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Home , Fish sauce, Lidah, Pickled fruit, Tapai

SMALL-SCALE PROCESSING ENTERPRISES IN

Ghani Senik Food Technology Research Station MARDI, 16800 Pasir Puteh , Malaysia

ABSTRACT

Small-scale food enterprises have played a very important role in the Malaysian economy, particularly in terms of employment generation, better income distribution and as a training ground for entrepreneurs before they invest in larger enterprises. Small-scale food enterprises also have important linkages to related industries such as the manufacture of machinery, and food packaging materials, and suppliers of food ingredients. It is envisaged that small-scale food enterprises will continue to expand in line with policies and incentives introduced by the government.

INTRODUCTION enterprise is one with net assets of US$200,001 - US$1.0 million. Food It is usual to discuss small- and processing companies are generally perceived medium-scale industries in Malaysia as a as agro-based industries which have a strong single group. There are an estimated 30,000 backward linkage. However this is not the such enterprises in Malaysia. A recent survey case in Malaysia, where it is estimated that conducted by the Ministry of International over 70% of the raw materials used in food Trade and Industry showed that they are of processing are imported (Ministry of four main types: processed (33%), wood International Trade and Industry 1993). This products, (24%), fabricated metal (15%) and is particularly true in the production of animal building materials (9%) (Malaysian Industrial feed and wheat-based products. Development Authority et al. 1985). These small and medium-sized industries play a very Profile of Small-Scale Food Processing important role in the Malaysian economy, especially in terms of generating employment. Small-scale food processing enterprises They also have a favorable impact on income exhibit certain characteristics which distinguish distribution in the country, and serve as a them from their large-scale counterparts (Chee training ground in developing the skills of 1986). industrial workers and entrepreneurs. They are usually organized as a family business, or have a single proprietor. THE FOOD INDUSTRY However, as the enterprise expands, a partnership normally evolves, leading There are more than 9000 food eventually to the formation of a limited processing factories in Malaysia, of which company. The location of the enterprises 95% are classified as small-scale. Small-scale tends to be evenly distributed. They are enterprises are defined as those which have found in both rural and urban areas, although shareholders’ funds or net assets of some have already been relocated in industrial US$200,000 or less, while a medium-size areas.

Keywords: Small-scale food processors, resource utilization, potential products, issues and problems, relevent policies and incentives.

1 Many small-scale food enterprises operate Products under a simple organizational structure, consisting of the manager-owner assisted by a On the coast of Peninsular Malaysia, few workers. especially in the states of Kelantan, The products are generally relatively Terengganu and some parts of Pahang, fish cheap and of rather low quality. Marketing is are processed into called ‘keropok’ done directly or through agents. ( crackers). More than 100 small- scale processors are engaged in this business. CURRENT STATUS OF FOOD RESOURCE The crackers are made by mixing minced fish UTILIZATION meat with flour, flour, and monosodium glutamate. The mixture is then The utilization of food commodities such moulded into cylinders, steamed, cooled, sliced as meat, fish, vegetables, and grains do and sun-dried. not differ very much from one part of Other popular products made from fish Malaysia to another. The utilization of food are fishballs, salted dried fish and fermented resources can be described under various fish. are processed by soaking the headings. degutted fish in a saturated brine solution overnight, before drying them in hot sun for Meat Processing two or three days. These activities are mostly located near fish landing sites. Malaysia has more than 32 companies are processed by blanching which are involved in meat processing. The them in a mild brine solution and drying them major products are sausages, canned chicken in the sun. The product is sold as dried and canned pork. Cooked long-life meat anchovies, and there is a very good market dishes in pouches is processed for both demand for them in Malaysia. In some areas, domestic and export markets. In small-scale anchovies are processed by fermenting them in processing, meat is made into various a saturated solution of salt for six months. products such as meat floss, They are then boiled with , lemon dried curried or spiced meats, and . juice, palm sugar, salt, permitted preservative There are more than 50 small-scale and other ingredients to make a fish . entrepreneurs actively involved in this. This product is sold in bottles of various sizes, usually in local markets. Dairy Products Vegetables The dairy product industry is largely dependent on imported dairy milk powder. At Most vegetables are grown for fresh present, Malaysia's imports of dairy products consumption. However there is some show an annual growth rate of 11.5%. Milk processing of vegetables, such as chili peppers powder is normally repacked or processed pickled in , made from , further into products such as sweetened and pickled amaranthus. The main problem condensed milk, ice-cream, yoghurt and in vegetable processing is the shortage of raw flavored drinks. materials. Chili peppers are also being used Malaysia is also producing some fresh in the preparation of various kinds of chili milk for local consumption. This is either sauce, used for dipping products such sold as fresh milk or processed into ‘dadeh’, as fish crackers and roasted fish or meat. a traditional yoghurt flavored with e.g. They are also eaten mixed with noodles and cocoa or rosewater. These activities are being other pasta products. carried out under the supervision of the Many small-scale entrepreneurs who Veterinary Service Department of Malaysia, process chili-based products have to depend on which has processing facilities at its milk imported dried chilis from India or . collecting centers in various parts of the Similarly, the puree which is used in country. These centers also act as marketing tomato sauce factories is imported from outlets for the fresh milk produced by small- abroad. Soybeans imported from USA, China scale dairy farmers who own a few dairy and Canada are widely used to make soy cows. 2 sauce, (=beancurd), and soybean milk traditional fermented product known as ‘’. drinks and other products. Soybean processing It is processed by cutting the roots has become a very lucrative business. Today, transversely into lengths of 5 - 7 cm, or into total sales from the industry alone cubes 2 - 3 cm across. The pieces are then account for more than US$ 41 million each inoculated with a traditionally prepared year, and this is increasing. culture. MARDI has developed pure cultures Pumpkins are grown widely after the of Amylomyces and Saccharomyces which are tobacco crop in tobacco-growing areas of available for sale to the industry. After 3 - Kelantan. Pumpkin has become a traditional 4 days, the product is ready to be marketed. dish during certain parts of the year. It is Again, this activity is being carried out by processed by cooking it in a heavy of small-scale processors who either plant their palm sugar. Pumpkin is also widely used in own cassava or buy it from traditional farmers the preparation of traditional . It is who grow cassava as part of their normal recorded that more than 20 kinds of traditional agricultural activities. Thus this product is cakes are prepared from pumpkin, but these very much localized in rural areas. Tapai is have yet to be promoted commercially. They normally sold in open-air markets or in street are normally processed by family households stalls. Similarly, is being and sold in traditional outlets such as processed into flour and snack products. restaurants, office canteens, coffee stalls and market stalls.

