China - Smallholder Cattle Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 35962 IMPLEMENTATION COMPLETION REPORT (TF-29720 SCL-45300) ON A LOAN IN THE AMOUNT OF US$ 93.5 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SMALLHOLDER CATTLE DEVELOPMENT PROJECT June 13, 2006 Rural Development and Natural Resources Sector Unit East Asia and Pacific 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.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2005) Currency Unit = Renminbi (RMB) Yuan (Y) Y1.0 = US$ 0.12 US$ 1.0 = Y8.07 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AI Artificial Insemination CAS Country Assistance Strategy CPMO CPMO EASRD Rural Development & Natural Resources Sector Unit, East Asia & Pacific Region, World Bank ERR Economic Rate of Return FAO/CP Food and Agriculture Organization/World Bank Cooperative Program FECC Foreign Economic Cooperation Center FRR Financial Rate of Return HACCP Hazard Analysis Critical Control Point IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion Report LIBOR London Inter-Bank Offered Rate M&E Monitoring and Evaluation MOA Ministry of Agriculture MTR Mid-term Review NCB National Competitive Bidding NBF Non-Bank Financed NGO Non-Government Organization PAD Project Appraisal Document PDO Project development objective PMO Project Management Office PPMO Provincial Project Management Office QAG Quality Assurance Group RMB Renminbi - Chinese Currency SA Special Account TA Technical Assistance TPAG Technical and Producer Advisory Group WTO World Trade Organization Vice President: Jeffrey S. Gutman, EAPVP (Acting) Country Director: David R. Dollar, EACCF Sector Director: Mark D. Wilson, EASRD Task Team Leader: Weiguo Zhou, EASRD  CHINA Smallholder Cattle Development Project CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 11 7. Bank and Borrower Performance 12 8. Lessons Learned 13 9. Partner Comments 14 10. Additional Information 15 Annex 1. Key Performance Indicators/Log Frame Matrix 16 Annex 2. Project Costs and Financing 18 Annex 3. Economic Costs and Benefits 22 Annex 4. Bank Inputs 24 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 27 Annex 6. Ratings of Bank and Borrower Performance 28 Annex 7. List of Supporting Documents 29 Annex 8. Borrower's ICR 30  Project ID: P045264 Project Name: Smallholder Cattle Development Project Team Leader: Weiguo Zhou TL Unit: EASRD ICR Type: Core ICR Report Date: June 13, 2006 1. Project Data Name: Smallholder Cattle Development Project L/C/TF Number: TF-29720; SCL-45300 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Animal production (74%); Agricultural marketing and trade (15%); Sub-national government administration (6%); Agricultural extension and research (5%) Theme: Rural markets (P); Other rural development (P); Social risk mitigation (S) KEY DATES Original Revised/Actual PCD: 02/21/1997 Effective: 05/10/2000 06/14/2000 Appraisal: 04/16/1999 MTR: 03/31/2003 09/07/2003 Approval: 12/22/1999 Closing: 12/31/2005 12/31/2005 Borrower/Implementing Agency: The People's Republic of China/The Ministry of Agriculture and the Provincial Governments of Henan; The People's Republic of China/Hebei; The People's Republic of China/Shanxi; The People's Republic of China/and Anhui Other Partners: None STAFF Current At Appraisal Vice President: Jeffrey S. Gutman Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Director: Mark D. Wilson Geoffrey B. Fox Team Leader at ICR: Weiguo Zhou Rapeepun Jaisaard and Abraham Brandenburg ICR Primary Author: Xueming Liu and Ajay Markanday (FAO/CP) 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: HS QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: 3.1.1 The project aimed to improve smallholder cattle production within existing crop farming areas with large crop by-product surpluses, and to improve the quality and marketability of cattle in order to enhance farmer incomes and reduce poverty. The project was designed to assist the government's policy of developing the beef cattle sub-sector in response to the emerging market demand for quality beef. The project placed special emphasis on assisting smallholders in the inland provinces of Henan, Hebei, Anhui and Shanxi, which have the necessary surplus labor and natural resources but are constrained by the low productivity and quality of cattle, a lack of animal husbandry technology, and inadequate processing and marketing infrastructure. Specifically the project would: (a) improve cattle productivity, (b) increase the efficiency of converting low-value crop residues into high-value beef and beef products, and (c) promote marketing linkages. 3.1.2 The original project development objectives (PDOs) were fully consistent with the government's goals for agriculture sector development and raising farmer incomes through the use of improved agricultural technologies and the development of agro-industries. Specific government strategies supported by the project in the sector included: (a) improving cattle breeds and feeding practices to reduce feed demand on grains; (b) improving beef processing quality, food safety standards and grading systems to increase domestic supply of quality beef; (c) increasing the market integration of and linkages between cattle producers and beef processors; and (d) enhancing commercial involvement and reducing the government's role in the beef processing sub-sector. The PDOs were also consistent with the major objectives of the Bank's 1997 Country Assistance Strategy (CAS) for China, assisting China in the development of integrated marketing and logistical systems for agricultural commodities, in order to establish linkages from production to urban markets, and increased efficiency in livestock production through improvements in feed and production technologies and generating higher-valued animal products. 3.2 Revised Objective: 3.2.1 The original project objectives remained unchanged throughout project implementation. 3.3 Original Components: 3.3.1 The design of the components was holistic and based on an integrated supply/value chain approach. Lessons learned from major related projects, local know-how and extensive sector studies were fully incorporated into the project conceptualization and design (see Section 3.5). The project had four components: (a) Cattle Breed and Feed Improvement; (b) Cattle Production; (c) Market Development; and (d) Institutional Strengthening. The costs of components estimated at appraisal included physical and price contingencies. 3.3.2 Cattle Breed and Feed Improvement Component (US$2.00 million). This component aimed to produce improved breeds that would be suitable for commercial cattle production under local production conditions, while also preserving the genetic materials of indigenous breeds. The component aimed to strengthen the Henan and Anhui provincial breeding centers by upgrading and expanding beef bull stations. The project would also support the import of bulls for cross-breeding by Anhui and Shanxi to support the government in upgrading the indigenous breeds and reviewing the breeding strategies. The project would support the construction of a small pilot-scale mill in Shanxi to produce cattle vitamin-mineral molasses blocks for sale within and outside Shanxi province. - 2 -  3.3.3 Cattle Production Component (US$132.53 million). The cattle production component aimed to increase cattle production and productivity in existing farming areas, and thereby increase household incomes, through the introduction of improved breeds, cross-breeding programs, improved feeds, feeding of ammoniated straw and crop by-products, veterinary services, and improved animal husbandry practices. This component had three sub-components: (a) household cow-calf-raising to assist 128,158 households spread across all four provinces in establishing small household cattle breeding and production units; (b) household cattle fattening to support 10,332 rural households with sufficient home-grown crop by-products to set up small livestock fattening enterprises and thereby increase farm incomes beyond those earned from crops; and (c) the establishment of 130 small-scale commercial feedlots to produce quality cattle and to provide linkages between production and markets. 3.3.4 Market Development Component (US$25.45 million). This component aimed to provide support for the development of cattle and beef markets. The project would support two major infrastructure investments: (a) development of a pilot program for 16 cattle markets, as centers for trade and market information as well as places to access technical knowledge and veterinary services; and (b) establishment of key linkages between production and markets through integrated planning and management by processing facilities, feedlots and farmers, and assisting the upgrading and expansion of four existing slaughterhouses and construction of a new slaughterhouse which would participate in the beef grading and quality assurance program and work toward achieving the Hazard Analysis and Critical Control Point (HACCP) or ISO-9002 best-practice level. 