Market Integration and Price Transmission in the Vertical Supply Chain of Rice: An Evidence from Bangladesh

Limon Deb,Sang Hyeon Lee,Yoonsuk Lee

doi:10.3390/agriculture10070271

Limon Deb, Sang Hyeon Lee + Show 1 more

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https://doi.org/10.3390/agriculture10070271

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Abstract

As a staple food, rice has an enormous market in Bangladesh in terms of market participants and the volume of the product. As the price of rice is always a sensitive factor for producers, poor consumers and policy makers, this paper investigates market integration and price transmission along the vertical supply chain of rice. Johansen’s test of co-integration confirmed that farm, wholesale and retail prices are co-integrated in the long-run. A causality test revealed that prices were found to be at wholesale levels for both the upstream and downstream markets. The asymmetry error correction model (ECM) has discovered short-run and long-run asymmetry in price transmission in the vertical supply chain where both producers and consumers were being affected due to positive and negative asymmetry. Threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models have confirmed threshold co-integration as well as threshold effect on asymmetry in price transmission. The results highlight the inevitability of policy implementations and increased public interventions to reduce asymmetry for engendering greater pricing efficiency in Bangladesh rice markets.

Highlights

One key principle of several trends in economics is that markets permit price signs to be transmitted both spatially and vertically [1]
It is noted that the null hypothesis for both augmented dickey-fuller (ADF) and Phillips and Perron (PP) tests was, there is unit root or non-stationarity in the respective series
The results indicate that the estimated models for both farm-wholesale and retail-wholesale price pairs are free from serial correlation and heteroscedasticity

Summary

Introduction

One key principle of several trends in economics is that markets permit price signs to be transmitted both spatially and vertically [1]. Analysis of diverse price relationships could be a decisive means for understanding market integration, or more precisely market efficiency. Studies on price transmission largely scrutinize the nature of the relationship between price series at different levels of the supply chain, or at spatially separated markets. 11.7 million hectares (ha) of lands were cultivated for rice production and 35 tons (MMT) of milled rice was produced in 2018 [4]. In terms of maximum rice production, Bangladesh is ranked fourth in the world [4], which indicates the importance of rice in this country’s context. By not being a major exporter or importer, the domestic market plays a vital role in the country’s rice sector so that welfare primarily depends on the efficiency of domestic rice markets which needs to be investigated thoroughly

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