Market Watch Malaysia 2011 FOOD INDUSTRY

General information about Malaysia

Malaysia is centrally located within the ASEAN and consists of the Malaysian Peninsula and the States of Sabah and Sarawak on the island of Borneo. The former British colony gained its independence in 1957 and is a Parliamentary democracy with constitutional monarch since. Malaysia has a tropical climate and is with a total area of 330.000 km2 slightly smaller than Germany. Due to its bio-diverse range of flora and fauna, Malaysia is one of the 17 megadiverse countries. Malaysia is a multi-ethnic, multicultural and multilingual society with 28.31 million inhabitants. Malays make up the majority of the population at 50.4% followed by Chinese 23.7%, Indian 7.1% and other local Malays 11%. The Malaysian constitution guarantees freedom of religion, although Islam is the largest and official religion. Approximately 60.4% of the population practiced Islam, 19.2% Buddhism, 9.1% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese religions. The official language of Malaysia is known as Bahasa Malaysia but English as well as Chinese are the business languages.

Economical Overview
Malaysia is a dynamic country constantly on the move. From a country dependent on agriculture and primary commodities decades ago, Malaysia has now become an exportdriven economy spurred on by high technology, knowledge-based and capital-intensive industries. Malaysia is one of the 20 largest trading nations worldwide and is ranked 30 th out of 125 countries by the Global Enabling Trade Report 2010, published by the World Economic Forum as well as the 21th largest exporter among the trading nations worldwide. The country is strategically located in the heart of South East Asia and offers a cost-competitive location for investors intending to set up offshore operations for the manufacture of advanced technological products for both regional and international markets. In addition, the Malaysian economy is supported by a market-oriented economy and pro-business government policies. The new Economic Transformation Programme (ETP) by the PEMANDU, the Performance Management & Delivery Unit of the Government
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Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

from Malaysia, has been presented to the public. The ETP is anchored on 12 National Key Economic Areas (NKEAs), which are drivers of economic activities that have the potential to materially contribute to the growth of Malaysia. ETP is developed under the patronage of the Prime Minister, the objective also known as Vision 2020 to transform Malaysia into a high income country until the year 2020 is to be achieved. Therefore, it is planned to increase the Gross National Income (GNI) per capita to US$ 15,000.00 or RM 48,000.00. To reach this, an annual growth of the GNI of 6 % is necessary. Within the programme, it is planned to reach a growth of the service sector from 58 to 65 % and to create 3.3 million new jobs.

Economical Key facts Malaysia1

Currency: Exchange rates: GDP (billion RM): GDP - real growth rate: Inflation rate : Exports: Exports - commodities: 1 Ringgit (RM) = 100 Sen 1 EURO = 4.2 RM; 1 US$ = 3.1 RM (14.12.2010) 2007: 639.8; 2008; 738.7; 2009: 674.4 2009: -1.7%; 2010: 4.5 - 5.5% 2-2.4 %(2010) $157.2 billion (2009) electronic 36.5% , petroleum and products 8.3%,Chemical products 6.6%, natural gas 6.4%, fats & oils 6.4%, electrical engineering 4.6%, machinery 3.5% Exports - partners 2009: Singapore 14.0%, China 12.2%, US 11.0%, Japan 9.8%, Thailand 5.4%, Hong Kong 5.2%, Germany: 2.7% Imports: Imports - commodities: $119.3 billion electronics 29.4%, chemical products 9.1%, machinery 8.9%, electrical engineering: 7.2%, petroleum and products 7.0%, food and living animals: 6.2%, iron and steel 3.6%, raw materials: 3.4% Imports - partners: China 14.0%, Japan 12.5%, USA 11.2%, Singapore 11.0%, Thailand 6.1%, Germany:

1 Source: Germany Trade & Invest

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

4.2% Unemployment rate: Average wage 2008: 3.7% (2009) Middle management: 6.805RM, senior clerk: 2.650RM, skilled worker: 1.845RM, consultant: 1.450RM, unskilled workers: 910RM Population below poverty line: 5.1%

Introduction to the Food Industry

Malaysias current population of 28.25 million is growing steadily at an annual rate of about 1.95%. The country has seen a steady increase in the standard of living and with it, its purchasing power (per capita income exceeds RM19,739 or US$5681). Lifestyle changes have led to an increase in the demand for convenience food and health food. Malaysias food industry is rich in terms of tropical and agricultural resources reflecting diverse cultures in Malaysian society Malay, Chinese and Indian, have resulted in a fascinating range of processed food with an Asian twist. Increasing consumer awareness in nutrition value and food fortification for healthcare has created the demand for functional/healthy minimally processed fresh food, organic food and natural food flavors from plants and seafood.

