While all Performance Standards are applicable to this investment, IFCs 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. If IFCs investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards

PS 1 – Assessment and Management of Environmental and Social Risks and Impacts
PS 2 - Labor and working conditions
PS 3 - Resource Efficiency and Pollution Prevention
PS 4 – Community Health, Safety and Security
PS 5 – Land Acquisition and Involuntary Resettlement
PS 6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
If IFC’s investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards

Key environmental and social issues for this provisional category B project include: (i) Quality, Environmental and Safety Management systems; (ii) Supply chain E&S management; (iii) Labor conditions and working conditions; (iv) Occupational health and safety management, including during construction; (v) Food Safety programs and certification at processing and commercialization; (vi) Organic and packaging waste; (vii) Water consumption and waste water treatment; (vii) Energy/ Water Use efficiency, including cleaner production, and air emissions; (viii) Land acquisition; (ix) Life, fire and traffic safety.

The entire operations of Vino Zupa will be required to meet both local and IFC environmental and social requirements. The due diligence has allowed IFC to identify compliance gaps against the Performance Standards, which are indicated in the attached Environmental and Social Action Plan (ESAP)with the establishment of performance reporting requirements.

The information about how these potential impacts 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.

The Project has limited potential adverse environmental and social impacts, and those that do exist are being site-specific and can be resolved through the effective implementation of the action items in the ESAP, which integrate the IFC’s Performance Standards requirements and good international industry practices as defined in World Bank Group (WBG)’s general and applicable sector-specific (Food and Beverage Processing) Environmental, Health and Safety (EHS) requirements. This corporate-level investment is therefore a Category B project according to IFC’s Environmental and Social Sustainability Policy.

Existing and proposed measures to manage and mitigate these risks are described below.

IFC's appraisal considered the environmental and social management planning process and documentation for the project and gaps, if any, between these and IFCs 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. Vino Zupa is a traditional bulk and medium-level, wine producer and a low cost producer of juice nectars with second position market share in the nectar category in its home market of Serbia and key export markets (Bosnia, Kosovo and Montenegro). The Company also exports juice nectars and concentrates to Bulgaria, Russia and Czech Republic. The Company is one of the largest employers in the Rasina district (a frontier region in southern Serbia and one of the least developed areas in the country) with strong direct linkages to farmers. The factory processes 600 tons of fruit per day, produces 240,000 bottles of wine per day, and also 240 tons of concentrate.

Macedonia branch of Vino Zupa production plant was built in 1963 and has been expanded continuously with the increasing demand. The company has a committed management team with a dedicated technical manager. Its current production capacity is 32.000.000 kgs/ grape, 25.000.000lt wine, and 50.000lt alcohol-high liquor. An additional investment has initiated started to produce fruit concentrates (Cherry, Apricot, Peaches, Grape, Apple). The Company owns vineyards of 1500 ha land that has been rented from government for 30 years. High production season is between August to mid October, for apples it is extended until the end of October. The Company has sold approximately 12.000.000 kg concentrates last year. Current production figure includes 30% bottled, 70% bulk product. In its expansion, the Company plans 50% bottled 50% bulk production.

Management Systems and Assessment: Vino Zupa Serbia operates in line with the local legislations and has acquired required licenses and permits for its existing facilities. The Company is certified for ISO9001:2008 and HACCP by Evrocert. However, the Company will implement Environmental, Health and Safety Management System that is integrated to the existing Quality management System in line with internationally recognized standards (e.g. ISO 14001, OHSAS18001)

A quality management system in line with ISO9001 and HACCP is already available at Vino Zupa Macedonia, however not yet certified. The Technical Manager has initiated the upgrading of the system a few months ago as the currently available E&S Management System needs improvement. The Company is in the process of obtaining the Ecological permit, with negotiations be ongoing with the concerned municipality. The Company will obtain HACCP certification and implement an Environmental, Health and Safety Management System that will be integrated within the existing Quality management System in line with internationally recognized standards (e.g. ISO 14001, OHSAS18001)

Vino Zupa also follows the European AIJN code of practice for evaluation of fruit and vegetables. The AIJN is widely used and accepted by the National Fruit Juice Associations within the European Union (EU) and acknowledged by the EU Commission.


