Social and environmental assessment and new project due diligence: For all new facilities under this investment an Environmental impact assessment (EIA, including corresponding E&S management and monitoring plans) has been completed which was then reviewed by an expert panel appointed by the local environmental authorities, and the EIA received approval by the relevant local authority, after the company had demonstrated that all feedback from the expert panel was satisfactorily addressed including any required corrective actions and adjustments made to a project’s design. IFC’s review confirmed that detailed baseline condition studies (e.g. on ambient groundwater quality) have been carried out by qualified technical institutes for the expansion farms as part of the project EIAs.

Prior to commissioning the formal EIA for each expansion farm, the company undertook detailed feasibility studies (FS) as a key step of its new project due diligence work, and in parallel applied its corporate level site-selection criteria in evaluating and selecting potential project sites. FS reports reviewed by IFC included analyses on: a proposed pig farm’s site selection rationale (e.g. biosecurity considerations, water and electricity availability, access to market and transportation, and distance from local communities); comparison of the feasibility of alternative project sites; detailed description of the pig farm’s production process and work flow; preliminary construction plan; required environmental protection provisions and measures; proposed energy and water efficiency measures; measures for managing occupational health and safety (OHS), life and fire safety (L&FS), and emergency preparedness and response (EPR); and proposed organizational setup during construction and operation. Feasibility reports were submitted to a corporate level committee for review and clearance, leading to a decision to proceed which included E&S considerations of proposed sites. IFC’s review concludes that the company’s FS assessment and site selection process, and the ensuing EIA process, represents a robust new project due diligence process which has properly assessed project E&S risks and impacts. The planning and design of new farms entails a standardized process by the company, which represents an important part of its overall E&S risk management.

Policy and Management programs: Muyuan has developed a detailed policy statement covering environmental, social, and occupational health and safety, and this policy is also stated in its annual corporate social responsibility (CSR) reports. This policy forms the basis of corporate-level standard operating procedures (SOP) put into place by the company. Corresponding key performance indicators (KPI) are developed (with 26 specific KPIs and performance results listed in the company’s annual CSR reports based on the Global Reporting Initiative (GRI)), which are the indicators used by the company to monitor and quantify its overall operational and E&S performance. Corporate level SOPs and KPIs are applied to each in-construction and operating pig farm, which includes where needed specific work instructions and slightly modified SOPs and KPIs attenuated to local conditions. These project-level documents are submitted to headquarter departments with EHS/OHS responsibilities for comments and are formalized once a final version is agreed. For all in-construction and operational sites of the company, the SOPs are part of their environmental management system which has been independently certified against ISO 14001 standard since 2010, and which includes annual compliance verification audits by qualified external auditors.

SOPs are further assimilated in the company’s pig raising manual as part of the company’s application of a standardized approach to its business operations including EHS and OHS management. This document describes in detail best practices for all activities, is continually updated over time by incorporating lessons learned from day-to-day operations and is the basis of operational and EHS/OHS related training for new and existing staff members, and of operational knowledge exchange and team learning between departments and staff. Staff has access to the manual and related SOPs, as well as technical and lessons-learned materials via videos and PowerPoint presentations available on the company’s intranet. In addition, e-learning programs with accompanying post-training tests are in place and administered to ensure staff is trained and able to apply training knowledge to day to day work. The manual, SOPs, KPIs, training programs, and post-training tests, together form part of the company’s evaluation of departmental and personnel performance against annually-updated KPIs at different levels of the company. Standardization of SOP application across farms is further facilitated by the fact that all Muyuan farms adopt a similar work area design and work flow layout.

Organizational capacity: At the corporate level, the following departments have E&S related benchmarking/oversight/coordination and/or implementation responsibilities (described in brackets): (i) production department (coordination to meet production and EHS/OHS objectives); (ii) quality control and assurance department (food safety and traceability management and food safety certification work); (iii) feed and procurement department (feed quality management and procurement); (iv) new project development and construction department (new project site due diligence including land leasing, and facility construction management oversight); corporate support and safeguard department (with two sub-departments: 1/ environmental monitoring department responsible for oversight of EIA related work, monitoring of overall EHS, waste management, and resource efficiency implementation by facilities and farms, and identification and evaluation of environmental good practice and new technologies for potential adoption; and 2/ environmental support department responsible for ISO14001 certification and EPR related oversight); (v) Human Resources department (HR management including OHS coordination); and (vi) social responsibility department (preparation of annual CSR reports, verification of staff fulfillment of CSR related KPIs and administration of training programs, and implementation of community development programs). The above departments report to the General Manager of the company, who is accountable to the Board of Directors (BoD). The BoD reviews and approves major E&S initiatives and budget allocations annually.

