Ae-583 June-2012

AN ECONOMIC ANALYSIS OF VIRGINIA TOBACCO PRODUCTION IN
SOME SELECTED AREAS OF KALIHATI UPAZILA IN TANGAIL

DISTRICT
A Thesis
By
ANAMIKA KHANDAKAR
Examination Roll No.: 10 Ag. Econ. (PE) JD-13 M

Semester: January-June 2012
Registration No.: 32371
Session: 2005-2006
MASTER OF SCIENCE (MS)

IN
AGRICULTURAL ECONOMICS (PRODUCTION ECONOMICS)
DEPARTMENT OF AGRICULTURAL ECONOMICS

BANGLADESH AGRICULTURAL UNIVERSITY
MYMENSINGH
June 2012

DISTRICT
A Thesis
By
ANAMIKA KHANDAKAR

Session: 2005-06
Submitted to the Department of Agricultural Economics,

Bangladesh Agricultural University, Mymensingh,
In partial fulfillment of the requirements
for the degree of
MASTER OF SCIENCE (MS)

IN
AGRICULTURAL ECONOMICS (PRODUCTION ECONOMICS)
June 2012

DISTRICT
A Thesis
By
ANAMIKA KHANDAKAR

Session: 2005-06
Approved as to style and content by:
(Professor Tofazzal Hossain Miah)

Supervisor
(Professor Dr. Md. Taj Uddin)

Co-Supervisor
(Associate Professor Dr. Sadika Haque)

Chairman
Examination Committee
and
Head, department of agricultural economics
Bangladesh Agricultural University
Mymensingh
June 2012
ABSTRACT
The present study was designed with a view to assess the costs and returns as well as the
profitability of growing tobacco. Primary data were collected from 60 farmers which constituted
30 small, 25 medium and 5 large farmers, respectively. A random sampling technique was
followed. An interview schedule was prepared to record the relevant information in accordance
with objectives set by the study. The collected data were then summarized for each of the farm
size groups. Simple descriptive statistics, simple cost and return analysis as well as CobbDouglas production function model were used to achieve the objectives of the study.
The costs and returns were assessed to find out the net returns from different categories of
farmers. Per hectare gross return of small, medium and large farmers were calculated at Tk
120,705.00, 120,975.00 and 121,455.00 respectively. Total costs of different categories of
tobacco farmers were calculated at Tk 63,010.00, 62,426.00 and 58,814.00 respectively and per
hectare gross margin were Tk 80,540.00, 81,140.00 and 82,689.00 respectively. Net returns of
different categories of tobacco farmers were calculated at Tk 57,695.00, 58,549.00 and
62,641.00 for small, medium and large farmers respectively. The undiscounted BCRs of small,
medium and large tobacco farmers were 1.91, 1.93 and 2.07 respectively. Per hectare average
net return of all farmers was Tk 60,116.00 and BCR (undiscounted) was 1.99 which clearly
indicated that tobacco production was highly profitable in the study areas.
Seven explanatory variables were taken into consideration for production function model which
are human labour, power tiller, seed, manure, fertilizer, insecticide and irrigation.
It was
observed that most of the included variables have significant impact on tobacco production.
Although the farmers in the study area operated under contract farming system, they faced a few
problems i.e., lack of adequate institutional credit, high prices of fertilizers, lack of storage
facilities and lower price of tobacco products.
Based on the findings of the study, some
recommendations were suggested for the development of tobacco cultivation and to increase the
income and employment opportunities of farmers
ACKNOWLEDGEMENT
I feel a proud privilege to declare my profound respect, deepest sense of intense gratitude,
indebtedness and kind regard to my reverend supervisor, Professor Tofazzal Hossain Miah ,
Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh, for his
scholastic guidance, constant supervision, time to time instruction, constructive criticisms and
innovative suggestions throughout the study period, and preparation of the thesis.
I would also like to express my heartiest appreciation to my honorable co-supervisor and
Professor Dr. Md. Taj Uddin, Department of Agricultural Economics, BAU, Mymensingh for
his sincere co-operation, valuable advice; and incisive criticisms during the study period and
in the preparation of the manuscript.
The author likes to express her deep gratitude to Dr. Sadika Haque, Associate Professor and
Head, Department of Agricultural Economics, Bangladesh Agricultural University,
Mymensingh, for her kind-hearted help and advice in completing the thesis.
I would like to expresses my heartfelt gratitude to my honorable teachers Prof. Atiar Rahman
Molla, Professor Dr M Serajul Islam, Professor Dr. Md. Habibur Rahman, Professor Dr. M.
Harun-Ar Rashid, Professor Dr. Md. Akteruzzaman, Associate Professor M. Saidur Rahman,
Associate Professor Dr. Ismat Ara Begum and other respected teachers of Department of
Agricultural Economics, BAU, for their valuable suggestions, cordial cooperation,
encouragement and support for completion of the research work and preparation of the
manuscript.
I appreciate the kind cooperation rendered by the selected tobacco farmers as well as general
people of the study area, without their cooperation my research work could not be completed.
Grateful thanks to all of them.
I wish to express my deepest sense of gratitude and immense indebtedness to my beloved
parents whose blessings, sacrifices, constant encouragement, inspiration and dedicated efforts
vi
to educate me up to this level. I also express my cordial thanks and immense gratitude to my
sister and brother for their blessings, sacrifices and constant encouragement.
The Author
vii
CONTENTS
Page No.
ABSTRACT
ACKNOWLEDGEMENT
vi
CONTENTS
viii
LIST OF TABLES
xii
LIST OF FIGURE
xiii
LIST OF MAPS
xiii
ACRONYMS AND ABBREVIATIONS
xiv
Chapter
1 INTRODUCTION
1.1 Background
1.2 Contribution of Tobacco in the Economy of Bangladesh
1.3 Effect of Tobacco Consumption on Human Health
1.4 Justification of the Study
1.5 Objectives of the Study
1.6 Significance of the Study
1.7 Plan of the Study
10
2 REVIEW OF LITERATURE
11
3 METHODOLOGY OF THE STUDY
15
3.1 Introduction
15
3.2 Selection of the Study Area
15
3.3 Selection of Sample Farmers
15
3.4 Preparation of Survey Schedule
16
3.5 Data Collection Method
17
3.6 Processing, Tabulation and Analysis of Data
17
3.7
Period of the survey
17
3.8 Analytical Technique
18
3.8.1 Descriptive Statistics
18
viii
3.8.2 Profitability analysis
18
3.8.3 Cobb-Douglas production function model
19
3.9 Problems Faced During Data Collection
20
3.10 Estimation of Cost Items
20
3.10 1 Cost of human labour
21
3.10 2 Cost of power tiller
22
3.10.3 Cost of seeds
22
3.10.4 Cost of manure
22
3.10.5 Cost of fertilizers
22
3.10.6 Cost of irrigation
23
3.10.7 Cost of insecticide
23
3.10 8 Interest on operating capital
23
3.10.9 Land use cost
24
4 DESCRIPTION OF THE STUDY AREA
25
4.1 Location
25
4.2 Soil, Climate, Temperature and Rainfall
25
4.3 Area and Population of Kalihati Upazila
28
4.4 Agriculture and Main Crops
29
4.5 Religious, Educational and Institutional Facilities
29
4.6 Communication, Transport and Marketing Facilities
29
4.7 Topography and Sustainability of Selecting this Study Area
29
5 SOCIOCONOMIC CHARACTERISTICS OF THE SAMPLE FARMERS
31
5.1 Age Distribution
31
5.2 Family Size of the Respondents
32
5.3 Educational Status of the Respondents
33
5.4 Occupational Status of the Tobacco Farmers
35
5.5 Allocation of Land to Tobacco Cultivation
35
6 COSTS AND RETURNS OF TOBACCO PRODUCTION

6.1 Introduction
38
38
ix
6.2 Variable Costs
38
6.2.1 Costs of hired labour
39
6.2.2 Cost of power tiller
39
6.2.3 Cost of seedling
39
41
6.2.5 Cost of fertilizer
41
6.2.6 Cost of insecticides
41
6.2.7 Cost of irrigation water
41
6.3 Fixed Costs
42
6.3.1 Family labour cost
42
6.3.2 Interest on operating capital
42
6.3.3 Land use cost
42
6.4 Gross cost
43
6.5 Gross return
43
6.6 Gross margin
49
6.7 Net return
50
6.8 Benefit- Cost Ratio (Undiscounted)
51
FACTORS AFFECTING THE PRODUCTION OF TOBACCO
52
7.1
52
Introduction
7.2 Selection of the Model
52
7.3 Interpretations of the Coefficients
52
7.3.1
Human labour cost
53
7.3.2 Power tiller cost
53
7.3.3 Seedling cost
53
7.3.4 Manure cost
53
7.3.5 Fertilizer cost
54
7.3.6 Irrigation cost
54
7.3.7 Insecticide cost
54
7.4 Value of R2
56
7.5 Goodness of Fit (F-value)
56
x
7.6 Returns to Scale (b i )
56
8 PROBLEMS FACED BY THE TOBACCO FARMERS

8.1 Economic and Technical Problem
57
57
8.1.1 Lack of scientific knowledge of farming
57
8.1.2 Lack of adequate institutional credit
58
8.1.3 Lack of irrigation facilities
58
8.1.4 High price of fertilizers
58
8.1.5 Lack of power tiller

8.2 Marketing Problem
58
59
8.2.1 Lower price of tobacco and tobacco by-products
59
8.2.2 Lack of transport/ communication facilities
59
8.2.3 Lack of storage facilities
59
8.3 Social Problem
60
9 SUMMARY, CONCLUSION AND RECOMMENDATIONS
62
9.1 Summary
62
9.2 Policy Recommendations
65
9.3 Limitation of the Study
65
9.4 Scope for Future Study
66
REFERENCES
67
xi
LIST OF TABLES
Table
1.1
Title
Hectarage, Production and Yield of Tobacco from 1995/95 to
Page No.
3
2008/09 in Bangladesh
1.2
Hectarage, Production and Yield of Tobacco by Tangail District
from 2002/03 to 2009/10

1.3
Export of Tobacco and Tobacco Product during 2004/05 to 2008/09
1.4
Import of Tobacco and Tobacco Product during 2004/05 to 2008/09
4.1
Monthly Average Temperature, Rainfall and Humidity, 2010
26
5.1
Age Distribution of the Respondents Farmers
32
5.2
Family sizes of the Respondents Farmers
32
5.3
Educational levels of the Tobacco Growers
33
5.4
Occupational Status of the Tobacco Farmers
35
5.5
Allocation of Land by Sample farmers to Tobacco Cultivation
36
6.1
Per Hectare Human Labour Cost of Tobacco Production
40
6.2
Per Hectare Power tiller Cost of Tobacco Production
40
6.3
Fixed Cost Per Hectare of Tobacco Production
43
6.4
Per Hectare Cost of Tobacco Production for Small Farmer
45
6.5
Per Hectare Cost of Tobacco Production for Medium Farmer
46
6.6
Per Hectare Cost of Tobacco Production for Large Farmer
47
6.7
Per Hectare Cost of Tobacco Production for All Categories of
49
Farmers
6.8
Per Hectare Yield, Gross return, Gross margin, Net return and BCR
50
of Tobacco Production
7.1
Estimated Values of Coefficient and Related Statistics of Cobb-
55
Douglas production Function Model for Tobacco Production

8.1
Problems and Constraints of Producing Tobacco

xii
61
LIST OF FIGURES
Figure
Title
Page No.
5.1
Bar Diagram Showing Age Distribution of Tobacco Farmers
34
5.2
Bar Diagram Showing Family Size of Tobacco Farmers
34
5.3
Bar Diagram Showing Educational Level of Tobacco Farmers
34
5.4
Bar Diagram Showing Occupational Status of Tobacco Farmers
37
5.5
Bar Diagram Showing Area Allocation for Tobacco Farmers
37
6.1
Gross returns of All Categories of Farmers
44
6.2
Production cost of Small Farmer
48
6.3
Production Cost of Medium Farmer
48
6.4
Production Cost of Large Farmer
48
LIST OF MAPS
Map
Title
Page No.
4.1
Map of Tangail District
27
4.2
Map of Kalihati Upazila
28
xiii
ACRONYMS AND ABBREVIATIONS

