second aquaculture development project (loan 821-ban[sf])

7/31/2019 Second Aquaculture Development Project (Loan 821-BAN[SF])

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ASIAN DEVELOPMENT BANK PPA: BAN 18045

PROJECT PERFORMANCE AUDIT REPORT

ON THE

SECOND AQUACULTURE DEVELOPMENT PROJECT(Loan 821-BAN[SF])

IN

BANGLADESH

December 2002


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CURRENCY EQUIVALENTS

Currency Unit taka (Tk)

At Appraisal At Project Completion At Operations Evaluation(August 1986) (December 1996) (October 2002)

Tk1.00 = $0.033 $0.02372 $0.01726$1.00 = Tk30.30 Tk42.15 Tk57.93

ABBREVIATIONS

ADB Asian Development BankBB Bangladesh BankBKB Bangladesh Krishi BankDOF Department of FisheriesEIRR economic internal rate of returnOEM Operations Evaluation MissionPCR project completion reportPP project proformaSDR special drawing rightsSOE statement of expenditureTA technical assistanceUNDP United Nations Development Programme

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. FY before acalendar year denotes the year in which the fiscal year ends. Forexample, FY1990 begins on 1 July 1989 and ends on 30 June 1990.

(ii) In this report, $ refers to US dollars.

Operations Evaluation Department, PE-613


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CONTENTSPage

BASIC DATA iiEXECUTIVE SUMMARY iiiMAP vii

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Outputs 1D. Cost, Financing, and Executing Arrangements 2E. Completion and Self-Evaluation 3F. Operations Evaluation 3

II. PLANNING AND IMPLEMENTATION PERFORMANCE 4A. Formulation and Design 4B. Achievement of Outputs 4C. Cost and Scheduling 5D. Procurement and Construction 6

E. Organization and Management 6

III. ACHIEVEMENT OF PROJECT PURPOSE 7A. Operational Performance 7B. Economic and Financial Reevaluation 11C. Sustainability 12

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 12A. Socioeconomic Impact 12B. Environmental Impact 13C. Impact on Institutions and Policy 14

V. OVERALL ASSESSMENT 14A. Relevance 14B. Efficacy 14C. Efficiency 15D. Sustainability 15E. Institutional Development and Other Impacts 15F. Overall Project Rating 16G. Assessment of ADB and Borrower Performance 16

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 16A. Key Issues for the Future 16B. Lessons Identified 17

C. Follow-Up Actions 18

APPENDIXES1. Estimated and Actual Project Costs 192. International Training 223. Shrimp Culture Development 234. Carp Culture Development 305. Benchmark Survey of Demo and Non-Demo Farms 356. Credit Operations of the Project 437. Culture-Based Floodplain Fisheries Enhancement 498. Financial Reevaluation 59


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BASIC DATALoan 821-BAN(SF): Second Aquaculture Development Project

PROJECT PREPARATION/INSTITUTION BUILDINGTA No. TA Name Type Person-

MonthsAmount

1

($)Approval

Date632 Second Aquaculture Development PPTA 20 330,000 4 Oct 1984

As per ADB

KEY PROJECT DATA ($ million) Loan Documents ActualTotal Project Cost 60.00 38.29Foreign Exchange Cost 18.24 12.18Local Currency Cost 41.76 26.11

ADB Loan Amount/Utilization 45.46 30.67ADB Loan Amount/Cancellation 24.91

KEY DATES Expected ActualFact-Finding 418 Mar 1986

Appraisal 18 Jul4 Aug 1986

Loan Negotiations 46 Nov 1986Board Approval 16 Dec 1986Loan Agreement Feb 1987 20 May 19872

Loan Effectiveness Jul 19873 8 Mar 1988First Disbursement 14 Jan 19914Project Completion 30 Jun 1992 31 Dec 1996Loan Closing (amended Loan Agreement) 31 Dec 1992 15 Apr 1997Months (effectiveness to completion) 60 106

ECONOMIC AND FINANCIALINTERNAL RATES OF RETURN (%)

Appraisal PCR PPAR

Economic Internal Rate of Return 23.0 5 5Financial Internal Rate of Return 31.0 5 5

BORROWER Peoples Republic of Bangladesh

EXECUTING AGENCY Department of Fisheries and Bangladesh Bank through Agrani Bank,Bangladesh Krishi Bank, and Rupali Bank

MISSION DATAType of Mission No. of Missions No. of Person-DaysFact-Finding 1 42

Appraisal 1 60Project Administration

Review 22 205Project Completion 1 14

Operations Evaluation6 1 57

= not calculated, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performanceaudit report, PPTA = project preparatory technical assistance, TA = technical assistance.1 Represents the approved amount of TA.2

The Loan Agreement was amended on 3 November 1987 after the Board approved ADB financing of consultingservices of $2.65 million, which the United Nations Development Programme had declined to finance.

3Based on the amended Loan Agreement, the expected date of loan effectiveness was 2 January 1988.

4The first actual release of funds, although an amount of $153,931 was recovered earlier by ADB from the loanaccount upon loan effectiveness, representing a portion of the cost of prior TA.

5At appraisal, economic and financial internal rates of return of investments of the credit line were calculated,assuming upfront investments costs. In reality, the credit line largely comprised short-term working capital loans toexisting aquaculture farms. Thus, no rates of return were calculated in the PCR and PPAR.

6Comprising N. Bestari (Mission Leader), F. Asistin (Evaluation Analyst), D. Carles (Consultant/AquacultureSpecialist), and M. A. Siddiqui (Consultant/Socioeconomist).


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EXECUTIVE SUMMARY

Bangladeshs access to marine fish resources is limited, but the countrys inlandfisheries resources are among the richest in the world. Situated in the delta of the Brahmaputra,Ganges, and Meghna rivers, the climate, water, and soil conditions of Bangladesh are favorable

for inland and floodplain fisheries, as well as for aquaculture. The Second AquacultureDevelopment Project was approved by the Asian Development Bank (ADB) in December 1986,and originally targeted for completion in June 1992. However, the start of implementation wasdelayed by more than 3 years, and the Project was completed in December 1996.

The main objectives were to promote shrimp aquaculture production to generate foreignexchange earnings, increase the availability of fish for domestic consumption, and enhanceincomes and employment in the rural areas. Designed to address slow transfer of technologyand inadequate credit, the Project aimed at developing extension services for shrimp and carpculture development, providing complementary credit for aquaculture development, and pilotingfloodplain fisheries enhancement by introducing fish stocking in designated floodplains. Inproviding the extension services, the Project was to engage progressive farmers and developtheir aquaculture ponds as demonstration (demo) farms to allow others to learn from thesefarms. The credit line was intended to help farmers upgrade or expand their existing ponds, andprivate operators establish associated facilities. The Department of Fisheries (DOF) was theexecuting agency of the Project, except for the credit line for which the Bangladesh Bank wasdesignated as the executing agency. Bangladesh Bank channeled the credit line through threeparticipating banks, namely Agrani Bank, Rupali Bank, and Bangladesh Krishi Bank.

Demo farms have served as the main media to showcase improved pond culturepractices. A total of 116 shrimp demo ponds, 70 prawn demo ponds, and 1,498 carp demoponds were established with an almost nationwide coverage of potential aquaculture areas.With improved aquaculture practices, achievements on demo ponds exceeded the targetsestablished at appraisal for productivity improvements. The sociocultural conditions in thevillages facilitated the dissemination of the introduced technology. Visits and access to demo

ponds were made possible through neighbors, friends, relatives, and other local contacts. Eachdemo farmer was in close contact with at least 10 other farmers to share the knowledge of pondpreparation and management learned from the Project.

Despite delays and some shortcomings in their establishment, the demo farms havegained and sustained impressive yield increases. The farmers have continued to act as informalextension agents, although they have received limited further support from DOF after projectcompletion. Diffusion of information has been effective because the extension has relied onfeasible, simple, and low-cost technology to improve aquaculture practices. Bangladeshsaquaculture production and exports have gained significantly, although such achievementscannot be wholly attributed to the Project. Fish production, including carp species, has morethan tripled since 1990. The volumes of shrimp and prawn exports have markedly increased

since 1990, although there was a transitional setback in 1997 when Bangladesh had to complywith increasingly stringent food quality standards for exports.

The credit line was envisaged to complement the extension services to financeinvestments in aquaculture development. However, the assessment at appraisal of the creditdemand was optimistic, relying on the expressed interest of the participating banks and thetechnical support built into the Project. Based on assessment in 1991 that the private sectoroutside the original project areas was capable of developing viable enterprises withoutaquaculture demo ponds, ADB approved a change of scope to allow credit delivery beyond theareas of the extension services. This decision detached credit delivery from the extension


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services. With limited experience in aquaculture, the participating banks were reluctant to lend.The credit line was unutilized until early 1994. Subsequently, credit approval increasedprogressively, but the original disbursement target was not met.

