Six months since becoming the group president and CEO of Felda Global Ventures Holdings Sdn Bhd (FGV) and managing director of Felda Holdings Bhd (FHB), Datuk Sabri Ahmad seems to have picked up where his predecessor Datuk Mohd Bakke Salleh left off, continuing the pursuit of making the group a globally integrated and diversified agro-based multinational corporation.

Having headed the former Golden Hope Plantations Bhd — itself a sizeable plantation company — from 2004 to 2008, Sabri certainly has the right credentials for his new position at a much larger, not to mention more complex, organisation like the Felda group.

Indeed, the Felda group is not your typical palm oil producer.

The Federal Land Development Authority (FELDA) is a government agency established some 55 years ago under the Land Development Ordinance under the Ministry of Land and Co-operative Development. It has a socio-economic mandate of opening up new agricultural land for cultivation by landless settlers.

Through the years, the scheme has become a major producer of palm oil, contributing 18% to Malaysia’s palm oil output and 8% to world production in 2009.

The Felda group is a major player in the palm oil industry, with 70 oil mills, seven refineries and seven bulking installations, held via FHB, the scheme’s commercial arm established in 1995. One of its products — Saji — is said to be the country’s top cooking oil brand.

The group has operations in 12 countries and owns refineries in Indonesia, China, Turkey, the US, Canada and South Africa.

Apart from being an economic powerhouse because it controls, directly and indirectly, some 800,000ha of oil palm and rubber plantations, it is also a political hot potato.

This explains why when the opposition alleged that Felda was financially “bankrupt”, the matter was swiftly dealt with by the government. FELDA also filed a defamation suit against the publication that carried the allegation and received  a judgment in default.

It’s easy to fathom why the government handles issues in relation to Felda with extra care.

Felda has 113,000 settlers who decide on 54 parliamentary seats and 92 state seats. It is predominantly known as a Umno stronghold. But the second and third-generation Felda settlers are said to be more open in their political thinking and have the tendency to sympatise with the opposition, something that has not gone unnoticed by the ruling party.

The Felda group’s corporate structure has evolved, especially in the last few years, as it embarked on a reorganisation that saw the setting up of FGV in 2007 under which the group’s international businesses are now parked.

FELDA remains the statutory body overseeing the group and wholly owns FGV. The domestic agri and agri-related businesses are held under FHB, which is 49%-owned by FGV. The balance 51% is owned by Koperasi Permodalan Felda.

Sabri reveals that the restructuring that started in 2006 was done with the aim of building Felda’s commercial subsidiaries for the next 50 years. In fact, the corporate structure is still being fine-tuned to make it more effective and efficient.

Key performance indicators
Over the last five months, the senior management of FGV and FHB — collectively known as Felda Global Group — has been busy strategising the future path of the entities.

“What we did was to have a strategy lab for one month looking at strategy, the businesses that we should do to take us to the next level of excellence,” says Sabri.

The lab identified five strategic thrusts and two enablers comprising 45 initiatives to guide Felda Global Group’s upstream and downstream activities. Some of the strategic thrusts are improving the productivity of its plantation assets and monetising the by-products; expanding its landbank and diversifying into other crops, and expanding into new markets, end-consumer products and speciality fats.

If successfully implemented, the initiatives will lead to a value creation of RM1.15 billion.

To spearhead the changes, FGV created a transformation management office. Reporting directly to the group president, the division has three functions: risk management, supply chain management and corporate communications. 

Felda Global Group has set itself a number of key performance indicators (KPIs) which it aims to achieve in the next five years. In terms of upstream, FGV aims to raise the yield of its fresh fruit bunches from 20 tonnes per hectare to 25 tonnes and its oil extraction rate from 20.68% to 23%.

In terms of the top line, FGV hopes to increase revenue contribution from oleo derivatives — at 10% currently — to 30% while profit before tax is set at RM1 billion compared with RM420 million.

To raise yields, some of the things Felda Global Group plans to do upstream are loose fruit collection — even bringing back buffaloes to the estates to help in the task — putting in place an incentive scheme for managers and workers, and replanting to address the issue of old palms.

“Our age profile is a bit skewed; more than 47% of our palms are above 18 years old, which is a bit on the high side. So, the massive replanting is to correct the age profile,” Sabri says.

Felda Global Group is aiming for a balanced age profile, with 5% immature palms, 5% old and the rest prime.

But for Felda Global Group, replanting is not as straightforward as it is for other plantation companies. Of the 722,946ha of oil palm plantations under its management, 404,405ha belong to settlers and 306,777ha to FELDA, the statutory body.

The challenge for Felda Global may be in convincing the settlers to replant, given current high crude palm oil prices.

“The 306,000ha within Felda’s control is okay but 400,000ha are owed by the settlers. We have to work with them. But they have done a lot of replanting there too,” Sabri says.

Where the settlers prefer not to do the replanting, Felda Technoplant Sdn Bhd, a unit within the group, offers its services. 

While it manages close to 800,000ha of estates — some 85% of them planted with oil palm — FGV itself owns 40,000ha in Kalimantan via Trurich Resources Sdn Bhd, a 50:50 joint venture with TH Plantations Bhd, which is 67%-owned by Lembaga Tabung Haji.

FHB’s subsidiary Felda Agricultural Services Sdn Bhd also owns 11,746ha, mostly in Pahang, where it conducts field trials for its R&D work.

More land acquisition is a high possibility as Sabri reveals the group has done feasibility studies in Cameroon, Africa. Given the high rubber prices, FGV is also considering rubber plantations in Cambodia or Myanmar.

Currently, FHB manages 84,496ha of rubber plantations.