3.3.5 Institutional Strengthening Component (US$19.88 million). This component aimed to (a) assist the government in developing a reliable grading system compatible with international grading practice; (b) strengthen the Bureau of Animal Husbandry to efficiently provide new and better cattle production related services to farmers; (c) provide training to participating households, Animal Husbandry and Veterinary Station personnel, breeding station staff, project management staff, feedlot managers and meat inspectors; (d) support research and development; and (e) strengthen project management offices. 3.4 Revised Components: 3.4.1 Project components remained largely unchanged throughout the implementation. However, dairy production was added as a new sub-component in November 2001 to the Cattle Production Component in response to increased interest of the participating farmers and changing priorities of the government in livestock sector. Total investment for the dairy production sub-component was further increased at the Mid-term Review (MTR) (see Section 4.2). 3.5 Quality at Entry: 3.5.1 There was no Quality at Entry assessment or Quality Assurance Group (QAG) analysis during the course of the project. However, the Quality at Entry was considered satisfactory as the project was a well-measured and considered effort made jointly by the government and the Bank to more effectively "operationalize" the government's strategic goals related to the agriculture sector, livestock production and integrated market development. The project was consistent with key strategic goals of the government for enhancing the quality, standards and market integration of the beef industry in China, reducing the country's dependency on imports of quality beef, and increasing incomes of smallholder farmer households. These strategic drives were forward looking, given the rapid pace of economic development in the country and significant increases in domestic market demand for quality meat products. At the same time, the project was inclusive in targeting smallholder producers who were potentially vulnerable to rapid economic - 3 -  change and needed livelihood safety net. In addition, the PDOs and project design were closely aligned to key thrusts in the Bank's CAS and its particular focus on livestock and market development (see Section 3.1). Moreover, the project design was thorough in considering potential risks and incorporating relevant lessons learned from a number of previous livestock related projects in China funded by the Bank and other bilateral sources, in particular lessons related to market development, household loan bearing capacity and meat grading and safety. The project was realistic in recognizing that the process and institutional changes required a holistic (integrated supply chain) approach and sustained commitment over time. Furthermore, the project design complied with all applicable Bank policies. 3.5.2 Notwithstanding the thoroughness of the project design, the time taken from project identification in 1996 to the beginning of project implementation in 2000 was excessive and there were tangible risks that design would be outpaced by rapid developments in China. In addition, the key performance indicators and monitoring and evaluation (M&E) system should have been refined and more specific in the Project Appraisal Document (PAD). 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: 4.1.1 All project components were completed by December 31, 2005 as scheduled, with all the main outcome targets having been met or exceeded (see Annex 1). The outcome/achievement of the objectives is rated as satisfactory, based on: (a) the substantial achievements of the project objectives; (b) the project's economic viability and financial profitability (see Sections 4.3 and 4.4); and (c) the likely sustainability of the project's achievements (see Section 6). The project adequately addressed constraints in the beef sub-sector in an integrated manner through the improvement of production, processing and marketing development. It had a significant impact in institutionalizing an integrated cattle breeding, production, processing and marketing supply chain, focusing on quality assurance and food safety. These positive developments in the livestock sector complemented the strong drive toward market-oriented development in other sectors of the Chinese economy. Producers have become significantly better informed of, and more responsive to, price premiums associated with quality and safety standards. The project also improved significantly efficiencies in breeding, feeding and production technologies which contributed to productivity gains and ultimately to increases of farmer incomes. Environment-friendly practices were also effectively introduced by the project, which are being up-scaled to regular programs in the participating provinces. 4.1.2 The project supported the use of treated crop residues, forage production and processing technology through training, extension and support services. As a result, new technologies (such as silage making, ammonium treated straw making, and forage cultivation) are better understood and applied by beneficiaries. Under the project, about 95 percent of the targeted farmer households are now adopting new feed technologies and 96 percent are applying new breeding technologies, 20 percentage points and 19 percentage points higher, respectively, than the appraisal targets. Based on project statistics, the market share of quality project beef reached 62 percent in 2005, 7 percentage points higher than the appraisal target of 55 percent. Market information has reached about 84 percent of targeted farmer households as compared to the appraisal target of 80 percent. 4.1.3 The project has enhanced farmer incomes and reduced poverty levels in the project areas. Compared to pre-project levels, the average annual net income of participating farmer households increased by 64 percent, of which the net income generated by cattle-raising increased by 165 percent. Per capita income of about 360,000 local populations of 83,800 poor households in the 73 project counties (including 24 officially designated as poverty counties) is now above the poverty line. As a result, the absolute - 4 -  poverty households in the project areas have been basically eliminated. 4.2 Outputs by components: 4.2.1 The key outputs by components are described below. Outputs achieved are compared to the physical targets set at the project appraisal and, where appropriate, to those revised during the MTR. The revised targets at the MTR reflected changes mainly in the investment priorities of the government and the interests of participating farmer households. Overall, project outputs exceeded both PAD and MTR targets with a few exceptions (see Sections 4.2.3 (a), 4.2.4 (a), 4.2.5). Detailed outputs by component are presented in Annex 1. 4.2.2 Cattle Breed and Feed Improvement Component (US$2.39 million - 120 percent of appraisal estimate). The component provided support to two sub-components. (a) Breed Improvement sub-component. In line with target outputs, the project successfully strengthened Provincial Beef Cattle Breeding Centers in Anhui and Henan provinces and developed a comprehensive medium-term cross-breeding strategy in all provinces for maximizing beef production. Anhui Provincial Cattle Breeding Center completed its project implementation and reached its appraisal target. Currently, the Anhui Provincial Cattle Breeding Center annually provides 30-40 beef and dairy bulls to the local market and supplies 0.6 million straws of frozen cattle semen (with an estimated annual production of 1.23 million straws at full development) required for in-province breeding and cross breeding purpose. Under the project, the Henan Provincial Beef Cattle Breeding Center became the largest frozen cattle semen producer in China, supplying an annual total of 2.42 million frozen semen straws nationally in addition to providing 45 genetically evaluated live bulls annually. In Henan, the Nanyang Yellow Cattle have been preserved as an indigenous cattle breed and have also been improved through cross-breeding with German Yellow cattle (Gelbvieh, a meat/milk dual purpose breed). The breeding programs in Hebei and Shanxi provinces have also been performing well. In Hebei, fine breeds of both overseas and domestic origins have