Malaysia’s Halal Crisis – Analysis

In Malaysia today, Halal is an important part of life for the majority Muslim population. Internationally, at a time when conventional markets are reaching saturation point, Muslim consumers are becoming much more concerned about Islamic issues in the way they conduct their daily lives.

Halal related markets are some of the fastest growing consumer segments today. These take in foods and beverages, medicines, pharmaceuticals, health foods, cosmetics, fashion, tourism, recreation, finance, and even hardware. There are numerous estimates of the size of the global halal market, which averages out to between USD 4.5-5.0 Trillion per annum.

Even as Muslims lean towards western style consumption and lifestyles, they are embracing the Muslim faith with much more reverence than previous generations who had to struggle much more to survive, and the choice of halal was wasn’t available. Muslim obligation under the Tawhid (the relationship between people and God) is something that enters everyday life and as a consequence, Muslim consumers are seeking products and services that are Syariah compliant (the path shown by God).

Central to the Syariah are the concepts of halal and toyyibaan, which govern the economic activities of people in production and consumption of wealth, where certain means of gaining a livelihood are declared unlawful.

Halal means lawful or permitted for Muslims, a concept much wider than just food issues. It concerns whether operational procedures are undertaken according to the Syariah. Toyyibaan is even a much wider concept than halal, which means good, clean, wholesome, healthy, non-exploitive, and ethical within the Islamic concept.

Under the concept of toyyibaan, food and other products must be clean, safe, nutritious, healthy, and balanced. Toyyibaan also means that production must be undertaken within a sustainable regime of practices, where business should be undertaken with good intentions. Therefore, in the strict sense of these concepts, toyyibaan influences management practices, human resources policies, business ethics, raw material selection, manufacturing methods, and community relations.

The concept of halal stipulates a number of ingredients which Muslims cannot consume in any form. These include:

• Pork and pork bi-products,
• Animals that are dead or dying prior to slaughter,
• Blood and blood bi-products,
• Carnivorous animals,
• Birds of prey,
• Land animals without ears,
• Alcohol, and
• Animals killed in the name of anything other than Allah (God).

Increasing internationalisation of the market means many new product choices are available for consumers from companies and service providers which consumers don’t know and are yet to trust. Many products utilise animal-based product formulations, which may or may not have been slaughtered in accordance to Islamic law.

In addition, through advances in biotechnology, new ingredients are being formulated into products where halal status is unknown. Currently JAKIM (Department of Islamic Development Malaysia) which is the sole statutory halal certifier in Malaysia doesn’t yet have fully operational forensic laboratories with experienced staff to assess product halal status.

In contrast, Thailand is leading the world in halal assessment and research with its Halal Science Centre at Chulalongkorn University in Bangkok, established back in 1994. The centre focuses on developing standards, a haram (forbidden in Islam) ingredient detection system for certification purposes, halal food production system development with a Halal-GMP-HACCP framework, and developing consumer information systems through Apps, as well as general halal research.

The Halal Science Centre has developed a complete Halal logistical tracking system and protocols called Hal-Q, which has not just been widely accepted by Muslim businesses in Thailand, but has been taken onboard as an industry standard by many multinational food manufacturers in Thailand.

In addition, many Arab and European countries have also adopted this system and come to Thailand for training on Halal logistic management, putting Thailand more than a decade in advance of any system Malaysia has to offer. This has enabled Thailand to become one of the foremost Halal food manufacturers in the region today.

The Malaysian Halal Industry Development Corporation (HDC) was set up in 2006 to takeover halal certification from JAKIM and promote Malaysian halal products internationally. In 2009 JAKIM under mysterious circumstances took back complete halal certification responsibility from the HDC, into a newly set up department called the Halal Hub Division. The HDC then focused on spending hundreds million Ringgit developing warehousing facilities in what were called Halal Parks. All of these, like the Labuan Halal Complex have become ‘white elephants’ with few or no tenants. The Asia Sentinel visited the Perlis Halal Park in Padang Besar recently and found it was mainly empty except for a tenant using the park as a staging point to smuggle goods in and out of Thailand. The rest of the HDC’s activities involve organizing exhibitions as an event manager.

Traditionally in Malaysia, stalls, eateries and restaurants were known to be halal through word of mouth. The surroundings and Islamic symbols on the walls with signs saying “bertanggung halal” were once enough assurance. These businesses relied on community recognition. Any premises that was suspected of not being halal would just be boycotted by locals. It’s only been in the last decade that authorities have been pushing small businesses to seek halal registration.

