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
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
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 EARTHSIGHT, 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
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
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
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.
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
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.