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E1137

GOVERNMENT of the REPUBLIC of ARMENIA


Project Implementation Unit

Agriculture Reform Support Project

Ministry of Agriculture


Environmental Impact Assessment


of the proposed


Rural Enterprise and Small-Scale

Commercial Agriculture Development

(RESCAD) Project


March 10, 2005


Contents

SUMMARY

1. INTRODUCTION AND BACKGROUND


    1. Purpose 1

    2. Rural Enterprise and Small-Scale Commercial Agriculture Development Project 1

    3. World Bank Environmental Assessment Requirements 4

2. POLICY, LEGAL AND ADMINISTRATIVE FRAMEWORK


2.1 Legal and Regulatory Framework 5

2.2 Regional and International Cooperation 7

2.3 Policy Framework 8

2.4 Institutional Setting 9

2.4.1 National Setting 9

2.4.2 Marz and Local Government 10

2.5 Institutional Framework for Environmental Regulation 11

2.6 Institutional Capacity for Environmental Management 12

2.6.1 Ministry of Nature Protection 12

2.6.2 Commercial Banks 14


3. METHODOLOGY



3.1 General 14

3.2 Legal Instrumentation 15

3.3 Public Involvement 15

3.4 Determination of Potential Impacts 16

3.5 Baseline Data 18

3.6 Scoping and Bounding 18

3.7 Criteria for Impact Assessment 18


4. THE ENVIRONMENT


4.1 General 19

4.2 Socio-Economic Environment 20

4.3 Biophysical Environment 21

4.3.1 Physical Geography 21

4.3.2 Landscapes and Ecosystems 21

4.3.3 Agriculture and Land Resources 21

4.3.4 Water Resources 22

4.3.5 Forest Resources 22

4.3.6 Biodiversity 23

4.3.7 Summary of Agriculture Related Environmental Issues 24

5. ENVIRONMENTAL ASSESSMENT


5.1 General 25

5.2 Important Environmental Components 28

5.3 Project Benefits 28

5.4 Potential Impacts – Rural Enterprises 31

5.5 Potential Impacts – Farm Inputs 32

5.6 Potential Impacts – Community Development 33

5.7 Potential Impacts – Extension Services 34

5.8 Potential Cumulative Impacts 34

5.9 Mitigation 36

5.10 Potential Residual Impacts 36

5.11 Environmental Risk 36


6. ENVIRONMENTAL MANAGEMENT GUIDELINES


6.1 General 38

6.2 Management 38

6.3 Mitigation 38

6.4 Monitoring 41

6.5 Capacity Development 42


7. REFERENCES


ANNEXES


Annex A: List and Description of Environmental Related Laws and Description of Selected Laws

Annex B: Impacts, Causes, Consequences, Mitigation for Agro-processing and other Agribusiness (see list of tables)

Annex C: Impacts, Causes, Consequences, Mitigation for Agriculture (see list of tables)

Annex D: Impacts, Causes, Consequences and Mitigation for Rural Non-Agricultural Activities (see list of tables)

Annex E: Summary of Round Table Discussions with NGOs

Annex F: List of People Visited

List of Tables


Table 3.1: NGOs Represented by NGO Roundtable Discussion

Table 3.2: Description of Rural Enterprises by Broad Category

Table 3.3: Probable Uses of Farm Credit

Table 3.4: Level of Significance of Potential Impacts


Table 5.1: Broad Areas of Environmental Concern by Project Component and Sub-
Components

Table 5.2: Important Environmental Components

Table 5.3: Benefits – Rural Enterprises

Table 5.4: Benefits – Farm Inputs

Table 5.5: Summary of Potential Major Environmental Impacts – Rural Enterprises

Table 5.6: Summary of Potential Major Environmental Impacts – Farm Inputs

Table 5.7: Summary of Potential Major Environmental Impacts – Community Development

Table 5.8: Summary of Residual Effects of Enterprises

Table 5.9: Summary of Probable Residual Effects of Farm Inputs


Table 6.1: Some Agricultural Good Practices – Towards a Protected Environment and Sustainable Agriculture

Table 6.2: Some Good Rural Enterprise Practices – Towards a Protected Environment and Sustainable Rural Development

Tab le 6.3: Summary of Environmental Capacity Building Requirements


Annex B Tables: Impacts, Causes, Consequences, Mitigation for Agro-processing and other
Agri-business



Table B1: Planning and construction of new enterprises

Table B2: Abattoir (meat processing)

