Friday, September 21, 2012

Plantation: A tale of two companies

Company-P has been one of the pioneer in palm oil cultivation operating in Country-M for more than 40 years. It started as a family business, later went listed in the M-stock exchange and continued to have successful expansion. Due to the attractive crude and refined palm oil prices, it is now a very profitable company. Since 1991, due to the lack of land for expansion in Country-M, it started to buy land in Country-I and uses its palm cultivation and refining expertise to improve palm oil processing efficiencies in the new country it invested in.

The Chairman of Company-P has a very strong relationship with the President of Country-I as well as all the district heads in the areas where he cultivates palm in. Whenever, he faces problems with the locals of the country especially the villages head, he will use his many problem solving tools that he has. Some of them may not be legal as he would have gotten one of his entrusted managers to carry large amount of cash to pay off some of the villages heads so that operations can go smoothly. Of course, these method of paying off the villages heads were not reported in the autobiography that he had gotten one very popular writer to pen on. His success in Country-I had made the investors of his company and himself (who owns 45% of the company) very rich.

The expansion in Country-I is so successful that he has been honored by the President of the country. Currently, Company-P owns 300,000 hectares of land in Country-M while the expansion in Country-I made the total acreage ownership of land in Country-I higher than Country-M, at 500,000 hectares. Company-P now is one of the largest land owner for palm oil cultivation totalling 800,000 hectares. The company's palm production efficiency is also one of the highest in the world.


Started its palm oil operations during almost the same period, Company-S commenced to replant palm to replace rubber trees in 1971. Total hectares of land in Country-M for the cultivation of palm is now 700,000 hectares, making the company the largest palm oil exporter in the world. Originally, it was a privately owned company with the shareholdings largely held by Europeans whose ancestors went over to Country-M since the early 1900s. However, due to the policies of the new PM of Company-M in 1980, he started to nationalize these assets owned by foreigners by buying the shares from the majority holders of Company-S. As such, Company-S has now become a majority owned national assets largely held by the investment arm of the government and its provident fund.

Due to it being a national owned assets, expansion was not a problem. The government of Country-M helped the growth of Company-S by contributing part of the infra development budget erecting roads next to the plantation land that Company-S has. Over time, as part of the land has become closer to new urban developed area of Country-M, some of those land that were originally agriculture land has now become commercial and residential properties. As a result, Company-S became a very big and rich conglomerate - very successful as well.

As a result, the CEO is paid more than USD10 million a year inclusive of bonuses. However, similar to Company-P, new land for cultivation of palm oil is getting much more difficult to acquire and they are becoming much more expensive as well. Hence, it is also almost a no brainer for the CEO of Company-S to plan his company's expansion to Country-I, a place which has enjoyed palm oil success to a certain extent partly due to the work of Company-P a decade earlier.

To fast forward the expansion into Country-I, the CEO asked the new PM of Country-M to arrange a working visit to Country-I. In that working visit, Company-S signed a MOU with a local partner (in front of both PM of Country-M and President of Country-I) announcing that it would invests USD5 billion into buying agricultural land for the cultivation of palm trees over the next 5 years. 2 years after that MOU has been signed, Company-S has now bought over 300,000 hectares of land. However, the local partner after making some quick profits decided to sell back his shares to Company-S.

Another 3 years has passed since. However, the clearing of land in the area that Company-S had bought was going very slowly. Every time Company-S wanted to clear the land for planting, it faced many obstacles - part of reasons the locals in the province it owns its land were against the move. Of course, them learning from their nearby villages head whom were given some rewards by Company-P were asking for something of the same. However, the professional managers that Company-P hires were unwilling to do so as they were unwilling to risk their career, especially if they are caught by the government of Country-I, they may lose their jobs or may even be jailed. Nobody wants to go through that, especially with the relationship of Country-M and Country-I which was turning sour, even more so recently.

Things got worse and after 10 years, about 80% of the land was still yet to be fully cleared. The planting of new young trees were also moving very slowly. Due to that, and with the pressure from his shareholders, the CEO resigned. He was in fact charged together with his CFO by the anti-corruption agency of Country-M for laundering company's money. The newly appointed CEO, in the end after studying the case and did not want to be encountering the same scenario as his predecessor, announced a cut-loss sale of the land in Country-I at USD2.5 billion.

Of course, by now you should know that this story is fictional. Any similarities to any of companies, countries are just a coincidence.


limchohooi said...

Co.P = Perlis Plantation, Co.S = Sime Darby

felicity said...

not true. just a story

LochNESS said...

novelistic and entertaining indeed ;-)

CrabGrill said...

Will you touch about company-H recently being fined for RM 91 M ? I would like to know more about what kind of the CEO and MD they are?

felicity said...

HI Which Company-H is that?

You cans end to my facebook account.

CrabGrill said...

Sister of Dutch Lady, do you remember that?

felicity said...

Hi Sorry I don't - however do not think there is one which is fined for so high?

CrabGrill said...


felicity said...

Harrisons is a good company on paper but the amount for the fine is a bit worrying. Perhaps would be good to not take risk while the sort the issues out. We do not know what actually happened unless you do.

Kalasou said...

Nice story of PPB! By the way look over their business model, totally utilize their resource~
Great Wilmar!