Spatial price transmission in the regional maize markets in Ghana

Abstract

Policy makers have been striving through market reforms to ensure proper functioning of agricultural markets and marketing channels to ensure food security, realize welfare impacts from policies, bridge the gap between the affluent and deprived regions. The core of which is due to regional ecological differences among other factors. In addition, the purported ability of marketing participants to influence the conduct of the market and respond to certain price shocks faster/slowly than others warrant examining the regional maize market linkages within the past decade. Using regional monthly wholesale price data from 2002 – 2010, the consistent threshold autoregressive model is employed for the study considering the robustness and the limitations of other approaches. Results indicate that regional maize markets are integrated. Bidirectional market interdependence was found between market pairs both in the short and long run. The long run causality was however heterogeneous with respect to positive and negative shocks. The nature of price adjustment is asymmetric and traders respond quickly when market margins are squeezed than when stretched for all market pairs except between Brong Ahafo and Greater Accra market pairings. The time path needed for adjustment ranged from 7 to 26 months. The minimum adjustment time was 7 months occurring between Brong Ahafo - Greater Accra markets linkage for positive deviations and Brong Ahafo - Ashanti market for negative deviations. The recent expansion in communication infrastructure motivates the regional market integration. This implies that resources should be allocated to transportation development; the main hindrance to trade. The suboptimal condition of asymmetry is also motivated by inventory behaviour of traders but this remains a testable hypothesis. Traders in Greater Accra are slow in passing on price increases for the fear of loss of goodwill and/or loss of customer share given the multiple sources of supply