Given its intricacy, the integrity of the entire Halal supply chain is of utmost importance.
“Halal”—what is it and what does it mean? While the literal meaning of this Arabic word means lawful or permissible and typically associated with food and beverages, the word ‘halal’ has since evolved.
Between the growing Muslim population and the increasing affluence of Muslim consumers globally, the overall consumption for this segment has grown over the years. In 2018, the estimated consumption was USD2.2 trillion, and this is projected to reach USD3.2 trillion by 2024.
As for the Halal food industry, while Muslim consumption on food and beverage (F&B) reached USD1.4 trillion in 2018, this spend is projected to reach US$2 trillion by 2024. This presents significant opportunities for businesses that are already operating in this space, as well as for those that have yet to do so.
The halal food experience could be viewed as one of the drivers of change in the industry. As consumer demands increases, so would the need for F&B manufacturers to meet these demands. In fact, among growth sectors identified for the halal food industry are ‘retail concepts’ and ‘halal products e-commerce’.
According to the Japan National Tourism Organisation for instance, a majority of Muslim visitors to Japan are from South East Asian countries such as Indonesia, Malaysia and Singapore. Also, as Japan ranks in the top 3 travel destination for non-Organisation of Islamic Cooperation (OIC) countries, interest in Japan signals significant demand for halal Japanese food as well as food products both domestically and internationally.
For Japanese restaurant chain Coco Ichibanya for instance, expanding into Southeast Asian markets with halal-friendly menu could be an engine of growth for them. As the restaurant currently operates 2 halal friendly outlets in Tokyo with authorisation by Nippon Asia Halal Association, the transition to offering halal menu process has already been initiated. Hence, setting up halal-friendly restaurants in Southeast Asia could enable the restaurant to give patrons the dining experience as well as promote their menu on food delivery apps such as Gojek and Grab.
As for Japanese food manufacturers, this ready audience presents an opportunity for them to invest in manufacturing halal certified products for the export and international market. With F&B exports to Organisation of Islamic Cooperation (OIC) countries such as Malaysia and Indonesia reported to be USD210 billion in 2018, this figure is expected to grow in line with the projected F&B consumption increase.
Given the demand and growth projections for halal food, companies looking to expand into halal food manufacturing should look to align their products with the halal industry growth sectors such as ‘halal ingredients’, ‘meat-based meals and snacks’, and ‘halal products e-commerce’. The development of halal hubs such as Malaysia’s Northpoint and Singapore’s Halal Hub, as well as interest from other Southeast Asian countries to establish halal hubs, is another indication of the significant growth potential in this industry.
BALANCING THE INTRICACIES
Fragmentation in the halal food certification process and varying halal certification requirements across markets increases the complexity and challenges in the halal food production and trade industry. Indonesia for instance, requires all food products that are imported, distributed and sold in the country to be halal certified. Hence, any restaurant chain or food manufacturer looking to tap into the Indonesian market, which has the largest Muslim population, will need to undergo a thorough and extensive halal certification process. In locations with a central halal accreditation agency, this might be easier managed as compared to countries like Japan which had no central agency for halal accreditation until December 2019.
As there are strict requirements where halal food is concerned, the entire supply chain process from sourcing of raw materials to manufacturing, transporting, storing and handling of the products will need to be looked into. While sourcing of raw materials might seem a straightforward process, it is important for procurement personnel in Malaysian companies for instance, to be aware of the list of halal certification bodies (CB) recognized by the Department of Islamic Affairs Malaysia (JAKIM) and procure products which have been approved by the halal committee. The risk arises when these procurement personnel do not have the updated list of halal CBs, and acquire products from companies that are not on the approved list.
During the manufacturing or packaging process, it is important that halal food manufacturers operate a separate production facility to prevent halal contamination. Equally important is the packaging process as there have been incidents of falsely labelled products in Malaysia as well as the UK, where halal-labelled products were either not halal certified or have been doctored with pork DNA. Other reasons that have resulted in halal product recall in Malaysia include processing conducted with non-halal requirements and usage of unapproved ingredients by the halal committee. In fact, Swiss Re Corporate Solutions has found that a large proportion of F&B insurance claims have arisen due to manufacturing and packaging issues.
The logistics of transporting, storing, and handling of halal products is another area of risk because not only do halal products need separate transporting and storing facilities from non-halal products, halal certification could also be a requirement of logistics companies. In Indonesia, for instance, Nippon Express and Yusen logistics, two of Japan’s biggest transport companies have been certified for shipping goods in compliance with the Islamic law.
Given the intricacy of the halal food supply chain, the integrity of the entire supply chain is of utmost importance. As each intermediary has its own suppliers and vendors, which would in turn involve other logistic activities within and across those intermediaries, the potential risk of cross-contamination is high if no halal control systems are in place in the supply chain. Hence, getting the commitment of each intermediary or partner in the supply chain to uphold the highest standards of integrity of halal products is critical. This could be achieved by identifying Haram Critical Control Points (HrCCPs) in each supply chain and logistics process in and across each intermediary, with proper development and implementation of a Halal Assurance System.
Should any part of the supply chain be compromised, there could be significant impact to all businesses operating in the supply chain. With the average food recall cost incurred observed to be approximately USD1 million in Asia, this makes it necessary for food manufacturers to look into ways to mitigate their risk.
TRANSFERRING THE RISK
Swiss Re Corporate Solutions has recently launched a Contaminated Product Recall Insurance Product for the Halal Food and Beverage Manufacturers. A typical Contaminated Product Recall Insurance covers losses for food companies due to recalls caused by accidental contamination, malicious product tampering, governmental recall, and product extortion. To cater to the anticipated growth in the Halal food industry, Breach of Halal Certification is incorporated as a trigger event. This additional trigger event covers losses from recall due to accidental or unintentional contamination, impairment or mislabelling during production, preparation, manufacture, packaging, labelling or distribution that results in the breach of halal certification determine by a competent authority.