Training: All employees are provided with induction and technical safety training program after being hired. As per the attached ESAP, 10% of total employees at Macedonia facility will be given First Aid training, and First Aid equipment will be made available in readily accessible places. The Company will ensure that seasonal and contracted workers are also trained on occupational health and safety using the Company’s OHS manual.

Monitoring: Effluent discharges, air emissions, solid wastes, energy and water consumptions and lost time accidents, customer complaints, suppliers’ performances are among the regularly monitored parameters.

Reporting:
Reporting of the above mentioned EHS indicators is done internally as per the requirements of the certified management system and externally to the national regulatory agencies requiring EHS monitoring.

Human Resources Policies and Procedures: Vino Zupa Serbia company has formal documented Human Resources Procedures in place that covers hiring, workplace and job requirements. The Human Resources Handbook is also available to all employees. Vino Zupa Macedonia does not have a formal documented Human Resources Policy. However, its human resources policy and procedures are in compliance with the local labor law. ACTION

Workers’ Organization: The Company has stated that each employee is free to join a worker organization and confirmed that 15% of its employees are member of the Union of Independent Workers which overall has more than 200 members. The collective agreement has been signed between the Company and the union in September 2011, renewable every three years. At Vino Zupa Macedonia, the collective agreement draft is still in progress; however the Company needs to accelerate the process to put into effect the OHS provisions. The Company will modify its HR policies accordingly to include a clear statement supporting the right to freedom of association.
ACTION

Working Conditions: Currently Vino Zupa employs 527 peoples, including administrative staff. Total workforce consists of 171 women employees with 54 of them holding administrative positions. The Company does not outsource any services. In addition to its regular staff, the Company employs seasonal workers due to the increasing production capacity.

The Company guarantees minimum wages of around 160 Euro, while average salary is around 300 Euro in the company. Seasonal work hourly rate is dictated by legislation requirements and market driven and is around 1.5 Euro/hr. The Company provides pension plan and social and medical benefits during seasonal work. The annual payment package also includes free transportation and food, medical insurance and pension contribution. Workers with outstanding performances are awarded one salary bonus at the end of each year. Foreman workers and administrative staff are also provided with Company’s mobile phones. Vino Zupa Serbia employees work in three 8-hour shifts and are entitled to maximum 20 days annual leave.

Vino Zupa Macedonia: Currently the Company employs 78 people, and the workforce consists of 25 women employees. In addition to its regular staff, the Company employs approximately 100 seasonal workers during high seasons due to the increasing production capacity. The Company usually hires among the same group of people coming from the surrounding villages within 10-15 km radius and each year, provides workers with legal contracts and additional benefits such as free meal and transportation services. The Company guarantees minimum wages above the Macedonia level by 10%, where minimum wage is 8000 Macedonian Denar (~120 Euro). The annual payment package also includes one-salary bonus to be paid at the end of each calendar year. Vino Zupa Macedonia employees works in three shifts during harvesting period while works in one shift for the rest of the year. Women employees are entitled to 9 months maternity leave. The Company sends a group of its employees to visit Serbia plant to facilitate information exchange.
Retrenchment: There are no current plans for retrenchment at the Company; in fact, Vino Zupa Serbia has hired 90 additional workers in 2011. Vino Zupa Macedonia is considering hiring additional 30-35 workers due to the increase in the production of fruit concentrates.

Occupational Health and Safety: An OHS specialist is employed in Vino Zupa and he directly reports to Human Resources Director. An assigned OHS responsible is available at every shift to continuously visit the sites and carry out daily inspections. A report is prepared at the end of each inspection and sent to the General Manager. Employees undergo health inspection every six months; specific medical checks are performed depending on the department needs. Risk assessments have been completed by an outsourced company. However, the Company needs to further assess the risks related to ammonia detection and slip/trip and moving machinery hazards observed especially in the bottling factory. Vino Zupa Serbia maintains accident reports including root causes and necessary corrective actions. The Company has also conducted a risk zone study and identified various risk zones and relevant root causes. The Company currently has 19 first aid trained employees and the nearest hospital is only 1 km away.

There is a fire safety team of 20 people in the Serbia facility. Fire extinguishers are available throughout the plant and they are periodically checked. Evacuation drills are performed every three year. An assembly point is designated. However the point should be outside the building and signage should be installed. The Company will install fire detection system on packaging material warehouses, and supply fire extinguishers to solid waste collection area. ACTION Also to address the risks related to ammonia, the Company will install ammonia leakage detection and alarm system at NH3 Plant.

