Alqueria

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

28492

Country

Colombia

Region

Latin America and the Caribbean

Sector

Dairy Products

Department

Reg Manufact, Agri & Services, CAF/CLA

Company name

Productos Naturales de la Sabana S.A. Alqueria

Environmental category

Status

Active

Date ESRS disclosed	February 3, 2010
Last Updated Date	February 9, 2012
Previous Events	Invested: December 6, 2010 Signed: June 29, 2010 Approved: June 28, 2010

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

IFC staff visited the corporate offices of Alqueria in Cajica, approximately 40km north of Bogota, Colombia, the site of the largest production plant in the company (UNS). Meetings were conducted with senior management, line management and staff responsible for operations, production and, in particular, environmental, occupational health and safety issues and social/community relations at both the corporate level and those pertaining to the local plant operation and surrounding communities. Several farms that supply milk to the plant were visited. In addition, IFC staff visited the production plant located in the town of Palmira (or Palmyra), located approximately 20km outside of Cali, Colombia to discuss similar issues, review plant operations and understand the relationship between suppliers and the plant in another Alqueria business unit (UNO), including visiting another local milk supplier.

Project description

Founded in 1959 by the Cavelier Family (the “sponsors”), Alqueria is the third largest dairy company in Colombia. The company processes milk and its sub-products into a wide range of dairy products (UHT milk, flavored liquid milk, cream, and yoghurt through a JV with Danone with a 10% ownership) and produces fruit beverages from concentrate under the “Tangelo” brand.
With a production capacity of 0.9 million liters/day Alqueria operates three plants located in Bogota, Cali, Medellin and a distribution plant in Bucaramanga. The company has the following certifications: ISO 9001, HACCP and QUALITY CHEKD to ensure food safety. The company sources milk from up to 5,610 farms, some directly and some through intermediaries.
Alqueria has invited IFC to consider providing an $8 million A loan and a $5 million equity investment to fund part of a $46 million capex, debt restructuring and acquisition/expansion plan (the “project”) that the company has structured over the next three years. The remaining $33M will be financed from internal cash generation.

Identified applicable performance standards

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:

PS 1: Social and Environmental Assessment and Management Systems,
PS 2: Labor and Working Conditions,
PS 3: Pollution Prevention and Abatement,
PS 4: Community Health, Safety and Security,
The following performance standards are not applicable for the stated reasons:
PS5: Land Acquisition and Involuntary Resettlement - Not applicable as the company is not proposing any land acquisition based on the corporate loan.
PS6: Biodiversity Conservation and Sustainable Natural Resource Management - Not applicable as the project will not result in any expansion of existing farm lands or a change in land use status (e.g., no land use change such as deforestation due to increase in pasture). Land use at the plants is industrial (e.g., production plants have existed for many years) and any planned plant expansions/enhancements will be limited to the existing plant footprint.
PS7: Indigenous Peoples – Whereas the Cali plant does purchase milk from indigenous peoples, these suppliers are treated in the same manner as other non-indigenous peoples suppliers, they operate their farms in the same manner as other suppliers, receive the same remuneration for their milk and receive the same outreach and training as other suppliers (i.e., they are not negatively impacted or affected by the project in any way that could be construed as disproportionate to other suppliers). They receive economic benefits by being part of the supply chain in the same manner as non-indigenous peoples in the supply chain doing business in the same geographic region.
PS8: Cultural Heritage - Not applicable; the company buys milk from existing farms and land use patterns are not set to change so as to impact any cultural heritage resources.

Environmental and social categorization and rationale

The B categorization is applicable as there are no elements of the project with diverse, unprecedented negative social or environmental impacts. Environmental issues identified during the appraisal mission, such as managing waste water effluent concentrations and analyzing air emissions from boilers used in the production process were already being targeted by the company and mitigation measures implemented. No issues involving the supply chain were observed.

