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RECOMMENDATION REPORT
FINAL DRAFT REPORT
DECEMBER 2016
REDUCING UNNECESSARY REGULATORY BURDENS ON
BUSINESS:
Processed Food Products
i
ABBREVIATIONS
ASEAN Association of Southeast Asian Nations
ATIGA ASEAN Trade In Goods Agreement
CE Certified Exporter
CO Certificate of Origin
COG Cost of Goods Sold
CIS Customs Information System
DOA Department of Agriculture
FMM Federation of Malaysian Manufacturers
FSQD Food Safety and Quality Division
HACCP Hazard Analysis and Critical Control Point
HS Codes Harmonized Commodity Description and Coding System
GDA Guideline Daily Amount
GMP Good Manufacturing Practices
LOA Letter of Authorisation
MAQIS Malaysia Quarantine and Inspection Services Department
MITI Ministry of International Trade and Industry
MOH Ministry of Health
MPC Malaysia Productivity Corporation
PC Phytosanitary Certificate
PEMUDAH The Special Taskforce to Facilitate Business
RMCD Royal Malaysian Customs Department
WCO World Customs Organization
WGEI Working Group of Efficiency Issues
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GLOSSARY
Advanced wastewater treatment
Advanced wastewater treatment is defined as any treatment beyond secondary (or biological) treatment. These treatment practices are employed to target specific discharge constituents that are of concern.
Clean Technologies
Clean technologies are defined as "manufacturing processes or product technologies that reduce pollution or waste, energy use, or material use in comparison to the technologies that they replace."
Food Irradiation
Food irradiation (the application of ionizing radiation to food) is a technology that improves the safety and extends the shelf life of foods by reducing or eliminating microorganisms and insects. Like pasteurizing milk and canning fruits and vegetables, irradiation can make food safer for the consumer.
HACCP
HACCP is a scientific, rational and systematic approach to the identification, assessment and control of hazards to ensure that food is safe for human consumption It is applicable to all food businesses involved in preparing, manufacturing, packaging, storing, transporting, distributing, handling, supplying or offering for sale food in any sector along the food chain.
Halalan Toyyiban
Halalan toyyiban merely means allowed and permissible for consumption with relation to Syariah law as long as they are safe and not harmful. The opposite of halal is haram/ non-halal which means forbidden and prohibited. Any food or drink which lies within the grey area and does not fall clearly under the Halal or non-Halal category is classified as 'Syubhah', alternatively called questionable or dubious. In this category, until the status becomes clear, Muslims should avoid consuming Syubhah food or drinks
HS Codes The Harmonized Commodity Description and Coding System (HS Codes) is a multipurpose international product nomenclature developed by the World Customs Organization (WCO).
GDA
Guideline Daily Amounts (GDAs) is a at-a-glance label that tells you how many calories and how much sugar, fat, saturated fat and sodium there are in what you're about to eat. It can help the consumer to decide what they should be eating, and this makes planning a healthy balanced diet much easier.
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GMP
GMP comprises basic requirements of a manufacturing facility. It consists of aspects such as design and facilities in the establishment and control of operation equipment, temperature, time, pH or water activity control, maintenance and sanitation, personal hygiene, personnel training, transportation, conveyors, product information and consumer awareness.
Regulatory Policy
Regulatory policy is about achieving government's objectives through the use of regulations, laws, and other instruments to deliver better economic and social outcomes and thus enhance the life of citizens and business.
SMEs Broad definition of SMEs in terms of manufacturing sector, sales turnover not exceeding RM50 million or full-time employees not exceeding 200 workers
Zero Emission
The "zero emissions" strategy relies on a network of companies utilizing each other’s waste streams. The strategy is a more economically efficient system than a "closed loop" because the waste products do not have to be fully treated.
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Table of Content
Title Page
Chapter 1: About the review 1.0 Introduction 1.1 11th Malaysia Plan: Implementing Comprehensive and
Integrated Governance Reform (Strategy A2)
1.2 Third Industrial Master Plan (IMP3): Business Operating
Environment
1.3 10th Malaysia Plan: Modernising Business Regulation
1.4 What has the MPC been asked to do?
1.5 Conduct of the study
1
Chapter 2: Sector Analysis
2.0 Definition of Processed Food
2.1 Overall Sector Overview
2.2 Industry Value Chain
2.3 Some challenges faced by the Players in Processed Food
Industry
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Chapter 3: Best Practice Regulations and Regulatory Burdens
3.1 What is Regulation?
3.2 Cost of Regulation
3.3 What are Unnecessary Regulatory Burdens?
3.4 Sources of Unnecessary Regulatory Burden
3.5 Best Practice Regulation
3.6 Issues/Concerns raised by various stakeholders
31
Chapter 4: Regulations Affecting Processed Food Companies in
Malaysia
4.1 Development of the existing framework
4.2 Current legislative arrangements
4.3 Responsibilities of Regulators
39
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Chapter 5: Regulatory Burdens during Supply/Import of Raw
Materials
Issue 5.1: Differences in HS Coding / Tariff Coding between
countries resulting to different duties payable
51
Chapter 6: Regulatory Burdens during Production process
Issue 6.1 Delay in obtaining Halal Certificates
Issue 6.2 Different GDA requirements for each market increase
the cost of packaging
54
Chapter 7: Regulatory Burdens during Distribution and/or selling
finished products
Issue 7.1 To speed up processing of Health Certificate
Issue 7.2 To speed up issuance of Certificate of Origin (Form D)
for export to Vietnam, Philippines and Indonesia
68
1
Chapter 1: About the review
This chapter provides an overview of the review by MPC. It illustrates the mandate
provided by the government in relation regulatory review in processed food industry as
well as their development plan as stated in the 11th Malaysia Plan and the Third Industrial
Master Plan (IMP3). The chapter also illustrates the objective, scope and method of the
review conducted.
1.0 Introduction
The regulatory environment has a substantial effect on the behaviour and performance
of businesses. While regulation can help to serve important economic, social and
environmental objectives and addressing market failures, it is crucial that regulatory
interventions do not unnecessarily inhibit private sector participation in the economy and
its contribution to higher standards of living. This requires a regulatory environment that
promotes competition and does not inhibit innovation while also addressing policy
objectives and market failures.
To maximise the innovation and output potential of an economy, firms need clear price
signals and the flexibility to shift resources as conditions change. However, Malaysia has
accumulated many regulations over the years many of which constrain change and
growth. Some regulations also inhibit competition and innovation by creating barriers to
entry to some activities and industries.
1.1 11th Malaysia Plan: Implementing Comprehensive and Integrated
Governance Reform (Strategy A2)
In the Eleventh Malaysia Plan, coordination and collaboration between ministries,
agencies and other relevant stakeholders will be strengthened to improve their
effectiveness and efficiency. The National Policy on the Development and Implementation
of Regulations (NPDIR) to modernise the current regulatory regime will be fully
implemented to include states and local governments. The capacity of regulatory
coordinators in ministries and agencies will be strengthened to ensure adherence to the
NPDIR. The regulatory reform will also be aligned to Malaysia’s commitments in existing
2
free trade agreements and unilateral liberalisation initiatives. A regulatory portal will be
established to improve access to and transparency of regulations. This review will
contribute to the 11th Plan by identifying areas where the regulation and governance of
processed food industry could be improved and thus contribute to:
improved coordination and consistency across ministries and agencies;
ensuring the regulatory environment for processed food industry and efficiency;
consistency across federal, state and local government regulation;
regulatory transparency and accessibility; and
alignment to free trade agreements and trade liberalisation, in general.
1.2 Third Industrial Master Plan (IMP3): Business Operating Environment
The Third Industrial Master Plan emphasizes that the creation of a conducive business
operating environment will enable industries to focus on business activities and enhance
their levels of operating efficiency and productivity. In doing so, the government has
identified the need to ensure its business and investment environment remains conducive
(Government Delivery System). Inefficiencies in the public sector delivery system will
need to be addressed to facilitate business operations and enable Malaysia to remain
attractive to potential investors. Areas which need to be improved include simplification
of systems, guidelines and procedures, and greater coordination among agencies at the
Federal, State and Local Authority levels. IMP3 further emphasizes the need to review
the present business-related rules and regulations:-
some being outdated and irrelevant under the current business operating
environment;
new developments in technology, as well as business trade practices, which may
either necessitate modifications to existing rules and regulations or the
formulation of new ones
the development of potential industries and services which may require different
regulatory measures; and
obligations and commitments under WTO.
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1.3 10th Malaysia Plan: Modernising Business Regulation
In 2007, the Government took a significant step in rationalising Malaysia’s regulatory
regime by launching PEMUDAH, a special task force to facilitate business. PEMUDAH’s
substantial achievements include reducing the process of starting a business, the time
taken to register standard property titles, and reducing the time taken for tax refunds.
To further enhance the initiative above, the Government has begun a comprehensive
review of business regulations, starting with regulations that impact on the 12 National
Key Economic Area (NKEAs). Regulations that contribute to improved national outcomes
will be maintained, while redundant and outdated regulations will be eliminated and
replaced with better ones where appropriate. This review will be led by the Malaysia
Productivity Corporation (MPC) in collaboration with relevant experts from business and
academia. This work will complement the efforts of PEMUDAH and ensure that any
reviewed regulations do not result in disincentives to business, investment and trade.
Table 1: Rank based on the World Bank's Doing Business Report
Rank Year
2016 2015 2014 2013 2012 2011
Ease of doing business 18 17 6 12 18 23
Starting a business 14 12 16 54 50 111
Dealing with construction
permits1 15 15 43 96 113 111
Getting electricity 13 13 21 28 59 60
Registering property 38 36 35 33 59 59
Getting credit 28 24 1 1 1 1
Protecting minority investors 4 4 4 4 4 4
Paying taxes 31 32 36 15 41 39
Trading across borders 49 48 5 11 29 28
Enforcing contracts 44 44 30 33 31 60
Resolving Insolvency
(Closing a business) 45 43 42 49 97 57
Source: World Bank, 20162
1 The time and cost related to obtaining an electricity connection were removed from the dealing with construction permits indicators and are allocated at the getting electricity indicators 2 World Bank Group (2016) Doing Business: Measuring Business Regulations, Economy Ranking, see: http://www.doingbusiness.org/rankings
4
Significant efforts and achievements can be reviewed through the World Bank’s Doing
Business report, see Table 1-1. The 2016 report, shows Malaysia overall ranking drop
one position from seventeenth to eighteenth, while a significant drop is registered in 2015
from the overall ranking of sixth in 2014. This has been the result of changing of World
Bank’s methodology in dealing with construction permits, getting electricity, registering
property, getting credit, protecting minority investors, trading across borders, enforcing
contracts and resolving insolvency. Nevertheless, the Government aims to make
Malaysia one of the top 5 nations in the world for ease of doing business continues. Such
effort will not only enhance Malaysia’s global competitiveness, but will also make it one
of the best places in Asia in which to do business.
1.4 What has the MPC been asked to do?
The 10th Malaysian Plan has mandated the MPC to carry out regulatory reviews with the
goal of making it easier to do business in Malaysia. The review is in line with the aspiration
envisaged in the New Economic Model (NEM) to transform Malaysia into a developed
economy. The NEM strongly indicates the need for good regulatory management to
improve regulatory quality. The 10th Malaysia Plan in Chapter 3 on Modernising Business
states:-
“The regulatory environment has a substantial effect on the behaviour and performance of companies. Private sector participation in the economy and innovation require a regulatory environment that provides the necessary protections and guidelines, while promoting competition”. Too often, Malaysian firms face a tangle of regulations that have accumulated over the years and now constrain growth. At the same time, regulations that would promote competition and innovation are absent or insufficiently powerful”. “To achieve this goal, the Government will begin with a comprehensive review of business regulations, starting with regulations that impact the NKEAs”.
Specifically, the MPC is:
reviewing existing regulations with a view to removing unnecessary rules and
compliance costs. Priority is given to regulations affecting NKEAs
ensuring that regulators conduct regulatory impact assessment for new regulations
making recommendations to the Cabinet on policy and regulatory changes that will
remove unnecessary regulatory burdens and enhance productivity.
5
The reviews of existing regulation involve public consultation with stakeholders and
interested parties. The process will be implemented with the intention to improve the
quality of existing regulations. Other processes within MPC will focus on ensuring the
good quality of new regulation particularly by applying regulatory impact analysis. This
report reviews existing regulation. As shown in the Figure 1-1, the review process takes
into account both government and business perspectives as well as reports, data and
reasoning of organisations such as the World Bank, the Economic Research Institute for
ASEAN and East Asia (ERIA) and the Australian Government Productivity Commission
(AGPC).
Figure 1: Regulatory Review Framework of MPC
PEMUDAH: Special Task Force to Facilitate Business
NDPC: National Development Planning Committee
WBDB: World Bank’s Doing Business
Source: Malaysia Productivity Corporation (MPC)
The government has formalised the mandate given to the MPC with the launching of a
national regulatory policy through the policy document “National Policy on the
Development and Implementation of Regulations (NPDIR)” in July 2013. The document
has been developed to support the modernization of the regulatory regime. The document
states:
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Global competition, social, economic and technological changes require the government to consider the inter-related impacts of regulatory regimes, to ensure that their regulatory structures and processes continue to be relevant and robust, transparent, accountable and forward-looking.
Essentially, the report is targeted to promote the NEM policy objective of improving
economic efficiency through enabling fair competition. The objective of the national policy
is to ensure that Malaysia’s regulatory regime effectively supports the country’s
aspirations to be a high-income and progressive nation whose economy is competitive,
subscribes to sustainable development and inclusive growth. The policy is to ensure a
regulatory process that is effective, efficient and accountable as well as to achieve greater
coherence among policy objectives of government.
1.5 Conduct of the study
The investigations have involved collection, review and analysis of data and information
from two sources: secondary data from literature reviews and primary data from
interviews with key stakeholders.
Secondary data are from many sources and are classified as follows:
i. The Laws of Malaysia, particularly:
a. Food Act 1983 (Act 281)
b. Customs Act 1967 (Act 235)
c. Plant Quarantine 1976 (Act 167)
ii. Research papers published by international agencies such as the World Bank
and the World Health Organisation (WHO) and other countries such as the
AGPC, and the OECD
iii. Local research papers and reports commissioned by the government such as
the Economic Planning Unit (EPU) commissioned reports and Ministry of
International Trade and Industry (MITI) commissioned reports
iv. The Malaysian Government Plans such as the 5-year plans, the Industrial
Master Plan 3, the Knowledge Economy Master Plan, etc.
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v. Statistical data relating to processed food and manufacturing industry from both
international and local sources primarily the World Bank, and Department of
Statistics Malaysia publications
vi. Other information derived from federal, state and local government agencies,
quasi-government bodies, professional bodies, private businesses and
relevant associations on policy matters, news, reports and statistics. Much of
this information has been accessed from websites.