Although the project design had expected that 90% of the credit line would be used forinvestment loans, this expectation did not materialize. Credit delivery largely comprised short-

term working capital loans. The switch to financing working capital was pragmatic: short-termlending reflected the risk-averseness of the participating banks and the demand for workingcapital among existing farms that did not require upfront investments. Loan recovery has variedbetween 50% and 90%. Without receiving appropriate advice, the subborrowers outputs weresubstandard. Disease outbreaks and major flooding negatively affected the financial viability ofthe subborrowers, despite the rescheduling of loan repayments in some cases. The interest ratefor the project credit line was fixed for all clients with no distinction between short-term loans,long-term loans, working capital, or investments. This practice did not encourage theparticipating banks to incorporate risk assessment into their interest rate structure.

For the experimental floodplain fisheries enhancement, selected water bodies wereutilized for fish seed nurseries and juvenile fish was released into the floodplains during

inundation. Fish stocking was found financially attractive in the context of direct costs, fishrecovery, and associated risks, but its design did not fully address the organizational andmanagement requisites for sustaining floodplain stocking. Issues concerning sharing ordistribution of costs and benefits emerged during implementation. The requirements on thetransfer of management of the water bodies, and the development of leasing policies and a costrecovery system were not fulfilled. Fish stocking relied on seed supplies from private suppliersand existing government hatcheries, and because of delays in construction, the project-financedhatcheries served little purpose for the Project. The pilot floodplain fisheries enhancement didnot foresee social preparation, community involvement, and common property management askey requisites. Nevertheless, the pilot initiative raised the awareness of DOF of pertinent issues,and this subsequently led to a more comprehensive attention to such enhancement.

The dissemination of improved fish culture techniques has benefited households andsmall farms. Nationwide, carp farming has become increasingly popular, benefiting at least3 million people. It is not uncommon that households consume up to 25% of their backyardfishpond production, providing a significant source of animal protein and calcium to improvetheir nutrition. The availability of low-cost fish at local markets has helped increase fish proteinintake among rural and urban consumers. The shrimp and prawn subsector has also providedsignificant employment opportunities. The Project promoted aquaculture practices that haveyielded high financial returns to farms that have adopted such practices. The demo farms havecontinued to promote and disseminate aquaculture technology that provides higher incomes tofarmers. There is strong evidence that an increasing number of farms have improved theirproductivity through better pond management and rational use of feed and inputs.

Despite the achievements in technology dissemination and uptake, the sustainability ofaquaculture is affected by disease risks and their potentially devastating impacts on production.Disease prevention and food quality standards are important for securing export markets, whilespecies diversification can enhance the product mix for exports. The spontaneous expansion ofshrimp and prawn farms has posed environmental risks because of inadequate watermanagement. In many cases, there are inadequate provisions for water supply and drainagefacilities. Without adequate planning, an unbridled development scenario in shrimp and prawnculture has evolved, highlighting the need to develop a spatial plan for shrimp and prawnfarming, taking into account production potential, technology options, environmental carryingcapacity, and management requirements.


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Considering its major achievements against appraisal objectives and targets, as well asits shortcomings, the Project is rated successful. Several follow-up actions are recommended.First, DOF should allocate adequate resources to sustain operation of the project-financedhatcheries in the context of their current use as broodfish banks. Second, in policy dialogue withthe Government and bilateral and multilateral agencies over the next 3 years, ADB shouldemphasize the issues concerning shrimp and prawn farming that are critically linked with the

carrying capacity of the environment and its safeguards. ADB should use the ongoing regionaltechnical assistance as an instrument for such dialogue with the Government. Third,Bangladesh Bank should request the participating banks to analyze the existing subloans indetail and classify the nonperforming subloans, including provisions for loan losses, by June2003.


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I. BACKGROUND

A. Rationale

1. The fisheries sector of Bangladesh provides livelihood to more than a million people and10 million part-time fisherfolks, and fish makes up 80% of the animal protein intake of thepopulation. Bangladeshs access to marine fish resources is limited, but the countrys inlandfisheries resources are among the richest in the world. Coastal tidal lands of 2.5 million hectares(ha) offer development potential for aquaculture. Situated in the delta of the Brahmaputra,Ganges, and Meghna rivers, the climate, water, and soil conditions of Bangladesh are favorablefor inland and floodplain fisheries, as well as for aquaculture. At the height of the rainy season,as much as one third of the total land area in the country is submerged under water. After themonsoon, floods recede into rivers, haors, and beels.1Inland fishers operate in the open watersduring the floods, and when the floods recede they are engaged in harvesting fish from thebeels. In the mid-1980s, fish harvest from floodplain fishing was reported to have declinedbecause of heavy fishing that surpassed natural replenishment, and the reduction of inlandwater bodies due to flood control and irrigation schemes. In FY1985, fisheries exports amountedto Tk2.5 billion, or 10% of the countrys total exports. Frozen shrimp represented 81% offisheries exports.2 Given the decline in fish production from the floodplains, opportunities to earnforeign exchange from shrimp exports, and the need to meet domestic demand for fish, theGovernment showed an increased interest in aquaculture development.

B. Formulation

2. The Second Aquaculture Development Project was approved on 16 December 1986 bythe Board of Directors of the Asian Development Bank (ADB), following project preparation thatcommenced in 1984 with technical assistance (TA) to the Government3and was completed withfact-finding in March 1986 and appraisal in July/August 1986. It was the second ADB-financedaquaculture project in Bangladesh with an almost nationwide coverage of potential areas foraquaculture development.

C. Purpose and Outputs

3. The main objectives were to (i) promote growth of shrimp production from pond cultureto generate foreign exchange earnings, (ii) increase the availability of fish for domesticconsumption, and (iii) expand employment and increase incomes in the rural areas.4 To meetthese objectives, the Project was designed to resolve two key constraints affecting theaquaculture subsector: slow transfer of technology and inadequate credit to meet capital andoperating cost requirements.

4. The Project aimed at developing extension services for shrimp and carp culturedevelopment, providing complementary credit for aquaculture development, and piloting

initiatives for floodplain fisheries enhancement (see Map):

(i) Shrimp culture development. This component comprised extension servicesand the provision of a complementary credit line. The extension services focusedon pond engineering, improved pond operation, and the handling and distribution

1A beel is a small low-lying depression in a floodplain that may or may not dry up during the dry season. A haor is alarge low-lying depression in a floodplain that may be reduced during the dry season into a series of beels.

2About 58% of shrimp exports went to Japan, 29% to Western Europe, and 11% to the United States.

3TA 632-BAN: Second Aquaculture Development, for $330,000, approved on 4 October 1984.

4ADB. 1986.Appraisal Report on the Second Aquaculture Development Project in Bangladesh. Manila.


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of shrimp fry. The Project was intended to engage progressive farmers anddevelop their shrimp ponds as demonstration (demo) farms. According to theappraisal report, 148 shrimp demo ponds in four districts were to be establishedover 5 years. The Project was designed to provide shrimp fry, fertilizers, feed,and other inputs to participating farmers with an agreement that required demofarmers to improve their aquaculture practices and allow others to observe and

learn from their demo farms. The credit line was intended to help aquaculturefarmers upgrade existing ponds, invest in new ponds, establish associatedfacilities, and provide working capital.

(ii) Carp culture development. This component comprised extension services andthe provision of a complementary credit line. Similar to the shrimp culturedevelopment, the extension approach was based on the establishment of demofarms, with an emphasis on improved pond management practices. At appraisal,it was planned that 1,113 carp demo ponds would be established over 5 years in21 districts. The credit line was primarily intended for fish farmers who wereinterested in constructing and upgrading fish nurseries and grow-out ponds, anddeveloping holding facilities for fish fry collectors and distributors.5

(iii) Culture-based floodplain fisheries enhancement. This component wasintended as a pilot initiative to stock hatchery-produced fish seed into waterbodies as fish nurseries. Selected beels were designated for stocking with carphatchlings and subsequently the larger fish fry and fingerlings were to bereleased from the beels into the floodplains during flooding. The Governmentwas to establish carp hatcheries for operation in the designated floodplains.

(iv) General implementation and institutional support. This component comprisedtraining for staff of executing agencies; the provision of equipment,transportation, and other facilities; and the provision of consulting services forproject implementation.

