9 minute read
Does That Halal Label Really Guarantee Halal Food?
options too severely. Criteria had to develop over time, and a 33% debt to total assets or total market capitalization ratio opened up the greatest opportunities for investment while still limiting potential downsides.
The stipulation for 33% or less debt within a portfolio was inspired by a conversation between Prophet Muhammad (salla Allahu ‘alayhi wa sallam) and Sa‘d ibn Abi Waqqas. When Sa‘d asked whether he could give 33% of his inheritance away in charity, the Prophet stated, “Yes, but less is better” (paraphrased from “Sahih Bukhari,” 80:725). • Cash. Another well-known standard is that investable companies must not have cash or accounts receivable of more than 45% of total assets. A large amount due in accounts receivable may trigger a company to cover its expenses through borrowing and debt. Islamic law clearly states that those characteristics that comprise the majority of an entity are assumed to be the characteristics of the entity as a whole, and that the minority should not impede the majority.
Advertisement
A company holding 50% or more in accounts receivable is therefore considered a cash-based company and thus, by the rules concerning riba, cannot be traded for a premium or discount. Even 49% in cash or accounts receivable comes too close to the majority. Ultimately, scholars determined that 45% would be a comfortable limit. • Haram Revenue. This commonly accepted rule stipulates that any revenues received from haram sources must be limited to 5% or less of the company’s total revenue. This threshold was established in the belief that any percentage of business activities above 5% changes the company’s character.
When first determining this rule, scholars referred to the “smell test” used when making ablution: If a Muslim encounters a pond while walking through a forest, he or she must determine whether it’s pure enough to perform the pre-prayer ablution. If it has no detectable smell, abnormal coloration or taste, one can assume that it’s suitable. Although a somewhat arbitrary number, scholars settled on 5% as the way a company could also pass a “smell test.”
While 5% is a commonly accepted limit in this regard, generally the Sharia-compliant investment managers’ intention is to avoid haram revenues altogether.
These three rules, which have been evaluated and re-evaluated for decades, illustrate how standards can evolve over time while maintaining allegiance to God’s intentions.
The Dow Jones Index’s original proposal that a company’s debt be measured as a ratio to its assets led to an investible universe that was too small. Eventually, they settled on the convention of comparing debt to market cap. Some criteria use cash and marketable securities as a percentage of market capitalization instead of the accounts receivable mentioned above. However, the intent is the same. As standards cannot remain static, the complexity of financial markets must be discussed and explored in practice, rather than set in stone.
Although the AAOIFI has helped ground and formalize the tenets of Islamic finance, it’s not the only voice in the field. In fact, since Islam encourages difference in opinion, no one standard can claim to be the most authentic. The critical issues for investors to evaluate when it comes to securities are whether an asset manager is using scholar-approved criteria and whether there is an audit process. All other standards should be determined by the individual investor’s unique needs. ih
Monem Salam is executive vice president and portfolio manager at Saturna Capital. Does That Halal Label Really Guarantee Halal Food? The robust U.S. meat and agriculture domestic and export market deserves to have a standard for halal certification agencies
BY SHAKEEL SYED
In an industrialized world where one must continually prove oneself to one’s investors and stockholders, the bottom line matters. This also holds true in the food processing and packaging sector.
With profits in mind, cor- Salah Obediallah porate wizards seek to source materials that reap the best yields, be it the end product or manufacturing and marketing efficiencies. As it’s always possible that animal-sourced ingredients may be part of a very complex production process, the presence of a halal logo may not always be enough. In fact, the Muslim consumer’s halal literacy should range from the farm to the fork, for the halal ethos also requires the humane treatment of animals at all times.
The definition of halal, which used to be restricted to products and services only, has expanded so much that it has triggered intra-Muslim deliberations focused on what is definitively halal and who makes this determination. Although almost everyone agrees on this term’s general definition, not everyone agrees on a baseline halal standard.
As certification standards can vary when there is no single governing body, there is little data on the industry. According to Nielsen, recent halal food sales in the U.S. reached $1.9 billion. Thomson Reuters has pegged the global market at about $415 billion (Esther Honig, NPR, April 5, 2018, “You Might Be Eating Halal Meat And Not Even Know It”).
In response, in 2020 the North American Islamic Trust (NAIT), one of the nation’s oldest Islamic organizations, launched the American Halal Institute (americanhalalinstitute.com). This fully owned subsidiary seeks to develop a halal standard for North America so that Muslim consumers anywhere in the world will no longer be shortchanged.
This is a particular problem for incarcerated Muslims. For instance, on Feb. 15, 2019, Roman Lee Jones, a Muslim inmate of the Indiana Department of Correction, successfully obtained court intervention after the department refused to provide him with halal meals. His lawyer argued before the U.S. Court of Appeals for the Seventh Circuit that such a refusal substantially burdened his client’s exercise of religion under the Religious Land Use and Institutionalized Persons Act (42 U.S.C. § 2000cc).
