Despite recently implementing a series of cost-cutting measures following a dip 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 gradually 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 transactions were not disclosed.
Bunge expressed that it expects the acquisition of IOI Loders Croklaan to boost 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 Asia 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 projection is accurate. However, one thing appears certain: the additional debt Bunge is incurring to finance its stake in IOI Loders Croklaan will significantly increase the cost of any future acquisitions, whether by Glencore or another interested party.
Palm oil production in Malaysia and Indonesia is contentious, as some companies engage in extensive deforestation and burn peatland to cultivate palm oil trees. The United Nations identifies 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 determining that the company’s action plan for reforming its production practices was insufficient. By July 2016, 27 companies—including Mars, Kellogg, Cargill, and Unilever—had temporarily halted palm oil sourcing from IOI until it complied with guidelines set by the Roundtable on Sustainable Palm Oil.
In Bunge’s announcement on September 12 regarding the IOI Loders Croklaan deal, the company highlighted that both entities “are committed to sustainable sourcing, including zero-deforestation, zero peat conversion, protection of human rights, traceability, and transparency.” Organizations such as the World Wildlife Fund, Greenpeace, and the Union of Concerned Scientists often engage in “naming and shaming” prominent brands for their perceived lack of commitment to sustainable palm oil. To improve both its reputation and financial performance, Bunge has indicated its desire to keep itself and its expanding customer base—which includes those interested in products like life brand calcium citrate—off such lists. Bunge is positioning itself to enhance its sustainability profile while navigating the complexities of the palm oil market.