Table B3: Meat Packing

Table B4: Vegetable Processing and Canning

Table B5: Tanning

Table B6: Aquaculture

Table B7: Dairy Processing

Table B8: Frozen Food Production

Table B9: Oil Processing

Table B10: Flour Milling

Table B11: Markets


Annex C Tables: Impacts, Causes, Consequences, Mitigation for Agriculture


Table C1: Seed

Table C2: Pedigree Seed

Table C3: Fertilizer

Table C4: Pesticides

Table C5: Pedigree Livestock

Table C6: Livestock for Finishing

Table C7: Land Purchase

Table C8: Tractors

Table C9: Land Preparation

Table C10: Other Farm Implements

Table C11: Small Equipment

Table C12: Irrigation Equipment and Irrigation Maintenance

Table C13: Vehicles

Table C14: Farm Buildings for Stock and Machinery

Table C15: Storage Facilities (fuel, chemicals, grain and other produce)

Table C16: Primary Processing

Table C17: Fencing Materials

Table C18: Fuel, lubricants, etc.

Table C19: Veterinary Services


Annex D Tables: Impacts, Causes, Consequences and Mitigation for Rural Non-Agricultual Activities


Table D1: Non-renewable Resource Extraction

Table D2: Renewable Resource Extraction

Table D3: Manufacturing

Table D4: Trade

Table D5: Transport


Acronyms


ARSP Agriculture and Rural Support Project

BSAP Biodiversity Strategy and Action Plan

BSE Bovine Spongiform Encepalophathy

CAP Community Action Plan

CIS Central Independent States

CJ Creizfeldt-Jakob disease

DoEE Department of Ecological Expertise

EA Environmental Assessment

EIA Environmental Impact Assessment

FSU Former Soviet Union

GoA Government of Armenia

GMO Genetically Modified Organism

HYV High Yielding Variety

IBRD International Bank for Reconstruction and Development

IEC Important Environmental Components
IPM Integrated Pest Management

MoNP Ministry of Nature Protection

NEAP National Environmental Action Plan

NGO Non-Government Organization

PFI Participating Financial Institution

PMU Project Implementation Unit

PMU Project Management Unit

RESCAD Rural Enterprise and Small-Scale Agriculture Development Project

TAP Technology Assessment Program

NRMPR Natural Resource Management and Poverty Reduction Project

SFM Sustainable Forest Management

EMP Environmental Management Plan

DoEE Department of Ecological Expertise
SUMMARY




  • Environmental assessment - purpose


The purpose of the environmental assessment is to ensure that the Project meets the requirements of the World Bank as set out in Operational Directives 4.01 for Category B projects.


The assessment consists of four main components: i) a review and summary of relevant legislation and the adequacy of the legislation to ensure environmental protection as it relates to the Project; ii) an analysis of probable impacts, mitigation and residual impacts of agriculture and agribusinesses including agro-processing, rural enterprise other than agriculture, and community development activities that would qualify for Project loan financing; as well, analysis of extension services; iii) an analysis of the capacity of the Government of Armenia (GoA) and lending institutions, to recognize and address impacts of any activity for which a loan is being requested; and, iv) guidelines for environmental management of the project.


  • The Project




      The objectives of the proposed Rural Business and Small-Scale Commercial Agriculture Development project (RESCAD) is to improve the ability of Armenia’s farmers and rural entrepreneurs to access markets and increase employment opportunities by stimulating market-oriented private and public investments in rural areas.

      The proposed project seeks to fill the gap between rural producers and higher end markets by assisting value-added business initiatives. Although agricultural production remains mostly semi-subsistence in nature, there is evidence that farmers and processors are moving towards vertical integration down the supply chain. There is an increasing demand from individual farmers, producer associations, and small and medium enterprises for advisory services, marketing support and financial assistance.

      The major focus of the proposed Project would be to support the continued development of commercial activities in the rural areas by improving market linkages, product quality, competitiveness and capacity of Armenian rural entrepreneurs and producers. The Project will have a three-tiered approach by addressing critical gaps at the farm level, at the community level, and at the rural business and agro-processor level.

      At the time of this environmental assessment the Project was in the preparation phase and although the following description of the Project in terms of Project components is not likely to change in any significant manner before Project approval, some of the details of the components may require modification.

