Sunday, October 08, 2023

Bernas’ role questioned amid country’s rice dilemma

By Esther Lee, Jose Barrock and Vasantha Ganesan / The Edge Malaysia

28 Sep 2023, 02:10 pm

This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

THERE is a lot that is not known about the concession agreement the government signed with Padiberas Nasional Bhd (Bernas) when the latter took over the role of Lembaga Padi dan Beras Negara in January 1996 via a privatisation exercise.

For instance, a number of social obligations listed in the concession agreement seem very broad and general. News reports have it that some of these obligations have yet to be carried out, including the establishment of a disaster fund, the development of a paddy database and the supply of machinery.

In June this year, there was talk of Bernas sharing 30% of its profits from rice imports with local paddy farmers, said to be initiated by Prime Minister Datuk Seri Anwar Ibrahim. This came about after Bernas agreed to import an additional 150,000 tonnes of rice to ensure no disruption to its supply in the country.

Bernas’ concession as the country’s sole importer of rice was extended another 10 years to January 2031 by the federal government towards the end of 2020. This came about after the late Datuk Seri Salahuddin Ayub, who was agriculture minister under the Pakatan Harapan administration that collapsed in February that year, had sought to end Bernas’ monopoly of rice imports.

In a press conference announcing an end to Bernas’ concession in June 2018, Salahuddin reportedly said, “In the effort to protect the interests of local paddy farmers, we have identified the models used by other countries [for importing the staple], among them Indonesia, which has been successful in its approach in opening up the monopoly on rice.”

Any decision to terminate the concession agreement between the government and Bernas would surely involve a hefty compensation, given the extension of the concession to January 2031, apart from the fact that the terms of the concession are unclear.

A political hot potato

In August 2017, after viewing documents from Mercury Securities Sdn Bhd, which had been appointed by Bernas for a corporate exercise, Parti Keadilan Rakyat’s Gooi Hsiao Leung, who was then member of parliament for Alor Setar, claimed that Bernas was operating under the assumption that its concession would be “renewed in perpetuity”, meaning that it would continue to have a monopoly in the import of rice.

In 2018, after Pakatan Harapan took control of Putrajaya and sought to break Bernas’ monopoly, Gooi reportedly said, “As a result of the previous government’s neglect to promote the local rice industry, opting instead to rely on Bernas’ rice imports, previous national targets set by the government over the last two decades to achieve self-sufficiency levels for rice production in the country have never been realised.”

On its website, Bernas says it is a unique business entity with exclusive roles and responsibilities as Malaysia’s state trading enterprise in the international rice market and it is an instrument of government policy, authorised to ensure the stability of the domestic rice market and the nation’s food security. “We will continue to produce, procure, process and deliver quality and affordable food products that create value for our people, partners, and the planet,” it adds.

Hence, when Bernas announced that the price of imported white rice would be increased by 36%, from RM2,350 to RM3,200 per tonne in September this year, many were unhappy.

This increase followed India’s ban on the export of rice. With its curbs, other exporters have sought higher prices, leading to imported rice being sold at RM39 per 10kg bag, compared with local rice that is sold at RM26 per 10kg bag. With the disparity of RM13 or 50%, it seems that local rice has been masqueraded as imported rice, leading to quick profits for certain parties.

Adding fuel to the fire is the fact that Bernas, over the past three financial years from FY2020 to FY2022, has paid out RM996.22 million in dividends to its shareholder Tradewinds Group (M) Sdn Bhd (formerly Perspective Lane (M) Sdn Bhd), which is controlled by businessman Tan Sri Syed Mokhtar Albukhary. The government, via Minister of Finance Inc, has a golden share in Bernas.

Attempts to find out what Bernas’ mandate is, or what the parameters of its agreement are, were futile as both the Ministry of Agriculture and Food Security and Bernas had not responded to questions from The Edge at press time. Questions about Bernas’ monopoly, however, are not new.

Sarena Che Omar, deputy director of research at Khazanah Research Institute, says: “Bernas has sole import rights. It controls the imports [of rice] and it makes money out of this, on condition that — it’s called a state trading enterprise — it has to do something for the government in return. It makes money by being the sole importer, but that money, about RM3 million, goes to managing the stockpile [of rice] for the country. It also goes to buying [paddy] at a loss from farmers, as Bernas is the buyer of last resort.

“Paddy farmers in Malaysia are not necessarily the most competitive when you have some farmers who can’t sell their paddy because of its low quality. The government says, ‘Don’t worry, somebody will buy it off you’ and that somebody is Bernas … But when you buy low quality rice, you actually make a loss, because there is a price floor. I think it’s RM1,250, but I may be wrong. They may have changed it to RM1,500. But whatever it is, there is a price floor.

“I think it’s RM1,500 per tonne, which means no matter how bad the paddy is, Bernas cannot pay less than RM1,500 for it. But sometimes the paddy that is brought in is worth RM800, very bad quality paddy, so Bernas makes a loss, being the buyer of last resort and managing the stockpile for the country.”

On the current negative sentiment towards Bernas, she says: “My advice is, if we want to get rid of Bernas because we think that monopolies are so bad, we have to make sure we put in place [someone] who will take care of the stockpile … who is going to be the buyer of last resort. Should we even have a buyer of last resort? Should we even have a price floor?

