23/10/2019 – Special Report / Halal Food / Halal Beverages / ASEAN / Association of South East Asian Nations
ASEAN: Future Halal Hub?
Driven by increasing demand from the world’s fastest-growing religion, as well as sectors of the non-Muslim population, the global halal food and beverage market is projected to reach US$1.9 trillion by 2023 – and the ASEAN has the potential to be a key player in that growth. Opportunities for manufacturers and exporters of halal products are indeed abundant, but the absence of a unified certification system threatens to impede trade in the region, as Gemma Kent reports.
Founded over 50 years ago by Indonesia, Malaysia, the Philippines, Singapore and Thailand, the Association of South East Asian Nations (ASEAN) is an intergovernmental organisation aimed primarily at promoting economic growth and regional stability among its members. With the later additions of Vietnam, Laos, Cambodia, Brunei and Myanmar, the now 10-member region had an estimated combined GDP of US$2.92 trillion in 2018, and is projected to rank as the fourth-largest economy in the world by 2050.
Indeed, the ASEAN is a major global hub of manufacturing and trade, as well as one of the world’s fastest-growing and most diverse consumer markets – often called the ‘Muslim archipelago’ on account of the fact that roughly 40 per cent of its 650 million citizens are Muslims. The majority of those reside in Indonesia – also home to the largest Muslim population on the planet. The nation is striving to become a global halal hub – despite its 10th place ranking among countries best positioned to seize opportunities in the Islamic economy in a 2018–19 report by Thomson Reuters and DinarStandard.
Going for gold
Fellow ASEAN country Malaysia topped the report’s Global Islamic Economy Indicator, having focused on the production of halal goods as a central component of its economic development for some time. Touted as the region’s ‘most comprehensive’ halal ecosystem, Malaysia certainly has the edge over Indonesia in the current market, and hopes to extend its lead further by targeting export sales in Japan, which is preparing to host the 2020 Summer Olympics in Tokyo. Malaysia’s Entrepreneur Development Ministry estimates that about 40 per cent of the 45,000 athletes and officials attending will require halal products – not to mention the influx of foreign tourists expected to arrive in Japan to watch the games.
The promotion of Malaysian products in the growing halal market of Japan is also intended to spur progress among SMEs that lack the capability to expand, which is having a direct impact on Malaysia’s stagnant export growth. “Looking at our halal ecosystem…about 98 per cent of [companies] are SMEs and they need mentoring, money and markets,” noted Datuk Wan Latiff Wan Musa, CEO of the Malaysia External Trade Development Corporation (Matrade).
Indeed, despite its comprehensive halal ecosystem the value of Malaysia’s exports in the category is still a drop in the ocean compared with global consumption of such products. Malaysia exported MYR 40 billion (US$9.7bn) of halal-certified products in 2018, about half of which comprised food and beverages, while Muslims around the world spent US$1.3 trillion on food in 2017, according to a report by Thomson Reuters and DinarStandard.
An economically progressive, Muslim-majority country such as Malaysia certainly has a lot to gain from the enormous potential that exists in the global halal market – and the government has, accordingly, made significant efforts to incentivise growth among halal food manufacturers. Those operating from facilities in designated ‘halal parks’ are granted 100-per-cent income tax exemption on capital expenditure and export sales for five years, together with import duty exemptions on raw materials used for the development and production of halal-promoted products.
With all these incentives in place, alongside others aimed at boosting exports of Made-in-Malaysia halal-certified products – the value of which is expected to reach MYR 45bn (US$10.8bn) this year and MYR 50bn (US$12bn) by 2050 – what is lacking is the investment, skill and knowledge necessary to take full advantage. “SMEs need to understand all the elements of marketing, from branding, distribution channels and messaging to communications strategy,” says Datuk Wan Latiff. “Having your products certified halal does not mean you can sell them in the global market. There are other international standards that Malaysian SMEs have to get, such as HACCP.”
