Project Name - World Bank

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PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2454 National Agency for Drug and Food Control Project

Project Name Region Sector Project ID Borrower(s) Implementing Agency

Environment Category Date PID Prepared Date of Appraisal Authorization Date of Board Approval

EAST ASIA AND PACIFIC Health (100%) P082673 GOVERNMENT OF INDONESIA National Agency for Drug and Food Control Jl. Percetakan Negara No 23 Indonesia 10560 Tel: +62 (0)21 424-5331 Fax: +62 (0)21 425-0764 A [ ] B [ ] C [X] FI [ ] June 26, 2006 August 8, 2006 October 17, 2006

1. Country and Sector Background Public funding of health care in Indonesia is lower than in most other countries in the region. It is therefore critical that priority for these limited public funds is given to the provision of public goods and core public health functions. Among the core public health functions, one of the most important is assuring food and drug safety, important contributors to good health. In Indonesia, food and water borne diseases, such as diarrhea and typhoid, cause substantial morbidity and mortality. Intakes of hazardous substances in food over long periods of time also cause disease, especially in vulnerable populations. The threat of avian flu has reinforced the importance of food safety, especially for food-borne zoonoses. Pharmaceuticals form an important, often lifesaving, component of treatment for many diseases; treatment of various health conditions may be compromised by substandard (and counterfeit) drugs and, in the case of infectious diseases, may lead to drug resistance. Apart from their direct health effects, both food and pharmaceuticals make important contributions to the economy. The total value of the food sector, half of which is processed, is estimated at US$22 billion; exports are US$3.7 billion and imports US$3.1 billion. The size of formal pharmaceutical market in Indonesia is around US$2.1 billion, of which US$1.3 billion is for prescription drugs. The size of the informal market is estimated to be a third of the formal market. With globalization, the import value of drugs has increased to US$223 million while exports increased to US$115 million in 2003. In recognition of the health and economic impacts of food and pharmaceuticals and the importance of assuring food and pharmaceutical safety and quality in domestic and international trade (including obligations under the World Trade Organization and the ASEAN Free Trade Agreement), Indonesia set up the National Agency for Drug and Food Control (NADFC) in 2001. While sharing the responsibility with other ministries, especially agriculture and health,

and also with local governments, the NADFC carries the main responsibility in food and drug control. The responsibilities of the NADFC in ensuring drug and food safety encompass the full spectrum of regulatory activities including: (i) legislation, registration, and standardization; (ii) pre-market audit of licensing and certification of pharmaceutical industries; (iii) pre-market evaluation of products including imports and exports; (iv) post-market vigilance, including product sampling and laboratory testing, inspection of production and distribution facilities, investigation and law enforcement; (v) pre-review and post-audit of label, product advertisement, and promotion; and (vi) public communication, information and education including public warning. The high burden of disease from unsafe food and drugs and the expanded export and import of both food and pharmaceuticals have brought increased demands to ‘guarantee’ that food and drugs presented in both the domestic and international markets are of acceptable safety and quality. The main challenges for the NADFC in meeting these demands are: ƒ Responding to an increased regulatory workload which derives from − Ongoing monitoring of those products already on the market. There are almost 37,000 food products and 6,000 pharmaceuticals registered with NADFC for marketing (1.9 million food retailers; 11,000 pharmacies and registered drug sellers). − High demands for approvals of new products as they are developed and presented for registration; − The need to harmonize the regulatory framework and data requirement for marketing to support the implementation of ASEAN Free Trade Agreement; and − The need to increase coverage of control activities to the informal market for food and pharmaceuticals, markets preferentially used by the poor, where the risk of substandard and contaminated products is greatest. ƒ Ensuring the capacity of the laboratories to carry out routine measurements and to keep up with new methods as they arise. ƒ Greater involvement of the consumer in ensuring that the food and drugs consumed are safe and of good quality – this is particularly important in addressing the safety and quality issues in the informal markets for both food and pharmaceuticals where demand side interventions have the greatest potential for improved food and pharmaceutical safety. Although both the food and pharmaceuticals sections of the NADFC have some activities directed to consumers they are limited and there are considerable opportunities for revising the approach and expanding the scope of these activities. ƒ Improving integration of control activities within the NADFC and between the NADFC and other ministries and all levels of government to allow more accurate identification of critical safety and quality points in the production and distribution system and more cost-effective control activities. Within the NADFC, this requires a more effective collection, analysis, dissemination and day to day management of information. The agency’s ability to fulfill its mandate effectively hinges to a large extent on the ability of its staff in dispersed locations to collect, analyze, and disseminate large volumes of data in an efficient manner. The quality and timeliness of data in turn impact the quality of information available to the agency, and ultimately to its clients. NADFC appreciates that a reliable, accessible and integrated information system is needed in order to improve the quality of service delivery to businesses and consumers—its principal clients—and also facilitate internal decision-making and policy formulation. In addition, the sampling methodology of the routine surveillance system needs

