SLC Agricola

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	25900
Country	Brazil
Sector	Agriculture and Forestry
Department	Agribusiness
Company name	SLC Agricola S/A
Environmental category	B
Status	Pending Disbursement

Date ESRS disclosed	November 1, 2007

Previous Events	Signed: March 18, 2008 Approved: January 28, 2008

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 field visits during the period August 8-19, 2007. The environmental and social (E&S) appraisal team visited selected SLC Agricola operations, and IFC communicated closely with client executive manager and technical staff.

Project description

SLC Agrícola S/A (SLC Agricola or the company) has an investment program to primarily expand its cotton production capacity:

- increasing the planted area by 52,000 ha by expanding its second harvest area (planting of two crops on a same plot within the same harvest year) and leasing areas adjacent to its current farms;
- adding a new farm already purchased in the Bahia state with a total 21,000 ha of planted area;
- adding two new areas in the Brazilian Savannah region to increase planted area by 42,000 ha; and
- financing incremental working capital needs.

Key environmental and social issues and mitigation

- Environmental, Health and Safety, and Social (ESHS) Assessment and Management Systems:

SLC Agricola is overall a very ESHS conscious organization, and its investment decisions take into account the positive relationship between resource sustainability and financial rate of return for agro-industrial operations. The company maintains full compliance with Brazilian Law and regulations. ESHS management at SLC Agricola takes place without benefit of a formal ESHS management system. The only certification program to which the company adheres is the Utz Kapeh Coffee Certification, which gives access to premium quality coffee export markets. The company agrees that it needs to upgrade their management system to formalize and include social and environmental affairs, quality, and occupational health and safety issues associated with farming, biodiversity issues, transport, and processing operations. In accordance with the attached Environmental and Social Action Plan (ESAP), SLC Agricola will implement an integrated environmental and social management system (ESMS) covering all relevant aspects of IFC’s performance standards. This ESMS will provide a structured framework to consistently identify risks and opportunities in the management of its environmental and social responsibilities at its existing operations and future expansions. Observation of field operations such as harvesting and chemicals application and grain processing demonstrates that skill and safety training is an integral part of the corporate culture. SLC Agricola also finances fully professional degree level education in relevant fields for staff employees.

- Labor and Working Conditions:

SLC Agricola has a total labor force was 1293, including 808 permanent employees at headquarters and the eight farms, and 485 seasonal agricultural laborers contracted at each farm on an as required basis. All employment relationships are in compliance with national labor law, ensuring that no Child Labor or Forced/Slave Labor is used in operations. SLC Agricola promotes good labor relationship through full respect for all labor and social security laws, direct hiring of seasonal workers, health benefits (entire immediate family of fulltime workers), benefit package for on-farm workers including meals, utilities, and adequate accommodations and supermarket stipends to offset these costs for those that live off farm. There is a profit-sharing program whereby each employee on a given farm may receive a bonus commensurate with the financial performance of that farm. The company maintains various trainee and internship programs that help prepare young professionals and introduce them to the company. Since 2006 the company has developed a program to employ handicapped people, and to date 25 such individuals are employed in a wide range of activities. The Environmental Risk Prevention Program (PPRA) and Occupational Health Medical Control Program (PCMSO) annual reports, legal requirements of the Federal Ministry of Labor, are complete and up to date. The company provides PPE, training, and uniforms to all workers. Occupational Health and safety issues are managed at the farm level by a designated OHS manager who reports to agricultural operations farm managers. Information is aggregated at the Pamplona farm and transmitted to senior management in Porto Alegre. Medical tests are carried out regularly for those working in pesticide applications. Fire and PPE safety and signage is visible and adequate. PPE usage was consistently good at all the locations visited. Workplace air quality and noise is within acceptable limits. Fire drills and emergency preparedness drills are carried out on regular basis.

The company maintains monthly meetings with the workforce, and workers are not inhibited from expressing their opinion freely in the periodic satisfaction surveys (PENSA), the results of which are aggregated and shared with the workforce once a year.

