Brazil International Fund for Agricultural Development ......Although Brazil is still placed in a...

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Planting climate resilience in rural communities of the Northeast Brazil | International Fund for Agricultural Development (IFAD) 21 December 2017

Transcript of Brazil International Fund for Agricultural Development ......Although Brazil is still placed in a...

Page 1: Brazil International Fund for Agricultural Development ......Although Brazil is still placed in a high human development category (0.754 in 2016), more than half (59.1%) of Brazilians

Planting climate resilience in rural communities of the Northeast

Brazil | International Fund for Agricultural Development (IFAD)

21 December 2017

Page 2: Brazil International Fund for Agricultural Development ......Although Brazil is still placed in a high human development category (0.754 in 2016), more than half (59.1%) of Brazilians

Project/Programme Title: Planting climate resilience in rural communities of the Northeast

Country(ies): Brazil

National Designated Authority(ies) (NDA):

Ministry of Finance

Accredited Entity(ies) (AE): International Fund for Agricultural Development (IFAD)

Date of first submission/ version number:

[2017-12-21] [V.0]

Date of current submission/ version number

[2018-07-31] [V.0]

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PROJECT / PROGRAMME CONCEPT NOTE Template V.2.0 GREEN CLIMATE FUND | PAGE 2 OF 14

A. Project / Programme Information (max. 1 page)

A.1. Project or programme ☒ Project

☐ Programme

A.2. Public or private sector

☒ Public sector

☐ Private sector

A.3. Is the CN submitted in response to an RFP?

Yes ☐ No ☒

If yes, specify the RFP: ______________

A.4. Confidentiality1 ☒ Confidential

☐ Not confidential

A.5. Indicate the result areas for the project/programme

Mitigation: Reduced emissions from:

☐ Energy access and power generation

☐ Low emission transport

☐ Buildings, cities and industries and appliances

☒ Forestry and land use

Adaptation: Increased resilience of:

☒ Most vulnerable people and communities

☒ Health and well-being, and food and water security

☐ Infrastructure and built environment

☒ Ecosystem and ecosystem services

A.6. Estimated mitigation impact (tCO2eq over lifespan)

10,000,000 tCO2eq

A.7. Estimated adaptation impact (number of direct beneficiaries and % of population)

600,000 directly, 6.67% of rural population of Northeast region

A.8. Indicative total project cost (GCF + co-finance)

Amount: USD 202,500,000

A.9. Indicative GCF funding requested

Amount: USD 102,500,000

A.10. Mark the type of financial instrument requested for the GCF funding

☒ Grant ☐ Reimbursable grant ☐ Guarantees ☐ Equity

☐ Subordinated loan ☒ Senior Loan ☐ Other: specify___________________

A.11. Estimated duration of project/ programme:

Start: Jul 2019

End: Jun 2027

A.12. Estimated project/ Programme lifespan

20 years’ project lifespan

A.13. Is funding from the Project Preparation Facility requested?2

Yes ☐ No ☒

Other support received ☐ If so, by

who:

A.14. ESS category3

☐ A or I-1

☒ B or I-2

☐ C or I-3

A.15. Is the CN aligned with your accreditation standard?

Yes ☒ No ☐ A.16. Has the CN been shared with the NDA?

Yes ☒ No ☐

A.17. AMA signed (if submitted by AE)

Yes ☐ No ☒

If no, specify the status of AMA negotiations and expected date of signing: 09/2018

A.18. Is the CN included in the Entity Work Programme?

Yes ☒ No ☐

A.19. Project/Programme rationale, objectives and approach of programme/project (max 100 words)

Higher climatic variability and drought sensitivity will affect vulnerable rural communities in the semiarid region of Northeast Brazil. The project aims to reduce the impacts of climate change and increase the resilience of the 600,000 people, smallholder farmers and their families, through transitioning to resilient production systems. The project aims to use IFAD, GCF and counterpart funding and will be implemented by a Federal Public Development Bank (FPDB)4 with the cooperation of the Ministry of Social Development (MDS) and the Ministry of the Environment (MMA) 5.

1 Concept notes (or sections of) not marked as confidential may be published in accordance with the Information Disclosure Policy (Decision B.12/35) and the Review of the Initial Proposal Approval Process (Decision B.17/18). 2 See here for access to project preparation support request template and guidelines 3 Refer to the Fund’s environmental and social safeguards (Decision B.07/02) 4 IFAD is negotiating with the Bank of Northeast Brazil (BNB) and National Bank for Economic and Social Development (BNDES) to determine which one will be selected as the executing agency for the project. This will be determined for the Funding Proposal. 5 Other Ministries or partners could be included during the design phase.

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B. Project / Programme details (max. 8 pages)

B.1. Context and Baseline (max. 2 pages) The Brazilian semiarid is located mostly in the Northeast region, occupying approximately 12% of the Brazilian territory and hosting 12% of the population. 6 In the Northeast region, the semiarid is populated by 11 million urban dwellers and 9 million people in the rural area.7 Historically, the region has been the single largest pocket of rural poverty in the Latin American region; and, in spite of substantial improvements over the past 20 - 25 years, it still is Brazil’s most impoverished region, hosting 3 million of those living in extreme poverty, of which 46% belong to households in rural areas. The Northeast, which is made up of nine states, experiences secular chronic problems related to water scarcity, with periodic, long and severe droughts, which create a number of economic, environmental and social problems and hamper its development. Over 2 million family farms employing over 6.5 million people are located in the Northeast, covering a total of 28.33 million ha.8 The region has been increasingly affected by climate change, including the intensification and higher frequency of droughts and floods, as well as an increase in areas under risk of desertification. Current socioeconomic scenario Although Brazil is still placed in a high human development category (0.754 in 2016), more than half (59.1%) of Brazilians living in extreme poverty are in the Northeast region. The municipal human development index (m-HDI) of the semi-arid rural municipalities ranges from 0.443 to 0.710, with an average of 0.587 (Atlas Brasil, 2010). Although the indexes have improved considerably over the past 20 years, northeastern states are still plagued by a number of social malaises, especially in rural areas where the percentage of the population living in poverty still hovers around 50% in the nine states, worst yet, in Maranhão and Piauí extreme poverty rates are around 40%. Family farmers face very harsh and difficult conditions for developing productive and sustainable livelihoods. The rain variability, which is concentrated in a couple of months within a year’s duration, makes agricultural production risky, and subsistence of the farmers’ family is constantly in jeopardy. Furthermore, the majority of wells in the region present naturally brackish or salty water. All these conditions place this population in a high vulnerability situation towards