D. Cost, Financing, and Executing Arrangements

5. At appraisal, the total project cost was estimated at $60.0 million, consisting of about$41.8 million in local currency costs and $18.2 million in foreign exchange (Appendix 1). ADBprovided a loan of SDR38.308 million from its Special Funds resources. The loan was for40 years, including a grace period of 10 years and a service charge of 1%. The executingagency for the Project was the Department of Fisheries (DOF) of the Ministry of Fisheries andLivestock, except for the credit line that was executed by the Bangladesh Bank (BB) throughthree participating banks, namely Agrani Bank, Bangladesh Krishi Bank (BKB), and RupaliBank. Although the Project was approved by ADB in December 1986, its implementation did notactually begin until 1991 when the Government approved the project proforma (PP).6 The Loan

Agreement, signed on 20 May 1987, was amended on 3 November 1987 to include additionalADB loan financing of $2.65 million for consulting services that had been intended for the UnitedNations Development Programme (UNDP) to finance (para. 14). Loan effectiveness wasdeclared on 8 March 1988, when the relevant conditions were considered to be met, namelygovernment approval of the PP, signing of a subsidiary Loan Agreement between the

5Fish fry is defined as juvenile fish larger than newly-hatched fish or hatchlings, but smaller than fingerling, which isdefined as juvenile fish normally larger than 2.5 centimeters in length.

6The PP is essentially a project implementation plan comprising description of the project components,implementation schedules, investment costs, financing plan, and organizational and management arrangements.The common requirement has been for the Planning Commission to approve the PP prior to commencement ofproject implementation.


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Government and BB, and signing of participation agreements between BB and the participatingbanks. However, the initial PP proved to be insufficient for the commencement ofimplementation. The approval of the final PP experienced major delays because ofrequirements imposed by the Review Committee of the Planning Commission. The PP waseventually approved on 24 January 1991.7

E. Completion and Self-Evaluation

6. The project completion report (PCR) rated the Project generally successful.8 The PCRnoted impressive increases in yields on the demo farms exceeding appraisal targets. While thePCR indicated that the appraisal target for the floodplain fisheries enhancement was notachieved, important lessons were drawn from the pilot fish stocking initiatives. The PCRemphasized that the administrative control of the beels was not transferred from the Ministry ofLand to DOF as planned, and leases continued to have terms of not more than 3 years. 9 ThePCR also highlighted risks facing the sustainability of the floodplain fisheries enhancement asprivate operators showed their reluctance to invest in floodplain stocking, and the Governmentdid not sustain funding for such stocking.10 The continuing administration of the water bodies bythe Ministry of Land prevented DOF from developing a cost recovery system. The PCR pointed

out that (i) epidemic diseases constrained shrimp farm development; (ii) most of the projectcredit line was used for working capital loans, contrary to the expectation that 90% of the creditwould be for investment loans; and (iii) by 1994, delayed land acquisition and technical designcaused the establishment of three carp hatcheries to be of limited use to the Project.11 The PCRemphasized that ADB and DOF should have cancelled the establishment of the hatcheries. ThePCR recommended that extension efforts should be sustained by regular government funding;the Government should lease/sell the project hatcheries to private firms; and canal infrastructureshould be developed for the shrimp culture areas to facilitate water supply to ponds anddrainage.

F. Operations Evaluation

7. This project performance audit report is based on the findings of an OperationsEvaluation Mission (OEM) that was fielded from 26 November to 14 December 2001 and afollow-up OEM from 12 to 20 February 2002. The latter made arrangements for an evaluationbenchmark survey in March/April 2002 that assessed the performance of existing demo andnon-demo farms. Analysis of the survey results was completed in August 2002. Commentsreceived from DOF and ADB departments were considered in finalizing this report.

7This PP was revised in April 1993, February 1995, and December 1996.

8ADB. 1997. Project Completion Report on theSecond Aquaculture Development Project in Bangladesh. Manila.The rating system was then based on three categories: (i) generally successful, (ii) partly successful, and(iii) unsuccessful.

9 It was envisaged at appraisal that the administrative control of the beels would be transferred from the Ministry ofLand to DOF that would, in turn, lease out such beels to private operators for at least 10 years. This arrangementaimed at developing long-term tenure and promoting cost recovery.

10Fish stocking in open water bodies may also benefit fishers who do not invest in stocking. In the absence ofoperating arrangements in the floodplains, including benefit sharing and cost recovery among fishers, operators ofbeels showed reluctance to invest.

11At appraisal, there was uncertainty as to whether new government-owned carp hatcheries would be needed and by1989, DOF already had many carp hatcheries that were not operating efficiently.


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II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

8. Drawing on experience from its predecessor that had the same objectives but twice asmany components,12 a less complex design was adopted. The project preparation also took into

account potential credit demand, capacity of the participating banks, and the high incidence ofnonperforming loans. Assessment of the credit demand relied on the expressed interest of theparticipating banks and the technical support built into the Project, but this expectation did notmaterialize (para. 26). Assessment of the capability of DOF to facilitate technology transferwithin the original timeframe was also too optimistic, given the need to recruit and train a largenumber of new staff at the outset. While the Project capitalized on extension services thatfocused on demo farms and technology transfer, its design did not anticipate the need tosafeguard the carrying capacity of shrimp culture development and avoid outbreaks of diseases.The OEM confirmed the PCR findings that the rapid expansion of shrimp ponds had not beenaccompanied with adequate water supply and drainage canals, making maintenance of waterquality difficult. While credit was provided to complement the technology-transfer focus of theextension and promote investments, the extension services did not include initiatives to develop

marketing skills of farmers, The link between extension and credit was not translated into clearguidelines to integrate advice, access to credit, and investments. The Project did not specifyinitiatives to improve marketing and food safety requirements for export markets.

B. Achievement of Outputs

9. Demo farms have served as the backbone for the extension services. A total of116 shrimp (Penaeus monodon) demo ponds and 70 prawn (Macrobrachium rosenbergii) demoponds were established, compared with the appraisal target of 148 shrimp ponds.13The bulk ofthe pond development occurred from 1993 to 1996, although 37 demo ponds were establishedearlier. The selection criteria for the demo ponds were not fully developed until 1992. Atappraisal, four districts (Coxs Bazar, Satkhira, Khulna, and Bagerhat) were selected for shrimp

culture development. Prawn culture was not included in the original project design, but duringimplementation two districts (Gopalganj and Pirojpur) were added and targeted for prawnculture development. Impressive yield increases were achieved on the shrimp and prawn demofarms. Based on project records, the productivity of shrimp demo farms in the four districtsreached 166 kilograms (kg)/ha in 1991, 199 kg/ha in 1992, 272 kg/ha in 1993, 254 kg/ha in1994, and 306 kg/ha in 1995, thus exceeding the appraisal target of 250 kg/ha. Prawn demoponds also produced impressive results, averaging 550 kg/ha of prawn annually from 1992 to1995.

10. Against the appraisal target of 1,113 carp demo ponds, a total of 1,498 carp demo pondswere established in 22 districts covering 183 upazilas14 over 9 years under the Project.15 Withyields at over 4,400 kg/ha for more than 1,000 carp demo farms established between 1992 and

12Loan 329-BAN(SF): Aquaculture Development Project, for $18 million, approved on 13 December 1977. ADB.1989. Project Completion Report on the Aquaculture Development Project in Bangladesh. Manila. There were eightlargely independent subprojects: (i) carp hatcheries, (ii) freshwater shrimp hatchery and farms, (iii) fish pens,(iv) fish cages, (v) brackishwater shrimp and fish culture, (vi) fishnet-making plant, (vii) fish salting and dryingfacilities, and (viii) ice plants. The project performance was not rated in the PCR. However, the PCR found that theproject was based on optimistic assessments of technology potential that led to the selection of inappropriatetechnologies. The main constraint was the complexity of the multifaceted components and the related institutionalramifications.

13In addition, 12 DOF ponds were established under the Project for capacity building and staff development.

14An administrative government unit that was renamed thana on 30 June 1992.

15The PCR quoted that the number of established ponds was 1,352. However, both counts exceeded the appraisaltarget of 1,113 carp demo ponds.


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1996, the appraisal target of 2,100 kg/ha was exceeded. More than 28,000 farmers attendedgatherings organized by DOF from 1994 to 1996 in more than 180 upazilas to promote small-scale pond carp culture.

11. The Project played a key role in developing the skills of DOF officers and demo farmers.The limited availability of trained DOF officers in shrimp and prawn culture led to initial

difficulties in selecting ponds for demonstration and guiding the farmers. During implementation,more than 600 DOF and project staff were trained, in addition to the operators of demo farms.International training was provided to 128 DOF and BB staff between 1993 and 1996 (Appendix2). The project consultants conducted in-house training for DOF staff, including newly-recruitedextension staff, and produced numerous manuals and guidelines to promote and improveshrimp, prawn, and carp culture practices. Along with in-house training activities, theseguidelines were instrumental in improving DOFs extension services.

