Breaking through the barriers to make the Malaysian herbal industry truly internationally competitive

Breaking through the barriers to make the Malaysian herbal industry truly

internationally competitive

Mohd. Murray Hunter

University Malaysia Perlis

1st East Asia Agri-Business Seminar 2010

Raw Herbs

FreshConsumptionDried Fermented

Extracts

Medicinal Powders

MedicinalBeverages

Essential Oils & Other Volatiles

Flavour &Fragrance

Personal Care& Cosmetics

Standardised Extracts

Phytopharmaceutical Products

Fractions & Isolates

Bioactive Compounds

Prescription & OTC Drugs

Figure 1: The Family Tree of Herb Derivatives

Agricultural Application

Traditional Herbal Medicines

Aromatherapy

Enzymes

Types of herbal products Type Definition

Nutritional Supplement Vitamins which are defined as complex chemical substances that are needed for the functioning of the body, but that generally cannot be produced by the body and must therefore be obtained from food or nutraceuticals

Nutraceutical Is a product isolated or purified from foods and generally sold in medicinal forms not usually associated with food for the purpose of physiological benefits or to provide protection against illness

Dietary Supplement Includes preparations of vitamins, minerals, amino acids and mixtures of these ingredients as well as herbs and other botanicals

Herbal Medicines Includes herbs and traditional medicine, which means any product employed in the practice of indigenous medicine, whereby the drugs used consist of one or more naturally occurring substances of a plant, animal, or mineral or part thereof, or in extracted form or non-extracted form, or any homeopathic medicine.

Indigenous Medicine Is a system of treatment and prevention of diseases involving the traditional use of naturally occurring substances.

Homeopathic Medicine Any drug in a pharmaceutical dosage form that is used in the homeopathic therapeutic system in which diseases are treated by the use of minute amounts of such substances which is capable of producing in healthy persons symptoms similar to those of the disease being treated.

The Search for Novelty

Tian qi

Panax pseudo-ginseng notoginseng (Burkill.) G.Hoo. & C.J.Tseng., of the family Araliaceae

Mexico

Morocco

Ayurvedic

Hong Kong

Colostrum

Colostrum or Mother’s Milk is the original and ultimate nutritional supplement. It

is a unique natural secretion produced at the beginning of lactation

designed by Nature to promote strength and good health.

Colostrum has been called life’s first food. Each drop of Colostrum contains the promise

of life: immunoglobulins, antibodies, growth factors, vitamins, minerals, enzymes, amino acids, and other substances designed

to ‘prime’ the body to face a lifetime of invasion by various microorganisms and

environmental toxins. (Colostrum is considered to be nature’s most perfect disease fighter).

Shape of Antibody

Inside the intestinal tract the antibodies from Premier Milk prevent the toxins from attaching to the intestinal wall and multiplying. In effect shielding the body from toxins.

Making Enzymes

Look for New Business Models

Organic Products

Wind drift

Farm/Plantation

Soil Floor

Sub-Soil

Fertilisers, herbicides, insecticides

Leaf & organic decompositions

Sub-terrainium water

Sun

Climate & Weather

Cultivation

Propagation

Processing

EconomicProducts

Runoffs Surface water

Wastes Chemical residuals

Some wastes

recycled

Watershed runoffs onto farm/plantation

Atmosphere

Nitrogen, gasses, etc

Lakes Rivers Canals Oceans

Daylight hours UV radiation Temperature Humidity Rainfall

Conducive weather, or floods, droughts, etc

Regional Eco-System A Farm/Plantation as a System

Other Farms

Insects and pests

Genetic Biodiversity

Soil Surface

Rainfall (Moisture Source)

Organic Materials Phosphorous (P)

Sulfur (S)

Nitrogen (N)

Nitrogen fixing bacteria In root system

Water (H2O)

Mineral Based Materials (Amphibole & Feldspar)

Calcium (Ca)

