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IOI Corporation Bhd is one of the most fully integrated plantation companies in the world
18/05/2017The Star

Malaysian Palm Oil Council (MPOC) chairman Datuk Lee Yeow Chor, who is also IOI Groups chief executive officer — ART CHEN/The Star

IOI Corporation Bhd has emerged as one of the most fully-integrated plantation companies in the world.

DESPITE its relatively short history in the palm oil industry, IOI Corporation Berhad is now one of the leading palm oil players in the world.

Its palm oil business involves the cultivation of oil palm and processing of palm oil. It has operations across the value chain, from upstream activities of seed breeding, planting and crop oil extraction to the downstream resource-based manufacturing activities.

In terms of production, it churns out about 800,000 tonnes of crude palm oil (CPO) a year, which represents almost 4% of the country’s total production. On the processing side, the company, which also uses CPO from other sources, produces about 2.6 million tonnes of palm oil a year, contributing to about 18% of the country’s total output.

“We started from nothing in the early 1980s to become one of the largest producers of palm oil in the country. Many major plantation companies in Malaysia today have a very long history, some over 100 years, which includes their history in rubber plantation.

“Today, we are the second most valuable plantation company in Malaysia and the largest non-government linked plantation company,” said IOI Corporation Bhd’s CEO Datuk Lee Yeow Chor, sharing his company’s achievements. “Besides that, we have always emphasised efficiency. We are also heartened by the fact that many investment analysts have recognised us as one of the most efficient oil palm plantation companies in Malaysia. This means we have a much higher than industry average oil yield and a relatively low cost of production,” he added.

Another significant achievement, said Lee, is that IOI Corporation Berhad has positioned itself as a well-integrated palm oil company with substantial downstream business, which also includes fairly globalised operations with presence in Europe, United States and Asia.

Robotic automation system implemented at an IOI factory increases production efficiency and cuts down on labour needs — IOI Group

However, the plantation business is not without its share of challenges.

The first, faced by the industry as a whole, is stagnant yield due to adverse weather conditions. These include dry spells, the El Nino effect, and fluctuations between very dry and very wet weather which affect production.

The second challenge is the shortage of foreign workers in a labour-intensive industry.

“These two factors have affected the production yield in the industry for the past 15 years,” said Lee.

IOI Corporation also faces another challenge when it comes to expanding their planted areas due to the need for compliance with both national environment regulations and their own, more stringent sustainability policies and commitment.

“These regulations and procedures that we have to adhere to are putting constraints on our expansion, especially in countries outside Malaysia,” he said.
Lee went on to share some of the company’s business plans and direction that address some of these issues.

“Firstly, recognising that the palm oil plantation business is a very labour-intensive industry, an important plan is to formulate and implement labour-saving initiatives in our plantations.

“We have to do this through mechanisation and also be innovative in the way we approach our estate practices. We have to think of new ways to do the things we used to do,” he emphasised.

Another direction the company is taking is strengthening their sustainability credentials due to their presence in Europe and the US, in order for them to become a preferred supplier to many multinational companies, particularly in those regions.

Going forward, to fulfill its requirement for growth, the company also plans to expand their downstream operations beyond developed countries into less developed nations like South America and India.

However, the risks of doing business in those countries are also very high.

“One plan is to explore partnerships with similar industry players, either MNCs or large regional players, which already have presence in those countries,” he said.

Sustainable industry

In 2004, IOI became one of the founding members of the Roundtable on Sustainable Palm Oil (RSPO), a global organisation established to promote the growth and use of certified sustainable palm oil.

IOI achieved full RSPO certification for all its existing plantations and mills in Peninsular Malaysia and Sabah in 2013.

At IOI, its main platform for sustainability can be encapsulated in four letters – NDPE – which stands for No Deforestation, No Peat, and No Exploitation.

“We have built our sustainability policies based on these three planks. By No Exploitation, we mean no exploitation of communities where our operations are and also no exploitation of our workers,” said Lee.

“Today, all our Malaysian plantations are RSPO-certified but more than that, we have to comply with even more stringent standards that our company has adopted along the lines of the NDPE,” he added.

In addition, in order to be the leading sustainability player in the field, Lee said it’s not enough to just make sure the company complies with the policies within their own operations.

“Some NGOs also ask us to ensure that the supply chain in our operations are in compliance with all our policies. That means our hundreds of direct and indirect suppliers also have to comply with our policies. So, there is a lot of monitoring and persuasion in order to achieve that,” he said.

In respect of protecting peat and preventing fires, the company also looks beyond its own planting or concession areas, and is required to adopt the landscape approach where they have to take into consideration the surrounding land, making sure no fires occur there.

In addition, it also engages with surrounding communities to make sure they understand the importance of not draining the peat and not using fire as a method to clear their land.

“The idea is we have to extend our sphere of influence and education to the external areas and work well with others so altogether, the entire area of the district we are operating in is free from the threats of fire or drainage of water from the peat,” said Lee.

When it comes to workers’ welfare, it is a tradition of plantation companies to provide facilities like clinics, schools, community centres, sports facilities and free housing for its many workers.

Today, Lee said the criteria for workers’ welfare has expanded. In accordance to the interpretation by certain NGOs of No Exploitation, they also look into areas of human rights and trafficking in labour.

“So today, we have to extend our efforts to ensure that our workers are not only treated well when they come to Malaysia; we have to start from their home countries.

He said: “For example, we have to ensure they do not need to pay recruitment fees to the agents to ensure they don’t land in financial hardship or borrow money from the agents, especially those who charge high interests. The concern about workers’ welfare today has been extended to wider scopes.”