The corporate support and safeguard department comprises over 160 staff members and at each farm, there are on average 5 staff members with environmental, waste management (including biogas facility management) and EPR related responsibilities who report to the head of environment at that facility. There are one to two OHS officers at each farm within the production department. Local stakeholder engagement activities including those related to the handling of grievances if any at the farm level, are carried out day to day by the environmental team with overall direction and management from the head of facility. The farm-level environmental coordinator and his/her team of environmental officers have the following responsibilities: the operation of wastewater and biogas facilities; ensuring maximum solid and liquid waste segregation (for manure); ensuring no discharge of wastewater outside farm boundaries other than irrigation of adjacent fields by treated liquid biofertilizer; day to day operation of EPR and fire/explosion risk management procedures; ensuring proper maintenance of equipment and normal operation of methane generation from biogas and monitoring farm performance against corporate benchmarks on energy and water use. The head of farm/facility is ultimately responsible for EHS and OHS performance at that operation, and the head of each production area/section is responsible for ensuring safety compliance in his/her section. The head of farm/facility is supported by the staff of the environmental team as well as by the farm-level safety coordinator and on-site water and electrical technician (who looks after all water and electrical works during construction and ensure their proper functioning and maintenance during operations). The company’s policy is to ensure that each facility has at least one staff member fully trained in administering first aid.

The company has regional operational hubs throughout China, with each playing a coordination and management role between the headquarter and farms. The regional structure increases the company’s ability to effectively manage E&S risks across a large number of farms throughout China. Each regional hub has up to 5 environmental and OHS officers (who report to the corporate support and safeguard department and the OHS sub-department within the corporate HR department) and they carry out regular announced and unannounced inspections of farms and facilities under their respective geographical jurisdictions.

Once a new project farm has passed the feasibility study stage and starts entering into concrete planning, the corporate HR department advertises management and operational openings at the new facility to existing personnel at other Muyuan farms and facilities, and selects and assembles a management and operational team through an internal competitive process, or recruits from external sources if suitably qualified and interested internal personnel could not be identified. This approach by the company aims to maximize the transfer of existing knowledge and experience from within to new projects and farms and is a key part of the company ensuring consistent application of its corporate EHS and OHS requirements across facilities. The appointed team, as part of its transition to the new facility, becomes fully involved in a new facility’s planning, design, and construction, through to construction completion, at which point they formally take over operation and management of the new facility.

Monitoring and Reporting: The corporate support and safeguard department, and the OHS team within the corporate level HR department, carries out oversight and monitoring of overall EHS and OHS performance respectively across facilities, through liaison with their counterparts at the facility level including heads of farms/facilities. At the facility level, the Environmental team and OHS coordinator undertake regular, planned and unplanned inspections to ensure compliance against Muyuan’s Environmental and Occupational Health and Safety requirements for each site, based on site inspection checklists which were developed to reflect EIA and hazard point analyses findings. Deviations against KPIs are noted and reported for close-out to site management, who in turn report on close-out status to the corporate EHS and OHS departments. Day to day interactions between corporate and facility EHS and OHS teams comprise reporting against KPIs, verification of closing-out of corrective actions, knowledge dissemination, and technical support.

All facilities conduct environmental operational, and resource efficiency monitoring as per environmental management plans arising from a facility’s EIA report and based on Muyuan’s corporate EHS requirements. Examples of key parameters monitored include: ambient groundwater quality, ambient air quality, stack emissions, and percentage treatment of manure and effluent through bio-gasification. The company also monitors nutritional and chemical composition of post bio-gasification treated liquid biofertilizer as well as soil quality for adjacent farmland. All farms additionally monitor the water and energy consumption with respect to established corporate benchmarks. Summary reports are submitted to the relevant headquarter departments for review, who will follow up with a facility to ensure implementation of corrective actions should opportunities for improvement be identified.

