Required Report - public distribution

**Date:** 10/19/2006

**GAIN Report Number:** MY6042

MY6042

**Malaysia**

**Exporter Guide**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Jonathan Gressel

U.S. Embassy, Kuala Lumpur

**Prepared by:**

Jacelyn Chang

**Report Highlights:**

Malaysia continues to be a net importer of food products with annual
imports of more than \$4.5 billion, including consumer-oriented and
fishery product imports of \$2.7 million. With per capita income of over
\$5,000, a middle and upper class making up 61 percent of the
population, and 6 percent GDP growth for 2007, Malaysia shows good
potential for growth as a market for consumer high value products. US
exports of consumer-oriented products to Malaysia increased from \$159
million in 2001 to \$237 million in 2005. Best product prospects include
fresh fruits and vegetables, pet foods, halal poultry meat, nuts, frozen
potatoes and wine.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Kuala Lumpur \[MY1\]

\[MY\]

Table of Contents

[**SECTION I. MARKET OVERVIEW 3**](#section-i.-market-overview)

[SECTION II. EXPORTER BUSINESS TIPS
4](#section-ii.-exporter-business-tips)

[SECTION III. MARKET SECTOR STRUCTURE AND TRENDS
7](#section-iii.-market-sector-structure-and-trends)

[SECTION IV. BEST HIGH-VALUE PRODUCTS PROSPECTS
13](#section-iv.-best-high-value-products-prospects)

[SECTION V. KEY CONTACTS AND FURTHER INFORMATION
17](#section-v.-key-contacts-and-further-information)

[APPENDIX I. STATISTICS 19](#appendix-i.-statistics)

[A. KEY TRADE & DEMOGRAPHIC INFORMATION
19](#a.-key-trade-demographic-information)

[TABLE B: Consumer Food & Edible Fishery Products
20](#table-b-consumer-food-edible-fishery-products)

[Table C: Top 6 Suppliers of Consumers Foods & Edible Fishery Products
20](#table-c-top-6-suppliers-of-consumers-foods-edible-fishery-products)

# SECTION I. MARKET OVERVIEW

Malaysia with a population of around 26 million is one of the most
developed nations in Southeast Asia. About 61% of its population makes
up the middle to upper income group of consumers. Its economy has a firm
foundation that includes strong manufacturing, service and agricultural
sectors. Malaysia is expected to chart GDP growth of 5.8% in 2006, with
per capita income estimated at \$5,582. Real GDP growth is forecast to
expand by 6% in 2007 while per capita income is expected to reach about
\$6,000.

The services sector, value added manufacturing sector, the agriculture
and agro based sector are expected to contribute to the sustainable
growth in 2007. In addition, the Government of Malaysia is promoting
biotechnology, information and communications technology, halal products
and Islamic finance as the new sources of economic growth.

Malaysia is politically and economically stable and open to foreign
trade. Transportation, communications, banking and health services are
modern and efficient.

Currently, the main challenge for Malaysia's monetary policy is the
management of inflation. Since 2005, with the rise in global oil prices
and reduction in fuel subsidies, inflation has reached 3% in 2005
compared to an average of 1.2% in previous years. The inflation rate for
2006 is estimated at 3.7%.

The Malaysian food and beverage market is becoming increasingly
sophisticated and is supplied by both local and imported products. The
strong economic growth in the late 80\'s and early 90\'s contributed to
major changes in consumer purchases and consumption patterns. Malaysians
living in urban areas are relatively brand conscious, and they prefer to
shop in stores, which offer them convenience and good product
selections. Hypermarkets/large format stores are now the dominant format
in urban/metropolitan areas in Malaysia with about 45 to 60 percent of
urban household shoppers using them as the main outlet for the majority
of their packaged groceries. Traditional markets are losing ground, but
are still important outlets for fresh fruits and vegetables.

[Advantages and Challenges for U.S. Suppliers]{.underline}

+-----------------------------------+-----------------------------------+
| **Advantages**                    | **Challenges**                    |
+-----------------------------------+-----------------------------------+
| Malaysia's economy will continue  | Though consumers are demanding    |
| to grow resulting in an           | greater variety and quality in    |
| increasing number of consumers in | the foods consumed, they are      |
| the middle-income group demanding | generally price sensitive towards |
| greater variety and quality of    | purchases. Thus retailers often   |
| foods consumed.                   | purchase food items that are more |
|                                   | affordable to the majority of the |
|                                   | consumers.                        |
+-----------------------------------+-----------------------------------+
| Shopping for foods at             | Countries that are close to       |
| supermarkets and hypermarkets is  | Malaysia have a faster delivery   |
| becoming increasingly popular.    | time and lower freight cost to    |
| Furthermore, new supermarkets and | Malaysia compared to US exports.  |
| hypermarkets are being            | Other countries are able to       |
| established throughout Malaysia   | supply foods at lower prices than |
| where there is a significant      | imports from the US.              |
| population of middle to           |                                   |
| high-income consumers.            | For example, imports from China,  |
|                                   | Thailand, Indonesia, and India    |
| Thus supermarkets and             | are known for their relatively    |
| hypermarkets are providing        | low prices. While Australia is    |
| greater market access for         | able to take advance of quick     |
| imported foods including chilled  | delivery times and familiarity of |
| and frozen foods since these      | many Malaysians with their        |
| retail outlets have cold storage  | products.                         |
| facilities.                       |                                   |
+-----------------------------------+-----------------------------------+

