Update to the Third Party Assessment in Mexico

May 2015

Control Union’s (CU) assessment of Philip Morris Cigatam Productos y Servicios, S. de R.L. de C.V. (Mexico - hereinafterreferred as PMM) implementation of the ALP program was one of the first assessments of the program. There wereseveral adjustments needed to the reporting methodology and format which subsequently impacted the release of thereport. As a result, a brief overview of progress made by PMM’s team (which already begun during the 2014 cropseason) on the implementation of the action plan to address findings of the CU report, is provided below.

Program management and internal processes
PMM was satisfied with the very positive assessment of the team’s
work during the first phase of ALP implementation. Since then, PMM
has moved into the second phase of implementation, introducing
systematic monitoring of all ALP Code principles, enhancing internalreporting processes, and introducing specific training programs on adiverse range of topics from handling crop protection agents (CPA) toprotecting children’s rights (carried out with the help of the local
affiliate of ‘Save the Children’, called, Fundacion Mexicana de ApoyoInfantil). PMM also reinforced the dialogue between field technicians
and the staff of the local partner NGO, Fundacion Origen (throughjoint meetings, workshops, etc.), to leverage their expertise incommunicating with farmers about the ALP Code.
Newcommunications materials were developed using simpler language toexplain the application of the Code’s principles in practice, and newtools were introduced to help farmers keep track of important
activities and to better manage their business (for example, theapplication of CPA, weekly payments, etc.).
During the tobacco crop season 2013-2014, PMM’s field technicians’
skills and understanding of the ALP Code principles also widened
significantly. Their interaction with NGO partners and institutions
supporting the ALP program’s implementation (for example, theFundacion Origen, Child Care and Education Centers or ‘CAEIs’) is
helping to empower field technicians to find practical solutions for theissues identified in their daily work. In fact, monitoring of the ALP
Code by field technicians during the 2014 crop season lead to over
180 corrective actions undertaken, agreed in collaboration withfarmers in relation to either child labor incidents (mostly due to thepresence of migrant children in work areas) or safe working conditions(ranging from a lack of drinking water to improper handling of CPA).

Addressing complex systemic issues
The main focus areas identified by PMM during the first phase of the ALP program rollout were related to migrant
workers’ living and working conditions in the Federal State of Nayarit, the presence of migrant children on farms, andsafe working conditions in all tobacco-growing regions. These focus areas reflect issues faced within the entireagricultural sector in Mexico where significant socio-economic challenges persist: 61% of the population resides in rural
areas in conditions of extreme poverty and agricultural laborers, in particular indigenous migrants, face significant risksof social exclusion, with 72% living in extreme poverty. In Nayarit, the majority of the workforce in agriculture consistsof indigenous migrants from mountainous areas who move many times, with their families, to coastal areas during theharvest season to find temporary work (including on tobacco farms). Mexican farmers struggle with limited access toland and water, and, despite the strategic role of the agricultural sector for the economy, public support by way ofextension services, are currently not geared towards small agricultural producers. In this context, PMM has developed
an ambitious, comprehensive action plan where the company’s individual efforts are supported by multi-stakeholder
collaboration, and are focused on addressing the root causes of sensitive labor issues faced by farmers, farmworkers
and their families.

Child Care and Education Centers
With the creation of childcare and education centers (CAEIs), the main objectives for 2014 were to: (i) increase thenumber of children attending CAEIs during the tobacco harvest season, (ii) introduce new activities and services in these
tobacco-growing communities, and (iii) generate awareness and cohesion within the migrant community.

To achieve these objectives, PMM continued to work closely withdifferent local government agencies (namely, the Secretaries of Social
Development, Health, and Education) and agreed a new partnership withlocal Mexican affiliate of Save the Children, Fundación Mexicana deApoyo Infantil.
Operating hours of the CAEIs were extended, staff received additional
training on human rights protection, nutrition, first aid, the ALP Code,etc., and parents (migrant workers) were invited to attend special
events on Saturdays where they could familiarize themselves with thefacilities and services offered, as well as discussing issues related to theirchildren’s wellbeing with the staff.
Feedback from migrant families was very encouraging, resulting in agreater willingness of parents to allow their children to attend the CAEIs
available coupled with enthusiastic participation in CAEI family activities.
In 2014, 450 migrant children attended the CAEIs, an increase of 13%
compared to 2013 figures.
Meanwhile, field interviews with migrant families indicate that many prefer to leave some of their children safely withrelatives back in their homeland (instead of bringing them to each crop harvest area), suggesting that thecommunications efforts of field technicians and awareness levels among farmers of the need to address child labor may
be having the desired effect.
While feedback to date indicates a positive impact on the mitigation of child labor risks, PMM monitoring for the harvest
year 2015 is still ongoing so it is too early for a year-on-year analysis of reported child labor incidents at present.

