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INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT

REPUBLIC OF INDONESIA

COSOP RESULTS REVIEW

AUGUST 2015
I. Introduction

Since 1980, IFAD has extended loans to Indonesia for 15 programmes and projects totalling
US$409.8 million. Twelve of the programmes and projects have been completed, three are ongoing
and one new investment will be presented to the Executive Board in December 2015. IFAD has also
funded a number of country and regional grants to support investment projects in the country.

Together, IFAD and the Government of Indonesia have invested almost US$1 billion in rural people
to strengthen inclusive and environmentally sustainable economic growth:
 IFAD’s projects are successful in the most remote and vulnerable areas of the country that
also usually have the highest incidence of poverty. In Papua, for example, where many
development projects previously failed, the IFAD-supported PNPM Rural Agriculture
promoted community assistance and better farming techniques and empowered women to
take up income generating activities.
 IFAD supports coastal communities by decreasing their vulnerability to climate change
shocks and by increasing their income from fisheries activities. Fisheries has a large potential
to improve food security and enhance economic growth Indonesia.
 IFAD facilitates partnerships for maximum impact and resources. IFAD has successfully
facilitated a number of public-private-partnerships, both with international corporations and
national companies in order to maximum impact and resources. Given Indonesia’s significant
commodities production potential, collaboration with the private sector is seen as a priority.
This will enable smallholder farmers to gain benefits , such as increased production of high
value crops. IFAD is well placed to implement these partnerships.
 IFAD supports an enabling policy frameworks. An effective agricultural and fisheries sector
requires a supportive regulatory and policy environment. IFAD has the knowledge,
international experience and resources to support the development of effective
programmes and policies for smallholders.

The RB-COSOP 2009-2013 for the Republic of Indonesia was approved by IFAD’s Executive Board in
December 2008. In 2013, the Government of Indonesia requested IFAD to keep the COSOP and delay
the preparation of a new COSOP in order to align it with the country’s National Medium-Term
Development Plan, which was presented at the end of last year. Based on this request and given the
continued relevance of the COSOP’s strategic objectives, the operations in Indonesia continued to be
guided by the 2009-2013 COSOP.

In August and September 2015, IFAD fielded a COSOP Results Review and Preparation Mission to
review relevance and results of the COSOP and initiate a conversation on goal and objectives of the
forthcoming country strategy.1 It was found that the COSOP’s Strategic Objectives are still relevant
and that the 2009-2013 RB-COSOP shall remain in place until the 2016-2020 RB-COSOP has been
approved by the Executive Board in September 2016.

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The mission team was composed of Agnes Deshormes (Team Leader), Ivanovich Agusta (Rural Poverty and Livelihoods
Specialist), Muhammad Firdaus (Agriculture and Rural Development Specialist), Sarah Hessel (IFAD Programme Officer) and
Anissa Pratiwi Lucky (IFAD Country Programme Facilitator). The mission took place from 27 July to 13 August 2015. Various
stakeholders from government, development partners, private sector and civil society were consulted, both in one-on-one
consultations and workshops. The team reviewed all on-going projects: The Smallholder Livelihood Development Project in
Eastern Indonesia, the Coastal Community Development Project and the National Programme for Community
Empowerment. The mission served both as a review of results achieved under the 2009-2013 COSOP and as a basis for the
formulation of the 2016-2020 COSOP.

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II. Country Context

A fast growing country. A member of the G-20, Indonesia is a fast growing middle-income country
(MIC) with the fourth largest population in the world. The archipelago consists of more than 17,000
islands, hosting a population of about 253 million and close to 300 ethnic groups speaking around
250 languages. Indonesia’s population is largely concentrated on the western part of the country
(around 80% of the population lives on the islands of Java and Sumatra) and is increasingly
urbanised. With a 3% annual urban growth, over 50% of Indonesians now live in urban centers,
generating a soaring demand for consumption goods and in particular food products. Young people
constitute around one third of the population but more than half of the under 30 live in urban areas
as a result of strong youth internal migration.

Over the past decade Indonesia has progressed into a dynamic electoral democracy, achieving
democratic transition as well as a remarkable economic performance. Between 2002 and 2012, the
economy annually grew at an average rate of 5.5%, boosted by domestic consumption and a
growing middle class, strong investment flows and a boom in commodity exports. Revenue growth
was further sustained by macro-economic stability brought by a prudent macro-economic
management, with healthy public finances and low budget deficits, debt-to-GDP ratio and inflation.
While around 25% of the GDP is produced by Jakarta, the revenue generated by small and middle
size cities is rapidly growing under the combined effect of increased population and productivity,
and the majority of the fastest growing cities are out of Java.

Uneven distribution of benefits. Steady economic growth has led to gradual poverty reduction. The
number of people living below the poverty line of IDR 312,328/month (USD 21.7) has dropped from
24% in 1999 to 11%, or 27.73 million people, in 2014. The pace of poverty reduction has however
been slowing down over the last years and the 2010-2014 national development plan target to
reduce poverty to 8-10% could not be achieved. Besides, another 27% of the population or 68
million are near poor who live with less than UDS 2 a day or just above the poverty line. They are
highly vulnerable to shocks such as illness, extreme weather or price volatility, which can easily push
them back into official poverty. In fact it is estimated that about 25% of Indonesians have fallen
under the poverty line at least once in a three year period. Despite progress in health and education,
Indonesia’s Human Development Index of 0.684 remains below the average of 0.703 for East Asia
and the Pacific. Malnutrition remains significant: the prevalence of stunting among children under
five years of age rose from 36.8% in 2007 to 37.2% in 2013.

Furthermore the benefits of economic growth have been unevenly distributed. As poverty was
decreasing, the Gini coefficient has raised from 0.32 in 1999 to 0.41 in 2012, showing that income
distribution has become increasingly unequal. Poverty is lower in the cities (8%) and higher in the
rural areas (14%), where a majority of smallholders lacking access to services and markets are
unable to tap the potential offered by economic growth. The deterioration of the nutritional status is
more severe in the rural areas, where access to social and economic infrastructure is lower.
Pronounced regional disparities exist, with the highest poverty rates affecting Eastern Indonesia.
However densely populated Java hosts the largest numbers of poor.