Supply Chain: The ten expansion farms to be financed under this project will source their key raw material (i.e. feed) from feed mills located within a 30km supply radius of each farm. Those feed mills in turn source wheat, corn, sorghum, and other feed grains, as well as feed supplements from a variety of local, regional, and national sources i.e. from local farming households, rural cooperatives, regional grain traders, and national level grain and foodstuff companies and aggregators. As part of the company’s food safety and traceability system, feed mills which supply to company pig farms are required to provide detailed evidence on feed quality in relation to parameters such as protein content, moisture content, and strict non-exceedance of residual agricultural chemicals. The company evaluates suitability of potential suppliers by looking at their business, operational, and environmental compliance readiness, as per the company’s “supplier evaluation criteria and evaluation procedures” SOP. As part of contractual agreements signed with the company, selected suppliers are required to formally adopt the company’s supplier environmental commitment requirements. Considering that the feed mills are buying grains from a large variety and number of sources, and traders and aggregators in turn buy from a large network of supply sources spread over vast geographical areas in China, the company has limited leverage on EHS and OHS practices in the primary grain supply chain. To the extent feasible and where leverage is present, the company shall reinforce its primary-supplier evaluation procedures/criteria with E&S content i.e. screening for OHS performance, and potential impacts on biodiversity. Refer to the ESAP item #1 for details.

Emergency Preparedness and Response (EPR): Muyuan pig farm planning and designs, ensuing construction work, and post-construction verification audits (before operational notice to proceed is granted) follow detailed fire safety design specifications and procedures in accordance with national and local requirements. Based on the company’s corporate level EPR procedures, including results of hazard point analyses, each farm develops a detailed EPR which is reviewed and signed off on by headquarters. Facility-level EPRs describe actions, responsible teams, and roles and responsibilities, related to the prevention, preparation, and management of likely incident scenarios at each location, and includes scenarios that can have adverse effects on the surrounding including loss of containment (LOC) for biogas, accidental waste water leakage into the ambient, and health and hygiene emergency scenarios. Regular drills pertaining to each major emergency scenario are carried out at farms and facilities.

As of the end of 2019 the company employed about 50,000 people, all direct hires without going through labor intermediaries, of whom around 38,000 persons worked at farms and facilities. The ten expansion farms under this project are expected to employ a further 1,650 persons. Given its expansion, the company does not have any planned retrenchments in the foreseeable future. Most of the expansion farm employees will be recruited from local populations in the vicinity of the ten farms, and the company aims to recruit supervisors and managerial positions mainly from within the company (including existing farms) but also from external sources as needed, a practice which is followed at the expansion farms and for recruitment of all supervisory and managerial positions at the company in general. All workers sign a standard written contract with the company which includes terms and conditions (e.g. on working hours) consistent with national labor laws. Frontline workers at pig farms are paid on a production basis and the wages are above the minimum wage and determined by referencing survey results of national labor market rates for comparable positions in the hog production industry. Working hours and overtime work are as per national labor law requirements i.e. not more than 44 hours a week. All employees are enrolled in social insurance (which covers pension, unemployment, medical, injury, and maternity). Given biosecurity concerns and lengthy quarantine periods associated with gaining access to and working in the farms, the workers are provided with no-cost accommodation on the farm and subsidized meals in the canteen. While biosecurity protocols need to be met, there are no undue restrictions placed on employees’ freedom of movement, and they get scheduled time off consistent with labor law requirements. Accommodation is shared by two employees and is male/female segregated except for married couples who take up family housing units. Each room is provided with a toilet and washing facilities and is about 25 m2 in size.

HR policies and procedures: The company has a detailed HR policy and employee manual in place which are consistent with national labor law and PS2 requirements.

Facility employees work in a shift-system with an average of 44 hours of work per week and with limited overtime. IFC’s review found voluntary professional development training activities for head office staff planned outside regular working hours on weekends. As set forth in ESAP item #2 the company shall reinforce communication of its working hour policies by publicizing among all employees that weekend overtime work for professional learning is completely voluntary.

