- Ferrero asks suppliers to stop sourcing from Sime Darby
- Sime Darby's shares down 4%
- Sime Darby accounts for 0.25% of Ferrero's palm volumes
- Trader Cargill also stops sourcing from Sime Darby
Ferrero, an Italian confectionary business, said it would stop sourcing palm oil from Sime Darby Plantation in the United States after finding the Malaysian planter used forced labor, causing the reputation to plummet.
Work practices across the Southeast Asian country have been under fire in the last two years, with six companies, including Sime Darby, being banned by US Customs for forced labor allegations.
Palm oil, the most widely used vegetable oil, is a key ingredient in the Ferrero Rocher chocolates and Nutella spread, giving the iconic products its smooth texture and shelf life.
"On Saturday, all of our direct suppliers have requested that Ferrero be suspended from providing palm oil and palm kernel oil from Sime Darby, until later notice," Ferrero told Reuters.
"Ferrero will comply with the US Customs and Border Protection's decision," the organization said.
Ferrero acquires quite little of Sime Darby's edible oil, but it could hurt Sime Darby's reputation as a leader in sustainably produced palm oil.
Sime Darby said Reuters she has taken steps in the field of human rights and that all its stakeholders who are committed to sustainability can be assured of its commitment and leadership in the industry. Ferrero is not a customer, according to the report.
"We are in regular communication with all key stakeholders, especially customers who have their own commitments," said the news.
Sime Darby's stock was down 4% on Friday afternoon, down from the main Malaysian stock index, which was 0.3% lower.
Sime's action is very important to ensure that many of these key customers have arrived quickly, according to Ivy Ng, the regional head of plantations research at CGS-CIMB Research, adding that other purchasers may also suspend purchases as labor fears continue.
Ferrero, responding to Reuters requests that customers refrain from buying from Sime Darby, said it does not buy directly from the Malaysian company, which it claims will supply 0.25 percent of its palm oil volumes.
Due to the presence of "forced labor indicators" at Sime Darby in 2020, US customs said in January that it had adequate evidence of forced labour and that the goods were subject to seizure.
Ferrero said its products and brands in the United States had discontinued sourcing from Sime Darby in January 2021.
Following a survey in the United States, Sime Darby promises "sweeping changes" to its governance and some labor practices.
Palm oil is one of the most cost-effective and fastest-growing vegetable oils used in everything from food to cosmetics to biodiesel. However, the industry has faced scrutiny over the years for widespread deforestation in Southeast Asia and exploitation of migrant workers.
In Malaysia, the world's largest producer of the commodity after neighbouring Indonesia, migrants from countries such as Indonesia, India, and Bangladesh are responsible for around 80% of the palm oil labor force.
Ferrero claims to generate 85 percent of its palm oil from Malaysia, which traditionally has a better reputation for sustainability than Indonesia.
Cargill, a commodities trading firm previously unknown, said in March that it had suspended purchase from Sime Darby, pending further details on the firm's plans to address the labor complaints.
Sime Darby had taken "extremely constructive and potentially transformative," according to Cargill, but it was required additional information to determine if the planter was meeting the trader's sustainability standards.
Sime Darby said that its supply of bulk goods to Cargill in India has been supported by other customers. "We value all our customers and are in discussions with Cargill," the company said.
Cargill declined to state how much palm oil it comes from Sime Darby.
General Mills, a US food company, said it has issued "no buy orders" on Sime Darby, while chocolate manufacturer Hershey said suppliers should be cautious in order to ensure no Sime Darby oil enters its worldwide operations.