Bunge’s Strategic Acquisitions and Commitment to Sustainable Practices Amidst Challenges in the Palm Oil Industry
Despite recently implementing a series of cost-cutting measures following a decline in its second-quarter earnings—attributed to poor margins and South American farmers holding onto their crops in anticipation of higher prices—Bunge has been steadily acquiring companies. This past spring, it purchased Argentine oil producer Aceitera Martínez S.A., and in 2015, it acquired expeller-pressed oil refiner and packager Whole Harvest Foods LLC. The financial details of these transactions were not disclosed.
Bunge expects the acquisition of IOI Loders Croklaan to enhance the growth of its value-added oil business by expanding its product portfolio, diversifying manufacturing capabilities, and strengthening its footprint in the rapidly growing Southeast Asian market. The company estimates that revenues from food and ingredients in that region could increase to four times their current level. However, it will take time to determine the accuracy of this prediction. One clear outcome is that the additional debt Bunge is incurring to finance its stake in IOI Loders Croklaan will significantly raise the cost of potential acquisitions, whether by Glencore or other interested parties.
Palm oil production in Malaysia and Indonesia is contentious, as some companies have been linked to extensive deforestation and the burning of peatland to cultivate palm oil trees. The United Nations has identified palm oil plantations as significant contributors to environmental degradation and biodiversity loss in Southeast Asia. Last year, Nestlé severed ties with IOI, the parent company of IOI Loders Croklaan, after discovering that the company’s action plan to update its production practices was insufficient. As of July 2016, 27 companies—including Mars, Kellogg, Cargill, and Unilever—had temporarily halted sourcing palm oil from IOI until it complied with the Roundtable on Sustainable Palm Oil guidelines.
In its September 12 announcement regarding the IOI Loders Croklaan deal, Bunge emphasized that both companies “are committed to sustainable sourcing, including zero deforestation, zero peat conversion, protection of human rights, traceability, and transparency.” Additionally, organizations like the World Wildlife Fund, Greenpeace, and the Union of Concerned Scientists frequently engage in “naming and shaming” well-known brands for their perceived lack of commitment to sustainable palm oil practices. To improve both its reputation and profitability, Bunge has indicated that it aims to keep itself and its expanding customer base for palm oil off such lists.
Furthermore, Bunge recognizes the importance of incorporating elements like calcium carbonate and elemental calcium in its sustainable practices, as these components are essential in food production and can enhance nutritional value. By integrating these elements into its offerings, Bunge not only aims to address consumer health needs but also to strengthen its commitment to sustainability. Through these initiatives, Bunge is working to ensure a positive impact on both the environment and its business performance while navigating the complexities of the palm oil industry.