Sub Sectors of Food and Beverage Industry

In line with the governments emphasis on the agriculture sector, the processed food and beverages industry had become an important component of the agro-based industry. In 2009, the food processing industry contributed about 10% of the Malaysian manufacturing output, attracted a total of RM1.972 billion in 69 projects. Employment in the processed food and beverages industry decreased in 2009 by 5.1% to 43,080 compared with 45,418 in 2008. Labour cost for the industry remained competitive, as its Unit Labour Cost decreased by 8.2%, reflecting an efficient utilization and management of resources. Small and medium sized enterprises represent more than 80% of the total number of establishments in the processed food segment. They are mainly involved in sub sectors like fish and fish products, livestock and livestock products, fruits and vegetables, and cocoa-based products. The beverage segment covers the manufacture of soft drinks and mineral water.

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

A closer look at selected sub sectors shows:

The fisheries product's sub-sector includes processed seafood products such as frozen and canned fish, crustaceans and mollusks, shrimp and shrimp products. This sub-sector remained the main contributor to the exports of processed food.

In the livestock sub-sector, Malaysia is the third largest producer of poultry meat in the Asia Pacific region. Malaysia is self sufficient in poultry, pork and eggs, but imports about 80% of its beef requirements. Among the dairy products produced are milk powder, sweetened condensed milk, pasteurized or sterilized liquid milk, ice cream, yogurt and other fermented milk. Currently, Malaysia is the largest cocoa processor in Asia and ranks fifth in the world. However, meanwhile output of cocoa is declining due to a significant reduction in cultivation area in Sabah, as well as intensive replanting activities. Consequently, most of the cocoa beans are imported. Malaysia is also one of the world major producers of spices.
In the fruits sub-sector, besides mangos, star fruits and papayas, the cultivation of pittaya (dragon fruit) is gaining interest among farmers. Most of these fruits are to cater for the domestic market. In the Ninth Malaysia Plan (9MP), the production of fruits and vegetables is targeted to reach 2.56 million tonnes and 1.13 million tonnes, respectively, by 2010. Vegetables are mainly grown on a small scale for fresh consumption, and are exported mainly to Singapore. The major locations for the cultivation of vegetables are in Johor, Pahang, Kelantan and Perak.

Functional/health food produced in Malaysia is mainly in the form of food products that are enriched. Food ingredients such as customized formulations required by food manufacturers, natural food additives and flavors have the potential for further growth. Talking about the food industry, the packaged food is of special importance and therefore in the sector performance used as indicator for the whole industry. Another important aspect is the structure of the retailers who sell the food. It can be seen in the pie diagram under retailer performance.

Sector Performance
The production of packaged food can be seen in the following table. All figures show the volume of their type of food in 1000 tons, except for ice cream which is measured in
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Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

million liters. However, the sum of all volumes is unequal to the total sum of packaged food since there are products that were counted double (canned soup is included in soups and canned food e.g.)

Production of Packaged food

Type Baby Food Bakery Canned/ Preserved Food Chilled Processed Food Confectionery Dairy Dried Processed Food Frozen Processed Food Ice Cream Meal Replacement Noodles Oils and Fats Pasta Ready Meals Sauces, Dressings and Condiments Snack Bars Soup Spreads Sweet and Svoury Snacks Impuls and Indulgence Products Nutrition/ Staples Meal Solutions Packaged Food Volume (in 1000 tons) 2009 259.8 86.6 5.3 29.3 818.9 37.6 44.1 0.8 104.7 699.8 1.5 6.4 77.5 0.2 2.6 10.3 31.1 209.6 2010 263.4 88.7 5.4 29.8 848.8 38.7 45.2 0.8 109.3 713.8 1.6 6.6 79.7 0.2 2.7 10.6 31.9 215.3 Growth n.a. 1.39% 2.42% 1.89% 1.71% n.a. 3.65% 2.93% 2.49% 0.00% 4.39% 2.00% 6.67% 3.12% 2.84% 0.00% 3.85% 2.91% 2.57% n.a. n.a. 2.72% n.a.