Potassium (K)

Magnesium (Mg)

Iron (Fe)

Carbon (C) Oxygen (O2) Hydrogen (H) Through

air in pores

Production Processes

Farm size & layout

Organisation & methods

Propagation

Cultivation

Processing

Marketing

Climate

Weather Rainfall Wind

Sunshine UV radiation Temperature

Humidity

Conducive weather Or

Floods, droughts, etc

Physical Environment

Soil Topography Atmosphere

Natural flora & fauna habitat Urbanisation

Suitability of conditions Pollution (air, land & water)

Labour sources Water resources

(create hinterland where farm part of)

Human Habitisation

Knowledge Suppliers & contractors

Pollution Attitudes and concerns

Resource inputs, fertilizers, herbicides, insecticides, machinery, research capabilities

Positive Inputs Water

Sunshine Nitrogen

Agricultural inputs Fertilizers etc Knowledge

Labour

Negative Inputs

Adverse physical conditions

Pests & diseases Pollution

Heavy metals

Business Environment

Markets Finance

Trade environment

Customers Financing &

various kinds of capital

Competition Low prices

Changing demand patterns

Government Infrastructure Regulation Taxes & subsidies

Trade environment

Research

Negative Outputs

Runoffs, wastes, carbon

Some recycling back to system

Positive Outputs

Products

Revenue flow back to system

An Agricultural Enterprise as a System

Green/Biological/Natural Minimum interventionalist

Linear/Industrial/Chemical Wild Harvest

Biodynamic Farming

Organic Farming

Chemical Free

Reduced Pesticide

Low Input

Sustainable Minimum Till

Conventional

High Input Chemical Intensive

Natural Farming

Traditional Farming

Biological Farming

THE OPERATION OF ORGANIC PHILOSOPHY (Fundamental Principals and Practices)

Objectives Soil Health & Fertility

Pest & Disease Management

Weed Management

Eco-system Biodiversity

Sustainability

Crop Rotation

Green Manure

Animal Manure

Cover Crops

Intercropping

Farmscape

Composting

Mulching

Buffers

Crop Rotation

Green Manure

Animal Manure

Cover Crops

Intercropping

Bio-control

Farmscape

Buffers

Crop Rotation

Green Manure

Animal Manure

Cover Crops

Mineral

supplements

Natural Fertilizers

Mulching

Composting

Tillage

Intercropping

Bio-control

Farmscape

Buffers

Crop Rotation

Green Manure

Cover Crops

Composting

Intercropping

Crop Diversity

Bio-control

Natural Pesticides

Sanitation

Tillage

Farmscape

Fire

Buffers

Crop Rotation

Cover Crops

Intercropping

Mulching

Flame Control

Natural Herbicide

Integrity

Buffers

Records

Certification

Improvement

Practices

Foundations

Site Selection

Conversion

Habitat Creation

Planning

Approximate Size of the World Organic Market 2008 (USD Billion) Fruit &

Vegetables, 12.9, 35%

Meat and Poultry, 1.5,

4%Dairy, 3.6, 10%

Bread & Grains, 4.5,

12%

Beverages, 3.6, 10%

Cosmetics, 6.5, 18%

Processed Foods, 3.9,

11%

Community Products

The Buy Local Movement

Carbon Miles

Ethical Products

Aveda The Body Shop

Sureco Hain Celestial

GroupEst. Sales USD120million

(1996)[58]USD619mil

(2006)

USD1.5Billion (2006)[59]

USD40Mil [60]

USD738Mil [61] (2006)

LocationEstablished 1978 1976 1999 1926Products Personal Care Personal Care Herbs Organic food

and cosmetics

Basic Philosophy To sustain the environment and

give back to communities

Social humanitarianism activism on many issues

Halal & Toyyibaan

Free of artificial

ingredients, Kosher foods

Ethics YesGreen Yes YesNatural Yes Yes YesOrganic Yes Yes YesCommunity Yes Yes

CulturalReligious/Spiritual Yes YesMode of Distribution Direct

Marketing/SalonRetail and e-Commerce

Direct Marketing

General distribution

Owner Estée Lauder Companies Inc.

