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

I. THE PROJECTA. 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 andrapeseed and produce milk. They are seeking the extension of the maturity of the outstandingbalance of their existing IDB A/B Loan (the Existing IDB Loan) of approximately US$50

million and the addition ofan 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, theCompanies or the Borrowers) under a new transaction (the Existing IDB Loan and the New BLoan together, the IDB New Loan). Dinaluca is a recently acquired company that focuses onthe rice business.1 Adeco, Pilag and Dinaluca will use the funds for capital expenditures, andrelated working capital to increase their production through land transformation2 and additional

processing capacity mainly in their rice business (The Project), and to refinance a portion of theCompanies existing debt to achieve a better capital structure.

The Companies are among the most competitive food low cost producers in the Southern Coneagribusiness sector whose farming activities are conducted mainly in the Argentine humidpampas region, where agro-ecological conditions are optimal for efficient production. In dairyproduction, the Companies are leaders in using technology that significantly reduces the amountof land needed to produce milk. The Companies own and lease cultivated land consisting ofapproximately 280,000 hectares in Argentina3 where they have a strong agricultural profile andmay be defined as cutting-edge companies in the field of agricultural, dairy and livestockproduction. They apply sustainable agricultural practices that include no-till technology, directseeding, crop rotation; efficient water management and integrated fertilizers and agro-chemicalsmanagement to improve productivity and maximize the lands efficiency.

The IDB New Loan will partially fund the Companies 2010-2011 capital investment needs andfree-up cash flows that are currently utilized for their existing short-term and long-term debtincluding IDB debt service, thereby achieving a debt structure more consistent with theCompanies asset growth.

By extending the tenors of the IDB Existing Loan and using the IDB umbrella to mobilizeadditional commercial funding, the IDB New Loan is supporting the Companies investmentprogram related to their rice business segment4 through the expansion of their rice production in

1 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 wasUS$20.1 million.

2 Underutilized cattle ranching pastures are transformed into high-yield hectares of rice by applying variousinputs, the proper technology and building the appropriate infrastructure to support rice production.

3 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 sugarsector in Brazil and more information related to this aspect at the corporate level will be gathered during theESDD and included in the ESMR.

4 The Companies produce 12% of the total Argentine rough rice and 16% of the total milling capacity inArgentina. Their rice production increased from 50,000 tons in 2007 to 80,000 tons in 2009. Adecos rice

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the Northeast provinces of Argentina, one of the most ideal regions in the world for producingrice 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 ofbio-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 andfinancial parameters and the analysis confirmed that the proposed technologies are technicallyfeasible. A decision is to be made regarding the use of the methane captured for generation andself-supply of electricity or combustion. The cost of the investment is expected to be betweenUS$1.5 and US$2.5 million which will be part of the Project Cost of the IDB New Loan asindicated 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.

production has grown by a CAGR of 25% since 2003. Rice exports account for 68% of Adecos total riceproduction. Te main destinations for Adecos rice exports are Brazil (44%), Central America (29%), and WestAfrica (19%).

5 Due to the optimal solar radiation, land diversification, water availability, high productivity, experienced andskilled work force and intellectual property over the Companies rice seeds and rice brand which have a strongrecognition in the domestic market.

6 El Carmen farmland in Santa Fe province.7 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.

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B. The CompaniesAdeco: Is the third largest agricultural company in the country and has more than 33 years ofexperience in agribusiness. It owns [eight] farms and has a total area of [95,367] hectares (ownedand leased land). Most of its land is used for crop growing and cattle raising activities, and theremaining 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 trackrecord of more than 83 years in agribusiness and currently owns [four] farms in Argentinatotaling [86,380] hectares.1

Dinaluca: an agricultural Argentine company established in 1961 that is engaged in crop andcattle farming activities, manufacturing and marketing of rice, and lease of farmlands. Thecompany owns a 14,749 hectare farm located in the Province of Corrientes, Argentina, with 4,500hectares destined to rice production and the potential to develop an additional 6,500 hectares,which will be financed by the New IDB Loan.

C. Environmental and Social settingThe Companys farms are scattered throughout the vast humid Pampas, Chaco and Espinalecoregions, whose agricultural productivity is among the worlds highest due to ideal climate andsoil conditions. There are approximately 1,250 km in a straight line between the northernmostfarm, Estancia el Omb, located in the Capital district of the province of Formosa, and EstanciaLas Horquetas, the southernmost farm, located in the Guamin district in the province of BuenosAires. This large distance accounts for the differences in climate and production, which enable theCompany to grow different crops and perform different activities that considerably reduce therisks 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 biologicaldiversity minimizing the fragmentation of the fields in order to avoid the island effect. Theimplementation of the Companies plan seeks to ensure that farming production through thepreparation of land minimizes environmental impacts and conserves biodiversity in order toguarantee a production system that is both profitable and environmentally sustainable.Additionally, crop rotation and no tillage complements the land preparation model. No Tilluses the crop residues that remain on the soil surface as mulch, creating a permanent soil covercatalyzing biological processes that significantly increase the presence of organic matter in thesoil, 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 ofagriculture, this area has the largest rice production in Argentina due to its water availability

resources. Also, it is an important livestock-producing area.