Agriculture. While the GDP share of agriculture has come down to 12% (2014), it is still the main
source of income for one third of the population and for 64% of the poor. With rich volcanic soils
and a tropical climate suitable for growing a variety of crops, Indonesia is a major global producer of
tropical products such as palm oil, rubber and, to a lesser extent, copra, cocoa, coffee and spices.
The sector has been growing by an average 4.6% over 2004-2009, but this has been attributed
mostly to a shift from food staples to high value crops as well as an expansion of cultivated areas.
There is enormous potential for increasing crop productivity as a majority of smallholders still

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operate close to subsistence level. Low availability of modern inputs, lack of appropriate
technologies, low access to irrigation (less than 50% of the 7.2 million irrigated hectares are fit for
use), high post-harvest losses and limited access to finance, extension and other support services
contribute to low yields and low returns. Difficult access to markets due to limited connectivity in
remote areas, high transaction costs, the lack of storage and cold chain infrastructure and farmers’
lack of market information and marketing skills further affect productivity and earnings. The share of
the national budget accruing to the agriculture sector doubled from 2.7% in 2001 to 5.6% in 2009.
However heavy central spending on subsidies (inputs and credit) made available to the vast majority
of farmers has constrained resource allocation to the provision of public goods and services such as
research, extension and infrastructure. The lack of an enabling environment as well as increased
land fragmentation in the more densely populated areas contribute to the number of farmer
households (26.2 million in 2013) decreasing by an average of 500,000 every year, mostly affecting
families with less than one hectare of land.

Fishing and aquaculture. Around 6.4 million people are engaged in inland and marine fishing and
aquaculture. Artisanal producers using traditional means account for 95% of the production of 15.26
million tons (2012), of which aquaculture accounts for 62% and has an average annual growth rate
of 34%. Aside from constituting an important source of proteins that the government is promoting
to improve food security, marine products have considerable potential for exports, which have been
steadily growing over the last years, reaching USD 3.9 billion USD in 2012. Limited access to boats
and fishing gear, practices of destructive and illegal fishing, and poor management by aquaculture
operators leave considerable scope for modernising and improving production. The Eastern part of
the country also suffers from a lack of infrastructure such as port facilities, electricity, transport
facilities and fuel supply for vessels.

Rural women. Most of rural women work as home-based workers, plantation workers or on the
family’s farm. Whether employed in the formal or informal sector, they earn on average 17% less
than men. Poor women are often physically overworked, increasingly taking over primary
production as men migrate. The lack of basic social infrastructure, including access to water,
sanitation and energy, and traditional social roles contribute to increasing their burden. Indonesia’s
Civil Code stipulates that men and women have equal ownership rights and the 1974 Marriage Law
formally adopts the concept of joint ownership of property purchased during marriage. However
only few parcels of land are registered in the joint name of husband and wife, because of a lack of
awareness and of traditional norms. By law, women also have equal access to financial services, and
have the right to independently conclude contracts. However law provisions lack proper
enforcement and married women find it difficult to engage in formal financial activities such as
opening a bank account. Women have significant decision-making powers within the household but
have limited access to information and formal decision-making structures. They are poorly
represented in farmers’ groups, whose members are chiefly (male) heads of households, so that
extension activities seldom include women, except for nutrition and family planning. Poor women-
headed households (3 million in the poorest three deciles or around 12 million people) stand higher
risks of being affected by shocks.

Rural producers’ organisations. There is a large number of informal farmers’ groups based on
traditional solidarity and self-help systems across the country, which offer good opportunities for
developing membership-based organisations extending services to members. Structured farmers’
groups are not frequent but they exist across value chains, usually as the result of external
assistance. Main services provided include input supply, collective marketing, certification (in
particular in the cocoa sector), water management (water users’ associations), and advocacy and
land tenure. The widespread lack of legal recognition of producers’ organisations is motivated by
past negative experience with state-controlled cooperatives, but it prevents organisations from

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becoming trusted partners and accessing credit from financial institutions. Other obstacles include
the lack of recognition by local authorities, limited structuring beyond the grassroots level and weak
technical and management capacities. There are however successful examples demonstrating that,
with appropriate support, empowered producers’ organisations can play a key role in supplying
small-scale producers with services enabling them to raise productivity, match market requirements
and earn premium prices. Producers’ organisations also have a key role to play in voicing their
members’ concerns and in defending their interests in policy making processes up to the national
level.

Migration. First spurred by the authorities under the transmigration programme, internal and,
increasingly, international migration is a common response to poverty and the lack of economic
opportunities. It is estimated that almost one in two people migrated at least once across the
archipelago, attracted by urban informal labour markets or by international migration and that
around 500,000 Indonesians are driven into international migration every year. About 6.5 million are
currently officially working abroad and another 2 to 5 million are believed to be abroad as
undocumented migrant workers. In 2012, net remittances to Indonesia (excluding internal flows)
reached an estimated USD 7.2 billion, which would benefit a population of between 38 and 57
million people at home. The majority of international migrants (68%) are low-skilled women coming
from poor rural areas, who work as domestic workers in other Asian or in Middle Est countries and
who are vulnerable to exploitation. While Indonesia has managed to substantially reduce the cost of
remitting (6.6%), migrants still have limited access to formal financial channels because of
remoteness and financial illiteracy. Because of a lack of information, BDS and financial services, few
migrants manage to set up profitable and sustainable businesses upon their return and are forced to
migrate again once their savings have run out.

Agri-business. There is a growing interest of domestic and global agribusiness in sourcing from
small-scale producers, which opens up new avenues for supplying smallholders with services, new
technologies and possibly also access to finance, with scale. The oil palm sector pioneered a
successful hub and spoke model with state-owned enterprises, which has later been successfully
expanded by the private sector. Leading global and local agribusiness have created the Partnership
for Indonesia’s Sustainable Agriculture (PISAgro), which aims at developing public and private
partnerships around ten commodities (of which six for the domestic market) to improve sustainable
production, farmers’ livelihoods and food security. There is much potential to develop the
processing and conditioning of agriculture and marine-based food products to supply urban markets.
Substantial development of the domestic agribusiness sector will however hinge on improving the
business environment – Indonesia currently ranks 114 over 189 against the Ease of Doing Business
Index, far behind Malaysia (18), Thailand (26) or Vietnam (78). Key factors restraining investment in
agribusiness include: the prevalence of state companies in the production and distribution of input
supplies; multiple layers of regulation and taxes, also resulting from decentralisation; poor access to
capital; insufficient road infrastructure, especially to remote areas; unreliable energy supply; and
corruption.

