Report and Recommendation of the President to the Board of Directors

Project Number: 50264-002 November 2020

Proposed Loans, and Administration of Loan and Grant Kingdom of Cambodia: Agricultural Value Chain Competitiveness and Safety Enhancement Project Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy after excluding information that is subject to exceptions to disclosure set forth in the policy.

CURRENCY EQUIVALENTS (as of 27 October 2020)

Currency unit – riel/s (KR)

KR1.00 = $0.000245 $1.00 = KR4,075

ABBREVIATIONS

ADB – Asian Development Bank AFD – Agence Française de Développement

(French Development Agency) ANR – agriculture, natural resources, and rural development ASEAN – Association of Southeast Asian Nations AVC – agricultural value chain CAP – competitive agricultural product COVID-19 – coronavirus disease ESMS – environmental and social management system FMR – farm-to-market road GDP – gross domestic product IBP – inclusive business partnership JFPR – Japan Fund for Poverty Reduction MAFF – Ministry of Agriculture, Forestry and Fisheries MEF – Ministry of Economy and Finance MRD – Ministry of Rural Development O&M – operation and maintenance PAC – participating agricultural cooperative PAE – participating agricultural enterprise PAM – project administration manual PFI – participating financial institution SMEs – small and medium-sized enterprises

NOTE

In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD) Directors Jiangfeng Zhang, Environment, Natural Resources and Agriculture

Division (SEER), SERD Sunniya Durrani-Jamal, Country Director, Cambodia Resident Mission

(CARM), SERD Team leaders Takeshi Ueda, Principal Natural Resources and Agriculture Economist,

SEER, SERD Hyunyoung Song, Natural Resources and Agriculture Economist, SEER, SERD

Team members Benita Ainabe, Financial Sector Specialist (Capital Markets), Public

Management, Financial Sector and Trade Division, SERD Pinsuda Alexander, Economist (Regional Cooperation), Regional Cooperation and Operations Coordination Division, SERD Elizabeth Burges-Sims, Senior Social Development Specialist (Gender and Development), Human and Social Development Division, SERD Marishka Etrata, Project Analyst, SEER, SERD Takeshi Fukayama, Transport Specialist, Transport and Communications Division, SERD Yosuke Fukushima, Senior Climate Change Specialist (Climate Change Adaptation), Climate Change and Disaster Risk Management Division, Sustainable Development and Climate Change Department (SDCC) Anne Gin, Procurement Specialist, Procurement Division 2 (PFP2), Procurement, Portfolio and Financial Management Department (PPFD) Chanthou Hem, Senior Project Officer, CARM, SERD Juhyun Jeong, Investment Specialist, Office of the Director General, Private Sector Operations Department Matthias Leitner, Young Professional, SEER, SERD Thierry Liabastre, Senior Natural Resources and Agriculture Specialist, SEER, SERD Alvin Lopez, Senior Natural Resources and Agriculture Specialist, SEER, SERDa Anouj Mehta, Principal Infrastructure Specialist, Office of the Director General, SERD Kevin Moore, Senior Procurement Specialist, PFP2, PPFD Takako Morita, Senior Counsel, Office of the General Counsel Rangina Nazrieva, Safeguards Specialist (Resettlement), Urban Development and Water Division, SERD Genevieve O’Farrell, Senior Environment Specialist (Safeguards), Energy Division, SERD Cecile Ramiro, Senior Operations Assistant, SEER, SERD Myra Evelyn Ravelo, Senior Financial Management Officer, Public Financial Management Division, PPFD Xin Ren, Senior Safeguards Specialist (Environment), SEER, SERD Ratha Sann, Senior Project Officer (Infrastructure), CARM, SERD Indah Setyawati, Senior Safeguards Specialist (Resettlement), SEER, SERD

Sokunthea Sok, Senior Procurement Officer, CARM, SERD Takashi Yamano, Senior Economist, Economic Analysis and Operational Support Division, Economic Research and Regional Cooperation Department Seok Yong Yoon, Principal Public Management Specialist (e- Governance), Digital Technology for Development Unit, SDCC

Peer reviewer Giap Minh Bui, Principal Natural Resources and Agriculture Economist, Environment, Natural Resources and Agriculture Division, Central and West Asia Department

a Outposted to the Cambodia Resident Mission. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROJECT AT A GLANCE

MAP

I. THE PROPOSAL 1

II. THE PROJECT 1

A. Rationale 1 B. Project Description 3 C. Value Added by ADB 5 D. Summary Cost Estimates and Financing Plan 6 E. Implementation Arrangements 7

III. DUE DILIGENCE 8

A. Technical 8 B. Economic and Financial Viability 9 C. Sustainability 9 D. Governance 9 E. Poverty, Social, and Gender 10 F. Safeguards 10 G. Summary of Risk Assessment and Risk Management Plan 11

IV. ASSURANCES AND CONDITIONS 12

V. RECOMMENDATION 12

APPENDIXES 1. Design and Monitoring Framework 13

2. List of Linked Documents 16

Project Classification Information Status: Complete

PROJECT AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 07092020160218143041 Generated Date: 03-Oct-2020 19:17:43 PM

1. Basic Data Project Number: 50264-002Project Name Agricultural Value Chain Competitiveness

and Safety Enhancement Project Department/Division SERD/SEER

Country Cambodia Executing Agency Ministry of Agriculture, Forestry & FisheriesBorrower Cambodia

Country EconomicIndicators

https://www.adb.org/Documents/LinkedDocs/?id=50264-002-CEI

Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/?id=50264-002-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million)Agriculture, naturalresources and ruraldevelopment

Agricultural policy, institutional and capacity development 12.28

Agricultural production 2.50

Agro-industry, marketing, and trade 9.62

Finance Inclusive finance 5.00

Small and medium enterprise finance and leasing 40.60

Total 70.00

3. Operational Priorities Climate Change InformationAddressing remaining poverty and reducing inequalities

Accelerating progress in gender equality

Tackling climate change, building climate and disaster resilience, andenhancing environmental sustainabilityPromoting rural development and food security

Fostering regional cooperation and integration

GHG reductions (tons per annum) 12,500Climate Change impact on the Project

Medium

ADB Financing

Adaptation ($ million) 1.50

Mitigation ($ million) 8.93

Cofinancing

Adaptation ($ million) 0.42

Mitigation ($ million) 0.00

Sustainable Development Goals Gender Equity and MainstreamingSDG 1.4SDG 2.3, 2.4SDG 5.5SDG 9.1, 9.4SDG 10.2SDG 12.4SDG 13.a

Effective gender mainstreaming (EGM)

Poverty TargetingGeneral Intervention on Poverty

4. Risk Categorization: Low.

5. Safeguard Categorization Environment: B Involuntary Resettlement: C Indigenous Peoples: C

.

6. Financing

Modality and Sources Amount ($ million)

ADB 70.00

Sovereign Project (Concessional Loan): Ordinary capital resources 70.00

Cofinancing 33.00

ASEAN Infrastructure Fund - Project loan (Full ADB Administration) 5.00

Agence Francaise de Developpement - Project loan (Partial ADB Administration)

25.00

Japan Fund for Poverty Reduction - Project grant (Full ADB Administration) 3.00

Counterpart 7.06

Government 7.06

Total 110.06

Currency of ADB Financing: US Dollar

TonleSap

Mekong R.

