Producers fume at planned cigarette price increase

Producers fume at planned cigarette price increase

Urip Hudiono, The Jakarta Post, Jakarta

Cigarette sales will likely fall this year should the government
go ahead with its plan to raise retail prices by up to 20 percent
next month, according to an industry association.

"A 20 percent price hike would be counter productive, as it
will surely cause a severe drop in this year's sales," Indonesian
Cigarette Producer Union (Gappri) chairman Ismanu Soemiran said
on Wednesday.

Explaining his point in figures, Ismanu said that Gappri might
have to cut down its previous sales estimate of 222 billion
sticks for this year to only 190 billion sticks, if the price
increase indeed amounted to 20 percent.

"The price hike might also affect the employment capability of
cigarette producers," he said. "That is why we have asked the
government to raise prices by only 10 percent, so as not to hurt
sales."

Gappri estimates that there are a total of some 350,000
workers employed in the country's tobacco industry, with some
2,500 workers needed for the production of every one billion
sticks.

Last week, Minister of Finance Yusuf Anwar said the government
was planning to raise retail prices of cigarettes in July, to
help increase state revenues from excise, as well as to
discourage people from smoking.

Although the final amount of the increase is still being
studied, Yusuf has stated that he expected it to be in the range
of 15 to 20 percent. As excise duty on cigarettes is based on the
final retail price of the product, the government will be able to
generate more income by increasing the price of the product.

The government has increased its excise revenue target in this
year's state budget revision to Rp 31.4 trillion (some US$3.3
billion), from a previous Rp 28.9 trillion.

Ismanu said that the association was disappointed with the
government's price hike plan, as the country's tobacco industry
has actually only just recovered over the past two years.

He explained that cigarette sales last year had reached 211
billion sticks, on track to return to its peak sales figures of
228 billion sticks before the 1997 Asian financial crisis.

The economic crisis severely affected the public's purchasing
power, and cigarette sales only began rising again in 2000.

The industry, however, was dealt a blow to their sales in 2002
and 2003, when the government aggressively hiked cigarette excise
duties by 20 percent to push revenues.

"Sales then dropped to some 190 billion sticks," Ismanu said.
"This year's price hike plan could have the same effect on
sales."

Sales at the country's second largest cigarette maker, PT
Hanjaya Mandala Sampoerna, had dropped by 3 percent in 2002 and a
further 8 percent in 2003 after the government raised excise
duties, before bouncing back last year by 20 percent.

Meanwhile, Indonesian White Cigarette Manufacturers
Association (Gaprindo) chairman Muhaimin Moeftie suggested that
the government implement the price hike gradually in accordance
with the current inflation rate.

"Excessive price increases can put a dent in the industry's
sales such that the revenue target from excise might not be
achieved," he said.

In spite of the remarks from the cigarette makers, however,
Vice President Jusuf Kalla asserted that the government will
proceed with its plan, asking cigarette producers to sacrifice a
small part of their profits in the interests of the country.