COUNTRY | Vietnam |
INVESTEE COMPANY | Phuc Sinh Corporation |
SUPPLY CHAIN | Coffee |
TOTAL &GREEN INVESTMENT | up to USD 25 million |
EFFECTIVE DATE | August 2024 |
LOAN TERMS | 7-year tenor |
CO-INVESTOR | N/A |
Vietnam is the largest producer of the Robusta coffee in the world, accounting for 40% global market share. Robusta coffee production in the Central Highlands.
In the Vietnamese Central Highlands, Robusta coffee production faces significant challenges due to climate change and its impacts on agriculture. As rainfall patterns shift and droughts increase, water resources are likely to become insufficient for current farming practices, leading to the over-exploitation of surface and groundwater. By 2050, climate models suggest that areas currently suitable for Robusta cultivation could shrink by almost 50%. As a result, Robusta farming may shift to higher altitudes, where remaining forests are located, potentially accelerating deforestation.
To tackle this problem, &Green has partnered with Phuc Sinh to enhance its supply chain management, establish an NDPE monitoring system, and upgrade the company’s supply chain management practices to align with EUDR standards. Through its direct engagement with farmers, Phuc Sinh play a crucial role setting a blueprint of E&S management for local actors on the ground and to prepare them for EUDR requirements.
The transaction includes a landscape-level mapping for its high-risk areas where Phuc Sinh will also geo-locate 300 EUDR-compliant suppliers and open them up to European markets.
Furthermore, with &Green, Phuc Sinh will aim farm-level traceability and NDPE compliance for the coffee suppliers participating in its Sustainability Program by 2025, making it compliant with EUDR requirement. In a final step, Phuc Sinh will develop GIS-based NDPE risk maps for its conventional coffee supply chain as well, achieving complete landscape-level traceability by 2028.
Phuc Sinh is committed to enhancing its environmental and social management system and achieving full compliance with IFC Performance Standards (IFC PS) by 2027, setting a blueprint of E&S management for local commodity producers and traders.
This transaction is anticipated to enhance the livelihoods of over 5,000 small farmers, making them eligible to access to European markets. Moreover, 30% of farmers located in high-risk deforestation areas, will be geolocated as a result of the transaction and will be able to prove their compliance with EUDR. Additionally, around 60,000 hectares of forest landscapes within the districts of the Central Highlands, where Phuc Sinh’s conventional supply chain operates and native forests still exist, will be mapped and monitored.
Phuc Sinh environmental and social targets include:
(i) Forest conservation – through purchase and source coffee from NDPE* compliant landscapes;
(ii) Non-Deforestation – by geolocating and assessing farms of the supply chain against NDPE;
(iii) reaching minimum 90% compliance with International Finance Corporation Performance Standards (“IFC PS”) by the end of the third year of the loan tenure;
* NDPE stands for No Deforestation, No development of Peatlands, and No Exploitation and is a policy commonly used to ensure sustainable operations.
Considering the globally growing demand for coffee and already degraded fragile ecosystems in the Central Highlands, it is crucial to delink commodity production from deforestation in the jurisdiction not only through avoiding new deforestation in the short term, but also through improvement of climate resilience to secure productive lands over the mid- and long-term periods.
The essence of the transformational change in this transaction lies in the quality of the supply chain management program, distinguished by its capacity to adhere to EUDR compliance for the certified farms and landscape level NDPE policy for supply chain. Phuc Sinh plans to implement a risk mitigation program and it aims to identify at least 300 conventional suppliers in the high-risk areas, bringing them into the farm-level traceability system and thereby enabling access to the EUDR-compatible market.
The estimate* of the environmental targets of this project include:
* The final targets will be set during 2025, based on detailed studies.
By implementing farm-level traceability to the suppliers of the conventional supply chain, Phuc Sinh with its Sustainability Program will support >5,000 small farmers.
&Green commissioned an environmental and social impact assessment (ESIA) for Phuc Sinh’s processing facilities and warehouses in Son La, Dak Lak, and Binh Duong provinces, as well as for Phuc Sinh’s supply chain, following which several pre-contracting improvements that will be verified annually on-site by independent annual assessments were agreed upon with Phuc Sinh. This transaction is classified as E&S risk category B, as per the IFC Risk Categorization, indicating business activities with the potential for limited adverse environmental or social risks and impacts. Any negative impacts of Phuc Sinh’s facilities can be mitigated through standard technological solutions, such as wastewater treatment and hazardous waste management, all of which have been included in the Environmental and Social Action Plan (ESAP).