IFC’s review of this corporate investment highlighted environmental and social issues for Armajaro’s own operations, as well as those associated with Armajaro’s supply chain. IFC analysis of E&S impacts of Armajaro’s direct operations entailed the assessment of environmental and social risks and impacts and the identification of measures to meet the requirements of the Performance Standards and WBG General EHS Guidelines. The E&S review of Armajaro’s supply chain focused on the analysis of risks associated with PS2 and PS6, and the ability of Armajaro’s supply chain management system to identify risks, mitigation measures and corrective actions necessary for the Company to manage the on-going supply chain risks.
Armajaro is already implementing E&S mitigation measures to address E&S risks and impacts. To further strengthen Armajaro’s ability to meet requirements of national environmental and social laws and regulations, the IFC Performance Standards and the WBG General EHS Guidelines, the Company will implement the specific agreed measures summarized below and in the attached Environmental and Social Action Plan (ESAP).
PS1: Social and Environmental Assessment and Management Systems
Supply Chain Assessment - Cocoa. Child labor and impacts on biodiversity through land conversion are key social and environmental issues for cocoa production in West Africa. These issues have been widely reported in public documents from UN organizations, journalists reports, private sector, and NGO’s (for example, the International Cocoa Initiative (ICI) oversees and sustains efforts to eliminate child labor in the production of cocoa). Major cocoa buyers and the worldwide cocoa industry have increased their interest in purchasing certified cocoa products from West Africa in line with internationally accepted labor and environmental standards. Third-party certification is the most established approach to promoting and securing sustainable environmental and social farming practices while ensuring the improvement of farmer livelihoods. MARS, for example, has publicly committed to certify its entire cocoa supply by 2020. The expansion of cocoa certification has been hindered by the dispersion of smallholder growers over large areas, the small number of farmer associations or cooperatives with an inherent internal control system and limited monitoring at the smallholder level. Ghana’s cocoa trading is through state operated Ghana Cocoa Board (“Cocobod”) which is also in charge of sales of inputs to farmers, while trading of cocoa in other parts of West Africa (Côte d’Ivoire, Nigeria, Cameroon), and the rest of the world, is done through a wide range of private traders.
Armajaro is the second largest cocoa trader in the world by volume. Armajaro trades cocoa in Ghana through its subsidiary, Armajaro Ghana Limited, which is a Licensed Buying Company (LBC) purchasing, transporting and selling cocoa to “Cocobod”. Trading in other sourcing countries, e.g. Indonesia, Ivory Coast, Nigeria, and Ecuador is through Armajaro’s own procurement process. Armajaro’s supply chain has been subject to the same risks with respect to harmful child labor and loss of biodiversity as other cocoa traders. Armajaro is now seeking to reach 100% traceability in its supply chain and to provide certification to customers based on whichever certification scheme they have committed to. Armajaro has gained considerable experience in traceability and productivity/quality improvement of cocoa in Ghana and Ivory Coast and is now expanding these efforts both within these countries and more broadly across its global supply chain.
Armajaro main mechanism for working with farmers is through Source Trust (
http://www.sourcetrust.org), a not-for-profit UK registered organization funded through voluntary contributions of the premiums paid to Armajaro or directly to Source Trust for traceable cocoa. In addition to providing technical assistance to farmers with respect to improved crop yields, community health programs, and infrastructure, Source Trust provides the training necessary for farmers to achieve certification. Source Trust works with global donors, such as the Bill and Melinda Gates Foundation, the World Cocoa Foundation and with local support institutions, such as the Centre National de Recherche Agronomique de Côte d’Ivoire (CNRA) and the Cocoa Research Institute of Nigeria (CRIN).
Armajaro will continue to increase traceability and/or third party certification in cocoa throughout the life of the IFC investment, in collaboration with clients and other partners, to achieve a traceable and sustainable supply, free from harmful child labor, and not produced by deforesting natural or critical habitats. Armajaro will agree with IFC a multiyear high level plan, which will include baseline and operational targets, specific activities, key milestones and schedule to increase the procurement of traceable and/or third party certified cocoa each year, at each origin where projects are planned.. The plan will also propose partnerships for activities addressing productivity intensification and monitoring of child labor being implemented by other stakeholders (such as those mentioned above) at countries of origin. A joint Armajaro/IFC annual review will take place to assess Armajaro’s yearly performance and realign plans for procurement of traceable and/or third party certified cocoa for the following year. The Company will report to IFC in the Annual Monitoring Report (‘AMR’) all activities performed to increase sustainability in its sourcing and promote sourcing of traceable and/or certified cocoa.
