xt7vdn3zts5f https://exploreuk.uky.edu/dips/xt7vdn3zts5f/data/mets.xml   Agricultural Experiment Station, Department of Agricultural Economics, University of Kentucky 1970 journals kaes_research_rprts_07 English University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Research Report 7 : August 1970 text Research Report 7 : August 1970 1970 2014 true xt7vdn3zts5f section xt7vdn3zts5f Optimum Tobacco Yield And Marketing Strategies
Under Poundage Quotas As Compared
With Acreage Allotments
, by
Garnett L. Bradford
RESEARCH REPORT 7 : August 1970
University ot Kentucky : : College of Agriculture
Agricultural Experiment Station :·: Department of Agricultural Economics
_ Lexington g

 J x
x * a

LIS'I` OF TABLES ............................... iv
LIS'I` OF FIGURES ............................... iv
IN'I`ROI)UC'I`ION ................................ 1
OP'I`II\IUI\l YIELIJS ............................... 2
'I`heoretical Framework ........................... 2
Preliminary Empirical Results .........................r 4
OP'I`II\1UI\I I\IARKE'I`INGS ,....... . ................... 6
Excess Discarding .............................. 7
Storage .................................. 9
Replacement Disctuding ........................... 9
Aggregate Amounts ol Discarding ....................... IO
CONCLUSIONS ................................ 11
APPENDIX .................................. 13

unit Page
1. Annual Flue-Cured Tobacco Yields, 1960-68 .................... 4
2. Burley Tobacco Yield and Market Price Averages for Selected Locations, 1966 and 1967 . . 5
1. Theoretical Price and Average Variable Cost Curves Related to Yield per Acre ...... 3
2. Average Market Price Increases Necessary to Make Different Percentages of Poundage
Destruction Profitable ............................. 8

Garnett L. Bradford*
Managers concern themselves with three optimum use of their poundage
general problems in supervising and allotments over time.
coordinating a fir1n’s resources, viz., (l) what Reasoning required to meet these
to pmducu (2) how   Produce and (3) hllw objectives fall primarily under the
much to produce. lhese three categories ··hOvv_mueh_tO_prOdueer» Problem and to
provide a convenient means of classifying the some extent under the “hOW_tO_Pmduee»»
Problems ii{€“d by mall) fum buslncss problem. Previous research conducted at
I`i1LiIILIgCI`S. IlICy pl”O\'lLlC LID CSpCClLllly Kentuckvy and North Carolina     has
. . . .. . 9
convenient system ol classification for some rather clearly established that Whatever the
ol the major problems which may lace burley alternative uses Of resources may he it is
. . _ )
tobacco larmers in event that some type ol quite pmfitahle to Produce tobacco to the
poundage-quota control program is adopted. extent Of the acreage and/Or poundage
Several specific solutions to these three allotment 1 Hence as an answer to
. ' 7
problems may be evident to most burley t¢What_tO_Pmduee »» faIm_P1&nning resealeh
v . Y
far mers alter. they have had some years. ol using budgeting Or hhem pregwlhmihg Or any
experience swith a new tobacco progra1n;just other technique has shown that with most
as burley larmers during the l940’s learned price eost and Production situations it pays
, , (S I , s 1 `V7 s r ·, s I
hor IO pld) tht g°lm° lmdu dcrcagc to first use all available productive resources
qu°mS* thc) Could during thc 1970 S lwrl] for tobacco; then, use what remains for other
lm [0 do so Lmdcr P°u“d¥&¥“ °lu°mS· SML It enterprises. Various reasons may be advanced
would appear that economic research should whs. this is the ease, such as income benefits
provide some a priori answers. Such research from the p1.iee_suppOrt supplveohtml
. . >
usually consists of theoretical (more general) prOgTam_ The point here, though, is that the
phases and empirical (more specific) phases. most Pressing research needs Obviously
This report deals primarily vnthssome of the involve ·‘hOW_mueh_tO_PrOduee»» and
more general reasons for expecting different ··hOvv_tO_prOduee·· problems
burley tobacco farmer behavior with a Several aspects Of these problems have
POu“d§*S‘$_(lu0m PYO8T¤m· MON $P‘:Clf1CaHY· been covered in previous research work i
thc Oblcctwcs arc; conducted by experiment stations in tobacco I
l. To examine some of the reasoning states and by USDA agencies [1, 2, 3, 6, 7].
