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THE ECONOMICS OF HALAL INDUSTRY

Conference Paper · December 2014

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 THE ECONOMICS OF HALAL INDUSTRY
Nor Ai’han Mujar
Faculty of Civil Engineering
aihanmujar@gmail.com

Norizan Hassan
Faculty of Islamic Civilization
norizan_hassan@ymail.com

Abstract

The halal food industry is one of the major and most important industries in Malaysia simply
because Muslims are the majority of its population and looking for halal food is a religious
doctrine that must be fulfilled. The increase in value and production volume of halal
commodities is due largely to the increase in demand from especially the Muslim population
and it has greatly impacted the growth and development of food industry in the country and
the economy in general. This article attempts to highlight the factors affecting the demand for
the halal food in the country and analyse the significant contribution of halal industry towards
the growth and development of the economy; the establishment of halal parks, encouraging
the development of Small and Medium Enterprises (SME), and nurturing the manufacturing
of halal food. This study will also look at the contribution of halal industry in promoting
Malaysia in the international market as an important major global centre for halal products.

Keyword: Halal industry, demand for halal food, economic impact.

1. INTRODUCTION

Islam is a way of life; a system that encompasses every spectrum of life of Muslim
individual. It emphasises purity of life in that every single action and undertaking must be in
full compliance with the rule of Shari’ah; in finance Islam prohibit Riba to purify the
economic transactions, in politics there must be Syura (consensus) in all decision making
processes, while in everyday life, Islam encourages its followers to consume only halal foods
to purify the body and mind of every Muslim individual. Being a majority Muslim country,
1
Malaysia is trying its level best to provide its people with a system that is not against the rule
of Shari’ah; halal in all its undertakings. Halal is not limited to food but also includes
economic transactions, attires, politics and the social affairs of its people. However, halal food
is one of the major industries which experience rapid growth because it commands higher
demand due to increased awareness among Muslim about the sanctity of Islam whiles the
non-Muslims is becoming more sensitive toward the hygienic foods for consumption. Indeed,
halal food has become the primary choice of both Muslim and non-Muslim, contributing a
positive impact toward Malaysia economy as a whole. Furthermore, halal industry has a great
market potential and a very promising returns. This has led to non-Islamic countries to seize
this opportunity by becoming producers of halal commodities. Some even predate the Islamic
countries and dominate the market of halal products. For example, New Zealand and
Australia are the largest exporter of halal meat in the world while Brazil and Argentina, these
two countries are the world's leading poultry producers. This shows that, halal product has
great potential in the global market as shown in Figure 1 below;

Figure 1: Global Market for Potential Halal Products

Source: Halal Industry Development Corporation (HDC)

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 The halal food industry in Malaysia has various subsectors working in earnest and
consolidated to create what is called a halal economy. As indicated in Figure 2, the economics
of halal products can be observed by the development of forward linkages of each sector in
the halal economy; from animal husbandry, food and logistic to pharmaceutical, cosmetics
and finance. In order to achieve a true halal process of acquiring foods, all related and
ancillary sub sectors in the halal economy must be operating in full compliance with the rule
of Shari’ah; that the feed mill for animal must be processed according to the method
approved by Shari’ah, the drug, vaccine and other pharmaceutical items used in medical
treatment must be processed the Islamic way and even financing for such an undertaking
within the halal economy must be obtained from Shari’ah compliance financial institutions;
creating a unique chain of value proposition within the halal hub industry.

Figure 2: Diverse Sectors in the Halal Economy

Source: HDC

Towards achieving this ends, HDC has been established by the Malaysian
Government to become a one stop national centre which oversees and supervise the
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companies producing halal products for domestic consumption as well as for exports to
overseas market. HDC is set up as catalyst for the establishment of the halal hub for Asean
region as well as the global market. Various programs have been promoted by HDC to
enhance competitiveness among the companies involved and to develop the country's
economic growth. In addition, HDC has also developed a variety of initiatives to make
Malaysia as a one-stop center for consumers and investors to obtain information related to
halal products.

In April 2014 World Halal Week Conference was held in Kuala Lumpur initiated by
HDC in its effort to promote the halal product produced by local entrepreneurs and to
showcase the rapid development of this industry in Malaysia. The event was well patronised
by both local as well as international corporations, indicating that the initiative by HDC was
well supported. This international event is conducted in conjunction with the ministry of
foreign countries such as Korea, Japan, China, Hong Kong, Taiwan and Dubai; jointly
discussing the proposal on joint venture to increase the centers of manufacturing and delivery
of effective supply chain for halal market at global level (Figure 3).

