PS 5: Land Acquisition and Involuntary Resettlement does not apply as none of HKY’s existing or to-be-built farming and/or hatchery operations have and/or will trigger involuntary resettlement and/or economic displacement. Most of the land required for HKY operations is leased through a negotiation process with village’s farmer committee. Lease contract is signed by the company, the village’s farmer committee on behalf of all participating farmers for a period averaging 10-20 years. Local land department at county level act as a witness throughout this process. Lease payment is paid annually to the village committee which then distributes it to individual farmers or use it for a public cause agreed by all participating farmers. PS6: Biodiversity Conservation and Sustainable Natural Resources Management does not apply because HKY’s operations are located within existing consolidated agricultural areas. As such, there is no conversion of natural/critical habitats. Presence of Indigenous People (PS7) and Cultural Heritage (PS8) has not been identified in the existing footprint of HKY operations. In the event that issues anticipated by these PSs arise, HKY will promptly inform IFC. Screening and assessment of these issues against Performance Standards requirements will be done through each operation’s existing environmental and social management system (ESMS).

The key E&S issues identified during the previous appraisal included the following: (i) operational licenses of HKY’s facilities; (ii) environmental, including bio-security and disease prevention, OHS, and social management system and related procedures and effective implementation; (iii) adherence to Chinese labor law, terms of employment and working/living conditions for farm workers accommodations, including at contracted farms; (iv) Life and Fire Safety (L&FS) provisions and emergency preparedness and response procedures, including avian flu; (v) use of public utilities (water supply and energy), optimization of water and energy use through design and resource conservation measures, including greenhouse gas emissions; (vi) wastewater and solid waste management, air emissions from generators, boilers and heating (coal) systems, potable water quality, treatment and monitoring, hazardous material handling, management and control of pests and rodents; and (vii) engagement with communities on E&S risks.

Given that this investment is to be used to support similar operations to those previously appraised, namely the development of additional breeder farms and associated support infrastructure, such as feed mills and hatcheries, and as all these facilities will be designed and operated as prior facilities have been, this appraisal found that these above issues are still relevant to the Company operations.

The potential adverse environmental and social risks and impacts associated with this project are limited, site-specific and can be readily addressed through good international industry practice (GIIP) and mitigation measures that are described in this document and in the attached Environmental and Social Action Plan (ESAP). This is a category B project in accordance with IFC’s Policy on Environmental and Social Sustainability.

Corporate Environmental, Health and Social (EHS) Policy: following the 1st investment with IFC and as part of the ESAP, HKY developed corporate-level Quality, Environment, Occupational Health and Safety (QEHS) and Social Policies that articulate its commitment to comply with Chinese legal and regulatory requirements, IFC Performance Standards and relevant WBG’s EHS Guidelines. The policies were disclosed on its website and communicated to its stakeholders including its employees (http://www.hkyswyz.com/index.php?c=content&a=show&id=984).

E&S Identification of Risks and Impacts: Chinese regulations require that an EIA be conducted, and recommended mitigation measures be built into new facility design. HKY follows this requirement and provided IFC appraisal team with the copies of the approved EIA for new breeder farms under construction. Risks related to occupational health and safety, as well as biosecurity are also identified, and managed through the adherence to its operational procedures.    

Management Programs, Organizational Capacity and Competency: building upon its existing operational procedures, and as part of the ESAP following the 1st investment with IFC, HKY developed and implemented an Environmental, Occupational Health and Safety Management System (EHSMS) in accordance with IFC’s PS1. A corporate level EHS coordinator with background in animal husbandry and preventive veterinary medicine was appointed and has been leading the efforts in establishing and implementing the management system. The EHS coordinator has the help of a team of 5 other staff each responsible for a business segment, or an EHS element (such as OHS and community relationship) and has received (along with his team members) internal auditor trainings on both ISO 14001 and OHSAS 18001. Management programs were developed or strengthened, covering aspects related to resource conservation, waste management, and production safety, among others. Regular internal audits are also conducted. The Company set up a Resource Conservation Reward program in 2016 and has made notable achievements in various areas. This will be further discussed in detail under PS3.