12. Until early 1994, the credit line was essentially unutilized. Credit delivery wasconstrained by the requirements imposed by the participating banks for loan collateral and bythe inflexible interest rate of 16% per annum. With the reduction of the interest rate to 13% in1994, coupled with information campaign on aquaculture, credit approval increased

progressively. Credit disbursement by the participating banks rose from Tk8 million in 1993 toTk282 million in 1996. The subloans amounted to a total of Tk623 million, of which ADBfinanced Tk561 million or about $14 million. It was expected that 90% of the credit would beused for investment loans, but 85% of the total was used for short-term working capital loans.Loan recovery has been poor to moderate, ranging from 50% for BKB to 91% for Rupali.

13. The floodplain fisheries enhancement target of 4,300 ha in 5 years was optimistic, as theinitiative was experimental and DOF had limited experience. The area stocked over 6 yearsreached 2,487 ha, and the stocking level reached 905 ha in 1996 against the appraisal target of1,600 ha for the fifth year. A total of 144 beels were stocked over 6 years with a total of861 million hatchlings. Although lease arrangements for stocking-designated water bodies werereported to be in place in 1996 to cover more than 1,600 ha, social disturbances and strikes

impeded logistical arrangements for the stocking activities. The three carp hatcheries that weredesigned for the floodplain stocking were not completed before 1996. With a total investment ofabout $3 million, these hatcheries served little purpose for the Project. Instead, the floodplainstocking had relied on hatchlings obtained from existing private suppliers and governmenthatcheries. With rehabilitation works that commenced in February 1993, a total of six fish seedmultiplication farms were upgraded.

C. Cost and Scheduling

14. As the anticipated grant of $2.65 million from UNDP for consulting services did notmaterialize, the ADB financing was increased to replace it.16 Against an appraisal estimate of$60 million, the actual project costs amounted to $38.3 million, including foreign exchange costs

of $12.2 million and local costs of $26.1 million (Appendix 1). The cost underrun of 36% wasattributable to the low utilization of the credit line; reduction in the scope of the floodplainfisheries enhancement; and excessive provisions in the appraisal estimate for import duties,contingencies, and service charges during implementation. Loan cancellations totaled$24.9 million, or 45% of the loan amount. The substantial appreciation of the special drawingrights against the US dollar from the date of the Loan Agreement to the loan closing datecontributed to the high cancellations.17

16The ADB Board approved this additional loan on 2 September 1987 on a no-objection basis.

17The original loan of SDR38.308 million ($45.46 million) was equivalent to $55.58 million at loan closing.


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D. Procurement and Construction

15. Recruitment of consultants was carried out in accordance with ADBs Guidelines on theUse of Consultants, while procurement followed ADBs Guidelines for Procurement. Therecruitment of consultants was substantially delayed, as an agreement within the Governmentcould not be reached promptly on the selection of the consulting firms. It took 3 years from the

submission of the proposals for consulting services to the contract signing. The consultants didnot start their services until February 1991 and there were frequent changes in their teamthereafter. Until 1994, inadequate logistics (transport facilities and field equipment) hamperedproject implementation in general. On several occasions, delayed procurement of inputs fordemo ponds, such as shrimp fry, fertilizers, fingerlings, and feeds, prevented demo farmers fromfully adhering to technical guidelines. Delayed procurement of water testing kits prevented DOFfield staff from conducting timely monitoring of water quality. Construction of the three fishhatcheries was delayed due to protracted land acquisition and a contract dispute between DOFand a domestic firm that was contracted for the design and construction supervision.18Given thedispersed nature of the project sites, DOF organized its procurement of goods in smallpackages, allowing purchases in small quantities. There were numerous small contracts, andthe statement of expenditure (SOE) procedure was used for loan withdrawal claims. Although

the SOE procedure did not require full documentation to support loan withdrawal applications,the auditors reports on the annual financial statements confirmed that the use of the SOEprocedure was adequate to support the applications.

E. Organization and Management

16. DOF staffing for project implementation was a recurring issue. The PP of December1996 indicated that 863 persons were required, comprising 47 persons for the projectmanagement office, 109 persons for floodplain fisheries, and 707 persons for extensionservices. Although a large number of new staff had been recruited, not all positions could befilled. Newly-recruited staff had to be trained and many of them did not have adequateexperience in aquaculture. DOF had to be first equipped with staff and the knowledge base to

undertake the project activities. Consultants were utilized to fill skill gaps, support capacitybuilding, and assist in implementation. A total of 167 person-months of domestic consultantsand 194 person-months of international consultants was utilized. The consultants and their DOFcounterparts produced practical manuals and guidelines to promote aquaculture practices.There were several changes in key management staff19 that, to some extent, affected themomentum of project implementation.

17. Major loan covenants were complied with, although with delays in the case of theestablishment of the project management office and the project coordination committee, thesubmission of audited annual financial statements, and the preparation of training programs.The project coordination committee did not function effectively, as evidenced by its inability toensure timely implementation. Cooperation between DOF and the participating banks was

limited, particularly in the preparation of subloan applications, the provision of technical supportto subborrowers, and the monitoring of the implementation of subprojects. Targeted equityincreases to improve the capital structure of the participating banks were not met. Covenantsrelated to the transfer of the management of water bodies to DOF and the development ofleasing policies and a cost recovery system were not complied with.

18A domestic consulting firm was contracted in February 1992, but its contract was terminated in December 1993.Another domestic firm was hired in February 1994 to complete the engineering design.

19The changes comprised four project directors, five joint directors for extension, four joint directors for floodplainfisheries, and three joint deputy directors for monitoring and evaluation.


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III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Shrimp, Prawn, and Carp Culture Development

18. Extension services for the development of shrimp and carp culture depended heavily onthe demo farms as the main media to showcase improved pond culture practices. Shrimp andcarp culture development under the Project are discussed in detail in Appendixes 3 and 4,respectively.

a. Benchmark Survey

19. As part of this evaluation, a benchmark survey was undertaken from March to April 2002to assess the current conditions of demo and non-demo farms.20 Key survey results are given in

Appendix 5. The survey area broadly covered 10 districts, where the average household sizeranged from 5.3 to 6.0 persons. Using a stratified random sampling procedure, 647 farms weresurveyed, comprising 447 demo farms and 200 non-demo farms. A three-stage stratified

random sampling method was used: selection of upazilas, selection of villages, and selection ofdemo and non-demo farms. About 80% of the demo respondents were older than 40 years,compared to 61% of the non-demo respondents. Demo farmers were relatively well educated,with 63% of the respondents claiming to have more than 10 years of schooling, compared to47% of the non-demo farmers. Aquaculture was the main occupation of 38% of the demorespondents and 36% of the non-demo respondents. Both demo and non-demo respondentsreported to have relatively high incomes, with 59% of the demo respondents and 43% of thenon-demo respondents claiming to earn more than Tk150,000 annually. Demo and non-demofishponds were generally small, less than 1 ha in size. Shrimp and prawn ponds were larger:88% of demo shrimp ponds and 48% of non-demo shrimp ponds exceeded 2.5 ha, while forprawn ponds the figures were 49% and 33%, respectively.

20. The majority of demo respondents confirmed that they had primarily acquired their skillsfor pond preparation and management from DOF extension staff: 83% of carp demo farms, 94%of shrimp demo farms, and 63% of prawn demo farms. Demo farmers advised other peopleaspiring to operate shrimp, prawn, or fishpond culture. The diffusion of technology to demofarmers, and in turn, to non-demo farmers was impressive. During interviews with numerousdemo farmers, the OEM confirmed that each of them had been in close contact with at least10 other farmers to share the knowledge of pond preparation and management learned from theProject. Complementary to DOFs presence in the upazilas, demo farmers became informalextension workers, allowing neighbors, friends, and relatives to receive advice, exchange views,and observe their demo farms. The chain of knowledge dissemination expanded as newfarmers, in turn, conveyed to others what they had learned, although the effectiveness of thetechnology transfer became diluted further down the chain of transmission. Non-demo

respondents learned from demo farmers and DOF extension officers: (i) 36% of carp farmersconfirmed that they acquired their skills on pond preparation and management from demofarmers and DOF, (ii) 63% of shrimp farmers learned from DOF, and (iii) 50% of prawn farmerslearned from demo farmers and DOF.21 The benchmark survey also confirmed that the yieldachievements of demo farms were sustained (paras. 910). Yields of demo farms in 2001 were

20The survey aimed at establishing current benchmarks for measuring the performance of the project demo farms incomparison with non-demo farms, both selected at random.

21Other informal sources of information included seed suppliers, farmers in the neighborhood, and nongovernmentorganizations. Hatcheries and fish seed multiplication farms also provided advice to seed buyers who often ownedand operated nurseries or grow-out ponds.