+-----------------------------------+-----------------------------------+
| Malaysia does not produce or      | 56% of Malaysia's population is   |
| produces in insufficient          | Muslims. Thus only *halal* meats  |
| quantities certain food items     | (beef, lamb, and poultry) are     |
| which therefore have to be        | allowed to be imported into       |
| imported. These include beef,     | Malaysia from plants approved by  |
| lamb, cheese, butter, pasta, and  | the Malaysian Islamic Development |
| temperate fruits and vegetables.  | Department (JAKIM) and certified  |
|                                   | by recognized Islamic             |
|                                   | institutions in the country of    |
|                                   | export.                           |
+-----------------------------------+-----------------------------------+
| Malaysians are becoming more      | Importers and distributors        |
| familiar with western foods from  | supplying mid to high-end         |
| their trips abroad as students,   | establishments will purchase at   |
| on business, or holiday. The US,  | the lowest price from any         |
| Britain, Australia, and New       | exporter or country. Those food   |
| Zealand are major destinations    | items are perceived as            |
| for many Malaysians.              | substitutable or commodities.     |
|                                   |                                   |
| Nearly all F&B outlets in 4-5     | For example, importers consider   |
| star hotels and resorts serve     | broccoli from China and the US as |
| western menus and there are many  | substitutable and will source     |
| mid to high-end restaurants       | imports offered at the lowest     |
| across Malaysia serving such      | price. Beef and lamb from         |
| menus. US food service franchise  | Australia, New Zealand, and the   |
| operations dominate the Malaysian | US are known for their quality    |
| market and include fast food      | and considered not substitutable  |
| restaurants, cafés, and family    | with lower price imports.         |
| restaurants located across        |                                   |
| Malaysia.                         |                                   |
+-----------------------------------+-----------------------------------+

  ----------------------------------- -----------------------------------
  The government is encouraging local Though Malaysia is dependent on
  food manufacturers to expand their  imports for 70% of the raw food
  exports and take opportunity of the materials, US exporters face
  US\$560 billion global *halal*      competition from locally produced
  foods market. Malaysia's halal      raw food materials that are in
  standards are widely recognized in  sufficient supply (e.g. poultry)
  the Muslim world. Domestic          including substitute products (e.g.
  agricultre cannot supply sufficient palm oil vs. soybean oil).
  raw materials.                      

  ----------------------------------- -----------------------------------

# SECTION II. EXPORTER BUSINESS TIPS

**Business CustomsBusiness Customs**

Malaysians are accustomed to doing business with foreigners and readily
accommodate foreign business manners. Younger businessmen are prepared
to start new business relationships with foreign companies without the
advantage of a personal meeting. These businessmen also prefer to
communicate with foreign suppliers electronically.

Prior to initiating any export sales to Malaysia, it would be
advantageous to conduct a market survey with particular reference to the
competitive environment. It is common for foreign exporters to appoint a
local sales agent / importer to distribute their goods, expedite
clearance of goods from ports and draw on existing networks of
wholesalers and retailers. Regular visits by U.S. exporters to the
market are also critical to enhance business relationships.

**General Consumer Tastes and PreferencesGeneral Consumer Tastes and
Preferences**

Malaysia is a multiracial society consisting of three major races. The
Malays account for 50% of the population, with Islam as the official
religion; slightly more than 20% of Malaysians are Chinese who may be
Buddhist or Christian. Indians form 7.1% of the population and they are
largely Hindus. There is also a sizeable expatriate population and
Malaysia is a popular tourist destination for Asia, the Middle East and
Europe.

Lunch and dinner meals consist mainly of rice together with two or three
meats/fish and vegetable dishes that are prepared according to the
styles and traditions of various ethnic communities. The Malays and
Indians prepare their dishes with hot spices while Chinese prefer to
stir-fry. Religious affiliation affects food consumption in Malaysia.
Muslims do not eat pork, and only eat meat products that have been
certified halal, and many Buddhists and Hindus do not eat beef. Thus,
halal chicken meat is popular among all consumers and Malaysia has one
of the world's highest per capita consumption rates at 32 kg.

With rising affluence and education levels, consumers' shopping and
eating lifestyles have changed drastically over the years. Malaysians,
especially in urban and cosmopolitan areas, prefer to shop in modern
retail outlets, which offer them one-stop shopping options. However,
traditional stores such as provision and grocery shops, which are
conveniently located in residential areas and workplaces, are still
popular.

Malaysians are adventurous in their eating habits. Eating out is common
and is relatively inexpensive. Open air, street-stall food is popular.
Fine dining restaurants and foodservice outlets incorporating
international cuisines are found in Klang Valley and other major cities
where spending power and population concentration are higher. Most
consumers frequent this type of restaurants to dine in style and comfort
and to experience the best and most sophisticated culinary standards in
the country.

With a Muslim population of 60%, the demand for halal foods by Malaysian
consumers has increased over the years. The expectation of halal
standard in food products have extended from meat and meat products to
non meat-based products such snacks, confectionery, dairy, bakery, etc.
Halal is fast becoming recognized as a new benchmark for quality,
hygiene and safety. Food products and ingredients that have halal
certificates have added marketing value in Malaysia. Hence, most
retailers, foodservice operators and food manufacturers are inclined to
ask for halal certificates for non-meat based food products and
ingredients.

