Halal Development System: The Institutional Framework, Issues and Challenges for Halal Logistics

Hadijah Iberahim, Rohana Kamaruddin and Alwi Shabudin Malaysia Institute of Transport, Faculty of Business Management

Universiti Teknologi MARA (UiTM) 40400 Shah Alam, Malaysia

hadijah6553@salam.uitm.edu.my

Abstract— The purposes of the study are to identify the status of current Halal development system and highlight issues and challenges on the halal logistics in Malaysia. Investigations were conducted through site visits, semi-structured interviews and document reviews on four core groups; the governing agencies, the logistics providers, the port authorities and the industries. This qualitative approach adopted content analysis in order to systematically verify facts and evidences. Findings reveal the government continuous efforts in providing a holistic center for certification, and monitoring and enforcement system. However, the institutional framework has low level of centralization, lacks networking with international bodies and experts in halal logistics industry. The study highlights practical issues and challenges of Malaysia halal development system. The study concludes on critical points for halal logistics. Keywords- Halal certification, halal logistics, institutional framework.

I. INTRODUCTION The global market demand for Halal products and services

has significantly spurs the needs for halal development system since early 2000s. Malaysia is mapping its position in the Halal industry by providing a variety of products and services as well as facilitating halal hub centers for the worldwide markets [7]. In response to the growing lucrative and influential demand for halal products, it is apparent that the increasing number of Halal operators exerts the need for these operators to be certified and recognized. According to the Canadian Agri-Food Trade service (2008), there is a strong demand for halal products in a number of non-Muslim countries. The halal products are also growing in popularity among non-Muslim consumers due to humane animal treatment concerns and the perception that halal products are healthier and safer. Even though the halal certification carries such high reputation in eyes of Muslim public and Muslim world, the usage is not legally enforced. Many issues and challenges remain unresolved [1,9,11,17,15,14].

While many studies look at RFID and its application into web-based Halal information services as a tool that enhance the tracking systems [3,19], there is still insufficient research concerning the reliability of logistics service providers. Given the increasing interest among consumers, industries, logistics service providers and port authorities in integrating Halal

logistics operations as part of the supply chain management that support the halal system, the main concern is how the current Halal development system integrates Halal logistics as part of the system. Thus, it is essential to clarify the supporting foundation for Malaysia Halal development system. Hence, the objectives of this study are to provide the current state of institutional framework, the issues and challenges for halal logistics. The paper is divided into five main sections. The past studies on halal certification are discussed in the second section and research methodology is discussed in the third section. Subsequently, the results of this study are presented and discussed in section four with a conclusion in section five.

II. LITERATURE REVIEW

A. Halal Development System Halal system is defined as the organizational structure,

responsibilities, procedures, activities, capabilities and resources that together aim to ensure that products, processes or services will satisfy stated or implied aims [13]. In this study, Halal development system focuses on the institutional framework of the governing bodies that have authorities in certifying, monitoring and enforcement to ensure firm-level halal system is functioning effectively and efficiently in accordance to the shariah (Islamic) law. To date, Halal certification is issued based on basic principles and procedures that the products must be good, safe and fit to consume as referred to as Halal and Thoyyibban. Halal development system includes certification, monitoring and enforcement activities.

While many countries such as Thailand, Brazil, Australia, New Zealand, China, Indonesia, Singapore and others rely heavily on the non-government organization for certification, the Malaysia Halal development system is unique. A department in Malaysia Prime Minister Department known as the Department of Islamic Development Malaysia or JAKIM leads the multi–agency structure of halal development system. To date JAKIM’s halal certification and logo have gained a high added value to a product and reputable commercial value in order to overcome the boundaries of race, culture and religion. Despite its size, Malaysian Halal certification issued by the Department of Islamic Development Malaysia (JAKIM) is highly recognized and recommended in the

This study was sponsored by Malaysian Logistic Council (MLC), grantsecured by Malaysia Institute of Transport (MITRANS), UiTM and Ministryof Higher Education.

2012 IEEE Symposium on Business, Engineering and Industrial Applications

978-1-4577-1634-8/12/$26.00 ©2012 IEEE 760

international market [15]. According to Ab. Rahman (2011), a research officer from Department of Islamic Development Malaysia, manufacturers have placed the value of the halal label on their products to be higher than the value of the product itself. They have sometimes found it difficult to market their product without using the halal label issued by the Department of Islamic Development Malaysia.

