Tobacco & Cigarette Industry Indonesia

The tobacco industry is one of the largest industries in Indonesia with domestic cigarette consumption high, especially among Indonesian men. It is estimated that around 65 percent of Indonesian men are smokers. For Indonesian women the figure is much lower - around 3 percent only - because it is less socially acceptable for women to consume cigarettes in Indonesia. Given that two companies within the top ten of largest Indonesian companies (in terms of market capitalization) listed on the Indonesia Stock Exchange are cigarette manufacturers, it becomes clear how large the tobacco industry of Indonesia really is.

After China, Indonesia is the second-largest cigarette market in Asia. Given that the Indonesian population numbers over 255 million and around two-thirds of Indonesian men consume tobacco-related products, it implies that there exists a huge market. The Tobacco Atlas states that there are 53.7 million active adult smokers and 2.6 million active youth smokers in Indonesia. These figures make Indonesia the third-largest cigarette consumer (after China and Russia). It is estimated that an Indonesian smoker uses about 5 - 7 percent of his/her monthly income to purchase cigarettes or other tobacco-related products.

Meanwhile, the World Health Organization (WHO) claims that a much bigger portion of the Indonesian population can be labelled 'smoker'. The WHO stated that there were 95 million smokers in Indonesia in 2015, and - more alarmingly - 20 percent of the Indonesian youth were categorized as smokers, while WHO research also indicates that the country's youth start smoking younger and younger. In fact, Indonesia's cigarette manufacturers are specifically targeting the nation's youth; a source of income for decades to come. It should also be pointed out that there are millions of passive smokers in Indonesia.

Another factor that supports cigarette consumption in Indonesia is that citizens have easy access to cigarettes, not just because of the wide distribution network that makes cigarettes available in all corners of the archipelago but also because of the relatively low price that is charged for a package of cigarettes. Nowhere on earth a package of cigarettes is as cheap as in Indonesia. On average, a package costs USD $1.4 a piece in Indonesia.

The raw materials that are required for the manufacturing process of cigarettes are mostly domestically-sourced, implying that foreign exchange volatility has limited impact on prices set by Indonesian retailers (this is also why the recent economic slowdown had a relatively limited impact on the nation's tobacco industry). Mostly domestically-sourced materials in combination with Indonesia's cheap labor costs make the tobacco industry's production costs low. Therefore, even the poorest Indonesians can often be seen smoking.

The kretek cigarettes are tremendously popular among Indonesian smokers. As about 85 percent of all smokers in Indonesia prefer kretek cigarettes over white cigarettes, these clove cigarettes are the clear favorite among Indonesia's smoker community. Kretek - a trademark of Indonesia - is a clove cigarette that consists of tobacco (70 percent) and ground cloves, clove oil as well as other additives (30 percent). Machine-rolled kretek cigarettes contribute around 75 percent to the total cigarette supply in Indonesia, while hand-rolled cigarettes account for nearly 20 percent.