Figure 2: Illustration of the process of this research.
Conceptualize Value Chain
List all Acts and map them
onto the Value Chain
Scoping & Targets
Identification
Develop a list of questions
Conduct interviews
Analyse Information
gathered
Draft report (with proposed
options)
Public consultations (other
feedback)
Final Report
LIT
ER
AT
UR
E R
EV
IEW
INP
UT
S (B
oo
ks; A
rticle
s &
Sta
tistic
s)
EX
PE
RT
’S A
DV
ICE
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In order to identify the problems and issues that need to be addressed, primary data was
collected through interviews with business players, associations, professional bodies and
relevant regulators. The draft report is being released to enable stakeholders including
the main parties affected by the proposal i.e. the businesses, non-governmental
organisations (NGOs), the community, regulators and other Government agencies to
comment on the findings and options presented in the report.
The study is being carried out in two stages: the exploratory stage to prepare the draft
report and the option stage to produce a final report which will identify the most
appropriate options for reducing identified unnecessary regulatory burdens. With the
assistance of the expert, a list of questions was prepared for the interviews with the
respondents. The list of the interview questions is included in Appendix A of the report. A
final report containing the MPC’s assessment and comments of final recommendations
will be produced after receiving comments on the draft report (Figure 2)
1.6 Structure of the Report
This report on the Review of Unnecessary Regulatory Burdens (RURB) affecting players
in Processed Food Industry has been organised into seven chapters, starting with this
introductory Chapter One. This chapter highlights the scope, objectives and approach of
the study.
Chapter Two refers to the overview of the Processed Food Product Value Chain in
Malaysia and the policy implemented throughout the years. It analyses the processed
food industry in Malaysia. Pertinent statistics on the performance of the industry are also
covered in this chapter.
Chapter Three looks at the concept of Good Regulatory Practice (GRP), the regulatory
burdens and the potential sources of unnecessary regulatory burdens. The chapter
concludes with the main issues/concerns raised by the stakeholders.
Chapter Four provides an overview of the regulatory regimes for Processed Food in
Malaysia. It covers the processed food value chain and all the related regulations which
are attached to each stage of the value-chain.
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Chapters Five, Six and Seven present the analysis and findings of the study. Options
are proposed for the regulatory issues of concern. Although the study has identified a
wide list of complaints/issues, the focus is on five issues. These issues are categorised
according to the Value Chain of Processed Food Industry.
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Chapter 2: Sector Analysis
This chapter provides an overview of the processed food industry in Malaysia. It analyses
the industry’s value chain, current challenges and concern of the stakeholders in the
industry. Relevant statistics of the industry would be illustrated accordingly. Whilst this
chapter provides the overview of Processed Food Value Chain (i.e. from farm to fork), it
is best to note that the review would only focus on the Processed Food Industry.
2.0 Definition of Processed Food
Food processing is any deliberate change in a food that occurs before it’s available for
human consumption3. Alternatively, it can also be defined as the practices used by food
and beverage industries to transform raw plants and animal materials into products for
consumers4. Food processing helps to add value to the products in the form of longer
shelf lives, added dietary nutrients, appealing textures, consumer convenience and other
features.
The degree of foods processing can be classified under the following categories:-
i. Minimally processed food:- Foods that require little processing/production and are
not substantially changed from their raw, unprocessed form and retain most of their
nutritional properties. The process includes washing, peeling, slicing, juicing and
removing inedible parts. It may also involve the process of freezing, drying and
fermenting of foods. Often, the purpose is to prolong the shelf life and preserve
nutrients and freshness of foods.
ii. Processed food ingredients:- The processed food ingredients are typically used in
cooking or in the manufacture of highly processed foods. Common examples are
flours, oils, fats, sugars, sweeteners, starches, margarine and other ingredients.
The process involved changes the nature of the original raw materials.
3 International Food Information Council Foundation September (2010) What is a Processed Food? You Might Be Surprised! see: http://www.foodinsight.org/sites/default/files/what-is-a-processed-food.pdf 4 John Hopkins (2011) Food Processing: Background Reading, Teaching The Food System, see: http://www.jhsph.edu/research/centers-and-institutes/teaching-the-food-system/curriculum/_pdf/Food_Processing-Background.pdf
11
iii. Highly processed foods:- Made from the combinations of unprocessed food,
minimally processed food and processed food ingredients. As they are designed
with consumer convenience in mind, they are often portable, can be eaten
anywhere and require little or no preparation. Common examples are, snacks and
desserts, such as cereal bars, biscuits, chips, cakes and pastries, ice cream and
soft drinks as well as breads, pasta, breakfast cereals and infant formula
2.1 Overall Sector Overview
Malaysia has increased its food production in recent years due to the increase in demand
for food which is led by urbanisation and population growth in the country. The production
of agricultural commodities provides a strong base for the development of downstream
industries as well as strengthens the industrial-based industry and provides an avenue
for the domestic private investment.
In 2010, the Government established various regional corridors development and the new
Government Transformation Programme (GTP), specifically under the National Key
Economic Areas (NKEA). The agricultural sector will be more diversified, encompassing
both existing and commercial crops, such as oil palm, rubber, cocoa and pepper, food
and cash crops such as paddy, animal husbandry, and specialty products such as edible
bird’s nest and herbs. The Government would also focus more on sub-sectors with high
growth potential such as fisheries and aquaculture, seaweed farming, horticulture and
herbal products, swiftlet nests, fruit and vegetables, and premium processed foods.
In relation to the above, the Third Industrial Master Plan is expected to drive
industrialisation to a higher level of global competitiveness, emphasizing on transforming
and innovating the manufacturing and services sector in integrated manner towards
attaining developed nation status under Vision 2020. The Government has identified 12
target growth industries in the manufacturing sector (i.e. food processing, petrochemicals,
pharmaceuticals, wood-based, rubber-based, palm oil-based, electrical and electronics,
medical devices, textiles and apparels, machinery and equipment metals and transport
equipment) as well as eight services sub-sectors (i.e. logistics, ICT services, distributive
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trade, construction, education and training, healthcare services and tourism services) for
further development and promotion, given that these industries are strategically important
in contributing to greater growth of the manufacturing sector and exports, besides
strengthening sectoral linkages. The following table 2, 3 and highlighted the various
sectors contribution to GDP, employment and share of exports over the years, from 1975-
2010.
Table 2: Sectoral Contribution to GDP, 1975-2010 Year 1970 1975 1980 1985 1990 1995 2000 2005 2010
Share of GDP
Agriculture,
forestry,
livestock and
fishing
32.2 27.7 22.9 20.8 15.2 12.9 8.6 8.4 7.9
Mining and
quarrying 5.7 4.6 10.1 10.5 10.6 6.2 7.4 12.3 8.8
Manufacturing 12.4 16.4 19.6 19.7 24.2 26.5 30.9 29.6 28.4
Construction 4.5 3.8 4.6 4.8 3.5 4.8 3.9 3.0 3.1
Services and
others 45.4 47.5 42.8 44.2 46.5 49.6 49.2 46.7 51.8
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Various Economics Reports, Malaysia
Table 3: Sectoral Contribution to Employment, 1975-2010
Year 1970 1975 1980 1985 1990 1995 2000 2005 2010
Employment
(%)
Agriculture,
forestry, and
fishing
50.5 45.3 39.7 35.7 27.8 19.0 15.2 12.9 11.6
Mining and
quarrying 2.6 2.1 1.7 1.1 0.6 0.5 0.4 0.4 0.4
Manufacturing 11.4 13.5 15.7 15.1 19.5 25.7 27.6 28.8 28.3
Construction 4.0 4.4 5.6 6.9 6.4 8.9 8.1 7.0 6.4
Services and
others 31.5 34.7 37.3 41.2 45.7 45.9 48.7 50.9 52.2
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Various Economics Reports, Malaysia
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Table 4: Share of exports, 1970-2010
Year 1970 1975 1980 1985 1990 1995 2000 2005 2010
Share of
Exports (%)
Agriculture 56.2 49.5 40.8 29.7 19.6 13.0 6.1 7.0 9.5
Mining goods 23.5 21.7 32.7 33.3 17.8 7.0 7.2 9.8 11.6
Manufacturing 11.9 23.0 22.4 32.7 58.8 75.0 85.2 80.5 76.4
Others 8.4 5.8 4.0 4.3 3.8 5.0 1.5 2.7 2.5
Note:
Include rubber, palm oil, pepper, cocoa, timber and sawn timber
Include crude petroleum, LNG and tin
Source: Various Five Year Plan reports and BNM reports, Malaysia
The trend of sectoral contribution (Table 2, 3 and 4) shows that the Malaysian economy
is still dependent on agriculture, even though in recent years the contribution of
agricultural sector to Gross Domestic Product (GDP), employment and export has shown
a downward trend in performance. In 1990, the contribution of the agricultural sector to
GDP was 15.2%, 27.8% to employment and 19.6% to export earnings. Even though the
contributions decreased in in 2000, the agricultural sector still contributed 8.6% to GDP,
15.2% to employment and 6.12% export earnings. The contribution of agriculture to GDP
in 2010 remained strong at 7.9% and contributed 11.6% to employment and 9.5% to
exports.
On the other hand, the manufacturing sector remains as one of the highest contributor to
the country’s GDP, employment and export. During the early 1970s, manufacturing sector
only contributed 12.4% to GDP, 11.4% of employment and 11.9% of export earnings.
With aggressive industrialisation policies after 1986, the GDP contribution increased to
29.6% in 2005, the employment contribution increased to 28.8% and 80.5% share of
exports in the same period.
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2.2 Industry Value Chain
There is a wide gap in the Processed Food Industry in Malaysia. On one hand, Malaysia
has large food companies, which are well organised and use modern technologies, while
on the other hand, the country has many labour – intensive medium and small enterprises
(SMEs) which rely on low technologies5. Noting on the striking growth differential between
the parties, the risk analysis of the industry is analysed according to the Processed Food
Value Chain (refer to Figure 4).
The food value chain is the network of stakeholders involved in growing, processing, and
selling the food that consumers eat. This includes (1) the producers that research, grow,
and trade food commodities, such as corn and cattle; (2) the processors, both primary
and value added, that process, manufacture, and market food products, such as flour and
bread; (3) the distributors, including wholesalers and retailers, that market and sell food;
(4) the consumers that shop, purchase, and consume food; as well as (5) governments,
non-governmental organizations (NGOs), and regulators that monitor and regulate the
entire food value chain from producer to consumer. Figure below shows the connectivity
between the players/stakeholders in the food value chain:-
Figure 3: The Processed Food Value Chain
Reference: Deloitte, 2013
5 Ahmed, Elsadig Musa (2012) Malaysia’s Food Manufacturing Industries Productivity Determinants, Modern Economy, 2012, 3, 444-453 http://dx.doi.org/10.4236/me.2012.34057 Published Online July 2012
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2.2.1 Producers
Malaysia is self-sufficient in poultry, pork and eggs, but must import about 80 percent of
its beef for any processing needs. Almost all dairy product ingredients are imported,
including non-fat and whole milk powder, whey, and other dairy solids. These imported
products are then used to produce sweetened condensed milk, yoghurt, and reconstituted
fluid milk, and as ingredients in many other food processing plants. All wheat for noodle
and bread manufacturing must be imported. While Malaysia is the largest cocoa
processor in Asia, 95% of cocoa beans are imported, as is most sugar and sweeteners
for confectionary. Malaysia is a major producer of spices, being the world's sixth largest
exporter of pepper and pepper related products (specialty peppers, processed pepper
and pepper sauces). Other spices such as coriander, turmeric, lemongrass, cinnamon,
clove and fennel are also produced. Table 5 below shows the comparison between the
values of imported raw materials to the values of domestic produced raw materials. In
relation to this, Table 6 below shows the major supply sources with product category in
2013.
Table 5: Comparison of imported raw materials values with domestic produced raw materials values (in Billion Dollar), 2010-2014
Year
Value of
imported raw
materials ($, bil)
Percentage
(%)
Value of domestic
produced raw
materials ($, bil)
Percentage
(%)
Total Value
($, bil)
2010 4.02 11 32.88 89 36.9
2011 4.63 12 38.58 88 43.21
2012 5.09 11 46.27 89 51.36
2013 7.36 12 54.13 88 61.51
2014 8.56 12 62.80 88 71.36
Source: USDA Foreign Agricultural Service, 20156
6 USDA Foreign Agricultural Service (2015) Malaysia, Food Processing Ingredients Annual Report 2015
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Table 6: Major Import (Suppliers) and Share of Import, 2013
Product Category Total Import Values Major Supply Sources Percentage
(%)
Oil and fats 0.22 mil tonnes
(US$34.2 mil)
Thailand 82
India 9
Indonesia 4
US 1
Sugar & Sugar
Derivatives
8.22 mil tonnes
(US$871.5 mil)
Brazil 73
Australia 17
Thailand 10
Cereal Grains 1.76 mil tonnes
(US$525.2 million)
Argentina 40
India 25
Brazil 24
US 1
Soybean 556,965 tonnes
(US$351 mil)
US 38
Brazil 16
Canada 15
Cocoa and Semi-
processed cocoa
products
311,608 tonnes
(US$290.7 mil)
Indonesia 38
Cote d lvorie 18
Ghana 16
Papua New Guinea 8
Fresh, chilled and
frozen seafood
434,755 tonnes
(US$996 mil)
Thailand 33
China 20
Indonesia 14
Vietnam 7
US 5
Dairies 296,312 tonnes
(US$1,078 mil)
New Zealand 37
US 19
Australia 13
France 6
Beef 138,632 tonnes
(US$489.3 mil)
India 80
Australia 13
New Zealand 5
17
Product Category Total Import Values Major Supply Sources Percentage
(%)
US 1
Starches and gluten 341,208 tonnes
(US$183.5 mil)
Thailand 56
Indonesia 10
Vietnam 9
India 5
China 4.4
US 3.8
Nuts 54,255tonnes
(US$63.4 mil)
Indonesia 53
Thailand 23
India 6.5
US 6
Poultry 44,528 tonnes
(US$110.8 mil)
China 47
Thailand 31
Denmark 11
Netherland 9.4
US 1
Source: USDA Foreign Agricultural Service, 20137
As such, majority of farmers are small, privately owned, family enterprises. In Malaysia,
majority of the agricultural producers are focused in the production of palm oil, rubber,
peppers and other. The food processors in the country are highly dependent on imported
raw ingredients as productions of certain raw ingredients in the country have remained
low in recent years. For example, despite being one of the sub-sector with highest export
contribution to processed food industry in the country, the production of cocoa have
remained low in recent years (from 15,654 tonnes in 2010 to 2,665 tonnes in 2014) (see
Table 7).
