Arcor Exp

Environmental & Social Review Summary

This Environmental and Social Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Board dates are estimates only.
Any documentation which is attached to this Environmental and Social Review Summary has been prepared by the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.

Project number	26566
Country	Argentina
Sector	Food & Beverages
Department	Agribusiness
Company name	ARCOR S.A.I.C.
Environmental category	B
Status	Active

Date ESRS disclosed	November 7, 2007

Previous Events	Invested: January 9, 2008 Signed: December 20, 2007 Approved: December 13, 2007

View Summary of Proposed Investment (SPI), click here

Overview

Category & Applicable Standards

Key Issues & Mitigation

Community Engagements

Client's Documentation

Overview of IFC's scope of review

The review of this project consisted of appraising technical, environmental, health, safety and social information submitted by the project sponsor, and a field visit in October 2007. The environmental and social appraisal team visited the operations of Arcor S.A.I.C. (Arcor) in Arroyito, Cordoba, and IFC communicated closely with client executive managers and technical staff.

Interviews: all have taken place during appraisal.

Project description

The project entails providing a corporate loan to Arcor to finance its capital expenditures program and to replace maturing debt.

Key environmental and social issues and mitigation

- Environmental, Health and Safety, and Social Assessment and Management Systems:

Arcor has grown from a local operation in the province of Córdoba into a multinational company, commercializing a well-diversified portfolio of quality products with strong brands. Arcor operates a total of 41 state-of-the-art facilities located in Argentina, Brazil, Chile, Peru, and Mexico. Arcor and its subsidiaries are vertically integrated with industrial operations in the dairy, maize, sugar, cardboard, and bottles/packaging industries. Arcor’s Integrated Management System (Sistema de Gestión Integral or SGI) is both designed and implemented by Arcor’s group and entails staged implementation of a program for systematic management of environmental and social affairs, occupational health and safety, food safety and associated matters. Implementation of the SGI is well developed at Arcor and its 41 operating entities. Arcor has implemented in a timely manner all activities pertaining to the environmental and social action plan developed in 2005 with IFC, including the effective operation of La Providencia High Efficiency Boiler and Emissions Control Systems.

The 41 operating entities are all graded in terms of their degree of completion of the four stages: preparation; introduction; implementation and optimization and, according to the specifics of each operation, obtaining all or selected certifications that the system is strongly oriented to achieve. At each operation, there is a manager of environment, hygiene and industrial protection (medio ambiente, hygiene y protección industrial or MAHPI). These managers are responsible for moving their operation into the fourth phase of institutionalization or optimization. When a facility reaches this stage it is considered essentially autonomous and employees at the facility qualify for a bonus program.

Arcor has built a diverse management system that could qualify readily for all certifications recommended/required by its buyers. Arcor’s SGI also incorporates a number of innovative international approaches to achieve high levels of management, teamwork, efficiency, quality and environmental and social affairs management. The system is responsive to and certifiable to the requirements of: ISO 9000 (quality management); ISO 14000 (environmental management); HACCP (food safety); and OHSAS 18001 and IRAM 3800 (occupational health and safety) and others. Additionally, Arcor has institutionalized a number of innovative industry practices some of which originated in Japan and uses these techniques to create highly productive teams and further achieve the long term beneficial goals of the management system aimed at environment, hygiene and industrial safety but with corollary benefits in clean production, strict management of resources and continuous improvement and reduction of production costs.

- Labour and Working Conditions:

Arcor Group complies with national labor laws, pays salaries above the minimums required, provides extensive employee training programs, implements high standards for employee health and safety in the workplace and strictly complies with labor laws. Over 90 % of Arcor’s work force are recruited locally within the countries where operations are based (Argentina, Brazil, Chile, Peru, and Mexico) thus making a significant contribution to the local economy. During 2006, the Arcor Group reviewed its human resource and employment policies to align them with international best practices. It also developed a supplier policy requiring suppliers to adhere to specific company requirements regarding child labor, forced labor, and non-discrimination. During this same period, Arcor carried out a complete worker satisfaction and attitude survey with an independent firm to determine areas of improvement from the perspective of its own employees (Encuesta de Clima Organizacional). Arcor also audited selected key suppliers to evaluate ongoing practices and compliance with Arcor Group supplier policy and is currently following up with suppliers, a majority of whom are small and medium enterprises. Many suppliers are small and medium sized enterprises. La Providencia staff responsible for cane operations also coordinate cane harvesting activities and manage relationships with third party farmers from whom the mill purchases cane.

In this way, Arcor is progressively extending its core values to its suppliers. In the context of the new loan from IFC, Arcor will review its human resources program, policy, and supply chain relationships in order to ensure that all requirements of IFC Performance Standard on labor and working conditions are reflected in Arcor’s standards relating to non-discrimination, equal opportunities, freedom of association, collective bargaining, harmful child and forced labor, as well as its formal process to deal with external queries, concerns, and grievances from local civil society. The results of this analysis and any additional steps that may need to be taken will be reported on as part of the annual monitoring report for the 2008 calendar year along with the time frame for any adjustments needed in Arcor’s program.

