ANALYSIS: Scandal-ridden Malaysian plantation firm is the cause of smallholders’ problems, not the EU

Thursday, March 1st, 2018

A Malaysian government agency which has morphed into one of the world’s largest plantation firms has hit back at a vote by the European Parliament in favour of phasing out the use of palm oil in biofuels, claiming it will harm the poor farmers it claims to represent. But is it Felda, mired in allegations of corruption and dodgy land deals, that is actually the farmers’ worst enemy?

Settlers protest against the EU vote to phase-out palm oil from biofuels in Kuala Lumpur, in January

On January 17 this year, Members of the European Parliament voted to phase out the use of palm oil in biofuels. The decision is both good science and common sense. If the use of biofuels is intended to reduce greenhouse gas emissions, then it doesn’t make much sense if they are produced using a commodity with an established, irrefutable role in generating greenhouse gas emissions. But it provoked a virulent response from corporate and political leaders in Malaysia. The Europeans have been derided as “hypocrites”, who want to cast three million farmers into poverty, and stand accused of “economic colonisation”. A government Minister called the decision “crop apartheid”.

Central to the fightback in Malaysia is a government agency called the Federal Land Development Authority, or Felda. Felda was founded in 1956 with the simple objective of helping the rural poor in Malaysia develop oil palm. While it still manages the settlements established in its early decades, it stopped helping new farmers in 1990. Since then it has evolved into a sprawling, complex entity, part government agency, part private company. Through its private sector arm, Felda Global Ventures (FGV), it has pushed into Indonesia, developing large-scale plantations very different in nature to the farmer settlements, and sought out new land in the Congo Basin. By 2012, when FGV was listed on the Malaysian stock exchange, it had become one of the world’s largest palm oil firms.

A week before the vote in Europe, Felda chairman Shahrir Abdul Samad wrote an op-ed for the New Straits Times in which he said it would “cause significant harm to ordinary Malaysians, reducing the quality of life of our small farmers, and taking money out of the pockets of communities across Malaysia”. Felda organised a petition, signed by more than 100,000 settlers, to be delivered to the EU delegation in Malaysia and embassies of each of the member states. Hundreds of settlers arrived in Kuala Lumpur on buses to protest against the decision. The protest was under the banner of “Faces of Palm Oil”, according to the New Straits Times. Though it seeks to give the impression of being a grassroots effort by smallholders, Faces of Palm Oil was in fact a campaign set up by Felda and other government bodies.

The central allegation against the EU, among Malaysian politicians and executives, is that a ban on palm oil will be detrimental to poverty alleviation, harming the smallholders Felda manages. It is true that oil palm has been successful in reducing poverty, where farmers have been helped to develop their own plots. But the greatest threat to Felda’s smallholders now is not the EU, but the chronic and possibly criminal mismanagement of an agency that is lurching from scandal to scandal.

Over the past year Felda has been embroiled in what Transparency International Malaysia described as a “seemingly endless saga of malpractice, corruption and breach of trust and duty cases”. In June 2017, several Felda officials came under investigation by the Malaysian Anti-Corruption Commission (MACC) for alleged corruption and abuse of power. It had emerged that property owned by Felda, worth an estimated RM270 million (US$70m) had been transferred to another company for free, without the knowledge of the board. In December, the MACC claimed it had found no evidence of corruption. Deputy chief commissioner Datuk Seri Azam Baki said that the transfer was due to “weakness in governance and breach of trust” and had been passed to the police.

A week after the MACC announcement, former Malaysian Prime Minister Dr Mahathir Mohamad questioned the decision, saying that the transfer looked like a textbook case of how to steal from government. “Whenever they see an authority having money or assets, there will be suggestions on how to steal it. This has happened to Felda […] and even the government of Malaysia,” he said in a video posted on Facebook.

FGV has also raised eyebrows with its acquisition, for half-a-billion dollars, of a 37 percent stake in Indonesian-listed plantation firm PT Eagle High Plantations. Before the deal was completed, analysts warned that the firm was over-valued, and also that its substantial landbank of rainforests could not be developed if Felda wanted to continue trading with companies that have adopted ‘zero deforestation’ policies. A due diligence report leaked this month, seen by IDM, suggested that the concerns were both well founded, and known to Felda.

A separate arm of Felda had walked away from the same deal in 2016, on the advice of two investment banks and opposition from the settlers who feared the additional burden it would place on the agency. But FGV pushed through on the deal. At the end of 2017, one analyst described it as “the turkey of the year”.

Peter Sondakh, the owner of Eagle High Plantations, is a friend of the Malaysian Prime Minister, a connection that led some to conclude that the deal was a bailout for the loss-making firm. After it went through, the Felda chairman claimed that his agency was an “intermediary” for the government in the acquisition, a suggestion that failed to stem concern over the propriety of the deal. “Billions of ringgit meant for the interest of [a] rural smallholders’ plantation scheme are being used to acquire a foreign plantation company with known ties to Najib, at an extremely inflated price,” said Tony Pua, an MP with Malaysia’s main opposition party. Eagle High’s share price has since plummeted, resulting in a huge paper loss to FGV.

These scandals are not academic for the settlers the agency was established to help. Many hold shares in FGV, which has chalked up billions of ringgit in losses due to dubious investments. Its share price has plummeted by some 75 percent since its 2012 IPO.

A 2012 protest joined by more than 1,000 settlers against then Felda chairman Tan Sri Isa Samad. They demanded that Felda land be returned to the settlers, citing the precarious position of the 360,000 hectares of land due to the dismal performance of FGV shares.

“Even when FGV was launched, the government said this was going to make us richer”, one settler told Malaysian Insight. “But it’s made things worse.” Mazlan Aliman, the president of a smallholder advocacy group told Reuters this month that the mismanagement of Felda had “raised anger” among the settlers. “They see the government is not serious in addressing these issues, but instead try to cover up.”

Many of the smallholders Felda claims to represent have even accused it of stealing from them, by systematically under-pricing the fruit they are obliged to sell to it. Thousands have launched legal action against the company, in one case winning a multi-million dollar settlement.

The real anger felt by some Malaysian smallholders towards the EU is understandable, but misplaced. They are not responsible for the environmental damage cause by oil palm expansion. Smallholders, particularly those replanting old, established plantations like the Felda settlers, have an environmental footprint that pales in comparison to that of the large-scale, corporate plantations that dominate the industry.

FGV subsidiary PT Temila Agro Abadi allegedly clearing peatland January 1, 2017 to April 22, 2017. Source: Aidenvironment

It is large corporations, draining peatlands and bulldozing and burning thousands of hectares of forest, that have forced the EU’s hand. In moving away from supporting farmers and into large-scale projects, Felda has joined their ranks. In April 2017, the NGO Aidenvironment published an analysis showing how Indonesian Felda subsidiary PT Temila Agro Abadi had cleared and begun draining hundreds of hectares of peatland. Just a year earlier, President Joko Widodo had issued an instruction banning the clearance of peat.

It is precisely these carbon-rich ecosystems, and the encroachment of plantation firms onto them, that have made the use of oil palm in renewable energies farcical. If it really wants to help smallholders, the Malaysian government would do better to rein in the destructive and corrupt practices of Felda than rail at the EU.