Felda gets lifeline


  • Business Premium
  • Saturday, 13 Apr 2019

Megat Zaharuddin: The new business model will help to ensure the sustainability of the new Felda.

THE turnaround plan for ailing government agency, the Federal Land Development Authority (Felda), has shifted into high gear.

With a fresh aid of RM6.23bil announced by the government in its recent White Paper, Felda is expected to further expedite its Transformation Project, which kicked off in November last year.

The White Paper, in a nutshell, revealed a new business model to manage the agency’s penerokas’ (settlers’) land, the introduction of a new flexible aid scheme, the abolition of interest rates on the cost of living loan and harvest advances taken by settlers, the development of skilled and innovative settlers and reducing their dependency on oil palm and rubber by planting other cash crops, and the completion of the construction of homes for second-generation Felda settlers.

When contacted, Felda chairman Tan Sri Megat Zaharuddin Megat Mohd Nor tells StarBizWeek that “the new business model will help to ensure the sustainability of the new Felda. In fact, it has been identified as one of the 31 strategic initiatives under our Transformation Project”.

He points out that “Felda will not be able to complete its full turnaround plan until this new business model (as mapped out by the White Paper) is fully implemented”.

The White Paper also highlighted that Felda would be managing its settlers’ land under a long-term lease under the new business model.

Megat Zaharuddin says the reality of the industry is that Felda settlers, who are heavily involved in oil palm and rubber plantations, are in for the maximisation of yields from their land and the cost optimisation from the economies of scale in order to cope with the volatilities of the commodity prices in the global markets.

“We feel that most of our settlers will need the certainty of at least an assured minimum income.

“Therefore, Felda under its new business model will try to iron out as many details as possible in order to achieve our targeted goals within a certain timeframe,” explains Megat Zaharuddin.

Felda was founded in the 1950s to manage rural resettlement schemes, as well as to promote the development of the palm oil industry in Malaysia.

It is the country’s most important political cog with 54 parliamentary constituencies under the Felda settlers.

 

 

 

Profitable entity

He points out that Felda has set a strategic target to achieve a full turnaround both at operational and profit levels within the next four to five years.

“We are looking to achieve (these goals) possibly by 2023 after we cover all aspects of the turnaround plans for Felda’s new sustainability future.

“Hence, we are fine-tuning and refining everything to ensure that the key elements of the aspirations outlined in the White Paper are being incorporated as well,” adds Megat Zaharuddin.

He also believes that certain aspects of Felda’s turnaround plan could happen sooner, while some other aspects will take more time, as “we also need to coordinate with other parties or relevant authorities as well”.

Being primarily involved in the commodities industry, Megat Zaharuddin notes that Felda’s business operations is heavily influenced by the palm oil and rubber market’s price performance.

“With a bit of luck, should the prices of these commodities rebound sooner, Felda’s overall turnaround episode could happen sooner than five years,” explains Megat Zaharuddin.

The transformation of Felda is aimed at turning around the government agency, which is currently saddled with huge debts and in a critical cashflow position, mostly attributed to its former weak management team and it undertaking non-profitable investments.

“This was after a series of discussions on impending issues, the prioritisation and mapping out of the timelines for the respective turnaround plans, as well as the resources for the implementation exercise,” says Megat Zaharuddin, who stepped in as Felda chairman last July to replace his predecessor, Tan Sri Shahrir Abdul Samad.

Of the 31 strategic initiatives under its Transformation Project, Felda has finalised three initiatives, namely on inheritance issues, settlers’ accounts and operational management efficiences and “this will soon be followed by another seven initiatives”.

Megat Zaharuddin also quickly adds that Felda will need to review its other strategic initiatives given several new elements, which were outlined in the White Paper, such as the rescheduled priorities and the need to enhance or possibly add on new key initiatives, going forward.

“Clearly, the government’s allocation of the RM6.23bil through grants, loans and guarantees as well as the implementation of various purposes is being deliberated on right now.

“Felda will also need to follow up on some (legal) action in consequence to the forensic findings by accounting firm Ernst & Young as mentioned in the White Paper,” says Megat Zaharuddin, who declined to elaborate further on the matter.

According to a company spokesperson, Felda is expected to hold a media briefing next Tuesday, where all questions pertaining to Felda issues will be answered by its board members.

Of the total RM6.23bil government fresh aid, some RM1bil will be channelled to planting cash crops such as fruits, vegetable and kenaf – targeted at reducing settlers’ traditional dependency on the oil palm and rubber crops.

Of late, industry experts say many pure oil palm plantation players have been looking to venture into large-scale commercial cash crops locally and abroad.

 

Moratorium

This could be due to the tighter restrictions on new planting, especially for oil palm in Malaysia and a similar moratorium in Indonesia.

One fine example is listed planter United Malacca Bhd, which is going big into planting cash crops such as stevia, coconut, coffee and cocoa in Sulawesi, Indonesia.

The company has even identified cash crops as a big contributor to the group’s profit in the foreseeable future.

For Felda, moving into cash crops is a given, considering that the price of oil palm is dependent on world prices that are uncertain and subject to risks such as low demand from importing countries, trade restrictions from Europe and volatile crude palm oil or CPO prices.

The replanting programme will also alleviate the pressure on settlers as a result of the fall in commodity prices.

Towards this end, the pioneer programme to diversify crops undertaken by Felda Bukit Rokan is expected to be expanded to other pockets of land in the Felda scheme.

These will be conducted with the cooperation of stakeholders and the private sector through integrated planting and urban industries.

Through the new model, settlers who choose the long-term rental arrangement will receive a lease payment and dividends from the profits of the cooperation.

This will enable them to earn a steady income.

The settlers’ cooperative in each Felda scheme, including Koperasi Permodalan Felda Bhd, will be strengthened with the involvement of the original and new generation of settlers in the management, investment and businesses that are operated by Felda.

Through this system, Felda will also produce more professional farmers who can contribute to their community’s progress.

The new business model is also expected to address the demographic issues of settlers. The majority, aged 60 years and above, can no longer manage their estates and have been burdened with debt.

Accordingly, the management of the settlers’ farms by the cooperative would enable the older farms to be run professionally.

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