Market potential of banana chips industry in Malaysia

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Noor Auni Hamir and Mohd. Khairol Mohd. AriffEconomic and Technology Management Review. Vol. 1 No. 1 (June) 2006: 8390

*Economic and Technology Management Research Centre, MARDI Headquarters, Serdang, Selangor, Peti Surat 12301,50774 Kuala Lumpur

**Business Development Unit, MARDI Headquarters, Serdang, Selangor, Peti Surat 12301, 50774 Kuala LumpurE-mail: [email protected]; [email protected]

Market potential of banana chips industry in Malaysia(Potensi pemasaran industri kerepek pisang di Malaysia)

Noor Auni Hamir* and Mohd. Khairol Mohd. Ariff**

Key words: banana chips, potential, marketing, snack

AbstractA primary survey was conducted in 2003, involving entrepreneurs in processingbanana chips. Results of the survey showed that 59% of respondents indicated thatthe demand for domestic market is good and 17% of them rated as very good.Thirty-six per cent of the respondents that are involved in exporting banana chipsindicated that the demand for export market as good and 27% of them indicated asvery good. Forty-two per cent of respondents indicated that they faced problems inpeeling off the banana skins and 13% of them indicated that as a major problem.Seventy per cent of respondents indicated that their market for banana chips arepresently increasing and 77% forecasted that their market would expand in thefuture. Therefore, as a strategy to boost the development of the banana chip industry,the promotion of the consumption of banana chips as a healthy food is needed. Asthe industry expands, there is also a need to develop a banana peeling machine toovercome the labour shortage.

IntroductionThe snack food industry includes themanufacture of potato chips, corn chips,popcorns, pretzels, extruded snacks, seeds andnuts (peanuts) and chocolates. The locallyproduced savoury snacks are chips andkeropok. In general, the demand for snackfood in the world, including Malaysia, isexpected to increase in the future, as there isan increasing number of working women whospent less time cooking. The number ofworking women in Malaysia has increasedfrom 2.6 million in 1992 to 3.7 million in2004, an increase of 42% within this period(Anon. 2005). This survey was undertaken tostudy the current status of the banana chipindustry, to identify the problems andconstraints that the industry is facing, and tosuggest strategies in promoting the growth ofthe banana chip industry.

MethodologyThe survey on banana chips entrepreneurswas conducted in 2003. The methodologyinvolved the collection of primary as well assecondary data. The primary data werecollected via a survey of the banana chipsproducers, while the secondary data, werecollected from the Department of Statistics,Department of Agriculture and also throughthe Internet. The information on the numberof chips producers, together with theiraddresses were gathered from the Departmentof Agriculture. All the accessible banana chipsproducers in all the states in PeninsularMalaysia were surveyed.

Industrial overviewThe common banana chips produced in theworld are the banana figs, savoury bananachips and sweet banana chips. The most

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Market potential of banana chips industry in Malaysia

common banana chip produced in Malaysia issavoury banana chip. The global volume saleof chips/crisps grew at 3.6%, from 1,825,000tonnes in 2000 to 1,890,600 tonnes in 2001.In terms of value, it increased by 2.3%, fromUS$13,943.1 million in 2000 to US$14, 268.5million in 2001. The retail sale of savourysnacks in Malaysia increased from 16, 659.5tonnes in 1998 to 19, 302.2 tonnes in 2002, anincrease of 16% within that period. In termsof value, it increased from RM360.6 millionin 1998 to RM426.8 million in 2002, anincrease of 18% within that period (Anon.2003).

Snack consumptionThe snack food consumption is on theincreasing trend. According to the AmericanSnack Food Association survey done in 1996,potato chip was the most popular snack foodexported to Canada, Western Europe, the AsiaPacific Rim and the Middle East. This wasfollowed by tortilla chips, other corn-basedproducts, pretzels, extruded snacks, and ready-to-eat popcorns (Anon. n. d.). The number ofconsumers who snacked between meals at leastonce a day was highest in the United States(80%), followed by Germany (74%), UnitedKingdom (69%), Japan (66%), Brazil (64%),Italy (62%), Spain (57%), and France (53%)(Anon. 1997).