**Food Standards and Regulations**

Malaysian health and food labeling requirements are fairly liberal. The
labeling requirements specify that imported and domestically produced
processed food items must be labeled in English or Bahasa Malaysia.
Labels must contain the following information:

\_ An appropriate description of the product;

\_ A list of ingredients in descending order of proportion by weight;

\_ if the item contains any animal product, a statement as to the
presence of such animal products (beef, pork, lard, gelatins, etc.,)

\_ if the item contains any alcohol, a statement as to the presence of
alcohol;

\_ the minimum net weight of the product; in the case of a product
packed in liquid, the minimum drained weight of the food;

\_ the name and address of the manufacturer;

\_ the name and address of the importer (this can be affixed at the time
of import);

\_ a statement of shelf life or expiry dates.

Certain food additives, preservatives, and artificial colorings approved
for use in the United States may not be permitted in Malaysia (See
Malaysian Food Safety and Quality Control website at
http://fsis.moh.gov.my/fqc/). Codex approved items are generally
allowed. In addition, products with labels that include phrases such as
"Contains No Palm Oil" or "Contains No Tropical Oils" will not be
allowed for import. (Malaysia is a palm oil producing country and is a
strong advocate of this commodity).

In addition to the general labeling requirements above, nutritional
labeling is compulsory for the following foods: prepared cereal foods;
various types of bread; variety of milk and powdered milk, including
sweetened condensed milk, evaporated milk and cultured milk; canned
meat; canned fish; canned vegetable, canned fruit and various types of
fruit juices, salad dressing and mayonnaise, various types of soft drink
including botanical drink, soya bean milk and soya bean drink.

Please see FAIRS Report MY6025 for more detailed information on
Malaysian food standard and requirements.

General Import and Inspection Procedures

All food consignments are subject to random checking and sampling at the
34 entry points around the country to ensure food items imported into
the country are safe and comply with the prescribed standards and
regulations. All meat, poultry and dairy product shipments must be
accompanied by appropriate USDA documentation. International freight
forwarders normally handle documentation and other formalities with
authorities at entry points. Provided all necessary documents are in
order, no problems or delays should occur in clearance of goods.

**Halal requirement and certification**

All beef and poultry products must be certified halal and the products
must originate from slaughterhouses that have been inspected and
approved by the Malaysian veterinary and religious authorities. An
Islamic Center approved by JAKIM
(<http://agrolink.moa.my/jph/dvs/kav/halal/h-usa.html>) must supervise
the slaughter and processing and issue the halal certificate for meat
and poultry. The Islamic Center must be listed by the packing plant on
the original JAKIM application form or the application must be
appropriately amended to make use of a new Islamic Center.

U.S. exporters should also be aware that importers might request for
additional certificates, which are not required by the authority, either
to meet the demand of their own customers or for marketing purposes. For
further processed food (which contains no meat), there is no known
requirements for any certificate, but exporters are encouraged to
acquire *halal* certification from approved Islamic Centers
(<http://agrolink.moa.my/jph/dvs/kav/halal/h-usa.html>) to cater to the
Muslim consumer market as Muslims account for more than half of
Malaysia's population and Muslims consume foods that are *halal.* The
*Halal* Certificate should accompany the shipment and the products
should have the approved Islamic Center's *halal* logo on their
packaging for information and marketing purposes.

# SECTION III. MARKET SECTOR STRUCTURE AND TRENDS

Malaysia continues to be a net importer of food products with annual
imports of more than \$4.5 billion

In 2005, the total imports of consumer-oriented and edible fishery
products to Malaysia were estimated at \$2.7 billion. Total imports from
the United States were \$191 million**\***, representing 7% market
share. China was the major supplier of this category with imports at
\$432 million, which is 16% of the market share, followed by Thailand
(13%), India (11%) and Australia (10%). China is projected to maintain
its position for 2006.

China is the main supplier of vegetables with reported imports at \$168
million in 2005. Turnip, cabbage, carrot, potato and garlic were among
the major items. China is the market leader for mandarin oranges (\$9.7
million), apples (\$8.5 million) and pears (\$8 million). Since the US
and China are both in the northern hemisphere with similar seasons, US
exporters have to compete aggressively with Chinese exporters who can
sell their produce at lower prices. US Valencia oranges, apples and
grapes are popular is the Malaysian market. Imports for 2005 were at
\$6.4 million, \$3.5 million and \$4.4 million respectively. Competition
is less intense with supplies from Australia and South Africa since they
have the opposite seasons.

By tradition, New Zealand is the most favored for dairy products
followed by Australia. The latter in turn is the preferred source of
meat products. In 2005, imports of full cream milk powder, skim milk
powder, butter and cheeses from New Zealand were at \$150 million while
imports of from Australia were estimated at \$116 million. US whey is
finding a growing market, estimated at \$4.3 million.

India is the leading supplier of red meat market with total imports of
\$140 million (98,000 metric tons) in 2005. Indian beef and buffalo meat
caters to the mass market. In the foodservice sector, competition for US
beef comes from Australia and New Zealand, with total imports amounted
to \$9.5 million and \$6 million respectively in the same year. US beef
is considered premium and is found only in high-end foodservice outlets
and restaurants serving Japanese, Korean and Western cuisines. US beef
imports resumed in July 2006 after lifting of the BSE-related ban.

Malaysia is self-sufficient in pork and poultry (broiler/eggs)
production. Chicken parts and chicken wings are imported periodically to
meet the demand from the local processing industry. In 2005, major
suppliers of chicken parts and chicken wings were the Netherlands (\$11
million) and Denmark (\$6 million). Since there is no commercial
production of turkey in Malaysia, all turkey meat is imported. US is the
leading supplier with imports of frozen whole turkey and turkey parts at
260 metric tons with CIF value of \$0.5 million. US pork exporters have
seen a growing market in the past year as shortages crop up in the local
market.

