Estimating Vertical Price Transmission in Pulse Markets of India

Abstract

This study was conducted to analyze the vertical integration in selected chickpea and pigeon pea markets. The Johansen cointegration method was used to observe the relationship between wholesale prices and retail prices of pulses. Further, the Vector Error Correction Model (VECM) was used to show short-run dynamics. Wald test statistic was used to examine the influence of all the lagged variables on retail prices. It was observed from the results of vertical integration that wholesale and retail prices were cointegrated only for markets like Delhi, Mumbai and Bangalore, which were either central or terminal. No co-integration was found for producing markets like Indore and Jaipur. The wholesale and retail prices behaved independently in the short run. Lack of integration implied an imperfect market situation for pulses hindering the perfect flow of price transmission. So, government policies should be formulated in such a way that ensures greater market efficiency. Physical and institutional market infrastructure needs to improve price transmission, specifically in the producer market.