ASEAN Community: Regional Strategies to Tap Global Halal Business Opportunities Pushpanathan Sundram Managing Director, Asia Pacific, EAS Strategies

21st September 2015, KL

1. What is the AEC?

2. The Prospects

3. The State of Halal Market

4. The Harmonization Challenge

5. Tapping the ASEAN Halal Market

6. The Road Ahead

7. Seizing the Opportunities

8. Conclusions

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Agenda

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1. What is the AEC?

Total FDI USD 136.2 billion (2014) Intra ASEAN USD24.4 billion

Tourism Arrivals 89.3 million (2013) Intra ASEAN 39.9 million

Total Exports USD1.3 trillion Intra ASEAN 25.5%

GDP USD2.57 trillion GDP growth: 4.6% (2015); 5.1% (2016) Per capita USD 4,130 (2014)

Population 625 million (2015) Youth 60%

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Robust economic growth for a decade

Adaptable open economies

Wide ranging productive capabilities

Diversified exports – by destination & product

Young and growing population

Expanding middle class

2. The Prospects

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Strong FDI with production networks

Growing small and medium enterprises

Successful regional cooperation track record

Strong regional architecture & cooperation initiatives

Strategic location and ASEAN centrality

Huge market potential combined with China, India and Japan

Hub of FTAs and future transformational trade agreements such as TPP and RCEP

Manufacturing connectivity and technological links with Northeast Asia

Potential hub for education, health, tourism, R&D, logistics and financial services

Growing competitive ASEAN market

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Opportunities

Halal market visibly associated with food products.

Global market value for Halal Food is about US$ 700 billion a year

Industry includes cosmetics & pharmaceuticals, services such as tourism and health, and halal supply chain from cattle farming, meat processing, packaging to logistics

Global halal industry is worth about US$ 2.77 trillion a year

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3. State of Halal Market

World Muslim population to increase by 38% in next 15 years: 1.6b in 2010 to 2.2 b in 2030

World’s share of Muslims expected to increase from 23.4% in 2010 to 26.4% in 2030

Asia alone has 1 billion Muslims and they make up 62% of Muslims worldwide

Huge potential as ASEAN is located in Asia and well connected by trade, investment and infrastructure with Asia.

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Growing Muslim Population

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Growing Muslim Population

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Regional Markets-Asia Leading

ASEAN countries are among the leading suppliers and importers of halal certified products in the world. There is also substantial intra-ASEAN trade in halal food.

Indonesia is biggest buyer of Malaysia halal food products and Singapore is a major transit hub to the Asia Pacific for halal food.

ASEAN is also a supplier to Middle East with a Muslim population of 127 million. Most than 80% of its food requirements are sourced from overseas.

China with 33 million Muslims is a important market. China imports around US$1.3 b of halal products from Malaysia alone. China is now ASEAN’s top trading partner.

Europe is an important market experiencing a surge in demand. France has the largest halal market of about US$17b and UK about US$ 4.2b. Eastern Europe is another market to tap.

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ASEAN and Halal Market

In Asia, largest exporters of halal products are: 1. Thailand, 2. The Philippines, 3. Malaysia, 4. Indonesia, 5. Singapore, 6. India.

Malaysia’s exports alone is above US$ 11billion

Thailand and Malaysia have taken the biggest strides into the halal food market: Thailand-excellence in science and testing; Malaysia-expertise in certification and increasingly a hub and thought leader for halal industry.

ASEAN countries are among the leading suppliers and importers of halal certified products in the world.

For ASEAN to leverage on the growing opportunities, there is a need for increased cooperation among ASEAN members on production regulations, certification, standards and required approvals.

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ASEAN and Halal Market

Standardization of halal certification difficult as difference in definition among countries on each raw materials and immediate products in the manufacturing process.

Progress achieved by the ASEAN Working Group on Halal Food is slow. Confined to sharing information related to halal additives, halal certification bodies within ASEAN, and guidelines and standards of each Members.

Awareness level of halal differs and standards differs. Examples: stunning of animals before slaughtering and allowable level of ethanol in products.

Not able to develop a common halal standard yet due to the differences.

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4. The Harmonization Challenge

But, AEC could serve as a catalyst for the harmonization – free flow of

goods

A single halal standard has been discussed for a while as it allows easier access to ASEAN and foreign markets.

This is supported by the establishment of the World Halal Council established in Jakarta in 1999, which aims for an international halal standard.

Perhaps the standards of Malaysia and Brunei recognized internationally could serve as possible benchmarks for developing an ASEAN standard.

ASEAN could work on alignment of their standards towards a mutually recognized regional standard. Will serve 3 purposes: Create an ASEAN halal brand Allow for free flow of halal products within ASEAN region without

additional certifications or approvals. Encourage greater FDIs flows into ASEAN

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AEC and its Implications

MNCs are now investing heavily on halal production globally due to increasing Muslim population and popularity of halal products even among non-Muslims.

Companies need to be prepared for changing market landscape – market moving eastwards and therefore investment opportunities in Asia

Substantial halal trade to Middle East goes through Asia. Malaysia seen as country of halal excellence – certification in Malaysia to supply to Middle East

Easier now for foreign companies exporting to ASEAN as they subjected to the same requirements as local companies.

Acceptance of certification of other halal certification bodies from ASEAN countries.

Increasing incomes and middle class demanding safety, higher quality and variety. Willing to pay a premium – Opportunity

China and India at close proximity having large Muslim populations means ASEAN could be a base for companies exporting to the two giants.

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5. Tapping the ASEAN Halal Market

Manufacturers need to understand that halal is not just about religion but also about best practices in food manufacturing

Halal is no longer a sub-industry for food producers. It is a major industry to reckon with. For example, chicken meat consumption in Indonesia is expected to increase from 4kg to 8 kg in the next 5-7 years.

Halal practices are not common in certain products and this presents an opportunity. For example only 0.7% of gelatin, which is used in many food and pharmaceuticals is deemed halal.

Big challenge for foreign companies is the pricing and competition with regional and local players at the entry stage. Eventually, product offering and quality will be important to win market share.

Another challenge is the consistent availability of halal ingredients or products for companies to capture the market share.

Companies will also need to understand the local requirements especially legal and regulatory compliance. 16

6. The Road Ahead

7. Seizing the Opportunities

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Understanding halal as an aspect of GMP

Recognizing that halal is now a major industry

Halal practices can be adopted in many

areas with ease

Pricing at entry stage & product offering

and quality to sustain market share

Consistent supply of ingredients and supply to

capture market share

Being well versed about local requirements: legal and

regulatory

Utilise dedicated industry/trade associations to shape policies and regulations in AEC on halal. Work with ASEAN WG on Halal Food. 18

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Companies Should

1 2 3 4 Develop a regional strategy within ASEAN to tap on the growing halal market

Adopt a multi-local strategy for time being as halal harmonization is still in progress

Start tapping on economies of scale by placing production facilities across the ASEAN region. It will give access to the markets too.

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Halal is a sunrise industry and expected to grow with the population growth of Muslims in Asia and globally as well as due to urbanization, rising incomes, demand for variety and food safety.

AEC will impact the halal market positively and allow for intra-ASEAN and extra-ASEAN trade

But harmonization will take time: standards, certification, regulations and approvals.

Meanwhile, bilateral trading arrangements and mutual recognition arrangements will facilitate the trade of halal products

ASEAN WG on Halal Food should continue its work towards the establishment of aligned standards to facilitate freer flow of halal food and other related products in the AEC.

8. Conclusion

Thank you

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