The second table shows the corresponding value of sales in million Ringgit. Value (in Million Ringgit) Type Baby Food Bakery Canned/ Preserved Food Chilled Processed Food 2009 1218.3 2406.5 902.5 250.3 2010 1316 2463.3 931.2 259.1 Growth 8.02% 2.36% 3.18% 3.52%

Confectionery

894.3

917.5

2.59%

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

Dairy Dried Processed Food Frozen Processed Food Ice Cream Meal Replacement Noodles Oils and Fats Pasta Ready Meals Sauces, Dressings and Condiments Snack Bars Soup Spreads Sweet and Savory Snacks Impuls and Indulgence Products Nutrition/ Staples Meal Solutions Packaged Food
Source: Euromonitor international

2891.4 2794.1 474.1 534.8 130.9 939.9 2223.5 11.2 101 1158.4 7.2 49.2 129.7 603.7 3592.3 10256 2836.5 16666.3

3006.2 2991.7 491.5 548.6 142 1044 2281.6 12.6 105 1192.9 7.7 51.8 134.7 623.2 3688.6 10759.3 2928.6 17357.2

3.97% 7.07% 3.67% 2.58% 8.48% 11.08% 2.61% 12.50% 3.96% 2.98% 6.94% 5.28% 3.86% 3.23% 2.68% 4.91% 3.25% 4.15%

The table shows that nutrition is by far the most important type of packaged food, followed by impulse and indulgence products and dairy. Since the volume of these three categories was not countable, dried processed food, oils and fats as well as bakery show the highest amounts of trading volume.

Retailer Structure
The structure of the retailers of can roughly be divided into three parts: (1) Provision and grocery stores, (2) supermarkets/ hypermarkets and department stores as well as (3) convenient stores and petrol station stores

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

Source: Gain report 2009

According to the Gain report 2009, the majority (56%) of retail food sales are sold by the traditional stores, such as provision stores, grocery stores, specialty food stores and other sundry shops. These modern stores such as supermarkets, hypermarkets and department stores with supermarkets only have around 43% share of the nationwide retail food market. Convenience stores have remained insignificant, with only about 1% share of the nationwide retail food market.

Exports
Exports of selected processed food and beverages products decreased by 11.6 % in 2009 to RM 10,154.6 million compared with RM 10,689.6 million in 2008. Malaysia exports food products to more than 200 countries and the main export items are cocoa and cocoa preparations, accounting for RM3.1 billion, followed by Prepared cereal products (RM 1.3 billion), and dairy products (RM 587.3 million). The major export destinations for processed food were Singapore, the USA, Indonesia, Japan and Thailand.

Exports of Selected Processed Food and Beverage Products 2008 (RM Product Total Processed Food Other processed food Cocoa and cocoa preparations Prepared cereals Dairy Products Processed Seafood Sugar and sugar confectionery million) 13,526.80 12,154.60 4,837.00 3,281.80 1,289.10 1,084.60 561.60 481.70 2009 (RM million) 12,168.60 10,689.60 3,997.70 3,097.00 1,315.30 587.30 545.70 549.60 Change (%) -10.0 -11.6 -17.4 -5.6 2.0 -45.8 -2.8 14.1

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

Prepared vegetables and fruits Processed meat Beverages Alcoholic beverages Non-alcoholic beverages
Source: Department of Statistics, Malaysia

421.90 149.50 1,372.20 913.70 458.40

430.40 166.60 1,429.60 942.90 486.80

2.0 11.4 4.2 3.2 6.2

Imports
Overall imports of processed food and beverages increased by 0.7% in 2009 to RM10 billion from RM9.9 billion the previous year. Processed food and beverage products that registered growth in imports were sugar and sugar confectionary (42.5%), tea and mate (24.4%) and non processed meat (18.6%). Malaysia was a net importer of food products in 2009. Major imported products were sugar and sugar confectionery (RM2.5 billion), dairy products (RM1.6 billion). Australia was Malaysias largest import source for processed food (RM1.5 billion) in 2009 followed by Brazil (RM1.2 billion), New Zealand (RM1.1 billion), Thailand (RM817.2 million) and the USA (RM753.6 million). Imports of Selected Processed Food and Beverage Products 2008 (RM Product Total Processed Food Dairy products Other processed food Sugar and sugar confectionery Prepared cereals and flour Prepared vegetables and fruits million) 9,913.40 8,938.30 2,566.50 2,362.50 1,733.80 758.00 673.50 2009 (RM million) 9,986.20 8,985.30 1,556.80 2,500.30 2,470.50 755.30 761.10 Change (%) 0.7 0.5 -39.3 5.8 42.5 -0.4 13.0

