1.0 Environmental, Health and Safety, and Social Assessment and Management Systems

Favorita and all its subsidiaries operate in a manner consistent with the requirements of Ecuadorian laws and regulations, and IFC Performance Standards. Each one of the company’s subsidiaries has its own environmental and social policy, in line with the Corporate management systems and policy, and full-time staff responsible for environment and occupational health and safety report directly to the Corporate Environment Department. Their overall management system approach for environmental and social issues is consistent with IFC’s Performance Standard 1. Favorita has develop an Environmental and Social Impact Assessment (ESIA) study for the Rio Bimbe hydroelectric project, this document will be submitted to IFC for approval and thereafter disclosed in Infoshop, and released for public consultation in the area of the operation.

2.0 Labour and Working Conditions

The client has no plans for retrenchment. Each subsidiary company has its own Internal Labor Policy in line with the Corporate Policy. The policy currently does not specifically include reference to non-discrimination, freedom of association and collective bargaining, as specified in IFC’s Performance Standard 2, and the company will be required to include these aspects in their human resources policy. There are no worker unions in the company or its subsidiaries, however the company demonstrates good worker relationship and a strong grievance mechanism.

Cartonera Andina: The plant works two shifts of 8 hours each, but 60% of the time, the employees work up to 12 hours for 6 days a week (72 hours per week). According to the Ecuadorian Labor Code (1997) the maximum working hours per week is 40, with up to 12 hours extra time. Cartonera Andina will conduct a labor efficiency study, and will develop a program for minimizing long shifts without reducing income for employees.

Develop an operational safety programme for site infrastructure at Fertisa: This plan will include pavement markings, traffic signals, speed regulatory signs, and warning signs, according to international standards, to mark roads, guide drivers and pedestrians, regulate traffic, and ensure safety of the workforce.

Contractors and supply chain: The company will develop more rigorous reporting requirements in order to ensure that contractors in all their operations and independent banana suppliers are in compliance with

- workers legal benefits;
- wages paid on time,
- health and safety regulations, and
- ILO Conventions 138 on Minimum Age, and 182 on Worst Forms of Child Labour.

- Occupational Health and Safety

Field visits to facilities indicated deficiencies in the use of safety of personal protection equipment by the workforce at Cartonera Andina, Fertisa, Reysahiwal’s dairy operations, and Reysahiwal’s saw mill. The company will provide training at these plants to all current and new employees on Occupational Health and Safety, including the correct use of personal protection equipment, and working procedures to reduce the risk of injuries and/or accidents.

3.0 Pollution Prevention and Abatement:

Field operations include common practices for banana and pineapple plantations. For crop nutrients, chemical fertilizers and lime are applied. Only EPA and EurepGAP registered pesticides are applied by Aerovic, a subsidiary of Favorita, according to appropriate standard procedures for application. Well adapted Sahiwal cattle provides milk for the dairy processing operations. The main sources of emissions to the environment and the risk of environmental contamination come from the dairy processing plant. These include process liquid effluents; and solid waste from dairy farms and processing. All other Favorita operations have effluents discharged into the local municipal sewage system.

Air emissions:

The Reysahiwal milk processing plant at Santo Domingo uses power from the grid. During energy shortages, reported to occur 60% of the time, two generators fueled with bunker oil are used. Favorita will quantify direct stack emissions for all operating generators, will compare projected levels to IFC General EHS Guidelines for ambient air concentrations, and will submit a report to IFC. If measurements exceed IFC limits, Favorita will propose corrective measures, and agree with IFC a schedule to bring all emissions into compliance with IFC guideline requirements.

Reysahiwal’s dairy farms:

Natural grazing constitutes 85% of the dairy cattle forage diet at Favorita. This production system sustains a milk production of some 2.2 million litres per annum. The field visit indicated that improvements were needed in the housekeeping of the dairy farms and during milking of cows, mainly in management and disposal of organic waste and liquid effluents that can affect the health of animals and food safety. To ensure proper transfer of milk from the dairies to the industrial plant, Favorita will implement a plan to address good housekeeping, proper disposal of organic waste, sanitary wastewater, and miscellaneous wastewaters. Provision of clean and quality water from wells and other sources while cattle graze should be given high priority.