- Pollution Prevention and Abatement:

The La Providencia sugar mill in Tucumán Argentina has High Efficiency Boiler and Emissions Control Systems, operational since 2005 along with the elimination of cane burning and improvement of cane received from third party farmers that do not now require pre mill washing to remove soot and carbon. The company uses 100% mechanical harvesting for production of green cane for the mill so that no owned or leased cane fields are burned thereby significantly reducing atmospheric pollution; open mechanical cane grinding equipment has been replaced with a closed system that leaches sucrose from cane thereby eliminating typical sources of industrial wastewater and water contamination from production activities; and a new high efficiency boiler ensures that emissions are within the limits of IFC guidelines. Wastes from sugar production are managed innovatively: molasses is sold to yeast manufacturing entities; excess bagasse not consumed in the production of electrical energy and steam for the mill is sold to a paper manufacturer; cane mud (cachaza) and fly and bottom ash are used as soil amendments and to repair eroded lands and bring them into productive use; and wastewater volume are reduced continuously with mechanical harvesters eliminating the need for cane washing.

Arroyito Industrial Complex includes the manufacturing area and 3 candy plants; Kraft paper remanufacturing plant using 100% recycled materials; corrugated carton manufacturing and custom packaging for ~4,800 customers; wet corn processing to produce syrups and anhydrous ethanol. The complex uses 10 MW of the plant’s production for its own power and steam requirements and ~20 MW are sold to the electrical grid; compressed air plant; distribution center for Arcor Group; silos for maize and other grain storage; fuel tanks; wastewater management system (off site) consisting of extended aeration for wastewater and utilization of the complex’s former pond system for sludge treatment. There are 3 other card board and box manufacturing operations (two in Argentina and one in Chile).

- Community Health, Safety and Security:

The Arcor Group SGI includes the systematic management of quality, food safety, environment, and occupational health and safety in manufacturing and allied facilities, and includes the following certifications ISO 9000 (quality management); ISO 14000 (environmental management); HACCP (food safety); and OHSAS 18001 and IRAM 3800 (occupational health and safety) and the Japanese 5S program. Additionally, Arcor has institutionalized a number of innovative industry practices to further achieve the long term beneficial goals of the management system aimed at environment, hygiene, industrial safety, clean production, strict management of resources and continuous improvement and reduction of production costs.

Occupational health and safety are well managed at the sugar mill. Lighting is adequate, stairs are well manufactured, clean and painted; employee training is extensive and the results as measured in lost time accidents demonstrates effectiveness of the program and that continuous improvements are required.

Arcor’s Integrated Management System. Mill agronomists are using as many non chemical interventions as possible to maintain high quality crops without the need for expensive and potentially damaging chemical pesticides. Cane maturation chemicals are not used for harvesting. At present chemical applications are not used for either infestations or for maturation. In order to control weeds in an integrated manner the cane crop has five annual cycles. The mill is engaged in highly sustainable activities. The mill has an excellent occupational health and safety program that has significantly reduced lost time accidents. Arcor has seven dairies in the Arroyito vicinity (2,600 cows). The milking parlors are clean and automatic milking machines pipe collected milk to a refrigerated tank for cooling. There is an effective system to collect and manage both manure and milk collection and storage equipment wash down.

- Land Acquisition:

Arcor is not currently acquiring new land and expansion is being done within existing facilities in areas designated as industrial parks. There are no cases of involuntary resettlement. Properties have always been acquired based on a willing buyer-willing seller process. Approximately 1,450 hectares are rented for sugar cane planting as part of the La Providencia operation in Tucuman, Argentina. Rental contracts are negotiated based on current market rental prices.

Client's community engagement

Arcor Group has a strong reputation for excellence in the area of corporate social responsibility (CSR) and has received numerous awards for social responsibility. While Arcor Group was founded with a commitment to the communities in which it worked over the past few years the company has shifted its focus to developing a more sustainable model of CSR by promoting networking with key stakeholders. Arcor Group is working to integrate its CSR program into all of its operations and continue to fund programs that focus on integrated development and that have a strong focus on sustainability. Arcor is working with the local municipality of Arroyito to treat sanitary wastewaters from the town once the city installs the collection system and has adequate pretreatment requirements in place to prevent discharge of hazardous and other unacceptable materials to the city sewer.

The Arcor Foundation (created in Argentina in 1991) as part of the company’s commitment to and sense of social responsibility for the society in which the group operates. Its operating premise is to work in close coordination with society to strengthen institutional and community strategies, promote inclusion and work to bring to fruition positive programs envisioned by diverse social actors and groups. The Foundation and its Brazilian sister, Instituto Arcor, have a clearly defined mission to aid children and promote education. These organizations work with external entities to identify projects that promote these goals. The Arcor Foundation mobilizes other grant funding to achieve a multiplier effect in project implementation. Representative projects include production of school texts and specific educational programs for women and children. In the last year, this has included 127 approved projects; 5,181 organizations supported; over 393,997 children and adolescents benefited through the projects carried out.

The ERS will be available to the public at the following locations:

- Municipalidad de Salto (Bs. As.): Buenos Aires y Alvear; Salto, 2741; Provincia de Buenos Aires
- Municipalidad de Colonia Caroya (Córdoba): Av. San Martín # 3899; Colina Caroya, 5223; Provincia de Córdoba
- Municipalidad de Arroyito (Córdoba): Rivadavia # 413; Arroyito, 2434; Provincia de Córdoba
- Municipalidad de Lules (Tucumán): Almirante Brown # 601; Lules, 4128; Provincia de Tucumán
- Arcor do Brasil: Edificio Continental Square 16th floor; Rua Olimpíadas, 205 - Vila Olímpia; São Paulo - Brasil
- Ind. de Alimentos Dos en Uno: Placer 1324; Santiago de Chile; Chile

Project’s company contact:
Gerencia de Medio Ambiente
www.arcor.com.ar
Fax: (54351) 420-8479
Tel: (54 351) 420-8200
Bvar. Chacabuco 1160, Nueva Córdoba, Córdoba, Argentina

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