Strict tobacco regulation
in the world affected PTPN X who runs cigar tobacco business. According to
Mochammad Cholidi, Corporate Secretary of PTPN X, with the tobacco regulation,
big cigar consumption increasingly declines and it shifts to cigarillos, even
currently, mini cigarillo products are growth.
“Big ciger consumption currently only reaches 15% of the
supply to Europe, while cigarillo and mini cigarillo consumption reaches 85%,
he said. Demand for Certain types of tobacco which are mostly used as raw
material for big cigar increasing declines (for example: FIN Tobacco a
Sumateran tobacco variety planted in Jember and Vostenlanden tobacco planted in
Kalten).
With such a condition, demand for cigar tobacco is
stagnant as total demand increases while volume tends to decrease. Therefore,
PTPN X seeks other opportunity by developing tobacco type which is in high
demand, such as Virginian tobacco to fill shortage in domestic consumption.
Currently, the cigarette industries still import Virginian tobacco.
Another opportunity is export to China. The country with
the highest economic growth in the world, its number of muddle to upper class
increases continuously. They change their lifestyles from cigarette to cigar
consumption for status. This condition is expected to increase demand of cigar
tobacco.
Farmers society and PTPN officers have dominated tobacco
business. All tobacco products are exported, and this is where oligopoly
practice occurs where PTPN tobacco buyers are only two, namely HKC and Burger.
Data of the past 10 years shows that production cost
increases up to 15% as worker’s fee increases. Price of fertilizer increases,
land lease increases, and wage also increases. But, for 10 years, selling price
to these two buyers only increases 1%.
Almost all risks and Costs are born by PTPN X. So, if
buyer only chooses some tobacco qualities, the loss risk of PTPN X is very
large. In solving this problem, PTPN X conducts negotiation with buyers so that
the risk is born mutually.
There is already one prospective buyer and an MoU will
soon be signed. Now, the buyers must convey how much tobacco they need and the
estimated price. If there is loss potency, PTPN X will not plant tobacco. In
the future, PTPN X will continuously increase quality. If this can be
implemented, tobacco business in the future will improve.
Currently, Indonesia supplies 34% of word’s demand of
naoogst tobacco, and 25% of it is from East Java. Each year, the condition
continuously decreases. PTPN’s planting area for this kind of tobacco
increasingly declines as it considers buyer’ demand and existing stock.
M. Koencoro, Chairman of Indonesian Tobacco Association,
stated that cigar tobacco market in America has been closed for Indonesia so
Indonesia needs to seek other markets, and Asian countries are Indonesia’s main
attention. So far, 10% of total Indonesia’s cigar tobacco export is to America,
but strict trade protection has made the market disappear.
Indonesia must export cigar tobacco as its share in the
domestic market is very small or only 5%, and the remaining is exported to
Europe. Cigar industry in Indonesia does not develop because price of cigar is
expensive and it is exclusive.
China is a potential market because its number of smokers
reaches 301 million people or 28% of total population. It has become a culture
to give cigar as souvenir among the upper class society in China, so this
opportunity must be used. Inodnesia is not included in the China’s Top 10
tobacco suppliers.
Business News - May 30, 2012
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