Central to Armajaro’s effort will be a strategic business plan that calls for increasing the amount of traceable and/or certified cocoa and coffee in its supply chain to meet market demand. To achieve this, Armajaro is extending its business activities up the supply chain to the “farm gate”. The Company is populating a supplier database that will allow it to trace cocoa back to individual supplier groups. It will form the backbone by which the Company can manage both traceability and ultimately address issues associated with impacts on biodiversity, child labor and other unsustainable farming practices. The database maps individual farms and includes observations about other potential issues, including child labor. Based on traceability in cocoa, Armajaro will, through the activities of Source Trust, be able to train farmers in the requirements of certification and to ultimately provide traceable and/or third-party certified cocoa to its clients. Currently, farmers in Ecuador, Ghana, Indonesia, Ivory Coast, and Nigeria are being trained in best farming practices to meet the standards of independent certification bodies. Ghana is the most developed origin with respect to traceability and sustainability within this effort, with Ecuador, Ivory Coast, Indonesia and Nigeria under development. Certification of cocoa will be based on UTZ, Rainforest Alliance or Fairtrade, depending on which certification the client has committed to publicly.
Supply Chain Assessment – Coffee. Coffee has also been subject to criticism of its supply chain, the key issues having focused more on impacts on biodiversity than on labor issues. The top 10 roasters are now mostly purchasing coffee from traders who have committed to better control of the supply chain, including traceability and certification. While with cocoa the commitments for certification are generally for 2020, the roasters who have committed to sustainability in the supply chain have set 2015 as the target year, creating greater opportunities for traders who can provide traceable and/or certified coffee beans.
Armajaro, the world’s seventh largest coffee trader by volume, is experienced in supporting farmers to produce certified coffee. Armajaro will be using the same strategy with coffee as with cocoa in implementing traceability by moving up the supply chain and building out its database of farmers. Source Trust will also have a role in working with farmers to improve quality, traceability and certification. By virtue of its auction system Kenya is the most developed origin for traceability, however within Armajaro’s operations, Vietnam has the most developed supply chain using traceable technology, with Indonesia and Tanzania in early development. Certification of coffee will be provided by UTZ, Rainforest Alliance, Fairtrade, or 4C, depending on which certification the client has committed to publicly.
Supply Chain Assessment – Sugar. Sugar, as a commodity, comes from different plant sources and has not been the subject of social and environmental concerns to the same extent as cocoa and coffee. Sugar cane production, however, has been associated globally with several social and environmental impacts such as forced labor (in Brazil, particularly), the burning of sugar cane prior to harvest (globally), excessive water abstraction (globally), overuse of agrochemicals leading to water pollution (globally), and in some cases, deforestation (for example in Brazil and Thailand). Sugar cane production and refining comes from relatively large companies operating cane plantations and mills. While the Better Sugar Cane Initiative has developed the Bonsucro standard, its adoption by the industry has largely been tied to the supply chain for ethanol - and particularly for the European Union market - than for sugar. There has also been the development of country and issue specific standards, such as the Abrinq Labour Friendly standard in Brazil. Finally, there are also other national standards, such as the United States Department of Agriculture organic labeling, that may be applied in other countries, such as Brazil or Guatemala. Additionally, some countries, such as Brazil have been moving to address both social and environmental issues in the production of sugar cane, such that in 5-10 years, national enforcement may have removed the problems.
IFC’s review of sugar cane producers in four countries where Armajaro may be sourcing sugar, Brazil, Guatemala, South Africa and Thailand, indicates that in each country there are sugar producers who are seeking to meet national and international standards in their production of sugar cane. Armajaro is seeking to build individual relationships with sugar producers as well as with its customers. The customers are some of the same companies committed to sustainable cocoa and coffee and are therefore likely to appreciate the reduced risk of social and environmental issues in their sugar supply chain. Armajaro will develop a strategy for increasing the amount of certified sugar cane production in its supply chain, based on commercial viability, that will seek sugar from sources (i) in countries with strong environmental and social regulatory frameworks, (ii) producers who have either Bonsucro certification or other national certification, and/or (iii) producers that have been identified through other means as having an acceptable environmental and social performance. For the sugar supply chain, it will categorize suppliers according to their E&S risk, level of traceability and certification, and examine the changes over time. The Company will implement an approach that provides insight over time into the non-certified purchasing, where some informal information is available. Armajaro will be expected to increase its supply from sources that are considered lower E&S risk over the life of the Project and to actively participate in industry’s sustainability initiatives, such as the Better Sugar Cane Initiative, that are seeking to set international standards for sugar production.
