Abstract
Several studies investigate the various aspects of tobacco at the processing and cigarette manufacturing levels, but the profitability, supply response, and input demand of tobacco farms in Pakistan remain unknown. Our study fills this gap by examining farm-level profitability, input demand, and output supply using survey data of 140 tobacco farms by employing a profit function approach. The results show that tobacco production is not very lucrative at the farm level and farmers are responsive to changes in market prices for the inputs and output. The price of tobacco is the most important determinant of the output supply and demand for inputs, and farmers’ response to increasing tobacco prices is positive but inelastic in the study area. The use of variable inputs such as fertilizers, labor, mechanical power, pesticides, and farmyard manure is important in resource allocation decisions in tobacco production. As a result, a price increase for green tobacco leaves would significantly increase the demand for farm inputs such as fertilizers, labor, mechanical power, pesticides, and farmyard manure. Tobacco production is negatively affected by the increasing input prices in the study area. Among the fixed factors, land area has a significant impact on tobacco productivity in the province. The present study is the first to quantify the farm-level input demand and output supply; therefore, based on the findings, the increasing tobacco production requires higher output prices and reasonable input prices.
Highlights
Tobacco is grown as a cash crop worldwide and 90 percent of the world’s tobacco is produced by developing countries
Tobacco is grown in India, Zimbabwe, Pakistan, and Malawi, all of which are low-income food-deficit countries (LIFDCs)
The findings further suggest that farm-level tobacco production is profitable, with a gross margin of PKR 120.62 thousand in Khyber Pakhtunkhwa (KP) and a benefit cost ratio of 1.17; farmers who completely process tobacco at their barn earn more revenue
Summary
Tobacco is grown as a cash crop worldwide and 90 percent of the world’s tobacco is produced by developing countries Among these developing countries, tobacco is grown in India, Zimbabwe, Pakistan, and Malawi, all of which are low-income food-deficit countries (LIFDCs). Tobacco is grown in India, Zimbabwe, Pakistan, and Malawi, all of which are low-income food-deficit countries (LIFDCs) These developing countries export most of their tobacco and consume less than 20 percent locally (Zafeiridou et al 2018). The annual tobacco production increase is lower than population growth, indicating that tobacco availability per capita is declining over time. During this period, yield enhancement was the only source of growth in tobacco production, which compensated for the reduction in planted tobacco area to achieve positive growth in global tobacco production. Pakistan emerged as one of the top ten global raw tobacco producers, accounting for 1.75 percent of the world’s annual production (FAOSTAT 2020)
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