11633 - Favorita Fruit Company Ltd.

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Environmental Review Summary

Project Number

11633

Company Name

FAVORITA FRUIT COMPANY LIMITED

Date ERS Disclosed

Aug 28, 2002

Country

Ecuador

Region

Latin America and the Caribbean

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Nov 26, 2002
Signed : Feb 3, 2003
Invested : Mar 24, 2003

Sector

Fruits and Vegetables

Industry

other

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

Favorita Fruit Company (Favorita) operations are vertically integrated through wholly owned subsidiaries in Ecuador. These include Rey Banano del Pacífico C.A. (Reybanpac), one of Ecuador''s leading banana growers and exporters. Subsidiary activities include trading, shipping, production of cardboard and plastics, fumigation services, and importation and marketing of fertilizers.

This IFC financed project involves the purchase of 2,200 ha of developed banana plantations. With this acquisition Favorita will have approximately 8,400 hectares devoted to banana production and will be less dependent on production from independent banana growers. Favorita plans to obtain ISO 14001 and ECO-O.K. certifications for the newly acquired plantations. The ECO-O.K. certification is a program of the Sustainable Agricultural Network, a coalition of NGOs that include Rainforest Alliance - USA; Corporación de Conservación y Desarrollo - Ecuador; Imaflora - Brazil; Centro Científico Tropical - Costa Rica; Fundación Interamericana de Investigación Tropical - Guatemala; and Salvanatura - El Salvador.

Additionally, Favorita will fund and manage a program to improve environmental and social practices among independent suppliers. The program will include measures to eradicate harmful child labor and activities to prepare the independent producer''s plantations for international certification.

Environmental and Social

The sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable host country laws and regulations and World Bank/IFC requirements. The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow.

Environmental policy and environmental management. Favorita''s existing operations (Reybanpac, Aerovic, Expoplast, Fertisa, and Cartonera Andina) benefit from a comprehensive and effective system to manage environmental and social issues. Notable accomplishments include ISO 14001 certification for all operations and ECO O.K. certification of all wholly owned banana plantations. Existing certifications for each plantation state that the plantation "promotes the ideals of conservation and social well being basic to sustainable development."

Acquisition of developed banana plantations. Favorita plans to acquire 2,200 ha of banana plantations during 2002-2003. Negotiations for the purchase of nine developed banana plantations (~1,100 ha) are already underway. The nine plantations are located near the city of Quevedo in the Province of Los Ríos and will be acquired from a single owner. Additional plantations (~1,100 ha) will be acquired during 2003. Favorita will invest in each plantation to ensure that they obtain ISO 14001 and ECO-O.K. certification. Favorita will carry out a detailed environmental and social audit of existing operations at each of the farms. The audit will provide a summary of the remedial measures and action items required to bring plantation operations into compliance with Ecuadorian law and with IFC/WBG guidelines and safeguard policies.

Retrenchment of developed banana plantation employees. The areas to be acquired are free of occupants other than caretakers of plantation installations. Favorita will offer employment and housing to caretakers. If necessary, improvements will be made to existing dwellings to provide acceptable living conditions. Workers currently employed on the farms will be terminated by the current owner and compensated in accordance with Ecuadorian law. Favorita will rehire the majority of these workers; however, rehires will exclude minors under the age of 16. Rehired workers will receive training in Favorita''s environmental procedures and will have access to health insurance through the Seguro Social Campesino (Farmers National Insurance), an uncommon benefit among farm workers in the banana sector. Seguro Social Campesino is critical for patient care in the event of serious illnesses or accidents. Those former employees who choose to stop working on the plantation will be free to invest their compensation payments in other economic activities or projects.

Supply chain issues. Independent producers currently supply about 18 million banana boxes to Favorita, which represent approximately two-thirds of Favorita''s sales volume. Existing social and environmental practices among independent growers do not meet Favorita''s plantation standards. Favorita implements technology transfer programs aimed at improving suppliers'' product quality; however, a more formal program is required and will be implemented to significantly assist suppliers in the implementation of environmental and social improvements.

Profile of independent producers. Roughly 400 independent banana producers are regular Favorita suppliers and benefit from Favorita''s technical assistance and credit programs. The average size of independent farms is 60 ha but varies significantly (10-60 ha). The number of employees varies as well. Family operations may have a few or no external employees. Others may employ up to 60 workers. Typically, 40% of the non-family workers are regular employees, while 60% are hired for specific tasks such as the day on which the bananas are packed and shipped. As part of this investment Favorita will enter into more formal arrangements with the suppliers, assist them in issues identification through conduct of a detailed gap analysis (audit) to delineate environmental and social issues that must be resolved to facilitate certification. Additionally, Favorita will augment its existing quality control programs to ensure that the management systems required to bring about needed changes on suppliers'' farms are in place. Favorita will work closely with the suppliers with the aim of achieving ECO-O.K. certification for all by 2006.

Employment of minors by independent producers. Approximately 10-15% of the supplier farms'' workforce is made up of minors, typically 15-18 years of age. Younger adolescents and children can be found working occasionally. In general, the incidence of child labor is inversely related to farm size. Minors account for 5-10 % of the workforce of independent producers. Most are 14-17, although the employment of younger individuals is not uncommon, particularly on farms that rely primarily on family labor. Minors are preferred for certain tasks, such as covering the bananas with plastic while they mature in the tree and placing stickers on them after harvest. In general, minors who work cannot study. Long distances between farms and schools make it difficult to combine work and study. Employment of minors between the ages of 14 and 17 is legal in Ecuador and is also consistent with the requirements of the International Labor Organization (ILO). Ecuador ratified the ILO''s Minimum Age Convention (C138) in 2000, which states that the minimum age for admission to employment or work shall not be less than 15 years. However, countries with "insufficiently developed" economies and educational facilities can "initially specify a minimum age of 14 years." Employment of minors between the ages of 12 and 14 is legal if the minors have been authorized to work by Ecuador''s Tribunal de Menores (Juvenile Court) and if such minors have completed primary school or are attending primary school. Tribunal de Menores authorization is granted when it can be proven that the minor needs to be employed to support the individual or other family members who are unable to work.

