Agribusiness GAR’s golden strategy combats supply chain issues
The palm oil firm stayed resilient by building its logistics capabilities.
Global political tensions continue to stop or slow down the flow of raw goods and experts are predicting that the supply chain mess will not end anytime soon. One agribusiness firm was one step ahead in this situation and used what it already had to grow its business.
SGX-listed Golden Agri-Resources’ (GAR) head of investor relations, Richard Fung, said their firm’s supply chain was “barely” hit by the Ukraine-Russia war because of their shipping facilities and their partnership with Stena Bulk from Scandinavia, which has had a joint venture with GAR, Golden Agri-Stena, since 2013.
“[Golden Agri-Stena] helps us to be more independent in terms of being able to distribute our products so that when the Ukraine conflict started, we were well-prepared and saw a limited impact on our operations,” said Fung.
Aside from Stena, GAR has joint ventures with GSB Tankers and Sinar Mas LDA Maritime.
Data from its website showed that GAR shipped over 4 million metric tonnes of cargo in 2020 and delivered cargo to 45 ports worldwide.
GAR’s chartering arm, Golden-Agri Maritime, had prepared them for transportation needs such as shipping, trade, and distribution of its products to local and export markets. The company also operates an extensive distribution and logistics network in Europe, encompassing shipping, freight, and warehousing facilities, as well as dedicated storage terminals or warehouses in Italy, Spain, the Netherlands, Bulgaria, Romania, and Colombia.
GAR’s logistics facilities also helped counter Indonesia’s export ban on crude palm oil, one of the top products that GAR produces.
The restriction was imposed in April 2022 to improve the accessibility and affordability of cooking oil in the Indonesian market. Despite this, GAR did so well because of its global distribution network.
“During the ban, we could continue to serve our international clients from our overseas inventories” explained Fung.
The ban also had little effect on GAR since it exported higher value-added products unfazed by the export restriction such as specialty fats, oleochemicals, and biodiesel.
“Historically, the company was initially very much focused on upstream operations, but as volumes expanded, we realised that we needed full vertical integration, so we will not become too dependent on our off-takers,” Fung explained.
This 2023, the company is again embattled by the newest restriction that the Indonesian government imposed against palm oil exports. Exporters were allowed to ship six times their domestic sales volume, down from eight times domestic sales before January 2023. The country also suspended the majority of its palm oil export permits until the end of April to boost domestic supplies.
GAR said it is complying with the government’s strict rules by balancing its export of palm oil. For every six tonnes sold for export, GAR provides one tonne for the domestic market.
On the suspension of permits, the agribusiness said it has enough export permits to serve its international customers during the suspension period.
GAR’s net profit grew 1% to $528m (US$392m) in the second half of 2022, supported by the company’s downstream earnings.
When GAR left the High Carbon Stock Approach (HCSA), environmental groups accused the firm of weakening its stance on “no deforestation.” GAR is one of the biggest supporters of the HCSA methodology, as one of the founders.
Anita Neville, GAR's chief sustainability and communications officer, said they may have ended the membership but did not halt the support for the HCSA methodology across its supply chain.
To date, GAR conserves 79,000 hectares of high conservation value (HCV) and high carbon stock (HCS) areas. GAR is backing suppliers in conserving 117,000 ha of HCV and HCS areas.
In a March brokerage report, Malaysian-based RHB Bank’s overall ESG score for GAR was 2.67 out of 4. It mentioned that GAR reduced greenhouse gas emissions intensity by 25%.
“The company has continuously rolled out conservation planning programmes and, in 2019, set aside over 7,700 ha of HCS forests for conservation,” RHB analysts said.
RHB cited that GAR partnered with major palm oil producers and buyers to develop a new radar-based forest monitoring system to oversee deforestation as it happens in near-real-time.
In 2023, Fung said the company plans to set up mechanisations, but will progressively redesign their plantations first.
“What you need is a bit more space between the trees to allow machinery to enter the plantation and the surface typically needs to be flatter as it can be quite hilly for some of our plantations,” said Fung.
The agribusiness has an upstream facility, SMART Research Institute (SMARTRI), dedicated to research and development in agronomic practices, such as to physical fertility of soils.
This year, China’s decision to end its strict COVID-19 health restrictions will also benefit GAR. Fung said China is one of our major markets as it contributes 11% to the company’s total revenue.
Five years from now, Fung said they are focusing on replanting their old plantations with higher-yield planting materials to increase their production without expanding lands.
“We are not opening new lands due to sustainability concerns so the focus is now on intensification upon basically getting more oil from the same amount of land,” Fung said.