involved in determining yields under However, a specific combination of problems
poundage quotas as opposed to the implied by the objectives listed above will be A
current acreage—control program, turd covered in this report. This combination will
2. To specify a logical framework for use be covered in two stages: (1) optimum yields
by tobacco farmers in determining and (2) optimum marketing. J
*Associate Professor of Agricultural Economics. 1'I`hat is, assuming it is profitable to produce some tobacco.

With acreage controls, tobacco farmers There are theoretical reasons for expecting
tend to maximize production profits by price and average cost curves having general
maximizing net returns per acre (total dollar shapes like those in the figure. Market price
returns per acre less the cost of variable per pound is expected to increase up to a
inputs). That is, each year it pays to use all of certain yield because the use of more plants,
an acreage allotment in reaping the maximum leaves, fertilizer and other variable inputs
dollar return above costs of variable inputs should result in a higher proportion of grades
such as seed, pesticides, herbicides, fertilizer, having better acceptance from buying
hired labor, etc. That is true because allotted companies. Likewise, after a certain yield is
acres usually are the most scarce of all the attained, market price is expected to decrease
owned or fixed resources. By maximizing net because of the use of too "heavy" a
returns per acre the manager is able to combination of variable inputs. Average
maximize profits or net returns to the bundle variable cost is expected to decrease up to
of fixed (owned) resources. some yield and then start increasing because
Similarly, under poundage controls, of the law of variable proportions.
farmers tend to maximize net returns per Notwithstanding such logic, many questions
pound of tobacco sold. Note, however, an about the shape of the price and average
important distinction: Acreage control variable cost curves deal with their specific
programs establish acres as a resource which shapes under particular market and
must be used during the year in which production conditions-not about their
allotted; whereas, the poundage control general shapes. Such empirical questions will
program that has been proposed for burley be covered in subsequent sections.
(and is now in existence for flue-cured A producer desiring to maximize net
tobacco types) allows the use of poundage in returns per pound—as one would expect many
future years if not used in the present year. producers operating under poundage quotas
Also, to some extent, it allows the use of to prefer—could do so by attaining a yield
future allotment in the present year. equal to OM (Figure 1). At this yield, the
Implications of this distinction will be difference between price and average cost per
discussed subsequently, since it lies at the pound (BA) is the greatest. That is, maximum
crux of meeting the second objective. The net returns (above variable costs) per pound
immediate objective is to clarify whether are obtained.
maximizing net returns per acre versus A producer desiring to maximize net
maximizing net returns per pound leads to the returns per acre—as many producers now
same production behavior. operating under acreage controls seemingly
desire—could do so only by attaining a yield `
greater than Ol\I (Figure 1). To see why this is A
Th€()r¢[ic;;] Frguucwgrk true, COIlS1Cl€1‘ F1gl1I`€ 1. FlI'SI, 3.SSl11'I1€ that
maximum net returns per pound occur at
Economic theory can be used to only one yield, such as OM. Then choose any ‘
demonstrate that different production yield which is less than OM. Regardless of the
strategies will be expected under the two lower yield that may be selected, net returns
programs. Consider Figure 1 to see why this is per acre will be less than at yield OM. This is
the case. true because:
In this figure hypothetical relationships Netmumspcr acmqncucmmsgpcrpound)X(yield)
are drawn between (1) price and yield and (2) `
average variable cost (cost/pound) and yield. and, by definition, both net returns ger

Ii — ———— — — — - - ..
