Opinion: New Indonesian halal law seen disrupting business, hurting SMEs

Jakarta: ABOUT 20km from the centre of Jakarta, on the last stop of one of the main bus routes into town, sits a modest three-story building. A circular driveway arcs around a disused fishpond resembling the approach to a tired local government building.

Instead, this is the unlikely location of the headquarters for the Halal Product Certification Agency (BPJPH) – the nerve centre for one of the biggest regulatory changes Indonesia has seen. Starting in 2019 all food, drink, textiles, even pharmaceuticals will need to be certified whether they comply with Islamic law.

The changes will affect potentially hundreds of billions of dollars on consumer products. Even the agency’s newly minted director, Dr Sukoso, and his staff of 45, admit they face a steep curve.

“My government gave me a building like this so we must work here,” says Dr Sukoso, who like many Indonesians uses only one name.

“We don’t need 45 people. We need more than a 1000.”

The state of Dr Sukoso’s resources and his location underscores the predicament in which that the administration of President Joko Widodo finds itself.

The last law passed by the previous parliament in the final days of Mr Widodo’s predecessor, Susilo Bambang Yudhoyono, the new halal law is thought to be the most sweeping. Industry groups worry the country’s 1.3 million small and medium sized businesses selling everything from tofu to fried rice will be buried in compliance costs which may reach as much as S$4.4 billion.

“The small mom-and-pop shops can’t afford that,” says Hariyadi Sukamdani, the chairman of the Employer’s Association of Indonesia (Apindo).

“It could be a disaster for them.”

Small businesses face headaches from everything from reprinting labels, which can cost S$7,000 per product as well as how to dispose of finished goods that can have a shelf life of three years.

“We would have to throw away everything,” says Adhi Lukman, the chairman of the Indonesian Food and Beverage Association.

“This is huge.”

Mr Lukman, who is also director of PT Niramas Utama, which makes popular fruit jellies, says bottlenecks loom.

The previous voluntary regime, which was overseen by the Indonesian Ulema Council, a semi governmental body of Muslim clerics, doled out 35,000 halal certificates over five years. The Food and Beverage segment has more than 1.6 million companies and tens of millions of products that will need to be inspected.

“In general this halal act will disrupt business in Indonesia,” Mr Lukman says.

One rationale for the sweeping changes in certification rules is to position Indonesia as the benchmark for halal certification. Muslim consumer spending is expected to reach US$2.6 trillion by the end of the decade from roughly US$1.9 trillion in 2014. Indonesia’s 204 million people consume about US$138 billion of food every year, according to the Economic Research Institute for Asean and East Asia.

Food safety may be another reason. The strict rules that make it easier to trace products and their raw materials under halal certification may offer more peace of mind for pickier consumers as well as appeal to the pious, Dr Sukoso said.

That may be, but businesses are hoping that Mr Widodo will hold off on orders to enact the legislation until after local and presidential elections that get started next year. One scenario has Mr Widodo, flush with a new mandate, should he win, use that added leverage to press parliament to amend the legislation to make the standards voluntary again.

That may be wishful thinking as Islamic conservatives enjoy more clout. Earlier this year mass demonstrations by conservatives led to the ouster of Jakarta’s Christian governor of ethnic Chinese descent, Basuki Tjahaja Purnama, at local elections.

“The political environment here is very delicate for Jokowi after the Jakarta election,” said Apindo’s Mr Sukamdani.