Financial inclusion. Despite rapid development of Indonesia’s financial sector in recent years, it is
estimated that less than half of the population access to banking services, particularly in the rural
areas. In 2014, only 5.88% of the total bank lending benefitted agriculture and most of it went to
larger, commercial plantations. Indonesia has also experienced a fast growing of the microfinance
sector, including 15% of regulated microfinance providers and a vast array of NGOs, cooperatives
and public district or village-based institutions. Nonetheless the majority of smallholders do not have
access to finance, because of low financial literacy and lack of collaterals. Furthermore there is a lack
of risk management mechanisms to offset risks attached to agriculture production and price
volatility. Only 24% of Indonesians had an insurance in 2010 and agriculture insurance is not

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developed. Established in 2011, Otoritas Jasa Keuangan (OJK), or the Indonesia Financial Services
Authority, is responsible for the regulation and supervision of bank and non-bank financial
institutions, as well as financial education and consumer protection. To raise capacities in the sector,
OJK is planning to create a Knowledge Centre that would provide learning resources to stakeholders
in the financial sector from Indonesia and other countries.

Key challenges. Despite regular increase in the production of cereals and tubers, Indonesia
continues to suffer from food deficits. A population expected to reach 300 million by 2035, of which
more than 75% in the cities, will generate expanding pressure on agriculture and marine production.
Meeting the growing domestic demand for food products and reducing the country’s dependence
on imports will not only require an increase in agricultural productivity but also developing the
competitiveness of domestic productions. The implementation of the ASEAN Economic Community
will open new commercial opportunities but will also toughen competition with neighbouring
countries. Substantial increases in productivity and competitiveness will hinge on the modernisation
of the agriculture sector and on attractiveness to young men and women. Most of the reduction in
the farmers’ population has hit the 15-24 age group, which decreased by 1.21 million between 2009
and 2013. Climate change constitutes another important challenge. Climatic risks are expected to
increase significantly, with increasingly erratic weather patterns, extreme weather events, coastal
erosion, and the progressive loss of coral reefs from ocean acidification. Deforestation and peat land
degradation further contribute to an estimated 75% of the country’s greenhouse gas emissions.
Adaptation measures are needed in both the agriculture and fisheries sector to develop climate
adaptation and offset elevated risks of crop failure, marine resource losses and food insecurity.
Competition for land is increasing as residential and industrial areas expand, along with plantations:
it is estimated that land conversion from food crops to other functions is 100.000 hectares per year.
Insufficient and conflicting spatial planning with limited participatory processes, costly and slow
titling procedures do not offer adequate protection against the conversion of farming land, which is
further facilitated by farmers’ limited awareness of the legal framework or of the value of land and
by the lack of recognition of customary land rights. Sustainable fisheries management is becoming a
matter of concern as catch levels have been declining in some areas, because of overexploitation
and lack of community involvement in the management of coastal areas and marine resources.

Key opportunities. New models for developing value-chain based business partnerships provide
small producers with support services and access to markets and limit price volatility and risk, along
different combinations of farmers’ groups and cooperatives, domestic and international agri-
business, public agencies and NGOs, and of public and private financing. Further expanding the
modality would require the strengthening of producers’ organisations so that they can become
trusted and performing partners, gain bargaining power to negotiate partnership arrangements
ensuring that they get a fair share of the final value added, and strengthen their position in the value
chain. It would also require strengthening the financial and operating capacity of local SMEs to
facilitate their sourcing from smallholders as well as supporting local enabling business
environments. High value crops have comparative advantages for both export markets (including
cocoa, coffee, spices) and domestic markets. With growing cities, the demand for fruits and
vegetables in particular is huge but it is largely covered by imports. Increasing national production
would however require investments in research on improved inputs as well as in cold chains and
logistics infrastructure, which could be done in partnership with the private sector. Mobile and
internet connectivity are developing fast. The number of mobile phones is higher than the
population, about 30% of Indonesians has internet access and uses social networks, and the
telecommunication sector is growing by 20% annually. ICT can play a major role to improve service
delivery to farmers and offset remoteness in areas such as market information, technical advice,
deals on input supply or weather forecasting. The newly established Village Fund will make annual
resource allocations available at the grassroots level – in 2015 the average amount per village will be

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USD 8,650. If adequate capacities are built at village level to ensure the transparent and efficient
management of these resources, they would constitute an important piece in sustaining local
ownership of development efforts. Finally, the government’s priority on food sovereignty and on
boosting the production of basic food commodities should altogether benefit agriculture
development. However steady increase of public spending for agriculture has so far not translated
into a commensurate increase of production.

National development plan and poverty reduction. The current five-year Medium Term National
Development Plan (2015-2019) projects a reduction of the poverty rate from 11% to 7-8% and an
annual economic growth rate of 8%. The agricultural, fisheries and forestry sector should grow by
4.5% (0.6% over the 2014 growth rate) over the same period. The plan targets four priority areas:
food sovereignty, energy sovereignty, marine and maritime development and improved livelihoods
for the poor through better access to basic services and to the productive economy.

With regard to food sovereignty, the government’s objectives are to: increase food availability;
support food diversification and improve nutrition; improving food accessibility by promoting
agriculture processing, linkages between farmers’ groups and agri-business, and food distribution;
and improving farmers’ resilience by developing agriculture insurance and promoting
environmental-friendly techniques. The Medium Term National Development Plan also aims at
improving the competitiveness and value added of high value commodities, including traditional
export crops (palm oil, rubber, cocoa, tea, coffee and coconut) and horticulture crops. With regard
to marine resources, priorities are the development of maritime infrastructure, the doubling of
fisheries production in five years and the conservation of marine ecosystems.

With regard to poverty reduction, instruments designed to reduce poverty have been developed
over the last 15 years and include conditional cash transfers for social protection and food subsidies
(through the Rice for the Poor Programme - RASKIN), development funds for building community
assets and economic empowerment (through PNPM and the new Village Fund) and, to a much lesser
extent, access to credit. While national resources budgeted for poverty reduction have been
multiplied by 2.4 since 2007, budget efficiency has been steadily decreasing: the 2007 budget of USD
5 billion managed to decrease poverty by 1.2%, while the 8.2 billion 2013 budget only delivered 0.4%
poverty reduction. Low capacities at local government level, insufficient targeting (for example
RASKIN benefits 90 million people, or 35% of the overall population from decile 1 to 7), remoteness,
limited resources allocated to credit and cooperative empowerment (less than 2% of the total
poverty budget in 2015) and to promote an enabling environment for productive activities and
small-scale businesses are likely to explain low cost-effectiveness.