U.S. District Judge Patricia Seitz, considering rights under the same act, ruled in favor of prisoners on May 2, 2015, and directed the Florida Department of Corrections to provide halal meals. Indeed, several jurisdictions have ruled in favor of Muslims. A reliable halal certification authority will make the procurement departments’ work much easier.
DETERMINATION.
Honig noted, “With the Muslim population on pace to possibly become the second-largest religious group in the United States by 2040, the demand for halal meat and other foods is on the rise to the point that Nielsen reports U.S. sales increased 15 percent from 2012 to 2015. Some of the largest meat producers in the country — [the Green Bay, Wisconsin-headquartered] American Foods Group — are providing more that’s halal (in part to satisfy global, not domestic, demand). But industry experts say U.S. consumers may not be aware of it, because some large grocery chains choose not to label products halal.”
“The reality of it is some [retailers] are actually concerned about the halal insignia,” Superior Farms’ vice president of sales Greg Ahart said, adding that large retailers generally don’t use the label in areas that have no large Muslim populations. Superior, one of the country’s largest lamb producers, sells to small ethnic grocery stores as well as retail giants. As demand rose, Superior Farms, which mostly handles lamb with some goat, became all-halal all the time.
Luke Runyon noted on May 12, 2015, that “A report from the U.S. Department of Agriculture’s Agricultural Marketing Research Center puts it bluntly: ‘The majority of U.S. residents do not consume any lamb’” (“Sheep Ranchers Count On American Muslims To Keep Lamb On Menu,” NPR, May 12, 2015). For the most part, the report notes, growing ethnic populations in the Northeast and on the West Coast have kept the American lamb industry afloat.
After the market crash of 2012, the American Lamb Board sought to create new demand among Muslims and Latinos. In 2013, the country’s estimated 5.7 million Muslims had $98 billion in spending power. The board hopes that some of that money is being spent on locally raised lamb.
Every step in the company’s process is approved by the federal Safe and Humane Slaughter Act, which every slaughterhouse must follow, as well as a certifying board.
Additionally, the plant is required to prevent any contamination by non-halal foods, such as pork and alcohol, or use of antibiotics, which tend to contain pork byproducts.
Rancher A. J. Nelson, who helps run Cactus Hill Ranch near Windsor, Colo., agrees. His family has been raising sheep since 1918. Nearly all the sheep in his feedlot end up in halal-certified processing plants and are bound for grocery stores in the Northeast and on the West Coast.
“Marketing it towards the Muslim and Mexican communities, that’s definitely the way to do it if you’re gonna want to sell it in any real volume,” he says (“Sheep Ranchers”).
Because the halal food industry requires a few extra steps from the market food processing, which means a higher product price, some in the food industry have resorted to dubious practices.
A research report estimates that in 2016, the U.S. market value of halal food amounted to approximately $22.6 billion and was forecasted to increase to $26.8 billion (https:// www.statista.com/statistics/795365/halalfood-market-value-in-the-us). The global halal market’s numbers are tantalizing: $2.2 trillion in 2018 (https://crescentwealth. com.au/featured/state-of-the-global-islamic-economy-report-2019-2020).
Another area is goat farming. Information Resources, Inc.’s 2017 data indicate that goat- milk cheese indexes the highest with millennials and households making more than $100,000 per year. The number of U.S. households buying goat-milk cheese increased 0.5 percent over the past year to 8.5 percent.
While female goats can be used for their milk, male goats are fairly useless in this respect and thus are destroyed. Halal certification could do wonders for this segment and also please the farmers and organizations such as Farm Sanctuary, which estimated that 40,000 male goats are killed at birth in the U.K. (https://www.farmsanctuary.org/ goats) every year (https://www.vice.com). In turn, it can help expand the goat milk and cheese segment. Goats are popular in both Mediterranean and South Asian diets.
This dramatic expansion of the halal food and beverages market can be seen from meat products, packaged and pre-prepared snacks and meals to a robust halal restaurant culture. Simply put, the global halal business runs into trillions of dollars. The halal industry produced an “Islamic” Barbie doll just by changing its name and adding a hijab and also created halal and wudu-compliant “breathable” nail polish. Such products translate Muslims’ piety into corporate profits.
As a NAIT subsidiary and sister organization of the Fiqh Council of North America (FCNA; http://fiqhcouncil.org), AHI is working with Muslim American jurists and American halal certifying agencies to establish a first-ever “American Halal Standard.”
“This is imperative and will be mutually beneficial for the entire supply chain of [the] halal industry,” said AHI executive director Salah Obeidallah. ih
Shakeel Syed is a consultant with the American Halal Institute.