Assessment and management of its own operations. Armajaro is currently carrying out an audit of the occupational health and safety (OHS) risks and issues associated with its own operations. It has also hired a specialized consultancy to determine its carbon footprint. The Company will build on these assessments to review all of the environmental and social risks and issues of its own operations based on IFC Performance Standards and the WBG’s EHS Guidelines. Findings from these reviews will be incorporated into the Environmental and Social Management System (ESMS).
Organization. Armajaro has a Director of Development and Sustainability who is leading the development of the traceable and sustainable supply chains in cocoa and coffee. This Director is also responsible for the OHS audit and the determination of the carbon footprint. The Company will develop and implement a ESMS to bring together the management of the environmental and social aspects of Armajaro’s own operations and management of its supply chain of current and future commodities. The ESMS will cover all relevant aspects of IFC Performance Standards, WBG EHS guidelines, and agro-commodity voluntary standards. The oversight of the ESMS will be the responsibility of the Director of Development and Sustainability. The ESMS will include plans for auditing and monitoring of Company facilities and ensuring its own chain-of-custody certification.
In addition to the reporting format for each of the certification schemes, Armajaro will have an internal reporting format for compliance self-assessment of its operations outside of the United States, Europe and Australia/New Zealand. Key E&S performance indicators will be provided on each facility based on identified E&S risks and impacts and technically and commercially feasible mitigation measures.
Training. Being an origin integrated company, Armajaro will implement a training program for their field staff to build in-house capacity to further train farmers to improve their productivity and achieve standards required by internationally recognized certification schemes. This in turn will increase the volume of traceable and/or third party certified commodities traded. In addition to training farmers to the internationally recognized certification standards, the Company also plans to train farmers and its own staff at the corporate level on sustainability issues related to IFC Performance Standard requirements. A training program to inform and engage staff on the ESMS and applicable requirements will be developed by Armajaro. The training activities include sessions for farmers to inform them that Armajaro expects them to comply with country legislation related to social and environmental issues, and relevant IFC Performance Standard requirements (PS2 and PS6). Training of this type is already undertaken as part of the certification process in the cocoa and coffee supply chain. Armajaro notes that of the 3 or 4 certification schemes, there is roughly a 70 percent overlap with each curriculum. Armajaro will undertake a comparative analysis with IFC standards, and it is likely that there will also be significant overlap between the certification standards and IFC requirements. Armajaro corporate staff will also be trained to carry out E&S reviews and determine nature, scale, and importance of environmental and social issues in any given location.
Monitoring and Reporting. To address potential exposure to E&S risks associated with suppliers and own operations in the short and long term, the Company will implement, as part of the ESMS, a process for reporting and monitoring environmental and social information to senior management. As developing supply chains for sustainable coffee and cocoa is central to Armajaro’s business strategy, senior management and Armajaro’s Board of Directors are updated quarterly on progress in developing traceability and building the supply of traceable and/or certified commodities. Additionally, frequent management visits to all origins allow for review and discussion of local data, assess the local trade dynamics, and assess the status of certification supply and demand.
The supplier’s database will also be the key mechanism for documenting the source of commodities at the start of the supply chain. The database is a risk tool to monitor the dynamics of certified suppliers, and is being expanded to incorporate broader country supply chain data and allow aggregation. On completion of data collection and analysis, Armajaro will build the supply chain component of the Company''s ESMS around management of suppliers to reduce E&S risks in the supply chain. It will be periodically updated with new information flowing from the field staff in different countries. Armajaro is auditing the information initially provided for each grower, and will carry periodic audits in the future to ensure that the database is accurate.
IFC will continuously evaluate Armajaro’s procurement policy and how this policy (i) drives inclusion of environmental and social issues into their supply chain risk management; (ii) how Armajaro identifies where its commodities are sourced; and (iii) how Armajaro assesses whether these supply chains are using harmful child or forced labor and/or contributing to significant conversion of natural or critical habitats leading to biodiversity loss. Origin managers are focused on the physical commodity and on in-country origination. All country managers are aware of certification requirements, and are sensitive to any supply chain issues that could cause reputational concerns for the Company and its manufacturer clients.
A joint Armajaro/IFC annual review will take place to assess Armajaro’s yearly performance and realign plans for procurement of traceable and/or third party certified cocoa and coffee for the following year. The Company will report to IFC in the Annual Monitoring Report all activities performed to promote sourcing of traceable and/or certified cocoa and coffee.
Grievance mechanism. A corporate grievance mechanism will be set up to ensure that issues that arise along the supply chain, either with employees or with producers, are, as appropriate, brought to the attention of senior management and resolved.
