If provided by the financial institution, the Early Warning System Team writes a short summary describing the purported development objective of the project and project components. Review the complete project documentation for a detailed description.
PROJECT DESCRIPTION
The proposed investment is to support Agrofusion Group (the "Company"), a tomato paste and industrial tomato producer in Ukraine, by strengthening its capital base through refinancing existing short term debt and financing incremental permanent working capital.Established in 2007, Agrofusion is the largest vertically integrated tomato paste producer in Ukraine, marketing its products mainly to large FMCG (Fast Moving Consumer Goods) companies in Ukraine, Russia, other CIS countries, and to a lesser extent Western European markets. The Company's operational assets include: (i) two tomato paste plants with total processing capacity of approximately 300,000 metric tons of tomatoes per season (6,000 tons of tomatoes a day); (ii) two seedling green-houses; and (iii) 12,000 hectares of irrigated leased land in Mykolayiv and Kherson regions, as well as modern farming equipment.
OVERVIEW OF IFC'S SCOPE OF REVIEW
IFC's review included:Site visits to Agrofusion headquarters in Mykolayiv, Southern and Northern tomato processing factories and two greenhouses in Mykolayiv and Kherson, three fields and field offices Mykolayiv and Kherson regions.Meetings were held with the Project Coordinator, Chief Finance Officer, Director of Agriculture Department, Environmental Manager, , Safety Manager, HR Manager at corporate level and Production Managers, Quality Managers, Technical and Maintenance Managers, Masters of Fields, Human Resources (HR) Managers, Environment and Occupational Health and Safety (OHS) Chiefs, Quality Engineers at plant level and chiefs of field office .Review of available corporate environmental and social documents, including: completed Environmental & Social (E&S) questionnaires for each plant, risk assessment studies, training plans and programs, Emergency Response Plans and Fire Safety Procedures, emission and discharge permits, drinking and waste water analyses, emission measurements, maintenance programs, ISO 9001 management system certificates, human resources (HR) policy and procedures, Policy of social responsibility, Anticorruption policy, permanent and seasonal workers contracts, job descriptions, Sedex Sedex is a not for profit membership organization dedicated to driving improvements in ethical and responsible business practices in global supply chainsreports, Quality manuals, Pesticide and Fertilizer management plans.
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 - Assessment and Management of Environmental and Social Risks and ImpactsPS 2 - Labor and working conditionsPS 3 - Resource Efficiency and Pollution PreventionPS 4 - Community Health, Safety and SecurityPS 6 - Biodiversity Conservation and Sustainable Management of Living Natural ResourcesIf IFC's investment proceeds, IFC will periodically review the the project's ongoing compliance with the 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 above Performance Standards.Project site is readily located in an industrial zone. PS5 does not apply as the project involves no land acquisitions or involuntary resettlement;PS7 and PS8 do not apply as there are no indigenous peoples or cultural heritage sites in the area of influence of the project. Other PS may become applicable in the future should any new IFC investment in this project have impacts beyond the ones hereby identified.
ENVIRONMENTAL AND SOCIAL CATEGORIZATION AND RATIONALE
This project will finance existing tomato crop growing, harvesting and processing operations. The key environmental and social issues for this project considered during the appraisal include:- Company's current quality, environmental, health and safety, and social management systems and their implementation and enforcement;- Pesticide and fertilizer management systems, including protection of adjacent land and water courses;- Food safety programs and certification (HACCP);- Air emission control and waste/wastewater management;- Water and energy use efficiency programs;-Labor and working conditions, seasonal workers- Occupational health and safety (OHS); and fire safety implementation.The Project has limited potential adverse environmental and social impacts, and those that do exist are site-specific and can be resolved through the effective implementation of the action items in the attached E&S Action Plan (ESAP), which integrate IFC's Performance Standards (PS) requirements and good international industry practices as defined in World Bank Group (WBG)'s general and applicable sector-specific (Annual Crop Production, Food and Beverage Processing) Environmental, Health and Safety requirements. This corporate-level investment is therefore a Category B project according to IFC's Environmental and Social Review Procedures.The information about how these potential impacts are and will be addressed is summarized in the following sections of this Environmental and Social Review Summary (ESRS) and in the attached ESAP agreed upon with the Company.
