The appraisal for this assessment confirmed that there are no impacts related to PS 5 – Land Acquisition and Involuntary Resettlement because the project entails the acquisition of existing, large scale farms without requiring physical or economic displacement. There are no impacts related to PS 7 – Indigenous Peoples as none of the operations are located in areas that would impact Indigenous Peoples and there are no impacts related to PS 8 – Cultural Heritage given the location of the existing farms. Although these performance standards are not applicable to current operations or planned expansions, the client is committed to apply them in the event they do become applicable in the future.

The proposed is a Category B project as defined by IFC’s Environmental and Social Sustainability Policy (2012) because of potentially limited environmental and social impacts that may result from the expansion and operation of the existing facilities, all of which can be avoided or mitigated by adhering to generally recognized good practices and design criteria.

Environmental and Social Assessment and Management System

Under IFC’s previous investments, the company improved its corporate policy and Environmental and Social Management System (ESMS), which is applicable to Adeco’s operations in Argentina. The ESMS includes the identification of key environmental aspects and occupational risks and development of related management plans, procedures, and a monitoring and reporting system. However, as noted during the site visit, it still does not fully cover the company’s dairy operations. During the appraisal visit, the company informed IFC that they are in the process of implementing an Integrated Quality, Environmental, Social and Health and Safety (QESHS) Management System at corporate level, which would also incorporate the recently acquired milk processing facilities and the new free-stalls.

As part of ESAP Action #1, Adeco will expand to the dairy operations the QESHS Management System, aligned with its corporate level system, establishing close coordination between the E&S, OHS and HR departments to ensure consistent ESHS performance at the project level. The Integrated QESHS Management System will include identification of E&S impacts (evaluation matrices), identification of EHS plans and procedures and implementation of monitoring systems. The QESHS management system will be fully aligned with the requirements of IFC PS1.

Identification of Risks and Impacts

As part of its risk and impact identification approach, Adeco has commissioned independent Environmental Assessments (EAs) for several of their operations, including the new free-stalls and the biodigester. These assessments focus on impacts related to environment and biodiversity. Adeco has also performed a pre-acquisition assessment for determining the E&S conditions of the operations at the Chivilcoy and Morteros facilities, which were acquired in February 2019. At the time, an external consulting company visited the facilities and identified several issues related to unsafe conditions and regulatory compliance. Adeco started working on the aspects that were considered more critical and implemented corrective actions right after the acquisition. However, up to date not all the deviations have been included in a formal action plan. More information about OHS risks and mitigation measures is presented under PS2.

In order to strengthen its risk identification process, Adeco has committed to include the assessment of social risks and impacts as part of their corporate risk and impact assessment process and to conduct risk and impact identification for all free-stalls and industrial operations on a regular basis through risk screening and prioritization of amelioration tasks. The company will ensure that the mitigation measures from the EAs and those stemming from additional risk assessments are implemented by including them in the management plan for each free-stall or industrial facility. This requirement is addressed under the ESAP Action #1.

Adeco is in the process of developing a supply chain policy and establishing procedures for its dairy operations. IFC initial risk screening of different information sources on the dairy supply chain in Argentina, including United States Department of Labor (USDOL) (https://www.dol.gov/sites/dolgov/files/ILAB/ListofGoods.pdf ) conclude that potential for child or forced labor risk in the current supply chain is low. Adeco will continue the implementation of its supply chain program and, should any critical aspect be found, Adeco will apply commercial influence to address such elements in their primary suppliers. As discussed under PS6 below, Adeco’s existing supplier assessment process, which was developed under the ESAP of the previous investment, includes mapping and evaluating risks of significant conversion of natural and critical habitats. 

Management Programs

As observed during appraisal, Adeco is in the process of implementing corporate ESHS management programs that are required to address inherent risks and impacts associated with the company’s operations in the dairy industry. The company is also reviewing dozens of management programs that were originally developed by SanCor for both Morteros and Chivilcoy facilities, including those essential for management of natural resources such as water efficiency, effluent treatment and discharge, and use, handling and disposal of chemicals and hazardous materials, among others. Other important management programs that are being developed include stakeholder engagement, social investment and general and industry-specific OHS programs for the identification of risks for workers’ health and safety. As described throughout this document and as set forth in the ESAP, Adeco will consolidate and strengthen its ESMS and implement good practices in its dairy operations to cover among others (i) solid waste management; (ii) wastewater management; (iii) hazardous materials management; (iv) fire safety and emergency response; (v) OHS guidelines for direct-staff and third-party workers; and (vi) any other aspects identified in the company’s risk identification matrix.

