Disentangling supply and demand shifts: the impacts on world salmon price

Abstract

To understand price changes, one must determine the relative impact of supply and demand shifts on price. Conditional on predetermined supply and demand elasticities, we retrieve yearly shifts in regional supply and demand. The relative impact on price from each supply and demand shift is determined through an equilibrium displacement model (EDM). This procedure is applied on a yearly basis for the world salmon market in the period 2002 to 2011. The results indicate a large variation in demand and supply growth both over time and between regions. While average annual price impacts from supply or demand shifts from most regions are not statistically significant, price impacts from supply or demand shifts for specific periods are detected in all but one region. This indicates that the use of smooth trend indicators is likely to be inappropriate for measuring supply and demand shifts and their impacts on price. The procedure presented in this article can be a useful instrument for determining the relative impacts of supply and demand shifts on price in any market with unstable price behaviour.

Keywords:

• market analysis
• food prices
• aquaculture economics
• equilibrium displacement model

JEL Classification:

• Q11
• Q13

Acknowledgements

I thank Paul Aandahl, his colleagues at the Norwegian Seafood Council and Sigbjørn Tveterås for providing data and background material. Øystein Myrland, Henry Kinnucan and two anonymous reviewers provided helpful comments and suggestions. I gratefully acknowledge these contributions to this work.

Notes

¹ Note that by deflating the price and expressing it in euros, the price of salmon is actually slightly lower in 2011 compared to 2002, as opposed to what can be observed in Fig. 1 where the salmon price index is denominated in nominal US dollars.

² Demand elasticities vary between −0.2 and −1.7, with mean and median around −0.75 (Fousekis and Revell, 2004; Davis et al., 2007; Hong and Duc, 2009; Sakai et al., 2009; Xie et al., 2009; Tiffin and Arnoult, 2010; Asheim et al., 2011; Muhammad and Jones, 2011; Xie and Myrland, 2011; Chidmi et al., 2012; Singh et al., 2012; Jones et al., 2013). The values vary by product form, period length, income level and market location.