Vertical Market Integration and Behavioral Variations of Medium-Quality Rice Prices Before and During Covid-19

Abstract

The Covid-19 pandemic has put pressure on the prices of food, particularly rice, a strategic commodity for trade across Indonesia. The traditional market and wholesalers face intense price competition for rice, which renders the market ineffective. This study proves the form of rice market integration in wholesalers and traditional markets, as well as the behavior of pricing both before and after the pandemic. The research data are the weekly and monthly prices from the Indonesian National Strategic Food Price Information Center Institute for the years 2018 to 2021. Vector autoregression (VAR) and error correction model (ECM) were adopted for the integration analysis. The results suggest that prices in traditional markets and wholesalers cointegrate, but this does not persist over time. Equilibrium prices in both markets were reached after 4 months. The price trend demonstrates that price changes in both markets before and during the epidemic are not symmetric. Price changes during the Covid-19 epidemic were erratic and dramatic. Government involvement through suitable policies is required in a market environment under intense pressure to stabilize prices. Market participants must accept this policy in order to prevent any party from gaining an undue advantage.