CHAPTER - VI PATTERN AND SEASONALITY BEHAVIOUR OF ARRIVALS AND PRICES

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1 CHAPTER - VI PATTERN AND SEASONALITY BEHAVIOUR OF ARRIVALS AND PRICES Introduction The behaviour of prices (in terms of price level, trend and fluctuation) is the most important factor in determining the competitiveness of a commodity at the domestic and at international level, to draw inferences for future prices and to formulate long term strategy on trade (Chand, 2002). The instability in the prices of agricultural commodities has been one of the major factors affecting the income level of farmers as well as pace of agricultural production. This instability in prices of agricultural commodities is influenced by a number of factors such as annual variation in production, low price elasticity of demand and seasonality of agricultural production (Kahlo and Tyagi, 1989). Due to these factors the producer has no control over price which leads to price uncertainty. Therefore, the analysis of price behaviour would be useful to take decisions like, when to grow and when to sell on the part of farmer and when, where, how to store and dispose of the produce on the part of businessman. Market price information with respect to fruits and vegetables is important for the orchard owners to make decision regarding choice of market and time and to maximize returns from the sale of their produce. 118

2 A well-informed orchardist can safeguard his interests better than the ill informed one against the moves of the buyers to gain advantage in the transaction. The increase in the level of production and marketable surplus of fruits and vegetables has created a situation in which most of the farmers have been confronted with a glut in the market and consequent fall in prices. It is therefore, necessary to study farm prices. On the basis of price studies, the farmers can make decisions for proper allocation of the crop areas by anticipating future prices based on the lagged prices. Fruits and vegetables are produced seasonally, but the market requires these products throughout the year. For many decades, the problem of matching the product availability with consumer demand is solved in two ways: (i) selling fresh products during harvest and shortly after harvest; and (ii) processing the rest of the produce to meet the demand during the rest of the year. As technology improved and consumer s income increased, it has become possible to provide fresh produce year-round. This chapter surveys crop seasons and analyzes seasonality of market arrivals and prices of fruits (guava, ber and mango) and vegetables (potato, tomato and peas). Issues From supply side, market arrivals represent the ultimate destination of the producer s activity with which they are generally associated. Are market arrivals of fruits and vegetables homogeneously distributed throughout the year like the supply of industrial products? If 119

3 not, what is the nature of their month-wise distribution? How do product prices respond to month-wise arrivals and vice-versa? What is the role of market expectations in directing the market supplies? Is the existence of negative relation between market arrivals and prices independent of market expectations? This chapter is devoted to the examination of these types of related questions. Crop Seasons Different fruits and vegetables are grown in different seasons and their harvesting time is also different. The proportion of the crop marketed in the immediate post-harvest period has frequently been used as an index of the holding power of the cultivator, on the assumption that higher the holding power of the cultivator, the lower the proportion marketed in the immediate post-harvest months, when the market price is low. In this section, the sown and harvesting periods of selected fruit and vegetable crops are discussed (Table 6.1). Guava: Guava has two marketing seasons. The winter season is between December March and summer season is between August-November. The arrivals of winter guava are less as compared to summer season. Small cultivators are observed to have marketed their surplus earlier in the season probably because of relatively low staying power. Ber: Ber arrivals are harvested from the end of December to mid March. The months of the least activity are August-November. 120

4 Mango: Market arrivals of mango increase in February, remain particular heavy in May-July and taper off in August. Approximately, 95 per cent of the arrivals are brought to the market between April-July. Table 6.1 Peak, Mid and Lean Periods of different Fruits and Vegetables Crop Peak Mid Lean Guava August- December- April-July November March Ber December- March April-July August- November Mango April-July August- November December- March Potato December- March April-July August- November Tomato January-April May-August September- December Peas December- March April-July August- November Source: Field Survey, For vegetables, the seasons are discussed below: (Table 6.1) Potato: Potato arrivals increase in the month of November and December, remain particularly heavy in January-March and taper off in April month. Tomato: Tomato arrivals are generally heavy between January-April. Arrivals begin in January and usually heavy in March and April. Arrivals of late maturing tomato begin in May and continue till August. After this the tomato of cold stores comes to the market. 121

