Macroeconomic Trends And Factors Of Production Affecting Potato Producer Prices In Developing Countries

The potato, as an affordable and nutritious food, could be a major aid to development. In many present-day developing countries, however, its profitable cultivation and wider use are hindered by supply constraints. For production, a chief problem is in input use conditions, which we here approach via output price level differentials. To explain the cross-border differentials in the producer price of the potato, averaged over a decade, we use principal component (PC) regression. We perform PC analysis on 33 variables of 40 developing countries. We retain the seven most important PC’s expecting them to represent factors or trends in the data. Loaded by agricultural and social conditions, the PC’s are put to explain potato producer price in linear regression. The basic factors of production, land, labor, capital, and technology correspond to the four PC’s that statistically significantly explain potato price. They explain half of the cross-border variation in potato producer price. Studying macroeconomic inputs, we find also likely paths of their accumulation. Land input depends on potato suitability. Labor input correlates with certain conditions, namely those of agricultural poverty, that bring poor terms of trade for small farmers. Capital input, to agricultural land development, is inversely dependent on urban business opportunities. Technology input correlates with human capital or knowledge. Greater input use, through its effects on production, decreases potato price. The three other PC’s are macroeconomic trends; economic growth, growing potato importance, and improving market economy infrastructures. Economic growth and greater potato importance may lead to higher potato prices in developing countries, whereas improving infrastructures may lower average prices. Concerning potato related agricultural policies, our results support the view that potato supply constraints, surveyed in literature, prevent effective and coordinated input use in developing countries generally. Efficiency in input use would likely be increased by infrastructures that are targeted specifically for the potato. The results also lend support to the practice of sequentially addressing the constraints, but since they exist due to a high degree of complementarity between inputs, we should prudently consider the order in efforts, and the sustainability of benefits.