National sector strategies. In recent years the achievement of food self-sufficiency in a number of
food staples has been a major objective of agriculture strategies and has been supported through
trade barriers and subsidies. In line with the National Development Plan, the overall objective of the
2015-2019 Strategic Plan of the Ministry of Agriculture is to achieve food sovereignty and farmers’
welfare through sustainable agri-business systems based on local resources and generating a variety
of healthy food and high value products. Priority areas include: reaching self-sufficiency in rice,
maize and soybeans and raising the production of sugar cane and meat; increasing food
diversification through improved nutrition and public food distribution systems; increase the value
added and competitiveness of export and import substitution crops, especially horticulture; and
supplying raw material for bio-industries and bio-energy. Increased farmers’ welfare is to be
achieved through farmers’ groups’ institutional strengthening, skills improvement, increased access
to capital resources, land reform expected to offset land fragmentation, increased involvement in
processing and agricultural insurance. Input subsidies and market price support however remain
strong features of the agriculture strategy, with equal levels of resource allocations planned for grain

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price subsidies and infrastructure over the 2016-2018 budget triennium. In the fisheries and
aquaculture sector, the Ministry of Maritime and Fisheries Affairs is currently developing a new
strategic plan. Past priorities for the sector have been to expand economic opportunities for poor
fisheries communities and empower them to manage and preserve fisheries resources and coastal
ecosystems.

III. COSOP Progress Review

Portfolio. Since IFAD started its partnership with Indonesia in 1980, fifteen loan projects have been
developed, totalling USD 827 million, of which USD 416 million financed by IFAD. IFAD’s support has
focused on the poor, food insecure and ethnic minority communities in rain-fed, upland, coastal and
other marginalised areas. Most projects have targeted Eastern Indonesia because of the higher
incidence of poverty in this part of the country, weaker institutional capacity and lower level of
engagement of other donors and the private sector. The country programme has also given
prominence to women empowerment and the transformation of gender relations in socio-economic
development.

The current country programme includes three investment projects, with a fourth project to be
approved end of 2015, totalling USD 1,410 million, of which USD 244 million directly funded by IFAD.
Four country grants adding value to the investment programme are currently being implemented,
for a total of USD 10.7 million.

Stakeholder consultation, as well as the Client Survey Results, highlight that performance of the IFAD
portfolio in Indonesia has improved strongly since the COSOP formulation. This is a result of
strengthened engagement of IFAD with and in the country, continuous supervision and
implementation support (particularly with the out posting of the CPM) and a re-confirmed
commitment to rural development and food security issues by the new Government, elected in
October 2014.

To date, the lending operation included in the COSOP (Smallholder Livelihood Development Project
in Eastern Indonesia) has been designed, approved and is currently under implementation. Two
additional lending activities were designed under this COSOP: (i) the Coastal Community
Development Project (approved September 2012); and (ii) the Integrated Participatory Development
and Management of Irrigation Sector Project (to be approved December 2015). Two projects
designed and approved under the previous COSOP have or are due to be completed: (i) the Rural
Empowerment and Agricultural Development Programme in Central Sulawesi (completed in
December 2014); and (ii) the National Programme for Community Empowerment (due to complete
in March 2016). All projects are likely to deliver the expected outcomes and to make a substantive
contribution to strategic objectives.

IFAD strengthened partnerships with other development agencies and, as a result of this effort,
leveraged a significant co-financing opportunity with the Asian Development Bank on the
forthcoming Integrated Participatory Development and Management of Irrigation Sector Project.
Throughout the design process, IFAD was able to demonstrate its value added as an innovative
expert in rural development to the Government of Indonesia and the Asian Development Bank.

With regard to non-lending activities, the portfolio has achieved considerable results. In alignment
with Indonesia’s middle-income status and the growing interest in technical assistance and
knowledge products, IFAD has extended strategically selected grant programmes (such as the GEF
co-financed initiative to support alternative livelihoods in peatlands and contribute to the fire risk

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minimizing strategy of the Government). IFAD is furthermore an active participant in policy fora und
UN country team meetings relevant to IFAD’s business area.

COSOP. The overall goal of IFAD’s partnership with Indonesia is to empower the poor rural women
and men in the target areas to achieve enhanced food security, increased incomes and poverty
reduction. IFAD focuses on smallholder agricultural and rural development, the enhancement of the
competitiveness of agricultural smallholders and producers, growth of the rural economy and
addressing the key determinants of rural poverty.

The following core strategic objectives comprise the current COSOP: Strategic Objective 1 - to
improve access to productive assets, appropriate technology, production support service, by
smallholders’ ethnic minorities and other marginalized groups; Strategic Objective 2 - to improve
access to infrastructure, inputs-outputs markets and financial services by smallholders, ethnic
minorities and other marginalized people; and Strategic Objective 3 - to enhance the capacity of the
rural poor, especially ethnic minorities and marginalized groups, to engage in local pro-poor, gender
sensitive policy and programming processes.

IFAD’s target group includes: (i) poor rural households with access to only small areas of land, who
lack other productive assets and have limited off-farm employment opportunities and this group is
normally food insecure and may be indebted; and (ii) ethnic minority communities and other
marginalized groups. IFAD targets areas where: (i) the incidence of rural poverty is high and the
status of the MDGs is most in need of improvement; (ii) there are large numbers of poor rural
households; (iii) there are opportunities to improve agricultural and rural productivity and develop
strategic partnership with other agencies; and (iv) where there are no major on-going externally
financed agricultural and rural development programmes. IFAD in particular focuses on the poor,
food insecure and ethnic minority communities in rain-fed, upland and coastal areas and other
marginalized areas with high incidence of rural poverty in the Eastern Indonesia.

The IFAD COSOP Results Framework is used as a basis for monitoring and evaluating progress in
achieving the current COSOP strategic objectives. In terms of overall outreach, since 2009, a total of
2.4 million individuals (of which 45 percent are women) have received project and or programme
services.

