Shifting Tides in the Tobacco Industry: Production Dip and Downtrading

Jakarta – Recent data from the Directorate General of Customs and Excise (DJBC) reveals a notable contraction in cigarette production during the first quarter of 2025. The overall production volume decreased by 4.2%, primarily driven by a meaningful 10.9% drop in the production of class 1 cigarettes. While classes 2 and 3 experienced growth,with increases of 1.3% and 7.4% respectively, they were insufficient to offset the decline in the premium segment.

The Downtrading Phenomenon: A Response to Economic Pressures

Askolani, the Director General of Customs and Excise, attributes this downturn, especially in class 1 cigarettes, to a phenomenon known as downtrading. This trend reflects a shift in consumer behavior towards cheaper cigarette options, largely influenced by a weakening of purchasing power among consumers. This trend highlights the sensitivity of the tobacco market to economic fluctuations.

Causes of Cigarette Production Decreased can downtrading it could also be by purchasing power, so the combination is like that. Indeed, the fact is that for the especially group 1 the decline is around 9%, but groups 2 and 3 are even rising, still rising.

Askolani,Director general of Customs and Excise,during a hearing with the House of Representatives Commission XI

This downtrading trend is not isolated. Recent economic reports indicate a tightening of consumer spending across various sectors,suggesting a broader trend of consumers seeking more affordable alternatives in response to economic pressures. For example, Nielsen’s latest consumer confidence index shows a decline in discretionary spending, with consumers prioritizing essential goods and services.

Excise Revenue: A Balancing Act

The class I cigarette segment is subject to the highest excise tax rates, while classes II and III face lower rates. Despite the production decline,overall Tobacco Product Excise Receipts (CHT) reached Rp 55.7 trillion, marking a 5.6% increase. Though,this revenue stream is possibly vulnerable due to the absence of tariff increases in 2025 and the ongoing downtrading trend.

The decline in class 1 cigarette production cannot be balanced by the growth of groups 2 and 3.

CHT Revenue Trends: A Two-Year Perspective

Askolani noted a slight decrease in CHT revenue over the past two years. In 2022, CHT excise tax revenue amounted to Rp 218.3 trillion, which then decreased to Rp 213.5 trillion in 2023 and Rp 216.9 trillion in 2024.

He further explained that two primary factors contribute to revenue fluctuations from Tobacco Excise BK (Export): tariff policy and the production of cigarettes that closely align with excise tape regulations.

Looking Ahead: Challenges and Opportunities

The Indonesian tobacco industry faces a complex landscape, with shifting consumer preferences and evolving regulatory policies. While the downtrading trend presents challenges for premium cigarette producers, it also creates opportunities for manufacturers of more affordable brands. The government’s approach to excise tax policies will play a crucial role in shaping the industry’s future.