Econometric analysis of the market for California early potatoes

Zusman, P

Econometric analysis of the market for California early potatoes

Author

Pinhas Zusman

Author Affiliations

Pinhas Zusman was Instructor, Agricultural Economics, Hebrew University, Israel; Assistant Research Agricultural Economist II, University of California, Berkeley, to July 10, 1961.

Publication Information

Hilgardia 33(11):539-668. DOI:10.3733/hilg.v33n11p539. December 1962.

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Abstract

The market position of California early potatoes is influenced by a variety of factors. Most prominent among these are the demand conditions during the early season, the supply response of early crop producers in other states, and the carry-over of preceding year late potatoes into the early market.

The quantitative analysis of the market for California early potatoes was accomplished in three phases. An econometric model of the potato market consisting of fourteen equations in fourteen endogenous and fifteen exogenous variables was developed and estimated in the first phase. The sample period consisted of the years 1930 through 1958 excluding the years 1942 through 1950.

In the second phase, an analysis of the market static and dynamic characteristics was undertaken. The static analysis was essentially a comparative one. In this analysis the short run and long run effects of variation in exogenous variables were derived and expressed as systems of multipliers.

The analysis of the market dynamics was concerned mainly with the system stability and its time path under ever-changing environmental conditions. It was found that deterministically the system is stable with a relatively high dampening factor. The large observed fluctuations of prices and quantities are, therefore, due to exogenous shocks. When various sources of exogenous shocks were analyzed, it was found that random disturbances were of prime importance while erratic variation in exogenous variables was only secondary in generating the observed fluctuations.

The analysis of the system time path under ever-changing exogenous variables led to the conclusion that the rate of adjustment of the potato industry to changing conditions is relatively high, and the actual rates of change in exogenous variables generate only slight discrepancies between the system’s time path and its equilibrium values.

In the third phase, an attempt was made to use the estimated model in formulating optimum production policies for a collusion of California potato growers. When a “shortsighted” policy, based on a planning horizon of one year, was considered, it was found that such a policy leads eventually to a “stationary” optimum policy, but increases the instability of the system. The long run optimum policy problem was solved only for the special case of a “stationary” optimum policy. A general conclusion suggested by the analysis is that California growers could have benefited by some reduction of output.

Finally, a general method for long-run forecasts was developed and applied in predicting future trends of the potato market.

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