L’Oreal Private Ownership

Listed company

Halal Products

Toyyibaan & Halal

• This day are (all) things good and pure made lawful unto you. The food of the people of the Book is lawful unto you and yours is lawful unto them. … If anyone rejects Faith, fruitless is his work, and in the Hereafter he will be in the ranks of those who have lost (all spiritual good).

Al-Ma’idah5:5

• O you people! Eat of what is on earth, lawful and good; and do not follow the footsteps of the evil one, for he is to you an avowed enemy.

Al-Baqarah 2:168

• From the land that is clean and good, by the Will of its Cherisher, springs up produce, (rich) after its kind; but from the land that is bad, springs up nothing but that which is niggardly: thus do we explain the Signs by various (symbols) to those who are grateful.

Al-A’raf 7:58

• O ye who believe! Eat of the good things that We have provided for you, and be grateful to God, if it is Him ye worship.

Al-Baqarah 2:172

Markets Where the Islamic Population is the Dominant Group (Ranked by Muslim GDP at Purchasing Price Parity)

Rank Country Total Population

% Musli

m Population

Muslim Populatio

n

Muslim GDP USD

(PPP)

GDP Per Capita

USD (PPP)

1 Turkey 71,892,808 99% 71,173,879

879.12 B 12,900

2 Indonesia 237,512,352 88% 207,000,105

771.075 B

3,725

3 Iran 65,875,224 98% 64,557,719

737.94 10,624

4 Saudi Arabia 28,146,656 100% 28,146,656

564.6 B 23,243

5 Pakistan 172,800,048 97% 167,616,046

397.7 B 2,600

6 Egypt 81,713,520 90% 73,542,168

363.6 B 5,500

7 Algeria 33,769,668 99% 33,431,971

222.5 B 6,500

Markets Where the Islamic Population is a Minority Group(Ranked by Muslim contribution to GDP at Purchasing Price Parity)

Rank Country Total Population

% Muslim Population

Muslim Population

Muslim GDP USD (PPP)

GDP Per Capita USD

(PPP)

1 United States 303,824,640 3.5% 10,633,862 487 B 45,800

2 India 1,147,995,904

13.4% 153,831,451 415.3 B 2,700

3 Russia 140,702,096 10.5% 14,633,017 215.1 B 14,700

4 China 1,330,044,544

3.0% 39,901,336 211.5 B 5,300

5 France 64,057,792 7.5% 4,804,334 159.5 B 33,200

6 Germany 82,369,552 3.7% 3,047,673 104.2 B 34,200

7 Thailand 58,851,357 14.0% 8,239,190 65 B 7,900

The certified halal market is currently

estimated to be worth USD 400

Billion per annum

This represents around 20% of the World

population

Recent reports indicate that halal sales in the US are increasing around 80% per year, where a number of new retail outlets

specializing in halal products are opening up.

A&P, Loblaws, Food Basics and Wal Mart are

allocating space for halal products in their stores

Branding

The Muslim living as a minority in a non-Islamic society will have a

number of problems identifying what items are halal and haram

(forbidden in Islam), without product certification. For example,

gelatine, lard and tallow can be either in a halal or non-halal,

depending upon their source and method of processing. Cross

contamination is a major problem in stores and particularly

restaurants, where pork is also served.

Toyyibaan would also mean that agriculture must be undertaken

within sustainable practices, and in business, where things

should be done with good intentions.

“He hath subjected to you all that there is in the heavens and all that there is in the earth: All is from Him. Verily, herein are signs for those who reflect.” Al-Jathiyah 45:12

Halal, but is it Toyyibaan?