climate change, according to a study by the Ministry of Environment (MMA) and WWF9, as shown in the map below. Moreover, deforestation, mainly due to unsustainable extraction of firewood and charcoal, aggravates the desertification of the region and reduces the biodiversity of the semi-arid biome (Caatinga). Rearing small ruminants, which is important for the survival of family farmers in the area, is also a challenge as it prevents the accumulation of biomass through overgrazing in the Caatinga and predatory extraction practices, which are gradually depleting the productive potential of the region and rendering family undertakings technically and economically unviable. Climate change scenarios The Brazilian National Institute for Space Research (INPE) has been providing the government with regional climate scenarios by downscaling global climate models. Four sets of downscaling simulations based on the Eta Regional Climate Model forced by two global climate models, the HadGEM2-ES and the MIROC5, and two RCP scenarios—8.5 and 4.5, have been carried out.10

Warming is projected in the entire continent; for the Northeast region, accordingly, the simulations predicted a temperature increase from 0.5 – 2.0oC in the period 2011- 2040 comparing to a baseline period of 1961-1990. Despite the increase of precipitation in the summer, the projected annual cycle shows a dominating reduction of precipitation

6 Ministry of Integration webpage, available at: http://www.integracao.gov.br/semiarido-brasileiro 7 BNB. Novo Perfil do Nordeste Brasileiro. Censo Demográfico 2010. 8 IBGE. Censo Agropecuario 2006 Brasil, Grandes Regioes e Unidades da Federacao, 2007. 9 Available at: https://www.wwf.org.br/natureza_brasileira/reducao_de_impactos2/clima/copy_of_mudancas_climaticas2_20062017_1938/ 10 Chou, SC; et.al. Assessment of Climate Change over South America under RCP 4.5 and 8.5 Downscaling Scenarios. American Journal of Climate Change, v. 03, p. 512-527, 2014.

Figure 1. Sensibility to Drought Natural Disasters. (From top to bottom) Extremely High; Very High: High: Medium; Low; Very Low; Extremely Low (Source: MMA & WW, 2017)

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in the region for all months. Furthermore, an increase in the length of consecutive dry days and wide climate variability are common features in these and other simulations for the Northeast of Brazil.11

A more specific study in the Northeast confirmed the findings of the South American downscaling scenarios discussed above. Both station data analysis and numerical simulations (for the periods of 1960-2000 and 2010-2050) revealed trends of increasing maximum temperature and diminishing precipitation. The water-balance calculations showed reduced soil moisture availability and total rainfall. The atmospheric model simulations were consistent with the station data regarding the present warming; the climate change scenarios for 2010-2050 indicated a faster increase of daily maximum temperature over the Northeast compared to that simulated for the recent past. An analysis of drought events that occurred in the Semiarid region of Northeast Brazil from 1981 to 201612 reveals that drought intensity for the last 36 years has been increasing, and that recent droughts were more frequent, more severe and affected a larger area with significant impacts for population, as well as economical activities. Drought intensity was measured by three indicators: drought duration, which equals the number of months of event; drought frequency, the number of events per time period; and drought severity which measures the absolute negative value of the hydro-meteorological and agricultural indexes used. Please see figures of this study in Annex 02. When modeling surface and groundwater supplies per water basin, the results for the Northeast region are alarming, estimating a sudden reduction in flows by 2100 in the river basins that supply the region: São Francisco, Atlântico Norte e Nordeste and Atlântico Leste. This is of particular concern, given that the Northeast’s interior is already becoming drier and has been experiencing a continuous cycle of long severe droughts since 2011.13 It is also the area where family farming is concentrated and currently faces the country’s most important challenge regarding poverty eradication.14 Some 95% of all losses in Brazilian agriculture are due to either floods or droughts15. Such events are projected to become more frequent in the future, since expected consequences of this new climatic pattern are longer lasting droughts as well as intensification of rainfall, and increase in local temperature anomalies, which can result in more extreme heat waves. Family farmers in the Northeast are more vulnerable and will need support to adapt. In 2006, according to the Agricultural Census, the region had 2,454,006 production units, 2,187,295 of which were family farms which worked 37% of the land. Although family farms generate nationally 38% of agricultural revenues, they employ 75% of the sector's labour force.16 At the same time, the family farming segment is diverse and made of different strata, including poor and extremely poor households. While Brazil is a country with high land concentration, family farming is responsible for producing a significant portion of the food consumed nationally17. For this reason, any losses in family farming production would not only affect the food security of these farmers but would also have serious consequences on the entire Brazilian population, whose food security depends on them to a great extent. It is estimated that due to climate change, subsistence foods, such as manioc, beans and corn, can suffer productivity losses up to 5% by 2030 in the Northeast, and some scenarios project that manioc can even disappear from the region18. This is particularly relevant considering that the current productivity in the semiarid is already low, hence any further losses would threaten food security in the region, with consequent repercussions on both local and national food security. In addition, the expected climate changes may exacerbate other environmental problems that already affect family farming in the semiarid: animal breeding, wild plant gathering, soil degradation, pests, dissemination of diseases and weeds and desertification. The current climate models predict the region will experience the highest amount of variability in precipitation in the country. The variability combined with high drought sensitivity and a low adaptive capacity can cause further detriment to the local population.