In 1996, Japan had the highest per capitaconsumption in terms of value at US$70.6,but in terms of quantity, the United States hadthe highest per capita consumption at 8.6 kg.However, in the year 1997, in terms of value,the United Kingdom overtook Japan as themain consumer of savoury snacks. In the year2000, the consumption of savoury snacks inJapan did not show a very encouraging trendbecause Japan was still suffering from therecession then. The consumers were still verycautious with their expenditures and there wasalso increased competition from fast foods.The recession and the competition from fastfoods also affected the consumption of snackfoods in the other Asia Pacific region (Anon.2003). According to the Australian TradeCommission, nutritional snacks such as fruit

rolls and yogurt bars have the opportunity toenter the Malaysian markets (Anon. 2002).Detailed consumption of per capita snack foodis shown in Table 1.

Results of primary surveyBackground of entrepreneursThere were only 124 banana chips operatorsin the country. Of this, 24% are located inKelantan, 16% each in Selangor, Johor andKedah, 11% in Negeri Sembilan, 7% inPahang, 6% in Perak and 4% in Melaka.Ninety-four per cent of them are owneroperators, 4% are partnership and 2% arelimited companies. The average businessoperating period was 9 years, ranging from 1to 25 years. Twenty-eight per cent of them areinvolved in planting their own bananas tosupply their banana chips factories. Theaverage self-supplied operators was 47%,ranging from 2% to 100%. For those involvedin the purchasing of raw bananas, the averagepercentage of purchase for their factoryutilisation was 93%, ranging from 20100%.

ProductionThe average production of banana chips perday by each entrepreneur surveyed was 54 kg.The average production day per month was17 days while the total average monthlyproduction was 918 kg. This resulted in thetotal monthly production of banana chips inMalaysia to almost 113.8 tonnes per month or1,365.6 tonnes per year. At an averagewholesale price of RM6.8 per kilogramme,the production value of banana chips inMalaysia was estimated to be RM9.3 millionper year. Results of the analysis also showedthat the average production capacity was 269kg while the average production was 159 kg.That means 41% of the total productioncapacities were underutilised each day andthat only 70% of the production days wereutilised per month.

MarketingAll the banana chips entrepreneurs are involvedin selling their products to the domesticmarkets. Ninety-seven per cent of the products

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Noor Auni Hamir and Mohd. Khairol Mohd. Ariff

Table 1. Global consumption of savoury snacks by major markets: Per capita analysis 19962000

Country Yearly per capita consumption1996 1997 1998 1999 2000

Japan 70.6 (5.7)* 62.4 (5.6) 56.8 (5.5) 65.1 (5.5) 68.2 (5.5)UK 65.9 (5.4) 71.8 (5.6) 75.2 (5.8) 74.2 (6.0) 70.0 (6.0)US 54.9 (8.6) 57.5 (8.9) 59.9 (9.2) 62.6 (9.3) 67.0 (9.7)Australia 44.5 (3.8) 43.7 (3.9) 39.4 (4.0) 44.0 (4.2) 41.0 (4.4)Greece 42.5 (n. a.) 41.8 (n. a.) 43.0 (n. a.) 45.4 (n. a.) 41.6 (n. a.)Netherlands 36.1 (5.3) 31.4 (5.4) 33.0 (5.6) 33.2 (5.7) 28.4 (5.8)Canada 26.9 (2.8) 27.1 (2.9) 25.8 (2.9) 26.4 (3.0) 27.2 (3.0)Taiwan 26.9 (n. a.) 24.1 (n. a.) 22.0 (n. a.) 22.7 (n. a.) 23.3 (n. a.)South Korea 19.4 (2.0) 17.5 (2.0) 11.8 (1.9) 14.6 (2.0) 15.6 (2.0)Mexico 16.1 (3.6) 24.1 (3.8) 20.1 (3.9) 22.7 (4.1) 24.2 (4.3)Spain 14.2 (1.8) 12.6 (1.8) 13.3 (2.0) 14.6 (2.3) 13.1 (2.5)Germany 13.8 (2.1) 12.0 (2.1) 11.7 (2.1) 11.3 (2.1) 9.2 (2.1)South Africa 13.7 (1.8) 11.8 (1.8) 11.6 (1.8) 10.8 (1.8) 9.6 (1.8)France 13.5 (1.9) 12.6 (1.8) 12.0 (1.8) 11.8 (1.9) 10.0 (1.9)Colombia 10.9 (2.1) 12.6 (1.8) 13.1 (2.4) 13.1 (2.4) 12.7 (2.5)Italy 8.6 (1.0) 7.8 (1.0) 7.8 (1.0) 9.1 (1.2) 8.6 (1.4)Brazil 6.3 (0.6) 8.4 (1.0) 8.9 (0.8) 6.9 (0.8) 6.4 (0.7)Philippines 5.7 (n. a.) 5.5 (n. a.) 4.3 (n. a.) 4.9 (n. a.) 4.8 (n. a.)Indonesia 4.2 (2.5) 3.8 (2.3) 1.4 (2.2) 1.8 (2.3) 1.8 (2.3)Russia 1.6 (n. a.) 3.1 (n. a.) 3.3 (n. a.) 2.8 (n. a.) 3.5 (n. a.)China 0.6 (0.1) 0.6 (0.1) 0.6 (0.1) 0.6 (0.1) 0.6 (0.1)World average 7.9 (1.1) 7.9 (1.1) 7.7 (1.1) 8.0 (1.1) 8.1 (1.2)*70.6 (5.7), where 70.6 = US$70.60, and (5.7) = 5.7 kg/capitaSource: Anon. (2003)

