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Profitability Analysis Of Tabasco Chillies Grown By Smallholder Farmers In

Nyanga District, Manicaland Province, Zimbabwe

Research · November 2015

DOI: 10.13140/RG.2.1.2661.5764

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Researchjournali’s Journal of Agriculture
Vol. 1 | No. 5 December | 2014
1

Profitability Analysis

Of Tabasco Chillies

Grown By Smallholder

Farmers In Nyanga Simbarashe Tatsvarei

Lecturer, UZ college of Agricultural Science and

District, Manicaland Technology, 458 Unit “F”, Seke, Chitungwiza,

Zimbabwe

Province, Zimbabwe Benjamin T. Hanyani-Mlambo

Senior Lecturer, University of Zimbabwe,

Department of Agricultural Economics, P. O. Box

MP 167, Mt Pleasant, Harare, Zimbabwe

Clifton Makate

Socio-Economist, CIAT, Box MP228, Mt Pleasant,

Harare, Zimbabwe
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ABSTRACT

This study analysed the profitability of tabasco chillies production in Nyanga and soci-economic factors
impacting on profitability. The study used data collected from a sample of 119 smallholder farmers. Average
gross margin per hectare was US$1,215.37. Average GRR and NRR per hectare were estimated at 1.14 and
0.94 respectively, all indicating a profitable enterprise. The major factors that have a positive impact on
profitability are available family labour and market linkage while those that negatively impacted on
profitability are age, level of education, sex of household head and production costs; namely seedlings, land
preparation and weeding, fertiliser, labour and agro-chemicals. Market linkage, land preparation and weeding
costs, fertiliser costs, and labour costs are the only significant variables in the model. The overall model was
significant, signalling a good selection of variables into the model.

Keywords: Profitability, Tabasco chillies, smallholder farmers, Nyanga, Zimbabwe

1. INTRODUCTION

World Bank (2008) estimates that 75% of the world’s poor live in rural areas and depend on agriculture as
their primary source of income, and that economic growth in the agricultural sector is twice as effective in
reducing poverty compared to other sectors of the economy. Increasing incomes of agricultural activities for
such economies is a therefore a plausible approach to accelerate economic growth and reduce poverty. The
rural economy is the dwelling of many smallholder farmers in least developed nations such as Zimbabwe.
These farmers focus more on meeting household food security through production of food crops compared to
their commercial counterparts who specialise in cash crops production (Jaure, et al, 2008). In Zimbabwe, over
the past ten years, profitability of such food crops has been so low due to unviable pricing and input costs
regimes resulting from government interventions. Thus the thrust towards food crops production has not
helped smallholder farmers to increase their incomes and contribute to meaningful economic wellbeing. Even
in situations where these smallholder farmers venture into commercial production such as cotton, soya bean
or tobacco, structural challenges in these sub-sectors create barriers towards maximisation of farmer incomes.
For example, even though tobacco production shifted in favour of the smallholder sector, accounting for 60%
of crop area and 30% of production, per hectare returns are still low and planting per farmer is on average one
to two hectares owing to limited access to capital. For cotton, low yields, averaging less than one tonne/ha
and depressed prices on the international market reduces farmer incomes. Another cash crop, soya bean, has
suffered from thin markets which are associated with high price volatility and high transaction costs,
including cost of borrowing (Sukume and Guveya, 2009).

In pursuance of developmental efforts to improve rural incomes of smallholder farmers in Nyanga District of
Manicaland, tabasco chillies has been introduced as an alternative cash crop with potential to reduce rural
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poverty (IRC, 2012). Under this project, farmers are being provided with farming inputs on credit to produce
tabasco chillies under irrigation, which is sold on a contractual basis. The product is semi-processed and
shipped to a contractor in the United States of America (USA), where it is further processed to sauce and sold
to the rest of the world. The final buyer has the sole patent to the sauce that it sells on the world market (IRC,
2012). Research has indicated that tabasco chillies have proven to be up to 10 times more valuable than
maize; requiring fewer natural resources than maize to produce; and not exhausting soil nutrients to the same
extent as maize (Crowley, 2009). Studies in Zambia showed that an average smallholder farmer can obtain
yields equivalent to 6,000kg per hectare, generating revenue of US$1,050 annually, compared to average of
US$380 for maize. Yields of chilli peppers from the same piece of land is very high and so with only a small
plot of land a farmer can make significant revenue to enhance their incomes (Crowley, 2009).

