Linking up the bio-economy value chain

  • Living
  • Tuesday, 28 Oct 2014

Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir, the chairman of BioAlpha – the first Malaysian herbal supplements player to be in control of its full supply chain from R&D through raw materials farming and manufacturing, to marketing and distribution.

How Biotech Corp is employing a holistic approach to nurture the Malaysian herbal industry.

MALAYSIA aims to be a serious player in the global wellness industry. But critical factors – such as problems in the research ecosystem, multiple R&D funds, overlapping portfolios among government agencies, keen competition for resources and a shifting landscape of policies and research priorities – hinder that ambition, as highlighted in our feature on May 28, 2014, "Work smart, research smart". 

Science Advisor to the Prime Minister Prof Emeritus Datuk Dr Zakri Abdul Hamid said recently that a special task force had been set up to work through these problems.

Yet there is also the serious underlying issue of a mismatch between supply and demand.

For one thing, the country is heavily dependent on imports for raw materials and processed herbs, according to a 2004 report on the Malaysian Herbal Industry Outlook issued under the ambit of the Prime Minister’s Department – a major limitation when catering to a growing industry.

In addition, there have been accounts of farmers – overly reliant on middlemen and often subjected to fluctuating prices – who have destroyed their crops in protest at low market prices.

Dr Nazlee says Biotech Corp recognises that a total value chain approach is the best way to ensure that every stage in the industry is connected, from raw material supply to processing and the logistics of getting the final products to market.

Then there is the lack of standardised farming prices and Good Agriculture Practice certificates to cater to the requirements of high-value herbal supplement manufacturers.

With the bulk of farming for such materials done by fragmented smallholders, it also means relatively high production costs.

These problems are by no means new, and it seems to have taken a long time to address them.

Given the slow movement of the herbal supplements industry as a whole, however, perhaps this is no big surprise. Recently, things have been coming together, as the increasing number of BioNexus companies in play has created a fresh urgency for us to smoothen out kinks in the value chain. (Companies awarded BioNexus status by the Malaysian Biotechnology Corporation – Biotech Corp for short – are those undertaking value-added biotechnology and/or life sciences activities. There are more than 220 such companies to date with an investment of RM3.2bil, according to the corporation’s website.)

Some of the products under the Bioshoppe umbrella label.

Malaysia is being pitched as a prime biotechnology development centre for its potential to provide a full herbal industry-conducive ecosystem, complete with infrastructure for R&D, farmland for raw material supply, as well as incentives for locating manufacturing, processing, packaging and distribution facilities. A number of initiatives have started paving the way for the fulfilment of that potential.

Kinks in the links

Solutions to the supply chain issues have also been in the pipeline for years: offer farmers buy-back guarantees, and consolidate farming activities through cooperatives that are better positioned to get discounts.

Now, it appears that these are a step closer to becoming reality. Biotech Corp CEO Datuk Dr Mohd Nazlee Kamal addressed the issue at the San Diego Bio International Convention in June when he led a Malaysian delegation to showcase its achievements. “We recognise that we must attack the whole process through a total value chain approach, which means making sure every stage in the chain is connected, from raw material supply to processing and the logistics of getting the final products to market,” he said.

Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir, the chairman of BioAlpha – the first Malaysian herbal supplements player to be in control of its full supply chain from R&D through raw materials farming and manufacturing, to marketing and distribution.

“So now, we are campaigning for community development, requesting a budget from the Government for financial aid to set up cooperatives.”

His idea was to enable rural communities to invest in modern farming practices such as greenhouses, because a controlled environment is needed to supply disease- and pesticide-free raw materials for high-value herbal products.

The other plan was to reduce the role and influence of middlemen by increasing the number of contract farmers, matching them up with BioNexus companies that would act as guaranteed buyers.

The third approach planned by Biotech Corp addresses the tail end of the value chain – the

Bioshoppe concept, which Dr Nazlee launched in San Diego.

Bioshoppe is an umbrella label for an array of made-in-Malaysia items which were showcased at the Malaysian pavilion – pills, powders and other herbal supplements and products.

Bioshoppe’s first retail presence followed a few weeks later, in IOI Mall in Puchong, Selangor, and showcases over 80 types of products (including beauty and aromatherapy) from 15 BioNexus companies.

By year end, Biotech Corp hopes to open a second outlet in Alor Star, Kedah, expanding the participation of BioNexus companies to 30, and stocking about 200 products.

Essentially, Bioshoppe gives buyers a way of recognising products manufactured by BioNexus companies. directing them to credible brands and avoiding the myriad of potentially bogus products (see our May 28 story, "Untapped treasures in herbal products".

“Without revenue, they (the manufacturers /BioNexus companies) cannot pay the farmers. So the danger, if we were to have a break in the value chain, is that the whole system will collapse,” Dr Nazlee said.

Projects on the ground

Contract farming as been taking shape through pilot projects under a Bioeconomy Community Development Programme.

The programme also covers other types of agricultural projects relevant to the National Key Economic Area of Agriculture, such as oyster farming in Balik Pulau on Penang island, and bee farming in Kuala Linggi, Malacca.

The projects relevant to herbal supplements involve strategically located tracts of land in Pasir Raja in Terengganu and Kota Tinggi in Johor, both close to integrated industrial zones. The contracts come with buy-back guarantees from BioNexus companies.

These BioNexus companies will then process the raw materials into high-value products, some of which will be marketed through Bioshoppe.

Three herbal companies will be involved, including supplements company BioAlpha Holding Berhad – the first Malaysian herbal supplements player to be in control of its full supply chain from R&D through raw materials farming and manufacturing, all the way to marketing and distribution.

Its subsidiary BioAlpha International Sdn Bhd will enter into direct contract farming with 15 farmers within an area known as the Herbal Integrated Cluster Development in the Eastern Corridor Economic Region (ECER).

Its other subsidiary, BioAlpha (Johor Herbal) Sdn Bhd, together with another herbal company called Pure Circle Sdn Bhd (which processes stevia into natural sweeteners), will grow herbs in a specialised farming zone known as the Bio Desaru Organic Food Valley – a project that state corporation Johor Biotechnology and Biodiversity Corp (J-Biotech) wants to fit into a wider conceptual model that will create further synergy along the local value chain.

At the San Diego convention, J-Biotech CEO Wan Amir-Jeffery Wan Abdul Majid said the company had an 8ha plot of land it wanted to develop into a regional marketing and clearing house.

The on-site facilities would include infrastructure for cold chain management services (for perishables) and spaces to manufacture, process, label and package. This is to ensure that all stages of the value chain – as well as the eventual value itself – are retained in Malaysia,

For now, however, the focus is on getting the farming projects up and running.

Biotech Corp is in the process of identifying eligible and interested farmers, and quantifying demand from BioNexus companies to iron out the agreements between the parties.

The farmland is located in Kota Tinggi, Johor. Biotech Corp and J-Biotech will collaborate on developing an existing cooperative, Pemuafakatan Kota Tinggi Berhad, involving about 20 contract farmers to produce honey, milk, herbs and stevia on roughly 198ha of land (only the herbs and stevia will supply BioNexus companies).

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