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Faith in one God and a commitment in the teachings revealed by God and His Messengers. Iman affects our

world view and daily practices.

Knowledge. Three sources based on Iman, a) intellect (‘aql), experiences and revelations (wahy). Guided by

Iman. Work and deeds, pious practice, orientated to Allah, turning

away from all weakness and evil. Amal is based and guided by Iman and Ilmu.

The path shown by Allah (SWT). The divine law.

A holistic life where one looks after worldly comforts and also prepare for the hereafter. An individual’s obligation to

perform one’s religious duties.

A collective responsibility for both social and spiritual development

Haram (Those things prohibited by

Allah in the Al Qu’ran)

HACCP

GMP

Sustainable environment, community

& business

Community Benefit

Toyyibaan

Clean Healthy

Non-exploitive

Traceable

Supply Chain

Ethical

Substances and deeds that are good, healthy, pure, clean and lawful.

Prohibited by Allah in the Al-

Qur’an

Permitted by Allah in the Al-Qur’an

Ad-Din

Al-Ilm

Al-Iman

Al-Amal

Syar’iah

Fard’ain

Fard Kifayah

Halal Toyyibat

Tahwid

Ibadah

Amanah Al-Falah Ummah

Musharakah Al-Ta’awun

Al-Fasad

Shu’ra

Adab

Mutual consent

A business partnership;a) Shirkah: where two or more individuals pool financial resources and share profit and loss on an agreed ratio

and held liable to the extent of their capital,b) Syari’ah: each partner is able to operate other businesses, independent of

the principal businessc) Mudarabah:Partnership where one manages

the partnership and another supplies the financial resources.

Worship. Relates man to Allah through spiritual acts. The

manifestation of Amal salih (pious actions).

Piety

Recognition of the right and proper place and station, condition in life and to self discipline in positive and

willing participation in enacting one’s role in accordance with that recognition and

acknowledgement. Its occurrence in one and society as a whole reflects the condition of justice.

Trust by God in man in the all encompassing concept of nature (tabi’ah)

Inclination towards destruction

The concept of Al-Falah requires Muslims to win and be successful in both this world

and the hereafter. Islamic community

A relationship with Allah which excludes a relationship with anyone else.

The focus of all man’s reverence and gratitude, the only source of value, where what

Allah desires for man becomes value to him. Man who commits his will to Allah,

recognises no other authority other than His. Comprises Iman, Ilmu and Amal.

From the Muslim consumer standpoint; 1. Products must be produced without any forbidden

ingredients, 2. Products must be proved to be in the interests of the

consumers’ health and wellbeing, 3. Products must be clean and hygienic, have supply chain

integrity, 4. Products must benefit those who produced them, 5. Products must benefit the community they came from

and 6. Products and the materials that make up these

products must be traceable from the origin, to have total confidence.

The halal certification system must be widened to verify these issues

Diversified Halal Farms

Farmers’ marketsCOOP Market

Home Delivery

Gerai Delivery

Restaurant & Hotel Delivery

Many small suppliers that are customer

orientated

Look for novel strategies

Southern Thailand

Malaysia

Brunei

Indonesia

Competitive Advantage Through Differentiation

Maximises Benefit from Location as a marketing advantage

Relatively low competitive market segment

Maximises benefits of large local biodiversity

Local culture is utilised as branding

Where do we go from here?

Ava

ilabi

lity

Incr

ease

s

Usefulness Increases

Media Reports

Ideas

Data

Information

Knowledge

Wisdom

The Continuum from media reports to wisdom in relation to availability and usefulness

