Environmental and social strategy (ESS) ADECO AGRO (AR-L1086) ARGENTINA

I. A. Description TheAdeco and Pilag companies are current Bank Borrowers under Loan Number AR-L1086. These companies grow crops including corn, wheat, soybean, sunflower, rice, barley and rapeseed and produce milk. They are seeking the extension of the maturity of the outstanding balance of their existing IDB A/B Loan (the Existing IDB Loan) of approximately US$50 million and the addition of an increase of the amount of the B-Loan of up to US$30 million (the New B Loan) through a new loan to Adeco, Pilag and Dinaluca (collectively, the Companies or the Borrowers) under a new transaction (the Existing IDB Loan and the New B Loan together, the IDB New Loan). Dinaluca is a recently acquired company that focuses on the rice business. 1 Adeco, Pilag and Dinaluca will use the funds for capital expenditures, and related working capital to increase their production through land transformation 2 and additional processing capacity mainly in their rice business (The Project), and to refinance a portion of the Companies existing debt to achieve a better capital structure. The Companies are among the most competitive food low cost producers in the Southern Cone agribusiness sector whose farming activities are conducted mainly in the Argentine humid pampas region, where agro-ecological conditions are optimal for efficient production. In dairy production, the Companies are leaders in using technology that significantly reduces the amount of land needed to produce milk. The Companies own and lease cultivated land consisting of approximately 280,000 hectares in Argentina 3 where they have a strong agricultural profile and may be defined as cutting-edge companies in the field of agricultural, dairy and livestock production. They apply sustainable agricultural practices that include no-till technology, direct seeding, crop rotation; efficient water management and integrated fertilizers and agro-chemicals management to improve productivity and maximize the lands efficiency. The IDB New Loan will partially fund the Companies 2010-2011 capital investment needs and free-up cash flows that are currently utilized for their existing short-term and long-term debt including IDB debt service, thereby achieving a debt structure more consistent with the Companies asset growth. By extending the tenors of the IDB Existing Loan and using the IDB umbrella to mobilize additional commercial funding, the IDB New Loan is supporting the Companies investment program related to their rice business segment 4 through the expansion of their rice production in
1

THE PROJECT

On August 23, 2010, Adecoagro purchased 100% of the common stock of Dinaluca S.A., a company that is the sole owner of a 14,749 hectare farm located in the province of Corrientes, Argentina. The purchase price was US$20.1 million. Underutilized cattle ranching pastures are transformed into high-yield hectares of rice by applying various inputs, the proper technology and building the appropriate infrastructure to support rice production. Total owned land is [204,000] has with US$[333] million of market value. Main fixed assets include [14-21] farms; [3] rice mills; and [4-5] grain handling and storage facilities. The Companies also operate in the sugar sector in Brazil and more information related to this aspect at the corporate level will be gathered during the ESDD and included in the ESMR. The Companies produce 12% of the total Argentine rough rice and 16% of the total milling capacity in Argentina. Their rice production increased from 50,000 tons in 2007 to 80,000 tons in 2009. Adecos rice

the Northeast provinces of Argentina, one of the most ideal regions in the world for producing rice at low cost. 5 The Project Team and ECC have been working on a technical cooperation (SECCI/ GN 2435-6) to conduct feasibility studies on methane capture and carbon credits through the installation of bio-digestors and related generation of electricity at the Adeco's free-stall facilities in El Carmen. 6 The alternatives identified in the feasibility were evaluated under a set of technical and financial parameters and the analysis confirmed that the proposed technologies are technically feasible. A decision is to be made regarding the use of the methane captured for generation and self-supply of electricity or combustion. The cost of the investment is expected to be between US$1.5 and US$2.5 million which will be part of the Project Cost of the IDB New Loan as indicated in the cost table in Section I.E below. 7 Specific CAPEX activities under the IDB Existing and New Loans are listed in Table 1.

6 7

production has grown by a CAGR of 25% since 2003. Rice exports account for 68% of Adecos total rice production. Te main destinations for Adecos rice exports are Brazil (44%), Central America (29%), and West Africa (19%). Due to the optimal solar radiation, land diversification, water availability, high productivity, experienced and skilled work force and intellectual property over the Companies rice seeds and rice brand which have a strong recognition in the domestic market. El Carmen farmland in Santa Fe province. Total investment cost of methane capture component with generation of electricity is estimated at US$2.32 million and without generation of electricity at US$1.55 million.

TABLE 1
Phase I CAPEX Projects CAPEX La Alegria Activity Dry Land Agriculture Comments Farm purchase. Grains: first season (2,500 has); administrative offices Clearance of secondary forest. Grains: first season 7,000 has Rice and grains8,400 has City General Villegas Province Buenos Aires/ West Agricultural Region Company Adeco EA Provincial Law No. 10,699 of Buenos Aires Provinces Federal Resolution No. 655/03 on diesel storage ESMP E&S Features San Carlos farm agrochemical warehouse; San Carlos farm diesel storage facility

El Ombu

Dry land agriculture

Presidente Yrigoyen

Ita Caabo

Irrigation Agriculture

Mercedes

Formosa/ Northern Mesopotamia Subregion Corrientes/ Northern Mesopotamia Subregion

Pilag

Provincial Provision No. 325/05 of the province of Formosa for forest clearance; FR 655/03

IBA at 60 km; diesel storage facility

Pilag

San Joaquin

Irrigation Agriculture

Rice first season 7,500 has

San Joaquin

Santa Fe/ Northern Mesopotamia Subregion

Pilag

Province of Corrientes: Decree Law No. 191/01 of the province of Corrientes: EIA and Permission to use water for rice irrigation and construct hydraulic under Decree Law No. 191/01; Provincial Law No. 4,495 and Regulatory Decree 593/95 on agrochemical warehouses; FR 655/03 EIA

Bio-diversity Monitoring Plan

16.5% reserve areas Agrochemical warehouse Diesel storage facility

Biodiversity Management Plan

Part of an IBA, 5,000 ha set aside; diesel storage facility

Leased Lands Ita Caabo

Dry Land/Irrigation Agriculture Feedlot

Rice and Grains 11,381has Buy and fatten livestock, build facilities for 3,000 cows Buy and fatten livestock, build facilities for 3,000 cows

Several

Adeco

Review features and management IDB requested EIA Biodiversity Management Plan Ayui irrigation; IBA at 110 km

Mercedes

Corrientes NMS

Pilag

San Joaquin

Feedlot

San Joaquin

Santa Fe NMS

Pilag

EIA under Provincial Law 11,717 (Regulatory Decree 101/03, Annexes II and III) of the province of Santa Fe; FR 655/03; Provincial Directorate of Water Resources Administration that EIA water Systematization Study In operation; IDB requested EIA including Hydraulic and Hydro-geological Study

EIA approval status; diesel storage facility; Water use systematization study and any resulting management measures Flooding and risk of contamination to nearby water courses

El Meridiano

Feedlot

Buy and fatten livestock 3,500 cows

General Villegas

Buenos Aires/ West Agricultural Region Santa Fe Central Agricultural Subregion (Humid Pampa)

Adeco

El Carmen

Free Stall

First phase operating; second phase to be built

Christorphersen

Adeco

Law 11,717 and Regulatory Decree 101/03 classification as Category I -minimal or no environmental impact; EIA and review and approval of Forms A and B, with the Categorization application for construction activities; FR 655/03

Environmental Management Plans and an Environmental Monitoring Program for

Impermeabilization of sanitation lagoons; IBA at 70 km ; diesel storage facility

Molinos Mercedes

Rice Industry

Drying facility, Packaging for Export

Mercedes

Corrientes NMS

Pilag

Certificate of Authorization issued by the Deputy Directorate of Bromatology, Directorate of Environmental Sanitation of the Ministry of Public Health for stockpiling, drying and producing rice: Law No. 5,067 of the province of Corrientes; FR 655/03; Authorization -Certificate of Filing issued by the Secretariat of Environment of the province of Entre Ros for stockpiling, drying and producing rice: Law No. 6,260 and Decrees 5,837/91 and 5,394/96 Environmental Provincial Law No. 6,321 (no EIA required)

milk production ESMP; contingency plan

Diesel storage facility; Dust mitigation; truck traffic in rural roads; waste disposal; noise