BAU
= Bangladesh Agricultural University
BBS
= Bangladesh Bureau of Statistics
BCR
= Benefit Cost Ratio (Undiscounted)
BATB
= British American Tobacco Bangladesh
DAE
= Department of Agriculture Extension
ha
= Hectare
i.e.
= (L. id est), that is
kg
= Kilogram
2
km
= Square Kilometer
In
= Natural log
mm
Millimeter
MOP
Muriate of potash
M.S.
Master of Science
No.
Number
Tk
Taka
TSP
Triple Super Phosphate
OC
0
Operating Capital
Degree Celsius
Percent
xiv
Chapter 1
INTRODUCTION
1.1 Background
Tobacco is an ancient and the most important and widely grown commercial non-food crop in
the World. This is also a major tropical cash crop of considerable economic significance to
Bangladesh. In this country, tobacco has a prestigious and significant position in terms of
economy where about 2-3 million people are employed for its production, processing and
marketing. Tobacco earns foreign currency which occupies 4th position after jute, sugarcane,
and tea. The land under tobacco cultivation is 73,808 acres and production is 40,265 tonnes
(BBS 2010).
It is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be
consumed, used as a pesticide and, in the form of nicotine titrate, used in some medicines. It is
most commonly used as a recreational drug. Tobacco, name for any plant of the genus Nicotiana
of the Solanaceae family (nightshade family) and for the product manufactured from the leaf and
used in cigars and cigarettes, snuff, and pipe and chewing tobacco. Tobacco plants are also used
in plant bioengineering, and some of the 60 species are grown as ornamentals. Commercial
cultivation of tobacco was initiated in this country in 1964. Later on tobacco cultivation was
extended to Kushtia district. Very soon the yield and quality of tobacco recorded a declining. At
this stage the tobacco companies moved to Bandarban and Coxs Bazar districts. Another reason
for shifting tobacco production to new areas is that curing of tobacco leaves requires huge
quantities of fuel wood. The latest extension of tobacco has taken place in Chalan Beel, Natore,
Jessore, Jhenaidah, Lalmonirhat, Rajbari, Manikganj and Tangail.
There are about 60 different species of tobacco though the most popular ones are Nicotiana
Tabacum and Nicotiana Rustica. In Bangladesh, various types of tobacco such as Dark Virginia
Gold, Motihari, Jyoti etc., are grown. Among this variety, Virginia is the most popular variety
for the companies. British American Tobacco (BAT) Company has introduced the Flue cured
Virginia in 1967 on an experimental basis and by 1976 it started producing it commercially.
Tobacco (Nicotiana species) is Virginia is used primarily in the production of cigarettes while
1
the non-Virginia types are used in producing Bidis and other products. There are regional
differences in the method of cultivation depending on the climate, soil fertility, plant species and
the type of leaf desired. Most Canadian cigarettes made from 100.00 percent pure Virginia
tobacco.
In Bangladesh, mainly British American Tobacco Bangladesh Company Limited (BATB) has
been operating as the major sponsor or contractor of contract farming in the tobacco cultivation
for many years. Through the contract farming agreement, BATB provides credit to the farmers
in the form of seeds, fertilizer, pesticides and technical support.
The farmers are usually
obligated to sell tobacco leaf to the company at a set price. In 2010, British American Tobacco
Bangladesh contributed Tk 46.27 billion in the form of Supplementary Duty, Value Added Tax
(VAT) and other taxes to the national exchequer.
Table 1.1 presents area, production and yield of tobacco over time. It shows that the tobacco
hectare has remained almost the same but production and yield have shown an increase
Table 1.1 Hectareage, Production and Yield of Tobacco from 1995/96 to 2008/09 in Bangladesh.
Year
Area (ha)
Production (tonne)
Yield (kg/ha)
1995/96
89,525
38,755
439.48
1996/97
86,180
37,500
442.10
1997/98
81,105
36,078
452
1998/99
78,240
28,342
368.03
1999/00
79,910
34,921
444
2000/01
73,870
36,176
497.56
2001/02
75,600
37,480
503.70
2002/03
76,110
36,260
484.03
2003/04
75,175
38,081
514.67
2004/05
73,535
37,357
516.15
2005/06
78,385
42,037
544.87
2006/07
75,860
38,563
516.48
2007/08
72,344
39,614
556.34
2008/09
73,811
39,638
545.61
Average
77,832
37,200
485.59
Source: BBS (2010)

Table 1.2 shows area, production and yield of tobacco over time. The figures presented in the
table clearly indicate that the tobacco area, production and yield in Tangail district have
gradually been increasing from 2002/03.
Table 1.2 Hectareage, Production and Yield of Tobacco in Tangail District from 2002/03 to
2009/10
Year
Area (ha)
Production (tonne)
Yield (kg/ha)
2002/03
20
4.92
250
2003/04
25
9.84
400
2004/05
15
4.92
333
2005/06
35
34.44
1000
2006/07
60
44.29
750
2007/08
77
50.20
662
2008/09
162
75.79
475
2009/10
29,255
23,826.77
827
Source: BBS (2010).
1.2 Contribution of Tobacco in the Economy of Bangladesh
Tobacco meets the consumption demand and generates cash income to the growers/farmers. The
study reveals the existing technical and economic efficiencies in the production of Virginia
tobacco in the study area.
The policymakers get information about the Virginia tobacco
production. Using this information they can bring changes to overcome the problems and
increase tobacco production.
An Efficient farmer can get higher incomes and a better
opportunity for surviving and prospering.
The tobacco industry also has an effect on
employment. Cigarettes require very little labour to manufacture. Bidi rolling is much more
labour intensive. Employment in agriculture sector of tobacco has reduced over time, although
employment in its manufacturing sector tends to show increase. Official statistics suggests that
share of tobacco manufacturing constitute less than 1.00 percent of all manufacturing
employment, and according to knowledgeable sources, annual employment only in Bidi
manufacturing amounts to 621,000, with 155,000 direct/full time employees (in the
manufacturing industries) and 466,000 indirect/part time employees (who work at home as subcontract). The tobacco cultivators calculate the benefits of tobacco cultivation in three ways- (i)
4
facility to work in own field, (ii) getting fertilizer for the field, and (iii) having guaranty to sell
dried tobacco leaf without any hazard of storage and damage. And, the benefits of domestic
usage of tobacco are derived in two ways: (i) tax revenue collected on domestic tobacco
consumption, and (ii) net wages (wages minus individual consumption) earned in the tobacco
sector. Total benefit amounts to Tk 28.3 billion, with 20.3 billion in revenue earnings and 8
billion in wage earnings per year approximately (kori, 2008).
Bangladesh exports each year a negligible quantity of tobacco products. Table 1.3 presents
export of tobacco and tobacco products during 2004/05 t0 2008/09.
Table 1.3 Export of Tobacco and Tobacco Product during 2004/05 to 2008/09
Items
Un-manufactured tobacco,
Year
2004/05
2005/06
2006/07
2007/08
2008/09
958,536
45,990
28,689
3,427,900
318,772
200,153
45,990
28,689
246,482
97,849
132,514
195,539
105,053
tobacco refuses (million Tk)

Cigar cheroot Cigarette /Cigar
(million Tk)
Manufactured tobacco/substitute
(million Tk)
Source: BBS (2010)
Bangladesh is a net importer of tobacco products, and the trade balance through cross-border
trade of tobacco becomes negative by importing cigarette. Thus, the present estimate of the
benefits of tobacco usage would be discounted if the negative contribution of Tobacco to the
trade balance of the country is accounted for.
Bangladesh imports each year a negligible quantity of tobacco products. Table 1.4 presents
import of tobacco and tobacco products during 2004/05 t0 2008/09.
Table 1.4 Import of Tobacco and Tobacco Product during 2004/05 to 2008/09
Items
Un-manufactured tobacco, tobacco
Year
2004/05
2005/06
2006/07
2007/08
2008/09
1,360,713
1,002,034
1,125,231
865,937
1,048,473
130,730
100,983
69,870
58,100
64,386
6796
2785
4884
6336
5535
refuses (million Tk)

Cigar cheroot Cigarette /Cigar
(million Tk)
Manufactured tobacco/substitute
(million Tk)
Source: BBS (2010)
It is one of the very few crops entering world trade entirely on a leaf basis. It is the most widely
grown commercial non-food plant in the world. It holds a high importance in financial and
economic policies in any countries including Bangladesh. Consumption is by way of smoking,
inhaling or chewing and is a habit forming narcotic, and although bans of it's use have been
attempted, it's consumption marches steadily forward.
1.3 Effect of Tobacco Consumption on Human Health
Tobacco is a deadly poison affecting each and every parts of human body starting from hairs to
nails. Most of the cancers are caused by tobacco. Heart disease, stroke, cardiovascular diseases
are mainly caused by tobacco. Most of the diseases of the respiratory tract are caused by
tobacco. These harms are caused by direct and indirect smoking. To be born babies are affected
by both direct and indirect smoking. Sometimes there is premature abortion due to smoking.
Underweight babies are born due to smoking of pregnant mothers. The smokers in general, have
ill health. They cannot take hard physical works. In most of the time they remain upset. In fact,
they have less potential to work.
Tobacco is linked with all sorts of adverse impacts. It does not do any physical benefit.
Somebody may argue in favour of good feeling while smoking. But that vanishes as soon as the
6
effect of nicotine is over. The question is that how much harm we can tolerate for such a
temporary feeling of relief. This good feeling evaporates very quickly as soon as the impacts of
nicotine erode out of the blood system. Soon there is hunger feeling for smoking again.
Moreover, the tobacco companies add some flavoring agents with the finished products. These
things create further addiction. This is very sad for us that knowing fully well we are still taking
poison and offering poison to our nearest and dearest. These poisons include carbon monoxide,
nitrogen oxide, benzopyrin napthomine, etc. These are responsible for causing cancer and
cardiovascular diseases.
It was estimated that 100 million people embraced death by diseases linked with tobacco in the
last century (WHO 2009). About 5.5 million people die by tobacco related diseases, annually.
This rate may increase in time. It may reach 10 million per year by 2030. This death will mainly
take place in the poor countries like Bangladesh. Two thirds of the smokers live in 10 countries
on global context. Unfortunately, Bangladesh belongs to the gang of those ten. Bangladesh is
champion on the wrong side of the scale. We are third in the list of smokers. However, in terms
of public awareness and policy decision, the situation of Bangladesh is not so bad.
1.4 Justification of the Study
Agriculture sector continues to play a very important role in the economy of Bangladesh. The
performance of agriculture as a whole will show the performance of entire economy, because in
less advanced countries agricultural products increase the income of the farmers which can
increase the demand of industrial products. As a result, industrial growth depends on agricultural
development. In fact, without agricultural development, no large-scale industrial programme can
be continued, since the increased industrial products must find their markets partly within the
country and the villages must have surplus money to pay for them.
Tobacco production is labour intensive.
The cultivation of tobacco, therefore, can create
employment opportunities for unemployed rural people of Bangladesh. A large number of