Strategic Objective (SO) 1: Improved access to productive assets, appropriate technology and
production support services for on-farm and off-farm productivity improvement. The results under
this strategic objective are associated to production and productivity where 2,384,032 individuals
received project services directly, which includes 44.9% women. There are a total of 8491 SHGs
formed and strengthened during this COSOP period a 217% achievement of the COSOP target, which
include men, mixed and women’s groups. Some of these groups have formed 237 federations. There
are 27 women staff of service providers trained out of a total of 111. A total of 31593 people and
staff trained in crop production practices and technologies of which 4532 are women. Now there are
42825 persons members of SHGs promoted by IFAD projects of which 19629 are women. In addition,
there are 1824 interest groups formed in the programme. An estimated 31593 beneficiaries have
been trained in various topics of which 4532 are women (14%). There are 1089 environmental
management plans promulgated under this programme.

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The outcomes under this objective relates to improvement in proportion of underweight children,
where it is estimated that 36.4% are underweight in 2011/12, Production of food and income from
sales of surplus production and income from off-farm activities has increased availability of food
which has impacted undernourishment to children. A total of 21,553 households have reported
improved food security. There are 7836 smallholders reporting 10-25% increase in crop and livestock
production/yield increase. So far 24478 hectares of land is brought under improved management
practices under the programme. There are 2513 savings and credit groups operational and
functional after 3 years, which is 80.5% of the COSOP target. An estimated 12535 households have
long-term security of tenure over natural resource during the COSOP period. Out of the 76418
persons trained under the programme, 36619 are women and this is 47.9% who are also adopting
recommended technologies. Out of 1033 community natural resource management plans prepared
by the communities, 345 plans have been submitted to the District Government for recognition.

For Strategic Objective 2, to improve access to infrastructure, inputs-outputs markets and financial
services by smallholders, ethnic minorities and other marginalized people, outcomes were overall
positive. Reports show that improvements have been achieved in terms of water and sanitation
issues with now 28 percent of households having access to safe drinking water (which is under the
60 percent target in the current COSOP), 80 percent of households having access to safe sanitation
(134 percent of the current COSOP target), 12,207 famers having secure access to water. 87,941
households are served by other infrastructure. In terms of access to markets, 12,023 of the target
population have improved access to markets and marketing information, 106,214 households have
road access to markets and as a result 63 percent of smallholders have reported an increase in
income from agriculture produce making (90 percent of the current COSOP target). Overall, 28,495
jobs have been generated by small and medium enterprises, with 43 enterprises still operating after
three years. 89 percent of the target group households have reported increased assets (128 percent
of the current COSOP target).

Feeding in these outcomes, the following results have been achieved towards the milestone level
under Strategic Objective 2: 1,616 drinking systems have been constructed and rehabilitated; 14,190
hectares of land irrigation schemes have been constructed or rehabilitated; 52 livestock water
points have been constructed or rehabilitated; 1,241 other infrastructure or facilities have been
constructed or rehabilitated; 91 market facilities have been constructed or rehabilitated; 1,712
market groups have been formed or strengthened; 2,115 rural roads have been constructed or
rehabilitated; 1,979 proposals for infrastructure investment have been developed and presented to
communities; 220 villages have received block grants for infrastructure; 320 groups are managing
productive infrastructure with women in leadership positions; 32,622 individuals are active
borrowers; 2,020 individuals have been trained in income generating activities; 6,389 individuals (of
which 3,683 are women) have received vocation training; 2,380 individuals have been provided with
business development services.

Regarding Strategic Objective 3, to enhance the capacity of the rural poor, especially ethnic
minorities and marginalized groups, to engage in local pro-poor, gender sensitive policy and
programming processes at the outcome level, 818 village or community plans have been formulated
and 255 policy studies have been conducted.

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At the milestone level , 70 pro-poor legislations and regulations have been enforced at the local or
central level, 170 village administrations have improved capacity for social and economic
development and 170 village pro-poor development plans have been developed.

Following the elections in 2014, the Government has renewed its commitment to the empowerment
and protection of the smallholder farmer in the country in the 2015-2019 Medium-Term
Development Plan. Recognizing the strategic role of the agricultural sector for the contribution to
food and industrial raw material provisions, gross domestic product (GDP) creations, foreign
exchange earnings, labour absorptions, bioenergy provisions, income of rural household sources,
and greenhouse emission reductions, the Government has declared agricultural and rural
development on of its focus policy areas. In addition, food sovereignty in key staples (including rice
and soya) is to be reached by 2019.

The stakeholder consultations reflected that the goal and strategic objectives of the 2009-2013
COSOP remain relevant to the national development policies and objectives.

CPE. In 2013, IFAD’s Independent Office of Evaluation undertook a second country programme
evaluation (CPE), which focused on operations since 2004. The CPE assessed overall portfolio
achievement as moderately satisfactory. Project objectives were considered relevant, but project
designs were deemed complex and insufficiently focused. Furthermore it was found that most
recent projects covered very large geographical areas with low population density, which led to
spreading resources too thinly. The building of institutions, and in particular of self-help groups,
empowering smallholders and opening access to savings and credit, was a cross-cutting feature of
the portfolio. Women empowerment was another strong feature of the portfolio. Women increased
their decision-making and financial management capabilities in their households, accessed
functional literacy or started micro-enterprises. However the CPE noted that insufficient attention
was given to developing production or supporting value chain inclusion. Sustainability was another
problematic area, because of still limited local capacities and of weak project knowledge
management systems limiting the ability to learn from experience and to sustain success. Project
cost per beneficiary household ranged from USD 126 to a high USD 1,414, which the CPE attributed
to high transaction costs in remote areas.

On the country programme management, the CPE concluded that the 2009-2013 COSOP was strong
on goals and expectations but that the implementation framework was weak. Results related to non-
lending activities were deemed limited, particularly given Indonesia’s MIC status, which would have
warranted increased policy dialogue, knowledge management and partnership building. Synergies
across projects and between lending and non-lending activities were deemed insufficient. The CPE
concluded that IFAD had largely acted as a project-based organisation in Indonesia and
recommended a paradigm shift, whereby IFAD would take up a leading role in supporting
productive, competitive and high value smallholder agriculture, by promoting and scaling up
agriculture innovation in partnership with the government and other strategic partners, such as
producers organisations and the private sector.

