$100 Million Project to Boost Farm Incomes, Environment in PRC's Shanxi

News Release | 17 December 2009

MANILA, PHILIPPINES - The People's Republic of China is getting a $100 million Asian Development Bank (ADB) loan to help boost the incomes of poor farmers in Shanxi province and to ease strains on the environment caused by traditional agricultural practices.

The ADB Board of Directors have approved the loan for the Shanxi Integrated Agricultural Development Project. The funds will be used to provide credit and training to about 66,000 farm households in 26 counties in central and southern Shanxi, including 11 classified as poor. The ADB-administered Multi-Donor Trust Fund under the Water Financing Partnership Facility (WFPF) and the Gender and Development Cooperation Fund (GDCF) are also providing grant financing.

The province has relatively limited cultivatable land, and most farmers continue to practice traditional agriculture, growing low-value crops like wheat and maize that require heavy use of water and agrochemicals. In addition, free range livestock grazing and the untreated disposal of animal waste, contributes to water pollution. This system is hurting the environment and keeping most farmers in poverty.

To address the widening income gap between rural and urban areas and between eastern, central and western regions, the government is planning significant investments, including replacing grain production with high value crops which will raise incomes, reduce poverty and ease environmental pressure on soil and water. The return of millions of migrant workers to rural areas, including Shanxi, as a result of the global economic slowdown, has given added urgency to this task.

The project will provide farmers credit and technological know-how to produce high value annual and perennial crops, and to introduce livestock production practices that are more resource efficient and environmentally sustainable. Support will be given for on-farm processing facilities, such as fruit drying rooms, and to contract farmers to agro-enterprises which will help strengthen their links to markets. A total of 24 agro-enterprises are taking part in the project.

Food safety and quality standards will be introduced at both the farm level and in agro-processing enterprises, and training programs on modern farm production techniques will be provided. Farmer associations will be strengthened to help market farm produce and disseminate new agriculture technologies, and assistance will be extended to raise the capacity of rural agriculture agencies to provide better services.

"The project will boost the capacity of farmers, their associations and support agencies to adopt high value, environmentally sustainable agriculture that will increase farmer incomes and farm productivity, while improving food safety and quality," said Akmal Siddiq, Principal Natural Resources Economist in ADB's East Asia Department.

The WFPF grant will be used to demonstrate the viability of new, efficient irrigation techniques which can reduce groundwater use, help farmers adapt to climate change impacts, and potentially be replicated in other provinces. The GDCF grant will support pilot revolving funds scheme to provide microfinance to poor women in four villages that may also be replicated at a wider scale under the project.

ADB's loan from its ordinary capital resources will make up almost 53% of the total project cost of $189.3 million. It has a 26-year term, including a six year grace period with an interest rate determined in accordance with ADB's LIBOR-based lending facility. The WFPF, which includes contributions from Australia, Austria, Norway and Spain, is providing $500,000, and GDCF, with contributions from Canada, Denmark Ireland and Norway is supplying $195,000 equivalent, while Shanxi provincial government, farmers, agro-enterprises and farmer associations are providing a combined $88.61 million.