farmers and traders live on by earning money from tobacco production and trading.
By
producing tobacco, a sustainable amount of foreign currency can also be saved in this low
income country.
It is, therefore, important to assess the profitability of the investment in terms of land and other
resources committed to tobacco farming. What the farmers could gain if they would not have
produced tobacco will also be attempted in this study. Tobacco products have been scientifically
established to be seriously injurious to human health and it is time to surmise the opportunity
cost of tobacco production. Secondary information will be utilized to capture the opportunity
cost of growing tobacco.
Finally, the study will be helpful for the individual farmers for effective operation and
management of their farms through pointing out the drawbacks and for the planners for proper
planning and policy making. The study may be helpful to the extension workers to learn about
various problems related to tobacco production and to suggest the farmers for coping with those
problems.
1.5 Objectives of the Study
The overall objective of the study is to assess the profitability of tobacco cultivation in an area of
Bangladesh. The most specific objectives of the study are:
i.
to identify the socioeconomic characteristics of the tobacco farmers;
ii.
to assess the relative profitability of producing tobacco under different categories of farms;
iii. to identify the major problems facing the farmers during the production of Virginia
tobacco;
iv. to estimate the contribution of important variables to the production processes of tobacco;
and
v.
to suggest some policy guidelines.
1.6 Significance of the Study
Tobacco is one of the major cash crops of Bangladesh. Although it is grown almost all the
districts of Bangladesh, but its commercial cultivation for industrial supply is mostly
concentrated in the northern districts like Rangpur, Lalmonirhat and Kustia.
Tobacco plays an important role in the national economy of Bangladesh. It has assumed a
significant place in the daily life of the people as a commodity of consumption. In agriculture
sector, tobacco is the most important cash crop after jute, sugarcane and tea. Tobacco is a basic
raw material for `Bidi` and `Cigarette` industries. Tobacco plant and its products are consumed
as solid, liquid and gaseous form by human being. The important alkaloid contained in tobacco
leaves is nicotine which is a valuable insecticide and is used for the control of crop pests and
certain parasites of cattle, sheep and poultry. The tobacco residue (after the extraction of
nicotine) after drying and grading can be used as an excellent fertilizer containing considerable
quantities of potash and low amount of nitrogen. The stalk and stem of tobacco plant may be
used as fuel. Thus, in addition to being a basic raw material for `Bidi` and `Cigarette` industry, it
is a subsidiary raw material for chemical industries and very important source of cash income to
its growers.
Tobacco has a considerable significance in terms of employment opportunity for men and
women of Bangladesh. The cultivation, marketing and processing of tobacco and its products
provide employment to a large number of people, because tobacco cultivation requires a large
number of human labours and tobacco industry is one of the most agro-based labour intensive
industries.
1.7 Plan of the Study
The whole study contains nine chapters. Chapter 1 deals with the introduction of the study.
Chapter 2 presents the review of the related past studies. Chapter 3 deals mainly with the
methodology of the study. Chapter 4 covers a brief description of the study area and Chapter 5
gives a discussion on socioeconomic characteristics of the sample farms. Chapter 6 presents
discussion on cost and returns of tobacco production. Chapter 7 presents major factors affecting
9
to the production processes of tobacco. Chapter 8 describes the problems of tobacco production.
Finally, a summary and conclusion of the study as well as policy implications/recommendations
are made in last chapter.
10
Chapter 2
REVIEW OF LITERATURE
The purpose of this chapter is to provide a selective review of recent and past research works which are
related to the present study. The studies on tobacco are very limited in Bangladesh. Several
research studies covering area, production and profitability have been conducted on tobacco in
Bangladesh.
However, some important related findings of research carried out in this country or
elsewhere are reviewed in this section.

Ahmad (1974) completed a study on production and marketing of tobacco in some selected areas
of Rangpur district. He observed that the demand for Jati and Matihari tobacco were declining
with the growth in income and urbanization and these varieties being replaced by those varieties
which are used for cigarette manufacturing. He also mentioned that there were significant
government regulatory policies on tobacco marketing although there was no direct government
participation in the total system. He estimated that per acre yield which was 9.39 maunds and he
found about 2.8 percent and 1.8 percent marketing cost incurred by farmers and were house
holders.
Jabber (1975) completed a comparative economic study on the production of virginia tobacco
and local varieties of tobacco in some selected areas of Rangpur district. In the study, he found
that average yield of Virginia tobacco was 785 mounds per area. He observed a positive
relationship between total income and farm size.
Rahman et al (1975) studied the cost of production of major varieties tobacco in Rangpur
district. They found that average total costs per acre of producing tobacco were Tk 1633 for
Virginia, Tk 1556 for jati and Tk 1536 for Matihari varieties per acre respectively.
Ahamed (1977) conducted a study on the economics of virginia tobacco production in some
selected areas of Rangpur district. He observed that the yield increased with the increased use of
fertilizer and labour. He calculated that the yield of tobacco per acre was 1348 mounds and the
cost and net return per acre were Tk 2424 and 568.50 respectively.
11
Ahmad and Hossain (1977) studied the production and marketing of tobacco and potato in some
selected areas of Rangpur district. They found that average yield of tobacco was 10 mounds per
acre and cost of production and net return were Tk 300.00 and 300.00 respectively.
Islam (1978) studied relative profitability of tobacco and potato in two selected villages of
Rangpur district. In this study, the total cost per acre of producing tobacco was Tk 1641.86 and
net return per acre was Tk 1190.14.The average yield per acre was 8.85 mounds (in dry
condition).
Rahman (1978) conducted a study on the marketing of tobacco and tobacco products with
particular emphasis on marketing margin.
They study endeavored the system of tobacco
marketing and determining costs and margin. The total cost of per mound cigarette, bidi per
thousand were estimated at Tk 133.76, Tk 8.80 and Tk 5.87 and total marketing margin of
cigarette, bidi per mound were Tk 192.81, Tk 17.75 and Tk 9.35.
Islam (1982) studied Virginia tobacco production in some selected areas of Daulatpur Thana
under kushtia district. He found that average yield per acre of tobacco was 110292 pounds and
cost and net return per acre were Tk 5266.50 and Tk 4286.17 respectively. He observed the
yield to vary with variation in factors of production. Farms employing higher man-days obtained
higher yield. In the study, some production and marketing problems were identified, such as,
Insufficient supply of fuel wood, lack of irrigation facilities, lower output price than government
declared price, absence of proper storage facilities of tobacco; etc.
Rahman et al. (1985) conducted a study on financial structure and practices of tobacco farmers in
Bangladesh. The survey was conducted in three thanas: Kishoregang of large Rangpur district,
Meherpur sadar and Mirpur thana under large Kustia district. The study revealed that the
resource endowment position and social status of the tobacco growers of Kushtia were better
than that of Rangpur. Again these were better for BTC contract farmers compared to non-BTC
farmers. Findings suggested that the performance of BTC farmers was better than that of nonBTC farmers.
Rahman et al. (1990) conducted a farm level study on financing and marketing of tobacco in
Bangladesh. The study was conducted in two most important tobacco growing areas of Rangpur
and Kushtia in Bangladesh. It showed that average tobacco production per acre for all the study
12
areas was found to be about 530 kg. The productivity of tobacco was less in Kushtia zone than
the Rangpur zone but quality of tobacco was better in Kushtia due to better processing system
(flue-cured method).
Barma (1998) studied the production of tobacco in some selected areas of Lalmonirhat district.
The study showed that per hectare gross costs, gross returns and net return of Motihari variety
were Tk. 34715.75, Tk. 42540.89 and Tk. 7825.14, respectively and these were Tk 40863.49, Tk
51455.58 and Tk 10492.02 for the Virginia variety.
Prodhan (1998) conducted the existing tobacco marketing system, costs margins and marketing
constraints. He showed the production and processing cost per hectare of tobacco at Rangpur
and Kushtia was Tk 21587.00 and Tk 31312.00 and the net return of farmers was Tk 2713.00
and Tk. 5080.00 per hectare.
Hossain (1998) studied tobacco marketing in the two most important tobacco growing areas of
Rangpur and Kushtia districts of Bangladesh. He showed that the production and processing
cost per hectare of tobacco of Rangpur and Kushtia were Tk 2158.00 and Tk 31312.00
respectively. The net return per acre was Tk 2713.00 in Rangpur while it was Tk 5080.00 for
Kushtia districts.
Mahmud (1999) conducted a socioeconomic study on tobacco production in some selected areas
of Rangpur district where he showed that tobacco growing was a profitable business, but the
Virginia variety was more profitable than the Motihari. The total costs of tobacco production per
hectare were Tk 34260 and Tk 35106 for Virginia and Motihari varieties, respectively. The net
returns of tobacco production were Tk. 9690 and Tk. 5914 per hectare in the study area.
Firdousi and Chowdhury (2002) completed a study on production of tobacco. The study was
conducted in the districts of Rangpur and Kushtia, two upazila from each district were chosen.
The total area, production and yield of Rangpur were 54765 acre, 16720 tonne and 0.31
tonne/acre, respectively. The total area, production and yield of Kushtia were 14550 acre, 18830
tonne and 1.29 tonne/acre, respectively.
Muyeed (2007) conducted a study on the labour market and their earning condition of tobacco in
Bangladesh. Workers (those were engaged in various tobacco companies) receive US 0.18 - US
13
1.25 per day, depending on the quantity they can handle (3000-12000 bidis/day on tobacco
picking out process).
Bidi workers receive from 22%-65% of the wage stipulated by
government, with the higher figures going mostly to adult men and women, and children and
women being paid on lower range of scale.
Motaleb and Irfanullah (2010) conducted a study on financial structure and practices of tobacco
farmers in Bandar Ban district. In Bandar Ban district of Chittagong Hill Tract, 127 hectare of
land was under cultivation in 1995/96, but 12 years later this figure has increased by more than
11 times, 1437 hectare. On an average 1.5 ha/household are rented for tobacco cultivation. The
average annual income of the surveyed household was about us US 2100 in 2009.
Akhter (2011) Executive Director, UBINIG presented the keynote speech on the Bangladesh
situation of tobacco cultivation and its impact on food production.
She highlighted the
background of the introduction of tobacco cultivation in Bangladesh. Mainly three varieties of

tobacco - Jati, Motihari and Virginia have been grown in Bangladesh. Jati and Motihari have
been grown in Rangpur and Bandarban, while Virginia has been mainly grown in Kushtia,
Rangpur, Jessore and Dhaka. Besides, tobacco cultivation is extending to Jhenidah, Nilphamari,
Lalmonirhat, Manikganj and Tangail. There may be about one hundred thousand farmers who
cultivate tobacco. Rough estimates suggest that 25,000 are associated with British American
Tobacco Company. Others are associated with about five more tobacco companies.
Most of these studies were conducted in the important tobacco growing areas with the objectives
of estimating cost, return and profitability. With the improvement of technology, the findings
and the data of these studies have become mostly outdated; but their contribution to developing
the methodology is well recognized. The present study was benefited by reviewing these studies
in terms of developing the design and methodology.
Advantages of the present study over the existing ones are:
i.
This study covered a new tobacco cultivation area;
ii. This study utilizes the latest data available up to 2011; and
iii. The finding of the study will reflect the present situation and will be more useful for
decision making.
14
Chapter 3
METHODOLOGY OF THE STUDY
3.1 Introduction
A farm management research involves collection of information from individual farmers.

Research is organized, systematic and purpose oriented investment. Every research needs a
methodology i.e., how to approach the study, how to obtain relevant information, how to analyze
them and fulfill the set objectives of the concerned study. Methodology followed in this study
involved the following steps.
3.2 Selection of the Study Area
The selection of the study area for a farm management and/or production economics study is an
important step and largely depends upon the objectives set for the study. Farm management
investigation is generally done by selecting an area where the concerned crop is grown. The area
in which a farm survey is carried out depends on particular purpose of the survey and the
possible cooperation from the farmers. In the last few years, tobacco has been cultivating in a
part of Kalihati Upazila in Tangail district.
The villages selected for the present study were Gobindopur, Bollobpur, Soratoil, Dobugati
under Kalihati Upazila in the district of Tangail. These villages are the most concentrated areas
for the cultivation of Virginia varieties of tobacco and no economic study or profitability of
tobacco cultivation has yet been conducted in this area.
3.3 Selection of the Sample Farmers and Sampling Technique
Due to limitations of time and resources it was not possible to interview all the tobacco growing
farmers in the study area. For this reason a reasonable size of sample was taken. In this study, a
random sampling technique was followed to select the sample farmers. The tobacco growing
15
farmers were classified into three farm size groups on the basis of land holdings (BBS 2008).
These categories were as follows:
1. Small farmers, who belongs to less than 1 hectare of cultivable land;
2. Medium farmers, those having 1.01 to 2.0 hectares of cultivable land; and
3. Large farmers, those possessing above 2 hectares of cultivable land.
Among them a sample of 60 (small 30, medium 25 and large 5) farmers were chosen randomly
for the present study.
Categories of farmers
Sample no.
Small farmer
30
Medium farmer
25
Large farmer
3.4 Preparation of Interview Schedule
The interview schedule was prepared keeping in view the objectives of the study. Interview
schedule was developed to record the desired information from the farmers. It contained both
open and closed form of questions. The questions were arranged systematically so that the
respondents can provide information in a consistent and systematic manner. Survey schedule
initially prepared and it was pretested before using the same for making final. This pretested
facilitated the researcher to examine the suitability of different questions and statement of
schedule in general.
Necessary correction, modification, additions, alterations and
rearrangements were made in the schedule based on the pretested experiences gathered from the
field. The schedule then was prepared in a simple manner so that actual information could be
obtained without repetition. The final schedule included the following information.
(a) Identification of the sample farmers;
(b) Farm size of farmers;
16
(c) Family size and composition and use of family labour and the occupation of the sample
farmers;
(d) Information relating to input and output of tobacco cultivation at farm level;
(e) Problems and constraints of tobacco farmers; and
(f) General information about tobacco cultivation.
3.5 Data Collection Method
Data were collected by the researcher herself by interviewing the selected respondents.
Collection of reliable data and other necessary information from the field is not an easy work. It
must be done properly since the success of survey depends on reliability of the data. At the time
of interview, the researcher asked questions systematically and explained the aims and objectives
of the study whenever it was felt necessary. It was explained to the farmers that the study was
purely academic. Farmers were also explained the usefulness of the study in their farm business
context. The interview schedule was checked to be sure that information of each of the item was
properly recorded.
If there were such items, which were overlooked, they were corrected
through a revisit. It may be noted here that some items were recorded in terms of local units,
which were converted into standard international units while processing and editing the data.
3.6 Period of the Survey
Tobacco is grown in Rabi season only. Tobacco seeds are generally sown from September to
October and tobacco is harvested from February to March. The period of data collection covered
the whole growing period from September 2011 to March 2012 which was a normal season of
tobacco production. Data relating to inputs and outputs were collected by making time to time
visits in the study area during this period.
3.7 Processing, Tabulation and Analysis of Data
The collected data were manually edited and coded. Then all the collected data were summarized
and scrutinized carefully. Data were processed and transfer to Excel sheets to facilitating in
17
order to meet the objectives of the study. Moreover data entry was made in computer and
analyses were done using the concerned software Microsoft Excel and Statistical package for
Social Science (SPSS).
3.8 Analytical Technique
Data were analyzed with the purpose of achieving the main objectives of the study. In order to
arrive at meaningful conclusion descriptive statistics and profitability analysis as well as CobbDouglas production function model were chosen for this study.
3.8.1 Descriptive statistics