Lessons learned. IFAD has accumulated considerable experience in Indonesia with a host of lessons
emerging from its implementation experience as well as from the two country programme
evaluations which were conducted in 2004 and 2012. These lessons cover a range of issues regarding
the best approach to deal with rural poverty, investment decisions, partnerships, targeting,
sustainability and impact. Some of the more pertinent lessons are highlighted below;

11
Formation of Farmer and Fisheries Groups: The formation of groups has been an important IFAD
strategy in Indonesia but for the future this strategy has to be more focused on smallholder farmers
and fisheries sector to help smallholder producers organize, strengthen their organizational capacity,
engage with markets, reduce their transactions costs, enhance their bargaining position, identify
opportunities for productive investment and develop strategies to make them sustainable beyond
the project period. However, in the creation and operation of these groups, the individual
motivation, property rights and incentive mechanisms for participation should be clearly established.

Focus on Agriculture and Fisheries Sector: IFAD can enhance its impact by a sharper focus on
agriculture, livestock and the fisheries sectors. IFAD’s partnership in broad based rural development
projects like the PNPM has not enabled it to showcase its comparative advantage in the agriculture
and fisheries sectors. Furthermore, its participation in PNPM was eclipsed by large donor and
Government investments with only a few concrete results emerging from its financing. For the
future, IFAD would be best placed to narrow its focus on areas of its strength and assist the
smallholder producers enhance agricultural productivity.

Community Infrastructure: When supplied in a cost-effective way, public goods will generate higher
returns than investments in private inputs because they will create positive externalities for the
economy as a whole. Spending on public goods in the agriculture sector in Indonesia has had a
positive impact on agricultural growth and therefore investments in physical infrastructure such as
irrigation, post-harvest and processing facilities is likely to continue to generate high value added.
The operations and maintenance arrangements for infrastructure schemes need to be better
structured including the introduction of innovative public-private sector models.

Rural Finance Innovations: Indonesia has a diverse financial sector which has tried some unique
innovations to enhance outreach to rural areas. However, access to finance still represents a
particular constraint for small producers in the agriculture and fisheries sector. While the formal
financial sector is growing with the State owned banks such as Bank Rakyat Indonesia, BRI and many
private-sector banks such as Bank Tabungan Pensiunan Nasional (BTPN), Bank Danamon and Bank
Mandiri increasing their microloan portfolios, there is a need to partner with them to expand their
outreach further. IFAD can play an innovative role by partnering with commercial banks, MFIs and
other types of financial institutions and facilitating their links with smallholder producers for
accessing a range of financial services including savings, loans and transfer payments. These
partnerships can be built using the extensive IFAD experience in a host of countries in Asia and
Africa.

Participation of Private Sector: The role of the private sector has become increasingly important in
the country and it is important to engage it in enhancing the access of small producers to improved
inputs, services, technology and output markets for sustained growth in agriculture productivity and
incomes. IFAD financed projects should assist in facilitating links between the small producers with
the full spectrum of private sector players in the different agriculture crops and the fisheries sector.
While some agencies have tried to appeal to the Corporate Social Responsibility ethos of the private
sector, IFAD believes that the most effective and sustainable way of engaging with the private sector
is by demonstrating how the long-term business interests of the private sector and smallholder
producer can both be served through reduction in transactions costs, mitigating risks and improved
efficiency and reliability for sourcing products and services.

Recognition of the role of NGOs: The role of NGOs has not been properly appreciated in many IFAD
financed projects in Indonesia as a result of which implementation progress has been slow especially
where the Government has taken upon itself to organize farmer groups. NGOs can play a useful role

12
in organizing smallholder producers and have been especially important in organizing women’s
groups. It would be useful for national, provincial and district administrations to recognise this role
and define the best ways to collaborate with NGOs.

Implementation Support: There is a need to improve the implementation performance of on-going


projects. The orientation of the supervision process need to be supportive, participatory and one
which helps overcome difficulties encountered during project implementation, financial
management, procurement and Monitoring & Evaluation. This needs to be strengthened in the
future to ensure a higher level of efficiency, impact and sustainability.

Partnership Building: IFAD needs to be very careful in engaging in partnerships with other agencies
as some of its partnerships have come with high risks such as co-financing the PNPM project with
the World Bank, where it had limited influence on the project design, selection of project areas or
project supervision. The risks of co-financing have to be balanced against the leverage that
additional financing provides in terms of enhanced outreach, impact and sustainability.

Non-Lending Activities: The CPE of 2012 found that the relevance, effectiveness, and efficiency of the
combined efforts of IFAD and the Government to promote policy dialogue, knowledge management,
and partnership building were limited, including in terms of resources set aside for these activities.
With respect to policy dialogue, IFAD has mainly participated in ad hoc project level discussions, but
not leveraged implementation-generated knowledge for boarder policy dialogue. Project level
knowledge has not been well utilized due to weak Monitoring & Evaluation and dissemination of
lessons.

Participation of women: Self-Help Groups enhance the role of women and in this regard the
cooperation with NGOs is critical. However, there is a tendency to take a body count approach
relating to gender equality and participation of women at the project level rather than adequately
addressing women’s concerns.

IFAD’s Comparative Advantage. At the country level, IFAD has built specific experience of working
in eastern Indonesia directly with village communities. Its area of competence includes organizing
smallholder producers at the village level to enable them to enhance their productivity through
access to a range of skills, infrastructure, inputs and technologies. More recently IFAD has also tried
to assist in facilitating links with the private sector. IFAD’s comparative advantage is in continuing to
work in eastern Indonesia with the productive poor in the farming and fisheries sectors. The
Government has also indicated that it would like IFAD to focus on the smallholder agriculture
producers and coastal communities in eastern Indonesia. In keeping with its institutional mandate,
IFAD has an essential part to play in equipping the rural poor to interact more equitably with new
market forces and in making market relationships work for them. IFAD expects to put in place a
partnership strategy which takes cognisance of the rapidly growing private sector in Indonesia and
pursue a strategy in which smallholder’s capacity to engage with the private sector is enhanced for
more sustainable impact on the ground. IFAD’s comparative advantage in the country would be to
identify and implement successful strategies of partnership between the smallholder and the private
sector. IFAD also has an opportunity in Indonesia to test a new model of engagement with a country
which is likely to rely less on IFAD’s loan financing and values it more for its knowledge management
and advisory services. This is a model which is likely to be pursued by other countries which have
attained a Middle Income Status and are on a high growth trajectory like Indonesia.