been recommended to farmers which contributed greatly to quality improvement of beef cattle in the project area. In Shanxi, 22 imported Sal and Holstein bulls were the main sires for beef and dairy breeding in the province, producing some 400,000 frozen semen straws per year. Under the project, Shanxi developed a new cattle breed, the Taihang Simmental, for which national certification has been applied, and preserved indigenous material from Jinnan Cattle (frozen embryos, semen straws, live cows and bulls in key producing areas). Under the project, livestock service agencies (i.e., veterinary services stations and artificial insemination (AI) stations at prefecture, county, township and village levels) were also established or rehabilitated which have provided quality genetic material, veterinary services and information to farmers (see Section 4.2.5). (b) Feed Improvement sub-component. The Shanxi Mineral Block Plant was established at a cost of Y5.24 million funded exclusively from the provincial budget, in keeping with the target set at the MTR. There was a delay in setting up the plant due mainly to an unfair competition for salt supply (the key raw material) for the plant with an established mineral block processing plant under the monopoly provincial salt company. The designed plant eventually merged its operation with the established mineral block processing plant. The project provided technical know-how to the mineral block processing plant, as required by the cooperation contract, and assisted in marketing the mineral blocks for improvement of nutrient supply and beef production performance in Shanxi province. - 5 -  4.2.3 Cattle Production Component (US$167.63 million - 126 percent of appraisal estimate). This component supported four sub-components with the Dairy Production sub-component added to the project during project implementation in November 2001. (a) Household Cow-Calf Raising Sub-component. The project reached 101 percent of the PAD target for calf production through the establishment of 115,470 cow-calf household units, representing 90 percent of the PAD target and 97 percent of the MTR target. The lower-than-targeted numbers of established cow-calf households is due mainly to the increased average size of household cattle holding, as the cattle-raising model was revised to include a larger number of cows (up to five heads), to better meet the demand of participating farmer households for economies of scale in terms of labor costs and facility utilization. The actual investment made in this sub-component was 100 percent of the PAD estimate and 106 percent of the MTR estimate. (b) Household Cattle Fattening Sub-component. The total number of fattened cattle finished annually by farmer households reached about 162,000 heads, 212 percent of the PAD target of about 76,000 heads. This is a result of the increased number of participating households and the increased average number of fattened cattle for each household. The total number of participating farmer households was 14,197 at the ICR compared to the PAD target of 10,332 (an increase of about 37 percent) and the MTR target of 12,436 (an increase of 14 percent). The average number of fattened cattle per household is 11.4 heads at ICR compared to the PAD estimate of 7.4 heads (an increase of 54 percent). Cattle fattening by individual farmer households, with a total number of fattening cattle ranging widely between 5 heads and over 50 heads, remained the major practice in the project. However, an increasing number of farmer households also fattened their cattle at commercial cattle feedlots where services in feeding technology, veterinary, environment protection and marketing were better coordinated which resulted in improved beef quality and increased income. The actual investment made in this sub-component was 148 percent of the PAD estimate and 110 percent of the MTR estimate, driven primarily by higher returns from cattle fattening activities. (c) Feedlot Production Sub-component. The total number of fattened cattle finished annually by feedlots reached about 61,000 heads against the PAD target of about 54,000 heads (113 percent of the PAD target). This resulted primarily from the increased number of additional feedlots. The project assisted a total of 144 feedlots compared to the PAD target of 130 feedlots (an increase of 11 percent) and the MTR target of 141 feedlots (an increase of 2 percent). The number of cattle on each feedlot varies from 100 heads to as many as 500 heads. The actual overall investment in this sub-component was 107 percent of the PAD estimate and 108 percent of the MTR estimate. Profitability of individual fattening enterprises varies between Y120 and Y1,000 per head depending largely on the farmer's ability in purchasing of the feeder stocks, feeding efficiency, marketing, and market fluctuations of fattened animals. At present, average net income from cattle fattening in feedlots is about Y100 per month, higher than that from the cow-calf production which is the major reason for attracting greater investment in this sub-component. (d) Dairy Production Sub-component. With the inclusion of dairy production in the project, a total of 4,056 dairy farmer households (108 percent of MTR target) were established, mostly as individual households each with around 5 to 6 dairy cows, and some, in the latest development, as co-owners of dairy parks raising 200 dairy cows or more in each park. The total number of cows supported by the project reached about 16,850 heads with total annual milk production - 6 -  of about 83,000 ton. Under the project, initial annual milk production averaged 4.9 ton/cow which is much higher than China's national average of 3.7 ton/cow in 2005. The project supported the construction of animal sheds and silage pits, provision of small tools, initial materials and training, and purchasing of dairy cows for the farmer households in the villages where milk collection and processing facilities already existed. Promotion of dairy production has been well accepted by smallholder farmer households for purposes of income generation and cattle fattening using male dairy calves. The individual household dairy production is generally being sustained, and in the meantime, some backyard feeding households are moving dairy cattle to dairy parks in response to: (i) tighter requirements of the government for environmental protection and disease control; and (ii) better service for quality products and marketing competence. For dairy production in all project areas, a recording system has been developed and effectively used to inform owners of milking performance of individual cows. 4.2.4 Market Development Component (US$22.83 million - 90 percent of appraisal estimate). This component supported the following two sub-components. (a) Live Cattle Market Development Sub-component. The project established 10 pilot cattle market centers (63 percent of the PAD target but 100 percent of the MTR target). The adjustment made at the MTR to reduce the number of cattle market centers under the project's financing was due to various parallel national and provincial programs in place on strengthening the livestock market development system which far exceeded the physical targets set at project appraisal. These markets serve as demonstrations for other local small live animal markets and also as centers for information sharing on price, quality, feeding methods and disease control. Such information is proving essential and helpful for increasing capacity and income of farmers. As a result of the project, the proportion of farmers with awareness of market-related information improved to 84 percent from 39 percent before the project. As a result of the increasing demand for quality beef in China in recent years, cattle are sold by project households through various channels not limited to local public markets. Transactions are at market prices in almost all project areas which have been very rewarding to project households. (b) Beef Market Linkage Development Sub-component. Beef market linkage between cattle feedlots and beef processors was greatly strengthened and the number of supply contracts increased substantially through cattle production associations. Through contracts, feedlots were paid a higher price for quality beef, whilst processors get a more assured supply of quality beef cattle for processing. Processors are also linked with consumers through contracts with food companies, meat processing companies and supermarkets. All five cattle slaughtering and processing plants, selected under the agreed eligibility criteria and complied with the Environmental Management and Monitoring Plan, were established, upgraded or