SLC Agricola will update the company’s Human Resources Policy in order to include all requirements of IFC Performance Standard on labor and working conditions. In accordance with the ESAP, the company will propose measures to improve work place ventilation, dust control and improved machinery guards where Piratininga technology for ginning cotton will continue to be used. This should include identifying measures to eliminate need for direct hand contact of workers with cotton in machinery during processing in the Piratininga machinery.

- Pollution Prevention and Abatement:

Field operations at SLC Agricola include common practices for field production of cotton, soybeans, corn, and coffee. For crop nutrients, chemical fertilizers are applied. The farms primarily utilize direct planting (zero tilling) to reduce soil erosion. Pesticides are used, according to appropriate standard procedures for application. Direct observation confirmed that application procedures, worker PPE, safety practices, and washing and disposal of insecticide containers are carried out in conformance with Brazilian requirements and international safety standards. Aerial applications, carried out by contractors, use GPS positioning to align runs, thereby eliminating any use of field workers to align runs (“banderinhas”) and subsequent direct contact with the sprayed material. Ground applications are by use of self propelled “pulverizers" which have closed air conditioned cabins with ventilation air being filtered by activated carbon. Main sources of emissions to the environment and the risk of environmental contamination come from the processing of coffee, cotton ginning, and grain drying.

Air emissions:

Six of the eight company’s farms are connected to national or regional electric energy grids. Five of these farms depend entirely on the grid supply for housing, office and grain processing operations. The sixth, Planalto, is connected to the grid but uses energy from a back up diesel emergency generator during the expensive peak hours (18:30 -21:30) to reduce overall energy costs. At Planalto farm, annual diesel consumption for 2004-2006 averaged 19,000 liters. Palmeira and Planeste farms in Maranhão are not connected to the grid and rely totally on diesel generators for energy supply. Diesel fuel consumption for 2005-2006 averaged 47,500 l/annum for Palmeira. Planeste is scheduled to be connected to the grid within a few years, and its diesel consumption has varied widely as a function of increased cultivation, ranging from an average of 111,000 liters in 2005 to an average of 320,000 liters in 2006. Heat for grain dryers is generated through combustion of eucalyptus wood, whose supply is self sufficient in the respective farms. There are no particulate control systems on dryer outlet stacks. SLC Agricola will conduct particulate stack emissions measurements and also at stacks of the grain dry-out systems in the farms where these are operating. SLC Agricola will compare projected levels to IFC General Environmental Health and Safety Guidelines (EHS) for ambient air concentrations and will submit a report to IFC. Should measurements exceed IFC limits, the company will propose corrective measures, and agree with IFC a schedule to bring all emissions into compliance with IFC guideline requirements.

Effluents:

These include process liquid effluents; sanitary wastewater; and solid wastes emanating from processing of cotton. Pamplona is the only farm which uses process water for washing coffee beans. The wash water effluent flows through a system of five decantation ponds with weir distributors to control level, and then disposed of into a creek from which irrigation water is collected. At Pamplona, sanitary effluents are collected and flow to a system of five gravity settling/aeration ponds, and disposed of in a creek and subsequently used for irrigation water. The company will conduct a full chemical/physical/ microbiological assessment of all effluents in all farms, including the sanitary effluent discharge. If measurements exceed IFC limits, SLC Agricola will propose corrective measures, and agree with IFC on a schedule to comply with IFC guideline requirements.

Pesticide use and management:

SLC Agricola relies on high technology inputs in their field facilities, including agrochemical use. The use of these products is well managed and controlled, and there is appropriate use of personal protective equipment, as well as appropriate levels of training on agrochemical management. Attempts to use integrated pest management is evident. The company has elements of a comprehensive integrated pest and disease management system (IPM/IDM). SLC Agricola will develop a proposal to further upgrade this IPM/IDM system and create guidelines to reduce the use of organophosphate compounds, and replace these with less toxic products, and introduce biological control components into their pest management strategy. SLC Agricola will also provide to IFC the protocol used for blood testing of workers applying pesticides. The company will inform if there is any rotation policy of these workers.