Organizational Capacity and Competence

Adeco’s corporate sustainability department is staffed by qualified professionals with relevant experience in their specific area of expertise. Currently, at the corporate level in Argentina, E&S personnel reports to the Sustainability Department while the OHS personnel reports to Human Resources (HR). These individuals are responsible for implementing the ESMS, manage E&S impacts, and ensure that E&S performance is improved.

Two safety professionals were included in the team for the new dairy facilities since August 2019; however, there is a need to enhance the ESHS organizational capacity and competency for the dairy operations for the adequate management of environmental and OHS aspects. Therefore, as per ESAP Action #2, Adeco will assess the staff needs and will hire qualified  environmental, social, occupational health and safety (ESHS) and human resources personnel to cover both the free-stalls and the industrial facilities to implement the company’s policies and procedures in a consistent manner to ensure full compliance with in-country E&S requirements and IFC’s PSs.

Emergency Preparedness and Response

Adeco’s milk processing facilities have an emergency preparedness and response plan in place, which were developed by the previous administration of these plants. However, there are still inconsistencies in the adequacy of such emergency preparedness and response plans to address the specific risks that may exist in each facility (e.g., fires, explosions, chemical spills/gas leaks, etc.). To ensure consistent and site-specific emergency preparedness and response plan at each facility, as per ESAP Action #3, Adeco will: (i) update its risk analyses for job functions and major equipment; and (ii) improve and update existing emergency preparedness and response plans for each facility, based on facility-specific emergency scenarios. Updated plans will incorporate results of specific studies conducted for implementing preventive maintenance (e.g. release of ammonia from refrigeration systems) and improving firefighting facilities, as described throughout this document and as set forth in the ESAP.

Monitoring and Review

Adeco has ongoing efforts to assess its EHS performance across its operations and E&S staff frequently visit operations in each facility to support the implementation of good practices. Adeco’s centralized management of the ESMS and responsibility for aggregation of data and reporting has improved in the past years, but there is still limited reporting on biodiversity, external grievances and suppliers and contractor management. In addition, the milk processing facilities are still not fully covered by the corporate ESMS. To date, Adeco’s internal and external audits and quality assurance programs have focused more on product quality and animal welfare practices. Moving forward, as proposed under ESAP Action #1, the company’s ESMS will be expanded to cover E&S, OHS, and HR aspects for the dairy operations. The ESMS will incorporate E&S performance indicators into its monthly performance monitoring system.

Adeco has approximately 8,000 direct employees of which 285 workers are employed in the dairy industry (free-stalls and industrial facilities). Employees are typically from neighboring communities and transportation is provided to them on a daily basis. At the free-stalls, housing is provided during the working week to approximately 10 specialized employees. This housing, and all meals, is provided free of charge.

Human Resources (HR) Policies and Procedures, Working Conditions and Terms of Employment

Adeco has implemented the Código de Convivencia (Coexistence Code) which outlines working conditions and terms of employment and Adeco’s commitments to avoid discrimination, forced labor and child labor, which also applies on the dairy operations. Employees are encouraged to raise their grievances directly with their managers or human resources representatives. In addition to this practice, as part of the previous investment, the company also developed and implemented a formal grievance mechanism, which is accessible to direct employees and contractors.

Employees and contractors are above the age of 18 years. Adecoagro has established an intern program developed in coordination with local schools (Ministry of education) for children above 16 years of age. The intern program is a short-term program (maximum duration of six months) and there are procedures to ensure that interns are not involved in any hazardous work and that the program does not interfere with their ongoing access to education.

The company’s terms of employment cover the following provisions: (i) recruitment and hiring; (ii) compensation (including wages and benefits); (iii) hours of work; (iv) overtime arrangements; (v) leave; (vi) benefits, including health insurance, pension schemes; (vii) conditions of work; (viii) termination procedures and rights; (ix) communication procedures; (x) training; and (xi) other requirements according to national law.