7 USDA Foreign Agricultural Service (2015) Malaysia, Food Processing Ingredients Annual Report 2015
18
Table 7: Production of Cocoa Beans by regions, 2010-2014, Malaysia
Year
Peninsular
Malaysia Sabah Sarawak Total
(tonnes)
2010 10,654 3,673 1,327 15,654
2011 2,040 1,754 811 4,605
2012 1,402 1,644 599 3,645
2013 836 1,494 479 2,809
2014 910 1,139 616 2,665
Source: Malaysia Cocoa Board, 20168
In 2014, the food processors in Malaysia imported 298,524 tonnes of cocoa beans (99%
of total cocoa beans). Significant contributors include Indonesia, Cote d lvorie, Ghana
and Papua New Guinea (see Table 6). Table 8 shows the statistics of other cocoa
products that are imported by the manufacturers in the country:-
Table 8: Import of Cocoa Beans and Cocoa Products, 2010-2014, Malaysia
Year 2010 2011 2012 2013 2014
Cocoa Beans
(tonnes) 319,441 327,084 339,011 311,608 298,524
Cocoa Butter
(tonnes) 1,187 4,977 5,412 16,668 74,103
Cocoa Powder1
(tonnes) 10,905 28,016 17,338 31,596 14,502
Cocoa Paste
(tonnes) 11,366 13,131 18,375 42,988 49,938
Chocolate2
(tonnes) 14,953 20,480 20,359 24,133 25,538
Cocoa Shell
(tonnes) 4,538 3,810 1,359 1,755 3,694
Total Value
(RM’ 000) 3,679,687 3,973,023 3,598,208 3,424,110 4,290,304
1: Including cocoa powder containing and not containing added sugar or other sweetening matter
2: Including chocolate and other chocolate preparations in blocks, slabs and bars
Source: Malaysia Cocoa Board, 20169
8 Malaysia Cocoa Board (2016) MALAYSIA : PRODUCTION OF COCOA BEANS BY REGION, Ministry of Plantation Industries and Commodities (MPIC) see: http://www.kppk.gov.my/mpic/index.php/en/statistic-on-commodity/715- 9 Malaysia Cocoa Board (2016) MALAYSIA : Import of Cocoa Beans and Cocoa Products, Ministry of Plantation Industries and Commodities (MPIC) see: http://www.kppk.gov.my/mpic/index.php/en/statistic-on-commodity/715-
19
Total imported value of cocoa beans and cocoa products are the highest in 2014 after a
slight downturn in 2012 and 2013. In 2014, the highest imported materials is cocoa beans,
followed by cocoa butter, cocoa paste and chocolates.
In terms of livestock products, the production have increased from 2010-2014. However
a large gap can be seen when comparing the production figures with the consumption of
livestock products during the same period. Table below illustrates the comparison
between the production and consumption of livestock products. The variation between
production and consumption of livestock suggest that the imported value of livestock
product is higher than production in the country. For example, the consumption of beef
and mutton takes about 75 percent to 87 percent higher than the value produced.
Table 9: Comparison of Production and Consumption of Livestock Product, 2010-2014
Commodity
(M.Tan)
2010 2011 2012 2013 2014
P C P C P C P C Pp Ce
Beef
(M.Tan) 46,510 154,402 48,835 167,388 51,277 181,479 51,738 201,556 52,202 210,166
Mutton
(M.Tan) 2,386 20,076 3,091 20,178 4,806 24,384 4,321 28,767 4,575 34,935
Pork
(M.Tan) 234,000 247,147 214,308 228,068 218,471 228,531 217,422 228,023 215,675 229,752
Poultry
Meat (‘000
M.Tan)
1,295 1,227 1,289 1,222 1,374 1,301 1,458 1,390 1,495 1,427
Milk (Mil.
Litres) 67.00 780.57 70.87 525.65 72.41 515.16 73.99 544.12 75.27 582.01
Poultry Meat: Chicken & Ducks
P: Production
C: Consumption
p: provisional
e: estimate
Source: Department of Veterinary Services, 201510
10 Department of Veterinary Services (2015) Statistics of Output and Consumption of Livestock Products 2005-2014, see: http://www.dvs.gov.my/index.php/pages/view/58?mid=42
20
2.2.2 Processors
Processors are involved in both the preparation of fresh foods for market as well as the
production of prepared food products. As such, food processing is composed of a
relatively diverse collection of companies processing products at different stages: meat
slaughtering and processing; fruit and vegetable preserving; grain and oilseed milling;
seafood product preparation; sugar and confectionery, bakery, dairy, and other food
product manufacturing11.
The food processing industry comprises cocoa and cocoa preparations, prepared cereals
and flour preparations, processed seafood, dairy products, prepared and preserved
vegetables and fruits, processed meat, sugar and sugar confectionery excludes edible
oils and fats, including margarine and shortening, which fall under the oil palm-based
industry, animal feed and beverages and tobacco.
Processed food industry of Malaysia can be classified into three main categories: food
industries with large-scale production (including multinational corporations (MNCs));
small-scale food processing industries (SMEs); and canteen food stall and restaurants.
With more than 3,200 establishments in the country, the processed food industry is
growing tremendously over the years. The main factors driving the demand of food
products include12; (i) changes in disposable income, lifestyle and demographics, and an
increased health consciousness, which influence the demand for convenience health and
functional food; (ii) changes in consumer demands, which compel food manufacturers to
meet specific requirements and preferences at the regional and domestic levels; and (iii)
changes in trade where there is the trend for global trade liberalization, through
multilateral and regional trade agreements which would expand market accessibility and
world trade in food product sector.
11 Deloitte (2013)The food value chain: A challenge for the next century, Deloitte, London 12 Ministry of International Trade and Industry (MITI) (2006). Third Industrial Master Plan: 2006-2020.
21
Figure 4: Performance of Processed Food Industry in Recent Years
Source: MATRADE, 2016
There are more than 3,200 processed food establishments registered in 2015, and about
80 percent of the figure are dominated by Malaysian-owned companies, and SMEs.
Recent processed food performance saw an increase of 8.8 per cent to RM18.02 billion
in 2015, compared with RM16.56 billion in 2014 (Figure 4). The increase was mainly
attributed to export of edible products and preparations, cocoa and cocoa preparations,
cereals and flour. Meanwhile, in 2014 the main exports representing 23.2% were cocoa
and cocoa preparations (RM3.8 billion), cereal and cereal preparations (RM2.3 billion),
dairy products (RM1.3 billion), sugar & sugar confectionery (RM859.1 million) and
prepared/preserved vegetables & fruits (RM580.1 million). Malaysia exported food
products to more than 200 countries. In 2015, top exports destinations for processed food
are Singapore, China, Indonesia, Australia and Thailand whilst, major export destinations
in 2014 were Singapore, Indonesia, the USA, Thailand and Republic of China13.
Meanwhile, major import countries to Malaysia are Thailand and Indonesia (see Table 6).
As such, under the period of the Third Industrial Master Plan (IMP3), 2006-2020, the food
processing industry is expected to expand its capacities and enhance its competitiveness
to meet domestic demand and increase exports14. The growth in the primary food
13 Malaysian Investment Development Authority (MIDA) (2013), Food Technology and Sustainable Resources, refer to; http://www.mida.gov.my/home/food-technology-and-sustainable-resources/posts/ 14 Third Industrial Master Plan (IMP3) : Food Processing Industry.
13.3
14.2
16.6
18
2012
2013
2014
2015
Total export contribution, RM billion
Year
Malaysia's Total Processed Food Export, Annual (from 2012 to 2015)
22
production, together with the expansion of the food processing industry, will lead to
greater synergy, in terms of value-added creation, product diversification and market
expansion. The employment contribution of processed food industry is expected to grow
further in accordance to the vision stated in the IMP3. As such, the employment
contribution of processed food industry to the country is discussed further below.
In terms of employment contribution, starting from 1995 the manufacturing sector has
contributed more than 20 per cent employment contribution to the country (see table 3),
second sector with highest employment contribution. In 2014, the employment in the
manufacturing sector grew 2.3% to 2.3 million in 2014, making up 16.5% of the total
Malaysian workforce. The following table 10 showed the added value contribution and
employment distribution of the selected manufacturing sub-sectors in 2014:
Table 10: GDP Added Value Contribution & Employment Distribution, 2014
Sub-Sectors
GDP Employment Distribution
(%) Added value Contribution
(%)
Electrical & Electronics 25.7 20.8
Refined Petroleum 12.7 0.3
Chemicals & Chemicals Products 10.9 4.2
Rubber & Plastic Products 7.6 13.9
Transport Equipment 7.0 6.9
Fabricated Metal Products 5.2 8.0
Food Products 4.5 8.3
Other Non-Metallic Mineral Products 4.2 4.3
Basic Metals 3.6 3.7
Palm Oil 3.5 2.6
Machinery & Equipment 3.3 3.3
Others
- Beverages - Basic Pharmaceuticals - Wearing Apparels - Textiles - Paper & Paper Products - Wood & Wood Products
0.6
0.6
0.7
1.0
1.4
2.1
0.7
0.6
2.9
1.6
3.2
5.2
23
Source: MPC, 201515
As shown in Table 10, the food products sector in Malaysia contributes 4.5% to the GDP
with 188,950 workers in the sector, the third sub-sectors with highest employment
distribution after electrical & electronics, rubber & plastic products. The food processing
industry will progressed by upgrading the quality of human capital especially in Halal,
HACCP and GMP issues and also establishing Malaysian own processed food brand
besides to facilitate the supply of highly skilled workforce. With this in mind, the
Department of Skill Development (DSD) has developed the Occupational Structure of
Food Processing Industry16 that can help to grow the skills of workers in the industry. The
guideline could help the workers to understand their job better, the competencies that
they must have to progress in their career, support them in making more appropriate
decisions on training required to enhance career in future and attain higher level of
performance and contribute to the success of the company.
2.2.3 Retailers and Distributors
Most foods products go through a distribution channel to reach the end consumer. The
conventional distribution path for a packaged food product is from manufacturer to broker
to distributor to retailer17. This distribution channels can vary greatly depending on the
product, the target markets, and the manufacturer. In general, more perishable foods,
such as fresh seafood, have fewer handling exchanges from the producer to the
consumer, than a packaged product such as jams and jellies.
The food retailers in Malaysia is made up of; (1) large food retail stores such as
supermarkets, hypermarkets and department stores, (2) Convenience stores and petrol
station stores, and (3) Traditional stores including provision, grocery and sundry shops.
15 MPC (2015) Productivity Report 2014/2015: Chapter 4 of Manufacturing Sector, see: http://www.mpc.gov.my/home/?kod1=k&kod2=announcement&item=000209&sstr_lang=en&t=3 16 Department of Skill Development (DSD) (2009) Occupational Structure of Food Processing Industry, Department of Skills Development, Ministry of Human Resources Malaysia 17 J.A. Beaman and A.J. Johnson (2006) A Guide for New Manufacturers: Food Distribution Channel Overview, Food Innovation Centre and Oregon State University
24
In terms of large food retail stores, the leading player is Dairy Farm, a pan-Asian retailer
with numerous subsidiaries. In Malaysia it operates three chains: Giant (which had 78
hypermarkets and 72 supermarkets at the end of 2013), Cold Storage (17 outlets) and
the upmarket Mercato (two outlets). UK-based Tesco currently boasts 46 stores, while
Aeon of Japan had 58, increased by its purchase of hypermarkets and supermarkets from
Carrefour (France) in 201218. The outlets targeted middle to high income locals and
expatriates, and such it carries more varieties and higher volumes of imported branded
products from western countries such as Australia, New Zealand, USA, United Kingdom,
and others. In order to attract more lower to middle income consumer, the products retail
price for certain outlets are generally 10% or more lower than comparable products.
Meanwhile, the convenience stores such as the 7-eleven and petrol stations stores are
located in the cities, larger towns and along the highway. The majority of these stores are
franchise operations with support from their franchisors in the form of advertising support,
staff training, financing, bulk purchasing and distribution facilities.
These air-conditioned stores generally carry a smaller range of popular processed and
packaged food and beverage products compared to those carried by the
supermarkets/hypermarkets. They also carry microwaveable food products which may be
heated at the store for immediate consumption. In addition, convenience stores and petrol
station stores also serve ready-to-consumer food and beverages such as sandwiches,
fried rice, fried noodles, Nasi Lemak and other Asian cooked dishes, buns, curry puffs
and alike, ready-to drink hot coffee or tea, soft drinks and other beverages. They generally
do not carry perishable products such as chilled meat, fish and seafood, fresh fruits and
vegetables. Most of the products are in single-serve packaging or in smaller packaging
size than those carried by the supermarkets/hypermarkets. However, the retail price of
the products is generally higher in convenience stores and petrol station stores than at
the supermarkets/hypermarkets19.
18 PwC (2015) 2015-16 Outlook for the Retail and Consumer Products Sector in Asia, PricewaterhouseCoopers Limited 19 USDA Foreign Agricultural Service (2014) Malaysia Retail Foods Annual Report, see: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_Kuala%20Lumpur_Malaysia_11-19-2014.pdf
25
The traditional stores can be found in all cities, towns and villages in Malaysia. It makes
up the largest number of food retailers in Malaysia. The traditional stores targeted people
living nearby, particularly housewives that prefer to shop daily for a small number of
grocery items and other daily essentials. They are dominated by small family-run
businesses, and usually are made up of open-fronted grocery stores in shop houses or
in dry markets. In 2011, the government launched the Small Retailer Transformation
Programme (TUKAR) which aims to modernise traditional sundry stores to increase their
level of competitiveness. As of December 2014, the number of transformed sundry shops
hit 305; this brings the total number of transformed sundry shops to 1,914 since the launch
of the TUKAR programme in 201120.
2.3 Some challenges faced by the Players in Processed Food Industry
2.3.1 Quality Control
Quality control of processed foods in Malaysia is in the transformation stage from
conventional method where product quality is only inspected at the end of processing line
to the quality assurance system where HACCP concept and plan are used. The food
industries with large-scale production normally has well developed quality control system,
while the small-scale food processing has a minimum quality control. As for canteen food
stalls and restaurants category quality control practices is dependent on whether they are
franchise outlets or self-own. The individually small-scale operated food stall, canteen
and restaurant have very minimal quality control while the franchise restaurants have
proper quality control systems. The larger corporations have their own established
brands, possess greater financial resources and apply modern technology, including own
in-house research and development (R&D) facilities with well-designed plant, automated
equipment, trained personnel and developed quality control systems.
However, the SMEs rarely has any budget to invest in research and development or to
revitalize their production equipment. Often, they are confronting the issues such as lack
20 PEMANDU (2016) Wholesale and Retail EPP 2: Modernising via the Small Retailer Transformation Programme (TUKAR), see: http://etp.pemandu.gov.my/
26
of financial resources, lack of modern equipment/technologies, and higher incidence of
food contamination due to predominantly manual operations, among others21.