F—————————————I-— ————- .C
a I I
§ I I
gc I I
g I I
I- — — ID
G —  
R___` ___ _—_— T_`I cost pound I
0 II N
Figure l.——"I`he0retical Price and Average Variable Cost Curves
Related t0 Yield per Acre. _

pound and yiQd are lower for yields less than TABLE I
OM. Thus, maximum net returns per acre can
be attained only by producing some yield ANNUAL FLUE-CURED TOBACCO
which is greater than OM. lrlow much greater YIELDS, 1960-68
(C.g., NIN ill lfigufc l) depends upon the  
specific nature of the price and average cost Crop Yield Per
curves—how fast they change, Q more Year Acre
precisely how fast their difference (net  
returns per pound) changes relative to unit
changes in' yield. ' _ 1960 1,808
· lhe important conclusion to draw from 1961 1,801
this argument is that maximum net returns 1962 1,930
per acre do not occur simply by chance at a 1963 l,975
greater yield than do maximum net returns 1964 2,211
per pound. Regardless of the shapes of the 1965 1,883
l`CI.UI`I1S·[)CT LICTC     be        
some yield ·\‘Vl1lCl1 is greater than Qgg yield at 1968 1,854
which maximum net returns per pound are   ‘
attained. A proof of this conclusion was set S°“'°°‘ g   fjgégiwijr ’;(1",’;‘;;);;_{’l‘;;  
forth (above) by proving that maximum net Agriculture, Consumer and Marketing Service,
returns per acre could never occur at a yield w“hi“g'°“· D` C‘
which is less than the yield which will.
maximize net returns per pound 2
indication. Unfortunately, no survey data
have been gathered which might reveal just
Preliminary Empirical Results what changes, if any, in production practices
flue—cured farmers have made in response to
An important implication of the above the poundage—quota program. There is some
logic is that we should expect lower burley evidence from previous research studies which
tobacco yields if poundage quotas are sheds light on the specific nature of price and
adopted. Yields prior to and after adoption of cost curves.
poundage quotas for f1ue—cured tobacco types Most of the results which have been
may be used to support this claim (Table 1). reported are from flue-cured tobacco areas.
Average yields per acre for all flue-cured Toussaint, gg [8] , used regression analysis 4
types (combined) are listed for nine years, to estimate that (on the average) market price _
1960-68. Note that yield increased each year decreased $5.41 for each 100-pound increase i V
through 1964 but dropped sharply in 1965 in yield; no significant quadratic effects were
when poundage quotas were first in effect. detected in fitting' the model with data
Yield was even lower in 1966 (a "poor" crop generated from on-the-farm controlled 7
year), increased in 1967 (a "good" crop year), experiments.3 Bradford and Nelson [2]
and leveled off in 1968. Obviously, this is not employed analysis of variance using data
conclusive evidence that flue-cured tobacco generated from the same experiments to
farmers intentionally produced lower yields conclude that average variable cost did not .
under poundage quotas, but it is an vary either positively or negatively in the
QA more sophisticated mathematical proof of this conclusion 3'1`his change was considered valid within a yield range of
is presented in the Appendix. approximately 1,600 to 2,800 pounds.

