Analysing potato price volatility in South Africa

Abstract

Potato is perceived as an excellent crop in the fight against hunger and poverty. The recent high potato price in South Africa has pushed the vegetable out of reach of the poorest of the poor. The study attempts to analyse potato price volatility in South Africa and furthermore assess how various factors were responsible for the recent potato price volatility. Quarterly data for potato price, number of hectares planted, rainfall and temperature levels from 2006q1 to 2017q4 was collected from various sources and were used for analysis. The total observation of 48. The volatility in the series was determined by performing ARCH/GARCH model. GARCH model indicates an evidence of GARCH effect in the series, meaning that GARCH model influences potato price volatility in South Africa. The Johansen cointegration used both trace and eigenvalue to test the existence of a long run relationship between potato price and various variables. The cointegration results were positive indicating that there exists long run relationship amongst variables. The study further used Johansen cointegration as well as standard error to determine the number of cointegrating variables in the long run. The results indicated that the number of hectares planted and rainfall level have significant relationship with potato price. Wald tests was used to check whether the past values of number of hectares planted and rainfall level influenced the current value of potato price. The Walt test results concluded that there is no evidence of short run causality running from number of hectares planted and rainfall level to potato price. In the study, ECM model was used to forecast the potato price fluctuation in South Africa. The study recommends that farmers need to engage in contract market so as to minimize the risk of potato price volatility. The Department of Agriculture should forecast agricultural commodities price volatility and make information accessible to the farmers so that they are able to adopt strategies that will assist them to overcome crisis.