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.