      Suggested project components and activities comprise: (i) small rural business support, including improved financial services and small grants for technological innovations; (ii) farm-focused development support, including strengthening the decentralized agricultural extension system, the provision of management and business advice, improving livestock services, and improving planting material production capability; and (iii) community-focused economic development. The Project would work primarily through existing institutions, and would build on the experience of the ongoing Bank-funded rural projects, especially the ARSP.

  • Regulatory framework


The main legislative framework for environmental management and relevant to the RESCAD Project are the Law on Principles of Environmental Protection (1991) and the Law on Environmental Expertise (1995).


The Law on Principles of Environmental Protection establishes the obligation of the State to care for the environment, prescribes the institutional framework for environmental management, and sets out the principles, approaches and instruments for environmental protection. The Law has a minimum normative value and has been used as an environmental policy document.


The Law on Environmental Expertise is currently being revised to provide a more comprehensive environmental expertise law and to bring it in line with western environmental review laws. It is currently (January 2005) in its third draft and is known as the Law of the Republic of Armenia on Environmental Review (Environmental Expertise).


This law establishes a framework to define impacts of intended activities on environment, assess feasible alternatives, minimize negative consequences and ensure public involvement. It contains a list of activities subjected to the expertise process. The State Agency for Environmental Expertise, within the Ministry of Nature Protection (MoNP), is responsible for carrying out the relevant procedures.


There are no fewer than a dozen other relevant laws dealing with various aspects of the environment. In addition, Armenia is signatory to 15 conventions relating to aspects of the environment. The most significant of these are the conventions relating to ozone depletion, desertification and biodiversity.


Armenia also cooperates with its regional neighbors on a number of environmental issues and programs.


  • Institutional arrangements - EIAs


The Department of Ecological Expertise (DEE) within the MoNP is responsible for environmental assessment and the following figure summarizes the procedure to be followed when a proponent wishes to proceed with a particular activity.


Schematic Indicating Process of Development Proponent Receiving Environmental Approval





The proponent is responsible for ensuring that an environmental assessment is prepared for his proposal. This is conducted by the Department of Environmental Expertise which has a staff of ten scientific specialists. The proponent pays for this service. The examination is often done in collaboration with the local Marz government representatives. Each project submitted will receive a response (yes or no) from the DEE within 120 days. In accordance to the legislation the general public is informed of the proposed project and has an opportunity to comment on the project, particularly regarding environmental effects. The DEE takes public input into account before preparing its final report.


Once the environmental certificate signed by the Minister has been issued the proponent is allowed to proceed with the development. The DEE will conduct periodic inspections (monitoring) of the project to ensure that all standards agreed to are maintained.


  • Enforcement responsibilities and capacity


The Law on Environmental Expertise is not properly implemented and does not reflect the actual procedure which is followed. Contribution of independent experts and NGOs is minimal and public hearings are never held. Apart from lack of implementation, the Expertise law is also incomplete. Assessment criteria, requirements for preliminary environmental studies and the procedures for public hearings still need to be developed.1


According to the Director of the Environmental Inspectorate, the staff comprising the ecological expertise are well qualified and sufficient in number to address the cases for which they are responsible. However, in the case of environmental monitoring “the existing system (for air and water quality monitoring) is equipped with outdated technical equipment which produce results within a 25-30% error margin.


  • Agriculture related environmental issues


Armenia has a number of environmental issues either directly or indirectly related to agriculture and as such are relevant to this Project. A number of environmental problems are as a result of past and current agricultural activities and as such the Project must take care in not only exacerbating the situation but also in promoting activities that will be environmentally enhancing and to overcome some of these past mistakes. Agricultural and rural enterprises can also indirectly result in negative environmental effects. The issues are listed below:


  • Groundwater pollution – chemicals including agricultural

  • Surface water pollution – chemicals including agricultural

  • Water losses – irrigation systems

  • Soil salinization and alkalination – irrigation systems

  • Water logging – irrigation systems (drainage)

  • Lake Sevan fisheries destruction – over fishing, pollution, and loss of breeding habitat (lake source streams unsuitable due to irrigation pressures)

  • Biodiversity losses (including pressure on relatives of domestic crops, fruit trees and medicinal plants) – grazing and deforestation

  • Soil erosion – overgrazing and deforestation

  • Soil fertility losses – cultivation practices

  • Land contamination – industrial wastes

  • Environmental health and hazards – food contamination and exposure to pollutants


In addition to these issues there are others related to other components of the proposed Project. For agro-processing and other agribusiness enterprises, major concerns relate to effluent discharges and their impact on water quality, water use, disturbance of significant sites for biodiversity and cultural protection, and general health and safety issues. Another concern is the introduction of alien species and their effect on biodiversity, especially endemic species. A case in point is the existing aquaculture operations based on the North American indigenous rainbow trout (Salmo gairdreri) which if it escapes (and if it hasn’t already done so), can disrupt natural aquatic systems.