11 Lacerda, FF; et.al. Long-term Temperature and Rainfall Trends over Northeast Brazil and Cape Verde. Journal of Earth Science & Climatic Change, v. 06, p. 296, 2015. 12 Brito, SSB; et.al. Frequency, duration and severity of drought in the Semiarid Northeast Brazil region, International Journal of Climatology, 2017. 13 Ribeiro Neto, A; Rolim da Paz, A; Raimundo da Silva, E. Impactos e vulnerabilidade do setor de recursos hidricos no Brasil as mudancas climaticas. MCTI, 2016. 14 International Policy Centre for Inclusive Growth (IPC-IG/UNDP). Climate change and impacts on family farming in the North and Northeast of Brazil, Working Paper No.141. 15 International Policy Centre for Inclusive Growth (IPC-IG). Climate change and impacts on family farming in the North and Northeast of Brazil, Working Paper No.141 16 IBGE. Censo Agropecuario 2006 Brasil, Grandes Regioes e Unidades da Federacao, 2007. 17 MDS. Plano Nacional de Segurança Alimentar e Nutricional, 2011. 18 International Policy Centre for Inclusive Growth (IPC-IG). Climate change and impacts on family farming in the North and Northeast of Brazil, Working Paper No.141

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Existing Government Programs

There are three main Federal programs to increase water security of the rural Northeastern population: (i) The transposition of the São Francisco River, which started in 2007 and was inaugurated partly in 2017 to be concluded by the end of 2018, will divert water from the San Francisco river to benefit 12 million people in four northeastern states; (ii) The Water for All program, coordinated by MDS, which installed 750,000 individual cisterns and 6,000 collective use cisterns and built 3,000 small-scale dams in the semiarid region; and (iii) MMA’s Fresh Water Program, whose goal is to install 1,200 desalinization systems benefitting 500,000 people, also by the end of 2020. In addition, there are several State and Municipal programs that also seek to increase water security in the region. The Family Agriculture Harvest Program is composed by a set of actions to strengthen family agriculture, such as credit lines, purchasing programs, land titling, insurance and technical assistance19. There is a specific strategic axis for actions to support farmers in the Semiarid, which consists of IFAD’s Dom Helder Camera project (PDHC), in its second phase, and other IFAD-financed state-based projects, working with local governments, farmers' organizations, civil society, farmers associations and state agencies to improve poor people's living conditions bringing safe water to communities, opening new markets for their farm products, training young people and adults, and helping women obtain identity documents. States and Municipalities, as well as NGOs, also have innumerous programs to strengthen family agriculture, many are in partnerships with international organizations.

B.2. Project / Programme description (max. 3 pages)

Objectives and Components

The main objective of the project is to reduce the impact of climate change and increase the resilience of the affected population in the semiarid region in Northeast Brazil. The project is based on the integrated management of water, food and related ecosystem processes that are essential to adapt to and mitigate climate change impacts at the regional level. It consists of three components: 1. Access to safe water resources, to reduce the impact of climate change on the local population and to support a transition to climate resilient production systems. 2. Transition to climate resilient production, with investment, capacity building and technical assistance for reforestation through agroforestry systems. 3. Management, knowledge sharing and monitoring. Project activities will be highly complementary. To implement reforestation through agroforestry systems (Component 2), increased water availability in the short term is required, which will be provided to communities via Component 1. Not only will the population have their basic water needs met, but also excess water needs to be available to irrigate the agroforestry system in the initial years. Once the systems are in place, the reforestation will improve the water balance in the region, reducing the demand for investment in more water sources. In order to bring to bear this complementarity, the participating states will need to agree to implement both investment components in a balanced fashion. Component 1 will support the State investments in solar-operated desalinization facilities for existing groundwater wells, underground storage reservoirs operated by wind and solar pumps, and cisterns for rainwater storage, to provide safe drinking water to approximately 80,000 families and 2,800 schools. In addition, effluents from the desalinization facilities as well as other low-quality water (inappropriate for drinking) will be available for productive activities in Component 2. This component will be financed by the GCF loan and matching counterpart funds from selected States and IFAD loans. The technologies proposed have a proven track record in the region and fairly short investment cycles. The component will build the communities’ capacities to operate the water supply systems. Component 2 will support the introduction of agroforestry practices on smallholder land and on demonstration plots operated by schools to change the current productive approach to a sustainable and climate resilient agricultural productive systems. It comprises combination of loan/grant-financed startup activities, including technical studies, training of management teams and local organizations, government capacity building, technical assistance to community organizations and monitoring. In addition, there will be community investments in greenhouses for the production of native fruit and other tree species adapted to the region, development of local creole seed banks, small solar and wind-powered irrigation to support the initial stages of the agroforestry; breeding of genetic diversity and drought-resilient and salt-resistant varieties, and compost installations. Family farmers will be trained in the management, operation and maintenance techniques of equipment and civil works, in addition to being involved in disseminating innovations related to animal grazing and crop production activities. Agroecological practices that complement agroforestry will also be promoted as a complementary measure. Schoolteachers and students located in the same region as the productive activities will also be involved in creating an agroforestry culture by developing

19 Available at: http://www.mda.gov.br/sitemda/sites/sitemda/files/user_img_1684/3Baixa_Cartilha_Plano_Safra_2017.pdf

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awareness, capacity building and field experiences. Some 80,000 ha would be reforested by adopting agroforestry.

