Tobacco Asia

Volume 18, Number 3

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tobaccoasia 33 "GAPPRI claims an astonishing decline in the number of Indonesian cigarette makers from 4,900 to just 800 in the five years to 2013" the first quarter of this year. During that period the company reported overall revenue growth of 5% to IDR18.3 trillion (US$1.6 billion) from first quarter 2013. This compared to 13.2% year-on- year growth in the preceding 12 months. Sales of machine-made kretek products gener- ally remain strong in Indonesia, though, as does the general cigarette market, which is one of the world's largest. Sampoerna, for instance, isn't just the country's biggest cigarette maker, it is also the largest company in any sector on the Indonesia Stock Exchange, with market capitalization of IDR300.24 trillion recorded in March 2014. Overall Indonesia cigarette production (both kretek and white) of 348 billion sticks in 2013 con- stituted an 11.9% growth from 2012. And around 85% of the country's smokers prefer kretek to white cigarettes – not solely because of favorable levels of taxation compared to white cigarettes. People just love the taste and experience. The sharp decline in traditional hand-rolled kretek sales indicates the changing tastes of In- donesia's smokers, who are increasingly moving towards machine-rolled as the country becomes more affluent. According to the Association of Indonesian Cigarette Producers (GAPPRI), hand- rolled kretek, which enjoyed a 32.8% market share in 2009, are now down to 26.07%. Machine-made rose from 59.24% to 66.20% in the same period. Sampoerna said it had been under "heavy pres- sures throughout 2013" because of "adult con- sumers changing their preferences". It was the introduction of machine-made kretek to Indonesia in the 1970s that sparked the clove cigarette's rise to fortune. Before that all kretek were hand rolled and largely consumed in small rural communities. With the advent of machine-made kretek, making them appear clos- er to the "more sophisticated" white cigarette to consumers, they became increasingly acceptable. Kretek had arrived. If the downward trend in hand-rolled sticks continues, the writing could be on the wall for other facilities, including Sampoerna's five other plants in East Java. Suharjo, the secretary general of the Cigarette Industry Public Forum of Indonesia (Formasi) fears the worst. "There is an ongoing evolution," he said. "Now the public prefers machine-rolled cigarettes. If the government does not take steps to anticipate further changes, it is very likely that the whole hand- rolled clove cigarette industry will go down." In response, calls have been made to widen the excise duties between hand-rolled kretek and machine-made. Support comes from the Industry Minister MS Hidayat, who was reported in The Ja- karta Post saying, "The hand-rolled cigarette indus- try is labor-intensive and distinctive to Indonesia so we need to ensure its sustainability. If the fac- tories shut down and the producers shift produc- tion to machine-rolled cigarettes, that will add to unemployment." In the production of hand rolled, pairs of women work together, each pair making over 5,000 cigarettes a day. If the sector does crumble, the outcome will be catastrophic for thousands of families. Countrywide, some 800,000 workers are dependent on the industry at factories such as PT Djarum, in Kudus, which hand roll popu-

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