Bassa

c R.

Mek

on

g R

.

Preah Sihanouk

Kep

Ban Lung

Serei Saophoan

Khemrak Phumin

Kampot

Pursat

Chbar Mon

Doun Keo

Prey Veng

Svay Rieng

Kratie

Kampong Chhnang

Battambang

Pailin

Stung Treng

Saen Monourom

Takhmau

Kampong Cham

Siem Reap

Samraong

Krong Preah Vihear

Stueng Saen

Suong

PHNOM PENH

KOH KONG

BATTAMBANG

PAILIN

BANTEAY

MEANCHEY

PURSAT

TAKEO

KANDAL

KAMPOT

KEPPREAH

SIHANOUK

PREY

VENGSVAY

RIENG

KAMPONG

SPEU

KAMPONG

CHHNANG

MONDUL KIRI

RATANAK KIRI

STUNG

TRENG

KRATIE

KAMPONGTHOM

KAMPONG CHAM

PREAH VIHEARSIEM REAP

OTDAR MEANCHEY

TBOUNGKHMUM

National Capital

Provincial Capital

National Road

Other Road

Railway

River

Provincial Boundary

International Boundary

Boundaries are not necessarily authoritative.

AGRICULTURAL VALUE CHAIN COMPETITIVENESS AND SAFETY ENHANCEMENT PROJECT

CAMBODIA

0 25 50 75 100

Kilometers

N

107 00'Eo

107 00'Eo

103 00'Eo

103 00'Eo

11 00'No

11 00'No

14 00'No

14 00'No

200

98

9 2

0C

AM

AB

V

This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed loan from the ordinary capital resources of the Asian Development Bank (ADB) (A loan), and (ii) a proposed loan funded through the participation of the Association of Southeast Asian Nations (ASEAN) Infrastructure Fund (B loan) under the Inclusive Financing Facility, both to the Kingdom of Cambodia for the Agricultural Value Chain Competitiveness and Safety Enhancement Project. The report also describes (i) the proposed administration of a loan to be provided by the Agence Française de Développement (AFD), and (ii) the proposed administration of a grant to be provided by the Japan Fund for Poverty Reduction (JFPR), both for the Agricultural Value Chain Competitiveness and Safety Enhancement Project, and if the Board approves the proposed loans, I, acting under the authority delegated to me by the Board, approve the administration of the AFD loan and JFPR grant.

2. The project will strengthen value chains of competitive agricultural products (CAPs)— cassava, mangoes, cashew nuts, vegetables, and native chickens—in the provinces of Kampong Cham, Kampong Thom, Oddar Meanchey, Preah Vihear, Siem Reap, and Tboung Khmum.1 The project will (i) facilitate access to credit for agro-enterprises and agricultural cooperatives; (ii) promote viable market links among agro-enterprises and agricultural cooperatives, and enhance food safety and quality; and (iii) improve farm-to-market connectivity. The project will benefit about 230 agricultural cooperatives (about 27,000 households) and about 50 agribusinesses in the project areas.

II. THE PROJECT

A. Rationale

3. Limited value addition to agriculture. Cambodia has a narrow economic base dominated by agriculture, construction, garments, and tourism. Given the large rural population (76.2% of the total population), the government continues to support agriculture as a priority sector, promoting agro-based industrial development as a driver of economic diversification. While agriculture still accounted for 22.1% of the gross domestic product (GDP) and 31.2% of total employment in 2019, the sector’s performance has been weak with an average growth rate of 1.7% during 2010–2019.2 Rice has been favored to ensure national food security and it remains the predominant crop, accounting for 70% of the country’s cultivated land and 60% of agriculture output. The rice-centric sector policy helped to achieve rice self-sufficiency; however, it hindered agricultural diversification, value addition, and commercialization. Despite its potential, the country’s export of agro-based products is mostly in raw form and depends heavily on a few crops such as rice and rubber. Only 10% of the total agricultural outputs are processed within the country.3 The value of manufactured agro-based products remains only at 4% of GDP. Most formal agro-processing businesses are concentrated in rice milling and primary processing of

1 These five value chains are selected considering export orientation, import substitution, value addition, and impact

on income enhancement. Cashew, cassava, and mangoes are important crops for processing and export; vegetables will strengthen import substitution; and native chickens will have high income-generation impact.

2 ADB. 2020. Key Indicators for Asia and the Pacific. Manila. Agricultural growth has been gradually declining over the decade mainly because of the reduction in the long-term labor productivity in rice production, low international commodity prices in major traditional commodities (e.g., rice, rubber, and cotton), and adverse weather conditions. Women account for 74.0% of the agricultural workforce and produce 80.0% of Cambodia’s food. However, only 12.4% of women own land and 10.0% of female farmers have access to agriculture extension services. (ADB. 2013. Gender Equality in the Labor Market in Cambodia. Manila.)

3 Government of Cambodia. 2015. Cambodia Industrial Development Policy 2015−2025: “Market Orientation and Enabling Environment for Industrial Development.” Phnom Penh.

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rubber and pepper. As a result, Cambodia has been losing economic opportunities that can arise from agricultural value addition.

4. Impact of coronavirus disease. The coronavirus disease (COVID-19) pandemic has severely disrupted agricultural supply chains due to restrictions on the movement of people and goods, causing lost income and market opportunities for farmers and agribusinesses.4 While a shortage of staple crops is not anticipated, the impact of COVID-19 will affect the food security and nutrition of the households that lost jobs and livelihoods.5 While agriculture cannot fully absorb laid off workers, most of whom are from tourism and garment sectors, and returning migrant workers, it will play a key role in providing rural livelihoods and diversifying income sources through agricultural diversification and commercialization, including agro-processing.

5. Poor access to finance. Credit to agriculture and agribusinesses together accounted for only 9.4% of formal finance in Cambodia in 2018, and access to finance is the major bottleneck for Cambodian agribusinesses.6 First, they cannot meet high collateral requirements. Despite the government’s promotion of cash flow-based lending, financial institutions require collateral because of agribusinesses’ poor cash flows. Second, financial institutions tend to provide high-interest and short-term loans because of the risks associated with agriculture and agribusinesses that are small and informal and deal with price-volatile agricultural products.7 Lack of credit history and low financial literacy are other reasons for their poor financial access. Addressing the constrained access to finance is critical to spur post-pandemic recovery.

6. Weak value chain links and lack of enabling business environment. Value chain links are still nascent except for rice and a few other products led by large international agribusinesses. Most agro-enterprises cannot maximize their operation because of the difficulty in sourcing raw materials of sufficient quality and volume from small, fragmented farmers. Farmers also lack the capacity to produce in-demand, high-value crops because they lack access to quality seeds and breeds, extension services, credit, and market information.8 Furthermore, despite the increasing demand in modern retail and export markets, agro-enterprises face difficulties in meeting food safety standards because of their weak quality control and the lack of support services such as food safety testing. None of the agro-product safety testing laboratories under the Ministry of Agriculture, Forestry and Fisheries (MAFF) currently meets international standards due to low staff capacity, poor testing equipment, and limited budget for operation and maintenance (O&M).9 Agro-enterprises bear the high cost and longer time needed to have their products tested abroad to sell to those markets.

