Malaysian palm oil firm eyes Philippines after peace deal

Reuters News
Posted: Oct 08, 2012 5:07 PM
Malaysian palm oil firm eyes Philippines after peace deal

By Niluksi Koswanage

KUALA LUMPUR (Reuters) - Malaysia's Felda Global Ventures, the world's largest crude palm oil producer, is the first foreign investor to evince interest in the southern Philippines after Manila agreed on a historic peace deal with Muslim rebels, potentially opening up tracts of farm land.

The Philippine government and Moro Islamic Liberation Front rebels agreed on Sunday on a pact to end 40 years of conflict in the impoverished southern region of Mindanao. Officials have cautioned that the deal is only a first step as the two sides need to thrash out details on the scope and powers of a new autonomous region.

Conflict-wracked Mindanao has the most suitable land in the Philippines for oil palms, Sabri Ahmad, chief executive of cash-rich Felda Global told Reuters in an interview.

"We will go there for oil palms," he said in the Malaysian capital late on Monday. "There is ample area for oil palms to meet strong local demand," he added.

Felda Global had a $3.1 billion listing earlier this year, at the time the largest in the world after Facebook's IPO, and had said it planned to use the funds to expand in Southeast Asia and Africa.

The fighting in Mindanao has deterred any widespread foreign investment in the agriculture and mineral-rich region.

Despite the natural resources, the Philippines imports more than 500,000 metric tons of crude palm oil a year to meet strong local demand for the product, used mostly for cooking.

While Sabri did not give an estimate for how many hectares Felda Global was looking to develop, he said plantation companies would need to invest in at least 10,000 hectares to gain economies of scale.

"We would have to look at building up the infrastructure. It will have to be a holistic approach," he said.

Mindanao has about one million hectares of grasslands, equivalent to the size of Puerto Rico, that can be turned into oil palm estates, the Philippines Palm Oil Development Council (PPDCI) has estimated.

The southern Philippines could become the next destination for land-hungry companies like Malaysia's Sime Darby and Singapore listed Wilmar which have struggled with environmental restrictions in top palm oil producer Indonesia and harsh weather conditions in Africa.

The rush for land comes as benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange have nearly doubled over a decade, driven by demand for its products ranging from cooking oil and biofuel to cosmetics.

Felda Global could bring to the Philippines the farmer's co-operative model developed by its parent -- the Malaysian government's Federal Land Development Authority, said Sabri.

The government gave the rural poor cheap loans to acquire and develop small tracts of land. Felda Global in turn, buys palm fruits from the farmers to ensures a steady income flow.

"When commodity prices are high, these farmers have the leeway to improve their lives. Everyone wins," said Sabri.

With Felda Global buying up palm fruits from the farmers and other independent farmers to process, it has become the world's largest crude palm oil producer with an annual output of around 3.3 million metric tons.


Felda Global is also in discussions with Myanmar to bring this farming model to the former pariah state that has undergone a year of reforms. But it faces pressure from farmers who say interest from private firms has fuelled land grabs.

"Once the embargoes get fully lifted, we want to reach out to the World Bank and other agencies to start up these co-operatives in a sustainable manner," said Sabri.

"Ideally, we would like to take up 5,000 hectares of oil palm estates and then help the farmers develop the surrounding land for themselves. Then they can also provide palm oil to us for processing," he said.

Felda wants to develop the supply chain for other business segments like sugar and rubber in Myanmar.

The company is conducting a study to develop 30,000 hectares of sugarcane near Mandalay in the central region and another 30,000 hectares of rubber estates in the south of Myanmar.

Myanmar's 60 million population -- nearly two times the size of Malaysia's -- could be a big market for palm based-cooking oil and margarine that Felda Global exports.

"Demand is picking up. Currently, it is about 150,000 metric tons and I can safely say it will go up to more than half a million metric tons," Sabri said. "Myanmar is going to be big for us."

(Reporting by Niluksi Koswanage; editing by Stuart Grudgings and Raju Gopalakrishnan)