Community Health, Safety and Security:

SLC Agricola does not have any communities living in close proximity to its operations. The closest community to any given farm is approximately 15 km distant and has less than 1000 inhabitants, consequently, there have not been any known community complaints to date. SLC Agricola however lacks a formal community grievance system. The company will develop a basic formal system for this, and will ensure it is clearly communicated to local communities. It will also be posted on the company website and included in relevant written public communications.

Aerial spraying of crops is done by licensed companies using crop dusting airplanes which comply with local regulatory requirements. The company will provide information to IFC showing that Emergency Planning and Response plans (EPR) are consistent with Brazilian legal requirements at all farms.

Land Acquisition:

There is no involuntary resettlement associated with this project. Land acquisition is strictly one of willing buyer- willing seller. Prices are mutually agreed and reflect market values. In Porto Alegre, the company has a corporate manager focused in the job of finding the most acceptable land for the crops they grow, taking into consideration price, climate, soil physical characteristics, potential logistics opportunities, legal status, and environmental requirements. A rigorous title-search process is done to ensure that all land purchased is fully compliant with relevant titling and applicable legislation and free of any litigation or conflicts. As of March 31, 2007, SLC Agricola properties totaled 134,647 ha including 129,016 with clear titles and 5,631 ha recently purchased and which titles are being processed. The main source of farm land is through purchase, but the company also rents about 18% of its total farm land needs. The rental contract requires owners to declare that all property and environmental licensing conforms to Brazilian legislation and that the area be free of any labor irregularities. As part of the ESAP, SLC Agricola will now systematically review relevant documents for land it is currently renting to ensure that the owner provide documentation that all ownership and environmental licensing conforms to Brazilian legislation and that the area be free of any labor irregularities. This will include reviewing relevant government lists to ensure that the rented farm owners are not on government black lists such as the slave labor list. SLC Agricola will enhance its rental agreement document and prepare a procedure relating to this for the ESMS. SLC Agricola will accompany the soy moratorium and ensure that none of the lands it farms operate in areas of the Amazon forest biome that have been deforested after July 24th, 2006.

- Biodiversity Conservation and Sustainable Natural Resource Management:

SLC Agricola operations do not involve modification, conversion, or degradation of any critical habitats. The company has followed Brazilian legislation in obtaining authorization for farm land clearing. No known endangered species are affected by the projects operations. No invasive alien species have been introduced. No legally protected conservation areas are impacted. All legal reserves and permanent preservation areas in all SLC Agricola properties are in good standing with the Instituto Brasileiro do Meio Ambiente (Brazilian Institute for the Environment), or IBAMA. Four SLC Agricola farms are located in cerrado (savannah) regions within the political designation of Amazonia Legal (Paiaguás and Planorte in Mato Grosso State, and Parnaiba and Planeste, in Maranhao State). All were classified as previously developed, deforested, or degraded prior to acquisition, with legal reserve and permanent reserves approved by environmental authorities. Mato Grosso properties all have their Licença Ambiental Unica (LAU). The company constantly evaluates ways to maximize biodiversity conservation opportunities in the design of new environmental legal reserves, and will report any progress on this in the AMR.

SLC Agricola’s goal is to ensure that world-class sustainable agriculture management practices, which include environmental and social aspects, are equally applied to all farms. The company will develop a plan to achieve this goal. For each of their crops, the company will collect and submit data on integrated pest and disease control programs, detailed analysis of agrochemical use and management, use of PPE, storing and recycling of agrochemicals and packages, level of training on agrochemical use, triple washing of containers, improvements in social issues, occupational health and safety, improved quality assessment and product monitoring, and waste management practices. SLC Agricola will include an account in the implementation of the plan in each annual report presented to IFC (AMR). The company will join the RTRS (Round Table for Responsible Soy) based in Sao Paulo, Brazil, and continue to participate in the “algodao social certification”, a certification done by the Mato Grosso cotton growers association.