The Company has established a training program for its staff including job-specific training. Training sessions are provided by an outsourced accredited company. A preventive maintenance plan is prepared every year, including all production lines and equipment. All machinery goes through brief inspections each month internally and every three year, authorized government inspectors perform audits. Noise measurements exceed the required limits at certain locations, especially bottling unit. The company should improve PPE usage in these areas.

The Company has a fully equipped laboratory of international standards-Alfa Lab- that conducts microbiological tests. Alfa Lab also does chemical and quality assurance tests for other Serbian companies.

Vino Zupa Macedonia: All employees undergo regular health examinations and specific health control mechanism is available for food safety. The Company has established a training program for the newly hired staff including induction and on-the-job training. Risk assessments have been completed however, the company needs to further assess the risks related to slip and trip hazards observed on site. The Company is also in the process of improving housekeeping practices. The Company has not reported any accident for the last three years. However as required by IFC, the Company will need to report minor accidents as well as accidents related to the work of seasonal employees.

Supply Chain

The Company obtains almost 90% of its raw materials from Serbia with 70% of it coming from closer areas. The Company relies on a network of approximately 7000-10000 farmers, and most of these farmers are members and associates of farmers cooperative Agrozenit, the largest cooperative in Zupa region. Overall, Agrozenit has 15000 registered farmers and additional 7000-10,000 farmers in its supply chain. The cooperative supplies approximately 70% of the raw material i.e. fruit, vegetable, grape, to the Company.

Vino Zupa endeavors to provide financial help to farmers, to the extent possible, to support purchasing of agricultural inputs such as seeds and fertilizers. Irrigation is another issue for farmers and the Company is trying to help on this front as well. Going forward, the company will support farmers by establishing long term agreements while guaranteeing the purchase of their product, sharing best practice knowledge regarding specific fruit growing and helping farmers decrease costs of production by promoting lower input prices.

The Company will extend its supply chain management systems and procedures in terms of environmental and social aspects and ensure compliance of suppliers with IFC PS1
Also the Company will ensure extension of existing Global GAP program for all farmers in a planned schedule, and will implement a pesticide management plan.

Vino Zupa in Macedonia works with 3000-4000 cooperativees with 0.5-5 ha lands, located within 30km radius of the Company plant. A few of these cooperatives have already implemented Global GAP. The Company avoids usage of WHO/EU black listed pesticides. There is no issue related to forced labor and child labor and all the contractors work under the conditions of their own contracts.

Resource Conservation and Energy Efficiency:
Total water consumption for 2011 was approximately 487.000 cubic meters (m3) and the approximate water consumption figures per unit of production for Vino Zupa Serbia and Macedonia plants are: 5-5.5 m3/ton of product, which are within the industry benchmark limits. Electricity consumption is 12kW/hr per ton production.

Vino Zupa Macedonia has already implemented several energy efficiency initiatives; however, there is still room for decreasing water consumption (4.5-5 m3 per l of wine). TheCompany has agreed to identify measures to improve water usage efficiency and make relevant investments accordingly. (e.g. using pressurized water spray guns for cleaning).
Therefore the company will establish energy and water monitoring programs at all facilities including installation of water/ energy counters for different lines, as well as water & energy consumption reduction programs.

Air Emissions

Vino Zupa Serbia, which had used approximately 2000 tons of fuel oil for steam production annually in the past, constructed and commissioned a Biomass plant in November 2011 for steam needs, due to constant fossil fuel price changes and instability. Usage of biomass as an energy-generating product is reasonable for both economic and environmental reasons. Wood waste and sawdust , cherry seeds with foreskin, cherry, plum, peach, apricot seeds with foreskin, cherry, plum, peach, apricot seeds with foreskin, apple slurry, grape rape and grape stem are used as CO2 neutral energy resources. Biomass boiler production capacity is 12,000 kg steam/h, and the boiler capacity is 7812 with maximum pressure of 13 bar. Air emissions monitoring of biomass plant is in progress. With the increasing production amounts , Vino Zupa plants to expand its biomass plant to also meet its electricity needs

The Macedonia plant operates steam boilers and rarely uses heavy oil in the system. It is observed that SO2 measurements are higher than the required limit values in IFC guidelines. Necessary improvements should be made if the boilers will be used frequently for concentrate production.

