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Clove cigarettes: Sweet smell of
cash
By Bill
Guerin
JAKARTA - The United States Congress is
likely to pass a bill banning the import of flavored
cigarettes, a move that would be a blow to the export
market for Indonesia's clove cigarettes. Fortunately -
or unfortunately, from a public health standpoint - the
domestic market for the product is huge, so the Jakarta
government and cigarette producers should continue to do
very nicely, thank you.
Recent reports from the
US Centers for Disease Control and Prevention (CDC) have
highlighted the need for drastic action. The
sweet-smelling kretek (clove-flavored) weeds from
Indonesia, where they are mainly a working-class
indulgence, have become a trend among younger-generation
Americans, frustrating official campaigns to discourage
smoking. Middle- and high-school students indulge in
various tobacco products, including bidis
(leaf-wrapped, flavored cigarettes from India) and the
Indonesian kreteks.
Jakarta could lose as
much as US$30 million a year if the bill is passed, and
the impact on provincial employment could be severe. But
Indonesia is not one of those markets where health
concerns have reduced the smoking population, so demand
will remain solid even without exports. The smell of
kreteks, named for the crackling sound they make
as they burn, permeates buildings, trains, buses and
restaurants, and it defines sensory, at least olfactory,
perceptions of the country as a whole. But to others,
behind the sickly though evocative clove fragrance is
the even sweeter smell of money.
Every day in
the US, an estimated 4,400 youths aged 12-17 years try
their first cigarette, and a third of these young
smokers are expected to die from a smoking-related
disease.Jakarta appears not to share the US concern for
its future generations. The country is the world's
fifth-largest consumer of tobacco, and money takes
priority over all else.
More than 45 percent of
those who smoke are under the age of 20. More than half
a million Indonesians are reported to be suffering from
tobacco-related illnesses, and the ministry of health
predicts that within a decade the cost of treating
smoking-related illnesses will be five times as great as
the taxes the industry generates. Most smokers can't
afford even basic health care.
Cheap prices and
a weak anti-smoking lobby have ensured that vast profits
from the domestic market continue to make the half-dozen
or so kretek barons rich. The tax revenues also
prop up the cash-strapped budget every year. Taxes on
the industry are the Indonesian government's biggest
earner after oil and gas.
Indonesia's estimated
140 million smokers consumed 204 billion cigarettes in
2002. Last year, though consumption was down to 186
billion, excise revenues still amounted to Rp26.3
trillion ($3.1 billion), just short of the targeted Rp27
trillion.
The world's biggest
kretek-cigarette maker and Indonesia's largest
cigarette producer is PT Gudang Garam, controlled by
Rachman Halim, who took over when his father,
ethnic-Chinese tycoon Surya Wonowidjojo, died in 1985.
In 2001 Forbes estimated Halim's net worth as $1.7
billion. The No 2 producer, Putera Sampoerna, who owns
PT HM Sampoerna, was worth $1.3 billion, according to
Forbes.
The tobacco industry is also estimated
to provide direct or indirect employment to more than 10
million Indonesians. Gudang Garam, for example, employs
40,000 workers, most of them at its production plant and
headquarters in Kediri in the province of East Java.
Sampoerna employs 55,000 in its plants around Surabaya,
the provincial capital. The producers support several
hundred thousand more people who grow and dry the
tobacco and cloves, supply the raw materials for
packaging and retail the cigarettes across the nation.
Their brands retail for between Rp5,000 and Rp6,500
(60-75 cents) for a pack of 12.
Usually about
two-thirds tobacco and one-third clove, the
kretek cigarettes invariably contain another
additive. Chemists conjure up artificial flavors to suit
the current trends. Gudang Garam, for example, has a
fruity, spicy taste, and added fragrance comes from
cinnamon, coriander, star anise and lovage.
The
three largest producers - Gudang Garum, Sampoerna and
Djarum - account for 76 percent of the cigarette market.
They are among the country's top 10 companies in sales
and profits. Three multinationals vie for the remaining
market share: Philip Morris, BAT Indonesia and Rothmans.
There are some 2,000 brands altogether, produced
by about 500 companies ranging from tiny family-owned
enterprises to the big and powerful tycoon-owned
operations. Almost 200 billion cigarettes were produced
last year, with more than 80 percent of these the
high-tar and high-nicotine kretek brands. Most
upper- and middle-class Indonesians smokers prefer
Western-style cigarettes and only one smoker in 10
prefers non-kretek cigarettes, known locally as
whites.
For years health authorities in North
America and Europe have said lung-cancer risks due to
cigarette-smoke exposure are related to the presence of
tar. Since the mid-1950s, manufacturers have taken
initiatives to reduce tar content and, since 1955, the
average tar content in cigarettes has declined from 35
milligrams to 10mg at present. Elsewhere the decline in
tar content since the mid-1950s has been matched by
reductions in nicotine content in roughly the same
proportions. Accordingly, the average nicotine content
has declined from three milligrams per cigarette in the
1950s to about 0.8mg today.
But most
kretek cigarettes contain about four times as
much nicotine and tar as even the strongest Marlboros.
Eugenol, a phenolic compound in cloves, enhances the
effect of the tar. Though tests have shown that it alone
causes extensive lung damage when smoked, it has
sedative properties and gives smokers a "feel good"
sense.
Tests conducted in Australia show that
the average nicotine yield in an Indonesian-made clove
cigarette is well over two milligrams and most contain
more than 30mg of tar per cigarette.