2.3.2 Environmental Issues of Food Industry
One of the major concerns of the food industry is on environmental impact. This would
cover the entire value chain of processed food, i.e. from the primary procedures in
processing raw materials (fruits, vegetables, meat, poultry, etc.) through general cleaning
and dirt removal to production process, packaging, and logistic procedures. As such, the
United Nations Industrial Development Organization (UNIDO)22 have identified the key
environmental issues :-
1. Wastewater. Primary issues of concern are biochemical oxygen demand (BOD);
total suspended solids (TSS); excessive nutrient loading, namely nitrogen and
phosphorus compounds; pathogenic organisms, which are a result of animal
processing; and residual chlorine and pesticide levels; and
2. Solid Waste. Primary issues of concern include both organic and packaging waste.
Organic waste, that is, the rinds, seeds, skin, and bones from raw materials, results
from processing operations. Inorganic wastes typically include excessive
packaging items that are, plastic, glass, and metal. Organic wastes are finding
ever-increasing markets for resale, and companies are slowly switching to more
biodegradable and recyclable products for packaging. Excessive packaging has
been reduced and recyclable products such as aluminum, glass, and high-density
polyethylene (HDPE) are being used where applicable.
Whilst large corporations able to apply clean technology, concerns being raised to
manufacturers with medium-sized plants and located at rural areas. The report further
stated that Part of the problem with the food-processing industry’s use and discharge of
21 Asian Productivity Organization (2005) Quality Control for Processed Foods, Report of the APO Seminar on Quality Control for Processed Food held in the Republic of China, 8-14 May 2002 (02-AG-GE-SEM-02), see: http://www.apo-tokyo.org/publications/wp-content/uploads/sites/5/pjrep-02-ag-ge-sem-02.pdf 22 United Nations Industrial Development Organization (UNIDO), _ Pollution from Food Processing Factories and Environmental Protection
27
large amounts of water is that it is located in rural areas in which the water treatment
systems (i.e., potable and wastewater systems) are designed to serve small populations.
As a result, one medium-sized plant can have a major effect on local water supply and
surface water quality.
Nevertheless, the industry is looking at ways and means to reduce the production of waste
through the implementation of various methods such as “Clean Technologies23” “Water
and Wastewater Reduction (Closed Loop/Zero Emission Systems)24” and “Advanced
Water Treatment Practices25”. With the support of Environmental Regulations and
Standards by the Department of Agriculture in the country, the environmental impact of
food processing discharge can be lessen in the future.
2.3.3 Challenges of Food Labelling
Purchasing behaviour of consumers depend on labelling credibility (i.e. amount of
credible information and trustworthiness of issuer). The food labelling is expected to
provide sufficient information about all the main ingredients put into the food, as well as
additives and condiments. Many countries are adopting the generic labelling
requirements from the Codex General Standard for the Labelling of Pre-packaged
Foods26. It includes the name of the product, a list of ingredients, the net contents or net
weight, the name and place of business of the manufacturer, packer or distributor, date
marking, instructions for storage and use, and nutrition information. As such, in recent
years, food labelling has shown to put a significant impact on the consumer’s purchasing
behaviour as the consumers with high reliance on food ingredient and nutrient (health
23 Clean technologies are defined as "manufacturing processes or product technologies that reduce pollution or waste, energy use, or material use in comparison to the technologies that they replace." 24 The "zero emissions" strategy relies on a network of companies utilizing each other’s waste streams. The strategy is a more economically efficient system than a "closed loop" because the waste products do not have to be fully treated. 25 Advanced wastewater treatment is defined as any treatment beyond secondary (or biological) treatment. These treatment practices are employed to target specific discharge constituents that are of concern. 26 Codex Alimentarius Commission. General standard for the labelling of pre-packaged foods (CODEX STAN 1-1985). Rome: FAO; 2008.
28
conscious) appeared to have greater possibilities of buying products with sufficient
labelling information27.
Whilst the food labelling could help in creating health awareness to the consumers, S.
Tessier et al (2000)28 emphasized that unfortunately, even consumers read the labelling,
and it appears that people do not understand the major content fully as they could not
relate/interpret the numerical amount of the main nutrients stated on the food products
label. A large number of warnings or a large list of detailed product information may cause
many consumers to disregard the label completely29. Even if consumers do consider each
piece of information on a label, they may find it difficult to order the information according
to importance. Thus, consumers may underreact to important information or overreact to
less important information.
From the business perspectives, many are looking forward to the regional harmonisation
of food labelling . It is envisage that through harmonisation, there will fewer barriers to
trade and freer movement of food products between countries, which would open doors
to new markets and opportunities for the food industry. In turn, increased food trade would
enhance economic development and allow consumers across the region a greater choice
of products. However, the attempt to harmonise food labelling regulations are not without
challenges30. Such include updating the labelling legislation, establishment of sufficient
and efficient accredited laboratories, redesigning food packaging, strengthening
administrative infrastructures and human resources, ensuring effective collaboration and
information sharing among stakeholders, and, ultimately, efficient monitoring,
surveillance and enforcement of the adopted standards. Aside from the stated associated
costs, globalisation of the food trade may result in food safety problems being globalised.
In other words, as food may be a vehicle for food-borne pathogens, globalisation of food
27 Abdul Latif, et al (2013) The Impact of Food Labeling on Purchasing Behavior Among Non-Muslim Consumers in Klang Valley, Australian Journal of Basic and Applied Sciences, 7(1): 124-128, 2013 28 Tesseier, S., et al, (2000). Use and Knowledge of food labels of shoppers in a city with a high proportion of heart disease, Journal of Consumer Studies & Home Economics Volume 24, Issue 1 29 Golan, Elise et al (2000) Economics of Food Labeling, Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report No. 793. 30 Kasapila, W. and Sharifudin MD (2011) Harmonisation of food labelling regulations in Southeast Asia: benefits, challenges and implications, Asia Pac J Clin Nutr 2011;20 (1):1-8
29
trade may be a mechanism for the spread of food-borne illnesses to consumers in far-
flung markets.
Nonetheless, the stated challenges should not be the reason to negate the benefits that
can be obtained from increased trade. Desired outcome can be obtained with careful
consideration of roles of each stakeholders and understanding of the needs and
requirement from each countries.
2.3.4 Halal Food Industry
The Halal Food Concept has been transformed from an exclusive niche market for Muslim
consumers into a dynamic global market phenomenon that shows every indication of
playing a significant role in global trade in the coming years. The focus of the concept has
expanded from only meat and poultry to non-meat foods such as dairy, baked goods,
snack, confectionery, ready-made meals and other processed food and beverage
products. As halal is a ‘farm-to-fork’ process with halal compliance needed all through the
supply chain, aspects such as warehousing, transportation and logistics all play a role in
maintaining and demonstrating halal integrity31. This has helped to open up more
opportunities for SMEs to be part of the sector.
Halal framework in the global market is still complex and fragmented. There are variables
in terms of practice in each countries based on cultural assumptions, habits and
preferences, different interpretations of the law and global nature of the food product
supply chains32. Such complicates life for manufacturers, whether they want to access
export market or serves the Muslim community (approximately 1.6 billion Muslims
worldwide) in the country. For example, kopi luwak (which is made from coffee beans
which are ingested and excreted by civets) is halal in both Indonesia and Singapore,
however, it is deemed as haram – not permissible for Muslim consumption – in Malaysia.
31 International Trade Centre (ITC) (2015) From niche to mainstream: Halal Goes Global, International
Trade Centre (ITC), Geneva, Switzerland 32 International Trade Centre (ITC) (2015) From niche to mainstream: Halal Goes Global, International
Trade Centre (ITC), Geneva, Switzerland
30
In terms of the consumers, there is a growing awareness among halal customers that
they represent a powerful market that crosses geographical, racial, cultural boundaries.
However, the lack of clear and transparent regulatory frameworks, and differences of
opinion and interpretation, mean it is not always clear what a halal logo actually
represents. Recently in Malaysia, the rising trend on the use of halal logo has created
concern. The Perlis State’s Mufti, Mr. Mohd Asri Zainul Abidin33 has stated that Muslims
are required to eat halal, but the problem is when people practice religion beyond the
nature of Islam itself (for example, Muslims are buying/requesting products such as
plastic bags and packaging, halal personal care products and household detergents,
etc.). Traders on the other hand are commercializing religion and halal by promoting what
Muslims should use and consume. As such, businesses have been accused of exploiting
pious Muslims who fear touching or eating items deemed unclean, or haram, meaning
forbidden. The trend has resulted to a more stringent rule of halal certification and
demands on certification bodies to play greater role, in order to satisfy both the Muslims
consumer’ need and the manufacturers.
33 The Straits Times (14th June 2016) Rising trend of halal labelling generates concern, see: http://www.straitstimes.com/asia/se-asia/rising-trend-of-halal-labelling-generates-concern
31
Chapter 3: Best Practice Regulations and Regulatory Burdens
This chapter discusses the concepts of regulation, the costs associated with regulations
and how to identify necessary and unnecessary regulatory burdens. It complements the
broad purpose of the review which is to identify unnecessary regulatory burdens affecting
businesses in Malaysia and suggest ways to reduce them.
3.1 What is Regulation?
For the purpose of these references, regulation is defined broadly to include all written
legal and quasi-legal instruments ranging over primary legislation, secondary
instruments, guidelines, circulars, codes, standards and others. The conditions contained
in licences, permits, consents, registration requirements and leases are also under review
where they impose a compliance burden on businesses.
As well as the content of written regulations, the way they are implemented, administered
and enforced can also significantly impact on compliance burdens for businesses and the
effectiveness of regulations. Hence, the delivery of regulation is also under review. The
MPC is assessing both written regulation and the administration and enforcement of the
regulation. Hence, participants have been able to raise concerns about any aspect of the
regulatory framework.
3.2 Cost of Regulation
There are many different sorts of costs which may be imposed by regulation in order to
achieve policy objectives. The costs impact variously on businesses, employees,
consumers and governments. What is important is that the total benefits accrued from
achieving the regulatory objectives must be greater than the total costs of the regulation.
Regulations can adversely impact on businesses in various ways. Most fall under the
following four categories of costs:
administrative and operational requirements, such as:
reporting, record keeping
getting legal advice, training
requirements on the way goods are produced or services supplied, such as:
32
prescriptions on production methods
occupational registration requirements, requiring professionals to use
particular techniques
requirements on the characteristics of what is produced or supplied, such as:
being required to provide air bags in all motor vehicles
requiring teachers or trainers to cover particular topics
lost production and marketing opportunities due to prohibitions, such as:
when certain products or services are banned.
The direct costs of complying with regulations can include the time taken to comply with
regulations, the need for additional staffing, the development and implementation of new
information technology and reporting systems, paying for external advice, education,
advertising, and accommodation and travel costs. Compliance costs also impact indirectly
on the community, by changing pricing and distorting resource allocation, impacting on
international trade and delaying the introduction of new products or services.
In an international study in 1998, the OECD estimated from survey responses that
taxation, employment and environmental regulation imposed over $17 billion (2.9 per cent
of GDP) in direct regulatory compliance costs on small and medium-sized businesses in
Australia. The more advanced countries like Australia have taken measures to improve
the cost-effectiveness of regulations and to reduce compliance burdens and red-tape.
These measures include:
increased adoption of performance-based regulation
he consideration and adoption of implementation options that minimize red-tape
he improvement of regulatory services through the employment of new technology
increased electronic publication of regulatory information
licence reform and reduction
streamlining government paperwork requirements
privatization of certification functions
business focus groups and pilot test programs.
33
3.3 What are Unnecessary Regulatory Burdens?
Some regulatory costs are inevitable in order to achieve the benefits which the regulation
brings. High quality regulation is both effective in addressing an identifiable problem or
objective and efficient in terms of minimizing unnecessary compliance and other costs
imposed on business and the community. The best regulations achieve their objectives
and at the same time deliver the greatest net benefit to the community. By contrast, poor
quality regulation may not achieve its objectives and can impose unnecessary costs,
impede innovation, or create unnecessary barriers to trade, investment and economic
efficiency. Given the pervasiveness of regulations, it is not surprising that regulation and
red-tape continue to impose significant compliance costs (Argy and Johnson, 2003)34.
There are sound reasons for much regulation. It can reflect and enforce the community’s
values and rights of individuals. It can reduce risks to people’s health and safety (such as
through consumer policy), address discrimination (such as an equal opportunity laws),
and protect the environment from overuse or degradation. Regulation is also part of the
institutional architecture for markets to work efficiently, including by establishing property
rights and enforcing contracts.
Much regulation is aimed at addressing market failures — asymmetric information,
monopoly power; externalities and public goods. Market failures can reduce productivity,
result in over- or under-production of particular products, services or side-effects (such
as pollution) relative to community preferences, and distort consumption and production
decisions. Regulation can also reduce social and environmental risks. However,
regulation to correct these market failures or to address risks, still needs to be efficient
and effective, and the benefits of such corrections need to outweigh the costs of
implementing and complying with the regulation. In addressing market failures, policy
makers should be wary of creating government failures.
34 Argy, Steven and Johnson, Matthew (2003) Mechanisms for Improving Quality of Regulations: Australia in an International Context, Staff Research Paper, Australia Government Productivity Commission
34
Regulation can also be used to protect some producers at a cost to others, favour the use
of some resources relative to others, and/or benefit some consumers over others. In some
cases such changes are intentional and desirable – for example, to look after vulnerable
consumers and the environment to encourage longer-term sustainability. However, in
other cases, there may be no merit in this - the costs imposed can be considerable and
not justified by the benefits.
3.4 Sources of Unnecessary Regulatory Burden
Regulatory burdens are often necessary for government to achieve national policy
objectives. However, when regulations are poorly written or enforced or inefficiently
implemented, regulatory burdens will exceed what is necessary to achieve desired
objectives, giving rise to “unnecessary regulatory burdens”35
Unnecessary burdens might arise from:
1. excessive coverage by a regulation – where the regulation affects more economic
activity than was intended or needed to achieve its objective (includes ‘regulatory
creep’)
2. subject-specific regulation that covers much the same issues as other generic
regulation
3. prescriptive regulation that unduly limits flexibility such as preventing businesses
from:
using the best technology
making product changes to meet consumer demand
meeting the underlying objectives of regulation in different ways
4. overly complex regulation
5. unwieldy licence application and approval processes, excessive time delays in
obtaining responses and decisions from regulators
6. requests to provide more information than needed
7. requests to provide the same information more than once
35 Malaysia Productivity Corporation (2014), Handbook on Reducing Unnecessary Regulatory Burdens: Core Concept, Available at: http://www.mpc.gov.my/ [Accessed on 30 March 2014]
35
8. rules or enforcement approaches that inadvertently result in business operating in
less efficient ways
9. unnecessarily invasive regulator behavior, such as overly frequent inspections
10. an overlap or conflict in the activities of different regulators
11. inconsistent application or interpretation of regulation by regulators.