B. Issues and Challenges in Halal Certification System In the mid of 2000s, existing studies on the Halal

Certification System in Malaysia examined issues and challenges at various points of time from 2006 o 2012. Some researchers highlighted lack of enforcement by JAKIM, lack of assistance by related agencies and lack of collaboration amongst the halal certification authorities and slow process of certification [16], and others claim on the insufficient IT support for database and information system that lead to lack of capacity to execute duties and responsibilities [1]. Nurul Huda N., et al, in their comprehensive study of value chain of halal certification system in Malaysia, concludes two issues which are inefficiency of halal certification process and the conflict of authority and governance between the federal government and the state governments [14].

Since then, many efforts have been taken by the Malaysian Government to enhance the halal development system in regard to the issues and challenges. Many studies examine halal logistics from the policymakers’ and the service providers’ perspectives [3,15,16,19] on Halal standards and technology for halal logistics, but less likely to assess the basic needs. Thus, the main concern of this study is to explore the feasibility of the current halal development system, in particular, certification and monitoring and enforcement system for halal logistics.

III. RESEARCH METHOD To achieve the stated research issue, fieldworks were

carried out at the government authorities, industries, logistics services providers and port authorities` facilities. A total of 35 key personnel were interviewed. The face-to-face semi-structured interviews and visits took about a day, whereby researchers were guided to sites in order to assess actual operations. Then, in verifying the evidences from the interviews and researchers` observations, content analysis on related manuals and documents such as Standard Operations Procedures, Quality Manuals, companies brochures, halal certificates obtained, Halal Manual Procedures, Malaysian Halal Standards and others were compiled from the four core groups at international and domestic levels. Table 1 presents the details of fieldworks at both local and international visits for the duration of 21 months from late June 2010 to early March 2012.

TABLE I. LIST OF RESPONDENTS

No Organization Category 1 Halal Development Corporation

(HDC) Local Agency

2 Northport Local Port

3 Kawan Food Sdn Bhd Local Industry 4 Giant/ Carrefour/ Tesco Foreign industry in Malaysia 5 IHIA Foreign Agency 6 Department of Islamic

Development Malaysia (JAKIM) Local Agency

7 Sunship (M) Sdn Bhd Foreign Logistics Provider based local

8 MATRADE Government Agency 9 Century Logistics Holdings Bhd Local Logistics Service

Provider 10 MISC Integrated Logistics Sdn

Bhd Local Logistics Service Provider

11 SA Kargo Sdn Bhd Local Logistics Service Provider

12 Seminar Halal Logistic MS2400 Series

Halal Logistics Conference

13 LLB Teams (M) Sdn Bhd Logistics Consultant 14 Port of Rotterdam, The

Netherlands Foreign Port

15 Port of Marseille-Fos, France Foreign Port 16 Eurofrigo B.V., Rotterdam, The

Netherlands Foreign Logistics Services Provider

17 Albert Heijn, The Netherlands Foreign Industry 18 STEF-TFE, Marseille, France Foreign Logistics Service

Provider 19 Carrefour, France Foreign Industry 20. Pasir Gudang Port, Johor Local Port 21 Tanjung Pelepas Port, Johor Local Port 22 Penang Port Local Port

Note: The profiling comprised of 3 local and 1 foreign agency, 3 local and 2 foreign logistics providers, 4 local and 2 foreign port, 2 local and 2 foreign industry.

IV. FINDINGS AND DISCUSSION

A. The Current State and the Changing Structure The Malaysian Government has taken a proactive

approach in setting up the institutional framework for Halal development system. An overview of the governing bodies in 2012, suggests the committees are divided into three groups that are indirectly integrated, which are 1) the standard, certification, monitoring and enforcement; 2) the development and promotion and 3) the research and development. The committee members comprise of semi-government and government institutions from the ministries, research centers and universities. Apart from the above-mentioned, in early 2012, some private institutions such as International Halal Integrity Alliance (IHIA) start to cooperate with the committees in promoting halal industry.