The descriptive technique is a technique that is commonly used for the sum, average and
percentage of costs, gross returns, gross margins, net return and profitability of tobacco growing
farmers in a comprehensive manner. It is also used for analyzing socioeconomic condition and
problems faced by the Tobacco growers.
Gross returns: Gross return was calculated by simply multiplying the total volume of output of
Tobacco with its per unit price received by the farmers. It was consisted sum of the volume of
main product and its by product.
Gross margin: Gross margin is the gross return over variable cost.
Net return: Net return was obtained by deducting all costs (variable and fixed) from gross
return or deducting fixed cost from gross margin
Benefit-Cost Ratio (Undiscounted): The BCR is a relative measure, which is used to compare
benefit per unit of cost. The BCR estimated as a ratio of gross returns and gross costs. The
formula of calculating BCR (undiscounted) is shown below
BCR =
Gross benefit
Gross cost
18
3.8.2
Profitability analysis
The following algebraic equation was used to assess the profitability of tobacco production.
= P F .Q F + P S Q S - (P xi .X i ) TFC
Where,
= Profit per hectare of tobacco production (Tk/ha)
P F = Per unit price of tobacco leaf
Q F = Quantity of tobacco leaf (kg/ha)
P S = Per unit price of tobacco stem (Tk/ha)
Q S = Quantity of tobacco stem (kg/ha)
P xi = Per unit price of ith (variable) inputs used for tobacco production.
i = 1, 2, 3, n and
TFC= Total fixed cost involved in producing tobacco.
3.8.3 Cobb-Douglas Production Function Model
In order to arrive at meaningful results data for the present study were analyzed with the
following techniques.
The Cobb-Douglas form of production function model was used to
estimate the effects of key variables to the production of tobacco. The specification of the CobbDouglas production function for tobacco was as follows:
Y i = ax 1 b1x 2 b2x 3 b3x 4 b4x 5 b5x 6 b6x 7 b7eu i
In linear form it can be written as follows:
Ln Y=ln a+b 1 lnx 1 +b 2 lnx 2 +b 3 lnx 3 +b 4 l nx 4 +b 5 lnx 5 +b 6 lnx 6 +b 7 lnx 7 + u i ;
Where,
Ln = Natural logarithm
Y= Return from Tobacco (Tk/ha)
19
X 1 = Human labour cost (Tk/ha)

X 2 =Power tiller cost (Tk/ha)
X 3 =Seed cost (Tk/ha)
X 4 =Manure cost (Tkha)
X 5 =Fertilizer cost (Tk/ha)
X 6 =Irrigation cost (Tk/ha)
X 7 =Insecticide cost (Tk/ha)
a=Constant or intercept term
b 1 , b 2 .b 7 = production coefficient of the respective input variable to be estimated and u i =error
term.
3.9 Problem Faced During Data Collection
The following problems were faced during the period of data collection:
I.
Most of the times the respondents asked the researcher what benefits they might get from the
researcher;
II.
Most farmers initially hesitated to answer the question; and
III. Sometimes farmers were not available at home which needed even more than two or three
visits to conduct single interview.
3.10 Estimation of Costs Items
This section mainly deals with procedure of estimating cost items and returns of tobacco
production. The cost items considered such as cost of using human labour, power tiller, seed,
manure, fertilizer, insecticide and interest on operating capital, land use cost, miscellaneous cost.
In the production processes of tobacco, farmers used both home supplied and purchased inputs.
The inputs item were valued at prevailing local market rates. For purchased inputs, farmers had
20
to pay cash but home supplied inputs like family labour, manure etc. no cash was actually paid,
and pricing was very difficult in such cases. However, in calculating the cost of such inputs, the
principle of opportunity costs was followed. In determining the opportunity cost of an individual
enterprise the relevant input price is the value forgone by replacing this input from another
enterprise. The output was valued at the farm gate prices.
3.10.1 Cost of human labour
The most important and largely used input in the production process of tobacco is human labour.
Human labour came from two sources (1) Family supplied and (2) Hired. Both hired and family
labourers were employed in producing tobacco. Family labour included the farmers himself, the
male or female members of his family. The wage rate for hired labour was also applied to family
labour of that farm. Human labour performed the following operation:
1. Land preparation;
2. Sowing or transplanting;
3. Weeding;
4. Application of manure and fertilizer;
5. Application of insecticide;
6. Application of irrigation;
7. Tobacco cutting and carrying;
8. Tobacco cleaning, drying and storing; and
9. Tobacco marketing
Human labour was measured in terms of man-days, which was taken to consist of 8 working
hours a day. Hired labour was priced at actual wage paid and the wage rate of the family labour
was taken as the same rate of the hired labour. To standardize labour hour in terms of man days,
all the labour units were converted into man equivalent.
For women and children, man-
equivalent hours were estimated. This was computed by converting all women and children
hours into man- equivalent hours by adopting the following ratio.
1 male = 1.5 women = 2 children hours
21
Human labour wage rate was found to be on an average Tk 250.00 per man-day including
privileges.
In the study area, the majority of the farmers used power tiller for land preparation. All the
sample farmers used power tiller for their land preparation. The use of power tiller is increasing
rapidly in the study area. They mainly used hired power tiller. A power tiller owner supplies
fuel as well as a driver for land preparation. In the study area the hiring rates of power tiller for
one pass on an average was Tk 11.00 per decimal. The wage rate of power tiller was considered
as the actual amount of money paid by the farmers in cash.
3.10.3 Cost of seed
In the study area, the sample farmers did not use purchased seeds. All the sample farmers were
contract grower of Akij Bidi Company and seeds were supplied by Akij Bidi Company. The
seed cost was calculated on the basis of actual opportunity cost principle. In the study area, the
prevailing market prices of seed cost were Tk 6000 per kilogram.
In the study area, farmers used cowdung as organic fertilizer in their tobacco production. A large
quantity of manure was supplied from the farmers house. While some farmers bought cow dung
from milk producers. The average price of cowdung was calculated at Tk 0.60/kg.
3.10.5 Cost of fertilizer
There are five kinds of chemical fertilizer namely Urea, Triple Super Phosphate (TSP), Muriate
of Potash (MOP), Gypsum, and Boron were used by the farmers. Fertilizer costs were charged at
the actual prices paid by the farmers. The prices of these fertilizers were Tk 20/kg, Tk 22/kg, Tk
15/kg, Tk 6/kg, Tk 200/kg, respectively.
22
3.10.6 Cost of irrigation
The yield of tobacco largely depends on irrigation. In the study area, deep tube well (DTW) and
shallow tube well (STW) were used for irrigation. The farmers, who used DTW and STW
irrigation, paid in cash for irrigation water. So the irrigation cost for them the amount paid as
irrigation water charge.
3.10.7 Cost of insecticide
Most of the farmers used insecticides to their plots. It was purchased input. So the cost of
insecticides was charged according to the price at which they purchased it.
The operating costs include the costs for human labour, power tiller, seeds, fertilizers etc. The
operating capital (OC) usually represents the average operating costs over the production period
because not all the operating costs were incurred at the beginning of the tobacco cultivation;
rather these were spread over the whole production period. Interest on operating capital was
worked out on the basis of opportunity cost principle, that is, it was assumed that if the farmers
borrowed the money from a bank, they had to pay the interest at the same rate. Therefore, it was
calculated by applying the following formula (Miah 1987):
Interest on operating capital=Alit

Where,
Al = (Total investment)/2;
i = Rate of interest; and
t = Length of crop production period in month.
The period of crop cultivation was considered from the time of land preparation to harvest. The
interest actually means the average operating costs over the period as all the costs were not
23
incurred at the same time; rather these were used throughout the production period from the
beginning to the end.
3.10.9 Land use cost
The cost of land use may be estimated using one of the following three alternative concepts:
I.
Interest on the value of land;
II.
Rental value of land; and
III. Forgoing incomes from alternative uses.

In this study, the costs of land use were determined by the local rental value of land. Rental
value was determined according to the opinion of the respondents
24
Chapter 4
DESCRIPTION OF THE STUDY AREA
This chapter presents a brief description of the study area. Knowledge of the study area is very
essential to understand the location, physical features and topography, soil type temperature,
rainfall, agricultural condition, population, education and other socioeconomic infrastructure
available in the area. Tobacco is grown quite extensively in northern District. Tobacco is
extending to Jhenaidah, Nilphamari, Lalmonirhat, Manikganj and Tangail. For this reason
Tangail district was selected as the study area. This chapter aims at present the above mentioned
characteristics of the study area.
4.1 Location
Tangail is a district of Bangladesh within the Dhaka Division. Kalihati is an upazila of Tangail
district in the division of Dhaka, Bangladesh.
Kalihati is located at 24.38330 North and
90.0083o east. It has 65035 units of household and total area 301.22 Km2. The upazila consists
of one municipality, 14 union parishads, 267 mouzas, and 314 villages. The Kalihati thana was
established in 1924 and was turned into an upazila 1983. Among them 4 villages namely
Gobindopur, Bollobpur, soratoil, Dobugati were selected purposively.
4.2 Soil, Climate, Temperature and Rainfall
The study area had mostly medium lands. The soil texture varies from sandy loam to clay loam.
Most of the area is affected by natural inundation (flood) in the rainy season in every year.
Bangladesh enjoys generally a sub-tropical monsoon climate with six seasons in a year. There
were no local arrangement for recording temperature, rainfall and average humidity in the study
area. The average monthly metrological information of Tangail district are presented in Table
4.1
25
Table 4.1 Monthly Average Temperature, Rainfall and Humidity, 2009

Months
Air temperature ( 0 c)
Maximum
Minimum
Rainfall
Average humidity
(mm)
(%)
January
23.3
10.5
81
February
28.5
14
72
March
34.6
20.6
69
66
April
35.1
24.7
46
75
May
36.5
24.6
328
76
June
33.2
25.7
430
84
July
33.4
26.4
126
82
August
33.3
26.3
207
84
September
32.9
25.8
157
85
October
32.6
24
319
83
November
30.0
19.2
80
December
25.8
13
62
79
Source: Bangladesh Meteorological Department, 2009.
26
Note: 4.1 Map of Tangail District
27
4.3 Area and population of Kalihati Upazila