In line with IFAD policies, Component 2 will also: (a) assist family farmers in obtaining rural credit, in particular PRONAF20, and accessing food procurement programs such as PAA21 and PNAE22; (b) target the poorest regions, municipalities and communities based on established criteria, and prioritize women, youth and traditional communities; and (c) engage with the private sector, by means of investments to establish innovative productive systems that pay special attention to the development of new markets and public–private partnerships, whenever possible. Component 3 consists of project management and monitoring, which will be mainly carried out at state level. The role of overall project coordination and knowledge exchange will be carried out by a small central coordination unit with guidance from the Steering Committee. This project offers an unprecedented opportunity, as it promotes agroforestry as a government policy for reforestation and for increasing drought resilience. Through implementation by State governments there is also potential for the approach to be up-scaled and serve as reference model. Another important innovation embedded in the project is breaking the cycle of short-sighted responses to drought management in the region and proposing a long term and integral solution for family farmers’ climate resilience. Introducing and disseminating production models that disrupt the negative water-food nexus, by promoting healthier, safer and environmentally-friendly to securing water resources and food security. The agro-ecological production practices will promote water retention and reduce evapotranspiration, causing an overall improvement in the microclimate as well as recuperate soil quality and sequester carbon. The introduction of climate resilient agricultural practices including reforestation through agroforestry systems will allow families to increase income, stabilize food supply and enhance nutrition and food security, given the adverse climate change conditions the models are predicting for the region. The project is embedded in the National Strategy for the Green Climate Fund23, which includes water safety as a key priority. It will strongly contribute to the national climate strategies and objectives, in terms of adaptation and mitigation, as described below:

• It will take place in the semi-arid region of the Northeast, a region identified as extremely vulnerable in MMA’s study to map Brazil's vulnerability to droughts24;

• The main objective of the NAP is mirrored in the project, which is to “protect vulnerable populations from the negative effects of climate change and enhance resilience”;

• Agroforestry and other eco-efficient agricultural practices proposed by the project are in accordance with the Low Carbon Emission Agriculture Program (ABC);

• Provision of safe water and combined management of water resources will both contribute to the specific NAPs of Vulnerable peoples and communities and Water resources;

• Use of modern irrigation techniques and corresponding advisory services, which will be provided to the project’s beneficiaries, will help them use water more effectively, as targeted in the National Water Security Plan and the specific NAP for Agriculture;

• Agroforestry plantation in semiarid contributes to the NDC, by restoring 80,000 ha improving soil structure and composition, water retention capacities and carbon stock. Brazil's intention is to restore 15 million ha of degraded pasturelands, enhance 5 million ha of integrated cropland-livestock-forestry systems and restore and reforest 12 million ha of forests by 2030.

Project Area

The project will be implemented in the most drought affected semi-arid areas of up to four states of the Northeast Region of Brazil, as pointed by detailed data recently generated by the Ministry of the Environment (MMA) and WWF 25 crossing with the potential for agroforestry analysis. The participation of the states will be determined by the borrowing capacity, expression of interest, capacity to meet the project’s goal and capacity to implement the project in a timely manner. So far, IFAD has received expressions of interest from six states.

Implementation arrangements

This project proposal has been developed in consultation with federal and state-level stakeholders, as well as financial partners, and civil society groups, that will be involved in its implementation. At the national level, the project will be led

20 National Program to Strengthen Family Agriculture 21 Acronym in Portuguese for: Government food acquisition program. 22 Acronym in Portuguese for: School lunch acquisition program. 23 Available at: http://fazenda.gov.br/noticias/2018/marco/secretaria-de-assuntos-internacionais-lanca-programa-pais-do-brasil-para-o-fundo-verde-do-clima/ProgramaPasdoBrasilparaoGCF_versofinal.pdf 24 Available at: http://www.mma.gov.br/images/arquivo/80182/Publicacao_Estudo_Secas_completo.pdf 25 Available at: https://www.wwf.org.br/natureza_brasileira/reducao_de_impactos2/clima/copy_of_mudancas_climaticas2_20062017_1938/

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by the Ministry of Social Development (MDS), the Ministry of the Environment (MMA), and a Federal Public Development Bank (FPDB)26; the latter acting as the executing agency (EA). The EA will enter into a financing agreement with IFAD to receive the loan and grant; it will then contract a small Central Project Management Unit (CPMU) and channel the financial resources to States of Northeast, based on demand and on well-established screening criteria. To this effect, the EA will enter into financing agreements with States through subprojects to be implemented based on an Annual Work Plan and Budget (AWPB). A National Steering Committee (SC) will be established, including representatives of both federal ministries, the EA and other relevant governmental bodies, as well as representatives of civil society entities. Annex 03 presents a figure of the institutional arrangement and Annex 04 the Flow of Funds.

The project cost of USD 202.5 million will be financed as follows: (i) Component 1 will be financed by a Green Climate Fund (GCF) loan of USD 50 million, USD 15 million co-financing loan by IFAD, and USD 26 million co-financing combined from states and the FPDB27; (ii) Component 2 will be financed by a USD 40 million GCF grant, USD 10 million GCF loan, USD 15 million co-financing IFAD loan, and USD 26 million co-financing combined from states and the FPDB28; (iii) Management and M&A activities will be financed by a GCF grant of USD 2.5 million and USD 18 million co-financing by the states and EA. State governments’ counterpart contribution combined with cofinancing from the FPDB will be USD 70 million, 35% of project costs, co-financing both project components, included taxes and rates. IFAD will contribute with USD 30 million as loan. Total GCF financing will be USD 102.5 million, of which USD 60 million as loan and USD 42.5 million as grant.