For years
the Indonesian government encouraged hand-rolling over
machine-manufacturing and protected smaller producers
against the market clout of their larger cousins.
Cigarette companies came under pressure to minimize
production costs by seeking cheaper raw materials
because they had been forced to contribute a greater
amount of excise revenue for the cash-strapped
government. In 2002, the government moved the goal
posts, despite complaints from the Association of
kretek Cigarette Producers (GAPPRI) that a
proposed new producer classification system would mainly
benefit those previously categorized as large producers.
Excise tax rates for machine-rolled brands were
upped to 40 percent for large producers, 36 percent for
medium and 26 percent for small. However, smaller
producers were hit hard because of the simultaneous
redefinition of the categories.
The new system
classified large producers as those producing more than
2 billion sticks, an honor previously given to those who
churned out at least 6 billion cigarettes a year. Medium
producers were recategorized to include those with
output of more than 500 million but not more than 2
billion sticks, rather than the previous "medium" levels
of between 2 billion and 6 billion sticks. Last, but far
from least, small producers were redefined as those with
output of not more than 500 million sticks, a huge
change from the earlier parameters of up to 2 billion
sticks.
The objective, of course, was to rake in
more money from the deadly weed trade. Rates for
hand-rolled brands are now 20 percent for large
producers, 16 percent for medium, 8 percent for small
and 4 percent for very small producers (those with a
capacity of not more than 6 million sticks).
The
change of classification in effect forced those earlier
classified as medium producers to pay tax at the rate of
large producers. With the higher excise tax rates, the
government's revenues from the cigarette industry
doubled from Rp10.1 trillion ($1.2 billion) in 2000 to
Rp21.2 trillion ($2.3 billion) in 2002.
Legislation still requires all manufacturers of
tobacco products to state tar and nicotine levels on
every pack of cigarettes, but Gudang Garam, the nation's
biggest excise tax contributor, was one of the last to
fall in line. Gudang Garam previously topped the tar
list with 53.2mg for a single stick, but has reduced
this to 35mg according to labeling on the packet.
Nicotine content is 1.7mg.
Indonesia's oldest
and most expensive clove cigarette, the hand-rolled Dji
Sam Soe, is Sampoerna's flagship weed and best-selling
brand, accounting for more than half of the company's
total sales. Hand-rolled by chosen female employees
only, each Dji Sam Soe is said to contain twice the
nicotine and triple the tar of a conventional cigarette.
Smokers have no way of knowing, though, as there is no
reference to these levels on the packet.
The
surge in smoking-related illnesses spurred the
government into short-lived action four years ago. A
hastily drafted regulation in 2000 gave manufacturers
seven years to achieve lower levels of tar (a maximum of
20mg) and nicotine (1.5mg), with makers of hand-rolled
kretek cigarettes given 10 years to comply. But
the government quickly caved in to lobbying by
manufacturers, who claimed that they'd have to spend
vast fortunes upgrading equipment, and lifted all
planned restrictions on tar and nicotine.
The
lifting of the restriction meant that the tobacco giants
would not need to invest in laser machines to reduce the
content of the poisons in their products. It also meant
they would not need to import low-tar US Virginia
tobacco, which costs twice as much as the local
high-nicotine tobacco. The clove and tobacco farmers
carried on planting, and the government almost met its
revenue target from cigarette duties.
Win win?
Hardly. In the same year, a defamation action by
anti-smoking campaigners against Sampoerna and the
country's third-biggest producer, Djarum, was snuffed
out by the infamous South Jakarta District Court, where
money also talks. The plaintiffs had alleged that the
tobacco giants breached television guidelines against
daytime advertising, and for their audacity in making
such claims were ordered to apologize to the
manufacturers.
Though health warnings on
cigarette packets were introduced in 1991, Indonesia is
one of the world's last remaining unregulated markets.
Tobacco advertising on television may not show anyone
actually smoking, or an actual cigarette, but there are
no restrictions at all on promoting tobacco on radio, on
billboards, at point of sale or in the print media.
Worse, there are no bans on sales to minors. A massive
amount of sponsorship money goes into promoting
cigarettes.
Anti-smoking campaigns are not on
the political agenda. Excise tax on cigarettes is
increased annually, and last year was an average of 31
percent of the retail price, still low compared with
other countries in the region. Studies from the World
Health Organization (WHO) and World Bank show that
higher taxes on cigarettes are the best way to force
smokers, especially the poor, to quit.
But the
recent freeze on cigarette taxes by Jakarta flies in the
face of this advice, and the move was widely seen as a
way to boost revenues, sway voters ahead of this April's
election and please the tobacco barons who give hefty
donations to political parties for their election
campaigns.
Anti-smoking measures that reduced
consumption would hit Java hardest. Java accounts for
more than 60 percent of the country's population,
voters, and tobacco-industry workers. Aside from those
directly employed in cigarette factories, more than
900,000 work as tobacco planters and an estimated 1.2
million are clove farmers.
Jakarta has promised
the WHO that by 2005 it will restrict cigarette
advertising and smoking in public spaces, but the
political and legislative actions necessary to implement
this may not get off the ground in the short term.
With an estimated 40 million Indonesians
jobless, any moves to cut tobacco consumption on health
grounds will be fought tooth and nail not only by the
tobacco barons but also by the legislators themselves,
whatever the political make-up of the new government
later this year.
(Copyright 2004 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
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