FGV enters dairy business with Red Agri share acquisition

14 Feb 2020 / 18:24 H.

PETALING JAYA: FGV Holdings Bhd entered into the dairy farming and fresh milk processing business following its RM10 million acquisition of a 60% stake in RedAgri Farm Sdn Bhd.

The group stated that the equity acquisition marks the first step towards becoming an integrated agrifood company, enabling it to create more value from existing resources and tap into synergies within the palm-based circular economy.

According to its CEO, Datuk Haris Fadzilah Hassan, dairy farming is one of the pillars identified for its integrated farming business.

Currently, RedAgri currently processes 4,000 litres of fresh milk a day, which will be increased to 20,000 litres a day by 2022, and the increased production capacity is already committed to industrial and commercial customers.

Malaysia imports about RM3.9 billion worth of dairy products a year, as local production amounts for only 67.1 million litres annually, or 61% of current domestic demand.

Haris revealed that the other key pillars for FGV are animal nutrition, paddy & rice, and cash crops, which includes MD2 pineapples and Cavendish bananas.

Last year, FGV stated that it would enter the palm-based circular economy to tap into lucrative synergies presented by its extensive palm oil operations.

The group has rammed up production of its palm-based animal feed operations, with 2019 reporting a 113% increase in sales to 21,600 metric tonnes (mt) from 10,200 mt recorded in the previous year.

Sales in January 2020 sales increased by 369% year-on-year (yoy) with 3,600 mt of feed sold in the domestic market.

“Once capacities are rammed up to 150,000 mt per annum, in the next five-years, we are looking at additional revenues of about RM120 million from this business,” said Haris in a press release.

FGV highlighted that 60% to 70% of the cost of livestock rearing in Malaysia is from feed, most of which is imported.

It stated that the palm-based animal nutrition sector has been identified as an important revenue stream in the group’s integrated agribusiness sector, as it is derived from palm kernel expeller (PKE), which has traditionally been exported as a by-product with low income margins.

Currently, the group produces 400,000 MT of PKE annually.

Furthermore, to realise the value of 15,000 hectares of intercropping land available during oil palm replanting each year, the group has established an MD2 pineapple seed garden in Johor, with a view to scaling up both for the local and domestic markets.

FGV has also established contract farming agreements for the supply of cavendish bananas, besides other cash crops, which are being tested for demand and viability.

It stated that the biomass produced from these crops can potentially be processed for animal feed production, in addition to PKE.

Haris said the expansion of FGV’s footprint in the agri-food sector will accrue benefits for the group and its stakeholders.

He explained that the thrust for its foray into integrated agribusinesses is contract farming, which will encourage its smallholders and farmers in the B40 segment, to venture into this new business with FGV’s support and critical inputs.

“For the dairy business, this will have the twin impact of increasing the supply of milk for FGV’s processing facilities and also, offering a lucrative income source for farmers.”

FGV said that with the support of contract farmers, it will be able to increase production to meet more local demand.

Haris stated that the group’s success has always run parallel with the nation’s efforts to achieve greater social equity.

“Already, our smallholders produce two-thirds of the crops we process,” he said.

“Enabling them to grow with us and to enjoy the same successes in synergistic and adjacent businesses will help us to ensure that this important stakeholder is able to continue partnering FGV in the years ahead.”

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