Total area of Kalihati Upazila is 301.22 Km2 with a population of 177023. In this study area, the
vast majority of people were Muslim. Kalihati has a population of 354959. Males constitute are
51.55% of the population and females 48.45%.
Note: 4.2 Map of Kalihati Upazila
28
4.4 Agriculture and Main crops
Agriculture is the main source of income of villagers. Rice, wheat, jute are some of the
important crops and different types of vegetables grown in the study area. Rice is the main field
crop and tobacco is the main cash crops.
Most of the crops were grown under irrigated
condition.
4.5 Religious, Educational and institutional facilities
In the study area the numbers of total mosques were 558, Madrasa 24. Tangail has some notable
educational institutions like public university, polytechnic college, Textile University,
Vocational institution, Homeo medical college, Teachers training centre, Kumudini college, B.B.
govt. girls and boys high school. Kalihati has an average literacy rate of 27.5% (7+ years) and
the national average of 32.4% literate.
4.6 Communication, Transport and Marketing Facilities
The villagers are well connected with Upazila headquarters and the district town. North BengalDhaka highway road passes by the side of the selected Upazila of the villages. The transport
facilities available in the area are bus, truck, van, rickshaw, tempo etc. The marketing systems of
the villages are also good. There is no problem to sale any agricultural crops. Generally, the
farmers buy and sell daily necessities in the village markets.
4.7 Topography and sustainability of Selecting this Study Areas
Tangail is the district of Bangladesh within the Dhaka Division. The annual average maximum
and minimum temperature is 33.3C and 12C and annual total rainfall is 1467 mm. Kalihati is
an Upazila of Tangail district with an area of 301.22 km2. Kalihahi Upazila is one of the most
fertile and prosperous areas in Tangail district. Kalihati Upazila produces crops mainly rice,
jute, wheat, onion, chilli and vegetables. There are many villages under Kalihati Upazila, among
them four villages were selected as the study area where tobacco is grown. Tobacco grows well
29
in sandy loom to clay loom type of soil. The soil texture of Kalihati Upazila varies from sandy
loom to clay loom. The soil texture of these villages under Kalihati Upazila is very suitable for
tobacco production and the temperature and rainfall is favorable for tobacco cultivation. The
marketing systems of villages are also good and there are well transportation and communication
system in the villages. These are the main reason for selecting these villages under Kalihati
Upazila.
30
Chapter 5
SOCIOECONOMIC CHARACTERISTICS OF THE SAMPLE
FARMERS
The aim of this chapter is to present a brief description of socioeconomic characteristics of the
farmers producing tobacco. Socioeconomic aspects of the farmers can be looked upon from
different points of view depending upon a number of variables related to their level of living, the
socioeconomic environment in which they live and the nature and the extent of the farmers
participation in national development activities. It was not possible to collect all the information
regarding the socioeconomic characteristics of the farmers affect their production pattern. In
order to get a complete picture of tobacco production, it is essential to know the socioeconomic
characteristics of tobacco growing farmers. Socioeconomic characteristics of tobacco growing
farmers affect their production patterns and technology use. For this reason, it is essential to
know their socioeconomic characteristics.
To examine the major socioeconomic characteristics
of tobacco growing farmers, various
information relating to age, family size and composition, educational status, occupational status,
farm size and ownership of agricultural equipment have been taken into account in this study.
5.1 Age Distribution
The age structure of the sample farmers was explained by classifying into four age groups: below
30, 30.01-40, 40.01-50 and above 50 years. Table 5.1 reveals that about 15 percent of tobacco
farmers fell into the less than 30 years of age group. About 21.67 percent were between 31-40
years, 46.67 percent were between 41-50 years and rest of the farmers belonged to above 50
years of age groups.
31
Table 5.1 Age Distribution of the Respondents

Age(years)
Small farmer
Medium farmer
Large farmer
All farmers
No
No
No
No
Less than 30
23.33
15
30.01-40.00
26.66
20
13
21.67
40.01-50.00
12
40
13
52
60
28
46.67
Above 50 years
10
20
40
10
16.67
Total
30
100
25
100
100
60
100
Source: Field Survey (2012).
5.2 Family Size of the Respondents
In the study, family size (member) has been defined as total number of persons living together
and taking meals from the same kitchen under administration of the same head of the family.
Most of the rural families are joint families and hence family size is large compare to urban
families. Family size was explained by classifying the families into three groups Small (0-5),
medium (6-8), and large families consisting of more than 8 members. Table 5.2 shows that
31.67 percent families of tobacco growers are small, 43.33 percent medium and those of 25
percent are large families.
Table 5.2 Family Sizes of the Respondents

Number of family
Small farmer
Medium farmer
Large farmer
All farmers
member
No
No
No
No
Small family(0-5)
11
36.67
28
20
19
31.67
Medium Family(6-8)
11
36.67
12
48
60
26
43.33
Large family(above 8)
26.67
24
20
15
25
All
30
100
25
100
100
60
100

32
5.3 Educational Status of the Respondents
Education may be defined as the ability of an individual to read and write or formal education
received up to certain standard.
Educational status affects the adoption of appropriate
technology and crop production. The government and various organizations placed greater
emphasis and extended special facilities for increasing the literacy rate in the study area.
Education helps a person to have day to day information about the modern techniques,
production costs and also production skills. To examine the educational status of tobacco
growing farmers, the educational status of the sample farmers was divided into four categories.
These were a. illiterate, b. primary level (class 1-5), c. secondary level (class 6-10), and d. above
secondary level of education. Those who cannot put signature, read and write were considered
as illiterate. It is evident from the Table 5.3 that 20 percent of the tobacco farmers are illiterate,
50 percent had primary education, 21.67 percent had secondary education and only 8.33 percent
had education above secondary level. Small farmers are more illiterate compare to other two
groups.
Table 5.3 The Educational Levels of the Tobacco Growers.

Level of education
Small farmers
Medium farmers
Large farmers
All farmers
No
No
No
No
Illiterate
10
33.33
12
20
Primary level
14
46.67
15
60
20
30
50
Secondary level
20
20
40
13
21.67
Above Secondary
12
40
8.33
30
100
25
100
100
60
100
level
Total
33
Age
70
60
50
40
30
20
10
0
60
52
23.33 40
26.66 10
Small farmer
Age(Less then 30)

Age(31-40)years
Age(41-50)years
40
46.67
20
8
20
16.67
15
21.67
0 0
Medium farmer Large farmer

Categories of Farmers
All farmers
Family Size
Figure 5.1 Bar Diagram Showing Age Distribution of Tobacco Farmers
70
60
50
40
30
20
10
0
36.67
26.67
31.67
28
24
48
36.67
Small family
25
43.33
20 60 20
Medium family
Large family
Small farmer Medium farmer Large farmer
All farmers
Caterories of Farmers
Education
Figure 5.2 Bar Diagram Showing Family Size of Tobacco Farmers
70
60
50
40
30
20
10
0
Illiterate
Primary level
Secondary level
33.33
46.67
20 0
Small farmer
60
8
40 40
20 12
0 20
Medium farmer
Large farmer
20 50
21.68.33
All farmers
Figure 5.3 Bar Diagram Showing Educational Level of Tobacco Growers

34
5.4 Occupational Status of the Tobacco Farmers
The work in which a man engaged more or less throughout the year is known as the occupation
of that person. Selected farmers of the study area were engaged in various occupations along
with tobacco cultivation. Table 5.4 represents the occupational status of the tobacco farmers in
the study area. Table shows that agriculture was the main occupation of the tobacco farmer.
Some were also engaged in small trading and services. Above all the sample farmers more than
70 percent were engaged in agriculture.
Table 5.4 Occupational Status of the Tobacco Farmers

Types of occupation
Small farmers
Medium
Large farmers
All farmers
farmers
Agriculture
25(83.33)
18(72)
2(40)
45(75)
Small business
4(13.33)
4(16)
2(40)
10(16.67)
Services
1(3.33)
3(12)
1(20)
5(8.33)
Total
30(100)
25(100)
5(100)
60(100)
Note: Figures within parentheses indicate percentage of total

5.5 Allocation of Land to Tobacco Cultivation
Land is the most important asset for farm household because farm families depend mainly on
their land for production of different crops. Allocation of land by tobacco farmers to cultivation
is shown in Table 5.5. Average cultivated land for small, medium and large farmers were 0.61,
1.61 and 3.64 hectare respectively. The areas under tobacco by small, medium and large farmers
were 0.20, 0.40 and 1.51 hectare respectively (Table 5.5). It may be noted that about 33.24
percent of the total cultivated land was allocated to tobacco cultivation. It was found that small
35
farmers allocated more land for tobacco production compared to medium farmers and large
farmers.
Table 5.5 Allocation of Land by Sample Farmers to Tobacco Cultivation

Categories
of
farmers
Number of the
Average
Area under
farmers
cultivated
Tobacco (ha)
Percentage (%)
land (ha)
Small farmers
30
0.61
0.20
33.18
Medium farmer
25
1.61
0.40
24.84
Large farmers
3.64
1.51
41.71
All farmers
60
1.95
0.70
33.24
36
90
83.33
80
75
72
Occupation
70
60
Agriculture
50
40 40
40
30
20
16
13.33
Small business
20
12
3.33
10
Service
16.67
8.33
Small farmer
Medium farmer
Large farmer
All farmers
Area (ha)
Figure 5.4 Bar Diagram Showing Occupational Status of Tobacco Farmers
4
3.5
3
2.5
2
1.5
1
0.5
0
3.64
Total cultivated land(ha)

Area under tobacco
1.95
1.61
0.61
0.2
Small farmer
1.51
0.7
0.4
Medium farmer
Large farmer
All farmers
Figure 5.5 Bar Diagram Showing Area Allocation for Tobacco Farmers
37
Chapter 6
COST AND RETURNS OF TOBACCO PRODUCTION
6.1 Introduction
Farmers in the study area did not maintain any written records of costs and return of cultivation
of tobacco. However, it is presumed, they possess a sharp memory and can calculate everything
in connection with their farm business. This chapter represents estimation of costs and returns of
tobacco production considering different groups of farms. It gives an average picture of relative
profitability of growing tobacco according to different farm groups.
For agricultural production, cost of inputs is an important element. Farmers decision about
production is mainly influenced by cost of inputs. Inputs used in the study areas were both
purchased and family supplied. Farmers had to pay cash for the purchased inputs like hired
labour, power tiller, seed, manure, fertilizer, insecticides, irrigation charge etc. It was easy to
calculate the costs of these items. On the other hand, no cash was actually paid for home
supplied. Labour costs were estimated by applying the opportunity cost principle. Opportunity
of an item is defined as an income, which an input is capable of earning in an alternative
employment in or outside the farm. The input items were valued at the existing market price in
the area during survey period or the price at which the farmers bought the inputs. For the
convenience of analysis, the costs items were classified into two groups: variable cost and fixed
cost.
6.2 Variable Costs
Variable costs are the costs of using the variable inputs. These costs vary with the level of
production. In tobacco production various input costs like hired labour cost, cost of fertilizer,
cost of power tiller, seedling cost, manure cost, irrigation cost and cost of insecticides are
considered as variable costs.
38
6.2.1 Costs of Hired labour
Both family and hired labour were engaged in tobacco production. Family member included the
farmer himself, other male and female members of the family. It was found that more labour
was engaged in seed sowing, weeding and harvesting of tobacco. The prevailing wage rate in the
market for hired labour was considered as the opportunity cost of family supplied labour and in
the study area average wage rate was Tk 250 per man-day. The use of hired labour in tobacco
production per hectare were estimated at 68, 65 and 60 man-days for small, medium and large
farmers, respectively (Table 6.1). The total cost of hired labour per hectare was estimated to be
Tk 17,000.00, 16,250.00 and 15,000.00 for small, medium and large farmers, respectively.
In the study area all the sample farmers used power tiller for their land preparation. Per hectare
cost for small, medium and large farms were Tk 5282, 5282 and 5282, respectively (Table 6.2),
and all of these costs constituted 8.38, 8.46 and 8.98 percent of the total cost, respectively.
However, considering all categories of farmers, power tiller cost for producing tobacco was Tk
5282.00 per hectare, which constituted 8.60 percent of average total costs (Table 6.2).
6.2.3 Cost of seed/seedlings
For sowing tobacco, 117.16 gms of tobacco seeds per hectare were used by the small farms,
127.38 gms per hectare by medium farms and 121.06 gms tobacco seeds per hectare by large
farms.
All the sample farmers, as stated before, were contract growers of the Akij Bidi
Company. Tobacco seeds were supplied by the Akij Bidi Company. For determining per hectare
seedling cost opportunity cost principle was followed in this study.
Per hectare costs of
seedlings for small, medium and large farmers were Tk 703.00, 764.00 and 726.00, respectively,
which represent 1.12, 1.22 and 1.13 percent of the total costs, respectively.
39
Table 6.1 Per Hectare Human Labour Cost of Tobacco Production

