Forget Zimbabwe. Forget Brazil. If you want to learn about tobacco leaves in Indonesia, you can study at Hogwarts School of Witchcraft and Wizardry, the fictional magical boarding school in J.K. Rowling’s Harry Potter series, where nothing is as it seems. So simple. At least, that's the advice an aspiring leaf trader gets when he arrives in the archipelago. His mentor was joking, of course, but the analogy is not without merit: The confusing Indonesian market is not the easiest place to start a leaf tobacco career. Uncovering its mysteries takes time and dedication.
Indonesian growers harvested 225.58 million kilograms of leaves in 2022, according to the Ministry of Agriculture, but it's not the amount that confuses trainees. Rather, there are seemingly endless varieties of tobacco. While a novice in Zimbabwe or Brazil only has to learn one or two internationally recognized tobacco varieties, a novice in Indonesia must memorize a dizzying list of local names and regional variations, many of which are unique to the island nation.
"You might have a seed variety that is roasted, grown and processed under very similar practices, but if it comes from a different region it has a different name," says AOI Country Manager Michael Green explains. The company sources 17 different tobacco varieties in Java, Madura and Lombok. Likewise, a seed sown on one side of a mountain will produce very different tobacco than the same seed sown on the other side of a mountain.
This may be related to Indonesia's land size and terrain diversity. The country spans three time zones and is home to at least 17,000 islands, with majestic highlands, lush rainforests and barren volcanic landscapes, among other features. On the US map, Indonesia's borders will extend from the mainland to the Pacific and Atlantic Ocean respectively, stretching for 1,000 kilometers.
However, tobacco leaf production is concentrated in a relatively small area of this vast country: flue-cured virginia in Lombok and Bali, burley in the Lumajang region of East Java, kradan and boya in Central Java. Black fire cured tobacco from the Lali region. Additionally, there are countless sun-dried varieties, often named after the region in which they grow. Famous sun-dried tobaccos include Jatim and Kasturi. Many of these are used to make Indonesian clove cigarettes (kretek), although Kasturi is also exported to the European Union and the United States, where it is used in chewing tobacco.
Among foreign tobacco buyers, Indonesia has historically been known for its dark, air-cured tobacco grown in East Java. Yields can reach 8 million kilograms in a good year, the largest of which is Besuki Na Oogst (NO), which means "late harvest" in Dutch, the language of Indonesia's former colonial rulers. Besuki NO is widely used in machine-made cigars as well as the bobbins used to make such cigars.
In addition, in Indonesian, the lingua franca of Indonesia, there is Besuki Tembakau Bawah Naungan (TBN), which means "tobacco under the sheets". The plant was developed in the 1970s and 1980s and grown under shade for use in cigar wrappers. Reducing exposure to direct sunlight makes the leaves thinner and more elastic, which not only makes handling easier but also contributes to a smoother smoking experience. Shade-grown tobaccos are generally more uniform in appearance, with fewer blemishes and imperfections than sun-grown varieties, and are therefore highly valued by fine cigar makers. A cross between Besuki and Connecticut styles, TBN is one of the world's most expensive wrappers on the market today.
Indonesian black air-dried tobacco also includes Wosten Langdon and Sumatra. Interestingly, the famous Sumatra cigar wrappers were originally made from seeds native to the Indonesian island of the same name and are now grown primarily in Central America.
However, by far Indonesia's largest tobacco product is Rajangan rag, accounting for 70% of the country's total leaf production. Rajangan is widely used in the production of kretek, and each variety is named after the place where they are produced. Unlike the rags produced elsewhere, Rajangan's tobacco is cut while they are still green and then placed on mats to dry directly. Ranging from lemon to brown, the product may remind some Western visitors of the straw used to decorate Easter baskets.
multiple players
Contrary to the situation in many other tobacco producing areas, growers grow tobacco primarily for export, and at least 70% of the tobacco grown in Indonesia is smoked locally. With nearly 300 billion cigarettes consumed annually, according to TMA, Indonesia is not only one of the largest cigarette markets in the world, but also a unique place in terms of taste preferences, with kreteks selling 10 times more than white cigarettes. Despite efforts by some multinational companies to steer Indonesian smokers toward "international" cigarettes, the shift from dark to blonde tobacco that occurred in southern Europe and elsewhere has never occurred in the archipelago.