The company’s dairy operations do not employ contractors on a full-time basis. Contractors are only hired on an as-needed basis and for activities that cannot be performed by Adeco’s staff (e.g. maintenance of high-tech equipment). Relationships with the contractors are generally long term and are governed by a comprehensive contractors’ management plan to ensure compliance with labor regulations, OHS standards and environmental performance criteria.

As noted during the site visit, the company is now promoting the hiring of women in the free-stalls and enhancing its gender balance. As part of Adeco’s commitment to no discrimination, equal treatment and promotion of diversity, the company plans to develop and implement a gender strategy to enhance local women’s labor force participation as well as to prevent and manage potential risks of sexual harassment and gender-based violence. The strategy will include (i) a brief assessment of the types of work traditionally carried out by female and male workers in the region; (ii) a communication plan to inform employment opportunities to female residents and encourage women participation; (iii) a training plan to create awareness and equip workers with necessary skills to avoid and report violence against women, sexual exploitation and abuse for all staff and contractors; (iv) internal and external grievance mechanisms tailored to claim, receive, and manage concerns or complaints of sexual harassment and gender-based violence; (v) measures to monitor and evaluate the implementation of the gender strategy (e.g. collection of data disaggregated by gender).     

Adeco will disseminate its gender strategy to all staff and contracted workers by informing them in a manner that is easy to understand and culturally appropriate.

Workers’ Organizations

In alignment with national labor laws that guarantees workers’ rights to freedom of association, Adeco’s workers join unions of their choosing. Dairy operations in Argentina negotiate collective bargaining agreements, which are reviewed once a year mostly regarding salary increases. More than 90% of the employees are affiliated to the Asociación de Trabajadores de la Industria Lechera de la República Argentina (ATILRA), which represents workers form the dairy sector in the country. Representatives from the unions are part of committees that meet regularly to review workplace conditions, training requirements, and occupational health and safety requirements.

Retrenchment

Adeco’s policy is to avoid any large-scale layoffs, even during economic downturns, by seeking greater efficiency through natural turnover. Adeco also seeks to minimize layoffs that might arise in the course of acquiring another company. In its recent acquisition of SanCor’s milk processing facilities in Morteros and Chivilcoy, which have approximately 230 staff, the company developed and implemented a voluntary retirement plan, which was approved by both Argentine’s Ministry of Labour, Employment and Social Security and ATILRA. As reported by Adeco and by one of the union’s delegate that was interviewed during the appraisal visit, approximately 45 employees enrolled in this program, which was enough to right size the industrial plants.

The company reported that they not expect to lay off additional employees, and that additional hiring will be needed when the industrial plants and the free-stalls increase their production capacity levels. Besides that, approximately 30 employees were hired at Adeco’s headquarters to manage the commercial and marketing components of the milk brands that were acquired from SanCor (Las Tres Niñas and Angelita).

Occupational Health and Safety

Adeco’s Human Resources’ methodology for monitoring impacts to individual employees starts with a mandatory pre-employment physical examination for prospective employees. A file is developed for each new employee allowing subsequent physical health assessments and monitoring results to be compared to the baseline throughout the employee’s term of service.

Adeco’s corporate Occupational Health and Safety Management System (Seguridad y Salud Ocupacional [SYSO]) has been improved in the past years and aims to establish a systematic approach to ensuring safe working conditions for employees, subcontractors, and third parties performing work for the company.

In recent years, the company has focused its efforts on the conduction of job hazard analyses for field operations and processing plants. Using collected information, employees are informed of existing hazards in their workplaces and trained on precautionary measures required to prevent accidents and incidents. Operations personnel, in conjunction with SYSO staff, is now applying engineering controls to reduce the risk, eliminate it or avoid it by reviewing the adequacy and appropriateness of PPE in use and, if indicated, modifying needed equipment or providing supplemental training for proper use to enhance PPE effectiveness.

However, as noted during the appraisal visit, there are still discrepancies in the policies and procedures for consistent management of OHS risks at the newly acquired dairy facilities and room for improvement at the free-stalls. The need for training and for creating awareness among the dairy industry personnel regarding the basic safety rules, behaviors and applicable regulations was also identified. The safety culture needs to be enhanced in the newly acquired facilities to reflect the corporate OHS programs and policies.