7. Weak and deteriorating farm-to-market road network. Cambodia ranked 98th of 160 countries in the World Bank’s logistics performance index (2018). Competitive agricultural value chains (AVCs) and agribusiness operations require efficient transportation and infrastructure systems, particularly rural roads and the links to provincial and national roads that connect rural areas with the main urban centers and marketplaces. However, the condition of rural roads in Cambodia is still poor. On average, only about 5% of the rural roads of the project provinces are paved. Almost all remaining rural roads are surfaced with laterite, which easily deteriorates from

4 ADB lowered its projection for GDP growth in 2020 to –4.0% (September 2020) from a forecast of 2.3% (April 2020).

(ADB. 2020. Asian Development Outlook. Manila; and ADB. 2020. Asian Development Outlook Update. Manila.) 5 World Food Programme. 2020. Cambodia Food Price Update - June 2020. Phnom Penh. 6 National Bank of Cambodia. 2018. Annual Report 2018. Phnom Penh. 7 Prime lending rate in Cambodia is 11.1%, compared to 6.2% in Thailand and 6.8% in Viet Nam. 8 The market demand for quality rice seed was estimated to be 50,000 tons by 2020; but in 2015, national availability

was less than 9,000 tons. 9 The MAFF is mandated to control the safety of foods and agricultural products from production to primary processing.

Only one testing laboratory under the Ministry of Commerce is internationally accredited.

3

heavy rainfall and floods, and collapses from use by heavy trucks collecting agricultural products. In particular, poorly connected farm-to-market road networks result in high transport costs and undermine AVC development.10

8. Strategic fit. The project is aligned with key government strategies including the Rectangular Strategy Phase IV. 11 To minimize the adverse economic and social impacts of COVID-19, the government has taken measures including supporting crops and livestock production, and domestic food processing of staple food products; and establishing a public small and medium-sized enterprise (SME) credit guarantee scheme to improve access to finance for SMEs. The project is aligned with the government’s economic recovery efforts. It will also support the third pillar of green, inclusive, and sustainable growth of ADB’s country partnership strategy for Cambodia, 2019−2023, and ADB’s Strategy 2030 (Table 1).12

Table 1: Alignment with Strategy 2030 Strategy 2030 Operational Priorities

Project interventions

Addressing remaining poverty and reducing inequalities

The project will increase jobs and economic opportunities and diversify income opportunities for farmers and migrant workers returning because of the coronavirus disease, thereby contributing to reducing rural–urban inequality.

Accelerating progress in gender equality

The project is categorized effective gender mainstreaming. The project will include measures to improve women’s access to finance, ensure greater participation of women, and integrate gender-responsive design in project-related infrastructure.

Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability

The project will promote climate change adaptation and mitigation and environmental sustainability by supporting (i) water- and energy-saving technology and operations in on-farm production and processing, (ii) good agricultural practices, and (iii) climate-proofed engineering designs for farm-to-market roads.

Promoting rural development and food security

The project will strengthen the value chains of competitive agricultural products and contribute to agricultural diversification, commercialization, trade, and increased economic opportunities built upon primary agricultural production.

Fostering regional cooperation and integration

The project will foster international and regional trade in agro-products through increased tradable agro-products and food, upgrading of agro-product and food safety testing laboratories, improved safety control capacity by agricultural cooperatives and agro-enterprises, and better farm-to-market connectivity.

Source: Asian Development Bank.

B. Project Description

9. The project is aligned with the following impacts: (i) inclusive and sustainable development in agriculture sector achieved; and (ii) private sector developed by promoting SMEs and entrepreneurship (footnote 11). The project will have the following outcome: value addition of five competitive AVCs in the project areas increased.13 10. Output 1: Agricultural value chain financing enhanced. This output will promote investments by agro-enterprises and agricultural cooperatives to be engaged in CAP value chains

10 At $10–$13 per 100 kilometers (km) per ton in 2015, Cambodia’s domestic transport costs remain higher than its

regional competitors. Domestic transport costs about $5 per 100 km per ton in Thailand and about $7 per 100 km per ton in Viet Nam.

11 Government of Cambodia. 2018. Rectangular Strategy for Growth, Employment, Equity and Efficiency: Building the Foundation toward Realizing the Cambodia Vision 2050, Phase IV, 2019–2023. Phnom Penh; Government of Cambodia. Ministry of Agriculture, Forestry and Fisheries. 2019. Agricultural Sector Strategic Development Plan 2019−2023. Phnom Penh; and Government of Cambodia. Ministry of Industry and Handicraft. 2015. Cambodia Industrial Development Policy 2015−2025. Phnom Penh.

12 ADB. 2019. Country Partnership Strategy: Cambodia, 2019−2023—Inclusive Pathways to a Competitive Economy. Manila; and ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila.

13 The design and monitoring framework is in Appendix 1.

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(para. 2) through financial intermediation.14 Participating financial institutions (PFIs)15 will provide the agro-enterprises and agricultural cooperatives (borrowers) with four types of subloans from the AVC loan credit line depending on needs of borrowers.16 To facilitate PFIs’ provision of subloans, the project will introduce two other financing schemes: an equity capital loan credit line and a credit guarantee fund. The equity capital loan credit line will provide borrowers with supplemental equity on a subordinated basis in cases where the borrower lacks equity to qualify for the primary loan (i.e., AVC loans). The credit guarantee fund will provide guarantees to PFIs’ provision of AVC loans and equity capital loans to reduce their risk exposure. In addition, the project, in cooperation with PFIs, will help the agro-enterprises and agricultural cooperatives strengthen their business planning and loan applications. The project will also pilot a green financing scheme to be financed by the ASEAN Infrastructure Fund.17

11. Output 2: Agricultural value chain linkage and safety strengthened. This output will address key bottlenecks in the value chains by (i) engaging and supporting about 230 participating agricultural cooperatives (PACs)18 to improve their production capacity through demonstration farms and small agricultural infrastructure support and to establish inclusive business partnerships (IBPs) with participating agro-enterprises (PAEs) to be engaged for sustainable value chain linkages;19 (ii) building the capacity of PACs and PAEs on food safety control and supporting them to obtain agro-product safety assurance certificates;20 (iii) supporting research and development on crop seed varieties and poultry breeds, and multiplying and disseminating high-yield, drought-resilient, and disease-resistant crop seeds and planting materials; (iv) upgrading agro-product safety testing laboratories for International Organization for Standardization 17025 accreditation;21 and (v) enhancing digitalization of government’s services through an integrated agricultural data platform, multichannel extension services, and piloting of a traceability system. The project will also support developing a strategic plan for agro-food safety testing laboratory system upgrading and operation plans as a condition for item (iv); and

14 Beneficiary agro-enterprises have operations in, or source agro-products from, the six project provinces. However,

given the growing need for access to finance after COVID-19, the geographic coverage and target AVCs may be expanded, while support for agricultural cooperatives will be limited to the six project provinces. A majority of the beneficiary agro-enterprises and agricultural cooperatives of output 1 are expected to be from project participating agro-enterprises and participating agricultural cooperatives.

15 Sathapana Bank and the Agricultural and Rural Development Bank have been selected as PFIs for their substantial portfolio in agriculture and SME lending, and their interest and willingness to participate in the project. Other financial institutions may be added as PFIs during the project implementation as needed.

