Nestle: IOI not totally cut off as palm oil supplier

KUALA LUMPUR: Nestle (Malaysia) Bhd has not disengaged from IOI Corp Bhd on a total scale following the suspension by the Roundtable on Sustainable Palm Oil (RSPO) on IOI's certification, but has stopped sourcing from IOI's plantations that are affected.
Nestle managing director Alois Hofbauer said it is working together with the forest foundation and is aware of the issue.
"We've suspended the palm oil from the plantation mentioned and we're going to do an audit to go deeper. We're absolutely committed to this traceability of RSPO and if suppliers don't concur (they) will fundamentally (be) removed from our supplier list. That is for sure," he told a press conference after its AGM here yesterday.
Four of the world's largest food companies, Nestle, Mars, Unilever and Kellogg, have cut supplies of palm oil from IOI after IOI's RSPO membership was suspended effective April 1, 2016 as three of its operations in Indonesia's West Kalimantan province were found to have violated a raft of RSPO standards meant to prevent rainforest destruction and social conflict, as well as breaching of other laws.
IOI has assured its stakeholders that the group has taken corrective steps to improve its sustainability practices.
Meanwhile, Nestle, which is focusing on internal efficiency in anticipation of higher commodity prices, expects commodity prices to increase, especially for milk powder and coffee, beyond 2016.
"That's why it is crucial now that we work on internal efficiency, so that we use that time now that as long as the commodity price is low, to increase efficiency in factory and administration," executive director of finance and control Martin Peter Krugel said.
Nestle chairman Tan Sri Syed Anwar Jamalullail said Nestle has not increased prices of its products since last year and that any price increase "will be the last resort".
"It's in our value chain to get efficiency and productivity up to get the best price for our products. We try to hold it (price) as long as we can.
"It also depends on the input cost, like raw and packaging materials, as well as where the ringgit is going. As long as we have these under control and do internal efficiency, we can maintain (prices)," Hofbauer explained, adding that the strengthening of the ringgit will balance the increase in commodity price.
The company is cautiously optimistic of another good financial year ending Dec 31, 2016, but pointed out that slower consumer spending will be its main challenge for 2016.
"We're slowly but surely getting used to the GST (Goods and Services Tax). It's still not an easier year, we're still going through a rough ride but the clouds are slowly disappearing," said Hofbauer.
Nestle has allocated a capital expenditure of RM130 million this year for investments in capacity expansion, modernisation, technology as well as innovation in confectionery.