Protecting the workforce, non-discrimination, and equal opportunity: The male-female ratio for the company is 66%-34%, which as per the company reflects the ratio of available talents and interested applicants in the animal husbandry industry given the nature of work, and also reflects the ratio of graduates from animal husbandry faculties at universities and technical colleges from which the company recruits. The company has a policy of recruiting and promoting staff based only on competency and experience considerations, on whether applicants identify with the company’s emphasis on social responsibility, and on the principle of equal opportunity, which is stated in its annual CSR report under the employee rights section as a policy principle, and is regularly conveyed to all staff during staff meetings. IFC’s review finds no signs of practices contravening equal opportunity and non-discrimination principles. The company has a policy of zero tolerance of harassment in the workplace, closely monitors potential signs of harassment (including that related to gender-based violence), and has confirmed that no instances of such have been found. All workers exceed the minimum age of 18 years, records of proof of age are kept, and there is no evidence of forced labor practices.

Freedom of association and worker grievance mechanism: The All China Federation of Trade Unions (ACFTU) has an active chapter at the company and workers are free to unionize if they choose to do so under company HR policy and prevailing labor regulations. The company maintains open channels for communications from workers to senior staff. Besides regular staff meetings and dedicated HR personal for all employees the company has set up a WeChat (social media) account were all staff can report complaints and grievances. An email address and a public WeChat account is available for anonymous filing of grievances or concerns.

Occupational, health and safety (OHS): Since the previous project appraisal in 2016, Muyuan has further standardized OHS management efforts across farms, with an overall KPI target of zero personal safety incidents. The OHS system includes identification of major risks per department and operational areas (e.g. bio-gas area, construction area, electrical department, and transport) as part of hazard point analyses, description of the safety management systems to be implemented at each facility based on hazard point analyzes findings, and delineation of roles and responsibilities and reporting relationships of different departments/personnel within the company to manage matters related to OHS. The policy also includes key operational control procedures for workers involved in special operations like electricians, crane operators, construction workers, etc. An incident investigation system and a yearly monitoring and review system is in place to verify effectiveness of the procedures. Related to the above, the company has in place a detailed list of probable OHS risk points for a typical company farm setup, likely types of risks arising at each point, with a detailed SOP linked to each type of risk which describes required mitigations. The company has defined operational responsibilities and has included safety performance KPIs in the performance review of staff. In addition, it has developed and incorporated in its current management system a detailed set of safety SOPs including training and monitoring programs. Safety measures described in these procedures are in accordance with IFC EHS general guidelines.

Construction of new farms is conducted by contractors selected through an open tender process. During the appraisal, one site with ongoing construction was visited were construction was in full progress. The site had implemented a basic safety management system that was controlled by a dedicated safety officer. The construction workers were noted to be working with the required personal protective equipment (PPE) based on the risk of their area and activity. A training program for all staff was implemented as well as a system to including safety belts and fall protections during work at height.

Based on incident statistics during the period 2017/12/26-2018/9/12 at the company’s pig farm operations, and on simple extrapolation over a 12-month period, the lost time frequency rate (LTIFR i.e. number of injuries per 200,000 hours worked) at company farms was calculated to be 0.79, which is substantively below the LTIFR of 7.6 for the hog and pig farming industry in the U.S. in 2018 as per publicly available data from the U.S. Bureau of Labor Statistics (https://www.bls.gov/iif/oshsum.htm). The number of lost workdays were not available and therefore lost time injury severity rate (LTISR) could not be calculated and benchmarked. A table from the company listing the location, date, and description of each incident and fatality was available and described each incident in reasonable detail, and its OHS and risk management manual describes key types of risks arising during the course of pig farming operations, risk point analyzes results, corresponding mitigations, and required KPIs to monitor performance. The company’s incident investigation and reporting system will need to be reinforced in order to reflect a root cause analysis approach leading to a mechanism of summarizing systemic lessons learned and implementing prevention-oriented actions.

Based on the above, IFC’s review concludes that the company has reinforced its OHS management since IFC’s previous appraisal, the company has continually placed greater emphasis on OHS management and has implemented preventative and mitigation measures, and available data showed that LTIFR was below the comparable benchmark level in 2018. At the same time, its incident management system will benefit from a stronger focus on a root cause analysis and systemic lessons learned approach. As set forth in ESAP item #3, the company shall engage an independent qualified OHS consultant to undertake a detailed OHS review, to ensure that: (i) its incident investigation, classification, and recording system are in line with GIIP and IFC standards set forth in the WBG General EHS guidelines, including incorporation of a root cause analysis approach and the tracking of statistics such as number of lost work days and near-misses as well as implementing corrective measures; and that (ii) the company annually benchmarks its OHS performance (using a combination of leading/lagging OHS indicators consistent with GIIP such as LTIFR, LTISR, and near-misses) with representative China and international hog production industry/sector performance numbers. Going forward the company will report to IFC annually on the LTIFR and LTISR, outcome of root cause analysis and mitigation measures taken.

