High price, labor strike hit cigarette earnings

High price, labor strike hit cigarette earnings

Rendy A. Witular
The Jakarta Post
Jakarta

Excise revenue from cigarettes for this year will likely fall
short of targets due to the decline in demand and the recent one-
week labor strike at the country's largest cigarette producer PT
Gudang Garam.

Director of excise at the Directorate General of Customs and
Excise Djunaeidy Djusan told The Jakarta Post that the high
retail price of cigarettes had prompted smokers to cut their
cigarette consumption or stop smoking.

"The consumption power of the public has been weakening.
People now tend to spend their money on basic needs other than
cigarettes," said Djunaeidy.

In the first semester of this year, only Rp 9 trillion
(about US$1 billion) had been collected in excise from tobacco
firms, compared to the target of Rp 11 trillion.

The government budgeted collecting Rp 22.35 trillion in
excise, including Rp 21.85 trillion from cigarettes.

Djunaeidy said the strike at Gudang Garam would also affect
the government's excise revenue this year.

"Gudang Garam is the country's largest cigarette maker,
contributing 40 percent to the total of cigarette excise. The
strike has caused the loss of billions of rupiah in cigarette
excise."

Gudang Garam, based in Kediri, East Java, was forced to stop
operating for a week from the end of May following demands by its
workers for better pay.

The strike caused production losses of about 1.2 billion
cigarettes. With an annual production capacity of 105 billion
cigarettes, Gudang Garam produces 183 million cigarettes per day.

Indonesian Association of Cigarette Producers (Gappri)
chairman Ismanu Soemiran has said cigarette consumption in the
country had dropped due to the rise in the prices of the
products.

He said the government raised cigarette retail prices four
times and excise tax 40 percent last year. For instance,
Marlboro, which is the most popular international brand in the
country, now sells for 6,250 a pack, up from Rp 5,250 in July
last year; while the 12-cigarette pack of Gudang Garam, the best
selling local brand, now sells for Rp 5,000 a pack, as against Rp
4,250 in July last year.

Ismanu warned that the country's cigarette output might
decline by between 30 percent to 40 percent this year due to the
weak demand.

"We call on the government to be flexible in setting excise
targets from cigarettes. If demand and production are down, the
target should be lower, or else the industry will die," Ismanu
said last week.

There are currently 799 cigarette producers in the country,
including three big producers, six mid-sized firms, 357 small
companies and 433 very small firms. They have a combined
production capacity of 206 billion cigarettes per year.