In the midstream sector, FHB is the biggest refiner in Malaysia with seven refineries. Its bulking installations also make up 56% of the country’s liquid vegetable oil storage facilities.

Currently, the group has enough raw materials to feed the refineries but by 2015, it will have to rely on external CPO, Sabri says.

Going further downstream
Felda Global also plans to go further downstream to achieve its KPI of generating 30% of revenue from oleochemical derivatives and speciality fats.

“If you look at Felda’s business segment, upstream is very big, midstream slightly smaller and downstream very little,” Sabri observes.

With its upstream operations enjoying good margins, given the high CPO prices, Sabri says there is a danger the group will become complacent in the sector. In the last four years, the group has been busy buying assets and forming joint ventures outside Malaysia as it moved downstream. 

There are plans to venture even deeper downstream. This, Sabri explains, is because FGV wants to be a supplier of custom-made ingredients to the likes of Unilever and Procter & Gamble Co (P&G).

FHB already has a 50:50 JV with P&G. FPG Oleochemicals Sdn Bhd produces oleochemical products for P&G’s goods. The oleochemical plant, which is located in Kuantan, started operations in 1993. It has been recognised by the industry as a successful venture between the two parties.  

There is also FHB’s JV with IFFCO, a Dubai-based manufacturer and distributor of a range of consumer products, with brands like Allana, IFFCO, London Dairy, Tiffany, Noor, Rahma, Igloo and Al Baker.

The fledgling JV Felda Iffco Sdn Bhd broke even in its second year of operations, producing a wide range of fats, speciality fats and oils.

“We are focusing on going further downstream via Felda Iffco,” says Sabri, adding that the group is open to acquisitions. 

According to palm oil industry veteran M R Chandran, venturing into speciality fats offers good business opportunities but it is a highly competitive sector. This means there must be an assured market for the products.

“It’s highly specialised and it’s a high-end game where the quantities are small but the margins high. If Felda can create a niche for speciality products, then well and good,” Chandran says. 

He believes Felda Global should look into playing the low margin but high volume game by producing mass low-value products targeted at Africa, the Indian subcontinent, China and other emerging economies.

“For example, red palm oil can be used to combat vitamin A deficiency that is rampant in these countries by fortifying staple food products. This can be a promising area of commercial research. It is time plantation giants like Felda focused on conducting operational nutritional research projects that will expand the use of red palm oil to create value.”

In the interview, Sabri mentions Blue Ocean projects “involving micro-nutrients” as another initiative in the downstream sector but declines to give details. 

Be that as it may, Felda Global aims to monetise palm waste and by-products by tapping renewable energy. It is estimated that the group will spend RM70 million on converting its 70 mills into producers of green energy using palm waste. 

“We see potential revenue in biomass and we are focusing on green energy, converting biomass, empty fruit bunches into energy,” says Sabri.
Last year, Felda Palm Industries Sdn Bhd, a subsidiary of FHB, signed an MOU with Premium Renewable Energy to build a bio-oil plant based on pyrolisis technology in Felda Sahabat in Sabah.

Aspiring to be a ‘Petronas’
As Felda Global charts its course to become a market leader in agribusiness over the next five years, Sabri is looking at Petronas as a role model.

“The Petronas model is good. We want people to think of Felda as the next Petronas,” he says.

Khor Yu Leng, a palm oil industry researcher, says Felda could put together the right pieces to become a major agribusiness powerhouse — it certainly has a huge supply base of palm oil to work with. However, for now, many may not think of it in the same vein as other vertically integrated agribusiness players like Wilmar International or Indofood Agri Resources, which have established their own brands and have a strong presence in large consumer markets.

“We don’t get that impression because Felda is perceived to have a different culture with social objectives, because of its history as a quasi-government land agency with the objective of poverty eradication. The others started out as regular enterprises, either upstream or downstream or as traders,” remarks Khor.

When it comes to vertical integration in the supply chain and being able to offer a range of agricultural products, Wilmar and the others have adopted the business model of companies like Cargill.

“Now, we will also have Felda moving aggressively downstream and horizontally,” Khor says.

That Felda has done many things right in the last five decades is recognised by the industry, but it needs to do much more to move to the next phase.

“Felda is a success story; it is the ideal development model in terms of alleviation of rural poverty. But it is now such a vast conglomerate, it is due for a restructuring exercise,” says Chandran.

He believes that in spite of the tremendous progress made in the field of management practices and ICT, any large tropical tree crop agri-business enterprise with more than 200,000ha under a single management team becomes unwieldy.

“Felda is well managed with first-class upstream R&D. It’s only a matter of improving the nitty-gritty of operations, such as increasing the yield per unit area, improving the efficiencies of processing units, namely the mills, refineries, oleochemical plants, and the quality of produce — the FFA (free fatty acids), DOBI value, M&I (moisture and impurities) and other parameters. The only thing holding it back would be politics.”

Since Petronas has floated a few of its businesses and the Felda group
had considered listing some years back but aborted the plan, will it list some of its businesses in the future?

Sabri, whose contract at Felda is for two years, replies: “If it creates value for the stakeholders.”

Although the plan to list Felda Holdings, mooted in 2003, was aborted due to a political backlash, there is still much speculation about the potential listing of a Felda entity, especially following the restructuring of its corporate structure in 2007. Some say under its new structure, it will be easier to float Felda’s business units without the group being held to ransom by politicians.

Certainly, if the group manages to transform itself into a global agribusiness giant, the listing of any of its businesses will be well received.

This article appeared in Corporate, The Edge Malaysia, Issue 842, Jan 24-30, 2011