expanded. Grading systems based on the draft grading standards of the Ministry of Agriculture (MOA) were developed in all cattle processing plants financed by the project for both local and Hong Kong markets which provide a fairer pricing system for beef cattle. Using their own resources, all five cattle processing plants have been working toward achieving HACCP or ISO-9002 best-practice levels. By the time of project closing, all cattle processing plants have been either ISO 9000/14000 or HACCP certified except Anhui Yumei Meat Processing Plant which is still in the process of HACCP certification. These plants ensured an enhanced slaughtering and processing capacity and improved processing facilities in the respective provinces. While not yet operating at full capacity, all participating cattle processing plants are under regular operations and profitable Market information systems were - 7 -  developed in all four project provinces according to project design. Grading and price information within and outside the project provinces was readily accessible to all farmers with or without the project financing. Currently, this service reached 84 percent of target farmers. To ensure beef and dairy quality under the project, animal quarantine stations were strengthened to monitor cattle and dairy households, feedlots, dairy parks, cattle slaughtering facilities, and beef markets for animal health and product quality assurance. A cattle recording system through coded ear tags was also developed in all participating provinces to ensure traceability of cattle origin and beef/milk products for quality improvement and food safety assurance. 4.2.5 Institutional Strengthening Component (US$18.14 million - 91 percent of appraisal estimate). This component provided support to two sub-components. (a) Technical Support Services Sub-component. (i) The project strengthened the Bureaus of Animal Husbandry in the participating provinces to provide improved technical support services to project farmers. Specifically, one technical service center at provincial level (compared to the PAD target of two), 354 animal husbandry and veterinary service stations (PAD target of 396) and 544 AI stations at prefecture, county, township and village levels (PAD target of 587) were established or rehabilitated. These slightly reduced numbers of realized physical targets resulted from the implementation of various parallel national and provincial programs on strengthening the livestock technical services system during the project implementation which have fully covered and replaced these reduced physical targets. As a result of the project, government agencies are now able to provide improved technical support services with about 95 percent of project farmers satisfied with the services compared to 53 percent at the baseline survey and 65 percent of PAD target. (ii) The project facilitated extensive training in genetics, animal feeding, animal nutrition, feed processing, silage making, feedlot management, dairy management, milking, disease control, breeding, project management and marketing for various targeted audiences. The project also financed the training of beef processing plant managers, workers, meat inspectors and provincial staff on quality assurance. A total of 194,954 person.times of domestic training, 641 person.times of domestic study tours, 104 person.months of overseas study tours, 32 person.months of overseas training have been provided which are 149 percent, 371 percent, 107 percent and 188 percent of the respective PAD targets. Of the total number of trainees, about 54 percent were women compared to PAD target of 40 percent. (iii) Twelve research topics were carried out through counterpart funding by provincial sources in the areas agreed at project appraisal and for meat quality testing. The results of such researches have been used extensively to support livestock production and to improve management and sustainability of different production models under the project. (iv) Cattle recording and tracking system and beef pricing system were all developed (see Sections 4.2.3 and 4.2.4). (b) Project Management Sub-component. The project supported 384 Project Management Offices (PMOs) (compared to the PAD estimate of 404) at provincial, prefecture, county and township levels by upgrading office and training equipment, management facilities and providing technical assistance and training to PMO staff in various areas. This reduction of the number of PMOs was decided at the time of the MTR as a result of reduced project areas in Hebei province. All PMOs were established with competent staff and well-defined terms of reference and were maintained throughout the project implementation period which provided a solid base for overall highly effective project management. The computer-based monitoring and evaluation (M&E) and financial systems were well designed and fully utilized. - 8 -  4.3 Net Present Value/Economic rate of return: 4.3.1 The major quantifiable benefits of the project are derived from the incremental value of cattle and milk produced by: (a) individual households, cattle feedlots, and dairy parks; and (b) benefits from processed beef, semi-prepared food by processing units, and revenues generated by cattle markets. Other significant but not quantifiable benefits come from: (a) improved cattle breeds in the four participating provinces which are the major cattle-producing provinces in China producing about 35 percent of the country's total cattle; (b) improved technical support services and enhanced commercial production facilities; and (c) institutional strengthening, commercialization, and upgrading of processing and service facilities. The economic analysis has been carried out for each participating province and for the project as a whole. The economic rate of return (ERR) calculation of each participating province takes into account all incremental benefits and costs (including investment costs for project management and infrastructure improvement) in an aggregated economic cash flow, built up in line with physical achievements in the province. The ERRs by province range from 20.5 to 25.7 percent and the ERR for the project as a whole is estimated at 25.2 percent (derived from the weighted average ERRs of all four participating provinces). The ERR at ICR for the project is lower than PAD estimate of 30.0 percent due mainly to increase of labor cost in constant prices by 20 to 30 percent but is still economically robust. The Net Present Value of the project was re-estimated at Y959.0 million with opportunity cost of capital at 12 percent. 4.4 Financial rate of return: 4.4.1 Financial analyses were conducted for all revenue-earning entities including smallholder farmer households, cattle feedlots, dairy parks, cattle processing plants and markets. Based on the approaches and assumptions outlined in Annex 3, the financial rates of return (FRRs) for individual farmer households (20 models for the four provinces) range between 20.0 and 35.3 percent, indicating the activities' financial attractiveness to small holders. The FRR for dairy parks is at 30.2 percent. The FRRs (calculated based on the net cash flow after tax) for cattle processing plants and cattle markets range from 15.5 percent to 36.9 percent, showing the project's profitability to the entities involved. The detailed calculations for FRRs for all household models, dairy parks, cattle processing plants and cattle markets are available in the project file. The future fiscal impact of the project on the government budget will be public expenditures for the livestock support services in terms of staffing and facilities provision, which have been firmly committed to by the governments at various levels (see Section 6), while commercial operations such as cattle processing and markets have positive impact by generating tax revenues. 4.5 Institutional development impact: 4.5.1 The institutional development impact is rated as substantial. The project has had substantial institutional impact in institutionalizing an integrated cattle breeding, production, processing and marketing supply chain. Under the project, the public agencies involved have developed a holistic "integrated supply chain" approach to livestock sector development, integrating breeding, production, processing and marketing. Currently, the focus on market-oriented development is becoming increasingly engrained in public service delivery, but this was quite new and innovative in the livestock sector in China at the time of the project preparation and early stages of implementation. Substantial training provided by the project at various levels has greatly enhanced awareness amongst smallholder producers of the importance of grades and standards in marketing. The technical expertise amongst agency staff in new breeding, production and processing technologies has also been substantially improved (e.g. feeding, AI and computer-based monitoring systems). The project emphasis on effective M&E and on fee-based cost recovery in public service delivery has had significant implications for institutional development. These procedures are now - 9 -  being introduced in regular public expenditure programs and are resulting in increased levels of accountability and discipline in the use, monitoring and evaluation of public funds. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: 5.1.1 The project successfully began integrating various processes in the beef and, subsequently, dairy supply chains into key domestic and Hong Kong markets. However, since project inception, there have been very significant changes in market conditions, particularly following China's entry into the World Trade Organization (WTO), which have greatly increased price competition and volatility in the beef and, especially, dairy industries. These have increased the vulnerability of small investors to fluctuations. There were also discernible changes in the parity between lending rates of IBRD and the domestic banks which reduced the comparative advantage of the Bank loan, especially in the initial stages of project implementation. The domestic banks consistently lowered lending rates (to 6.36 percent), whilst the annual on-lending rate of the Bank loan remained between 6 to 7 percent, plus front-end and commitment fees. This meant that the overall cost of borrowing through the IBRD loan became relatively uncompetitive to end-users. There were two natural events in 2003 that had an adverse impact on the project implementation, namely Severe Acute Respiratory Syndrome and extensive floods in Anhui Province. 5.2 Factors generally subject to government control: 5.2.1 Factors subject to government control were favorable and supportive of project implementation. The concerted drive toward market-oriented livestock sector growth and development, complemented by favorable macro-economic and sector policies, reduced market barriers and risks and enhanced market integration and competition. Significantly, taxes on livestock raising (and generally in agriculture) were greatly reduced or eliminated to encourage investment and productivity growth, and the legal and asset rights of producers have been enhanced. The government has also focused on improved public sector service delivery, especially in animal reproduction and health, and introduced new policies to encourage fee-based cost recovery which further enhances effective delivery and sustainability. The emphasis on election of high quality project staff, the generally uninterrupted deployment of these staff to the project (despite significant civil service rationalization during the project life), and the adoption of transparent project management systems and rigorous project M&E procedures are also indicative of the high level of government commitment to project aims. However, credit accessibility from commercial financial institutions to small investors remains limited and the government commitment to providing sufficient counterpart funds for the project was not fully met. 5.3 Factors generally subject to implementing agency control: 5.3.1 The generally uninterrupted deployment of dedicated and competent project staff ensured that overall project management was highly effective. The computer based planning and recording systems, developed by the Central Project Management Office (CPMO) drawing on its extensive experiences in managing other rural development projects in China, significantly improved management efficiency. This contributed tremendously to project implementation. Considerable effort was also placed in developing effective financial and physical M&E systems at different levels. Consistently in place throughout the entire project implementation, such M&E systems coupled with routine and random field verification visits greatly enhanced transparency and accountability in implementation, provided regular and timely progress reports of project activities, guaranteed beneficiary involvement and participation in project management, and ensured achievements of project development objectives. - 10 -  5.4 Costs and financing: 5.4.1 Total latest project costs are estimated at US$211.93 million, which is about 17 percent more than the total costs estimated at project appraisal. The increased project costs were used to: (a) support the inclusion of dairy production; (b) lead to substantial over-achievement of physical targets in cattle production; and (c) upgrade Anhui Provincial Cattle Breeding Center (see Annex 1). The fund flow arrangement worked well, in line with the project implementation progress. Financing by IBRD proceeds was at US$93.45 million with an undisbursed balance of $52,000 cancelled from the project account. Financing by domestic banks and government were both reduced in absolute value amount against the PAD estimates. Financing by beneficiaries increased significantly by 75 percent compared to the PAD estimate. Detailed project costs and financing are outlined in Annex 2. 6. Sustainability 6.1 Rationale for sustainability rating: 6.1.1 The sustainability of the project is rated as highly likely. The project meets key criteria for sustainability that: (a) the project is highly attractive financially to beneficiaries and economically to society as a whole; (b) the project promotes environmentally sound practices; and (c) the project is socially and politically accepted widely by key stakeholders. Additionally, the governments at various levels remain highly committed to expanding the positive achievements of the project and fully institutionalizing the holistic market-linked approach to quality beef and dairy production in China. This emphasis on supply chains and market linkages is fully consistent with national polices related to livestock sector development as well as poverty reduction and overall economic development. 6.1.2 The systems of meat grading, animal disease control and food safety standards in livestock production, processing and price determination are becoming firmly established in all participating provinces, and both producers and consumers have become far more responsive to these systems than ever before. In an effort further to enforce these systems, the central and local governments have committed substantial public resources to improving township, county and provincial veterinary and AI services. The project also successfully piloted fee-based services in project provinces to ensure cost recovery and sustainability. The central government is gradually replicating this practice to ensure more effective and sustainable service delivery nation wide. Dairy production, cattle-raising, cattle processing plants and livestock markets have all been shown to be financially viable, whilst improved feed and other technologies introduced by the project have been widely adopted. There is also growing acceptance of environmental impact assessment practices introduced by the project, which have become mandatory for regular government programs and projects. 6.1.3 In common with other sectors of China's economy, the governments in the four participating provinces are committed: (a) to up-scaling the positive practices, outputs and outcomes from the project to various follow-up projects and investments in the livestock sector related to commercial operations of smallholders, cattle processing plants and livestock markets; and (b) to development of institutions, policies and support services. For up-scaling purposes, two of the four participating provinces (Henan and Shanxi) each proposed a new Bank-funded livestock production project which has been supported by the central government and included in the pipelines for the Bank's financing. - 11 -  6.2 Transition arrangement to regular operations: 6.2.1 Commercial activities such as cattle production in feedlots, cattle processing and marketing, and dairy production in dairy parks have been well into regular operation. Transition arrangement for securing adequate working capital and tapping full market potentials has been made by individual cattle processing plants. The operations of the "public goods" components, such as the provision of support services, have been already integrated into the regular budget allocation (see Section 6.1.2). 