Burley Tobacco Budgets and Cost of Production

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Laura Powers, UK Ag Economics

For many years, the Agricultural Economics Department has published various crop and livestock budgets. And for many years, producers have used those budgets to make production plans, assess farm profitability, or conduct enterprise analysis. Increasingly, producers are using our budgets as they were primarily intended, as a tool to help farmers compile their own cost and return information so they can make more accurate farm decisions.

There have been more comments made on the burley tobacco budgets over the past couple of years than ever before. Although many of the comments are critical of the budgets, suggesting costs are too low, it is a good sign that tobacco producers recognize the benefits of looking at the budgets. Furthermore, some of the growers have taken that next vital step in examining their own costs to grow the crop.

One of the difficulties in publishing a budget is that no single budget can accurately portray the costs of production for any single grower. At best, budgets can reflect an average cost structure for an average growing season (and those in agriculture know there really is no “average” production year). Over the last couple of years, more emphasis has been placed on helping farmers better understand the costs of tobacco production. In 2008, eight tobacco farmers shared their production data with us. A brief summary of that project is provided in the table below (sorted by yield). Production ranged from 11 to 150 acres; yields ranged from 2431 to 2852 pounds per acre.

“TVC” is the total variable cost (listed here per pound) and “ROVC” is the returns over variable costs (gross returns minus variable costs, also list per pound). The column labeled “H-2a?” lists if the grower used the H-2a labor program, and if so, how many workers they employed. For those using H-2a labor, the additional costs of the program (not including the wages) were $0.13 per pound on average (the range was $0.05 to $0.25 per pound).

As the tobacco industry continues to change, it continues to be important that growers track and examine their costs of production. We also encourage county agents to be familiar with the various tobacco budgets and assist their growers as they modify the budgets to more accurately reflect their individual farming situations.