Malaysia expects U.S. import ban on second plantation firm, after FGV barred

[October 01, 2020]  By Mei Mei Chu

KUALA LUMPUR (Reuters) - Malaysia is anticipating the United States to ban the imports of another plantation firm, after the U.S. Customs and Border Protection (CBP) agency blocked entry of palm oil products from FGV Holdings <FGVH.KL> over forced labour allegations.

The CBP issued a ban on FGV on Wednesday after a year-long investigation that it alleges showed abuse, deception, physical and sexual violence, intimidation and the keeping of workers' identity documents.

"Another big firm will be banned soon," Human Resources Minister Saravanan Murugan told reporters on Thursday, according to a recording heard by Reuters.

He declined to name the company, but said it was a large firm within the plantation sector.

Industry analysts warned that the ban on FGV could lead to buyers in other countries turning away from the company or shunning Malaysian palm oil.

Palm oil plantation shares fell at the closing bell. Shares in the world's largest palm giants FGV plunged 8.7% while Sime Darby Plantation <SIME.KL> tumbled 5.2%.

There have been long-standing worries about labour practices at Malaysian palm oil plantations.

In April, anti-trafficking group Liberty Shared submitted a petition to CBP against Sime for similar allegations.

Sime in July asked the rights group for more information and that it would swiftly address any breaches following a thorough investigation.

The latest ban adds to growing accusations of human rights abuse in migrant worker-reliant Malaysia over the past year.

The U.S. CBP had already banned two Malaysian glove makers - WRP Asia Pacific Sdn. Bhd. in Oct. 1 last year, and Top Glove Corp Bhd <TPGC.KL> in July - over suspicions of using forced labour.

U.S. lifted the ban on WRP in March, while Top Glove is racing to upgrade workers' housing and have paid out 53 million ringgit ($12.78 million) in remediation to reverse the ban.

FGV said in a statement on Thursday that it is disappointed with the ban as it has taken "concrete steps" to uphold labour standards since concerns were raised in 2015.

Specifically, FGV said it has set up orientation centres in Malaysia, Indonesia and India for migrant workers to brief them on the jobs, their rights and benefits.

A Sime Darby Plantation worker shows palm oil fruits at a plantation in Pulau Carey, Malaysia, January 31, 2020. REUTERS/Lim Huey Teng/File Photo

The Plantation and Commodities Minister in a statement said the ministry has plans to submit its study on the labour situation in palm plantations to the U.S Department of Labour and the International Labour Organization (ILO) as part of its commitment to addressing the allegations and avoiding restrictions in the future.

RIPPLE EFFECT

The U.S. accounts for less than 5% of FGV's sales and about 3% of palm oil imports from Malaysia, the world's second-biggest palm producer and exporter. Palm products are used in everyday consumer items as diverse as food to makeup.

But analysts said the CBP's announcement, which also warned U.S importers of questionable labour practices in the broader palm oil industry, may have wider implications.

"The concern is that this may lead to other countries or customers of FGV to reassess their purchase of palm oil from the group as a result of concerns about environment, social and corporate governance practices," Ivy Ng, regional head of plantations research at CGS-CIMB Research, said in a note.

The allegations will also dent Malaysia's effort to brand its palm oil as being produced in a socially and environmentally responsible way.

The most direct concern for FGV would be if firms such as U.S. consumer goods company Procter & Gamble <PG.N>, which has a joint venture with FGV, decide to curb their global ties as a result of the U.S. ban.

"There are questions whether Procter & Gamble, other U.S. and multinational big buyers may take a global stance," said Khor Yu Leng, principal at economic consultancy Segi Enam Advisors.

"The palm oil industry might have to look carefully at what rigorous data evidence it can present to enforcement and policy makers overseas," she said.

($1 = 4.1470 ringgit)

(Reporting by Mei Mei Chu, A. Ananthalakshmi and Liz Lee; Editing by Muralikumar Anantharaman, Christian Schmollinger & Simon Cameron-Moore)

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