Earlier this month, Felda Global Ventures Holdings Berhad or FGV signed a partnership worth hundreds of millions of ringgit a year with China’s Sinograin Oils Corp.
This agreement will benefit Malaysia’s 112,635 smallholders as well as their family members.
Let us take a look at some of the benefits.
Who is FGV?
In Malaysia, Felda is the agency which is responsible in taking care of the country’s oil palm sector.
FGV is a company under Felda which manage the country’s palm oil smallholders.
Malaysia has some 112,265 smallholders and if they each have four children, there would be some four million settlers and their family members all over the country.
FGV is a company listed on Bursa Malaysia and its job is to find business for Felda and make profit.
The profit can then be shared with the smallholders through dividend payments.
China will benefit FGV and the rakyat
China is already the world’s second largest economy after the United States.
Its economy is growing at double digit growth and it has the world’s largest population with some 1.3 billion people.
So the Chinese people will always need vegetable oils and fats such as palm oil for cooking and to make cakes.
FGV can play that role by supplying palm oil every year.
With the agreement, China is set to overtake Pakistan as FGV’s biggest export market.
In a New Straits Times report on May 16, group president and chief executive officer Datuk Zakaria Arshad said the deal was expected to double its crude palm oil and cooking oil production and contribute significantly to its revenue.
How will the smallholders benefit?
FGV is a public listed company on Bursa Malaysia.
And all Felda smallholders own shares in FGV.
So when FGV makes a profit, the company will share with all smallholders by paying them dividends.
All smallholders are also members of Koperasi Permodalan Felda.
And the Koperasi Permodalan Felda own shares in FGV or Felda.
So when FGV and Felda make a profit, they will share their profit by paying dividends to smallholders.
So this is how smallholders can enjoy the benefit of FGV’s partnership in China.
Palm oil prices will go up
Whenever FGV announce a partnership with any company, palm oil prices will go up.
This is because, it shows that there is demand for palm oil in China.
And this demand in China will continue to be strong.
So when there is demand, palm oil will go up.
When palm oil prices go up, FGV will earn better income.
With better income, FGV will pay higher dividends to smallholders.
This will enable smallholders to earn a better life.
FGV-Sinograin partnership can save cost
The Sinograin- FGV partnership can help both companies save cost.
As an example, FGV which has plans to expand its business in China no longer has to invest to go to China as it can just share with Sinograin.
Sinograin can also share with FGV.
As a result, this will be savings for FGV and when FGV saves, it will be able to earn a higher income and share it with the smallholders.
China will continue to use a lot of palm oil
As the world’s most populated country, China will continue to use a lot of palm oil.
China’s palm oil consumption would continue to grow, driven by the rise in the population’s higher income and demand for healthier edible oils such as palm oil.
China consumed 5.05 million tonnes of palm oil last year which is expected to grow to 6 million tonnes this year.
MIDF Research analyst Alan Lim said he was long-term positive on the news as FGV could determine higher CPO selling prices in the future.
When China use a lot of our palm oil, FGV will be able to earn a higher income.
Part of this income will be shared with smallholders and this will enable them to earn a living.
FGV can grow its business bigger
With the partnership, FGV will be able to explore and expand its downstream activities such as supply, processing, packaging and distribution of blended oils, shortenings and specialty fats.
As a result, it can double crude palm oil production in China to 600,000 tonnes yearly.
It can also double olein (cooking oil) production to 300,000 tonnes.
This will contribute significantly to FGV’s income starting this year totalling a few hundred million ringgit.
And this income will benefit the smallholders too.
Palm oil will help the economy
Palm oil has always helped the country’s economy.
It is the third largest sector after oil and gas and the services sector.
During the economic slowdown in 2000 and 2007, the commodities sector led by palm oil
helped the country’s econony from collapsing.
Palm oil will always remain an important sector to the country.
This is because, palm oil has helped the Malaysian economy.
And also help the smallholders earn an income.