16 Four types of AVC loans comprise: (i) farm production loans for contract growers, (ii) short- to medium-term business loans, (iii) inventory procurement loans, and (iv) long-term business loans. Details are in the Project Administration Manual (accessible from the list of linked documents in Appendix 2).

17 ADB will provide technical assistance to design the green financing mechanism. (ADB. 2018. Green and Innovative Finance Initiative for Scaling Up Southeast Asian Infrastructure. Manila [TA 9621-REG]). The ASEAN Infrastructure Fund will provide financing to pilot the scheme under the proposed project.

18 There are currently 240 registered agricultural cooperatives and several unregistered farmers groups in the six project provinces. Of these, 230 will be selected and new ones to be added if needed as the PACs based on criteria including minimum years of operation and minimum proportion of female members. Details are provided in the Project Administration Manual (accessible from the list of linked documents in Appendix 2). Of the 230 target PACs, 60 will specialize in cashew, 100 in cassava, 10 in mangoes, and 60 in vegetable production. Poultry farmers are individuals.

19 The IBP is a mutually beneficial business partnership between PACs (or farmers groups) and PAEs that source raw materials from the PACs. The roles and responsibilities of PAEs and PACs under an IBP are provided in the Project Administration Manual. The IBPs are expected to improve PACs’ access to finance by providing the PFIs assurance of the PACs’ business viability, together with sales agreements and contract farming.

20 Certificates include Cambodian Good Agricultural Practices (CamGAP), CamOrganic and Good Animal Husbandry Practices (GAHP) for PACs, and Good Manufacturing Practice (GMP) and Hazard Analysis Critical Control Points (HACCP) for PAEs.

21 The laboratories the project will support include the National Agriculture Laboratory for pesticide residue analysis (for mangoes and vegetables), the Cambodia Laboratory of Agricultural Products and Foods for mycotoxin analysis (for cashew nuts), and the National Animal Health and Production Research Institute for antibiotics analysis (for meat).

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developing a strategic plan for digitalization of MAFF services as a condition for item (v). 12. Output 3: Agricultural value chain connectivity enhanced. This output will improve about 110 kilometers of farm-to-market roads (FMRs) in the project areas.22 Laterite roads will be upgraded with double bituminous surface treatment. Climate change adaptation measures have been incorporated into the design of FMRs.23 Improved FMRs will enhance connectivity among value chain actors of the CAPs by reducing transport time and cost, increasing the volume of transportation, and reducing road maintenance costs. The project communities will be trained in road safety. The project will ensure that there is sufficient budget to operate and maintain the improved FMRs.24

C. Value Added by ADB

13. The project will complement other ADB projects to promote rural development and enhance rural income opportunities. They include (i) the Climate-Friendly Agribusiness Value Chain Sector Project, which exemplified implementation arrangements for multisector projects; (ii) the Skills for Competitiveness Project, which covers skills development for agro-industry; and (iii) the Third Rural Roads Improvement Project, covering two of the project provinces.25 ADB also coordinates with other development partners in the agriculture, natural resources, and rural development (ANR) sector in Cambodia. 26 The project will complement ongoing technical assistance by the Japan International Cooperation Agency for one of the agro-product safety testing laboratories through financing equipment, works, and supplies to upgrade the facility.

14. The project has also incorporated lessons from ADB’s experience. To overcome weak government capacity and overlapping roles within and across government agencies, the proposed implementation arrangements include clear delineation of roles and responsibilities of the executing and implementing agencies, a strong coordination mechanism, and substantive support from the project management and implementation units. To address the limited private sector investment in ANR projects, the project is designed to facilitate private sector engagement.27 Given the importance of partnership with suitable financial institutions, the project has selected the PFIs based on their strong agriculture and SME lending portfolio in Cambodia (footnote 15).

15. The project will add value to the ANR sector in Cambodia. First, the project will demonstrate an approach to promoting private sector-driven AVC development. Second, the project will introduce three mutually reinforcing financial schemes to promote financing for

22 While the Cambodian Road Law classifies such roads as rural roads, the term “farm-to-market road” is used in this

document to emphasize the nature of rural roads supported by the project. 23 Funded by the Nordic Development Fund to incorporate climate change proofing to the road design and improve

project readiness, the detailed engineering designs have been completed for all six envisaged FMR subprojects. 24 The project will follow the practices of ADB’s rural roads improvement projects in Cambodia. Under the Second Rural

Roads Improvement Project, a rural roads asset management system and asset management tools are being developed and will be completed by the end of 2020. (ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Administration of Grants to the Kingdom of Cambodia for the Second Rural Roads Improvement Project. Manila.)

25 ADB. 2018. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Administration of Loan and Grant to the Kingdom of Cambodia for the Climate-Friendly Agribusiness Value Chains Sector Project. Manila; ADB. 2019. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Kingdom of Cambodia for the Skills for Competitiveness Project. Manila; ADB. 2018. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Grant to the Kingdom of Cambodia for the Third Rural Roads Improvement Project. Manila.

26 World Bank. 2019. Cambodia Agricultural Sector Diversification Project. Washington, DC; and International Fund for Agricultural Development. 2019. Sustainable Assets for Agriculture Markets, Business and Trade Project. Rome.

27 Independent Evaluation Department. 2019. Cambodia: Validation of the Country Partnership Strategy Final Review, 2014–2018. Manila: ADB.

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agribusiness and agriculture. In particular, the experience from the credit guarantee fund to be introduced under the project will provide lessons in guaranteeing loans to agribusiness for the forthcoming national credit guarantee scheme. The project will complement the Inclusive Financial Sector Development Program, which supports the legal framework of the finance sector, including credit guarantee.28 Third, the project will facilitate agricultural trade by (i) upgrading agro-product safety testing laboratories to international standards, (ii) improving PACs’ and PAEs’ safety control compliance with international or ASEAN standards, and (iii) increasing investment in the production and processing of export-oriented agro-products.

D. Summary Cost Estimates and Financing Plan

16. The project is estimated to cost $110.06 million (Table 2). Detailed cost estimates by expenditure category and by financier are included in the project administration manual (PAM).29

Table 2: Summary Cost Estimates ($ million)

Item Amounta A. Base Costb 1. Agricultural value chain financing enhanced 52.20 2. Agricultural value chain linkage and safety strengthenedc 23.87 3. Agricultural value chain connectivity enhanced 17.31 Project management 6.12 Subtotal (A) 99.49 B. Contingenciesc 7.07 C. Financial Charges During Implementationd 3.50 Total (A+B+C) 110.06

Note: Figures may not sum precisely due to rounding. a Includes taxes and duties of $5.77 million. Such amount does not represent an excessive share of the project cost.

The Asian Development Bank will finance taxes and duties of $0.48 million; ASEAN Infrastructure Fund, $0.28 million; Japan Fund for Poverty Reduction, $0.25 million; and Agence Française de Développement, $1.62 million. The government will finance taxes and duties of $3.14 million in the form of tax exemption on consulting services and goods sourced from overseas.

b In mid-2020 prices as of 5 September 2020. c Physical and price contingencies and a provision for exchange rate fluctuation are included. d Includes interests on all sources of loan financing. Source: Asian Development Bank.

