My Say: FELDA and feudalism

This article first appeared in Forum, The Edge Malaysia Weekly, on April 29, 2019 - May 05, 2019.
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The once cash-rich organisation is now cash strapped. The White Paper on FELDA, tabled in parliament earlier this month, revealed that the statutory body — created in 1956 to develop land and create landowners among the rural poor — now needs more than RM6 billion just to operate. It is a long way down from what it was just a decade ago.

FELDA was the Malaysian success story. It developed almost half a million hectares of land by emplacing more than 110,000 settlers and in the process, created that many landowners as well as build a massive plantation business. It prepaid all of its loans and was sitting on huge cash reserves, as were its businesses, which, before the creation of Felda Global Ventures Holdings Bhd (now known as FGV Bhd), was housed under Felda Holdings Sdn Bhd.

The settlers and FELDA staff are members of a rich cooperative, Koperasi Permodalan Felda, which owned 51% of Felda Holdings, with the remaining 49% controlled by FELDA itself. The integrated palm oil businesses under Felda Holdings were sufficiently well managed that the cooperative and FELDA were able to enjoy good dividends — enough to care for the settlers and the settlements, and manage the long cycle of plantation business and the volatility of palm oil prices.

It just took about a decade to make all these turn bad.

Instead of focusing on how to define the next FELDA model and what lies beyond that for the settlers and their next generation after creating landowners out of them using the plantation model, it was the business and the cash that came with it that attracted attention, about “unlocking the value” of the business. Although the business did not require the capital back then, the path chosen was for FELDA’s businesses to go public and raise funds from the market via a public offering.

That decision fundamentally changed the original FELDA model, and was driven by ambition for the business created by the settlers-settlements plantation model, rather than on the future of the settlers and their next generation. The hardworking settlers, most of whom spent their lives in isolated settlements — spending their youth and energy to obtain ownership of their land plots after settling their loans with FELDA — were made to enter a new cycle of debt when it came time for replanting.

The economic rationale of the business requires plantation land to be consolidated but this means the cycle of borrowing by the settlers — landowners now — had to continue although they were already at the end of their productive lives. The fate of the next generation was not quite addressed, beyond the usual pandering to their needs.

There were wrong incentive structures put in place at the plantation and the settlers’ end to make the resulting business a viable proposition. For example, ageing settlers began to outsource labour to foreigners. The ownership structure of the business, which was shared between the settlers’ cooperative and FELDA, was changed as well, fundamentally altering the income model of FELDA and the settlers, to facilitate the public listing exercise. Everything hinged on the commercial success of the new commercial entity, FGV, whose initial public offering in 2012 was the second largest in the world after Facebook.

The IPO raised a total of US$3.1 billion or almost RM10 billion for the existing shareholders. The shares opened for trading at a high of RM5.46, a 20% premium to the IPO reference price of RM4.55. Institutions and institutional funds rushed to be part of the action. Crude palm oil prices were hovering around RM3,000 a tonne. The settlers would enjoy windfall payments — a deal offered to appease them. Everything seemed fine.

But everything was not fine and things went wrong very quickly. While revenue remained steady, profits dropped quickly. By 2016, FGV was barely profitable and its dividend payout dropped by more than 90%, compared with its first year. The whole FELDA Version.2 model unravelled as a result and affected everyone involved — from the settlers to FELDA to FGV investors as the company significantly reduced its dividend payout. The shares are now trading below RM2 a piece and the Felda-FGV land lease agreement of RM250 million a year is inadequate for FELDA.

A bad model was made worse by dismal oversight and pathetic management, for which there should be consequences. Operating costs ballooned as FGV spent lavishly. Cash raised from the IPO was wasted on investments that did not generate returns but instead, resulted in impairments. There was poor preparation by management for anticipated replanting expenses and the loss of revenue during the replanting period, and the ever-present price risks were just as poorly managed.

A Wilmar or Cargill it did not become. Instead, FGV become an embarrassing mess that severely impacted FELDA’s financial health and what it was able to do for the settlers, who, despite being landowners, have largely not experienced upwards mobility as expected.

What bothers me more than the ineptness and possible corruption in this whole story is the patronising posture adopted towards the settlers and their families.

The settlers’ community was treated as a voters’ bloc more than anything else when they should have been seen as families to be developed as landowners, asset-owning families to be integrated into the mainstream via in-situ development of the settlements or physical relocation. They were pandered to so as to keep them happy where they were instead of liberating them from the constraining confines of the settlements and as being part of plantation labour.

It should have been a transactional relationship, a modern relationship, between the settlers and the government, not a dependency relationship, and certainly not one of gratitude or servitude. The government discharges its responsibilities by developing the settlers into an asset-owning class, and the settlers fulfil their obligations to work the land and settle their loans in exchange for land ownership. And they have to be instrumental in deciding what is next, of course with oversight by the government, but there should be settler empowerment and accountability in the model because, at the centre of this story, is human development.

This citizen-authority relationship, be it FELDA and the settlers or the people and the government more generally, needs serious clarification.

This reminds me of the existential crisis we seem to be having as a country after more than 60 years of Merdeka. We seem to be confused about the very nature of our government — that we are a constitutional monarchy, which means we are not a monarchy but a parliamentary democracy governed by the Constitution. But the feudal mindset runs deep in the national psyche among some and it is this lack of individual accountability and an expectation of living under some form of dominion that presents the largest barrier to the national development agenda.

Prime Minister Tun Dr Mahathir Mohamad seems to be a lonely voice on this, which is unfortunate because he is making an important point, one that is relevant to the FELDA story as well as to the overall national development story. In a democracy, it is always the voice and will of the people that is supreme. There are responsibilities of the appointed government and delegated authorities to perform its functions but it is the collective will of the people that decides who should govern and the boundaries of authority given to the government.

At a more micro level, democracy recognises the individual citizen and his or her rights. With those rights come responsibilities as well but the relationship between the governed and the government is not one of subservience or gratitude; it is that of a collective principal and its agent, with the citizens as the principal. It is not just the Rulers who are constrained in their roles; even the elected government is constrained in its authority and tenure. They are all agents of the people.

The prime minister deserves support on this issue of personal accountability of actions and the collective responsibility to decide on governments. This is not just a constitutional matter but it defines an important developmental perspective. The FELDA settlers are to be liberated and the settlements integrated into the mainstream, not preserved and mollycoddled in situ as a captive political constituency. What is the point of obtaining land ownership but not changing the relationship between one’s labour and the land?

So, the departure point of the development thesis is important and that point cannot be a feudalistic or a patronising one. It has to be a liberating one and central to that is the individual himself. It is the free man that chooses, and he chooses badly sometimes. On that premise, we must build institutions that make the individual citizen more enlightened to perform his duty to decide.

Dr Nungsari A Radhi is an economist and the views expressed here are not related to any of his organisational affiliations

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