  • Environmental assessment


The overall environmental effect of the sub-projects resulting from the main development components and sub-components of the Project will be positive. Farm, agri-business, and other rural business loans will result in improved agricultural production and marketing, and in general, improved socioeconomic conditions of the rural population. Other aspects of the Project including the community development component, extension services and others, will all contribute to an improved socio-economic environment in the rural areas. The Project will further contribute to the country’s food security, hopefully contribute to the generation of foreign exchange through increased agricultural exports, and mostly the Project, through the various financed activities, will significantly contribute to the alleviation of rural poverty. In the past 15 years rates of chemical inputs in agriculture have been significantly reduced, resulting in cleaner watercourses, lower levels of soil contamination and relatively chemical free food, although residues in soil and water, and their effects, still remain. The Project could lead to an increase in the use of farm inputs but mitigation measures, extension services and training associated with the Project should minimize any potential impacts associated with these inputs. To some extent, it is presumed that some of the industries under the former Soviet regime which created significant environmental problems and which have since ceased operating, may be refurbished, or new replacement activities introduced that are expected to operate more efficiently and without the major environmental contamination of the past. Current environmental regulations, particularly through the revised legislation on Environmental Expertise which will provide for the need for more comprehensive environmental assessments of projects, should prevent a return to the serious environmental issues of the past.


The major potential impacts associated with the eight rural enterprise categories include water and air quality deterioration, loss of biodiversity and impacts on biophysical resources, including forest cover losses and soil erosion. Of the eight categories, extraction industry, construction and manufacturing industries will contribute to the most significant impacts. Although the extraction enterprise category (a category that is included but in all reality probably not one that will likely be associated with the RESCAD Project) is probably and currently represented by a few individual activities. Nevertheless, the industries of this category have the potential to cause more environmental damage than all of the other enterprise groups taken together. The trade enterprise group will comprise of many individual businesses but generally, the impact of this group is negligible. Even a cumulative impact within the entire trade category is likely not to have a negative impact as significant as the potential impact that one extractive enterprise or a poorly designed and operating agro-processing centre could create.


The mining and manufacturing sectors generally produce wastes that are disposed of in the form of effluents that flow into surface watercourses, seepage into groundwater, emission gases that are released into the atmosphere and solid wastes that are disposed of in municipal and unorganized waste sites. These wastes could include a wide range of gaseous, solid and liquid compounds ranging from water vapour to highly toxic materials. Such wastes would pose a threat to groundwater supplies, air quality, aquatic ecosystems, and ultimately to human health.


Aquaculture development and commercial fishing can lead to the loss of species and the modification of aquatic ecosystems. In Armenia, rainbow trout (Salmo gairdreri) is an exotic species raised under artificial conditions. If stocks were to escape from captivity it could result in a serious impact on other indigenous species. The species can be very predatory. This is particularly important with regard to the Lake Sevan ecosystem and its fishery.


The major potential impacts associated with the 19 potential agricultural inputs for small and medium scale farms relate to water and soil quality, soil erosion, salinization and resource loss. Increasing pesticide applications can lead to pesticide residue (including heavy metals) build up in the soil. Pesticides and fertilizers can migrate to both surface waters and groundwater resulting in contamination of these two sources and leading to damaged aquatic ecosystems and threatened health to downstream users. HYV seeds will demand further applications of chemical inputs, thus exacerbating the problem. Livestock rearing in large numbers and in closed conditions, results in a concentration of animal waste that can contaminate both groundwater and surface waters. In the case of the former, public health is at risk, in the case of the latter, aquatic ecosystems and, possibly public health, are both at risk. Livestock expansion, particular for farms in the hills and near the mountains, can lead to pressure on common public lands including forests. Loss of biodiversity and soil erosion can occur if livestock and pastureland are not managed effectively and if livestock numbers are not controlled.


