Economic Analysis of Factor allocation by Zambian Tobacco Farmers

Abstract

The purpose of this study is to construct and estimate a model of production behavior for tobacco farmers in Zambia. The final data set consisted of annual production and price data for fifty farmers over three seasons (1990/91 to 1992/93). Production behavior is modeled in terms of a Translog dual cost function and an output supply response equation derived from the first order conditions for profit maximization. Econometric results suggest that there are dis-economies of scale of in tobacco production. In addition estimated results suggest that marginal costs of production are increasing over the time period (as indicated by a negative coefficient for time trend in the output supply equation). Reciprocity conditions for cost minimization were not rejected. The elasticity of tobacco output supply response was estimated as +2.6. The high elasticity may be explained by a preponderance of commercial farms in the data set and by the seriousness of foreign exchange constraints to farmers over the period of study.