17. The government has requested (i) a concessional loan of $70 million from ADB’s ordinary capital resources (A loan); (ii) a loan of $5 million from the ASEAN Infrastructure Fund (B loan) through its Inclusive Finance Facility; and (iii) a grant not exceeding $3 million from the JFPR to help finance the project.

18. The A loan will have a 32-year term, including a grace period of 8 years; an interest rate of 1.0% per year during the grace period and 1.5% per year thereafter, and such other terms and conditions set forth in the loan agreement. The B loan will have a 25-year term, including a grace period of 5 years; an interest rate of 1.0% per year during the grace period and 1.5% per year thereafter, and such other terms and conditions set forth in the loan agreement. The B loan will be fully administered by ADB. The A loan will finance expenditures in relation to financial services, works, goods, consulting and non-consulting services, and incremental operating cost. The B loan

28 The Inclusive Financial Sector Development Program is providing technical assistance for establishing the Credit

Guarantee Corporation of Cambodia to make the national credit guarantee scheme operational in November 2020. ADB. 2019. Report and Recommendation of the President to the Board of Directors: Proposed Loan for Subprogram 2 to the Kingdom of Cambodia for the Inclusive Financial Sector Development Program. Manila.

29 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

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will provide pilot green financing through financial intermediation loans and works. The JFPR grant will finance expenditures related to demonstration farm activities.

19. AFD will provide cofinancing of the euro equivalent of $25 million, to be partially administered by ADB.30 The AFD loan will have a 20-year term, including a grace period of 7 years. It will finance works and consulting services for output 3 and part of goods for output 2. The government will finance the remaining $7.06 million through in-cash and in-kind contributions.

20. The summary financing plan is in Table 3.

Table 3: Summary Financing Plan

Source Amount ($ million)

Share of Total (%)

Asian Development Bank Ordinary capital resources (concessional loan) 70.00 63.6

ASEAN Infrastructure Fund (concessional loan) 5.00 4.5 Japan Fund for Poverty Reduction (grant)a 3.00 2.7 Agence Française de Développement (loan)b 25.00 22.7 Government 7.06 6.4

Total 110.06 100.0 ASEAN = Association of Southeast Asian Nations. Note: Numbers may not sum precisely because of rounding. a Fully administered by the Asian Development Bank. b Partially administered by the Asian Development Bank. The amount excludes administration fees and other charges

that may be deducted pursuant to the cofinancing agreement. Source: Asian Development Bank. 21. Climate mitigation is estimated to cost $8.93 million and climate adaptation is estimated to cost $1.92 million. ADB and ADB-administered funds will finance 100% of mitigation costs and 100% of adaptation costs. Details are in the project administration manual (footnote 29).

E. Implementation Arrangements

22. The implementation arrangements are summarized in Table 4 and described in detail in the PAM (footnote 29).

Table 4: Implementation Arrangements Aspects Arrangements Implementation period March 2021–February 2027 Estimated completion date

28 February 2027 (loans) 28 February 2025 (JFPR grant)

Estimated loan and grant closing date

31 August 2027 (loans) 31 August 2025 (JFPR grant)

Management (i) Oversight body Project steering committee (chair: secretary of state, MAFF; cochair: secretary of

state, MEF; members: representatives from MRD, MOC, MISTI, MOE, and NBC) (ii) Executing agency MAFF

30 Partial administration will include ADB’s administration of procurement and disbursement activities for the AFD loan

following ADB’s Procurement Policy (2017, as amended from time to time), Procurement Regulations for ADB Borrowers (2017, as amended from time to time), and disbursement guidelines (ADB’s Loan Disbursement Handbook [2017, as amended from time to time]). At least 80% of AFD’s cofinancing will be used for project activities with climate change mitigation and adaptation measures, and the project is deemed to comply with AFD’s climate financing policy for countries in Southeast Asia.

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Aspects Arrangements (iii) Key implementing

agencies Output 1: MEF (GDFI) with PFIs (Sathapana Bank and ARDB) Output 2: MAFF (AIDOC, CARDI, DAI, DEAFF, DPS, GDA, GDAHP) Output 3: MRD (GDTA)

(iv) Implementation unit Overall project: PMU under MAFF output 1: PIU under GDFI, MEF; output 2: PIU under MAFF;a and output 3: PIU under GDTA, MRD

Procurement OCB-International 8 contracts $36.54 million OCB-National multiple contracts $4.75 million Request for Quotations 13 contracts $2.16 million OCB (JFPR Financing) multiple contracts $2.53 million

Consulting services QCBS 80:20 3 contracts (1,404 person-months) $7.55 million ICS 5 contracts (184 person-months) $1.09 million

Advance contracting (i) Recruitment of consultants for the PMU and each of the three PIUs for outputs 1, 2, and 3; (ii) procurement of works contracts for improvement of farm-to-market roads; and (iii) procurement of vehicles.

Disbursement The ADB, AFD, and AIF loans and JFPR grant proceeds will be disbursed following ADB's Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB.

ADB = Asian Development Bank; AFD = Agence Française de Développement; AIDOC = Agriculture Information and Documentation Center; AIF = ASEAN Infrastructure Fund; ARDB = Agricultural and Rural Development Bank; CARDI = Cambodian Agricultural Research and Development Institute; DAI = Department of Agro-Industries; DEAFF =

Department of Extension for Agriculture, Forestry and Fisheries; DPS = Department of Planning and Statistics; GDA = General Directorate of Agriculture; GDAHP = General Directorate of Animal Health and Production; GDFI = Generate Department of Financial Industry; GDTA = General Directorate of Technical Affairs; ICS = individual consultant selection; JFPR = Japan Fund for Poverty Reduction; MAFF = Ministry of Agriculture, Forestry and Fisheries; MEF = Ministry of Economy and Finance; MISTI = Ministry of Industry, Science, Technology, and Innovation; MOC = Ministry of Commerce; MOE = Ministry of Environment; MRD = Ministry of Rural Development; NBC = National Bank of Cambodia; OCB = open competitive bidding; PFI = participating financial institution; PIU = project implementing unit; PMU = project management unit; QCBS = quality- and cost-based selection. a The main function of the PIU under MAFF for output 2 will be technical, while the administrative function will be

undertaken by the PMU. Source: Asian Development Bank.

III. DUE DILIGENCE

A. Technical

23. Technical due diligence included a review of (i) technologies and practices used in agro-processing and primary production, (ii) technologies and operations of agro-product safety testing laboratories, (iii) applications of information and communication technology in MAFF’s operation and services, and (iv) the FMR design. The findings were reflected in the design of works, selection of consulting services and technologies, and areas for capacity building. Climate change mitigation measures will include the promotion of water- and energy-saving technology and operations in on-farm production and processing, and good agricultural practices. Climate change adaptation measures for output 3 comprise (i) raising embankment levels to minimize increased seasonal flood risks, (ii) increasing the number of pipe culverts and box culverts to allow cross drainage of flash floods, and (iii) concrete-surfacing to mitigate flood risks from the Mekong River.

24. Safe working under COVID-19 conditions. Given that the impact of COVID-19 is evolving, project implementation will be responsive and flexible in meeting emerging needs and new best practices in construction and project management. The executing and implementing agencies, project implementation consultants, and contractors will incorporate emerging international construction best practice for managing COVID-19 risk in works and will follow government guidance on working safely in COVID-19 conditions.

