Abstract
In the present paper, horizontal and vertical integration was carried out on the wholesale and retail prices of wheat in the major markets of India. On confirming cointegration between the wholesale and retail prices of wheat in all needs, the vector error correction model (VECM) was applied to find the speed of adjustment in the corresponding price channel. The results revealed that price signals are transmitted across regions, indicating that price changes in one market are consistently related to price changes in markets and can influence the prices in other markets. In addition to studying cointegration, threshold autoregressive (TAR) and Momentum TAR (MTAR) models were applied to test for asymmetric cointegration. Hasen and Seo’s test was used to test for the presence of threshold cointegration. It revealed a significant presence of asymmetric and nonlinear cointegration in many markets. Accordingly, a threshold VECM (TVECM) model with two regimes was applied. The results indicate that the retail price significantly responds to the deviations from the long-run equilibrium compared to the wholesale price.
Highlights
India ranks second in the world after China regarding wheat production and consumption
The results indicate that the retail price significantly responds to the deviations from the long-run equilibrium compared to the wholesale price
As per the 2016–2017 data collected from the Directorate of Economics and Statistics, Ministry of Agriculture and Farmers0 Welfare, Government of India, it was revealed that the highest share of wheat comes from Uttar Pradesh (30% of total production), followed by Madhya Pradesh (18%), Punjab (17%), Haryana (12%), and Rajasthan
Summary
India ranks second in the world after China regarding wheat production and consumption. India’s share in global wheat production was recorded at 12.76 percent in 2016–2017. India’s share in global exports was around 0.40 percent in 2015–2016 (Directorate General of Commercial Intelligence and Statistics (DGCI&S). Several empirical studies have been carried out using cointegration techniques that concern the market integration of agricultural commodities in India and other countries. Asche et al [3] carried out vertical and horizontal price linkages for salmon and found a high degree of price transmission in both supply chains and integrated markets in salmon. The non-linear error correction model was applied to assess price linkages and patterns of transmission among producer and consumer markets for apple in Slovenia [8]. The market integration using monthly price data for 21 agricultural goods and 60 markets in India was carried out by [13].
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