Ferrero to stop buying palm oil from Malaysia’s Sime Darby over labor concerns

Italian confectionary giant Ferrero said it will stop sourcing palm oil from Sime Darby Plantation after the United States found the Malaysian planter used forced labor, in a reputational blow for the palm producer and for Malaysia.

Labour practices across the Southeast Asian country have come under scrutiny in the past two years, with six companies including Sime Darby banned by US customs over forced labor allegations.

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

“On 6th April, we have 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 by email.

“Ferrero will comply with the US Customs and Border Protection’s decision,” it said.

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

Sime Darby told Reuters it has taken steps in the area 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, it added.

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

Sime Darby’s shares were down 4 percent on Friday afternoon, weaker than the main Malaysian stock index, which was 0.3 percent lower.

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

Ferrero, responding to queries this week from Reuters about suppliers receiving its requests to stop buying from Sime Darby, said it does not buy directly from the Malaysian firm, which it said supplies 0.25 percent of its palm oil volumes.