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B. Economic and Financial Viability

25. Cost–benefit analysis was used to assess the economic viability of investment in the five CAP value chains (para. 2) over 25 years. Most benefits were derived from (i) increased yields and reduced post-harvest loss from the use of the quality inputs and seeds, training on good agricultural practices, and improved post-harvest techniques; and (ii) increased volume of processing because of the increased processing capacities. The economic internal rate of return is 20.63%. Economic viability of investment in the FMRs was assessed based on economic benefits expected from the costs and time saved in operating different types of vehicles over 25 years. The analysis confirmed the economic viability of the FMR investment with an economic internal rate of return of 15.4%. Although it was not quantified, the improved FMRs will benefit the targeted value chains because the FMRs selected are in the core areas of the value chains.

26. For output 1, capital adequacy, asset quality, management, earnings, liquidity, and sensitivity analysis confirmed that both PFIs meet the eligibility requirements, have satisfactory financial performance, and show satisfactory performance prospects based on their projected financial position.31

C. Sustainability

27. Incremental recurrent cost analyses were conducted for outputs 2 and 3 to assess the government’s capacity to meet the additional O&M requirements. While increased revenues are expected from the upgraded laboratories, the MAFF will continue to allocate budget to ensure proper O&M of the laboratories. The project will also finance a 5-year service contract to ensure the maintenance of equipment during project implementation. The project will support the MAFF in developing a business and operational plan to improve the sustainability of laboratory operations. For output 3, the analysis shows an expected budget shortfall of 20% in the overall O&M requirement of the Ministry of Rural Development (MRD). However, the MRD has already initiated discussions with the Ministry of Economy and Finance (MEF) to increase the budgetary allocation for rural roads and is developing an asset management system that will allow more rational and cost-effective rural road network maintenance (footnote 24).

D. Governance

28. Financial management. ADB assessed the financial management of MAFF, MEF, and MRD. The assessed pre-mitigation financial management risk is substantial mainly due to (i) complex implementation arrangements, (ii) project staff’s lack of experience in accounting and financial management, (iii) lack of information technology software and equipment, and (iv) weak internal audit. The mitigation measures include (i) engagement of financial management consultants, (ii) capacity building on financial management and internal audit for project staff, and (iii) use of information technology software. Financial due diligence on the two PFIs confirmed their systems and policies are adequate to manage the project credit lines.

29. Procurement. The procurement classification for the project is assessed as low risk. Procurement of goods and works and recruitment of consultants will be undertaken following ADB’s Procurement Policy (2017, as amended from time to time) and Procurement Regulations

31 Financial Due Diligence Report for Agricultural and Rural Development Bank and Financial Due Diligence Report for

Sathapana Bank (accessible from the list of linked documents in Appendix 2).

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for ADB Borrowers (2017, as amended from time to time). The project is eligible for universal procurement.32

30. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government. The specific policy requirements and supplementary measures are described in the PAM (footnote 29).

E. Poverty, Social, and Gender

31. Poverty and social development. The project is classified general intervention.33 The targeted direct beneficiaries are 230 PACs (about 27,000 households) and about 50 agribusinesses in the project areas. The average poverty rate in the project areas is about 20%. Oddar Meanchey Province has the highest poverty rate (28.9%) and Tboung Khmum Province has the lowest (13.6%). The average size of household land holdings is less than 2 hectares and about 13% of households have less than 1 hectare. Commune registrations show that, on average, 13% of households in the project areas do not own any cultivated land. One IBP criterion is for the PAC to include at least 10% of its members from the poor and low-income households.

32. Gender and development. The project is categorized effective gender mainstreaming. Women comprise the majority of seasonal and permanent unskilled workers in mango, vegetable, and cashew processing; while male labor dominates poultry and cassava processing. While men and women do not have equal decision-making power over family income, assets, and economic activities, women are gaining prominence in agricultural cooperatives and hold about 30% of management roles in potential PACs. The project promotes women’s participation in PAEs, PACs, and as farmers by (i) developing and delivering outreach, education, and community activities to increase the proportion of PAEs owned by women and female borrowers’ access to subloans; (ii) supporting women-led PACs in obtaining agro-product safety certificates; (iii) undertaking a needs assessment and delivering training, including on gender sensitization, access to finance, improved planting materials and breeds, demonstration farming, and leadership skills; and (iv) delivering road safety training along the improved roads.34 Further, the project will support the two PFIs in developing inclusive and gender-responsive loan application criteria and guidelines to enable successful loan applications from women-owned PAEs and female borrowers. MAFF and PFIs will appoint gender focal points to implement and monitor the gender action plan.

F. Safeguards 33. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follows.35 34. Environment (category B). ADB prepared an initial environmental examination and an environmental management plan based on the feasibility studies for output 2 and detailed

32 ADB. 2013. Blanket Waiver of Member Country Procurement Eligibility Restrictions in Cases of Cofinancing for

Operations Financed from Asian Development Fund Resources. Manila. Universal procurement is not applicable to components financed by the JFPR.

33 Summary Poverty Reduction and Social Strategy (accessible from the list of linked documents in Appendix 2). 34 Women-led agricultural cooperatives are differentiated from women-owned agro-enterprises. As cooperatives,

women-led agricultural cooperatives are not owned by any individuals but are led by a collaborative partnership. 35 ADB. Safeguard Categories. ADB’s Safeguard Policy Statement (2009) will be applied to safeguards assessment of

all project activities whether they are financed by ADB or AFD. Meaningful consultation and disclosure requirements will follow those outlined in ADB’s Safeguard Policy Statement (2009). ADB will monitor safeguard compliance as part of its supervision missions, which AFD may join.

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engineering designs for output 3.36 An environmental and social management system (ESMS) was developed for output 1.37 The ESMS sets out safeguard screening, review, and management procedures with environmental thresholds to help the PFIs categorize interventions to be funded by subloans. The project will not finance activities identified under outputs 1 and 2 that are (i) classified as category A for environment or category A or B for involuntary resettlement or indigenous peoples, or (ii) against the prohibited investment activities list set out in Appendix 5 of ADB’s Safeguard Policy Statement (2009).

35. The project activities under outputs 1 and 2 are small in scale and limited to the improvement of agricultural facilities. Environmental impacts are expected to be minor to moderate and site-specific. The proposed paving and drainage improvements of the FMRs under output 3 will have localized impacts during construction, including increased noise, dust, and traffic, and there may be an increase in road traffic and speed during operation. All identified impacts can be mitigated as presented in the environmental management plan. The project is expected to provide some environmental benefits, including raising farmers’ awareness of the responsible use of agricultural chemicals and climate-resilient farming practices, and improving laboratory waste management, flood resilience, and community safety on project roads.

36. Involuntary resettlement (category C). The project is not expected to have any involuntary resettlement impacts.38 For output 3, ADB conducted due diligence for the six FMR subprojects based on the detailed engineering designs. The MRD prepared a community participation framework with sufficient budget to guide impact screening and address any potential impacts of the FMR subprojects during implementation.39 Social safeguard screening criteria are included in the ESMS, the IBP agreement template, and the PAM. Meaningful information dissemination and consultations were conducted with 1,146 people, including 526 women, in the six project provinces and will continue throughout the project implementation.