produced are for the domestic market whileonly 3% are for the export markets. Generally,both the domestic and export markets areconsidered as good. Seventeen per cent of therespondents considered their domestic marketsas very good, 59% as good, 20% as unsure,2% as not satisfactory and 2% as not good.Only eight entrepreneurs are involved inexporting their products. They are mainlyexported to Singapore. Twenty-seven percentof them cited their export market as very good.The details of the market situation are shownin Table 2.

Market performanceResults of the study indicated that the bananachip industry is a growing industry. Theconsumption of banana chips is expected toincrease because there is a growing consumerconcern towards ethnic food and healthy food.The lower fat and non-fat chips are becomingpopular. Presently, consumers are looking for

products with low fat and non-fat, rich invitamins or made from organic ingredientswith less or without preservatives (Anon.2003). Based on the survey of producers ontheir last 5 years experience, 70% of themindicated that their sales showed an increasingtrend at an average rate of 33%, ranging from3100%. Based on their business experiences,77% of them forecasted that their sales wouldgrow by 36% for the next 5 years. Furtherdetails on the market performance are shownin Table 3.

Table 2. Market situations of the banana chipsindustry

Ranking Marketing (% response)Domestic Export

Very good 17 27Good 59 37Unsure 20 9Not satisfactory 2 Not good 2 27

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PricesResults of the study revealed that 50% of theproducts were sold to wholesalers (who mostlycollect the products from the factories) andthe other 50% were for retailing. The averagewholesale and retail prices of banana chipswere RM6.80/kg and RM7.70/kg respectively.These bananas chips also included varietiesmade from Tanduk and Nipah. Thewholesale prices for banana chips madefrom Tanduk and Nipah varieties wereRM9.00/kg and RM5.00/kg respectively. Atwholesale price, the salty cassava chips wasthe cheapest, followed by hot/chilly cassavachips, banana chips and others as shown inTable 4. The smallest marketing marginbetween wholesale and retail prices was forthe hot/chilly cassava chips (dry), that is only3%, while the others are as shown in Table 4.

Financial analysisFinancial analysis was conducted to analysethe viability of the banana chips productionprojects. The project analysis was based onthe average industrial data, whereby 9respondents (7%), were excluded in the

analysis because they used deep fryers, whichare very expensive (average RM23,000) ascompared to frying pans (average RM700).The results of the analysis on the 'Tanduk'banana chips showed that the Net PresentValue was RM5,002, benefit cost ratio at1.08, Internal Rate of Return (IRR) >50%,and the payback period was 1 year. The 'Nipah'variety had a Net Present Value of RM9,925,IRR>50%, benefit cost ratio 1.37 and thepayback period was 1 year. The Nipah chipsgave higher returns because of the cheaperraw materials which was easily available at acost of only RM0.40/kg. While the lowerreturns from the Tanduk banana chips weredue to costly raw materials which was sold atRM1.70/kg and the low yield from the crop.The overall results showed that the bananachips industry is a viable project.

Production problemsThe survey results showed that the industry,generally, does not face very seriousproduction problems. However, among theproblems they encountered were the machinesused such as deep fryers, vacuums, and mixers

Table 3. Market performance (values) of the banana chips industryGrowth performance (%)Increase Decrease Static

Industrial growth performance 70 12 18 for the last five years

Expected industrial future 77 4 19performance based on thelast five years of experience

Table 4. The average selling price of traditional chips in Malaysia

Prices of traditional chips (RM/kg)Types of chips

Wholesale Retail Marketing margin*Banana chips 6.80 7.70 13Salty cassava chips 5.70 6.50 14Hot/chilly cassava chips (wet) 6.40 7.10 11Hot/chilly cassava chips (dry) 7.20 7.40 3Sweet potato chips 7.00 7.70 10Custard apple chips 7.80 9.15 17Yam chips 7.40 8.30 12*% differences between wholesale and retail prices

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which are relatively expensive, lack of rawmaterials (bananas), and unavailability ofpeeling machines. Generally, farmers refuseto sell unripe bananas because the price is toolow. For example, the price of unripe PisangTanduk is RM1.70/kg and 'Pisang Nipah' isRM0.40/kg. Details on the productionproblems faced by the entreprenuers are shownin Table 5.

