Changing Felda

Malaysia

Economic News

22 Jul 2010
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The Federal Land Development Agency (Felda) celebrated its 50th anniversary over the weekend, and to commemorate the event the organisation outlined its strategy of diversification and social investment that will guide it for the next half-century. However, the plans for the future also brought to light several problems facing the company and the communities that it supports.



Deputy Prime Minister Datuk Seri Najib Tun Razak, who oversees Felda's board of directors, outlined his five visions for the organisation's future in his keynote address on Friday, at the event organised to mark the anniversary.



Felda is Malaysia's largest land development agency, with 49 companies and joint ventures with annual turnover of RM8bn ($2.19bn). The agency has successfully developed some 811,140 ha of forest land, 702,932 ha of oil palm and 102,082 ha of rubber, constituting 18% and 9% of the country's crop areas respectively, with the balance of 6509 hectares of sugar-cane and other crops.



It has also resettled 104,956 families in 178 schemes and has assisted almost a million people since its foundation in 1956.



Razak's vision offers some insights into the challenges the company faces.
Among the aspects of his vision, he believes that settler communities should be exemplary and fully modern. To do this, he said that all Felda schemes must include a full range of infrastructure such as water, electricity, roads and other basic facilities like health, education and communications networks.



This goes with plans to develop a second generation of roughly 500,000 settlers, by providing them with educational and employment opportunities. Felda hopes that this will encourage the establishment of a pro-business, corporate culture and cultivate a large, multi-skilled and multi-talented base of human capital.



The idea is that through diversification, modernisation and education, Felda communities will emerge as a new middle-class group.



Such concerns are timely and not only because of the anniversary. Poverty and social problems have been persistent in the Felda communities, and the company itself must face market realities vastly different from those of 50 years ago.



In Felda schemes, an aging settler population poses problems, as does the second generation's scant interest in remaining on the settlements. The finite nature of land parcelling schemes means that there is often not enough land to go around for those who do want to stay. Drug addiction, crime and social problems are relatively common in Felda communities, many of which are located in isolated, rural areas. It is estimated that an average of 300 new addicts are detected annually at 270 land schemes nationwide.



Moreover, the settlers not involved in agriculture have had nagging difficulty in finding new avenues for work in Felda schemes. There is a persistent need for more diverse economies of scale that could offer job possibilities to the families of Felda settlers.



On the business side, there are additional challenges. The group's old method for achieving growth was the addition of production factors - land, people and capital. These are no longer an option, and Felda must figure out other ways to sustain growth and transform itself into a more vibrant company.



On the positive side, however, there is reason to believe that Felda, and its settlers, will continue to prosper. Current high rubber prices have some Felda settlers earning as much as RM10,000 ($2738) per month - about twice the average salary of those in other schemes such as palm oil production - and these prices are set to remain at similar levels for the long term.



Palm oil production is itself going through a boom time. Though Malaysia faces competition from Indonesia in output, it is still ahead of the game in research and development (R&D) and sustainable production - a frequent concern of developed markets. Precision agronomy, aggressive R&D, and planting of high-yield tissues are among the innovations that Felda hopes can redress the land and production imbalance.



Diversified fields such as oleo-chemicals have helped Felda move itself up the value chain. This will continue, as the company plans extensive investment in modernising its processing and refining facilities, to the tune of RM800m ($219m) over the next five years. Bigger capacity refineries are in the works, which would be more cost effective and able to process a wider variety of oils. This will increase flexibility and allow Felda to offer a broader range of products.



On the socioeconomic front, "Felda Jaya", a programme to modernise Felda settlements and create business opportunities for its residents, is being launched.



The programme will involve the construction of affordable brick houses for the second generation of Felda settlers. According to Razak, projects such as Felda Jaya are aimed at gradually bringing the amenities of a modern town to Felda communities.



The first such project will be launched in Felda Mempaga in Pahang, followed by projects at three subsequent sites, in conjunction with Felda's 50th anniversary.



The Felda group has managed to grow as a business while improving the lives of settlers since 1956. Though the current problems are forcing the company into more expansive and unknown territories, Felda's consistent investment in social infrastructure and value-added and higher technology fields will likely sustain its success for some time to come.

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