Controlling Potato Supply and Price Volatility – Does it Work? Empirical Evidence from Idaho
Christopher S. McIntosh, Yuliya Bolotova, Paul E. Patterson and Kalamani Muthusamy
Empirical Model
ARCH(1) and GARCH (1,2) mean equation
ARCH (1) variance equation
t
t
t
t
t
t
u
op
Co
op
Co
p
p
p
+
+
+
+
=
−
−
-
-
1
1
1
0
χ
λ
ψ
ψ
t
t
t
t
w
op
Co
u
u
+
+
+
=
-
2
1
1
0
2
η
α
α
10.00
12.00
14.00
16.00
Idaho Fresh Russet Burbank Potato Prices ($/50 pound carton)
Introduction
Declining demand for fresh potatoes, high price volatility and returns
that do not cover the cost of production caused Idaho potato growers to
form a marketing cooperative in the fall of 2004.
United Fresh Potato Growers (http://www unitedpotato com/)
Capper-Volstead Act -
Agricultural producers are allowed to act collectively
GARCH (1,2) variance equation
−
t
t
t
t
t
op
Co
u
u
h
h
-
2
2
2
2
1
1
1
1
μ
γ
γ
δ
ξ
+
+
+
+
=
−
−
−
0.00
2.00
4.00
6.00
8.00
70 count
80 count
Source: USDA Ag Marketing Service (10/2002 – 03/2008)
Pre-cooperative period
Cooperative period
.
.
Goals:
• to stabilize supply of fresh potatoes in Idaho
• to provide fair returns to potato growers
Results of the ARCH/GARCH estimation
United Fresh Potato Growers of Idaho - A cooperative formed to
stabilize fresh potato supply and prices.
• The cooperative formed to combat low prices and high price volatility
• Founded in November 2004
• Represents 85% of fresh potato growers in Idaho
• Targets both production and marketing of fresh potatoes
U it d’ S
l M
t P
Hypotheses:
Effective implementation of the potato supply
management program should lead to higher and less
volatile fresh potato prices
H1 F
h
t t
i
hi h
i
th C
ti
i d
Variables
Monthly Idaho Prices
for Fresh Potatoes
($/cwt)
Russet Burbank Idaho Weekly Shipping Point
Prices ($/50 pound carton)
70 Count
80 Count
ARCH(1)
GARCH(1,2)
Price Level Equation
Estimated coefficient
for the co‐op binary
variable
2.53*
(2.24)
0.58*
(2.68)
0.59*
(5.67)
Data
1) W kl R
t B b k hi
i
i t
i
n e s upp y anagemen rogram
1) Po