Murray Hunter University Malaysia Perlis

Expanding the Malaysian Herbal Industry by

Developing the Farmer-Government-University

Nexus

The 7th Malaysian Agro-Bio International Business Conference with the 12 th Malaysian International Food & Beverage Trade Fair (MIFB 2011) 13-15 th July

2011.

Raw Herbs

FreshConsumptionDried Fermented

Extracts

Medicinal Powders

MedicinalBeverages

Essential Oils & Other Volatiles

Flavour &Fragrance

Personal Care& Cosmetics

Standardised Extracts

Phytopharmaceutical Products

Fractions & Isolates

Bioactive Compounds

Prescription & OTC Drugs

Figure 1: The Family Tree of Herb Derivatives

Agricultural Application

Traditional Herbal Medicines

Aromatherapy

Enzymes

Types of herbal products Type Definition

Nutritional Supplement Vitamins which are defined as complex chemical substances that are needed for the functioning of the body, but that generally cannot be produced by the body and must therefore be obtained from food or nutraceuticals

Nutraceutical Is a product isolated or purified from foods and generally sold in medicinal forms not usually associated with food for the purpose of physiological benefits or to provide protection against illness

Dietary Supplement Includes preparations of vitamins, minerals, amino acids and mixtures of these ingredients as well as herbs and other botanicals

Herbal Medicines Includes herbs and traditional medicine, which means any product employed in the practice of indigenous medicine, whereby the drugs used consist of one or more naturally occurring substances of a plant, animal, or mineral or part thereof, or in extracted form or non-extracted form, or any homeopathic medicine.

Indigenous Medicine Is a system of treatment and prevention of diseases involving the traditional use of naturally occurring substances.

Homeopathic Medicine Any drug in a pharmaceutical dosage form that is used in the homeopathic therapeutic system in which diseases are treated by the use of minute amounts of such substances which is capable of producing in healthy persons symptoms similar to those of the disease being treated.

The Issues

Obtaining Finance

Technology

The Necessary Skills

Finding New Business Models

Farmers

The Major Blocks to Development

• The current “psych” of farmers

• Growing rural unemployment

• Unbalanced affluence (town-rural)

The Probable Causes

Lack of Ideas

Lack of education and skills

Narrow mindset

Feeling of powerlessness – lack of access to markets

Lack of resources

Lack of will

The wall between farming and business

The biggest barrier

Essential Oil

Production

Trading

Flavour & Fragrance

Compounding

End Product

Manufacture

Wholesaler

Retailer

Consumer

1.0 1.6 2-3.0 (6-9) 2-2.5 (18-24)

Relative and (Absolute) Value Added Through Chain

1.1-1.2 (19.8-28.8)

1.2-1.4 (23.76-40.32)

The Essential Oil Value Chain (Flavour & Fragrance Industry)

Subsistence Farmers

Local Collectors and Wholesalers

Regional or Country Based

Wholesaler/ Exporter

Essential oils exported to international customers

Domestic sales

Cooperative company with central distillery (harvest equipment) and carrying out marketing

role. Determines production levels Controls quality Negotiates R&D with research institutions Offers advisory services Run by farmer representatives

Farmers who are members of a cooperative let the cooperative distill and sell the oil on their behalf

Harvested foliage sent to central

distillery

Customers

Some growers elect to sell

own oil

Consumers

Wholesalers & retailers

Manufacturers

Flavour & Fragrance Houses

Traders & Brokers

Primary Producer

Essential oil as primary Product. Focus on market demand & supply

and meeting standard

Essential oil as an ingredient in

a product. Focus on uses

and applications research

Manufacture of end products. Focus on

formulation and end product

development

Technical Focus

General or Niche Customers

Vertica

l Integ

ratio

n A

lon

g th

e Su

pp

ly

Ch

ain

Application Focus

Technology Focus

IP Focus (?) Specific

Customer

Branding Theme Consumer

Marketing Reaching

Mass or selected Markets

New Product Development

Agro Industrial Consumer Orientation Orientation Orientation

Consumer Trends

Important

Technical Trends

Important

Demand & Supply, Buying

Criteria Important

Venture Focus Along Different Parts of the Supply Chain

Universities & Research Institutes

Planning Phase

R&D Phase

Commercial Phase Start-up Growth Maturity

Information seeking and

Planning orientation

Seeking of information,

looking for ideas, screening for opportunities,

setting of a vision and planning out

the project

Test hypothesis, review market, confirm viability,

develop applications, increase knowledge, learn how to operate commercial operation.