Malaysia is a net importer of fish and seafood products with an annual
import at \$498 million in 2005. Of this, an estimated \$250 million is
for imports of fish, whether live, fresh/chilled or frozen. While some
supply of fresh and frozen fish comes the East Coast of Peninsular

**\*** This data, obtained from the World Trade Atlas Database based on
Malaysia Customs data, reflected a lower import value compared to the
statistics published by the US Bureau of the Census Trade Data. US data
showed that the total exports of consumer-oriented products and edible
fish and seafood products from US were \$237 million in 2005. Exports of
fresh fruits were \$105 million but were reflected at \$18.5 million in
the World Trade Atlas.

Malaysia, Thailand is the major supplier of fish (and other seafood)
with \$111 million, followed by China (\$106 million) and Indonesia (66
million).

An increasing number of middle to high income consumers in Malaysia
demand high quality imported exotic fish and seafood, especially live,
and the bulk of these will be consumed in middle to high-end Chinese
seafood restaurants. Lobsters (Boston, Rock), abalone, oysters,
scallops, clams (Razor, Blood, Sea, Jacknife), green mussels, crabs
(Snow, King, Blue Swimmer, Dungeness), prawns (Mantis), geoduck, farmed
sturgeon, razor fish, turbot, grouper, sea bass, bamboo fish, coral
trout and carp are popular.

High-end western restaurants and high-end hotels have a demand for
premium fresh, chilled or frozen products, such as salmon, cod, Dover
sole, halibut as well as oysters, scallops, clams, lobsters, crabs and
alike. Most salmon imports (fresh/chilled, frozen and smoked) are
distributed to these types of food service outlets.

Supermarkets and hypermarkets are good for fresh chilled or frozen
lobsters, crabs, large prawns, mackerel, cod, salmon (included smoked),
Hoki, Dori, mackerel, crab meat, mussels, scallops and clams.

Opportunities exist for US fish and seafood exporters to develop their
market presence in Malaysia by supplying to these major businesses.

**Distribution for consumer-ready food products*Distribution for
consumer‑ready food products***

Private companies are the major entities in the food distribution
system. Food importers and commissioned agents place orders with foreign
suppliers and distribute to supermarkets/grocery stores and hotels in
the cities and to sundry shops in the rural areas. Several of the larger
supermarket and hypermarket chains are importing directly from overseas.

Most products from the United States enter through the ports of Klang,
Penang and Johor. Transshipment of food products through Singapore has
declined with improvement in shipping facilities offered by major ports
in Malaysia. Westport, situated in Port Klang and the newly developed
Port of Tanjung Pelepas (in Johor) have further enhanced Malaysia as a
shipping hub.

Malaysia has 7 international airports, including the newly opened Kuala
Lumpur International Airport (KLIA), one of the biggest and most modern
airports in the region. Malaysia's modern highway network is the
backbone of the country's transport system as 90% of passenger and cargo
movements are by roads. Roads link almost every town in Malaysia, and
products move efficiently between cities and rural areas. Railway lines
which connect the north, south, west and east coasts of Peninsular
Malaysia complements the road system.

**Food Retail Sector**

Malaysian households spend an average 24% of their household income on
retail purchase of foods. Purchase of foods from the retail outlets is
estimated at \$10.2 billion in 2005. Due to rising affluence and higher
education level, Malaysian consumers have become more sophisticated and
demand higher quality for the goods that they purchased.

The retail food sector includes the supermarkets and hypermarkets,
convenience stores, and traditional markets. The traditional markets
include the independent grocery stores ("mom and pop" stores) and wet
markets. Traditional markets account for 54.0% of the total retail food
sales, followed by the supermarkets and hypermarkets (33.9%) and
convenience stores (2.4%).

Independent grocery stores and wet markets are found in the residential
areas of both urban and rural towns across Malaysia. Most of the food
items sold by grocery stores are canned foods, dried foods, snack foods,
ice cream, and soft drinks. Fresh produces such as fruits and vegetables
are seldom sold and usually do not sell frozen or chilled foods other
than ice cream. However, grocery stores known as mini-markets, which are
larger and more modern than the traditional grocery stores, would sell
these food items. However, they are relatively fewer in numbers compared
to the traditional grocery stores.

Wet markets include daily wet markets operating in permanent buildings
and weekly morning and night markets operating in non-permanent
locations. Food items sold are generally fresh fruits, vegetable, meat
and fish. Imports are usually apples, oranges, grapes, carrots,
potatoes, onions, cabbages, and broccoli.

Supermarkets and hypermarkets are mainly located in the major urban
centers and are continuing to grow in numbers. Foreign-owned retailers
operating locally include Tesco, Carrefour, Makro, Dairy Farms
International (owns Giant), and Jaya Jusco. Supermarkets and
hypermarkets will continue to see the fastest growth over the next three
years. Jaya Jusco recorded sales growth of 9.6 percent in 2005 and hopes
to repeat the sales growth in 2006. French retailer Carrefour hopes to
achieve 6% sales growth. These retail stores provide good venues for
imported products and access to the middle and high-income sophisticated
consumers.

Competition among the retailers, especially hypermarkets, is intense
with large international retailers like Carrefour, Tesco and Giant
frequently engaging in price wars to establish their presence as major
players in the market. Carrefour has successfully launched the price
cuts strategy for about 1,200 products in their stores. Meanwhile,
Giant, the largest hypermarket operator in Malaysia, is reported to
sacrifice profits in order to maintain the low-price leader status.
Pressure is mounting for local retailers such as The Store to maintain
competitive prices and carry a good variety of products in order to keep
up with the international players.