Source: HDC
Figure 3

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 Development of the halal food industry has significant impact not only to people, but
the economy. The halal food industry has attracted participation from SME specializing in the
processing and production of halal foods (Rahman, Ahmad, Mohamad, & Ismail, 2011).
Growths in halal business have created more job opportunities for Malaysians and contribute
to the increase of our Gross Domestic Product (GDP). A halal food industry not only
contributes to the economic development of the country but consumption of halal food affects
the physical and spiritual growth of human being. According to (Aziz & Vui, 2012), even
though halal certificate is an option for food manufacturers, they seriously consider applying
for the certification because of its potential to capture the global market. The halal awareness
is not only the way Muslim slaughters the animals but also relates to environmental,
sustainability, animal welfare and food safety.

2. DEMAND FOR HALAL FOODS

The domestic and international demand for halal foods are on the rise due chiefly to the
increasing level of awareness on the quality and hygienic value of halal foods among Muslim
and non-Muslim populace. Various factors were elucidated to determine the reason for the
high demand of halal products in many countries. First is the growing number of Muslim
populations in Malaysia and worldwide. Malaysia with a total land mass of 300,000 square
kilometre, has a total population of 29.3 million, more than 60% of it is Muslims; increasing
demand pressure for domestic halal products and the need to sustain food production for its
survival.

Table 1: Regional Distribution of Muslim 2014

Region/country Total Population Muslim Population Muslim
(Billion) (Billion) Population
(%)
Africa 1.05 0.52 52.39
Europe 0.74 0.056 7.6
Asia 4.16 1.33 31.98
South America 0.59 0.00245 (2.45 million) 0.42
Oceana 0.03714 0.00054 (0.54 million) 1.5
(37.14 million)
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 North America 0.34 0.00761 (7.61 million) 2.2
TOTAL 6.92 1.92 100.0
Source: www.muslimpopulation.com

As indicated in Table 1, the total population of the world in the year 2014 is 6.92
billion, while Muslim population is 1.92 billion or 28% of the world population. The Muslim
population showed an increase of 20% compared to the total Muslim population in the year
2010 and it is expected to reach 2.2 billion by the year 2030 (Grim & Karim, 2011).
Interestingly, Asia is the home of most numbers of Muslims accounting for 32% of the Asia’s
total population or 19% of the world total population in 2014. The large numbers of people
residing in certain areas means that more foods would have to be made available for their
consumption (Figure 4). Consequently the densely populated areas means that the demand for
foods; halal foods are higher in the Muslim areas as compared to other less populated areas
such as Europe and north America where number of Muslims are far less than Asia and
Africa. It can be inferred therefore, that Muslim countries would have to produce more halal
foods because of the growing number of their population, failing which, it would cause
malnutrition and other serious famines.

Figure 4: Muslim Population in the World

Source: HDC
6
 The change in trend of food consumption is another factor for its increase in
demand for halal food. Previously, halal foods are only found in the home of Muslims;
however, the trend has changed drastically. Nowadays, five star hotels, famous eatery
stations, even fast food chains are all offering halal food because it is the people‘s choice
to have halal and hygienic foods for their daily meals. It is inevitable that in order to
stay in business, food caterer accommodates the changing trend in the way people prefer
their meal and thus offers halal food instead. In addition, even airplane is now offering
halal food for its clients indicating the new trend in global aviation business. This new
trend in food consumption coupled with the widespread awareness about the value of
halal foods has become the impetus for increase in demand for such commodities. The
halal food industry in Malaysia has various subsectors working in earnest and consolidated to
create what is called a halal economy. As indicated in Figure 2, the economics of halal
products can be observed by the development of forward linkages of each sector in the halal
economy; from animal husbandry, food and logistic to pharmaceutical, cosmetics and finance.
In order to achieve a true halal process of acquiring foods, all related and ancillary sub sectors
in the halal economy must be operating in full compliance with the rule of Shari’ah; that the
feed mill for animal must be processed according to the method approved by Shari’ah, the
drug, vaccine and other pharmaceutical items used in medical treatment must be processed the
Islamic way and even financing for such an undertaking within the halal economy must be
obtained from Shari’ah compliance financial institutions; creating a unique chain of value
proposition within the halal hub industry.

Figure

Another contributory factor for increased demand for halal products is the “HALAL”
certification on each product to signify that it is the halal food. Halal means not only
permissible to eat, it also include the process of slaughtering the animal, storage, preparation,
and hygiene aspects of the products (Shafie & Othman, 2006). Consumers choose products
with halal status as their priority in selecting their daily needs. Thus, the “HALAL” term can
be used as benchmarks and guidelines in producing halal product. According to the (Adnan,
2011), the "HALAL" logo on the wrapping of food would guarantee that the products sell,
failing which producers would lose up to 60 percent of its sales for not having the halal logo
7
on their products. Consequently in Malaysia, food producers, especially the non-Muslim
companies would go to extra length to ensure they get the “HALAL" certification from
relevant authorities to ensure that their productions can capture bigger market of both Muslim
and non-Muslim consumers.