Root Crops Many different kinds of fruits are grown in Malaysia, but except for pineapple they are Two root crops which are being mainly grown on a small scale. A few extensively processed into snack products are commercial farms have started to produce cassava and sweet potato. Sweet potato is banana, guava, papaya and starfruit on a grown in the tailings left after tin mining, larger scale, mainly for local consumption but while most cassava is grown in clay loamy also for export. soils. Pineapple is normally processed into Small-scale entrepreneurs are normally canned products such as pineapple cubes in involved in the processing of snack products syrup. Small-scale food processors mainly use from cassava. Much of it is being carried pineapple for dried products, pickles, jelly, out by groups of women under the confectionery, fruit juice and cordial drinks. Department of Agriculture, the Rubber Fruits such as jackfruit and guava are Smallholders' Development Authority, and processed by being dried, pickled, or made other government agencies which are involved into jam and fruit drinks. in the eradication of poverty in Malaysia. Malaysia has many types of indigenous Suitable varieties of cassava are the non- fruits, which are not being used to their full bitter type. Roots are dug up 6 - 9 months potential. They are grown sporadically on a after planting, and are washed, peeled, soaked small scale by farmers, and the fruits are in a brine solution and then cut into slices seasonal in nature. Encouragement is being less than 1 mm thick. The slices are then given to farmers or processors to pickle these deep fried, cooled and packed in bulk for fruits, since the pickles sell well in Malaysia. further repacking. At present, Malaysia is still importing more In some places, cassava is being than US$ 2 - 3 million worth of pickled processed into snacks by grating it and mixing fruits from neighbouring countries each year. it with flour and other ingredients. The Altogether, Malaysia is importing more than mixture is then molded into cylinders 2 - 5 US$15 million worth of processed fruit each cm in diameter, steamed, cooled and dried in year. the hot sun or mechanically dried before deep Bananas are widely used in snack food frying. This type of product is available in production. Mature bananas 90 - 95 days various flavors and colors. after flower setting are the most suitable for Besides being processed into snacks, snack products. The bananas are peeled and cassava is also used in the production of a sliced, and the slices cooked in hot oil at 3 190°C. The crisp slices are then cooled and bottled coconut sap and palm sugar. These packed in plastic. Products of this nature are products are sold domestically. The scale of normally processed by women’s groups, under such processing is small, and methods of the supervision of various government agencies production are traditional and very laborious. involved in improving the livelihood of rural Other products from coconuts are canned people. green , *, various This type of venture tends to expand as hard candies, copra, vinegar and ‘kerisek’, a time passes, particularly in terms of local product made by roasting grated coconut technological improvement, product meat and grinding it into a . Kerisek is diversification and market coverage. widely used in traditional cooking. There are several other types of banana snacks, including banana crackers with various Sago flavors, sugar-coated banana snacks, salted banana snacks and spicy banana snacks. Sago palms are abundant in Sarawak, These products are available in packs of and are found sporadically in swampy areas in various sizes, and are normally graded into other parts of Malaysia. Sago palms in various categories based on shape, size and Sarawak are utilized for the production of color, in keeping with market requirements. sago pearls and starch. Sago starch is used is popularly known as the ‘King as a stabilizer and thickener, and as a of Fruits’ in Malaysia. Besides being eaten substitute for modified corn starch. Malaysia fresh, it is processed into various traditional is exporting more than 25,000 mt of sago products such as durian (locally known starch each year, worth more than US$4 as ‘lempuk’), the fermented ‘’, or million, to Singapore, United Kingdom, Hong (durian cooked with glutinous , palm Kong and Taiwan. Many of the sago sugar and coconut milk). processing factories are small establishments Durian can also be processed into which use traditional methods of starch modern products such as durian powder, extraction. Efforts are being made to which in turn can be used for biscuits, cakes modernize their production. Another popular and ice-cream. Durian is also being used to product made from sago is tabaloi, a snack make candy. The flesh is cooked with food which has been modernized in its condensed milk and sugar until a moisture production. content of 10% is reached. Coffee Palm Based Products Coffee is grown under coconut palms in The most widely utilized palms are Malaysia, either in plantations or on coconut and sago. Other species are found smallholder farms. Dried coffee beans are sporadically, but it is not economic to process used for the production of various types of them. coffee powder and coffee powder mixtures. There are more than 20 small-scale processors Coconut of coffee powder in Malaysia. About 45% of the beans they use are produced locally, the Coconut palms are found abundantly remainder are imported. Coffee powder throughout Malaysia, and are grown on mixtures are produced by roasting the beans plantations as well as by smallholders. mixed with granulated sugar, margarine and Coconut meat is processed into desiccated other permitted fillers, and grinding the result coconut, instant milk powder, and instant into a coarse or fine powder. coconut cream powder. These products are being manufactured on a large scale to cater Cocoa for local and export markets. Products from small-scale food processors are limited to a Malaysia is the world’s fifth largest few product lines such as coconut candy, producer of cocoa beans. The beans are sold