Molinos San Salvador

Rice Industry

Galicia Warrant Plant

San Salvador

Entre Rios

Pilag

ESMP; contingency plan

Dust mitigation; truck traffic in rural roads; waste disposal; noise

North Dry Plant

Drying Plant

Storage drying facility

Santiago del Estero

Adeco

ESMP; contingency plan NA

Dust mitigation; truck traffic in rural roads; waste disposal; noise

Headquarters Dinaluca

IT

Oracle ERP

Martinez

Buenos Aires

NA Adeco Phase II CAPEX Projects Dinaluca EsIA according to Sections 6 and 7 of the Unified Format for Water Concession; EIA Law 5,067 amended by Law 5,517; Water Code law 191/01; Resolution No. 167/09 on Good Agricultural Practices for Rice CultivationACPA-INTAA; Good Livestock Practices; Provincial Decree No. 1,439 of National Law No. 26,331 on the land use and zoning; and Law No. 5,175 and its regulatory Decree No. 1,014 on Native Forest Preservation; Law No. 4,495 on handling of agro-toxics; Mercosur Resolution 23/94 on maximum chemical residues EIA under Provincial Law 11,717 (Regulatory Decree 101/03); Resolution 177/03 on environmental aspects of grain storage facilities IDB sponsored feasibility study

Irrigation agriculture/ cattle raising

Rice 12,000 has Dona Marina 14,926.70 has

Beron de Astrada/ General Paz

Corrientes

EsIA ESMP Biodiversity Management Plan Water monitoring

Surrounded settlement; agrochemical exposure, exit ROW Water quality analysis in rice cultivation areas---ICAA-ACPA agreement Hunting of wild animals including vulnerable species

Molino Franck

Rice industry

storage and milling facility with 15,000 ton capacity Emissions capture and recycling, energy generation (potential

Franck

Santa Fe

Pilag

EsIA ESMP; contingency plan

Source of employment for small commune; dust mitigation; truck traffic in rural roads; waste disposal; noise Additionality Refer to annual measurement and consider other measures such as fuel switch and aforestation

Methane Capture and electricity generation

Ancillary to free stall operation

Christophersen

Santa Fe CAR/HP

Adeco

NA

B.

The Companies Adeco: Is the third largest agricultural company in the country and has more than 33 years of experience in agribusiness. It owns [eight] farms and has a total area of [95,367] hectares (owned and leased land). Most of its land is used for crop growing and cattle raising activities, and the remaining land for raw milk production activities. Pilag: Argentine company engaged in crop growing activities including rice, soybeans, corn, wheat and sunflower, cattle raising and processing, and rice milling and sales. Pilag has a track record of more than 83 years in agribusiness and currently owns [four] farms in Argentina totaling [86,380] hectares. 1 Dinaluca: an agricultural Argentine company established in 1961 that is engaged in crop and cattle farming activities, manufacturing and marketing of rice, and lease of farmlands. The company owns a 14,749 hectare farm located in the Province of Corrientes, Argentina, with 4,500 hectares destined to rice production and the potential to develop an additional 6,500 hectares, which will be financed by the New IDB Loan. Environmental and Social setting The Companys farms are scattered throughout the vast humid Pampas, Chaco and Espinal ecoregions, whose agricultural productivity is among the worlds highest due to ideal climate and soil conditions. There are approximately 1,250 km in a straight line between the northernmost farm, Estancia el Omb, located in the Capital district of the province of Formosa, and Estancia Las Horquetas, the southernmost farm, located in the Guamin district in the province of Buenos Aires. This large distance accounts for the differences in climate and production, which enable the Company to grow different crops and perform different activities that considerably reduce the risks associated with agricultural and livestock production. Another core strategy, aside from diversification, is land preparation. This method refers to the criteria used to prepare the fields according to location, soil characteristics and biological diversity minimizing the fragmentation of the fields in order to avoid the island effect. The implementation of the Companies plan seeks to ensure that farming production through the preparation of land minimizes environmental impacts and conserves biodiversity in order to guarantee a production system that is both profitable and environmentally sustainable. Additionally, crop rotation and no tillage complements the land preparation model. No Till uses the crop residues that remain on the soil surface as mulch, creating a permanent soil cover catalyzing biological processes that significantly increase the presence of organic matter in the soil, increasing fertility, humidity, reducing erosion, and improving overall productivity. The CAPEX Projects are located in the following areas: Northern Region: Mesopotamia Subregion: El Omb, Ita Caab and San Joaqun. In terms of agriculture, this area has the largest rice production in Argentina due to its water availability resources. Also, it is an important livestock-producing area.

C.

Pilag was acquired in 2007.

Humid Pampas: Central Agricultural Subregion: El Carmen. This area is Argentinas agricultural heart and has all the conditions required for production: soil, climate, rainfall, and infrastructure, thus producing excellent harvests. North Central Agricultural Region: Another area with extremely high production levels. It comprises the eastern central region of the province of Crdoba, the southern central region of the province of Santa Fe and southern region of Entre Ros. West Agricultural Subregion: El Meridiano and La Alegra. Due to climate change (i.e., increased rainfall in the last 20 years) and the introduction of new technology, this area of the country is no longer used for fattening cattle and is becoming the new focal point of agricultural production. It comprises the western part of the province of Buenos Aires, the southern part of the province of Crdoba and the eastern part of the province of La Pampa. Therefore, it can be concluded that production activities vary according to the characteristics of the geographic location of the farms. Due to the moderate climate and heavy rainfall, the northern region farms allow for two yearly crops. Approximately 15,000 hectares are planted between El Omb, Ita Caab and San Agustn, among other properties, in two cycles of wheat, soybean, sunflower and corn. Additionally, the increase in rice production will continue in Ita Caab, San Joaqun and other farms that belong to the Company, but are not part of the CAPEX. All the projects in the Capex are located in areas already affected by human intervention where previous agriculture and livestock operations were conducted. Therefore it is not expected that any critical natural habitat degradation or introduction of exotic species would occur. However, some conversion and impacts on natural habitats are expected, mainly affecting palm and Chaco Savannas with different levels of existing anthropic intervention. The Capex projects included in the Existing Loan seek to ensure that farming production through the preparation of lands minimizes environmental damage risks to natural habitats, maintains biodiversity and uses supplementary conservation practices, such as the inclusion of a Biodiversity Action Plan, no till agriculture and integrated pest management in the farms where natural provincial monument 2 or endangered species inhabit. In those farms where native forest remnants exist, the Sponsor is not allowed by the Forest Law to convert or transform the land, and per company policy, the sponsor does not clear native forests. The Company has reserved natural habitat areas at Ita Caab , San Joaqun and El Ombu farms. Species declared Natural Provincial Monuments or those classified as vulnerable or endangered (according to the International Union for Conservation of Nature, IUCN) may live in these areas, allowing their population recovery. Some of the projects considered in the Existing Loan Capex are located near Important Bird Areas (IBAs) 3 according to BirdLife International. All these properties are implementing Biodiversity Action Plans in order to preserve the biodiversity richness of the region. The Companies take special care with the application of agrochemicals so as not to compromise the health of bird populations that live in the IBAs. 4 San Joaqun farm is within an IBA that
2 3 4

Provincial classification of local species of interest. See map in Annex 3. IBAs in the vicinity of the projects include: (1) Melincue Lake located at 70 km from Carmen farm (SF06 according to IBAs). The Capex for el Carmen includes the expansion of the free stall project, with a total

comprises a strip 100 km long bordering on the north with San Javier, province of Santa Fe, and 20 km wide from the coast of the San Javier River. Here species such as the Bobolink (Dolichonyx oryzivorus) classified by IUCN as LC (Least Concern) can be found. The sponsor has set aside 5,000 hectares of native forest. The CAPEX projects do not use or invade areas owned by indigenous peoples. The ethnic groups that live near the CAPEX are an integral part of the society. The proximity to large populations of tobas, pilags and wichis (located in farmhouses around Misin Laishi, province of Formosa) or mocov ethnic groups (located in dwellings in Colonia San Martn 1 and San Javier, province of Santa Fe) makes it possible to implement actions within the Social Responsibility Program. These actions are related to improvements in the Social Capital of the members of these ethnic groups. They will promote social development and integration through education mechanisms, ensuring literacy, preservation and the promotion of native language and culture. The CAPEX in question are Omb farm at 40 km from the toba, pilag and wichi communities, and San Joaqun farm at 30 km from the mocov ethnic group. The Projects CAPEX are not near any site of cultural importance. Additional detail and information on the location of the Capex projects for the IDB Existing Loan can be found in the ESMR for that operation available at http://www.iadb.org/en/projects/project,1303.html?id=AR-L1086. Capex projects included in phase II are as follows: Dinaluca Rice Farm The project aims to utilize the facilities of an existing (40 years) rice farm (Dona Marina) that includes administrative buildings, irrigation infrastructure including pumping stations, canals and drainage facilities, drying and storage (silo) facilities, machinery workshop. The total surface of the farm is 14,972 hectares, of which 4,200 are currently used for irrigated rice cultivation complemented by cattle grazing. Rice cultivation in the area utilizes minimum till direct seeding in glyphosate treated soils with application of herbicides and fertilizers. The North South extension of the property is 28 km . It borders the Parana River on the North and is crossed by Route 12, 125 km outside the city of Corrientes. The Parana River is one of the largest rivers in the world and serves as an international boundary with the Republic of Paraguay located across from Dinaluca on the other bank of the river. The project area has sparse rural population and scarce presence of educational and health services. Increasing rice cultivation in extensive cattle raising areas contributes to increase the level of activities and services available to the local population. The neighboring localities of Paraje Yahape (4 km), Beron de Astrada (25 km) and Ita Ibate (35 km), in particular, will benefit from increased demand for local labor and supply of goods and services.