Items of operation
Small farmers
Medium farmers
Large farmers
All farmers
Human
Total
Human
Total cost Human
Total
Human
Total
labour
cost
labour
(Tk/ha)
labour
cost
labour
cost
(man-
(Tk/ha) (man-
(man-
(Tk/ha) (man-
days)
days)
days)
days)
(Tk/ha)
Land preparation
12
3000
11
2750
10
2,500
11
2750
Transplanting
24
6000
23
5750
21
5,250
22
5,500
Weeding
earthing up
and
16
4000
15
3750
13
3,250
14
3500
Fertilizer
insecticide
application
Irrigation
and
10
2500
2250
2,000
2250
2000
1750
1,500
1750
Tobacco cutting
27
6750
27
6750
26
6,500
27
6750
Tobacco cleaning,
13
3250
13
5485
11
2,750
13
5485
110
27,500
105
26,250
95
23,750
103
25,750
drying and storing

Total
Table 6.2 Per Hectare Power Tiller Cost of Producing Tobacco
Categories of farmers
Power tiller cost (Tk/ha)
Small farmers
5282
Medium farmers
5282
Large farmers
5282
All farmers
5282
40
Usually the farmers in the study areas used cowdung as manure for producing tobacco. Per
hectare costs of cowdung for small, medium and large farmers were Tk 124.00, 127.00 and
130.00, respectively, which represents 0.20, 0.20 and 0.22 percent of the total cost, respectively.
6.2.5 Cost of fertilizers
The sample farmers largely used Urea, Triple Super Phosphate (TSP), Muriate of Potash (MOP),
Gypsum, and Boron as fertilizer for tobacco production. Per hectare costs of fertilizer were Tk
9932.00, 10,036.00 and 10,133.00 for small, medium and large farmers, respectively, which
constituted and percent of the total cost respectively (Tables 6.3, 6.4 and 6.5). However overall
cost of fertilizer for tobacco production was calculated Tk 10,034.00 per hectare, which covered
the 16.33 percent of the average total cost (Table 6.6).
6.2.6 Cost of insecticides
All the sample farmers used insecticide in tobacco production. In applying insecticides, the
farmers used their past experiences and also advice given by the concerned officials of Akij Bidi
Company Most of the sample farmers used liquid insecticides. Per hectare cost of insecticides
was Tk 2184.00, 2184.00 and 2184.00 for small, medium and large farmers, respectively.
However overall cost of insecticides for tobacco production was calculated Tk 2184.00 per
hectare, which covered the 3.56 percent of the average total cost.
6.2.7 Cost of irrigation water
Irrigation is considered as the leading input of production of any agricultural crops. Right doses
of application of irrigation water help to increase production. Per hectare cost of irrigation for
tobacco production were Tk 4940.00, 5192.00 and 5311.00 for small, medium and large farmers,
respectively, which constituted 7.84, 8.32 and 9.03 percent of the total cost, respectively (Tables
41
6.3, 6.4, 6.5). However, irrespective of categories of farmers average per hectare cost of
irrigation for tobacco production was Tk 5076.00 per hectare, which covered the 8.27 percent of
the average total cost (Table 6.6).
6.3 Fixed Costs
Fixed costs are those cost which do not change in magnitude as the amount of output changes
and are incurred even when production not undertaken. Fixed costs included family labour cost,
land use costs and interest on operating capital. Thus, only family labour cost, the land use cost
and interest on operating capital were considered as fixed cost for tobacco production.
6.3.1 Family labour cost
As regarded the production of tobacco, Family labour cost per hectare was calculated as Tk
10,500.00 for small farms, Tk 10,000.00 for medium farms and Tk 8750.00 for large farms
constituting 16.66 percent, 16.02 Percent and 14.88 percent of the total costs, respectively
As regarded the production of tobacco, the interest on operating capital per hectare was
calculated as Tk 3363.00 for small farms, Tk 2861.00 for medium farms and Tk 2316.00 for
large farms constituting 5.33 percent, 4.58 Percent and 3.94 percent of the total costs,
respectively.
6.3.3 Land use cost
Considering all the sample farmers per hectare average land use cost was Tk 8636.00 which
shared 14.06 percent of the total cost of tobacco production. Land use cost was estimated for 6
months period as per prevailing rate in the study areas. Moreover land use cost was almost same
on an average for all categories of farmers in the study areas. It may be noted that there was
small variation of fixed cost among different categories of farmers.
42
Table 6.3 Fixed Cost Per Hectare of Tobacco Production

Items of fixed
cost
Family labour
Interest on
operating capital
Land use cost
Total fixed cost
Small farmers
Medium farmers
Large farmers
All farmers
(Tk/ha)
(Tk/ha)
(Tk/ha)
(Tk/ha)
10,500
10,000
8750
9750
3363
2861
2316
3067
8982
9730
8982
8636
22,845
22,591
20,048
21,828
6.4 Gross cost/Total cost
Gross cost was calculated by adding all the costs of variable and fixed inputs. In the present
study per hectare gross costs of producing tobacco were Tk. 63,010.00, 62,426.00 and 58,814.00
for small, medium and large farmers, respectively and average gross cost of producing tobacco
was Tk 61,417.00 (Table 6.8). It was found that the highest and lowest costs per hectare were
occurred in small and large farms, respectively.
6.5 Gross return
Per hectare gross return was calculated by multiplying the total amount of products by average
farm gate price. Per hectare yields of tobacco were 1741, 1795 and 1891 kg for small, medium
and large group of farmers, respectively and their respective values were calculated at Tk
120,705.00, 120,975.00 and 121,455.00, respectively. The average yield of tobacco per hectare
was 1776 kg and its respective value was calculated at Tk 120,880.00 (Table 6.8). It may be
noted that here that the price of tobacco was reported to be Tk. 75 per kg which was the average
farm gate price in the study areas.
43
Bar diagram ofGross return

Gross return
121500
121000
120500
121455
120705
120975
120880
120000
Small farmer
Medium
farmer
Large farmer
Type of Farmer
Figure 6.1 Gross returns of All Categories of Farmer
44
All farmers
Table 6.4 Per Hectare Cost of Tobacco Production for Small Farmers
Cost items
Unit
Quantity
Price/unit
Cost
% of
(Tk)
(Tk/ha)
total
250
17,000
26.98
Power tiller
5282
8.38
Seedling
703
1.12
124
0.20
9932
15.76
A. Variable cost
Hired Labour
Manure
Man-day
kg/ha
68
207
0.6
Fertilizers
Urea
kg/ha
107
20
2140
TSP
kg/ha
86
22
1892
MOP
kg/ha
64
15
960
Gypsum
kg/ha
61.75
3705
Boron
kg/ha
6.17
200
1235
Insecticides
2184
3.47
Irrigation
4940
7.84
40,165
63.74
10,500
16.66
Interest on operating capital
3363
5.33
Land use cost
8982
14.25
Total fixed cost
22,845
36.26
Total cost (A+B)
63,010
100
Total Variable cost

B. Fixed cost
Family labour
Man-day
45
42
250
Table 6.5 Per Hectare Cost of Tobacco Production for Medium Farmer
Cost items
Unit
Quantity
Price/unit
Cost
% of
(Tk)
(Tk/ha)
total
250
16250
26.03
Power tiller
5282
8.46
Seedling
764
1.22
127
0.20
10,036
16.08
A. Variable cost
Hired labour
Manure
Man-day
kg/ha
65
212.42
0.6
Fertilizers
Urea
kg/ha
109
20
2180
TSP
kg/ha
87
22
1914
MOP
kg/ha
67
15
1005
Gypsum
kg/ha
61.75
3705
Boron
kg/ha
6.17
200
1235
Insecticides
2184
3.50
Irrigation
5192
8.32
39,835
63.81
10,000
16.02
2861
4.58
Land use cost
9730
15.59
Total fixed cost
22,591
36.19
Total cost (A+B)
62,426
100
Total Variable cost

B. Fixed cost
Family labour
Man-day
46
40
250
Table 6.6 Per Hectare Cost of Tobacco Production for Large Farmers
Cost items
Unit
Quantity
Price/unit
Cost
% of
(Tk)
(Tk/ha)
total
250
15000
25.50
Power tiller
5282
8.98
Seedling
726
1.23
130
0.22
10,133
17.23
A. Variable cost
Hired labour
Manure
Man-day
kg/ha
60
217.36
0.6
Fertilizers
Urea
kg/ha
119
20
2200
TSP
kg/ha
89
22
1958
MOP
kg/ha
69
15
1035
Gypsum
kg/ha
61.75
3705
Boron
kg/ha
6.17
200
1235
Insecticides
2184
3.71
Irrigation
5311
9.03
38,766
65.91
8750
14.88
2316
3.94
Land use cost
8982
15.27
Total fixed cost
20,048
34.09
Total cost (A+B)
58,814
100
Total Variable cost

B. Fixed cost
Family labour
Man-day
47
35
250
Pie chart of production cost of Small farmers

5.33
14.25
26.98
16.66
8.38
7.84
15.76
1.12
0.2
3.47
Hired labour cost

Power tiller cost
Seed cost
Manure cost
Fertilizer cost
Insecticide cost
Irrigation cost
Family labour cost
Land use cost
Figure 6.2 Production Cost of Small Farmer
Pie chart of production cost of Medium farmers

4.58
15.59
26.03
16.02
8.46
8.32
3.5
16.08
1.22
0.2
Hired labour cost

Power tiller cost
Seedling cost
Manure cost
Fertilizer cost
Insecticide cost
Irrigation cost
Family labour cost
Land use cost
Figure 6.3 Production Cost of Medium Farmer

Pie chart of production cost of Large farmers Hired laour cost
Power tiller cost
Seed cost
3.94
15.27
25.5
Manure cost
Fertilizer cost
14.88
8.98
Insecticide cost
9.03
Irrigation cost
17.23
Family labour cost
1.23
3.71
0.22
Land use cost
Figure 6.4 Production Cost of Large Farmer
48
Table 6.7 Per Hectare Cost of Tobacco production for All Categories of Farmers
Cost items
Small
Medium
Large farmers
All farmers
Farmers
farmers
(Tk/ha)
(Tk/ha)
(Tk/ha)
(Tk/ha)
17,000
16,250
15000
16,083
Power tiller
5282
5282
5282
5282
Seedling
703
764
726
730
Manure
124
127
130
126
Fertilizers
9932
10,036
10,133
10,034
Insecticides
2184
2184
2184
2184
Irrigation
4940
5192
5311
5148
40,165
39,835
38,766
38,589
10,500
10,000
8750
9750
3363
2861
2316
3067
Land use cost
8982
9730
8982
8636
Total fixed cost
22845
22591
20,048
21,828
Total cost (A+B)
63,010
62,426
58,814
61,417
A. Variable cost
Hired Labour
Total Variable cost

B. Fixed cost
Family labour
6.6 Gross margin
Gross margin is the gross cost over the variable cost. Gross margin is obtained by deducting
total variable cost from gross return. Per hectare gross margin were estimated at Tk 80,540.00,
81,140.00 and 82,689.00 for small, medium and large farmers, respectively. However, average
per hectare gross margin of producing tobacco was calculated Tk 81,456.00.
49
Table 6.8 Per Hectare Yield, Gross Return, Gross Margin, Net Return and BCR of Tobacco
Production
Particulars
Small farmers
Medium farmers
Large farmers
All farmers
1741
1795
1891
1776
Gross return (Tk/ha)
120,705
120,975
121,455
120,880
Total variable cost