Collaborate with customer & R&D

Institutions

Research and collaborative orientation

Begin with an entrepreneurial

management style, then move to marketing orientated style and eventually corporate management style

Start-up Develop

company, production and early customer base, usually

very personal & hands on.

Growth Develop value-added products, new market, customers, expand production, move to more formal

management

Maturity Corporate orientation

with well defined depts. Formalised

marketing & production roles in organization, take strategic outlook

for business.

Most Equipment Needed by Industry already exists at

FRIM & KBioCorp, etc.

• Fundamental research• Applied research• Assist in technology scale up• Coordinate research through national

committee• Graduates into industry• Product marketing and entrepreneurial skill

development

University & R&D Institution Role

Government

The Government Role• Not as a direct player• Take on a support role• Organize the industry• Develop extension• Partly fund research• Act as a general promoter • Set up Herbal Finance Corporation• Set up national research committee

Kunzea ambigua

Mentha Piperita

Blue Gum Eucalyptus (Eucalyptus globulus)

Lavandula angustifolia

Tasmannia lanceolata

BlackcurrentRibes nigrum

Boronia Megastema

Opium poppy Papaver somniferum

pyrethrum

wasabi

Fresh Asian Vegetables

OpiumAromatherapy

New Activities to Tasmania

pyrethrum

Asian vegetables

Native Spices

Wasabi

New and existing essential oils

Herbal teas

Herbal Tourism

Native herbsWine

The Tasmanian Essential Oil Industry Structure

Growers Industry

Associations Research Advisory

Committee

Government Development Corporations

(RIRDC/HAL)

Research Provider (University of

Tasmania/TIAR)

Field Processing

Processing and Marketing Company

(Essential Oils of Tasmania Pty. Ltd.)

Agents The World Market

Co-innovation

What Can Be Done?

National Approach

Farmers Marketing Companies

Manufacturers Researchers

Regulators Government

Develop Industry Consensus

• Coordinated Research• Creating farmers’ organizations• Producer and marketer association• Industry association• Industry levy for research• Participatory action research• New approach to finance (Herbal finance

Corp.)

A National Approach

Systems Agriculture Agricultural professional stance that emphasizes

farming as a social practice that uses technology

Participatory Action

Research Emphasis on co-learning

through farmer and community participatory

research and empowerment programs

Traditional Academic Based Research

Based on developing technology and principals,

models and possible practices

Farming Systems Research

On-farm technical problem diagnosis and adaptive

research

Shift from theoretical and

technical to community

collaboration and problem specific

research

General Local

Technical

Social

Domain Focus

Dis

cipl

ine

Ori

enta

tion

Some of the development options

• Certificate, Diploma & degree on herbal technology & entrepreneurship

• Information at Dept. Agriculture offices• Road-shows by Govt. & research institutions• Development of clusters• Encourage membership of organizations of

producers, marketers & researchers

Steps on the ground

Conclusion

Essential Oil

Other Aromatic Extract

Aromatic Chemical (bio-route)

Aromatic Chemical (physical route)

Agro-Tourism Agricultural By-Products

The set of opportunities for an essential oil producer

Flavour & Fragrance

Commodity Oil

Specialty Oil

Aroma Chemical

Aromatherapy & Cosmetic

Production & marketing of

products Pharmaceutical

Agro-chemical

Business through select supply chains

Single Crop Portfolio of Crops

Higher differentiation and value adding

Builds brand image and support. Complements other activities.

General Trading (marketing)

Region’s production Specialised single oil

marketing General multi-oil

marketing

Diversification of activities

Mulches

Bio-fuel

Cattle feeds

Paper

Utilisation of wastes

Production of herbs and spices

Other diversification

Opportunity

JV, partnerships,

strategic alliances, etc

Underlying Knowledge

Unexploited or idle

resources

Sustainability of the

venture for long-term survival

Cost and performance benefits of

product

Impact on and from

local community

Access to capital

R&D

Economies of scale or competitive advantage through differentiation

Access to market/ network

Market driven selection of crops and product Customer

driven management

Govt./ institutional support

Entrepreneurship as a national development strategy

GovernmentUniversities &

Research Institutions

• Commitment to business (state enterprises don’t work)

• Private enterprise most effective

• Need to nurture multiple businesses

• Role in regional development

• Creates wealth• Develops human capital

• Makes Malaysia internationally competitive

• Follow Islamic economic principles

• Diversifies agriculture

• Undertake fundamental research• Undertake applied research

•Undertake participatory action research • Quality assurance role

• Provide trained human capital

• Part source of funding for R&D• Regulator• Organizer

• International representative bodies• Standards

• Infrastructure

Coordinated Industry Body

Economic growth & diversity

Farmer Groups

Market Groups

Thank You