$ Cost

$ Return

Deg

ree o

f P

rocessin

g

Final Product Form

Selection of Crop

Trials

Propagation

Land Preparation

Planting, Maintenance &

Irrigation

Harvesting & Extraction

Product Development

Final Product

Crop & Project Failure

No Return

Co

mp

os

t &

Mu

lch

Bio

fue

l

An

ima

l Fe

ed

Cru

de

Es

se

ntia

l Oil

Org

an

ic A

gro

-

pro

du

ct

Co

sm

etic

&

Aro

ma

the

rap

y

Nu

trice

utic

al

Ph

arm

ac

eu

tica

l

Conceptual Value Added Processing Options with Revenue and Cost

Implications

Consumers

Wholesalers & retailers

Manufacturers

Flavour & Fragrance Houses

Traders & Brokers

Primary Producer

Essential oil as primary Product. Focus on market demand & supply

and meeting standard

Essential oil as an ingredient in

a product. Focus on uses

and applications research

Manufacture of end products. Focus on

formulation and end product

development

Technical Focus

General or Niche Customers

Vertica

l Integ

ratio

n A

lon

g th

e Su

pp

ly

Ch

ain

Application Focus

Technology Focus

IP Focus (?) Specific

Customer

Branding Theme Consumer

Marketing Reaching

Mass or selected Markets

New Product Development

Agro Industrial Consumer Orientation Orientation Orientation

Consumer Trends

Important

Technical Trends

Important

Demand & Supply, Buying

Criteria Important

Venture Focus Along Different Parts of the Supply Chain

Competitive Rivalries Lemongrass quick yield and straightforward to cultivate and distil – expect high elasticity of supply from both existing and new producers. Producers of substitutes very aggressive

Bargaining Power of Suppliers Collecting the most suitable planting material require effort. Extraction and harvest .technology needs to be acquired or developed Analytical equipment or service maybe expensive/remote.

Substitutes Citral (main constituents) can be produced from a number of chemical feed stocks. Alternative oils (litsea cubeba) cost much less to produce. Lemon myrtle oil much smoother and acceptable to end users Many alternatives to lemongrass in product formulations.

Trends & Technology Alternative technologies to steam distillation (CO2) can make much smoother oil but will increase capital needs greatly. Natural, exotic, organic, FAIRTRADE could increase oils popularity (?) if seen as exotic.

Substitutes

Tre

nd

s &

Te

ch

no

log

y

Bargaining power of buyers

Bargaining power of suppliers

Competitive Rivalries

Re

gu

lati

on

Regulation SCCP placed lemongrass oil under scrutiny as a cosmetic ingredient in EU.

Industry Competitors

Intensity of Rivalry

Bargaining Power of Buyers Currently small item of trade in flavour industry, strong relationships with established producers.

Opportunities

Threats

Cognitive Bias

Strengths Weaknesses

Competitors identifying the same opportunities and enacting upon them

The regulatory environment and potential changes within it

Inability to penetrate the existing supply chain and make alternative strategies

Dependence on survival from a single or very few customers

Depending on a single product for total revenue

Adverse acts of God, bad weather, drought, etc.

Opportunities

Threats

Cognitive Bias

Strengths Weaknesses

Competitors identifying the same opportunities and enacting upon them

The regulatory environment and potential changes within it

Inability to penetrate the existing supply chain and make alternative strategies

Dependence on survival from a single or very few customers

Depending on a single product for total Any factor or group of factors that may potentially hinder enterprise growth in a sustainable manner without any contingencies verse acts of God, bad weather, drought, etc.

An identified market where enterprise resources and competencies will be able to exploit

The potential opportunity will have a large enough market size to sustain the enterprise

The enterprise will be able to take advantage of this opportunity better than any other competitors

Outside elements in the supply chain will support the enterprise

Any factor or group of factors that will allow

the enterprise to grow in a sustainable manner from the market environment

Personal and enterprise competencies, knowledge & experience that can be utilised for the benefit of the enterprise

Facilities, infrastructure, financial backing & liquidity, long timeframe view

Ability to learn through research and experimentation

Any network connections with industry and access to the supply chain for both information and marketing

Ambition and vision (but not delusional), focus & commitment

Ability to innovate technically, market and organisational wise

Any factor or group of factors that can assist the enterprise gain

competitive advantage over its competitors

Competency gap Short term timeframe, no fall back position if

positive results delayed or there are technical or market failures

Poor infrastructure that hinders production or marketing

Shortage of funds to undertake project to completion

Qualified or lack of commitment by any key people within organisation

Lack of network, knowledge and access to supply chain

Any factor or group of factors that can hinder the enterprise gain competitive advantage

over its competitors

Opportunities are seen with bias according to knowledge, experience, wisdom, educational background, market knowledge, competencies, etc.