**Information on IFC's Policy and Performance Standards on Environmental and Social Sustainability can be found at
www.ifc.org/sustainability
ENVIRONMENTAL AND SOCIAL MITIGATION MEASURES
IFC's appraisal considered the environmental and social management planning process and documentation for the project and gaps, if any, between these and IFC's requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through the implementation of these measures, the project is expected to be designed and operated in accordance with Performance Standards objectives.
PS 1: ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS
Agrofusion facilities are located in southern Ukraine; Mykolayiv and Kherson regions, which have traditionally been tomato growing lands. The factories were established in 2007 and 2009 respectively with state of art technology. Agrofusion group owns two factories, two greenhouses and 12000 hectares (ha) of irrigated land, processing 300,000 tons per year tomatoes and growing 150,000,000 pieces per year of tomato seedlings in its greenhouses.Management Systems and Assessment:The development of an Environmental Impact Assessment (EIA) study for the facilities has not been requested by the local authorities. Nevertheless, facilities have acquired operational licenses and environmental permits for their existing facilities from the Ukrainian regulatory authorities.The company undergoes international customer audits on a regular basis and in year 2010 has passed the Sedex audit successfully.Both processing plants have quality assurance management systems certified compliant with ISO 22000 (food safety) and ISO9001 (quality). The company plans to have ISO9001 system for its greenhouses in 2013. The factories have environmental and social policies and procedures in place. However, in order to systematically manage and mitigate the environmental and social risks of its business operations, Agrofusion will establish and integrated Environmental and Occupational Health and Safety (OHS) Management system capable of certification of compliance with internationally recognized standards, e.g. ISO14001 (environmental management and OHSAS 18001 (occupational safety and health) respectively) as described in the attached ESAP.Organization:The company has experienced and well qualified Quality, OHS and Environment Managers in headquarters and respective personnel in each of the facilities. In addition, the Project Coordinator's job description includes environmental duties at the corporate level.Training:The Company has established training programs to provide necessary induction and periodic trainings EHS issues for all of their direct and contractor employees. These include but are not limited to PPE (Personal Protective Equipment) usage and specific job trainings, etc. The Companies record and report all training activities and trainees. Training plans are revised according to the specific needs of the departments and according to the outcomes of the training evaluation mechanism. Well prepared safety rules booklet is given to all employees and safety rules explained to any visitor/ contractor before entering to the plant site.Monitoring:Both factories regularly monitor effluent discharge, air emissions, solid waste generation, energy and water consumption, lost time accidents, customer complaints, and suppliers' performances for the various operations at all plants, in compliance with Ukrainian regulatory requirements. The companies will set and follow key performance indicators for environmental, health and safety (EHS) as continuous improvement targets in line with international standards.Reporting:Reporting of EHS key performance indicators will be done internally as per the requirements of the corporate Environmental and Safety management system. Reporting is already done externally to the national regulatory agencies requiring EHS monitoring. Agrofusion facilities undergo regular audits within the context of Environmental License and fulfill the reporting requirements to the relevant authorities. The Company will regularly submit to IFC an Annual Monitoring Report on Environmental and Social Performance prepared in accordance with the IFC's Performance Standards and guidelines.