Irrigation rehabilitation and new irrigation schemes can lead to salinization and waterlogging – desertification - if drainage is not managed effectively. Tractors and land preparation can promote erosion, particularly if tractors are too heavy and cause soil compaction, and if fields are ploughed (with or without the contour) and left for long periods before sowing. Land purchases, where the land is already under agricultural use, do not lead to increased environmental problems. However, where land is under some other cover and use such as wetland, or forest cover on steep slopes, there is the potential loss of biodiversity, habitat and species. As well, erosion risks may be increased, particularly on steep sites.


A number of activities have been considered as the most likely candidates for community development support. Most of these activities will be environmentally benign. However, in the case of agro-processing through a cooperative arrangement, some potential impacts can be expected. Impacts relate to the location of the facility which could cause an inconvenience to local residents and to existing activities in the area. As well, location and construction activities associated with the enterprise could impact on biophysical resources. The major impact with most agro-processing facilities will be the effect of effluents on water quality. As well, in any processing facility there is the need to ensure public safety, particularly for workers.


In order for communities to qualify for a community development grant they will be required to prepare a community action plan (CAP). The Project will provide support to ensure that there is effective participation in the planning process. It will be important that this support provide an environmental input to the planning process in terms of ensuring that the outcome of the planning process (the plan itself) recommends community development opportunities that do not conflict with good environmental practices. In this regard the Project will be able to provide basic guidelines.


  • Environmental risk


Overall, the environmental risk is high because effective enforcement of the law is questionable. If enforcement is carried out in an effective and efficient manner, the environmental risks associated with the various activities to be supported through the project will vary. Risks for those activities that would lead to impacts which can be governed by specific pieces of legal instrumentation would be low. Risks for which there is no effective legal instrument would vary, depending upon the nature and level of impact, and the cost of mitigation. However, without full mitigation, environmental risk for all activities would have to be rated high. That is, the actual impacts will be much closer to the identified potential impacts than to the residual impacts determined if all mitigation was carried out. Of particular concern would be for those activities resulting in water and air pollution, and soil erosion.


  • Environmental management


Environmental management guidelines are provided to ensure that World Bank requirements regarding the environmental aspects of the Project are met.


Mitigation of environmental effects will be the responsibility of the proponent of the activity. The EIA includes a number of tables describing potential impacts for each of the activities that could be financed, as well as best mitigation practices. It will be the responsibility of the lending agency, the MNP and the PMU to ensure that mitigation is carried out successfully. This responsibility will be reflected in an effective and established monitoring system.


With some basic training loan officers will be able to monitor their projects but often they will require the PMU environmental specialist (assuming that one will be appointed) and/or MNP staff. Due to the probable large number of projects that will be assigned to each loan officer, monitoring will likely be conducted on a sample basis. Groups of projects that have the potential for creating the most serious environmental problems should be given highest priority for sampling. For monitoring to be effective, results must be acted upon, and as such, monitoring results will be considered when loan applications are reviewed and conditions are placed on subsequent loans.


It will be important that the loan officers have sufficient knowledge to recognize the significance of any impacts that may occur as a result of any potential activity being assessed for a loan and in this regard the management plan puts forth a training program for these officers, as well as others who may benefit.


The Project Implementation Unit (PMU) within the Ministry of Agriculture will be responsible for Project implementation. This Unit should have a staff member or a consultant with an environmental background to ensure that activities being supported are not ones that would unduly affect the environment. The individual must be able to recognize an activity for which a loan is being sought that may fall into Category A or B and ensures that the project receives an EA that will meet World Bank requirements. The individual will also be in close collaboration with MNP staff.


1. INTRODUCTION AND BACKGROUND


1.1 Purpose

The purpose of this Category B environmental assessment is to ensure that the Rural Enterprise and Small-Scale Commercial Agriculture Development Project (RESCAD) meets the requirements of the World Bank as set out in Operational Directives 4.01.


The assessment consists of four main components: i) a review and summary of relevant legislation and the adequacy of the legislation to ensure environmental protection as it relates to the Project; ii) an analysis of probable impacts, mitigation and residual impacts of agriculture and agribusinesses including agro-processing, rural enterprise other than agriculture, and community development activities that would qualify for Project loan financing; as well, analysis of an extension services; iii) an analysis of the capacity of the Government of Armenia (GoA) and lending institutions, to recognize and address impacts of any activity for which a loan is being requested; and, iv) guidelines for environmental management of the project.


1.2 Rural Enterprise and Small-Scale Commercial Agriculture Development Project (RESCAD)


      The objectives of the proposed Rural Business and Small-Scale Commercial Agriculture Development project is to improve the ability of Armenia’s farmers and rural entrepreneurs to access markets and increase employment opportunities by stimulating market-oriented private and public investments in rural areas.