relevant range observed (approximately 1,600 correlated for two years, 1966 and 1967.4
to 2,800 pounds). These results are The correlation coefficient was positive and
mentioned here primarily because the significant for both years, gg, 0.94 for 1966
methods employed may be adapted for use in and 0.78 for 1967. But, to conclude that
studying the same type of relationships for higher yields cause higher prices may be
burley tobacco. fallacious. It seems much more likely that
Some observers have argued that as farmers producing higher yields are better
burley yield gets higher so does price. Within managers with better soil, and so naturally
some rather narrow yield range and in some would be expected to produce better quality
years, this may be true. llowever, it is not (higher priced) tobacco. In any event, it is not
easy to support this argument using survey or ————-—————
Sccondurll dull ll is typical 10 SCC Sccondarlf 4Therc are 33 auction market centers for burley tobacco
Clitlti used to seemingly (lCm<)|1$tratc this located in the state of Kentucky. The 10-location sample
Point. In Tublc 2, for Cxanlplc, 10 Kcnluckv used here was selected to exclude Lexington because of
. ' difficulties of obtaining correspondmg yield data for th1s
tobacco market locations were selected at large markeg County dam Corresponding ,0 price data for
I'LiIl(l(>lI1; yield Lind [)I‘lCC L1\’CfagCS WCTC the other markets were more easily determined.
1966 1967
Locationu Yield Per Price Per Yield Per Price Per
Acre 100 Pounds Acre 100 Pounds
(lb) (dollars) (lb) (dollars)
Covington (Kenton Co.) 2,250 $68.98 2,208 $62.08
Cynthiana (llarrison Co.) 2,610 71.94 2,607 67.66
Henderson (Henderson Co.) 1,970 66.35 1,846 57.59 '
Mayfield (Graves Co.) 1,860 68.05 1,887 62.90
I\lt. Sterling (Montgomery Co.) 2,590 72.40 2,397 68.46 '
Ownesboro (Daviess Co.) 2,320 70.65 2,260 63.84
Paris (Bourbon Co.) 2,780 72.54 2,782 67.94
Richmond (Madison Co.) 2,800 72.29 2,561 66.25 -
Shelbyville (Shelby Co.) 2,630 72.31 2,827 66.37
Sotnerset (Pulaski Co.) *_ 2,(i$_0__* 71.68 _ 2,141 65.98
aYicld data correspond to counties listed in parentheses, whereas price data are averages for all tobacco sold at the auction centers U
towns located in each county.
Sources: Lrlgltt Air-Cured Tobacco Market Review, 1966 Crop and 1967 Crop, United States Department of Agriculture,
Consumer and Marketing Service, Washington, D. C.
Kentucky Tobacco Market Report, 1966 and 1967, Kentucky Department of Agriculture, Frankfort.

possible to conclude much from secondary yield.6 A large amount of the variation in
data of these types. To make a valid test, it is price or labor cost per pound could not be
UCCCSSMY to dststmms what will haPP€¤ to explained by the yield variable (or variables),
Pflcc “S_ Ylfld ls mcfcascd bY usmf-S more regardless of the type of model used.7
plgnys, fertilizer and othpr variable inputs Possibly, the use Of more than two
e m' · ment ‘ . ‘ · · -
W l didgc _ ’ wl ’ fm ’ dm held repltcattons and/or larger plots is needed to
constant or randomized out. . .
. . reduce error variation and allow for more
Byers and Atkinson (unpublished . . .
. precise estimation of pararneters of these
research) conducted small—plot experiments h h _ d _ F th _ _ al
from 1963 through 1966 at the University of yp_Ot CSIZC r€l‘m0nS` ul cr cmpmc
Kentucky Agricultural Experiment Station in Studlcs may also be made usmg both Survey
L€xiI]g1_0n_ rrhcir prirnury Objective was to data and data fl`O1'1'1 COn[I`OllCd €Xp€r1In€,nf.S.
determine the effects of different levels of
fertilizer, plants and irrigation on yield, price
and certain variable costs (particularly —————————i
F . . ~ .
l?JbOI`)·) RCQYCSSIUU €U1€il)`$l$ Ul their diilki 6Simple linear regression models which were fitted showed a
generally failed to detect significant positive Sisniftwtt t><>S·t·~¢ r¢l¤¤¤¤¤h¤t¤ l>~¤¤~‘=€¤ r>¤¢¢ md risld in
or negative relationships between price and 1_96§` whereas YCMUOMMPS m Other fem ""-we nm fudgm
_ significant The relationship between labor cost per pound
yield and between labor cost per pound and and ,.,,,1,:1 was S,g,,,;,C,mdy posimc m www Sigmmmd,.
