Ferrero halts palm oil purchases from Sime Darby over labour concerns

KUALA LUMPUR • Italian confectionery giant Ferrero said it will stop sourcing palm oil from Sime Darby Plantation after the US said the Malaysian firm used forced labour, in a reputational blow for the producer and for Malaysia.

Labour practices across the country have come under scrutiny in the past two years, with six companies including Sime Darby banned by United States Customs over forced labour allegations.

Palm oil, the most widely used vegetable oil, is a key ingredient in Ferrero Rocher chocolates and Nutella spread, giving the products their smooth texture and shelf life.

"On April 6, we requested all our direct suppliers to stop supplying Ferrero with palm oil and palm kernel oil sourced indirectly from Sime Darby, until further notice," Ferrero told Reuters. "Ferrero will comply with the US Customs and Border Protection's decision."

Although Ferrero buys relatively little of the edible oil from Sime Darby, its move - following similar halts by Cargill, Hershey and General Mills - could hurt Sime Darby's standing as a leader in sustainably produced palm oil.

Last year, US food company General Mills said it issued global "no buy orders" on Sime Darby while chocolate maker Hershey asked suppliers to ensure no Sime Darby oil enters its global operations.

Sime Darby told Reuters it has taken steps in the area of human rights and all its stakeholders who are committed to sustainability can be assured of its commitment and leadership in the industry. Ferrero is not a customer, it added.

"We are also in regular communication with all key stakeholders, particularly customers who have their own commitments," it said.

"It's very critical that Sime move fast to further alleviate any concern following the departure of some of these key customers," said Ms Ivy Ng, regional head of plantations research at CGS-CIMB Research, adding that other buyers could suspend purchases as the labour concerns drag on.

Ferrero said it does not buy directly from the Malaysian firm, which it said supplies 0.25 per cent of its palm oil volumes, adding its products and brands in the United States had stopped sourcing from Sime Darby in January last year.

Palm oil is one of the cheapest and fastest-growing vegetable oils, used in products from food to cosmetics to biodiesel. But the industry has faced scrutiny over the years for widespread deforestation in South-east Asia and exploitation of migrant workers. Migrant workers from countries such as Indonesia, India and Bangladesh account for around 80 per cent of the palm oil labour force in Malaysia, the world's biggest producer of the commodity after Indonesia.

Ferrero says it uses only certified sustainable palm oil. It sources 85 per cent of its palm oil from Malaysia, which traditionally has a better reputation for sustainability than Indonesia.

US commodities trading giant Cargill said on its website that Sime Darby had taken "very constructive and potentially transformative" steps, but it needed more information to determine whether the planter was meeting the trader's sustainability standards.

REUTERS