Politically, the most explosive situation that has yet to be capitalized by Pakatan Harapan relates to the debt burden borne by Felda settlers. Deputy Minister in the Prime Minister’s Department, Datuk Razali Ibrahim had recently revealed in a parliamentary reply that settlers owed the Government RM 5 billion in various kinds of loans as of Dec ‘15.
This RM 5 billion figure may seem to pale in comparison to the RM 44 billion debt figure associated with 1MDB, but it is the most relevant number for the upcoming election campaign. This is because this figure works out to about RM 50,000 per settler household and is an issue that affects every single Felda settlement.
The Government has been extremely cautious in disclosing this and recognizes the potential political impact once settlers have received their debt statements. While addressing the Jempol UMNO Division Conference in Mar ‘17, Datuk Razali revealed that the debts consist of operational debt and social debt. Operational debt involved the cost borne by settlers for replanting activities carried out on their behalf by Felda Technoplant Sdn Bhd and social debts consist of housing and living allowance subsidies. Whilst Datuk Razali did not provide a breakdown to Parliament, he did reveal in his speech to the Jempol UMNO division that the housing and social debts amounted to RM 1.2 billion, and thus leaving approximately RM 3.8 billion in operational debt.
The key issue however will be how the debt will be repaid. The debt is borne by 112,635 settlers who collectively farm 475,000 Ha of oil palm plantations. This works out to the average estate farmed by the settler at approximately 4.2 Ha, which is predominately in Peninsula Malaysia. According to 2014/2015 FGV’s Sustainability Report, plantations managed by settlers produced 6 million tonnes of FFB, which works out to an average yield of 12.6 MT of FFB per hectare. This means the Felda settler harvests about 54 MT of FFB per year, which is then sold to FGV run mills. At MPOB’s average benchmark price of RM 605 per MT (it actually could range from RM 567 to RM 647 dependent on Oil Extraction Ratio), the average settler can be expected to earn approximately RM 32,000 per year gross.
Here is where the finance perspective comes in. The settler’s debt burden is now more than his annual income and annual payments towards the loan could amount to approximately RM 5,000 per settler per year. These deductions are made at source and the settler loses more than 13% of his income due to the debt burden. For settlers whose debt burden amounts to RM 100,000, which will be more reflective of the cost borne for a newly replanted estate, the debt burden can amount to 25% of his gross income. The situation is further exacerbated by disputes between settlers and mills concerning the Oil Extraction Ratio, declining productivity as settlers age and the El Nino effect, complaints about improper replanting, and the El Nino effect which could further affect productivity. What is worse, settlers use to benefit from the high dividend given by KPF, which has been reduced substantially after the acquisition of Felda Holdings Berhad by FGV.
With this background, the promise complete debt forgiveness for all debts owed by Felda settlers is a compelling. This issue affects total votes of approximately 500,000 people, comprising of settlers and their families, but more importantly affects over 60 seats, which had previously been UMNO’s fixed deposit.
Another dimension concerns “Genarasi 2”, or the children of Felda settlers. For a long time, their life revolved around the settlement and they are simply unable to enjoy the quality of life their parents enjoyed as the produce of the same land farmed by their father will now have to be divided up among the children. They are literally a lost generation as they are unable to continue farming due to smaller land base, competition by foreign workers and rural-urban migration.
The Opposition strategy over the last several election cycles of attacking the Government ad-nauseum has turned off voters to the point of nausea (hence the term ad-nauseum). Felda voters view 1MDB as a personal issue between Dato Seri Najib and Tun Dr Mahathir and will vote UMNO unless there is a compelling reason to chose either wise. The solution to these issues requires populist policies, which was successfully used by Donald Trump and even Yingluck Shinawatra, when she successfully campaigned to become the Prime Minister of Thailand. However, are Pakatan Harapan leaders able to put aside their emotional driven agendas and craft a more coherent strategy? The palm fruitlet is in their court.