to be updated so that the Agency can objectively evaluate the effectiveness of their control efforts. While the main responsibility for food and pharmaceutical control lies with the NADFC, several other ministries and all levels of government are also involved. The need to clarify functions, coordinate activities and further integrate control activities across ministries and levels of government was an important impetus to the creation of the NADFC. 2. Objectives The project aims to improve the safety and quality of food and pharmaceuticals by strengthening the food and pharmaceutical quality assurance management system. The project will achieve quality assurance management system through: (i) strengthening the food and pharmaceuticals control system based on the risk analysis approach to safety and quality control; (ii) strengthening the laboratory capacity of food and drug control system; (iii) improving consumer involvement in control systems; and (iv) fostering institutional development of the NADFC. 3. Rationale for Bank Involvement This project has strong links to the CAS in two ways: first, increasing control activities in the informal markets for both food and pharmaceuticals, markets preferentially used by the poor, is directly related to the CAS objective of making service delivery more responsive to the needs of the poor; second, assisting the NADFC to integrate and rationalize activities across ministries and other levels of government will contribute to the core issue of governance by clarifying functions for each level of government and reinforcing one of the main responsibilities of central government, delivering public goods through its regulatory function. The rationale for the Bank’s involvement is fivefold: first, emphasis on food and drug safety is consistent with the Bank's strategy in the health sector which includes priority for allocation of public funds to provision of public goods and core public health functions (of which food and drug safety is an important example); second, the government, although it has sought and received input from bilateral agencies, prefers to draw on more than one national model, an approach which is much easier under a project from the Bank which has broader access to international experience; third, most high income countries do not have to contend with issues related to informal markets and relevance to the poor – this is an area in which the Bank has a broader and more relevant experience; fourth, the design, implementation and evaluation of large scale provincial pilots is also much more possible within the context of a Bank operation than it is in most bilateral projects; and fifth, there is little interest from bilaterals in the type of operation proposed here despite strong interest from the government. 4. Description The project will have five components as follows: Component 1: Strengthening the Control Systems based on Risk Analysis The objective of this component is to strengthen the control system in order to improve safety and quality of drugs and foods. Specifically, the project will support the following activities for pharmaceuticals, traditional medicines, cosmetics, and food. ƒ

Risk assessment: activities include evaluation of the risks associated with various categories of pharmaceuticals, assessment of exposure to contaminants and hazardous substances in

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foods, assessment of adequacy of regulatory and surveillance frameworks, and assessment of the nature, extent and risk of drugs sold in the informal markets. Risk management: activities include development and implementation of integrated risk management plans, strengthening national sampling of foods and pharmaceuticals and good manufacturing practices and good distribution practices monitoring, and coordination with ASEAN partners.

