Indonesia is one of the world's important cigarette markets and major tobacco producers, and the country's economy is highly dependent on the tobacco industry. According to forecasts, the operating income of the country's cigarette industry is expected to reach US$24.86 billion in 2022, an increase of 5.8% over 2021. Below, let's take a look at the development of this important tobacco consumer market.

The tobacco industry has far-reaching influence in Indonesia

Tobacco cultivation and consumption have taken root in this country since the 19th century. Indonesia's tobacco market is distinctive and is largely dominated by kretek cigarettes, which account for about 95% of all cigarettes sold in Indonesia annually. Although local tobacco consumption has declined in recent years, Indonesians still smoked up to 300.2 billion cigarettes in 2019. About 75% of the country's kretek cigarettes are machine-rolled, with the remainder largely hand-rolled.

Indonesia has one of the highest smoking rates in the world, and smoking is very common in Indonesia. According to a survey done in 2018, the number of cigarette consumers in the country is close to 100 million. Smoking is a living habit of many local men, 62.9% of men in the country smoke, and the number of female smokers accounts for 4.8% of women in the country. There is no minimum age limit for consumers to buy cigarettes in Indonesia, and it is common to sell cigarettes by stick. Figures from the country's health ministry show that in 2018, 33.8 percent of teenagers under the age of 15 smoked, compared with 32.8 percent in 2016.

The COVID-19 pandemic and rising cigarette taxes have pushed local cigarette consumers to lower-end products. Many tobacco companies have introduced smaller packs of cigarettes to meet Indonesian consumer demand. This situation has also increased the demand for kretek cigarettes with higher tar content in the local tobacco market.

According to data from the Southeast Asia Tobacco Control Alliance, five tobacco companies control almost 90% of the Indonesian cigarette market in 2020. Sampoerna leads the market with a market share of 32.5%, followed by Gudang Garam Group with 27.5% and Djarum with 18.7% , Bentoel Company occupies 8% of the market share, Indonesia Tobacco Company occupies 3% of the market share, and the remaining 10.3% of the market share is divided by about 500 small and medium-sized tobacco manufacturers.

According to information from the Indonesian Development Foundation, the tobacco industry is an important industry in Indonesia, providing jobs for 5.98 million Indonesians, of which 4.28 million work in cigarette manufacturing and sales companies, and 1.7 million in tobacco farming. In 2019, employment in tobacco manufacturing companies accounted for 0.34% of the total employment in the country. Like many tobacco-growing countries, tobacco is mainly grown by farmers who depend on tobacco for their livelihoods. In addition, the local tobacco growing industry also needs to work hard to address child labor.

Decentralized decision-making leads to a lack of policy continuity

Because the tobacco industry plays a very important role in Indonesia's national economy, Indonesia has always been cautious about tobacco control. Indonesia is also one of the few countries in the world that has not formally joined the WHO Framework Convention on Tobacco Control. Responsibility for developing tobacco policy in Indonesia is spread among the president's office, six national ministries and an independent agency. Decentralized decision-making leads to fragmented policies and a lack of continuity.

Still, Indonesia has made some progress in tobacco control. Since 2014, the country has required cigarette makers to print health warnings on the front and back of cigarette packs, covering 40 percent of the pack area. At the same time, they implemented smoking bans in a number of venues, including public transportation, health care and educational institutions. Indonesia also has some restrictions on the broadcast of tobacco advertisements on television and radio.

Although cigarette taxes and fees have been raised several times, the price of cigarettes in Indonesia is still the lowest in the Asia-Pacific region, and tobacco taxes and fees are far lower than the standards proposed by the World Health Organization. Indonesia's tobacco tax system is complex. Currently, Indonesia divides cigarette tax rates into 10 tiers based on tobacco product type, quantity and price. There are so many tiers to protect smaller tobacco manufacturers and jobs in the country from competition.

According to the "Tobacco Roadmap" planned by the Indonesian government in 2017, the number of tobacco tax tiers was expected to be reduced, but this plan was subsequently withdrawn. In November 2018, the country's Ministry of Coordination of Economic Affairs launched a new "Tobacco Roadmap", which emphasized the importance of the tobacco industry and advocated for the protection of the tobacco industry to continue until 2025.

On January 1, 2022, Indonesia increased taxes on all cigarette types by an average of 12%, reducing the number of tax tiers from 10 to 8. According to the Indonesian Ministry of Finance, the tax and fee reforms are aimed at meeting rising health care costs, which have been triggered by rising smoking rates, and at the same time, to further reduce youth smoking rates.

Regulation of novel tobacco products is not yet perfect

In Indonesia, e-cigarettes are more popular than heated cigarettes. Because e-cigarettes were launched in Indonesia earlier than heated cigarettes, e-cigarettes were launched in Indonesia in 2010, and heated cigarettes were only introduced to the Indonesian market in 2019. According to research by the Indonesian Development Foundation, there are about 2.2 million e-cigarette consumers in the country in 2020.

The Indonesian government classifies non-cigarette tobacco products as other processed tobacco products. These products include snuff, chewing tobacco, electronic cigarettes and heated cigarettes. All other processed tobacco products are taxed at a rate of 57%.

The Indonesian Development Foundation believes that the Indonesian government's taxes on new tobacco products should be lower than those on combustible tobacco products, and should improve Indonesian consumers' purchasing power and convenience for new tobacco products.

In addition to the regulations on import and consumption tax, Indonesia has not yet issued specific and comprehensive regulatory regulations for new tobacco products. Different regulatory agencies have different attitudes towards new tobacco products, and relevant policies have not been fully coordinated. Indonesia's food and drug regulator wants to ban e-cigarettes, but the Indonesian Ministry of Health wants to regulate e-cigarettes the same way it regulates traditional tobacco products.

In low- and middle-income countries, purchasing power is a challenge for the development of new tobacco products. Harris Siajian of the Indonesian Development Foundation believes that new tobacco products will be successful in the Indonesian market. "Indonesia has a population of more than 200 million people, of which about 52 million are in the educated middle class," he said. "Over the past 20 years, many poor people have undergone a major transformation and entered the ranks of the educated middle class. This is very important for the new It is a good opportunity for the development of tobacco products. The Indonesian middle class has been an important driver of the country's economic development, and the consumption level of this group has increased every year since 2002. A suitable brand ambassador, product convenience Sexuality and purchasing power play a very important role in the success of new tobacco product sales."

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