PS 2: LABOR AND WORKING CONDITIONS
Human Resources Policy and Management:There is a Human Resources (HR) policy at the corporate level and each company has its own Human resources policy and procedures in place. Agrofusion companies operate in accordance with the Ukrainian Labor Code, which covers workers' conditions, worker and employer rights, retrenchment, leave, minimum wages, discipline, the relationships between workers, companies and unions, and other labor issues.Agrofusion currently employs approximately 1044 workers including administrative, technical and support staff with an annual staff turnover of around 3%. Total workforce consists of 78% blue collar employees; employees between the ages of 36-50 and under 35 respectively represent 33% and 53% of the total workforce. Agrofusion employees during two months processing period work in three shifts and overtime work is paid in accordance with the local legislation. For workers at all levels Agrofusion guarantees more than minimum wage - 1350 Ukrainian hryvnyas per month, and pays more than the average of the regional salaries for the industry.Agrofusion's HR policies prohibit the use of forced or child labor. The minimum age of employment is 18 at all plants and agricultural divisions.Workers' Organizations:Agrofusion management has stated that each employee is free to join a worker organization. Although there is no union, worker's representatives are selected and a collective agreement is implemented for all facilities.Contracted WorkersThe nature of agricultural production results in the need for additional seasonal staff at certain times of the year. Seasonal workers are mainly hired between August and October and forms approximately 60% of plant and field staff. Seasonal workers receive OHS training periodically and the company reported that they have same rights as direct workers. Agrofusion will ensure that a grievance mechanism will be applied to seasonal workers going forward.Non-Discrimination and Equal Opportunity:Agrofusion is an equal opportunity employer, and does not make employment decisions on the basis of personal characteristics unrelated to inherent job requirements. The company also complies with the national labor law requirements for non-discrimination and employs a certain number of disabled people as required by the law.Grievance Mechanism:The Company has adopted an open door policy and, as reported; employees can directly communicate their concerns to their respective supervisors and managers. Employee representatives are periodically elected by the entire worker force; these representatives also have established a systematic communication mechanism. The Company has placed a number of suggestion boxes at locations throughout the facilities, to allow employees to submit suggestions or complaints. In addition to these internal grievance mechanisms, external worker protection mechanisms are ensured by the national labor laws.Retrenchment:There are no current plans for retrenchment in Agrofusion facilities, however if it becomes unavoidable, the company will implement retrenchment plan in accordance with PS2 and, in consultation with the employee representatives.Occupational Health and Safety:The company has an a functional Occupational Health and Safety system; however this needs to be integrated into the quality management system and systematized in line with OHSAS 18001 and other international OHS management system standards.The company keeps records of incidents and near-misses in their accident log system including the relevant corrective actions. Risk analysis studies had also been completed and a risk analysis document is available and was reviewed by IFC during appraisal. A Permit to Work system will be implemented for hot works and working at height and will be extended to electrical works and confined spaces working. The company will post warning signs and implement other effective means to inform employees of areas defined as confined spaces.Agrofusion's facilities have detailed maintenance programs for lines and equipment, such as forklifts, pressurized vessels, boilers, etc and the preventive/ corrective maintenance activities are regularly tracked. All chemicals and hazardous materials are labeled and stored appropriately with relevant material safety data sheets (MSDSs).The company has its own fire department and a fire safety plan has been established according to national legislation. Well trained fire fighting teams are accessible at every shift. Smoke detectors and fire extinguishers are in place, a hydrant system is available. Emergency exits are specified throughout each site and fire drills are performed once a year.Each employee undergoes periodical training and examination on OHS and fire safety. The company also holds specific seminars on safe handling and use of crop protection products for its suppliers. Outsourced truck drivers receive training for the routes, safe loading/ unloading and safety rules.Company has had two lost time accidents at past three years at one of its fields and greenhouses. After the accidents, root causes were identified and corrective actions were taken effectively. Facilities will continuously improve accident-free environment in line with OHSAS18001.Agrofusion will improve machine guarding for rotating parts of each pumping station for drip irrigation at the fields and will improve social areas in field offices (OLD ONE) and ensure that proper food and water has supplied for the field workers.
