Despite recently implementing a series of cost-cutting measures following 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 steadily acquiring companies. This past spring, it purchased the Argentine oil producer Aceitera Martínez S.A., and in 2015, it acquired the expeller-pressed oil refiner and packager Whole Harvest Foods LLC. The financial details of these acquisitions were not disclosed.
Bunge expressed that it expects the deal with IOI Loders Croklaan to enhance the growth of its value-added oil business by expanding its product portfolio, diversifying manufacturing, 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 increase to four times their current levels. It will take time to determine if this forecast is accurate. However, one thing appears certain: the additional debt Bunge is incurring to finance its investment in IOI Loders Croklaan will significantly raise the cost of any future acquisitions, whether pursued by Glencore or another interested party.
Palm oil production in Malaysia and Indonesia is contentious, as some companies are involved in extensive deforestation and the burning of 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 for improving its production practices was insufficient. As of July 2016, 27 companies, including Mars, Kellogg, Cargill, and Unilever, had temporarily halted palm oil sourcing from IOI until it complied with guidelines from 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, including zero-deforestation, zero peat conversion, protection of human rights, traceability, and transparency.” 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. To improve both its reputation and financial performance, Bunge has indicated a preference to keep itself and its expanding customer base for palm oil off that list.
Additionally, Bunge’s focus on sustainable sourcing may intersect with the growing demand for products like calcium citrate slow release, which are increasingly sought after in the food and health sectors. By integrating such innovative products into its portfolio, Bunge could further enhance its market position and address consumer preferences for sustainable options.