One of the largest crude palm oil producers in the world embarks on a new journey to expand its branded consumer products business.

FGV Holdings Berhad (FGV), which produces 3 million metric tonnes (MT) of Crude Palm Oil (CPO) every year, is one of the largest single CPO producers in the world contributing approximately 15% of Malaysia’s total CPO production per annum. It’s a company that was listed as recently as 2012 where it was the second-largest Initial Public Offering (IPO) in the world, just after Facebook.

However, the FGV of today is building a new growth frontier by making a critical and necessary structural shift in its business focus to ensure sustainable returns, provide better-paying jobs to its employees, and ultimately create positive externalities to the Malaysian economy as a whole.

“We’re reallocating our resources to invest more in higher value-add products; branded consumer products,” says Salman Ghazali, FGV’s Group Chief Strategy Officer who leads the Group Strategy Division, which is responsible for the group’s overall strategy and business plan, investments and divestments, and business development activities.

“The key megatrends are clear. You need to shift. It is a natural progression for any high middle-income developing nation to structurally shift its economy’s factors of production towards building higher value-add business activities to further increase income per capita, thus achieving developed-country status,” Salman added.

A Diverse Offering

FGV is a fully integrated palm oil producer, maximising its palm value chain presence via its Plantation downstream business which is responsible for all refining and processing activities related to the conversion of CPO and Palm Kernel (PK) into higher value-add products.

As for FGV’s Sugar Sector, it operates mainly through its 51% owned listed subsidiary, MSM Malaysia Holdings Berhad (MSM), which is the leading refined sugar producer in Malaysia. Whereas, FGV’s Logistics & Support Business Sector currently owns one of the world’s largest and most modern storage facilities for edible oil with a total capacity of more than 1.1 million MT through its 12 liquid terminals located in Malaysia, Indonesia, and Pakistan.

FGV has also embarked on integrated farming activities as its fourth sector, the Integrated Farming Sector. The business components include other cash crops, paddy and rice, animal nutrition and protein, livestock, as well as dairy farming.

FGV is already a relatively well-known consumer products player in the country where it markets and sells a wide range of branded consumer food products but mainly in the cooking ingredients and dairy product segment. Brands such as SAJI, ADELA, SERI PELANGI, and BRIGHT COW are already among the most preferred products among Malaysian consumers. Moving forward, FGV wants to expand its product categories to include confectionery, nutritional snacks, beverages, convenient food, and even pet food.

“Moving forward, the most important sector will be our Consumer Products Sector. It will be the ultimate product consolidator and brand builder, which is pretty much inspired by the ‘Sogo Shosha’ business model. We want to sell a wide range of branded consumer products in various product categories. We want to build strong international brands that are able to cut across different consumer lifestyles, cultures, and nations,” Salman explains.

New Growth Frontier: Branded Consumer Products

Like FGV, Malaysia’s entire plantation industry is facing the same challenges that require it to adapt to the declining-returns environment due to the growing national income per capita, which leads to higher cost structures. Cost continues to increase at 3 to 4% per annum and sometimes more, while CPO prices remain relatively stagnant with very minimal annual growth mimicking population growth.

“Malaysia is a small country, so we need to almost immediately have international presence due to the smaller local market base of fewer than 32 million people, making it highly dependent on exports to reach economies of scale,” Salman says. “This means our risk profile is higher when it comes to venturing into new unchartered territory such as this. Despite all the risks, it needs to happen. The potential returns are there for the taking, but Malaysia is a small country, so it will be challenging of course and requires time to execute.”

However, Salman is quick to point out that Malaysian companies do have some level of advantage over international consumer products players due to its upstream presence.

“Raw material producing countries such as Malaysia have quite an advantage over international companies because the raw materials come from us in the first place,” he points out. “Other multinationals buy these raw materials from us. Whereas for companies such as FGV, we own the raw materials, so it’s a matter of converting the raw materials into our own high value-add branded consumer products, which we will then market and sell to end-consumers ourselves through our distribution channels.”

Competition with multinationals will be more on brand awareness, and product and lifestyle attractiveness rather than price positioning as Salman points out.

“The biggest obstacle will be in terms of our ability to build a strong brand name as it requires a different way of thinking and approach” admits Salman. “If you look at Nestle, approximately 6% of their revenue stream is spent on advertisements and promotions (A&P), and only 2% on R&D,” he added.

“We created a Chief Consumer Products Officer position and have brought in consumer products experts to start executing the plans developed and build a workforce that has the right DNA to be successful in the consumer products space. It requires a lot of work to build and enhance FGV’s capabilities,” Salman elaborated.

Other Key Growth Initiatives

At FGV, the plan is to go beyond what the company is currently doing. “We have also made good progress in terms of building our own end-to-end agribusiness supply chain with our latest new investment in GOGOPASAR which is an e-Commerce grocery marketplace that will digitalise FGV’s route to market which is in line with the government’s National E-Commerce Roadmap mission to future-proof existing businesses and to expand local market access.”

Also, FGV had recently ventured into India. FGV Pre Unique, a joint-venture company between FGV and Pre-Unique Pvt Ltd, aims to penetrate India’s food products market.