Is Indonesia, One of Big Tobacco's Last Frontiers, Closing?

Sara Schonhardt
Getty Images

On Sunday thousands of young Indonesians streamed into an expo center in Jakarta to sway to cool jazz and R&B beats. But looking around it might have been easy to forget that Java Jazz was about music, not smoking.

Officially, this year's event is called the Jakarta International Djarum Super Mild Java Jazz festival after its lead sponsor Djarum, Indonesia's third-largest tobacco company.

Other sponsors include Indonesia's national bank and telecommunications company, the ministries of trade and tourism, and global healthcare firm Cigna, whose support has drawn the attention of anti-tobacco groups and consumer protection watchdogs.

Tulus Abadi, who works on tobacco control issues at the Indonesian Consumers Foundation, called the co-sponsorship "contradictive," while a US-based anti-tobacco group, Campaign for Tobacco Free Kids, described it as "not acceptable."

When asked about its support, Cigna officials said they received sponsorship rights in return for providing free accident coverage to Java Jazz crew, artists and visitors.

"In keeping with our mission … we used the opportunity to promote health and wellness at the event, including free health checks, exercise activities and healthy eating," said Christine Setyabudhi, the president director of Cigna's Indonesia subsidiary in an e-mail.

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The tobacco industry remains very powerful in a country with one of the world's highest smoking rates and one where consumer companies are scrambling to boost profits from a growing middle class eager to spend growing disposable incomes. Cigarette taxes contribute about $8 billion to the government budget a year and the industry is a major employer, with a quarter of a million Indonesians involved in growing tobacco and manufacturing cigarettes.

In the past decade, with Indonesia one of the few growth markets for tobacco, international heavyweights have poured into the market, buying out the founders of some of Indonesia's top cigarette brands. Indonesian smoking culture is dominated by the distinctive local kretek cigarette, which are heavily flavored with cloves.

In 2005 Philip Morris, maker of Marlboro, acquired one of Indonesia's top two cigarette companies, PT HM Sampoerna, for $5 billion. British American Tobacco, the maker of Lucky Strike, entered the market in 2009, when it bought a controlling stake in Bentoel for $500 million. Djarum has resisted overtures from foreign buyers and remains in Indonesian hands.

But despite that all Indonesian tobacco companies, foreign or locally-owned, continue to pump out cigarettes and profits, there are signs that this frontier of opportunity for big tobacco is closing. Recent efforts by anti-tobacco groups and Indonesia's health ministry appear to be making some progress.

Smoke Free Indonesia?

A 2009 law health law includes tobacco in its list of addictive substances and requires public places to establish smoke free zones. New tobacco control regulations signed by President Susilo Bambang Yudhoyono last December require picture warnings to cover up to 40 percent of cigarette packets, prohibit the sale of tobacco to children under 18 and ban tobacco logos at industry-sponsored events.

But sponsorship is still allowed, and at Java Jazz its pervasiveness was on full display. The Djarum named papered expo walls and stages and leggy women in white sold mini packs of 16 cigarettes for a $1.50.

According to the World Health Organization, smoking-related illnesses kill at least 200,000 Indonesians every year. One in three adult men smoke and nearly 80 percent of them started before the age of 19.

(Read More: What Crisis? Big Tobacco in Europe Marches On)

Anti-smoking groups say advertising and sponsorship of pop music events is part of the problem.

"Being constantly bombarded by advertisements that say tobacco use is cool is causing such a high rate of tobacco use," said Mark Hurley, the Indonesia program director at Campaign for Tobacco Free Kids.

Market research firms say Indonesia has all the right ingredients to drive the growth of tobacco use – a growing economy, rising disposable incomes and a huge population of young people with easy access to low-cost cigarettes.

It also has an extremely powerful tobacco lobby. Some of Indonesia's richest and most politically connected individuals made their fortunes in tobacco. The No. 1 spot on Forbes' Indonesia's rich list last year, for instance, was filled by R. Budi and Michael Hartono, the sons of Djarum's founder, with an estimated combined net worth of $15 billion.

And big profits mean big money to splash out on sponsorship, a condition event organizers don't see changing soon.

In past years Alicia Keys and Kelly Clarkson both cancelled planned concerts in Jakarta after coming under fire from anti-tobacco groups, but Hurley said efforts to get other artists to back out of tobacco-sponsored events have been, "disappointing."