37. Indigenous peoples (category C). The project is not expected to directly or indirectly affect the dignity, human rights, livelihood systems, or culture of indigenous peoples, nor does it affect the territories or natural or cultural resources that indigenous peoples own, use, occupy, or claim as their ancestral domain.

38. The MAFF, MEF, and MRD have experience with ADB projects and, together with the PFIs, showed strong commitment to safeguards compliance for the project. The project implementation consultants will support all relevant agencies to ensure safeguard compliance. Consultations with stakeholders and affected persons will continue during implementation. Project-related complaints will be addressed in a timely manner through a grievance redress mechanism established at the project management unit.

G. Summary of Risk Assessment and Risk Management Plan

39. Significant risks and mitigating measures are summarized in Table 5 and described in detail in the risk assessment and management plan.40

36 Initial Environmental Examination (accessible from the list of linked documents in Appendix 2). 37 Due diligence section on the PFIs is provided in Environmental and Social Management System (accessible from

the list of linked documents in Appendix 2). 38 Social Safeguards Due Diligence Report—Output 2, and Social Safeguards Due Diligence Report—Output 3

(accessible from the list of linked documents in Appendix 2). 39 Community Participation Framework (accessible from the list of linked documents on Appendix 2). 40 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

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Table 5: Summary of Risks and Mitigating Measures Risks Mitigation Measures Private investment and business expansion in agriculture slow down because of COVID-19 or other hindrances.

The project will facilitate business development and market expansion of participating agricultural cooperatives and participating agro-enterprises through a comprehensive development package of credit, technical assistance, and related government infrastructure and services.

The government’s budget allocation is insufficient for operation and maintenance of facilities and services financed by the project (e.g., farm-to-market roads and agro-product and food testing laboratories).

The project will (i) help the Ministry of Agriculture, Forestry and Fisheries prepare and adopt a strategic plan for upgrading its laboratory system; (ii) finance a 5-year service contract for the maintenance of laboratory equipment; and (iii) use an asset management system to be developed by the end of 2020 to ensure the cost-effective operation and maintenance of rural roads.

The executing and implementing agencies’ financial management is weak because of lack of capacity and equipment and complex project arrangement.

The project will (i) build capacity on project management, financial management, internal audit, and use of information systems; (ii) help adopt information technology equipment to support project implementation; and (iii) engage consultants to support project implementation.

COVID-19 = coronavirus disease. Source: Asian Development Bank.

IV. ASSURANCES AND CONDITIONS

40. The government and MAFF have assured ADB that implementation of the project shall conform to all applicable ADB requirements, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, financial management, and disbursement as described in detail in the PAM and loan documents. The government and MAFF have agreed with ADB on certain covenants for the project, which are set forth in the draft loan agreements and grant agreement. As a condition to disbursement for the financial services component of output 1, a subsidiary loan agreement acceptable to ADB must be duly authorized, executed, and delivered on behalf of the two PFIs, as set out in the draft loan agreement.

V. RECOMMENDATION

41. I am satisfied that the proposed loans would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve

(i) the A loan of $70,000,000 to the Kingdom of Cambodia for the Agricultural Value Chain Competitiveness and Safety Enhancement Project, from ADB’s ordinary capital resources, in concessional terms, with an interest charge at the rate of 1.0% per year during the grace period and 1.5% per year thereafter; for a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board; and

(ii) the B loan of $5,000,000 to the Kingdom of Cambodia for the Agricultural Value Chain Competitiveness and Safety Enhancement Project, to be funded through the participation of the ASEAN Infrastructure Fund under the Inclusive Financing Facility on terms and conditions that are substantially in accordance with those set forth in the draft loan agreement presented to the Board.

Masatsugu Asakawa President

4 November 2020

Appendix 1 13

DESIGN AND MONITORING FRAMEWORK Impacts the Project is Aligned with

Inclusive and sustainable development in agriculture sector achieved (Rectangle 4) and private sector developed (Rectangle 3) by promoting small and medium-sized enterprises and entrepreneurshipa

Results Chain

Performance Indicators with Targets and

Baseline

Data Sources and Reporting Mechanisms

Risks

Outcome Value addition of five competitive AVCs in the project areas increasedb

By 2028: a. Volume of processed cashew increased to

at least 15,000 ton per annum (2019 baseline: 7,500 ton per annum)

b. Volume of processed mango increased to

at least 20,000 ton per annum (2019 baseline: 7,500 ton per annum)

c. Volume of cassava starch production

increased to at least 150,000 ton per annum (2019 baseline: 62,000 ton per annum)

d. Products of at least 40 vegetable or poultry

PACs sold through modern retail markets (2020 baseline: 0 PACs)

a–d. Quarterly project progress reports with inputs from PAEs

Private investment and business expansion in agriculture slow down because of COVID-19 or other hindrances.

Outputs 1. AVC financing enhanced

By 2027: 1a. At least $40 million in AVC loans and equity capital loans provided to eligible borrowers, of which at least 25% ($10.0 million) is provided to women-owned PAEs and female borrowers (female farmers)c (2020 baseline: $0, 0%) 1b. At least 70% of AVC loan recipients are micro, small, and medium-sized PAEsd (2020 baseline: 0%) (RFI A) 1c. At least 50 government and PFI staff, of which at least 40% are female, report increased knowledge on AVC financing, credit guarantee, and green financing (2020 baseline: 0, 0%)

1a–c. Quarterly project progress reports

2. AVC linkage and safety strengthened

2a. About 230 PACs established IBPs with PAEs, of which at least 50% of PACs established contract farming arrangements (2020 baseline: 0, 0%) 2b. At least 35 PACs, of which at least 60% are led by women, obtained agro-product safety assurance certificatese (2020 baseline: 0)

2c. At least 10 PAEs obtained food safety assurance certificatesf (2020 baseline: 0)

2d. At least 30% of cashew, mango, and cassava PACs adopted improved genetic materials and at least 50% of poultry farms

2a–f. Quarterly project progress reports

Severe weather hampers the cooperatives’ production.

14 Appendix 1

Results Chain

Performance Indicators with Targets and

Baseline

Data Sources and Reporting Mechanisms

Risks

adopted improved breeds, including at least 30% overall participation of women farmers (2020 baseline: 0%, 0%, 0%) 2e. MAFF agro-product safety testing laboratories accredited for ISO 17025 in three areas of analysis (2020 baseline: 0 areas)

2f. Integrated ICT data platform with geo-tagged farm-level information built (2020 baseline: None)

3. AVC connectivity enhanced

3a. About 110 km of FMRs improved and climate-proofed to enhance connectivity between farms and markets (2020 baseline: 0 km) (RFI B)

3b. About 3,000 road safety training participants, of which at least 50% are female, reported increased knowledge on the subject (Baseline: 0, 0%)

3a–b. Quarterly project progress reports

Key Activities with Milestones

1. AVC financing enhanced 1.1 Prepare and sign subsidiary loan agreements between the MEF and PFIs by Q1 2021. 1.2 Establish credit guarantee fund mechanism by Q1 2021. 1.3 Prepare and sign agreement on credit guarantee fund between the MEF and PFIs by Q1 2021. 1.4 Assist PFIs in establishing ESMS by Q1 2021 and implement ESMS (Q1 2021–Q1 2027). 1.5 Train PFI and government staff on financial (AVC financing and credit guarantee), environmental

and social safeguards, and gender and labor issues (Q2–Q3 2021). 2. AVC linkage and safety strengthened 2.1 Facilitate IBPs: 2.1.1 Identify PAEs and PACs, assess their needs, and create PAE and PAC database (Q2–Q3 2021). 2.1.2 Facilitate establishment of IBP agreements between PAEs and PACs (Q2 2021–Q2 2024). 2.1.3 Prepare training program for PACs on cooperative management, business planning and marketing,

and agro-product safety control and GAP; and for PAEs on food safety control and GMP (Q3 2021), and conduct the training (Q4 2021–Q4 2023).