capacity of 6,000 confined dairy cows. (2) Estancia La Alegria located at 60 km from Omb farm (different from La Alegra farm This Projects CAPEX). This is a private preservation area classified by BirdLife as FO09. At Ombu, the Capex entails the production of 7,000 hectares of dry-land agriculture (rain feed agriculture) of several grains and legumes. The sponsor has preserved 3,000 hectares as a natural reserve. (3) Espinal Mercedes located at 110 km from Ita Caab located in the south of the Reserva Natural del Iber. At Ita Caabo, the Capex project entails the production of 8,400 hectares of a mix of crops and a feedlot with a capacity to fatten 3,000 heads, no forest removal or clearance is necessary, to implement the project. The sponsor has preserved 2,500 hectares of native forest.

The land tenure situation and potential impacts of the project on the community of Paraje Yahape (approximately 105 families) will need to be further analyzed. Franck Rice Mill The project will comprise the construction and operation of a rice storage, drying and milling plant with 15,000 ton rice storage capacity. The plant will process 60,000 tons of rice the first year and will build up to 100,000 tons annually. This will require a flow of 4,000 trucks in year 1 and up to 6,700 trucks annually thereafter. Facilities include fences, water wells/pumps and septic tank, gas pressure reduction plant and secondary supply ducts, in-plant electricity transformers and transmission facilities, loading and unloading facilities, storage silos, drying plant and mill (CINTER plant unit). It will also be necessary to improve nearby transportation routes to accommodate heavy machinery and truck traffic, including additional access and speed reduction ramps. The plant site is a 16 hectares site limited on the East by Route 6, on the North by rural roads and on the South and West by other farms, located approximately 2 km from the Franck Commune urban area (as delimited by Communal Ordinance No. 1217/08) and 2.9 Km from National Route No. 19 in the province of Santa Fe. Pilag considered 50 alternative sites for this facility in order to identify the one that best met all conditions related to efficient operation, such as energy sources and labor availability as well as proper mitigation and management of environmental and social impacts. It was important to locate a rural parcel to minimize impacts on neighboring receptors, such as environmental contamination, noise, odors, pesticide use, etc while ensuring access to natural gas sources and proximity to paved roads.

D.

Project Workforce The Companies (Adeco and Pilag) employ approximately 1350 workers (broken down as shown below) in Argentina with an approximately 10% seasonal work force, and are in the process of formalizing their labor policies and improving worker housing, which is provided primarily free of charge or for a nominal fee.For the new projects, Molinos Franck will generate between 60 and 80 permanent jobs after 15 the first year. The Dinaluca farm will employ 56 people in rice cultivation and 8 in livestock activities.

II.
A.

INSTITUTIONAL AND REGULATORY CONTEXT

IDB Screening, Classification and Applicable Requirements Following IDBs Classification Policy (OP-703 Directive B.3), this initiative has been classified as a Category B Project, mainly for its potential negative impacts related to any large scale farming and cattle ranching enterprise in close proximity to wetlands and critical natural habitats, as well as a small rural community in the Province of Corrientes (Paraje Yahape). See attached policy filter for more details. The project has triggered, in addition to directives B1, B2, B3, and B7, which are triggered for all operations, the following directives: B.5 with respect to the environmental assessment requirements of the CAPEX projects B.6 with respect to the consultation requirements of the new CAPEX projects and overall company practices with respect to stakeholder engagement B.9 with respect to the potential negative impacts on natural and critical natural habitats B.10 with respect to the management of hazardous materials (fuels and agrochemicals on CAPEX sites as well as with respect to overall company practices) B.11 with respect to pollution prevention practices particularly at CAPEX sites and monitoring of GHG emissions Policies OP-710 and OP-765 are triggered only as overall guidance on land acquisition practices and engagement with nearby indigenous communities that are not directly affected; OP-710 may be relevant to the situation of the Paraje Yahape in Dinaluca The Banks Agricultural Sector Operational Policy (OP-721) and Rural Development Operational Policy (OP-752) are also relevant to the analysis of the Companies environmental and social performance, as are IFC ESHS Performance Standards and guidelines 5 on and relevant industry guidelines such as RTRS.

B.

Country Laws and Regulations The CAPEX projects and the Companies activities in general are designed considering compliance with current federal and provincial environmental and safety laws and rules, as well as with regulatory decrees and resolutions as applicable. Below is a list of most applicable environmental regulations and authorizations with respect to the CAPEX Projects. Authorization of forest clearance: Formosa Provincial Provision No. 325/05 for the (El Ombu)

General ESHS Guidelines http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_GeneralEHS/$FILE/ Final+-+General+EHS+Guidelines.pdf Industry Sector Guidelines for Mammalian Livestock Production http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_MammalianLivestoc k/$FILE/Final+-+Mammalian+Livestock+Production.pdf Industry Sector Guidelines for Plantation Crop Production http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_PlantationCropProd/$ FILE/Final+-+Plantation+Crop+Production.pdf

Authorization for stockpiling, drying and producing rice: Law No. 5,067 of the province of Corrientes (Molinos Mercedes Rice Mill); and Law No. 6,260 and Decrees 5,837/91 and 5,394/96, issued by the province of Entre Ros (Molinos San Salvador Rice Mill including Galicia Warrant Plant). Permission to use water for rice irrigation and construct hydraulic works: Decree Law No. 191/01 of the province of Corrientes (4,900 hectares -plus 2500 has previously permitted with existing dams in Ita Caab farm) for current activities according to. The Company already had a permission to use water to irrigate 2,500 hectares with the existing dams. Environmental classification, EIA (construction) review and approval of Forms A and B with the Categorization application: Law 11,717 and Regulatory Decree 101/03-Annex III (Free stall Module I in El Carmen farm classified Category I -minimal or no environmental impact; feedlot facilities in San Joaquin). Environmental Impact Assessment (EIA): Provincial Law 11,717 (Regulatory Decree 101/03, Annexes II and III) of the province of Santa Fe (rice agricultural project in San Joaqun Farm; Molinos Franck). Registration in the Industrial Registry of the province of Santiago del Estero (Registro Industrial de la Provincia de Santiago del Estero, R.I.P.S.E.): Provincial Law 1520/06. The project sponsor will submit to the IDB the studies related to the North Dry Plant once they are conducted. Regulation of agrochemical warehouses: Provincial Law No. 10,699 of Buenos Aires Provinces (agrochemical warehouse located in San Carlos farm -administrative office of the CAPEX of La Alegra); Provincial Law No. 4,495 and Regulatory Decree 593/95 on agrochemical warehouses of the province of Corrientes (Ita Caab farm agrochemical warehouse). National authorization for the storage and commercialization of diesel: Federal Resolution No. 655/03 (facilities of Carmen farm, San Carlos farm (CAPEX of La Alegra farm), Omb farm and Ita Caab farm, San Joaqun farm, Molinos Mercedes Rice Mill). Water use: Santa Fe Provincial Directorate of Water Resources Administration EIA a Systematization Study taking into account water interference and retention and its effects on nearby farms, as well as works to minimize local erosion (San Joaquin). Resolution 177/03 on environmental aspects of grain storage facilities of the Province of Santa Fe (Molinos Franck). Province of Corrientes EIA Law 5,067 amended by Law 5,517; Water Code law 191/01; Resolution No. 167/09 on Good Agricultural Practices for Rice Cultivation, and others (Dinaluca rice farm). Good Agricultural and Livestock Practices. Law 26.333 de Presupuestos Forestales Mimimos that regulates the management of natural resources at each the provincial level and defines land-use zoning and restrictions under three areas for native vegetation conservation. Any other decree or provincial regulation linked to this national legislation (Decreto 1439/09 Ordenamiento Territorial de Bosques Nativos de la Provincia de Corrientes). Protocolo del Rio Uruguay, Tratado del Rio de la Plata and any other international treaty or convention linked to the use of the Uruguay and Parana rivers.

