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Indonesian market for tobacco

  1. The delay in publishing of telephone directory?
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  4. Interview: Chairman and President of HBL
  5. Uk gold sale: impact on Pakistan
  6. Amendments in income tax ord. 1979
  7. Indonesian market for tobacco

August 9 - 15, 1999

Preamble: This study has been undertaken on the request of Pakistan Tobacco Board (PTB), who had informed that research and development activities in Pakistan have helped the growers to produce surplus tobacco for export. In this report we have tried to assess the nature and size of market demand, identify various market segments and distribution channels, and to recommend strategies for Pakistan's penetration of the Indonesian tobacco market.

Introduction to Pakistan Tobacco: Tobacco is one of Pakistan's important cash crops, grown in districts of Mardan, Swabi, and Mansehra on commercial scale. Pakistani tobacco is mainly "Flue Cured, Virginia" type and is used in blended form in international strong brand cigarettes like Marlboro, 555, Kent, Benson and Hedges, Gold Leaf etc. The total production of tobacco in Pakistan during last 5 years is given in table No 1.

Quantity in M. Tonnes.

Year Source Pakistan Source Economic

Tobacco Board (PTB) Survey of Pakistan


1992-93 79,000 102,000

1993-94 80,000 100,000

1994-95 73,000 81,000

1995-96 54,000 80,000

1996-97 55,000 85,000


 The production figures of PTB and ESP do not tally. On average ESP figures are higher by 20,000 MT from PTB figures. The exact surplus available for export is not known, but from the historical trend i.e past average annual exports, it seems that Pakistan has 2,000 to 3,000 MT surplus tobacco available for export every year. However, private sector sources estimate that this year Virginia tobacco production will be 60,000 MT and the surplus available for export will be 20,000 MT, valued at US$ 46 million at the rate of US$ 2.30 per Kg i.e. the prevailing international price. Surplus will increase if sound export market is developed and farmers get a good price.

Introduction to Indonesian Market: Indonesian tobacco industry is well developed. Indonesia is a large producer, importer, and exporter of tobacco and cigarettes, and therefore a good prospective market for Pakistani tobacco. Almost all famous international brands cigarettes are manufactured by multinational corporations (MNCs). Indonesian annual production of cigarettes is 245.7 billion pieces, while Pakistan's annual production is 48 billion pieces. Table-ll shows the Indonesian production, import and export of Tobacco during 1997.

Quantity M. Tons. / Value Millions US$

Product Production Import Export

Qty Value Qty Value Qty Value

Tobacco 139,639 419 52,000 206.6 72,205 254.3


During 1997 Indonesia also exported cigarettes worth US$ 127 million. Table-ll and the export of cigarettes reflects that Indonesia's total international trading of tobacco and cigarettes in 1997 was US$ 588 million, with a positive balance of US$ 174.6 million.

The core objective of Indonesian tobacco policy is maximum revenue collection and export of cigarettes. Indonesia has succeeded in attracting Foreign Direct Investment (FDI) in cigarette manufacturing, which has helped her exports. The simultaneous import and export of tobacco is explained by the need for blending various tobaccos for the desired flavour for international brands cigarettes.

Product Specifications: Market demand in Indonesia is for "Flue Cured Virginia" type having H.S. No.240120100.

Market Segmentation: Indonesian market for tobacco can be segmented on the following variables:

Geographic: Geographically, cigarette manufacturers are concentrated in two regions which are almost 2000 Km apart.

East and Central Java: 90% of cigarette manufacturing is in Central and East Java (in a 200 Km radius). Important cities in this region are Surabaya, Bojonegoro, Kudus, Kediri, and Malang, which are centers for tobacco manufacturing and trading. They have been marked red in the map, at annexure-A.

Sumatra Island: 10% cigarette manufacturing is in Sumatra Island, where the city of Medan is important centre for tobacco trading. It is suggested that Pakistani exporters should focus on Central and East Java, because of the large market size, many manufacturers clustered together and greater concentration of buyers and suppliers in one geographic region.

Size of Firm

As for the "Size of the Firm" variable, the market for tobacco can be divided into three segments. This segmentation strategy will provide target- oriented, useful information to Pakistani exporters, for targeting their choice segment. The three segments are as follows:.

Large Enterprises: There are four important firms in this segment:

Pt Gudang Garam: It is a local Indonesian company which enjoys Indonesian market leadership. Its annual production is 85 billion pieces, with 34% market share. Company leaf manager (person responsible for sourcing tobacco) is Mr. M.P, while C.E.O is Mr. Susilo Wondigo. They import Tobacco directly in minimum lots of 50 MT i.e. 5 containers of 20 ft size. Head Office, and Factory is in Kediri: Tel 62-354-681551 Fax No. 62-354-81555 Jakarta office Fax: 62-21-4212024.