The States will apply for funding by submitting a proposal to the SC. Once approved, the operation will be monitored by the CPMU, and each state shall also have its local PMU. The state level PMUs will be responsible for the management and delivery of technical, physical and financial information, resource management and reporting to the CPMU, which will report to IFAD for monitoring and reporting to GCF. Please see Annex 03 and 04 for the organizational chart of the proposed project and flow of funds, respectively. Technical support could be provided in by specialized government agencies (such as Emater and Embrapa), MMA's Freshwater Programme, MDS' Water Tank Programme as well as civil society and universities.

A coordination framework, such as a Technical Cooperation Agreement (TCA), will be established between MDS, MMA and the EA for the implementation of the actions defined in the Project and validated by the Steering Committee (SC). The GCF resources will be under IFAD's fiduciary responsibility and will follow the standard technical and financial management and monitoring models established for grant agreements. The attributions and managerial arrangements between the SC and the EA will be established in Agreements signed with each of the parties. Such instruments shall define the technical, safeguard and fiduciary conditions, including rules and regulations for financial flows and procurement processes.

IFAD projects have an extensive field presence in the entire Northeast Brazil through project management field units (currently more than 20 such units are operational), in addition to project management units in almost all state capitals of the Northeast, within specific technical Secretariats. In addition, IFAD's Office in Salvador, State of Bahia, will also provide key implementation support due to its strategic location in the region, especially through its supervision and implementation support mechanisms and close dialogue with regional partners; while IFAD's Country office and South-South Triangular Cooperation and Knowledge Centre, established in July 2018 in Brasilia, will have a key role in maintaining close dialogue with federal partners. Other resources, such as IFAD country program's M&E system, will also support the project in measuring its progress, results and impact, and IFAD's grant-financed knowledge management programme (Semear International) and Adapting Knowledge for Sustainable Agriculture and Access to Markets Programme (AKSAAM) with Embrapa will be key in exchange experiences, good practices, relevant knowledge, as well as South-South Cooperation.

Accredited Entity

The International Fund for Agricultural Development (IFAD), a specialized agency of the United Nations (UN) focused on rural development and poverty eradication, supports and promotes the growth of production and income of family farming and vulnerable groups, by facilitating access to basic services, connecting them to markets and strengthening their organizations.

Brazil has the largest portfolio of IFAD-supported operations in the Latin America and Caribbean region corresponding to about 40% of the total regional programme. Since the first loan was approved in the 1980s, IFAD has financed 14 loans for a total of USD 259 million mainly through the states. Currently, IFAD operations in Brazil include six on-going loan projects, with a total value of USD 452.9 million, of which USD 164.2 million are loans, USD 212.4 million are

26 Other Ministries or actor may be included during the design phase. The project is currently in advanced talks with BNB and BNDES and a decision will be made depending on factors such as demonstrated interest, technical knowledge or experience on the project proposal, conditions for the operation, capacity to operate with states.. 27 The financing terms (loan, grant or blend) and proportion from state and FPDB will be determined in the Funding Proposal. 28 The financing terms (loan, grant or blend) and proportion from states and FPDB will be determined in the Funding Proposal.

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government counterpart funds and USD 76.3 million correspond to beneficiary contributions. In the on-going portfolio, five of the projects are implemented directly by State governments in their capacity as borrowers, while one is implemented by the federal government through the Special Secretariat for Family Farming and Agrarian Development (SEAD), Ministry of Government Affairs, linked to the President's Office. All the IFAD-funded projects currently implemented in the country are in the Northeast semiarid region, comprising all nine States in the area (except Minas Gerais) and directly benefiting more than 350,000 families, hence IFAD has accumulated considerable knowledge and expertise in the region. Two further new projects and two additional top-up financing operations were designed between 2016 and 2018 and are due to start implementation: in the states of Maranhão and Pernambuco (new projects) and Piauí and Ceará (additional financing to existing projects), for a total value of about USD 170 million of additional investments, bringing the overall portfolio to over USD 622 million by May 2019, and project beneficiaries to around 450,000 families, or 1.6 to 2 million people. This means IFAD has state-based on-going projects operations in Bahia, Ceará, Maranhão, Paraíba, Pernambuco, Piauí, and Sergipe. Furthermore, IFAD has approved 24 grants benefitting Brazil over the past 10 years, while two country-specific grants are under implementation, supporting its field operations, knowledge exchanges and management, South-South and Triangular Co-operation (SSTC), monitoring and evaluation (M&E) and policy dialogue.

IFAD will supervise the project directly, just as it supervises directly the projects it currently co-finances in partnership with the federal, state and local governments, civil society, private enterprises and farmers' organizations, focusing resources on the low-income rural population, which are the most vulnerable population to the changing climate, benefitting between 1.6 to 2.0 million people in north-eastern states.

Financial and operational risks

The project activities will be executed following IFAD’s well-tested approach to project design and based upon the long-standing working arrangements between IFAD, the Brazilian government (federal and state), civil society, farmer’s organizations and associations, the private sector and other international and local organizations. Financial and fiduciary risk assessments have been carried out for IFAD’s portfolio and risk mitigation strategies are in place, but most fiduciary and financial risks are not applicable to this phase of project preparation, when no significant procurement activity or flow of funds is taking place.