The third component of the control system, risk communication, will be addressed under Component 3 of the project described below. Component 2: Strengthening Laboratory Capacity to Support the Control Systems The objective of component 2 is to strengthen quality assurance for food and drugs through a range of activities to enhance laboratory facilities, testing capacity and quality management. Major activities that will be supported by the project include: ƒ Improve laboratory facilities by upgrading laboratory equipment and implementing a safety system for the laboratories and staff, and a laboratory waste management system; ƒ Enhance human capacity by improving technical expertise of laboratory staff; and ƒ Enhance quality management by improving the knowledge on Laboratory Quality Management System (QMS) at the Center and implement QMS at the regional level. Component 3: Improving Consumer Involvement in Control Systems The objective of this component is to improve knowledge about, and the demand for, safer foods and pharmaceuticals. This will be done through activities to improve consumer knowledge and behavior about pharmaceutical and food safety and to increase demand for safe pharmaceuticals and food. These will involve the following activities: ƒ Design and conduct assessment of consumer knowledge and behavior related to the use of food and pharmaceuticals, and the role of consumer behavior in food and pharmaceutical safety (including consumer satisfaction and the responses to drug risk alerts); ƒ Develop and implement, based on this assessment, a communication strategy to improve consumer involvement in food and pharmaceutical safety; and ƒ Conduct and evaluate a community based pilot intervention to improve involvement of consumers in food and pharmaceuticals safety. Component 4: Developing Institutional Capacity The objective of this component is to strengthen key institutional functions of the NADFC, with emphasis on lifting constraints imposed by the lack of an appropriate information management system and information and communication technology (ICT), lack of a human resource development plan and inadequate mechanisms for collaboration with other ministries and levels of government. The Project will support activities under the following three sub-components: A. Improving Information Management ƒ Conduct detailed requirements analysis and developing the information management system; ƒ Procure, install and maintain information system based on the requirement analysis; and ƒ Strengthen information management capacity to facilitate the transition to a new information system and to build an information culture within the Agency.

B. Strengthening Human Resource Capacity. ƒ Assist the NADFC in acquiring information to guide its managers in making human resource decisions and policies by conducting various human resource related studies; and ƒ Support the education and training of staff of the center and the regional offices, in country and overseas, in line with human resource development plan. C. Piloting Collaboration among Government Stakeholders Involved in Regulatory Functions ƒ Improve coordination between the central ministries that have oversight and authority over various parts of the pharmaceutical and food production and distribution chain; and ƒ Develop and implement a pilot project in selected districts in two provinces with the aim of improving collaboration and cooperation within and between the various levels of government to improve food and pharmaceutical safety at the household level. The project will also provide technical assistance to strengthen legal support for the Agency’s regulatory functions. Components 5: Project Management, Monitoring and Evaluation The objective of this component is to facilitate the implementation of activities under the Project. Specifically, the Project will finance activities that support project implementation by a Project Management Unit (PMU) established under the Office of the Permanent Secretary (SESTAMA. Under supervision of the SESTAMA, the PMU will be responsible for handling administration, procurement, financial management, monitoring and evaluation, and reporting of the project. 5. Financing Source BORROWER INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION

(US$m.) 219.1 33.9 Total

10.0 263.0

6. Implementation Implementing Units. NADFC is the only executing agency of the project. Most central level units in the Agency will be involved in project implementation. From the 26 Balai POMs (Provincial offices), only two (Balai POM of Central Java and Riau), and at least 20 districts in the two provinces, will implement institutional development pilot under Component 4 of the project. Moreover, all Balai POMs will benefit from the project through their participation in various training and workshops organized by the center, and through interventions related with the strengthening of the laboratories, and the information system. Other sectors responsible for certain regulatory functions in both food and pharmaceuticals will take part in activities organized by the NADFC under the project, such as activities to strengthen inter-agency collaboration under the Integrated Food Safety System (IFSS).