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reported by the respondents to have exceeded the appraisal target of 250 kg/ha for shrimp and2,100 kg/ha for carp, while prawn yields favorably ranged from 440 kg/ha to 515 kg/ha. In non-demo farms, shrimp and prawn yields were not significantly lower, but carp yields ranged onlyfrom 1,050 kg/ha to 1,200 kg/ha. As the performance of the sampled non-demo carp farms iscomparable to yields of culturable fishponds in Bangladesh, the potential for improvement issignificant for fish farming.22The Project did not include specific initiatives to develop marketing

skills of farmers. The survey indicated that farm sales occurred most frequently at pond sitesand local markets, with limited direct sales to consumers. The role of market intermediaries wassignificant, with wholesalers and other intermediary agents dominating the marketing of fish,shrimp, and prawn. The majority of the respondents claimed that the Project contributedsignificantly to increased consumption of aquaculture products, higher income, employmentgeneration, and improved nutrition.

b. Pathological Risks and Food Safety

21. The Project did not foresee the need for preventive actions against possible diseaseoutbreaks and food quality hazards. Shrimp aquaculture in Bangladesh encountered viraldiseases (white spot) in 1994, possibly through contaminated post-larvae. Diseases struck

Coxs Bazar in 1994 and Khulna in 1996, and recurred in 2000 and 2001. The rapidly expandingshrimp and prawn farming to increase exports gave rise to unbridled development in southwestBangladesh, and posed serious risks to the environmental carrying capacity because ofinadequate water management. There were inadequate provisions for water supply anddrainage facilities.

22. Although quality control and safeguards for food quality are key export requirements,post-harvest handling and processing were not covered under the Project, and there were nospecific initiatives to improve marketing, distribution channels, and export promotion. In July1997, the European Union imposed an import ban on aquaculture products from Bangladesh.Triggered by this ban, there have been significant and rapid improvements in post-harvesthandling from ponds to processing plants, including improvements in product quality control and

processing facilities to meet hygiene and health requirements. Export shipments to theEuropean Union resumed in 1998 after the certification of licensed processing plants. In parallel,DOF improved its quality control functions and inspection services to comply with internationalstandards for controlling food safety hazards.

c. Handling of Shrimp and Prawn Fry

23. At appraisal, the extension services were also intended to improve handling and deliveryof shrimp fry, but there has been limited achievement in this area. DOF informed the OEM thatthe mortality rate of shrimp and prawn fry was as high as 50% at project completion. The Projecthad limited influence on reducing the loss due to improper fry handling. However, handling ofshrimp post-larvae improved significantly during 19992001, as air transportation and improved

packaging of post-larvae were introduced by the private sector, thereby minimizing travel timeand mortality from hatcheries in Coxs Bazar to distribution points at Jessore. DOF reported thatimproved handling and air transport increased post-larvae survival rates to more than 80%. Thereduced mortality has been an effective means of increasing shrimp fry availability. Concerns onthe environmental impacts of wild post-larvae harvesting led the Government to issue anotification in September 2000 to ban fry collection from wild sources. Although hatcheries cansupply enough shrimp and prawn post-larvae, the ban on wild fry collection in the estuary and

22There are three classes of fishponds in Bangladesh: advanced and active pond management in cultured ponds,moderate pond management in culturable ponds, and no management and neglect in derelict ponds.


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coastal waters has raised concerns of its social implications on the collectors and has proveddifficult to enforce.

d. Aquaculture Development Nationwide

24. According to DOF, the combined shrimp and prawn production rose from 14,600 tons (t)

in FY1986 to almost 65,000 t in FY2000, while pond areas increased from 87,300 ha to166,700 ha. Shrimp and prawn have dominated fisheries exports. Frozen shrimp and prawnexports reached Tk16.1 billion in FY2000, representing 90% of the total fisheries exports ofTk17.8 billion. Nevertheless, pond density, inadequate soil and water management, anddiseases pose risks to the sustainability of shrimp and prawn farming in Bangladesh.

25. DOF statistics indicate that fishpond production in Bangladesh sharply increased from123,800 t in FY1986 to 308,000 t in FY1996, and to 561,000 t in FY2000. The average fishpondyields increased from 840 kg/ha in FY1986 to 2,440 kg/ha in FY2000. Although the sharpincrease in the production of carp nationwide cannot be solely attributed to the Project, the carpdevelopment has benefited from sustained campaign including project-funded initiatives topromote carp culture in Bangladesh. Despite these achievements, funding for fisheries

extension services in Bangladesh has remained fragmented and made available throughseparate projects rather than sustained on a program basis. For example, demo farmsestablished under the Project have received limited support from DOF following projectcompletion. Their potential for disseminating further advice and technology has not beenoptimized, although many of these demo farms have become informal extension agents.

2. Credit Line Operations

26. The Project provided credit with the intention to complement extension services forshrimp and carp culture development by financing investments and working capital foraquaculture development (Appendix 6). The appraisal assessment of the credit demand wasoptimistic, relying on the expressed keen interest of the participating banks, trend analysis, and

the technical support built into the Project.23

In early 1991, the project consultants reviewed theassessment, concluding that there was a considerable expansion of private sector initiatives inaquaculture that were capable of developing viable enterprises without the benefit of the projectdemo program. Following this review, ADB approved a change of scope in December 1991 toallow the delivery of credit beyond the areas covered by the project extension services. Thisdecision detached credit delivery from the extension services. In practice, the banks appraisedand approved loan applications independently, and subborrowers were not obliged to seekadvice on shrimp, prawn, or carp culture development from DOF or elsewhere. The banks wereultimately responsible for appraising the feasibility of subloan proposals and supervising thesubprojects, with the flexibility to approve subloans within the free limit of $50,000 equivalent. 24With limited experience in aquaculture, banks were reluctant to lend to aquaculture farms. Thecredit line use was affected by land tenure and collateral issues. Multiple parties often controlled

land tenure or ownership of the ponds and securing loans with land tenure was difficult.Participating banks were reluctant to lend without collateral.

27. With the participating banks reluctance to lend, coupled with administrative constraintsaffecting credit delivery, the credit line was essentially unutilized until early 1994. Subsequently,with the reduction of the interest rate and an information campaign, credit approvals graduallyincreased. In terms of amount, shrimp farming received about 77% of all subloans, carp farming

23A financing gap of $60 million$65 million for aquaculture investments during 19871991 was estimated atappraisal.

24Larger subloans required approval from ADB.


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22%, and other activities received the rest. While it was expected at appraisal that 90% of thecredit line would be used for term investment loans, actual credit delivery largely comprisedshort-term working capital loans of up to 12 months. The switch to financing working capitalneeds by the participating banks was pragmatic. Short-term lending reflected the risk-averseness of the participating banks, as well as the demand for working capital among existingaquaculture farms that did not require upfront investments. Overall loan recovery was poor to

moderate.25Without receiving appropriate advice, subborrowers outputs had been substandard.The participating banks monitored the subprojects as part of the loan portfolios of individualbranches. Thus, the banks did not conduct separate analysis for a consolidated project loanportfolio. The OEM could not obtain the breakdown of nonperforming subloans under theProject for reconciliation with loan classifications and loan losses. Recurring diseases and majorflooding in 1998 aggravated the financial viability of the subborrowers farms, and affected loanrecovery despite the rescheduling of loan repayments in some cases.

28. The project credit line undermined commercial lending principles. The participatingbanks did not have the flexibility to set their own interest rates based on lending risks. Theinterest rate was fixed for all clients with no distinction between short-term loans, long-termloans, working capital, and investments. There were no guidelines on the recycling of subloan

repayment proceeds for relending that was possible, given the 15-year project financing facilityto the participating banks and the predominantly short-term nature of credit delivery toaquaculture. The participation agreements did not stipulate monitoring of relending.

3. Culture-Based Floodplain Fisheries Enhancement

29. This component was experimental and its development concept depended on theutilization of selected beelsas nurseries to be stocked with hatchery-produced carp hatchlings(Appendix 7). About 3 months into the growing period, the emerging fish fry and fingerlingswould be automatically released into the floodplains when the floods inundated the beels. Aswater levels receded during the dry season, fisherfolks were expected to harvest or catch fish indeeper areas. Although the Project prescribed stocking of beels with hatchlings, fish stocking

with fingerlings occurred on a limited basis mainly at Hail Haor floodplains. Other floodplainstocking initiatives also used fingerlings.26

30. The fisheries resources and socioeconomic baseline survey that was planned to takeplace at the commencement of project implementation was carried out only in 1995.27 Thedomestic consultant assigned for monitoring the floodplain initiatives was also fielded only in1994. Although DOF monitored fish stocking in 19911993, monitoring did not take place fullyuntil 1995 and was discontinued after project completion. DOF could not continue with thestocking program after 1996 because of lack of funds. Completed in 1996, the three project fishhatcheries served no purpose for the project interventions (para. 13). After operating at lowcapacity, DOF planned in 2001 to convert and operate these hatcheries for broodfishdevelopment.