Pt Djarum Kudus: Djarum Kudus annual production capacity is 39.6 billion pieces with market share of 16.15% . The Head office and factory is in Kudus. Mr. Sultan Pao (Tel 62-291-31494) is responsible for sourcing tobacco. They prefer to buy in bulk in minimum consignments of 20 MT. The company imports directly. Their average monthly import is 20MT. Fax No.62-21-5346893 and 5346892.

British American Tobacco (BAT): It is the largest multinational using Pakistani type Flue Cured Virginia Tobacco in Indonesia. Its annual production capacity is 11.2 billion pieces, having 4.56% market share. 50% of their cigarette production is for export market. Company HQ and factory is in Solo: Tel: 62-271-780343 and 782345. Fax No.62-271-781668. Its leaf manager is Mr. Moesamto. The leaf manager suggested that Pakistani flue cured product is acceptable and offers from exporters from Pakistan with consistent quality and steady supply are welcomed. BAT also buy through their agent cum importer i.e. Mr. Buyung S. Boentoran (director) Pt. Detabak International Tel: 62-31-5663672 and 5663673 Fax: 62-31-5663674

Pt. Bentoel: Its annual cigarettes production capacity is 17.1 billion pieces. Its brands are Bentley and Marlboro. Its market share is 6.96%. The office and factory are in city of Solo. Tel NO: 62-271-780343. Their Jakarta telephone is 62-21-2312280 Fax: 62-21-3800712.

Medium Size Enterprises

Rothmans: Its annual production capacity is 7.2 billion pieces, having 2.93 % market share. Its popular brands are Dunhill, Kansas, Blue Ribbon and Pall Mall. Mr. Bella Tel 62-21-3101580, and 3911422 Fax No.62-21-324349 is responsible for purchase of tobacco.

Philips Morris: Philips Morris imports blended tobacco from their subsidiary in Malaysia. In Indonesia they have only cigarette manufacturing factory. Tobacco blending is done in Malaysian subsidiary. It is advised to target their Malaysian subsidiary. Malaysian subsidiary Tel: (606)-7663000 Fax (606)-7611355.

PT Samporena: Its annual cigarette production capacity is four billion pieces, having 1.63 % market share. It has also factories in Viet Nam and Myanmar. The tobacco sourcing for those factories is also done from Indonesia. Person incharge of tobacco is Mr. Rhee. Telephone No.62-21-5266287 Fax No: 52-21-6266647

NV. Sumatra Tobacco Trading Company: This is one of the agarette manufacturing companies out side Java. The factory and the company head quarter are in the city of Medan, in Sumatra. Its annual production is 14.2 billion pieces, with 5.78% market share. Its famous brands are Jet, Hero, and United. The company telephone numbers are: 62-61-515214, 517139, 322235 Fax: 62-61-524968 and 535842. Contact person is Miss. Lima.

Small Enterprises: The small size cigarette manufacturers are 135 in number. They have a total 26.8% market share. Their main raw material is local tobacco. However, they also use some imported tobacco, primarily for blending. Since their financial resources and tobacco consumption is limited, they cannot afford to import or buy full container. Their average annual consumption of 10 MT is purchased in small lots.

Nature and Size of Market Demand

90% market demand for imported tobacco is Virginia of various grades, both in processed and unprocessed form. Indonesian cigarette consumption has shown average 4.5% growth rate during last 5 years i.e. per capita annual consumption has increased from 720 cigarettes in 1992 to 885 cigarettes in 1997. In 1998 due to economic crisis tobacco import has declined as per table No. TV.

Quantity in M.Tonnes / Value in million US$

Product 1997 1998

Quantity Value Quantity Value

Tobacco Un-processed 47,108 157.8 17,152 76.0

Tobacco processed 5,032 48.8 2,639 8.5


Demand for imported unprocessed tobacco is eight hems higher than demand for processed tobacco. The reason for decline in demand for imported tobacco is that due to the banking crisis, firms could not open LC against 100% advance cash deposit. As a result, the export of cigarettes and tobacco also declined and companies had to rely on local tobacco to a greater extent.

Market Demand Forecasting

Indonesian tobacco harvesting months are August/September. This year the Industry sources predict that due to non-availability of fertilizers and pesticides, the production will be lower. Also, this year too much rain has not been good for the crop, and production is less than average. On the other hand, the demand for cigarettes is increasing at the rate of 4.50% per annum and hence the demand for imported tobacco will increase.