Today, only a small fraction of Malay sole proprietors and SME’s have gained halal certification. In addition, only a small proportion of international hotels and resorts have halal registration. A number of SME owners and food and beverage managers of hotels told the Asia Sentinel that the major barrier to gaining halal registration was money. For many sole proprietors and SMEs who ran traditional businesses, the on-site infrastructure requirements were prohibitive and way beyond their financial means.

Then a dark side to the halal certification process was brought up. SME proprietors and F&B managers told the Asia Sentinel that JAKIM officials requested cash payments above the statutory fees in order to guarantee registration. In addition, Municipal Councils and the fire department also requested cash payments above statutory fees to issue the necessary documents JAKIM required in halal product and premises applications. According to one F&B manager this practice is not being carried out by a few rogue JAKIM officers. One officer brought out his immediate superior to negotiate the payment.

In another case, a Muslim Lebanese butcher from Australia was setting up a halal choice meat cut butchery in Kuala Lumpur for retail and distribution. A JAKIM official requested an RM50K payment for registration. Due to the company’s policy of not paying bribes due to the firm’s the religious moral philosophy, the investment in Malaysia was immediately aborted.

Some SMEs have tried to circumvent the issue of corruption through hiring a consultant or broker. Consultants and brokers according to SME proprietors are not people with technical and religious backgrounds. As one proprietor put it, these brokers seem to be “sleezy hustlers” rather than experts. Companies have found bucking the system by complaining will only lead to drastic consequences, like have operating licenses suspended and being put out of business.

Other issues including the arrogance of some JAKIM officers and refusal to assist in the registration process has led to a backlash against halal certification. The high rate of application rejection is discouraging firms to apply. This has led to a blackmarket in renting halal certificates, or even using bogus logos, now in epidemic proportions that JAKIM cant handle. As a consequence 60 percent of halal registrations in Malaysia are to non-Muslim multinational companies.

JAKIM doesn’t have its own compliance officers on the ground, relying on officers from the Ministry of Domestic Trade to assist. With Domestic Trade officers focusing on their own agendas such as price control, the whole halal regulatory system in Malaysia is undermined. Yet JAKIM’s overzealous actions over incorrect reports made by other parties have led to brand damage, like the Cadbury case a few years ago.

JAKIM is using the halal certification system to impose its ideas and opinions on the Malaysian community. Just recently alcohol-free beer has been banned in Malaysia, even though these products are widely distributed and sold throughout the rest of the Muslim world. McDonalds Malaysia doesn’t allow customers to bring in cakes that have not been certified halal by JAKIM. Words like ‘chicken ham’, ‘beef bacon’, and ‘chicken char siew’ are not allowed to be used on products certified by JAKIM, even though similar culturally derived food names are certifiable in other countries. JAKIM determines its own standards and opinions about the definition of halal without any recourse to appeal their rulings.

The success and credibility of JAKIM’s handling of Malaysia’s halal certification system is at stake with 90 percent of Malaysia’s companies outside the scheme. Research indicates that there is a public trust problem with JAKIM’s halal certification, which compromises the integrity of the whole halal system.

In order to keep up with the developing sophistication of the international halal trade, JAKIM’s halal certification process requires some innovation to assist Malaysian companies develop a competitive edge. At present JAKIM’s certification lacks the supply chain tracking element that the Thai exporters do with Hal-Q. JAKIM could look at coupling halal certification with Good Agricultural Practice (GAP) and ethical business ratings, such as Tawhid compliance. Tawhid compliance would take into consideration issues far in excess of supply chain management such as management practices, employee exploitation, sustainable production, community flow-downs, and other ethical issues related to a business. At the same time, there could be a special certification recognizing the issues related to sole proprietors and small businesses.

JAKIM as a certification monopoly has many shortfalls. JAKIM staff are viewed as unfriendly according to research. The online application portal is no working most of the time, making applications very difficult for firms domiciled outside Kuala Lumpur. There needs to be state-level accredited halal certifiers to facilitate easier application and processing. The Halal Hub Division of JAKIM could be made independent of JAKIM, with JAKIM playing more of an appeal and arbitration role for aggrieved applicants.

There needs to be more science put behind the halal process such as the development of standards and enhancing detection techniques, along with much more open public policy discussion. The current method of enforcement relying on the Ministry of Domestic Trade and local government needs rethinking.

However, the major issue in the short-term which is directly related to the whole integrity of the halal application process is eliminating all types of bribery and corruption. A halal certificate issued with a bribe involved under Islam is not halal. The Malaysian Anti-Corruption Commission (MACC) needs to make an investigation of JAKIM’s Halal Hub Division one of the highest priorities to ensure the integrity of Malaysia’s halal certification system.

Originally published in the Asia Sentinel