Key environmental and social issues and mitigation

PS 1: Social and Environmental Assessment and Management Systems

Environmental and social assessment:
Alqueria’s production facilities (e.g., the UNS facility at Cajica on the outskirts of Bogota and those at Medellin (UNA) and Palmira (UNO), near Cali) are existing facilities with infrastructure and equipment in place to avoid, manage or mitigate actual or potential environmental impacts associated with milk processing on an industrial scale. Where performance of this infrastructure is currently below expected standards (e.g., waste water discharges are exceeding regulatory and/or administrative limits at the UNS and UNO plants) the company has initiated the design and construction of new and expanded treatment plants to render effluents below that of required regulatory limits. Production plants do not actually discharge effluent into surface water bodies such as rivers or streams; for example, at UNS liquids (in compliance with health standards pertaining to land-based disposal) are piped to the adjacent farm (Fagua) for use as soil fertilizer and solid residues (sludge) are collected and sent to a licensed disposal facility. The construction of new treatment facilities affirms a commitment to environmental review and assessment of operations with regards to actual and/or potential impacts; assessments and responses are judged by IFC to be commensurate with environmental and social impacts of this type of production processes. Occupational health and safety (OH&S) of employees is subject to assessment, including monitoring and measurement and when necessary revised procedures and operating conditions.

Management program and organization:
Overall organization and roles and responsibility for environmental, OH&S and social issues including community engagement are comprehensive. The company has 5 OH&S staff at the UNS plant and 35 OHS staff company-wide; 11 staff members at UNS are involved in environmental management including those responsible for corporate matters. The existing management program is judged to contain all the elements of a functioning, practical management system and one that meets IFC’s requirements: assessments, policy(s), objectives and targets including indicators, organization capacity/responsibilities (e.g., for effluent treatment, solid waste management, boiler operations, assessment of working conditions, etc.), training, community engagement, monitoring and measurement and records/results and reporting. The company has developed a series of indicators for use in tracking performance in environmental and OH&S areas which are used to provide internal summary reports to management. In addition, detailed records and statistics on the amount and nature of complaints, suggestions and other messages received through the internal ethics line are maintained; these guide management decisions. The UNS plant has HACCP and ISO 9001 certifications and adheres to the Buenas Practicas de Manufactura (BPM) system (as laid out in Decreto 3075). Other business units are planning to obtain the same certifications in 2010 if not before. This is addressed in the ESAP. The UNS plant is due to receive an environmental compliance audit from the CAR authority; additional operating requirements resulting from this audit will need to be adhered to by the plant. This is addressed in the ESAP.

Training:
The Alqueria workforce receives some form of OH&S training consisting of a general overview of health and safety issues, the causes of work place incidents, residual risks and reporting requirements and more focused training depending on the specific workplace hazard. Training is deemed to be adequate and commensurate to the hazard and residual risk; records are maintained.

Community engagement:
The company engages in a wide variety of community initiatives at the local, regional and national level; programs have educational, nutritional and financial support (of workers) themes. At the national level, the company supports the Colfuturo program, a Colombia-wide institution that assists individuals who have a bachelor’s degree from a college in Colombia to study abroad and then to return to Colombia upon completion of their overseas studies; they also support the Colombia Emprendedora, a national educational institution. At the regional level, the company participates in the Spring (‘Primavera’) Program in conjunction with the Governor of Cundinamarca. This program provides grant money to help plant workers (and the parents of other talented children) pay the costs of higher education for their children. The company also provides expertise in the management of the Lumni program, an investment fund the proceeds of which are available to be tapped as low interest loans by low income Alqueria workers to allow them to pay for their children to attend university. At the local level, the company provides ad-hoc support to pupils at the Cajica primary school and a local institution that caters to deaf children; the company is also supporting 150 workers obtain qualifications/education in dairy production. With regards to nutritional-based initiatives, the company supports the Bogotá Food Bank which collects food from donors to distribute to the needy. Alqueria has been the largest industrial donor company in the Bank and now assists with transport of donated food, recruits more companies into the Bank and plays a central role in its administration. Several other local initiatives are supported by the company that target vulnerable or disadvantaged members of Colombian society such as single mothers, the disabled and other low income individuals and families. Community programs with an emphasis on financial support include participating with Bancamia and the Colombian government to help the company’s suppliers obtain credit to expand their businesses. The company started another scheme in which it purchased 100 machines used to make clothes that were provided to single mothers. These women will use the machines to manufacture work clothes which the company plans to buy for its workers. The company is currently looking for a partner to train the women on the use of the machines.