Moving forward, as per ESAP Action #4, Adeco will expand the OHS plans and procedures to cover the activities associated with dairy operations. At a minimum, this will include (i) a proper risk and hazard identification covering all risks including those related to fire and explosion; (ii) identification and implementation of controls to manage the identified risks; (iii) monitoring and review of controls, including audits and reporting.

The pre-acquisition due diligence identified several issues related to unsafe conditions and regulatory compliance at both Chivilcoy and Morteros plants. The boilers that are regulated under the Argentinian “Pressure Vessels” regulation were the first equipment to be reviewed and submitted for the required safety tests (thickness and hydraulic), in order to assure both the safety operating conditions and the renewal of the permits. A new set of thickness measurement tests is scheduled for early-2020. There are other critical programs and equipment that indicate a need for upgrade and demand constant technical support from the safety standpoint as found during IFC’s appraisal visit, including, but not limited to: (i) the ammonia refrigeration systems; (ii) the fire systems; (iii) the powdered milk plant; (iv) the risks associated with hazardous energy; (v) chemical handling; (vi) confined spaces; among others. These critical programs also require a constant coordination of activities within departments such as OHS, operations and maintenance.

Adeco, as per ESAP Action #5, will hire a qualified ammonia refrigeration system consultant to conduct safety assessments of the industrial scale ammonia refrigeration systems in the dairy plants, and compare the results against local regulatory requirements and applicable international standards (such as those of the International Institute of Ammonia Refrigeration - IIAR). Based on the results of the safety assessment, Adeco will identify opportunities and implement measures to improve the ammonia systems’ safety consistent with international safety standards.

Also, under the ESAP (Action #6), Adeco will conduct in-depth audits to verify the conditions of all systems and equipment (e.g. electrical systems, surface drainage system around areas that store chemicals and fuels, boilers, chemical storage tanks, fire protection systems, pumps, etc.) at older facilities and will develop action plans to improve conditions or upgrade systems and equipment in a phased manner. Follow up audits will be performed every year until all gaps are closed and corrective measures implemented.

The transport of the company’s products entails a significant number of trucks, which are owned and managed by third-party contractors. Moving forward, under the ESAP (Action #7), Adeco will develop and implement a procedure to manage risks associated with subcontractor’s drivers, including: (i) defensive driving trainings; (ii) visual inspections of truck conditions; and (iii) requirements of drivers’ qualifications/certifications.

Resource Efficiency

Adeco’s dairy industrial plants run mainly on electricity provided by the national grid, although steam used at the plants is generated by boilers (oil and gas). Currently, approximately 16 million kWh of electricity and 3,129 tons of fuel oil are consumed annually, although the company would consume approximately 6,000 tons of fuel oil per year when operating at full capacity. The company is working to implement a gas connection which will enable the plant to switch from fuel oil to natural gas. The plant will move from using 6,000 tons of fuel oil per year to using 5,300,000 m3/year of natural gas, which will also allow a significant reduction in GHG emissions. Water supply at the industrial sites comes from underground sources. Total water consumption in 2019 was 380,873 thousand m3.

In October 2017, Adeco completed the construction of their first Biodigestor with a 1.4 MWh of installed capacity, located in Estancia Carmen (Santa Fe Province). The facility generates electricity by burning biogas extracted from effluents produced by more than 9 thousand milking cows. The energy generated by the Biodigestor is delivered to the local power grid. In addition to increasing revenues and securing the company’s energy requirements, this facility reduces greenhouse gas emissions, improves the effluent management and concentrates valuable nutrients which are applied back to the fields. The company has also recently installed a solar photovoltaic power plant with 0.5 MW of installed capacity.

IFC advisory services is also supporting the company on the development of an energy and water use efficiency program, which will improve Adeco’s dairy operations and reduce the company’s water and energy footprint.

Air Emissions and Greenhouse Gases

Dairy operations use animal manure for crop bio fertilizer through separation of liquids and solids, facultative wastewater pond digestion of liquid fractions and then application of liquid and solid fractions to fields employed predominantly for growing cattle feed. Bovine digestive tracts normally produce large volumes of methane, which has a Global Warming Potential (GWP) twenty-one times greater than CO2. However, the combination of scientifically balanced, high fiber diet, limited movement and free-stall accommodations significantly reduce methane emissions from dairy cows’ alimentary tracts.

