Price Modelling in the Canadian Fish Supply Chain with Forecasts and Simulations of the Ex-vessel Price of Fish

The price of fish is an obvious and important factor in the economic welfare of fishermen. Of course, the level of harvest and cost of harvesting are other important variables and all in combination determine income levels of fishermen. But in many ways fishermen have control at least to some extent over harvest and cost of harvesting. On the other hand, the price of fish is set by external factors exogenous to fishermen. These external factors are certainly dictated by demand and supply forces but may also be influenced by monopoly and strategic pricing behaviour in downstream markets. Strategic pricing can impact the magnitude of price pass through between the market segments and the length of time to adjust to price shocks. Fisheries management with an interest in welfare and income implications for fishermen must be aware of the factors that impact the ex-vessel price of fish.  It is of some interest then to identify and measure some of the factors important in setting the price of fish.

One way to approach this problem is to model and measure price links in the fish supply chain. Three market segments define the supply chain linking the first-hand market/ex-vessel price to the intermediate market/industrial process price and then to the final market/retail price. The focus here is the derived demand for product from processing to the first-hand market. This price approach is based on the theory of derived demand where the processed price of fish is used as a proxy for market factors setting the ex-vessel price.

The purpose of this research is to carry out a statistical investigation of market prices in the Canadian fish supply chain with particular attention to price setting in the first-hand market for fish. Monthly Canadian fish price data for the period January 1981 to March 2010 or a total of 352 observations are available for statistical evaluation. The empirical strategy is to apply time series techniques to measure ex-vessel price relationships. First, a univariate analysis (ARMAX) is carried out on the ex-vessel price of fish. This simple but often powerful short-run forecasting technique relates current ex-vessel price to the history of prices in the market and current and historical stochastic shocks. We include the US/Canada exchange rate as an exogenous variable in the model and control for seasonality to improve forecasting and to reduce forecast error. The ARMAX model is well identified econometrically and will allow for dynamic forecasts of ex-vessel prices. If the long run exists, then there must also exist a short-run model defining the links and behaviour of prices to short-run shocks. An error-correction (EC) model can be used to econometrically identify both the short- and long- run parameters for the first-hand market, to predict the length of time for price adjustment to regain the long-run equilibrium after shocks to the equilibrium and to simulate price response.