Market Watch Malaysia 2010

FOOD INDUSTRY
Overview
With an annual average of 20% export surplus, Malaysia is one of the 20 largest export
nations worldwide and is ranked 28th out of 121 countries by the Global Enabling Trade
Report 2009, published by the World Economic Forum. Malaysias total trade in 2008
amounted to RM 1,185 trillion, which depicts an increase of 6,8% compared to 2007 trade
balance; exports even rose 9,6%, while total imports grew by 4.9% to RM 504.57 billion.
But the weak global markets also affected Malaysian trade in 2009. In the first 6 months of
2009, total trade accounted for RM 441.75 billions, decreasing of about 30% in comparison
to the first half of 2008. The estimated exports of 2009(January-August) are RM347.1
billion; total imports amounting RM270.5 billion.1Major export countries for Malaysian
goods are Singapore, Japan, China, India, Korea as well as the United States, Australia,
the Netherlands and Germany among others. In 2008, Malaysias largest export revenue
contribution was made by the electrical and electronics products sector (38%). Other
crucial sectors are palm oil & palm oil-based products, crude petroleum, liquefied natural
gas and timber/timber-based products. Major import products are electrical/ electronic
products, machinery, iron / steel products as well as chemical products.
Malaysias top five trading partners were the United States of America, the Republic of
Singapore, the European Union, the Peoples Republic of China and Japan. Malaysian FDI
reached RM 48 billion in 2008, but in first half of 2009 the FDI has dropped to RM4.2
billion.2 Sources of foreign investments mainly lie in Japan, Germany, the USA and
Singapore3.

1
2
3

MIDA (Malaysian Industrial Development Authority), Wed. 06/01/10

Aseanaffairs, Wed. 06/01/2010
German Trade and Investment Center

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Introduction to the Food Sector

Malaysias current population of 26.64 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.

Processed 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
2008, the food processing industry contributed about 10% of the Malaysian manufacturing
output and is predominantly Malaysian-owned. Employment in the processed food and
beverages industry increased in 2008 by 1.4% to 45,418 compared with 44,778 in 2007.
Labour cost for the industry remained competitive, as its Unit Labour Cost decreased by
8.2%, reflecting an efficient utilization and management of resources. A total of 70
projects with investments of RM1.5 billion were approved in 2008. 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.
A closer look at selected sub sectors will be given in the following:

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.
2

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

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.

Production
In 2008, the overall production index for selected processed food and beverages products
industry increased by 8% to 125.3 from 116.0 in 2007, due to the high demand in both, the
domestic and international markets (see Table (1) below). The melamine issue and an
import ban by the EU on fishery products caused the decline recorded by biscuits and
cookies and snacks.

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Table (1): Production Indices of Selected Processed Food and Beverages Products
Sub-sector / Segment

2008

Change (%)

2007

Total

125.3

8.0

133.0

Processed Food
Manufacture of cocoa products
Processing and preserving of fish and fish products
Manufacture of snack:
Manufacture of biscuits and cookies
Manufacture of chocolate products and
Sugar confectionery
Manufacture of sugar
Flour milling
Rice milling
Manufacture of condensed, powdered, evaporated milk

128.6
162.3
102.1
93.7
100.5
134.4

10.2
29.2
-5.4
-7.5
-11.0
1.9

116.7
125.6
107.9
101.3
112.9
131.9

106.5
110.4
142.1
121.4

-5.2
1.2
7.7
11.9

112.4
109.1
132.0
108.5

Beverages
Manufacture of soft drinks
Manufacture of malt liquors and malt

117.2
229.2
93.6

2.6
13.8
-2.3

114.2
201.4
95.8

Source: Ministry of International Trade and Industry Malaysia, Note: Base Year 2000=100

Sales
According to the Malaysian Industry Development Authority (MIDA), it is estimated that the
present global retail sales in food products are worth around US$3.5 trillion, and are
expected to grow at an annual rate of 4.8 per cent to US$6.4 trillion by 2020. Table (2)
lists the sales figures of selected processed food and beverages, showing an increase of
the total sales value of processed food and beverages products by 24.5% to RM22.4 billion
in 2008 from RM18 billion in 2007. This remarkable rise is mainly due to an increase in
domestic consumption and exports. Processed food which recorded substantial high sales
figures are manufacture of condensed, powdered and evaporated milk with RM4.1 billion,
cocoa products (RM3.8 billion) and vegetables, animal oils and fats (RM1.3 billion).

