Photo: JAKARTA, INDONESIA - AUGUST 25, 2016: People eating at a street food stall on August 25, 2016 in Jakarta, Indonesia. From 2019 all food that is halal must be labeled as such in a move Indonesia hopes will boost quality of its halal industry for both domestic and export markets / Oscar Espinosa / Shutterstock, Inc.
It has the numbers, now Indonesia’s halal industry needs to focus on quality to develop both export and domestic markets
Indonesia is the world’s largest Muslim-majority country. Unsurprisingly, it has a strong domestic halal food market, estimated to be as high as $147 billion in 2014, but more needs to be done to bolster quality and exports. Given that importers are anticipating a rise in demand ahead of 2019, when all halal products will be required to be certified, what opportunities are there for domestic and international food producers to address the rising demand for halal food in Indonesia?
|YOUR PAIN POINTS ADDRESSED
|Scenario: You are a food products MNC seeking to address global Muslim demand, and you are evaluating new markets
How robust is Indonesia’s halal food industry?
|What is the scale of demand for halal food in Indonesia, and how developed is the ecosystem overseeing the industry?
|What challenges does the industry face?
|What opportunities exist for the industry to grow?
HOW BIG IS INDONESIA’S HALAL MARKET?
Indonesia has 255 million people, of which 87.2 percent, or 207.2 million, are Muslim, according to national statistics office Badan Pusat Statistik (Statistics Indonesia). The country has a clear demographic appeal for halal products.
However, there are no clear statistics on the value of the halal food sector. According to the Indonesian Food and Beverage Association (GAPMMI), the turnover of the processed food and beverage (F&B) industry is expected to reach $99 billion in 2016, up 8 percent on 2015, and forecast to reach $108 billion in 2017 on the back of population growth and rising purchasing power.
The Indonesian Sharia Bank Association (Asbisindo) business development chairman Imam T Saptono said in November 2016 that only 20 to 30 percent of food in Indonesia was halal-certified in 2014, and that the total expenditure on halal food in the country in that year was $147 billion.
Another indication of the halal market is that during Eid Al Fitr 2016 F&B turnover was estimated at $10.7 billion, according to GAPMMI.
A further indication is that 90 percent of industrial F&B manufacturers are halal-certified, according to Dr Muhamed Hosen, a halal consultant in Jakarta. If that estimate is correct, the Indonesian halal F&B market could be worth around $90 billion.
“The Indonesian halal market is one of the biggest growing markets due to the high number of Muslim consumers, so halal certification is a key element for any business producer. If you have halal certification it is kind of a green-light for entering this big market,” said Murat Sayin, head of International Relations at GIMES, a Turkish halal certifier, to Salaam Gateway.
Investment in the processed F&B sector reached $3.9 billion in 2016, but foreign investment in the industry has been less dynamic, having dropped 50 percent in 2015 to $1.5 billion, according to GAPMMI.
Indonesia is not a major halal food exporter, although exports of halal noodles, spices and fish for processed food has been on the rise to Singapore, Japan, the United States and the Middle East, according to Hosen. “Indonesia is trying to export more, but there is a huge domestic market to cater to,” Hosen told Salaam Gateway.
What has stymied the development of the Indonesian halal food sector is the perceived low quality of products compared to imports.
“Companies need to better understand export quality. When you go to local supermarkets all the foreign products have strict labeling, but locally-produced products do not put what is inside on the packaging properly. They are not ready to sell in foreign markets yet. We have more an import culture, so a lot of trading companies are opening to import products,” Marlissa Dessy Utami, Director and Founder of Indosight, a market entry consultancy in Jakarta, told Salaam Gateway.
While Indonesia has one of the biggest and best known halal certifiers in the world—Majlis Ulama Indonesia (MUI)—there are shortcomings at the producer level.
“Indonesian companies have halal certification but the issue is the quality, as it is a bit low, so many people want high quality products from abroad. And in the halal assurance implementation system, we see some need for improvement at the company level,” said Sayin, who regularly goes to Indonesia for auditing in addition to advising Turkish companies entering the Southeast Asian country.
An estimated 10 percent of food producers are non-Indonesian, according to Hosen. In part this is due to government support for local producers while importers face higher taxation. Most foreign companies already have halal certification before entering the market.
“It is really rare for a company not halal-certified abroad to seek it here. As most already have it, it’s simply a duplicate system once in Indonesia with the MUI,” said Utami.
2019 mandatory halal labeling
An upcoming challenge, as well as huge opportunity for Indonesia is a proposed law that all halal products will have to be certified by 2019. “The problem will be that as it is mandatory, the government will have to enforce the law. It will not be easy to provide the infrastructure to assess certification across so many islands (over 14,000) and remote areas, so it will be quite expensive,” said Hosen.
The law has also met resistance, particularly from the pharmaceutical industry due to concerns about halal sourcing for all medicines, as well as other economic sectors. “The year 2019 is still far away and the regulation is not confirmed. Indonesia is very uncertain in terms of regulations, the government could say A, the next day say B. It is also a sensitive issue as Indonesia is not actually a Muslim country (it is constitutionally a secular state), and the law could hurt other sectors, such as tourism, as we want as many tourists as possible,” said Utami. Indeed, Indonesia’s national motto is “Unity in Diversity”.
Nonetheless, halal certification will be a boon for local producers and importers. “Our population is mostly Muslim so halal certification is good for sales,” she added.
The proposed halal law is expected to be a boon for consultancy companies. “Before the 2019 law (is enacted), if you are capable, open a branch and provide halal consultation and services,” said Sayin.
Indonesia is a big importer of raw materials, especially ingredients, flavors and fragrances to fuel its food sector. “Indonesian halal companies need ingredients and additives. There are huge opportunities as Indonesia is a huge market, but what is important is quality and (low) price,” said Sayin.
Driving growth in the food sector is the rising middle class, the fourth largest in the world at 17.3 million households, and forecast to rise to 20 million households by 2030, according to Euromonitor.
The country is also young, with 60 percent of the populace under 30 years old. Such demographics provide good opportunities for importers and manufacturers of higher end and non-indigenous food.
“The middle class is increasing, and for business that determines the market, like high quality and new types of food: Japanese, Chinese, European, Middle Eastern. The new generation prefers different kinds of food,” said Hosen.
|Establish local operations, and get certified as a first step: Having a physical presence and getting local certification will held gain the trust of consumers
|Do very robust primary research: Understand the demographics of the target consumer, and determine how their needs are changing
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