Chapter 1

Profiting from Deadly Products

In the global tobacco market, transnational tobacco companies (TTCs) have been shifting from developed countries and targeting markets in poorer, less developed countries, where tobacco control is not as stringent and where tobacco use is significantly high among men and attractively low among women. In 2018, the tobacco market growth in ASEAN is projected to reach a total of 548 billion cigarettes sold, primarily in Indonesia, Philippines, Thailand, and Vietnam.

Tobacco Industry Players in ASEAN

Three of the world’s five largest TTCs – British American Tobacco (BAT), Philip Morris International (PMI), and Japan Tobacco International (JTI) control the cigarette markets in several countries in ASEAN such as Cambodia, Malaysia, Philippines, and Singapore. In 2016, tobacco manufacturers in six ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) produced close to 586 billion cigarettes. Two ASEAN countries (Indonesia and Philippines) were among the world’s top 10 cigarette producers in 2016.

In an effort to enlarge their footprints in some ASEAN countries, TTCs are undertaking mergers and joint ventures, resulting in increased market control by a few international companies. PMI has bought controlling stakes in local cigarette companies in the Philippines and Indonesia. Imperial Brands (IB) (formerly Imperial Tobacco Group) maintains its majority ownership in Lao Tobacco Ltd (LTL), its joint venture with the Lao Government. State-owned companies are the leading manufacturers in Thailand (Tobacco Authority of Thailand, the former Thailand Tobacco Monopoly – TTM) and Vietnam (Vietnam National Tobacco Corp – VINATABA). PMI has the most (17 out of 46) manufacturing facilities located in ASEAN countries, while JTI, BAT and IB operate six, four and two manufacturing facilities, respectively, in selected ASEAN countries.

The tobacco industry has been making billions in profits from selling cigarettes in ASEAN with combined profit of the world top four TTC (PMI, BAT, JTI, ITG) estimated to be USD 27 billion in 2017.

Over the last decade, the world’s five largest TTCs (China National Tobacco Corporation, Philip Morris International, British American Tobacco, Japan Tobacco International and Imperial Tobacco) have dominated the global cigarette market (80% in 2016).

Tobacco industry profit in global market (2017)

Big transnational tobacco companies consolidating their power in ASEAN

TTCsYearAcquisition and Merger
Japan Tobacco (JT)2017Japan Tobacco Group acquired assets of Mighty Corporation (including the distribution network, manufacturing equipment, inventories and intellectual property) for PHP 46.8 billion (USD 936 million). It became No. 2 tobacco company in the Philippines.
2017Japan Tobacco acquired Karyadibya Mahardhika (KDM) and its distributor, PT. Surya Mustika Nusantara (“SMN”) for USD 677 billion. It became the 6th largest tobacco company in Indonesia.
Philip Morris International (PMI) 2010Philip Morris Philippines Manufacturing Inc merged with Fortune Tobacco Corp in 2010 known as PMFTC Inc. It became the No. 1 tobacco company in the Philippines.
“This transaction is a tremendous strategic fit for our business that will cement our leadership in South East Asia.”
Matteo Pellegrini, President of Phillip Morris in Asia 2010, referring to Philippines merger
2005Philip Morris International bought a controlling stake in local cigarette manufacturer PT Hanjaya Mandala Sampoerna for USD 5.2 billion in 2005. It became the No. 1 tobacco company in Indonesia.
British American Tobacco (BAT)2009BAT acquired PT Bentoel Internasional Investama Tbk for USD 494 million and became No.4 tobacco company in Indonesia.
Imperial Brands2001Imperial Tobacco (now Imperial Brands), through its subsidiary, Coralma International (a French company) and S3T Pte Ltd (a Singaporean company) entered into a joint venture with Lao Government to form Lao Tobacco Ltd (LTL) that allows foreign investor to enjoy tax privileges and special benefits. It became the No. 1 tobacco company in Lao PDR.

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PMI in 32 countries

Philip Morris International (PMI) operates 46 production facilities in 32 different countries and produces and sold over 800 billion cigarettes with 7 billion net profits in 2016. About 17 out of 46 manufacturing facilities are located in ASEAN countries. Other tobacco companies including JTI, BAT and IB have operated in six, four and two manufacturing facilities in selected ASEAN countries respectively.

CountryTobacco manufacturing facilities in ASEAN
Philip Morris International
(PMI)
Japan Tobacco International
(JTI)
British American Tobacco
(BAT)
Imperial Brands
(IB)
IndonesiaDopok, Bantul, South Pandaan, Pandaan, Ngoro,Kertosono, Malang, Surabaya, Bojonegoro, Cepu, Blora, Mranggen, BekasiJakarta SelatanJakarta Selatan
MalaysiaSeremban*Kuala LumpurKuala Lumpur
PhilippinesTanauan City, Marikina CityMalolos CityRosario (Cavite)
Lao PDRVientiane
MyanmarYangonYangon
VietnamHo Chi Minh CityHo Chi Minh CityHo Chi Minh City
CambodiaPhnom PenhPhnom Penh

 Indonesia and  Philippines: Tobacco leaf production (2010-2017)

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Cigarette production in ASEAN (2016)

2 ASEAN countries in world’s top 10 cigarette markets by volume (2016)

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*Not including hand-rolled kreteks

Quick Fact

Import and export of cigarettes in ASEAN (2016)

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  • * Philip Morris Malaysia (PMM) operates a Cast Leaf plant in Seremban.
  • ** Singapore is a major global transhipment hub. Japan Tobacco International (Singapore) Pte Ltd and Philip Morris Singapore Pte Ltd are distributor and retailer of tobacco products.
  • *** Saigon Tobacco Company (BAT) and VinasaTobacco Joint (PMI) are joint venture companies that produce Dunhill, 555, Pall Mall (for BAT) and Marlboro (for PMI) respectively.