Reysahiwal’s dairy processing plant:

This dairy processing facility has exceeded the capacity of the small effluent treatment plant currently installed. The company will present a plan for IFC’s approval to install an effluent treatment plant to ensure effluents are in compliance with Ecuadorian regulatory limits and IFC guidelines. Currently, untreated process effluent from cleaning and spillages at the milk plant, effluents originating from cheese processing including whey, with unknown levels of BOD/COD, or salts, are disposed through irrigation of fields. Hence, there is a potential for contamination of aquifers. Favorita will conduct a full chemical/physical/ microbiological assessment of groundwater throughout their farms and establish a baseline. If continuing assessment indicates deterioration, Favorita will take specific actions to mitigate the situation.

4.0 Community Health, Safety and Security

Over the years, Favorita has built a constructive relationship with the communities where they operate. It has also established a Foundation that implements several social programs. In general, Favorita’s operations pose little or no risks to local communities. In the case of using aerial spraying on banana plantations, these operations are carefully regulated and managed to ensure no exposure to local communities. Favorita does need to improve mechanisms to ensure that community concerns and/or complaints are clearly heard and addressed in a timely fashion, and will develop an improved grievance mechanism in this regard.

Security forces: VAMESEG provides all security services to the plantations and to all Favorita Group plant facilities. All guards have received proper training in community relations as it relates to the use of weapons.

5.0 Land Acquisition and Involuntary Resettlement

Favorita owns 10,000 hectares of which 8, 000 are planted with bananas. The Company does not plan to acquire any additional land in the near future. Favorita follows Ecuadorian law for all land acquisitions, and all transactions are done on a willing seller-willing buyer basis.

6.0 Biodiversity Conservation and Sustainable Natural Resource Management

Natural or critical habitat or endangered species:

There are no legally protected areas in the vicinity of any of Favorita’s operations. Favorita’s operations do not involve modification, conversion, or degradation of any critical habitats. The Company owns forest plantations of more than 4000 ha of wood and bamboo species distributed in 55 farms located mainly in Los Rios and Pichincha. All forest plantations have been certified by SmartWood under the FSC label since 2001.

Sustainable Water Resource Use:

Reysahiwal’s dairy processing plant at Santo Domingo depends on groundwater sources extraction for water supply. The wells are currently at 100m depth. To ensure the sustainability of the water supply, the Company will install remote control computer-based groundwater level monitoring tools in all wells to track future trends in groundwater availability.

Reysahiwal saw mill:

The saw mill is located in the forest, where a temporary shelter was built by Favorita for the production of pallets which are sold to banana and tropical fruit exporters. Sawdust waste has accumulated, and Favorita will present a plan for IFC’s approval to ensure disposal of the sawdust waste in compliance with Ecuador regulatory limits and IFC guidelines.

Sustainable management certification for banana operations and suppliers:

Reybanpac is working with the Rainforest Alliance on commodity certification for sustainable management, and is strengthening their EurepGAP certifications in appropriate areas for their own plantations.

However, these improved agricultural management practices, which include environmental and social aspects, need to be further extended to Favorita’s independent banana suppliers. Favorita is developing a phased program to achieve this over a five year period. The program will include implementation of: integrated pest and disease control programs; improvements in occupational health and safety, and medical care: improvements in agricultural production and banana productivity; improved quality assessment and monitoring of product; improved waste management practices; and upgrading of worker housing. Favorita’s goal is to ensure similar world-class practices are applied to all suppliers, as is currently found on its own plantations, and to achieve independent certification to this effect. Favorita will provide IFC with a detailed plan and will report to IFC on implementation of this program as part of its regular annual reporting.