PS2: Human resources and working conditions
Human Resource (HR) Policy and Management. Armajaro has a total permanent labor force comprising roughly 1,200 direct employees, and a substantial number of contractors. Armajaro is locally managed in each origin, and all human resources policies and procedures at the Armajaro facilities worldwide will adhere to national regulatory requirements. These will be communicated to staff at the time of employment by the Company. The HR policy will be included in employment contracts, and addresses working conditions, terms of employment, and wages and benefits. Armajaro adheres to the principals of non-discrimination and equal opportunity which is included in individual labor contracts. Freedom of association and rights of workers organizations are guaranteed by Armajaro and national laws, and Armajaro workers may join unions if they desire. Benefits generally include medical insurance, pension, and leave. Armajaro will ensure that contractors follow the provisions of IFC Performance Standard 2 and will monitor its compliance..
Protection of the Workforce. There is no child labor or forced labor at Armajaro controlled operations. The minimum employment age at Armajaro is 18 years. As noted, the Company relies on third party certification bodies for consistency with acceptable labor practices in the supply chain of the traded commodities.
Occupational Health & Safety (OHS). Armajaro is conducting audits of its facilities with respect to occupational health and safety, these audits will be conducted based on applicable WBG EHS General Guidelines and present a Corrective Action Plan detailing activities and budget to close any gaps. Armajaro will implement corrective actions to address gaps identified in the review and incorporate ongoing policies and procedures in the ESMS.
PS3: Pollution Prevention and Abatement
Wastewater treatment. Effluents from Armajaro’s operations include process wastewater from coffee wet mills, sanitary wastewater, and storm water runoff. Sanitary wastewater is disposed via local public systems or treated in septic tanks and discharged to soil. Storm water is discharged directly to public sewers, where available. Public wastewater treatment systems are often not available in areas where Armajaro operates. Armajaro will be expanding the number of wet mills that it will operate as part of the project to around 100 worldwide. The Company will have an effluent management plan for these mills to ensure the quality of discharge meets WBG guidelines as set forth in the ESAP.
Waste management. Solid waste generated from coffee or cocoa processing activities includes organic and inorganic wastes. Organic material is typically reused as natural soil amendments and inorganic materials such as sacks are reissued to suppliers for recycling.
Pest Management. Products for export may be fumigated for pest control with methyl bromide, which is subject to phase-out as ozone depleting substance, or phosphine as required under country regulations. Fumigation is carried out in the warehouses or in the ship’s hull by licensed vendors and in compliance with local regulatory requirements. Armajaro will provide, as part of the ESMS, a pesticide management plan, which includes the phase out of methyl bromide. Similar integrated pest and disease concepts will be extended to cocoa and coffee as part of the supplier training.
PS 4 Community Health, Safety and Security
Fleet operations. Armajaro will be building up truck fleets as part of its greater involvement in the supply chain in various countries. The fleet will need to be managed to maintain safe operations, limit air emissions, and prevent spillage of oil and gasoline. Armajaro will put in place a fleet safety and management plan as part of the ESMS to ensure that these objectives are met.
Security personnel. Armajaro uses private security companies in countries where it has trading operations. Armajaro will ensure that security contracts will only be signed after a background check on the private security company and with the provisions of PS 4 incorporated into the contract. The corporate grievance policy will encompass possible complaints against the actions of the security companies.
PS 6 Biodiversity, Conservation and Sustainable Natural Resource Management
The expansion of low input cocoa production has been identified as the principal cause of deforestation and forest degradation of the West African Guinea Rainforest. Cocoa productivity intensification is found to be the best approach to avoid deforestation. In order to assist traceability and subsequent certification of cocoa, Armajaro’s plans for certified cocoa will focus on sustainably increasing cocoa yields, input use and avoiding land clearance. Through its database, which includes information on the location of suppliers’ farms, Armajaro will be able to systematically review potential encroachment into forests, protected areas, and other natural habitat that may contain high biodiversity. This review will also enable Armajaro to monitor the on-going performance of already certified suppliers to ensure that they will be able to be recertified.
Sugar cane production in some parts of the world, e.g. Brazil and Thailand, have been criticized for creating indirect deforestation by pushing agricultural activities, such as cattle herding and soybeans into frontier regions. While the causality isn’t always clear, sugar cane production, particularly associated with increased demand for ethanol may lead to greater scrutiny of sugar cane for its impacts on land conversion and loss of biodiversity. Armajaro will periodically review its sources of cane sugar to understand potential reputational and actual risks associated with PS 6 issues.