5 Peas: Market arrivals of peas are the highest during January-March. Arrivals gradually diminish after April. The months of the least activity are August-October. Market Arrivals and Seasonality Unlike industrial products, which have a steady supply throughout the year, agricultural production is season specific. This phenomenon creates higher gestation lag amongst agricultural products when they tend to respond to exogenous changes in demand for products. The season specificity of agriculture production also generates a unique marketing response of agriculturist. The usual pattern is that a portion of the produce moves to market during harvest season and a part goes for storage either at producer s level or at wholesaler s/traders level. It helps in the adjustment of the supply of these commodities in relation to their demand in the market. Storage plays an important role in the marketing of fruits and vegetables as these are perishable in nature. The more a commodity is perishable, the higher is likely to be its storage cost and vice-versa. Between the two crops, fruits are relatively more perishable than vegetables. Consequently, the seasonal effect of arrivals is expected to be more dominant in the case of fruit crops than in the case of vegetable crops. To capture the seasonality of market arrivals of fruits and vegetables, the study has adopted two approaches. In approach one; the month-wise average arrivals from the period to are 122

6 computed. computed. The relatively monthly weights of arrivals have also been This approach has been supplemented by the standard approach of seasonality index. The month-wise seasonality index has been computed by eliminating the trend, cyclical as well as irregular fluctuation s effect on the month-wise market arrivals from the period to by using a multiplicative model. Y= T S C I Where, Y= Time series data on arrivals/ prices of fruits and vegetables. T= The time trend S= The seasonal variations C= The cyclical variations I= The irregular fluctuations. Month-wise market arrivals tend to represent positively skewed distribution, its peak being in the harvesting month or following the harvesting period. In the case of fruits, in Punjab, guava is divided into two season crops, i.e., winter and summer. The summer crop is harvested during August and winter crop during January-February. The yield of guava varies due to different varieties, age of plant, fruiting season and orchard management practices. It is observed that different varieties of guava produce more yield in summer season (Allahabad, Safeda, Sardar guava) as compared to winter season. But, the quality of summer season crop is poor due to attack of fruitfly than winter season crop. In the case of guava; the peak month is August, for 123

7 ber, the peak month is March and it is June in the case of Mango (Table 6.2). Table 6.2 Month-wise Market Arrivals of Fruits in Patiala District Markets, (Unit: Quintals) Month Guava Ber Mango January 6403 (12.80) 2135 (12.65) 83 (0.03) February 4227 (8.45) 3449 (20.44) 167 (0.05) March 3709 (7.41) 5866 (34.77) 1027 (0.33) April 1941 (3.88) 3663 (21.71) (7.19) May 335 (0.67) 247 (1.46) (21.48) June 101 (0.20) _ (34.36) July 1283 (2.56) _ (33.01) August (24.38) _ (3.37) September 6876 (13.74) _ 564 (0.18) October 2529 (5.05) 50 (0.30) 13 (0.004) November 4454 (8.90) 222 (1.32) 6 (0.002) December 5979 (11.95) 1240 (7.35) - Total Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. Note: Figures in parenthesis are the percentage values of total arrivals. In the case of vegetables, for potato; the peak month is February, for tomato and peas each; the peak month is March (Table 6.3). 124

8 Table 6.3 Month-wise Market Arrivals of Vegetables in Patiala District Markets, (Unit: Quintals) Month Potato Tomato Peas January (10.04) (6.89) (9.76) February (15.07) (8.72) (30.58) March (10.93) (13.19) (46.49) April (7.65) (11.51) (2.79) May (7.09) (11.17) (1.42) June (6.34) (8.25) 8810 (0.85) July (6.30) (7.02) 5111 (0.49) August (6.23) (6.19) 6662 (0.64) September (6.44) (7.02) 5428 (0.53) October (6.88) (6.78) 8403 (0.81) November (7.61) (5.99) (1.93) December (9.42) (7.29) (3.70) Total Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. Note: Figures in parenthesis are the percentage values of total arrivals. The seasonality index (S.I.) also revealed the maximum value of market arrivals during these peak months. In the case of fruit crops, its value is for guava in the month of August, for ber its value is in the peak month of March. In the case of mango, the peak month is June and seasonality index is also the highest, i.e., (Table 6.4). 125

9 Table 6.4 Month-wise Index of Seasonal Variations of Fruits Arrivals in Patiala District Markets, Month Guava Ber Mango January February March April May June July August September October November December Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. For vegetables, the value of seasonality index being for potato during February month and for tomato and for peas during March month in Patiala district. (Table 6.5). 126

