Cash crops:

       AMID inflation and soaring food prices, more planters will likely opt for integrated farming ventures. Intercropping oil palm, with other cash crops such as pineapples and bananas, has been proven to be a raving success for some big plantation companies.

       United Plantations Bhd, for over two decades, have successfully nurtured cash crops such as bananas and coconuts, making it part of the group’s diversification avenue.

       Another plantation giant gradually reducing its 99% dependency on oil palm is IOI Corp Bhd, which is now actively undertaking large-scale pineapple cultivation. With minimal workforce, IOI has intercropped the pineapples between pandan coconut trees and other crops such as bananas and kenaf at its Sagil estate in Johor.

       In late 2020, the group had harvested some 125,000 MD2 pineapples. In Malaysia, FGV Holdings Bhd can be seen as a truly big player in integrated farming. It has complete business components of integrated farming that include cash crops, paddy and rice, animal nutrition and protein, livestocks and dairy farming.

       To fully realise the value of its 15,000ha of intercropping land available during oil palm replanting each year, FGV has established an MD2 pineapple seed garden in Johor. It also established contract farming agreements with local farmers for the supply of cash crops like Cavendish bananas, while jackfruits and melons are still being tested for demand and viability.

       Also, the group’s venture into dairy cattle is a value creation from its acquisition of Red Agri Sdn Bhd that led to developing premium animal feed. It was reported that FGV envisaged its integrated farming will likely generate some 15% of its Ebitda margin by 2023 on an estimated revenue of RM60mil.

       On the overseas front, planter United Malacca Bhd is betting big on large-scale commercial cash crops cultivation in Indonesia.

       The group is undertaking a joint-venture to develop a 60,000ha land in central Sulawesi, whereby 35,000ha to 40,000ha will be dedicated to planting coconut, cocoa and stevia.

       For the planters, many are trying to limit their exposure to the volatility in crude palm oil prices while aiming to grow a field of profitable cash crops moving forward.

       Green washing

       COMPANIES have to pay special attention to environmental, social and governance (ESG) issues. No doubt, it is an additional weight on such firms, to ensure that their operations are firstly not in breach of ESG principles but also that they gain extra brownie points by making efforts to achieve high ESG scores.

       Such moves bode well for gaining more investor attention considering that most investment funds are incorporating ESG principles into their investment criteria. But then there is the fear of greenwashing, essentially in reference to the effort of trying to convey a false impression about a company’s ESG credentials.

       Greenwashing can mislead investors as to the true risks, rewards, and pricing of investments.

       In the United States and Europe, regulators are making efforts at penalising greenwashing efforts.

       For example, last month the US Securities and Exchange Commission (SEC) fined an investment unit of the Bank of New York Mellon Corp on allegations it falsely implied that some of the firm’s mutual funds had undergone so-called ESG quality reviews.

       And the SEC is now looking into whether some of Goldman Sachs Group’s mutual funds do not meet ESG metrics as proclaimed in its marketing material, Bloomberg reported.

       Since then, the SEC has proposed additional disclosure requirements for funds and asset managers that market themselves as having an ESG focus and amendments to rules aimed at preventing misleading or deceptive fund names.

       In Europe, the European Securities and Markets Authority has published a briefing to promote a common approach across the Europen Union (EU) to supervise fund managers’ sustainability-related disclosures and integration of sustainability risks. It said a common approach should serve to increase transparency for investors and avoid the practice of “greenwashing”.

       Expect similar regulations to appear closer to home as it is only natural for regulators to follow current trends being practised elsewhere especially in relation to developments surrounding ESG. However, what also needs to be quickly developed surrounding the ESG issue is accepted definitions and taxonomy of the concept. Only then can it be better regulated

       Raising rates:

       US stock markets are in a terrible place nowadays.

       Inflation is at a 40-year high and a war in in Europe that is threatening a recession in many western countries brought about by sky-high oil prices.

       In emerging nations, exiting the pandemic has brought about economic pain for some countries.

       There is economic collapse in Sri Lanka.

       Pakistan is teetering but that depends on which side of the political aisle one stands in. Laos is seeing their economy under pressure as the kip get heavily devalued.

       The common theme among the economically-stressed countries is the evaporation of their foreign exchange reserves. The amount of reserves for the emerging market is a pillar in the foundation for many countries that are working their way up the economic rank.

       For Malaysia, it is no different and now a question will need to be answered as to what will happen next after the US Federal Reserve raised its benchmark interest rate by 75 basis points to a range of between 1.5% and 1.75%.

       At the upper end of that range is just a 25 basis-point distance from where Malaysian rates are at.

       The question before Bank Negara and the monetary policy committee is not whether interest rates are sufficient to tackle inflation but whether domestic interest rates are sufficient to keep the Malaysian reserves up.

       When the overnight policy rate was raise the last time on May 11 by 25 basis points to 2%, the question was not whether it was sufficient to keep inflation at bay.

       Malaysia’s inflation rate was 2.3% in April and much of the price hikes were kept at bay thanks to huge amounts of subsidies. The amount of money used just to keep prices stable is a subject of a lengthy conversation but the decision to raise the overnight policy rate has to be seen in the movement of foreign exchange reserves at around the 25 basis point hike by Bank Negara.

       There was a noticeable outflow of foreign exchange reserves then and with foreign exchange reserves sufficient to pay for less than six months on sustained imports like it is now, that amount if also on the low end when previously it was sufficient for seven months and up.

       With Malaysia having reached a total trade of RM1 trillion in the first five months of 2022 – the question remains at to why there is a big disconnect between the humongous trade surpluses the country is chalking up versus the flattish level of foreign exchange reserves?