7. Bank and Borrower Performance Bank 7.1 Lending: 7.1.1 The project identified was highly consistent with the government's and the Bank's strategies in developing the livestock sector as a means to increasing agricultural employment, smallholder incomes and reducing poverty (see Section 3.5). The project was sufficiently researched and prepared in terms of evolving livestock and economic trends, component mix and technical specifications, which integrated key processes of breeding, production, processing and marketing. The Bank's inputs in terms of staffing and skill-mix were adequate. However, the time taken from initial identification of the project in 1996 to the commencement of implementation in 2000 was excessive, and there were tangible risks that design would be outpaced by rapid developments in China. 7.2 Supervision: 7.2.1 The supervision missions were composed of an adequate mix of international and national professionals, with requisite technical expertise and knowledge of the livestock sector in China. Supervision missions generally established a good working relationship with the Borrower and were proactive in resolving emerging issues during implementation. The supervision missions also helped build institutional capacity of PMOs at different levels and establish an effective M&E system. However, in the early stages of project implementation there was periodic change in supervision team personnel which disrupted continuity whilst some experts were not fully adapted to recognizing the fast pace of change in China's livestock sector and economy as a whole, which demanded flexibility with regard to the scale and scope of farmers' cattle production. 7.3 Overall Bank performance: 7.3.1 The overall Bank performance is rated satisfactory given the above-mentioned lending and supervision performance. Borrower 7.4 Preparation: 7.4.1 Project preparation was participatory. The Borrower provided strong and consistent support during project preparation and actively engaged with Bank teams in arriving at the final project design. Sufficient resources were also committed by the Borrower to the preparation efforts, which were used to commission various sector studies to underpin the design. A national preparation team under the umbrella of the Foreign Economic Cooperation Centre (FECC) of the MOA provided dedicated and consistent counterpart expertise, in livestock and economic aspects. Dedicated preparation teams and funds were also provided at provincial levels to prepare the project. Project staff assembled knowledge regarding the needs of smallholder beef cattle producers and the constraints they faced in marketing. In addition to - 12 -  communities and target beneficiary groups, such as the beef cattle producers association, other government and private organizations were actively engaged in consultations during preparation to ensure a broad spectrum of involvement by various stakeholders. These included the All China Women's Federation, the Environmental Protection Bureaus and associations of slaughterhouses and processors. 7.5 Government implementation performance: 7.5.1 Government macro-economic and sector policies have been highly consistent and supportive in providing the essential enabling environment and stimulus for achieving project development objectives. In the transition to a market-based economy, the government instituted a number of favorable policies to provide incentives to smallholders (such as tax breaks, better access to credit and property rights) and at the same time made public service delivery more efficient and cost-effective. These included introducing fee-based systems in the provision of veterinary and AI services to ensure cost recovery. The high level of government commitment throughout implementation was also reflected in the selection and retention of competent project staff despite significant civil service reforms during the early years of the project's implementation. To enhance accountability, government at all levels instituted transparent project management, accounting and monitoring systems. 7.6 Implementing Agency: 7.6.1 The PMOs at all levels retained a generally very dedicated and highly professional complement of staff covering a range of expertise throughout project implementation. Under the project: (a) the CPMO effectively coordinated project activities with Provincial PMOs, creating an efficient and integrated management system which was instrumental in establishing strong and effective overall project coordination; (b) the PPMOs and PMOs at lower levels engaged actively to enhance project planning, implementation, supervision and resolve potential problems supported by Technical and Producer Advisory Groups (TPAGs); (c) other line agencies, including finance, planning, agriculture, animal husbandry, environmental protection and audit, provided necessary technical support at local levels; and (d) the Project Leading Groups at local levels were established to provide project leadership, to guide on policy issues and to ensure inter-agency coordination. Collectively, this management structure provided strong continuity and consistency in the agencies' engagement with the Bank to resolve implementation issues, such as the change of cattle procurement arrangements and the inclusion of dairy production. The strong commitment of the central and provincial PMOs to instituting an effective management, monitoring and evaluation system (see M&E reports by province in Annex 7) to ensure accountability and transparency is exemplary. The PMOs were very open to working with technical experts of the Bank supervision missions, which progressively strengthened their capacity in these functions. 7.7 Overall Borrower performance: 7.7.1 Based on the above evaluation of the performance of government and implementing agencies, the overall Borrower's performance is rated as having been highly satisfactory. 8. Lessons Learned 8.1 A number of key lessons, both positive and negative, were learned during project implementation: 8.1.1 Loan competitiveness. In a rapidly changing business and lending climate, slowness in loan processing could make IBRD loans: (a) less competitive in a fast evolving domestic lending market, particularly when major investment costs are local currency-based and major project outputs are destined - 13 -  for the domestic market; and (b) less attractive to effective end-users who strive for efficiency. These potential risks were demonstrated by the length of time (four years) it took to prepare and appraise the project, during which both the business and lending climates in China changed considerably. 8.1.2 Flexibility. Greater flexibility in project design and implementation is essential to successful commercial operations. Under the project: (a) the Special Accounts, intended to provide fund liquidity, were not wholly made use of; (b) some Bank procedures such as cattle procurement arrangements for smallholders were unworkable, which slowed implementation progress in the early stages of project implementation as small farmers were not able to meet such procurement procedures and up-front expenditures; and (c) the rigid prescriptions in project design of smallholder production models were not responsive to rapidly changing market conditions and farmer demands. However, the Bank showed great flexibility when it adopted more appropriate cattle procurement procedures and updated production models. 8.1.3 Government Commitment. The government's strong commitment to reforms and continuous support to the integrated cattle breeding, production, processing and marketing system have been the foundation of the project design and the primary force for project implementation. Close cooperation between government agencies at various levels ensured an efficient and well-coordinated project implementation. 