Although the project will aim for an increase in resilience in agricultural production in the face of known and emerging threats from climate change, the arid and semiarid region is in ever-present danger from droughts and floods. Currently, the region is experiencing its worst drought in the past hundred years, with the seventh consecutive year where the rains are below historic levels. The large reservoirs in the region, which have a total storage capacity of 10 billion litres, are operating with15% average capacity, and 142 of the 533 reservoirs are already dry. The project will work to address events within a wide range of extremes. While the climate models for the region show a broad variability and uncertainty, on-going prolonged extreme events negatively impact the rural communities.

There is a risk that insufficient maintenance of the infrastructure to be created by the project would result in weak sustainability and consequently have only limited impact. The mitigating action is that the project is built upon IFAD’s presence in the region, through several generations of projects over more than 30 years. These projects have been building capacity in state governments and in beneficiaries' organizations, ensuring a significant degree of ownership and, as a consequence, a considerable level of sustainability in project-promoted initiatives.

IFAD country presence in Brazil – in both the Northeast and the federal capital - is well positioned to assess such risks, monitor their evolution and support implementing partners in the identification and adoption of mitigation measures as well as allowing for up-scaling of activities and establishment of partnership.

B.3. Expected project results aligned with the GCF investment criteria (max. 3 pages)

Climate Impact The semiarid sub-region of Northeast Brazil is particularly vulnerable, due to frequent and severe droughts that are expected to aggravate over time due to climate change. Increasing water supply will improve the livelihoods of farmers; when coupled with support for technical assistance and rural extension activities, it constitutes a pre-requisite for the adoption of climate-friendly and resilient agricultural practices, a starting point of a virtuous cycle towards sustainable development and climate resilience.

It is estimated that the project will benefit 600,000 people directly, distributed as follows: 320,000 persons from 80,000 families with 1 ha each of agroforestry (4 people/family) and 280,000 persons from 2,800 participating rural schools, each school with an average of 100 students/teachers. The water access in Component 1 will mainly support the beneficiaries defined in component 2, although it is expected to have spill over effects throughout the community. The project beneficiaries will have:

• increased water security, through sustainable access to adequate quantities of acceptable quality water for sustaining livelihoods, and socio-economic development, avoiding water-borne diseases;

• increased food security, through resilient productive technology and practices;

• Increase in food quality, which will have a positive health and well being impact as well as improving the

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commercial prospects;

• recovered ecosystems services and functions, damaged by land degradation and consecutive droughts and conserved ecosystems services and functions; and

• improved health conditions, due to clean water use.

From the mitigation perspective, the 500,000 t CO2eq emission reduction per year, or 10,000,000 t CO2eq in the project lifetime, from the following sources:

1. Carbon sequestration due to reforestation, storing carbon in plant biomass and soils. 2. Reducing carbon emissions from loss of native forests by making available sustainable timber for household. 3. Reducing the use of diesel generators and other non-renewable sources for electricity consumption by

households and water digging. By providing PV and wind systems, those emissions can be mitigated; for being more cost-effective, they can also be used in irrigation.

4. Reducing the use of water trucks to supply households and for productive purposes. Trucks run on diesel, a fossil fuel, and water consumption from a local source reduces GHG emissions from road transportation.

Paradigm Shift Potential

The project is designed to reach family farmers in the impoverished semiarid rural regions of Brazil's Northeast region, where a large share of the population suffers from droughts and lacks adequate access to many resources, including water. In the past, projects have focused on single aspects of water access only, neglecting support to the communities in a vital transition towards increased resilience to extreme weather events. The project proposes a shift in the development cycle through a holistic approach to water management mixing short and long-term perspectives, breaking the cycle of emergency short-sighted responses to drought management in the region. Innovations will also be generated by the introduction and dissemination of production models that promote healthier, safer and environmentally friendly alternatives for water and food production. This is the first government program focused on reforestation through agroforestry, thus it will foster a paradigm shift in the way family farmers address the recurrent drought crises as well as an economically viable alternative to how reforestation can be implemented in all regions of the country. Agroforestry systems have only recently been developed for semiarid regions by a few NGOs and research institutions. This project will allow for the scaling up of these technologies throughout the entire region, thus small farmers or family farmers not directly targeted by project funding will be expected to benefit from learning about a new land use and natural resources management approach, through interaction and exchanges with project-funded neighbouring farmers. By operating directly through the states, it also means that ownership and local capacities will be enhanced and there will be greater potential for up-scaling.

Policies and regulatory frameworks already in place can be improved or enhanced by measuring the project's outcomes and impact, identifying their key factors and using these lessons for policy dialogue and orientation and also for South-South and Triangular Cooperation (SSTC). IFAD has an on-going grant-financed programme, Semear International focusing on policy dialogue, M&E and SSTC, which will serve as an import vehicle to disseminate GCF-supported project results in the country and in other regions of the world. With the support of Semear International, IFAD has set up an extensive country-based M&E Information system for its operations in Brazil, that will be leveraged to provide timely and accurate information on the project’s results and impact. Moreover, demonstration effects can be drawn from this project not only for its technical value-added, but also from a managerial point of view, by improving natural resources management by family farmers and their organizations, hence facilitating scaling-up to other farmers in project areas, as well as scaling-out to other vulnerable areas.

Sustainable Development Potential

The project will enable the transition of 600,000 people, smallholder farmers and their families, to increase their resilience in a climate extreme environment, through improved agroforestry practices, water access and better market conditions. It will also create employment opportunities, as local economies are fostered and stimulated by its investments, activities and small infrastructure, such as cisterns, desalinization and other small-decentralized infrastructure. There will be long-term macro-level indirect economic benefits derived from the project's contribution to food security and self-sufficiency. Reducing the vulnerability of farming households will also reduce the likelihood of such households needing relief assistance and/or safety net pay-outs.