High Market Growth Low Strong Weak Relative Competitive Position

Crude Essential Oil Steam Distilled

Essential Oil under

CO2 extraction

Cosmetic production for international

market

Organic Cosmetic

production for international

market

Essential Oil Based Agro-

chemical

Organisational Capability Creative, Opportunity, conceptual, strategic, Learning, Organisational, financial, Technical,

Marketing, Networking and Commitment Competencies

How the Business is Currently Performing

The base for potential future Development

Resources Existing and Available to the Business

The Set of Potential Opportunities

Tim

e a

nd C

om

pany E

vo

lution

/Chan

ge

Enterprise Performance

Personal Objectives

Str

ength

s a

nd W

eaknesses

T

hem

e P

ers

onal

Resourc

es N

etw

ork

Pro

duct M

anagem

ent F

inance

4 P

s

& S

kills

F

acilitie

s

Attrib

ute

s

Exte

rnal Influences &

Threats

M

ark

et

E

conom

y

R

egula

tion T

echnolo

gy

P

ositio

n Socia

l Si

tuation Change &

Com

petition A

spirations D

evelo

pm

ent

Key internal influences on the strategic

process

The process of product/market development

Key external influences on the strategic

process

Competitive Position

Cognitive Bias

Structural/ Support Strategies

Interventional Strategies

Competencies Required During the Essential Oil Development Process

Screening & Bio-prospecting

Propagation & domestication or

introduction

Planting, cultivation & maintenance

Harvesting, Extraction and

wastage handling

New product development &

creation of value added products &

activities

Strategic, operations, finance and technical

management

Product & venture management

Marketing & commercialisation

Sustaining and growing the enterprise

(adapting & survival)

Output: Result/Performance, Sustainable and healthy enterprise or

a struggling and failing enterprise

Opportunity and technical competencies require:

Botany, ethno-botany, research ability, chemistry, bio-chemistry, analytical

chemistry. Market and specific technical product knowledge

Technical Competencies require: Plant physiology, micro-propagation, nursery

management, agronomics

Technical competencies require:

Bio-system engineering, Soil management,

entomology, plant nutrition, Agronomics, field

management, irrigation engineering

Technical competencies require:

Thermodynamics and plant physiology, heat transfer, distillation engineering,

chemistry, chemical engineering, agricultural

engineering, environmental engineering (waste

management)

Strategic, opportunity and technical

competencies require: Project management,

marketing management, chemistry, cosmetic

chemistry, perfumery/ flavour knowledge,

Packaging & design, manufacturing

engineering

Strategic, organizational, relationship opportunity competencies require:

Business strategic, industry knowledge, industry

networks, ability to raise finance, ability to plan,

implement & adjust, leadership, entrepreneurial

Strategic and organizational

competencies require: Administrative, financial management, technical management, strategic

management, personnel management, resources

management, entreprenuerial

Depend on Location

Potential with Right Products and Correct

Distribution and Branding

Potential with Right Products and Correct

Distribution and Branding

Limited Unless a Specific Market Exists

Potential Large Market Dispersed Worldwide

Very Limited Unless Large Domestic Market

Local Market International Market

Essential Oil

Differentiated Product

Specialty/End Product

Much Larger Market with Competition

Diversification

Local or International Market Opportunities

The search for novelty

A uniquely positioned business model

Exceptional planning

Thank You