Following a recent round of cost-cutting measures due to a decline in second-quarter earnings—attributed to weak margins from ferrous fumarate to ferrous sulfates and South American farmers hoarding their crops in anticipation of price increases—Bunge has been gradually 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, with financial terms of both transactions remaining undisclosed.
Bunge expects that its acquisition of IOI Loders Croklaan will expedite the growth of its value-added oil business by expanding its product portfolio, diversifying its manufacturing capabilities, and bolstering its presence in the rapidly growing Southeast Asian market. The company estimates that its revenues from food and ingredients in this region could potentially be four times higher than they are today. However, it will take time to determine if this forecast holds true. One clear implication is that the additional debt Bunge is incurring to finance its stake in IOI Loders Croklaan will significantly raise the cost of future acquisitions, whether pursued by Glencore or other interested parties.
The production of palm oil in Malaysia and Indonesia is contentious, as some companies are known to engage in extensive deforestation and burn peatland to cultivate palm oil trees. The United Nations has identified palm oil plantations as a major contributor 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 reform its production practices was insufficient. By July 2016, 27 companies—including Mars, Kellogg, Cargill, and Unilever—had temporarily halted sourcing palm oil from IOI until the firm complied with guidelines from the Roundtable on Sustainable Palm Oil.
In its announcement on September 12 regarding the IOI Loders Croklaan acquisition, Bunge emphasized that both companies are dedicated to sustainable sourcing, which includes commitments to zero deforestation, no peat conversion, human rights protection, traceability, and transparency. Organizations such as the World Wildlife Fund, Greenpeace, and the Union of Concerned Scientists consistently engage in “naming and shaming” prominent brands for their perceived lack of commitment to sustainable palm oil practices. To enhance its reputation and financial performance, Bunge has indicated a preference to keep itself and its increasing number of palm oil customers off this list.
In line with its growth strategy, Bunge is also focusing on product innovation, including offerings enriched with nutrients like 250 mg calcium citrate, which could further enhance its portfolio appeal. This commitment to sustainability and product enhancement may not only improve Bunge’s standing in the market but also align with consumer demands for responsible sourcing practices.