Restoration through agroforestry offers compelling synergies between mitigation and adaptation to climate change, given that they improve the resilience of small-scale farmers through more efficient water use, soil conservation, improved microclimate, increased soil water content, control of pests and diseases, improved farm productivity, beekeeping, and provide greater thermal comfort for animals, while sequestering carbon at the same time. In addition, they help preserve the Caatinga ecosystem by increasing organic matter and thus decreasing demand for timber; improve pastoral management by adjusting stock rates; improve the management of native vegetation; and rationalize forest management, through selective logging, regrowth management and the redistribution of nutrients in the agro-ecosystem. It also diversifies production, increases land productivity and improves income and quality of life for farmers and their families. The system works for the protection of springs (riparian) and the reduction of water losses to provide sustained access to water.

The project will increase youth and women’s participation in community decision-making, as this modus operandi is

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central to IFAD's operations and support to policy dialogue worldwide. A detailed social and environmental risk assessment will be performed for the FP.

Needs of Recipient

The Northeast region presents the highest vulnerability as measured by the exposure, sensibility and adaptive capacity (MMA & WWF, 2017). A small increase in temperature in a semiarid region increases evapotranspiration and changes the water balance, exposing the population to tangible risks.

The sensitivity for the Northeast region is deemed extremely high, due to the land use and management practices that deteriorate vegetative covers and, consequently, generate yields and soil quality loss. Precarious technical assistance services, applying agricultural practices that have proven inadequate to the conditions of the Caatinga Biome, combined with a generally low adaptive capacity, increase the region's vulnerability. The semiarid has the highest illiteracy indices, worst municipal HDI and lowest Gini coefficient in the country, making their adaptive capacity low or extremely low. The 600,000 project beneficiaries will belong to a population suffering from the highest poverty rates.

Country Ownership

The proposed project is fully included in the National Strategy for the Green Climate Fund29, and it adheres to the two strategic axis and the following investment areas: Adaptation based on Ecosystems and Water Security; Resilience and Sustainability of Indigenous and Traditional Communities; Restoration, Conservation and Reforestation; Low Carbon Agriculture and Adaptation of the Productive Process. The strategy also includes water safety as a key priority.

Brazil has an overarching National Policy on Climate Change, which paves the way to the implementation of measures for adaptation and mitigation by the three federative government layers: federal, state and municipal. In the Nationally Determined Contribution (NDC), Brazil highlights that adaptation is considered a fundamental element to tackle climate change and its effects. The social dimension is at the core of Brazil's adaptation strategy, bearing in mind the need to protect vulnerable populations from the negative effects of climate change and enhance resilience.

In this context, the country developed a National Adaptation Plan (NAP), puts forward cross-sector adaptation strategies to address the wide range of risks that climate change is creating and is the means to implement the adaptation aspect of the NDC. The NAP has also establishes guidelines to implement adaptive measures aimed at increasing climate resilience in 11 sectors and themes.

The NDC presents the strengthening of the Low Carbon Emission Agriculture Program (ABC) as the main strategy for sustainable agriculture development and commits to restoring 15 million ha of degraded pasturelands, enhancing 5 million ha of integrated cropland-livestock-forestry systems and restoring and reforest 12 million ha of forests by 2030. The ABC Plan is one of the sectorial plans devised under the National Policy on Climate Change. Its overall objectives are: reducing greenhouse gas emissions in agriculture; improving the efficiency in the use of natural resources; increasing the resilience of production systems and rural communities; and promoting adaptation to climate change.

Efficiency and Effectiveness

A full economic and financial analysis will be developed for the funding proposal.

C. Indicative financing / Cost information (max. 3 pages)

C.1. Financing by components (max ½ page)

Please provide an estimate of the total cost per component and disaggregate by source of financing.

Component Indicative cost (USD)

GCF financing Co-financing

Amount (USD)

Financial Instrument

Amount (USD)

Financial Instrument

Name of Institutions

1. Access to safe water resources

91,000,000 50,000,000 Loan 15,000,000 26,000,000

Loan Counterpart*

IFAD States/ FPDB

2. Transition to climate resilient production

91,000,000 10,000,000 40,000,000

Loan Grant

15,0000,00 26,000,000

Loan Counterpart*

IFAD States/ FPDB

3. Management, knowledge & monitoring

20,500,000 2,500,000 Grant 18,000,000 Counterpart*

States/ FPDB

Indicative total cost (USD)

202,500,000 102,500,000 30,000,000 Loan IFAD 70,000,000 Counterpart* States/FPDB

* The counterpart financing terms (loan, grant or blend) and proportion from states and FPDB will be determined in the Funding Proposal.

C.2. Justification of GCF funding request (max 1 page)

29 Available at: http://fazenda.gov.br/noticias/2018/marco/secretaria-de-assuntos-internacionais-lanca-programa-pais-do-brasil-para-o-fundo-verde-do-clima/ProgramaPasdoBrasilparaoGCF_versofinal.pdf

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In spite of Brazil’s status as an upper middle-income country, and the undeniable progress made in reducing poverty over the past 20 years, there are still more than 18 million people living below the poverty line, and more than 8 million of them live in extreme poverty. The Northeast region concentrates 3 million of those living in extreme poverty, of whom 46 per cent belong to households in rural areas. According to the World Bank, Northeast Brazil is the largest poverty pocket in Latin America in absolute terms. The growing costs imposed by the impacts of climate change in an extremely vulnerable region is limiting the region's response to the increasing calamitous effects of climate change on the most vulnerable population. The GCF contribution is critical to co-finance the increasing costs of addressing climate change in the region, building upon IFAD's and the Government’s successful ongoing work in promoting inclusive and sustainable socio-economic development and market access for the most vulnerable people in the Northeast.