* Nata de coco: Green coconut milk mixed with sugar and fermented in an acidic medium to form a firm, clear jelly. (Ed.)

4 dried as a primary product to the processors, a mixer, a roller, a moulder, an oven who in turn process the beans into cocoa and a bread slicer. The capital cost for , cocoa powder and chocolate. Cocoa setting up a bread factory is around and cocoa are also produced in small US$70,000 - 80,000.00. quantities. Cocoa butter is processed for Supermarkets, minimarkets and retail export, while cocoa powder and chocolate are shops are the usual market outlets for this sold on the domestic market. type of product. Rice is used in the manufacture of vermicelli, and various snacks. These products are made by small processors in both At present there are more than 150 urban and rural areas. Wet products made small-scale processors of spices, most of from rice are numerous. These include whom produce around 100 - 200 kg of traditional cakes and buns made in the early finished product per day. Ground pepper and morning and sold by evening the same day. powder are common spices, but each These products are sold on food stalls, and in processor produces more than one product school canteens, restaurants and markets, and line. Marketing is normally confined to the many Malaysians have the habit of eating local community. Malaysia’s industry is them for . These products have the worth more than US$12 million per year, and potential for further development, but need is continuing to expand. improvement in terms of preparation, The technology for producing spice packaging and machinery usage. Glutinous powders is very simple. Coarse grinding is rice is used in the manufacture of a puffed followed by fine grinding. The machinery snack product called ‘bepang’, by mixing it used is normally a hammer mill with various with palm sugar and glucose syrup as a sieve sizes for coarse grinding, and a series of binder. This snack product is popular two to three disc grinders for fine grinding. throughout Malaysia, and is available in many In some factories a more advanced grinding forms and flavors. A number of other machine is used. traditional products are made from rice. The preparation of mixed spices has undergone some changes quite recently. In POTENTIAL PRODUCTS TO BE PROMOTED place of the traditional dry powders, many consumers prefer various forms of paste. Many food products which are being These are relatively new products, and are processed by small-scale entrepreneurs are more convenient to use. highly acceptable to consumers. These The spice industry in Malaysia is heavily products have the potential to expand their dependent on imported raw materials such as market size, especially if there are dried chili peppers from China and India, and improvements in product quality, and attractive from . Tumeric, packaging. More aggressive market strategies seed, cumin seed, and other spices and promotion are also needed. The are also imported. availability of good quality raw materials, and whether it is cheaper to produce these locally Cereal Products or import them, are also very important factors to be considered. Some of the Wheat is the major grain used in the potential products are as follows: manufacturing of biscuits, bakery products, noodles, cookies and snack products. Snacks Malaysia is a importer of wheat grain. This is milled into wheat flour and processed Fish crackers, a local snack made from in various ways. Bread is widely consumed fish, are popular among Malaysian people. in Malaysia, and is produced by more than They are available either as a ready-to-eat 1000 bakeries throughout the country. Most product, or as an uncooked dried product with of these are small, and make cakes and a moisture content of 5 - 7%, which still has pastries as well as bread. The machinery to be fried. used normally includes standard items such as Nutritionally, fish crackers are rich in 5 protein (15% minimum), Ca and P. They are Meat, Fish and Chicken Floss made in a variety of shapes, sizes and flavors. This product has export potential. Floss made from meat, fish or chicken There are also some traditional snack floss is another product which has potential products based on wheat flour, which are for export. However, this product needs known by their local names (e.g. gegetas, improvement in terms of quality, packaging buaya etc.). These products are and labeling. prepared by and are packed in plastic. They have a protein content of 6 - PROBLEMS OF SMALL-SCALE 8%, with 80 - 90% carbohydrate. The FOOD ENTERPRISES potential of these products is very high, if they are packaged in an attractive way, and if Major Constraints in Food Processing a range of products are sold in a single package as gifts. The establishment and successful operation of small-scale food processing Frozen Foods enterprises face several constraints.

