Home Commentary US palm oil import ban opens can of worms in Malaysia

US palm oil import ban opens can of worms in Malaysia

At the beginning of the month, the US Customs and Border Patrol (CBP) agency announced it was banning palm oil imports from Malaysia, citing plantation owner FGV Holdings for a raft of labor issues, including abuse, deception, physical and sexual violence, intimidation and the keeping of workers’ identity documents.

Moreover, in recent weeks, human rights organizations attacked FGV for the use of convict labor — an allegation the Malaysian government did not deny — which further cemented the CBP’s position.

From a national perspective, the import ban is not hugely significant. Despite the expansive consumer market in the US, palm oil does not rank among the top trading commodities between the two nations, even if it does represent roughly 5 percent of FGV’s business.



However, you can’t throw a stone in Malaysia’s Klang Valley without hitting the regional headquarters of a US fast moving consumer goods company — most, if not all, of which are heavily dependent on palm oil.

Should the US authorities bring their influence to bear on these companies to follow suit in a global capacity, then there will be a lot of FGV executives and civil servants sweating under their collective collars over the coming months.

Malaysia’s plantation industry is worth an estimated US$18.5 billion a year in exports, chief of which are palm oil and rubber.

However, the new coronavirus has once again shone the spotlight on FGV, a corporation mired in controversy from its inception.

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Facing an existential domestic employment crisis, the government placed a moratorium on foreign labor.

So, FGV found itself with an estimated manpower shortage of 35,000. Therefore, the government authorized the use of convict labor to make up the shortfall.

Human rights groups were aghast, even though the government tried to smooth over ruffled feathers by saying convicts were employed strictly on a voluntary, paid basis.

Very few people are buying this argument.

Yet, the problems for FGV have much wider implications for Malaysia’s rural communities, who are very worried indeed.

FGV is an offshoot of the Malaysian Federal Land Development Authority (Felda), an agency set up in 1956 and tasked with elevating the nation’s Malay ethnic group out of poverty.

In the early years of its existence, Felda did just that: moving an estimated 120,000 families to planned settlements of 10-14 acres nationwide, with each settler allocated 0.25 acres to manage.

Settlers then took out low-interest loans from the government to pay for their plot and reap the rewards.

By and large, the system started well enough, and for two decades raised the standard of living and provided a huge tranche of Malaysian society much needed income. Felda has since become a national institution.

However, for the past 20 years — as much as it alleviated poverty in the early days — the agency has been a dead weight around the ankles of the people it was supposed to support.

One of the key means of keeping control and indeed the vote — Felda settlements form a hefty chunk of roughly 25 percent of Malaysia’s parliamentary constituencies — was minimising the settlers’ collective bargaining rights.

Despite the formation of one or two national settlers’ organisations, their power is woefully limited, with financial dependence on the agency ensured because it is the settlers’ prime, or even sole, customer.

Moreover, settlers cannot sell their land without Felda’s permission.

Some settlers have, over the years, tried to break ranks and operate independently but are then denied valuable cash handouts or loans to manage the ebb and flow of demand.

Then FGV, or Felda Global Ventures as it was originally known, entered the fray and delivered a crushing hammer blow to the community it was supposed to help.

Former prime minister Mahathir Mohamad first mooted the idea of turning Felda into a corporate entity in 2003, a move bitterly opposed by the settlers, who quite rightly foresaw an agency tasked with helping them turn to a corporate entity focused on profit.

Najib Razak then took up the mantle when he became prime minister in 2009. As PM, he assumed responsibility for Felda, but curiously failed to account for nearly US$1 billion wiped off the agency’s cash reserves that year.

In 2011, he appointed crony Isa Samad chairman of Felda in preparation for the initial public offering (IPO), despite outcry from just about every quarter given Isa’s notoriety for corruption and money politics (he had been ejected from parliament and kicked out of a party synonymous with corruption).

The IPO went ahead in 2012 and raised more than US$3 billion, the second highest global flotation of the year next to Facebook.

The settlers took out yet another government loan to acquire shares, banking on Najib’s reassurances their valuation would soar, and they would see the wealth they had been promised for so long.

From the outset, FGV became embroiled in a series of financial scandals through mismanagement that ranged from the idiotic to the borderline criminal, most of which involved Isa.

Najib gifted his friend wide-ranging powers to act without the FGV board’s approval — and prosecutors allege in his first graft trial relating to his management of the company — did just that, authorizing purchase of a variety of luxury properties at massively inflated prices.

Even when he did involve the board, they are accused of casually looking the other way, thus compounding an already catastrophic problem.

Notably in 2015, the Employees’ Provident Fund — the national pension fund and a domestic benchmark for investment security — dumped all its shares in the company.

Such is the extent of FGV’s woes that local experts say the cost to the nation dwarfs that of 1MDB.

Meanwhile, from the settlers’ perspective, they had taken out loans to buy IPO shares at a value of MYR4.45, but began to struggle when, as they predicted, their main client went from buying their crop at guaranteed favorable prices to demanding bottom dollar.

Their once dreams of carving out a decent living have since evaporated as, year-on-year, they are increasingly dependent on cash handouts from Felda, which also encourages them to take out more loans to cover existing borrowings.

As such, the settlers are saddled with more and more debt they cannot hope to repay, not least the loans they took out to buy shares that are now worth barely one quarter of their IPO value.

The dream of alleviating poverty for Malaysia’s rural Malays has come and gone, along with the cheap foreign labor to help till the fields.

While human rights organizations focus on the plight of migrant workers, Malays face a dismal future that will not end with the slow demise of FGV.

So, that cold sweat executives and civil servants are feeling is what to tell the people when it all goes wrong.

After more than 60 years of evidently empty promises, the excuses are wearing pretty thin.

Gareth Corsi is a freelance journalist based in Malaysia. The views expressed in this article are the opinions of the author and do not necessarily reflect the editorial stance of LiCAS.news.

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