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Table (2): Sales of Selected Processed Food and Beverages Products

Segment

2008
(RM000)

Total

22,443,742

24.5

18,022,273

Processed Food
Cocoa products
Preserved of fish and fish products
Snack:
Biscuits and Cookies
Chocolate products and Sugar confectionery
Sugar
Flour mills
Rice
Condensed, powdered and evaporated milk
Sauces
Coconut Oil
Pineapple canning
Vegetable and Animal Oils and Fats

21,298,547
3,758,837
1,055,932
585,595
875,724
569,701
2,082,004
2,050,441
1,005,087
4,054,995
502,923
65,573
56,980
1,330,077

24.7
49.6
0.4
38.6
4.6
-16.3
-6.4
42.3
46.3
11.1
8.2
-0.6
-20.8
87.1

17,078,292
2,512,268
1,051,615
422,433
837,480
680,954
2,225,481
1,440,5131
687,080
3,649,417
465,023
65,987
71,966
1,482,131

1,145,195
1,021,452
123,743

35,8
19.4
39.8

Beverages
Soft drinks
Mineral Waters

Change
(%)

2007
(RM000)

943,981
855,449
88,532

Source: Ministry of International Trade and Industry Malaysia, Note: Base Year 2000=100

Exports
Exports of selected processed food and beverages products increased by 35.4 % in 2008 to
RM 13,499.2 million compared with RM 9.966.6 million in 2007 (see Table (3)). Malaysia
exports food products to more than 200 countries and the main export items are cocoa
and cocoa preparations, accounting for RM3.3 billion, followed by Prepared cereal
products (RM 1.3 billion), and dairy products (RM1.1 billion). The seafood industry is the
second largest food industry in Malaysia, contributing total exports of more than RM 2.5
billion annually, with the European countries being the main export market. In 2008,
Malaysia's was ranked as the fifth largest exporter of pepper and pepper-related products
(specialty pepper, processed pepper and pepper sauces). Major export destinations are
Singapore, with exports valued at RM1.2 billion, Indonesia (RM795.2 million), the USA
(RM577.8 million), Japan (RM420.6 million) and Australia (RM408.5 million).

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Table (3): Exports of Processed Food Products and Beverages Products

2008
(RM mil)

Products

Change
(%)

2007
(RM mil)

Total

13,499.2

35.4

9.966.6

Processed Food
Cocoa and cocoa preparations
Prepared Cereals
Dairy products
Sugar & sugar confectionary
Processed seafood
Prepared vegetables and fruits
Processed meat
Processed Seafood

12.131.8
3,280.0
1,284.4
1,082.9
483.9
569.9
421.4
149.5
546.4

39.9
32.5
26.1
32.5
-27.5
-7.8
26.7
95.7
-4.1

8,670.4
2,475.1
1,018.3
817.1
667.3
617.8
332.5
76.4
569.9

2,406.6
912.6
457.6

5.7
-1.6
24.2

2,195.0
927.7
368.5

Beverages
Alcoholic beverages
Non-alcoholic beverages
Complied by Ministry of International Trade and Industry

Imports
Malaysia remains a net importer of food. In 2008, Malaysia's total food exports amounted
to RM17.9 billion, while imports totaled RM28 billion. Total imports of selected processed
food and beverages products increased by 10% to RM10 billion in 2008, compared with RM9
billion in 2007. Major import items were dairy products, valued at RM2.6 million and sugar
and sugar confectionery (RM1.7 million).
New Zealand is Malaysias largest source of imports for processed food in 2008, valued at
RM1.6 billion and accounting for a 17.7 % share of Malaysias total imports of processed
food. Other main imports sources are Australia, with imports valued at RM1.3, the USA (RM
911.3 million), Thailand (RM 858.2 million) and the Peoples Republic of China (PRC) (RM
590 million).

