The Economics of Tobacco Production and Feasible Alternatives in Uganda

Abstract

Tobacco control policies are credited with contributing to the well-being of society. But for tobacco producers, such polices can present pitfalls, especially in rural contexts where households are dependent on tobacco leaf production. This study focuses on the adjustment strategies open to tobacco-growing households particularly on Article 17 of the FCTC which is a strategic policy guideline that supports economically viable alternatives to the production of tobacco. The central hypothesis of the study is the consideration of farm household decision-making structures as requisites to FCTC supply policies. The study uses the agricultural household framework to examine tobacco supply and relative farm efficiency. This framework is applied to a farm survey dataset collected from the West Nile sub-region of Uganda. The study used a probability sampling method to sample households. A sampling frame was provided by the district agricultural offices from the study area. The study developed a bivariate model to examine economic and noneconomic incentives to tobacco supply. Relative farm efficiencies are examined with data envelopment analysis. A Tobit model is further used to estimate farm inefficiency among tobacco and other farm households. The findings demonstrate that there is a clear variation in profitability between tobacco farms and other farms, with alternative farms posting better farm profits. There is considerable evidence in the data that tobacco farmers are capable of responding to staple food and cash crop prices, production value, and other non-economic incentives, as implicitly expected by economic theory. The tobacco output supply is strongly associated with economic incentives such as an export or cash crop price as opposed to a staple food price. This could be that with a cash crop price, tobacco farmers are able to produce at a point where marginal cost is equal to marginal revenue. Efficiency results reveal that subsistence food crops do not offer a viable alternative to tobacco in West Nile, Uganda. A crop such as coffee can have some potential as a specialised cash crop in West Nile, but none of the grains or pulses do when grown as mono-crops. A balanced mixed of grains and pulses, that includes some coffee, can vii certainly compete with tobacco in West Nile. Vertically integrated farmers are at the mercy of powerful buyers/processors who are generally very prescriptive about quantities while at the same time controlling prices so that farmers have very little room to manoeuvre. Overall, it is important to note that both tobacco leaf and alternative farms are too small, and therefore experience increasing returns to scale. Tobacco-specialised farms are overcapitalised and suffer from inefficient management practices. Relying on agricultural support is beneficial to farm efficiency. Three policy implications are considered. A realistic price strategy in a comprehensive package of government action is required to ensure a sound agricultural base for the development of alternative farming. This would also include a crop diversification strategy to support a broad spectrum of alternative crops. A package of these changes would work well with an improvement in agricultural support, and for this reason the government of Uganda needs to develop an agricultural support framework. The thesis contributes to the empirical, field research and some methodology towards Article 17, and to research on the economics of tobacco production and alternative livelihoods.