The think tank IDEAS says in a report that FGV, the commercial arm of FELDA, made the Federal Land Development Authority more vulnerable to financial uncertainty.
FGV’s listing and the transformation of FELDA demonstrated poor track record of commercialisation, it says.
“The listing of FGV is a clear indication of a poor track record in commercialisation. The listing of FGV under a new FELDA business model was introduced in 2010 during Najib Razak’s era,”
In the report, IDEAS says FELDA shifted its focus to commercialisation since the 1980s and 1990s.
This was the result of less rural households showing interest in resettlement.
The focus on commercialisation has some merit in terms of trying to diversify income sources.
However, the new subsidiary companies did not make FELDA resilient to palm oil price fluctuations.
PROFIT DID NOT COME
The various businesses under FELDA were to generate profit. It was also to help FELDA complete the value chain of its core activities.
But the extent of their contribution to FELDA’s profitability and benefits to its main stakeholders remains questionable.
The main stakeholders are the settlers.
The transfer of FELDA’s assets and subsidiaries to FGV was to raise fund for the company as part of its listing exercise.
This included the settler’s co-operative Koperasi Permodalan Felda or KPF.
Prior to the listing, 51% of FELDA, settlers were holding the shares through the KPF.
The transfer of KPF to FGV caused settlers to lose their shares in FELDA.
FELDA also submitted its commercial land management activity via a 99- year land lease agreement (LLA) to FGV.
This was in return for fixed amount of payment for lease and a share of FGV profits which was below expectation since FGV did not do well.
FELDA’s commercialisation activities, particularly the listing of FGV failed to promote diversification, It also contributed to serious financial problems.
FGV was the biggest IPO in Malaysia in 2012. However, FGV’s stock price fell 72% from its IPO price trading at RM4.55 apiece in 2012 to RM1.29 as at July 2020.
FELDA spent RM6 bil. from the RM10.5 bil. raised in FGV’s initial public offering (IPO) on loss-making and unproductive ventures.
This includes the acquisition of Grand Plaza Kensington Hotel, London and the Merdeka Palace, Kuching.
These transactions were done at an inflated price under Felda Investment Corporation (FIC).
There are allegations of political interference in FGV, including the contentious acquisition of Asian Plantation which resulted in FELDA former directors facing court trial.
As a conclusion, the report says the role and functions of FELDA must be re-examined in the light of international and domestic developments.
There is no doubt the previous model worked in its initial decades in providing a way for poor Bumiputera to get a head start in palm oil.
“But as we suggest in this report, changes both domestically and internationally, suggest that the model is no longer applicable going forward.
“The world has changed and it’s time to review and see how we can revitalise FELDA.”
Previous efforts to diversify FELDA income through commercialisation have not been successful in improving productivity and socioeconomic outcomes.
The strategy of corporatisation was not well suited to the subsequent changes in the palm oil price.
FAILURES AFTER FAILURES
It has not succeeded in diversifying the revenue of the FELDA settlers. Instead, the proliferation of FELDA subsidiaries has resulted in holdings in unrelated business areas.
The Malaysia palm oil industry is not resilient to adapt to macro changes. Malaysia cannot dictate the trends in palm oil prices despite being the world’s second largest producer.
Palm oil prices depend on the global price which has fallen because of the end of a commodity super cycle and global demand for palm oil is unpredictable.
The White Paper published by Pakatan Harapan is a step in the right direction, says IDEAS.
IDEAS says there is need for a clear timeline for implementation.
“The government should confirm the status of the White Paper and future policy direction for FELDA, including commitment to a clear timeline and implementation plan.”
Fundamental reform of FELDA
The White Paper does not go far enough to address the fundamental challenges facing FELDA.
Rather than continuing to focus only on preserving FELDA, the
government’s focus should prioritise the welfare of the settlers.
There should be more competition and more incentives for innovation and upgrading says IDEAS.