Price hikes a kick in butt for cigarette smokers

Price hikes a kick in butt for cigarette smokers

JAKARTA (JP): The increase in cigarette prices by up to 120
percent this week might significantly reduce cigarette producers'
sales this year, analysts said yesterday.

The analysts said that the decline in sales would hit
producers of both clove-blended and non-clove cigarettes, which
were mostly imported.

Chandra Pasaribu, a tobacco analyst with Pentasena Securities,
said the drop in sales volume would also be caused by the fall in
consumers' purchasing power.

He said the fall in the rupiah against the U.S. dollar by 70
percent since early July had forced many companies to close,
leaving millions of workers unemployed. Many companies have also
cut salaries to stay alive, while prices of essential goods have
increased by between 100 percent and 300 percent due to the sharp
depreciation of the rupiah.

Eddy Widjoyo, an analyst with Mashill Jaya Securities shared
Chandra's view, saying that the rupiah's sharp depreciation
against the U.S. dollar would cause the purchasing power of
middle and low-income people to decline sharply.

The Ministry of Finance announced early this week increases in
the retail price of all types of cigarettes from 60 percent to
120 percent.

The decree called for an increase in the 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 U.S. cents) per cigarette in 1998 from Rp 95 last year.

The decree said that the retail price of the cigarettes
produced by companies producing between 2.5 billion and five
billion cigarettes per annum would be raised to Rp 130 from Rp 70
per cigarette.

For those producing between one billion and 2.5 billion per
year, the retail price was increased to Rp 120 from Rp 60 in 1997
and those producing less than one billion per year were allowed
to raise the price to Rp 110 from Rp 60.

The decree also stipulated that the retail price per cigarette
for hand-rolled clove-blended cigarettes by companies with a
production capacity of more than five billion per annum was
allowed to increase to Rp 120 from Rp 70 in 1997.

The decree also said that for companies producing between 2.5
billion and five billion cigarettes per year the retail price was
raised to Rp 80 from Rp 50 previously; cigarette companies with a
production of up to 2.5 billion per year were allowed to raise
the retail price to Rp 60 from Rp 40; and for companies producing
only 15 million per year, the retail price was increased to Rp 60
from Rp 30 in 1997.

Most securities analysts said the government's decision to
raise the retail price was understandable to meet the tax revenue
target of Rp 6 trillion in the 1998/1999 fiscal year which ends
in March 1999.

"I think the government has to raise the retail price of
cigarettes to offset a decline in revenue in other sectors this
fiscal year," Chandra said.

The excise tax for cigarettes ranges from 2 percent to 36
percent depending on the size of each cigarette manufacturer's
production. The cigarette companies which produce above five
billion cigarettes a year have to pay an excise tax of 35 percent
of the retail price. Small-scale cigarettemakers, producing less
than 150 million cigarettes a year, pay 2 percent excise tax.

The analysts said, however, that retail price increases would
also cause most consumers to change their smoking habits as they
could not afford to buy the expensive cigarettes they used to
smoke.

"Most consumers in Indonesia are more price-oriented than
taste-oriented," Chandra said.

Most analysts said yesterday that most cigarette companies
were now calculating their price adjustments and the consumers
would only know the new prices next month. (aly)