0. Indonesia Tobacco Employment Studies Preliminary Results
Washington DC - April 19, 2017

1. Overview Indonesia Tobacco Tax Policies Employment studies
Motivation, Policy Research Questions and Design
Some Preliminary Findings
Employment trends in the Indonesian tobacco sector
Farmers (tobacco and clove) livelihoods
Kretek rollers livelihoods
What have we learned so far?
Next Steps

2. Tobacco Consumption & Policies
Smoking prevalence among adult is high (67% men) and is growing (32% increase between )
Smoking was the third cause of avoidable premature deaths among males in 2010
Tobacco-related deaths represented 20% total male deaths in (from 13% in 1990)
Since late 90s, the Government of Indonesia continues to reform the tobacco excise tax system
Aiming to reduce smoking prevalence, increase tax revenues, and reduce social costs of smoking on healthcare costs
'middle-of-the-road approach' regarding its stance toward cigarette consumption

3. The current Indonesian tobacco excise taxation is a complex multi-tiered system, aiming to protect small-scale cigarette and kreteks firms
Source: World Bank, 2017.

4. Revenue realization from tobacco excise tax has been steadily increasing
Government revenue from cigarette excise taxes,
Tobacco excise tax = 11.3 percent of total taxes (from 9.3 percent in 2010).
Source: World Bank, 2016.

5. The study focused on the:
A major concern is the possible adverse effects of the tax reform on employment in the tobacco sector
However, we have little knowledge about employment in the tobacco sector, the characteristics of the workers, and their livelihoods
The main objective is to investigate the potential impacts of a tobacco tax reform on employment and workers/farmers’ livelihoods
The study focused on the:
Employment trends in the Indonesian Tobacco Sector
Tobacco and clove farming in Indonesia
Krettek rollers employment characteristics and livelihoods

6. Overview Indonesia Tobacco Tax Policies Employment studies
Motivation, Policy Research Questions and Design
Some Preliminary Findings
Employment trends in the Indonesian tobacco sector
Farmers (tobacco and clove) livelihoods
Kretek rollers livelihoods
What have we learned so far?
Next Steps

7. The share to industry-wide employment is about 5%, or
The share to industry-wide employment is about 5%, or .60% of total employment in the country
The core-sector employment includes:
manufacturing workers (693k ) and farmers (1,04 million clove farmers and 750K tobacco farmers ) = 2,5 million + retail workers
Heavily concentrated in a few regions:
Central and East Java concentrate most of the manufacturing workers (76%), tobacco farmers (84%) and clove farmers (41%)
Kudus (30% of total employment), Temanggung (28%), and Kediri (26%)
Most tobacco sector workers are females and unskilled:
6% manufacturing workers, 92% production workers and 70% have completed at most 9 years of schooling
43% of households with tobacco workers are poor
On average, contributes to 60% of household income
Male-female wage gap: female production workers earn 25% less

8. Although employment in the tobacco manufacturing is large, it is still smaller in comparison to employment in the food (27%), garment (11%), and textile (8%) sectors

9. Total employment has accompanied increase in total output, but a lower rate (likely effect of machine made cigarettes)

10. Productivity of tobacco sector workers is relatively low in comparison to productivity of workers in the comparable sectors
US$76 PPP
US$67 PPP
US$26 PPP
a typical worker in the medium and large tobacco industry can produce Rp104 million (US$26,429 PPP) worth of products (Panel B of Figure 8). For comparisons, a typical worker in the food & drink and textile industries can produce Rp265 million (US$67,344 PPP) and Rp300 million (US$76,238 PPP) worth of products respectively.
there are variation within the tobacco sector. The productivity of workers in the kreteks industry is Rp152 million (US$38,627 PPP) the productivity of workers in the white cigarette industry is Rp421 million (US$106,988 PPP)

11. The share of tobacco farmers to total farmers in the agricultural sector fluctuated around 1.6%
FTE tobacco farmers and share of tobacco farmers to total workers,

