Muyuan Loan 2

completed

Muyuan Foodstuff Co, Ltd is a large-scale, integrated, farrow-to-finish intensive pig breeder and hog producer headquartered in Neixiang County, Henan Province, China. Since the establishment of the first hog farm in 1992, the business has seen progressive expansion. IFC has two existing investments in the Company; the first was an equity investment in Muyuan in 2010 (#29089) and the second (#32156) a loan in 2012. This proposed loan, a USD $20M equivalent loan, therefore represents a third investment in the Group. Currently Muyuan operates 25 farms, including two boar stations, breeder farms (great grandparent, grandparent and parent farms) and hog farms. The farms range in size from 0.43 ha to 109.5 ha. In addition, Muyuan currently operates one feed mill in Guanzhang town with an annual production capacity of 400,000 tons.Existing farms are located away from local communities in rural/agricultural areas; the farms being proposed under this investment are similarly located. The majority of the land area of each farm is occupied by housing for the pigs. Pigs are provided with on-demand feed and water, the feed being delivered from silos located outside each unit. Slatted floors under the pigs allow for the collection and storage of solid waste and urine with subsequent flushing or gravity flow to biogas digestors. Summer cooling is provided through ceiling or wall fans and shutters: buildings are designed to maximize air flow through the unit. Winter heating is provided by piping warm water through a ground level piping system. Farms also have offices, accommodation and a canteen.As per the previous loan, IFC’s proposed investment of $20M can be considered a corporate loan but it is understood that the proceeds will be used for the development of the Xi Yin He commercial hog farm facility and the Jiu Kou feed mill. Upon completion of the farms under construction, Muyuan’s annual hog production capacity will have expanded to over 1.5 million. Identified Applicable Performance StandardsIFC’s environmental and social due diligence indicates that the following Performance Standards are, or have the potential to be, applicable to this investment, namely: -PS1: Assessment and Management of Environmental and Social Risks and Impacts - PS2: Labour and Working Conditions - PS3: Resource Efficiency and Pollution Prevention - PS4 Community Health, Safety and SecurityA prior review of Muyuan’s process for identifying and securing land concluded that PS 5 (Land Acquisition and Involuntary Resettlement) was not applicable for any land transaction that had occurred at the time of the equity investment in 2010; this conclusion was also reached in 2012 and this appraisal finds that still to be the case. Issues associated with the following PS were also assessed but found to be not applicable to the Project: PS6: No adverse impacts to biodiversity or sustainable natural resource management were found and the supply chain requirements under PS6 are not applicable due to supplies for feed mills emanating from local farms where no such issues exist; PS7: No Indigenous People are known to have been in the area or affected by the project; PS8: No evidence of the presence or impact to issues associated with Cultural Heritage. The Company site selection manual specifically prohibits Company’s operations from occupying the core and buffer zones of drinking water protection areas, scenic spots, and natural reserve areas. A sample review of farm site selections made to date confirms this practice continues.