Restoring the fortune of Felda

WHAT has happened to the Federal Land Development Authority (Felda), once the pride of the nation and a boon to the country’s rural poor?

Recent news reports have highlighted that FGV Holdings Bhd (FGV) would liquidate up to 10 of its non-core businesses by year-end as part of its transformation programme and renewed focus on efficiency, accountability and profitability.

Felda Engineering Services Sdn Bhd and Felda Properties Sdn Bhd would be among the earliest. FGV said in a statement that liquidation was the last resort in its failure to find a buyer.

The move will potentially see hundreds of workers losing their jobs. With more and more devastating news hitting the headlines on Felda and FGV lately, it is no wonder that staff and settlers’ morale is at an all-time low.

When our second prime minister Tun Abdul Razak Hussein envisioned Felda back in 1956, it was as a resettlement scheme designed to help the poor improve their economic prospects by cultivating palm oil and rubber on government land that would eventually belong to the settlers.

It started in 1957 with the opening of Lembah Bilut, which covered an area 22 square miles in size, at the cost of RM2.5mil. Each participant was given seven acres of land for a rubber plantation and three acres for an orchard. Felda Taib Andak was the first to grow oil palm in 1961.

Fit young men in their 20s and 30s were the pioneers of Felda, clearing swathes of land for cultivation. Conditions were harsh and many worked without electricity and running water. But the backbreaking work was worth it.

It brought them hope and was their way out of poverty. When they got married, these young men brought their wives and eventually built their homes and raised their families in the settlements.

In 1990, Felda stopped recruiting settlers. From a small idea, it had grown into a giant organisation with 317 settlements nationwide housing 112,000 settlers and their families.

Indeed, at one point Felda was even known internationally as an exemplary model in alleviating rural poverty, and many foreign governments sought Malaysia’s experts to implement it in their respective countries.

There are those who say trouble first began when Felda was privatised and at the public listing of its subsidiary Felda Global Ventures, which was then rebranded to FGV Holdings Bhd in 2012.

The move to list FGV was during the administration of former prime minister Datuk Seri Najib Razak, Tun Razak’s eldest son.

FGV leases estates from Felda and under the 2012 Land Lease Agreement (LLA), FGV manages 335,000 hectares of Felda’s 850,000 hectares of land. FGV is Felda’s main revenue generator.

Prior to 2012, Felda was the premier “home-grown” global agribusiness company that was proudly Malaysian.

Yet today, Felda is burdened with a ballooning debt of RM8.05bil and an almost empty cash-flow position due to years of mismanagement.

From 2012 to 2017, Felda and FGV were plagued with rumours of extreme pilfering, poor management and extravagant spending.

The issues included lack of leadership, poor governance, stagnant growth, weak financials, an unsustainable business model and no focus on the settlers.

At its peak, the FGV market price was RM4.842 (6 July 2012), translating into a market capitalisation of RM19.846bil.

On Feb 13, 2019, based on the closing share price of RM1.12, market capitalisation was at RM4.086bil, which means initial shareholders had lost more than RM15bil in value!

Can Felda restore its former glory?

On April 10 this year, the much anticipated Felda White Paper was tabled in Parliament. It states that the Malaysian government would allocate financial aid of RM6.23bil as part of its turnaround plan for the ailing giant.

But this allocation would be exhausted within two years as Felda’s current business model cannot generate RM800mil per annum, which is required to sustain its business operation in the long run.

In the current model, the separate business model of FGV and Felda is highly inefficient and a proven failure in the last seven years.

From 2009 to 2016, Felda and FGV’s chairman was the same person. The absence of checks and balances, integrity and accountability had resulted in Felda’s financial difficulty, debt problem and bad investment decisions contributing to continuous losses.

The current chairman, board of directors and senior management team of Felda and FGV are made up of individuals with corporate background but no experience in the plantation industry.

Staff and settlers are understandably having persistently low morale which, if left unattended, can be destructive to Felda and FGV, as it can lead to dissatisfaction and poor productivity.

Felda was created as an organisation for small, rural settlers, but it eventually turned out to be a cash cow for the so-called rich and elite.

Perhaps it’s time to go back to the basics and return to the original Felda business model under the supervision of the previous management team during its heydays (1990s to 2011), who have proven experience in the plantation industry, together with the employment of smart farming technology to improve efficiency and returns.

How long and how far can the RM6.23bil allocation by the government go in helping with turnaround plans?

Perhaps, a private-public sector collaboration is the way to go with strategic partners who are willing and have the expertise and capabilities to assist in the long-term turnaround plans.

Finally, the solutions proposed have to go beyond short-term corporate fixes with no real resolution to plantation management and settlers’ debt burdens.

It’s time to go back to Tun Razak’s original vision to ensure that planned development reaches the rural folks and create a sound economic base for the farmers so that they receive in full all proceeds from the land being worked upon.

E.K. ONG Shah Alam