___ ____ negative in 1965 and nonsigmficant in 1963 and 1964.
5Each of their experiments was constructed tn 2 complete 7
blocks with 3 levels of fertilizer, 4 plant populations and 2 R2 salues ranged below 0 15 even when quadratic equations
levels of irrigation serving as the 24 treatments in each were used. No significant quadratic relatztonshtps were
block. detected.
Should burley farmers adopt poundage of future years.S Poundage quotas. ho=.·:ei.·er.
quotas. it seems most likely that these quotas may be disadyantageous wlten a farmer
will be in addition to acreage allotments, i.e., over-produces his quota and is fcirceti ao
combined acreage-poundage quotas similar to destroy (discard) or store me excess.
those now in existence for flue-cured tobacco. Assume that each buriey Q~YZ·Cl.1lCi”L`  
Hence, each farmer will be faced not only have the privilege of markezixg .i`I.iZiiZ`.LLL".1~£¤i
with a decision about the optimum yield per 110 percent of his ouctza m      
acre but also with a "follow-up" decision of Any oyer—productio~n which fxces :ies$.;»;i;:;
the optimum poundage to market each year. of poundage will be referee-ti z: 5 etamss _
Under the current acreage allotment discarding: the only legal eizettzairwe :9 Sack. _
program, the quota (if used at all) must be
used in the year it is allotted. In contrast,
under a poundage program with carry~forward y
provisions the quota resource is dur;ybjg—it S"_`_"`
can be used in future production periods. Lv"d°‘ mh" ”Pl°€l`el"“— ?"‘°‘i‘**‘l” :***5* 2*****   `K
Thus, poundage quotas offer in advantage in WM the llskl °‘g‘“m ‘Nl“_     ms   l ri"
. . t3CtO\`S of P1”U\`l1.ltCI.TlOZ`l.‘·;.E."£•.Z.. .LiL`•C¤Z JL`}:.   UlI$}"|ZLC$
the sense that farmers have an opportunity to P _ _ _   _,_   _,__ __ , y _ . _ .
· V _ ' ‘ 1'\)dL1L§I`>, hO\\€\€1[, ll'? ilt...CKL$..sLJ.Dl -..$..Z"—?`   l“Z¥$?iZ.•~
YCCUUP (Insure) any IOSSCS Ol lhls Your S to the pcttndage resource zo iz: ::1::::: iam   g·;¤;;·n;ag=:
lOl.)L1CCO Will] l`CplL1CC111Cl‘t{ })0L1l1ClS fl`O1'Y1 C1`O})S quota is ofxalue tn tittt1trv:\c.t.:s..
    .....   .   ...... ...ii~t;:         ·-.-t—’·\';

discarding will be storage.9 A second type of gives him a 35-cent net return. In comparison,
discarding could take place if tobacco which suppose Mr. jones had produced 12,000
could be marketed within the poundage quota pounds by using higher-yielding practices (the
is voluntarily discarded. This type of same weather conditions holding as for the
discarding will be referred to as replacemgnt lower production). Cost per pound increases
  Under certain conditions, either or by at least 20 percent—from 25 to 30
both types of discarding may be profitable. cents—because the total cost of producing
Some of the variables bounding these 12,000 pounds must be spread over (divided
conditions will be discussed in the next three by) only the 10,000 pounds sold. Hence,
sections. average price also must increase by 5 cents to
maintain a 35-cent profit margin. In other
words, even if the 12,000 pounds would have
EXCCSS Discufdillg averaged 60 cents, to maintain a 35-cent
profit margin the 10,000 pounds which was
ln event of excess production, many marketed must average 65 cents. In this
burley tobacco farmers probably would try to example, it is possible to calculate that the
store the excess. Still some may find that average price of the destroyed grades would
storage is impractical or else if it is tried the have been 35 cents.