III.

IMPACTS, RISKS AND CONTROL MEASURES

The Companies activities are typical large scale conventional agricultural, milk producing, cattle raising and related industrial operations with the typical impacts related to air, water and soil contamination (through the use of fuels and agrochemicals and generation of GHG emissions and

particulate material), impacts on natural and eventually critical natural habitats, and workers and community health and safety risks (see detailed description in Annex 2). However, the Companies employ typical and often state of the art mitigation and management measures to minimize these impacts ensure compliance with all applicable regulations and achieve compliance with IDB agreed requirements. The Companies have made significant progress in the implementation of an Integrated ESMS and farm level environmental and social and biodiversity management plans, and monitoring results indicate that E&S performance is satisfactory. The key aspects of these plans and their results will be the subject of an audit as part of the ESDD as further detailed in section VI below. Refer also to Table 2 above. The Dinaluca and Molino Franck facilities that will be added to the CAPEX project list are currently undergoing environmental assessments that will be reviewed as part of the ESDD. Other than the presence of the Paraje Yahape settlement within the direct area of impact of the Dinaluca farm, there is no indication that these projects will present issues that are significantly different from the other CAPEX projects. Refer to matrix of impacts for Dinaluca - Annex 1. The Molinos Franck project integrates a number of aspects designed to minimize and mitigate the typical impact of industrial facilities including: (i) obtaining a Certificate of Land Use Conformity from the Franck Commune; (ii) location at least 500 m from any population center; (iii) construction of access ramps from and to Route 6; (iv) signage for truck traffic; (v) improvement of the rural roads that will be used to access the plant; (vi) use of natural gas; (vii) adequate waste management; (viii) use of belts rather than chains to reduce noise; (ix) contouring of the site to facilitate rain water drainage; (x) septic tank for domestic waste with no discharge to water courses; (xi) perimeter fence; (xii) vegetation fence; (xiii) site landscaping; (xiv) aspirators and speed reducing devices used in loading and unloading to minimize dust (along with humectation) and confine materials for disposal; and, (xv) recycling as animal feedand proper disposal in communal site authorized by Franck of extraneous material generated in grain processing. The Dinaluca Farm will have management and monitoring plans and has internalized many of the measures designed to mitigate its impacts which overall are moderate, though special attention must be given to truck traffic increase in a rural area, management of dust and other waste and impacts on Paraje Yahape (especially from fumigating activities). The new operation is a good opportunity to review the effectiveness of the existing ESMPs /BMPs and the respective management structure and agree on improvements if necessary, particularly with respect to: management of agrochemicals and other hazardous materials; maintenance of natural habitat reserves and bio-diversity monitoring; sustainable practices in the selection and acquisition of land and water rights; workers and community health and safety; social responsibility and stakeholder engagement.

IV.
A.

OTHER ISSUES

Sugar cane and Ethanol production In Brazil The Companies also operate in the sugar sector in Brazil and more information related to this aspect at the corporate level will be gathered during the ESDD and included in the ESMR.

B.

Ayui Grande Irrigation Project

Associated to the Ita Caabo irrigation project is the Ayui Grande Irrigation Project (20% Pilag with COPRA SA and Tupantuva SA). The project entails the construction of an artificial lagoon of 8,000 hectares to irrigate 18,000 hectares for rice cultivation for several different farm companies. The construction of the artificial lagoon entails flooding 137 hectares of riverbank forest [the predominant species is andubay (Prosopis affinis)]. Federal Law No. 26,331 on the Preservation of Native Forests that (in Article 8) prevents any productive or industrial action on Native Forests until the Corrientes province issues a Territorial Land-use Management decree on this matter. In August 2010 the Instituto Correntino del Agua y el Ambiente (ICAA) approved the project and on October 1, 2010 provincial authorities granted the Water Use Concession for the totality of the Project. In September 2010 the national government requested the Province for additional information and in October requested an injunction from the Supreme Court. The injunction is intended to allow the national government to obtain additional information from the Province to conduct a full technical evaluation of the environmental aspects particularly with respect to compliance with the Uruguay River statute of 1975. In November 2010 the injunction was granted with a 90 day period for the national government to follow up which has not occurred. The project and the corresponding expansion of the irrigated area in Ita Caabo are on hold. While the national government has not specified its concerns, the issues outlined below had been raised in relation to this project by NGOS such as FARN 6 , Fundacion Ibera, 7 ( and others such as Greenpeace, Fundacin Vida Silvestre Argentina, Aves Argentinas, Proteger and others), as follows: The effects on water resources. The code of waters of the province of Corrientes states the following: any use of the water resources must be made so as not to damage the ecological balance or affect the present or future quality of life. The transformation of large savannahs and pastures into agricultural areas. (Federal Law of Forests 26,331) Two (South American River Otter and Marsh Deer) of the four species declared Natural Provincial Monuments of Corrientes (Decree Law No. 1,555/92 of the province of Corrientes) live in the area that will be affected. The area is an Argentine Important Bird Area (IBA), a concept proposed by the organizationsengagedintheconservationofwildbirds. The producers of the Ayu downstream basin and the Miri river could be affected by the lack of water, depending on the requirements of the crops intended to be irrigated upstream. The consortium Ayu Grandes Project plans to preserve 13,600 hectares of Native Forests to offset the negative impacts. It is important to examine this project and its potential risks again to determine if any additional management measures are required. C. GHG Emissions

FARN: Fundacin Ambiente y Recursos Naturales. It was created in 1985. It is a nonprofit, nongovernmental, nonpartisan organization, the main purpose of which is to foster sustainable development through politics, law and the institutional organization of the society. Fundacin Reserva del Iber. It is a nonprofit organization created in 1992 in the City of Mercedes (province of Corrientes) engaged only in the conservation of the Esteros del Iber.

In 2010 the Companies presented a GHG emissions estimate for the year. This reporting will be reviewed with a view to consolidate reporting for phases 1 and 2 and methodologically refine it if necessary. The results of the 2009-2010 measurements are shown in the following table:

The ECC sponsored study for the feasibility of capturing methane at the El Carmen feedlot for use in energy production is advanced. Feasibility of capturing with covered lagoon technology has been confirmed, and phase 2 of the study is going forward to assess the feasibility of generating electricity.

V.

CONSULTANTION AND STAKEHOLDERS ENGAGEMENT

Although consultations are not required by law in Argentina for the CAPEX projects, it is good practice for the Companies to maintain an engagement strategy with their neighbors and have proper channels for communications, and as needed issue resolution, with neighboring communities and workers. This aspect will be reviewed during the ESDD. For the new projects, the Companies are expected to conduct consultations with local communities and authorities in areas affected by Molinos Franck and the Dinaluca rice field in accordance with Directive B.6 of OP-703. 8

VI.

ENVIRONMENTAL STRATEGY FOR DUE DILIGENCE

As part of the ESDD the IDB will work with the Companies and specialized consultants in order to conduct: 1. An assessment/confirmation of project compliance status with the applicable country (national, provincial, municipal, local) environmental, social, and health and safety regulatory requirements (e.g. laws, regulations, standards, permits, authorizations, applicable international treaties/conventions, etc.), project-specific legal requirements (e.g. concession contract, etc.), any applicable Bank environmental and social policy or guideline, and the EIAs ad management plans presented in Phase 1. 2. An evaluation of the proposed projects to confirm that the projects direct and indirect environmental and social impacts have been properly identified and evaluated.

In the Province of Corrientes Law No. 5,533 on environmental information and Decree No. 876/05 on public audiences for EIAs should also be taken into account in relation to the Dinaluca Project.

