Hike in cigarette prices may cause massive layoffs

JAKARTA (JP): An estimated 75,000 workers of 330 small and medium-scale cigarette producers may lose their jobs due to the planned increase in cigarette prices next month.

Tosari Wijaya, chairman of the Tobacco, Cigarette, Food and Beverage Section of the All-Indonesia Workers Union Federation (FSPSI), said the decree on price increases would weaken smokers' buying power and reduce the income of cigarette producers.

"The worst affected will be small and medium-scale cigarette factories using machines because the excise for all cigarettes they produce will be raised by 100 percent to 120 percent," he said.

Directorate General of Customs and Excise Decree No. 21 issued early this month stipulates an increase in the retail price of machine-rolled clove-blended cigarettes produced by companies with a production capacity of five billion cigarettes per year to Rp 175 (1.7 US cents) per cigarette in 1998 from Rp 95 last year.

The decree states the retail price of cigarettes produced by companies producing between 2.5 billion and five billion cigarettes per annum will be raised to Rp 130 from Rp 70 per cigarette last year.

For those producing between one billion and 2.5 billion cigarettes per year the retail price will be raised from Rp 60 in 1997 to Rp 120 as of April 1 and those producing less than one billion are allowed to raise their retail price from the current Rp 60 to Rp 110 per cigarette.

The decree is effective as of April 1.

Tosari said that under such conditions, small cigarette companies, which employ about 75,000 workers, would not be able to compete with big producers. Even worse, the 330 small-scale cigarette companies might go bankrupt, he added.

Many analysts have predicted that the enforcement of the decree would reduce the income of cigarette producers this year.

Tosari, also secretary-general of the United Development Party (PPP), called on the director general of customs and excise to review the decree and the possible negative impacts of its enforcement.

"The decree will adversely affect the about six million tobacco growers and traders, cigarettes retailers and ad companies," he said as quoted by Antara .

Meanwhile, the communications director of HM Sampoerna Group of companies, Nikken, told The Jakarta Post in Surabaya over the weekend that PT Sampoerna, producer of Dji Sam Soe and Sampoerna Mild cigarettes, had no plan to lay off any of its 33,000 workers despite the planned increase in its product prices in April.

"With the rising prices... the company's turnover is expected to decrease slightly this year, but it will return to normal next year," she said.

She was confident that the number of smokers would not decrease despite the price increases.

PT Gudang Garam, another big cigarette producer, has laid off some workers in its blending department due to the monetary crisis. (rms)