As of 2017 the corporate OHS function of the company has been placed within corporate Human Resources as a sub-department, with a goal of furthering coordination and mainstreaming of OHS responsibilities across all operational departments and personnel. This OHS sub-department consist of 20 staff members in the head office assisted by 1-2 employees in the HR departments of each regional subsidiary, including team members familiar with operations and OHS risk management requirements. None of the current OHS staff has a formal OHS training and/or in-depth frontline experience in day to day operations at the farms. As set forth in ESAP item #4 the company will appoint 2 suitably qualified staff members (i.e. with OHS technical background and several years of frontline operational experience at farms and other facilities) on a fulltime basis with responsibilities in: i) assessing risks, ii) determining risk elimination and mitigation strategy; iii) aligning auditing and inspection process including reporting; iv) incorporating best practices in incident investigation and recording, including standardization of reporting templates for the collection/analysis of leading/lagging OHS indicators which go beyond being mainly exception/deviation-based.

Water use and quality: Muyuan expansion farms will extract water from nearby reservoirs and underground aquifers (groundwater). As per local regulatory requirements, water extraction quantities are regulated by a water extraction permit as part of the EIA approval process. In 2016, Muyuan undertook water footprint assessments at several representative hog farms, and based on assessment findings and recommendations, it introduced engineering and management measures to further reduce its water footprint e.g. i) adapted drinking fountains; ii) installation of pig pen designs and high-pressure water guns which vastly reduced quantity of cleaning water dispensed; iii) adoption of computer-controlled targeted spraying of cooling water; iv) installation of water meters including a focus on behavior changes of farm workers, and the adoption of water consumption per production-area per month as a KPI to evaluate and incentivize performance; v) frequent checking of all water infrastructure to detect and minimize potential leakage. The company reported that these measures have reduced the amount of water consumed per kg live hog produced at its farms by more than half over a three-year period, and that by the end of 2018, on average 1.6 m3 of water was consumed per pig from birth to market.

Waste water: From a design perspective of preventing wastewater leakage, all Muyuan pig farms adopt a similar design of laying an impermeable membrane on top of concrete flooring (which meets thickness specifications) to minimize potential leakage of manure and waste water into soil and groundwater. At each Muyuan farm, all manure and liquid waste generated by feeding, cooling and cleaning the stables go through four stages: (i) transport by gravity through concealed underground pipes into collection ponds; (ii) followed by entry into the sedimentation and centrifugation area which separates liquid and solids. At this pre-bio-gasification stage, solid-liquid separation and the addition of corn stalks aim to improve subsequent bio-gasification efficiency; (iii) entry into enclosed biogas digestion chambers for fermentation; (iv) solid residues arising from the previous step are transported by concealed pipes to an enclosed barn for further aerobic fermentation, and are subsequently sold as raw material to facilities producing pelletized, bagged solid bio-fertilizer (with a total of 75,000 tons produced in 2018); (iv) whereas the biogas reactor’s liquid output (i.e. liquid bio-fertilizer) is diverted to an on-site collection pit (with the entire pit area fully covered by plastic film to avoid potential emission of odor) and is typically stored there for up to six months then piped via an extensive network of concealed underground pipes to irrigate the farm fields of local communities throughout the year, with a total of 15.6 million m3 distributed to local farm fields near Muyuan farms in China in 2018, which replaced a total of 13,200 tons of chemical fertilizer which would have been used in local farm fields in a no-project scenario. The liquid biofertilizer is provided free of charge to local farmers. The above process is managed by on-site teams with oversight and technical support by teams of environmental and agricultural technicians from the Muyuan headquarter and regional subsidiaries. The company conducts regular laboratory analysis of ambient ground water and soil quality (e.g. nutrient levels), and also of the liquid biofertilizer stored in its collection pits. Expansion farms have been designed to ensure stormwater and waste water segregation and have taken into consideration potential scenarios of waste water leakage into the ambient in the event of major flooding and other unforeseen natural disaster events.