Project Management. A Project Management Unit (PMU) will be established under the Office of the Permanent Secretary (SESTAMA). The SESTAMA will be the Project Director, and the Head of the Planning Bureau will be the Deputy Project Director. A project secretariat will be established under the Bureau of Planning to do day to day management of the project. An Executive Secretary will be appointed to lead day to day management of the PMU. In managing the project, the Executive Secretary will be assisted by four officers responsible for coordinating and overseeing project planning, procurement, financial management, and monitoring and evaluation. The officers will be staff of NADFC, who will be released from their duties to work full time for the project. In addition, to strengthen implementation of procurement under the project, two consultants will be recruited to assist the PMU. The Head of NADFC will be the person responsible for project budget (Head of Satker/PA/Penanggung Jawab Anggaran), while the SESTAMA will be the Budget Holder (KPA/Kuasa Pengguna Anggaran). The head of each implementing unit at the echelon II level will be the Commitment Maker (PK). NADFC’s Office of the Inspectorate will be responsible for conducting project internal audit. Given the large scope of the project, and the small number of auditors within the Inspectorate Office, a number of staff will receive special training on auditing to be conducted by a reputable firm selected competitively, to be financed by the project. The Finance Unit under the Bureau of Planning of the NADFC will be responsible for verification of all project expenditures at the central level. The State Auditory Agency (BPK) will be appointed as independent auditor of the project and will be responsible for conducting project annual audits. The two regional offices involved in the institutional development pilot will manage only a small amount (around 10%) of project resources allocated for such purpose, and therefore management at this level will be through existing mechanisms. 7. Sustainability Technical and capacity sustainability: This project strongly promotes risk-analysis based safety control approaches that have been shown to increase the efficiency of control systems in many countries. During the project period, intensive technical assistance as well as training will be provided so that periodic evaluations of risk-analysis can be carried out even after the project finishes. Therefore, technical and capacity sustainability is highly likely. Institutional sustainability: Many activities of the project are to strengthen institutional capacity one way or another; through this project, for example, the NADFC is going to further strengthen the collaboration and coordination mechanisms within the agency as well as with other ministries and local governments which are partly responsible for the national food and drug safety control systems. This will include not only sharing of information through regular meetings, but also connecting the information systems. Also, the pilot testing will try to institutionalize the food and drug safety control system under the local governments, by helping them draft and implement regulations and make necessary structural changes as well as by providing necessary trainings. In addition, the Agency at the center will evaluate the possibility of decentralizing their own functions to the provincial offices as well by developing necessary human resources, technical as well as management capacity. Therefore, institutional sustainability is likely.

8. Lessons Learned from Past Operations in the Country/Sector Experience with projects in Indonesia and internationally has resulted in the following lessons being applied in the project design. ƒ

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Decentralization. Under decentralization the district government and civil servants are being called on to make many complex decisions requiring technical input not available at the district level. And the central level has proved unable to provide this input to the more than 440 districts across the country. The province can play important intermediary role to support the districts, while at the same time link them to the national players. The design of this project recognizes that the relationships between the three levels of government are still evolving. The Project will provide resources for a pilot in two provinces of a new relationship between the central, provincial and district levels based on setting overall policy at the center, implementation by the district and the provision of technical and professional support by the province. This approach, which views the district and provincial levels as strategic partners with the center will be evaluated, modified and implemented in other districts and provinces after evaluation. The multi-sectoral nature of the food and pharmaceutical industries means that responsibility for various functions is divided between a number of ministries. Given that legislative changes to place this authority in a single ministry are unlikely, the best approach by the NADFC, which does have a clear central role in the control of both food and pharmaceutical safety, is to seek strategic partnerships with the other ministries involved e.g. agriculture, health, trade, industry. Experience in Bank projects in Indonesia (e.g. Iodine Deficiency Project, Population V Project, Safe Motherhood Project, AIDS Control Project) shows that establishing these partnerships is time-consuming and requires one ministry or agency to take the initiative and commit resources to the activity. Thus, a collaborative initiative by the NADFC to coordinate efforts for the control of both food and drugs will be supported and evaluated under the project. Involving the consumer. The importance of informing the consumer and the media in encouraging the government to take difficult food and pharmaceutical safety control actions has been illustrated on several occasions in the last year, most notably over the use of formalin in tofu. It is important to strengthen activities within the NADFC that inform the media and the consumer. To this end the project includes a component which will assess the ways in which the consumer can be more engaged in demanding product safety and provides resources for consumer information campaigns. The need to focus the NADFC resources on the areas of greatest risk. As the pace of technological change continues to increase so will the number of new food and pharmaceutical products placed on the market. But all countries, from the richest to the poorest, are unable to monitor every commodity for safety and quality. Indonesia is no exception. Consequently, they all must focus their efforts in a way that minimizes risk to the consumer in the most cost-efficient manner. Recognition of the need to focus has led to the increasingly widespread use of a “risk based approach” to food and pharmaceutical safety and quality. The center-piece of this project is the introduction of the risk based approach to all areas of NADFC work. The need to keep up with new technology. New technologies constantly drive change in the pharmaceutical and food industries. This trend is given added emphasis by the increases in international trade. The result is that control agencies, such as the NADFC, must also keep up

