Cargill suspends business ties with IOI Corp

PETALING JAYA: US-based Cargill Inc has suspended ties with IOI Corp Bhd following the latter's failure to address sustainability issues related to its palm oil policy.
According to the Financial Times, Cargill will suspend business by not entering into any new purchase contracts until IOI Group meets its requirements and comply with its sustainable palm oil policy.
"IOI Group has yet to deliver a responsible sourcing policy or a detailed sustainability implementation plan to meet our requirements," Cargill said in a statement on Monday.
It was reported that Cargill had placed IOI on its watchlist following the suspension of its certification from the Roundtable on Sustainable Palm Oil (RSPO) in April over environmental issues in Indonesia.
Cargill had given IOI until July 15 to issue a new sourcing policy and sustainability plan.
Cargill is the latest palm oil user to suspend ties with the group since the RSPO's decision. A list compiled by Waxman consultancy showed that 27 companies have ceased trading with IOI. These companies include Unilever, Nestle, Kellogg, Wilmar and Beiersdorf.
Earlier in March, IOI said it received RSPO's letter notifying it of the suspension of RSPO certification for the entire group's oil palm production effective April 1, 2016, in respect of complaints against the group's Indonesian subsidiaries' estates which account for about 2% of the group's annual crude palm oil production.
IOI which initially sought to challenge the RSPO's decision to suspend its certification, on June 6 announced that it had withdrawn the challenge, and assured investors that it had completed its action plan and submitted a memorandum on its sustainability policy initiatives and resource deployment to RSPO.
AllianceDBS Research said in its research report last month that multiple headwinds persisted for the group, including risks from the prolonged RSPO suspension.
It noted that the risk of losing end-customers of its downstream products remained elevated due to the typically strict compliance requirements of large food product manufacturers.
"Before full confirmation of the restoration of its certificates, we think that the risks of lost demand continue to be an overhang. This is because regaining the patronage of the more selective customers may be difficult later on, if supply contracts have been recreated with other firms," it said.
AllianceDBS Research lowered its target price on the stock to RM3.60 from RM3.70.
IOI Corp's shares closed 3 sen higher at RM4.35 yesterday, with a total of 8.45 million shares traded.