tobacco, for some reason, may deteriorate ljxgggdggggmng is more likely to be
beyond use. In other words, production in profitable as (1) the range of grade prices is
excess of 110 percent of the poundage quota wider, (2) the percentage (of a quota) which
would be wasted. As the lowest-priced grades must be destroyed is lower, and (3) operating
are destroyed, average price (received for the cost is lower. A wide range of grade
tobacco sold) will increase. But, in computing prices—such as much 30-cent tobacco, and
cost per pound of the tobacco sold, costs of then a jump to where most of the other
producing the destroyed poundage cannot be grades sell in excess of 60 cents——will result ii.
ignored. Cost per pound of tobacco sold (not more of an average-price increase (because of
destroyed) increases directly with the destroying low—priced grades). A small quota
percentage of the quota destroyed. Therefore, excess causes less of a cost-per-pound increase
profit is lowered unless the average price rind allows the destruction of less high—priced
increase is greater than the cost—per-pound tobacco A low operating cost results in less
increase. of an absolute cost—per-pound increase from
Reasoning involved in reaching this discarding.
(above) conclusion may be made more clear Using Figure 2, one can estimate the
by use of the following hypothetical example: profitability of ggge§_d§g_ar_gl;ng_. Cost per
Consider Farmer jones who has 5 acres on pound and the increase in average price are
which he can use to produce and sell 10,000 measured on the vertical axis in cents per i
pounds (equaling 110 percent of his quota). pound. Percentage of a poundage quota A
First, suppose l\lr. jones combines the 5 acres destroyed is measured on the horizontal axis.
with moderateyielding production practices The increase in cost per pound of the tobacco
and produces 10,000 pounds—all of which he sold is specified by the line dividing the plain A
sells for a 60—cent average price. Subtracting and cross-hatched areas of the graph. This
his cash operating costs of 25 cents per pound particular line is based on a 25-cent operating
cost, identical to the Farmerjones exzunple.
j__—__TT If the variable (operating) cost of producing
The 10 percent over-tolerance provision has been followed thc Until? Crop Of tObaCCO (that Sold plus
in the fluecured program. Also, in this program it has been . _. . .
mega to market any .a,..a., bC,r0...r .t... t,,»..Smg MMS) ws 1¤W<¤‘» the dwdms imc Wwid
poundage quota from another farmcr's marketing card. 1`OlLlIC ClOWI1WL11`Cl il11Cl to [l1€ flgllt. The gfiipll

Increase 20
average 18
12 Increase in cost—per—pound Q
*2 \§
910 \
=— -
$2 J
T _
E 6 Profitable
5 area unprofitable
4 3.I`€8
4 N \
O Ax 
l0 20 30 40 50
Percentage of poundage quota destroyed
Figure 2.-—Average Market Price Increases Necessary to Make
Different Percentages of Poundage Destruction

should be used by assuming a certain of production. This bare expected-value logic,
percentage destruction (say, 20 percent as in however, skims over the hazards connected
the example) and then reading vertically to with stored tobacco such as the uncertainty
see how much of a price increase is needed to of its price due to insect damage, molding,
offset the per-pound cost increase. The price discoloration, etc. Certainly, some burley
increase needed (it is the increase over the farmers already know of instances where
average price received when producing 110 storage has worked rather well, but much
percent of the quota) becomes larger as the more technical research knowledge and
percentage of the quota destroyed becomes experience needs to be gained before
larger. over-production and storage could be
A large amount of gigqggtllgcggdgig (in recommended.