MPC has sought insights from businesses and other interested parties about how the
regulation of employment imposes unnecessary burdens on business.
3.5 Best Practice Regulation
The MPC has published a set of principles that may help to assess the quality of
regulations and identify the unnecessary burdens on business. The principles are listed
in Box 1:-
Box 1: Six Core Principles for Assessing Regulation and its Administration
Regulations that conform to best practice design standards are characterized by the following six principles and features.
Principle 1
Have a proportionate and targeted response to the risk being addressed.
Principle 2
Minimize adverse side-effects to only those necessary to achieve regulatory objectives at least cost.
Principle 3
Have a responsive approach to incentivize compliance with regulation.
Principle 4
Ensure all written regulations are consistent and that regulations are consistent and that regulators interpret and apply them consistently. Avoid duplication and overlap of regulations and regulators.
Principle 5
Adopt transparency criteria, so interested parties are regularly consulted, it is clear to businesses what their legal obligations are, and all regulations are easily accessed by everyone.
Principle 6
Accountability so that businesses can seek explanations of decisions made by regulators, as well as appeal them and there are probity provisions in order to reduce corruption.
Source: MPC (2014)
36
These principles guided the MPC’s identification of various key indicators of well-written
regulations (Box 2).
Box 2: Well-Written Regulations
According to the MPC, well-written regulations are unlikely to impose unnecessary burdens on business. Indicators of this include:
i. the requirements placed on business are proportionate to the risk being regulated, in particular low risks are not addressed by imposing onerous requirements
ii. the regulations make appropriate use of prescriptive, performance, in-principle and process-based requirements
iii. the regulatory requirements are the minimum necessary to effectively achieve the objective(s) of the regulation
iv. in line with responsive regulation, the regulations provide an adequate range of enforcement instruments to allow regulators some flexibility in addressing non-compliance
v. the regulations are consistent with other regulations and do not create conflict or duplication
vi. the regulations are transparent, communicated effectively and readily accessible by everyone
vii. the regulation place accountability requirements on the regulator such as reporting, appeal and review provisions including some that address probity.
Source: MPC 20143
Regulations that have been formulated through Regulatory Impact Assessment (RIA) are
likely to reflect the indicators listed above. However, not many of the current regulations
have undergone the RIA process. This makes it important to have ex-post regulatory
reviews of unnecessary burdens on businesses to assess the practicality of the
regulations, help to improve them and most importantly reduce the burdens on business3.
A regulator plays an important role in regulatory regimes by encouraging compliance
through education and advice, as well as enforcing laws and regulations through
disciplinary means36. Enforcing regulations, however, with established principles of good
practices can enhance regulatory practices to achieve policy objectives. The Box 3 below
indicates the indicators of good quality implementation of regulation. These indicators
also reflect the Principles for Assessing Regulation and its Administration (Box 1).
36 Ian Bickerdyke, Ralph Lattimore, Reducing Regulatory Burden: Does Firm Size matters?, Industry Commission Australia, Staff Research Paper, December 1997
37
Box 3: Key Indicators of Good Performance by Regulators
Based on Parker (2000), the MPC (2014) listed 10 indicators that describe a well
performing regulator:-
i. uses risk analysis to identify areas of intrinsically potentially high adverse
impacts and/or possible low compliance (in line with principle 1)
ii. maximizes the potential for voluntary compliance (in line with principles 2 and
3)
iii. uses a range of enforcement instruments flexibly in order to respond to different
types of non-compliance – responsive regulation (in line with principle 3)
iv. applies regulations consistently across businesses and industry sectors (in line
with principle 4)
v. has no duplication and overlap of its responsibilities with those of other
regulators (in line with principle 4)
vi. has sufficient transparency to enable business to know the requirements of the
law (in line with principle 5)
vii. maintains an ongoing dialogue between government and the business
community (in line with principle 5)
viii. has sufficient accountability to enable business to question and appeal
decisions and to address possible cases of corruption (in line with principle 6)
ix. monitors compliance in order to assess the effectiveness of enforcement
activities
x. is adequately resourced and has the skills to be able to fulfill its responsibilities
Source: MPC, 201437
3.6 Issues/Concerns raised by various stakeholders
Through consultation with the stakeholders, the team was advised of various processed
food regulations which impose significant burdens on businesses. Further, through the
interviews with 28 companies and associations in processed food industry in Klang
Valley, Penang and Johor (a total of 52 participants from Regulatory Affairs Department,
Export and Import Department, Marketing Department, Quality Assurance Department,
Halal Department and Supply Chain Department).The team have obtained various
concerns. Table 11 below lists the issues/concerns raised by the respondents in relation
to processed food regulation and policies. The issues/concerns are discussed further in
37 Malaysia Productivity Corporation (2014), Handbook on Reducing Unnecessary Regulatory Burdens: Core Concept.
38
Chapter 5, 6 and 7. Table 11 listed the issues/concerns raised by the stakeholders
according to each stage of the processed food value chain.
Table 11: Issues/Concerns discussed in the review
Title Issues/Concerns
Chapter 5:
Regulatory Burdens during
Supply/Import of Raw
Materials
1. Differences in HS Coding / Tariff Coding between
countries resulting to different duties payable
Chapter 6:
Regulatory Burdens during
Production process
1. Delay in obtaining Halal Certificates
2. Different GDA requirements for each market
increase the cost of packaging
Chapter 7:
Regulatory Burdens during
Distribution and/or selling
finished products
1. To speed up processing of Health Certificate
2. To speed up issuance of Certificate of Origin
(Form D) for export to Vietnam, Philippines and
Indonesia.
39
Chapter 4: Regulations Affecting Processed Food Companies in Malaysia
This chapter provides an overview of the regulations affecting the processed food
companies in Malaysia. It should be emphasized that the regulations discussed would cut
across the whole processed food industry. This chapter also identifies the roles and
functions of the regulators.
4.1 Development of the existing framework
The Food Act 1983 and the Food Regulations 1985 are the backbone of food safety
programme in Malaysia, replacing the Sale of Food and Drug Ordinance and Regulations
1952. The legislations are governed by the Food Quality Control Division, Ministry of
Health (MOH). The objective of the Food Act 1983 and the Food Regulations 1985 is to
ensure that the public is protected from health hazards and fraud in the preparation, sale
and use of foods and for matters connected therewith.The legislation, applicable to all
foods sold in the country either locally produced or imported, covers a broad spectrum
from compositional standards to food additives, nutrient supplements, contaminants,
packages and containers, food labelling, procedure for taking samples, food irradiation,
provision for food not specified in the regulations and penalty38.
Part I of the Food Act 1983 deals with preliminary matters such as the definitions of basic
concepts while Part II provides detail for the administration and enforcement of the Act.
Part III covers matters on the protection of consumers against unsafe food in respect of
composition, false labelling and misleading advertisement. Part IV shows that the Act
controls not only the local food industry but also imported food. Lastly, Part V covers all
miscellaneous matters. Provisions regarding procedures for taking samples, labelling,
food additives and nutrient supplement, food packaging, incidental constituent, food
standard and particular labelling requirement for food and miscellaneous matters are
covered in the Food Regulations 1985.
38 FAO/WHO (2004) Food Safety Legislation – Science and Risk-Based Approaches to Harmonization - Food Safety Legislation in Malaysia, FAO/WHO Regional Conference on Food Safety for Asia and the Pacific, Seremban, Malaysia
40
Realizing that the issue on food safety can no longer be considered as a responsibility of
a single agency, other government agencies along the value chain also addressed the
food safety issue. At the downstream level (primary production level), the Pesticide Act
1974, the Fisheries Act 1983, the Veterinary Surgeon Act 1974 and the Animal Ordinance
1953, all under the Ministry of Agriculture and Agro Based Industry are implemented.At
the processing and retail levels, apart from the Food Act 1983 and the Food Regulations
1985, other legislations that were mentioned earlier are also applicable to a certain
extent39. The Trade Description Act40 under the Ministry of Domestic Trade and
Consumer Affairs also play an important role in terms of protecting consumers from
misleading and false labelling of food product.
4.2 Current legislative arrangements
For the purpose of this review, the scope will be narrowed down to the processing and
retail levels which are the processed food companies. The value chain covered within the
study starts from the stage of acquiring raw materials until the distribution and/or selling
finished products:-
39 FAO/WHO (2004) Food Safety Legislation – Science and Risk-Based Approaches to Harmonization - Food Safety Legislation in Malaysia, FAO/WHO Regional Conference on Food Safety for Asia and the Pacific, Seremban, Malaysia 40 The Trade Description Act 1972 had been replaced by the Trade Description Act 2011. The Act 2011 which was passed in August 2011, came into force on Nov 1, 2011
Acquiring Raw
Materials
(purchase/import)
Distribution of
finished products
(sell/export) Production
Process
Stage One
Stage Two &
Three
Stage Four
Figure 5: Value Chain of Processed Food Industry
41
In this context, the scope of this review shall cover the following:
Stage One: Supply of raw materials – includes import procedure for raw materials,
permits, approvals, customs and inspections at port, border and at any other
locations
Stage Two: Food safety regulation – includes inspections of processing plants and
food products, systems certifications, use food additives, and restrictions on
pesticides use
Stage Three: Information regulations – includes labelling requirements and
advertising restrictions, traceability standards of identity and product grades
Stage Four: Distribution and/or selling finished products – includes distribution and
export procedure of finished products, customs and inspections at port, border and
at any other locations.
Current regulatory arrangements that are governing the Processed Food Value Chain are
mapped in Table 12 below. Each process is mapped against related regulations, acts and
requirements with the regulators responsible in order to examine the regulatory issues
that are burdening each stage within the value chain.
Table 12: Value Chain mapped against Relevant Acts / Regulations
Activities Acts / Regulations Regulatory
Instrument Authority
Stage One: Acquiring Raw Materials
i. Import process (Customs)
Customs Act 1967 (Act 235)
Customs Regulations 1977
Customs (Rules of Valuation) Regulations 1999
Customs (Customs Ruling) Regulations 2007
Customs (Appeal Tribunal) Regulations 2007
Customs (Additional Jurisdiction of
Declaration of Goods Imported (Form 1)
Value Declaration (Form 1A)
Ruling
Inspection
Permits
Royal Malaysian
Customs
Department
42
Activities Acts / Regulations Regulatory
Instrument Authority
Customs Appeal Tribunal)
ii. Inspection at port (entry points)
Malaysian Quarantine and
Inspection Services Act
2011 (Act 728)
Malaysian Quarantine and Inspection Services (Fees and Charges) Regulations 2013
Malaysian Quarantine and Inspection Services (Quarantine and Inspection) Regulations 2013
Malaysian Quarantine and Inspection Services (Registration of Importers, Exporters and Agents) Regulations 2013
Malaysian Quarantine and Inspection Services (Issuance or Permit, Licence and Certificate) Regulations 2013
Import Permit
Product Quarantine and Inspection
Document Inspection
Importer’s Registration
Malaysia
Quarantine and
Inspection
Services
Department
(MAQIS)
iii. Food Safety Regulation
Food Act 1983 (Act 281)
Food Regulations 1985 (Section 29: Importation)
Health Certificate
Inspection on Packaging and Labelling Requirement
Food Safety and
Quality Division
iv. Restrictions on pesticides use
Plant Quarantine 1976 (Act
167)
Agricultural Pests * Noxious Plants (Import & Export) Regulations 1981
Phytosanitary Certificate
Inspection
Department of
Agriculture
v. International Trade
ASEAN Trade In Goods
Agreement (ATIGA)
Certificate of Origin (CO)
Customs Inspection
ASEAN –
Ministry of
International
Trade and
Industry (MITI)
43
Activities Acts / Regulations Regulatory
Instrument Authority
vi. Prohibition of importation of goods bearing false indication of origin
Trade Description Act 2011 Ministry of
Domestic Trade,
Co-operatives &
Consumerism
(MDTCC)
Stage Two: Production Process (Food safety regulation)
vii. Food Safety Regulation
Food Act 1983 (Act 281)
Food Regulations 1985
Food Irradiation Regulations 2011
Malaysian Certification Scheme for Hazard Analysis and Critical Control Point (HACCP)
Certificate of Analysis
Food Safety and
Quality Division
viii. Restrictions on pesticides use
Plant Quarantine 1976 (Act
167)
Agricultural Pests * Noxious Plants (Import & Export) Regulations 1981
Phytosanitary Certificate
Inspection
Department of
Agriculture
Stage Three: Information Regulations
ix. Food Packaging and Labelling (Malaysia)
Food Act 1983 (Act 281)
Food Regulations 1985
Food Irradiation Regulations 2011
Inspection
Labelling
Food Safety and
Quality Division
x. Halal Certification (Malaysia)
Trade Description Act 2011
Trade Descriptions
(Certification and
Marking of Halal)
Order 2011
Trade Descriptions
(Definition of
Halal)(Amendment)
Order 2012
Voluntary certification (Halal Certification Malaysia)
Department of
Islamic
Development
Malaysia
(JAKIM) & all
States
Department of
Religious Affairs
44
Activities Acts / Regulations Regulatory
Instrument Authority
Circular on Halal
Certification Malaysia
Number 2, 2014
Category Four: Production Process (Distribution of finished products)
xi. Food Safety Regulation
Food Act 1983 (Act 281)
Food Regulations 1985
Food Irradiation Regulations 2011
Malaysian Certification Scheme for Hazard Analysis and Critical Control Point (HACCP)
Health Certificate
Food Safety and
Quality Division
xii. Export process (Customs)
Customs Act 1967 (Act 235)
Customs Regulations 1977
Customs (Rules of Valuation) Regulations 1999
Customs (Customs Ruling) Regulations 2007
Customs (Appeal Tribunal) Regulations 2007
Customs (Additional Jurisdiction of Customs Appeal Tribunal)
Declaration of Goods Exported (Form 2)
Ruling
Inspection
Royal Malaysian
Customs
xiii. Inspection at port (entry points)
Malaysian Quarantine and
Inspection Services Act
2011 (Act 728)
Malaysian Quarantine and Inspection Services (Fees and Charges) Regulations 2013
Malaysian Quarantine and Inspection Services (Quarantine and Inspection) Regulations 2013
Malaysian Quarantine and Inspection Services (Registration
Export Permit
Document Inspection
Exporter’s Registration
Malaysia
Quarantine and
Inspection
Services
Department
(MAQIS)
45
Activities Acts / Regulations Regulatory
Instrument Authority
of Importers, Exporters and Agents) Regulations 2013
Malaysian Quarantine and Inspection Services (Issuance or Permit, Licence and Certificate) Regulations 2013
xiv. Declaration on pesticides use
Plant Quarantine 1976 (Act
167)
Agricultural Pests * Noxious Plants (Import & Export) Regulations 1981
Phytosanitary Certificate
Inspection
Department of
Agriculture
xv. International Trade
ASEAN Trade In Goods
Agreement (ATIGA)
Self-Certification Scheme
Certificate of Origin (CO)
Customs Inspection
ASEAN –
Ministry of
International
Trade and
Industry (MITI)
Table 12 may not show the full process undertaken by the processed food companies,
however it is intended to assist the respondents to gauge the scope of regulatory burden
in this review. The industry players may encounter numerous regulations other than those
stated above depending on the food products being imported/exported and produced.