All Muyuan farms including expansion farms adopt the above described waste water treatment process. As such, the company reports that it has achieved zero discharge of waste water at all farms, and highlights this as a core operational KPI in its annual CSR reports. Linked to the abovementioned measures adopted by the company to reduce its water consumption footprint, Muyuan also tracks waste water per live hog produced as an operational KPI which was reported in the 2018 CSR report as between 1.1-1.5 m3 per pig from birth to market. The company states that the combination of buying grains from local farmers, providing them with liquid biofertilizer at no cost, and zero discharge of waste water to the outside made possible by on-site bio-gasification, are integral parts of its closed-loop pig farming model meant to minimize pollution impacts while fostering local development.

Air emissions, noise, and odor management: The generated biogas (methane) is collected and used as fuel for cooking at on-site cafeterias. A small portion (estimated to be 5-10% of total methane produced) of methane that cannot be used is diverted to a flare. There will be no boilers installed and operated at the expansion farms as is the case for the existing farms. Key sources of noise at expansion farms emanate from the operation of on-site equipment such as aerators and water pumps, and also from pig hollering. The EIAs for the expansion detail specific measures (e.g. sound barriers and casings) to reduce noise levels. In relation to odors, the company commissions external qualified technical institutes to monitor H2S and NH3 ambient levels at sampling points just outside its farm boundaries. Odor minimization at Muyuan farms comprise eight key measures: (i) reduction at source by adding bacteria (probiotics) to manure; (ii) site selection based on E&S and other factors; (iii) air filters with sterilization and de-odorization features; (iv) the use of anaerobic digestion reactors; (v) use of sealed pipes to transport manure and waste water; (vi) fully covering the entire area of liquid biofertilizer collection and storage pits; (vii) extensive greening and tree planting around the periphery of farms; and (viii) classifying each micro-area within a farm into one of six odor severity categories, and prescribing appropriate mitigation measures as per the classifications.

Solid and hazardous waste: There are no incinerators at Muyuan pig farms. Instead, carcasses are transported by trucks specially retrofitted with sealed containers operated by licensed third party truck operators to one of the company’s 50 dedicated carcass processing facilities across China, with each facility located within a reasonable radius of each cluster of Muyuan pig farms. Carcasses are mechanically crushed, heated in high-temperature chambers, and further crushed and centrifugated, resulting in tallow which is separated from the remaining meat and bone sludge residue. The tallow is sold as raw material to soap manufacturers, and the sludge is further processed and sold as bio-fertilizer, according to regulatory requirements. Hazardous materials and wastes at farms consist mainly of veterinary medicines, syringes, and empty containers of medicine. These are clearly marked and with material data sheets displayed where they are used and stored, and transported, collected, and stored in access-controlled area before being disposed of by qualified third-party service providers. In line with local regulations the company maintains digital chain of custody records covering steps from collection, transportation and disposal. The permitted types and quantities of medical and veterinary materials used at Muyuan farms are strictly regulated as per the “National lists of Hazardous Materials”.

Greenhouse gas emissions and energy efficiency: The GHG emissions from the expansion of Muyuan operations on completion of the project are estimated to be around 191,800 tonnes per annum CO2 equivalent for the ten farms, calculated using IFC’s carbon emissions estimator tool. This figure accounts for energy-based emissions in the expansion farms and from transportation, and also from livestock emissions. The above is expected to be partially offset by a reduction in GHG emissions due to the company’s bio-gasification operations which capture and reduce methane released to the ambient environment, resulting in an estimated 35,100 tCO2e abated per annum. Given that the above estimated emissions will exceed the 25,000 tCO2eq reporting threshold as defined in PS3, the client will provide its annual scope 1 and scope 2 GHG emission estimate, together with detailed calculations based on an internationally recognized methodology, as an annex of the annual E&S monitoring report to be submitted to IFC. Key elements of on-farm energy conservation comprise: (i) insulated pig barn walls including the use of extruded polystyrene boards); (ii) heat exchange systems to capture process waste heat for reuse; (iii) compartmentalized heating within different parts of the pig barns; (iv) extensive use of LED lights. The company reported in its 2018 CSR report an average of 40 kWh use of electricity per pig from birth to market and tracks this as an operational KPI.