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with new technology. The design of this project assists the NADFC to keep up with technological changes in two ways – first, by supporting the purchase of new equipment which will enable the assay of a wider range of substances; and second through the important emphasis on training. The important role of information technology. The increasing complexity of manufacturing processes as well as the related manufacturing and distribution networks means that control agencies must more and more correlate information from diverse control activities which range from pre-market registration through to laboratory testing of the products for active ingredients and contaminants. The most effective use of this information requires use of relational databases that derive information from activities within and outside the NADFC. At the same time there are increasing demands for greater transparency in registration processes and so on. The informed use of information technology is a powerful way to achieve these aims. The project design makes explicit provision for a major information technology effort in the NADFC through the purchase of equipment and software to serve the emerging complex information, as well as transparency and accountability, needs of the Agency.

9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60)* Projects on International Waterways (OP/BP 7.50)

Yes [] [] [] [] [] [] [] [] [] []

No [ X] [ X] [ X] [ X] [ X] [ X] [ X] [ X] [ X] [ X]

10. List of Factual Technical Documents ƒ IMS Quarterly Pharma Market Update, 1998 ƒ IMS Quarterly Pharma Market Update 2005. ƒ Bayliss Assocociates (2005). Investment Guide to the Indonesian Food and Agriculture Sector. Australian Government Department of Agriculture, Fisheries, and Forestry, Canberra ƒ Dharmawan T (2005). Persepsi Industri Pangan Terhadap Penerapan PP No.28 Tahun 2004 Tentang Keamanan, Mutu dan Gizi Pangan, Seminar Nasional Standardisasi, Dalam Rangka Bulan Mutu Nasional dan Hari Standar Dunia 2005, Jakarta 22-23 November 2005 ƒ Trade associations (The Indonesian Food & Beverages Association), trade press (Reuters, Kompas, Indonesian Business Magazine, SWA), company research, store checks, trade interviews, Euromonitor estimates cited in USDA. Foreign Agricultural Service (2003b). Indonesia Food Processing Ingredients Sector Report 2003. Gain Report ID3022 *

By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas

ƒ Smith L and Dawson P (2004) Food exporter’s guide to Indonesia. Australian Government Department of Agriculture, Fisheries, and Forestry. Canberra. ƒ Damardjati DS (1995) Food Processing in Indonesia: the development of small-scale industries. Bogor, Indonesia [http://www.fftc.agnet.org/library/abstract/eb410.html]. Accessed on Oct 8, 2005 ƒ USDA. Foreign Agricultural Service (2003b). Indonesia Food Processing Ingredients Sector Report 2003. Gain Report ID3022 ƒ Gandakusuma P & Fahwani YR (2002). Indonesia exporter guide annual 2002. Gain Report ID2027. USDA. Foreign Agricultural Service. ƒ UNDP. Indonesia Progress Report on the MDG, Aug 25, 2005. http://www.undp.or.id/mdg/documents.asp ƒ DHS 2003; Agtini et al (2005). The burden of diarrhea, shigellosis, and cholera in North Jakarta, Indonesia: findings from 24 months surveillance. BMC Infectious Diseases 2005, 5:89 ƒ United States Government Accountability Office (2005). Report to Congressional Requesters: Food safety experiences of seven countries in consolidating their food safety systems. GAO05-212, February 2005 ƒ Beban penyakit dan umur harapan hidup produktif, perkiraan nasional dan perkiraan tujuh kawasan di Indonesia. (National and 7 regional estimates of Burden of Disease and Healthy Life expectancy in Indonesia). Departemen Kesehatan R.I. Badan Penelitian dan Pengembangan Kesehatan Pusat Penelitian dan Pengembangan Pelayanan dan Teknologi Kesehatan. 2004 11. Contact point Contact: Puti Marzoeki Title: Health Specialist Tel: 62-21-52993000 Fax: 62-21-52993111 Email: [email protected] Location: Jakarta, Indonesia (IBRD) 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: [email protected] Web: http://www.worldbank.org/infoshop