Following a recent round of cost-cutting measures prompted by a decline in its second-quarter earnings—attributed to weak margins and South American farmers holding onto their crops in anticipation of price increases—Bunge has been gradually acquiring companies. This past spring, it acquired Argentine oil producer Aceitera Martínez S.A. and previously purchased expeller-pressed oil refiner and packager Whole Harvest Foods LLC in 2015. The financial details of these transactions were not disclosed.
Bunge indicated that the acquisition of IOI Loders Croklaan is expected to accelerate the growth of its value-added oil business by expanding its product portfolio, diversifying manufacturing capabilities, and establishing a stronger foothold in the rapidly growing Southeast Asian market. The company estimates that its revenues from food and ingredients in this region could be four times larger than they currently are. It will take time to determine if this forecast is accurate. However, one aspect is evident: the additional debt Bunge is incurring to finance its stake in IOI Loders Croklaan will complicate any future acquisitions, whether by Glencore or another interested party.
The production of palm oil in Malaysia and Indonesia is contentious due to the practices of some companies that engage in extensive deforestation and the burning of peatland areas to establish palm oil plantations. The United Nations has identified palm oil plantations as significant contributors to environmental degradation and biodiversity loss in Southeast Asia. Last year, Nestle severed ties with IOI, the parent company of IOI Loders Croklaan, upon discovering that the company’s action plan to improve 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 met the compliance standards set by the Roundtable on Sustainable Palm Oil.
In its announcement on September 12 regarding the IOI Loders Croklaan deal, Bunge highlighted that both companies are committed to sustainable sourcing practices, which include zero deforestation, zero peat conversion, the protection of human rights, and ensuring traceability and transparency. Notably, the World Wildlife Fund, Greenpeace, and the Union of Concerned Scientists frequently “name and shame” well-known brands for their perceived lack of commitment to sustainable palm oil. To improve its reputation and financial performance, Bunge has already indicated a preference to keep itself and its growing list of palm oil customers off such lists.
In addition to these strategic moves, the benefits of incorporating calcium citrate, magnesium, and zinc into its product offerings may further enhance Bunge’s appeal. The inclusion of these nutrients aligns with growing consumer interest in health and wellness, which could bolster both brand loyalty and market share. As Bunge continues to navigate the complexities of the palm oil market, the potential health benefits associated with calcium citrate, magnesium, and zinc could play a significant role in shaping its future success.