3. An evaluation to ensure adequate environmental and social mitigation measures and monitoring, in terms of their completeness, sufficiency of detail, feasibility, cost, definition of responsibility, schedule, and quality control to complement those in place for the phase 1 CAPEX and with respect to the new projects. 4. A determination of key indicators and requirements for the projects execution, complete with timelines and milestones. Indicators for each project and for corporate performance will be sought. 5. An evaluation to ensure adequate health and safety plans and procedures, including their technical adequacy given the potential project-specific health and safety risks, adequate level of training to be performed, and sufficient resources to be made available to ensure adequate implementation. Verification that these activities are proceeding as planned for the Phase 1 projects and are extended to the new projects. 6. An evaluation to confirm adequate contingency plans (i.e. emergency and spill plans), including confirmation that all relevant project-specific environmental risks have been identified, proper procedures have been developed, and sufficient resources will be made available to ensure adequate implementation. 7. An evaluation of project-related information disclosure and public consultation as well as stakeholder engagement activities that have been performed and the proposed future actions to provide adequate ongoing information disclosure and public consultation with the local population. 8. An evaluation, and further development as necessary, of project (loan agreement) monitoring/supervision procedures to ensure proper implementation of environmental, social, and health and safety actions and requirements. 9. An evaluation of environmental, social and health and safety terms and conditions in relevant project legal documents (e.g. concession contract, construction contract, operations and maintenance contract, etc.), in terms of sufficiency, potential risks or liabilities, or issues. 10. An evaluation of potential existing and future environmental, social, or health and safety financial/credit risks and liabilities associated with the project, the project site, and the Companies. 11. An evaluation of the company's environmental, health and safety management systems, including plans and procedures, responsibilities and resources, training, auditing, and reporting, and in particular all the system components necessary to ensure future projects and works which will be implemented will not generate negative impacts. 12. An evaluation to confirm that any environmental or social liabilities or non-compliances identified are corrected or addressed by an acceptable corrective action plan, as necessary, in order to correct or mitigate any existing environmental, social, or health and safety noncompliance or liability associated with the existing projects and company assets. In view of the ongoing management efforts being undertaken and reported by ADECO and of the information available for the Molinos Franck and Dinaluca Rice Farm projects the ESDD should place particular attention on the following aspects of the Companies E&S performance: 1. Corporate Practices Leased lands selection and conditions Purchased land selection policies Integrated Wasted management Practices at 30% of farms without ESMPs Other activities of the Companies that might pose a reputational risk Issues related to Ayuvi irrigation project and the Estatuto del Rio Uruguay

 Other issues related to trans-boundary impacts and international conventions (Tratado del Rio de la Plata). Relations with IP communities Relations with local communities GHG annual emissions measurements and reporting RTRS Membership and Criteria Labor policy and employee housing Company policy updates: o RTRS o Forest protection o Land acquisition criteria o Human Resources o GMOs o Good Agricultural and Livestock practices Update on compliance with legislation applicable especially regarding forests and provincial POTs and compliance (Law 26.3331) Overall stakeholder engagement plan Consultations with FARN, Fundacion Ibera and other relevant NGOs and local authorities. 2. CAPEX specific issues: Compliance audit for phase 1 CAPEX projects Sanitation or waste ponds at El Carmen (impermeabilization) Settlement (Paraje Yahape access and health impacts from Dinaluca farm) Expansion of rice production in the Northeast provinces of Argentina Cultural sites Direct and indirect impacts to high biodiversity areas and critical natural habitats (Ramsar Sites, protected areas, IBAs and vulnerable species monitoring, need for management measures) Status of San Joaquin EIA Audit at El Meridiano freedlot Review North Dry plant (studies, registry, etc.). Land clearing and preparation in El Ombu farm, Formosa, and its compliance with local and federal regulations (Law 26.333) Diesel storage authorization and compliance (facilities at El Carmen farm, San Carlos farm (CAPEX of La Alegra farm), Omb farm and Ita Caab farm, San Joaqun farm, Molinos Mercedes Rice Mill). Results and related measures of the Systematization Study requested as part of the EIA for San Joaquin farm by the Santa Fe Provincial Directorate of Water Resources Administration taking into account water interference and retention and its effects on nearby farms, as well as works to minimize local erosion Management of dust, noise and truck traffic at Molinos Franck Consultation processes with respect to Dinaluca and Molino Franck

ESS Annex 1Dinaluca Impact Matrix

ESS Annex 2 Environmental and social impacts typical of the CAPEX projects (per Phase 1 ESMR) Below is a list of the potential impact-generating activities, which are individualized in the CAPEX: use of agrochemicals (includes application, transportation and storage); preparation of lands in Omb; waste incineration from land preparation (Omb) and harvest carryovers (Ita Caab); cultivation activities (includes sowing, harvesting and irrigation methodology); use of heavy-duty vehicles for the transportation of grains and machinery for farm work and harvest; storage and use of fuels and lubricants. Below is a detailed description of the potential direct impacts of the activities mentioned above: atmospheric emissions of Green House Gases (GHGs); diffuse emissions of particle material; noise pollution; agrochemical pollution; soil erosion; water depletion; hazardous waste generation; solid waste generation. Atmospheric emissions of GHG CO2 y CO emitted during the incineration of waste from land preparation in Omb. This procedure is being revised as a way to reduce the impact.; CO2 y CO emitted by the incineration of the harvest residues in Ita Caab. The Company is working with technology suppliers to achieve adequate grinding and use as the residues as organic fertilizer in the rest of the farms. Also part of these waste is used to feed the cattle herds; CO2 y CO emitted by machinery. To mitigate this impact, the Company carries out the preventive maintenance of the vehicles and performs direct sowing, thus reducing significantly the use of machinery. Also the Company is looking for new technologies that will provide efficiencies in the use of water and in the land work. These efficiencies will have direct impact in the CH4 emitted; CH4 emitted by the cultivation of rice under irrigation. To mitigate this impact, drainages are performed periodically, allowing for the necessary aerobic biodegradation of the soil (Ita Caab and San Joaqun), thus minimizing the emissions. Diffuse emissions of particle material during the grain loading processes. Here the Company implements procedures to carry out loading with longer nozzles; during the farm work of the land. The cultivation strategy mitigates this impact because direct sowing reduces the movement of vehicles in the farming areas; cargo transportation in rural roads. To mitigate this effect, the Company implements procedures and signs that limit the circulation speed in its facilities. Noise pollution. This pollution results from the traffic of machinery that affects the fauna of the area. To mitigate this impact, the Company carries out the preventive maintenance of the vehicles, limits the

circulation speed in its facilities and performs direct sowing (reducing the farm work time of the machinery). Pollution due to the excessive use of agrochemicals. These may affect the soil, other crops of the area or water courses (both superficial and underground). To mitigate any impact resulting from the use of an excessive amount of agrochemicals, the Company: implements Integrated Pest Management (IPM), which consists of weekly monitoring, identifying the types and density of existing pests and natural enemies; trains its personnel on the preparation of mixtures, and the safe application and handling of agrochemicals; preferably uses means of terrestrial application. In the case of aircrafts, it takes all the necessary precautions, avoiding the performance of activities with wind speeds exceeding 10 km/hr and using anti-drifting products. Pollution due to the excessive use of fertilizers. These may modify the natural chemical composition of the soil by adding an excess of nitrites, nitrates and/or phosphorus. To mitigate this effect, the Company: permanently monitors these indicators in the soil; Adjust the use of fertilizers from the indicators described in the bullet before; favors the practice of crop rotation; favors the use of organic fertilization by means of the biological degradation of cover crops (graminaceous plants) and stubbles. Soil erosion. This may be generated by the traffic of agricultural machinery, the movement of livestock, excessive farm work or sharp drainage of water in rice cultivation areas. The Company mitigates the impacts of erosion by: cultivation methodologies that prevent soil erosion; direct sowing that reduces the traffic of agricultural machinery and excessive farm work; modification of the use of livestock land for cultivation, which improves permeability; implementation of graminaceous plants cultivation as soil cover, which improves the structure; slow post-harvest drainage of water, which avoids the erosion of particles (irrigation farming). Superficial or underground water depletion. Crop irrigation activities may consume an excessive amount of water. This does not take place in any of the Company's agricultural projects as the water used for irrigation comes from the rain (rice reservoirs) or from continuous courses. Hazardous waste. This is generated due to: vehicle maintenance activities (cloths with lubricant, fuel, batteries, etc.) or due to fuel loading and unloading operations (polluted soil). The waste generated is placed in 200-liter drums with lids and is sent to the Temporary Lot for Hazardous Waste. To mitigate the impact in the operation, the personnel is trained in good fuel and lubricant dispatch practices; used agrochemical packages. Once used, the packages undergo a triple wash, the liquid is sent back to the equipment and the packages are sent to the Temporary Lot for Hazardous Waste. The Company is adapting these facilities by placing a waterproof floor, anti-spills baseboards and roof (to avoid leachate). The Companys personnel and contractors participate in training activities as regards good practices for handling this type of waste; infrastructure maintenance activities (fluorescent tubes, electric appliances or waste from paint). Waste is placed in 200-liter containers with lids, properly identified, and then sent to the Temporary Lot for Hazardous Waste.