The company mainly uses electricity for the production processes. A feasibility study is being carried out for the construction of a biomass plant similar to the one in Serbia plant which produces 12 ton/hour steam.

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Water and Waste Water Management:

Vino Zupa Serbia contracted with a consultancy company, Ecologica Urba, in 2008 to prepare an Environmental Impact assessment for the biomass plant. On the basis of the EIA findings, a filter system was installed in the biomass plant.

Vino Zupa Serbia discharges approximately 50l/s flow rate of waste water and has a biological waste water treatment plant, with treated water discharged to the Pepljusa river.
The BOD5, COD and pH levels of untreated waste water are ~1100 and 2500 mg/l and 6.02 respectively. Levels of the same effluent parameters after treatment are ~200 and 300 mg/l and 6.99. These levels are not fully compliant with local limits and WBG EHS Guideline limits. Therefore, the Company will develop a plan to expand and improve its existing waste water treatment system to ensure full compliance with both local and WBG limits. Vino Zupa Macedonia obtains process water from wells in Monastery, Negotimo city supply and irrigation channels of the government.

The production plant does not currently have a waste water treatment plant; thus, it discharges all of its untreated effluent directly to Vardar River; the main river crossing the country. The Company will therefore need to install a wastewater treatment facility and ensure that good treatment practices are implemented so as to protect the receiving surface water. A Cleaner Production Audit will be conducted before construction begins.

Solid and Hazardous Waste Management:

Solid and hazardous wastes generated by Vino Zupa operations are collected by different qualified contractors for recycle or disposal in line with local legislation. Waste management plans are available and organic waste is used in the biomass plant. Mashes from crushing units are dried and used for agricultural purposes in Vino Zupa Macedonia.

Cooling agents:
The cold stores use 78 tons of ammonia (NH3) as a refrigerant in their cooling systems. Vino Zupa will ensure that its handling and storage practices are in line with best industry practice and the ammonia unit is periodically maintained by experts and equipped with safety features required to comply with national regulations for working with ammonia. The relevant emergency action plan as well as PPE usage will be improved. The Company will also have a phase-out plan for all ozone-depleting agents used at its plants.

Pesticide Use and Management:
Vino Zupa is committed to develop a formal Pesticide Management Plan for its supply chain, which will cover 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. The Company will immediately suspend the use of all pesticides that fall in WHO classification as Class 1a and 1b, and will properly dispose of any remaining stocks.

The company has an active grievance mechanism for customer complaints; however, the current system needs to be systematized for bottled products by improving certain grievance mechanisms, such as establishing a hotline for communication and enhancing complaint procedures. The Company will also establish communication procedures to share information with third parties and address community queries and concerns.

There are no immediate households or residential areas in the vicinity of the Macedonia plant. Nonetheless, the Company needs to improve its existing fire safety systems to ensure that the plant and its workers are adequately protected. All labels standards are compliant at Vino Zupa with the EU Fruit Juice Directive and General Food Labelling Directive.

The company will also commission a hydrogeological evaluation to ensure that the reserves of ground water allow for the current and future extractions while maintaining sustainability, quality and taste. The company will also obtain the required government permit for the wells.

Vino Zupa Macedonia engages in informal and formal community engagement through various channels, such as continuously supporting neighbor Monastery during religious fests and supporting Negotino’s local school of Agronomy.
Vino Zupa is one of the largest employers in the Rasina district and the largest employer in the municipality of Aleksandrovac, a frontier region of Serbia. The company provides significant employment opportunities and a large number of local residents depend on the Company for their livelihoods.

The technical content of the ESRS and the ESAP will be translated into local languages of the project countries and utilized to convey assessment and remedial measures to the local community as part of stakeholder engagement program. Local disclosure of the information will be publicly accessible. Additionally, MK Group will publish notification of the availability of these documents in local newspapers

I.    AD VINO ŽUPA ALEKSANDROVAC
      Kruševačka 36, 37230 Aleksandrovac, Serbia
II.   VINARSKA VIZBA POVARDARIE
      Industrijska bb. 1440 Negotino, Macedonia

Broad Community Support is not applicable for this project