Emergency Preparedness and Response: EHS incidents that could potentially result in emergencies in HKY’s operations include grain dust explosions at feed mills, poultry disease break-out at farms, leakage and spillage of fuels at all sites, fire, major workplace accident, and emergencies resulting from nature disasters. These potential risks are all addressed in HKY’s existing operational procedures and Group Emergency Preparedness and Reponses Plan. Local safety regulatory body annually inspect HKY’s fire prevention maintenance system (e.g. extinguishers). Farm heads, with the assistance of a specifically assigned staff, is also undertaking monthly inspection and scheduled regular training and drills. Evacuation plans have been observed at hatcheries during IFC’s appraisal visit.

Monitoring and Reporting: as part of the ESAP under the previous investment, monitoring programs were developed and strengthened following IFC PS requirements, including incidents and accidents reporting and investigation, workplace parameter monitoring, and resource efficiency and pollution control. HKY has been submitting Annual Monitoring Reports to IFC on time and with substantial information.

Human Resources Policy and Procedures, Working Conditions and Management of Worker’s Relations: HKY presently employs about 930 employees, of which 70% are male, and 30% are female. HKY has a written group level HR Policy. The policy includes provisions on recruitment and selection, probation period, working hours, payment schedule, leaves, occupational health and safety measures and use of Personal Protective Equipment (PPE), as well as access to grievance mechanism, disciplinary measures and cessation of employment, etc. Employees sign a written contract before starting employment at HKY. HR policies are communicated to employees during onboard training, and thereafter through announcements on company intranet, emails, and employee meetings etc. Copies of sample employment contract and manual of procedures were shared during the appraisal. Previous and current reviews both indicated that the HR policy complies with the Chinese labor law, including on provision of health insurance and social benefits.

HKY started piloting a new business model since 2016 where former employees at certain duck breeder farms were converted into contractors.

Under this new model, the contractors contribute to working capital and receive performance pay based on the number and quality of eggs collected. Contractors either work in the company-owned breeder farms or build their own farms to the company specification. HKY supplies parent ducklings, feed, medicine, and technical support; while contractors provide certain input (duck house bedding materials and utilities) and their labor (attending the PS ducks throughout the rearing period). The egg produced are HKY assets and contractors are rewarded with increased pay when more and better eggs are turned in to HKY, incentivizing them to provide the best care possible to the PS ducks while making the most efficient use of input they provide (bedding materials and utilities). HKY has an affinity program with local banks to extend credit facilities to the contractors for the latter’s working capital needs. Contactors must follow the Company’s operation procedures as they did previously, including the procedures related to feeding, biosecurity, work safety and waste treatment. A farm manager who is a HKY employee provides onsite supervision and guidance on the company-owned farm. Initial operational results thus far suggested that this new model has created win-win situation for both HKY and the farmers, with some contractors reportedly doubling their income.

Currently about half of HKY’s existing duck breeder farms have switched to this model, with the goal being 100% by 2025. Most of these contractors are former HKY employees, with the rest being the relatives or fellow villagers of these former employees. Contractors can hire helpers to attend contracted breeder farms.

Given the shift of employment relationship due to this new model and its implications to HR management, HKY will be required, as set forth in the ESAP #1, to review its HR policy, procedures and contractual arrangements to ensure full compliance with IFC’s PS2 in relation to helpers who are hired by HKY’s contractors to attend contracted breeder farms. New provisions should be introduced in the contracts to ensure that all helpers receive timely payment of wages, are provided with a safe and healthy work environment, and have access to a grievance mechanism. No child or forced labor will be used on contract farms.

Grievance mechanism: HKY has a functional grievance mechanism involving supervisor discussion, HR mediation, and anonymous complaints via suggestion box and online forms. The means to register grievances are communicated to workers through the HR manual. At appraisal the HR representative discussed an incident where a complaint was filed related to an eliminated position and consequently added workload on other workers. HR intervened and a solution acceptable to all was found.

Considering the ongoing conversion of employees into independent contractors at duck breeder farms, HKY will be required to make its grievance mechanism available to contracted workers at breeder farms. This should be formalized in its HR policies and communicated to contract farmers and their helpers. This will be addressed in ESAP #2.

