Small, medium cigarette factories on the brink of bankruptcy

Small, medium cigarette factories on the brink of bankruptcy

By Ahmad Solikhan, Tedy Novan and Abu Ibrahim

YOGYAKARTA (JP): Ponirah, a 65-year-old cigarette roller
obviously got deep satisfaction every time she puffed on her
klobot (tobacco wrapped in a corn leaf) cigarette during her
lunch break recently.

Once in a while, she gulped down some tea from her old, dirty
bottle.

Rising prices of daily necessities have forced Ponirah to take
a packed lunch to work and to save more money, she now walks the
two kilometers between her house and work.

"I make only Rp 2,000 (25 U.S. cents) a day, hardly enough to
buy something at a food stall and pay the transportation fare,"
said Ponirah, who works in the Gunung Klapa cigarette factory in
Kudus, Central Java.

Ponirah, a mother of six, can hand roll 1,000 klobot
cigarettes a day.

Like Ponirah, workers at small or medium factories are also
suffering the same fate: their welfare level is lower now than
ever.

Take Sumarni, who works in Jambu Bol cigarette factory in the
same town. The 36-year-old mother of four, for example, makes Rp
3,600 a day and gets Rp 1,300 an hour for overtime work. She has
free medical treatment at the company's polyclinic.

In addition, she receives an annual festivity allowance
amounting to a month's basic salary and two weeks paid leave. The
economic crisis has made her life more difficult and her income
is no longer enough to support her family.

"We have to postpone sending our youngest child to school,"
added Sumarni, who can hand roll 7,500 cigarettes a day.

Workers in a number of small-and-medium-sized cigarette
factories in Tulungagung and Kediri, East Java, are pretty much
in the same boat. Moreover several cigarette factories have
reduced working hours and meal allowances.

The fate of the workers, however, is not much different from
that of the factories where they work.

Gunung Klapa, for example, is at present threatened with
bankruptcy. The factory was established in 1918 and employs 40
people. According to Aulil Maula, the owner, the raw materials
for cigarettes have sharply increased in price. The flavoring
essence, for example, has risen in price by 400 percent, cloves
by 100 percent, klobot (the corn leaves to wrap the tobacco) by
100 percent, tobacco by 100 percent, cigarette wrapping paper by
300 percent and cigarette labels by 300 percent.

Although there have been no layoffs yet, the company is now
forced to pay its workers lower than the regional minimum wages.

"We can survive only from day to day," said Maula, the fourth
generation of his family to run the cigarette factory.

In the meantime, medium-sized cigarette companies like Jambu
Bol, for example, have laid off 200 older workers and cut down by
50 percent the working hours of its 4,400 employees.

Confused

The small and medium cigarette factories are as confused about
the present situation as the government itself.

In just one month the government, through Director General of
Customs and Excise Soehardjo, issued three decrees aiming at
boosting the state's receipts. Last year receipts from cigarette
excise stamps totaled Rp 4.55 trillion and this year the target
is Rp 7.7 trillion.

The Directorate General of Customs and Excise issued decree
No. 16/BC/1998 on March 5, stipulating that the retail selling
price of cigarettes will be increased 100 percent. The increase
was deemed necessary to boost the state's receipts and also to
help cigarette factories make more money to offset the rising
prices of raw materials, especially imported goods.

However, before this decision was enacted, another decree,
No. 21/BC/1998 was issued on March 9 as a result of the
objections raised by a number of cigarette factories. They argued
the rise would only make cigarette factories lose buyers because
of people's lower purchasing power.

Then a number of medium and small cigarette factories lodged a
protest against the increase in the excise stamp cost, saying it
was too high.

Therefore this decree was also replaced. In decree No.
27/BC/1998 dated March 30, the government decided to lower the
retail prices of cigarettes, especially those made by medium and
small factories. This price cut, however, is still burdensome on
most small cigarette factories.

"Many cigarette factories are bound to close down," said a
member of the governing board of the Association of Indonesian
Cigarette Factories (GAPRI), who asked to be quoted anonymously.

He said that of the 550 cigarette factories which are members
of GAPRI, 10 are established. Of these 10, only three control the
market, namely Sampoerna, Gudang Garam and Djarum.

In Kudus, of the 25 middle and large cigarette factories
operating last year, only 18 are operational now, while of the 61
small cigarette companies, only 10 still make cigarettes, and
those only do so with lots of difficulty. In Kediri, meanwhile,
of 23 registered cigarette factories, only 11 are still
operational. The rest have gone bankrupt.

A big cigarette factory produces more than five billion
cigarettes a day, a medium one produces between one and five
billion cigarettes and a small one produces fewer than one
billion cigarettes.

Revenue

It is true that the state's revenue from cigarette excise
stamps is huge. From Kudus alone the state pockets more than Rp 2
billion a day.

However, the increase in the excise stamp rate, according to a
source at Kapulogo cigarette factory, is not on a par with the
profit reaped.

As for a Kapulogo packet of 12 cigarettes sold at Rp 800, for
example, the company must allocate 10 percent to the agent, 20
percent for the excise stamp, 6.2 percent for the value-added
tax, 57.8 percent for production costs, 12 percent for the
workers and 20 percent for incidental expenditure. The market
demand for cigarettes in the meantime has dropped 10 percent.

"The profit made is only 4 percent, very small indeed, while
the company has tried to operate as efficiently as possible," the
GAPRI source said.

Despite the big trouble hitting small and medium cigarette
factories, large ones like Djarum in Kudus and Gudang Garam in
Kediri have not been that badly affected. Despite the rise in the
prices of raw materials and in excise stamps, Djarum's annual
production level remains at 25.9 billion cigarettes. None of its
38,000 workers have been laid off.

Thomas Budi Santoso, deputy director of Djarum in Kudus,
welcomed the government's decision to raise the cost of excise
stamps. Last year, he said, Djarum contributed Rp 528 billion to
the government in excise stamps.

"The rise in the excise duty is still tolerable because buyers
also understand the unavoidable rise in the price of cigarettes,"
he said.

In the meantime, Gudang Garam spokesman HR Mochamad Djamal
said that his company had not lowered its production despite the
economic crisis. Also, he added, none of its 442,750 workers have
been laid off.

Will the economic crisis drive out of business all the medium
and small cigarette factories? Only time will tell. However, if
some manage to survive, they will do so, perhaps, not because the
management can get out of the grip of the economic crisis but
rather because their workers are loyal to them.

In Kudus, for example, according to cigarette analyst Kahfan
Noor, the workers consider hand-rolling cigarettes a tradition
they need to preserve. They care little about the low regional
minimum wages. They don't panic when they are laid off. To them
hand-rolling cigarettes is a noble tradition identified with the
nurturing of patience and carefulness. This is as noble as
efforts to conserve a traditional house in Kudus, which are now a
rarity.

However, what Noor has said is not completely true.

"Indeed we preserve the cigarette-rolling tradition. Yet, this
economic difficulty is hard to bear," said Ponirah, who has been
hand rolling cigarettes for 15 years.