1 Pilag was acquired in 2007.

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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 yearlycrops. 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 whereprevious agriculture and livestock operations were conducted. Therefore it is not expected thatany 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 ChacoSavannas 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 landsminimizes environmental damage risks to natural habitats, maintains biodiversity and usessupplementary conservation practices, such as the inclusion of a Biodiversity Action Plan, notillagriculture and integrated pest management in the farms where natural provincial monument2 orendangered species inhabit. In those farms where native forest remnants exist, the Sponsor is notallowed by the Forest Law to convert or transform the land, and per company policy, the sponsordoes not clear native forests. The Company has reserved natural habitat areas at Ita Caab , SanJoaqunand El Ombu farms. Species declared Natural Provincial Monuments or those classifiedas 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 implementingBiodiversity Action Plans in order to preserve the biodiversity richness of the region. TheCompanies take special care with the application of agrochemicals so as not to compromise thehealth of bird populations that live in the IBAs.4 San Joaqun farm is within an IBA that

2 Provincial classification of local species of interest.3 See map in Annex 3.4 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

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comprises a strip 100 km long bordering on the north with San Javier, province of Santa Fe, and20 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 sponsorhas 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 oftobas,pilags and wichis (located in farmhouses around Misin Laishi, province of Formosa) ormocovethnic groups (located in dwellings in Colonia San Martn 1 and San Javier, province ofSanta Fe) makes it possible to implement actions within the Social Responsibility Program. Theseactions 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, ensuringliteracy, preservation and the promotion of native language and culture. The CAPEX in questionare Omb farm at 40 km from the toba,pilag and wichi communities, and San Joaqun farm at30 km from the mocov ethnic group. The Projects CAPEX are not near any site of culturalimportance.

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 athttp://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) thatincludes administrative buildings, irrigation infrastructure including pumping stations, canals anddrainage facilities, drying and storage (silo) facilities, machinery workshop. The total surface ofthe farm is 14,972 hectares, of which 4,200 are currently used for irrigated rice cultivationcomplemented 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 Southextension of the property is 28 km . It borders the Parana River on the North and is crossed byRoute 12, 125 km outside the city of Corrientes. The Parana River is one of the largest rivers inthe world and serves as an international boundary with the Republic of Paraguay located acrossfrom Dinaluca on the other bank of the river.

The project area has sparse rural population and scarce presence of educational and healthservices. Increasing rice cultivation in extensive cattle raising areas contributes to increase thelevel of activities and services available to the local population. The neighboring localities ofParaje Yahape (4 km), Beron de Astrada (25 km) and Ita Ibate (35 km), in particular, will benefitfrom 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 (differentfrom La Alegra farm This Projects CAPEX). This is a private preservation area classified by BirdLife asFO09. At Ombu, the Capex entails the production of 7,000 hectares of dry-land agriculture (rain feedagriculture) 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 ItaCaabo, the Capex project entails the production of 8,400 hectares of a mix of crops and a feedlot with a capacityto fatten 3,000 heads, no forest removal or clearance is necessary, to implement the project. The sponsor haspreserved 2,500 hectares of native forest.

http://www.iadb.org/en/projects/project,1303.html?id=AR-L1086http://www.iadb.org/en/projects/project,1303.html?id=AR-L1086

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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 millingplant with 15,000 ton rice storage capacity. The plant will process 60,000 tons of rice the firstyear and will build up to 100,000 tons annually. This will require a flow of 4,000 trucks in year 1and up to 6,700 trucks annually thereafter. Facilities include fences, water wells/pumps and septictank, gas pressure reduction plant and secondary supply ducts, in-plant electricity transformersand 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 toaccommodate heavy machinery and truck traffic, including additional access and speed reductionramps.

The plant site is a 16 hectares site limited on the East by Route 6, on the North by rural roads andon 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 RouteNo. 19 in the province of Santa Fe. Pilag considered 50 alternative sites for this facility in orderto identify the one that best met all conditions related to efficient operation, such as energysources and labor availability as well as proper mitigation and management of environmental andsocial impacts. It was important to locate a rural parcel to minimize impacts on neighboringreceptors, such as environmental contamination, noise, odors, pesticide use, etc while ensuringaccess to natural gas sources and proximity to paved roads.