Therefore, additional information that may be relevant from the respondents’ experience
and perspective are welcomed including suggesting any additional regulations which
should be added to this list.
Also for the purpose of this review, generic regulation, such as taxation, employment &
trade union, occupational health & safety (OHS), corporations and industrial relations
legislation are not included in the value chain as they do not have a particular or
discriminatory impact on the manufacturing and/or distribution sectors. Tackling
concerns/responses on such generic regulations pertaining to food processing industry
risks creating unintended adverse consequences for the industries outside of the scope.
46
As such, concerns with generic regulation should be addressed comprehensively in a
separate review.
The regulations outlined in Table 12 above need to be complied by businesses or industry
in importing or exporting the respective products. While all of the regulations are made
with certain objectives, oftentimes the activities carried out at the implementation level or
the officer’s interpretation of the regulatory requirements or the introduction of redundant
activities across the value chain or failure of the system creates the unnecessary
regulatory burdens to the business. Requirement as simple as filing the company’s
information could be regarded as unnecessary if the companies are required to file the
same information repeatedly.
The unnecessary burdens potentially frustrates the production or consumption of finished
products. The compliance costs and regulatory uncertainty associated with prospective
markets can reduce investor returns and increase risk, potentially threatening their
commercial viability. Delays result in additional expenditure and implicit costs and
opportunity losses associated with deferred or cancelled ordered such as forgone
earnings, lost market opportunities, costs of standby financing facilities, and the costs of
the funds already invested.
4.3 Responsibilities of Regulators
The regulatory regimes for Processed Food Industry in Malaysia are very extensive and
complex as they involve many different ministries, departments and agencies. The
principal regulator is the Ministry of Health. The list of ministries, departments and
agencies are described together in Table 12: Value Chain mapped against Relevant
Acts/Regulations. Table 13 below provides the brief overview of the responsibilities of the
regulators that are covered in this review:
Table 13: Brief Overview of the Responsibilities of Relevant Regulators
Regulators Roles & Responsibilities
Food Safety
and Quality
1. Memastikan penyediaan, penjualan dan penyimpanan semua
bahan makanan adalah bersih dan selamat serta mematuhi
47
Regulators Roles & Responsibilities
Division,
Ministry of
Health
Akta Makanan 1983, Peraturan-Peraturan Makanan 1985 dan
Peraturan-Peraturan Kebersihan Makanan 2009;
2. Memastikan supaya semua bahan makanan yang dijual
adalah:
a. bebas daripada pencemaran dan penambahan aditif
makanan yang tidak diperlukan dan bertujuan
penipuan;
b. mematuhi peraturan-peraturan dan undang-undang
yang ditetapkan; dan
c. dilabel dan diiklan dengan mencukupi serta memberi
gambaran sebenar mengenai kandungan makanan
tersebut.
3. Memastikan semua bahan makanan yang diimport ke negara
ini adalah
4. Selamat dan mematuhi Akta Makanan 1983 dan Peraturan-
Peraturan Makanan 1985;
5. Memastikan makanan yang dieksport oleh negara ini
mematuhi perundangan-perundangan yang dikehendaki oleh
negara pengimport dan mematuhi Peraturan-Peraturan
Makanan (Pengeluaran Sijil Kesihatan bagi Eksport Ikan dan
Keluaran Ikan ke Kesatuan Eropah) 2009 bagi eksport ikan
dan keluaran ikan ke pasaran EU; dan
6. Memastikan orang ramai menerima maklumat yang tepat
mengenai aspek keselamatan makanan dan kebersihan
makanan.
Malaysia
Quarantine
and Inspection
Services
Department
(MAQIS)
1. To enforce all relevant written laws at the entry points, quarantine
stations and quarantine premises to ensure that plants, animals,
carcasses, fish, agricultural produce, soils, microorganisms and food
which are imported into and exported out of Malaysia comply with the
health aspect of human, animals, plants and fish and food safety.
2. To issue permits, licences and certificates for the purpose of import
and export of plants, animals, carcasses, fish, agricultural produce,
soils and microorganisms.
3. To ensure that all plants, animals, carcasses, fish, agricultural
produce, soils, microorganism and food which are imported into and
exported out of Malaysia are graded, packaged, and labeled in
accordance with the relevant written laws.
4. To establish and manage the quarantine stations.
48
Regulators Roles & Responsibilities
5. To participate in the inspection and certification of the premises of the
exporting country together with.
6. To participate with the relevant agency or department at the
international level in matters relating to the quarantine and import and
export of plants, animals, carcasses, fish, agricultural produce, soils,
microorganism and food, if necessary.
7. To give feedback and recommendation to the relevant agency or
department on any matter relating to the import and export of plants,
animals, carcasses, fish, agricultural produce, soils, microorganism
and food .
8. To facilitate and provide advisory services on the compliance of
import and export condition for plants, animals, carcasses, fish,
agricultural produce, soils, microorganism and food to importers,
exporters and agents involved in the import and export of plants,
animals, carcasses, fish, agricultural produce, soils, microorganism
and food.
9. To do such other things as are necessary for the effective
implementation of Malaysian Quarantine and Inspection Services Act
2010.
Technical
Services
Division, Royal
Malaysian
Customs
Department
Objective:-
1. To ensure WTO Customs Valuation Agreement is successfully
implemented.
2. To ensure that the customs value of import, export and local goods
being determined properly and accurately according to Customs Act
1967, Excise Act 1967 and Sales Tax Act 1972.
3. To determine the level of voluntary compliance among the importers
and ensure compliance with provisions of legislations and regulations
relating to customs valuation
4. To enhance the understanding and knowledge of Customs Officers
regarding customs valuation.
5. to ensure uniformity in valuation of goods by providing accurate
guidelines
6. To update all related laws, regulations and orders related to customs
valuation.
Import/Export Goods Market Research and Valuation Section
1. To plan and execute necessary actions in order to fulfil the
commitments on customs valuation rules and guidelines as stipulated
by World Trade Organization (WTO) and World Customs Organization
(WCO).
2. To issue guidelines, administrative circulars and standing orders to the
State Customs to enhance technical knowledge and to ensure
uniformity in customs.
49
Regulators Roles & Responsibilities
3. To provide sufficient data for determination of customs value by
Assessment Officers.
4. To establish smart partnership between Customs and local industries.
5. To carry out panel meetings on new/used CBU cars.
6. To analyse and make recommendations to the valuation cases issued
by the Enforcement Division.
7. To carry out customs valuation inspections at state customs offices and
ensure that the guidelines and procedures related to valuation of
imported goods are being effectively applied.
Department of
Agriculture
(DOA)
1. Evaluate, modify and generate a technology package derived from
agencies/research bodies according to local environment and
requirement and to disseminate these technologies to agriculture
entrepreneurs.
2. Provide consultation services and technical support in a package
format to entrepreneurs, private organizations and agriculture
development agencies.
3. Develop Agriculture Food and Soil Information Centre for planning
purposes and implement development programmes for the sector.
4. Conduct training at the agriculture Institute/Training Centre in order to
fulfill the requirement for skilled workforce within the agriculture sector.
5. Monitor the quality of the country's agriculture resource/seedlings
6. Implement the enforcement of Pesticide Act 1974 to ensure that
pesticides which are imported, distributed and sold in our country are
of quality and will not cause harm to consumers, livestock, food crops
and the environment.
7. Implement the enforcement of Plant Quarantine Act 1976 to prohibit
the entrance of deadly foreign pathogen into our country and also to
facilitate the export of our country's products so that they comply with
the quarantine regulations imposed by the importing country.
8. Implement the Custom Order (Export Restriction) 1988 and CITES
regulation (International Trade Convention for Endangered Animal
Species and Wild Plants) to ensure that agriculture resource and
plasma generation are not threaten with extinction.
9. Implement the enforcement of New Variety Plant Protection Act 2004
(Act 634) to protect the intellectual rights of local varieties for superior
plant breeds such as oil palm, rubber, cocoa, coconut and flowers.
10. Create liaison and working collaboration between organizations in the
public sector and local/foreign private sectors that are involved in
development, enforcement and international trade.
Ministry of
International
1. To plan, formulate and implement policies on industrial development,
international trade and investment.
2. To encourage foreign and domestic investment.
50
Regulators Roles & Responsibilities
Trade and
Industry (MITI)
3. To promote Malaysia's exports of manufacturing products and services
by strengthening bilateral, multilateral and regional trade relations and
cooperation.
4. To enhance national productivity and competitiveness in the
manufacturing sector.
Department of
Islamic
Development
Malaysia
(JAKIM)
As the main agency managing Islamic affairs at the Federal level and the
secretariat to the National Council for Islamic Affairs Malaysia (MKI), JAKIM
performs the three (3) main functions below:
Function 1: Legislation and Standardisation of Islamic Law
Function 2: Islamic Administration Coordination
Function 3: Adjustment and the Development of Islamic Education
Specifically, under Function 2:-
To become the main monitoring agency in Islamic law compliance of various
Islamic product services and consumerism specifically in the fields of Islamic
financial systems and halal industry
Source: Official Websites of the Respective Departments, 2016
51
Chapter 5: Regulatory Burdens during Supply/Import of Raw Materials
As stated in Chapter 4, the scope of the review includes the stage of acquiring or importing
raw materials by the processed food companies. Issues and concerns raised by the
respondents would be analysed and options are proposed in order to help resolve the
regulatory issues raised. The impacts of acts, regulations and government’s requirement
are also discussed in this chapter.
Issue 5.1: Differences in HS Coding / Tariff Coding between countries resulting
to different duties payable
The Harmonized Commodity Description and Coding System (HS Codes) is a
multipurpose international product nomenclature developed by the World Customs
Organization (WCO). The system was used by more than 200 countries and economies
as a basis for their Customs tariffs and for the collection of international trade statistics.
Over 98% of the merchandise in international trade is classified in terms of the HS.41 In
order to ensure uniform interpretation of the HS and its periodic updating in light of
developments in technology and changes in trade patterns, WCO takes the responsibility
to revise the HS every 5 – 6 years.
Often, HS disputes occur in the light of recognizing the correct codes for a product
between countries. While one country may prescribes the same product as “X” another
country would defined it as “Y”. In order to classify the product accordingly, the Royal
Malaysian Customs Department Malaysia would conduct the Customs Ruling exercise.
The respondent has raised their concern that the procedure to received Customs Ruling
is too long and thus it causes delay in product clearance due to different
requirements/duties imposed.
Often, the respondents would have to pay certain amount of duties (based on the
interpretation of Customs officers at the port of entry) for product clearance. Later, with
the classification of codes based on the Customs Ruling (which may cause differences in
41 World Customs Organization (2016), What is the Harmonized System (HS)? See: http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonized-system.aspx
52
the amount of import duties charged) the respondent may then claim back the amounts
paid earlier. This is as stated under the Section 13A of The Customs Act 1967 (Payment
of customs duty under protest). The following figure shows the Customs Ruling
procedures:
Figure 6: Customs Ruling Procedure (Customs (Customs Ruling) Regulations 2007
Source: Customs (Customs Ruling) Regulations 2007
As shown in Figure 5, the application process of Customs Ruling may takes up 3 to 5
months depending on whether the process involves product analysis. Upon verification
with the Customs officers, applications for products with the same HS codes which
previously have been analysed and recorded (whether produced by the same company
or not) are processed within 2 to 3 weeks, while applications for new products would
usually be longer.
The following options are put forward to resolve the issue:-
Option 1: Status Quo
This option suggests maintaining the current practice as it is. This however would not
resolve the current concerns faced by the exporters.
Applicant Start End Apply Customs Ruling Goods Classification
Technical
Services
Division of
Customs
Process
Received Customs
Ruling
The process (with analysis)
1. Customs officer prepared the Protest Report (30 days)
2. Send the product samples to the appointed agencies to verify the content
3. Presented the result to panel 4. Panel make the recommendation (HS
Code) 5. DG to decide on the recommendations 6. Customs officer issued the Customs
Ruling to the firm
Approximately
(90 days + 60
days (if needed
to conduct
product
analysis)
53
Option 2: Encourage industry to apply the Advance Ruling before import/export.
As Customs Ruling takes more than 3 months to complete, firms should plan their
import/export requirements particularly whenever there is doubt in the HS code. The
application process should be conducted earlier to avoid such problems from occurring.
Concurrently, the Customs department should actively communicate and promote to the
industries on the application of Advanced Customs Ruling and the guidelines, Standard
Operating Procedures (SOPs) and Regulations should be made available through various
channels that can be easily accessible by all interested parties. Various advantages and
implications should be conveyed clearly to the industries players so that they could
understand and plan accordingly before importing/exporting their products.
Option 3: Online application for Customs Ruling
In the long run, the Customs Department should provide a platform for online application
of Customs Ruling. This will enable the process to be streamlined and reduce or eliminate
some of the delay and administrative activities such as preparing protest report, panel
meeting and recommendation and issuance of the ruling. It could also minimize the
unnecessary interactions of the industries with the government officers and thus reducing
the burdens in terms making follow ups, submission of additional information as well as
efficient record keeping of the results and data of a company.
Recommended Option
It is recommended that the Customs Department to establish an online application for
Customs Ruling. This will not only reduce the burdens faced by the
manufacturers/businesses but also help the customs officer in conducting their tasks
efficiently and effectively while encouraging the exports/imports of various products.
54
Chapter 6: Regulatory Burdens during Production process
This Chapter continues to analyse the issues and concerns raised by the respondents. In
continuation to the above, this chapter would address the issues pertaining to the stage
of food production. Respondents, mainly from Penang and Johor have shared their
concerns over the procedures of obtaining Halal Certificates from Halal Hub Division of
Department of Islamic Development Malaysia (JAKIM). In addition, this chapter also look
into the issue of differences in GDA requirement by different countries that up to certain
extent limits the growth of food processing companies in the country. Impacts of the acts,
regulations and government’s requirement are discussed in this chapter and options are
proposed in order to help resolve the stated issues.
Issue 6.1 Delay in obtaining Halal Certificates
Halal Certification is a voluntary certification established based on the concept of Halalan
Toyyiba’. The certification helps to enhance the consumer’s confidence regarding certain
products/services and at the same time ensuring the quality, safety and purity of the
services/products marketed. Manufacturers/Businesses under the categories of food
products, supplements, hotel food and premises, cosmetics, abattoirs, pharmaceuticals
and logistics are encourage to be certified under the certification.
