Understanding halal commodities' potential in Indonesia

Written by Ardela Nabila | Read in Indonesian

Halal commodities have enormous potential in Indonesia. It comes as no surprise, as the majority of the world’s largest archipelagic country are Muslims. A report by The Royal Islamic Strategic Studies Center (RISSC) estimated that 237.56 million Indonesians are Muslims.

This figure is equivalent to 86.7% of the total Indonesian population which stood at 275,361,267 people as of June 2022, as stated in a report released by the Directorate General of Population and Civil Registry of the Ministry of Home Affairs.

This high number makes Indonesia one of the countries with strategic demographic potential for businesses in the halal industry sector, especially with opportunities that are wide open and continue to grow.

The Coordinating Ministry for Economic Affairs in the report "The State of the Global Islamic Economy Report 2022" revealed that Indonesia is the country with the largest number of halal product consumers in the world, which accounts for 11.34% of the global halal expenditure.

The data showed a huge potential which, of course, needs to be maximised by businesses in various sectors to meet consumer needs more broadly.

This immense potential is not only present in the food or cosmetic sector, but also in other sectors, such as raw materials, pharmaceuticals and food additives.

Besides the dominance of the Muslim population, the rise in Indonesia’s halal commodity potential is also influenced by lifestyle changes.

Awareness of the halal status of a product is increasing among consumers, especially after the COVID-19 pandemic, where numerous new brands emerged, making consumers even more selective in making purchases. For most Indonesians, the halal label is the main aspect that they will consider when buying a product.

Efforts to gain consumer trust through the halal label

Aside from the fact that Indonesia has various halal regulations, having a halal label is not just following global trade trends. Halal commodities are proven to be favoured by most consumers in Indonesia.

There are many reasons behind this, mainly related to guarantees that the product is safe for consumption or use.

This is because, as we all know, in order to market halal-certified products, businesses must go through a lengthy process. After submitting an application, they will undergo inspection and testing in stages which involve various parties until the halal certificate is issued.

A consumer, Nabilla, 23, revealed how the halal logo is the most important factor that influences her purchasing decision. She said the halal label is a guarantee that the product has safe ingredients and has gone through a process that is in accordance with the existing standards.

"This (halal logo) makes us Muslim consumers feel safer and more protected. If there is a halal certification, God willing, it will be safe from haram content. I do it (paying attention to the halal label) so I can be more confident when buying a product, so I don't hesitate anymore," she told TFR.

Another consumer, Amelia, 54, shared a similar opinion. The halal label is a sign that the product is free from non-halal ingredients that are prohibited by Islam for consumption or use.

“So to avoid doubts regarding such matters. The thing is, getting a halal label means that the product has gone through a strict inspection process, so it is more reassuring for consumers. The halal label guarantees that the brand has a safe manufacturing process and does not contain hazardous ingredients," she said on a separate occasion.

L'Oréal Indonesia is one of the many global brands that have halal certificates to market their products in Indonesia. In addition to complying with existing laws and regulations, the halal certification is carried out to meet consumer needs in the halal cosmetics sector.

"Our brands fulfil the obligation of halal certification because they are committed to presenting halal cosmetic products that are part of trends and lifestyles. That way, consumers who need halal products don't need to hesitate to use products from our brands," said Rhadeya Setiawan and Riva Dwitya Akhmad, Scientific & Regulatory Affairs Directors at L'Oréal Indonesia in a written statement to TFR.

Apart from food products, halal cosmetics are also popular among consumers. Nabilla and Amelia agreed with this.

"For me, the halal label is the most important factor before buying skincare or food products. But sometimes you have to be more careful. If the products don't have a halal label, I usually look at the ingredients," said Nabilla.

"Packaged products such as food are the most important (to have a halal label), because we cannot see the raw materials and the manufacturing process directly. Skincare is also important, but I pay more attention to food products that enter the body," Amelia explained.

A report titled "Indonesia Halal Market Report 2021-2022" released by ISEF and supported by Bank Indonesia projected that in the cosmetics sector alone, the potential for the halal business in Indonesia can grow to $7.5 billion or around Rp114 trillion by 2025.

This means that if other sectors in the halal industry are combined, Indonesian halal products can compete in the global market to drive the national economy.

Cosmetic companies such as L'Oréal Indonesia are not the only ones that prioritise halal guarantees for their products. Beverage retailer Kopi Kenangan has also met the halal standards in order to improve product quality for their consumers.

In addition, the halal certification that the modern coffee milk brand registered in October 2019 was also aimed at inspiring other culinary businesses, even small-scale businesses.

"Kopi Kenangan wants to be an example for other start-up firms to see halal certification as a guarantee of quality for consumers," explained Kopi Kenangan in a statement on its official website.

Huge potential, but there are also challenges

Despite the huge opportunity and market, there are still challenges experienced by halal product manufacturers in marketing their products. According to L'Oréal Indonesia, some of the challenges are:

Potential misleading information regarding the use of hazardous materials in products that are claimed to be halal but do not have official certificate.
For producers, how to ensure that all stages in the global supply chain meet the requirements of halal certification.
For the government, how to prepare adequate infrastructure to process halal certificates that can be easily implemented, not only by large-scale businesses, but also micro, small and medium-sized enterprises (MSMEs).

In order to optimise the opportunities and overcome these challenges, Rhadeya and Riva emphasised the importance of the role and support of various parties, such as the Food and Drug Supervisory Agency (BPOM), in checking the safety of food, cosmetic and drug products.

The harmonisation of international halal standards can be realised through collaboration between governments so that domestic halal commodities can be marketed on the global market more easily.

"Going forward, there needs to be harmonisation of internationally recognised halal standards and mutual recognition of government-to-government collaboration through a mutual recognition agreement from foreign halal institutions," the two L'Oréal Indonesia directors said.

Furthermore, in this case, taking advantage of technology is also feasible. For example by building a database of raw materials using big data or artificial intelligence (AI) and strengthening the availability of halal inspection laboratories in each province.

Apart from being a form of adaptation for the halal commodity industry to technological developments, this effort is also an effective way to increase the trade potential of Indonesian halal products by accelerating the inspection process to obtain halal certificates.