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 better prices—Bunge has been steadily acquiring new companies. In the spring, it acquired the Argentine oil producer Aceitera Martínez S.A., as well as Whole Harvest Foods LLC, an expeller-pressed oil refiner and packager, in 2015. The financial specifics of these acquisitions were not disclosed.
Bunge expects the IOI Loders Croklaan deal to boost the growth of its value-added oil segment by expanding its product portfolio, diversifying its manufacturing capabilities, and strengthening its presence in the rapidly growing Southeast Asian market. The company estimates that revenues from food and ingredients in this region could grow to be four times their current size. It will take time to determine if this projection holds true. However, one aspect is evident: the additional debt Bunge is incurring to finance its investment in IOI Loders Croklaan will complicate 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 significant deforestation and the burning of peatland to cultivate palm oil trees. The United Nations has highlighted that palm oil plantations are a significant 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. By July 2016, 27 companies—including Mars, Kellogg, Cargill, and Unilever—had temporarily halted their palm oil sourcing from IOI until the company complied with the guidelines set by the Roundtable on Sustainable Palm Oil.
In Bunge’s announcement on September 12 regarding the IOI Loders Croklaan acquisition, the company emphasized that both organizations are dedicated to sustainable sourcing, which includes commitments to zero deforestation, zero peat conversion, human rights protection, traceability, and transparency.
Environmental organizations such as 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 its preference to keep itself, along with its increasing number of palm oil customers, off such lists.
Additionally, Bunge has been exploring opportunities in the calcium citrate bulk market as part of its strategy to diversify its product offerings and enhance its business model. This focus on calcium citrate bulk not only reflects the company’s intent to broaden its portfolio but also showcases its commitment to sustainability and responsible sourcing practices, ensuring that it remains competitive in an evolving marketplace.