Research carried out in several countries has concluded that high yielding varieties (HYV) of rice have tremendous potential compared to traditional rice varieties in alleviating poverty. On the other hand, it is argued that despite increase in yields, high yielding varieties do not benefit the poor farmers because of high costs associated with input acquisition and other operational costs. To further understand the issues related to production and economics of HYV, this study was carried out with its primary objective to assess the profitability of smallholder rice production in Mangol, Bilene district in southern Mozambique. Out of a total population of eighty farmers, sixty farmers participated in this research. Two groups of farmers, one using traditional rice varieties and the other using high yielding varieties were surveyed. The study consisted of field observations; yield measurements and interviews of the farmers using a semi-structured questionnaire. Gross margins were calculated for both traditional input users (TIU) and modem input users (MIU). Results show that an average farmer using high yielding varieties produces 4.4 tons of rice per ha, corresponding to a gross margin of 4 238 000,00 MZM. The highest yield obtained with high yielding varieties was 7.3 tons of rice per ha, producing a gross margin of 10 038 000,00 MZM. On the other hand, an average TIU farmer produces 2.5 tons per ha, realising a gross margin of 3 483 125, 00 MZM. The maximum yield attainable using traditional inputs is 2.9 tons per ha, producing a gross margin of 4 283 125, 00 MZM. The results also show that the lowest yield obtained by farmers using modern inputs was 3.1 tons per ha, producing gross margins of 1 638 000,00 MZM while the lowest attainable when using traditional inputs is 1.7 tons producing gross margins of 1 913 125,00 MZM. The main conclusion of this study was that HYV are more profitable than traditional varieties, both in financial terms, to individual farmer and in economic terms, to the society as a whole. However, due to high production costs, farmers producing HYV must attain yield levels not less than 3.4 tons per ha as yields below that level make little financial incentives and does not motivate farmers to shift from traditional varieties to modern varieties. In order to ensure high yields, farmers must be assisted to carefully implement the recommended agronomic practices because the adoption of high yielding varieties does not ensure profitable yields if the other agronomic and management practices are not observed during the production process. The study also assessed the contribution of agricultural support services such as input supply, credit and extension, on the adoption of new technologies and it was concluded that when agricultural support services are available, farmers can successfully adopt recommended technologies. / Dissertation (M Inst Agrar (Agricultural Economics))--University of Pretoria, 2006. / Agricultural Economics, Extension and Rural Development / unrestricted