Frozen ready-to-eat foods are becoming Insufficient Supply of Good-quality Raw more popular as housewives and office Materials workers become busier. Frozen foods made from chicken, such as small goods and Vegetable production in Malaysia is speciality products, should be promoted among mainly on a small scale. Mixed cropping is small-scale enterprises. Frozen snacks and practiced, and farmers grow crops mainly for cookies made from wheat, such as curry puffs fresh consumption. There are usually and doughnuts, are now being sold by insufficient vegetables for processing. supermarkets, and are well received by Fruits are normally seasonal and consumers. Frozen products processed by perishable. Malaysia lacks a proper rheon machines are also beginning to make postharvest handling system for fruit except on their way into supermarkets. commercial farms. Since fruit is being grown Thus prepared ready-to-eat food in frozen on many small, scattered farms, collection is form is another area worthy of promotion. inefficient and quality is inconsistent. Some raw materials such as soybean and Cocoa Products dried chili peppers are imported, since it is cheaper to import them than produce them The manufacture of cocoa products such locally. as chocolate drinks and chocolate products is being encouraged by the Cocoa Board of Low Level of Technology Malaysia. Such products are well supported by a constant supply of locally grown cocoa Small-scale food processing enterprises beans. generally use traditional methods of processing such as and snack food production. Tropical Fruit Products This is because of financial constraints, which means that they cannot afford sophisticated There are ample opportunities for tropical machinery, and a lack of technical infor- fruit products to enter the world market. mation. Such products include fruit concentrate and pulp, fruit juices and also dehydrated fruit, Research and Development (R&D) confectionery jelly, fruit nectar, and many others. At present, local demand No research activity is undertaken at a for some of these products is met by imports, factory level. Most of the research and such as juice from India. development on food processing technology is

6 undertaken by research institutions such as the education tend to be less receptive to new Food Technology Research Centre, MARDI technologies compared to their counterparts and some universities. who have a college education. This has made it difficult to transfer new technology and Competitive Market improve productivity.

Many small-scale food enterprises are all Lack of Industrial Sites processing much the same type of products, such as , snacks, beverages and bakery Many small-scale food entreprises operate products. These are all items which require a as backyard industries located near the owner's low initial capital investment and a low level house. They need better premises with a of technology. Because of the number of proper drainage and sewage system. The firms involved, they face stiff competition in industrial sites offered are too expensive for terms of their market share. them to afford. However, some enterprises are able to expand their enterprises, because they are Lack of Finance innovative and have an aggressive market strategy. This is a common problem facing small- scale food enterpreneurs. Financial institutions Quality Problems have more confidence in big industries, while small-scale industries have little collateral. The product quality of small-scale food They also have problems in preparing a enterprises is inconsistent, due to a lack of project paper to show the viability of their facilities for quality control or awareness of business and its future plans. the need for these, and due to poor manufacturing practices. Management