D. Project WorkforceThe Companies (Adeco and Pilag) employ approximately 1350 workers (broken down as shownbelow) in Argentina with an approximately 10% seasonal work force, and are in the process offormalizing their labor policies and improving worker housing, which is provided primarily freeof charge or for a nominal fee.For the new projects, Molinos Franck will generate between 60 and80 permanent jobs after 15 the first year. The Dinaluca farm will employ 56 people in ricecultivation and 8 in livestock activities.

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II. INSTITUTIONAL AND REGULATORY CONTEXTA. 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 scalefarming 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 attachedpolicy filter for more details.

The project has triggered, in addition to directives B1, B2, B3, and B7, which are triggered for alloperations, 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 andmonitoring of GHG emissions

Policies OP-710 and OP-765 are triggered only as overall guidance on land acquisitionpractices 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 DevelopmentOperational Policy (OP-752) are also relevant to the analysis of the Companiesenvironmental and social performance, as are IFC ESHS Performance Standards andguidelines5 on and relevant industry guidelines such as RTRS.

B. Country Laws and RegulationsThe CAPEX projects and the Companies activities in general are designed consideringcompliance with current federal and provincial environmental and safety laws and rules, as wellas with regulatory decrees and resolutions as applicable.

Below is a list of most applicable environmental regulations and authorizations with respect to theCAPEX Projects.

Authorization of forest clearance: Formosa Provincial Provision No. 325/05 for the (ElOmbu)

5 General ESHS Guidelineshttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_GeneralEHS/$FILE/Final+-+General+EHS+Guidelines.pdfIndustry Sector Guidelines for Mammalian Livestock Productionhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_MammalianLivestock/$FILE/Final+-+Mammalian+Livestock+Production.pdfIndustry Sector Guidelines for Plantation CropProductionhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_PlantationCropProd/$FILE/Final+-+Plantation+Crop+Production.pdf

http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_GeneralEHS/$FILE/Final+-+General+EHS+Guidelines.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_GeneralEHS/$FILE/Final+-+General+EHS+Guidelines.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_MammalianLivestock/$FILE/Final+-+Mammalian+Livestock+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_MammalianLivestock/$FILE/Final+-+Mammalian+Livestock+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_PlantationCropProd/$FILE/Final+-+Plantation+Crop+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_PlantationCropProd/$FILE/Final+-+Plantation+Crop+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_PlantationCropProd/$FILE/Final+-+Plantation+Crop+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_PlantationCropProd/$FILE/Final+-+Plantation+Crop+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_MammalianLivestock/$FILE/Final+-+Mammalian+Livestock+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_MammalianLivestock/$FILE/Final+-+Mammalian+Livestock+Production.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_GeneralEHS/$FILE/Final+-+General+EHS+Guidelines.pdfhttp://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/gui_EHSGuidelines2007_GeneralEHS/$FILE/Final+-+General+EHS+Guidelines.pdf

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Authorization for stockpiling, drying and producing rice: Law No. 5,067 of the province ofCorrientes (Molinos Mercedes Rice Mill); and Law No. 6,260 and Decrees 5,837/91 and5,394/96, issued by the province of Entre Ros (Molinos San Salvador Rice Mill includingGalicia 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 alreadyhad 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 withthe Categorization application: Law 11,717 and Regulatory Decree 101/03-Annex III (Freestall 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 (RegistroIndustrial de la Provincia de Santiago del Estero, R.I.P.S.E.): Provincial Law 1520/06. Theproject sponsor will submit to the IDB the studies related to the North Dry Plant once they areconducted.

Regulation of agrochemical warehouses: Provincial Law No. 10,699 of Buenos AiresProvinces (agrochemical warehouse located in San Carlos farm -administrative office of theCAPEX of La Alegra); Provincial Law No. 4,495 and Regulatory Decree 593/95 onagrochemical warehouses of the province of Corrientes (Ita Caab farm agrochemicalwarehouse).

National authorization for the storage and commercialization of diesel: Federal ResolutionNo. 655/03 (facilities of Carmen farm, San Carlos farm (CAPEX of La Alegra farm), Ombfarm and Ita Caab farm, San Joaqun farm, Molinos Mercedes Rice Mill).

Water use: Santa Fe Provincial Directorate of Water Resources Administration EIA aSystematization Study taking into account water interference and retention and its effects onnearby farms, as well as works to minimize local erosion (San Joaquin).

Resolution 177/03 on environmental aspects of grain storage facilities of the Province ofSanta 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 threeareas for native vegetation conservation. Any other decree or provincial regulation linked tothis national legislation (Decreto 1439/09 Ordenamiento Territorial de Bosques Nativos de laProvincia de Corrientes).

Protocolo del Rio Uruguay, Tratado del Rio de la Plata and any other international treaty orconvention linked to the use of the Uruguay and Parana rivers.