10 Table 6.5 Month-wise Index of Seasonal Variations of Vegetables Arrivals in Patiala District Markets, Month Potato Tomato Peas January February March April May June July August September October November December Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. It is assumed that more than 100 value of seasonality index depicts the concentration of market arrivals, therefore the study found that there are four months, which satisfy the criteria for both fruits and vegetables under study. In the case of fruits, for guava, the arrivals during the four months (August-November) accounted for more than half of the total yearly arrivals. As far as other fruits are concerned, the arrivals of ber during the four months (December-March) accounted for three-fourth of the total arrivals and of mango during April-July accounted for per cent of the total yearly arrivals (Table 6.1). As regards vegetables, the arrivals for potato accounted for 46 per cent of 127

11 the total yearly arrivals during the four months, i.e., December-March. The arrivals of tomato during the four months, i.e., January-April accounted for two-fifth of total yearly arrivals. The arrivals for peas during the four months, i.e., December March accounted for nine-tenth of the total yearly arrivals. Is the classification of the months into peak, mid and lean periods in terms of market arrivals possible? If so, then the classification will assume declining weights of arrivals during the three periods of the year. The relative month-wise weights do not follow very systematic pattern throughout the year. The changing month-wise relative weights appear to be responding to seasonal spurts in demand. Nevertheless, the study has classified the year into three periods, following broadly the behavior of fruit and vegetable crops. However, the months included in the peak, mid and lean periods differ for different crops, depending upon seasonal specificities of each crop. The study has computed, the relative weights of year-wise arrivals for fruit and vegetable crops for peak, mid and lean periods (Table 6.6 and 6.7). Irrespective of the year and the crop, the relative weights of arrivals showed a declining trend as moving from peak to mid to lean periods. When the year-wise data were examined, the weights of peak periods were more in the case of mango than other fruits. (Table 6.6). 128

12 Whereas in the case of vegetables, the weights of peak periods of peas were more than other vegetable crops (Table 6.7). Table 6.6 Pattern of Arrivals of Fruits in Patiala District Markets, (Unit: Percentage Values) Year Guava Ber Mango Peak Mid Lean Peak Mid Lean Peak Mid Lean Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. Note: Guava: Peak period: August-November, Mid period: December-March and Lean period: April-July. Ber: Peak period: December-March, Mid period: April-July and Lean period: August-November. Mango: Peak period: April-July, Mid period: August-November and Lean period: December-March. 129

13 Table 6.7 Pattern of Arrivals of Vegetables in Patiala District Markets, (Unit: Percentage Values) Year Potato Tomato Peas Peak Mid Lean Peak Mid Lean Peak Mid Lean Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. Note: Potato: Peak period: December-March, Mid period: April-July and Lean period: August-November. Tomato: Peak period: January-April, Mid period: May-August and Lean period: September-December. Peas: Peak period: December-March, Mid period: April-July and Lean period: August-November. Market Prices and Seasonality Stable prices play an important role in determining the farmer s income. Prices, in turn, depend upon the demand and supply (arrivals) 130

14 in the markets. Given a certain level of demand, variations in the arrivals cause deep fluctuations in prices. Further, fluctuation in prices is an important factor influencing, directly or indirectly, the level of resource use and consequently the level of production. Unfortunately, the structural arrangement of our marketing sector is so defective that the pricing phenomenon cannot be properly identified. The variation in price from time to time and from place to place is a very common phenomenon in our country. During the same year in a particular market and over different markets at a particular point of time wide variations in prices are noticed. This violent fluctuation in prices over time and space introduces an element of uncertainty and affects both the producers and consumers in terms of low prices received by the farmers and high prices paid by the latter. It is true in the case of fruits and vegetables where farmers cannot retain the produce at the farm for longer periods due to their perishable nature and non-availability of cold stores. Also, the farmers need immediate cash to meet the financial obligations for various purposes. They dispose of the produce immediately after harvest. This gluts the markets during peak periods and results in slump in prices. But, during the lean months, this leads to the rise in price level. In other words, prices are at the lowest level when arrivals are at the peak in the market and improve with the decline of arrivals till the end of the crop season. The study results also support the thesis. During the year , as in the case of fruits, the 131

