FGV rises on foray into dairy farming business

The company says its acquisition of a controlling stake in RedAgri Farm is its 1st step towards becoming an integrated agri-food company


SHARES of FGV Holdings Bhd rose 0.75% after the plantation giant announced its acquisition of a controlling stake in RedAgri Farm Sdn Bhd for RM10 million, marking its foray into the dairy farming and fresh milk processing business.

The stock closed one sen higher at RM1.34 last Friday with 4.51 million shares traded, while the FTSE Bursa Malaysia KLCI rose 0.3%.

The agricultural and agri-commodities company, now valued at RM4.89 billion, said last Friday its subscription of new shares amounting to 60% equity interest in RedAgri Farm is its first step towards becoming an integrated agri-food company.

The acquisition of RedAgri Farm, which owns the Bright Cow brand of dairy products, allows FGV to “create more value from its existing resources” and tap into synergies within the palm-based circular economy.

“Dairy farming is one of the identified pillars of our integrated farming business,” FGV group CEO Datuk Haris Fadzilah Hassan (picture) said in a statement. The other key components of the group’s farming business are animal nutrition, paddy and rice, and cash crops.

The group said last year it would enter the palm-based circular economy to tap into the opportunities presented by its extensive palm oil operations.

Among the benefits of the group’s expansion into the agri-food sector is enabling its smallholders and farmers in the bottom 40% segment to venture into contract farming, which is a key thrust of the firm’s foray into integrated agribusinesses.

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

RedAgri currently processes 4,000 litres of fresh milk a day. This will be increased to 20,000 litres per day by 2022.

Most of the increased production capacity is already committed to industrial and commercial customers. With the support of contract farmers, the group will be able to increase production to meet more local demand.

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

“The remaining 40 million litres are imported. The same scenario also applies to several other key food products, presenting opportunities for organisations such as FGV to benefit from import substitution, while also supporting the government’s vision for shared prosperity,” it said.

The group has also increased production of its palm-based animal feed operations, with 2019 sales jumping 113% to 21,600 metric tonnes (MT) from 10,200MT the previous year.

January 2020 sales came in 369% higher than the same month last year, with 3,600MT of feed sold in the domestic market.

“Once capacities are ramped up to 150,000MT per annum in the next five years, we are looking at additional revenues of about RM120 million from this business,” Haris Fadzilah said.

Currently, 60% to 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 the group’s integrated agri-business sector.

FGV currently produces 400,000MT of palm kernel expeller annually.