III. IMPACTS,RISKS AND CONTROL MEASURESThe Companies activities are typical large scale conventional agricultural, milk producing, cattleraising and related industrial operations with the typical impacts related to air, water and soilcontamination (through the use of fuels and agrochemicals and generation of GHG emissions and

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particulate material), impacts on natural and eventually critical natural habitats, and workers andcommunity health and safety risks (see detailed description in Annex 2).

However, the Companies employ typical and often state of the art mitigation and managementmeasures to minimize these impacts ensure compliance with all applicable regulations andachieve compliance with IDB agreed requirements. The Companies have made significant

progress in the implementation of an Integrated ESMS and farm level environmental and socialand biodiversity management plans, and monitoring results indicate that E&S performance issatisfactory. The key aspects of these plans and their results will be the subject of an audit as partof 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 arecurrently undergoing environmental assessments that will be reviewed as part of the ESDD. Otherthan the presence of the Paraje Yahape settlement within the direct area of impact of the Dinalucafarm, there is no indication that these projects will present issues that are significantly differentfrom 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 UseConformity 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 withno 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 feed-and proper disposal in communal site authorized by Franck of extraneous material generated ingrain processing.

The Dinaluca Farm will have management and monitoring plans and has internalized many of themeasures designed to mitigate its impacts which overall are moderate, though special attentionmust be given to truck traffic increase in a rural area, management of dust and other waste andimpacts 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 theselection and acquisition of land and water rights; workers and community health and safety;social responsibility and stakeholder engagement.

IV. OTHER ISSUESA. Sugar cane and Ethanol production In Brazil

The Companies also operate in the sugar sector in Brazil and more information related to thisaspect at the corporate level will be gathered during the ESDD and included in the ESMR.

B. Ayui Grande Irrigation Project

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Associated to the Ita Caabo irrigation project is the Ayui Grande Irrigation Project (20% Pilagwith COPRA SA and Tupantuva SA). The project entails the construction of an artificial lagoonof 8,000 hectares to irrigate 18,000 hectares for rice cultivation for several different farmcompanies. The construction of the artificial lagoon entails flooding 137 hectares of riverbankforest [the predominant species is andubay (Prosopis affinis)]. Federal Law No. 26,331 on thePreservation 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 onthis matter.

In August 2010 the Instituto Correntino del Agua y el Ambiente (ICAA) approved the project andon October 1, 2010 provincial authorities granted the Water Use Concession for the totality of theProject. In September 2010 the national government requested the Province for additionalinformation and in October requested an injunction from the Supreme Court. The injunction isintended to allow the national government to obtain additional information from the Province toconduct a full technical evaluation of the environmental aspects particularly with respect tocompliance with the Uruguay River statute of 1975. In November 2010 the injunction wasgranted 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 raisedin relation to this project by NGOS such as FARN6, Fundacion Ibera, 7 ( and others such as

Greenpeace, Fundacin Vida Silvestre Argentina, Aves Argentinas, Proteger and others), asfollows:

The effects on water resources. The code of waters of the province of Corrientesstates the following: any use of the water resources must be made so as not todamage the ecological balance or affect the present or future quality of life.

The transformation of large savannahs and pastures into agricultural areas. (FederalLaw of Forests 26,331)

Two (South American River Otter and Marsh Deer) of the four species declared NaturalProvincial 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.

Theconsortium Ayu Grandes Project plans to preserve 13,600 hectares of Native Forests tooffset the negative impacts. It is important to examine this project and its potential risks again todetermine if any additional management measures are required.

C. GHG Emissions

6 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, lawand the institutional organization of the society.

7 Fundacin Reserva del Iber. It is a nonprofit organization created in 1992 in the City of Mercedes (province ofCorrientes) engaged only in the conservation of the Esteros del Iber.

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In 2010 the Companies presented a GHG emissions estimate for the year. This reporting will bereviewed with a view to consolidate reporting for phases 1 and 2 and methodologically refine it ifnecessary. 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 foruse in energy production is advanced. Feasibility of capturing with covered lagoon technologyhas been confirmed, and phase 2 of the study is going forward to assess the feasibility ofgenerating electricity.

V. CONSULTANTION AND STAKEHOLDERS ENGAGEMENTAlthough consultations are not required by law in Argentina for the CAPEX projects, it is goodpractice for the Companies to maintain an engagement strategy with their neighbors and haveproper channels for communications, and as needed issue resolution, with neighboringcommunities and workers. This aspect will be reviewed during the ESDD.

For the new projects, the Companies are expected to conduct consultations with localcommunities and authorities in areas affected by Molinos Franck and the Dinaluca rice field inaccordance with Directive B.6 of OP-703.8

VI. ENVIRONMENTAL STRATEGY FOR DUE DILIGENCEAs part of the ESDD the IDB will work with the Companies and specialized consultants in orderto conduct:

1. An assessment/confirmation of project compliance status with the applicable country(national, provincial, municipal, local) environmental, social, and health and safety regulatoryrequirements (e.g. laws, regulations, standards, permits, authorizations, applicable

international treaties/conventions, etc.), project-specific legal requirements (e.g. concessioncontract, etc.), any applicable Bank environmental and social policy or guideline, and theEIAs ad management plans presented in Phase 1.

