Veiled marketing: Anti-smoking groups slam Indonesia's Big Tobacco

© Reuters. A street vendor counts money as he buys a box of A Mild cigarettes produced by PT HM Sampoerna at a cigarette shop in Jakarta

By Eveline Danubrata and Stefanno Reinard

JAKARTA (Reuters) - Anti-smoking groups in Indonesia have slammed Big Tobacco for promoting sales by giving retailers cash rewards, shopping vouchers and even money to renovate, urging authorities to enforce advertising curbs to safeguard public health.

The country with one of the highest smoking rates in the world does have a national regulation in place to restrict cigarette advertisements, including a ban on tobacco firms promoting their products while acting as a sponsor. But it is inconsistently enforced by regional authorities.

Cigarette makers are making the most of this, tying up with small retailers and rewarding them for in-store promotion of products, the anti-smoking groups said.

By mid-2016, Philip Morris-controlled PT Hanjaya Mandala Sampoerna Tbk (JK:HMSP), PT Gudang Garam Tbk (JK:GGRM) and Djarum Group had partnered 513 shop-owners in four cities surrounding Jakarta, a study by the Indonesian Public Health Association (IAKMI) shows.

Cigarette companies have stepped up "veiled promotions" following a move by the Jakarta governor two years ago to ban all cigarette advertising on outdoor media, IAKMI said.

"Their grip will take root even more, and the consumption of cigarettes will spread," said Widyastuti Soerojo, head of IAMKI's tobacco control unit.

A shop-owner in Tangerang, west of Jakarta, said as a Sampoerna partner he has to follow the company's display requirements for its products and is not allowed to sell other cigarette brands.

In return, Sampoerna has given him free cigarette packs, shopping vouchers, banners and even a million rupiah ($75) to paint his shop, he said, declining to be named as he was not authorised to speak to media.

Cigarette advertisements are often found at small shops near schools, making children extremely vulnerable, said Lisda Sundari, head of the Lanterns for Children Foundation.

A shocking video of a toddler reportedly puffing up to 40 cigarettes a day on the island of Sumatra went viral around seven years ago, firing up anti-tobacco activists who said it underscored the problem of underage smoking in Indonesia.

Despite rising anti-smoking sentiment in the country of 250 million people, Indonesia's cigarette market was the second-biggest in the world after China with 316.1 billion sticks sold last year, data from Euromonitor International shows.

Gudang Garam and Djarum did not respond to requests for comment. Sampoerna did not immediately provide a comment.

INDUSTRY NEEDS ROOM TO BREATHE

Philip Morris, Sampoerna's parent company, said the overall cigarette market in Indonesia dropped 11.6 percent in the second quarter from a year earlier, while its market share fell to 32.8 percent from 33.4 percent.

The U.S. cigarette giant said tax-driven price increases were partly responsible for the drop.

"We are being pressured from all sides: rising excise taxes, a not-so-good economy, anti-tobacco movement," said Muhaimin Moeftie, chairman of the association of Indonesian white cigarette producers. Regulations should give the industry "room to breathe", he added.

The decision to raise cigarette excise taxes by an average of 10.5 percent this year, following an 11 percent hike in 2016, was aimed at controlling consumption and distribution, a senior official at the finance ministry said.

"The government is concerned about production, we hope production of cigarettes will gradually drop," said Heru Pambudi, director-general of customs and excise.

But Indonesia's parliament has initiated a bill which if passed into law would cut back health warnings on packs and effectively increase production.

Proponents of the bill say it would safeguard a vital economic sector that employs millions and contributes nearly 10 percent of state revenues.

"Don't call us a sunset industry," said Moeftie. "We've been fighting for a long time. The industry must always be there."