8.1.4 Project Management. An effective project management structure, committed project staff and strong emphasis on M&E contributed significantly to successful project preparation and implementation. Under the project, all involved agencies at both central and local levels played their respective and positive roles in establishing such a structure and maintaining it throughout project preparation and implementation, including the Project Leading Groups, PMOs, TPAGs and Cattle Producer Associations, Associations of Slaughterhouses and Processors, and All-China Women's Federation Branches. However, well-established and fully functioning PMOs at all levels played the key role. 9. Partner Comments (a) Borrower/implementing agency: Comments on the Draft Implementation Completion Report (ICR) for the China Smallholder Cattle Development Project We are very pleased to receive the draft Implementation Completion Report (ICR) for the China Smallholder Cattle Development Project (SCDP) prepared by the ICR preparation mission. We believe the draft ICR has fully reflected the actual situation of the project, equitably and objectively evaluated the overall project accomplishments, outputs as well as experiences and lessons learnt during the project implementation and made precise performance ratings on relevant organs. We have no objection to the hereinabove draft ICR. Conforming to China's national policies on agricultural development and restructuring, implementation of SCDP has significantly promoted the rapid development of the cattle industry in the project areas, upgraded the industrial structure and increased the farmers' income. Last but not least, we would like to take this opportunity to convey our gratitude to the World Bank for its assistance and support during the whole process of project implementation, especially the quick response and constructive suggestions made by its relevant officials. At the same time, we are looking forward to fresh opportunities of implementing new World Bank funded projects in the future. - 14 -  (b) Cofinanciers: There were no cofinanciers involved in the project. (c) Other partners (NGOs/private sector): There were no other partners involved in the project. 10. Additional Information - 15 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome/Impact Indicators Indicator Baseline PAD Latest/Actual Estimate Target Value % of % of PAD Baseline Target A. Feeding Performance Application of new technologies 40% 75% 95% 237% 126% Application of AI technology 52% 75% 96% 184% 128% Feedlot cattle daily gain (kg) 0.93 1.22 131% n/a Cow conception rate 62% 75% 81% 129% 107% AI times (no.) 1.95 1.59 82% n/a Calf weaning weight (kg) 95.50 112.02 117% n/a Household contract with feedlot 14% 58% 408% n/a Annual milk production (ton/cow) 4.91 n/a n/a Market share of quality project beef 19% 55% 62% 328% 112% Market information dissemination 39% 80% 84% 213% 105% Farmer satisfactory with technical support 53% 65% 95% 177% 145% services B. Household Income Total annual household net income (Y) 6,121 10,066 164% n/a From farming activities on contracted land 2,055 2,969 144% n/a (Y) % of total net income 34% 29% 88% n/a From animal production (Y) 2,286 4,767 209% n/a % of total net income 37% 47% 127% n/a Of which, from cattle-raising (Y) 1,512 4,000 265% n/a % of total net income 25% 40% 161% n/a From other activities (Y) 1,780 2,330 131% n/a % of total net income 29% 23% 80% n/a - 16 -  Output Indicators Indicator PAD MTR Latest/Actual Estimate Target Target Value % of PAD % of MTR Target Target A. Breed and Feed Improvement Strengthening of Provincial Cattle Breeding 2 2 2 100% 100% Center (no.) Establishment of Mineral Block Plant (no.) 1 1 1 100% 100% B. Cattle Production Cow-calf raising household (no.) 128,156 118,972 115,464 90% 97% Annual production of calf by household (head) 285,192 287,984 101% Cattle fattening household (no.) 10,332 12,436 14,197 137% 114% Annual production of fattened cattle by 76,469 162,254 212% household (head) Cattle fattening feedlot (no.) 130 141 144 111% 102% Annual production of fattened cattle by feedlot 53,730 60,930 113% (head) Dairy cow raising - household (no.) 3,761 4,056 n/a 108% Dairy cow raising - number (head) 16,850 n/a n/a Annual production of milk (ton) 82,755 n/a n/a C. Market Development Live cattle trade market (no.) 16 10 10 63% 100% Cattle slaughtering and processing plant (no.) 5 5 5 100% 100% D. Institutional Strengthening Strengthening of Provincial Technical 2 1 1 50% 100% Support Services Center (no.) Strengthening of veterinary service station 396 376 354 89% 94% (no.) Strengthening of AI station (no.) 587 572 544 93% 95% Domestic training (person/time) 130,714 122,088 194,954 149% 160% Domestic study tours (person/time) 173 146 641 371% 439% International training (person/month) 17 18 32 188% 178% International study tours (person/month) 97 62 104 107% 168% Consultant services (person/time) 67 48 87 130% 181% Establishment of Project management office 404 384 384 95% 100% (no.) - 17 -  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million A. Cattle Breed and Feed Improvement Breed Improvement 1.35 1.76 130 Feed Improvement 0.65 0.63 97 B. Cattle Production Household Cattle Raising 93.34 92.42 99 Household Fattening 21.96 33.44 152 Feedlot Cattle Fattening 17.23 18.55 108 Dairy Production /a 23.22 C. Market Development Live Cattle Trade Market 1.68 1.08 65 Beef Slaughtering and Processing 23.77 21.75 91 D. Institutional Strengthening Technical Support Services 13.92 12.69 91 Project Management 5.96 5.45 92 Total Baseline Cost 179.86 210.99 Total Project Costs 179.86 210.99 Front-end fee 0.94 0.94 100.00 Total Financing Required 180.80 211.93 Note: /a Dairy production sub-component was added in November 2001. - 18 -  Project Costs by Procurement Arrangements (Appraisal Estimate) (in US$ million equivalent) Expenditure Category Procurement Method Total Cost ICB NCB Other /a NBF /b 1. Works - 9.80 41.06 - 50.86 - (4.46) (19.35) - (23.81) 2. Goods 11.63 4.65 89.29 105.57 (11.63) (2.32) (51.73) (65.68) Equipment 9.21 3.90 6.56 - 19.67 (9.21) (1.95) (3.28) - (14.44) Vehicles 2.42 0.75 - - 3.17 (2.42) (0.37) - - (2.79) Livestock Inputs - - 11.72 - 11.72 - - (5.85) - (5.85) Cattle - - 71.01 - 71.01 - - (42.60) - (42.60) 3. Services, Training 3.07 0.35 3.42 (3.07) (0.00) (3.07) Domestic Training - - 2.05 - 2.05 - - (2.05) - (2.05) Overseas Training - - 0.93 - 0.93 - - (0.93) - (0.93) Consultant Services - - 0.09 - 0.09 - - (0.09) - (0.09) Research - - - 0.35 0.35 - - - (0.00) (0.00) 4. Miscellaneous /c - - - 7.90 7.90 - - - (0.00) (0.00) 5. Recurrent Costs - - - 12.11 12.11 - - - (0.00) (0.00) 6. Front-end Fee /d - - 0.94 - 0.94 - - (0.94) - (0.94) Total 11.63 14.45 134.36 20.36 180.80 (11.63) (6.77) (75.10) (0.00) (93.50) Note: /a Other procurement methods include force account for works, procurement for small works, shopping for small equipment, grass seeds, initial stock for processing plants, international shopping for breeding bulls and deep-frozen cattle embryos, Limited International Bidding (LIB) for customized equipment, training, and consultant services. /b NBF demotes non-Bank financing. /c Miscellaneous include $1.34 million of land acquisition, $4.53 million of management fee, $0.35 million of research contracts, and $2.03 million of design, freight and insurance and other handling costs. /d Front-end fee of $0.935 million. Figures in parenthesis represent the amounts financed by the Bank loan including contingencies. - 19 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (in US$ million equivalent) Expenditure Category Procurement Method Total Cost /e ICB NCB Other /a NBF /b 1. Works - 5.23 55.89 - 61.12 - (1.76) (19.30) - (21.06) 2. Goods 9.80 0.28 117.19 127.27 (9.80) (0.15) (60.03) (69.98) Equipment 8.51 0.28 11.73 - 20.53 (8.51) (0.15) (2.96) - (11.62) Vehicles 1.29 - 0.79 - 2.08 (1.29) - (0.02) - (1.30) Livestock Inputs - - 1.87 - 1.87 - - (0.90) - (0.90) Cattle - - 102.80 - 102.80 - - (56.15) - (56.15) 3. Services, Training 2.59 0.17 2.76 (1.47) (0.00) (1.47) Domestic Training - - 2.22 - 2.22 - - (1.35) - (1.35) Overseas Training - - 0.34 - 0.34 - - (0.10) - (0.10) Consultant Services - - 0.03 0.01 0.04 - - (0.02) (0.00) (0.02) Research - - - 0.16 0.16 - - - (0.00) (0.00) 4. Miscellaneous /c - - - 7.22 7.22 - - - (0.00) (0.00) 5. Recurrent Costs - - - 12.62 12.62 - - - (0.00) (0.00) 6. Front-end Fee /d - - 0.94 - 0.94 - - (0.94) - (0.94) Total /e 9.80 5.52 176.61 20.01 211.93 (9.80) (1.91) (81.74) (0.00) (93.45) Note: /a Other procurement methods include force account for works, procurement for small works, shopping for small equipment, grass seeds, initial stock for processing plants, international shopping for breeding bulls and deep-frozen cattle embryos, training, and consultant services. /b NBF demotes non-Bank financing. /c Miscellaneous include expenses incurred during project implementation e.g. management fee, bidding expenses, land acquisition, design, freight, insurance and other handling costs, etc. /d Front-end fee of $0.935 million. /e Total may not tally due to rounding. Figures in parenthesis represent the amounts financed by the Bank loan including contingencies. - 20 -  Project Financing by Components (in US$ million equivalent) Component Appraisal Estimate IBRD Domestic Government Beneficiaries Total Banks A. Breed and Feed 0.70 1.30 2.00 Improvement B. Cattle Production 70.29 17.32 7.70 37.22 132.53 C. Market Development 15.80 0.44 1.49 7.72 25.45 D. Institutional Strengthening 5.77 14.11 19.88 Front-end Fee 0.94 0.94 Total Project Cost 93.50 17.76 24.60 44.94 180.80 Component Actual/Latest Estimate IBRD Domestic Government Beneficiaries Total Banks A. Breed and Feed 0.89 1.50 2.39 Improvement B. Cattle Production 74.05 16.25 5.99 71.34 