Modelling and forecasting of potato sales prices in Ukraine

Abstract

Purpose. Under the background of the climate change and other crises, the world food system is becoming increasingly vulnerable to price fluctuations. This highlights the need to consider and better manage the risks associated with price volatility in accordance with the principles of a market economy and simultaneously protecting the most vulnerable groups of population. Responding to these challenges, in this study we aim to determine the main parameters of time series of potato sales prices in agricultural enterprises in Ukraine, to build an appropriate model, and to form a short-term (one-year) forecast. Methodology / approach. We used in the research the data from the State Statistics Service of Ukraine on average monthly sales prices of potatoes in agricultural enterprises from December 2012 to July 2021 (104 observations) adjusted for the price index of crop products sold by enterprises for the month (with December 2012 base period). Decomposition was used to determine the characteristics of the time series; exponential smoothing methods (Holt-Winters and State Space Framework – ETS) and autoregressive-moving average were used to find the model that fits the actual data the best and has high prognostic quality. We applied the Rstudio forecast package to model and to forecast the time series. Results. The time series of potato sales prices in enterprises is characterized by seasonality (mainly related to seasonal production) with the lowest prices in November, and the highest – in June; although, other periods of price growth were identified during the year: in January and April. The ARMA (2, 2) (1,0)12 with a non-zero mean was found to be the best model for forecasting potatoes sales prices. ARMA (2, 2) (1,0)12, compared to the state-space exponential smoothing model with additive errors – ETS (A), better fits the observed data and provides more accurate forecasting model (with lower errors). Forecast made with ARMA (2, 2) (1,0)12 shows that potato sale prices in agricultural enterprises in November 2021 (months with the lowest price) will range from 2154.76 UAH/t to 7414.57 UAH/t, in June 2022 – from 3016.72 UAH/t to 14051.63 UAH/t (prices of July 2021) with a probability of 95%. The forecast’s mean absolute percentage error is 14.87%. Originality / scientific novelty. This research deepens the methodological basis for food prices modelling and forecasting, thus contributing to the agricultural economics science development. The obtained results confirm the previous research findings on the better quality of food prices forecasts made with autoregressive models (for univariate time series) compared with exponential smoothing. Additionally, the study reveals advantages of the state space framework for exponential smoothing (ETS) compared to Holt-Winters methods in case of time series with seasonality: although the ETS model overlaps with the observed (train) data, it is better in terms of information criteria and forecasting (for the test data). Practical value / implications. The obtained results can serve as an information basis for decision-making on potato production and sales by producers, on more efficient use of resources by the population, on more effective measures to support industrial potato growing, to implement social programs and food security policy by the government.