Sociedad Agricola Drokasa S.A.

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public 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 decision. Board dates are estimates only.

Project number	26821
Company name	Sociedad Agricola Drokasa S.A.
Country	Peru
Sector	Agriculture and Forestry
Environmental category	B
Department	Agribusiness
Status	Dropped

Date SPI disclosed	May 7, 2009
Projected board date	June 8, 2009

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Agrokasa was founded in 1995 and is an existing IFC client since 1999. It is the largest and most modern fresh asparagus and table grapes producer and exporter in Peru, focusing exclusively on premium export markets in the northern hemisphere. Since 2003, the company is also a producer of avocado and has farms located in Ica, south of Lima, and in Barranca, north of Lima. IFC will provide a loan to support the company’s 2008–10 investment programs and restructuring of its balance sheet from short- to long-term obligations. The investment program includes implementation of new areas in the northern farm and hydraulic improvements in the south. The hydraulic improvements element of the investment program includes measures to reduce stress on the Ica aquifer in southern Peru. Specifically, water from the Santa Rita site: (i) either from current wells, and/or (ii) four (4) new Ranney-type wells, (if approved by the government), and/or (iii) Ica River surface water (if approved by the government), will be conveyed in a PVC pipeline to La Catalina farm. If the authorities allow (ii) above, four existing ground water wells servicing La Catalina, which is one of the most distressed portion of the Ica aquifer, will be closed. Ground water from these wells will be replaced by the four new Ranney-type wells in Santa Rita, an area of the aquifer that is less stressed. These Ranney-type wells will be situated in the vicinity of the Ica River to take advantage of surface water recharge of the aquifer.

By providing the proposed loan facility, IFC will help a local player to (i) improve its operations, thereby allowing the Company to grow and expand further into existing and new markets, (ii) ensure appropriate financing facilities for its varied production cycle; and (iii) create more employment opportunities in some of the poorest areas of Peru. In addition, IFC will strength the relationship with one of the leaders of the industry and further promote the development of the Peruvian agribusiness industry.

Anticipated development impact of the project

The proposed project will help a local export-oriented company to expand and to improve its competitiveness in asparagus, table grapes and avocados. The following key development impacts are expected for the project:

- Rural economic development: by investing in the company’s farms located in Barranca and Ica, the project will help to continue to spread the economic benefits of modern agriculture to local communities.

- Employment: By expanding production capacity at its Las Mercedes farm, Agrokasa will generate both direct and indirect employment opportunities in Barranca.

- Water Management: the project will continue to use of sophisticated drip irrigation technology that optimizes the use of water and ensures product quality while reducing costs.

- Environmental standards setting: the proposed project would include the implementation of IFC’s performance standards in environmental and social practices for agribusiness projects.

IFC's expected development contribution

IFC would play a role supporting an export-oriented agribusiness company to expand its operations with the appropriate structure/tenor to match the company’s productive cycle. It is also a countercyclical role as the global market situation has limited the availability of funds.

Through this project, IFC would indirectly contribute to the growth of foreign exchange reserve of local economy.
IFC is helping the company to maintain international environmental and social standards, therefore, playing a demonstrative role in the country.
IFC has shared and will continue to share its global expertise and industry knowledge in the agribusiness sector to the company.

Environmental and social issues - Category B

This category B project has limited, specific environmental and social impacts that may be avoided or mitigated by good international industry practice including IFC performance standards, EHS guidelines, and informed design criteria. IFC professional staff performed a physical evaluation of the project and environs, and reviewed relevant company and government documentation. Overuse of the Ica aquifer is a significant issue. According to a World Bank mission report published in November 2008, overexploitation is attributable to a combination of factors from 2002-2007 after the establishment of Agrokasa farms in the area. Contributory factors elucidated by the World Bank report include rapid increases in agricultural production areas; population and economic growth; and, construction of more than 150 clandestine (unpermitted) production wells.

Since the inception of its farms in the area, Agrokasa introduced irrigation technologies that minimize water use and pursued sustainability of water use in all its operations. The company is preparing an Environmental Assessment (EA) to fully document existing practices and to assess the impacts of the proposed hydraulic improvement projects at Ica. Agrokasa will conduct public disclosure and outreach programs consistent with the requirements of Performance Standard 1. As currently described, the project may help to reduce the stress in the aquifer by utilizing water in areas that benefit from intermittent surface water flows to enhance recharge and to thereby avoid use of water in areas with slower recharge.

Further information associated with the use and overexploitation of the Ica Aquifer, which is a pivotally important natural resource for this company, and mitigation measures being undertaken by the company in addition to existing water conservation practices aimed at enhancing the sustainability of the aquifer are addressed in the Environmental and Social Review Summary (ESRS) and the companion Environmental Action Plan (EAP) published in the WBG InfoShop and locally in Peru. More detailed information will be available and in the forthcoming EA under preparation by the client.

IFC PROJECTS

RECENTLY DISCLOSED