The financial modality selected for the GCF investment is a mix of loan and grant. There will be co-financing by the states and loan co-financing by IFAD. Activities in Component 1 will be loan financed as they support the provision of domestic water, as a public good. Cisterns, desalinization programs and underground dams are technologies that have a proven successful track record in the region, have been internationally recognized30, and have a short investment cycle. A change in the family farmer production system by introducing agroforestry in Component 2, on the other hand, is a long-term investment that merits grant financing. Agroforestry is a technology at nascent stage in the Caatinga, with only a few dispersed projects being run by NGOs. To scale agroforestry to cover 80,000 ha in the semiarid, a significant amount of capacity building for government agencies and technical assistance providers will be required, for them to be able, in turn, to assist the farmers who will implement the agroforestry in their land. Although agroforestry has been tested in some areas, to scale it up and bring it to other regions in the semiarid will require some experimentation and testing. To this end, the project will select up to 10 agroforestry models suitable for the region. Because of the long planning horizon of agroforestry practices, many of the costs occur at the initial stages and the full revenues can be realized after 10-15 years, when the timber value of trees are considered. Therefore, for Component 2 to be feasible for smallholder farmers it needs to be mainly grant-financed. Project management is mainly carried out at state level, and financed by the participating states. The role of overall project coordination and knowledge exchange, however, requires a small central unit, which will also be grant financed.

The targeted project areas and beneficiaries will be at the lowest poverty level, many of them living in extreme poverty. Climate change imposes significant additional costs to their livelihoods, and their adaptive capacity is the lowest in Brazil, equivalent to levels in low-income, least-developed and fragile countries. Likewise, the State Governments in which the project will work in have the lowest incomes in the country. Investing in long-term solutions to climate adaptation is extremely costly, and only a grant can make such project possible.

C.3. Sustainability and replicability of the project (exit strategy) (max. 1 page)

The GCF investment will address the climate change threats in Northeast Brazil, and specifically tackle increasingly serious and widespread drought-related issues. Increasing water supply constitutes a pre-requisite for the adoption of climate-friendly and resilient agricultural practices and, when associated with rural extension support, capacity building, productive investment and community mobilization, is a starting point of a virtuous cycle towards a sustainable development and climate-resilient pathway.

The system-wide approach to water management and resilient production is an innovative approach in addressing climate change in Brazil which links poverty alleviation, increased productivity, water and food security and resilience to climate change. It is expected to promote a shift in the way development assistance (both through the national safety net and international aid) is implemented in the region, as well as leading the way for sustainable livelihoods amongst project beneficiaries. It will also prepare the path for applying agroforestry techniques in reforestation of degraded areas in other biomes. The aim is to trigger positive change in the development pathway, linking resilience with socioeconomic development. The project is expected to invest the initial higher costs to enable this transition, generating a measurable improvement in resilience and income levels of beneficiaries. A successful project implementation shall trigger replication, as the demonstration of economically viable alternative livelihoods will encourage a similar approach in future development assistance in the region, as well as promote adoption of best practices by local stakeholders. An O&M plan will be developed during the FP highlighting the roles, responsibilities and funding post-implementation.

C.4 Engagement among the NDA, AE, and/or other relevant stakeholders in the country (max ½ page)

At the regional and local levels, the project stakeholder engagement mechanisms will build upon two extensive networks already established in the Northeast semiarid. One is the stakeholders' participation mechanisms in IFAD operations, which will ensure the engagement of beneficiary communities throughout the project development,

30 The MDS’s Cisterns Program won second place in the 2017 International Policy for the Future by the World Future Council and the United Nations Convention to Combat Desertification. The MMA’s Sweet Water program won an innovation prize from the International Desalinization Association in 2017.

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implementation and evaluation cycle, with a strong emphasis on women, youth and vulnerable groups' participation. This includes a vast network of civil society organizations providing services and technical assistance to IFAD projects in the region. The project will attend the special needs of Indigenous and Traditional Peoples and will apply IFAD's policies in this regard, including the implementation of a Free, Prior, and Informed Consent (FPIC) process.

At the state government level, participation is ensured through the governance mechanisms of IFAD investments that will be leveraged to ensure full articulation between IFAD co-financing and GCF funds. At the national level, the Steering Committee (SC) will be the main stakeholder engagement mechanism that will ensure full alignment of national policies with field investments. In addition, IFAD supports and participates in the Forum of Secretaries of Family Farming and Rural Development congregating all State Secretaries of the Northeast region and Minas Gerais on a regular basis, which entails a policy dialogue window with 10 states at the secretary/governor level on a regular and continuous basis.

D. Supporting documents submitted (OPTIONAL)

☒ Map indicating the location of the project/programme (Annex 01)

☒Diagram of the theory of change (Annex 05)

☐ Financial Model

☐ Pre-feasibility Study

☐ Evaluation Report of previous project

Self-awareness check boxes

Are you aware that the full Funding Proposal and Annexes will require these documents? Yes ☒ No ☐

• Feasibility Study

• Environmental and social impact assessment or environmental and social management framework

• Stakeholder consultations at national and project level implementation including with indigenous

people if relevant

• Gender assessment and action plan

• Operations and maintenance plan if relevant

• Loan or grant operation manual as appropriate

• Co-financing commitment letters

Are you aware that a funding proposal from an accredited entity without a signed AMA will be reviewed but

not sent to the Board for consideration? Yes ☒ No ☐

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Annex 1 – Project area maps

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Potential Project Area: States in the Brazilian Semi-Arid