13
IV. Conclusion

Overall, the mission finds that strong progress and results have been achieved since the COSOP
formulation in 2007/2008. While there have been changes in the political situation of the country,
the most significant change is in the improved relationship between IFAD and the Government of
Indonesia and IFAD and development partners. This has positively impacted the portfolio
performance.

With the 2015-2019 National Medium-Term Development Plan prioritizing rural and agricultural
development, this raises important strategic opportunities for IFAD’s forthcoming engagement in
the country. The new COSOP will be closely aligned with this plan and contribute to national
development targets. Considering that the goal, strategic objectives and targets of the 2009-2013
COSOP remain their relevance, it is recommended to maintain this COSOP until the end of 2016. This
will cover the period during which the 2016-2020 COSOP will be finalised and approved by IFAD’s
Executive Board.

The mission team wishes to thank the Government of Indonesia and all involved stakeholders for the
collaboration and open conversations.

14
Annex I: Stakeholder Workshop

In addition to extensive one-on-one consultations, a stakeholder workshop was organized as part of


the mission.

The workshop was jointly organized with the Ministry for National Development Planning
(BAPPENAS) and aimed at identifying progress and lessons learned as well as agreeing on the
strategic direction going forward. This workshop built on the in-country CPMT meeting held in
February 2015. During the workshop, the participants discussed IFAD’s past performance in
Indonesia, current role and position as well as opportunities and priority areas for future
engagement. The meeting confirmed the findings of the mission.

Participants included representatives from

 Ministry for National Development Planning (BAPPENAS)


 Ministry of Fisheries
 Ministry of Agriculture
 Agency for Food Security
 Ministry of Finance/Directorate of Debt Management
 Ministry of Finance/External Funding
 Ministry of Cooperatives
 United Nations (WFP, FAO, UNDP/UNRC)
 Bilateral Partners (Netherlands)
 International Financial Institutions (World Bank, ADB, IFC)
 Farmer Organizations
 NGOs (idh, SNV, SwissContact)
 Private Sector (Bayer, Mars, PISAgro, Kadin)
 Central Bank of Indonesia

15
Annex II: COSOP Results Framework

APPENDIX III – COSOP RESULTS MANAGEMENT FRAMEWORK

Country Strategy Alignment Key Results for the COSOP2 Institutional/Policy Objectives

Long Term National Development Plan (2005- Strategic Objectives (SO) Outcomes which the COSOP Milestone Indicators Showing Policy Dialogue Agenda
2025) , Millennium development goals, seeks to influence Progress Towards SOs
National Medium Term Development Plan
(MTDP) 2004-2009 and Indonesian Agricultural
development Programme (2005-2009)

 Rural population living below the national SO1: To improve access to In sub-districts receiving IFAD  At least 3 900 self-help and  Collaboration with IFIs and UN
poverty line reduced from 14.3 % in 1990 productive assets, appropriate assistance: interest groups formed, by agencies ongoing.
to7.2 % in 2015. type of activity, with at least
technology and production
 Proportion of underweight  Country led strategies focus on
80% of them still functional
 Proportion of underweight children < 5 support services by smallholders, children is below 20% by inclusive growth and pro-poor
three years after formation.
years of age (weight for age) reduced from ethnic minorities and other 2013. resource allocation and policy
36% in 19923 to 18% in 2015. marginalized groups.  At least 432,000 persons processes,
 Enhanced Agricultural Production and
 40% of smallholders report at trained, by sub-sector and
least 25% increase in crop  Government supports: (i)
Productivity: Annual agricultural growth gender (with at least 50% of
and livestock production. community approaches to the
2004-2009, 3.52% p.a. (MTDP). women trainees).
management of natural
 Increasing access to information and  Improved performance  800 temporary change agents resources as well as livelihoods
markets (LTNDP). rating, with a target (m/f) trained and operating in diversification, enhanced
satisfaction rate of 70% for target villages. resilience to external shocks
 Population with access to improved water both men and women- for all linked to climate change and
source (from 38.2% in 1990 to 70% in 2015) service providers (private and  At least 10% increase in the
and access to appropriate sanitation global markets; (ii) provision
public). number of female extension
facilities (from 20% in 1990 to 65% in 2015). for risk mitigation ; (iii)
agents.
 At least 80% of the persons producers involvement in value
trained, including 30% chains development; (iv)
women, have adopted the improvements in the rural
recommended technologies. investment climate.
 10% of the target group
households assisted to obtain
long-term security to their
land.

2
Based on a country programme approach, the proposed targets and milestones reflect combined impact from ongoing and prospective new projects. Baselines will be refined following COSOP review and
during design of the new projects, as part of efforts to improve M&E systems. Targets and indicators will be refined when the pipeline projects are designed.
3
Data are for 1992 not 1990 due to data unavailability.

16
APPENDIX III – COSOP RESULTS MANAGEMENT FRAMEWORK

Country Strategy Alignment Key Results for the COSOP2 Institutional/Policy Objectives

Long Term National Development Plan (2005- Strategic Objectives (SO) Outcomes which the COSOP Milestone Indicators Showing Policy Dialogue Agenda
2025) , Millennium development goals, seeks to influence Progress Towards SOs
National Medium Term Development Plan
(MTDP) 2004-2009 and Indonesian Agricultural
development Programme (2005-2009)

SO2 To improve access to In sub-districts receiving IFAD  At least 500 small scale village  Partnerships to ensure access
infrastructure, inputs and assistance: level rural infrastructure to land and infrastructure
outputs markets and financial projects constructed and investments (e.g. irrigation and
 60% of the rural population functional, by type. roads) and forest-based
services by smallholders, ethnic with access to safe drinking livelihoods.
minorities and other water and 55% with access to  50% of the target population
marginalized groups. improved sanitation by 2013. having improved access roads  Engaging the rural poor and
to markets. their organisations in
 50% of the target population evidenced-based policy
having improved access to  At least 34,000 persons
processes: poverty
markets and marketing supported to develop off-
assessments and monitoring,
information systems. farm, non-farm and on-farm
priority setting for public
micro-enterprises.
 Post harvest losses reduced action, policy dialogue, and
by 25% for the target  At least 50% of the micro- tracking of results.
population. enterprises created being
profitable three years from
 At least 35% of the target establishment.
group households with
sustainable access to
microfinance services and the
formal banking sector.
 At least 70% of smallholders
report an increase in income
from agriculture produce
marketing.
 At least 70% of the target
group households reporting
increased assets.
 New jobs generated for at
least 20% of the target group
households.