Evidence indicates that Tabasco chillies were grown in the 1990s by large scale commercial farmers.
However, very little is known about this crop among smallholder farmers, more so grown under a global
contractual value chain system. There are very few studies that have focussed on the profitability of this crop
under smallholder farming in Zimbabwe and the socio-economic factors that can impact on its profitability.
This study therefore seeks to contribute to the body of knowledge by examining whether such a crop can be
sustainably grown by smallholder farmers. A sustainable cash crop is one that can continue to offer higher
returns to farmers even in the absence of any external support systems, and also generate ripple beneficial
effects to the broader economy. Stronger profitability levels imply higher chances of economic uplifting of
the rural poor.

2. TABASCO CHILLIES SUPPLY CHAIN

Tabasco chillies are used to make Tabasco pepper sauce, a hot sauce brand manufactured by McIlhenny
Company in the USA, for which it has a patent. In Zimbabwe, the value chain is coordinated by International
Rescue Committee (IRC) which manages a revolving fund administered by Better Agriculture. Better
Agriculture is a private company that acts as an intermediary between the farmers and McIlhenny. It is
responsible for procuring inputs for on-lending to smallholder farmers. Better Agriculture recovers the loan
advanced to farmers from the proceeds of delivery of product by the smallholder farmers. So Better
Agriculture acts as both a supplier of inputs and a buyer of the final product. In addition, the company works
in partnership with the Elephant Pepper Company, one of only seven companies in the world with exclusive
rights to supply Tabasco chillies mash to McIlhenny Company (Levin, 2010).

At the farm level, growers sign contracts with Better Agriculture, guaranteeing them a fixed price and a ready
market for their crop. Better Agriculture provides the farmers with the required seedlings, fertilisers and
chemicals based on this contract. This loan is then deducted from revenues generated from crop sales at the
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time of sale. The seed originates from McIlhenny, which is the only company that produces the seed. Farmers
receive training in production, harvesting and good farming methods. The government extension department
(AGRITEX) provides the technical resources for capacitating of farmers. The harvested product is grinded
and processed into salted mash, ready for transport to export depots. This function is performed by small
farmer businesses established through a fund run by Better Agriculture. Farmers are paid fortnightly on the
deliveries made. Better Agriculture then exports through Elephant Pepper Company, who in turn has contract
arrangement with McIlhenny Company. Mcllhenny remits 80% of payment upon shipment and 20% on
receipt of the shipment. The salted mash is stored for 3 years before production starts. McIlhenny Company
produces over 2.3 million litres of Tabasco Sauce per year sold in over 160 countries. The main line of
Tabasco sauces now includes the Original, Green, Chipotle, Buffalo, Habanero, Garlic Pepper, and Sweet &
Spicy (Levin, 2010). Hot sauce consumers are concentrated in the USA, Mexico, Spain, and countries on the
Caribbean, and in the Middle East where spicy food is a tradition (KIT, 2010).

3. DATA COLLECTION

The study extracted appropriate data from a research by IRC in 2012 to evaluate five value chains being
implemented in Nyanga District, Manicaland province, for which tabasco chillies is one of them. A sample of
119 farmers was selected for the study. Simple random sampling was used to identify the selected farmers.
The study employed three data collection methods to facilitate collection of both qualitative and quantitative
data required to verify study hypotheses. A household questionnaire was used to collect data from farmers in
Nyakomba irrigation scheme, Nyanga. Data collected was on household demographic characteristics, farm
enterprise production and costs, credit received and farmer participation in markets. Focussed group
discussions were conducted with farmer beneficiaries to understand major issues concerning the value chain.
Key informant guide was used to collect data from Agritex, IRC and Better Agriculture and data was
collected on; roles, service provided, perceptions on value chain and relationships with farmers.

