FGV Holdings Bhd has subscribed to new shares representing a 60% stake in the enlarged share capital of RedAgri Farm Sdn Bhd for RM10 mil.
This marks the group’s entry into the dairy farming business and fresh milk processing, the first step towards becoming an integrated agrifood company.
The acquisition of RedAgri, which owns the Bright Cow brand of dairy products, enables FGV to create more value from its existing resources and to tap into synergies within the palm-based circular economy.
“Dairy farming is one of the identified pillars of our integrated farming business,” its CEO Datuk Haris Fadzilah Hassan said in a statement on Feb 14.
The other key components are animal nutrition, padi and rice, and cash crops, which include MD2 pineapples and Cavendish bananas.
FGV announced last year that it would enter the palm-based circular economy to tap into lucrative synergies presented by the group’s extensive palm oil operations.
Meanwhile, the group has already rammed up production of its palm-based animal feed operations, with 2019 sales showing a marked 113% increase to 21,600 metric tonnes (MT), against sales of 10,200 MT in the previous year.
January 2020 sales have come in at 369% higher than January 2019, with a total of 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 mil from this business,” Haris Fadzilah said. Currently, 60-70% of the cost of livestock rearing in Malaysia is from feed, most of which is imported.
The palm-based animal nutrition sector has tremendous potential for growth and has been identified as an important revenue stream in FGV’s integrated agribusiness sector. Derived principally from palm kernel expeller (PKE), which has traditionally been exported as a by-product with low margins, palm-based animal feed has been tested and proven to produce excellent results in livestock production. FGV currently produces 400,000 MT of PKE annually.
To fully realise the value of 15,000ha of intercropping land available during oil palm replanting each year, FGV has already established an MD2 pineapple seed garden in Johor, with a view to scaling up both for the local and domestic markets.
The group has also established contract farming agreements for the supply of cavendish bananas, besides other cash crops, which are being tested for demand and viability. In addition to PKE, the biomass produced from pineapple and banana production can potentially be processed for animal feed production.
“There are several benefits that will accrue to both FGV and our stakeholders, as we expand our footprint in the agri-food sector,” Haris Fadzilah said.
“For instance, one of the key thrusts of our foray into integrated agribusinesses is contract farming. Thus, where possible, we will encourage our smallholders and farmers in the B40 segment, to venture into this new business with us, with our 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.”
RedAgri currently processes 4,000 litres of fresh milk a day, which will be increased to 20,000 litres a day by 2022. Most of that increased production capacity is already committed to industrial and commercial customers. With the support of contract farmers, FGV will be able to increase production to meet more local demand.
Malaysia imports about RM3.9 bil worth of dairy products a year. – Feb 14, 2020