Araguaia

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	26835
Country	Brazil
Sector	Agriculture and Forestry
Department	Global Manufacturing & Services
Company name	Cia. do Vale do Araguaia
Environmental category	B
Status	Pend PDS-IR

Date ESRS disclosed	April 16, 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 a desk review of technical, environmental and social information submitted by Araguaia, interviews with company management and staff, and a site visit to the company’s current operations in Goias and Mato Grosso states.

Araguaia has internally established the set of actions that would ensure the company’s continued compliance with IFC’s Performance Standards and World Bank/IFC Guidelines.

Project description

Companhia do Vale do Araguaia (Araguaia, or the company) is a three-year old company that owns and operates a pilot project with approximately 11,400 hectares (ha) of land in midwestern Brazil, of which about 2,100 ha are planted with Tectona grandis (teak). The Project is the expansion of the Company’s operations to about 50,000 ha of planted teak (the Project) on approximately 90,000 ha of lands to be acquired. IFC is considering a straight equity investment in the company, supporting the costs of land purchase, planting, saw mill operations, and working capital. The company’s operations are centered in Mato Grosso state and the western edge of Goias state, a region with very favorable soils and climate for teak cultivation. The region in Mato Grosso where the existing farms and potential new farms are located are in that part of the Amazônia Legal originally covered by cerrado or savannah habitat. All areas to be planted with teak have been converted from the characteristic cerrado vegetation to agricultural use (cattle, soy, corn, etc.) in the 1970s to the early 1990s.

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 and Safety; and
- PS 6 – Biodiversity Conservation and Sustainable Natural Resource Management.

This ESRS assesses the project against the above Performance Standards. All lands were purchased from legal owners, on a willing buyer/willing seller basis, so PS 5 Land Acquisition and Involuntary Resettlement has not been applicable. The proposed plantations are not located near any indigenous reserves or indigenous communities, and no impacts related to PS 7 Indigenous Peoples are anticipated. No impacts on cultural heritage (PS 8) are expected.

In addition, the following Guidelines are applicable to this project:

- Environmental, Health and Safety General Guidelines, dated April 30, 2007;
- Environmental, Health and Safety Guidelines for Forestry Harvesting Operations, dated April 30, 2007; and
- Environmental, Health and Safety Guidelines for Sawmilling and Wood-based Products, dated April 30, 2007.

Environmental and social categorization and rationale

This is a Category B project under IFC’s Policy on Social and Environmental Sustainability because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, design criteria, local regulations and industry certification schemes. Land acquisition, biodiversity protection and encroachment on indigenous lands have been known to be significant issues on projects in this region, but the IFC review indicated that these issues either do not exist for this project or are being properly managed. The company’s intention to obtain globally-recognized, independent certification for sustainable forest management on their farms will result in its meeting international standards for environmental and social management. As a result, the Category B designation is appropriate.

Key environmental and social issues and mitigation

The company has presented information which indicates that the proposed project will comply with IFC’s environmental and social requirements, including host country laws and regulations and IFC’s Policy and Performance Standards on Social and Environmental Sustainability, and the applicable environmental, health and safety guidelines. The information about how any potential impacts will be addressed by the Project is summarized in the paragraphs that follow.

SOCIAL AND ENVIRONMENTAL ASSESSMENT AND MANAGEMENT SYSTEMS

Environmental and Social Assessment.

The company is in the early stages of developing its operations, focusing on land acquisition. As part of its comprehensive due diligence on land purchases, the company carries out detailed environmental investigations to identify biodiversity issues related to Permanent Preservation Areas (APPs) and Legal Reserves on their properties. Social assessment is focused on avoiding any potential impact on Indigenous Land and in providing adequate management of community issues. During operations, the company will be obtaining independent certification for sustainable forest management on all their plantations, and as part of these certifications additional environmental and social assessments will be required. The design and operation of any facilities will incorporate systems and procedures to prevent negative environmental and health and safety impacts.

Management Program.

At this stage in their development, the company has developed detailed, documented procedures for land appraisal and acquisition. Additional procedures will be developed as the company grows. Araguaia anticipates seeking certification of its forest management practices according to one of the widely recognized forest management standards, such as that of the Forest Stewardship Council (FSC). Such certification standards were developed with input from stakeholders, ensuring that social, economic and environmental interests are represented in standard setting. Some of Araguaia´s senior managers have had previous experience in dealing with certification standards. Because of the strong commitment across the company to adhere to these certification standards, the company should not face any major impediments to achieving the certification objectives. Standards such as that of FSC contain detailed performance requirements regarding plantation and processing operations, labor and community relations, and management of protected areas. These certifications, along with the company’s policies (described in their Code of Ethics and Conduct), procedures and organization, will provide a comprehensive framework for management of these elements, which will meet IFC’s PS1 requirements. Araguaia is also encouraged to further formalize its management system for these aspects through obtaining ISO 14001 certification for their environmental management system.

Organization.

Responsibilities for environmental and social issues currently reside in senior management, in particular the Chief Technical Officer. Farm managers are responsible for environmental issues in the plantation and supporting operations.

Monitoring and Reporting.

The company will develop detailed monitoring and reporting systems, to meet its own corporate governance requirements as well as to meet the detailed requirements of the independent certification for sustainable forest management. Currently, detailed reporting on environmental and social issues are included in regular reporting to the Board.

LABOR AND WORKING CONDITIONS

Human Resource (HR) Policy and Management.