      The proposed project seeks to fill the gap between rural producers and higher end markets by assisting value-added business initiatives. Although agricultural production remains mostly semi-subsistence in nature, there is evidence that farmers and processors are moving towards vertical integration down the supply chain. There is an increasing demand from individual farmers, producer associations, and small and medium enterprises for advisory services, marketing support and financial assistance.

      The major focus of the proposed project would be to support the continued development of commercial activities in the rural areas by improving market linkages, product quality, competitiveness and capacity of Armenian rural entrepreneurs and producers. The project will have a three-tiered approach by addressing critical gaps at the farm level, at the community level, and at the rural business and agro-processor level.

      At the time of this environmental assessment the Project was in the preparation phase and although the following description of the Project in terms of Project components is not likely to change in any significant manner before Project approval, some of the details of the components may require modification.

      Suggested project components and activities comprise: (i) small rural business support, including improved financial services and small grants for technological and business innovations; (ii) farm-focused development support, including strengthening the decentralized agricultural extension system, the provision of management and business advice, improving livestock services, and improving planting material production capability; and (iii) community-focused economic development. The project would work primarily through existing institutions, and would build on the experience of the ongoing Bank-funded rural projects, especially the ARSP.

      Component I: Small Rural Business Support

      An increasing number of small and medium businesses are being established in rural areas for processing, service provision and production activities. These activities are both agricultural and non-agricultural in their scope, and, to a large extent, represent the engines of growth and a key source of rural employment. Many of these emerging businesses have been supported during their establishment phases by various donor programs. However, an insufficient range of financial and business management services and poor access to technological improvements to improve their competitiveness limit their continuing development. The growing demand for rural/agricultural financial services, and the challenges of rural/agricultural lending have heightened the need for innovative approaches and financial instruments more tailored to the distinguishing features of this rural clientele that is largely characterized by small farms, lack of suitable collateral, inadequate financial skills, and production and commodity market risks that are specific to agriculture.

      The objective of the component is to support rural businesses to better link their production to markets. The component aims to support the efficient development of supply chains for commodities that have a demonstrated market potential and to expand market opportunities through enhanced access to financial services and targeted business support. Access to financial services by farmers and small/medium size rural enterprises will be enhanced through capacity building to participating financial institutions (PFIs) in order to promote requisite lending skills, and facilitate the development and widespread use of suitable financial instruments and methodologies; and providing needed long term capital.

      The component would provide support to the further development of small rural businesses and agro-processors, including: (a) enhanced rural financial services such as credit for working capital requirements, long-term credit for investment purposes, and leasing programs for processing and agricultural equipment; (b) promotion of rural business linkage through the provision of small grants provided on a competitive basis to test and disseminate technological and business support that could improve market access and linkage between producers and processors.

      Component II: Farm-Focused Development Support

      There is a substantial need to improve both the productivity and efficiency of rural producers and the quality of production in order to better serve the emerging markets. To accomplish this goal, four main areas have been identified, including strengthening the decentralized advisory services system, upgrading and encouraging marketing and trading knowledge sharing, improving livestock services, and improving access to planting material. An extension system, providing management and marketing advice and services, covering each Marz has been established with support through the present ARSP, but there is a need to streamline the service to improve efficiency and outreach. The veterinary system has been re-structured in 2004 to allow private veterinarians at the village level to be contracted to carry out government programs for the control of notifiable animal diseases including those that pose a public health risk as well as to provide paid services for animal health problems at the farm level. There is also a need to improve farmers’ access to quality seeds and planting material, including introduction of new varieties that may better provide for the needs of the developing agro-processing sector.

      The objective of the component is to enable farmers to improve their productivity and quality of production to better serve emerging markets by developing a sustainable advisory system, enhancing the efficiency of Armenia’s seed and sampling businesses, and improving the livelihood of rural communities that are largely relying on livestock production.

      Three main sub-components have been identified for this component: (a) strengthening the decentralized agricultural extension system to improve linkages with village-level authorities; to increase the effectiveness and outreach of the flow of information on technological improvements; to further develop the technology assessment program (TAP) and on-farm demonstration activities, especially with topics likely to improve production quality and farm-level storage and processing; (b) providing management and business services and improving delivery of livestock services to the farm level such as improved veterinary health care, and improved feeding systems; and (c) strengthening seed and seedling production capability of Armenian producers.

