Saturday March 2, 2013
Sowing the seeds of success
By NG BEI SHAN
Four decades of R&D puts Felda Agricultural Services in the forefront of the oil palm seedling business.
WITH 44 years of experience in research and development, Felda Agricultural Services Sdn Bhd is undeniably a market leader in oil palm planting materials in the country.
Felda Agricultural Services the technical arm of the Felda Group and associate company of Felda Global Ventures Holdings Bhd (FGV) raked in RM85mil from selling planting materials last year, and registered more than RM100mil in profits per annum for four consecutive years (2008-2011).
“We have a unique model. Although we are an R&D unit, we operate like a business entity and we are responsible for our own profit and loss,” its chief executive officer S. Palaniappan tells StarBizWeek.
Palaniappan says that Felda Agricultural Services' R&D activities are funded by its earnings, which is also paid out as dividends to its major shareholders Felda Holdings Bhd (a 49%-owned subsidiary of FGV) and Koperasi Permodalan Felda.
The company also invests about RM50mil-RM60mil annually in R&D, which covers oil palm breeding, biotechnology, tissue culture, molecular markers, applied technology and downstream processes.
The bulk of Felda Agricultural Services' revenue comes from selling planting materials and fresh fruit bunches from its research stations nationwide. In a year, Felda Agricultural Services produces an average of 25 million germinated seeds, says Palaniappan.
About 75% to 80% of the planting materials it produces are sold to other planters like Tradewinds Plantation Bhd, TH Plantations Bhd and Sarawak-based Rimbunan Hijau Group, while the remainder is sold to Felda plantations.
Overall, Felda Agricultural Services has captured 35% of the domestic planting materials market, according to Palaniappan.
Over the past nine years, Felda Yangambi has become an iconic oil palm seed brand, says Palaniappan. “We sold 26.5 million Felda Yangambi seeds last year.”
From 2008 to 2012, Felda Yangambi won the Brand Laureate SMEs chapter awards for best brand in product branding, oil palm germinated seed and brand innovation.
The brand is so valuable that it has been pirated, Palaniappan says. “To ensure that clients get genuine seeds, we have incorporated security features like the hologram which enables traceability. The packaging also carries the Felda logo.”
The new Felda Seed Delivery and Security System for packaging and labelling retains all integral data of the seed, which will also ensure originality and traceability in the event of quality issues as well as reduce the risk of falsification.
The company is also looking into automating some of the seedling processing methods.
“This is a labour intensive industry but we have designed and developed machines that could help speed up the processes and to reduce our reliance on manual input,” says Palaniappan.
What makes the seed highly sought after is its ability to produce crops with desirable traits.
“It takes a long time to build a reputation. When people buy, plant and see the results they want, they will return. The product speaks for itself,” he says.
And for clients in Peninsular Malaysia, Felda Agricultural Services delivers seed orders to their doorstep.
The planting materials business is lucrative, says Palaniappan. “The margins are good because clients pay for your intellectual property,” he says.
He says the costs are not just based on the seeds but also Felda Agricultural Services' scientific breakthroughs.
It may be a profitable venture but not everybody has the expertise and resources to create a seed that contains the traits that planters desire, such as high yield of fresh fruit bunches (FFB).
Palaniappan says Felda Agricultural Services holds the upper hand in the R&D segment because the company has a lease on 12,700ha of land spread over 14 different stations in the country to carry out oil palm breeding, clonal evaluation and agronomic trials.
The various locations enable Felda Agricultural Services to carry out multiple field trials under different planting conditions to attain high FFB yield.
Felda Agricultural Services managed to achieve an average FFB yield of 24.6 tonnes per hectare last year, he says. This amount is considered encouraging as the industry average had declined last year due to higher water stress level in 2011, which resulted in less female flowers and fruits.
One step ahead
Palaniappan says that after 44 years in R&D, Felda Agricultural Services has built a strong and reputable brand.
Going forward, tissue culture will play a vital role in producing planting materials.
“It takes 12 to 15 years to produce a seed but with cloning, the process of producing elite materials can be sped up,” he says.
Felda Agricultural Services has a biotechnology centre in Nilai, Negri Sembilan, which focuses on producing oil palm clones from tissue culture, DNA fingerprinting and profiling, and charting molecular markers for specific traits for use in marker-assisted breeding and to improve the cloning process.
It plans to introduce a “three-way cross” a new hybridisation planting material incorporating the Deli Dura, Nigerian Prospectus Material and Yangambi strains. This new hybrid is currently under pilot testing and will be in the market in two to three years' time. “To be a market leader, we must be one step ahead others,” he says.
In the future, Felda Agricultural Services will release oil palm clones with specific traits such as virescence (green coloration in plant parts normally not green), Ganoderma tolerance, and compact palm.
Palaniappan says the palm fruit colour changing from green to orange would allow workers to identify and harvest ripe fruits with ease, as only ripe fruits can improve the oil extraction rate by 1% to 3%. Planters can improve their yields through better identification of ripe fruits.
“There is a lot of money involved in getting the right crop,” he says.
As long as there is oil palm replanting in the country, the planting materials that Felda Agricultural Services produces will be in good demand.
Palaniappan expects some 300,000ha to 400,000ha of land to be replanted in the country every year.
“There are more than 15 seed producers in the country with 80 million seeds produced per year. This is sufficient for the country's consumption and there should be surplus for exports,” he says, adding that about 50 million seeds are needed for plantations in Malaysia in a year.
Palaniappan sees further potential for the planting materials secor if seeds from Malaysia can be exported under more liberal terms. One seed is sold for RM2.35 domestically while the price can go up to RM3 for the overseas market, he adds.
Currently, there are measures to control seed export. Palaniappan says the control was introduced when the plantation industry was growing in the 1970s and 80s, when the focus was to ensure sufficient supply in the local market. However, with the excessive number of seeds available now, a percentage of these seeds can be exported.
Under the present situation, a seed producer requires permission from the exporting and importing countries. “Eventually, it will come to a point where the Government allows liberation in the export of seeds,” he says.
Besides producing planting materials, Felda Agricultural Services is also into product formulations to support the downstream processes on food uses of palm oil.
Palaniappan says there is tremendous potential for growth in the Felda Group's downstream segment and the R&D unit will support the parent company through formulation enhancement and product development.