4. EMPIRICAL APPROACH

4.1 GROSS MARGIN ANALYSIS

A gross margin is simply an estimate or a budget of the income and costs associated with a specific crop or
activity in a farming business. Gross margin analysis (GMA) is used to determine which crops are more
profitable than others and normally expressed as $/ha. A gross margin is calculated using the following
formula:

(1)
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Gross income for an activity represents all the income for growing and marketing a particular crop and is
normally the total sales value for a particular crop. Variable Costs are costs that change in direct proportion to
the level of production or sales cycle. Examples of variable costs in agriculture include fuel, seed, fertiliser,
and chemicals. More complex examples include the cost of extension staff employed by a company in
accordance with the number of growers that are contracted for in a season or the hiring of occasional labour
harvesting or planting (Hoeffler, 2005).

In order to calculate net income, fixed costs are factored in. These are costs that are independent of the size of
production. Examples of fixed costs are depreciation (replacement costs) and capital costs. In formal
accounting, start-up costs are considered as a form of fixed costs, but in value chain development, these are
analysed as a key development obstacle to entering and participating in a value chain. Finding out what assets
an actor need to start a business is important in judging whether a value chain is accessible to the poor
(Hoeffler, 2005). The following indicators are used in the analysis to validate profitability:

Gross Rate of Return (GRR)

(2)

Net Rate of Return (NRR)

(3)

4.2 LINEAR REGRESSION

To understand socio-economic factors that affect profitability at the farm level, a multiple regression model
was used. According to Barrow (2001), regression analysis is a more sophisticated way of examining the
relationship between two (or more) variables. It is a generic term for all methods attempting to fit a model to
observed data in order to quantify the relationship between two groups of variables. Multivariate regression
takes into account several predictive variables simultaneously, thus modelling the property of interest with
more accuracy. The study borrowed from a study by Olujenyo (2005) who selected age, farm size, education,
sex, labour man day, cost of inputs, and season as factors into the regression model that affect profitability.
The overall model that was tested is given below:

GR = β0 + β1Seed + β2Fert + β3Landprep + β4Havst + β5Agrochm + β6Gen + β7Age + β8Hedu +

β9Perm + β10Mrl + ε (4)

Where: GR = Gross margin/ha (used as a proxy for profitability)

Seed = Cost of seed

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Fert = Cost of Fertiliser

Landprep = Cost of land preparation and weeding

Havst = Cost of labour for harvest

Agrochm = Cost of agro-chemicals

Gen= Gender of household head

Age = Age of household head

Hedu = Highest level of education of household head

Perm = Number of available family labour

Mrl= Market linkage

ε = Error term

β0, β1,....., β10 are variables coefficients

The gross margin is used as a proxy for profitability. The measure used in profitability normally is
the net income, return on equity or on capital (Wegner, 2003). The study therefore relied on gross
margins to measure profitability as fixed costs in a collective irrigation setup are difficult to collect
per each farmer. The costs of production included were those specified in the questionnaire.
Household characteristics chosen were based on studies by Olujenyo (2005) and Imoudu, (2002).
These studies have shown that important household characteristics that have an impact on
profitability are age, level of education of household head, and available family labour. Market
linkage was specifically included in the model because farmers are connected to the market and are
producing on contract basis and therefore the model sought to estimate whether this has any
influence on the profitability of tabasco chillies production.