Bio-security and Food Safety: The company implements stringent bio-security protocols to control access to all facilities. Access to all farms is restricted and farms are fully fenced and gated. Unarmed security guards are present at all facilities (farms and feed mills). There have been no known security incidents at company farms. The company’s management of food safety and product quality are described in dedicated systems documents and SOPs, which are based on an overarching principle of ensuring full raw material and product traceability from farm gate to the consumer and are also closely linked to its site bio-security management.

Through a company-developed mobile app, detailed information on each lot of pigs produced can be accessed by customers/consumers in relation to the growth condition, the farm from which a lot originated, food safety related test results, and other relevant information. Muyuan’s food safety management system comprises five key components: (i) system development, food safety performance monitoring against KPI targets, and associated training and knowledge-verification (i.e. the need to pass different levels of tests) programs; (ii) risk identification and warning system based on frequent collection and analysis of big data and on implementation of detailed EPR procedures including triggering mechanisms; (iii) detailed laboratory analysis capabilities at farm, regional, and headquarter levels, disease-prevention protocols, and strictly enforced site hygiene procedures; (iv) standardization of farm design, construction, and operation across facilities, which improves the company’s overall ability to prevent and rapidly respond to potential food safety scenarios; (v) site-based, task-based equipment, vehicle, and personnel sanitization (including air flow and manure management) and inspection checklists and protocols for each production sub-area and compartment. This includes quarantine protocols and areas within each farm, and a high level of automation of most work processes to reduce the need to have excess personnel on farm, which in turn reduces the probability of potential disease transmission. The company applies the FSSC 22000 food safety management principles to its farms in China.

The use of anti-biotics at company farms is strictly regulated to comply with national and industry requirements. The company tests its feed to ensure no use of growth hormones and testing for residual veterinary medicines is regularly carried out. All veterinary medicines are centrally procured at the company headquarter, based on prescriptions administered by qualified veterinary doctors, whose teams receive applications for medicines from each farm and accordingly distributes the required types and quantity of medicines to each farm based on justified needs. In 2019, Muyuan started applying for external certification of several of its facilities against FSSC 22000 (Food Safety System) and China Good Agricultural Practice (GAP) requirements. Lessons learned from these certification pilots are incorporated in the management of other facilities.

Transport safety: Each of the 10 farms under this project is expected to receive approximately 14 incoming and outgoing raw material and product (i.e. pig) trucks per day when running at full capacity. As described in PS1 and below, these farms will be located in rural counties distant from settlements. All transportation requirements are managed by a dedicated subsidiary of Muyuan that has imposed safe driving requirements (e.g. mandatory minimum rest time; the provision of two drivers for a journey exceeding 8 hours; etc.) on third party transportation companies. These requirements are included in the contracts and compliance is regular inspected by the company.

Community exposure to disease: The company enforces strict bio security measures to prevent the spread of diseases to and from the each of its facilities. These measures include: i) access control; ii) quarantine procedures for staff entering the site; iii) stringent regular monitoring of indicators which may suggest the onset of potential disease scenarios; and iv) mandatory car disinfection facilities at entrances and selected places around the farms. The key starting point of control begins with the company’s identification, due diligence, and selection of potential sites. As per national industry requirements and company policy, sites will only be shortlisted for consideration if they are located at least 1km away from towns with a medium to high population density, are at least 500m away from a major water source, are in a location with adequate air flow coming in a desirable direction during different seasons, and are in the vicinity of useful natural barriers. As discussed under PS3, the company’s pig-farm design to minimize potential pollution of surface and groundwater, and its day to day operational practices which is standardized across its farms, are a core part of safeguarding against local community exposure to diseases.

Leakage and Explosion Hazards: Each of the farms under this investment will be constructed to include a biogas anaerobic treatment facility. The company has assessed the risks related to the design and use of these facilities and implemented the required measures. The systems will be inspected prior to use and certified by the local fire department. The facilities are operated by a crew of trained staff according to a set of standard operating procedures. Facility-level EPR plans reviewed by IFC include: in-depth analysis of potential waste and methane leakage situations (e.g. due to equipment malfunction or pipe breakage), fire and explosion scenarios, and poisoning scenarios; classifying each scenario as 1-3 according to level of risk and impact; describing required preventative and response actions based on classification results; outlining chains of command and assigned roles, required personal protective equipment, required regular maintenance and repair actions, lock out tag out procedures, incentives assigned with EPR work, and criteria which will trigger system shutdown.

