Smoker’s Paradise

From the terraced emerald slopes of Bali to the jam-packed kampungs of Sumatra, the 13,500 islands of Indonesia reek with the sweet scent of clove cigarettes, known as kretek for the crackling sound they make when they burn..

Indonesia remains a smoker’s paradise. An estimated 141 million of the country’s 245 million people smoke cigarettes, cigars and cheroots of varying scents and hues. They puffed their way through 225.5 billion cigarettes in 2006, making it the world’s fifth biggest tobacco market.

For that reason, Indonesia remains hostage to tobacco, not just because smoking is popular but because the industry is estimated to provide direct or indirect employment to seven million people. Tobacco tax revenues prop up Indonesia’s budget and are the biggest contributor to national coffers, with upwards of 90 percent of all excise revenue coming from tobacco.

That means Jakarta is almost certain to evade ratifying a global tobacco treaty adopted by the 191 member-states of the World Health Organization (WHO).

"We are reluctant to sign the Framework Convention on Tobacco Control (FCTC) because the cigarette industry is able to boost the agriculture sector and paper industry," Industry Minister Fahmi Idris conceded last week.

At least 168 nations have so far signed the convention, although only 62 have gone all the way and ratified it. Even the world's biggest cigarette producer, China, signed the FCTC, which is intended to reduce global tobacco consumption with bans on advertising and promoting tobacco. China ratified the treaty in 2005.

Indonesia is the only Asian nation that has neither signed nor ratified it. Local industry analysts have claimed the existence of an unholy alliance between the separate ministries of industry, manpower, agriculture and finance against the ministry of health to persuade the government from signing the convention.

Idris was speaking to reporters after a pivotal dialog between the Association of Cigarette Producers (GAPPRI) and other industry groups with ministerial officials, provincial government leaders and several legislators from the House of Representatives (DPR).

The government still needs to extract its pound of flesh from the industry and has targeted Rp42.03 trillion (some US$4.6 billion) in revenue from tobacco taxes this year, up 10% from last year.

The meeting ended with the rejection of a government plan to hike cigarette retail prices, which are the basis for setting tobacco excise tariffs, by seven percent in March this year. This is to be followed by the imposition of a new form of excise tariff on tobacco in July.

Idris explained to reporters that the FCTC "conflicted" with what he termed the government's policy of being pro-poor, pro-job and pro-business. While such government idealism is to be admired in a poor country, the stark reality is that by sitting on the fence Jakarta is permitting the virtual poisoning of millions of people and an early grave for many from cancer.

Health concerns have so far not reduced the smoking population some 70 percent of men and nearly 20 percent of women smoke. More than 45 percent of those who smoke are under the age of 20. A 2006 Global Youth Tobacco Survey undertaken by the WHO found that in the 13-15 age group 24 percent of boys and 2.3 percent of girls are smokers, with some 3.2 percent already addicted.

Most smokers can't afford even basic health care yet more than half a million people are reported to be suffering from tobacco-related illnesses, and the health ministry predicts that within the next decade the cost of treating smoking-related illnesses will be five times as great as the taxes the tobacco industry generates.

The local high-tar and high-nicotine kretek, which are usually about two-thirds tobacco and one-third clove, dominate the market, accounting for nearly 92 percent of all cigarettes sold. The smell of kretek permeates buildings, trains, buses and restaurants, and it has long defined olfactory perceptions of the country. But behind the evocative clove fragrance is the even sweeter smell of money for those in the industry.

Vast profits from the domestic market have made some kretek barons very rich. PT Gudang Garam Tbk, the world's biggest kretek maker, is controlled by Rachman Halim, who took over when his father, ethnic-Chinese tycoon Surya Wonowidjojo, died in 1985. In 2006 Forbes listed Rachman as the richest man in Indonesia with a net worth of $2.5 billion.

With smoking decreasing in popularity in the United States while layers and activists figure out new ways to bring big tobacco to its knees, Philip Morris International, the US tobacco giant, in 2005 bought Indonesia’s No. 2 producer, PT HM Sampoerna, which is now poised to overtake Gudang Garam.

The third and fourth biggest producers are Djarum and Bentoel. None of these manufacture non-kretek cigarettes, known locally as whites. For all their sweet smell, kreteks contain on average about four times as much nicotine and tar as even the strongest Marlboros. Dji Sam Soe, Sampoerna's flagship brand, accounts for more than half of the company's total sales but has twice the amount of nicotine and three times the amount of tar as a conventional cigarette.

Eugenol, a phenolic compound in cloves, enhances the effect of the tar. Though tests have shown that it alone causes extensive lung damage when smoked, it has sedative properties and gives smokers a "feel good" sense.

But despite these relaxing properties for kretek smokers, cigarette makers may not get a similar mood fix for much longer as the rules of the game may be about to change.

Amid international pressure to sign and ratify the FCTC, and increasing demands from an anti-smoking lobby that is gaining real momentum, the DPR has proposed a new bill that would finally impose stricter controls on tobacco.

Though health warnings on cigarette packets were introduced in 1991, Indonesia is still one of the world's least regulated markets. Tobacco advertising on television may not show anyone actually smoking, or an actual cigarette, but there are few restrictions on promoting tobacco on radio, on billboards, at point of sale or in the print media. Worse, there are no bans on sales to minors.

All tobacco advertising in public places and sponsoring of events by tobacco companies will be outlawed if the bill is passed into law. The bill proposes that the excise duty be raised to 65 percent, with 10 percent of that set aside for research on tobacco-related diseases. The impact on provincial employment could also be severe.

Given the ever increasing cost of smoking, time may be running out for smaller cigarette makers. As the government tries to figure out how to slow the gravy train without actually stopping it, of course there is more than a little confusion. According to Idris, legislators who attended last week's meeting asked the government not to hamper economic development through over taxation.

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Ismanu Sumiran, head of the Indonesian Cigarette Producers Association (GAPPRI) warned of massive job losses if the government goes ahead with the planned hikes Sumirman says the industry has no problem per se with the retail price hike, as this will be passed on to smokers, but the new tariff would be borne by the producers. There are now 4,212 cigarette factories according to GAPPRI although only six of these are big players and dominate 80% of the market.

With general elections due in 2009 there is little chance the government would come off the fence and risk antagonizing smokers by hitting them where it hurts in the pocket. In Java there are more than 900,000 tobacco planters and an estimated 1.2 million clove farmers not to mention tens of thousands of factory hands. .

Gudang Garam, for example, employs 40,000 workers, most of them at its production plant and headquarters in Kediri, East Java. Sampoerna employs 55,000 in its plants around Surabaya, the capital of East Java. These producers support several hundred thousand more people who grow and dry the tobacco and cloves, supply the raw materials for packaging and retail the cigarettes to kretek addicts across the country. Their brands retail for between Rp 6,000 and Rp 7,500 (60-75 cents) for a pack of 16.

Winning the hearts and lungs of Indonesia's smokers is inextricably linked to the need to win their votes. With more than 40 million Indonesians jobless, expect the moves to cut tobacco consumption on health grounds to be fought tooth and claw not only by the tobacco industry but also by many legislators themselves