|Project Rationale and Linkage to Country/Regional Strategy
Logistics inefficiencies in the agricultural sector are among the main factors causing low returns to farmers, high and volatile food prices, and degraded quality of food supplies in PRC. As reflected in the 12th Five-Year Plan, the government has identified improved agricultural logistics as vital to reducing rural-urban income disparities and improving food security. Improved agricultural logistics are also critical for strengthening the competitiveness of the overall agriculture sector and expanding domestic consumption.
Improved agriculture logistics are particularly important with regard to perishable agricultural products. As much as 30% of fruit and vegetable production is lost due to spoilage during transportation, storage, and wholesale and retail activities. To compensate for spoilage, farmers rely heavily on chemical fertilizers, pesticides, and other inputs to raise crop yields. Furthermore, expansion of the middle-income class and increasing urbanization are resulting in growing demand for perishable agricultural products of high quality and value, placing additional pressure on agricultural logistics. Internationally, the agriculture sector tends to follow the example of manufacturing industries in the formation of tightly aligned value chains. Such value chains help improve efficiency; reduce risks related to quality, quantity and food safety; and are more responsive to consumer demands. Logistics is a vital dimension of the value chain.
Recognizing the need for a modern logistics system for the agricultural sector, the State Council issued a plan to guide development of the logistics industry in 2009. The plan calls for creating a supportive regulatory environment, extensive infrastructure investment, establishing technical standards, promoting integration of logistics processes, reducing barriers to trade and promoting competition. As part of the effort to implement the plan, in June 2010 the National Development and Reform Committee prepared a development plan (for 2010-2015) for cold chain logistics for agricultural products. Given the PRC's size and agricultural needs, the task of achieving greater efficiency in logistics for the agriculture sector is a huge challenge, which will be met largely by the business sector. The government's role is to support business-led initiatives through provision of (i) an enabling policy, regulatory, and institutional environment; and (ii) public infrastructure components of the supply and demand chain.
ADB has provided a range of support to strengthen agriculture value chains, including logistics, in developing member countries. Logistics issues in Xinjiang and Inner Mongolia were evaluated under the Central Asia Regional Economic Cooperation program in 2008; a regional TA approved in 2009 examined obstacles to cross-border trade on the PRC-Mongolia and PRC-Viet Nam borders; several agricultural projects were supported in Gansu, Henan, Shanxi, and Shandong provinces following the value chain approach to enhance synergy and value addition. Lessons from these projects have included the need to greatly improve the efficiency of logistics systems in the country and strengthen related policies and regulations. ADB is preparing a private sector investment project in Tianjin to increase cold chain logistics capacity.
At the provincial level, Jiangxi province has been selected as a pilot for two primary reasons. First, agriculture is an important sector in the province and the government is committed to improving agricultural logistics systems. About 38% of the labor force depends on agriculture and the province accounts for a substantial share of the PRC's production of grain, pork, edible oil, vegetable, and hydroponic products. In its 12th Five-Year Plan, Jiangxi provincial government identified modernization of agriculture as a development priority; an improved agricultural logistics system is one of the key factors for modernizing the sector. Under an earlier TA, key agricultural logistics problems were identified and measures to develop an effective agricultural logistics system were recommended as part of the rural development strategy for Jiangxi province. The province is now formulating plans to invest in logistics infrastructure as part of the effort to achieve the goals included in its 12th Five-Year Plan. Second, Jiangxi is a low income province in which poor rural households will benefit from a well established logistics system. More than 8% of the rural population lives under the national poverty line and 21 counties are designated for national poverty alleviation assistance.