February 15-18, 2009 Washington State Convention Center Seattle ...

WILL DECREASE IN POND BANK PRICES INCREASE THE CATFISH FARMERS’
INCOME IN U.S.? AN ANALYSIS OF PROCESSORS’ DEMAND BEHAVIOR
Madan Mohan Dey*, Kehar Singh, Carole Engle and Abed Rabbani
Aquaculture/Fisheries Center
University of Arkansas at Pine Bluff
1200 N University Drive, Mail slot 4912
Pine Bluff, AR 71601 USA
mdey@uaex.edu
Pond bank prices of channel catfish have fluctuated substantially over the last two decades and there is a great deal of concern
related to how far prices may fall in future. There are many rumors and many speculations. Among others, there are comments
being made that pond bank prices must come down to increase the volume of catfish processed by processing companies. The
specific objectives of this paper are to : a) study the relationship between pond bank prices and processors’ prices, and pond
bank price and processing volume, b) analyze the nature of processors’ demand for catfish and the factors that affect it, and c)
analyze the impact of alternate pond bank and processors’ prices on fish farmers’ and processors’ income. The paper uses various
graphical, descriptive and econometric analyses. The analysis of processors ’ demand is based on a ‘partial adjustment
model’ assuming that the processors cannot totally adjust their demand to the desired level due to various constraints and rigidity
in the market. The model, estimated following Cochrane-Orcutt AR(1) regression, has explained 96.20 per cent variation
in the processors’ demand.
Analysis shows that there is a significant decline in average nominal pond bank price (by 4.3%) during the period from January
2000 to April 2008 as compared to the period before January 2000. However, the processors’ sale price (nominal) has decreased
only marginally over the period. The volatility in pond bank price has increased after 2000, but processors’ price has remained
more stable. The increase in the Consumer Price Index has been drastically higher than that of catfish prices (pond bank prices
and processors’ sale prices), indicating that the real price of catfish has decreased over the last decade or so. The estimated price
transmission function shows that the farmers receive about 94% of the processors’ sale price. The ratio has remained more or
less unchanged over the period, indicating that processors are not extracting a greater share from the farmers over time.
Econometric results reveal that the pond bank price, imports of catfish, basa & tra, and fuel price have significant negative
influences on the processors’ demand for catfish. The price elasticity of processors’ demand is highly inelastic, i.e., if there is a
1% decrease in pond bank prices, other things remaining the same, the processors ’ quantity demanded will increase, on average,
by 0.07 and 0.42% in the short run and long run, respectively. Decreases in pond bank price will cause further decreases
in farmer’s revenue, but processor will benefit marginally in terms of revenue gain. A 5% decrease in pond bank price (other
things remaining constant) will cause, on average, 3% revenue loss to farmers and 2% revenue gain to processors.