Statement from the Chairman of Feronia Inc. following the recent publication of a report by Human Rights Watch
The plantations operated by PHC have been in existence for over 100 years. With its ideal climate and the large Congo River as a transport route, the DRC is the cradle of the current global palm oil industry.
Once a dominant global producer, it now cannot even produce 50% of its own requirements and large imports from Malaysia and Indonesia are required.
Unilever virtually abandoned our plantations as of 2003. As a result operations halted and industrial installations, social infrastructure like hospitals and employee housing all fell to ruins.
Without alternative employment, whole communities lost their livelihoods and mostly survived through the harvesting and artisanal milling of palm oil.
When Unilever put all their DRC operations up for sale, a group of Canadian investors acquired three of the plantations. Millions of dollars where invested in a massive replanting program and mill refurbishments. Very soon however, the business ran into severe financial difficulties as the remote locations of the plantations added to expenditure and investment requirements. The reputation of the DRC made it very difficult to attract talent and the absence of a clear proprietor during Unilever’s retrenchment had created a climate of lawlessness that made it difficult to stop the breakdown of good corporate practices and the pervasive pilferage of company assets.
It is credit to CDC and the other European development organisations that they decided to save the company through considerable injections of fresh capital. Feronia was rightly seen as an example of a new development model, where building a profitable business could contribute to social development in the DRC.
This commitment, in particular from CDC, has been severely tested. CPO prices have halved, productivity has lagged well behind industry standards, plantation yields continue to suffer from underinvestment in fertilization and the need for urgent refurbishment of the mills to accommodate production growth.
All our investors have been faced with a stark choice: abandon the investment, with the huge social fallout that would follow, or increase financial commitments with an ever decreasing likelihood of a fair commercial return. The investors choose the latter. In 2019, Feronia requires significant new capital but cash flow break-even is still several years away. So this was a decision driven by a sense of social responsibility as much as an expectation of ever receiving a financial return.
Despite the dire financial situation, investments in operational capability, capital expenditure and ESG investments continue to be made. The company decided that it was most critical to get the plantations and mills up to good working order, to provide a platform for financial sustainability, which would in turn provide the platform for further social development. Nonetheless, a considerable amount has already been done to improve wages, healthcare, access to clean water and improve the quality of people’s lives, with still a huge amount to do in order to reverse the decade of decay and neglect we inherited.
The failings that the HRW report highlight are not the result of lack of intent, awareness, or monitoring. They are mostly the result of harsh economic realities where funding has never been sufficient to tackle all our ESG commitments at once.
Ongoing improvements in environmental management and higher salaries can only be paid for through additional funding from our backers. The company has already defaulted on some of its financial obligations to its lenders so this is not an easy task. Add the reputational battering from the HRW report, and our task becomes even more difficult.
It is a huge challenge for any agricultural business in the DRC to deliver financial sustainability and meet stringent social, environmental standards. In light of the HRW report, development institutions may decide not to engage in the DRC, rather than to do so imperfectly and be crucified in the attempt. Not our investors, but our employees and surrounding communities will pay the price.
Frank Braeken Chairman Feronia Inc. November 25, 2019