Halal and the economy

This year should see Indonesia enact a dramatic new law on halal products, making it the world’s largest halal market. But what are the implications?

Halal and the economy AFP Photo/Adek Berry

Halal, or what is permissible in Islam, has been a contested topic of discussion within the Indonesian public sphere dating back to the 1990s. The awareness of consuming halal products has been obligatory for Indonesian Muslims for a very long time. In particular, “halalness” became an issue in Indonesia’s public and legal spheres years ago when traces of pork enzymes were discovered in Dancow brand milk products in East Java Province. 

Muslim consumers protested the company after its products were discovered through the research of Brawijaya University to be contaminated with impurities (najis). The government of the late president Soeharto instructed the Indonesia Ulama Council (MUI) to intervene and help find a solution. The issue affected economic stability in East Java, especially for milk farmers who were not able to sell their products to the company.

Genesis of the halal institution 

The MUI came up with a new idea, to establish an institution that would monitor, investigate and determine the lawfulness of halal products and goods available for sale in the public domain. In 1989, the MUI established the Research Institute on Food, Medicine and Cosmetics, better known as LPPOM-MUI, with a mandate to become a halal institution. Although LPPOM-MUI was established with the full support of the Soeharto administration, it was not given the power to compel producers and vendors to halal-certify their products. As a nonstate organization, it could only flex its cultural and religious influence, and project its moral standing among the Indonesian Muslim community in general, and vendors and producers of goods (food, drink, medicines and cosmetics) in particular, when discussing the importance of the “halalness” of goods. 

Despite its limited authority and capacity, after three decades LPPOM-MUI has nonetheless claimed success in cultivating the halal lifestyle not only among Indonesian consumers, but also general market players. This is evident from the number of vendors and producers who seek certificates for their products. LPPOM-MUI not only operates at the national level, but also internationally. Many international certifiers from European countries, Australia, the Americas, Turkey and other Muslim countries come to seek permission from LPPOM-MUI to become international halal certifiers. The biggest accomplishment of the MUI was its ability to lobby Indonesia’s Parliament to pass Law No 33/2014 on Halal Product Assurance.

Regulating halal 

Indonesia, nonetheless, is relatively late in regulating halal products through state policy in comparison to Malaysia, Turkey and other Muslim-majority countries. Since independence, Indonesian Muslims, as the primary stakeholders of “halalness” in the country, never took issue with what they consumed and produced. There was therefore no real need for national regulations guiding them on what is halal and non-halal (lawful and unlawful). 

“Halalness” or otherwise was considered a private matter that Indonesian Muslim consumers could determine through self-control, without the need for state intervention. Proposing a state law regarding halal could also be seen as elevating the issue of Shariah law to the public sphere. However, following the development of the halal market, on the one hand, and the growing piety of Muslims, in general, Indonesian lawmakers felt it important to have a law on halal issues. State Law No 33/2014 on Halal Product Assurance was officially legislated in 2014; in 2019 this law will be fully enacted. It stipulates that having a halal certificate is an obligation and mandatory for all actors that produce goods. For those who do not wish to mark their products with the halal label, their only choice is to declare their products and goods as non- halal (haram, or forbidden). This means there will only be two categories of commodities and products in Indonesia: halal and non-halal or haram. Although the non-halal label does not necessarily indicate the unlawfulness of such products, in reality such a labeling can create a

Businesspeople and entrepreneurs do not want to be forced by law to spend extra for getting halal certificates in relation to their potential profit from the halal market.

negative image in the market. The public and consumers will pass judgment by not buying and consuming non-halal commodities and products.

The market and Islamic piety 

The consequence of the law on halal is the expansion of the halal space. This expansion covers two issues: the creation of a new market and the significant rise of Shariah- based piety among Muslim consumption. On the creation of a market, when the new law was officially declared, the response from the business community was not quite positive. Businesspeople and entrepreneurs do not want to be forced by law to spend extra for getting halal certificates in relation to their potential profit from the halal market. However, they are aware of the halal market potential because 86 percent of the Indonesian population is Muslim and, as such, is the largest Muslim market in Asia. 

On the rise of Shariah-based piety, the enactment of this law is potentially understood and acknowledged as a manifestation of the growing Islamic consciousness in Indonesia. Halal is not only about extending market space for Muslim people to eat, drink and consume goods, but also about extending the obligatory practice of Shariah. This assumption is realistic, considering that the enactment of this law goes together with the rise of Islamic piety and Islamic identity politics over the last decade in the Indonesian public sphere. 

What’s next? 

There are two things that can be anticipated. First, State Law No 33/2014 on Halal Product Assurance does not provide negotiating room for those who disagree with it. It is true that the content of the law is very “Shariah,” but this law provides a battlefield not only for Muslims but also for others. The market is not about Islamic and un-Islamic, but about how to produce commodities that attract people to buy and consume. This is the commercial side of the law on halal

Finally, the economic implication of the halal policy is that there will be an increase in and escalation of Muslim entrepreneurship in Indonesia. The number of small business actors in Indonesia is around 3.6 million, and the majority of them are Muslim entrepreneurs and businesspeople. The law on halal assurance says that the state will subsidize the cost of halal certificates for small businesses. This means that the consequence of the state law is the possible mushrooming of Muslim entrepreneurship and businesses due to state support. This potential increase in the Muslim business space will have an impact on the shifting economic structure, from a concentration on high capital business to small and mid-size businesses.



"Syafiq Hasyim is a visiting fellow with the Indonesia program of the S Rajaratnam School of International Studies (RSIS) at Nanyang Technological University in Singapore. This essay is courtesy of RSIS."

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