F&N CEO Hui Choon Kit - The Straits Times/ANN
SINGAPORE: Citrus farms in Florida have been battered after two hurricanes in two weeks swept over the south-eastern coast of the United States between September and October.
One of the world’s largest citrus producers, the state expects crop yields in 2024 to be at their lowest in close to 100 years after Hurricane Helene and Hurricane Milton tore through Florida.
This has exacerbated beverage manufacturer F&N’s difficulties in securing its supply of orange juice, said its chief executive Hui Choon Kit in an interview with The Business Times.
“The prices just keep going up, and we have no choice but to pass them on to customers,” he said.
“So that is something that’s very real to us, and the only thing we can do right now is look for alternative sourcing or alternative countries.”
Securing a continued supply of raw materials for the long term has been F&N’s primary focus in managing its climate-related risks over the last few years.
Supply chain disruptions during the Covid-19 pandemic and uncertainties in the production of raw materials due to the increasing frequency of severe weather events have led Hui to turn to local sourcing as a key risk management strategy.
“If I cannot get my raw materials, our factories will go down. We need to make sure that we have sources of supply that can take us through the next 20 to 50 years. Otherwise, we have to close shop,” he said.
To this end, the company is in the midst of developing its first large-scale dairy farm in Malaysia in its bid to go upstream.
Construction of the first phase of the farm is expected to be completed soon.
But F&N has announced that milk production, which was originally intended to begin in January 2025, could be delayed by between six and 12 months, as the Malaysian government has suspended the import of dairy cows from the United States due to an avian flu outbreak.
The dairy farm is meant to be a one-stop shop providing a reliable supply of milk to F&N. This involves growing its own animal feed for the cows.
The company is also looking to incorporate technological solutions that will mitigate methane emissions at the farm.
“I never thought we’d become farmers. When I joined the company 20 years ago, I never thought we would go upstream. But that is just it, in order to grow the business, we need to have reliable supply,” Hui said.
“The primary objective is to be able to develop or to deliver products in a reliable way to our customers, and we know that the quality is there.”
In addition to having a stable supply, building the farm in Malaysia, which is one of F&N’s biggest markets, it also means situating production closer to market. This would lower logistical costs, as well as the emissions that would arise from transportation.
This would also provide Malaysian consumers greater accessibility to fresh milk, a healthier option than powdered milk, which is made by mixing water, milk powder and milk fats. The country consumes more milk than it produces locally.
Dairy, so far, is the only commodity for which it makes business sense for F&N to go upstream. But Hui does not discount similar opportunities for other commodities in the future.
That being said, there are some raw materials not suitable for cultivation in South-east Asia’s tropical climate.
One of them is soybean. A major ingredient in one of F&N’s product lines, soybean is best grown in cold temperatures.
Finding the right suppliers allows the crop to be grown in an environmentally responsible and also financially sustainable manner.
“We also need to make sure that these guys can continue to support us in the future. They have their practices such that they can continue to supply soy,” Hui said.
F&N sources soybeans entirely from Canada, due to deforestation concerns in other markets.
That being said, Hui acknowledged that customers might still have to get used to changes in the formulation and taste of some beverages, as the company may sometimes have to switch to alternative sources despite their best efforts to maintain supply from their usual partners.
“Customers like a certain taste, and that’s why they keep coming back to us.
“But we also have no choice but to work with them so they can understand that we cannot always be getting the same ingredients or raw materials,” Hui added. — The Straits Times/ANN
