Tobacco or not tobacco: predicting farming households' income in Indonesia

Abstract

Background: Recent research in several countries has demonstrated that small-holder tobacco farming is typically not a profitable enterprise. Many farming households report losing money in this economic endeavour, even without incorporating the value of their household labour. Losses are typically considerably worse when household labour is considered. We take advantage of panel data that include information about both current and former tobacco farming households' characteristics and economic decisions to be the first to rigorously estimate the effects of both tobacco and non-tobacco farming on income.

Methods: We designed and implemented a two-wave economic survey of current and former tobacco farming households in Indonesia's two largest tobacco-growing regions. We use regression analysis to estimate the effects of tobacco farming on household income per farming area in both survey waves.

Results: We find that former tobacco farming households are typically generating profits from their non-tobacco farming, while current tobacco farming households experience greater variability, including experiencing economic losses. Former tobacco farming households' income were comparable to current tobacco farming households' even in the period in which tobacco leaf production and prices of tobacco leaf were relatively high. We find a negative and significant effect of tobacco farming on household income.

Conclusions: One of the main arguments from those opposing tobacco control policies-especially increasing cigarette excise taxes-is their alleged effect on tobacco farming households' livelihoods through a lower demand for tobacco leaves. Our finding that there is a negative effect of tobacco farming on household income shows that the narrative is grossly inaccurate. Shifting to non-tobacco farming would allow farming households to reallocate their resources to other more lucrative economic opportunities.

Keywords: economics; low/middle income country; priority/special populations.