With regard to a community accessible grievance mechanism the company stated that the ethics line currently in use internally will be made available to parties outside the company (see PS2 for a description of the internal ethics line); this issue will be addressed in the Environmental and Social Action Plan (ESAP). In addition, all milk products carry contact information for the company that is available for use by consumers, etc. if they want to contact the company.

PS 2: Labor and Working Conditions

Human resources policy and management:
The company has policies that govern many aspects of human resources management (e.g., employee selection and induction, development and performance, innovation, training resources/management, use of tobacco, alcohol and drugs amongst others). Workers, contractors and others engaged by the firm are made aware of their rights and responsibilities at the beginning of their contract. Overall relationship of company and workers (and contractors), including trial employment period, hours of work, specific requirements for more hazardous jobs (e.g., those working in the plastics plant making PET bottles), national holidays, paid vacations, minimum salaries, benefits, health and safety at work, employee duties, activities prohibited for women and those under 18, disciplinary practices, harassment, is defined and communicated by the company. Colombian labor law establishes and qualifies the employer to deduct wages from workers for the days in which they are suspended in the event of irregular conduct. Expected/normal conduct is defined and communicated to employees/contractors; disciplinary procedures are similarly explained and communicated. Alqueria’s minimum wage corresponds to an approximately 3.2% premium above the national required minimum. As of the appraisal, company had 3,492 individuals working for, or on its behalf (27% women), approximately 36% direct employees, 30% temporary staff (includes both those working for employment agencies and directly contracted), 6% outsourcing (including legal services such as contract surveillance), 14% commercial contractors (drivers of product), 2% milk collection contractors and 15% indirect assistants (numbers may not add to 100 due to rounding). Direct workers and contractors have different contracts by definition but are seen as equal by the company; the company confirms that equal jobs have equal employment and working conditions and contracted employees are paid in accordance to national law.

Worker’s organization:
Workers are allowed to join worker’s organizations and/or unions; 98% of workers belong to a collective work agreement (Pacto colectivo) and the remaining 2% belong to a union. No incidents have been reported by the company. Relations with the union are good; unions have been associated with the company for 17 years with 7 collective agreements and no history of strikes. The company is part of a group of 13 companies in Colombia that have collective agreements with their workers that provide benefits beyond those require by law. The Collective Convention (agreement with the Union) as with the Collective Pact (agreement with non union workers) has a period of three years. The last Collective Pacts were signed for the period 2010-2012. The company is currently in process of negotiation of the Collective Convention of Work with the union for the same period of time.

Non-discrimination and equal opportunity:
Non discrimination is prohibited and equal opportunity is required and included in written company policies.

Retrenchment:
The IFC corporate loan is expected to boost milk production; retrenchment is not expected to be an issue.

Protecting the workforce:
No child labor is used in the supply chain; none was observed during visit to farms. The prohibition on child labor is included in company procedures/policies and was also confirmed during interviews with senior management. Commercial relations within the supply chain are informal and long held; milk production in the area has a long history, pricing is market based which is the norm in the industry. The company provides in-depth training to suppliers regarding all aspects of milk production, animal health, waste management, etc.

Grievance Mechanism
A grievance mechanism is maintained; employees have access to an ethics phone line and e-mail address to register suggestions, complaints, etc. Grievances can be done anonymously. An ethics group reviews, investigates and responds to complaints. Open space meetings are also used to air issues in a public forum; questions raised are required to be answered by supervisors/management and responses are posted on a notice board in the relevant work/operational area. An ethical letter was given to all employees and a Promise of honor will be signed by all collaborators.