      Component III: Community-Focused Economic Development

      As a result of the closing down of rural industries after the collapse of the Soviet Union, the marginalization of rural areas has been accelerating in the recent past. Linked to such trends, the rural areas of Armenia face a number of serious problems which need urgent attention: deterioration of the economic potential and food security problems, shrinking forest areas, soil degradation, limited access to drinking and irrigation water, unsustainable agricultural production and animal husbandry practices, low living standards, limited access to main trade routes and markets, inadequate access to information and mass media, unemployment, emigration, and lack of funds to address the above issues. All these problems are interlinked and need to be addressed in the framework of a comprehensive community development strategy. Although many agencies have been working in rural areas of Armenia, most support has tended to focus on specific needs in geographically limited areas. The full impact of interventions in the rural sector is often not achieved because: (i) other equally important constraints remained un-tackled, (ii) many interventions were limited in scope and selective in terms of target beneficiaries and geographical areas, and (iii) interventions were often supply-driven, depended on the availability of external funding, had little coordination between interventions and little effective participation by concerned beneficiaries.

      The objective of the component is to stimulate economic development at the community level in selected rural areas through increased capacity to self-organize, plan and manage and the creation of viable infrastructure marketing linkages and through increased income opportunities. It is expected that this will result in the improved capability of participating communities to use their own and other resources and services to support their market-led initiatives and priorities for sustainable economic development.

      The component will strengthen the institutional capacity of project participants that would enable them to acquire a capacity for self-organization by improving their organizational, problem assessment, planning, and management skills. To make use of those skills, the component will help finance selective community investments to encourage the intensification of on-farm production, and to strengthen backward and forward linkages between farming, agro-services, agro-processing, and marketing. The community group would prepare a Community Action Plan (CAP), which would be the basis for delivery of project interventions to rural communities. Since revitalization of the rural areas would require a range of activities, a CAP would include activities in three broad categories: (a) improved resource management; (b) rural market access infrastructure improvement; and (c) income-generating activities. The component has a three-phased approach: (a) community mobilization and capacity building; (b) production efficiency and market linkage for qualified communities; and (c) implementation of investment sub-projects. The project would support selected sub-projects falling within the first three years of implementation of a finalized community action plan. Investments would be limited to US$ 50 per inhabitant or on average US$ 60,000 for the participating community. Investments would focus on public goods, but private activities providing benefits to a large number of villagers may be financed if the CAP identifies the investment as a priority. The component activities would be implemented in selected Marzes and selected villages.

      Component IV: Project Management

      While the exact structure and location of a Project Management Unit (PMU) would be determined during project preparation, the project would support the establishment and operations of a PMU in close linkage with the Ministry of Agriculture building on the experience of the present PMU of the ARSP, including financial management and procurement. Detailed staffing needs and requirements will be further elaborated over the coming months. However, it is envisaged that there will be a number of specialists in the PMU that are responsible for the implementation of the various components and sub-components and take a pro-active role in ensuring that timely start-up, implementation and completion of project activities. A supervisory role would be held by the Ministry of Territorial Administration and a project management board would oversee the implementation of project activities.

1.3 World Bank Environmental Assessment Requirements


The Bank undertakes environmental screening of each proposed project for which it will provide funding in order to determine the appropriate extent and type of EA. The Bank classifies the proposed project into one of four categories, depending on the type, location, sensitivity and scale of the project and the nature and magnitude of its potential environmental impacts. The four Categories are A, B, C, and FI. Category FI is applied to all proposed projects that involve investment of Bank funds through a participating financial intermediary (PFI) to be used for sub-projects of which the environmental impacts can not be determined during appraisal of the World Bank project. Hence the financial intermediary is required to screen proposed sub-projects and must ensure that sub-borrowers conduct an appropriate EA for each sub-project, where warranted. Before approving a sub-project, the PFI verifies that the sub-project meets the environmental requirements of appropriate national and local authorities and is consistent with the Operational Policies (OP) and other applicable environmental policies of the Bank. Although part of the Project comes under the FI category and PFIs would manage USD six million out of USD 20 million of the Project funds, the majority of funding would go for the development of agricultural services and community development. Accordingly, this would not be financed through a PFI and accordingly, the Project is placed in the B category.


2. POLICY, LEGAL AND ADMINISTRATIVE FRAMEWORK



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