FGV HOLDINGS BERHAD | ANNUAL INTEGRATED REPORT 2023 27 OPERATING LANDSCAPE 1 World Economic Outlook - International Monetary Fund, October 2023. 2 Bank Negara Malaysia, November 2023. 3 International Financial Statistics, 2023. 4 World Economic Outlook - International Monetary Fund, November 2023. 5 Economist Intelligence Unit, May 2023. The fluctuations in currency have emerged as a pivotal factor impacting both the expenses associated with imported inputs and the revenues from exports. Forecasts indicate that the Euro and Ringgit will experience a modest appreciation against the USD by 20263. These variations significantly influence the profitability of FGV’s plantation operations, highlighting the necessity of sound financial management and effective hedging strategies. Currency Fluctuations Elevated prices of raw materials such as raw sugar, energy, cooking oil, and fertilisers have led to increased production costs. This situation is further compounded by exchange rate fluctuations, which pose continuous challenges for cost management and pricing strategies. With a significant 48.9% surge in palm cooking oil prices, production costs are set to rise, prompting food producers to immediately raise the prices of food and services to maximise profits4. Higher Raw Material Prices Weather events attributed to climate change have disrupted supply chains, diminished production volumes, and added to price fluctuations in commodity markets. The combination of rising temperatures, altered rainfall patterns, and a higher occurrence of extreme weather events poses significant challenges to the productivity and sustainability of agricultural systems. The likelihood of a significant El Nino event in South and Southeast Asia is heightened, posing potential impacts on regional agriculture. Meanwhile, India is expected to undergo a mild El Nino episode, with a baseline forecast of 6.1%5. Climate Change There is higher global scrutiny concerning environmental and sustainability practices. Issues such as deforestation, habitat destruction, and biodiversity loss were at the forefront of stakeholders’ concerns. Adherence to sustainability certifications and responsible sourcing practices were important compliance measures to mitigate these risks, enhance market competitiveness, and align with evolving consumer and stakeholder expectations. Sustainability Scrutiny In 2023, the global economy witnessed a decrease in growth to 3.0% from 3.5% in the previous year1. This period was marked by a deceleration in economic activity, persistently high inflation rates, and noticeable variations in economic performance across different regions. The role of monetary policies were particularly significant as central banks worldwide focused on managing inflation expectations and maintaining economic stability amid these challenging conditions. Despite global economic challenges, Malaysia's economy grew by 4% in 2023. This growth was driven by resilient domestic demand, with household spending supported by employment and wage growth. Investment activities also contributed, bolstered by ongoing multi-year projects and firm expansion. Inflation is expected to average between 2.5% and 3% in 20232. We discuss the main macroeconomic trends of 2023 that are related to FGV’s operations as below: In 2023, FGV contended with a dynamic operating landscape significantly influenced by global economic shifts, environmental challenges, and evolving market demands for agricultural commodities. Key factors impacting the business included rising costs of raw materials, climate change-related disruptions as well as currency fluctuations. FGV’s focus on sustainability, stakeholder engagement, and innovative practices was essential in navigating these complexities and building long-term resilience.
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