The Cost of Inefficiencies in the Halal Certification Process

Author: A. Khaalis Wooden

Determining the exact annual cost of the issues and inefficiencies in the Halal certification process to the global Halal market is challenging due to limited comprehensive data. However, using the best available information, industry experts estimate that these inefficiencies result in significant financial losses annually.

According to the State of the Global Islamic Economy Report 2020/21 by Dinar Standard, the global Halal economy was valued at $2.02 trillion in 2019, encompassing sectors like food, pharmaceuticals, cosmetics, fashion, travel, and media (Dinar Standard, 2020). If we conservatively estimate that the issues and inefficiencies in the Halal certification process led to a loss of even 1-3% of the total market value, this would amount to an annual cost ranging from $20 billion to $60 billion globally.

These estimated costs arise from various factors:

1.      Trade Delays and Market Access Barriers: Non-standardized certification processes and lack of mutual recognition between certifying bodies can cause delays in market entry, leading to lost revenue opportunities. This can significantly impact exporters and producers aiming to enter new markets (Halal Industry Development Corporation [HDC], 2020).

2.      Increased Operational and Compliance Costs: Businesses often incur additional expenses due to redundant certifications and compliance efforts required to meet varying standards across different regions. The SME Annual Report 2017/18 highlights that high certification costs burden small and medium-sized enterprises (SME Corporation Malaysia, 2018).

3.      Supply Chain Inefficiencies: Complexities in verifying and auditing supply chains to ensure Halal compliance can increase operational costs. These inefficiencies can disrupt supply chains, leading to financial losses due to delays and increased scrutiny (International Halal Accreditation Forum [IHAF], 2018).

4.      Loss Due to Fraudulent Certifications: The presence of counterfeit Halal certificates and unauthorized use of Halal logos can erode consumer trust, resulting in decreased sales for legitimate businesses. This loss of consumer confidence can have substantial financial repercussions (World Halal Council, 2017).

5.      Costs from Non-Compliance and Product Recalls: Financial losses from product recalls, legal actions, and penalties due to non-compliance with Halal standards contribute to the overall cost burden on businesses (Jabatan Kemajuan Islam Malaysia [JAKIM], 2019).

While these figures are estimates, they underscore the significant economic impact that the issues and inefficiencies in the Halal certification process impose on the global Halal market. Addressing these challenges could potentially save the industry tens of billions of dollars annually, enhancing market efficiency and benefiting both businesses and consumers.

References

• Dinar Standard. (2020). State of the Global Islamic Economy Report 2020/21. Dinar Standard and Salaam Gateway.

• Halal Industry Development Corporation. (2020). Annual Report 2020. HDC.

• International Halal Accreditation Forum. (2018). IHAF Annual Report 2018. IHAF.

• Jabatan Kemajuan Islam Malaysia. (2019). Halal Certification Procedures Manual (Domestic). Department of Islamic Development Malaysia.

• SME Corporation Malaysia. (2018). SME Annual Report 2017/18. SME Corp. Malaysia.

• World Halal Council. (2017). Annual Report 2017. WHC.