The Government proposes to lift the five-year freeze on issuance of
licenses for new hypermarkets in Klang Valley, Penang and Johor Bahru
end of 2006. The licensing freeze, meant to control the growth of
hypermarkets, was implemented in 2004. However, there are additional
conditions that hypermarkets need to adhere to such as having 30 percent
local/bumiputera equity and investing at least \$2.65 million in every
new outlet with the newly introduced guidelines for foreign
participation in the distributive trade services. Although the retail
industry in general has raised their concern on the new guidelines,
which eventually will limit foreign brands being merchandised in retail
outlets, a few retailers think that the guidelines will not affect the
food retailing that much.

A recent study conducted by a retail consultant in Malaysia showed that
Malaysians are shopping more at convenience stores and petrol marts.
Increasing competition has resulted in a need for convenience stores to
become more professional. Customers are now expecting more sophisticated
offers like a wider range of better quality ready-to-eat snacks and
hot-and-chilled beverages.

**Key Entry Strategies for US Exporters**

1.  Market, distribute, and promote through the supermarkets and
    hypermarkets.

2.  Promote food products to create consumer awareness and loyalty.

3.  Appoint importers or agents that best meets the needs of the
    exporter.

4.  Ensure that processed foods are acceptable to local taste and have
    appropriate packaging.

5.  Acquire *halal* certification from recognized Islamic institution in
    the US.

**Food Processing Sector**

There are nearly 3,200 manufacturers involved in the food manufacturing
industry in Malaysia and the industry accounts for nearly 10% of
Malaysia's manufacturing output. In 2005, the food manufacturing
industry registered an output growth of 10.3 percent with sales value of
\$3.9 billion. Processed foods are exported to 80 countries, with an
annual export value of more than \$1.59 billion. Food manufacturers
operating in Malaysia include both Malaysian and multinational companies
such as Nestle, Unilever, Cerebos, and Campbell Soup.

The Malaysian government has identified the food processing industry as
a priority sector for industrial development and increase exports.
Malaysia's Ministry of International Trade and Industries (MITI)
estimates the global market for *halal* foods (foods suitable for Muslim
consumption) at US\$560 billion annually. Recognizing the potential of
the halal food industry, the Malaysian Government aims to become the
Global Halal Hub by becoming a major producer of halal food and to be in
the forefront of marketing, certification and reference for halal food
products.

In this regard, the Malaysian government has allocated \$25 million in
its 2006 budget to develop the halal industry. From this allocation,
\$6.9 million is allocated to the newly set-up Halal Industry
Development Corporation (HIDC) and another \$13.9 million is for the
setting-up of four halal parks. In addition, there are various
incentives available such as the Investment Tax Allowance for halal food
production and double deduction of expenses incurred in obtaining halal,
safety and quality standards.

With the emphasis given by the Government to promote Malaysia as an
international halal hub, the prospects for the halal food industry are
promising. Malaysia also works closely with the Organization of Islamic
Conference (OIC) countries to promote the Malaysian Halal Standard
(MS1500:2004) as the benchmark for international standard for halal
products. This is expected to further contribute to the acceptance of
Malaysia's halal food products globally.

Big corporations such as Nestle and Tesco are known to work hand-in-hand
with the government to achieve the halal hub goal. With more than 30% of
Nestle Malaysia's exports are for Middle East, and a large portion going
to markets with substantial Muslims population such as Indonesia,
Singapore and Philippines, Nestle has picked Malaysia as their global
halal food production center and currently export over \$100 million
annually. Meanwhile, Tesco Malaysia has announced its plan to export
\$2.7 million worth of halal products from Malaysia to Britain by 2011.

Changes in consumer lifestyle and government emphasis encouraging
exports of processed foods from Malaysia are the market drivers of the
country's food processing industry.

-   Malaysia's rising per capita income and increasing urban population
    has encouraged consumers to lead a more modern but busy lifestyle.
    Thus there is a trend towards meals that are convenient to prepare
    or ready to eat. Consumers are also demanding more variety in their
    foods, becoming accustomed to international cuisines including
    western foods, and also healthier foods, providing new opportunities
    for food manufacturers.

-   An important trend affecting the local food processing industry is
    the establishment of new supermarkets and hypermarkets throughout
    Malaysia. Shopping at these retails outlets is becoming increasingly
    popular among consumers. These supermarkets and hypermarkets have
    cold storage facilities to stock and display chilled and frozen
    foods. This provides opportunities for food manufacturers to develop
    and market frozen and chilled processed foods.

**Key Entry Strategies for US Exporters**

1.  Ensure quality of the raw food materials to instill manufacturers'
    confidence.

2.  Acquire *halal* certification to cater to the Muslim consumer
    market.

3.  Emphasize on the competitive advantage of the exporter's products to
    the food manufacturers.

4.  Market and promote to increase awareness among food manufacturers.

5.  Establish an efficient distribution network to maximize market
    penetration.

**Food Service Sector**

Malaysians frequently eat away from home at various low to high-end food
service establishments across the country. It is common for families to
treat themselves at least once a week eating away from home. Total
consumer spending in the retail food service sector was at \$10.7
billion in 2005.

Hotels and resorts, restaurants, and the institutional sub-sectors
represent the best potential for US exporters. The restaurant sub-sector
accounted for 70% of the total food service sales in 2005. This is
followed by the hotels and resorts (8%) and catering services to
institutions (5%). Other sub-sectors include food stalls but are not a
potential market for US exporters since they mainly serve relatively
cheap local dishes.