Non-discrimination and Equal Opportunity: HKY’s HR policies does not make any specific reference on this. However, Chinese labor laws contains provisions that prohibit discrimination in employment on the grounds of ethnicity, race, gender or religious belief, and Chinese Law on the Protection of Women’s Rights and Interests specifically prohibits discrimination against women in various areas, including employment opportunity, equal pay, career advancement, and other entitlements. HKY states that it follows Chinese national laws in areas where no specific provisions are made in its own HR policies. It doesn’t have an explicit anti-sexual harassment provision in its HR policy. This will be addressed in ESAP #2.

Workers’ Organization: There is no union at HKY. HKY does not prevent workers from unionizing if workers choose to do so.

Occupational Health and Safety (OHS): HKY has a set of comprehensive operational procedures governing production occupational health & safety issues. Risk factors/hazards and related job functions are identified, and mitigation measures are provisioned in its management procedures based on mitigation hierarchy. There is a Safety Committee consisting of members of management teams from each business division at corporate level, and consequently a safety team on each farm. Safety compliance is part of farm head responsibilities, including at the contract farms. Monthly, quarterly inspections are conducted, and summaries of inspection findings are published in the internal newsletters. Safety trainings, fire drills are regularly conducted and documented. Ventilation system is used to control ammonia level at the PS duck/chicken farms and ammonia monitoring records were presented to IFC (which met IFC EHS guideline values). Dust at feed mills is controlled through enclosing processing areas, ventilation and filter bags. Workplace monitoring conducted by 3rd party showed that dust level at the feed mill met both Chinese regulatory requirements and IFC EHS guideline values. Safety signs/notice of hazards were seen where warranted during the visit, such as the cooling system control room, the silos, and electrical room, workers were seen to be wearing PPEs as required. Annual monitoring reports submitted from 2015-2017 showed a consistent declining trend in work-related lost time frequency rate/incidence (LTFRI), from 7.9 in 2015 to 2.34 in 2017 for per million hours worked, with detailed incident descriptions, root cause analysis and follow-up actions taken. In the 9 months of 2018 from January to September where complete incident recordings were available at the time of appraisal, no incident was reported.

Safety management at construction sites. Buildings at both breeder farms and hatcheries consist of relatively simple one-level structures. The Business Development division is responsible for construction bidding and requires bidders to have at least Grade C level of qualifications for construction supervision (which demands, beside 500,000 Chinese yuan registered capital threshold, at least 5 registered supervision engineers in staff, and chief technical representative having over 8-years experiences in construction). The construction contract contains provisions on workers’ safety protection. Daily inspections are made to the construction site to ensure that safety procedures are followed. There are no major accidents in history during the construction phase of any HKY facilities.

Resource Efficiency: HKY management has continued to focus on quality and efficiency since the 1st investment. Initiatives to improve resources efficiency since the last appraisal included the following: (a) installing and minimizing the number of automatic water nipple lines at duck breeder houses and recycling cooling, cleaning water at hatcheries. HKY reported that the installing automatic waterers alone resulted in a water saving of 40-50% at breeder houses; (b) using pre-treated bedding material for easy fermentation. This led to substantial reduction in bedding material use while maintaining the same quality and quantity of egg output. The company estimated that rice husk use decreased by 20-30% a year. The resulting manure is then sold as fertilizer to nearby farmers at the end of PS duck rearing cycle, contributing to company’s bottom line; (c) conserving energy through adopting more efficient incubators at hatcheries, utilizing heat exchange technologies at broiler houses to reduce heating and ventilation costs, and using LEED light bulbs. HKY reported that the new incubators result in a 50% reduction of electricity consumption per duckling/chick hatched. Other efforts included adjusting duck feeding formula/ration to reduce feed while achieving the same egg producing efficacy, and constantly improving shed designs to save energy (heating, lighting and ventilation costs).  

Total electricity consumption from January to September 2018 was 4,302,485 kwh, up from 4,225,660 kwh in 2017, due to increased production activities. (For comparison the output in 2018 is estimated to be 176.74 million day-old-ducklings/chicks combined, with the actual 2017 output being 164.21 million). Thus, electricity consumption per day-old bird in 2018 was roughly 24.3 wh, whereas 25.7 in 2017. The electricity consumption has seen steady decline over the years based on figures provided in the AMRs.