The biodigester facility, which removes the energy from organic bovine waste and convert methane to carbon dioxide, significantly reduces climate-affecting emissions. After digestion, solid and liquid fractions are being applied to the fields, but with considerably less impact because uncontrolled, in-field digestion of waste and methane production no longer takes place.

Based on data supplied by Adeco, the company’s dairy operations generated in 2019 approximately 32,000 tons of CO2 equivalent. The company’s truck services are provided by a third-party transportation provider; therefore, truck emissions were not included as part of the carbon footprint analysis. Adeco is currently developing a procedure to quantify its direct annual GHG emissions using international recognized methodologies. As part of its annual report, Adecoagro will submit its GHG emissions derived from the dairy activities to the IFC.

There are boilers at the milk processing facilities which are fired with natural gas and diesel. Air emissions are monitored and measured once a year and results are compliant with national emission levels and applicable WBG EHS guideline levels.

Wastewater Quality

Industrial wastewater at both Morteros and Chivilcoy plants is treated via wastewater treatment plant (WWTP) and subsequent discharge to a local canal, which also receives effluents from other milk processing facilities and from the cities nearby. Dairy industry wastes are characterized by high organic content. Parameters of concern will be pH, oil and grease, suspended solids, dissolved solids, BOD and COD. The effluent treatment systems for both plants are described below:

Morteros - The effluent treatment system discharges to surface water after treatment through primary and secondary biological treatment system with biological and physico-chemical nutrient removal. The effluent treatment system consists of skimmers for separation of floatable solids; flow and load equalization; sedimentation for suspended solids reduction using clarifiers; and biological treatment for reduction of BOD; and biological nutrient removal for reduction in nitrogen and phosphorus. The final effluent is chlorinated for disinfection before it is discharged to a local canal. A specialized company is responsible for the disposal of wastewater treatment sludge. At the time of the appraisal visit, quality of discharged effluent was out of compliance with local regulatory requirements and applicable WBG EHS guidelines for discharge of treated effluents to surface water from dairy processing. This WWTP will have to be improved and upgraded to guarantee compliance with local regulatory requirements and applicable WBG EHS guidelines.

Chivilcoy – The effluent treatment system discharges to surface water after treatment through primary and secondary biological treatment system with biological and physico-chemical nutrient removal. The effluent treatment system includes skimmers for separation of floatable solids; flow and load equalization; sedimentation for suspended solids reduction using clarifiers; biological treatment for reduction of soluble organic matter (BOD); biological nutrient removal for reduction in nitrogen and phosphorus. Quality of discharged effluent is currently in compliance with local regulatory requirements, and consistent with applicable WBG EHS guidelines for discharge of treated effluents to surface water. However, the Chivilcoy industrial plant is currently operating at 60% of its production capacity and the WWTP does not have the capacity to treat the industrial plant’s effluents at 100% of production capacity. Therefore, this WWTP also will have to be upgraded to achieve compliance with local regulatory requirements and applicable WBG EHS guidelines.

Estancia Carmen – Effluent generated in the free-stalls are being used in the biodigester with a 1.4 MWh of installed capacity and, after that, the effluents are sent to treatment lagoons to be ultimately used as solid and liquid fertilizers. Adeco has a Biofertilizer Management Plan in place to manage the treated effluents and separated solids and to monitor the use of such effluent in agricultural lands. Monitoring results indicates that there is no negative effect over soil and groundwater quality where the biofertilizers are being applied.

Adeco has started to work towards improving its performance through process enhancements and infrastructure upgrade and, under ESAP action #8, the company will identify alternatives to reduce the amount and quality of effluents discharged and improve the WWTP and to ensure that treated effluent quality is compliant with national requirements and WBG’s EHS Guideline values for Dairy Processing.

Solid Waste Management

The company has a solid waste management plan that includes segregation and storage of wastes according with their characteristics. The company also has initiatives to recycle and to minimize solid waste generation. Hazardous and non-hazardous solid wastes are stored at appropriate storage areas and disposed at authorized waste management facilities. Manifests are maintained, and volumes of wastes are recorded. Used oil is segregated and sent to recycling facilities.

