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KUALA LUMPUR – Major palm oil buyers seek to block FGV Holdings and Sime Darby Plantations from their global supply chain after the United States banned imports from the two Malaysian producers, four sources told Reuters.
US food company General Mills said it has issued global “no-buy orders” for both companies, and sources said other buyers have also asked suppliers to reduce or exclude FGV and Sime Darby products for non-incoming supplies. only to the United States, but also Europe, Australia and Japan.
FGV and Sime Darby are two of the world’s largest palm oil producers and both were banned by the US Customs and Border Protection (CBP) last year for the alleged use of forced labor during production.
Palm oil is one of the cheapest and fastest growing crops in the world, but the industry has faced scrutiny over the years with rights groups blaming producers for heavy deforestation in the Southeast. Asian and exploitative labor practices.
Buyers’ caution is another blow to Malaysian palm oil, which has long had a reputation for being more sustainable compared to its larger rival, Indonesia. The two countries together control nearly 85 percent of the world’s palm oil production, a ubiquitous product used in everything from grains to soap.
“Customers are very scared and very cautious … They wonder how far we source from them,” said a source whose company supplies palm oil products to multinational manufacturers of consumer goods.
“Companies fear risk to their own reputations if they buy from Sime Darby and FGV,” the source added.
None of the four sources wanted to be identified because they were not authorized to speak to the media.
“We have instructed all of our suppliers globally to remove both Sime Darby and FGV from our supply chain; and they have issued ‘no purchase orders’ to both suppliers, “General Mills said in an emailed statement to Reuters.
Chocolate maker Hershey said its North American suppliers have disposed of all volumes of Sime Darby in accordance with the US order.
Some buyers, including Nestlé, Unilever and Hershey, had suspended FGV since 2018 after the industry regulator, Roundtable on Sustainable Palm Oil (RSPO), discovered “exploitative” labor practices at the company.
But not all companies have moved quickly to remove Sime Darby from their supply chain. Sime Darby is the world’s largest producer of RSPO certified sustainable palm oil.
Kraft Heinz, Nestlé and Unilever said they were in talks with Sime Darby about the US indictment.
Sime Darby said many of his key clients have expressed continued support and that he has engaged with independent firms to address the US ban.
“We believe our customers recognize our honest commitment to continuous improvement and our credibility as the world’s largest producer of RSPO certified sustainable palm oil, accounting for approximately 17 percent of the total global CSPO supply,” said the managing director of Sime Darby Oils, Mohd Haris Mohd Said Arshad.
FGV did not respond to a request for comment.
Two sources said they were advising buyers not to reject Sime Darby entirely, a key supplier of specialty oils and greases that will be difficult to replace.
“Buyers are waiting for evidence from CBP (the US customs authority) before taking further action … We are making contingency plans to seek alternative suppliers if the situation worsens,” said a trader.
Sime Darby also said last month that he had asked CBP for more information about the allegations. It has said that it is committed to fighting forced labor and has strong policies to protect workers’ rights.
The United States accounts for only three percent of Malaysia’s palm oil exports and is said to constitute only a small portion of FGV and Sime’s sales. – Reuters