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

Processed seafood Cocoa and cocoa preparations Tea and mate Processed meat Beverages Alcoholic beverages Non-alcoholic beverages
Source: Department of Statistics, Malaysia

388.40 320.70 99.20 35.80 975.10 884.60 90.30

422.90 352.60 123.40 42.40 1,000.90 883.30 117.60

8.9 10.0 24.4 18.6 2.6 -0.2 30.3

The Halal Industry

The Halal industry in Malaysia provides immense opportunities for Malaysian

manufacturers. With a global Muslim population of about 2 billion, the market for halal food is estimated at US$547 billion a year. The concept of halal is associated with food products, which are of high quality in terms of cleanliness, sanitation and compliance with religious requirements. Malaysia's food manufacturer can contemplate joint ventures with established food manufacturers, particularly from Australia and New Zealand, to service the ASEAN, Middle East, European and US markets which have sizeable Muslim populations. Local halal food products can gain easy access into these halal markets as Malaysia's halal certification is globally recognized.

Growing Health Concerns

It is a new trend that many Malaysians shift towards a healthier diet. By now, they are not willing to sacrifice food flavor for that. But as this trend in Europe, where it is further developed, shows, this will be one of the next steps. Food products that are considered less healthy, for example those with a high share of salt or sugar, remain popular among Malaysian consumers. The Ministry of Health findings estimated that Malaysian adults consume the equivalent of 10 teaspoons of added and hidden sugar more than the amount recommended by the World Health Organization. The Malaysian government has run several healthy eating campaigns to amplify this trend. One important aspect is the

Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

education of the Malaysian people regarding the impact of diet on areas such as bone and heart health. Within the next years retailers are expected to launch healthier product ranges. A whole national community such as the LOHAS (lifestyle of health and sustainability) in Europe and the USA are not expected in Malaysia, but the trend goes towards stronger awareness. However, soon as the price is higher or the taste is less intensive customers recoil from buying health benefitting products instead of normal ones.

Outlook
As the economy improved and raw material prices stabilized in 2010, the packaged food market improved its performance, concludes Euromitor International. Although many food products, rice, noodles, bakery products and baby food e.g. are necessities and need to be purchased even in financially bad times, the improving economy restores customers confidence. And this leads to rising value sales and, in addition to growing spending power after the crisis, the food sector achieved a faster current value growth in 2010 than in the years before. Clear innovation driver in the sector are health and convenience trends. A more and more hectic and stressful lifestyle in urbanized Malaysia contributed to the growing demand for convenient and easy to prepare meals at home. Therefore, the food sector looks set to maintain its positive development within the following years. As a result of the improving economy consumers are more optimistic and will gain new confidence in the market. The key trends are expected to continue and enlarge their influence, leading to a range of innovative products to satisfy this demand.

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Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Food Industry

Important Malaysian Food Trade Fairs 2011

THE 12

th

MALAYSIA INTERNATIONAL FOOD & BEVERAGE TRADE FAIR Date: 13

th

15

th

July 2011

Venue: Putra World Trade Centre (PWTC), Kuala Lumpur

nd

22

MALAYSIA INTERNATIONAL FOOD PROCESSING & PACKAGING EXHIBITION 2010 Date: 21

st

24

th

Jul 2011

Venue: Putra World Trade Centre (PWTC), Kuala Lumpur

Contact: Mr. Thomas Brandt at: thomas.brandt@malaysia.ahk.de Ms. Judih Yong at: judih.yong@malaysia.ahk.de

We hope the market report serves you with actual information on the Malaysian market. Our core business is to establish contacts, finding distribution partners, project acquisitions, etc. our Firmenpool Malaysia or the Office-in-Officeconcept will give you a permanent address to develop the market. Please contact us for further information.

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