First, there are four main bodies governing the certification, monitoring and enforcement of Halal in Malaysia which are JAKIM, the Department of Standards Malaysia, the State Islamic Departments and the Ministry of Domestic Trade, Co-operatives and Consumerism. As of August 2011, there is only one main authority that controls the issuance of Halal certification and letter of recognition for accredited Halal certification bodies, which is JAKIM. JAKIM acts as the chairman for the Malaysian Halal Committees with 13 recognized State Islamic Department or also known as JAIN (Jabatan Agama Islam Negeri) or MAIN (Majlis Agama Islam Negeri) for domestic market which are Islamic Departments of Negeri Sembilan, Pahang, Penang, Perak, Perlis, Selangor,

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Terengganu, Sabah, Sarawak, Kuala Lumpur, Johor, Malacca and Kelantan [6]. These Islamic bodies are responsible for the Halal monitoring and enforcement at state level inclusive of all activities related to Muslim social and economic environment. The the Department of Standards Malaysia, a unit controlled by the Ministry of Science, Technology and Innovation has important role in preparing the Malaysian Halal standards. The department integrates ideas, opinions and feedback from local and international legal bodies in the preparation of the Malaysian Halal standards. An interview with a staff from SIRIM noted that the Malaysian Standards Department works closely with SIRIM that coordinates and chairs discussions and meetings for the development of Halal standards as guidelines for JAKIM and users.

Importantly, the adoption of Halal in Malaysian social and economic activities are aligned with the requirements from the Ministry of Domestic Trade, Co-operatives and Consumerism, a government body that looks after the interest of the local market and customers. The development of Halal system, especially in retail networks, is bonded by some local acts such as Trade Descriptions Act 1972 and others [7].

Second, Halal Development Corporation leads the development and promotion committee. The committee members are responsible in supporting any activities related to Halal such as trade, health, food production, agriculture, small and medium enterprises and others. Government agencies make the strength of the group in promoting Halal at local and international level. HDC provides manufacturers, distributors, retailers, entrepreneurs, researchers and investors all the necessary assistance to penetrate the global Halal market through the adoption of the Malaysian experience and expertise in food and non-food sectors such as pharmaceutical and cosmetics. For instance, HDC has been actively organizing World Halal Research and World Halal Forum annually since 2009 that invites global and key industries players, scholars and end users in discussions and knowledge sharing. In addition, the Ministry of Health promotes halal medication and treatment that restrict the utilization of non-halal substances (animal gelatin) and others [7]. The roles of HDC include to lead the development of Halal standards, audit and certification procedures in order to protect the integrity of Halal, to direct and coordinate the development of Malaysia's Halal industry amongst all stake holders - both public and private, to manage capacity building for Halal producers and related service providers, to support investment into Malaysia's Halal industry, to facilitate the growth and participation of Malaysian companies in the global Halal market, to develop, promote and market the Malaysian Halal brand and to promote the concept of Halal and related goods and services. By nurturing growth and participation of local businesses into the global Halal market, HDC sets the bar for Halal best practices in Malaysia to enrich the development of Halal standards globally. In 2008, HDC certified 637 halal operators [2]. In relation with this intention,

HDC has a strong role in initiating 19 halal parks and hubs around Malaysia such as Tanjung Manis Halal Park, Selangor Halal Park, Sabah Halal Park and others [7]. In recent development, HDC has come to a mutual agreement with China in developing infrastructure and promotion of its internationally recognized halal certification process for halal product by fabricating a design for the development of an industrial park in China [4].

Third, the research and development committee comprises of local universities in Malaysia. With the objective to put the halal system in place, scientific studies are conducted by scientists, researchers, scholars and academicians at appointed centers of excellence. For example, Universiti Teknologi MARA has been awarded with funds and grants in establishing guidelines for Halal logistics and supply chain and Halal products, Universiti Putra Malaysia facilitates labs for Halal products research, Taylor`s University College signed a memorandum of understanding with HDC to incorporate halal training modules into its curriculum design [8] while University of Technology Malaysia trains manpower for the management of halal science and entrepreneurship to meet the increasing demand for competent workers as well as conducting research for technology application in Halal operations [18].

B. The Centralization of Functions to JAKIM Since 1974, JAKIM is the sole accreditation body for

certification of Halal food and goods for the Muslim consumption. The vision of the organization is to become a credible Halal certification service center that is recognized nationally and internationally. JAKIM`s mission is to ensure that all products that have been Halal certified or using Halal expression are pure in accordance to the Islamic principles. It also aims to efficiently and effectively conduct research, certification and control the cleanliness and safety in food and goods for the Muslim consumption.