15 maximum price of guava was found in the month of October, i.e., Rs.690 per quintal when the arrivals were only of 231 quintals (Table 6.8). In the case of ber, the maximum price was in the month of November, i.e., Rs.750 per quintal with the least arrivals (24 quintals) during the same period whereas in the case of mango, the maximum price was found in February (Rs.3023 per quintal) when arrivals were at their lowest level, i.e., 12 quintals only. In the year , in the case of guava, the maximum price was noticed in the month of June (Rs.1130 per quintal) when the arrivals were 96 quintals only. For ber, the prices were at their highest level in October, i.e., Rs.2650 per quintal when arrivals were the minimum, i.e., 20 quintals only. Lastly, in the case of mango the highest price was found in January (Rs per quintal) when the arrivals were only 1 quintal during the same period. 132

16 Table 6.8 Month-wise pattern of Fruits Arrivals and Prices in Patiala District Markets, to (Unit: Arrivals-Quintals, Prices: Rs. Per Quintal) Month Guava Ber Mango Arrival Prices Arrival Prices Arrival Prices Arrival Prices Arrival Prices Arrival Prices January 864 (12.53) (14.04) February (6.09) (9.52) March (6.95) (6.72) April (1.03) (6.02) May (0.19) (2.07) June (1.42) July (3.77) (4.25) August (32.87) (18.23) September (9.86) (8.96) October (3.35) (5.65) November (11.0) (11.18) December (12.34) (11.94) (12.38) (5.95) (0.002) (22.44) (25.40) (0.05) (0.004) (34.19) (36.08) (0.27) (0.61) (21.8) (10.96) (7.39) (10.80) (26.68) (25.86) (5.51) (29.07) (56.56) (31.94) (3.56) (1.68) (0.02) (0.69) (0.84) (3.87) (8.35) (7.05) (0.02) Total Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. Note: Figures in parentheses are the percentage of total arrivals. 133

17 Month Table 6.9 Month-wise pattern of Vegetables Arrivals and Prices in Patiala District Markets, to (Unit: Arrivals-Quintals, Prices: Rs. Per Quintal) January (8.92) February (11.40) March (18.28) April (8.26) May (6.24) June (5.57) July (4.81) August (4.52) September (7.20) October (8.71) November (6.41) December (9.82) Potato Tomato Peas Arrival Prices Arrival Prices Arrival Prices Arrival Prices Arrival Prices Arrival Prices (9.91) (10.18) (18.40) (5.92) (8.24) (6.65) (5.54) (6.57) (5.67) (6.67) (7.65) (8.61) (6.72) (10.25) (12.09) (12.64) (11.81) (9.20) (5.78) (6.46) (5.41) (6.34) (5.93) (7.37) (5.51) (6.32) (17.44) (12.43) (10.28) (7.72) (5.86) (5.80) (7.07) (8.11) (5.98) (7.48) (12.73) (29.24) (36.68) (4.16) (2.27) (2.01) (0.95) (0.62) (0.65) (1.03) (3.37) (6.30) (4.39) (31.36) (55.75) (1.92) (0.79) (0.56) (0.35) (0.56) (0.55) (0.79) (0.87) (2.11) Total Source: Calculated using month-wise arrival data obtained from Market Committee of Patiala. Note: Figures in parentheses are the percentage of total arrivals

18 In the case of vegetables, (Table 6.9) as expected during the year , for potato, the maximum price was observed in the month of August, i.e., Rs.463 per quintal when arrivals were only quintals whereas during the year , the price was maximum in September month, i.e., Rs.1132 per quintal when the arrivals were the least, i.e., quintals. For tomato, during the year , the maximum price was observed in September month, i.e., Rs.1198 per quintal when the arrivals were lowest, i.e., 2954 quintals. During the year , the price was at its peak level in November (Rs.1811 per quintal) and the arrivals were 4297 quintals only. Lastly, in the case of peas, the maximum price was noticed in the month of October (Rs.1916 per quintal) when arrivals were only 1002 quintals during the year But, during the year , the price was at its peak in the month of November, i.e., Rs.4326 per quintal when the arrivals were only 2196 quintals. Like arrivals, prices also depict seasonality. If it is assumed that arrivals depict supply and prices depict demand, then there should be a negative correlation between them. If the above proposition is followed, during the peak period where there is concentration of arrivals, prices should be low and during the lean months when arrivals are scarce, prices should be high. Our seasonality index of prices corroborates the fact. It indicates the maximum price during the lean months and the minimum price during the peak months. In the case of fruit crops, 135

