Central Java is one of Indonesia’s major tobacco-producing provinces, alongside East Java, West Nusa Tenggara, West Java, and Aceh. Key tobacco-producing regions in Central Java include Temanggung, Rembang, Magelang, Boyolali, Wonosobo, and Grobogan. According to Central Java Governor Regulation No. 38 of 2021 (Cigarette Excise 2022), the province received IDR 879.96 billion in tobacco excise allocations. This figure increased to IDR 1.2 trillion in 2023 under Regulation No. 38 of 2022 (Cigarette Excise 2023)—an increase of over IDR 327 billion in just one year.
These figures were presented by Malik Cahyadin, S.E., M.Si., Ph.D., a lecturer from the Faculty of Economics and Business (FEB), Universitas Sebelas Maret (UNS), during a discussion forum titled “The Impact of National Regulatory Controversies on the Tobacco Ecosystem in Central Java,” held on Thursday, November 14, 2024, at Kulonuwun Kopi, Solo. Dr. Malik, who teaches in the Development Economics Program, also explained how non-tariff regulations—such as plain cigarette packaging—affect both producer and consumer surplus in the tobacco industry.
“When non-tariff regulations like packaging standardization are enforced, they reduce the producer surplus through a loss in brand valuation. This acts as a disincentive for businesses,” he noted. “At the same time, consumer surplus—linked to product trust and pride, which can be monetarily valued—also tends to decrease.”
He further warned that plain packaging could lead to a rise in black market and illegal cigarette products, as branding no longer creates consumer attachment, even if cigarette prices remain elastic. In addition to lost consumer and producer surplus, such regulations may cause a drop in excise and tax revenues, job losses, and disruptions to the packaging industry’s supply chain. Without an increase in tobacco exports, these ripple effects could also dampen farmer enthusiasm to continue tobacco cultivation.
Dr. Malik argued that the tightening of tobacco industry regulations could hinder Central Java’s economic growth. The region’s economy relies heavily on three sectors: agriculture (including plantations and fisheries), manufacturing, and services. “If agricultural innovation—apart from tobacco—remains limited, then the sector’s total value is likely to decline due to tighter tobacco industry regulations,” he explained.
He added that the domestic tobacco supply chain would also shrink, resulting in lower excise and tax revenues and eroding the industry’s motivation to compete, particularly as branding—once a core marketing tool—is stripped away.
Large-scale investments in the tobacco sector may also become less attractive. Furthermore, if regulatory tightening, especially concerning packaging design, is not matched by improvements in global supply chain integration, the market share of Indonesia’s (and Central Java’s) tobacco industry could decline. Collectively, these impacts could significantly impair Central Java’s ability to achieve high economic growth targets—such as surpassing the 7% threshold.
In response to these challenges, Dr. Malik proposed several solutions. From a regulatory perspective, he emphasized the need for oversight and evaluation of the economic and social impacts of Government Regulation No. 28 of 2024, which implements Law No. 17 of 2023 on Health, particularly in tobacco-producing areas.
He also recommended that derivative regulations aimed at tightening the tobacco industry undergo public consultation and impact evaluation. “If the negative economic effects of a regulation outweigh the intended benefits, the regulation should be reconsidered, postponed, or revoked,” he said.
Additionally, tobacco farmers and their associations should receive excise revenue incentives to improve the quality of their crops, helping them meet both domestic and international market demands.
Dr. Malik also urged the tobacco industry to pivot more strongly toward global markets as a substitute for a shrinking domestic market. He called for greater collaboration between the industry, tobacco associations, and the government to curb illegal cigarette production and mitigate the negative effects of tighter regulations.