In order to test for the significance of the coefficients in explaining the dependent variable, the t-test
was used for each of the above coefficients. The following hypothesis was applied:

H0: βi = 0 Where βi = β0, β1,... β10

H1: βi ≠ 0
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The test statistic is as follows:

bi  i
t (5)
Sbi

Where: t = test statistic for a t-distribution with n-k-1 degrees of freedom k = number of explanatory
variables in the regression equation

bi = slope of variable i, holding constant the effects of all other independent variables

Sbi = standard error of the regression coefficient bi

βi = hypothesised value of the population slope for variable i, holding constant the effects of all other

independent variables (Levine, Krehbiel and Berenson, 2003).

The null hypothesis implied no influence of independent variable upon the dependent variable. The
alternative hypothesis asserts that the independent variable does in fact influence the dependent
variable (Barrow, 2001). Using a 95% (α = 0.05) confidence interval, the decision rule was as
follows:

Reject H0 if t > tα/2 or if t < -tα/2

To test for the significance of the regression model as a whole, the F- test was used. The F-statistic is
the ratio of the regression mean square to the error mean square. The hypothesis testing is given
below:

H0: β1 = β2….. β10 = 0

H1: One or more of the β coefficients is not equal to zero

The formula for the F-statistic is given as follows:

MSR
F (6)
MSE

Where: F = test statistic from an F distribution with n-k-1 degrees of freedom MSR = regression
mean square
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MSE = error mean square

k = number of explanatory variables (Anderson, Sweeney and Williams, 2003)

Using a 5% confidence level, the decision rule was to reject H0 if F > Fα

5. MODEL RESULTS AND DISCUSSION

5.1 HOUSEHOLD CHARACTERISTICS

Analysis of the sample shows that 41.8% of the respondents are male and 58.2% are female. Results also
show that 91.6% of the farmers are married, 8.4% are widowed and there are no single farmers. In terms of
highest level of education attained, 40.3% have attained primary education, 48.7% have reached secondary
education, and 6.7% have been to a tertiary institution while 4.3% have never been to school at all. Thus close
to half of the sample has attained some secondary education, which is positive in terms of decision making
and even facilitation of training programmes for these farmers. Table 1 also shows other important farm
characteristics for the selected sample.

Table 1: Demographic household characteristics

Characteristics Mean Std. Deviation

The age of the household head 47.87 12.11

Number of permanent household members 5.22 2.08

Available household labour 3.28 1.53

Amount of land owned in hectares 1.03 0.65

The total land cultivated in the season 2011/12 1.03 0.36

Size of irrigated land 0.87 0.40

Source: IRC survey data, 2012

Results show that the mean age of household head is about 48 years with standard deviation of 12.11. The
average number of permanent household members is five and the labour available per household is 3. This
implies that family labour to total occupation ratio is about 60%. On average, a household owns a hectare of
land for cropping, with a standard deviation of 0.65. Land utilisation for the 2011/12 season was 100% as the
average land owned is the same as the average land cultivated. The size of irrigated land per household is 0.87
hectares, with a standard deviation of 0.40. Computation shows that 84% of the land owned by these farmers
is irrigated land. In general, majority of farmers are women, have attained secondary education. Family farm
labour availability is relatively high and so is land utilisation and proportion of land which is irrigated.
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5.2 ESTIMATING GROSS MARGINS AND NET INCOMES

Table 2 below shows the profit loss indicators for the Tabasco chillies farmers.

Table 2: Summary of tabasco chillies profit and loss indicators per hectare
Std.
Variable Minimum Maximum Mean Deviation

Price/kg 0.5 2 0.50 0.294

Tabasco chillies produced
(kg) 375 17714 4575.80 4011.016

Seedling costs (USD) 50 1300 117.45 118.664

Land preparation and weeding
(USD) 50 3500 236.62 327.645

Fertilisers (USD) 125 5400 367.76 544.962

Harvest labour costs (USD) 0 4800 288.93 481.069

Agro-chemicals (USD) 0 143 38.87 21.578

Others (bills, transport, bags)
(USD) 12.5 400 22.90 39.978
Source: IRC survey data, 2012