17
APPENDIX III – COSOP RESULTS MANAGEMENT FRAMEWORK

Country Strategy Alignment Key Results for the COSOP2 Institutional/Policy Objectives

Long Term National Development Plan (2005- Strategic Objectives (SO) Outcomes which the COSOP Milestone Indicators Showing Policy Dialogue Agenda
2025) , Millennium development goals, seeks to influence Progress Towards SOs
National Medium Term Development Plan
(MTDP) 2004-2009 and Indonesian Agricultural
development Programme (2005-2009)

 Narrowing gaps in development SO3: To enhance the capacity of  Implementation of policies  75% of the target villages  Channel for policy dialogue
achievements between men and women as rural poor, especially ethnic that support pro-poor growth preparing Investment Plans in open between the
measured by the GDI and GEM indicators minorities and marginalized in the rural economy and a participatory manner. government and
(MTDP). target resources to the poor, development agencies.
groups, to engage in local pro-  Gender training, analysis and
including women and ethnic
 Promote equitable regional development poor, gender-sensitive policy and impact monitoring in all  Improved service delivery
minority groups.
and rural economic growth that is pro- programming processes. project activities. systems to support pro-
poor, socially inclusive and gender sensitive  100% of the targeted villages  Policy mapping for baseline growth in the rural economy
(LTNDP/MTDP). with improved service and initial scoping of required based on experience and
delivery. further analysis.
 Decreased violence against women and policy adjustments.
children (MTDP).  100% of the targeted women  Strengthening capacity of
groups with improved well central and local government
 Mainstream gender in all activities. being and reduced workload for evidenced-based policy
 At least 15% of groups with making in favour of rural
women leaders. poor.
 Gap between HDI and GDI
reduced by 30%.

18
Annex III: Results Framework with Progress (as of July 2015)

Strategic Objective Progress with regard to targets Risks and Mitigation Strategy
SO1: To improve access to Outcome Level Risk :
productive assets,  Smallholders and their organisations, the service
 36 percent or children remain underweight
appropriate technology and providers (public and private sector and NGOs) and
(which exceeds the 20 percent target in the
production support services government institutions managing and coordinating
current COSOP)
by smallholders, ethnic project activities lack sufficient implementation capacity
minorities and other  The READ Project has demonstrated that that and are not sustainable at the end of projects.
marginalized groups. with project support food insecurity has fallen Mitigation Strategy:
to below 10%, while without project is above  Establish and strengthen links to private sector –
35% of hhs. building on example such as with MARS in READ and
 51,695 farmers reported increase in PNPM
production/ increase in yields 24,478  Strengthen training and technical assistance to build the
incremental hectares have been grown institutional capacity.
 7,107 farmers have adopted recommended
technology in agriculture of which 2,208 were
women (55 per cent).
 5,270 fishers have adopted recommended
technologies in fisheries technology of which
1,164 were women (22 per cent).
 14,891 hectare of land brought under
improved management practices under the
programme.
Milestone
 10,061 savings and credit groups formed and
strengthened; and 2695 groups operational
and functional with 41507 active borrowers.
 434666 persons have joined Self-help groups
(SHGs) promoted by IFAD projects out of
which 49.76 per cent are women.

19
 46,295 persons have been trained of which
20002 are women (43.2 per cent).
 606 Groups managing productive
infrastructure formed and/or strengthened
 46,295 persons were trained in crop
production and technology and of which
20,002 were women (43.2 per cent).
 9,854 people trained in livestock production
practices and technologies of which 3,150 are
women.
SO2: To improve access to Outcome Level
infrastructure, inputs and
 28 percent of households have access to safe
outputs markets and
drinking water (which is under the 60 percent
financial services by
target in the current COSOP)
smallholders, ethnic
minorities and other  80 percent of households have access to safe
marginalized groups. sanitation (134 percent of the current COSOP
target)
 78,477 hh with access to safe drinking water
 12,207 famers have secure access to water
 87,941 households are served by other
infrastructure
 12,023 of the target population have
improved access to markets and marketing
information
 106,214 households have road access to
markets
 63 percent of smallholders have reported an
increase in income from agriculture produce
making (90 percent of the current COSOP
target)

20
 43 enterprises remain operating after three
years
 12,313 of the target population have
improved access to markets and marketing
information.
 28,495 jobs generated by small and medium
enterprises.
 89 percent of the target group households
have reported increased assets (128 percent
of the current COSOP target)
Milestone Level
 1,616 drinking water systems
constructed/rehabilitated.
 14,891.34 land under irrigation schemes
constructed or rehabilitated.
 2,787 proposals for infrastructure investment
developed.
 822 villages receiving block grants for
infrastructure.
 53,415 km of village roads have been
constructed /rehabilitated.
 91 market facilities have been constructed or
rehabilitated
 1,712 market groups have been formed or
strengthened
 2,115 rural roads have been constructed or
rehabilitated
 1,979 proposals for infrastructure investment
have been developed and presented to

21
communities
 220 villages have received block grants for
infrastructure
 320 groups are managing productive
infrastructure with women in leadership
positions
 32,622 individuals are active borrowers
 2,020 individuals have been trained in income
generating activities
 6,389 individuals (of which 3,683 are women)
have received vocation training
 2,380 individuals have been provided with
business development services
 818 marketing groups formed and/or
strengthened with 52 women in leadership
positions in these groups.
 761 women trained in business and
entrepreneurship out of a total of 2,159
people trained.
 8,219 people trained in post-production,
processing and marketing of which 2463 were
women
SO3: To enhance the capacity Outcome Level Risk :
of rural poor, especially  Failure to implement the poverty reduction strategy and
 818 village or community plans have been
ethnic minorities and the agricultural sector policy.
formulated
marginalized groups, to Mitigation Strategy:
engage in local pro-poor,  255 policy studies have been conducted  Close monitoring of the implementation of the Results
gender-sensitive policy and Milestone Level Management Framework policy dialogue agenda.
programming processes.  70 pro-poor legislations and regulations have  Engage proactively in follow up consultations with the
been enforced at the local or central level government and other development agencies.

22
 170 village administrations have improved
capacity for social and economic development
 170 village pro-poor development plans have
been developed

23

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