Tobacco Products Industry Contribution to Indonesian Economy

Indonesia is one of the biggest tobacco producers in the world. This is evident from many large cigarette factories that support millions of workers starting from tobacco farmers and artisans to cigarettes courier from stalls to stalls.

Many people’s lives depend on tobacco and it has become the economic cogs from micro to macro scale. Throughout the years the Tobacco Products Industry (TPI) is one of the country’s biggest foreign exchange earners and our local wisdom.

Central Java and East Java are the dominant regions as home of tobacco industry in Indonesia. In both regions, headquarters of large cigarette factories are located such as PT. Djarum, PT. Gudang Garam and PT. HM Sampoerna which became the milestone in Indonesia’s cigarette industry.

The contribution of the tobacco product industry to Indonesia and its impact on the economy. Perhaps nowadays many people consider smoking as burning money.

In truth, there are a lot of things that we don’t know behind it and one of them is about contributing to Indonesian economy.

Tobacco Product Industry and Economic Benefit

The tobacco product industry (TPI) is one of the domestic strategic sectors with high competitiveness and continue to contribute significantly to the national economy.

Contribution to the sectors which are categorized as local wisdom included employment, state revenue through tax and has become an important commodity for plantation farmers in the form of tobacco and cloves.

Minister of Industry, Airlangga Hartanto, said that the tobacco industry yielded relatively high contribution after the food and beverage industry. In East Java, this industry was superior.

KUD facilities in East Java were also extraordinary and had formed partnerships with cooperatives. This statement was said when he visited Association of Indonesian Cigarette Production Partners (AICPP) in Sukorejo, Pasuruan, East Java.

The Ministry of Industry noted that state revenue from TPI which came from excise and tax had increased every year. TPI contribution in 2016 gave tax payment of IDR 138.69 trillion or 96.65 percent of the national excise tax.

Meanwhile, labor absorption in the manufacturing and distribution sectors reached 4.28 million people and 1.7 million in the plantation sector.

He also said that the development of this industry had become a part of the history of our nation and culture, especially the clove cigarettes tobacco and clove based commodities which were very Indonesian and our ancestors’ legacy which had taken root for generations.

However, Airlangga stated that the decline in the cigarette industry business units was not accompanied by a decrease in production. In 2014, the number of industries reached 700 companies with a production capacity of 346.3 billion sticks.

With a total of 600 companies in 2015, cigarette production rose to 348.1 billion cigarettes and in 2016 as much as 350.03 billion sticks.

“But there has been a 3.5 percent decline in the last five years over the number of workers in the cigarette manufacturing sector and 4.7 percent decline on tobacco plantation workers,” he said.

According to Airlangga, TPI’s market share was starting to change because it was influenced by the lifestyle of smokers who were concerned with their health by choosing cigarettes which contain low levels of tar and nicotine, so smokers preferred Clove Cigarette Machine (CCM), both regular and mild types.

Market share data for the types of cigarettes in 2016 for CCM amounted to 72.07%, Hand Clove Cigarettes (HCC) 20.23 %, and Machine White Cigarettes (MWC) 5.43%. The rest, including Klobot and Klembak cigarettes reach 2.27%.

Director General of Agro Industry of the Ministry of Industry, Panggah Susanto, said that the preparation of the law and the tobacco policy must be done cautiously because it had an impact on many people’s well-being.

“Under AICPP alone there are 40,800 workers, not including other association. This concerns the stomach of thousands of people and their families. Yet, sometimes the discussion is biased,” he said.

Panggah considered that the implementation of quotas must be realistic according to the needs of domestic cigarette industry. Tobacco imports could not be stopped immediately if the supply of raw materials was not guaranteed.

Government policies should focus on improving domestic tobacco production in order to meet all raw material needs of cigarette industry.

Meanwhile, Chairman of the AICPP Association Djoko Wahyudi hoped that his partners would not be transferring production to machinery. “Because there is something that we need to be concerned about, namely labour,” he said.

He also gave appreciation to the Ministry of Industry as the industry supervisor who continued to pay attention to the existence of the HCC sector. “Related to regulations, it is indeed necessary to be arranged so that the negative impact is not dominant,” he added.

The AICPP is a group of 38 HCC producing companies who partnered with PT. Sampoerna in East and Central Java. Its production has reached 15 billion cigarettes per year by employing as many as 40,000 employees. AICPP does not rule out the possibility of partnering with other companies.