EFFECTS OF FORWARD SALES ON SPOT MARKETS: PRE-COMMITMENT SALESAND PRICES FOR FRESH STRAWBERRIES

Increasingly, agricultural markets are vertically coordinated. Often a thinning spot market coexists with coordinated transactions, raising the question of how private coordination affects the market as a whole. One of the greatest challenges when analyzing such market-level effects is obtaining informa-tion on private transactions.We utilize publicly available data to evaluate how informal contracts in the fresh strawberry market affect spot market prices using a generalized autoregressive conditional het-eroskedastic in mean (GARCH-M)model.We find that these informal contracts increased spot prices, as argued by some industry members, while the effect on spot price volatility varied by production region. Key words: agricultural contracts, forward sales,GARCH-M, spot markets, strawberry market, vertical coordination.. JEL codes: D4, L14, Q13. Increasingly, agricultural markets are charac-terized by contracts, integration, and other forms of vertical coordination. Often a thin-ning spot market coexists with coordinated transactions, raising the question of how pri-vate coordination by some parties affects the market as a whole. One of the greatest chal-lenges when analyzing the market-level effects of private contracts is obtaining information on contract terms, such as prices and quan-tities (Hubbard and Weiner 1992; Menkhaus, Phillips, and Bastian 2003). One response is to use experimental techniques (Menkhaus, Phillips, and Bastian 2003; Menkhaus et al. 2003). We use a different approach. We uti-lize publicly available data from the USDA’s National Berry Report to evaluate how infor-mal contracts in the fresh strawberry market SandeepMohapatra is an assistant professor,Department of Rural Economy,University ofAlberta. Rachael Goodhue is an associat