Occupational health and safety:
OH&S procedures, controls and equipment were observed during the appraisal; personnel protective equipment (PPE) when expected was being worn by those in hazardous areas. Work areas (and associated duties) are subject to a hazard assessment; company uses a hierarchy (avoidance, engineering controls, administrative controls, etc.) to minimize residual risk. Employees receive training on risks; training provided during the year prior to appraisal included emergency first aid, fire fighting, evacuation and rescue, industrial security, risk management, general training in use of equipment for working at heights, safe handling of forklift and defensive driving training. Specialist studies by external experts have been commissioned regarding workplace conditions and exposure, when necessary, i.e. high levels of hydrogen peroxide measured in the Cali packing plant are the subject of an ongoing project to reduce levels (levels reported in a study ranged from 1.38 to 2.00 mg/m3 whereas the US National Institute for Occupational Safety and Health (NIOSH) has established, for example, a recommended exposure limit (REL) for hydrogen peroxide of 1 ppm (1.4 mg/m3) as a Time Weighted Average for up to a 10-hour workday and a 40-hour workweek thus making the recorded exposure between 98.6% and 143% of the NIOSH REL); this must be completed as a matter of priority and other plants assessed for similar exposure. This will be addressed in the ESAP. OH&S statistics provided indicated no fatalities for either employees or contractors; a total of 4,024 hours of lost time out of 4,511,520 (0.089%) and 74 non-fatal injuries during the time-worked period. Data provided was not indicative of the time period during which the data was collected.

Non-employee workers
66% of those working for the company are in a non-direct labor contract relationship. Approximately half of this amount is temporary staff including those who have been contracted through an employment agency/company. Employment agencies used to hire workers on a contract basis are subject to audit by the company’s contract department. Whereas this is a high number, it is not uncommon in LAC companies.

Supply Chain
Any increases in production to meet new targets are to come from more efficient and better production techniques involving nutrition for the cows and collaboration in new areas, etc. Several farms visited as part of the appraisal appeared to be well run (e.g., waste management practices were seen to be good). The company provides free outreach to its suppliers in the form of training presentations on animal health and well-being, biological basis of milk production, etc. Any future company Merger and Acquisition targets should be subject to environmental and social assessments as part of overall due diligence if targets are to be acquired. This will be addressed in the ESAP.

PS3 Pollution Prevention and Abatement.

Pollution prevention, resource conservation and energy efficiency:
Natural resource consumption rates and objectives for efficiencies/reduction in consumption are maintained by the company; data is normalized to allow benchmarking and internal targets are set (e.g., water consumption per ton of product at UNO during October 2009 was 2.4 m3/ton, internal target is 2.2m3/t and benchmarking is stated as 1 to 1.5m3/t). Processing plants run on power from the national grid in Colombia which is 2/3 derived from hydro; boilers are also used at plants to provide heat for the UHT process fired by coal and/or fuel oil. Pollution control technologies are used to control emissions. Emissions are analyzed yearly as per government requirements. Boiler usage statistics and data on emissions provided to IFC indicate high levels of particulate matter being emitted; this issue will be addressed in the ESAP. Water supply comes from both surface and underground sources; the UNS plant is currently applying for a new underground water extraction license. This will be addressed in the ESAP.

Wastes:
Data on recyclable, ordinary (non-recyclable) and dangerous (e.g., hazardous) waste are kept. The company was seen to be following the waste management hierarchy of reduce, recycle, proper treatment and disposal; there is a current companywide objective to recover/recycle 75% of solid wastes with UNS currently reporting a 74% total recycle rate for the year to date. New WW treatment plants are being built at both UNS and UNO. Company will be required to review engineering designs to ensure operation of new WWTPs will be in compliance with local regulatory limits as discharges to surface waters do not occur (e.g., sludge from the UNS WWTP is taken for disposal at a licensed treatment plant and liquids are returned to the company farm as fertilizer in accordance with a land application permit). This will be addressed in the ESAP. Cali plant (UNO) WWTP is being constructed to become compliant with requirements contained in an administratively issued government resolution. This will also be addressed in the ESAP.

Hazardous materials:
Hazardous materials were seen to be appropriately stored and used during the visit to the UNS and UNO plant (e.g., stored separated by hazardous category, appropriately labeled, those working with HM were aware of their hazardous characteristics and had received training/awareness in how to properly handle them, were wearing the PPE appropriate to the hazardous nature of the material such as gloves, eye or face protection when cleaning with caustic liquids, etc.).

Hazardous wastes:
Hazardous wastes are stored onsite in a separate, locked facility complete with appropriate signage warning of the dangers of the wastes contained therein. Wastes are stored until collected by a licensed contractor and taken to be incinerated at a licensed facility. Chain of custody forms are maintained showing appropriate disposal.