The 10 expansion farms will be located on agricultural land (in modified habitats), and as such represent limited adverse biodiversity impacts in those locations. This was checked during the feasibility study completed by the company for each new farm. In 2019, the company started applying for external certification of several facilities against China Good Agricultural Practice (GAP) requirements and will evaluate the feasibility of pursuing the same at some or all of its 10 expansion farms when suitable conditions are in place. In terms of animal welfare, the company places a strong emphasis on animal welfare and views this an important part of meeting its food safety and product quality objectives. It designs, constructs, and operates its pig farms to achieve four underlying conditions of animal welfare: (i) ensuring appropriate and adequate water and nutrition to all pigs; (ii) detailed control and real-time modulation of living environment in the pig barns in relation to temperature, humidity, lighting, living area segregations, adequate space per pig; (iii) a stringent disinfection and inspection regime practiced at all farms reduces the probability of pigs potentially catching diseases thereby contributing to their well-being; and (iv) ensuring that all frontline staff at farms are trained as per SOPs to interact with and handle all pigs with care and concern, and with keen attention to their emotional well-being. Muyuan also worked with a leading farm animal welfare charity in the U.K. which under the charity’s Animal Welfare Award program, gave awards to two of Muyuan’s pig farms based in Nanyang, Henan.

As part of the environmental impact assessments of each expansion farm, the company has undertaken public consultations with local community members in the vicinity of its proposed expansion pig farms, and has posted EIA public notifications of its pig farm projects on its corporate website (Under the Investor Relations/Public Notice web page) as per national regulatory requirements stipulated in the “EIA Public Participation Law of China”. During new project site identification and due diligence work, the company directly engaged local communities through community meetings and household interviews, to understand local sentiments and potential concerns (e.g. odor) regarding its proposed pig farming operations including potential E&S risks and impacts, and the company subsequently incorporates stakeholder feedback into refinement of project designs and finalization of EIA management and monitoring programs.

Key stakeholder groups for the company are its employees, suppliers, contractors, clients, consumers, and rural community residents in the vicinity of each company pig farm. These and other groups are listed in the company’s annual CSR reports, with a description of EHS/OHS issues of interest to and impacting each key stakeholder group, and with key communication channels listed for each group. During the farms’ operational phase, the front entrance and security pouch, and persons in charge at each company facility will be the key local public interfaces to receive external communications including grievances from the public if any; and members of the public can also reach the company through its main telephone switchboard, social media account, and contact email address.

As part of ongoing farm construction and operations, the company proactively and regularly engages with local community stakeholders through: (i) communicating potential emergency risks and scenarios (refer to PS4) to local communities in the vicinity of farms, including mitigations and evacuation arrangements; (ii) the company’s long-term leasing of land from rural village collectives and residents to set up its pig farming facilities, and procurement of feed grains from local farming families, which generate land-lease and crop sales income locally; (iii) its provision of technical agricultural extension services and liquid bio-fertilizer to local farming communities at no charge (as an output of the company’s biogas treatment process – the company reported that as of the end of 2016 about 15,700 hectares of staple and cash crop land across China had benefited from its piped liquid biofertilizer), which contributes positively to local development including improved soil quality resulting from the reduced use of chemical fertilizer inputs . The company stated in its 2019 annual CSR report that its local development outreach (including community development programs) and the above-mentioned provision of technical extension and biofertilizer has benefited about 140,000 farming families in 12 provinces across China.

The company has an effective grievance redress mechanism in place including steps to receive, respond to, resolve, and fully document each case, and its engagement with local communities is robust and befits the nature and extent of its E&S risks and impacts. In terms of external communications and industry stakeholder engagement, the company annually prepares and discloses its CSR report based on the GRI’s 101-306 analysis and reporting format; and presents its pig-raising technical experiences (e.g. on water saving measures) to other industry participants in conferences and seminars organized by the Ministry of Agriculture of China and other industry groups.

Muyuan Foods Co., Ltd.

Ms. Zhang Jingpei

Manager, Financing Department

Tel: +86 0377-66100053

Email: zhangjingpei@muyuanfoods.com

Address: Longsheng Industrial Park, Wolong District, Nanyang, Henan Province, 474360 China

http://www.muyuanfoods.com/