(Tk/ha)
Total cost (Tk/ha)
40,165
39,835
38,766
38,936
63,010
62426
58,814
61,417
Gross margin(Tk/ha)
80,540
81,140
82,689
81,456
Net return (Tk/ha)
57,695
58,549
62,641
60,116
1.91
1.93
2.07
1.99
Yield (kg/ha)
BCR (Undiscounted)
Sources: Adopted from Tables 6.4, 6.5, 6.6 and 6.7.
6.7 Net return
Per hectare net returns were calculated at Tk 57,695.00, 58,549.00 and 62,641.00 respectively,
for farm size groups of small, medium and large, and its average net return per hectare was Tk
60,116.00. The result presented in the tables indicates that tobacco is a profitable cash crop but
there is a difference in profitability among individual farm groups. It can be seen from Table 6.8
that the large farmers made the highest amount of profit while the medium farmers earned the
lowest amount of profit from their tobacco production (Figure 6.5).
50
Gross margin and Net return

(Tk/ha)
Bar diagram of Gross margin and Net return

90000
80000
70000
60000
50000
40000
30000
20000
10000
0
80540
82689
81140
57695
58549
62641
81456
60116
Gross margin
Net return
Small farmer Medium farmer Large farmer

Type of Farmer
All farmers
Figure 6.5 Diagram Showing the Gross margin and Net return
6.8 Benefit-Cost Ratio (Undiscounted)
Benefit-cost ratio (BCR) is a relative measure, which is used to compare benefit per unit of cost.
In the study, BCR of tobacco was calculated as a ratio of gross return and gross cost. Per hectare
BCRs were estimated at 1.91, 1.93 and 2.07 for small, medium and large group of farmers,
respectively. However, average per hectare BCR of producing tobacco was calculated at 1.99
(Table 6.8).
51
Chapter 7
FACTORS AFFECTING THE PRODUCTION OF TOBACCO
This chapter contains specification and estimation of a model through a regression analysis to
identify the major variables affecting of tobacco cultivation. Gross return of tobacco (Y) has
been thought to be explained by seven variables namely, labour cost (x 1 ), cost of power tiller
(x 2 ), Seedling cost (x 3 ) manure cost (x 4 ), fertilizer cost (x 5 ), irrigation cost (x 6 ), and insecticide
cost (x 7 ).
7.1 Selection of the Model
Various functional models can be used in multiple regression analysis. Functional analysis was
used to reveal the quantitative relationships between dependent variables and set of explanatory
variables. To determine the effects of the explanatory variables, linear and Cobb-Douglas
production function model were initially estimated for tobacco production.
The log-linear
(Cobb-Douglas) model proved superior on theoretical and economical grounds. This model was
accepted before final selection of functional form, several runs were tested by inclusion and
rejection of different variables. The Cobb-Douglas model was better fitted in terms of expected
signs and magnitudes of the coefficient, R2 and F-values. So the parameter estimates obtained
from Cobb-Douglas production function model were selected for interpretation.
7.2 Interpretations of Input Coefficients
Seven explanatory variables were taken into consideration for production function analysis of the
farmers efficiency in tobacco production. The numbers of large farmers were very small, so
statistical analysis for large farmer was not possible. The independent impacts of each of the
variables on gross income for producing tobacco by each category of farmers are interpreted
below:
52
7.2.1 Human labour cost (X 1 )

The magnitudes of the coefficients of human labour cost for tobacco production were positive
and significant for small and all farmers, respectively. For small and all farmers the coefficients
were significant at one percent level. It indicates that holding other factors constant one percent
increase in cost of human labour would increase the gross return by 0.725 and 0.378 percent for
small and all farmers respectively.
7.2.2 Power tiller cost (X 2 )
It can be seen that from Table 7.1 that regression coefficient of Power tiller cost for tobacco
production were 0.016, 0.368 and 0.145 for small, medium and all farmers, respectively. The
coefficients of power tiller cost were positive and significant at one percent level of significance
for medium farmer and ten percent level of significance for all farmers. The coefficient indicate
that holding other factors constant one percent increase in cost of power tiller would increase the
gross return by 0.016, 0.368 and 0.145 percent for small, medium and all farmers respectively.
7.2.3 Seedling cost (X 3 )

There was no significant impact of Seedling cost on gross return from tobacco production in the
study areas. The relationship between Seedling cost and gross return was not statistically
significant.
7.2.4 Manure cost (X 4 )

There was no significant impact of Manure cost on gross return from tobacco production in the
study areas.
The relationship between Manure cost and gross return was not statistically
significant.
53
7.2.5 Fertilizer cost(X 5 )

Table 7.1 shows that the regression coefficient of fertilizer cost were positive for small and all
farmers and significant at one percent level which indicates that holding others factors constant,
one percent increase in fertilizer cost would increase the gross return by 0.565 and 0.525 percent.
However, the coefficient of fertilizer cost 0.291 for medium farmers was not statistically
significant.
7.2.6 Irrigation cost (X 6 )

The magnitudes of the coefficients of irrigation cost for tobacco production were positive and
significant for medium and all farmers, respectively.
For medium and all farmers the
coefficients were significant at one percent level. It indicates that holding other factors constant
one percent increase in cost of irrigation would increase the gross return by 0.482 and 0.313
percent for medium and all farmers respectively. For small farmer the coefficient of irrigation
cost was -0.052 which was not statistically significant.
7.2.7 Insecticide cost (X 7 )

There was no significant impact of Insecticide cost on gross return from tobacco production in
the study areas. The relationship between Insecticide cost and gross return was not statistically
significant.
54
Table 7.1 Estimated values of Coefficient and Related Statistics of Cobb-Douglas Production
Function Model for Tobacco Production
Explanatory variable
Small farmer
Medium farmer
All farmers (Small +

Medium + Large)
3.048
3.472
2.536
(0.249)
(0.066)
(0.006)
Human labour cost
0.725**
0.186
0.378**
(X 1 )
(0.000)
(0.515)
(0.001)
0.016
0.368**
0.145***
(0.943)
(0.006)
(0.068)
-0.185
0.036
-0.035
(0.211)
(0.828)
(0.686)
0.014
-0.154
-0.166
(0.947)
(0.568)
(0.133)
0.565**
0.291
0.525**
(0.002)
(0.173)
(0.000)
-0.052
0.437**
0.274**
(0.790)
(0.003)
(0.005)
-0.103
0.036
-0.021
(0.619)
(0.248)
(0.831)
0.881
0.808
0.792
23.350**
10.212**
28.355**
0.98
1.2
1.1
Intercept
Power tiller cost (X 2 )
Seed cost (X 3 )
Manure cost (X 4 )
Fertilizer cost (X 5 )
Irrigation cost (X 6 )
Insecticide cost (X 7 )
R2
F-value
Returns to scale
Note: Figure within the parenthesis indicates standard errors.

**Significant at 1% level
* Significant at 5% level
*** Significant at 10% level
55
7.3 Value of R2
The coefficients of multiple determinations R2 of the model were 0.881, 0.808 and 0.792 for
small, medium and all farmers, respectively. R2 of 0.881 for small farmer in tobacco production
indicate that about 88 percent of variations in gross return from tobacco production have been
explained by the explanatory variables, which were included in the model.
R2 of 0.808 for medium farmer indicate that about 80 percent of total variation in gross return
from tobacco production could be explained by the explanatory variables included in the model.
R2 of 0.792 for all farmers indicate that about 79 percent of total variation in gross return from
tobacco production could be explained by the explanatory variables included in the model.
7.4 Goodness of Fit (F-value)
The F-value of the estimated production function were significant at one percent probability
level for small, medium and all farmers respectively (Table 7.1), which implies good fit of the
models. That is, all explanatory variables included in the model were important for explaining
the variation of tobacco production.
7.5 Returns to Scale (b i )

The summations of all the regression coefficients of the estimated production function of tobacco
were 0.98, 1.2 and 1.1 for small, medium and all farmers respectively (Table 7.1). The results
indicate that the production functions exhibits decreasing returns to Scale. In these cases, if all
the variables specified in the production function were increased by one percent, production
would increase by 0.98, 1.2 and 1.1 percent for small, medium and all farmers respectively.
It is evident from Cobb-Douglas production function model that the key variables included in the
model were individually or jointly responsible for variation in gross returns of tobacco
production.
56
Chapter 8
PROBLEMS FACED BY THE TOBACCO FARMERS
Agriculture of Bangladesh has got a number of problems. Farmer faced a lot of problems in
producing tobacco. The problems and constraints faced by the farmers were identified according
to opinions given by them. For the sake of analytical convenience the problems and constraints
were classified into three general groups:
i.
Economic and technical problem;
ii.
Marketing problem; and
iii.
Social problem
In this chapter, an attempt has been made to identify the major problems as well as constraints
related to tobacco production and its marketing. Nevertheless, the most common and crucial
problems of farmers are discussed below.
8.1 Economic and Technical Problem
It was observed that farmers faced some economic and technical problems and constraints
relating to the production of tobacco. Following are the major economic and technical problems
faced by the farmers in tobacco production are discussed below:
8.1.1 Lack of scientific Knowledge of farming
Although modern agricultural technologies have been using in the study area, a large number of
farmers have no adequate knowledge of right doses and methods of using inputs and
technologies of producing tobacco.
In the study area 58 percent tobacco farmers were
encountered this problem.
57
8.1.2 Lack of adequate institutional credit
Production of tobacco needs proper doses of fertilizer, irrigation and special agronomic care.
Therefore tobacco farmers should have enough money to buy the necessary inputs. Given the
fact that sample farmers were contract growers of Akij Bidi Company, they received seeds and
fertilizer on credit only. The farmers had to buy the other inputs on cash payment for which they
needed cash money and often they failed to apply the required inputs. In some cases, it was
found that farmers borrowed money from non institutional sources e.g. money lenders, at high
rate of interest. In the study area about 57 percent farmers mentioned this problem.
8.1.3 Lack of irrigation facilities
About 77 percent of the respondents reported that they faced irrigation problem in tobacco
cultivation due to higher charge of irrigation water and in some cases non availability of
irrigation facilities.
8.1.4 High price of fertilizer
Fertilizer was a vital input in the production of tobacco. On average 80 percent tobacco farmers
in the study area mentioned that they had to purchase fertilizer through Akij Bidi Company at a
high price.
8.1.5 Lack of power tiller
Power tiller is one of the most important input for production of tobacco. 65 Percent tobacco
farmers reported that due to lack of power tiller they failed to till land in time (Table 8.1).
58
According to the respondent opinion, one serious problem of tobacco production was the
marketing problem. In the study area, most of the farmers had to sell their product to the Akij
Bidi Company. There were some problems relating to the marketing of tobacco which is
highlighted below:
8.2.1 Lower price of tobacco and tobacco by-products
In the study area, all the farmers sold their tobacco to the Akij Bidi Company and sold the
tobacco by-products in the open market. Sometimes Akij Bidi Company fixed the tobacco price
at a low rate and the farmers had to face low price problem. In the study area about 63 percent
farmers mentioned this problem.
8.2.2 Lack of transport/communication facilities
About 50 percent farmers reported that due to transportation problem, they often had to sell their
by-products at home at lower prices. Farmers also mentioned that they could not take advantage
of higher prices prevailing at distant market due to lack of transportation facilities.
8.2.3 Lack of storage facilities
There was a lack of storage facility for tobacco growers in the study area. Most of the products
were sold just after harvest at a low price due to lack of proper storage facilities. Around 60
percent of the sample farmers stated that they did not have storing facilities and could not
therefore hold their product for receiving good price in future.
59
8.3 Social Problem
Tobacco production is a labor intensive culture. The women have to work hard in the tobacco
field during growing stage. The work load increase further during harvest and curing of tobacco
leaves in the kilns. Tobacco curing in the kilns is a continuous work for day and night without
any beak. This tedious work is done mainly by women. The mothers of the small babies do not
have time to care for their milking babies. The babies sometimes become unconscious after
taking milk from the mothers who were constantly involved in the processing of tobacco leaves.
Such mothers are confronted whether to attend the sick babies or to continue the on-going work
of tobacco processing. Many women in the village become sick in the tobacco season because of
their continuous work with tobacco, without proper rest.
The school going children cannot go to schools for their engagement in the tobacco related
activities. They go to tobacco fields early in the morning. Sometimes they have to forget
breakfast and bath. Sometimes they become sick in the field and are taken to hospital.
Women are the worst affected by tobacco related illness. They suffer from ulcer, cancer, tumor
and complex eye diseases.
Tobacco cultivation has been posing a serious threat to food
sovereignty in Bangladesh. Tobacco is a poison.
The sap of the green tobacco leaves is
poisonous for eye. Direct contact on eyes cause irritation and develops complex diseases.
60
Table 8.1 Problems and Constraints of Producing Tobacco
Problems and constraints
Tobacco farmers
No
Percent
Lack of scientific Knowledge of farming
35
58.33
Lack of adequate institutional credit
34
57
Lack of irrigation facilities
46
77
High prices of fertilizer
48
80
Lack of power tiller
39
65
Lower price of Tobacco and Tobacco By-products
38
63
Lack of transport/communication facilities
30
50
Lack of storage facilities
36
60
8.3 Social Problem
42
70
8.1 Economic and technical problems
61
Chapter 9
SUMMARY, CONCLUSION AND RECOMMENDATIONS
This chapter presents the summary, conclusion and recommendations of the study. In presenting
the summary, contents from different chapter are discussed in brief.
9.1 Summary
Tobacco is an ancient and the most important and widely grown commercial non-food crop in
the world. This is also a major tropical cash crop of considerable economic significance to
Bangladesh. In Bangladesh, tobacco has a prestigious and significant position in terms of
economy where about 2-3 million people are employed for its production, processing and
marketing. Tobacco earns foreign currency which occupies 4th position after jute, sugarcane,
and tea.
Commercial cultivation of tobacco was initiated in this country in 1964. Later on tobacco
cultivation was extended to Kushtia district. Very soon the yield and quality of tobacco recorded
a declining. At this stage the tobacco companies moved to Bandarban and Coxsbazar districts.
Another reason for shifting tobacco production to new areas is that curing of tobacco leaves
requires huge quantities of fuel wood. The latest extension of tobacco has taken place in
Chalanbeel, Natore, Jessore, Jhenaidoh, Lalmonirhat, Rajbari, Manikyanj and Tangail.
In
Bangladesh, various types of tobacco such as Dark Virginia Gold, Motihari, Jyoti, etc. are
grown. Among this variety, Virginia is the most popular variety for the companies. British
American Tobacco (BAT) Company has introduced the Flue cured Virginia in 1967 on an
experimental basis and by 1976 it started producing it commercially. It is one of the very few
crops entering world trade entirely on a leaf basis. It is the most widely grown commercial nonfood plant in the world. It holds a high importance in financial and economic policies in our
countries.
In Bangladesh, mainly British American Tobacco Bangladesh Company Limited (BATB) has
been operating as the major sponsor or contractor of contract farming in the tobacco cultivation
62
for many years. Through the contract farming agreement, BATB provides credit to the farmers
in the form of seeds, fertilizer, pesticides and technical support.
The farmers are usually
obligated to sell tobacco leaf to the company at a set price.