Emergency preparedness:
As the plant uses ammonia in its refrigeration process it should ensure that its handling and storage practices are in keeping with best industry practice, as espoused by bodies such as the International Institute of Ammonia Refrigeration (www.iiar.org). This will be addressed in the ESAP.

Green house emissions:
Based on data supplied by the company and input into IFC’s Carbon Emissions Estimation Tool (CEET) version 9 October, 2009, Alqueria operations generate an approximate total of 164,252 tons of equivalent CO2 from the following sources:

Fuel Consumption 26,976
Waste 753
Wastewater 2,762
Livestock 131,099
Electricity 2,662
Total 164,252
Total (excl. cows) 33,153

As can be seen, the largest contributor of CO2 -equivalent GHG’s is from livestock (cows) that supply the milk to the production plants. The vast majority of these cows are not owned by Alqueria; the owners of the company (Carlos Enrique and Juan Pablo Cavelier) own a small farm adjacent to the UNS plant which accounts for 1% of total raw milk. The CO2 from cows is considered Tier III and is therefore not included in the amount that determines whether the project emits a significant quantity of GHG. (The significance of a project contribution to GHG emissions varies between industry sectors. The threshold for this Performance Standard is 100, 000 CO2 equivalent per year for the aggregate emissions of direct sources and indirect sources associated with purchased electricity for own consumption. This or similar thresholds will apply to such industry sectors or activities as energy, transport, heavy industry, agriculture, forestry, and waste management in order to help promote awareness and reduction of emissions.) Approximately 80% of the emissions from fuel consumption come from fuels used in plant boilers, however, this amounts to approximately 20,000 tons CO2 equivalence per annum; the remainder is from the truck fleets used to deliver milk products to markets. These trucks are independently owned and operated (i.e., are not owned and operated by Alqueria). Electricity used by the plants (indirect source of CO2 equivalence) is not a large contributor due to the prevalence of hydro-power in Colombia.

Pesticide use and management:
The need for pesticide use and management was seen to be limited (e.g., company uses rodent traps throughout the UNS plant as part of a pest management plan given its location in a rural area).

PS4 Community Health Safety and Security

Community health and safety:
The UNS plant is located near to Cajica, a medium-sized town on the very northern outskirts of Bogota. Other small communities are nearby; the surrounding area is populated with small-scale farms, many of who supply milk to the company’s plant. Other facilities exist, such as the new distribution facility for the UNS plant, located closer to Bogota in a dedicated industrial park setting. Plant-related truck traffic has the potential to impact local communities; however, such incremental traffic attributed to the plant is minimal compared to baseline levels, population is sensitized to large vehicular traffic and affected towns have traffic calming devices installed. The Medellin production plant (A JV in which Alqueria’s participation will be 51%) was not visited as part of the appraisal, but it only has a production capacity 1/10th of that of the UNS plant; therefore traffic is similarly not assumed to be an issue. Regardless, the company must continue to include drivers in awareness and good practice campaigns to continue to promote good community relations. This will be addressed in the ESAP. Currently the community utilizes an ad-hoc approach to contacting the company, such as a telephone call to raise a particular matter. Plans to extend the ethics line beyond its current internal use are in progress; this will be addressed in the ESAP (already noted under comments in PS1). Traceability of milk is ensured through sampling. Foods safety is managed using the HACCP, Quality Chek’d and BMP programs.

Emergency preparedness and response:
Emergency Preparedness and Response is managed by a response team on site at each business unit. Relations with local authorities, including local emergency responders, should be clarified to ensure roles and responsibilities in the event of an emergency are clear, appropriately communicated and understood by all parties. This issue will be addressed in the ESAP.

Security personnel requirements:
Site security is contracted out using reputable companies (e.g., the security company used at Cali was a national organization with blue chip clients and had the requisite operating licenses and permits). The security guards are armed; no incidences involving the public or workers have been recorded with robbery of product seen as the largest risk. The company must still confirm that contracted security services apply the principle of proportionality and that security personnel have clear instructions on the objectives of their work and permissible actions. Instructions should be based on applicable law and professional standards and adhere to best international practices as included in the UN Basic Principles on the Use of Force and Firearms by Law Enforcement Officials and/or the Voluntary Principles on Security and Human Rights.

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