KUALA LUMPUR, April 15 (Reuters) – Italian confectionery giant Ferrero has announced it will stop sourcing palm oil from Sime Darby Plantation (SIPL.KL) after the United States discovered that the Malaysian planter used forced labor, damaging the reputation of the palm grower and for Malaysia.

Labor practices across the Southeast Asian country have come under intense scrutiny over the past two years, with six companies, including Sime Darby, banned by US Customs over alleged labor strength. Read more

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

“On April 6, we asked all our direct suppliers to stop sourcing palm oil and palm kernel oil indirectly from Sime Darby until further notice,” Ferrero told Reuters by email. .

“Ferrero will comply with the decision of US Customs and Border Protection,” he said.

Although Ferrero buys relatively little edible oil from Sime Darby, its decision – following similar stops by Cargill Inc (CARG.UL), Hershey Co (HSY.N) and General Mills Inc (GIS.N) – could harm Sime Darby’s reputation. as a leader in sustainably produced palm oil.

Sime Darby told Reuters it has taken action on human rights and that all of its sustainability stakeholders can be assured of its commitment and leadership in the industry. Ferrero is not a customer, he added.

“We are also in regular communication with all key stakeholders, especially customers who have their own commitments,” he said.

Shares in Sime Darby were down 4% on Friday afternoon, weaker than the main Malaysian stock index, which was down 0.3%.

“It is very important that Sime acts quickly to further alleviate any concerns following the departure of some of these key customers,” said Ivy Ng, regional head of plantation research at CGS-CIMB Research, adding that other buyers could also suspend purchases as labor concerns drag on.

Ferrero, responding to questions from Reuters this week about suppliers receiving its requests to stop buying from Sime Darby, said it was not buying directly from the Malaysian company, which it said supplies 0.25% of its palm oil volumes.

MORE STOPS

Following a 2020 decision to ban imports due to the presence of “indicators of forced labor” at Sime Darby, US Customs said in January that it had sufficient evidence of forced labor and that goods from the company were subject to seizure. Read more

Ferrero said its products and brands in the United States stopped sourcing from Sime Darby in January 2021.

Sime Darby promised “radical changes” to its governance and certain working practices following the American discovery.

Palm oil is one of the cheapest and fastest growing vegetable oils, used in products ranging from food to cosmetics to biodiesel. But the industry has come under scrutiny over the years for widespread deforestation in Southeast Asia and the exploitation of migrant workers.

Migrant workers from countries like Indonesia, India and Bangladesh make up around 80% of the palm oil workforce in Malaysia, the world’s largest palm oil producer after neighboring Indonesia.

Ferrero claims to only use certified sustainable palm oil. It sources 85% of its palm oil from Malaysia, which traditionally has a better reputation for sustainability than Indonesia.

US commodities trading giant Cargill, in a previously unreported move, said in March it had suspended purchases from Sime Darby pending more information on the company’s actions to respond to allegations of work.

Cargill said on its website that Sime Darby had taken “very constructive and potentially transformative” action, but needed more information to determine whether the planter was meeting the trader’s sustainability standards.

Sime Darby said its supply of bulk products to Cargill in India has been taken over by other customers. “We value all of our customers and are certainly in discussion with Cargill,” he said.

Cargill declined to say how much palm oil it sources from Sime Darby.

Last year, US food company General Mills said it had issued global ‘no buy orders’ on Sime Darby while chocolate maker Hershey told its suppliers to ensure no Sime oil Darby does not enter its global operations.

Reporting by Mei Mei Chu; Editing by A. Ananthalakshmi and William Mallard

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