The study was undertaken with a view to analyzing the relative profitability of growing tobacco
in the area of Tangail district. This study was designed to achieve the following specific
objectives:
i.
to identify the socio-economic characteristics of the tobacco farmers in the study areas;
ii. to assess the relative profitability of producing tobacco under different categories of farms;
iii. to identify the major problems facing the farmers during the production of Virginia tobacco;
iv. to estimate the contribution of important variables in the production processes of tobacco;
and
v. to suggest some policy guideline.
The study is mainly based on primary data, which were collected by the researcher herself
through direct interviewing the sample farmers. In order to achieve the objectives, survey was
conducted in four villages namely Gobindopur, Bollobpur, soratoil, Dobugati under Kalihati
Upazila of Tangail district. Primary data were collected from 60 farmers which constituted 30
small, 25 medium and 5 large farmers respectively. A random sampling was followed. An
interview schedule was prepared to record the relevant information in accordance with objectives
set by the study.
Data were collected by comprehensive interview schedule.
The collected data were then
summarized for each of the farm size groups. Simple statistical technique as well as CobbDouglas production function were used to process and analyzed the data to achieve the
objectives of the study.
In studying socioeconomic characteristics, family size and age group, educational status,
occupation, land size were considered. About 80 percent of the tobacco growers were educated
where the majority had primary level education. Most of the farm families were medium
included (6-8) members. This study also reveals that agriculture is the main occupation of all the
selected farmers under different farm size groups.
63
Costs and returns were calculated to compare the income earning under different farm size
groups i.e., small, medium and large. Cost items were identified as human labour, power tiller,
seedling, manure, fertilizer, irrigation, insecticide, interest on operating capital and land use cost.
All these cost were than accounted for one production period of tobacco. In chapter 6 costs and
returns were assessed to find out the net returns from different categories of farmers. Per hectare
gross return of small, medium and large group of farmers were calculated at Tk 120,705.00,
120,975.00 and 121,455.00 respectively. Total costs of different categories of farmers were
calculated at Tk 63,010.00, 62,426.00 and 58,814.00, respectively and per hectare gross margin
were Tk 80,540.00, 81,140.00 and 82,689.00, respectively. Net returns of different categories of
farmers were calculated at Tk 57,695.00, 58,549.00 and 62,641.00 for small, medium and large
farmers respectively. And BCR came out to be 1.91, 1.93 and 2.07 respectively. Per hectare
average net returns of all farmers were Tk 60,116.00 and BCR was 1.99 which shows that
tobacco production is profitable in the study areas.
The value of R2 for all farmers was 0.792. It indicates that about 79 percent of total variations of
tobacco production could be explained by the explanatory variables included in the model. The
F-value (28.355) of the estimated production function for all farmers was significant at one
percent profitability level, which implies good fit of the model. That is all the explanatory
variables included in the model were important for explaining the variation of tobacco
production. Efficiency analysis indicated that most of the farmers inefficiently used their inputs.
Some of them made exclusive and some of them made less use of these inputs.
Although the farmers in the study area operated under contract farming system, they faced a few
problems i.e. lack of proper loan facilities, high price of fertilizers, lack of storage facilities and
lower price of tobacco products.
64
9.2 Policy Recommendation
On the basis of findings, the following recommendations are made:

I.
The results of the analysis indicated that human labour, power tiller, fertilizer and
irrigation had significant impact to increase tobacco production. But the costs of these
inputs are very high. So the government should provide all possible help to supply
required inputs and other necessary support to the farmers to increase tobacco production
significantly; and
II.
Tobacco farmers were insufficiently aware about the benefits of tobacco cultivation and
afraid to invest in tobacco cultivation due to insufficient information on tobacco farming
and marketing techniques. Tobacco is a profitable cash crop. This message should be
well circulated to the farmers in different areas.
9.3 Limitation of the Study
The study suffers from some limitations

I.
Shortage of adequate time compelled the researcher not to include large number of
farmers;
II.
The limited scope of the academic research was another constraint which did not enable
the researcher to penetrate deeper into the problem; and
III.
Farmers provide necessary information from their memories because most of the farmers
did not keep data.
Despite a few limitations, the findings of the present study may provide some variable
information to the decision makers, extension workers, farmers and researchers.
9.4 Scope for Future Study
Although the present study is intended to provide some valuable information for the guidance of
farmers, extension workers, policy makers as well as researcher, it is not free from criticism.
Due to limitation of time and resources, this study could not cover some important areas. The
65
weaknesses of the present study, of course, open avenues for further research which are given
below:
I.
Acreage response, growth and instability of tobacco production can be studied with
respect of Bangladesh; and
II.
In the present study some specific variables considered, but the further research might be
conducted on some other variables influencing tobacco production.
66
REFERENCES
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Jhenidah District of Bangladesh, MS Thesis, Bangladesh Agricultural University,
Mymensingh
Ahmed, H and Hossain, A M. M (1977), Production and marketing of tobacco and potato in
some selected areas of Rangpur District. Bangladesh Journal of Agriculture. 1(2).
Ahmed, H. (1974), Production and marketing of tobacco in some selected areas of Rangpur
District. An unpublished MS. Thesis, Faculty of Agricultural Economics and Rural
Sociology, Bangladesh Agricultural University, Mymensingh
Ahmed, M.A. (1977), An investigation into the economics of Virginia tobacco production in
some selected areas of Rangpur District, MS Thesis, Bangladesh Agricultural
University, Mymensingh
Akhter, F. (2011), Tobacco Cultivation and its impact of food Production in Bangladesh,
UBINIG.
Barma, D. (1998), An economic analysis of tobacco production in some selected areas of
Lalmonirhat District, MS Thesis, Bangladesh Agricultural University, Mymensingh.
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(2008),
Statistical Yearbook of Bangladesh, Bangladesh Bureau of Statistics, Statistics
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Dhaka.
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(2010),
Statistical Yearbook of Bangladesh, Bangladesh Bureau of Statistics, Statistics
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Dhaka.
BRAC (2002), To Produce and not to Produce: Tackling the Tobacco Dilemma , Research
and evaluation Division, Dhaka, Bangladesh.
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Hossain, M.M. (1998), A study on tobacco marketing in Bangladesh. An unpublished MS

Thesis, Department of Cooperation and Marketing, Bangladesh Agricultural University,
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Mymensingh.
Islam (1982), An economic study of virginia tobacco production in some selected areas of
Daulatpur Thana in Kushtia District, MS Thesis, Bangladesh Agricultural University,
Mymensingh.
Jabber (1975), A comparative economic study of The production of virginia and local varieties
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Rangpur District,
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Kori, N. (2008), Contract Farming in Bangladesh: Political economy of tobacco Cultivation and
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Regeneration of Popular Tobacco Varieties of Bangladesh from leaf disc, Bangladesh J.
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Rahman, M.L., Rahman, M.M, and Jaim, W.M.H. (1985), Financial Structure and Practices of
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AN ECONOMIC ANALYSIS OF VIRGINIA TOBACCO PRODUCTION IN

SOME SELECTED AREAS OF KALIHATI UPAZILA IN TANGAIL

Examination Roll No.: 10 Ag. Econ. (PE) JD-13 M

MASTER OF SCIENCE (MS)

DEPARTMENT OF AGRICULTURAL ECONOMICS

AN ECONOMIC ANALYSIS OF VIRGINIA TOBACCO PRODUCTION IN

Examination Roll No.: 10 Ag. Econ. (PE) JD-13 M

Submitted to the Department of Agricultural Economics,

MASTER OF SCIENCE (MS)

AN ECONOMIC ANALYSIS OF VIRGINIA TOBACCO PRODUCTION IN

Examination Roll No.: 10 Ag. Econ. (PE) JD-13 M

(Professor Tofazzal Hossain Miah)

(Professor Dr. Md. Taj Uddin)

(Associate Professor Dr. Sadika Haque)

Based on the findings of the study, some

ACRONYMS AND ABBREVIATIONS

1.2 Contribution of Tobacco in the Economy of Bangladesh

1.3 Effect of Tobacco Consumption on Human Health

1.4 Justification of the Study

1.5 Objectives of the Study

1.6 Significance of the Study

1.7 Plan of the Study

3 METHODOLOGY OF THE STUDY

3.2 Selection of the Study Area

3.3 Selection of Sample Farmers

3.4 Preparation of Survey Schedule

3.5 Data Collection Method

3.6 Processing, Tabulation and Analysis of Data

Period of the survey

3.8 Analytical Technique

3.8.1 Descriptive Statistics

3.8.2 Profitability analysis

3.8.3 Cobb-Douglas production function model

3.9 Problems Faced During Data Collection

3.10 Estimation of Cost Items

3.10 1 Cost of human labour

3.10 2 Cost of power tiller

3.10.3 Cost of seeds

3.10.4 Cost of manure

3.10.5 Cost of fertilizers

3.10.6 Cost of irrigation

3.10.7 Cost of insecticide

3.10 8 Interest on operating capital

3.10.9 Land use cost

4 DESCRIPTION OF THE STUDY AREA

4.2 Soil, Climate, Temperature and Rainfall

4.3 Area and Population of Kalihati Upazila

4.4 Agriculture and Main Crops

4.5 Religious, Educational and Institutional Facilities

4.6 Communication, Transport and Marketing Facilities

4.7 Topography and Sustainability of Selecting this Study Area

5 SOCIOCONOMIC CHARACTERISTICS OF THE SAMPLE FARMERS

5.1 Age Distribution

5.2 Family Size of the Respondents

5.3 Educational Status of the Respondents

5.4 Occupational Status of the Tobacco Farmers

5.5 Allocation of Land to Tobacco Cultivation

6 COSTS AND RETURNS OF TOBACCO PRODUCTION

6.2 Variable Costs

6.2.1 Costs of hired labour

6.2.2 Cost of power tiller

6.2.3 Cost of seedling