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Can Cold Storage Reduce Seasonal Variation in Prices of Agricultural Commodities? a Case of Potato in Bangladesh

Md. Shishir Ahamed
Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh

Md. Moniruzzaman
Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh

Nazia Tabassum
Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh

Abstract/ Executive Summary:

Cold storage has a significant role to maintain supply of potato throughout the year in a country and hence it can influence to reduce the seasonal price variations because in agriculture supply mainly regulates the price of commodities. This study was undertaken to investigate whether cold storage can reduce the seasonal variation in prices of potato in Bangladesh. National data on monthly wholesale prices of potatoes (potato local, potato Holland white and red) were collected during the period from 1972 to 2018 from the Department of Agricultural Marketing. Ratio to the moving average method was applied to measure the seasonal price indices between the two periods (before establishing sufficient capacity of cold storage and after establishing sufficient capacity of cold storage for storing potato in Bangladesh) for assessing whether the cold storage can reduce seasonal variation in prices of potato. From the study it was revealed that seasonal price variation of different varieties of potatoes became lower after establishing sufficient cold storage capacity (more than 30 per cent of total potato production from 1988 to 2018) in the country, i.e., there is an impact of cold storage in reducing the seasonal price variation of potato. Because price variations for individual months, coefficient of variation and range, all of them are lower after establishing sufficient capacity of cold storage. So, cold storages can reduce the seasonal variation in prices of potato. Government should facilitate more for establishing cold storage; these facilities can improve the seasonal price fluctuations of other vegetables also.

Keywords: Cold storage, Seasonal price variation, Agricultural commodity, Potato, Bangladesh

Location: Department of Agricultural Marketing, BAU, Mymensingh, Bangladesh

Start Date: 00-00-1972

End Date: 00-00-2018

Program Area: Postharvest and Agro-processing

Commodity: Potato

Objectives:

To examine whether cold storage can reduce seasonal variation in prices of potatoes in Bangladesh.

Methodology:

This study was conducted to examine empirically whether cold storage can reduce the seasonal price variation of potatoes in Bangladesh. In assessing this, the seasonal price indices of potato have been estimated by applying the ratio to moving average method before and after establishing the sufficient capacity of cold storage. Seasonal price behaviour is a systematic pattern that occurs within a year. For many agricultural commodities, the main source of seasonality originates from the supply side (Tomek and Kaiser, 2014). The author has found the time series data of capacity of cold storage since 1976-77. It is observed that the sufficient capacity of cold storage established in the year 1987-88 and it was around 30 percent of total potato production and later on the capacity has been increased, before that period it was around 1 percent. Monthly wholesale prices of potatoes were found from the year 1972 (potato local), so the whole period of monthly wholesale prices of potatoes was divided into two parts (before (1972 to 1987) and after (1988 to 2018) establishing sufficient capacity of cold storage). So, seasonal price index calculated by using monthly time series data before 1987-88 (from 1972 to 1987) and seasonal price index calculated by using monthly time series data since 1987-88 (from 1988 to 2018) have been compared to examine whether cold storage can reduce the seasonal variation in prices of potato. The impact was measured for the three types of potato; potato local, potato Holland (white) and potato Holland (red). The monthly wholesale prices of potato Holland (white) were found from the year 1991 and for the case prices of potato Holland (red) was from the year 2002. So, seasonal price indices in case of potato Holland (white and red) were compared with the seasonal price indices of potato (local) to measure whether cold storage can reduce the seasonal variation in prices of potato. This study is based on time-series data on the monthly wholesale price of potato in Bangladesh. Secondary data were collected from the Bangladesh Bureau of Statistics (BBS), and the Department of Agricultural Marketing (DAM). The collected data were checked and cross-checked for ensuring their reliability, accuracy and adequacy and thereby to make them meaningful for the present study. All the collected data were summarized and scrutinized carefully. In case of the monthly wholesale price of potato collected from DAM, it has been found that some data were missing. Those missing values were estimated by the simple mean of the before one and after one observation. The collected data were summarized and analyzed to fulfil the objectives of the study. The analysis of time series consists of separating and studying the nature and behaviour of its components (trend (T), cyclical (C), seasonal (S) and irregular (I)). These are two hypotheses as to the association of these components. One is multiplicative and the other is additive. In the multiplicative hypothesis, it is assumed that the components are joined together in a multiplicative fashion (Acharya and Agarwal, 1994). A multiplicative hypothesis was assumed in this study. Multiplicative model: P_t= T×C×S×I (in case of monthly observations) Here Pt is an observation on the monthly wholesale price of potato for period t. Ratio to the moving average method was used to examine the seasonal price variation of potato from the period of 1976 to 2018 and it is the most widely used method (Sabur, 1990; Sabur et al., 2006; Hajong et al., 2014; Meera and Sharma, 2016; Rayhan et al., 2019) of measuring seasonal variations. Ratio to the moving average method is superior to others because this method provides a true seasonal variation; it has a power to eliminate the effect of the other three components (trend, cyclical and irregular) from the results (Acharya and Agarwal, 1994). Twelve months moving average can eliminate the two components (seasonal and irregular) from the time series that means it consists of trend (T) and cycle (C). If the actual value for any month is divided by the 12-month moving average centered to that month, presumably cycle and trend are removed. This is given below. Thus, the ratio to the moving average represents irregular and seasonal influences. If the ratios for each worked over a period of years are then averaged most random influenced will usually be eliminated hence in effect: [(S × I) / I] = S (Meera and Sharma, 2016). For that reason, this method was applied to measure seasonal variation in prices of potato. P_t/MA_t = (T x C x S x I) / (T x C). = = (S×I). Here MA_t is a moving average at time t. Averaging this over the years and adjustment through a correction factor provides the best estimate of the seasonal index. The correction factor is calculated as follows: k =1200/s. Where, k = correction factor s = sum of average indices for 12 months.

Source of Information: The Bangladesh Journal of Agricultural Economics, 42(1): 19-36, 2021

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Funding Source:

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Achievement/Findings:

Frequent excessive seasonal price fluctuations of agricultural commodities create uncertainty about the market price and enhance risks in agricultural production as well as its business. So, the producers and business people need less seasonal variation in prices to operate their activities smoothly throughout the year that can also help for the development of the agriculture sector. This study was attempted to examine whether cold storages reduce the seasonal variation in prices of potato in Bangladesh. For assessing this, the seasonal price indices of three types of potato were estimated before and after establishing sufficient capacity of cold storage in Bangladesh. The findings of the study revealed that seasonal price variation of potato has been decreased after establishing sufficient (more than 30 percent) capacity of cold storage of total potato production in the country as a whole. So, the government should facilitate more for establishing cold storage, these facilities can reduce the seasonal variation in prices of other agricultural commodities that can be stored for regular supply for maintaining demand throughout the year and hence it can also reduce the price and income risk of producers and traders in this business.

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