2. An evaluation of the proposed projects to confirm that the projects direct and indirectenvironmental and social impacts have been properly identified and evaluated.

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

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3. An evaluation to ensure adequate environmental and social mitigation measures andmonitoring, in terms of their completeness, sufficiency of detail, feasibility, cost, definition ofresponsibility, schedule, and quality control to complement those in place for the phase 1CAPEX and with respect to the new projects.

4. A determination of key indicators and requirements for the projects execution, complete withtimelines 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 levelof training to be performed, and sufficient resources to be made available to ensure adequateimplementation. Verification that these activities are proceeding as planned for the Phase 1projects 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 beenidentified, proper procedures have been developed, and sufficient resources will be madeavailable to ensure adequate implementation.

7. An evaluation of project-related information disclosure and public consultation as well asstakeholder engagement activities that have been performed and the proposed future actions

to provide adequate ongoing information disclosure and public consultation with the localpopulation.

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 relevantproject legal documents (e.g. concession contract, construction contract, operations andmaintenance 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 safetyfinancial/credit risks and liabilities associated with the project, the project site, and theCompanies.

11.An evaluation of the company's environmental, health and safety management systems,including plans and procedures, responsibilities and resources, training, auditing, andreporting, and in particular all the system components necessary to ensure future projects andworks which will be implemented will not generate negative impacts.

12.An evaluation to confirm that any environmental or social liabilities or non-compliancesidentified are corrected or addressed by an acceptable corrective action plan, as necessary, inorder to correct or mitigate any existing environmental, social, or health and safety non-compliance 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 theinformation available for the Molinos Franck and Dinaluca Rice Farm projects the ESDD shouldplace 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

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Other issues related to trans-boundary impacts and international conventions (Tratado delRio 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 RTRSo Forest protectiono Land acquisition criteriao Human Resourceso GMOso Good Agricultural and Livestock practices

Update on compliance with legislation applicable especially regarding forests andprovincial POTs and compliance (Law 26.3331)

Overall stakeholder engagement plan

Consultations with FARN, Fundacion Ibera and other relevant NGOs and localauthorities.

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 managementmeasures)

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 Carlosfarm (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 EIAfor San Joaquin farm by the Santa Fe Provincial Directorate of Water ResourcesAdministration taking into account water interference and retention and its effects onnearby 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

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ESS Annex 1Dinaluca Impact Matrix

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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) andharvest 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 GHGCO2 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 asorganic 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 useof machinery. Also the Company is looking for new technologies that will provideefficiencies in the use of water and in the land work. These efficiencies will have directimpact in the CH4 emitted;

CH4 emitted by the cultivation of rice under irrigation. To mitigate this impact, drainages areperformed periodically, allowing for the necessary aerobic biodegradation of the soil (ItaCaab and San Joaqun), thus minimizing the emissions.

Diffuse emissions of particle material

during the grain loading processes. Here the Company implements procedures to carry outloading with longer nozzles;

during the farm work of the land. The cultivation strategy mitigates this impact becausedirect sowing reduces the movement of vehicles in the farming areas;

cargo transportation in rural roads. To mitigate this effect, the Company implementsprocedures 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. Tomitigate this impact, the Company carries out the preventive maintenance of the vehicles, limits the

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circulation speed in its facilities and performs direct sowing (reducing the farm work time of themachinery).

Pollution due to the excessive use of agrochemicals. These may affect the soil, other crops of the area orwater courses (both superficial and underground). To mitigate any impact resulting from the use of anexcessive 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 ofagrochemicals;

preferably uses means of terrestrial application. In the case of aircrafts, it takes all thenecessary precautions, avoiding the performance of activities with wind speeds exceeding 10km/hr and using anti-drifting products.

Pollution due to the excessive use of fertilizers. These may modify the natural chemical composition ofthe 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 theimpacts 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 amountof water. This does not take place in any of the Company's agricultural projects as the water usedfor 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 fuelloading and unloading operations (polluted soil). The waste generated is placed in 200-literdrums 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 HazardousWaste. The Company is adapting these facilities by placing a waterproof floor, anti-spillsbaseboards and roof (to avoid leachate). The Companys personnel and contractorsparticipate in training activities as regards good practices for handling this type of waste;

infrastructure maintenance activities (fluorescent tubes, electric appliances or waste frompaint). Waste is placed in 200-liter containers with lids, properly identified, and then sent tothe Temporary Lot for Hazardous Waste.