Nevertheless, Malaysia’s role as a pioneer in the development of halal standards means that its strict certification is recognised worldwide – although not in Indonesia. Local news agencies reported that the two countries had been due to sign a memorandum of understanding in April, but the agreement was delayed until October to coincide with the rollout of Indonesia’s new system, which will make it mandatory to certify a host of consumer goods and services as halal, including food and beverage products. The government’s move to assume greater control of the certifying process from the nation’s Islamic cleric council (MUI) is expected to generate around IDR 22.5tn (US$1.6bn) in annual revenue, as well as enhancing Indonesia’s competitiveness with Malaysia and other rivals in the global marketplace.
Indeed, Indonesia’s majority-Muslim population means it has always been one of the largest halal markets, but its exports are currently dominated by commodities such as coal, gold and palm oil, which render the economy vulnerable to market fluctuations. Furthermore, most of the halal food items Indonesia exported in 2018 were in the form of raw materials, mainly due to a lack of processed and finished food items bearing halal certification. This is impacting the country’s ability to compete with finished products from other nations, says consultancy group Indonesia Halal Lifestyle Center. “We are still exporting raw materials, such as vegetable oil, tea, coffee and fisheries products. This is a contrast to other OIC nations that are starting to export products with added value or upstream products,” observed the group’s Chairman, Sapta Nirwandar.
Breaking down barriers
Although the upcoming MoU between Malaysia and Indonesia is encouraging news, it is only one of several steps needed to reach an all-encompassing mutual recognition agreement among ASEAN halal certifying bodies. As global demand for halal-certified food products grows – including in non-Muslim countries such as Japan and South Korea, driven by the globalisation of products and rising numbers of Muslim visitors – there are clear benefits to be gained from collaboration among ASEAN countries, each of which has its own halal standard regulations.
A key challenge that must be addressed, if regulations are to be standardised in the region, is that individual halal certification bodies across the ASEAN permit different practices based on their particular interpretations of Islamic laws. Electronic stunning of birds and animals prior to slaughter, for example, is practised in nations such as Malaysia and Singapore yet prohibited in Brunei. Moreover, while some countries such as Singapore have established a single halal governing authority that also serves as the certification body, others such as the Philippines have multiple halal certifying bodies operating independently of one another.
This poses many problems for the region’s food and beverage producers, for whom the need to attain and sustain multiple halal certifications for exports to different ASEAN markets is driving up production costs – creating bottlenecks in the marketplace and disrupting cross-border trade as a result. Indeed, a recent food industry survey identified halal certification as one of the top technical barriers in intra-ASEAN trade, and efforts are ongoing by the ASEAN Working Group on Halal Food (AWGHF) to standardise halal recognition amongst its members. “The AWGHF is currently working on the development of the General Guidelines on Halal Food as one of the building blocks to enable greater recognition among ASEAN member states,” asserted Food Industry Asia Policy Director, Steven Bartholomeusz. “In the Plan of Action for the ASEAN Co-operation in Halal Food, the harmonisation of accreditation, inspection and certification to enable the recognition of equivalence is identified as one of the action programmes.”
A standardised regulatory framework would also greatly benefit some of the ASEAN’s poorer member states – particularly Myanmar, which launched its first-ever National Export Strategy (NES) in 2015 with a view to fuelling its sustainable development through export promotion, but still lacks an internationally recognised halal certification. Despite being home to the region’s smallest Muslim population, Laos boasts the advantage of low production costs and its government is targeting export-led development, while Cambodia recently rolled out its own strict halal certification with the aim of attracting Middle Eastern tourists.
There is no doubt that the burgeoning halal industry provides a golden opportunity for ASEAN countries to strengthen regional trade, as well as enhancing their overall competitiveness on the global stage. However, seizing that opportunity will require co-operation in finding a way to establish a comprehensive halal standard that is acceptable to all members – and will strategically position the region ready for the eventual establishment of a single international standardisation body.