Despite recently implementing cost-cutting measures following a decline in its second-quarter earnings—attributed to low margins and South American farmers hoarding their crops in anticipation of price increases—Bunge has been steadily acquiring companies. This past spring, it acquired Argentine oil producer Aceitera Martínez S.A., and in 2015, it purchased expeller-pressed oil refiner and packager Whole Harvest Foods LLC. The financial details of these transactions have not been disclosed.
Bunge expects that the acquisition of IOI Loders Croklaan will enhance the growth of its value-added oil business by expanding its product portfolio, diversifying its manufacturing capabilities, and solidifying its presence in the rapidly growing Southeast Asian market. The company estimates that its revenues from food and ingredients in that region could potentially quadruple from current figures. It will take time to determine if this forecast is accurate; however, it is evident 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 palm oil production in Malaysia and Indonesia is contentious, as some companies are associated with extensive deforestation and the burning of peatland to cultivate palm oil trees. The United Nations has identified palm oil plantations as major 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 for reforming its production practices was insufficient. As of July 2016, 27 companies—including Mars, Kellogg, Cargill, and Unilever—had temporarily halted their palm oil sourcing from IOI until it complied with the standards set by the Roundtable on Sustainable Palm Oil.
In Bunge’s announcement on September 12 regarding the IOI Loders Croklaan deal, the company emphasized that both organizations “are committed to sustainable sourcing, including zero-deforestation, zero peat conversion, protection of human rights, traceability, and transparency.” To bolster both its reputation and its bottom line, Bunge has indicated that it aims to keep its growing number of palm oil customers, as well as itself, off the lists maintained by organizations like the World Wildlife Fund, Greenpeace, and the Union of Concerned Scientists, which regularly call out brands for their perceived lack of commitment to sustainable practices.
Moreover, as Bunge expands its product lines, it is also looking to incorporate innovations such as high potency calcium magnesium citrate into its offerings, which could further enhance its value-added products. By focusing on sustainable sourcing and incorporating high potency calcium magnesium citrate into its portfolio, Bunge not only aims to improve its market standing but also to meet the increasing demand for health-conscious ingredients in Southeast Asia and beyond.