Marketing problemsThe producers did not encounter manymarketing problems. They sell almosteverything that they produce. They have theirown markets. To them, the banana chip is notcompeting with the potato or tapioca chips.Their products are not easily spoilt and theproduct acceptance is good. This can be seenclearly in Table 6.

Marketing strategiesA TOWS MATRIX analysis (Table 7) is usedto analyse the strength, weakness, opportunityand threat of the industry, in order to suggestthe strategic direction for the development of

the banana chips industry in Malaysia. Fromthe TOWS MATRIX analysis, it was foundthat the marketing process of the Malaysianbanana chips producers were very weak. Theydepend so much on the wholesalers to markettheir products. These wholesalers were notaggressively marketing their products. Thesewholesalers distributed their products to theretailers who are normally selling groceryproducts and tit bits in stalls located near busstands, cinemas, and in petrol station shops.There is, therefore a need to strengthen thepresent marketing linkages in order to sustainthe present markets and also to further increasethe market share. The marketing strategiesneed to be further strengthened by establishingbrands so that the banana chips can enter intothe supermarkets.

So far, there is no advertisement topromote the consumption of banana chips inMalaysia. There is no public awarenesstowards the benefit of consuming banana chipsas compared to other chips, which mostlycontain mono sodium-glutamate. Besidescontaining sugar, carbohydrate, protein and

Table 5. Production problems faced by the entreprenuers

Problems (% response)Problems

Main Intermediate Small NoBanana chips machines are too expensive 14 33 20 33Expensive wage rate 2 4 21 74High rate of labour turnover 1 5 16 78Inaccurate bananas harvesting index 2 8 21 69Unavailability of peeling machine 13 42 11 34Lack of machine utilization 8 25 26 41Lack of raw materials (banana) 12 26 25 37Lack of labour 2 5 21 72Unsuitable machines 9 22 23 46Raw materials are too expensive 6 22 27 45

Table 6. Marketing problems in the banana chips industry

Problems (% response)Problems

Yes NoCompeting with potato chips 17 83Competing with tapioca chips 27 73Easily spoilt product 24 76Not a good sale 19 81Product acceptance not so good 6 94

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Table 7. TOWS MATRIX analysis of banana chips industry

Strengths-S Weaknesses-W1. A financially viable project 1. Not attractive packaging2. Good demand domestically 2. Lack of flavour variations

and for export 3. No promotion to increase3. Good government support consumption4. Effective production 4. Weak marketing agents

and packaging techology 5. Weak marketing linkages5. Good quality products 6. Lack of the Tanduk6. Long shelf-life variety bananas7. Good road and air 7. Absence of peeling machine

transportation systems and cheap slicer machines8. Well accepted by domestic 8. Absence of brands

and Singapore markets.Opportunities-O SO Strategies WO Strategies1. Growing future demand, 1. To be more competitive, 1. Provide many flavour

especially in the domestic there is a need to further variations of bananaand Singapore markets improve the production chips

2. Available technology technology and capability 2. Invent banana peelinggenerators to further machines and cheap slicermodify the chips flavours machines

3. Producers have established 3. Strengthen marketinggood rapport with the linkageswholesalers 4. Encourage more production

4. As import substitution of the Tanduk variety5. Improve packaging including

expiry datesThreat-T ST Strategies WT Strategies1. Aggressive modification 1. Produce less fat and 1. Intensify promotional

of other snack foods, salt banana chip activitiese.g. Dorito 2. Strengthen marketing

2. Established companies strategies(snack food) have strong 3. Establish brandsmarketing linkages,example Sparta Foods,Inc. in the US withRupari Food Services, Inc.

3. Less fat or no fatmodification of othersavoury snacks

fat, banana also contains vitamins such asvitamin A, B1, Niacin, B2, B6 and also vitaminC (Anon. 2000). Perhaps, the governmentagencies should help in making the publicaware towards the consumption of the bananachips through campaigning in the mass media.

