Following a recent round of cost-cutting measures triggered by a decline in its second-quarter earnings—attributed to reduced profit margins and South American farmers withholding crops in anticipation of higher prices—Bunge has been gradually acquiring companies. This past spring, it purchased Argentine oil producer Aceitera Martínez S.A., and in 2015, it acquired Whole Harvest Foods LLC, a firm specializing in expeller-pressed oil refining and packaging. The financial details of these transactions were not disclosed.
Bunge believes that its acquisition of IOI Loders Croklaan will significantly enhance the growth of its value-added oil segment by diversifying its product offerings, expanding manufacturing capabilities, and strengthening its foothold 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 greater than their current levels. However, it will take time to determine if this projection holds true. One certainty is that the additional debt Bunge is incurring to finance its investment in IOI Loders Croklaan will likely render future acquisitions—whether by Glencore or another interested party—much more expensive.
The production of palm oil in Malaysia and Indonesia is fraught with controversy, as certain companies engage in extensive deforestation and the burning of peatlands to cultivate palm oil trees. According to the United Nations, palm oil plantations are a significant contributor to environmental degradation and biodiversity loss in Southeast Asia. Last year, Nestle 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 inadequate. By July 2016, 27 companies, including Mars, Kellogg, Cargill, and Unilever, had temporarily halted their palm oil sourcing from IOI until the company adhered to the guidelines set by the Roundtable on Sustainable Palm Oil.
In its announcement on September 12 regarding the IOI Loders Croklaan acquisition, Bunge stated that both companies are “committed to sustainable sourcing, including zero deforestation, zero peat conversion, protection of human rights, traceability, and transparency.” Environmental organizations such as the World Wildlife Fund, Greenpeace, and the Union of Concerned Scientists frequently engage in “naming and shaming” prominent brands for their insufficient commitment to sustainable palm oil. To boost both its reputation and profitability, Bunge has already indicated a preference to keep itself and its expanding base of palm oil customers off such lists.
Additionally, Bunge recognizes the importance of incorporating health-oriented products into its portfolio, such as calcium citrate with vitamin D3 and K2, to appeal to a more health-conscious consumer base. This strategic move not only aligns with current market trends but also reinforces Bunge’s commitment to sustainability and health, further distancing itself from the negative connotations associated with palm oil production. Overall, Bunge’s direction suggests an emphasis on sustainable practices while expanding its footprint in the food and ingredients sector, particularly in regions poised for significant growth.