Cigarette sales volumes in ASEAN region (2011-2021)

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***

Quick Fact

Indonesia: Cigarette production by type (2010-2017)

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Most common source of the last purchase of manufactured cigarettes in ASEAN

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*include the categories at duty-free shop and abroad, from another person, and any other specified sources.

Number of points-of-sale in selected ASEAN countries

CountryTotal SmokersCigarette retailers*Cig. retailer per 10,000 smokersPhysicians per 10,000 pop**
Indonesia65,188,3382,500,0003832
Malaysia4,991,45880,00016012
Philippines16,500,000694,82142112
Singapore345,0004,61713420
Thailand10,676,361870,0008154
Vietnam15,600,000303,333***19412

*Does not include street vendors. In Indonesia, street vendors make up 50% of all cigarette sales.
**Table 8: Health outcomes in Human Development Report 2016
***Ho Chi Minh City has reportedly more than 70,000 cigarette retailers.

Market structure and distribution channels of cigarette sales in ASEAN

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Corporate Cover Up: PMI, BAT and JTI CSR in ASEAN

To promote its corporate image and distance itself from its harmful products, PMI has been conducting more corporate social responsibilities (CSR) activities across the ASEAN region. Indonesia (USD 6,224,231) and the Philippines (USD 1,870,373) are two countries where PMI invested the most money in CSR activities in 2017. Both countries are vital tobacco markets for PMI as it holds 33.6% and 65.1% of total market in Indonesia and the Philippines respectively. Except for JTI, the CEOs of the three other transnational tobacco companies (TTCs) were paid more in 2017 than the previous year, reflecting the growth of their companies’ profits. André Calantzopoulos, CEO of PMI, alone was paid more than double PMI’s total expenditure on CSR activities in the ASEAN region in 2017. What TTCs spend on CSR activities is paltry compared to the remuneration paid to their top executives.

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*BAT expenditure on CSR activities was estimated to be more than USD 1.853 million. There was no reporting on total expenditure in some of the CSR activities carried out between 2013 and 2017.

PMI has reduced slightly its expenditure on CSR activities in the ASEAN region in recent years. More than half of the investment was channeled into Indonesia with USD 6 million annually to support various CSR activities including empowering women, education, disaster relief and economic opportunity. Generally, fewer organizations benefited from PMI’s charitable fund, some of which have been regular recipients for many years.

Philip Morris International CSR activities in ASEAN (2011-2017)

Distribution of Philip Morris International CSR Activities in ASEAN (2017)

 Lao PDR: Tobacco tax revenue and tobacco tax revenue loss

The Lao government continues to lose revenues due to its unfair Investment License Agreement (ILA) with the tobacco industry signed on 23 November 2001. The ILA has capped ad valorem tobacco tax rates at between 15% and 30% (25-year tax holiday) until 2026 when the country's standard rate is 55%. The new tax law implemented in 2016.
The government collected net tobacco tax revenue of USD 85.59 million only with an estimated loss of USD 89.22 million between 2002 and 2014. If the ILA is not terminated, the Lao government will continue to suffer more revenue loss till 2026.
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*No official revenue data available after 2014.

Tobacco industry undermines tobacco control in ASEAN using legal challenges

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Tobacco Industry front groups and lobby groups to fight tobacco control

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The tobacco industry rallies and funds front groups to fight tobacco control measures at both international and national level. The International Tobacco Growers Association (ITGA) is one such group which mobilizes tobacco growers to interfere in tobacco control policy development in ASEAN countries and fight FCTC implementation particularly Articles 9, 10, 17 and 18. Other front groups include retailers and trade associations, coffee shop associations or research groups which challenge tobacco control legislation.

Tobacco Industry front groups and lobby groups


Farmers groups

CountryFront groups and lobby groups in ASEAN
RegionalInternational Tobacco Growers Association (ITGA)
IndonesiaIndonesia Tobacco Farmers Association/ Asosiasi Petani Tembakau Indonesia (APTI)
Indonesian Clove Farmers Association/ Asosiasi Petani Cengkeh Indonesia (APCI)
Association of Tobacco Farmers and Traders of Magelang/ Paguyuban Petani Pedagang Tembakau Magelang (P3TM)
MalaysiaKelantan Tobacco Growers and Curers Association (PITAS)
PhilippinesPhilippine Tobacco Growers Association (PTGA)
Katipunang Manggagawang Pilipino Federation of Free Farmers (FFF)
ThailandThai Tobacco Growers, Curers and Dealers Association
Tobacco Farmer Association (TFA)
Chiangmai Tobacco Curing Association
Sukhothai Burley Tobacco Farm Association
Petchaboon Burley Tobacco Farm Association
Thai Northeastern Tobacco Farmer