Normally, banana chips are packed intransparent plastics without labels and are notas attractive as those chips and other tit bitsproduced by giant companies. As a strategy toincrease sale, there is thus, a need to improve

the packaging so that they will look moreattractive and impressive to the potentialbuyers and giving the products an impressionof higher quality. Packaging size and designshould suit the target market, whether it is foradults or children. Usually, large sizepackaging is for the adult market which issufficient for the family. The small eye-catching packaging should target children orindividual consumption. Expiry dates shouldbe specified on the packagings.

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There are many R&D institutionsthroughout the country. As a strategy topromote the growth of this industry, thetechnology generators need to be moreinnovative in creating more flavours forbanana chips. The flavours should be morespicy and sweet as generally, Malaysians tendto have sweet tooth and enjoy spicy foods.

A banana peeling machine need to beinvented as currently most producers peel thebanana skins manually. As most producersare operating on a small scale, cheap bananaslicer machines need to be invented. Theinventions of these machines will increase theproductivity of the banana chip industry.Utilisation of an efficient production technique,together with variations in flavours of bananachips will help boost the growth of the bananachip industry.

To further enhance the growth of thebanana chip industry, the production strategyshould be properly planned. There is a need toidentify the production areas for growingbananas, either for fresh consumption or forfactory utilisation. The market linkagesbetween the farmers and the chips producersshould be established.

Specifically, R&D is required to furtherincrease the yield and productivity of theTanduk variety since the markets for 'Tanduk'chips are very good. Presently, the Tandukvariety in Malaysia is of lower yield ascompared to the other banana varieties inMalaysia. Efforts in increasing productivityof the 'Tanduk' variety will simultaneouslycreate more jobs opportunity for the ruralpopulation, increase their incomes, and alsofor survival of the industry in the future.

There is also a need to develop a cost-saving technology for the production ofTanduk banana chips for making the 'Tanduk'industry more lucrative.

ConclusionThe demand for savoury snacks, including thebanana chips in Malaysia is increasing. Thevalue of the retail sale of savoury snacks inMalaysia has increased by 18.4% from 1998to 2002, which recorded an average growthrate of 4.6%. The chips/crisps, excluding theTortilla and the corn chips recorded a 22.8%growth from 1998 to 2002, with an annualgrowth rate of 5.7% (Anon. 2003). Results ofthis study indicated that the annual averagegrowth rate for banana chips was 6.6%. Thisindicated that the growth rate of the bananachips is higher than the average growth rate ofthe general savoury snack.

The results of the survey on the producers(based on their experiences), indicated thatthe banana chip industry will continue to growin the future. The production and marketingproblems highlighted need to be tackled inorder for the industry to grow in future. To bemore competitive, there is a need to furtherimprove the production efficiency. There is aneed to improve packaging and promotebranding so that banana chips could be sold asa high quality product.

ReferencesAnon. (1997). Food Institute Report

http://www.facilitygroup.com (2000). Teknologi Pisang. Department of

Agriculture, Kuala Lumpur: DOA (2002). Australia trade: Processed food to

Malaysia). Australian Trade Commission.http://www.austrade.gov.au./print_templat

(2003). Savoury snack.http://www.euromonitor.com

(2005). Labour force survey report 2004Malaysia. Department of Statistics Malaysia

(n.d.). Snacks and sweets statistics.http://www.fiery-foods.com.

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AbstrakBancian primer dijalankan pada tahun 2003 terhadap usahawan kerepek pisang.Hasil kajian menunjukkan bahawa 59% daripada responden yang dibanci menyatakanbahawa permintaan tempatan adalah baik dan 17% menyatakan amat baik. Tigapuluh enam peratus responden yang terlibat dengan mengeksport kerepek pisangmenyatakan permintaan bagi pasaran eksport adalah baik dan 27% daripada merekamenyatakan amat baik. Empat puluh dua peratus menyatakan mereka menghadapimasalah membuang kulit dan 13% menyatakan masalah membuang kulit sebagaimasalah besar. Tujuh puluh peratus menyatakan bahawa pasaran mereka sedangberkembang dan 77% menjangka pasaran mereka akan meningkat. Oleh itu, sebagaistrategi untuk membangunkan lagi industri kerepek pisang, promosi meningkatkanpemakanan kerepek pisang patut dilakukan kerana kerepek pisang tergolong dalammakanan kesihatan. Apabila industri berkembang, mesin pengupas kulit pisangperlu diadakan untuk mengatasi masalah kekurangan buruh.

Market potential of banana chips industry in Malaysia

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