Table 2 above shows the major inputs into the gross margins analysis of tabasco chillies grown by
smallholder farmers in Nyanga. The results show that on average farmers are getting US$0.50 per kilogram of
the crop with a standard deviation of 0.294. On average a farmer is producing about 4,575kg per hectare of
tabasco chillies, though the standard deviation is high. Analysis of data also show that the major costs into the
production of tabasco chillies are seedlings, land preparation and weeding, fertilisers, labour costs for harvest,
agro-chemicals and other costs which includes energy, transport and packaging materials. The results above
show that the major cost in the production function is fertilisers at US$367.76 per hectare, followed by labour
costs (US$288.93), land preparation and weeding (US$236.62). Seedlings and agro-chemicals constitute a
smaller percentage of the total cost of production of tabasco chillies. In percentage terms, results show that the
contribution to costs of production are as follows; fertilisers constitute 34%, labour for harvest is about 27%,
land preparation and weeding is at 22%, seedling costs at 11% while agro-chemicals and other costs stand at
4% and 2% respectively.

In order to determine the profitability of tabasco chillies, the study computed average gross margin and net
income for the crop and these are shown in the table 3 below.
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Table 3: Gross margin analysis per hectare for an average farmer

Variable Costs/price(US$)

Average production (Kg) 4575.8

Price/kg 0.50

Average total revenue 2287.90

Average Variable costs

Seedling 117.45

Land preparation and weeding 236.62

Fertilisers 367.76

Harvest labour 288.93

Agro-chemicals 38.87

Others (bills, transport, packaging) 22.90

Total average variable Costs 1072.53

Gross margin 1215.37

*Fixed Costs 107.25

Total costs 1179.78

Net Income 1108.12

Rates of return

GRR 1.14

NRR 0.94
Source: IRC survey data, 2012
*Fixed costs estimated at 10% of total variable costs
Table 3 gives the computation of gross margins for tabasco chillies for Nyanga farmers. On average, a farmer
gets total revenue of US$2,288, which is the product of the total production per hectare and the price per unit
of output. Average total variable costs from seedlings, land preparation and weeding, fertilisers, labour costs
from harvest, agro-chemicals, and other costs amount to US$1073 per hectare. The difference between total
revenue and total variable cost is the gross margins and stands at US$1,215 per hectare. Fixed costs could not
be obtained from the survey and therefore it was estimated according to provision by Agritex (2008). The
extension institution makes a provision of 10% of total variable costs of a crop as its fixed costs of
production. Using the same principle, the fixed costs are estimated at US$107.25 to give average total costs of
US$1180 per hectare. The average net income per hectare therefore is US$1,108. The analysis shows that the
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GRR is 1.14 and the NRR is 0.94. For every dollar invested in variable costs the tabasco chillies enterprise
earns a return of US$1.14 in gross margin. The same is true for NRR in that for every dollar invested in total
costs, the enterprise earns a return of US$0.94 in total profit.

5.3 ESTIMATING FACTORS AFFECTING PROFITABILITY

In order to determine the factors, both economic and social that have an impact on profitability, a regression
model was used. The gross margin was used as a proxy for profitability as fixed costs could not be obtained
from survey data and hence were estimated. This made it difficult to use profitability indicators that are
normally used in regression analysis such as return on assets or return on equity. The factors considered were
input costs and household characteristics as well as linkage to market since this is a condition to participating
in global value chains. Table 4 below shows the coefficients of the regression model.