Raw materials such as cereals and dairy products will continue to be

imported for further processing for human consumption as well as for the production of
animal feed.

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Table (4): Imports of Selected Processed Food and Beverages Products

2008
(RM million)

Change (%)

2007
(RM million)

Total

9,910.3

10.0

9,012.50

Processed Food
Dairy products
Sugar & Sugar Confectionery
Prepared Vegetables and Fruits
Prepared Cereals & Flour
Processed Seafood
Cocoa & Cocoa preparations
Tea and mate
Processed meat

8,935.4
2,566.4
1,733.5
675.9
763.0
383.4
320.5
99.4
35.6

8.9
3.9
-6.2
13.4
49.5
-1.7
23.5
5.0
63.0

8,202.4
2,470.3
1,847.5
596.1
510.5
390.1
259.5
94.7
21.8

974.9
884.6
90.3

23.0
15.4
109.1

658.7
766.9
43.2

Products

Beverages
Alcoholic beverages
Non-alcoholic beverages
Complied by Ministry of International Trade and Industry

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.

Palm Oil-Based Specialty Products

Malaysia is the second largest palm oil producer, after Indonesia and the largest palm oil
(and related products) exporter in the world. The palm oil industry comprises crude palm
oil (CPO), palm kernel oil, palm kernel cake, oleo-chemicals and finished products. CPO is
currently the most consumed vegetable oil in the world, mainly due to enormous demand
from China. CPO production rose strongly by 12 % to 17.7 million tonnes in 2008, driven by
favorable weather conditions and in part by strong increase in CPO prices of 16 % to an
average of RM 2,875 per tonne. Palm oil constituted 65% share of agricultural export and

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

6.2% of Malaysias total exports. In 2008, export earnings of palm oil products rose to a
record of RM 65 billion and continues to be Malaysias leading agricultural exports.
In terms of agriculture, the palm oil industry represents a strong driver, accounting for
about 30 % of value add in this sector in 2008. Growth in Malaysias palm oil exports was
driven by higher prices of crude palm oil and substantial increases in exports to the PRC,
the Netherlands, the USA, Pakistan and Japan. Malaysia also has the largest CPO futures
market in the world. The countrys stock exchange is also planning to launch a US dollardenominated CPO future to attract more foreign investors to trade this derivative.
Industry players and the government are actively expanding downstream activities, such as
refining, processing, research and trading to expand the various uses of this oil. CPO can
be used in trans-fat free food products (products that free from unsaturated fat content),
neutraceuticals (e.g. vitamins), oleo-chemical, biofuel and as a welcome side effect; it
produces large quantities of biomass. Another opportunity for this sector lies in biodiesel.
Up to end of last year, the government has issued over 90 licenses to companies to
produce biodiesel. According to the Malaysia Palm Oil Board (MPOB), there are 12
operating biodiesel plants and more than 20 plants under construction in the country.
However, the CPO price had surged by a whopping 200% in recent year. Crude palm oil
prices increased from RM1,410 per metric tonne (million tonne) in early 2006 to a high of
RM4,200 a tonne in early March 2008. Subsequently, the collapse of global palm oil prices
for the period of August December 2008 affected the production and export value of
palm oil products. Oil is now trading at way less than half the record prices at around
RM1,500 a tonne in November 2008 after an almost relentless rise from the end of January
to middle of the year. The recent retreat in CPO prices follows the general retreat in
commodity prices over the last few months.
To further stimulate domestic demand for Malaysian palm oil during the commodity crisis,
the Government imposed mandatory requirement for the use of bio-fuel in governmentowned vehicles, public transportation and industries by 2010. The Government also
implemented a replanting scheme for palm oil trees above 25 years old to reduce existing
stocks. It is assumed that in the long term, prices are still sustainable at a level on par or

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

higher than prices prior to the 2007 bull market in commodities. However, the market will
continue to be volatile in the short run.