167.63 C. Market Development 14.25 0.44 1.46 6.68 22.83 D. Institutional Strengthening 3.33 14.25 0.57 18.15 Front-end Fee 0.94 0.94 Total Project Cost * 93.45 16.69 23.20 78.59 211.93 Component Percentage of Appraisal IBRD Domestic Government Beneficiaries Total Banks A. Breed and Feed 127 n/a 116 n/a 120 Improvement B. Cattle Production 105 94 78 192 126 C. Market Development 90 101 98 86 90 D. Institutional Strengthening 58 n/a 101 n/a 91 Front-end Fee 100 n/a n/a n/a 100 Total Project Cost 100 94 94 175 117 * Total may not tally due to rounding. - 21 -  Annex 3. Economic Costs and Benefits Project Benefits 1. The project objectives were to improve smallholder cattle production within existing crop farming areas with large crop by-product surpluses and to improve the quality and marketability of cattle in order to enhance farmer incomes and reduce poverty. The project assisted the government's policy of developing its beef cattle sub-sector in response to emerging market demand for quality beef. The project supported smallholders in the inland provinces of Henan, Hebei, Anhui and Shanxi, which had the necessary surplus labor and natural resources, but were constrained by the low productivity and quality of cattle, a lack of animal husbandry technology, and processing and marketing infrastructure. 2. The major quantifiable benefits of the project are derived from the incremental value of cattle and milk produced by: (a) project households and feed lots (including individual households, collectives and larger commercial entities), and (b) benefits from processed beef, semi-prepared food by processing units and revenues generated by cattle markets. 3. Other significant but not quantifiable benefits come from: (a) improved cattle breeds in four major cattle-producing provinces in China, which together produce about 35 percent of China's cattle; (b) improved technical support services, better AI service delivery and enhanced commercial production facilities; and (c) the institutional strengthening activities directed to the commercialization and upgrading of processing and service facilities. Project Costs 4. Livestock production: (a) investment costs include the initial purchase of livestock; small production tools; cattle sheds, silage pits for the ammonium treatment of straw or the ensilaging of crop residues; training in production technology; and the purchase of urea and plastic sheet for the first production cycle of ammoniated straw; and (b) production costs include replacement animals, feed and forage production supplies, minerals, medicine, breeding fees, marketing fees, utilities, maintenance and repairs. 5. Cattle processing enterprises and cattle markets: (a) investment costs and residual value of fixed assets: the investment costs used in the analysis were based on actual costs incurred, including procurement and installation of equipment, land acquisition (user right fee) and training and the residual value of the fixed assets is estimated as 5 percent of their book values and treated as a cash in flow at the end of the project life; (b) operating costs including raw materials, labor, utilities, marketing and administrative expenses are provided by each processing unit; and (c) incremental working capital, depending on the capacity utilization, and management of current assets and liabilities, is projected by the factory management and included in the analysis. 6. Investment costs for project management and infrastructure improvements Economic Prices and ERR Calculation 7. At appraisal, the Bank price projections or average export prices actually realized by China were used to estimate farm-gate economic prices in 1997 constant terms for traded inputs and outputs. Economic prices for non-traded goods were estimated by using conversion factors. However, the Chinese - 22 -  economy during the project implementation period, and particularly since its accession to WTO in 2003, has been increasingly integrated into world economy and it is generally acknowledged that the Chinese economy has achieved "market status". Therefore, the current market prices of both inputs and outputs basically reflect the actual export and import parity prices for the products of identical varieties and quality if they are tradable. Furthermore, the project provinces are huge in size and the inter-provincial trade is far more important than international trade. As such, the financial prices are used as "proxies" for economic prices. Similarly, no further adjustments are made to the prices of non-tradable farm inputs and outputs, as Chinese currency has been under pressure for appreciation. The foreign exchange premium is therefore not relevant in China now. 8. Based on the above, the ERR before tax and financing, which measures the return on the total resources engaged, has been taken as the ERR for the processing units and markets, and no further adjustments are made to the cash flow of cattle production models as farmers enjoy tax breaks for those operation. The economic analysis has been carried out for each province and for the project as a whole. The ERR calculation of each province has taken into account all the incremental benefits and costs (including investment costs for project management and infrastructure improvements) in an aggregated economic cash flow, built up in line with physical achievements in the province. The whole project ERR in turn is calculated on the total project net cash flow by aggregating the net cash flows of four provinces, and is therefore the weighted average of four provincial ERRs . 9. The ERRs for the provinces (ranging from 20.5 to 25.7 percent) are highly acceptable and the project as a whole (at 25.2 percent) is economically robust. The re-evaluation of the ERR for each province and the whole project is summarized below with detailed calculations contained in Working Paper on Financial and Economic Analysis (available from the project file). Province ERR (%) Anhui 20.5 Henan 25.3 Hebei 25.6 Shanxi 25.7 Project as a whole 25.2 - 23 -  Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 05/1996 6 MISSION LEADER (1); ENVIRONMENT SPEC. (1); BEEF CATTLE SPEC. (2); AGRIC ECONOMIST (1); PROCESSING SPEC. (1) 12/1996 7 MISSION LEADER (1); ENVIRONMENT SPEC. (1); BEEF CATTLE SPEC. (1); AGRIC ECONOMIST (1); INSTITUTIONAL DEVELOPMENT SPEC. (1); LIVESTOCK MANAGEMENT SPEC. (1); AGRO-PROCESSING ENG. (1) 04/1997 12 MISSION LEADER (1); ENVIRONMENT SPEC. (1); BEEF CATTLE SPEC. (2); AGRIC ECONOMIST (2); SOCIAL SPEC. (1); AGRO-PROCESSING ENG. (1); MARKETING AND BEEF-QUALITY CONTROL SPEC. (1); OPERATIONS OFFICER (1); GENDER SPEC. (1); LIVESTOCK NUTRITION AND ANIMAL FEED SPEC. (1) 07/1997 8 MISSION LEADER (1); ENVIRONMENT SPEC. (1); BEEF CATTLE SPEC. (1); AGRIC ECONOMIST (1); SR. OPERATIONS OFFICER (1); OPERATIONS OFFICER (1); AGRO-PROCESSING ENG. (1); MARKETING SPEC. (1) 11/1997 2 MISSION LEADER (1); SOCIAL SPEC. (1); 03/1998 1 MISSION LEADER (1); 10/1998 2 MISSION LEADER (1); AGRIC ECONOMIST (1); 01/1999 2 MISSION LEADER (2) - 24 -  Appraisal/Negotiation 05/1999 6 CO-MISSION LEADER (2); AGRIC ECONOMIST (1); AGRO-PROCESSING ENG. (1); INSTITUTIONAL SPEC. (1); BEEF-GRADING SPEC. (1) 11/1999 5 TEAM LEADER (1); LIVESTOCK SPEC. (1); AGRIC ECONOMIST (1); LAWYER (1); DISBURSEMENT OFFICER (1) Supervision 04/23/2000 4 MISSION LEADER (1); S S AGRO-PROCESSING ENG. (1); PROCUREMENT (1); DISBURSEMENT (1) 09/14/2000 4 SR. LIVESTOCK SPEC. (1); S S AGRIC ECONOMIST (1); BEEF CATTLE SPEC. (1); AGRO-PROCESSING ENGR. (1) 05/28/2001 3 SR. LIVESTOCK SPEC. (1); S S AGRIC. ECONOMIST (1); AGROPROCESSING SPEC. (1) 11/21/2001 3 TASK TEAM LEADER (1); S S FINANCIAL SPEC. (1); LIVESTOCK SPEC. (1) 05/01/2002 2 LIVESTOCK SPEC. (1); TASK S S TEAM LEADER (1) 12/04/2002 3 LIVESTOCK SPEC. (1); S S PROCUREMENT SPEC. (1); FINANCIAL MGT. SPEC. (1) 03/22/2003 1 TASK TEAM LEADER (1) S S 09/16/2003 2 TASK TEAM LEADER (1); S S LIVESTOCK SPEC. (1) 04/27/2004 2 TASK TEAM LEADER (1); S S FIN. MGT. SPEC. (1) 10/15/2004 1 TASK TEAM LEADER (1) S S 04/27/2005 3 TASK TEAM LEADER (1); S S AGRICULTURE ECONOMIST (1); INSTITUTIONAL SPEC. (1) ICR 12/21/2005 4 TASK TEAM LEADER (1); S S AGRICULTURE ECONOMIST (1); INSTITUTIONAL SPEC. (1); LIVESTOCK SPEC. (1) - 25 -  (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 721.82 Appraisal/Negotiation 125.69 Supervision 45.07 345.45 ICR 3.00 37.84 Total 48.07 1,230.80 Note: Since the switch to SAP, no information on staff weeks for the years prior to FY00 has been available. - 26 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Capacity Building Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 27 -  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 28 -  Annex 7. List of Supporting Documents 1. Aide-M