The company currently has no HR policy per se, but follows Brazilian law—the Consolidated Labor Laws (CLT)—which covers most requirements in PS2. There is no formal grievance mechanism for workers, but any issues are addressed through the employees’ union. Araguaia’s practice is to operate through subcontractors who handle land preparation, planting and harvesting activities. At the Sao Jorge plantation (Agua Boa), the Company works through a local contractor, Vale Verde, which has 160 workers, all hired locally. Araguaia has provided support to Vale Verde in developing its own management systems as this supplier grows, thus contributing to the development of business skills in the area. The nursery in the Agua Boa area, which will come into operation in May, will employ 14 workers, all of whom will receive specialist training. Araguaia has an intensive monitoring process to ensure that subcontractors are meeting all labor laws and regulations. Araguaia is currently recruiting an HR specialist to supervise this function and will formalize requirements and procedures.

Occupational Health and Safety.

The company ensures that proper rest, shelter and sanitary facilities are provided for field workers. When the company develops a sawmill, appropriate occupational health and safety measures will be incorporated in its design to ensure the safety of workers.

POLLUTION PREVENTION AND ABATEMENT

Pollution Prevention, Resource Conservation and Energy Efficiency.

The plantations have negligible waste management issues. All planting is done on existing agricultural land, so no clearing is required. Small amounts of fertilizers are applied only at planting.

When the company develops a sawmill, planned for in or after 2011, that facility will be properly planned to ensure that it meets Brazilian laws and regulations as well as complies with IFC guidelines.

Carbon emissions from the operations are expected to be negligible. However, there may be opportunities to derive benefits from carbon sequestration in the growing trees, and Araguaia will monitor that market as it develops.

Pesticide Management.

The use of pesticides on the plantation is limited to low toxicity compounds which are only used in limited quantities. Glyphosate (Round-up) is used for weed control only in the first two years, and only where needed—most weeding is done manually. Mirex-S, a low-toxicity, sulfluramide-based formulation which has replaced the banned organochlorine version, is used sparingly on a spot basis for ant control. The company provides training to workers, and provides protective equipment, but needs to formalize their procedures, and provide defined storage areas. IFC will require that a comprehensive approach to pesticide handling be implemented on all farms at the start of operations, including secure storage, training, detailed application procedures, use of PPE, and procedures for cleaning of equipment and disposal of used containers.

COMMUNITY HEALTH, SAFETY AND SECURITY

Community Health and Safety.

Company activities in growing teak are not expected to result in impacts beyond the farm boundaries, and will pose no dangers to neighboring farms or any communities in the region. Fire is not a major risk on the plantations, and fire danger is only present for 2 or 3 months in the dry season. The company will install fire observation towers and mobile response equipment, and ensure that trained fire response teams are ready to respond if fires should occur.

Security Personnel Requirements.

Security is not an issue in the areas where the Company operates, and no formal security force is expected to be required.

LAND ACQUISITION AND PLANT SITING

Araguaia intends to expand its operations through direct purchase of suitable farm land. All purchases have been and will be on a willing seller/willing buyer basis. The company works through a limited number of local brokers who know their areas well, to identify suitable properties. They have a detailed procedure for evaluating properties, including existence of legal title, suitable soil conditions, handling of environmental issues (Areas of Permanent Protection, and Legal Reserves), minimum distance from any indigenous lands, and price. Araguaia makes a practice of leasing back land to the seller, or other local farmers, to continue agricultural production on the land until planting of teak begins.

Their area of central focus, in the Agua Boa and Canarama region, was cleared for agricultural development in the 1970s, and now is a relatively established area, with no history of land invasions. No issues in regard to PS5 therefore arise with this investment. There are no delimited Indigenous Lands within 40 km of any of the farms already purchased, nor any indigenous communities which would be affected by plantation operations. No issues with regard to PS7 arise.

BIODIVERSITY CONSERVATION

Araguaia is buying existing farms, which were originally cleared and converted from the original cerrado vegetation cover in the 1970s. The original cerrado habitat in the area varied widely, from grassland with sparse trees and shrubs to a more closed woodland with many species, growing up to 10 m in height. True cerrado is estimated to have included over 800 floral species and was highly diverse on an areal basis. Fragments of cerrado habitat remain across the region, mostly as a result of the land use regulations which require each farm to set aside a defined area of natural habitat for protection (known as the Legal Reserve), formerly 20% of the area and now 35%. In addition, a band of 50 m width on each side of a watercourse needs to be protected (Permanent Protection Area, or APP). Araguaia is in compliance with these limits on the farms it has already purchased, and will ensure that any farms purchased in the future will come into compliance. If the Legal Reserve limit is not met, landowners can either revegetate with native species, or purchase offsets elsewhere. Araguaia will use both methods if the need arises.

Araguaia has formed a partnership with Conservation International Brazil to identify areas within and around Água Boa, in the state of Mato Grosso, which are potential key areas for conservation activities. Within the scope of the partnership, CI-Brazil will conduct research on the biodiversity, land use dynamic and socioeconomic context of the region. The goal is to provide Araguaia with inputs for an effective management of their Legal Reserves to promote biodiversity conservation in a project on Sao Jorge farm. The results of this collaboration will inform Araguaia’s active management as well as contribute to regional conservation knowledge. Araguaia’s actions will meet IFC’s PS6 requirements, as well as meet the biodiversity conservation requirements for independent sustainable forest management certification.

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