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