Cobweb Model with Buffer Stock for the Stabilization of Tomato Prices in Ghana

Abstract

In this paper a linear cobweb model is developed to study the phenomenon of commodity price fluctuations and then a buffer stock incorporated into the model to stabilize the price of fresh tomatoes in Ghana. The model performed on the assumptions that fresh tomatoes have no equal substitutes, and that there is no foreign competition and also no exogenous shocks needed to generate price fluctuations.The analysis detected that the slope of the demand function of price was smaller than the slope of the supply function of price curve implying that the price and quantity supplied of the fresh tomatoes would oscillate around a fixed price and quantity and also spiral outward.The "Keep Supply at Average" (KSA) buffer scheme achieved price and quantity stability in the short run. The mean price of the scheme was GH¢17.31, very close to actual price mean of Gh¢ 13.40 in the first 16 quarters. The standard deviation of the scheme price also dropped to 1.2 from 9.13 during price stabilization compared to 14.60 of actual price mean.In the long run the scheme price went up to Gh¢ 18.22, an increase of Gh¢ 0.91 and it is clear that in long run buffer system will fail unless the average supply is reviewed regularly.The scheme price trend equation indicated that with the implementation of the buffer scheme, the average quarterly price of fresh tomatoes increased by only 0.05.

Does Cobweb Phenomenon Exist in Rice Market of Pakistan? A Time Series Analysis

“…The later reveals the existence of endogenity in model. The signs of estimated parameters are consistent with literature (Anokye and Oduro, 2013;Anokye et al, 2014;Khan et al, 2019). The resultant demand and supply functions are given in equation 9 and 10, respectively.…”

“…The cobweb model employs the supply and demand functions of price curves to determine the change in price Pk at time k from the price Pk-1 at time k-1. This study follows the methods of Anokye and Oduro (2013), Anokye et al (2014) and Khan et al (2019) to develop the cobweb model. The Market Clearing Equation (MCE) is the first order nonhomogeneous difference equation which describes this process (Nicholson, 1972).…”

“…The resultant ratio − < 1 detects the damped or convergent oscillations in rice prices towards the stable equilibrium level. The presence of convergent price oscillations in Pakistan's rice market is in contrast to the divergent oscillations in Ghana's tomato market (Anokye and Oduro, 2013) and maize market (Anokye et al, 2014). The possible reasons of contradictory results are the distinct characteristics of agricultural markets in terms of difference among the countries, crops, marketing structures and systems.…”

Price Dynamics of Maize in Ghana: An Application of Continuous –Time Delay Differential Equations

“…The models performed on the assumptions that, maize has no equal substitutes and there are no exogenous shocks needed to generate price fluctuations. The market price is determined by only the available supply in a single market and the rate of change of the price is proportional to the difference between supply and demand [46,47,37].…”

Price transmission, reserve regulation and price volatility

“…However, that just how much storage actually limits commodity price volatility has been the subject of debate. Historically, world grain storage plays a limited role in lowering food price volatility (IMF and UNCTAD, 2011); and in the long run, buffer stocks (world grain storage) are found to be ineffective in containing price volatility (Anokye and Oduro, 2013). Some scholars argue that government intervention squeezes out the effect of private storage firms in the market (Lowry et al , 1987).…”