Published: Sep 22, 2007

The tobacco industry keeps the government afloat, but at a huge cost in ordinary lives.

  

Catherine Reynolds

One of the most evocative scents of Indonesia is the smell of kretek clove cigarettes. But behind the smoke haze of this rich sensory aroma few people contemplate the economics of Indonesia's tobacco industry. It is the government's largest source of revenue after oil, gas and timber, a reliable internal revenue, unlikely to suffer from external market fluctuations. This revenue recouped a staggering Rp 4.49 trillion in excise in 1997/98. That's over AU$ 2 billion at pre-crash exchange rates.

Amazingly, the tobacco industry is also the second largest employer after government. Employment estimates range from 4 - 17 million workers, in areas such as farming, trading, transportation and advertising, as well as those actually involved in producing cigarettes. The Indonesian government is critically dependent on the industry. As a result, opposition to it is discouraged and cigarette advertisers have free rein. In 1996 for instance, Indonesia's Health Minister confirmed that 'the government had no intention of trying to regulate smoking through legislation'.

PT Sampoerna is one of the largest Indonesian tobacco companies. They confidently noted in their 1995 Annual Report:

'Being such an important economic component, and the fact that the industry and the government have, all in all, a good working relationship with each other in the past, make it doubtful that the government will radically change (for the worse) its current policies towards the industry as a whole.'

In light of this situation it is interesting to note that the Suharto family and their business associates control a substantial proportion of the advertising media, including billboards, television and cinema.

Young smokers

Any short visit to Indonesia will reveal the huge number of Indonesians, particularly men, who smoke. Estimates of participation rates range from 50% to 85%.

Indonesians are now also smoking at a younger age than ever before. A 1985 Jakarta study found that 49% of boys and 9% of girls aged 10 - 14 were daily smokers. Today the Indonesian Health Department, perhaps conservatively, estimates that 22.9% of urban ten year olds, and 24.8% of rural ten year olds smoke.

The dangers of smoking are not well known in Indonesia. Warnings that 'smoking can harm your health' were introduced on cigarette packets in 1991. But they are small and ineffective as deterrents. Meanwhile, the saturation levels of advertising together with the lack of health information about kreteks even extends to active misinformation. As recently as 1989 Adam Schwarz noted an article in Business News magazine which stated that kreteks could prevent heart disease and cancer. Katherine Frith, writing about advertising in Indonesia, observed that the packaging on another brand claims the cigarette increases longevity and improves health.

In reality, most kretek clove cigarettes contain around four times as much nicotine and tar as the strongest Marlboros. Tests on the clove oil, eugenol, have shown that it causes extensive lung damage when smoked.

The earlier people start to smoke, the more likely they are to maintain the habit throughout life. Unless people start smoking by the time they are twenty, they usually never do. As more than 50% of the population is under 24 years old, the potential market (to use the current euphemism for a trade in lethal drugs) is huge. Tobacco companies covet this 'market' because they must recruit new smokers in order to maintain their profits, replacing those who die or quit.

The teenage years are the time when people are more focussed on their image and identity, and are particularly vulnerable to cigarette advertising. As people get older and become more secure in their identity, the advertised 'attributes' of cigarettes are no longer such a lure. Habit and addiction take their place.

Billionaires

In contrast to the tobacco industry in other countries, Indonesia's industry is not dominated by multinationals, but by four ethnic-Chinese Indonesian companies. There are at least 155 tobacco companies in Indonesia, but the four major producers, Gudang Garam, Djarum Kudus, HM Sampoerna and Bentoel, control about 85% of the market share.

In 1997, Geoff Hiscock, Asia editor of The Australian, noted that of the seven Indonesian US dollar billionaires, three were tobacco barons:

Rachman Halim and his Wonowidjojo family (Gudang Garam) were worth US$4.9 billion in November 1997, after the drop in the rupiah; Budi Hartono and family (Djarum) were worth US$1 billion with 20% market share of kreteks in early 1997;

Putera Sampoerna and family (Dji Sam Soe A King, A Mild, A International) were worth US$1 billion in November 1997.

 

Three multinationals vie for the remaining market share: Philip Morris, BAT Indonesia and Rothmans. The Indonesian market is enormously attractive for multinational tobacco companies because they can safely engage in marketing practices they sanctimoniously decry elsewhere, in the process obtaining far less troublesome profits. For as Sampoerna's 1995 Annual Report smugly states: 'The culture of Indonesia is not litigatious in nature, and therefore the industry here does not expect the same exposure to litigation and potential lawsuits as do their American counterparts'.