In 1994, JAKIM starts to issue Halal certificates with a standardized logo. To assess the continuity of Halal compliance, a company called Ilham Daya is appointed as auditor for the Halal certification since 30th September 1998. It was in September 2002 that the Malaysian Government appointed JAKIM as the sole authority in issuing Halal certification with only 28 staff to run the operations. In response to the increasing demand for food and goods from Islamic society and the rapid development of Malaysian food industries, the Malaysian Public Service Department has approved the establishment of a new named section called the Halal Hub on 17th November 2005. It runs with 165 staff from various schemes and employment grades. On 2nd April 2008, the Halal Industry Development Corporation (HDC) was given the mandate to take over the Halal certifying management. However, on 8th July 2009, JAKIM was again assigned as the sole authority to manage the national and international Halal certification operations [6].

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In 2011, JAKIM promises to provide efficient and effective services by ensuring the issuance of Halal certificate within 30 days after the confirmation of procedures and Halal requirements, and payment made for the application. It will also ensure a quick response to claims and complaints whereby an investigation will be conducted within 24 hours on working days. Subsequently, letter or recognition for applications from foreign Halal certification bodies will be issued within 2 months after the process of accreditation. In line with the customer charter, to expedite the certification process, providing information on halal operators for products and services such restaurant and hotel, e-halal system will be fully operated by all states in 2012 [10]. JAKIM`s official halal portal provides report on non Halal conformance, access to data center for certified Halal operators and products (Halal Directory), reports on activities for Halal enforcement and online contact for claims and comments for Halal issues. Information is specified for three types of users which are customers, industries and halal certification bodies [6]. Interview with one of the staff in 2012 noted the future planning of JAKIM in steering and centralizing Halal development system by further enhancing its online application services through website and disengaging the State Islamic Religious Council (JAIN/MAIN) and others.

C. Issues and Challenges Based on fieldworks conducted on perceptions and

experiences of Halal logistics operators, there are two issues pertaining to the implementation of the Malaysian Halal development system. First, there is a strong concern on the applicability of a holistic Halal development system to support the increasing demand for Halal worldwide and second, the credibility of existing non-government agencies that offers certification and monitoring of Halal to producers and service providers.

1) Low Level of Centralization: In regards to the

applicability of the current Halal development system, there are several issues to ponder. First, even though the current Malaysian Halal development system includes a number of agencies and well laid down for implementation, assessment on the framework from users` perspective seems to contradict with the objective of the committees. The objective is to centralize the management of Halal activities to one-stop point, JAKIM. Thus, the centralization would enhance the credibility of the governing bodies and the recognition given to the users.

However, the implementation is not centralized as JAKIM has limited management resources to cater to the increasing demand; capacity, experts and network. JAKIM outsources some of its core functions such as auditing and training conductors and scientific inspection of samples at private laboratories [6]. According to most of the interviewees, the committees are not well-mapped into a ‘whollified’ structure that caters the three stages; certification, monitoring and enforcement. Findings from interviews show while the consumers are uncertain of the role of JAKIM that caters to

almost all Islamic activities in social development, the producers and service providers are unclear of the span and scope of control that JAKIM holds in developing Halal in business. In terms of obtaining and retaining Halal certification and logo, the service providers and producers have to unnecessarily spend an exhaustive amount of efforts, time and expenses to obtain certificates. The halal operators` premises and facilities will be randomly checked and monitored closely by third party auditors. Failure in keeping to the standard will make them non-halal operators that bear poor reputation. In short, the users are not convinced on the benefit of getting Halal recognition, while they have to deal with such bureaucracy that includes many parties. Researchers` visits and investigation at JAKIM supports the interviewees` claims on lacks of resources.

Second, there is an issue on the ability to integrate the worldwide Halal certification, monitoring and enforcement bodies. In July 2011, there are 56 foreign Halal certification bodies recognized by JAKIM from 28 countries worldwide. Interviews conducted on service providers in Rotterdam and Marseille noted that JAKIM is a well-recognized Halal certification bodies worldwide. The halal logo issued by JAKIM is well accepted internationally and reliable. However, JAKIM has been too strict in recognizing foreign bodies by making inappropriate policy. JAKIM has not taken an active measure in certifying and monitoring international producers and service providers overseas. In 2012, there are about 65 recognized agencies worldwide whereas there are hundreds independent bodies in operations that need the recognition [6]. Therefore, lack of recognized Islamic bodies impeded the dissemination of Halal concepts and implementation of halal management system among consumers, producers and service providers across borders.