Due to its strong cigarette manufacturing industry, both for local consumption as well as for export, Indonesia will be an important market for tobacco. The need for blending of various types of tobacco for quality cigarettes makes the import of tobacco essential.

In the short (one year), medium (two to three years), and long term (four to seven years) Indonesia will be important market for tobacco. The decline in imports during 1998 was not due to any decline in demand, but due to economic crisis where the companies imports and exports activities greatly declined. Indonesian economy is now on the way to recovery. Interest rates have come down from 40% to 20%, currency has stabilized within the IMF prescribed limits, inflation has come down from above 60% to less than 15%. The improvement in economic fundamentals and peaceful election has restored the business confidence and there are strong indications that the economy will come out of the crisis within a year or so.

Current Prices: Tobaccos from various countries have different flavours and prices. The most expensive is US Flue Cured priced at US$ 8 per Kg, followed by Brazil, and Zimbabwe. Pakistani Tobacco is a close substitute of Brazilian or Zimbabwe tobacco. Current C&F price for Pakistani Flue cured tobacco of various grades is in the range of US$ 2.15 to 2.30.per Kg. Japanese, Korean and Chinese tobacco is considered lower in quality and price.

Pakistan's Logistical Competitiveness: Table No. IV shows the logistical competitiveness of Pakistan.

Countries Time from Opening of Freight US$/ MT

L/C to arrival of


Pakistan 30 days 40

Brazil 60 days 60

Zimbabwe 50 days 55

China 25 days 38


Since tobacco is a relatively higher value product, the freight component is not as critical in international competition, as in case of fruits and vegetable or other bulk commodities.

Distribution Channels

There are two important distribution channels for tobacco marketing in Indonesia.

Large and Medium Size Cigarette Manufacturing Companies: 60% of tobacco is imported through this channel. Manufacturing companies prefer to import on d/p basis i.e. delivery against payment. The detail of this channel is already given under Segmentation i.e. in paras-3.2.1. to 3.2.3.

Agents-cum-importers: Tobacco has mostly specialized importers, having strong links with industry. They are mostly concentrated in Central and East Java i.e. Surabaya, Malang and Semarang. The important wholesale market is Malang from where the daily rates are fixed. The list of major importers is given in box. Importers supply to industries, as well as to the wholesale market.

Conclusion: Indonesia is a potential important market for Pakistani tobacco. The important question is whether Pakistan has potential to be regular exporter of tobacco. For that, steady supplies and competitive prices are a pre-requisite.

There are only a few multinationals like Pakistan Tobacco Company (PTC) a subsidiary of BAT and Laxon Tobacco which have modern tobacco processing units in Pakistan. If Pakistan is to be a serious player in international tobacco business, it will have to induct through realistic policies more multinationals for Foreign Direct Investment (FDI) in this industry.

Recommendations For Private Sector

Market Entry and Penetration Strategy: Our recommendation to Pakistani tobacco exporters for entry to Indonesian market is to have a longer term vision of the market, and for that they would need to cultivate strong relationships with Indonesian cigarette manufacturers. A start can be made by supplying a few containers at very competitive prices and timely delivery. A strong supplier-buyer relationship could lead to the cigarette manufacturers from Indonesia being induced to getting involved in tobacco processing with in Pakistan. The cigarette manufacturers blend various tobaccos for getting desired flavor and prefer to have steady supplies of that specific grade of tobacco, which after blending with tobacco from other sources produces the desired flavor for their brand, which thereafter becomes their trade secret. However, for that sort of long-term marketing relationship, Pakistani exporters will first need to prove that they have the capacity to supply adequate quantities on regular basis and competitive prices, and can fulfil their commitments. For that purpose, only such firms will succeed and make more profits, which can prove their long-term commitment to their product and market. For new entrants, a long term contractual relationship with cigarette manufacturers in ASEAN can materialize, only on basis of export of tobacco at competitive prices, steady supplies, consistent quality and fair business practices.

Market Entry Pricing Strategy

For new entrants, it is recommended to quote very competitive price-even to export first container at break-even price. Market entry price should be lower than the prevailing market price. The manufacturers, having regular import from Brazil and Zimbabwe will opt to import from new suppliers, only if good quality is offered at very competitive price.

Recommendation for General Trading Companies

Tobacco marketing is specialized business. General traders (dealing in many commodities) will have serious handicaps. Tobacco distribution channels are totally separate from other agricultural commodities like rice, sugar, etc. General traders will have no synergy by adding tobacco to the list of their commodities. They will have to allocate separate marketing and sourcing staff for tobacco.

