“This study attempts to analyse the efficiency of production, the degree of distortion in the markets and the pattern of incentives for smallholder tobacco growers in Songea,Tanzania. A Policy Analysis Matrix (PAM)of the tobacco production and marketing system was constructed so as to determine the private and social profitability of the system, distortions in the markets and the efficiency of resource use in the pursuit of
maximizing income.The analysis revealed that although tobacco production is potentially a profitable enterprise relative to the international market, smallholders are paid less than the actual value of their product. The overall effect is a net taxation of tobacco production at the farm level. Thus the existing marketing arrangements have made it appear uncompetitive with low resource allocation efficiency. There is a net disincentive to produce the crop. In the absence of distortions, smallholder farmers in the region would have realised more to their average annual income from tobacco production alone. These findings reveal the importance of the crop in poverty reduction efforts, and the significant effects of market distortions.”