the aggregate) appears unlikely—at lease not
intentional. lixperience of flue-cured farmers
with poundage quotas since the 1964 season Replacement Discarding
confirms this conclusion. Also, for burley
farmers, the last four years have been marked Even under the acreage-control program,
by a rather narrow range of grade prices some very low quality leaves (such as the
(compared with the past). liven during the worst ground leaves or very green tips)
1960-64 period less than 5 percent of the sometimes are discarded. lf the unused quota
llue-cured crop sold for less than 30 cents. could be carried forward to future years, such
.·\lso, in the 1965-68 period operating costs voluntary discarding certainly should be much
have increased faster than in the past. Both more common. The cost of replacement
these factors worked against profitable gxgcgs discarding will be equal to (1) the potential,
  just as weather conditions were average price of the discarded grades Eggs (2)
such as to create very little excess production. interest returns on this year’s potential sales
ln future years, it is not inconceivable that phi; (3) the cost of producing replacement
operating costs may be lowered (for example, tobacco (next year). Again. using an example,
owing to the adoption of mechanical suppose Farmer jones has produced short of
harvesting), that price ranges may widen, or 110 percent of his quota and is considering
that weather conditions could be "better." discarding a grade he estimates would sell for
Any of these factors would make for more 40 cents. Suppose his average cost of
gg;_disggrthpg. Given such events, the producing a replacement grade up to the
alternative ol` discarding and storage (rather point of hauling and selling is 22 cents (per
than discarding and destruction) may become pound). Adding the two together (40 + 22)
more feasible. we see that the replacement grade must sell
for more than 62 cents before discarding is
profitable. How much more depends upon the
Storage extent that Farmer jones needs his money 1
during the current season. that is, the interest
Storing discarded grades will be rate. In short, replacement discarding is
profitable if profit on the stored grades p1`0flU1bl€ 0¤l§` if NCXY $@21165 (T€Pl3C€m€¤Y) 1
exceeds profit on grades the stored tobacco price exceeds this year’s price by more than
replaces (that is, tobacco which could be the cost of producing replacement tobacco
produced next season). Profit on the stored (10 1l1€ $81110 SGHSOUGJ point in UIUC OT
grades equals their average price minus the p1`0dUCll011SlL1g€)- I
cost of storage. A comparable profit estimate Bgp@gnL€;QAiSCa1`di11CCletl average price minus the normal costs repltteelnent tOb;1CC0 is lower, (2) this year’s

potential price is lower and (3) the potential other marketing cards (legal or illegal), (5)
replacement price is higher. The first two of future grade—price supports established by the
these generalizations are the same as those government grading service, and (6) the
listed (above) for excess discarding. Thus, elasticity of demand for various grades most
both types of discarding have some of the subject to discarding.
same implications. Any method of production Most observers of burley tobacco
Wl1iCl1 lUWCI‘S U[)CI`tillIlg COSIS (SLlCll 21S USC of Production and marketing   attest t0 the
harvesters and other mechanized processes) impact of the first two variables. Still,
will tend to make replacement discarding quantifying effects of these variables could be
more profitable. lt is estimated that very difficult if not mostly guesswork. The
burley·tobacco operating costs prior to third variable is one which is just emerging as
harvest average less than 10 cents per a possible relevant factor. As noted
pound.! 0 Thus, if stalks having leaves worth previously, storing tobacco will be profitable
less than an average of, say, 40 cents can be if the average price of the stored grades (when
identified and discarded in the field, they can sold the next season) is greater than the
profitably be replaced by leaves selling for average price of the grades replaced (i.e., next
more than 50 cents next year. Thin—leal`ed season’s production) by the amount of
grades which have a potentially low price will storage costs plus interest charges on
tend to be replaced by heavier grades (lugs production costs incurred in the current
and leaf) which have a potentially high season rather than the next one. In substance,
replacement price. Additional research is though, there are many unanswered technical
needed on this question but it would seem and marketing questions about this variable.