Recommendation for Focused Company

Honest, commodity focused exporters, open to international culture and having strong linkage with or presence in tobacco growing area, will have competitive advantage in making entry in the market and having greater market penetration. Such firms should also succeed in attracting joint venture partnership with importers from ASEAN region for sourcing tobacco or even for cigarette manufacturing under licence.

Focus on Main trading Centers in Central and East Java.

Exporters from Pakistan are advised to focus on firms in Central and East Java (area marked in map) where tobacco trading and cigarette manufacturing is concentrated i.e. the cities of Surabaya, Malang Kudus and Kadiri — all these cities being within a 200 Km radius. The exporters are well advised to focus on these cities for their visit. Looking for prospective importers in Jakarta will be waste of time and resources. The best flight option will be from Singapore to Surabaya, which is the second largest city in Indonesia, and an important air/sea port.

Recommendation for Export of Cigarettes from Pakistan

Existing Pakistani cigarette manufactures are advised to go for joint ventures with strong international brand cigarettes manufacturers for benefiting from their brand goodwill for export. Cigarette is a highly branded product and Pakistani local brands cannot compete at international level. Cigarette marketing also involves high promotional expenses.

Recommendations for EPB and PTB

Tobacco is a non-traditional export product of Pakistan. In Indonesia, there is little information about Pakistani tobacco. Similarly, established exporters of tobacco from Pakistan are not easily traceable. Presently, it seems that the main tobacco exporters are cigarette manufacturers. Their core business is cigarettes manufacturing and tobacco export is not their priority business. They, therefore, treat tobacco export enquiries as incidental. Pakistan needs strong entrepreneurial class for international tobacco marketing. EPB Peshawar and PTB can help in organizing and promoting the entrepreneurial class through seminars on Tobacco export.

Visit of Indonesian Tobacco Sourcing Managers

EPB and PTB should sponsor a visit for the Tobacco sourcing managers of top four Indonesian firms to Karachi, Mardan and Peshawar, when the new crop is harvested so that importers can have a fair idea of Pakistani crop and varieties.


It is suggested that EPB web page needs to be updated and its scope enlarged. It will be useful if the whole range of products which have any chance of export from Pakistan are included in EPB web. page. Tobacco and Cigarettes exporters are not included in EPB WEB Site at present.

Export Promotion Bureau (EPB) and Pakistan Tobacco Board (PTB), which also has export promotional role may coordinate efforts to identify some key Pakistani exporters of tobacco and its product and put them on EPB web.

Commercial Secretary




S.No. Name & Address of Company Telephone Fax No.

1. Indonesian Institute of Tobacco 62-21-8710323 62-21-8702781

2. Cigarettes Manufacturers 62-21-323481- .62-21-323481 Association of Indonesia, (GPPRI) 334400


3. Pt. Trias Sentosa Tbk 62-31-8543213 62-31-8543373

Jl. Raya Waru nr. IB, Surabaya -


4. Gudang Garam, Pt. 62-354-681551 62-354-81555

Jl . Semampir II/1,

Kediri 64101.

5. Djarum Kudus, Pt. 62-291-31494 62-291-31718-

Jl. Jend. A. Yani 28, 31053

Kudus 59317. 62-21 -5346893 and 5346892

6. Bentoel, Pt 62-21-2312280- 62-21-3800712

Jl. Cideng Tmr-21 365306(62-271-

Jakarta. 780343

7. Nojorono, Pt 62-291-39161-

Jl. Jend. Sudirman No.86B


8. Panamas, Pt 62-21-6511620 62-21-834903 Jl. Agung Tmr 13 Bl N-3/7 62-31-834904


9. HM Sampoerra, Pt 62-21-5266287 62-21-566647

Jl. Jend. Sudirman Kav.54-55

Bapindo Tower


10 . BAT Indonesia Jl Sudirman 32 62-21-2510666- 62-271-781668

Wismal Dharmala Sakti, Jakarta 2510750, 62-



11. NV Sumatra Tobacco Trading 62-61-515214 62-61-524968-

Company 517139-322235 535842

12. Gentong Gotri Pt. 62-21-5521875

Gentong-17, Jl. Bouraq 22 Tng 62-21-5512441

13. Inecco Indonesia Jl. Lombok 44 62-370-

Lombok 6353420

14. Rokok Suku, Jl . Kali Besar Tmr- 62-21 -6922254

III/17 Jakarta.

15. Phtilips Morris 606-7663000 606-7611355

16. Rothmans 62-21-3101580 62 21-324-349 - 3911422

17. Pt Detabek International 62-31-5663672 62-31-5663674

(Contact Person Mr. Buyung S. and 5663673.