Malaysia's tourism industry has also led towards the growth of the food
service industry in Malaysia. Tourism is an important revenue earner for
the country. Currently it is the second largest foreign exchange earner
after manufacturing. Between 1996 and 2005, total tourist revenue
registered an average annual growth of 12.0 percent, from \$3.5 billion
in 1996 to \$8.64 billion in 2005. Of this, food and beverage is the
third largest contribution at 16.4% after accommodation (39.4%) and
shopping (20.7%). The growth in tourism is expected to fuel the growth
of restaurants offering international cuisines such as Middle Eastern
and Latin American food. With the Visit Malaysia Year 2007, tourist
arrival is expected to reach 20.1 million in 2007 and 24 million by 2010
from 16.4 million in 2005.

High tariffs and excise taxes in alcoholic beverages are deterring the
consumption of wine in the foodservice sector. The taxes, known as sin
tax, increase about 5%-10% every year. Coupled with the high mark-ups on
the wine by hotel and restaurant operators, the selling price of the
wines are exorbitant and this prohibits further consumption in
foodservice outlets.

**Key Entry Strategies for US Exporters**

1.  Conduct promotional activities to create awareness among importers
    and the food service establishments.

2.  Appoint local importers specialized in the food service industry to
    import and market the exporter's food products to the food service
    establishments.

3.  Target the mid to high-end food service establishments.

4.  Acquire *halal* certification from recognized Islamic institutions
    in the US.

5.  Maintain a product positioning strategy for the food products.

##  

# SECTION IV. BEST HIGH-VALUE PRODUCTS PROSPECTS

<table>
<colgroup>
<col style="width: 15%" />
<col style="width: 0%" />
<col style="width: 11%" />
<col style="width: 11%" />
<col style="width: 0%" />
<col style="width: 12%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 13%" />
<col style="width: 16%" />
<col style="width: 0%" />
<col style="width: 17%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="2"><strong>Product Category</strong></td>
<td><p><strong>2004</strong></p>
<p><strong>Market</strong></p>
<p><strong>Size</strong></p></td>
<td><p><strong>2004</strong></p>
<p><strong>Imports</strong></p></td>
<td colspan="2"><p><strong>3Yr.</strong></p>
<p><strong>Avg.</strong></p>
<p><strong>Annual</strong></p>
<p><strong>Import</strong></p>
<p><strong>Growth</strong></p></td>
<td colspan="3"><p><strong>Import</strong></p>
<p><strong>Tariff</strong></p>
<p><strong>Rate</strong></p></td>
<td><p><strong>Key</strong></p>
<p><strong>Constraints</strong></p>
<p><strong>Over Market</strong></p>
<p><strong>Development</strong></p></td>
<td colspan="2"><p><strong>Market</strong></p>
<p><strong>Attractiveness</strong></p>
<p><strong>For USA</strong></p></td>
</tr>
<tr class="even">
<td colspan="2">Poultry, mainly frozen turkey.</td>
<td>921,652 tons</td>
<td><p>17,652 tons</p>
<p>($25 million)</p></td>
<td colspan="3">Decline due to oversupply from local broiler
production</td>
<td colspan="2">No import duties are levied on poultry imports.</td>
<td><p>The local poultry industry is very strong.</p>
<p>Malaysians generally prefer fresh poultry, which is widely
available.</p></td>
<td colspan="2">Niche retail demand exists for frozen turkey.</td>
</tr>
<tr class="odd">
<td colspan="2">Infant food, including dairy products</td>
<td>N/A</td>
<td><p>28,357</p>
<p>tons</p>
<p>($72 million)</p></td>
<td colspan="3">20%</td>
<td colspan="2">No import duties are levied on infant milk/food.</td>
<td><p>Food cultural barriers exist. Malaysian mothers appear to prefer
cereal based infant foods.</p>
<p>Locally prepared and packed dairy products of Nestlé, Dumex and Dutch
Baby have a strong hold on the market.</p></td>
<td colspan="2">The USA is already the major supplier for bottled infant
food and the market is upgrading on the back of higher disposable
incomes.</td>
</tr>
<tr class="even">
<td colspan="2">Fruit juices</td>
<td>N/A</td>
<td><p>19,306</p>
<p>tons ($20 million)</p></td>
<td colspan="3">19% growth</td>
<td colspan="2">20% except for pineapple juice which incurs 30%.</td>
<td>The retail market for fruit juices is growing, the market is
upgrading from cordials on the back of higher disposable incomes.</td>
<td colspan="2">This market is likely to become more dynamic in future
as Malaysians start to understand these products. Opportunities will
exist for development by the U.S. pure juice suppliers.</td>
</tr>
<tr class="odd">
<td colspan="2"><p>Fresh</p>
<p>Vegetables,</p>
<p>Temperate</p></td>
<td>378,664 tons</td>
<td><p>373,664</p>
<p>tons</p>
<p>($156 million)</p></td>
<td colspan="3">7.6% growth</td>
<td colspan="2">No import duty is charged</td>
<td><p>Competition from key established suppliers from Australia,
Indonesia and China.</p>
<p>Competition also comes in the form of products from Malaysia’s own
highlands and some Asian countries.</p></td>
<td colspan="2">Demand for temperate vegetables will continue to rise on
the back of rising disposable incomes. This will provide opportunities
for U.S. suppliers able to compete with Australia, Indonesia and
China.</td>
</tr>
<tr class="even">
<td colspan="2">Frozen vegetables</td>
<td><p>42,408</p>
<p>tons</p></td>
<td><p>42,408</p>
<p>tons ($30 million)</p></td>
<td colspan="3">14% growth</td>
<td colspan="2">Nil except sweet corn which incurs 10%</td>
<td>Demand is not very varied and revolves around potatoes, peas, sweet
corn and mixed vegetables.</td>
<td colspan="2"><p>Frozen vegetables, especially potatoes from US are in
demand from Malaysian consumers.</p>
<p>Note: Food service demand is also important.</p></td>
</tr>
<tr class="odd">
<td colspan="2">Fresh fruits, temperate</td>
<td>396,575 tons</td>
<td><p>392,732</p>
<p>tons</p>
<p>($79 million)</p></td>
<td colspan="3">Marginal growth</td>
<td colspan="2">5% for strawberry, raspberry and gooseberry and 10% for
other fruits except kiwi fruit which incur 30% import duty.</td>
<td>Few barriers exist for popular products such as apples, pears,
oranges and grapes.</td>
<td colspan="2">This is one of the most attractive market segments for
the USA to develop. Demand for temperate fruits will rise on the back of
rising disposable incomes.</td>
</tr>
<tr class="even">
<td colspan="2">Dried fruits</td>
<td><p>18,380</p>
<p>tons</p></td>
<td><p>18,380 tons</p>
<p>($7.5 million)</p></td>
<td colspan="3">Decline</td>
<td colspan="2">10% except for Dates, which incur no import duty.</td>
<td>Mature traditional demand exists except for dates which are growing
rapidly on the back of rising disposable incomes.</td>
<td colspan="2">Attractive to U.S. suppliers with market driven approach
to business with Malaysia.</td>
</tr>
<tr class="odd">
<td colspan="2">Edible nuts</td>
<td>9,848 tons</td>
<td><p>9,848 tons</p>
<p>($22 million)</p></td>
<td colspan="3">27% growth</td>
<td colspan="2">Nil, except for roasted groundnuts which incurs 20%
import duty.</td>
<td>Major demand growth is from the food industry.</td>
<td colspan="2">This market should not be ignored. The USA is already
the major supplier and the market is upgrading on the back of higher
disposable incomes.</td>
</tr>
<tr class="even">
<td>Dog and cat food for retail sale</td>
<td colspan="2">16,567 tons</td>
<td colspan="2"><p>16,567 tons</p>
<p>($21.3million)</p></td>
<td colspan="3">31%</td>
<td>No import duties are levied on dog or cat food.</td>
<td colspan="2">Few constraints/ barriers exist under conditions where
disposable incomes are growing.</td>
<td>Attractive for committed suppliers wishing to actively develop
markets on a long-term basis.</td>
</tr>
<tr class="odd">
<td>Wine</td>
<td colspan="2">43 million liters</td>
<td colspan="2"><p>43 million liters</p>
<p>($25 million)</p></td>
<td colspan="3">13% growth</td>
<td><p>Import: RM15/ltr</p>
<p>Excise duty: RM23/ltr</p>
<p>Excise tax: 15% of CIF value,</p>
<p>Sales tax: 5%</p></td>
<td colspan="2"><p>Duties on alcoholic drinks moderate consumption.</p>
<p>Wine may have benefited from a switch from use of spirits, e.g.
brandy, at celebrations, e.g. ethnic Chinese weddings.</p></td>
<td>This is an attractive market for U.S. exporters underpinned by
increasing disposable incomes as well as the apparent switch away from
spirits.</td>
</tr>
</tbody>
</table>