In addition, public awareness on halal food is another factor that increases the demand
for halal food. This is because, halal food is not only telling people that the food can or cannot
be consumed, but more importantly they are the benchmark for quality, hygiene, health and
safety of the food. For instance, the halal cosmetic in the Middle East has recorded an
increase in sales of 12 percent annually with total sale value amounting RM6.49 billion. This
happen because the consumer is aware about the advantages and benefits of halal cosmetic for
their daily uses. It is not only safe for the consumption, but also contains many other elements
that are good for their skin care. Therefore, those consumers who have been aware of the
benefits of halal product would go to greater length to get halal product as their basic needs
regardless of their religion (Alqudsi, 2014). In discussing awareness about halal food,
consumers are focused on halal integrity. (Zulfakar, Anuar, & Talib, 2014) states that aspects
such as the halal certification, halal standard, halal from the raw material and so on could help
consumer to get more along with halal food. Introducing halal product and halal food in the
several of expo and exhibition around the world has led to a better user’s understanding on
halal product and halal food closer without any sense of doubt and that’s the factor that have
led to increased demand for halal product.

The existence of numerous studies on halal food quality is also a factor in the rising
demand for halal food. People trust the organizations that carry out surveillance on the
research as well as in the production of halal food. The presence of latest technology is most
welcomed to detect the presence of food that is not halal thus avoiding consumers trapped in
the non-halal saga, and to preserve the halal status on food for Muslims consumption
(Fadzlillah, Man, Jamaludin, Rahman, & Al-Kahtani, 2011). As for the non-Muslim
countries, halal food demand will increase when there are tourists from Muslim countries
visiting their countries. These countries will have to imports halal products to cater for their
visitors thus providing an opportunity for the Islamic state to provide halal food supplies into
these non-Muslim countries (Jafari & Scott, 2010).

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3. THE ECONOMIC IMPACT OF HALAL PRODUCTS

The international market for halal foods is estimated to value at about USD580 billion
annually (Qureshi et al., 2012), and the trend is on the rise. Similar growth was also registered
by Malaysia and the trend continues to rise especially when it became the world largest halal
hub in a few years from now.

Table 2: Halal export values from 2010 to 2013

YEAR 2010 2011 2012 2013
VALUE (RM BILLION) 15.2 24 32 32.8
PERCENTAGE (%) - 56.9 34.1 2.7

Source: World Halal Conference 2014

Figure 4: Trend of halal export values from 2010 to 2013

Source: World Halal Conference 2014

Figure 4 indicates a consistent rise of total halal exports from Malaysia since
2010. In the year 2011 Malaysia registered the highest increase in export of halal products,
9
with total volume of RM23.9 billion a substantial increase of 56.9% as compared to a year
before. The rising trend continue in the subsequent years although at a more moderate level
registering an increase of 34.1% and 2.7% respectively in the year 2012 and 2013. Looking at
the content of our exports, food and beverages constitutes the single largest exports with total
sales of RM12.3 billion and RM13.3 billion respectively in year 2012 and 2013, followed
closely by the ingredients as shown in Table 4 below. This shows that the halal exports give
the positive impact to national export and national income. The total halal export includes
also items such as palm oil derivatives (RM4, 828.3 million), cosmetic and personal care
(RM2,026 million), industrial chemical (RM1,687 million) and also halal pharmaceutical
(RM407.2 million).

Table 4: Major halal exported product in 2012 and 2013

MAJOR HALAL EXPORTED PRODUCT 2012 2013

(RM MILLION) (RM MILLION)
Ingredient 10,615.18 10,621.45
Food and beverage 12,276.96 13,272.18
Palm oil derivatives 5,061.57 4,828.29
Industrial chemical 1,933.82 1,686.99
Cosmetic and personal care 1,731.83 2,025.95
Pharmaceutical 375.59 407.15
TOTAL RM32 BILLION RM32.8 BILLION
Source: www.hdcglobal.com

With regards to destination of halal exports, China stands on top of the list with total
exports amounting to RM3, 936 and RM4, 370 million in 2012 and 2013 respectively as per
the Table below. The trend is not surprising as the Muslim population in China totals over
100 million and the number is increasing. The second biggest trading partner of halal foods is
Singapore with total exports amounting to RM3, 106 million in 2013. However, export to
10
Singapore is mostly for re-export to other countries as the total Muslim population there is
relatively small compares to countries like Indonesia and Thailand. Malaysia’s other trading
partners in halal foods are United States, Indonesia, Netherland, Thailand and South Korea.

