FGV should stick to core business to make money, says expert

Prof Ahmad Ibrahim, who once worked with Felda, tells it to study how IOI Plantations and KLK, which have less land, have become so successful.

KUALA LUMPUR: To make money, Felda Global Ventures (FGV) needs to stick to its core business of palm oil and land assets, says an oil palm expert.

Prof Ahmad Ibrahim, who worked with Felda in the 90s, said FGV needed to build relationships with buyers and partner with others to sell its products. He suggested that FGV hire negotiators to discuss payments with buyers who delayed payments.

FGV, the plantation arm of Felda, is the cash cow of Felda. The government agency needs the money that FGV brings to carry out its programmes for settlers.

Ahmad, a fellow of the academy of sciences, said, in the past, Felda was a progressive company as it was dealing with a business that it knew best.

“When Raja Alias was helming Felda, he managed to settle the World Bank loan before the due date in the 90s.

“One major reason for Felda doing well was that they were involved in the business they knew best,” he told FMT.”

The former marketing and promotions head of Felda was involved in promoting the plantation company globally and had introduced the company to places such as China, India, and Europe.

He said, for instance, that Felda had partnered with Procter and Gamble, and other chemical and fertiliser companies, to sell its products.

“They were all linked to palm oil. They were focusing on areas which had direct benefits and added value to the core business.”

He said it was impossible for the palm oil business to report losses as the market was big, with the growth of edible oil on the increase every year.

Ahmad, who has a Bachelor in Engineering and a PhD in environmental management, said there were risks involved in the palm oil industry from the planting to the selling.

There was also risk when dealing with buyers, and, therefore, it was crucial to have a good relationship with buyers.

One of the ways was to hire good negotiators to constantly keep in touch with clients for prompt payments.

“We need to build relationships and trust with buyers. When I was working with palm oil, the job of CEO was to build relationships so that the buyers pay on time.

“That is because even small packages of 500 tonnes of palm oil would cost a few million dollars.”

He said these negotiators could look at the reasons why, for instance, Afghan company Safitex had delayed payment to Delima Oil Products Sdn Bhd, an FGV subsidiary.

The recent crisis at FGV stemmed from the late payment by Safitex.

FGV group president/chief executive officer Zakaria Arshad was forced to go on leave following a boardroom tussle between him and the former FGV chairman Isa Samad.

Apart from Zakaria, three others were also asked to go on leave. They are FGV chief financial officer Ahmad Tifli Mohd Talha, Delima Oil Products senior manager Kamarzaman Abd Karim and FGV Trading chief executive officer Ahmad Salman Omar.

Ahmad also advised Felda to benchmark its practices and success against IOI Plantations, Kuala Lumpur Kepong Berhad (KLK) and Sime Darby Plantations.

“IOI has less land than Felda. KLK and IOI are successful. They focus on core business, that is oil palm and land, which are their assets. When their land gets encroached into urban areas, it becomes an asset for construction.”

Felda’s business, on the other hand, includes plantation, logistics, sugar, rubber, security, engineering, properties, and travel.

Ahmad said when Felda went into non-core businesses, it needed new skills, the right people who were knowledgeable about the business and the uniqueness of the business.

According to media reports, FGV posted earnings of RM2.5 million in the first quarter ended March 31, 2017, which was in contrast to net losses of RM81 million a year ago.

Meanwhile, IOI Plantations profits from the plantation segment rose 94% year-on-year on March 31, 2017 to RM258.9 million.

Oil palm plantation company, KLK saw its net profit in the second quarter (Q2) ended March 31, 2017, jump 71.8% to RM289.6 million, from RM168.5 million in the previous corresponding quarter.

A slow take off for bio-fuel industry

Felda has seen the income it receives from FGV whittled down over the last three years.

Felda chairman Shahrir Samad recently told The Star that he would like to see FGV better managed because it was the cash cow that Felda depended on to help the settlers.

“At the end of the day, the main issue is still on how FGV will be able to deliver a sustainable income to Felda,” Shahrir said.

Meanwhile, Ahmad said Malaysia should promote the use of biofuel in Asean countries. This will boost palm oil sales.

At present, he said, Indonesia was moving fast into the industry by using B10, which means 10% of fuel is biofuel.

“We are nowhere close. One way is to commercialise the product locally,” he said adding that the government could give subsidies to companies interested in selling the product.

This was because, he said, it required a big budget and giving subsidies would encourage companies to take up the challenge.

He urged the government to make improvements in biofuel so that there would be less resistance from European countries which are looking at banning the product due to its high greenhouse gas emission.

Ahmad, who was at one time looking into environmental issues at the Rubber Research Institute, said these countries were concerned over the high levels of methane, carbon dioxide and other trace gases. -FMT