Table 4: Coefficients of the regression model

Standardized
Coefficients Sig (95%
level of
Beta Std. Error confidence)
(Constant) 1349.678 0.024

Seedling costs -0.102 6.302 0.754

Land Preparation and weeding -1.741 2.349 0.000

Fertiliser costs -1.865 1.162 0.000

Labour costs -0.518 1.149 0.032

Agro-chemical costs -0.126 7.465 0.097

Gender of the household head -0.005 412.325 0.940

Age of household head -0.098 14.544 0.228

Highest level of education of -0.015 75.271 0.865

the Household head

Available family labour 0.049 92.255 0.453

Linkage to produce markets 0.181 365.290 0.013

Source: IRC survey data, 2012

The results show that the model has a positive constant. Table 4 also shows that the factors that have a
positive impact on profitability are family labour with a beta value of 0.049 and market linkage with a beta
value of 0.181. All the other factors have a negative effect on profitability. These are seedlings costs (-0.102),
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land preparation and weeding costs (-1.741), fertiliser costs (-1.865), labour costs (-0.518), agro-chemical
costs (-0.126), gender (-0.005) age (-0.098) and highest level of education (-0.015).

Results also show that the factors that have a significant effect on profitability are the constant, land
preparation and weeding, fertiliser costs, labour costs, and linkage to markets with significance values of 0.00,
0.00, 0.032 and 0.013 respectively. Thus the result of the regression showing significant factors could be
presented as follows:

GR = 0.181Mrl - 1.741Landprep – 1.865Fert – 0.518Havst (7)

Model summary shows that R square is 0.729, meaning about 73% of the variations in profitability are
explained by the independent variables included in the model. Results also show that the overall regression
model has an F-value of 16.007 and at 95% confidence level the overall model is significant (0.00) in
explaining the household characteristics that have a bearing on profitability.

5.4 DISCUSSION OF RESULTS

Results have shown that tabasco chillies production is a profitable crop as indicated by positive gross margins
and net returns. The returns to both variable and fixed factors of production are positive. Production of
tabasco chillies therefore provides an opportunity for farmers to enter into this global value chain as it brings
about positive returns. This is buttressed by GRR and NRR figures. GRR shows the return per dollar of
variable costs and NRR shows the return per dollar invested of total costs. A rate of return above zero for
variable costs shows that in the short run, it is worth to invest in the enterprise as positive profits are
generated. In the long-run however, GRR should be above one so as to indicate very attractive returns. If
NRR is above zero, it shows that the returns on all costs of production are positive. The figures for GRR and
NRR show that returns are attractive enough to offer incentives for farmers to produce and continue to
participate in the production of Tabasco chillies.

A comparison of gross margins for Tabasco chillies and other crops that smallholder farmers grow shows that
it offers higher returns than maize (average US$600-700/ha) and soyabeans (average US$700-800/ha).
However, the crops has less returns than tobacco (average US$2000-2500/ha), which is the major cash crop
for many resettled farmers. The capital requirements for tobacco are however less than those for Tabasco
chillies.

Results of regression analysis shows that the costs of production i.e. seedling, land preparation and weeding,
fertiliser, labour and agro-chemicals are all negatively related to profitability and hence the negative
coefficients. Generally higher costs of production are associated with a reduction in the profitability of an
enterprise. Therefore as expected, these costs of production are negatively affecting profits. Results also show
that gender has a negative impact on profitability, with being male actually reducing profitability. A possible
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explanation is that women turn to be investment oriented while men turn to be consumption oriented,
therefore women are likely to invest more in production of the crop to get higher profits. For age, the
expectation was a positive relationship between profits and age due to the experience gained in production, in
contrast to the results. However, it is noted that Tabasco chillies production is a highly labour intensive
enterprise. It therefore requires the younger generation with the energy to meet the increasing demands of
producing this all year round crop. These activities include land preparation, spraying, and hand-picking of
the crop. Therefore the higher the age of the decision maker, the less profitability is expected of that crop.

Results also show that the level of education has a negative impact on profitability in contrast to the expected
outcome. Older farmers are likely to be risk averse than their younger counterparts and might be averse to
pursuing options that increase profitability, hence a negative relationship. As expected, family labour and
linkage to markets are positively related to profitability. This is because the higher the number of available
family labour implies farmers are able to carry labour intensive activities such as harvesting in time,
especially where labour supply is constrained, and this can result in increased profitability. Farmers who have
access to the market are expected to have a higher return because they can make informed decisions at the
start of production period as they are aware what the market offers.

