University of zimbabwe faculty of social studies department of economics

1
CHAPTER ONE
INTRODUCTION AND BACKGROUND
1.0 Introduction
Tobacco production has been an important agricultural activity across the world. It forms the backbone of the agricultural sector inmost developing countries like Zimbabwe because of its high profitability, contribution to national income and employment generation (Food and Agriculture Organisation (FAO), 2012). Agricultural supply response represents change in agricultural output to a change in output price
(Askari and Cummings, 1977). It is a dynamic concept rather than a static concept because it quantity supplied is a function of expected prices, adjusted output and other exogenous variables. It can be analysed from the point of view of aggregate output, sub-sectoral output and individual crop output hence. According to Mamingi (1996), examining the responsiveness of agricultural output to price changes is of great importance because responses vary from one farmer to the other. In addition, farmers face alternatives in response to price changes and for any price change, farmers decide whether to produce food crops for consumption, produce cash crops or engage in other off-farm activities in times of falling output prices. According to economic theory of supply, given a price responsive commodity, holding other factors constant, output increase if producer price increases or if it is expected to be high. In relation to this, the Cobweb theory postulates that farmers have static expectations that is output production decisions are made with reference to past price experiences. The concept of agricultural supply response has been an area of interest for many researchers across the world. Most studies have proved that agricultural output inmost developing countries is relatively unresponsive to price changes. Leaver (2004), Thiele (2002) and Dean (1966) have also found that agricultural crop supply is relatively unresponsive to price changes in Zimbabwe, Sub-
Saharan Africa and Malawi, respectively. However, Townsend and Thirtle (1997) and
Muchapondwa (2008) found out that tobacco output is responsive to price changes in the long- run and short-run in Zimbabwe, respectively. Therefore, this study seeks to reexamine whether tobacco supply in Zimbabwe respond to price changes or not using a different time period as compared previous studies.

2 From a historical perspective, the tobacco sector in Zimbabwe has been free from government interventions and all prices are auction market determined. Tobacco prices have been fluctuating since 1980 causing supply of tobacco to fluctuate. Following independence in 1980, tobacco supply increased to 120 000 tonnes, with hectarage planted rising to over 57 000 hectares and also number of tobacco growers rose to over 1500 (Tobacco Industry and Marketing Board
(TIMB) (2014). However, there was a downward trend afterwards with tobacco production falling to 55 000 tonnes in 2006 from 236 000 tonnes supplied in 2000. According to TIMB
(2014), this downward trend was not only as a result of falling prices but also as a result of unfavourable climatic conditions such as excessive rains. The knowledge of tobacco supply response to prices is of great importance to policymakers when formulating and evaluating agricultural policies, therefore there is need to quantify the supply responsiveness of tobacco output to prices. This study aims to establish whether the tobacco sector in Zimbabwe is responsive to changes in tobacco prices using time series data for the years 1980 to 2015 and the ordinary least square (OLS) as the estimation technique.

Download 0.76 Mb.

Share with your friends: