Spatial price transmission under different policy regimes: A case of maize markets in Kenya

Abstract

The aftermath of the high energy and unstable market crises globally was the unprecedented volatile and high food prices experienced throughout the Eastern and Southern Africa (ESA) region. Most governments implemented a wide range of policy instruments to mitigate and insulate domestic markets against this price hikes. Despite insulation of the domestic market, high food prices have continued unabated. Raising the question are these policies effective. The success of the policy is dependent on the government ability to implement the specific policy. Implementation of most policies in the ESA region may be described as erratic, highly discretionary, inconsistent, unexpected and sudden hence leading to policy failure and market distortion. Domestic factors and to some extent, regional factors play an important role in determination of price as opposed to international market as most country within the region are either self-sufficient or almost self-sufficient in staple foods. The aim of this study was to examine the different policy regimes implemented to mitigate against high food crises and their effects on spatial price transmission on domestic markets. . The results demonstrates evidence of long-run relationship and cointegration between surplus and deficit market under regime with little or no policy intervention. Under this regime, there was higher price transmission, faster correction in price shocks as illustrated by higher speed of adjustment and lower half-life between surplus and deficit markets. Low price transmission, price shocks taking longer to correct as illustrated by low speed of adjustment and higher half-life were observed under different policy regimes. JEL Classification: C22,D43,L13,R32,Q18?