Numerous leaf merchants serve domestic and foreign customers and operate throughout the archipelago. In addition to AOI, which has footprints extending from Central Java to Lombok and owns a processing plant in Mojokerto, there are also well-known companies such as Universal (known locally as Universal Tempu Rejo), Premium Tobacco (Premium Tobacco) and Hail & Cotton, which goes by the name Mayangsari in Indonesia. Additionally, the country has a number of local players including Sadhana and Mangli Djaya Raya (MDR).
Sadhana was founded by former Sampoerna executives after the company was sold to Philip Morris International in 2004. The leaf dealer exclusively supplies Sampoerna, which has grown to become a market leader in cigarettes since becoming part of a multinational company. MDR is a private Indonesian operator founded in 1960 and acquired by Njoto Permadi in 2007. Today, the company is run by his son, Christian A. Njoto Njoo. MDR is the only company with a re-drying facility in Jember, the center of the dark-dried tobacco business in East Java, Indonesia. Since 2009, MDR also has a dedicated cigar business, manufacturing products for the domestic and international markets.
steeped in tradition
Tobacco cultivation is a huge, labor-intensive industry in Indonesia, involving as many as 500,000 growers. Averaging between 0.25 - 0.5 hectares, plots tend to be small and scattered. Farmers either plant under contract with leaf merchants or sell their produce on the open market through middlemen. Contract farming provides buyers with a high degree of oversight of the production process. By providing farmers with appropriate crop protection agents, personal protective equipment, inputs and knowledge of good agricultural practices, leaf merchants ensure that the tobacco meets both their own standards and those of their customers, which sometimes exceed those set by the Indonesian government . For example, some CPAs who were still allowed to register in Indonesia are no longer accepted by many international cigarette manufacturers.
Farmers who grow tobacco under contracts benefit not only from higher yields, better quality and stable prices, but also from the certainty that they will sell their crops. Contracting can also help growers cope with adverse events such as crop failures and natural disasters. For example, after the Lang volcano erupted in 2015, much of the area's tobacco was covered in ash, and Mayansari had to bear the additional cost of cleaning the tobacco - but it continued to buy it. In contrast, farmers who sold their crops in the free market were stuck with ash-covered crops as many middlemen decided to suspend trading that year. “We support our contracted growers through good times and bad,” said Mayangsari’s foliage manager Jasper Kuitems.
Despite the benefits of working directly with growers, most buyers purchase leaves on the open market. The growth in contracts is not only an expensive and huge logistical undertaking, but also represents competition for middlemen, who represent a powerful constituency in Indonesia. By purchasing through these two channels, merchants can replenish their contract quantities and help maintain social harmony in the community.
Tobacco is known to be a demanding crop, requiring more human intervention throughout the growth cycle than crops such as corn or rice. Still, tobacco remains a reliable cash crop for Indonesia's contract growers and free-market farmers, with landowners charging tobacco growers higher rents than growers of other crops. "If done right, the return on investment in tobacco is attractive," Green said. Of course, everything depends on supply and demand. When prices are low, farmers may consider other crops; in good times, they may grow more tobacco.
Demand has been strong in recent years, especially for Indonesia's dark, air-cured tobacco. Universal Tempu Rejo acting country manager Martijn Schaap said this was partly due to two consecutive poor Besuki NO harvests and partly due to cigar manufacturers reducing inventories in the wake of the COVID-19 pandemic. The growing popularity of cigar smoking in China is also driving demand for Indonesian black air-dried tobacco leaves.
after harvest
The Indonesian tobacco industry's contribution to employment is not limited to this sector. A large part of kretek cigarettes are still handmade, and the government favors handmade production with lower taxes. Sampurna said the country's policies have helped reverse a long-standing trend toward mechanized production, with handmade goods now accounting for nearly a third of the market. Sampurna announced in November 2022 that it would make significant investments in a new factory for hand-rolled cigarettes.
Leaf merchants also employ large numbers of workers after harvest, especially in the dark drying section. Once the leaves are delivered to the buyer, they are separated based on parameters such as quality, moisture, length and color. In Latin America, banana leaves are put directly into fermentation racks, while in Indonesia they are taken apart one by one - a painstaking process involving hundreds of women who are said to be more patient and dexterous than their male counterparts.
