Nestle, PepsiCo in talks with Godrej Agrovet to buy palm oil
Nestle and PepsiCo are in discussions with Godrej Agrovet to source refined palm oil locally for their major brands like Maggi and Lay’s. This shift is driven by rising global prices, high logistics costs, and the need to avoid supply disruptions due to geopolitical tensions. By sourcing locally, these companies aim to shorten import cycles, ensure quality under FSSAI standards, and reduce expenses. Currently, they mainly import palm oil from Indonesia and Malaysia.
Nestle and PepsiCo discussed with Godrej Agrovet about sourcing refined palm oil locally for brands like Maggi and Lay’s. This shift comes due to rising global prices and logistics costs. Companies aim to shorten import cycles and avoid supply disruptions amidst geopolitical tensions. Currently, they import mainly from Indonesia and Malaysia but are now urged to increase local procurement. Trade analysts suggest that sourcing from India can help negotiate better prices, ensure quality, and reduce logistics expenses.
Agencies Kolkata | New Delhi: Packaged foods makers Nestle and PepsiCo are in talks with Godrej Agrovet, one of the country’s largest producers of palm oil, to buy refined palm oil locally for some of their biggest brands such as Maggi instant noodles and Lay’s potato chips, executives directly aware of the developments said.Multinationals are sourcing locally amid rising global prices of the commodity as well as logistics costs and heightened scrutiny on the quality of edible oils by the government under the Food Safety & Standards Authority of India (FSSAI).
They also aim to cut short months-long import buying cycles and circumvent any potential supply disruptions amid continued global geopolitical turmoil. So far, Nestle and PepsiCo have sourced palm oil primarily from Indonesia and Malaysia for Indian operations.
“Packaged foods MNCs are in talks with us to source refined palm oil or palmolein and the deals are expected to be clinched within a year,” said Sougata Niyogi, CEO of the palm oil business of Godrej Agrovet. He declined to divulge the names of the food makers and said talks are at initial stages.In scientific terms, the liquid fraction obtained by fractionation of palm oil after crystallisation at controlled temperatures is known as palmolein.
Two executives with direct knowledge of the developments said both the MNCs have been asked to increase sourcing of palm oil from India by their parent companies.A spokesperson for Nestle India, which also makes KitKat and Munch chocolates, said in an email: “As a part of our procurement process, we keep evaluating potential partners and this is one such ongoing process.”
Palm oil is the most widely used ingredient in packaged foods such as noodles, chips, salty snacks, biscuits, ice cream, chocolates and desserts, and is less expensive than sunflower or soyabean oil. Packaged food makers are under increasing scrutiny from the government and activists to switch to healthier variants of palm oils.PepsiCo India is also undertaking trials to replace some of its palm oil and palmolein with blends of sunflower oil and palmolein in Lay’s, as reported by ET in its May 9 edition.
Trade sources said companies can negotiate on prices better with Indian suppliers, even as global palm oil prices have shot up in recent months because of higher demand and the rise of the usage of palm oil for biofuels. While the imported price of palm oil was $960 per tonne in July, it surged to $990 per tonne in August.India imports 8.5-9 million tonnes of palm oil annually from Malaysia and Indonesia to meet its domestic demand, according to research platform Statista.
Sandeep Bajoria, chief executive of Sunvin Group, a leading oil trading firm said “There may be many reasons why the food MNCs are looking at sourcing from India. Firstly, it takes a month to import edible oils. Secondly, if they want to buy small quantities for immediate use, they can easily procure from India and they can keep a constant watch on the quality of the product and whether it is in accordance with FSSAI standards or not.”He also attributed other reasons for the local sourcing, such as the reduction of steep logistics costs.
“Besides, due to rising geopolitical tensions, supply disruption has become a perennial issue and therefore they are looking at alternative sourcing channels.”India is the largest importer of edible oil worldwide.
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