31. The 1995 baseline survey indicated that artificial stocking of fish in the floodplains wastechnically feasible and socially acceptable. Fish stocking was found financially attractive in

25 Agrani Banks loan recovery experienced difficulties and reached 77% by December 2001. Rupali had focusedalmost entirely on short-term lending to the shrimp industry, and its loan recovery reached 91% by October 2001.BKB dominated lending to carp farms, and its loan recovery was poor at only 50% loan recovery by September2001.

26The World Bank-financed Third Fisheries Project(CR-2146-BD), approved on 29 May 1990, promoted stocking offloodplains with fingerlings instead of using hatchlings.

27Department of Fisheries. 1996. Baseline Survey and Floodplain Stocking Evaluation. Second AquacultureDevelopment Project. Dhaka.


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the context of the direct costs of stocking, fish recovery, and associated risks. The surveyindicated that floodplain fishing could benefit landless people who fished in open water bodies,individual lessees of beels, and lessees of nonstocked beels because of fish migration fromstocked beelsduring the inundation. The design of the pilot fish stocking did not fully addressthe organizational and management requisites for sustaining floodplain stocking. At appraisal, itwas expected that the beels would be transferred from the Ministry of Land to DOF that would,

in turn, manage these beels for at least 10 years and develop a cost recovery system. Thetransfer did not happen because of resistance by the Ministry of Land whose role in generatingincome for the Government would have been reduced. Without this transfer, DOF had noauthority and control over the beels, and could not develop and promote cost-recoverymeasures. The administration of the water bodies remained with the Ministry of Land duringproject implementation, and auctions were used to award leases to bidders for terms of up to3 years.

B. Economic and Financial Reevaluation

32. The project credit line was originally intended to finance investments in aquaculture, andaccordingly, the appraisal presented 11 enterprise investment models including new

construction of aquaculture farms and establishment of private hatcheries. The economicinternal rate of return (EIRR) of the credit line was estimated at 31%, based on aggregatedenterprise investments that were then considered to represent the investments to be financedby the Project. The overall EIRR of the Project was estimated at 23%, simply by adding thecosts of the noncredit components to the investment costs of the subprojects of the credit linewithout further incorporation of benefits. In reality, the appraisal expectation did not materialize,as the credit line was used mostly for financing working capital needs of existing shrimp, prawn,and carp farms, with no major upfront investments. The PCR did not recalculate the EIRR of theProject for there was no comparable basis to do so, but it presented undiscounted financialbenefit-cost ratios of the annual operating income statements of the demo farms. The OEMconcurs with the PCR findings that the floodplain fisheries enhancement was a pilot experimentthat contributed to capacity building and provided a learning experience rather than serving as

an economic investment.

33. In the OEM's view, a reassessment of the financial benefits due to the improvedaquaculture practices is appropriate for illustrating the benefits derived from the projectextension services. The OEM has reassessed the financial performance of shrimp, prawn, andcarp farms based on current conditions as evidenced by the benchmark survey undertaken inMarch/April 2002. Appendix 8 provides indicative financial farm budgets of shrimp, prawn, andcarp farms that have adopted improved aquaculture practices as compared with theperformance of unimproved ponds. These budgets reasonably illustrate the financial feasibilityof improved aquaculture practices that allow higher survival rates of seeds and higher stockingto increase yields. An extensive shrimp (P. Monodon) culture, with improved post-larvae survivaland an acclimatized stocking density of 15,000 post-larvae, can generate a net income before

debt service of Tk21,500/ha in 7 months, with modest yields of 275 kg/ha including 25 kg ofincidental species (Appendix 8, Table A8.1). This net income represents an annualized return of67% over the total operating expenses excluding debt service. As most of the pondmanagement improvements occur on existing ponds, and such improvements do not requiremajor upfront investments, these annual financial returns serve as a good proxy for financialreturns on investments given the seasonal nature of the aquaculture operations. In comparison,an unimproved extensive shrimp pond, typically with a low post-larvae survival rate and lessstocking, can generate a net income before debt service of only Tk2,200/ha annually(Appendix 8, Table A8.2). This shows that the improved shrimp pond preparation andmanagement can increase net farm incomes by almost 10 times. An extensive prawn culture,


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mixed with carp, can provide a net income before debt service of Tk39,000/ha in 7 months, withmodest yields of 375 kg of prawn and 200 kg of fish (Appendix 8, Table A8.3). This net incomerepresents an annualized return of 77% on the operating expenses or the total working capitalrequired to sustain the farm. An unimproved prawn culture can yield a net income before debtservice of only Tk11,800/ha (Appendix 8, Table A8.4). Similarly, carp culture can provide a netincome of about Tk106,000/ha before debt service over 12 months, but farm size holdings are

generally smaller (Appendix 8, Table A8.5). Typically, small farmers operate improved carpponds, gaining an annualized return of 58% on the working capital excluding debt service. Incomparison, an unimproved carp culture performs poorly and generates a net income beforedebt service of only Tk18,300/ha (Appendix 8, Table A8.6).

C. Sustainability

34. The demo farms were established by attracting influential people and relatively wealthierfarmers as role models. The benchmark survey indicated that the demo farmers maintainedtheir farms and disseminated technology effectively because they could afford to do so, and theadopted practices were low-cost, practical, and relatively simple. The sociocultural conditionshave facilitated information dissemination. However, the sustainability of shrimp farming faces

disease risks and their potentially devastating impacts on production (para. 21). Thepathological implications of importation of post-larvae, juveniles, and breeders of shrimp andprawn species can be serious without safeguards that include adoption of aquaculture healthmanagement guidelines for transboundary movements of live aquatic animals through healthcertification, quarantine, and diagnostic procedures. Disease prevention and food qualityimprovement are equally important (para. 22). Species diversification may substantially reducethe virulent effects of disease outbreaks and enhance the product mix for exports. Withoutadequate planning, an unbridled development scenario in shrimp and prawn culture hasevolved. There is a need for a spatial plan for shrimp and prawn farming, taking into accountproduction potential, technology options, carrying capacity, and management requirements.This plan can serve as a guide for developing and managing sustainable aquaculture farms.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic Impact

35. The beneficiaries of the shrimp and prawn culture development were farmers, laborers,and market agents involved in the marketing of farm inputs and outputs. Shrimp and prawnfarming altered the local farming systems, and issues concerning access to land and waterbecame prominent, including the distribution and management of water supply and their effectson downstream and adjacent farms. Most of the demo farmers were influential people of thelocal elites whom farmers were most likely to respect and learn from. The socioculturalconditions in the villages facilitated the dissemination of the introduced technology. Visits andaccess to demo ponds were made possible through neighbors, friends, relatives, and other local

contacts.

36. The dissemination of improved fish culture techniques benefited households and smallfarms with ponds of generally less than 0.5 ha in size. Nationwide, carp farming has becomeincreasingly popular, directly benefiting at least 0.5 million households with 3 million people inFY2000.28 It is not uncommon that households consume up to 25% of their backyard fishpondproduction, providing a significant source of animal protein and calcium to improve humannutrition. The increased availability of low-cost fish at local markets has also contributed to fishprotein intake among rural and urban consumers. The shrimp and prawn subsector also

28There were 230,000 ha fishponds in FY2000 with a total production of 561,000 t.


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provides significant employment opportunities. The Bangladesh Center for Advanced Studieshas estimated that more than 300,000 people earn at least part of their income from shrimp-related business, including 266,000 unskilled and relatively poor people.29

37. The importance of social preparation, community involvement, and common propertymanagement for the floodplain fisheries enhancement was not foreseen at appraisal. Issues

concerning sharing or distribution of costs and benefits emerged during project implementation.Lessees of beels were reluctant to pay for the preparation and stocking of their beels, asbenefits derived from fish stocking could also benefit nonpaying fishers in the floodplain due tofish migration. In the absence of organizational arrangements involving user groups, issuesconcerning cost and benefit distribution discouraged private initiatives to finance fish stocking insemi-closed water bodies and open waters. The Project raised the awareness of DOF ofpertinent issues, and this successfully led to a more comprehensive attention to floodplainfisheries enhancement beyond the project initiatives.30 The OEM observed that a number oflessees stocked their leased beels with group arrangements for cost and benefit sharing.31Theissues of increased productivity, lease costs, tenure, affordability, and access to fishing for poorfishers have become critical in developing floodplain fisheries. Leaseholders may allow accessto any number of fishers by imposing rental fees. They often operate as an investor who can

afford the rising costs of the lease arrangements, and recover their lease investment byoperating the leased water bodies as a rental ground for surrounding fishers. Competing uses ofwater resources also give rise to conflicts among water users in the floodplains on someoccasions.