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Solid waste. This is generated due to:

ferrous scrap from the repair of mobile and fixed equipment that is commercialized to bereused 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 theCompany:

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 ofLa Alegra and Leasings, this impact is not produced as the habitathave 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 NGOsto 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 performedin areas owned by the Company or by third parties. These have been affected by prior agricultural orlivestock works. It is the policy of the Company not to convert critical natural habitats while developingits 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 thatmay represent a risk for the health of consumers. Argentina does have a law allowing the cultivation ofthose seeds. The Company uses this kind of seeds for soybean and corn cultivation. Although the risk isuncertain, the Company is considering the use of non-genetically modified seeds, as a way of addingvalue to their products.

Risk of affecting native forests. The incineration activities of the harvest carryover (Ita Caab) or ofsecondary forest (Omb) may expand and reach areas of native forests. The application of agrochemicalsmay 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 inOmb, San Carlos, Ita Caab, San Joaqun and El Carmen that have the authorizationsrequired by the National Secretariat of Energy. To mitigate any emergency, the personnel istrained 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 mayaffect the soil (spills), the air (emission of organochlorine, organophosphorus and carbamate)and the superficial or underground water (spills). The Company uses the guidelines of theProgram Depsito OKof the Argentine Chamber of Agricultural Health and Fertilizers(Cmara Argentina de Sanidad Agropecuaria y Fertilizantes, CASAFE) as regards designand maintenance for its facilities in Omb, San Carlos, Ita Caab, San Joaqun and ElCarmen.

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The liquid fertilizer warehouses located on natural soil may break down due to defects in thematerial or spills in the processes of product loading/unloading. This may generate impactson the soil by contaminating it with excessive nitrogen or phosphorus. The mitigationmeasure implemented is the construction of an adequate containment site with walls ofconsolidated 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 abovementioned impacts.

Atmospheric emissions of GHG:

CH4 generated by the animals' enteric fermentation process. Emissions are reduced with alower energy diet (alfalfa and pulses), which helps animals have a faster digestion.

CH4 from the effluents' anaerobic treatments. These emissions can be reduced implementingthe capture of methane with the use of biodigestors. To meet this end, the Company, togetherwith the IDB's Sustainable Energy and Climate Change Initiative (SECCI), will assess theopportunities to develop this type of improvement projects.

CO2 and CO are the result of the incineration of dead animals. The Company, together withthe Instituto Nacional de Tecnologa Agropecuaria (INTA), is analyzing the use ofbiodigestors 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 coolingequipment have been controlled as the Company performs strict predictive and preventivemaintenance to detect any incident.

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

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The Company has implemented procedures to limit the speed of vehicles circulating in itsfacilities.

Superficial or underground water pollution. These may arise from excessive organic matter reachingwater courses. In order to avoid the eutrophication of water, in El Carmen the Company properlyhandles 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), havephreatic layer monitoring wells in their surroundings and regular analysis are performed to detectpotential pollutants. This analysis will indicated if the second pool needs to be cover. Thisstrategy was delivered with the Secretaria of Medio Ambiente de Santa Fe. The treated liquid isused to water crops and also is analyzed periodically. In the feedlot, similar facilities will beconstructed, equipped with phreatic layer monitoring wells in their surroundings.

Soil pollution. These can arise from an excess of Nitrogen (N2) coming from animals' excrements andurine. This impact can be mitigated making animals walk on waterproof floor. Besides, manuregenerated in the cattle housing is collected together with the sand, and then separated throughmechanical means. Sand is reused and manure is dried and used as organic fertilizer. The besthandling 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 tocapture methane for energy uses.

Generation of odors. This is connected with the treatment of effluents and the generation of excrementsand 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 virtuallyimperceptible levels.

Proliferation of vectors (flies). This impact is connected with the excess of humidity generated byexcrements (due to washing, rains) which creates a favorable medium for the development ofmaggots. Flies spread diseases that may affect the health of animals and nearby communities. Thefree 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 bestpractices developed in the free stall to mitigate this type of impacts will be used in theconstruction of feedlots. The surroundings of drinking troughs will be kept dried (use of aerialcover or absorbent limestone).

Hazardous waste. The generation of this kind of waste is minimal in this type of activities. The followingare examples of the type of waste generated:

cloths with lubricants or fuels thrown by livestock carriers. To sort this out, containers withlids, 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-litercontainers with lids, properly identified, and then sent to the Companys nearest TemporaryLot for Hazardous Waste.

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Solid waste. During its productive activities, the Company generates other solid waste, such as woodenposts, which are used by the personnel as fuel for their fireplaces.

Superficial or underground water depletion. Impact is generated by consumption of water from coursesused for livestock drinking. The Company does not plan to use nearby water courses linked topopulations, 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 fastspreading of contagious diseases, affecting a high percentage of animals in a short period. Forevery livestock activity, the Company receives the permanent advice of veterinarians, and appliesa strict health and disease control plan.