Eucalyptus plantings:

SLC Agricola maintains approximately 512 ha of eucalyptus trees spread out over 6 farms (ranging from only 30 ha on the Planeste farm, to 177 ha on the Planalto farm). These trees are utilized primarily as a fuel source for drying soy grain and to provide recommended wind breaks to reduce soil erosion. They also provide shelter for local fauna. In no case have natural habitats been altered to create plantations. In all cases, marginal lands, previously used for pasture or annual crops, were planted with eucalyptus trees, and are managed by SLC Agricola using best available practices. SLC Agricola will submit to IFC their current plantation management plan for review. If such plan is not consistent with sustainable practices, the company will retain a qualified third party forestry plantation consultant to review current management practices. The consultant will then prepare a plan that ensures that the eucalyptus plantation is managed in a sustainable manner (as specified in the ESAP). The company will agree with IFC a schedule to implement the recommendations from the consultants report, and integrate sustainable eucalyptus management practices into its overall ESMS.

- Indigenous People:

Only one farm, (Planorte farm in the Sapezal area of Mato Grosso), is located near a recognized indigenous area. This farm is outside the official border of the Utariti Indigenous Area of the Parecis. A review with the FUNAI office in Cuiaba indicated that there is no incursion or impact from neighboring farms on this indigenous Area. A LAU has been issued for this farm indicating legal conformity.

Client's community engagement

Over 90 % of SLC Agricola work force are recruited locally thus making a significant contribution to the local economy. The company has formed the Social Action Group (GAS), and has a coordinator for each farm that helps catalyse social programs. In 2005 and 2006, SLC Agricola won the Corporate Social Responsibility prize for the state of Rio Grande do Sul. In the same state, the company supports NGO “Parceiros Voluntarios” with a monthly stipend of R$2,000. SLC Agricola’s Corporate Social Responsibility (CSR) Program includes day care centers, retirement homes, a hospital for children with cancer, and food collection for local poor families. Other benefits to workers and former workers include low-interest loans and scholarships for technical and university education.

The company will carry out an evaluation its corporate social responsibility (CSR) program. To implement this, SLC Agricola will appoint a social/community development specialist to help coordinate the CSR. The work plan of the social specialist should include:

- an assessment survey of rural needs in the local area where SLC Agricola works and contracts workers;
- an internal review of the training required to improve the local work force, as well as training needed to improve local service delivery.

IFC will work with the company to produce a social component to their annual reporting (Social Balance Sheet) using standards developed by the Brazilian Institute of Social and Economic Analysis (IBASE) and the Global Reporting Initiative (GRI).

Contact person: Laurence Beltrão Gomes
SLC Agrícola (Headquarters)
Rua Bernardo Pires, 128
Porto Alegre-RS

E-mail: Laurence.gomes@slcagricola.com.br

Telephone: 55 51 3230-7799

Environmental documents will be available at the following locations:

SLC AGRICOLA LOCATIONS

SLC Agrícola (Headquarters)
Rua Bernardo Pires, 128
Porto Alegre-RS

Escola Municipal Angelo Padilha Hoffmann
Rodovia 436, Km 50
Cristalina-GO

Prefeitura Municipal de Costa Rica
Rua Ambrosina Paes Coelho, 228
Centro
Costa Rica-MS

Escola Municipal Padre Ângelo Delassalandra
Praça São José
Bairro Catumbi
Balsas-MA

Prefeitura Municipal de Sapezal
Rua do Cará, 990
Sapezal-MT

Escola Padre Fábio Bertagnolli
Vila Batavo
Balsas - MA

Escola Municipal Décio Furigo
Distrito de Deciolândia
Diamantino – MT

Casa Familiar Rural de Buriti
Rua da Bandeira, sem número
Bairro São Benedito
Buriti-MA

Prefeitura Municipal de Correntina
Rua das Chácaras, 445
Bairro Antonio de França Barbosa
Correntina-BA

The documents will also be available in the company’s headquarters and on the company’s website:

Rua Bernardo Pires, 128 – 5º andar – Bairro Santana
Porto Alegre – RS – Brazil

Website: www.slcagricola.com.br

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