IMP3 stated that the global market value for trade in halal foods is estimated at US$547
billion a year. In 2015, the figure is valued at USD2.3 trillion annually42. This large market
has created interest from food producing countries worldwide. Realising the potential for
Malaysia to become a major producer of halal food products, the commitment and support
by the Government are required along with endless effort of food-industry to focus in
producing and exporting halal food products.
While the respondents welcome the government’s initiative in branding and developing
Malaysia as an International Halal Hub, the process of obtaining the certificates is their
major concerns. Most of the respondents had experience delay in obtaining the
42 Malaysian Investment Development Authority (MIDA) (2015) Investment Opportunities in Food Technology Industry in Malaysia, Food Technology & Sustainable Resources Division, MIDA see: http://www.mida.gov.my/env3/uploads/events/Jan2015/MIDA.pdf
55
certificates, be it new application for new products or certification renewal for existing
products. The respondents stated that despite the attempt to apply for renewal 3-6
months earlier from the certification expiry date, often they failed to receive the certificates
on time. This has resulted to the increase in cost of doing business, failure to market/sell
their products to the consumers in desired market as well as damaging the consumers’
trust and confidence towards the products. One of the respondents in Johor has incurred
RM300,000 demurrage costs due to the delay in receiving renewal certificate.
In terms of site/factory audit, the respondents stated that there are occurrences where
the auditors failed to abide to its 30-days charter (site audit supposed to take place 30
days after payment has been made). The respondents also raised their concerns on the
different interpretation of audit procedure by the assigned auditors from each respective
territories/states. Some of the recommendations for improvement or requirement made
by the auditors are not stated in the MS 1500: 2009 (General Guideline of Halal Food
Production, Preparation, Handling and Storage guidelines) or Manual Procedure for
Malaysia Halal Certification, thus causing confusion to the food manufacturer. Such event
also contributed to the delay in obtaining Halal certification for the stated products.
Upon verification session with the Islamic departments in selected States, the delay in
obtaining Halal certificates is highly due to shortage of officers and operational inefficiency
of Halal certification process implemented by JAKIM and the respective Islamic
departments in each states.
56
Figure 7: Value Chain of Halal Certification: Processing of New Applications & Renewal
Reference: NurulHuda Noordin et al (2009)
Improvement based on validation session with regulators.
Application Document
Approval
Premise
Inspection
Panel
Committee
Issuance of Halal
Certification
OP
ER
AT
ION
AL
Receive
Online
Application
(thru system
MYeHALAL)
Compile
Application &
Supporting
Documents
Verified
Application &
Supporting
Documents
Issue
Certification
fee
Prepare
Inspection
Scheduling
Premise
Inspection
Issue general /
non-
conformant
report
Write online
report
Halal
Certification
Panel Meeting
Halal
Certification
Approval
Prepare Halal
Certification
Send Halal
Certification
AU
TH
OR
ITY
JAKIM
JAKIM
State Islamic
Religious Dept
JAKIM
State Islamic
Religious Dept
JAKIM
State Islamic
Religious Dept
JAKIM
Internal pre-
meeting Halal
Certification
57
In understanding the process of obtaining Halal certificates, it is important to note that in
Malaysia, Halal matters are under the Islamic rule that is governed by states Rulers
(Sultans), thus it is compulsory to obtain the Rulers’ consent to standardise the Halal
matters in Malaysia. According to the Malaysia Federal Constitution Article 3, the state
Ruler is the Head of the religion of Islam in his state declared by the State Constitution
(Status and Power, 2009). Therefore, the federal government has no authority to force
the states to follow any decision regarding Islamic matters that are made at national
level43.JAKIM is the governing body that monitors and enforces halal regulations in
Malaysia as well as coordinating Halal related matters that are practice in the States. To
date, JAKIM provides system, Standard Operating Procedures (SOP), guidelines and
manuals to the State Islamic Religious Department in order to ensure uniformity in the
implementation and interpretation of Halal related matters. In addition, JAKIM is
responsible to process the application made by the international manufacturer as well as
eligible industry players in Wilayah Persekutuan, Putrajaya and Labuan.
As such, Figure 7 depicted the process of obtaining Halal Certificates for both new
applications and renewal. There are 5 main stages involved in Halal Certification
procedures; (1) Application, (2) Document approval, (3) Inspection on premises (4) Panel
committee and; (5) Issuance of Halal certificates. The process mainly involves
coordination between JAKIM and State Islamic Religious Department. In order to ensure
the quality and credibility of the certification, the process includes getting approval from
the appointed panelists during a meeting which is held once a month (twice a month for
applications processed by JAKIM). The approval panel is consists of representatives from
various departments/agencies i.e. Jabatan Mufti Negeri, National Pharmaceutical Control
Bureau, Veterinary Department, Ministry of Health, Department of Chemistry, Ministry of
Domestic Trade, Co-operatives and Consumerism (KPDNKK).
Delay usually occurs during the stage of document approval. Applicant’s lack of
understanding of the Halal certification requirement and the procedures often lead to the
43 NurulHuda Noordin et al (2009) Value Chain of Halal Certification System: A Case of The Malaysia Halal Industry, European and Mediterranean Conference on Information Systems 2009
58
delay in submitting supporting documents. Absence of online mechanism to accept
supporting documents also up to certain extent contributed to the delay. Also, due to the
lack of understanding of the Halal requirement, many of the applicants practice the “trial
and error” that could latter contribute to increase in the workload of the processing
officers, thus the delay in verifying applications and submitted supporting documents.
Delay may also contributed from the failure to obtain inspection scheduling44due to labour
constraints i.e. in terms of number of workforce, expertise and knowledge (Stage 3 of
Halal processing procedure: Premise Inspection). The Manual Procedure for Malaysia
Halal Certification stated that the Auditing shall be carried out by minimum of two officers,
who are competent in Islamic education and technical matters. However, with the
increase in demand of Halal certification over the years, the workforce in Islamic Religious
Departments is unable to accommodate with the demand. Lack of knowledge and training
of newly appointed officers/auditors also contributed to the delay. The interviewed
representatives from the States Islamic Religious Departments stated that often, the
newly appointed auditors learn on how to inspect premises from “on-the-job experiences”
rather than early training/knowledge exposure.
Waiting period for Halal Certification Panel Meeting also contributed to the delay. The
meetings often take place once a month at the states and twice a month for applications
process by JAKIM. Applications (after audit premise procedure) which have been
completed at the beginning of the cycle would have to wait longer than those that are
completed right before the date of panel meeting.
Delay could also occur during the process of issuance of Halal certificates (as only
Printing Unit in JAKIM could print the certificates). The applicants would have to wait for
the certification to be delivered to the States Islamic Religious Departments before
collecting them manually at the counter or waiting for the certificates to be posted to them
by the respective offices. It is important to note that different States offices may implement
44 Scheduled inspection is a continuous and planned inspection on Malaysia Halal Certificate holders to verify its compliance to certification requirements, use of logo and halal standard (Manual Procedure for Malaysia Halal Certification (Third Revision) 2014))
59
different practices depending on the decision of the Head of Department. For example, in
Selangor, the Halal Certificates will be posted directly by JAKIM to successful applicants
without manual collection at the Selangor office thus eliminating the source of delay
arising from delivery of certificates.
Table 14 below provides the summary of the factors contributing to the delay of obtaining
Halal Certification.
Table 14: Summary of Factors Contributing to the Delay in Obtaining Halal Certification
Stage Issues
Document
approval
Lack of preparation by the applicants due to lack of understanding
of Halal requirement. Often practice “trial and error” when
submitting documents.
Premise
Inspection
The workforce in Islamic Religious Departments is unable to
accommodate with the increase of premise inspection due to
the increase in demand of Halal certificates.
Lack of knowledge and training of newly appointed
officers/auditors.
Inconsistent and/or untimely advice from regulators.
Panel Committee Long waiting period for Halal Certification Panel Meeting
Issuance of Halal
Certification
Waiting period for the certification to be delivered to the States
Islamic Religious Departments from Printing Unit, JAKIM
The following options are put forward to resolve the issue:-
Option 1: Status Quo
This option suggests maintaining the current practice as it is. This however would not
resolve the current concerns faced by the food manufacturers. With the increase in
demand for Halal Certification, it is foreseen that the issue will be worsen in the future. As
such, the following options are put forward to resolve the issues stated above.
60
Option 2: Continuous auditors’ training
In order to resolve the issue of premise inspection (refer to table _: Summary of actors
contributing to the delay of obtaining Halal Certificate), it is suggested that JAKIM to
provide continuous auditors’ training to the respective officers (both newly appointed and
senior auditors) from the States Islamic Religious Departments. Training is an essential
tool for knowledge transfer. It ensures that the staffs deliver the objective of the
organisation as well as the tasks assigned to them while maintaining quality of the
services offered through uniformity.
Continuous training is required in increasing efficiencies in auditing processes, and
capacity in delivering tasks professionally to the customers (i.e. the applicants of Halal
certification). Although one off training may be provided to new starters, or other
employees, it’s important that training schemes are put in place to help develop skills
throughout their job. To retain knowledge, skills need to be practiced and refreshed on a
regular basis so elements aren’t forgotten. Hence, continuous training from JAKIM could
help in closing the gap of inconsistent and/or untimely advice from the regulators while
improving productivity and adherence to quality standards.
Option 3: Fast Track Processing
In order to address the issue of delay in obtaining Halal Certification, it is suggested that
JAKIM and respective States Islamic Religious Departments to benchmark the practice
of Johor Islamic Religious Department (JAINJ) in offering fast-track services. The fast-
track processing here is referred as instant approval by JAINJ without premise inspection
(audit procedures). The applicants have to go through the following simple procedures:-
1. Online application
2. Submission and verification of supporting documents
3. Payment of processing fee
4. Issuance of Approval Letter
In addition to addressing the delay in Halal certification processing, the fast-track
processing is intended to reward the companies with good track record in adhering to
government’s related regulations as well as reducing the workload of halal certification
61
officers. Details of the fast-track procedures practice in Johor are shown in table 15
below:-
Table 15: Requirement & Criteria of Halal Certification Fast-Track Procedures (JAINJ)
Title Detail
Category
1. Manufacturing contract (Original Equipment Manufacturer
(OEM)) under company which already has a Halal certificate
2. Additional product and brand
3. Rebranding
4. Certification renewal for companies that have been monitored
through surveillance audit within a year.
Requirement
1. Complete documentation
2. Submit samples of product packaging
3. Has developed the document of Halal Assurance
Management System (HAMS)
4. Good track record with Halal-related agencies, i.e. KPDNKK,
JAKIM & JAINJ
5. The approval will be reconfirmed in the Halal Certification
Panel Meeting
Processing
Time
The applicants to receive letter of approval 3 days after payment
being made to the regulator.
Source: JAINJ, 2016 45
Option 4: Pool of independent auditors
In a long term, in order to address the issue of delay in obtaining halal certificates due to
inability to accommodate with the increase of premise inspection due to the increase in
demand of Halal certificates it is suggested that the regulator to implement the
Collaborative Audit Framework (audit pool). The traditional audit can be a time-consuming
process and restrict departments with limited resources. There are also claims of
inconsistent auditing practices and differing opinions on matters such as conformity and
findings due to different practices by officers at different states. In 2015, the International
45 Garis Panduan bagi Permohonan Kelulusan Segera (Fast-Track) Pensijilan Halal Malaysia di Negeri Johor
62
Air Transport Association (IATA)46 introduced a new audit concept that establish a
“charter” of auditors that is not limited to the officers in the organisation. Strong criteria
methodology, process and procedures, and set of auditor performance KPIs are
published in order to ensure the quality of the auditors (that the auditors are competent
and operating from the same playbook in terms of what the department actually auditing).
The new audit concept able to increased efficiency of audit in terms of time, manpower,
duration, etc. The concept allows the department to accommodate with the increase
demand in certification as it does not limited to the in-house auditors. With quality training
and programmes, independent auditors will be recognised thus increasing the level of
audit transparency.
Option 5: JAKIM to deliver certificates directly to the applicants
Other States Islamic Religious Department to benchmark the practices in Selangor that
permits JAKIM to deliver the certificates directly to the successful applicants. Such
practice could help to eliminate the delay caused by the waiting period for the certification
to be delivered to the States Islamic Religious Departments from Printing Unit, JAKIM.
Recommended Option
In a short term, it is recommended that the regulators (i.e. JAKIM and States Islamic
Religious Department to take into account Option 2: Continuous auditors’ training, Option
3: Fast Track Processing and Option 5: JAKIM to deliver certificates directly to the
industry. These two options could help to reduce if not eliminate the delay in obtaining
Halal certification. Continuous auditors’ training could also help in standardising the halal
practice in each states, thus eliminating issues such as inconsistent and/or untimely
advice from regulators.
In a long term, it is recommended that the regulators to consider Option 4: Pool of
auditors. The option could help to eliminate delay caused by limited resources (inability
to accommodate with the increase of premise inspection due to the increase in demand
46 IATA (2015) ISAGO New Audit Concept, see: http://www.iata.org/events/Documents/isago-auditor-symposium-all-presentations.pdf
63
of Halal certificates). However, such practice must be accommodated with strong criteria
methodology, process and procedures, and set of auditor performance KPIs in order to
ensure the quality of the auditors’ performance.
Issue 6.2 Different GDA requirements for each market increase the cost of
packaging
Food labelling serve as a communication means between the producer and seller of food
as well as the purchaser and consumer. The end-objective is to guide the consumers in
making better food/dietary choices, and on this the Ministry of Health has enforced the
regulations for mandatory nutrition labelling and nutrition claims in 2003. Such nutrition
information on food labels is equally important to the food industry as it provides a means
for food manufacturers and retailers to become more aware of the nutritional properties
of their products and be encouraged to emphasise these properties to consumers.
As the respondent is exporting their products to the ASEAN member states, they are
facing burdens in complying with the food labelling and nutritional claims regulations from
each respective member states. While, ATIGA opens up more opportunities for exporters,
the requirements set by each member states on food labelling put indirect trade barriers
to them. The respondent is incurring more cost on packaging and inventory and is facing
difficulties to comply with different requirements for the same product, for example,
differences in languages used, font sizes, requirement of information and presentation of
the required information. The following Table 16 shows the differences in food labelling
requirements (comparison of Asia region and Europe region)
Table 16: Example of Differences between Foods Labelling Requirement in Asia & Europe
Asia Europe
GDA Button
Malaysia & Singapore: 1 button (energy)
Thailand: 4 GDA buttons (energy, sugar, fat and sodium)
1 GDA button with common information of nutrients accepted by all receiving countries in the region
64
Asia Europe
Indonesia: 4 GDA buttons (energy, fat, saturated fat, sodium)
Font Sizes
Malaysia & Singapore: 8 × 18mm
Thailand: 1mm
Indonesia: Various font sizes
Standardised font sizes for all receiving countries.
