Determinants of potato producer prices in the peasant-driven market: the Ukrainian case

Abstract

Purpose. Potato is one of the most important crops to ensure food security globally; potato growing is also a source of income and livelihood for the poorest, especially in developing countries. In view of this, studies on factors affecting potato prices could stimulate agripolitical measures in food security, rural wealth, potato industry and small farms’ development. This paper aims to explore whether the factors affecting potato prices for business entities and farm households operating in the same (but peasant-driven) market are different. Based on the available statistical data and the research background, we focus on the relationships between wages, production (yields and harvested areas), and potato producers’ prices in Ukraine. Methodology / approach. Using the cross-sectional data on potato producer prices, harvested area, and yields of enterprises and households, and average monthly wages in Ukrainian regions for 2018–2020, we used a system of simultaneous equations to model behavior of potato producers’ prices (for enterprises and households) through the two-stage least squares method. Results. The Ukrainian potato industry is featured high rates of potato self-provision (through subsistence farming) and the dominance of farm households at the market, allowing exploring trends and factors of peasant-driven potato market development. The results obtained through modelling of an interrelation of potato producer prices indicate different potato price determinants for enterprises and households: price in enterprises adjusts to fluctuations of potato yields in both enterprises and households (calculated average elasticities are -0.27 and -0.55, respectively, indicating the more significant influence of the latter); households’ price responds to changes of enterprises’ potato prices and average monthly wage rates (with average elasticities 0.49 and 1.35, respectively). Originality / scientific novelty. Research results empirically evidence that households’ dominance and a large portion of food self-provision constrain the potato industry development. This enhances a better understanding of subsistence farming’s impact on markets and food industry development and extends the theoretical framework of households’ economics and peasant-driven market functioning. Practical value / implications. Understanding the role of households in the slow (obstacle) development of the potato industry reveals the need for a policy promoting storage and potato processing capacities development that could mitigate the adverse effects of peasant-driven market performance, decrease price vulnerability, and facilitate potato industry growth.