Hazardous Materials Management

Adeco’s processing operations does not use large amounts of chemicals and the main hazardous includes cleaning products such as caustic soda, phosphoric acid, nitric acid, liquefied petroleum gas (LPG) for the forklifts and diesel to fuel the boilers. As noted during the site visit, although the acid and soda storage areas have secondary contention and emergency showers nearby, on site storage conditions found to be inadequate due to the lack of maintenance prior to Adeco’s acquisition. The improvement of these areas will be covered under ESAP Action #6, as described above.

Adeco’s management of community health and safety risks is defined by locally applicable requirements. In general, Adeco’s dairy processing plants are located in industrial areas, themselves located in small towns proximal to the agricultural areas from where the milk is sourced.  Potential emergency situations, such as chemical fire or explosion, would be contained within the limits of the industrial facilities. In these areas, the interface is limited to truck traffic that are contracted to transport raw milk and processed products. As such, there is little interaction between such operations and the general public.

Food Safety

The essential requirement for a food manufacturing company is a food safety management system and associated product traceability. Adeco has in place a food safety management system, based on HACCP and ISO 9001 framework, to prevent and address the chemical, physical and biological hazard to enhance food safety. Adeco’s quality food safety management system is audited by its clients on a regular basis.

Security Personnel

Security for physical assets and access control are provided by direct employees. Adeco does not employ armed personnel.

Logistics and Transportations

Logistics and transportation of products and goods to and from Adeco facilities is a critical component of its operations. The company obtains the milk from milk production farms, which is transported to the processing plants in Morteros and Chivilcoy. In addition, from the manufacturing plant, the products are transported to the sale points throughout the country. All transportation is provided by contracted tankers and trucks. As described before Adeco will enhance its management of safety elements regarding drivers.

Sustainable Management of Living Natural Resources

The milk used by the company is supplied by its own free-stalls in the Santa Fe province and by external suppliers, which are located in traditional milk producing areas. Therefore, no direct conversion of natural habitats or significant loss of biodiversity is expected from this project. The project components are either pre-existing industrial facilities and free-stalls located in modified habitats.

Supply Chain

The Chivilcoy plant has 18 external suppliers while the Morteros plant has 110. All primary suppliers of milk are free-stalls and direct producers. All providers have to sign into a supplier register and provide their company information, including the co-ordinates of the free-stall.

A rapid mapping exercise undertaken by Adeco during the appraisal showed that no significant land use change or conversion of natural habitat has occurred in the area where the Morteros plant’s suppliers are located. The majority of suppliers are located within a 50 km radius and Adeco extended the mapping to 100 km to include all suppliers. The suppliers to the Morteros plant were assessed due to the location of the plant in El Chaco region. However, all suppliers are long established in a traditional milk producing area and no land has been cleared to establish their dairies.

Adeco’s ESMS includes a procedure for assessing new suppliers to determine if they are located in an area where there is a risk of significant conversion of natural and critical habitat. Adeco will apply this procedure to any new suppliers for the Morteros plant.

The majority of Adeco’s operations are located in rural areas that are sparsely populated and at a distance from communities. However, there are some farms and industrial facilities, such as Morteros and Chivilcoy, with adjacent communities.

The company uses a number of channels to communicate with external stakeholders. Through the company’s website, www.adecoagro.com, e-mails can be sent directly to the company. In the same website, external stakeholders can access institutional information relevant to how the company manages its business, including its annual sustainability reports, which include benchmarking against the GRI indicators. The company has also a number of social programs, with nutrition, health and education as the main lines of action of Adeco’s community development strategy, which are aligned with specific Sustainable Development Goals (SDGs).

As part of the previous investment, Adeco has conducted stakeholder mapping exercise which includes identification of risk and impacts for project affected people for most of their farms and industrial operations. Under the ESAP (Action #9), Adeco will extend the stakeholder mapping and identification of potential risks and impacts to its dairy operations. Based on the mapping exercise and the risk assessments, a comprehensive Stakeholder Engagement Plan will be developed outlining the engagement strategy for the different farms and operations commensurate with identified risks and impacts. The engagement plan will include reporting to directly affected communities regarding identified impacts and with issues identified through the grievance mechanism on a timely basis.

 Contact person: Rafael Aguilar

Address: Fondo de la Legua 936, B1640 Martinez, Buenos Aires, Argentina

E-mail: raguilar@adecoagro.com

Phone: (+5411) 4836 8660