Felda listing mooted again

Two articles on Felda in the print and online news today.
a) Felda commercial arm to list? It will create world’s largest listed plantation firm, http://biz.thestar.com.my/news/story.asp?file=/2011/10/7/business/9648450&sec=business
b) Concerns at Felda's Coop, http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=20674:isa-samad-makes-his-move-but-felda-settlers-call-for-his-removal-as-co-op-chief&Itemid=2

Khor Reports comment: Rumours of the listing of Felda Group or one of its key entities have recurred over the years. The Group, controls some 850,000 Ha of both settler and commercial land bank. For a long time, it has been the largest plantation in SE Asia, if not the world (if one excludes the fluctuating figure of the unplanted reserves of the likes of Sime Darby and Golden Agri). It grew out of a land resettlement scheme, under the Federal Land Development Authority. What has held up a listing of a Felda unit for decades? After all, Malaysia is well known for privatizations and public-listings of government-linked entities. The key issue is this: majority ownership is held Koperasi Permodalan Felda or KPF (website: http://kpf.felda.net.my/Pages/kpf.aspx). Under a cooperative, key corporate actions would require that settlers and staff of Felda (current and former?) who are members of KPF, would have to vote on it, on the "one man, one vote" basis.

Interviewed by The Edge in January 2011, "Taking Felda to the next level,"
http://www.feldaholdings.com/content.php?h=4177&lang=EN.

RSPO vs. soy roundtable

News: GAPKI, the key palm oil producer association of Indonesia withdraws from its membership and its Executive Board role in the RSPO. Source: http://www.rspo.org/?q=content/statement-gapki%E2%80%99s-withdrawal-rspo.

Khor Reports comment: There had been market rumours. Also, the growers' collective dissatisfaction with RSPO is well known. But, seeing is believing. It has happened; Indonesia is following the play book that Brazil has also used. Read about it here in our Khor Reports, Palm Oil Strategic Analysis newsletter #2: https://sites.google.com/site/khorreports2011/palmoil_strat_analysis/khorreport002-palm_oil-rspo_growers-100826.pdf?attredirects=0&d=1.

Since the subject of soy crops up, let's do a quick comparison of some of the key features and achievements of RSPO and its sister organisation in the soy sector, the Roundtable for Responsible Soy (RTRS). RSPO and RTRS have some common Executive Board members - including WWF and Unilever.

Summary info
RTRS: Initiation of consultation in 2004, first certification c. June 2011. Current price of certificates is USD5. 90,500 ha currently certified.
RSPO: Initiation of consultation in 2002, first certification c. end 2008. Current price of certificates is USD1. Over 1 million ha currently certified and 2.6 million ha promised in timebound plans by 2020.

Partial vs. full certification
RTRS: A producer can certify part of his production, but for his entire production area, he needs to implement some fundamental criteria e.g. not to deforest HCVA in non-certified areas. It is up to the producer to determine how much market demand there is for certified soy, so no specific percentage for certification is required (i.e. partial certification is OK).
RSPO: Since Nov 2008, growers have to timetable their adoption plans. Producers have to submit time-bound plans for their certification efforts; they are required to certify all their mills & supply bases (i.e. full / 100% certification is required). Clause 4.2.4 states: “A challenging time-bound plan for certifying all its relevant entities is submitted to the Certification Body (CB) during the first certification audit.” Source: “RSPO Certification Systems, Final document approved by RSPO Executive Board, 26 June 2007, Approved by Executive Board on 3 March 2011 on Revised clause 4.2.4.”

Principles & criteria
RTRS: 5 principles, 28 criteria, 95 indicators.
RSPO: 8 principles, 39 criteria, 118 indicators.

Phase-in compliance
RTRS: Gives producer 3 years to phase-in compliance. Allows partial compliance of 62% in year 1 and 86% in year 2, prior to 100% compliance in year 3.
RSPO: Phase-in not available.










HCV assessments
RTRS: Not required if expansion of soy cultivation is a) in line with an RTRS-approved map and system, or b) in non native forests areas and official land-use maps zone those areas for expansion or c) it is outside priority conservation areas.
RSPO: An HCV assessment, including stakeholder consultation, is conducted prior to any conversion. Also, refer to List of RSPO approved HCV assessors.

A quick glance indicates that on several fronts, RTRS is not as tough as RSPO. RTRS Standards also appears to better drafted, with a better categorisation of the P&C typology - this means fewer overlaps and confusions. When it comes time for RSPO to review its P&Cs (by 2012), it might look to the RTRS as an example.

Despite the more 'business-friendly' look of RTRS (vs. RSPO), Brazil soy association interests withdrew from RTRS. Brazil soy is slated to launch its own industry-led sustainability certification system, called "Soja Plus".

IFC / World Bank Group support of RSPO

IFC (part of the World Bank Group) supports the development of the RSPO, primarily through its Biodiversity and Agricultural Commodities program (BACP). Read about it via its flyer here, http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/fly_Biodiversity_BACP/$FILE/BACP+Flyer.pdf.

Reported in the BACP newsletter, Issue 10, June 2011:

Through its grant-making facility, BACP supports the RSPO both directly and indirectly.

BACP provided a grant directly to the RSPO to support a Biodiversity Coordinator and activities of the Biodiversity Technical Committee (BTC).