B. Environmental Impact

38. The Project promoted aquaculture practices designed to minimize harmful environmentalimpacts on vegetation, water and soil salinity, and cropping patterns. The recommendedquantities of fertilizers and feed supplements were low. Nevertheless, the spontaneousexpansion of shrimp and prawn farms has posed serious environmental risks because ofinadequate water management. In many cases, there are inadequate provisions for water

supply and drainage facilities. In the case of prawn farming, the spontaneous use of snail meatas part of the feeding ration (a practice not recommended under the Project) has led to heavyexploitation of snails. With excessive feeding, organic loads are heavy in the ponds, posingadditional stress on the carrying capacity. This feeding regime can cause adverse impacts onthe snail population, ecology, and the biodiversity of the floodplains from which these snailswere taken. With external assistance, DOF has intensified efforts to improve the long-runsustainability of prawn farming.32 In the case of carp farming, there have been no adverseenvironmental impacts. The technology promoted by the Project helps maintain water quality infishponds and promote efficient use and recycling of nutrients. Farmers frequently use the waterfrom fishponds for household purposes and personal hygiene. This multipurpose use of thefishponds provides an incentive for pond owners to safeguard the water quality.

39. The use of beels as nurseries for hatchlings and the application of target-specificchemicals (such as rotenone) in limited amounts to eradicate predators in the beels prior to

29 Bangladesh Center for Advanced Studies. 2001. The Costs and Benefits of Shrimp Farming in Bangladesh: AnEconomic, Financial, and Livelihood Assessment. Dhaka.

30Issues concerning floodplain fisheries enhancement and inland fisheries management have continued to dominatethe development agenda of DOF, and this agenda has received support from multilateral and bilateral agencies.

31The OEM visited several such beels in Kishoreganj, Sylhet, and Moulvi Bazar districts. Lessees showed preferencefor fingerlings because of their ready availability and greater survival, and did not use hatchlings for stocking.

32Through Greater Options for Local Development through Aquaculture (GOLDA) project initiatives implemented byCARE Bangladesh and funded by the Department for International Development of the United Kingdom. Measuresinclude the promotion of sustainable feeding rations and environmental protection.


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stocking became a contentious issue during project implementation. The potential impacts ofsuch chemicals on the floodplains were alleged to be serious.33However, DOF and the projectconsultants reported there were no adverse impacts on the environment given the targeted andlimited use of such chemicals. Application rates were of low concentration, the duration of thechemical agent effectiveness was short (measured in hours), and inundation further diluted theconcentration of chemicals to levels that were deemed harmless to nontargeted organisms.

Nevertheless, inappropriate applications and inadequate supervision of the use of chemicals forbeels preparation could potentially cause unwarranted effects. For this reason, the stocking ofwater bodies with fingerlings was preferred, as there would be no need to use chemical agentsto eradicate predators. Subsequently, DOF did not promote hatchlings for floodplain stocking.

C. Impact on Institutions and Policy

40. When the Project was designed, DOF officers were primarily oriented to freshwater andcarp culture with limited knowledge of shrimp and prawn farming. DOF went through a steeplearning curve to cope with the demand to develop and deliver demo-based extension services.The Project served as a learning-by-doing vehicle for DOF and was instrumental in developingthe capacity of DOF staff. The recruitment of new staff for the extension services (para. 16) and

the continuing staff constraints for fisheries extension showed the importance of humanresources development for DOF. Among those who received international training under theProject, several became later part of DOFs senior management. DOFs experience with theProject, including the complex issues affecting the floodplains, has contributed to greaterrecognition of the need to develop participatory approaches. Inland fisheries development hasmoved towards finding technical solutions for stock enhancement, promoting alternativemeasures to restore and conserve natural fish population, and developing community-basedapproaches.

V. OVERALL ASSESSMENT

A. Relevance

41. The rationale and purpose of the Project were relevant, taking into account the (i) exportmarkets, (ii) potential for expanding carp culture to meet local demand and offset the decline ininland fisheries, (iii) need to introduce fish stocking to improve yields of floodplains, and(iv) potential for income and employment generation. The rationale for the credit line was onlypartly relevant, as its usage for investments was limited. The enhancement of floodplainfisheries has remained relevant, and recent approaches have emphasized stakeholderparticipation, social preparation, and management options. The Governments currentdevelopment strategy continues to support aquaculture exports, fish culture, and inland fisheriesenhancement for domestic consumption. Overall, the Project is assessed as relevant.

B. Efficacy

42. The Project emphasized information dissemination to promote and improve aquaculturetechnology. In this context, the Project established demo farms that adopted improvedaquaculture practices. Despite operational shortcomings including significant delays, thesedemo farms have gained and sustained impressive yield increases and acted as extensionagents in their respective locations. Although they have received limited further support fromDOF after project completion, the demo farms maintain their operation. The productivity of

33Although the Project did not recommend the use of such chemicals in ecologically sensitive areas, pilot stocking ofbeels with hatchlings and the use of chemicals for beels preparation received serious criticisms in 1992 from theAsian Wetland Bureau of the University of Malaya, Malaysia.


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shrimp, prawn, and carp farms nationwide has improved progressively despite drawbacks insome areas due to the onset of diseases. Fish production, including carp species, has morethan tripled since 1990. The volumes of shrimp and prawn exports have markedly increasedsince 1990, although exports suffered from a setback in 1997 due to the strict imposition of foodsafety standards. Although Bangladeshs aquaculture production and exports have gainedsignificantly, such achievements cannot be wholly attributed to the Project. The Project has

been instrumental in enabling DOF to demonstrate and effect technology transfer, and theuptake has been significant. Despite the various shortcomings, limitations, and delays in itsimplementation, the Project is assessed as efficacious in the overall achievement of its purpose.

C. Efficiency

43. The Project promoted aquaculture practices that have yielded high financial returns tofarms adopting such practices. The demo farms continue to promote and disseminateaquaculture technology that provides higher incomes. There is strong evidence that anincreasing number of farms have improved their productivity through better pond managementand rational use of feed and inputs. However, a large number of farms that obtained credit fromthe Project experienced financial difficulties and defaulted on debt service. Despite the

shortcomings in credit delivery, the extension services have generated impressive results for thedemo farms and others that have adopted good aquaculture practices. Overall, the Project isassessed as efficient.

D. Sustainability

44. The Project faces environmental risks because of inadequate spatial and watermanagement in shrimp and prawn farming. Safeguards need to be put in place to preventpotentially devastating impacts of pathological incidents. Demo farms continue to act as informalextension agents, but funding constraints prevent DOF from providing substantial furthersupport to the demo farms to ensure their continued effectiveness as agents of technologytransfer and future upgrades. The pilot experiment on the floodplain fisheries enhancement did

not result in an immediate replication, fish stocking discontinued, and the associated hatcheriescontributed little to the Project. However, the benefits of the floodplain fisheries and itsenhancement can be tapped and sustained once issues concerning the management, access,and tenure rights of water bodies are resolved with arrangements to allow the distribution ofcosts and benefits. Although feasible, the arrangements for the floodplain fisheriesenhancement are complex, requiring stakeholder partnership that suits local conditions. Overall,the Project's sustainability is assessed as less likely, unless appropriate actions are taken(paras. 50 and 60).

E. Institutional Development and Other Impacts

45. The institutional development and other impacts of the Project are assessed as

significant. The Project has been instrumental in strengthening DOF's capacity, particularly inhuman resources development, by recruiting a cadre of staff in extension services (albeit withsome limitations). The project initiatives increased DOF's awareness of the critical importance ofinstitutional, organizational, and management arrangements for sustaining extension servicesand floodplain fisheries. Project experience enabled DOF to improve its development strategyby addressing the constraints facing aquaculture and floodplain fisheries. Despite its slow startand extended implementation period, the Project provided excellent learning opportunities. TheProject contributed significantly to human nutrition, incomes, and employment of the ruralpopulation as fish farming gained unprecedented popularity. Aquaculture products, particularly


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shrimp and prawn, contributed significantly to fisheries exports and rural employment, andfrozen shrimp and prawn exports more than doubled between FY1986 and FY2000.

F. Overall Project Rating

46. Based on the above five performance evaluation criteria, the Project is rated

successful,34 though near the lower bound of this category given the significant environmentaland pathological risks, major drawbacks in credit delivery, and limited further support for thedemo-based extension services.