Diesel is used for backup generators. Total consumption in January to September 2018 was 46141 liters. At the site diesel was seen to be stored in standard 200-liter barrels in a separate room with controlled access and in minimum amount needed. Safety signs and instructions were posted near the storage area. The company doesn’t own any transportation fleet.  Natural gas (280,389 cubic meter for the same period) fire heating boilers at breeder farms, although coal (1688.6 metric ton) is still used in small amounts as backup fuel due to instable natural gas supply. Liquified natural gas is used for cooking at the canteens.

CO2-equivalent emissions from electric energy consumption and direct fuel use for all operations are therefore estimated at 7,571 metric tons (MT) in 2017, and 7,075 for the first 9 months of 2018.

Air emission monitoring: as environmental regulations tightening in China, all breeder farms had phased out coal-fired boilers and were replaced with natural gas ones. Air emissions meet local regulatory requirements and WBG EHS Guideline limits.

Water use and efficiency: Water is sourced from on-site wells at breeder farms, and from municipal water network at hatcheries. Water usage is monitored and total usage in 2018 (from January to September) amounts to 228,253 cubic meters, resulting in a water usage of 0.001 cubic meter per day-old bird. The water usage has been declining over the years based on the data provided in the AMRs.

Wastewater treatment: wastewater generation is limited due to the installment of automatic waterers at duck breeder farms and due to water reuse/recycle efforts at hatcheries. The small amount of wastewater generated (estimated at 75m3 a month for a typical duck breeder farm, and 24 m3 for broiler breeder farm) undergo 3-level settling ponds (sealed with cement) and eventually is used for irrigating green areas in the farms or hatcheries with the sludge being used as fertilizer. No wastewater is discharged.

Hazardous materials: hazardous materials used include diesel for backup generators, disinfecting agents, and medicines/vaccines. As mentioned previously, diesel is stored in a separate access-controlled room in minimum amount needed. Disinfecting agents are stored in designated containers and only the amount needed for the day is taken out and formulated. Medicines/vaccines inventory are managed by designated personnel, stored in refrigerated space and strictly follow first-in-first-out principle. Management procedures for handling these materials are developed and adherence to the procedures are monitored.

Management of solid and hazardous wastes: solid wastes consist of bedding materials/manure and poultry carcasses. The former is fermented at the end of duck rearing cycle and sold as fertilizer to nearby farmers. Dead birds are disinfected first and then disposed of in enclosed fermentation sheds onsite. Broken eggs, chick/duck embryo and eggs shell from hatcheries are collected, disinfected and disposed of through a service provider. Hazardous wastes, such as used oils, chemical solvent used for cleaning and used medicine packages, are collected and disposed of by licensed services providers. The waste management procedure is found into the overall technical operational procedures of HKY.

Pest Management: HKY retains the service of a professional pest management company for rodents control. Copies of the service contract were shared with IFC during the appraisal. No WHO Class 1a and 1b chemical formulation were found to be used by these service providers.

 Community Health and Safety. As HKY’s farm operations are isolated from human settlements (at least 500 meters in distance) for bio-security reasons, and feed mills are in industrial parks, the impacts from its operations on communities are limited. There are designated access roads to breeder farms and traffic does not represent a significant risk for the local population. Transport sub-contractors are requested to produce a validated driver license, insurance and vehicle maintenance report.

Community Grievance Mechanism. HKY implemented a community grievance procedure following the 1st investment with IFC as part of the ESAP. It reported one incident where complaints were brought by neighboring community due to disputes on the land lot it leased for a breeder farm. HKY consequently closed the breeder farm and resolved the disputes.

Security Personnel. Security personal is part of HKY staff whose main responsibilities are access control and safeguard of company properties. The security officers are not armed and are trained for defensive measures. They are also trained on life and fire safety, including active involvement in regular fire drills, emergency preparedness and response, first aid, etc.

As mentioned above, since HKY’s farm operations are isolated from human settlements (at least 500 meters in distance) for bio-security reasons, and feed mills are in industrial parks, the impacts from its operations on communities are limited. Its engagement with communities is mainly through employment of locals, and more recently, through partnering with farmers on raising its PS ducks. HKY implemented a community grievance procedure following the 1st investment with IFC as part of the ESAP.