Solid waste. This is generated due to: ferrous scrap from the repair of mobile and fixed equipment that is commercialized to be reused in steal factories; wood (pallets or fencing posts) that is used by the personnel as fuel for their fireplaces; waste from silo bags (high density polyethylene) that is removed by manufacturers for recycling. The following have been identified as potential risks of the agricultural activity performed by the Company: risk of expansion of cultivation activities to sensitive environmental areas; risk of the use of transgenic crops; risk of fire in Natural Forests; risk due to the incorrect storage of Hazardous Products. Below is a list of these risks and the actions taken by the Company to mitigate them: Biodiversity Loss. In the case of La Alegra and Leasings, this impact is not produced as the habitat have been modified by human intervention. In Ita Caab, Omb and San Joaqun, there are some areas, inhabited by species identified by the IUCN as endangered. The Sponsor has contacted a group of NGOs to help in the design of conservation areas and a Biodiversity Action Plan. Risk of expansion of cultivation activities to sensitive environmental areas. The activities are performed in areas owned by the Company or by third parties. These have been affected by prior agricultural or livestock works. It is the policy of the Company not to convert critical natural habitats while developing its productive activities. As mentioned before, the conservation of Native Forests has been provided for, favoring biodiversity studies and training the personnel in the responsible care of endangered species. Risk of the use of transgenic crops. The cultivation of genetically-modified seeds is not demonstrated that may represent a risk for the health of consumers. Argentina does have a law allowing the cultivation of those seeds. The Company uses this kind of seeds for soybean and corn cultivation. Although the risk is uncertain, the Company is considering the use of non-genetically modified seeds, as a way of adding value to their products. Risk of affecting native forests. The incineration activities of the harvest carryover (Ita Caab) or of secondary forest (Omb) may expand and reach areas of native forests. The application of agrochemicals may affect the foliage. The Company has arranged firebreak sectors to avoid fire propagation. . Risk due to the incorrect storage of Hazardous Products. The fuel and lubricant warehouse that does not have adequate facilities may affect the soil (spills) and the air by generating CO and CO2 (fire). The Company has adequate facilities in Omb, San Carlos, Ita Caab, San Joaqun and El Carmen that have the authorizations required by the National Secretariat of Energy. To mitigate any emergency, the personnel is trained in actions to be taken in case of spills of hydrocarbons or fire in the facilities. The agrochemical warehouse that does not have adequate construction dimensions may affect the soil (spills), the air (emission of organochlorine, organophosphorus and carbamate) and the superficial or underground water (spills). The Company uses the guidelines of the Program Depsito OK of the Argentine Chamber of Agricultural Health and Fertilizers (Cmara Argentina de Sanidad Agropecuaria y Fertilizantes, CASAFE) as regards design and maintenance for its facilities in Omb, San Carlos, Ita Caab, San Joaqun and El Carmen.

The liquid fertilizer warehouses located on natural soil may break down due to defects in the material or spills in the processes of product loading/unloading. This may generate impacts on the soil by contaminating it with excessive nitrogen or phosphorus. The mitigation measure implemented is the construction of an adequate containment site with walls of consolidated soil, covered with high density polyethylene (HDP) in its interior.

Livestock Below is a list of the potential impact-generating activities: enteric fermentation of animals with a high energy diet; generation of manure and urine from animals; inappropriate handling of water, which includes drinking trough spills, cattle yards washing, truck washing (feedlot) and washing of milking facilities (free stall); treatment of sewage waters; incineration of dead animals; circulation of animals in the cattle yards (feedlot); transportation of animals (feedlot). The following are the main environmental impacts that may result from the above mentioned activities: atmospheric emissions of GHG; diffuse emissions of particle material; consequences on superficial and underground water courses; consequences on the natural soil; generation of odors; proliferation of vectors (flies); superficial or underground water depletion. Below is a description of the mitigation measures adopted by the Company for each of the above mentioned impacts. Atmospheric emissions of GHG: CH4 generated by the animals' enteric fermentation process. Emissions are reduced with a lower energy diet (alfalfa and pulses), which helps animals have a faster digestion. CH4 from the effluents' anaerobic treatments. These emissions can be reduced implementing the capture of methane with the use of biodigestors. To meet this end, the Company, together with the IDB's Sustainable Energy and Climate Change Initiative (SECCI), will assess the opportunities to develop this type of improvement projects. CO2 and CO are the result of the incineration of dead animals. The Company, together with the Instituto Nacional de Tecnologa Agropecuaria (INTA), is analyzing the use of biodigestors or composting strategies as an in situ treatment for dead animals' carcasses. Freon 22 (CHClF2). Potential fugitive emissions or gas leaks in El Carmen's cooling equipment have been controlled as the Company performs strict predictive and preventive maintenance to detect any incident.

Diffuse emissions of particle material. They originate from the circulation of animals or from cargo vehicle traffic. The Company is planning to reduce them through the appropriate forestation of the projects surroundings and/or using a water sprinkling system to water the cattle yard (feedlot).

The Company has implemented procedures to limit the speed of vehicles circulating in its facilities. Superficial or underground water pollution. These may arise from excessive organic matter reaching water courses. In order to avoid the eutrophication of water, in El Carmen the Company properly handles all the residual liquids: generated by animals (urine); arising from the washing of cattle yards (excrements); arising from the washing of the milking facilities. Effluents are treated using the 3-pool-methodology (two anaerobic and one optional) recommended by INTA. One of the pools is covered with high density polyethylene (HDP), have phreatic layer monitoring wells in their surroundings and regular analysis are performed to detect potential pollutants. This analysis will indicated if the second pool needs to be cover. This strategy was delivered with the Secretaria of Medio Ambiente de Santa Fe. The treated liquid is used to water crops and also is analyzed periodically. In the feedlot, similar facilities will be constructed, equipped with phreatic layer monitoring wells in their surroundings. Soil pollution. These can arise from an excess of Nitrogen (N2) coming from animals' excrements and urine. This impact can be mitigated making animals walk on waterproof floor. Besides, manure generated in the cattle housing is collected together with the sand, and then separated through mechanical means. Sand is reused and manure is dried and used as organic fertilizer. The best handling practices, according to the rules established by INTA, will be used in the feedlots. Together with the Bank, we intend to study the use of excrements in biodigestors in order to capture methane for energy uses. Generation of odors. This is connected with the treatment of effluents and the generation of excrements and urine. The Company handles excrements and effluents appropriately. Together with the Bank, we intend to analyze the implementation of biodigestors to reduce odor emissions to virtually imperceptible levels. Proliferation of vectors (flies). This impact is connected with the excess of humidity generated by excrements (due to washing, rains) which creates a favorable medium for the development of maggots. Flies spread diseases that may affect the health of animals and nearby communities. The free stall structure design mitigates this impact as liquids are treated, facilities have drainages, animals are protected from rain, and maintenance of yards' solid waste is permanent. The best practices developed in the free stall to mitigate this type of impacts will be used in the construction of feedlots. The surroundings of drinking troughs will be kept dried (use of aerial cover or absorbent limestone). Hazardous waste. The generation of this kind of waste is minimal in this type of activities. The following are examples of the type of waste generated: cloths with lubricants or fuels thrown by livestock carriers. To sort this out, containers with lids, close to the animal loading/unloading areas have been placed, which, once they are full, will be sent to the Companys nearest Temporary Lot for Hazardous Waste; vehicle batteries, fluorescent tubes, electric appliances, paint waste. These are put in 200-liter containers with lids, properly identified, and then sent to the Companys nearest Temporary Lot for Hazardous Waste.

Solid waste. During its productive activities, the Company generates other solid waste, such as wooden posts, which are used by the personnel as fuel for their fireplaces. Superficial or underground water depletion. Impact is generated by consumption of water from courses used for livestock drinking. The Company does not plan to use nearby water courses linked to populations, thus mitigating the potential impact.