Table 5: Export destination in 2012 and 2013

COUNTRY 2012 2013
China RM3,936.73 million RM4,370.30 million
Singapore RM3,082.82 million RM3,106.05 million
United States RM2,694.67 million RM2,721.80 million
Indonesia RM2,066.32 million RM2,211.69 million
Netherlands RM1,849.16 million RM1,584.90 million
Thailand RM1,793.36 million RM1,631.21 million
Japan RM1,774.29 million RM1,881.24 million
India RM1,434.92 million RM1,225.70 million
South Korea RM1,373.48 million RM1,192.02 million
Australia - RM1,150.38 million
Philippines RM1,065.46 million -
Others RM10,929.42 million RM11,772.26 million
TOTAL RM32 BILLION RM32.8 BILLION
Source: www.hdcglobal.com

The impact of halal product on the economy can also be measured by the new
technological innovation created to facilitate the management of halal food. Among the new
devices are the information and communication technology (ICT) to manage data related to
halal food, using RFID (Radio Frequency Identification) to track the status of a food and
many more. (Anir, Nizam, & Masliyana, 2008) have found that the use of a new tool or a new
technological method is needed to track and verify the purity of food product that is produced.
With new technologies and technology transfer between countries, halal food quality can be
ascertained more accurately so as to ally fear of consumers regarding the consumption of
halal foods produced here in Malaysia. This will undoubtedly have a positive impact on the
country’s ability to produce quality halal food products not only for domestic market but also
for export to global markets.

11
4. THE HALAL PARK

The main objective of undertaking the production of halal product and the promotion of halal
process is to enable Malaysia to successfully set up the Halal Park in the country. Halal Park
is a community of manufacturing, distribution and service related to halal products which are
located at a common premise. The incubator concept of the park enables participants to gain
skill and experience of producing, managing and marketing the halal products under the guide
of the park management. The activities from this Halal Park are including the managing halal
product and manufacturing. The tenant will collaborate with the management of the park and
seek the opportunity provided by collaborating with the Park management.

Figure 5: Halal Park in Malaysia

Source: www.hdcglobal.com

The objective of Halal Park is to improve the performance of participant in this centre;
gaining and enhancing the economic opportunity while minimizing the bad impact on
environment. Component of this training package includes aspect of green design of park
infrastructure, cleaner production, pollution prevention, energy efficiency, intercompany
linkage, linkage for marketing and others. Figure 5 shows the location of Halal Park in
Malaysia. In peninsular Malaysia alone, there are 17 Halal Parks while Sabah and Sarawak,
there are 4 Halal Park established.

12
 Table shows the impact of Halal Park activities on the Small and Medium Enterprise
(SME). The involvements of SMEs in the Halal Park enable them to expand their business
activities and be able to provide new jobs for citizen. The participation of SMEs has managed
to galvanise capital and investment in new products. It Shows the total of Halal Park is 21,
Multi-National Companies is 18, total of SME’s is 110, the total amount of investment in
Halal Park is RM8.07 billion and the total employees in halal park is 5,274. In other words,
halal activities can generate such a vibrant activities and thereby catapulting Malaysia into the
regional Halal Hub for the halal products.

Table 6: The fact of Halal Park in Malaysia

ITEM TOTAL
Halal Park 21
Multi-National Companies 18
SME’s 110
Investment RM8.07 billion
Employees 5,274
Source: www.hdcglobal.com

5. CONCLUSION

The impact of halal industry to the economic prosperity can be measured in two different
categories; the domestic economy and the international trade relationship with the rest of the
world. On the home front, halal industry has dramatically changed the behaviour and trend of
people towards food consumption, becoming more sensitive and aware of food conditions; its
halal status, its hygiene and its palatability of such product. Increased awareness about the
status of foods has driven the halal industry to expand more rapidly to meet the increasing
demand for halal foods. The change in awareness is not only confined within the national
boundary of a country but has swept the shore of foreign countries especially where Muslims

13
resides. This has opened new opportunity in international business where more and more halal
products are demanded by these foreign countries thus expanding the market for domestic
productions.

Indeed halal industry has encouraged development of infrastructure to facilitate

production of halal commodities. The establishment of Halal Park provides ample
opportunities for SMEs to acquire skill and knowledge in the production, packaging and
marketing of halal products. The impact is the increase in the amount of export of halal
products because demand for such commodities is twofold; domestic demand and foreign
demand which was driven by the international awareness about the quality of such products.
It can be seen therefore, that the economics of halal industry can be measured by the demand
for such product both domestic and foreign market and the development of ancillary and
support industries within the halal economy of a country.

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