Animals' discomfort. The free stall or feedlot facilities are designed to give animals the highest possiblelevel 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) inthe 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 measurein San Salvador Mill we are analyzing the possibility of changing the fuel by extending thenatural 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, theCompany 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.

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

Diffuse emissions of particle material. They affect environmental air quality in the Mills surroundings andwork environment. They are generated by:

circulation of trucks. To mitigate this effect, the consolidated soil of the truck parkingarea has been improved;

grains loading/unloading processes. The Galicia Warrant Plant has a confinedloading/unloading area with a dust extraction system. The Company will analyze theseimprovements to subsequently apply them in Mercedes Mill, San Salvador Mill and in theNorth Dry Plant;

process waste loading. In Mercedes Mill and San Salvador Mill stockpiling silos arebeing constructed to mitigate this impact. In the North Dry Plant these improvements areplanned for a second stage of the project. In every plant, improvements in the shelterbelt of thesurroundings 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 ofa larger shelterbelt or the use of mufflers in the silos ventilation systems and in the dryers in allplants.

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 fromtransportation 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 Lotfor 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 itsconsequences are the result of emissions (particle material), GHG (incineration) or generation ofvectors. The Company mitigates this effect through their commercialization for productiveprocesses (poultry houses used in the poultry business or for the manufacturing of constructionbricks). The Company is constructing surface silos for stockpiling, which will reduce theemission of particle material and will enable a more effective commercialization.

One of the Potential Risks arising from activities related to rice production, in particular, thegrinding process, is the risk of food contamination. This is further explained below.

Risk of food contamination. This risk involves manufacturing tasks performed without the appropriatesafety controls that affect consumers' health. The Company has implemented a packaging area inMercedes 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 foodquality internal controls. The company is analyzing the possibility of obtaining the ISO 22000standard certification (related to food safety) for Mercedes Mill.

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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 ofagrochemicals. As it was mentioned before, this impact has been mitigated by the Companythrough 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. Thisis due to the increase in the number of trucks and machines during harvesting periods. Tomitigate this impact, the Company is working together with the municipalities of the nearbytowns to improve road signs placed in the accesses, and it is coordinating with the provincesthe 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 existingconstruction and the shelterbelt mitigate this type of impact. In the case ofSan Joaqun andEl Meridiano, the dominant winds keep bad odors away from towns;

pollution of water courses (superficial and underground). The feedlot will have appropriateeffluent treatment systems, in accordance with INTA recommendations. The free stall has a3-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 withEscherichia coli. This bacteria present in manure may pollute food or drinking water used by thepersonnel. To mitigate this effect, the Company trains the personnel on hygiene matters andperforms 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 beenreduced with the equipment maintenance procedure and they may be limited even furtherwith 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 thisimpact, the Company is working together with the Municipality in order to devise a trafficmanagement plan, and it is coordinating with the provinces the enhancement of turningsectors 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 themitigation of personnel risks. To this end, it has its own personnel and hires consulting companiesspecialized in labor safety. It has developed risk matrixes for each job position in order tospecifically identify the risk and the mitigation measure.

Below is a list of potential risks of accidents or injuries that could arise from the activities

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performed in the CAPEX.

Agriculture

Lack of Personal Protective Equipment (PPE) for the Companys personnel and hiredemployees.

Risk of intoxication and skin contact due to mishandling of agrochemicals (storage andpreparation 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 SanJoaqun).

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) andHantavirus (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

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) andHantavirus (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.

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Risk of getting trapped in equipment (mills, waterwheels, Redlers, etc.) or parts ofequipment (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 therewere a Training Plan and an Emergency Plan (San Salvador Mill and Mercedes Mill) and if awork risk map per workstation had been prepared (San Salvador Mill, Mercedes Mill and freestall El Carmen). The Company has monitored the particle material in the quality of air and noiseat work (Mercedes Mill and San Salvador Mill).

The Company will implement improvements in the safety infrastructure, such as: anchor pointsfor height works, improvements in boxes and handrails, leak tight electric installation, amongothers.

The Company will request suppliers and transportation companies to submit insurance and usePersonal Protective Equipment (PPE) in the Plant. Otherwise, they should be provided by theCompany.