The following have been identified as Potential Risks arising from activities related to livestock: risk of spreading contagious diseases; animals discomfort. These risks and their possible mitigation measures are explained below: Risk of spreading contagious diseases. The enormous number of animals in a small area favors the fast spreading of contagious diseases, affecting a high percentage of animals in a short period. For every livestock activity, the Company receives the permanent advice of veterinarians, and applies a strict health and disease control plan. Animals' discomfort. The free stall or feedlot facilities are designed to give animals the highest possible level of comfort, and the personnel receives training in best practices for livestock handling. Rice Industry and Grain Stockpiling / Drying Below is a list of the potential impact-generating activities: grain loading and unloading; stockpiling of process waste (husk, waste from cleaning processes and rice polishing) in the open; load of process waste (husk, waste from cleaning processes and rice polishing); grain drying; transportation of grains and process waste. Below is a description of the direct impacts of the above mentioned activities: atmospheric emissions of GHG; diffuse emissions of particle material; noise pollution; hazardous waste; waste from Pre-cleaning and Drying Processes; Each of the impacts and mitigation measures adopted by the Company are described below: GHG atmospheric emissions (NOx, CO2 and CO): These can be emitted due to: biomass (waste from the forest industry) use as fuel for dryers. As a mitigation measure in San Salvador Mill we are analyzing the possibility of changing the fuel by extending the natural gas network located at 4 km from the facilities. In Mercedes Mill this is not possible, because the province of Corrientes does not have a natural gas network. For this reason, the Company will maintain and use the tree biomass of the natural areas preserved in San Agustn, Oscuro, San Joaqun, Omb and Ita Caab to offset these emissions. In the North Dry Plant, natural gas or LPG will be used as fuel.

 dryer fire due to the accumulation of drying waste inside the machine. This has been mitigated through a regular cleaning internal procedure (Mercedes Mill).

Diffuse emissions of particle material. They affect environmental air quality in the Mills surroundings and work environment. They are generated by: circulation of trucks. To mitigate this effect, the consolidated soil of the truck parking area has been improved; grains loading/unloading processes. The Galicia Warrant Plant has a confined loading/unloading area with a dust extraction system. The Company will analyze these improvements to subsequently apply them in Mercedes Mill, San Salvador Mill and in the North Dry Plant; process waste loading. In Mercedes Mill and San Salvador Mill stockpiling silos are being constructed to mitigate this impact. In the North Dry Plant these improvements are planned for a second stage of the project. In every plant, improvements in the shelterbelt of the surroundings are being assessed, as well as its implementation in the North Dry Plant. Noise pollution. The potential impact affects nearby communities or the personnel working outside the plants. To mitigate this effect, some alternatives are being evaluated, such as the establishment of a larger shelterbelt or the use of mufflers in the silos ventilation systems and in the dryers in all plants. Hazardous waste: This impact is low and is related to the generation of: cloths polluted with lubricants or fuels, waste from paint, cables, electric appliances from transportation or maintenance activities; chemical product containers used for vector control. They can pollute the soil. The Company mitigates this impact sending them to the Temporary Lot for Hazardous Waste, to be then delivered to an authorized company for their final disposition. Waste from Pre-cleaning and Drying Processes. Large quantities of this waste are produced, and its consequences are the result of emissions (particle material), GHG (incineration) or generation of vectors. The Company mitigates this effect through their commercialization for productive processes (poultry houses used in the poultry business or for the manufacturing of construction bricks). The Company is constructing surface silos for stockpiling, which will reduce the emission of particle material and will enable a more effective commercialization. One of the Potential Risks arising from activities related to rice production, in particular, the grinding process, is the risk of food contamination. This is further explained below. Risk of food contamination. This risk involves manufacturing tasks performed without the appropriate safety controls that affect consumers' health. The Company has implemented a packaging area in Mercedes Mill, which operates under food safety conditions. Mercedes Mill and San Salvador Mill have special equipment to detect metals that might be present in the rice and to perform food quality internal controls. The company is analyzing the possibility of obtaining the ISO 22000 standard certification (related to food safety) for Mercedes Mill.

Social Impacts Agriculture The potential direct adverse impacts on social environment may include: air or water courses (superficial or underground) pollution due to excessive use of agrochemicals. As it was mentioned before, this impact has been mitigated by the Company through their rational use and the implementation of Integrated Pest Management (IPM); inconveniences in the access to cities and an increase in the number of traffic accidents. This is due to the increase in the number of trucks and machines during harvesting periods. To mitigate this impact, the Company is working together with the municipalities of the nearby towns to improve road signs placed in the accesses, and it is coordinating with the provinces the enhancement of turning sectors in provincial roads. Livestock The direct adverse impacts may include: generation of bad odors affecting nearby populations. In the case of Ita Caab, the existing construction and the shelterbelt mitigate this type of impact. In the case of San Joaqun and El Meridiano, the dominant winds keep bad odors away from towns; pollution of water courses (superficial and underground). The feedlot will have appropriate effluent treatment systems, in accordance with INTA recommendations. The free stall has a 3-pool effluent treatment system (one anaerobic and two aerobics). One of the indirect impacts on employees working in the facilities is the potential water pollution with Escherichia coli. This bacteria present in manure may pollute food or drinking water used by the personnel. To mitigate this effect, the Company trains the personnel on hygiene matters and performs regular bacteriological studies on consumable water (El Carmen). Rice Industry and Grain Stockpiling / Drying The direct impacts may include: generation of annoying noises affecting nearby populations. These noises have already been reduced with the equipment maintenance procedure and they may be limited even further with the incorporation of mufflers in the ventilation systems the Company is planning to add; the increase in truck traffic in harvesting periods, limiting accesses to cities. To mitigate this impact, the Company is working together with the Municipality in order to devise a traffic management plan, and it is coordinating with the provinces the enhancement of turning sectors in provincial roads. Health and Safety The Companys Occupational Safety and Health Department has an annual training plan, organizes prevention campaigns, and promotes improvements in safety infrastructure for the mitigation of personnel risks. To this end, it has its own personnel and hires consulting companies specialized in labor safety. It has developed risk matrixes for each job position in order to specifically identify the risk and the mitigation measure. Below is a list of potential risks of accidents or injuries that could arise from the activities

performed in the CAPEX. Agriculture Livestock Lack of Personal Protective Equipment (PPE) for the Companys personnel and hired employees. Risk of intoxication and skin contact due to mishandling of agrochemicals (storage and preparation of mixes). Risk of fire, storage spills and fuel delivery. Ergonomic risks during loading/unloading seed bags, movement of lubricant tanks, etc. Risks associated with vehicle driving (motorcycles). Heat or cold stress due to unfavorable weather conditions (exposure to sun, rain or dust inhalation). Risk of being bitten by snakes, wild animals or insects (Omb, Ita Caab and San Joaqun). Height risk (arising from placement of canvas on trucks and use of ladders in silos). Blocking of mobile equipment, specifically, agricultural machinery (Chimangos and tractors power take-offs). Risks associated with confined areas (silos in San Carlos). Risks of suffering diseases, such as Hemorrhagic dengue (HD) transmitted by the bite of the Stegomyia aegypti mosquito, or the Junn Virus (Argentine Hemorrhagic Fever) and Hantavirus (IHV) caused by direct contact with mice or lack of hygienic conditions. Noise caused by the use of agricultural machinery. Ultraviolet radiation due to exposure without protection. Risk caused by poachers trespassing on the property (San Joaqun). Risk of accidents while travelling to and from work.

Livestock management (limb compression). Heat or cold stress due to unfavorable weather conditions (exposure to sun, rain or dust inhalation). Risk of being bitten by snakes and insects (Omb, Ita Caab and San Joaqun). Risk arising from misuse of syringes. Risks of suffering diseases, such as Hemorrhagic dengue (HD) transmitted by the bite of the mosquito Stegomyia aegypti, or the Junn Virus (Argentine Hemorrhagic Fever) and Hantavirus (IHV) caused by direct contact with mice or lack of hygienic conditions. Risk of accidents while travelling to and from work. Biological risk due to contact with waste from cows generated during birth (placenta) (El Carmen). Biological risk of infection during brucellosis immunization.

Rice Industry and Grain Stockpiling / Drying Height risk in the stockpiling, drying and delivery of grain bags areas. Risk due to inadequate application of agrochemicals. Risk of being trapped in confined areas (silos and dryers). Risk of silos' explosion. Ergonomic risks for lifting seeds or rice bags. Risks of suffering cuts due to misuse of packaging equipment.

Risk of getting trapped in equipment (mills, waterwheels, Redlers, etc.) or parts of equipment (straps, conveyor belts, etc.). Risk of accidents while travelling to and from work. Risk of suffering an occupational disease due to poor lightning (San Salvador Mill). Risk of suffering a disease due to lack of Personal Protective Equipment (PPE) in areas with a sound level above 80 Db (Mercedes Mill).