Community Development Center and Support Line
The Community Development Center and creation of a support line service was a central part of PMM’s outreachefforts. This was because of a lack of visibility into the practices of migrant and local worker crew leaders and a needto improve PMM’s understanding of the relationship between both parties, while providing a way for workers to voice
their grievances in confidence.
In 2013, PMM launched a pilot project in the community of Santiago(Nayarit) to provide a support service hotline with access to legal,
medical, and specialist psychological counselling services for workers on185 tobacco farms. Use of the support line among workers was initiallyrather limited (also due to its late introduction in the crop season in thefirst year) but these initial steps allowed PMM to better identify the needsof the migrant workers as well as the project requirements to be asuccess.
Leveraging local NGO Fundacion Origen’s 14 years of experience inproviding community support and development programs, in 2014 thepilot project evolved into a more comprehensive Community
Development Center and Support Line, where the “hotline” services wereextended also to farmers and complemented by the daily presence oflocal NGO personnel (working through a mobile office, visiting people intheir farm plots and houses) in the tobacco fields, covering PMM
contracted farmers in the entire region of Nayarit. Building trust with
farmer and worker communities to generate positive change in attitudes
and customs requires time and a regular presence on the ground doing
work that is valued and respected by all members of the community. In2014, this program introduced educational activities (mini-conferences,workshops, group activities, etc.,) on topics like women’s psychologicalhealth to help them build up their self-esteem, nutrition, personal
development, alternative economic activities and job training skills.
Fundacion Origen developed a comprehensive curriculum on a wide range of topics where the ALP Code’s principles
were introduced in the context of traditional community life. Fundacion Origen administered the Support Line services
and held regular meetings with PMM field staff to develop mutually-supportive strategies to reach common goals.
Fundacion Origen organized almost 300 workshops for approximately 1,400 people. Follow-up interviews with hundredsof farmers and farmworkers showed an excellent improvement in their understanding of the ALP Code principles andstandards, although many farmers and workers continue to find some aspects difficult to implement in their daily lives

due to breaking culturally-established paradigms in their indigenous communities (for example, direct payments toworkers instead of crew leaders or the head of the family).
Participants expressed satisfaction with their learning experiences and showed confidence in sharing family issues orwork problems. The growing confidence of field workers and their wives, as well as farmers, translated into a significant
increase in the number of calls received via the support line service related to general information requests (17),complaints (7), calls for legal support (16), and medical or psychological support (36).

Safe Working Conditions
Although PMM provides contracted farmers with personal protective
equipment (PPE), many farmers and workers still fail to use it whenrequired. 2014 monitoring data showed this was a recurring issue
with many farmers and workers reporting that they do not use theequipment because of weather conditions (heat). Subsequently, thePMM team decided to provide a lighter PPE (developed in Brazil for
applying CPAs), which offers the same level of protection using
lighter,more
comfortablematerials(lessplastic,more breathability). As a result, during the 2014 crop season, 300
PPE kits were imported and distributed among selected farmers ofNayarit and Veracruz who were then trained on their use.
Safe storage issues related to CPA were also addressed during thisperiod and PMM provided all farmers with appropriate CPA storage
advice about the safe placement of CPA on the farm, as well as
access control.
The success of these initiatives will be evaluated based on farmer and worker feedback as well as PMM monitoring data.

Migrant Living Conditions
The migration of indigenous families from rural areas of Nayarit in search of temporary jobs, coupled with the lack ofappropriate housing infrastructure, and the land ownership system (45% of farms are on rented land), presents a very
specific and complex challenge in Mexico. PMM continues to reach out to stakeholders in the agricultural sector,
government, and NGOs to create a platform of dialogue and coordination to address the needs of these communities.

Final remarks
PMM’s ongoing efforts already encompass significant engagement efforts with many different stakeholders, including
offices of Mexico’s National Ministries of Social Development, Health and Public Education, and local NGOs, Desarrollo
Rural de Nayarit, Fundacion Mexicana de Apoyo Infantil, Fundacion Origen, Espacios Naturalles y Desarrollo SustentableA.C.
PMM is grateful for the support and cooperation from these stakeholders and will continue to strengthen ourefforts. Nevertheless, we believe that sustainable progress will require a wider commitment from all stakeholders in
Mexico’s agricultural sector. PMM is committed to do its part and share our learnings and best practice with others inorder to overcome these complex issues which are a sad reality in most agricultural supply chains today.
In February, 2015, Philip Morris International Management SA (PMIMSA) decided to adopt a new leaf buying model in
Mexico, moving from purchasing tobacco through direct contracts with Mexican growers, previously handled directly byPMM, to purchasing through Tabacos del Pacífico Norte, S.A. (“TPN”) a subsidiary of Universal Corporation (“Universal”).
PMIMSA has a long and well-established business relationship with Universal and this agreement will bring important
supply chain efficiencies and synergies. PMIMSA will continue to be a major purchaser of Mexican grown tobacco andits commitment to improving farm labor conditions on all farms from which it sources tobacco remains unchanged. As
in all countries where PMIMSA sources from third-party leaf suppliers, the implementation of the ALP Program is an
integral element of the agreements with them.
PMM is working with Universal to build their capacity to continue implementing ALP in Mexican farms where tobacco will
be purchased for PMI, building on PMM’s ongoing efforts and the many learnings from the implementation of the ALP
Program thus far.