Date of Award

8-2006

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Burton C. English

Committee Members

John Brooker, Kimberly Jensen

Abstract

The goal of this study was to assess the production feasibility and market potential of using kenaf as a feedstock for paper production in Tennessee. This thesis 1) evaluates the potential for growing this crop in Tennessee by comparing the cost and return and the break-even price for kenaf with soybean, corn, cotton and wheat, 2) identifies potential suitable production areas in the state of Tennessee, 3) analyzes the marketing opportunities that could have developed for kenaf at a price that growers would be willing to produce it, 4) identifies potential kenaf marketing structure and marketing channels, and 5) identifies potential marketing problems of kenaf.

The economic feasibility of kenaf in Tennessee was evaluated using simulation, budgeting and sensitivity analysis. EPIC simulations were conducted for kenaf along with the dominant crops for 202 Tennessee soil types and 18 nitrogen levels. Quadratic plus plateau response functions were estimated. Profit-maximizing nitrogen fertilization rates and yields were identified for each soil using these quadratic response functions. Finally, the marketing of kenaf was assessed using the Strategic Marketing Management to analyze marketing potential of kenaf.

Results showed that kenaf is economically feasible to produce in some regions in Tennessee at a nitrogen price of $0.38/lb and a kenaf price of $55 per ton. The net returns to land and management vary across regions. The average lowest net return to land and management obtained was $60.22 per acre while the highest was $150.04 per acre. Average breakeven prices1 ranged from $19.75 to $74.69 per ton.

Analysis revealed that kenaf was not sensitive to changes in nitrogen prices across regions. Increasing (decreasing) the nitrogen price to 5%, 15% and 25%, profitability decreased (increased) by only 3%, 7% and 13%. Nevertheless, kenaf was sensitive to changes in output prices. Varying the price below and above 5%, 15% and 25% profitability decreased (increased) by 21%, 54% and 90%.

Market structure of kenaf resembles that of small monopoly and monopsony at the production side because there is no open market. The “chicken or egg” dilemma was a major problem to commercialization. Without established market, kenaf is riskier to produce than dominant crops. However, cooperative contract growing reduces marketing risks. This study will aid producers, cooperatives prospective investors and policy development planners in making investment decisions in the future.

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