Comments Safety signs are used in all the facilities to prevent accidents, if PPE was used properly, if there were a Training Plan and an Emergency Plan (San Salvador Mill and Mercedes Mill) and if a work risk map per workstation had been prepared (San Salvador Mill, Mercedes Mill and free stall El Carmen). The Company has monitored the particle material in the quality of air and noise at work (Mercedes Mill and San Salvador Mill). The Company will implement improvements in the safety infrastructure, such as: anchor points for height works, improvements in boxes and handrails, leak tight electric installation, among others. The Company will request suppliers and transportation companies to submit insurance and use Personal Protective Equipment (PPE) in the Plant. Otherwise, they should be provided by the Company. Cummulative Impacts Cumulative impacts induced by the Capex are not expected to be significant, as the project components diversication strategy among the farms (e.g., free stall, feed lot, dry land agriculture and irrigation agriculture) and location (dispersed among several provinces) would be implemented in areas already under agricultural or livestock production. Agriculture is the predominant land use and has been identified as a high priority. In the foreseeable future, this land use would remain dominant. In those farms that are close to IBAs the Sponsor will implement a Biodiversity Action Plan, therefore reducing the probability of significantly degrading or converting natural habitat. The most important agricultural resources of CH4 are ruminant animals and rice production. Flooded rice regions produce emissions of CH4 that may be reduced with improved management. The Capex will seek to comply with the Argentina Ministry of Environmental and Social Developments recommendation measures to reduce the emissions of methane by applying mineral supplements to help increase growth and reproduction of livestock. The sponsor is evaluating with the supervision of SECCI the possibility of installing biodigestors at the livestock operations to reduce GHGs. Furthermore, the feedlots and free stall are not expected to contribute to cumulative effects to water quality and the environment because construction and operational and best practices will be applied to reduce the potential impacts. The proposed Capex has the potential to impact vulnerable and endangered species foraging habitat. Mitigation measures will require the implementation of a Biodiversity Action Plan in those farms where the risk exists. The project Sponsor is in the process of implementing an Environmental Management System. Positive Impacts and Benefits Corporate social responsibility (CSR). The main objective is to collaborate with the wealth generation and social welfare of the communities where we have operations. The Program Basis of CSR is:

employees: have all our employees legally registered, take care of their health and safety and promote personal and professional development; suppliers and clients: buy and sell according to local regulations, seek for long term relations based on trust, establish a solid business track record and ensure safe conditions for outsourced workers; government: pay taxes as required by law, respect laws and regulations and work transparently; community: preserve the environment, generate job opportunities and get involved in the development of all the communities where we belong.

The community programs are: education: in the province of Corrientes we work in association with Cimientos NGO. Since 2005 we are implementing three programs in urban and rural schools. Over 2,100 students and 80 teachers are involved. We awarded 11 projects which involved 18 different schools. The Companys employees participate in the implementation and funding. In 2007 Cimientos was awarded as one of the top 85 NGOs of the world; education: In the province of Santa Fe we work in association with Conciencia NGO. We are developing a scholarship Program. Its orientated to children of low incomes families that are in the last 3 years of secondary education. The Companys employees function as guides for the 10 scholarship holders; food donations: we are collaborating with selected soup kitchens initiatives with our products. We donate 6 tons of elaborated rice to the Mercedes city soup kitchen. It feeds 2,000 people with very low income. In exchange the families commit themselves to send their children to school; food donations: We donate 4 tons of powdered milk and 2 tons of elaborated rice to the Manuel Alberti neighborhood. The community center serves 3,100 students and a nursing home. The Companys employees went with their families to paint two of the places where children receive scholar assistance and every day breakfast; local donations: besides corporate programs, we make local donations in our communities. The managers analyze the particular needs of the local organizations. We have all kinds of donations: gas oil, bread, meat, repairs and electric appliances; internships program objective: our purpose is to promote the development of highly qualified professionals for the community by providing a first working experience, good quality training and access to high technology. Main goals: collaborating with the formation of highly qualified professional for the community; facilitating their access to the job market; promoting institutional relationships with Universities and high schools; generating job opportunities in the neighbor communities; detecting future key employees for the Company. Types of internships: junior High Interns; high School Interns; university Interns. Business involved: agriculture: wheat planting, corn and soybean planting, wheat harvest, corn and soybean harvest, rice watering and harvest;

beef-cattle raising: calving assistance, exposure management, palpation and weaning, feedlot management; dairy facilities: sanitary conditions follow-up, feeding program control; rice mills: storage and logistics, quality control, maintenance; administrative: farms offices management, human resources, commercial, business development.

Partners: We are partnered with several educational institutions in Argentina. We are also partnered with foreign universities. Tending to get acquainted with other production systems, we carry out internship programs with universities in USA, Brazil, Switzerland, Uruguay and Costa Rica. We send and receive interns. Indirect employment (related service activities). The Company creates indirect jobs when it contracts services (rural contractors, transportation companies, maintenance, etc). Furthermore, training is provided to indirect employees regarding safety, best crop practices and business management. The Company also creates sustainable alliances to foster the technological improvement of its suppliers through service agreements that allow the Company to amortize the purchase of equipment. Native Forest conservation areas. The Sponsor has a total of conservation units in Ombu, San Joaquin and Ita Caabo. 10,500 hectares reserved as

Conservation crop methodology. It aims at: Implementation of No Till technologies through all the Companys farms. This technology protects the soil from erosion and benefits the production capacity of the soil; crop rotation to keep the biodiversity of the soil and minimize the nutrient loss of the soil; the use of cover crops to reduce water erosion and improve the soil water storage capacity; the mixture of pulse and graminaceous plants to improve the soil carbon and nitrogen balance; the use of graminaceous plants to improve the soil structure; the biological degradation of crop residues to improve nutrients. Crop large-scale model. The large-scale production model is based on sustainability as the main concept. This system takes into account economic, social and environmental feasibility. A sustainable system must be able to face the present needs without compromising future generations. The Company is a member of Sustainable Food Laboratory (www.sustainablefood.org), a body formed by companies, public organizations and civil society organizations from around the world, the purpose of which is to accelerate this sustainability movement and integrate the whole chain into it, from the producer to the consumer. Improvement in the use of land. The soil with agriculture potencial it use for crop production and the cattle herd is host in the feedlots, this reduce the impact on the soil structure and the permeability of large land extensions decreases by reducing the area of soil trampling and compaction to the feedlot sector. Milk production. The Company has implemented better production practices that may be used by other companies in the sector to improve their businesses. The improvement in the production efficiency due to the use of better technologies, the appropriate management of the animal diet and health and comfort controls will increase milk volumes both regionally and nationally, and

will have a positive impact on the industry development. Animal health program. The Company has an Animal Health Program in place and certificates issued by the SENASA (National Organization for the Control of Animal Health), that ensure that its animals are healthy (free from foot-and-mouth disease, tuberculosis and/or brucellosis), thus ensuring the quality of the food that reaches consumers. Capex Related Temporal Environmental and Social Impacts and Risks and mitigation From the CAPEX, there are four construction projects: two feedlots (San Joaqun and Ita Caab) with expected capacity of feeding 3,000 heads each. construction of Module II of Free Stall I and Free Stall II (El Carmen) with expected capacity of 3,000 heads each. the North Dry Plant. Below is a description of the potential environmental, social, health and safety, and labor impacts that may affect these construction projects. A. Environmental Atmospheric emissions of GHG. Land preparation tasks cause changes in the air quality due to the diffuse emissions of machinery (CO2 / CO). Diffuse emissions of particle material. They are caused by the movement of vehicles and machinery throughout the construction process. Effects on the soil or superficial or underground water courses. The quality of superficial or underground waters is affected by the inappropriate handling and/or storage of fuels, lubricants or hazardous waste (paints, cables, electric appliances, among others). The effects of these impacts are temporary and will be mitigated by the Company implementation of best construction practices and the control on suppliers. B. Social The impacts will be the generation of direct temporary jobs in the area as a result of the tasks, and the generation of indirect jobs in the companies providing the metallic structure, the improvement of soils, dry equipment manufacturers and silo fabrication. As the projects will be located in land owned by the Company in rural areas, construction will not disturb the neighbours or nearby towns.

C. Health and Safety Risks of cuts during the wire fencing installation. Heat or cold stress due to unfavourable weather conditions (exposure to sun, rain or dust inhalation). Ergonomic risks.

Transportation and handling of persons and materials. Drilling works. Height works. Welding works.

These risks are controlled by requesting the contractor the relevant safety and health program and audits by the field managers. Protected Species in the CAPEX Areas The environmental impacts include: the loss of biodiversity due to the clearance of secondary forest (Omb); decline in abundance; elimination of endangered species individuals; noise; loss of shelter sites and caves (mammals and reptiles); possibility of bioaccumulation of agrochemicals in birds of prey. The company will mitigate this impact by generating conservation areas and ecological corridors that ensure the maintenance of the native vegetation and the fauna associated to the CAPEX Omb, San Joaqun and Ita Caab.

ESS Annex 3: Farm Locations in relation to Important Bird Areas (IBAs)