Investor Presentaiton

MVO NEDERLAND Labour conditions are not always respected in the agricultural sector in Brazil. Moreover, the Brazilian labour laws are very complex, making it more difficult to comply with labour standards. Violations of labour rights are often at the core of cases brought to the Brazilian NCP. Environmental challenges Just as is the case with labour, Brazil has extensive and complex legislation to protect the environment. Procedures for environmental licenses are exigent and can take a long time. This legal protection, however, has not always shown to be very effective in practice. Enforcement, control and implementation of the environmental laws have become increasingly difficult, as the budget for the responsible authorities has been significantly reduced in the past years. The authorities lack capacity and resources to effectively control legislation, and employees often face threats. Areas the size of the Netherlands are sometimes controlled by only one or a few officers. The lack of infrastructure in the Amazon also increases the complexity of proper control and enforcement. Biodiversity and deforestation Deforestation has been a problem in Brazil for many years. After an impressive reduction of deforestation rates in the early 2000s, deforestation has slowly been increasing again in the last few years. Although European markets have a growing demand for deforestation free commodities, it remains to be seen if deforestation can be halted. Deforestation is not only a problem in the Amazon: also the Cerrado, the most biodiverse savannah in the world, has seen increasing deforestation due to agricultural activities. Deforestation is a threat to biodiversity. The Cerrado is one of the three major biomes in Minas Gerais (the others are Mata Atlantica and Caatinga). After several years of discussion and debate, the federal government enacted a new Forest Code in October 2012. It represented a difficult compromise between the varied interests of the many stakeholders, although the Forest Code is now generally accepted among farmers. Landowners are obliged to keep 3 ISEAL alliance (2017). Minas Gerais and UTZ: Partnership for sustainable coffee production, 1. a percentage of their land with native vegetation. Depending on the region concerned, 80%, 35% or 20% must remain forested. In addition, certain critical areas and features are protected. The main instruments used to support the code are the Rural Environmental Cadastre (CAR) and the Environmental Regularisation Programme (PRA). All agricultural landowners, of which there are over five million, must register their property with the CAR, a task that has not yet been fully completed. This mammoth undertaking being administered at state level, so the progress differs among states. The information will be used to determine the current forestation status. If a landowner cannot comply with the required percentage of native vegetation, he or she will need to draft a plan within the PRA to restore nature. On paper the Forest Code is quite elaborate and targets to restore nature. However, it has proven to be difficult to implement in practice. Despite progress, the CAR is still not complete, and many municipalities haven't even started with the PRA yet. The lack of resources and capacity also makes it difficult to enforce the Forest Code. Water use and availability Brazil is a land of contrasts: it holds the largest freshwater reserves in the Amazon basin, but also has drought-stricken areas and floods in the southern parts. Also, climate change is bringing rising temperatures and changes to rainfall patterns, making droughts and extreme weather events more likely. The unprecedented drought that hit Minas Gerais in 2014 led to a loss in production of around 30%.3 Another reason for these droughts lies in the strong increase of irrigated agriculture and the change of ecological structures around river basins.4 Soil and groundwater quality In general, Brazilian soils can be evaluated according to their respective biomes. In the Amazon, soils are lixiviated and prone to erosion, with the exception of the floodplains along the Amazon river, which are quite fertile. In the Cerrado 4 Science Advances, Four billion people facing severe water scarcity, 2016; The World Bank, Brazil may be the owner of 20% of the world's water supply but it is still very thirsty, 2016; EBC Agência Brasil, Over 850 Brazil cities face major water shortage issues, 2017. 7

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