Cummulative Impacts

Cumulative impacts induced by the Capex are not expected to be significant, as the project componentsdiversication strategy among the farms (e.g., free stall, feed lot, dry land agriculture and irrigationagriculture) and location (dispersed among several provinces) would be implemented in areas alreadyunder agricultural or livestock production. Agriculture is the predominant land use and has been identifiedas 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 probabilityof significantly degrading or converting natural habitat. The most important agricultural resources ofCH4 are ruminant animals and rice production. Flooded rice regions produce emissions of CH4 that maybe reduced with improved management. The Capex will seek to comply with the Argentina Ministry ofEnvironmental and Social Developments recommendation measures to reduce the emissions of methaneby applying mineral supplements to help increase growth and reproduction of livestock. The sponsor isevaluating with the supervision of SECCI the possibility of installing biodigestors at the livestockoperations to reduce GHGs. Furthermore, the feedlots and free stall are not expected to contribute tocumulative effects to water quality and the environment because construction and operational and bestpractices will be applied to reduce the potential impacts. The proposed Capex has the potential to impactvulnerable and endangered species foraging habitat. Mitigation measures will require the implementationof 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 andsocial welfare of the communities where we have operations.

The Program Basis of CSR is:

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employees: have all our employees legally registered, take care of their health and safety andpromote personal and professional development;

suppliers and clients: buy and sell according to local regulations, seek for long term relationsbased on trust, establish a solid business track record and ensure safe conditions foroutsourced workers;

government: pay taxes as required by law, respect laws and regulations and worktransparently;

community: preserve the environment, generate job opportunities and get involved in thedevelopment of all the communities where we belong.

The community programs are:

education: in the province of Corrientes we work in association with Cimientos NGO. Since2005 we are implementing three programs in urban and rural schools. Over 2,100 studentsand 80 teachers are involved. We awarded 11 projects which involved 18 different schools.The Companys employees participate in the implementation and funding. In 2007Cimientos 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 aredeveloping a scholarship Program. Its orientated to children of low incomes families that arein the last 3 years of secondary education. The Companys employees function as guides forthe 10 scholarship holders;

food donations: we are collaborating with selected soup kitchens initiatives with ourproducts. We donate 6 tons of elaborated rice to the Mercedes city soup kitchen. It feeds2,000 people with very low income. In exchange the families commit themselves to sendtheir children to school;

food donations: We donate 4 tons of powdered milk and 2 tons of elaborated rice to theManuel Alberti neighborhood. The community center serves 3,100 students and a nursinghome. The Companys employees went with their families to paint two of the places wherechildren 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 ofdonations: gas oil, bread, meat, repairs and electric appliances;

internships program objective: our purpose is to promote the development of highly qualifiedprofessionals for the community by providing a first working experience, good qualitytraining 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 soybeanharvest, rice watering and harvest;

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beef-cattle raising: calving assistance, exposure management, palpation and weaning, feedlotmanagement;

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 contractsservices (rural contractors, transportation companies, maintenance, etc). Furthermore, training isprovided to indirect employees regarding safety, best crop practices and business management.The Company also creates sustainable alliances to foster the technological improvement of itssuppliers through service agreements that allow the Company to amortize the purchase ofequipment.

Native Forest conservation areas. The Sponsor has a total of 10,500 hectares reserved asconservation units in Ombu, San Joaquin and Ita Caabo.

Conservation crop methodology. It aims at:

Implementation of No Till technologies through all the Companys farms. This technologyprotects 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 sustainablesystem must be able to face the present needs without compromising future generations. TheCompany is a member of Sustainable Food Laboratory (www.sustainablefood.org), a bodyformed 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 chaininto it, from the producer to the consumer.

Improvement in the use of land. The soil with agriculture potencial it use for crop production and thecattle herd is host in the feedlots, this reduce the impact on the soil structure and the permeabilityof large land extensions decreases by reducing the area of soil trampling and compaction to thefeedlot sector.

Milk production. The Company has implemented better production practices that may be used by othercompanies in the sector to improve their businesses. The improvement in the productionefficiency due to the use of better technologies, the appropriate management of the animal dietand health and comfort controls will increase milk volumes both regionally and nationally, and

http://www.sustainablefood.org/http://www.sustainablefood.org/

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will have a positive impact on the industry development.

Animal health program. The Company has an Animal Health Program in place and certificates issued bythe SENASA (National Organization for the Control of Animal Health), that ensure that itsanimals are healthy (free from foot-and-mouth disease, tuberculosis and/or brucellosis), thusensuring the quality of the food that reaches consumers.

Capex Related Temporal Environmental andSocial 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 headseach.

construction of Module II of Free Stall I and Free Stall II (El Carmen) with expectedcapacity 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 tothe diffuse emissions of machinery (CO2 / CO).

Diffuse emissions of particle material. They are caused by the movement of vehicles andmachinery throughout the construction process.

Effects on the soil or superficial or underground water courses. The quality of superficial orunderground 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 implementationof 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, andthe generation of indirect jobs in the companies providing the metallic structure, the improvementof soils, dry equipment manufacturers and silo fabrication.

. As the projects will be located in land owned by the Company in rural areas, construction willnot 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.

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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 andaudits 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 corridorsthat ensure the maintenance of the native vegetation and the fauna associated to the CAPEXOmb, San Joaqun and Ita Caab.

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