2) Lack of Networking and Credibility: Beside the

current Malaysian Halal Development system initiated by the Government, there are many active non-government Halal certification bodies that facilitate the increasing demand for Halal operations in the region. However, to date, the private Halal certification bodies still operate though they are not recognized by JAKIM. JAKIM has made an announcement of not recognizing any private certification bodies effective from 1st January 2012. JAKIM claims that the decisions are made in response to the problems in the credibility of the management who are non-compliance to shariah law. The Halal Act 2011 is to restrain inappropriate procedure of certification, deemed to be faster than JAKIM, with approval process within 3 working days compared to JAKIM that takes about 3 months for a certificate that is valid for 2 years. The unrecognized bodies validate and verify documents without arranging any physical inspection at site.

Based on interviews with producers and service providers, the non-government halal certification bodies are cost efficient and halal logo is easy to obtain with no validity period. Even though some customers plead their anxiety due to improper operations such as too many non-Muslim staff and poor

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operations at site, there are some positive feedbacks on the efficiency of these bodies.

Second, little recognition were given to international Halal certification bodies that provide comprehensive halal compliance requirements for logistics, procurement receiving, preparation and dispensing of food, animal feed and inputs, animal welfare, animal slaughter and processing and food processing. These requirements are extended to suppliers of food and food-related products and services. Halal certification bodies in countries such as Japan, Indonesia, Singapore, Australia, Thailand and Europe are managed by non-government agencies such as Islamic association operating in some mosques for the benefit of the Islamic community in the area. However, the Muslim countries such as Jordan, Yemen, Arab Saudi, Turkey and others in the Middle East region do not need to apply Halal certification, logo and trademark on their products. JAKIM noted that the country of origin may assure the purity of the products in accordance to Islamic principles. However, bias may happen with the vagueness in origin. As mentioned during an interview with a service provider in Marseille and Rotterdam, globalization may change the root and movement of products across countries and thus, complicate the certification of Halal of the materials supplied to finished products.

3) Inapplicability of Adequate Halal Standards: In 2010, JAKIM started to issue certificates for Halal certification to a few logistics service providers such as Kontena Nasional, MISC Integrated Logistics Sdn Bhd, Penang Port and others. The certification is in accordance to the Malaysian standard drafted by the Department of Standards Malaysia, based on the MS1500:2009 standard on the handling clause. From fieldwork, findings show JAKIM is yet to certify any service provider in accordance to the recently introduced MS2400:2010 part 1, 2 and 3. Though MS2400:2010 provides general halal compliance requirements for transportation of goods and/or cargo chain services, warehousing and related activities and retailing, generally all logistics providers are not compliant to the guidelines. Guidelines are very generic in nature on the requirements for halal compliance identification, premises, packaging, containerization, handling, transportation, storage and personnel with specific emphasis on compliance control points. To date, Halal certification issued by JAKIM is for domestic operations in accordance to MS1500:2009 rather than MS2400:2010.

4) Lack of Reliable Bodies to Monitor and Enforce :

Halal traceability and tracking system is essential in strengthening the Halal food supply chain for food industry worldwide. As part of tracing the Halal food products movements, Halal logistics include physical activities of storing and transporting which provide a set of data for communication and management between successive links (up and down) along the food supply chain. Findings on whether the current institutional framework of Halal logistics monitoring and enforcement system is able to support the

traceability and tracking system required by Halal food supply chain, which ensure clean and safe handling along the line were unclear. At the point of this study, there is no evidence of any eligible body in monitoring halal logistics activities in Malaysia and very little enforcement is done. Interviews with SA Kargo, Kontena Nasional and MISC Integrated Logistics suggest that monitoring were done on service providers` owned initiatives and varies between companies. Observations at Penang Port, Tanjung Pelepas Port and North Port reveal the common problems faced by port authorities as an implication of low level of demand and awareness among customers on utilizing halal warehouses. The facilities were left unattended and abandoned at the three ports.

V. CONCLUSION This study looks further to the root cause which makes the

foundation of the Halal development system in addressing the authenticity of the Halal logistics service providers. Lack of comprehensive institutional framework which integrates into an extensive supply chain network explains reasons for little success in adopting Halal, especially the Halal logistics albeit the heavy investment made to facilitate Halal operations such as RFID, real time web-based information services, specialized cold room, containers, trucks, equipment and workers. There is no specific requirement for Halal certification on logistics operations from source to point of sale worldwide. Issues and challenges remain to be resolved by the practitioners in Halal development system in ensuring a successful Halal Industry.

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