19 (Table 6.10) as far as guava is concerned, the index of monthly prices was low in the month of August (76.1) and its peak level (116.5) was in the month of January. Table 6.10 Month-wise Index of Seasonal Variations of Fruits Prices in Patiala District Markets, Month Guava Ber Mango January February March April May June July August September October November December Source: Calculated using month-wise price data obtained from Market Committee of Patiala. The price movement was characterized as less than average from June to September when the price index was less than 100. For the rest of year, except November, the index was higher than 100. In the case of ber, the index of monthly prices was low in March month (107.6) and its peak was in the month of October, i.e., For mango, the index of monthly prices was low in June month (51.8) and its peak level (168.6) 136

20 was in the month of January. The price movement was characterized as less than average from April to August when the price index was less than 100. For the rest of year, the index was higher than 100. The producers can use such a seasonal index of fruit crops to market their produce. In the case of vegetable crops (Table 6.11), firstly for potato, its peak reached in the month of September at and its lowest level reached in the month of February at Table 6.11 Month-wise Index of Seasonal Variations of Vegetable Crop Prices in Patiala District Markets, Month Potato Tomato Peas January February March April May June July August September October November December Source: Calculated using month-wise price data obtained from Market Committee of Patiala. 137

21 The price movement was characterized as less than average from December to April when the price index was less than 100. For the rest of year, the index was higher than 100. In the case of tomato, its peak reached in the month of August at and its lowest level reached in the month of March at The price movement was characterized as less than average from January to June when the price index was less than 100. For the rest of year, except for December, the index was higher than 100. For peas, the index of monthly prices was low during March month (47.2) and its peak level (150.9) was in the month of September. The price movement was characterized as less than average from December to March when the price index was less than 100. For the rest of year, except for 1-2 months, the index was higher than 100. Relationship between Production, Arrivals and Prices There exists a dynamic relation between production, supply (arrivals) and prices. A rising trend in prices may result in higher production levels and in turn higher supplies in the future. But this assumption may hold true for industrial sector and generally fails to hold good in the case of agricultural products, the latter being, generally, seasonal in nature and not produced throughout the year. The nature of fruit and vegetable production reflects wide fluctuations in prices, supply (arrivals) and demand throughout the year. Therefore, in the short run analysis, it is not possible to relate production, market arrivals and 138

22 prices. In other words, only the relationship between market arrivals and prices can be examined. As already discussed, that arrivals are at peak when prices are low and vice-versa, i.e., a negative relationship between prices and market arrivals is indicated. Correlation analysis was adopted to verify the relationship between month-wise prices and corresponding market arrivals for each of the years between and (Table 6.12). Table 6.12 Correlation Coefficients of Monthly Arrivals and Prices of Fruits and Vegetables in Patiala District Markets, Year Fruits Vegetables Guava Ber Mango Potato Tomato Peas Source: Calculated using month-wise arrival and price data obtained from Market committee of Patiala. The negative values of the correlation coefficients computed between the month-wise arrivals and corresponding market prices confirm the existence of inverse relationship between market arrivals and prices. This is generally true for each of fruit and vegetable crops. The reason for the existence of inverse relationship between market arrivals 139

23 and prices is that the storage cost increases the cost of supplies and as a result, there is a rise in the price as moving away from the harvest period. The year-after-year existence of inverse relation between prices and market arrivals implicitly assumes that prices are increasing over time, i.e., there are positive price expectations. Thus, there prevails inverse relationship between market arrivals and prices. These results confirm our hypothesis. Summing-up From the analysis it has been found that the seasonal behaviour of fruit and vegetable crops has created glut in the market during the postharvest season, which resulted in sharp fall in prices and affected the producers adversely in Patiala district. It has also been found that the major portion of the farmer s produce was sold at the lower price in the post-harvest period thereby lowering their incomes. The major reason is the perishable nature of the produce and the non-availability of cold stores and storage techniques. So, the government at the block and at the district levels should develop cold storage facilities. Further, emphasis should be given towards developing those varieties whose ripening can be delayed which would streamline the supply of the produce. Moreover, arrangements should be made for proper distribution of the produce in different parts of the country or export to other countries. The transportation of these perishables by providing refrigerator van services to distant markets in the state and country and 140

24 air lifting will go in long way to avoid glut in the market. This will avoid slump in prices in the peak season and also helps to tap those potential markets, where prices are generally higher. This will ensure remunerative prices to the farmers for their produce. ******************************************************* 141