“Until we settle all of this, we had better be careful about who we want to kick out, as that entity may be the one keeping things going on as usual,” she tells The Edge in a phone conversation.

Businessman Datuk Ameer Ali Mydin, who helms retailer Mydin Mohamed Holdings Bhd — which operates almost 70 outlets, including 27 large supermarkets, 17 Mydin Emporium, three Mydin Bazaar, three Mydin Mart franchises, seven MyMart convenience stores and seven Mydin supermarkets as well as a couple of premium supermarkets known as SAM Groceria — says: “You must know that no one is allowed to import rice in Malaysia … all importation of rice has to go through Bernas.

“So there is a monopoly there obviously, and Bernas is supposed to balance [the production and import of rice], use some money to help the farmers, control the pricing, make sure rice is available in Malaysia ... At the moment, we can see that it [Bernas] has failed miserably.”

The early days

To recap, Bernas was previously known as Lembaga Padi dan Beras Negara, established in 1971 as a statutory body under the Lembaga Padi dan Beras Negara Act 1971, with the function to regulate the paddy and rice industry and optimise the efficiency of the nation’s paddy and rice industry.

The government sanctioned the corporatisation of the entity, which was renamed Syarikat Padiberas Nasional Bhd on July 7, 1994, before taking on its current name on March 30, 1995. Lembaga Padi dan Beras Negara’s commercial and social functions, properties, rights and liabilities were transferred to Bernas vide a Vesting Order 1994 made pursuant to Section 3(1) of the Lembaga Padi dan Beras Negara (Successors Company) Act 1994, as stated in Bernas’ 2000 annual report.

Subsequent to the corporatisation of Lembaga Padi dan Beras Negara, a privatisation agreement was inked between the government and Budaya Generasi Sdn Bhd. Bernas was listed on Bursa Malaysia in August 1997.

Budaya Generasi in the early days was linked to well-connected Datuk Mohd Ibrahim Mohd Nor, but he stepped down as managing director of Bernas in February 2001 and became deputy chairman. Interestingly, he was also a director of Sistem Televisyen Malaysia Bhd (TV3) and Fleet Group, which held assets for Umno back in the day. He resigned from Bernas’ board of directors in October 2003.

Others with interests in Bernas back then were said to be former Perlis menteri besar and member of parliament for Arau Datuk Seri Shahidan Kassim, via his vehicle Batu Bara Resources Sdn Bhd.

In September 2005, Datuk Bakry Hamzah, chief operating officer of Tradewinds (M) Bhd and managing director of Central Sugars Refinery Sdn Bhd, joined Bernas as a non-independent, non-executive director. Today, Bakry is deputy chairman and non-executive director of Bernas.

In November 2005, Syed Abu Bakar S Mohsin Almohdzar was appointed an independent director of Bernas. He was previously managing director/CEO of Tradewinds (M) and had been a director of Johor Port Bhd, yet another Syed Mokhtar company.

Thus, Syed Mokhtar’s entry into Bernas by buying into Budaya Generasi could have happened in September 2005. Back then, he often used proxies and did not make his presence known, preferring to be low key.

Syed Mokhtar and Bernas

In October 2009, Syed Mokhtar’s Tradewinds (M) acquired IGB Group-linked Wang Tak Co Ltd’s 31.52% equity interest in Bernas for RM308.42 million, or RM2.08 per share, and Budaya Generasi’s 22.24% in Bernas for RM217.57 million, triggering a mandatory general offer for Bernas.

In December 2012, Syed Mokhtar privatised Tradewinds, which triggered a privatisation of Bernas as well. An initial offer of RM3.25 per Bernas share was increased to RM3.70, and Bernas was delisted in March 2014.

Some of the parties Syed Mokhtar bought out included the National Farmers Organisation (Nafas), which had a 3.71% stake, and the National Fishermen’s Association (Nekmat), which held 3.42% of Bernas. Nafas and Nekmat represented the interests of several thousand paddy farmers and fishermen.

Back then, the deal was that Syed Mokhtar would relist Bernas after a restructuring and give Nafas and Nekmat 10% equity interest in the listed entity. A decade later, Bernas’ shares have not been floated and Syed Mokhtar’s companies had been paid RM1.11 billion between FY2012 and FY2022 — RM112.9 million in FY2012, RM670.02 million in FY2020, RM69.32 million in FY2021 and RM256.88 million in FY2022.

There was some opposition to the takeover by privately held Ilustrasi Hikmat Holdings Sdn Bhd, a small shareholder with a few million shares, which said previous agreements between stakeholders and the federal government when Lembaga Padi dan Beras Negara was corporatised did not allow the control and ownership of Bernas to be vested in a single individual, but this eventually died down.

When the unity government was formed, there was some amount of pressure on Syed Mokhtar and Bernas. But that has dwindled in the current political climate.

Lately however, the market scuttlebutt has it that Syed Mokhtar is looking to swap Bernas for a stake in sugar refiner MSM Malaysia Holdings Bhd, in which the Federal Land Development Authority’s (FELDA) unit FGV

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