G. Assessment of ADB and Borrower Performance

47. From preparation to implementation, ADB provided significant staff and financialresources to the Project. Despite some shortcomings, such as the overoptimistic estimate ofcredit demand, the appraisal was thorough. The need to safeguard the environmental carryingcapacity of shrimp farming was not anticipated and no preventive measures to avoid diseaseswere introduced. The link between extension and credit was not translated into practicalguidelines to integrate advice, credit, and investments. The change of scope unraveled the

intended link between advice and credit. Although ADB closely supervised implementation, with22 review missions fielded between 1987 and 1996, its assessment of the hatcheries did notstop their construction to avoid unnecessary investment. Overall, ADB performance is ratedpartly satisfactory. The Government did not take appropriate actions to prevent major delays inthe start-up of project implementation. Two critical loan covenants that aimed at thesustainability of the floodplain fisheries enhancement were not complied with, namely themanagement transfer of water bodies to DOF, and the development of leasing policies and acost recovery system. The Government failed to provide adequate funding for the operation andmaintenance of the hatcheries. Although the demo farms have been effective as informalextension agents, DOF has not been allocated funds to provide further support to these demofarms to ensure their continued effectiveness. Overall, the performance of the Government israted partly satisfactory.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

48. The Government will continue to support the development of shrimp and prawn farmingby providing policy, technology, and other support.35 As shrimp and prawn farming depend onthe carrying capacity of the environment and its safeguards, there is urgent need for anintegrated spatial plan that balances land use, production potential, technology options, andwater management requirements.

49. Fish production requires good quality seeds. DOFs current efforts to improve the qualityof broodfish by establishing broodfish banks can improve the genetic pool of broodfish for carphatcheries. Sustained government support is required for the establishment of the broodfishbanks, as such a strategic initiative cannot be expected to emerge spontaneously from theoperation of numerous private hatcheries.

50. In the context of floodplain fisheries, arrangements for the management, access, andtenure rights of water bodies will continue to dominate the discussion in the future. Criticaldevelopment issues include co-management of water bodies with the sharing of responsibilities

34Using the current four-category rating system (highly successful, successful, partly successful, and unsuccessful).

35Ministry of Fisheries. 1998. The National Fisheries Policy. Dhaka.


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between the Government and user groups, common property management approaches that suitlocal conditions, property rights and tenure security of floodplain fisheries, access and legalrights of fishers in semi-closed and open waters, habitat protection, and biodiversity in wetlands.The role of nongovernment organizations to facilitate the formation and involvement of usergroups is expected to gain further recognition. With external assistance, DOF is addressing anarray of management measures for the floodplain fisheries enhancement, including the

involvement of beneficiaries and nongovernment organizations in the design, site selection, andmanagement of the interventions.36 Environmental safeguards are required to preventindiscriminate use of chemical agents for predator control in floodplain fish stocking and thusprotect biodiversity and environmentally sensitive areas.

B. Lessons Identified

51. The start of project implementation was delayed by premature loan effectiveness andprotracted recruitment of consultants. As the PP is an administrative requirement of theGovernment, future project preparation should promote strong country ownership with clearresponsibilities for counterpart government agencies to provide administrative clearances orapproval on a timely basis, including compliance with ADBs Guidelines on the Use of

Consultants.

52. Extension services for aquaculture development can be highly effective when supportedwith trained and adequately equipped staff to demonstrate improved aquaculture techniques toprivate farmers. Diffusion of information has been effective when the extension has relied onfeasible, simple, and low-cost technology to improve aquaculture practices. Rather thancompartmentalizing the funding for fisheries extension services through various projectinitiatives, the Government should support the role and functions of DOF in such services byproviding the necessary funds on a program basis.

53. Fish stocking is an attractive option for sustaining inland fish production, but effectivearrangements for sharing of costs and benefits among users and stakeholders are required.

Apart from technical feasibility, organizational, management, and social aspects of fish stockingshould be addressed. Participatory processes should be followed that require the involvement ofstakeholders including beneficiaries from the planning stage.

54. Risks of diseases and their potential devastating impacts on aquaculture productionshould be considered during project preparation. Aquaculture health and sanitationmanagement, including issues concerning diagnostics, health certification, and quarantine, isequally important to minimize risks of epidemics.

55. Food safety and hygiene are key requisites for sustaining exports. Appropriate legalinstruments for and enforcement of environmental protection and sanitation, and harmonizationof standards for food safety are essential for sustained aquaculture operations.

56. The poor credit recovery generally reflects the current conditions affecting the bankingsector in Bangladesh which has suffered from inadequate capitalization and nonperformingloans. Although these systemic conditions were recognized during project preparation, the useof loan covenants to mitigate risks has not been effective. The targets specified in loan

36The World Bank's Fourth Fisheries Project, for $28 million, approved on 20 July 1999, and cofinanced by theGlobal Environmental Facility ($5 million) and the Department for International Development of the United Kingdom($15.5 million). See also International Center for Living Aquatic Resources Management. Community-BasedFisheries Management Policy Research on User-Based Management: The Case of Inland Openwater Fisheries ofBangladesh. Dhaka.


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covenants were too ambitious given the systemic and far-reaching problems afflicting thebanking sector. An aquaculture project cannot be expected to resolve such problems.

57. Channeling a credit line through the banking system requires a rigorous examination ofthe capacity of the participating banks to act as effective financial intermediaries. The credit lineshould provide flexibility to participating banks in setting their lending interest rates to reflect

credit risks of the respective clients. An assessment of credit demand should be rigorous, takinginto account analyses of lending risks, risk averseness of banks, and requirements for securedlending including collateral coverage and its implications on the targeted potential clients. Thecredit demand assessment should not be simply based on the estimation of financing gap ofprojected investments and the expressed interest of participating banks.

58. There should be operating guidelines for the recycling of subloan repayments by theparticipating banks. The use of the credit facility for such recycling should be monitored toprevent uses for purposes other than those intended by the project.

C. Follow-Up Actions

59. The PCR recommendation for the Government to sell or lease out the three projecthatcheries to the private sector was not acted upon. Nevertheless, DOF decided in 2001 torefurbish these hatcheries and make them part of its network of broodfish banks. Adequateresources should be allocated by the Government to DOF to sustain the operating requirementsof these hatcheries.

60. During policy dialogue on the fisheries sector with the Government and bilateral andmultilateral agencies over the next 3 years, ADB should emphasize the importance to addressthe issues concerning shrimp and prawn farming that are critically linked with the carryingcapacity of the environment and its safeguards, including the need for an integrated spatial planthat takes into account the overall land use, production potential, available technology options,and water management requirements. ADB should use a component of the ongoing regional

TA 594537

as an instrument for such dialogue with the Government, and should assist theGovernment in translating the national fisheries policy (footnote 35) into an appropriate actionplan.

61. BB should request the participating banks to analyze the existing subloans in detail(including by their age and the number of times they have been rolled-over or rescheduled),classify the nonperforming subloans, and make provisions for loan losses by June 2003.

37Study on Strategies and Options for Increasing and Sustaining Fisheries and Aquaculture Production to BenefitPoor Households in Asia, for $1.1 million, approved on 17 October 2000. Expected to be completed in 2004, thisTA, cofinanced and implemented by the International Center for Living Aquatic Resources Management, coversnine countries, including Bangladesh. The TA helps the countries (i) formulate strategies and an action plan forincreasing fish production, improving nutrition and income, and protecting fisheries resources; (ii) determine themost viable and sustainable aquaculture and fisheries practices that are of critical importance to poor fish farmers,fishers, and low-income consumers; (iii) analyze fish production and consumption to evaluate the market potentialfor alternative fish products; (iv) identify fisheries management options for increased participation by small-scalefishers; and (v) strengthen the capacity of the participating fisheries institutions in monitoring the impacts ofchanges in policy, technologies, and markets on poor households.


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Item

Foreign Local Total Foreign Local

Shrimp Culture Development

Extension Services 254 232 486 273 664 937

Credit 5,158 14,497 19,655 3,789 10,891 14,680

Carp Culture Development

Extension Services 891 278 1,169 759 1,221 1,980

Credit 1,831 6,203 8,034 1,083 3,112 4,195

Culture-Based Floodplain Fisheries Enhancement 2,208 5,534 7,742 1,419 4,589 6,008

General Implementation and Institutional Support

Consulting Services and Fellowships 2,782 1,148 3,930 2,162 381 2,543Training and Engineering Support 715 1,390 2,105 2,030 3,599 5,629

Import Dutiesa 3,660 3,660 0 1,656 1,656

Physical Contingency and Price Escalation 2,892 6,823 9,715 0 0 0

Recovery of Technical Assistance in Excess of Grant 174 174 154 0 154

Service and Other Charges During Implementation 1,339 1,991 3,330 505 0 505

Total 18,244 41,756 60,000 12,174 26,113 38,287

a

Excludes import duties applicable to procurement by subborrowers.

Appraisal Estimate

Total

Actual

Appendix 1 19

ESTIMATED AND ACTUAL PROJECT COSTS

Table A1.1: Project Costs by Component

($'000)


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Item

Foreign Local Total Foreign Local Total

A. DOF Component

1. Civil Works

a. Floodplain Fisheries Enhancement 1,099 3,043 4,142 619 3,094 3,713

b. Institutional Development 180 620 800 485 2,515 3,000

2. Equipment, Materials, Supplies, and