Environmental and social amelioration programs for independent producers. Favorita will implement a program to formally assist independent producers to improve environmental and social practices with the objective of obtaining ECO-O.K. certification. Key improvements required on individual farms to achieve certifications include: eradication of harmful child labor practices; implementation of reforestation programs; management of plastic waste; construction of solid waste and wastewater (sanitary and process) management systems; implementation of integrated pest management programs; construction of enclosed chemical products application chambers; and other priority issues that are identified in gap analyses. Small farmer''s certification-mandated investments may not yield greater profits; this is an inherent disincentive that Favorita will need to overcome over time. ECO O.K. certification will be a long-term goal for most independent producers. However, significant environmental and social improvements, which can be achieved quickly with minimal cost, will be a priority for Favorita''s implementation teams. Child labor, for example, can be eradicated over a short period of time, particularly on farms that do not rely primarily on family labor; natural vegetation can be preserved and enhanced to reduce erosion and associated surface water contamination; reforestation programs can be implemented in irregular areas, around packing plants and other installations, and near roads and rivers; and plastic collection and recycling can be implemented. Other improvements will require capital investments and will therefore take more time to put into effect. Most independent producers are not likely to achieve ECO-O.K. certification in the near future. Thus, Favorita will create a system to track progress towards certification, develop intermediate certification stages to reward small producers who implement significant environmental and social improvements (but insufficient to obtain ECO-O.K. certification) and other measures to maintain motivation among independent suppliers.

Favorita''s role in the eradication of harmful child labor. Favorita proposes to play a critical role in the eradication of harmful child labor among its suppliers and has developed a plan with this objective (see Attachment B). Commercial relations and concomitant technical assistance and finance (credit) with suppliers delivered on a farm by farm basis through Favorita Quality Teams will be made contingent upon on strict compliance with Ecuadorian legislation that will also enable the independent producers to meet ECO-O.K. certification requirement regarding child labor.

Sector initiatives in the eradication of harmful child labor. Strict compliance with Ecuadorian legislation regarding the employment of minors among Favorita''s suppliers could merely transfer illegal activity to other banana producers. Thus, Favorita''s Executive Vice president, in his capacity as president of the Corporación de Promoción de Exportación e Inversión (Corpei), which is a non-governmental organization that promotes private exports and foreign direct investment, led a sector-wide initiative to eradicate harmful child labor practices. As part of this initiative, Ecuador''s major banana companies and the members of the Asociación de Exportadores de Bananos de Ecuador (AEBE) and the Unión de Bananeros Ecuatorianos (in aggregate these organizations account for 80% of Ecuador''s banana production and 60% of exports) signed a formal agreement on July 23, 2002 in which they committed to eliminate the practice of hiring minors below the age of 15 within a 12-month period. The agreement also states that the signatories to the agreement will employ minors between the ages of 15 and 18 in strict compliance with the requirements of Ecuadorian law. The agreement was endorsed by the Ministry of Labor, the Ministry of Education, UNICEF, the ILO and the Instituto Nacional de la Familia (Ecuador''s national Family Institute). As part of the agreement, banana exporters and producers will establish a Banana Business Forum (Foro Empresarial del Banano) to establish policies to eradicate harmful child labor in the banana sector. The policies will be implemented by an Executive Commission, whose members will represent banana producers and exporters, as well as government agencies, international organizations and labor unions.

Wong Foundation initiatives. The Wong Foundation, established in 1993 to develop and manage social programs, will support efforts to eradicate harmful child labor by increasing its support to educational activities. The Foundation currently supports 27 primary schools (14 private and 13 public) and implements various educational, environmental and health programs. Going forward, the Foundation will also support technical schools at the ciclo básico (fundamental program) level of secondary education. Technical schools at this level will be an attractive option for minors between the ages of 12 and 15 and can complement Favorita''s efforts to eradicate harmful child labor among its suppliers.

Land Acquisition and resettlement in the port terminal area. In Early 1999 and continuing to mid 2002 Fertisa, which is Favorita''s port operator, acquired possession rights over 153 lots located to the south of the port area. A total of 612 persons sold their property rights through a willing-buyer/willing seller process and resettled voluntarily. Fertisa assisted the families during their move and provided information on government housing programs and potential relocation sites. Fertisa plans to acquire approximately 150 additional lots in this manner by the end of 2003.

Conclusion & Monitoring

Based on its review of available information regarding potential environmental and social impacts and specific mitigation measures (addressed in the attached corrective action plan), IFC concludes that the proposed project is being designed to meet Ecuadoran government regulatory requirements, as well as IFC and World Bank policies and environmental, social, health and safety guidelines.

IFC will monitor compliance with Ecuadoran regulations and World Bank policies and guidelines and with the attached corrective action plan during the life of the project. Favorita will submit annual environmental monitoring reports. IFC will evaluate these monitoring reports and Favorita’s proposed remedial measures as needed to maintain compliance. Additionally, IFC will conduct periodic site reviews during project supervision.

Environmental and Social Documentation

File Name	Actions
Ecuador Favorita II 11633 ERS and CAP rev12.pdf

This Environmental Review Summary (ERS) 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. Any documentation that is attached to this ERS has been prepared by the project sponsor or in conjunction with 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. The following ERS is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

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