After opening, the leaves are stacked into fermentation piles, which can be several meters high and weigh up to 12 tons. During the fermentation process, which lasts for several months, enzymes and microorganisms break down the organic compounds in the tobacco leaves, triggering various biochemical changes. The combination of temperature, humidity and pressure gives the leaves the desired color, flavor and aroma. To achieve even fermentation, the pile must be "turned" - restacked from head to toe - regularly to ensure even distribution of moisture and temperature, as well as proper aeration. Prompt repacking is crucial because if the temperature of a bundle rises too high, it can darken the tobacco and cause it to fall off.
The labor-intensive nature of tobacco processors causes their payrolls to swell significantly during the season. Although wages in Indonesia are low by international standards, they have been rising rapidly. In 2023, the Jember region's minimum wage will increase by 8.5%, compared with the national overall inflation rate of 3.08%. The industry expects the minimum wage to rise sharply again in 2024, by around 10%.
Rising labor costs pose a challenge to cigar leaf companies, as few of their activities can be mechanized. Tobacco farm plots are often too small and spread out to deploy farm equipment efficiently, and there are currently no machines that can mimic the fine motor skills required to sort, open and stack delicate tobacco leaves. Universal did, however, recently purchase a new planter. Due to more accurate seed placement and other improvements, the new equipment provides higher germination rates than the company's existing planters.
Take responsibility
Like their counterparts elsewhere, Indonesia's leaf dealers invest heavily in environmental, social and governance (ESG) projects. For example, AOI has been installing new gasification systems in contracted farmers’ barns that burn biomass instead of wood. Not only does this reduce pressure on Indonesia's forest cover, it is also more efficient because biomass has a higher calorific value than wood. According to Green, on a cost per kilogram basis it is 30% cheaper than using wood.
This year, AOI and its processing joint venture partner are working with local organization Trees4Trees to plant 5,000 trees. The project aims to plant 60,000 trees by 2030. In addition, AOI installed four deep-water wells and water tanks, providing assistance to nearly 300 families on the island of Madura. The company intends to expand the project to other AOI areas where water is scarce during dry months.
The company also employs professional storytellers to educate communities where its tobacco is sourced about the importance of health and safety, fair treatment and the avoidance of child labor. To date, the project has attracted nearly 20,000 participants. The AOI's goal is to maintain over 5,000 participants annually. Meanwhile, this November, the tobacco department is building playgrounds and supporting schools to keep children off the fields.
The industry is also investing in waste management, which is a considerable problem in Indonesia, where 40% of the country's 142 million urban residents still lack basic waste collection services. In the Jember area, Universal helped set up facilities to purchase waste from local communities, reducing waste and providing villagers with an additional source of income. Revenue generated by the waste disposal site helps pay for projects such as the playground. Universal also sponsors initiatives that help people establish small businesses in the communities where it operates. The goal is to make these projects self-sustaining so they can continue to grow and serve the entire community, Schaap said.
Mayansari has recently made a remarkable contribution to solving the garbage problem. A local superstition that burning disposable diapers will bring bad luck to babies has prompted many mothers in the Jember area to throw used diapers into rivers, as they can leach chemicals, spread bacteria and cause damage, including in irrigation canals. Internal waterways are clogged. By providing reusable diapers to more than 2,000 young mothers in a growing community, Mayangsari not only helps reduce the waste of more than 300 tons of diapers, but also reduces the occurrence of diaper rash, urinary tract infections, and more importantly, family expenses. According to Kuitems, the money saved by not buying diapers for 6 months is equivalent to 150 kilograms of rice, enough to feed two adults for a whole year.
Unlevel playing field
While tobacco dealers’ investments in ESG make them good corporate citizens, the business case is not always straightforward. Depending on the merchants profiled in this article, communicating and recouping the added value provided by these projects can be challenging. While the coffee and cocoa industries have programs that allow suppliers to charge a premium for responsibly sourced products through certification labels, there are no similar provisions for the tobacco industry. "Smokers can't tell the difference between a responsibly sourced cigar and other products from the packaging," Kuitems said.
Another challenge is that not everyone pressesPlay by the rules. Leaf dealers who pay minimum wages, do not use harmful crop protection agents, and provide growers with personal protective equipment must compete with players who do not (and thus enjoy lower operating costs).
This means that responsible companies must work harder than their less responsible counterparts. "It forces us to operate as smartly and efficiently as possible," Kuitems said. While acknowledging the challenges, merchants who participated in this article said they remain steadfastly committed to their standards – not just because their blue-chip customers insist on it, but because it’s the right thing to do. They noted that additional work is being done on the territory. That's just one way the complex Indonesian tobacco leaf market keeps traders on their toes.
