M&E Design, Implementation, & Utilization: The PAD suggests satisfactory M&E design with Bank approval of the M&E plan including preparation of an agreed key indicator table. Indicators focussed on Development Impact, Project Outputs and Project Inputs . The ICR reports M&E as being satisfactorily implemented and utilized. In addition to the routine monitoring, a number of household surveys were conducted at baseline, mid -term and closing. An income survey and a plantation growth survey was conducted. The borrower's report states that the adoption of a consistent survey standard, and comparable analysis, made results reliable and enabled comparison . It appears that the findings of M&E were utilized, although actual evidence of this aspect is somewhat limited in the ICR . 7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): The ICR contained reference to environmental land /water impacts but no direct discussion of safeguards . However, there is no evidence that Bank safeguards were violated . The borrower's report notes that the carbon sink equivalent of the standing forest planted under the project would be the equivalent of burning about 600 million tons of coal. 8. Ratings : ICR ICR Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Highly Likely Likely The higher productivity and the fact that prices are improving and farmers are expanding tree production outside the project using their own resources suggests resilience to risk and the technical support appears strong . However, local governments are apparently committed to reimburse repayments for poor households where needed, especially those growing timber . This raises questions about the resilience to risk of that component, the largest component, about the private incentives and possibly a larger question about the sustainability of rural finance . Moreover, according to the ICR, some entities have still not prepared post-project plans and the poor counties are inherently  budget-constrained. These issues make a Highly Likely rating too optimistic at this stage before much of the timber has been harvested. Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness . 9. Lessons: The ICR and the borrower report offers four main generic lessons which are given here with some adaptation : 1. A strong research-extension-training linkage is essential to transfer new production and management technologies to poor farmer communities. The available in-country skills, often scattered and uncoordinated, need to be harnessed through an institution and linked to potential beneficiaries, as was achieved in this case through a highly qualified senior consultancy group . 2. Superior planting material and management of that material through the transfer of skills is a key to high productivity and thus efficiency . 3. In pursuing broad environmental land management objectives and participatory approaches, the short time horizon of poor rural households, and their need for immediate income, should be understood and accomodated in the form of quick return non-timber forest products or fast growing species and products (e.g. poles), and complementary crop or livestock enterprises. Credit can be problematic with longer -term timber enterprises in the absence of such shorter-term revenue sources. 4. Small enterprise development and lending in rural areas calls for careful analysis of proposals by qualified staff, well-trained in small enterprise investment, who can realistically project and assess the market demand and the commercial viability. 10. Assessment Recommended? Yes No Why? To verify ratings and examine more fully the attributable poverty impact . A PPAR could be combined with the Smallholder Cattle Project closed recently . 11. Comments on Quality of ICR: The ICR is satisfactory overall . It draws clear findings. However, the evidence on attributable poverty impact is somewhat unclear. Given that much of the benefit stream from the project is still to be realized from harvested timber it is difficult to see how much of the poverty gains quoted have arisen directly from the project . Somewhat more detail on the environmental impacts, particularly the water regime changes, would have clarified the environmental outcome since the impact of trees on hydrology is complex and by no means always positive . Also needed was more evidence on the functioning of the community participation and on the likely sustainability of those processes . On both environment and community participation, staff have subsequently provided more explanation . Also, the issue of the long growing period of trees against shorter -term loan repayment is important for sustainability and warranted better coverage. The ICR did not elaborate on how market demand was projected, which is a key issue in a rapidly changing economy and sector, and in a commodity based long -cycle project/sector such as forestry, in which there is always some risk of a project becoming too supply driven . However, also in a subsequent exchange, staff pointed out the very large current and increasing supply and demand gap . More evidence could have been offered on the drought impact.