RECOMMENDATION REPORT

FINAL DRAFT REPORT

DECEMBER 2016

REDUCING UNNECESSARY REGULATORY BURDENS ON

BUSINESS:

Processed Food Products

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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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

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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

Print

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.