Research On Price Transmission Effect Between Farm And Wholesale Of Potatoes In China

Price volatility is the basic form of economic operation,which comprehensively reflects the health ofmacroeconomic.To maintain price stability is an important objective of macroeconomic control.Due totheir production characteristics of vulnerability to climate and product attributes of less demandflexibility,agricultural products are often characterized by large fluctuations,non-stationary,non-linear.Moreover,volatility in agricultural commodity prices have a significant impact on the development ofrural economy and increasing farmers’ income. As the fifth largest crops, potatoes are widely grown inChina on account of its feature of adaptive.Frequent fluctuations of potato prices in recent years haveaffected potato production and consumption directly,and thereby affecting our country’s food securityand rural economic development.From the theory of price transmission,the price volatility always starts from a region or a commodity,then transfer to other regions or other commodities gradually.There are two main conduction modesincluding vertical transmission on industrial chain and spacial transmission among regions.Ingeneral,the price transmission is primarily affected by factors,such as supply-demandrelationship,market structure and information delivery mechanism and so on.Based on monthly data of potato farm price index and wholesale price index during2009-2011,thisarticle analyzes the long-term co-integration relationship and transmission effect of potatoes betweenproduction and sales by using cointegration analysis and the approach of vector autoregression model.The main progress and conclusions of the study are as follows:(1) Seasonal fluctuation in prices of potatoes. The wholesale prices of potatoes exhibit a rising trendduring January to May every year,begin to decline from May to October,and then rise again sinceNovember till the beginning of the second year.However,the farm prices of potatoes reach the highestlevel at the beginning the year,which meet the highest in April in2009and2010while in January in2011.(2) It exists a long-term co-integration relationship between farm prices and wholesale prices whichmeans when the price deviate from the equilibrium point,there would be an adjustment mechanism tomake it back to balance.(3)The effect of transimission between farm prices and wholesale prices is not showing the sameway,and the efficiency of transmission is also different. By using the impulse response function toanalyze the shock effect between these two variables,it is found that transmission from farm price towholesale price lags of1month,while the transmission from wholesale price to farm price issmooth.Moreover,farm prices changes in the same direction with the wholesale prices,also the influencefrom wholesale prices to farm prices reach its peak in the second month,and gradually disappeared7months later.Nevertheless,the wholesale prices are not always change in the same direction with thefarm prices.This relationship is more of a reverse,which explains the wholesale prices play a regulatory role on the farm prices,as to maintain the balance between them.(4)Both fluctuations of farm price and wholesale price present an inertial effect,but the durations of theeffect are very different.The wholesale price itself is the main factor causing the wholesale priceschanges,this effect will last for a long period, while the effect of the farm prices is relatively small;thevolatility of farm prices is simultaneously affected both by the farm price itself and the wholesaleprices,its own has a greater impact at the beginning,and then the influence of the wholesale pricesgradually increases until the sixth month when both the two impacts were roughly equal.(5)Due to the association between the changes of farm price and wholesale price,this paper proposedsome advices,such as,to strengthen policy guidance of potato production and sale, production andmarketing collaboration,and improve information monitoring and early warning mechanisms.