Fractional Integration Analysis and its Implications on Profitability: the Case of the Mackerel Market in the Basque Country

Abstract

This paper analyses weekly prices for mackerel landed by the inshore fleet at the ports of the Basque Country in 1995-2008, using new econometric techniques never before applied to the fishing market. The idea is to learn to what extent fishermen can pass on the effects of negative shocks (e.g. fuel price increases) to their ex-vessel prices. This will give an idea of the profitability of the fishery in question. To that end, a cyclical ARFIMA model is adjusted to the series analysed, then the impulse-response function is constructed. Among other things, the behaviour of this function shows that possible increases in production costs are not being passed on to prices, which lowers the profitability of fishing. In view of these results, it is suggested that fishermen need to be able to pass the shocks that they suffer on to prices if the profitability of this fleet is to be assured.