Resilient Agri-food Clusters Development Project

active

Country ContextThe Kyrgyz Republic is faced with multiple challenges that have been amplified by Russia's invasion of Ukraine conflict and the COVID-19 pandemic. The country experienced positive economic growth, but it has been largely driven by gold exports and worker remittances. Poverty in the country increased during the COVID-19 pandemic and Russia’s invasion of Ukraine is increasingly impacting food affordability. The COVID-19 pandemic increased the poverty rate (US$3.2 a day, 2011 purchasing power parity (PPP)) from 9.7 percent in 2019 to 16.2 percent in 2020. Reduced labor income and remittances caused by the pandemic and inflation pushed an additional 700,000 people (11 percent of the population) into poverty and this trend is expected to increase with the poverty rate reaching 25.5 percent in 2022 (at the US$3.65 a day, 2017 PPP poverty line) from 21.8 percent in 2021. Food and fuel prices drove inflation to 11.2 percent in December 2021 from 9.7 percent a year ago but has fallen to 10.8 percent since February 2022. The uncertainties related to the geopolitical and global economic situation are expected to increase inflation in the Kyrgyz Republic to 15.5 percent, thus creating significant further pressure on fiscal and debt management as well as potentially pushing more people into poverty.Sector and Institutional ContextAgriculture is the main source of income and livelihoods in rural areas but is dominated by smallholders both upstream and downstream. The sector contributes about 12 percent to GDP and employs nearly 30 percent of all labor in the country. The sector consists mainly of small-scale production systems with over 470,000 farm units and more than 700,000 rural households that collectively produce over 95 percent of the total agricultural products in the country. Productivity remains below potential. Yields of major crops remain below Central Asia and ECA averages and while livestock numbers have been rising, productivity gains remain small due to low levels of investment, pasture degradation, livestock diseases and insufficient access to veterinary services. Limited access to improved seeds, fertilizer, farm equipment, extension services, and financing remain key challenges to improving productivity. The Kyrgyz Republic is a net exporter of a selected number of commodities (milk, potatoes, horticulture products) with the potential to expand exports if production can meet market requirements. Agri-food enterprises would benefit from improved processing equipment and facilities, and public support in this case would be limited to promoting innovation and modern technologies rather than granting new equipment to enterprises.Relationship to CPFThe proposed project is aligned to the Country Partnership Framework (CPF) 2019-2022 (Report No. 130399-KG), which seeks to promote diversified, export-oriented, inclusive, and sustainable growth in the Kyrgyz Republic and is focused on improving conditions for private sector growth. The proposed project falls under the CPF Focus Area 1: Strengthen foundations for inclusive private sector-led growth and Focus Area 3: Enhance economic opportunities and resilience. As preparation of the new CPF for 2024-28 is underway, the proposed project would directly contribute to the proposed High-Level Outcome 2 (HLO2) by addressing key constraints to improvements in agricultural productivity and increasing competitiveness of agri-food value chains by adopting climate-smart, modern technologies.Project Description SummaryThe PDO will be achieved through improving production processes and linkages in selected agri-food clusters, strengthening associated national and regional support systems, and promoting climate smart technologies and practices. The proposed project components are as follows:Component 1: Investment for Agri-food Clusters Development. This component would support investments in each selected agri-food cluster by financing producers and productive partnerships among producers and aggregators/processors engaged in production and value addition.Component 2: Strengthening Institutions and Systems. This component would provide support to public-sector service delivery for seeds and livestock breeding and information management. Following sub-components are included:Sub-component 2.1: Training and capacity building of agri-food clusters. This sub-component would support climate smart training and capacity building of beneficiaries including farmers and processing enterprises, and other participants in the targeted agri-food clusters. This sub-component would also provide training to relevant government agencies for improved services to the producers.Sub-component 2.2: Seed system improvement. This sub-component would support the enabling environment for policies, strategies, legal frameworks, standards, and organizations associated with seed and planting material.Sub-component 2.3: Improved livestock breeding and information management system. This sub-component would support improvement of animal breeding policies and regulations, development of a national dairy breeding plan, artificial insemination services, and strengthening of public services.Component 3: Operational support and project management. This component would support project implementation, including the project’s monitoring and evaluation system, communication strategy, preparation and implementation of environment and social framework instruments, training, and financing of incremental operating costs.Component 4: Contingent Emergency Response Component (CERC). This is a zero-dollar component that will provide support in the event of an eligible crisis or emergency, including climate-related disasters, to reallocate project funds to support emergency response.