Olujenyo (2005) did a regression analysis of factors affecting maize production and results showed that age,
education, labour and cost of non-labour inputs were positively related to profitability while farm size and
farm experience were negatively related. However, the only independent variable found to be significantly
related to profitability was labour and R square was 0.429. Imoudu (2002) showed that farm size and labour
were the significant determinants of maize output and profitability in Ondo-State, Nigeria. These results are
different from those of this study in that this study found input costs to have a significant impact on
profitability, but are similar in that labour is contributing positively to profitability. Results of a study by
Altahat et-al (2012) on factors affecting profitability of layer chickens revealed that feed price (input cost)
was the only significant factor impacting on profitability, with a coefficient of -3.01.

Results of significance show a positive effect for market linkage, negative effect with respect to land
preparation and weeding, fertiliser costs and labour costs for harvest. Results are consistent with that of
Hoeffler (2005), Hawkes and Ruel (2011), and Lerman, (2012), who showed that there is a positive
relationship between profitability and market linkage and a negative effect with respect to the costs of
production. The model showed that there is a strong goodness of fit of the factors that have been selected to
enter into the model as about 73% of the variations in profitability are explained by the changes in
independent variables. Overall the model is also significant as indicated by the F-test.
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6. CONCLUSIONS AND IMPLICATIONS

Results show that the majority of farmers involved in tabasco chillies production are women and have been to
a secondary institution of learning. About 60% of household members are family labour. Land utilisation is
100% and the proportion of irrigated land to total land holding is 84%. The factors that have bearing on
profitability are quantity produced, average price, seedling costs, fertiliser costs, land preparation and weeding
costs, labour costs for harvest, agro-chemical costs and other costs which includes electricity, transport and
packaging costs. The distribution of costs in the production of tabasco chillies are as follows; fertilisers
(34%), labour for harvest (27%), land preparation and weeding (22%), seedling (11%), agro-chemicals (4%)
and others (2%). The average income per hectare is US$2,287.90 and average total variable costs are
US$1,073.52, giving a gross margin of US$1,215.37. Average fixed costs are estimated at US$107.25 giving
a net profit of US$1,108.12 per hectare. The GRR and NRR are 1.14 and 0.94 respectively. Tabasco chillies
production is a viable enterprise that gives good return to both variable and fixed factors of production.
Production of the crop gives good incentive for farmers to participate in global value chains. Analysis of gross
margins for the farmers show that they are clustered and not normally distributed, highlighting the effect of
financing of the crop by the contractor. Analyses of the factors that affect profitability show that available
family labour and linkage to market have positive coefficients. The other factors, which are the factors of
production, gender, age highest level of education have all negative coefficients. Tests of significance show
that land preparation costs, fertiliser costs, labour costs and linkage to market have an impact on profitability.
The F-test also shows that the overall model is significant and R square shows that the choice of the factors
that were selected for the model was also good. Results obtained are consistent with the results of other
studies done in the past.

It has been shown that tabasco chillies returns to the farmer are high, increasing the chances of it being a
successful cash crop for smallholder farmers. It is also important to note that there is minimal government
intervention in the production of this crop such as support facilities, as well as input and output subsidies, thus
reducing fiscal burden. It is therefore recommended that this crop be promoted within the smallholder sector
as it gives good returns and offers farmers opportunities to participate in global markets.

Two possible areas are suggested for further study. It could be interesting to consider the whole value chain
up to the point where the sauce reaches the final consumer. This was impossible in this study, given the
limited financial resources at the disposal of the researcher. This would be important in that it allows a
comprehensive analysis of the value chain, enabling more informed decision making by the concerned actors.
Another suggested study is the analysis of optimal application of factors of production found to have a
significant impact on profitability so as to be able to reduce their negative impact of profitability or increase
its contributions to profitability.
Researchjournali’s Journal of Agriculture
Vol. 1 | No. 5 December | 2014
15

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