12. Poverty among tobacco farmers is widespread
Poverty rate for tobacco farming households is estimated at:
20.8% (WB) and 32.8% (gov) using household total resources
70% (WB) and 72% (gov) using household total income
Compared to 8.3% under World Bank ($1.90/day) and 11.1% gov. threshold (~$22.60 USD/mo.)
Switching to alternative crops:
“Spontaneous” (i.e., with no external assistance) switching from tobacco cultivation appears to be already widespread in some regions (e.g., Jember)
Former tobacco farmers are typically doing better economically than their peers who continue to grow tobacco.
They are doing so largely by growing more of the crops (e.g., corn, chilis, paddy (rice), green vegetables) that most tobacco farmers already grow

13. The poverty numbers for Clove Farmers are:
Clove farmers are better off than tobacco farmers in terms of poverty, but worse off than the national averages
The poverty numbers for Clove Farmers are:
16.5% (WB) and (gov) using household total resources
34.17% (WB) and 37% (gov) using household total income
Most households are doing this as a “side” activity, not as their main economic activity
Majority of clove farmers generate less than 20% of their income from clove farming
Less than a quarter of the clove-farming households generate more than 1/2 of their overall resources from clove-farming

14. The poverty rate among kretek rollers’ households is 10.7%
94% kretek rollers are female and their spouses are employed largely in the construction sector
Kretek rolling is a supplementary source of income for 50% households
Almost complete absence of upward mobility for the kretek rollers
88% kretek rollers are reluctant to move to a different equally-paying job, main reasons are:
Long-term employment (average duration of employment 18 years)
Flexible work hour suitable for work-home balance
No requirement for formal training
No wage differential between kretek industry and other sectors
19-28% higher rate of return to education compared to no schooling

15. Overview Indonesia Tobacco Tax Policies Employment studies
Motivation, Policy Research Questions and Design
Some Preliminary Findings
Employment trends in the Indonesian tobacco sector
Farmers (tobacco and clove) livelihoods
Kretek rollers livelihoods
What have we learned so far?
Next Steps

16. The tobacco leaf supply chain is global
Indonesia is both a significant exporter and importer, indicating that it is thoroughly enmeshed in the tobacco global supply chain
Indonesia produces all of the major types of tobacco leaf, but is a net importer of tobacco leaf
In other words, if tobacco consumption declines in Indonesia, it is highly unlikely to affect tobacco farmers’ livelihoods
Additionally:
tobacco farming is far from lucrative for most tobacco farmers with the majority of farmers below the national poverty
Most farmers who have switched to other crops are doing better than their peers who continue to grow tobacco

17. Subsequently, employment would fall by:
We estimate that a 40% increase in cigarette price reduces employment in the tobacco manufacturing sector by 17,000 workers
Given our estimates of price-elasticities, a 40% increase in cigarette price reduce consumption of:
kreteks by 16.64% and of white cigarettes by 20.08%
Subsequently, employment would fall by:
2.19% in the kreteks industry
2.65% in the white cigarette industry
This implies a loss of jobs for 6,704 kreteks workers, 285 white cigarette workers, and 10,106 tobacco processing workers
For a 80% increase in price scenario, we estimate a loss of 34,000 tobacco related jobs (only production)

18. Next steps Three reports are being finalized (first drafts):
Employment trends in the Indonesian Tobacco Sector
Tobacco farming in Indonesia
Kretek Rollers characteristics and livelihoods
And a Policy Brief on tobacco taxation and employment (with World Bank MFM team)
Expected to be ready by end of June 2017
Dissemination July – September 2017

19. Thank You
World Bank team: Pandu Harimurti, Edson C. Araujo, Gumilang Aryo and Josefine Durazo
American Cancer Society: Jeffrey Drope, Nigar Nargis and Qing Li
SurveyMeter/Indonesia: Firman Witoelar and Bondan Sikoki
Funded by World Bank Global Tobacco Control Program & US National Cancer Institute