2.1.4 Plan and design demonstration farming (Q3 2021), and support PACs on demonstration farming (Q4 2021–Q4 2023).

2.1.5 Plan and design small infrastructure investment (Q3 2021), procure works for small infrastructure investment (Q4 2021–Q2 2023), and monitor the work contract execution for small infrastructure investment (Q2 2022–Q1 2025).

2.2 Enhance food safety and quality of CAP. 2.2.1 Assist MAFF in preparing a ministerial strategic plan for laboratory upgrading and financial viability

analyses of the project-financed laboratories (Q2–Q4 2021); procure goods, works, and services for laboratory upgrading (Q1–Q3 2022); and conduct training for government staff on laboratory operation, good safety inspection, and ISO certification requirements (Q1 2022–Q1 2025).

2.2.2 Design pilot traceability system for selected CAP (Q1–Q2 2022) and procure services for pilot traceability system (Q3–Q4 2022).

2.2.3 Implement the pilot traceability system (Q1 2023–Q1 2027).

2.3 Improve genetics and quality of planting materials and poultry breeds for CAP: 2.3.1 Plan and implement research and development on genetic improvement (Q2 2021–Q1 2027). 2.3.2 Identify nursery producers (Q3 2021). 2.3.3 Conduct training for nursery producers and support them to produce improved planting materials (Q4 2021–Q4 2024).

Appendix 1 15

Key Activities with Milestones

2.4 Establish ICT data platform: 2.4.1 Assist the MAFF in preparing a ministerial ICT strategic plan (Q2–Q4 2021). 2.4.2 Prepare detailed design and procure goods and services for ICT data platform (Q1–Q4 2022). 2.4.3 Provide training to government staff on laboratories and ICT and assist in operationalizing upgraded

laboratories and ICT system (Q1 2022–Q2 2023). 3. AVC connectivity enhanced 3.1 Procure works for FMRs (Q4 2020–Q1 2021). 3.2 Train communities on road safety (Q1 2021–Q4 2024). 3.3 Monitor execution of work contracts (Q2 2021–Q2 2024). Project Management Activities

Recruit project implementation consultants (project management unit and project implementation units for all outputs) (Q4 2020–Q1 2021). Establish project performance monitoring system and conduct needs assessment for specific project management skills (Q2–Q3 2021). Train project staff in project management; procurement; financial management; and gender, social, and environment safeguards (Q2–Q3 2021). Inputs

ADB: $70,000,000 (loan) ASEAN Infrastructure Fund—Inclusive Finance Facility: $5,000,000 (loan) Japan Fund for Poverty Reduction: $3,000,000 (grant) Agence Française de Développement: $25,000,000 (loan) Government: $7,060,000

Assumptions for Partner Financing Not applicable

ADB = Asian Development Bank; ASEAN = Association of Southeast Asian Nations; AVC = agricultural value chain; CAP = competitive agricultural product; COVID-19 = coronavirus disease; ESMS = environmental and social management system; FMR = farm-to-market road; GAP = good agricultural practice; GMP = good manufacturing practice; IBP = inclusive business partnership; ICT = information and communication technology; ISO = International Organization for Standardization; km = kilometer; MAFF = Ministry of Agriculture, Forestry and Fisheries; MEF = Ministry of Economy and Finance; PAC = participating agricultural cooperative; PAE = participating agricultural enterprise; PFI = participating financial institution; Q = quarter; RFI = results framework indicator. a Government of Cambodia. 2018. Rectangular Strategy for Growth, Employment, Equity and Efficiency: Building the

Foundation toward Realizing the Cambodia Vision 2050, Phase IV, 2019–2023. Phnom Penh. b The AVCs include the value chains for cassava, cashews, mango, vegetables, and native chicken. The project areas

include the provinces of Kampong Cham, Kampong Thom, Oddar Meanchey, Preah Vihear, Siem Reap, and Tboung Khmum. Output 1 may also support agro-enterprises outside these six provinces.

c Defined as businesses that meet at least one of the following criteria: (i) at least 50% of ownership is controlled by women, (ii) at least 60% of senior managers are women, or (iii) at least 50% of the registered contractual employees are women. ADB. 2014. Gender Toolkit for Micro, Small, and Medium-Sized Enterprise Finance and Development. Manila.

d The definition of micro-, small-, medium-sized enterprises is provided in Appendix 3 of the project administration manual.

e A PAC comprises farmer groups and farm households. The number of households in a potential PAC ranges from 10 to 1,000. Those households that grow any one of the five CAPs will be eligible to participate under the project.

Certificates include those for Cambodian Good Agricultural Practices (CamGAP), participatory guarantee system, and CamOrganic.

f Certificates include those for Hazard Analysis Critical Control Point and GMP. Contribution to the ADB Results Framework: RFI A: Small and medium-sized enterprise loan accounts opened, or end borrowers reached (number). The average

size of an AVC loan for PAE is assumed to be $200,000. This can cover 150 micro, small, and medium-sized PAEs, of which about 70% are assumed to be small and medium-sized. Target: 100.

RFI B: Roads built or upgraded: provincial, district, and rural roads (kilometers). Target: 110 km. Source: Asian Development Bank.

16 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=50264-002-3

1. Loan Agreement: Ordinary Operations [Concessional]

2. Loan Agreement: ASEAN Infrastructure Fund

3. Grant Agreement: Japan Fund for Poverty Reduction

4. Project Agreement: Agricultural and Rural Development Bank

5. Project Agreement: Sathapana Bank

6. Sector Assessment (Summary): Agriculture, Natural Resources, and Rural Development

7. Project Administration Manual

8. Financial Analysis

9. Economic Analysis

10. Summary Poverty Reduction and Social Strategy

11. Risk Assessment and Risk Management Plan

12. Japan Fund for Poverty Reduction Grant

13. Climate Change Assessment

14. Gender Action Plan

15. Initial Environmental Examination

16. Environmental and Social Management System

Supplementary Documents 17. Detailed Economic and Financial Analysis

18. Financial Management Assessment

19. Strategic Procurement Planning

20. Community Participation Framework

21. Social Safeguard Due Diligence Report—Output 2

22. Social Safeguard Due Diligence Report—Output 3

23. Climate Risk and Vulnerability Assessment

24. Terms of Reference for Consulting Services

25. General Operating Guidelines for Output 1

26. Financial Due Diligence Report for Agricultural and Rural Development Bank

27. Financial Due Diligence Report for Sathapana Bank

28. Financial Analysis of the Credit Guarantee Scheme