Henan covers a large part of the fertile North China Plain, with a population of 104.89 million, of which 62.34 million live in the rural area. Poverty rate in the rural area is 13.1%. Agriculture has traditionally been a pillar of Henan's economy. The sector contributed 12.7% of the provincial gross domestic product and provided employment for 41.8% of the total labor force. Henan is also known as the breadbasket of the PRC for its contribution to the PRC's food security with the nation's highest wheat output and second highest corn output. Henan also registered the largest value of livestock production in the PRC in 2010 and 2011. The livestock sector represents 40% of the provincial agricultural sector's output.
The PRC's significant economic growth, fueled by industrialization and urbanization, changed the endowment of resources available for the agriculture sector. Major changes include a long-term loss of arable land, reduction of active rural labor force, and decline of water resources. Given those changes, the PRC government has strived for the agriculture sector modernization, which promotes higher and standardized agriculture production with sustainable resources use. As part of the transformation, the livestock sector has been going through a structural change from the traditional household farming system to industrial farming system characterized by large-holding and integrated supply chains.
The PRC's livestock sector transformation is not only driven by the changes on supply side, but also a change on demand side. As the economy grew and household income increased, Chinese people take significantly larger amounts of animal protein-based products, particularly meat, than three decades ago. From 1978 to 2012, the per capita meat consumption has increased from 18 kg to 36 kg in urban areas and from 6 kg to 21 kg in rural areas. Including consumption outside homes, the average meat consumption of urban residents exceeded 40 kg. Meat consumption is the PRC is expected to grow for coming decades.
The development of the livestock sector is strongly linked to increases in farmers' incomes and rural poverty alleviation. In 2012, the production value of livestock sector accounted for 33.8% of the production value of agricultural sector of Henan. There were 54 counties where the value of livestock production accounted for over 40% of the total value of agricultural production and 15 where it exceeded 50%. In 2013, the total rural population of Henan was 60.7 million and rural labor force was 52.12 million, a substantial part of which were engaged in livestock production. The livestock sector not only provides employment for a large number of households, but also provides links to related activities and has a strong capacity to absorb the rural labor force as livestock production entails a wide scope of supply chain.
The ongoing sector transformation can potentially contribute to two critical issues facing the PRC: food safety and nonpoint source pollution. The vertically integrated livestock farming system allows producers to have better control over product quality and facilitates waste and wastewater collection by producers. Compared to the traditional household farming system, it will also substantially reduce monitoring and inspection cost for food safety and environmental protection regulators.
Food safety incidents in the PRC over the past decade have resulted in widespread national and global attention and have prompted the government to strengthen food safety regulations for local governments and producers. However, despite the positive steps taken by the government, challenges remain to achieving food safety, particularly safety of livestock products, in the PRC. Regulating livestock product safety requires comprehensive information throughout the production chain, which calls for need of traceability. Key issues include limited monitoring and testing capacity and inadequate law enforcement, and inadequate quality control on the producer side. The HPG aims to tackle the livestock product safety by enhancing regulators' capacity to monitor and inspection at the same time promoting producers' quality control by holding them accountable for product quality.
The waste produced by the livestock farms and enterprises contains high concentration of pollutants and is often discharged without proper treatment, which results in serious nonpoint source pollution affecting land and water resources and livelihoods. Livestock waste also results in significant greenhouse gas (GHG) emissions. The government has promoted conversion of livestock waste for renewable energy, particularly for medium- and large-scale livestock farms and enterprises. However, there are still many medium- and large-scale livestock farms and enterprises that do not have proper waste treatment. Livestock enterprises' profit before safety attitude and the government's weak environmental law enforcement make it difficult to address this negative environment impact.
The project aims to help HPG and PPEs demonstrate food safety improvement and environmentally sustainable medium- and large-sized livestock production.
The project is consistent with the PRC's Twelfth Five-Year Plan (2011 2015), which pursues the long-term goal of building a harmonious and moderately prosperous society through livelihood improvement, and regionally balanced and environmentally sustainable growth. It is also consistent with the third plenum of the 18th Communist Party of China Central Committee, which determines the direction of Thirteenth Five-Year Plan, affirmed the government's renewed commitment to food safety system improvement and sustainable environmental and natural resources management. The project is also in line with ADB's country partnership strategy, 2011 2015 for the PRC in supporting the government's overarching strategic goal by focusing on inclusive and environmentally sustainable growth. Project loan is proposed as financing modality of the project.