# SECTION V. KEY CONTACTS AND FURTHER INFORMATION

If you have any questions or comments regarding this report or need
assistance exporting high value products to Malaysia, please contact the
Office of Agricultural Affairs at the U.S. Embassy in Kuala Lumpur at
the following address:

Office of the Agricultural Affairs

> U.S. Embassy - Kuala Lumpur

APO AP 96535-8152

Tel : (011-60-3) 2168-4985/2168-4884

Fax : (011-60-3) 2168-5023

email: agkualalumpur@fas.usda.gov

For more information on exporting U.S. agricultural products to other
countries, please visit the Foreign Agricultural Service homepage:
http://www.fas.usda.gov.

**Malaysian Regulatory Agencies / Other Trade Contacts**

Director

Food Safety and Quality Division

Ministry of Health Malaysia

Level 3, Block E7, Parcel E

Federal Government Administration Center

Putrajaya 62518

Tel: +6-03-8883\--3888

Fax: +6-03-8889-4971

Http://dph.gov.my

Director General of Customs

Royal Customs and Excise Headquarters Malaysia

Ministry of Finance Complex

Precinct 2, Federal Government Administration Center

62596 Putrajaya.

Tel : +(6-03) 8882 2100

Fax : +(6-03) 8889 5899

http://www.customs.gov.my

Director

Veterinary Public Health

Department of Veterinary Services,

Wisma Tani, Podium Block,

Lot 4G1, Prescinct 4, Putrajaya.