Lack of Small-Scale Food Processors' Most small-scale food enterprises are Associations managed by the owners, who do not know modern techniques of management, including There is no association of small-scale book-keeping and maintaining proper records. food processors, or if such an association They are not innovative and motivated. They exists it is inactive. The lack of any tend to be satisfied with what they have organization to safeguard the interests of its achieved. members has led enterprises to compete among themselves for the same market share POLICIES AND INCENTIVES FOR THE by lowering their selling prices. DEVELOPMENT OF FOOD PROCESSING

Food Regulations To support the growth of food processing enterprises, an Industrial Master Some products such as chili sauce, Plan was introduced in the 1980s. tomato sauce and soy sauce often have a high level of preservative added, which is against Industrial Master Plan (IMP) food regulations. Malaysia’s National Agricultural Policy Food Packaging aims at achieving a balanced development of agriculture and industry, with improved Some entreprenurs still produce goods integration of the two. Government incentives packed in low-quality packaging material with to develop agriculture will lead to increased a rather unattractive packaging design. efficiency in the food processing industry. The Government’s commitment to assist in the Level of Educational Background healthy growth of the private sector is seen in its implementation of the Industrial Master Entrepreneurs with an elementary school Plan (IMP), which sets the framework and 7 guidelines for the establishment of new • Investment tax allowance (ITA), by industries up to 1995. This represents an which companies can be given an important measure taken by the Government to allowance of up to 100% with respect attract private investment to areas offering to quality capital expenditures incurred greater comparative advantage. The priority within five years; products identified for active development • An abatement of adjusted income; and a under the IMP can be classified into resource- • Reinvestment allowance based sectors and others. The resource-based sectors cover rubber products, palm oil and Incentives for Exports wood products, and also include food processing. In addition to the general incentives, For food processing, the specific manufacturers producing for export markets are development objectives of the IMP are as entitled to: follows: • Export credit financing; • To develop a modern food processing • An abatement of adjusted income for industry, meeting Malaysia’s food export; needs in conformity with modern • An export allowance; hygienic standards; • A double deduction of export credit • To establish export oriented as well as insurance premium; import substituting products; and • A double deduction for promotion of • To develop industries which utilize exports; and an more local raw materials and substite • Industrial building allowance for imported raw materials. In order to attain these objectives, the Incentives for Research and Development IMP recommended the designation of all (R&D) products made from cocoa fruit and vegetables as priority products for export. Animal feed Incentives for R&D take the form of has been identified as a priority product for allowable deductions for certain types of the substitution of local raw materials for expenditures related to R&D activities, a imported ones. double deduction for contributions to R&D, As guidelines for the future development and tax exemptions for new firms using newly of these subsectors, each was provided with a developed technology. quantitative target with respect to growth rates in output, exports and imports. Incentives for Training

Incentive Schemes Various tax deductions are given for expenditure related to the upgrading of skills, In general, there are no special incentive such as the building of training centers and schemes for the food processing sector. The approved training expenses. incentive schemes available are equally applicable to all manufacturing industries. CONCLUSION There are four main types of incentives, namely; general incentives, export incentives, It is envisaged that small-scale food incentives for research and development, and processing will continue to play a very incentives for training. Each of these is important role in the Malaysian economy. To briefly described below: maintain industrial growth, the Malaysian government has various policies and General Incentives incentives, applicable not only to food processing but to other industries as well. General incentives which are relevant to Many government agencies are also involved manufacturing establishments in Malaysia are: in supporting the development of small-scale • Pioneer status, in which companies are food processing enterprises by providing tax free for up to 10 years (subject to technical expertise, and financial and certain qualifications); marketing assistance.

8 REFERENCES (MIDA) and United Nations Industrial Development Organization (UNIDO). Chee, P.L. 1986. Small Industry in 1985. Food Processing Industry, Vol. 11. Malaysia. Kuala Lumpur Berita Part 3. A report on the Medium- and Publishing Sendirian Berhad. Long-term Industrial Master Plan of Food Technology Research Centre, MARDI. Malaysia (1986-1995). Kuala Lumpur. 1992. Situation and Outlook of the Ministry of International Trade and Industry. Malaysian Food Processing Sector. Vol. 1993. Policy and Status of SMIs in 1. Technical Review of MARDI Food Malaysia. Small and Medium Scale Technology Research Plan. MARDI, Industries Division, Ministry of Serdang, Selangor. International Trade and Industry (MITI), Malaysian Industrial Development Authority Malaysia.

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