Malaysia during the current Economic Recession

The current economic downturn and financial crisis affect Malaysia as well. Malaysian
banks, however, has not been involved with the U.S. and western financial markets to a
large extent, and therefore not affected by the crisis in this respect.
On the contrary, the financial turmoil has created an upward trend in the Islamic Banking
Industry when the country is trying to be a world hub in "Islamic Banking". Furthermore,
Malaysia is a very young nation with an average age of less than 24 years (Germany: about
42 years), and this drives the consumption.
Malaysias wealth of raw materials for example oil & gas, natural rubber, palm oil, etc.
contributes largely to the state and private revenues; likewise these revenues promise
future income. Malaysias central role in the prosperous ASEAN region with its 570 million
people serves further as a regional home market. The Electronics & Electrical (E & E) is
the only highly affected sector by the crisis resulting from its strong dependence on the
U.S. and the rest of the world.
Malaysias government takes stern measurements and introduces government-driven
stimulus packages to support the economy. Its stimulus package is in the same league of
some mega-programmes by the United States, China or Singapore, if it is set in relation
with the nominal economic performance amounting to 740 billion RM in 2008. It contains
aids to accelerate implementation of infrastructure projects, a car-scrap bonus, and
guarantees working credits and funds for labor market. On 10th of March 2009, the
government introduced a second economic package for the year 2009. Further to this, an
additional "mini budget" amounting to 60 billion RM (about 13 billion Euros) shall be
disbursed between 2009 and 2010. The Ministry of Finance and other economic cycle
analysts calculate that the Malaysian economy will contract approximately 3,3 % in 2009.

Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Outlook
Certainly a growing demand for premium food items can be predicted, indicated by the
increasing living standards and purchasing power of the modern Malaysian population.
From the supply perspective, competition is not so much about branding but more on price
as the supply factor is based on bulk purchase. Apart from widespread fast food chains,
coffee bars, wine bars and Western style cafeterias, a wide range of pastries,
confectionaries, and snacks, including Western food menus for lunch and dinner are
offered. In recent times a trend towards an organic sub-sector can be observed, which is
expanding rapidly. As the population is becoming more health-conscious due to growing
living standards and purchasing power, the number of organic shops is expected to
expand. Quality food products and low fat products will face a higher demand because of
the rapid increase in lifestyle diseases, such as high blood pressure, heart problems due to
overweight and change in eating habits.
The upward pressure on food prices will likely persist over the next years and the era of
cheap food prices and sanguinity about food security may be over. Food price inflation will
erode purchasing power, increasing the possibility of food deprivation and malnutrition.
Therefore, it is necessary for the global community, national governments and other
stakeholders to take remedial measures to reduce food prices as well as to mitigate the
negative effects of rising food prices. Over the long run, better infrastructure as well as
more research and investments should be channelled into the agriculture sector to
increase food production.
Malaysia has abundant land and resources available for cultivation. Given the concrete
measures taken by the Government, the food crop sub-sector is expected to grow at 6.2%
per annum for the rest of the 9MP period. Emphasis will be given to productivity increases
through replanting activities with new and high-yielding clones, land consolidation, which
includes identifying abandoned land such as ex-mining land for aquaculture, good farm
management practices as well as maximising the use of technology and mechanisation.
With these pro-active measures, the phenomenon of rising food prices in the country is
expected to be contained in the near future.

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Malaysian-German Chamber of Commerce & Industry, Market Watch 2010 The Food Industry

Important Malaysian Food Trade Fairs 2010

THE 11th MALAYSIA INTERNATIONAL FOOD & BEVERAGE TRADE FAIR

Date: 22nd 24th July 2010
Venue: Putra World Trade Centre (PWTC), Kuala Lumpur

21st MALAYSIA INTERNATIONAL FOOD PROCESSING & PACKAGING

EXHIBITION 2010
Date: 15-18 Jul 2010
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

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