| dc.description.abstract | Most research regarding the potato market fails to make a clear distinction between processing and fresh markets. The processing market includes potatoes destined for frying, dehydrating and grinding, whereas the fresh market encompasses those potatoes marketed for table consumption. While there exist many similarities, fundamental differences between the two markets point to the potential presence of economic structure, or in other words, a relationship in which the price of potatoes in one market leads the other. This paper opts to separate these two markets and investigate the existence of such relationship using theoretically ordered vector auto-regressions and impulse response functions. The robustness of the relationship is examined by utilizing data sets with different frequencies, monthly and annual.
Secondary to the objective of identifying economic structure between the two markets is the evaluation of sources of risk and volatility. By decomposing the forecast error variance of each vector auto-regression, definite amounts of future variation are attributed to the variables included in the model.
The research results indicate not only the existence of structure over both monthly and annual time periods but also that 1) over monthly periods shocks in the processing market precipitate responses in the fresh market and 2) over annual periods this relationship is reversed, with the processing market responding to fresh market shocks. Additional investigation suggests that the monthly economic structure is driven by differences in seasonality between the two markets, the availability of market information, and substitution of fresh market potatoes for
processing by major processors. Whereas, annual structure is more appropriately explained by the transparency and availability of transactional information.
Furthermore, the research shows that overall a very small proportion of future variance in the monthly data is driven by impulses in the individual price series, fresh or processing. However, the annual model with the inclusion of a production variable illustrates the fact that future volatility in the fresh market may be attributed to changes in processing prices and to an even larger extent, the annual production of potatoes. | en |