In order to increase their share of these trouble free profits promised by the fourth largest market in the world, the three multinationals navigate Indonesia's corrupt business environment with a variety of tactics.

Rothmans recently formed a partnership with then-president Suharto's cousin, Sudwikatmono. In their 1997 Annual Report they were optimistic about increasing their share of the Indonesian market with the aid of what then seemed a judicious alliance. In addition to his ties with Suharto, Sudwikatmono also controls the import and distribution of overseas films. No doubt this ensures Rothmans easy access to advertising in cinemas.

Philip Morris, an enormously powerful company in its own right, also has powerful connections. Rupert Murdoch, recently voted fourth most powerful man in Asia by Asiaweek, is a director of Philip Morris. He also owns Star TV Indonesia. This access to advertising, plus the political influence devolving from Murdoch's ownership of such a powerful medium, ensures that Philip Morris is strategically positioned to increase its market share through its liaison with Bentoel's subsidiary PT Tresno, which produces Marlboro cigarettes.

Health

Little research has been carried out on employment conditions in the industry. Inside Indonesia featured an article by Melody Kemp in 1993 highlighting appalling working conditions in industry as a whole. In 1995 Tanzer, another researcher, writing about the traditional hand rolled technology of the industry, noted that women, who make up the bulk of the workforce, are expected to roll 'at least 325 cigarettes an hour - one every ten seconds on average'. It has also been recorded that child labour is used in the industry.

Indonesia's tobacco industry begs critical attention. For as the World Health Organisation (WHO) notes, reliable data regarding the number of Indonesian's who die from cancer is 'not available'. However WHO also estimates that 57,000 Indonesians die each year as a result of tobacco use. Certainly the Indonesian Health Department acknowledges there are 200,000 new cases of cancer each year. But only 3.2% of these people ever receive hospital care. Obviously the degree to which this cancer is tobacco related requires further study. But it is clear that by condoning the tobacco industry the government is effectively murdering far more Indonesians than they ever could by mere bullets.

Despite Suharto's political demise, Indonesia is still not a democracy, and Indonesian anti-tobacco activists still face an uphill battle against the industry. They desperately need increasing publicity and international pressure.

The recent substantial tiered price increases on cigarettes (determined by each company's production levels) have signalled at least a step in the right direction, but it is not enough. This move by the government suggests fiscal expediency rather than a desire to address the huge mortality rate from tobacco. Certainly industry analysts predict that the large tobacco companies will only benefit from this increase, with larger profit margins.

The big tobacco companies will also benefit from the removal of Tommy Suharto's lucrative BPPC clove monopoly, one of the 'reforms' the IMF has required. Certainly ending the Suharto family's profiteering can only be beneficial. But who gains otherwise? Surely not the clove farmers? They are unlikely to be paid the price for cloves which the tobacco barons paid to Tommy Suharto. Once again, it is more likely that the tobacco barons will be the recipients of this new, 'free' market.

No matter what political reform takes place elsewhere it is unlikely to affect the tobacco industry. The government's first priority is to resuscitate the economy. The tobacco industry is strategically important, and it is doubtful that the political and legislative actions being taken against the industry in Western countries will be implemented in Indonesia, at least in the short term.

Yet at the very least this is an opportune moment to increase taxes on cigarettes. This could further support subsidies on other more crucial consumer items. Certainly the industry can bear an increased tax burden and any loss of income.

In 1980, as Anthony Reid noted, Indonesian households 'spent more on tobacco than they did on clothing and footwear, on meat, or on medical and educational needs combined, and twice as much as they spent on festivals. The poorest households spent more on tobacco than they did on fish, meat, and eggs combined'.

If this pattern of expenditure has continued to this day it is not feasible to argue that Indonesian people are gaining economically simply by being employed by the industry. Their income could be more fruitfully directed towards building other more worthwhile sectors of the economy. Instead, Indonesians are paying for the tobacco industry with their lives, simply sustaining the billionaires who exploit them.

Addressing the injustices represented by the Indonesian tobacco industry offers a strategic opportunity for President Habibie to demonstrate his commitment to reform and to the health of his people.

Catherine Reynolds recently completed an Honours degree (First Class) in sociology at the University of New South Wales.

Inside Indonesia 56: Oct-Dec 1998