Measuring the Degree of Integration in the Dairy Products Market in Malawi

Neil Chalmers,Charles Jumbe,Cesar Revoredo-Giha

doi:10.3390/socsci8020066

Abstract

Using monthly data for the period 2006–2011, this study analyzed the degree of spatial market integration in Malawi focusing on two dairy products (liquid milk and powdered milk) sold in the four major towns of the country. The analysis of spatial market integration is important to assess whether to re-establish a dairy processing facility in the northern part of the country. The empirical analysis comprised of the following steps: (1) Integration between prices from different regions were tested using Johansen’s cointegration procedure, with the results indicating that, in the long run, prices in some areas move in a similar direction. (2)Two spatial equilibrium models were estimated using a three-regime bivariate threshold vector autoregressive model (TVAR) and a three-regime threshold vector error correction model (TVECM). The results showed that transaction costs were not a cause for concern between the areas thus northern Malawi does not need to re-establish a dairy processing facility as surplus areas (mainly Southern Malawi) can supply the region.

Highlights

The market share of milk processed within Malawi for 2009 were estimated to be attributed to four dairies: Dairibord (70 per cent market share), Suncrest (15 per cent market share), Lilongwe Dairy (10 per cent market share) and Northern Dairies (5 per cent market share)(Revoredo-Giha et al 2013) and (CYE Consult 2009)
This paper aims to understand whether prices for the different dairy products are integrated throughout Malawi’s major towns, i.e., whether they move together and the law of one price being satisfied
This paper is focused on understanding whether dairy product prices in Northern Malawi move in a similar direction to the rest of the country

Summary

Introduction

The market share of milk processed within Malawi for 2009 were estimated to be attributed to four dairies: Dairibord (70 per cent market share), Suncrest (15 per cent market share), Lilongwe Dairy (10 per cent market share) and Northern Dairies (5 per cent market share)(Revoredo-Giha et al 2013) and (CYE Consult 2009). Northern Dairies, had a relatively low market share and ceased to operate in 2012 due to cash flow problems and equipment failures (Revoredo-Giha et al 2013) and CYE Consult (2009). This dairy shutdown raised the question of whether prices of dairy products would increase in this region relative to other parts of the country. This processor faces cash flow problems, it continues to collect milk and is currently the only processor available in Northern Malawi, but with a scale of operation that is very limited and with hopes of expanding its capacity to 1000 L per day in the future (USAID and Malawi Dairy Development Alliance 2012). If milk prices are not cointegrated between the north and rest of the country, this could imply that the law of one price does not apply and there are market distortions

Objectives

Methods

Results

Conclusion