BACP has given grants to various NGOs and other organisations, in support of their efforts at RSPO, these include:
• PanEco Foundation is working to demonstrate the potential for palm oil production on Indonesia's 4.7 million hectares of degraded land in an effort to preserve the country’s biodiversity-rich areas of High Conservation Value (HCV) from being converted to palm oil plantations......
• The Zoological Society of London (ZSL) is working to 1. improve the effectiveness of the biodiversity-related RSPO Principles and Criteria......
• Fauna and Flora International (FFI) has been piloting an innovative partnership model that helps producer companies comply with the biodiversity-related criterion of the Roundtable for Sustainable Palm Oil (RSPO)’s Principles and Criteria. The partnership engages large-scale producers to take an active role in protecting and managing HCV areas on or adjacent to their concessions......
• The World Resources Institute (WRI) is working to make compliance with RSPO biodiversity related principles and criteria easier for producers by providing necessary information and toolkits for successful and sustainable production on degraded land......

IFC’s BACP also has various efforts Supporting the Round Table for Responsible Soy (RTRS).

BACP states: Agricultural expansion is the leading cause of habitat loss around the world and poses one of the gravest threats to global biodiversity. Tropical export commodities have dramatically increased production in the last fifty years, resulting in the destruction of much tropical habitat. The Biodiversity and Agricultural Commodities Program (BACP) seeks to reduce the threats posed by agriculture to biodiversity of global significance by transforming markets for target agricultural commodities. To transform the commodity markets, BACP supports projects that generate greater supply, demand and financing of biodiversity-friendly products. Projects must meet specific criteria and address one of the four following components:
1. Removing policy barriers
2. Supporting better production
3. Increasing demand for biodiversity-friendly products
4. Encouraging financial services to support biodiversity-friendly practices

Source: http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/newsletter_biodiversity_BACP_issue10/$FILE/BACP_Newsletter_Issue+10.pdf.

Khor Reports comment: NGOs and other organisations have been quick to avail themselves of BACP funding for their projects. It is surprising to us that growers (especially the smaller estates, smallholders and/or those operating near high conservation / sensitive areas), who may have quite a lot work to do too, do not seem to have done so yet (not listed among 'grantee highlights' in the BACP newsletter). Perhaps BACP could assist them too?

Greenpalm CSPO premium dives to 30 cents

Greenpalm reports on its website: "GreenPalm passes key milestone as 2 millionth certificate traded... GreenPalm, the certificate trading programme that enables businesses to support sustainable palm oil production, is celebrating the trade of its 2 millionth certificate. This milestone has been achieved in just over two and a half years, enabling palm oil producers to earn over $15m of additional income for operating sustainably."

Greenpalm's market data shows that palm oil certificates last traded at 30 cents and PKO certificates trade at $3.90.

Source: http://www.greenpalm.org/en/home, accessed 6 September 2011.

Khor Reports comment: The 30 cents premium is a big come down from the near USD40 price premium that certified sustainable palm oil (CSPO) first traded at. Arguably, Greenpalm's price is the most important single market indicator for the demand for sustainable palm oil, which is so far only available under the Roundtable for Sustainable Palm Oil (RSPO) initiative. The price collapse, of about 99%, indicates an excess of supply over demand for the RSPO's CSPO. At 30 cents per metric tonne of CSPO, there is scant hope for additional income for those operating sustainably. Most of the largest palm oil growers are heavily committed to RSPO certification and they will be hoping that this lead price indicator picks up. Palm oil sustainability experts often estimate the cost of RSPO certification at USD6-12 per metric tonne for corporate growers. Smallholders have been slower to get onto the programme; growers often say that a fair premium is needed to help this group. Sustainability practitioners point out that it may not be so difficult for this group to participate; but they need a change of mind-set and a dash of pride and hope. Although the market for sustainability seems to deliver a "no" - let's hope that is a temporary message.

Sarawak NCR land - a new development model

News article, 29 Aug 2011: "Felcra-like model to develop native land in S'wak"
Sarawak has introduced a new land management system modelled after Federal Land Consolidation and Rehabilitation Authority (Felcra) Bhd to develop Native Customary Rights (NCR) land in the state..... According to state land development minister Tan Sri Dr James Masing, the pilot project involving the new land management model was carried out in Pasai Siong, near Sibu......"The agreement with Felcra was reached in June this year. This is the first time we used this model on the NCR land management. This model has been used by Felcra in other land areas under the Ladang Rakyat scheme, but this is the first time it was applied to NCR land.... "This is because, to develop NCR land, you need the consent of landowners. Felcra will manage this pilot project with a fee for 15 years," he said.... under the new land management model, NCR landowners would hold 90% shares, with the remainder to be held by Sarawak Land Custody Development Authority (LCDA). Felcra will source all the funding required and will only charge management and marketing fees.... (source: http://thestar.com.my/news/story.asp?file=/2011/8/29/nation/20110829111929&s)

Khor Reports comments:
a) This is a promising new proposal for NCR land development in Sarawak. This is an advancement from the Sime Darby land deal proposals in FY2009, where the plantation sought a 60% stake, while offering the native landowners 30% and LCDA/Pelita 10%.
b) Previously, oil palm land deals have been in the eastern state of Malaysia have been problematic in their general poor inclusion of native landowners. Such issues are exemplified in the IOI Pelita case where a secondary land purchase has been bogged down by controversy from the initial land deal.
c) This suggests that any plantation should be concerned about the level of inclusion of local and native peoples in their current and existing projects. This "social agenda" is likely to become a significant issue for plantations.
d) Investors in plantations might become more keen to ask plantation companies to better disclose such risks, as well as the conservation / environmental usability and risks of their land banks.

Also view: http://khorreports-palmoil.blogspot.com/2011/04/native-customary-rights-ncr-issues-at.html