Tel: +60-3 8870 2000

Fax: +60-3 88882685

http://agrolink.moa.my/jph

# APPENDIX I. STATISTICS

# A. KEY TRADE & DEMOGRAPHIC INFORMATION

  ----------------------------------------------------------- -----------
  Agricultural Imports From All Countries (US\$Mil) / U.S.    6,260 / 7%
  Market Share (%)                                            

  Consumer Food Imports From All Countries (US\$Mil) / U.S.   2,233 / 8%
  Market Share (%)                                            

  Edible Fishery Imports From All Countries (US\$Mil) / U.S.  498 / 1.7%
  Market Share (%)                                            

  Total Population (Millions) / Annual Growth Rate (%)        26.13/ 2.4%

  Urban Population (Millions) / Annual Growth Rate (%)        *17.0 /
                                                              2.5%*

  Number of Major Metropolitan Areas                          9

  Size of Middle Class (Millions) / Growth Rate (%)           15 / 2.5%
  (estimate)                                                  

  Per Capita Gross Domestic Product (US Dollars)              \$5,582

  Unemployment Rate (%)                                       3.5%

  Per Capita Food Expenditures (U.S. Dollars)                 \$1,200

  Percent of Female Population Employed                       45.8%

  Exchange rate (US\$1 = X.X local currency)                  US\$ = 3.69
                                                              RM
  ----------------------------------------------------------- -----------

# TABLE B: Consumer Food & Edible Fishery Products

+-----------------------------------------------+-------+-------+------+
| # Malaysia Imports                            | Im    |       |      |
|                                               | ports |       |      |
|                                               | from  |       |      |
|                                               | the   |       |      |
|                                               | World |       |      |
+-----------------------------------------------+-------+-------+------+
| **(In Millions of Dollars)**                  | 2003  | 2004  | 2005 |
+-----------------------------------------------+-------+-------+------+
| **CONSUMER-ORIENTED AGRICULTURAL TOTAL**      | 1520  | 1991  | 2233 |
+-----------------------------------------------+-------+-------+------+
| Snack Foods (Excl. Nuts)                      | 63    | 74    | 155  |
+-----------------------------------------------+-------+-------+------+
| Breakfast Cereals & Pancake Mix               | 10    | 11    | 21   |
+-----------------------------------------------+-------+-------+------+
| Red Meats, Fresh/Chilled/Frozen               | 156   | 224   | 245  |
+-----------------------------------------------+-------+-------+------+
| Red Meats, Prepared/Preserved                 | 8     | 8     | 7    |
+-----------------------------------------------+-------+-------+------+
| Poultry Meat                                  | 48    | 24    | 25   |
+-----------------------------------------------+-------+-------+------+
| Dairy Products (Excl. Cheese)                 | 306   | 401   | 409  |
+-----------------------------------------------+-------+-------+------+
| Cheese                                        | 13    | 20    | 23   |
+-----------------------------------------------+-------+-------+------+
| Eggs & Products                               | 3     | 4     | 3    |
+-----------------------------------------------+-------+-------+------+
| Fresh Fruit                                   | 98    | 101   | 104  |
+-----------------------------------------------+-------+-------+------+
| Fresh Vegetables                              | 216   | 283   | 308  |
+-----------------------------------------------+-------+-------+------+
| Processed Fruit & Vegetables                  | 100   | 119   | 134  |
+-----------------------------------------------+-------+-------+------+
| Fruit & Vegetable Juices                      | 14    | 18    | 17   |
+-----------------------------------------------+-------+-------+------+
| Tree Nuts                                     | 12    | 16    | 22   |
+-----------------------------------------------+-------+-------+------+
| Wine & Beer                                   | 39    | 64    | 47   |
+-----------------------------------------------+-------+-------+------+
| Nursery Products & Cut Flowers                | 4     | 6     | 4    |
+-----------------------------------------------+-------+-------+------+
| Pet Foods (Dog & Cat Food)                    | 13    | 19    | 21   |
+-----------------------------------------------+-------+-------+------+
| Other Consumer-Oriented Products              | 417   | 601   | 688  |
+-----------------------------------------------+-------+-------+------+
|                                               |       |       |      |
+-----------------------------------------------+-------+-------+------+
| **FISH & SEAFOOD PRODUCTS**                   | 355   | 512   | 498  |
+-----------------------------------------------+-------+-------+------+
| Salmon                                        | 13    | 16    | 16   |
+-----------------------------------------------+-------+-------+------+
| Surimi                                        | 9     | 10    | 8    |
+-----------------------------------------------+-------+-------+------+
| Crustaceans                                   | 90    | 197   | 177  |
+-----------------------------------------------+-------+-------+------+
| Groundfish & Flatfish                         | 46    | 61    | 72   |
+-----------------------------------------------+-------+-------+------+
| Molluscs                                      | 12    | 15    | 19   |
+-----------------------------------------------+-------+-------+------+
| Other Fishery Products                        | 185   | 213   | 206  |
+-----------------------------------------------+-------+-------+------+

# 

# 

# Table C: Top 6 Suppliers of Consumers Foods & Edible Fishery Products

+---------+---------------+-------------+------------+----------------+
| **Ra    | **Country**   | **2003**    | **2004**   | **2005**       |
| nking** |               |             |            |                |
|         |               | **(\$       | **(\$      | **(\$          |
|         |               | Million)**  | Million)** | Million)**     |
+---------+---------------+-------------+------------+----------------+
| 1       | China         | 282         | 366        | 432            |
+---------+---------------+-------------+------------+----------------+
| 2       | Thailand      | 295         | 352        | 357            |
+---------+---------------+-------------+------------+----------------+
| 3       | India         | 165         | 253        | 290            |
+---------+---------------+-------------+------------+----------------+
| 4       | Australia     | 215         | 260        | 285            |
+---------+---------------+-------------+------------+----------------+
| 5       | New Zealand   | 199         | 257        | 243            |
+---------+---------------+-------------+------------+----------------+
| 6       | United States | 112         | 172        | 191            |
+---------+---------------+-------------+------------+----------------+
|         | Others        | 443         | 568        | 721            |
+---------+---------------+-------------+------------+----------------+
|         |               | **1,875**   | **2,503**  | **2,731**      |
+---------+---------------+-------------+------------+----------------+

**Source: World Trade Atlas**