Rio Bimbe hydroelectric project:

Favorita will develop a 4.2 MW run-of-the-river hydroelectric power plant to be constructed on Rio Bimbe, adjacent to a farm owned by the Company. The project will include typical aspects of a hydropower project, including diversion works, a buried penstock, powerhouse and water run to the river, transmission line and access road. It is expected that this facility will generate benefits such as ensuring fish availability to at least current levels (contribution to nutrition); maintain water supply and quality at an acceptable level for population use; prevent negative environmental impacts on the downstream uses such as farming, livestock watering, washing; will protect habitats in general; will protect species and their critical habitats for breeding/survival; and will thwart erosion and pollution at all stages of development and operations. Favorita has prepared and will disclose a detailed Environmental and Social Impact Assessment for this small plant. IFC has reviewed the proposed site and plans, and expects that the plant will have minimum impacts on existing habitat. The main considerations with regard to this plant are discussed in the sections below:

a) Stakeholder engagement:

Favorita will ensure that all groups concerned who may have interests in the project are duly informed of the project details, trade-offs, and the potential environmental and socioeconomic impacts, and that populations are involved at all stages of development in a participatory fashion. To ensure the accessibility of information by all intended recipients, Favorita will conduct a transparent disclosure and consultation process following IFC guideline requirements. Favorita will develop focused summary reports of the project details, and other means for conveying key findings of the environmental and social impact assessment study to stakeholders. The Company will also develop an accessible community grievance mechanism and will promote participatory monitoring through mutually agreed indicators. As part of the strategy, Favorita will also develop a plan for reporting back to stakeholders. The plan for the overall consultation process will be presented to IFC for approval.

b) In-stream (ecological) flow:

Using accepted methods, it was calculated that a minimum flow of 150 l/sec of flow in the river was needed to maintain adequate fisheries habitat. One fish species, the Guaña, is the only one migrating above the falls under low flow conditions. The sections evaluated by the hydraulic model indicate that the 150 l/sec will provide the 10 cm depth necessary for the Guaña to migrate through rapids and up the falls the entire year. To provide assurance that the minimum ecological flow is maintained throughout the year, Favorita will install a radio-controlled System Control Data Acquisition System (SCADA) to collect real-time flow data, and will develop a public website to provide these monitoring data for public inspection.

d) Fish migration:

The ESIA indicated that none of the species found in the Rio Bimbe are endangered. To ensure migration of fish for breeding, a fish ladder will be built as a passage facility. In addition to the five pipes proposed to be embedded in the weir, Favorita will modify one side of the weir to place river rocks and small boulders with the ecological flow passed over this area. Some small pools will be included, and the entire climb will be about 3.5 metres. The detailed structural plan for the modification of the weir will be presented to IFC for approval.

e) Baseline studies:

Favorita will conduct further biotic surveys of the area above and below the intake. A baseline for this ecosystem will be developed, followed up by a monitoring process and periodic evaluation system that will provide accountability against well defined objectives and indicators (such as no net loss of on-site biodiversity), and also effective lesson learning and feedback for biodiversity conservation. Favorite will present to IFC a plan for the baselines studies.

f) Management system:

Favorita will provide a detailed plan to develop and implement an Environmental and Social Management System (consistent with ISO 14001 standard) for the Rio Bimbe operation, and specify operating policy requirements for the system as well as basic procedures that must be in place for quality control and compliance during construction (pollution loads, solid waste, management of hazardous materials, etc.) as well as during the operation of the hydroelectric plant. The management system will include stipulations for participatory monitoring of environmental, social, health and safety impacts, and for reporting back to stakeholders. It will also include comprehensive yearly evaluations to verify whether the project expectations have been met, and determine corrective measures that Favorita will apply.

7.0 Indigenous People

The appraisal mission found no evidence of indigenous people in the area.

8.0 Cultural Heritage

No sites of potential archeological interest have been identified in the area.