PS 3: RESOURCE EFFICIENCY AND POLLUTION PREVENTION
Resource Efficiency:Water UseAll facilities have metering to facilitate benchmarking of energy and water use. The company has executed water studies to identify options for diminishing water consumption for processing, researched water reuse and recirculation opportunities, and as a result consumes 1 liter of water per kg tomato, which is within the industry benchmark. Water used in the process is obtained from municipal sources network and wells on one of the processing factories and treated with reverse osmoses and ultraviolet filtration systems.Drip irrigation systems have been installed for 95% of the total field area and the balance will be drip irrigated by 2013. Water is directly delivered to the root system of the plants to provide maximum water update and efficiency by minimizing run off and evaporation. Irrigation water volumes fluctuate between 4000-5000 m3/ ha depending on the soil conditions and rainfall, which are measured and analyzed regularly.Energy UseThe company consumes approximately 26 kWh of grid electricity and 27 m3 of natural gas per ton of product at both plants, which is within the industry benchmark range. However, the company had and will continue to research potential opportunities for both plants to further reduce its specific consumption.Pollution PreventionAir EmissionsThe company operates five well maintained natural gas fired steam boilers for both facilities. NOx and other parameter levels are less than both local and IFC's limits. (average NOx= 60 Nmg/m3) Emissions measurements are performed every five years according to local legislation.Waste Water Management:Both facilities have state of art biological waste water treatment plants for domestic waste water and industrial waste water separately. COD, TSS, pH (40 mg/l, 15 mg/l and7.5 respectively) analyses are in line with both IFC's and national limits.Solid and Hazardous Waste Management:Solid non-hazardous waste and hazardous waste management at both Agrofusion plants visited are in general adequate, involving waste segregation and reduction. Non-recyclable waste produced on sites are temporarily stored by type, capacity and physical state in the appropriate containers or barrels and treated in accordance with the provisions of the regulations on the disposal of waste from the production processes. Tomato residue is used as fertilizer in the fields.Hazardous waste is stored separately from non-hazardous waste in specially labeled containers and disposed to licensed companies authorized by regulatory agencies.Pesticide Use and Management:The Company has well managed pesticide and fertilizer management plan for the fields. During the irrigation process mineral fertilizers are applied through irrigation system (fertigation) choosing the optimum rate of fertilizers depending on the soil and growth conditions. In addition to online weather/ soil communication devices for the field responsible, the company also started to install pilot weather observers to improve the management capacity.Supply ChainAgrofusion cultivates approximately 12,000 ha of irrigated land. The land is rented either from the government (10%) or individual farmers. At present the Company has approximately 1800 signed agreements with individual small farmers; rental prices are set by the relevant state legislative authorities. Approximately 70% of the lands are within a30 km perimeter of the processing plants and nearby the irrigation channels.Furthermore, company plans to implement formal internationally accepted Good Agricultural Practices (GAP) program for its fields within a scheduled time period.
PS 4: COMMUNITY HEALTH, SAFETY AND SECURITY
There are no immediate households or neighbors in the vicinity of either of the facilities.The Company employs licensed and unarmed security personnel at all sites contracted from a private company, who are regularly trained and certified as per the local regulatory requirements.Agrofusion has an active grievance mechanism for the customer complaints and regularly monitors the number and root cause of complaints and under the scope of Good Manufacturing Practices and food safety system. Traceability practices and product recall procedures are available in case of any need.
PS 6: BIODIVERSITY CONSERVATION AND SUSTAINABLE MANAGEMENT OF LIVING NATURAL RESOURCES
Genetically-modified organisms (GMOs) are considered alien species. The Company has a GMO policy which is in compliance with the local legislation and the Cartagena Protocol for Biosafety.Agrofusion is currently implementing a formal Pesticide Management Plan for its supply chain which covers the areas of pesticide selection and handling, application and storage, staff training, safety requirements, and disposal, consistent with national laws and regulations, IFC policies and guidelines and World Health Organization (WHO) guidance. Pesticides classified as WHO Class 1a (extremely hazardous) and 1b (highly hazardous) are not used in any of the Company's fields.Furthermore, the Company has voluntarily signed a long term cooperation agreement and biodiversity action plan with the Ukrainian Society For the Protection of Birds (USPB- the Ukrainian based partner of Bird Life International) as the first national funder of USPB's nature conservation activities in Ukraine. The program was developed to prevent extinction of endangered bird species listed on the IUCN Red Data Book of threatened specifies in Ukraine. The red breasted goose, an endangered species on the IUCN Red List, recently became the first species benefiting from the cooperation.