reasonable that the cost per pound of The fourth variable is highly dependent upon
producing the lighter grades would be the first and second variables. Doubtless there
substantially more than for the heavier grades. will be some transfer of poundage arnong
marketing cards. The system of compensation
for such services is open to question, but
Aggregate Am0u¤tS Of Discafdillg there is little question that officials might not
be able to enforce effectively any provision of
The previous discussion has been limited the pOundage-eODrrO] lager yyhich yggulatgg this
primarily to how individual farmers’ costs of uC[i\'it§`_ Thg last {WO \·a_rj3_b]es are elgsely
lnodllclloll fbY Smdwl wd Sl`¤dC‘l)I`l€C connected to each other; demand elasticity by
\`LLI`lL1l.lOll (1`OY SUCCCSSl\'C pI`Od\.lCl10l1 SCLISOHS) grades 1·€I‘n3_inS 3 Ujajof area fOr {much ]‘]€@d€d
will affect the amount of tobacco profitably €H·lpi1·iCa_linqui1‘y‘_
discarded. A number of interacting variables mlarkgt prices [Or yar-reds grades may
should determine the aggregate amount ehdrrge substantially Oyer tjme..j_e_, we lack
discarded, i¤¤l¤di¤s (1) ww <>i` s¤¤S¤¤ with knowledge about [be elasticity of demand by ·
its obvious effect on grade and price grades If mans- burlcy farmers do find it ,
distributions, (2) variability of grade and price profitable to discard certain grades (which are
distributions among farmers,   the distinct now the lower-prices grades) the prices of
possibility of sonic type of workable these grades may increase drastically for a .
on-the-farm storage of tobacco produced in period of time. After an initial wave of
excess of quotas,   sale of excess tobacco on discarding these grades, resultant higher prices
may then make it unprofitable. However, if a
mlm? large proportion of such discarding takes
wlistimatc made by Dr. _]oe Smiley, Tobacco Specialist, Place at thc time Of harvesting! the
DC[)HflmCI]l of Agronomy, University bt Kentucky. "equilibrium price" on these grades may not

be reached until another sales season; or, one possibility that companies may substitute
might speculate that this activity could result some foreign grades or certain grades of other
in continuously fluctuating price with no types of tobacco (e.g., flue—cured, Oriental)
stable equilibrium being reached. for the grades which have been heavily
The possibility of mass discarding of discarded. It may be only a slight possibility
certain grades with a resultant erratic price that such substitution will occur in much
pattern leads one to ask if tobacco companies magnitude. Rather, it appears more probable
may after certain seasons be forced to make that most of the discarding will be done at the
certain buying adjustments.l1 ls it possible time of grading for the market; if so, then
that they may be forced to change cigarette higher prices within a season will be met by
or cigar blends? In any case there is the greater offerings of these grades. Some
t_;...... grade-price adjustments by the government
H grading service may be needed, but in total
This possibility seems even more probable in viewhof the the price Systcrn Should “/Ork adequately as 3*
apparent lower stocks of many grades now carried by _ _ _ “ ” ,
tobacco COIT`lp2ifllCS, l.C., in COIT`lp2il'lSOI`I   those of [TIC            
l950`s. of various grades.
This report has dealt primarily with More detailed analyses of survey and
conceptual aspects of differences in optimum experimental dam not Currently avajlable are
bUI`lCy l()b2J.CC() })I`()(.lUCll()ll Lilld ITl2l1'l{Cf.lllg ng€d€d_ There is 3 nggd [O knO“,v the effgcts Of
$lmlcg1c$»_ ooocf i>¤¤¤d¤s¤ (looms as yield changes upon price and costs, regardless
compared with acreage allotments. lt has been Of the type Of mbacco pmglmm which is in
shown that under poundage quotas maximum Operation. Tobacco Producers need to knOW
profits will be attained at lower yields. In .
_ _ ‘ more about the effects of changes in
addition, there are sound reasons to expect . . . .
. . production practices (variable inputs) upon
much less concern with salvaging as many _
1 _ _ .» _ _ price and costs; they also need to know how
eax es if (as expected) poundage quotas were f · h _ f
made durable or timele