Language Various languages Various languages
Source: Examples provided by the respondents
The concern stated by the respondent is not uncommon. ASEAN Food and Beverage
Alliance (AFBA) has outlined the following barriers faced by businesses in terms of
nutritional labelling in ASEAN, which would lead to higher compliance cost for packaging.
Table 17 summarises some of the common challenges on food labelling in ASEAN.
Table 17: Common Challenges faced by Food Manufacturers in ASEAN region47
Common challenges Observation
Variances in mandatory and voluntary labelling requirements
In Malaysia, nutrition labelling is compulsory on foods, such as milk products, canned foods and soft drinks. In Indonesia it is only required on fortified and functional foods, and in Singapore it is mandatory for products bearing nutrition claims. In The Philippines if a product bears any nutrition label, it must include the declaration of protein, fat, energy, carbohydrates, vitamin and mineral content, and specific measurement units.
47 ASEAN Food and Beverage Alliance (AFBA) (2013) Technical Barriers to Trade in ASEAN, Case Study: Nutrition Labelling, AFBA, see: http://afba.co/news/technical-barriers-to-trade-in-asean-case-study-authorisation/
65
Common challenges Observation
Differing minimum and maximum limits for vitamins and minerals
Manufacturers, suppliers and retailers face different minimum and maximum limits for vitamins and minerals. For example, one company, with a manufacturing base in Singapore is required to formulate its product using four different recipes to access eight target markets. This quadruples the complexity in terms of recipe management and validation; increases the cost of – and timeframe for – analysis, as different markets have different testing parameters, safety and efficacy requirements. It also increases the cost and lead-time for the sourcing of raw materials and quality control.
Variances in tolerance levels
The outlook is even more challenging for companies using a single recipe across multiple countries. While most ASEAN countries require products to contain at least 80 percent of the declared value of the nutrient, some countries impose different requirements, i.e. for:
• Naturally occurring nutrients versus fortified nutrients - with more stringent requirements for the latter,
• First laboratory test results versus general monitoring results, and first consignments versus subsequent shipments,
• Nutrients linked to nutrition claims on the front of the pack versus nutrients declared only on the back of the pack in the nutrition information panel (NIP)
Variances in Nutrition Reference Values (NRVs) used for packaging claims and NIP formats
Even if companies use the same recipe in multiple markets, they still face costs for having to customize labels for each country. This is because some countries, for example Indonesia, Thailand and The Philippines, require the percentage of the NRV/RDA to be stated in the Nutrition Information Panel but these reference values vary between countries.
Source: AFBA, 2013
The following options are put forward to resolve the issue:-
Option 1: Status Quo
This option suggested to let the current practice as it is without harmonizing the nutrient
and food labelling regulations. This is due to the costs associated with harmonisation. It
66
is expected that the government’s involved (ASEAN member countries) would incur
higher expenditure in establishing the global labelling standards and accredited
laboratories as well as would increase the costs of enforcement, monitoring and
compliance with adopted standards. The firms too, would suffer the initial costs to
famaliarise with the harmonized regulations, as well as the compliance and
implementation costs.
Option 2: To harmonise the food labelling regulations in Southeast Asia
This option suggest to harmonise the food labelling regulations in Southeast Asia, namely
the countries of Laos, Malaysia, Vietnam, Singapore, Cambodia, Thailand, Brunei,
Myanmar, Philippines and Indonesia. Through harmonisation, the firms would face with
fewer barriers to trade and freer movement of food products between countries in terms
of import and exports and this would open doors to new markets and opportunities for the
food industry48. In turn, increased food trade would enhance economic development and
allow consumers a greater choice of products.
Option 3: Suggested that this issue to be taken up at the trade facilitation at the ASEAN
level
In relation to Option 2 above, this option suggests that the issue to be taken up to the
trade facilitation at the ASEAN level for comprehensive review and discussion. It is
expected that there will be challenges in getting buy-in from other ASEAN member
countries in terms of the harmonising the regulations as it involves various costs and
challenges in terms of designing the global standard, enforcement and compliance costs.
Thus, it is necessary to have a comprehensive review and discussion at the ASEAN level
as it could help to weigh the costs and benefits of such clearly and effectively.
48 William Kasapila and Sharifudin MD Shaarani (2011) Harmonisation of food labelling regulations in Southeast Asia: benefits, challenges and implications, Asia Pac J Clin Nutr 2011;20 (1):1-8, see: http://www.ncbi.nlm.nih.gov/pubmed/21393103
67
Recommended Option
Options 2 and 3 are recommended. With the harmonization of nutrient and food labelling
standards, the businesses would be incentivized to invest and venture into new food
science that could satisfy and benefit the public as a whole. Harmonisation within the
region is only possible when all the ASEAN members’ countries shared the same vision
and objective while cooperating actively with all stakeholders.
68
Chapter 7: Regulatory Burdens during Distribution and/or selling finished products
This Chapter provides an analysis of the issues and concerns raised by the respondents
during distribution/selling of finished products. The respondents have shared their
concerns on the delay in obtaining Health Certificates and Certificates of Origin (COO).
As such, impacts of the acts, regulations and government’s requirement are discussed in
this chapter and options are proposed in order to help resolve the stated issues.
Issue 7.1 To speed up processing of Health Certificate
The issuance of Health Certificate is required in order to satisfy the requirements of
importing countries. It validates that the consignments to be exported are safe for human
consumption and comply with national legislation (refer Section 13A of Food Act 1983)
and regulation of importing countries. In Malaysia, the Food Safety and Quality Division
(FSQD) of Ministry of Health is the authority to issue the health certificates for food
products.
Box 1: Food Act 1983
Section 13A: Food unfit for human consumption
(1) Any person who prepares or sells any food that consists wholly or in part of-
(a) any diseased, filthy, decomposed or putrid animal or vegetable substance;
(b) any portion of an animal unfit for food; or
(c) the product of an animal which has died otherwise than by slaughter or as game,
whether manufactured or not, commits an offence and shall be liable, on conviction,
to a fine not exceeding fifty thousand ringgit or to imprisonment for a term not exceeding
eight years or to both.
(2) Any person who prepares or sells any food that contains or upon which there is
any matter foreign to the nature of such food, or is otherwise unfit for human
consumption, whether manufactured or not, commits an offence and shall be liable, on
conviction, to a fine not exceeding thirty thousand ringgit or to imprisonment for a term
not exceeding five years or to both.
69
(3) Any person who prepares or sells any food whether manufactured or not that is
enclosed in a sealed package and the package is damaged and can no longer ensure
protection to its contents from contamination or deterioration, commits an offence and
shall be liable, on conviction, to a fine not exceeding thirty thousand ringgit or to
imprisonment for a term not exceeding five years or to both.
[Ins. A1117/2001]
The respondents stated that MOH takes minimum 5 working days to process & approve
the Health Certificates which is not complying with the established Client Charter of 3
working days. 40 samples of delayed applications for four months (i.e. June, July, August
and September) have been shared by the respondents as evidence that delay in
processing time incurred from between 2 to 6 working days. Such is partly due to
unavailability of doctors (to sign the physical Health Certificates) who are away for
training, attending courses, on annual leave or emergency leave. The respondents further
raised their concern on the application process that are still being done manually.
Figure 8: Delay in Processing of Health Certificate
However, during verification process with the representatives from FSQD, their records
showed that 99% to 100% of applications received in the respective four months have
been issued within 3 working days. Here, it can be seen that there is a significant
difference between the FSQD statistics and the sampling given by the firm.The HC
application procedure involves at least three interactions between the applicants (industry
players) and the government officers; the process of submitting the applications manually
3
1
12
21
10
4
2
4
1
2 days 3 days 4 days 5 days 6 days
No
. o
f A
pp
lic
ati
on
Processing Time (working days)
June July Aug Sept
70
to respective FSQD offices; product verification and approval; payment for the applied
certificates and receiving the approved certificates.
The procedure to process Health Certificate application is illustrate further in Figure 8
below:
Figure 9: Process Flow of Health Certificate Application (with HACCP)
Source: FSQD, MOH (2015)
The following options are put forward to resolve the issue:-
Option 1: Status Quo
This option suggested to let the current practice as it is. However, under this option, delay
in obtaining health certificates would persists.
Option 2: To speed up the processing time of Health Certificate
This can be achieved by reviewing and streamlining the existing HC processing
procedure. There is a number potentialities to reduce the number of interactions between
the applicants and the authority and the internal administrative procedure of FSQD.
Option 3: Online application system and E-certification (G to G basis)
In a long-term, it is suggested that the FSQD to improve and provide an online application
system and virtual certificates. This would eliminate all interactions in the application of
HC as well as help the department to conduct the HC procedures efficiently. In a way, it
Start End Apply HC Applicant
FSQD Payment Process
Note: HC: Health Certificate
Received
Notification Received
HC
Check application, product
verification (HACCP
compliance) and approval
71
would help the department to have a better access to the information of the registered
companies/manufacturers as well as reducing the possibilities of certificates’ misuse.
Recommended Option
Option 3 is recommended to FSQD, MOH. In order to assist the officers to working
efficiently, reducing the burdens faced by the manufacturers/exporters, it is important to
upgrade the department’s administrative infrastructure.
Issue 7.2 To speed up issuance of Certificate of Origin (Form D) for export to
Vietnam, Philippines and Indonesia
Manufacturer/exporter is required to present Certificate of Origin (CO) when exporting to
specific countries, when requested by the consignee for customs clearance, or when it’s
stipulated in a letter of credit. It is a document to certify the place of production or
manufacture of goods. While most ASEAN member states have signed up for self-
certification scheme, Vietnam, Philippines and Indonesia are still using manual
certification. In Malaysia, the certifying authority for CO is the Trade Cooperation &
Industry Coordination Section of MITI.
Verification from regulator has shown that MITI managed to process the application within
the stated client charter (i.e. 1 to 3 working days). However, the process flow is delayed
when the application is being done on Friday or a day before public holidays. For short
transit time sailing, the exported goods would usually arrive first before the CO is issued
and certified by the certifying authority causing the exporter to incur a demurrage charges
(including the charge of reefer containers).
72
Figure 10: Illustration of the Issue
The regulation in relation to Certificate of Origin is as follows:
Box 2: Rule 5-Application for Certificate of Origin49
At the time of carrying out the formalities for exporting the products under preferential
treatment, the exporter or his authorised representative shall submit a written
application for the Certificate of Origin (Form D) together with appropriate supporting
documents proving that the products to be exported qualify for the issuance of a
Certificate of Origin (Form D).
Annex 8 of ATIGA refers to the operational procedure on the issuance and verification of
CO and other related administrative matters. In accordance to the rules outlined, the
following Figure 10 illustrates the procedure implemented by the Trade Cooperation &
Industry Coordination Section of MITI.
49 ASEAN Trade In Goods Agreement (ATIGA), Annex 8 : Operational Certification Procedure for The Rules of Origin Under Chapter 3 (Rules of Origin)
Apply CO on Monday
Present certified CO when the shipment
arrived on Wednesday
Apply CO
on Friday
Shipment arrived on Sunday
Situation 1
Situation 2
Present certified CO on Monday/Tuesday
73
Figure 11: Certificate of Origin (CO) Processing Procedure
Another burden highlighted by the respondents is on the requirement to get manual
signature and endorsement from MITI officers after obtaining the approval (see Figure
10). Such practice is due to the requirement of ATIGA (1993), which specifically stated
that “Each Certificate of Origin (Form D) shall bear the manually executed signature and
seal of the authorised issuing authority”50. Acknowledging the burdens, MITI is in the
midst of discussing the amendment of the agreement with other trade representatives
from ASEAN member states. It is expected that the issue would be solved by 2017.
The following options are put forward to resolve the issue:-
Option 1: Status Quo
As stated, the Trade and Industry Cooperation Section of MITI has managed to process
the CO application within the stated client charter. Thus this option suggests maintaining
the current procedure as it is. It is the responsibilities of the industry players to manage
and plan their application well within the stated practice of the government office.
50 ASEAN (1993) ATIGA: Rule 7: Certificate of Origin (Form D)
Start
End
Apply CO Applicant
MITI
approved CO
Manual
Signature
& endorse
Application before Export:
Supporting documents
i. Invoice ii. Packing List
Application after Export: Supporting documents
i. Invoice
ii. Packing List
iii. Bill of Lading, and
iv. Customs Form K2
v.
Process within
24 working
hours
Notes:
74
Option 2: Continuously promote self-certification ATIGA scheme to other countries
(Indonesia, Philippines and Vietnam)
MITI to continuously promote the ASEAN Self-Certification Scheme under ATIGA to
Indonesia, Philippines and Vietnam. The Self-Certification Scheme is a system which
enables the Certified Exporter (CE) from respective companies to make out an invoice
declaration for the exports of goods. The CE will no longer be required to apply for ATIGA
Form D. The invoice declaration is sufficient to obtain preferential tariff concession under
ATIGA. The information in the invoice declaration is less than what appears in ATIGA
Form D. The scheme, which promotes trust between the government and the exporters
(manufacturers) aimed at facilitating intra-ASEAN trade; reduce costs and time of doing
business; and maximise the efficiency of the government limited resources51.
Option 3: Improve and streamline current procedure (CO/Form D) to expedite the
process.
It is suggested that MITI to improve and streamline the current manual procedure of CO
application specifically for products intended to be exported to countries with short transit
time sailings (i.e. Indonesia, Philippines and Vietnam). In order to expedite the process,
an additional section can be put forward to allow the exporter to notify and state their
prioritization of which applications should be processed first.
Option 4: U-customs system implementation
The UCustoms Application which is expected to be fully implemented by Customs
Department in 2017, is a fully integrated, end-to-end, customs modernization solution that
delivers 'Single Window' for goods clearance52. Notably, the application aimed to have
consistent operating procedures, National Single Window, cost savings on transaction,
automation of manual processes, ease sharing of data and information as well as enable
the officers to working remotely.
51 Trade Cooperation & Industry Coordination Section of MITI (2014) ASEAN Trade In Goods Agreement (ATIGA); New Initiatives: Trade Facilitation, see: http://www.miti.gov.my/miti/resources/fileupload/Write-up%20on%20ASEAN%20Trade%20in%20Goods%20Agreement%20(ATIGA).pdf 52 Customs Department (2016) uCustoms Application, see: http://www.customs.gov.my/en/pages/ms_na.aspx
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Recommended Option
It is recommended here, that the Trade and Industry Cooperation Section of MITI to
continuously promote self-certification ATIGA scheme to the other countries (Indonesia,
Philippines and Vietnam). The scheme, could help in reducing costs and time of doing
business and maximising the efficiency of the government limited resources.
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