Intercommodity price transmission: an analysis of Tanzanian maize and rice markets

Abstract

The overall objective of the present study was to examine price linkages between maize and rice to inform food policy in Tanzania. The specific objectives were: i) to analyze trends in monthly wholesale prices for maize and rice in selected markets; ii) to determine the degree of price transmission between maize and rice; iii) to determine the direction of causality between maize and rice prices. A purposive sampling was used to draw a sample of ten (10) markets /regions. The study used monthly wholesale prices for maize and rice from July 1992 to December 2012. The data were obtained from the Ministry of Industry and Trade in Tanzania. The study employed descriptive and econometric (Co-integration and causality techniques) analyses. Microsoft Excel, SPSS and STATA were used during the analyses. Prices of the considered commodities follow an upward trend with frequent fluctuations in specific periods. This trend displays some co-movement. Seasonal indices follow the cropping cycle for the commodities under investigation. Price variation for the two commodities is consistently high in all markets. Moreover, many of these are connected. ECM reveals that many of the market pairs denied price transmission between the two commodities in the short-run with three (3) months lags. In many cases, bidirectional causality was observed between the two commodities rather than unidirectional causal reference. The study recommends that (i) the government should make efforts to reduce price instability in agricultural markets (ii) The government should improve transportation infrastructures including where the crops are produced so as to ensure movement of crops in all weather conditions (iii) Also more researches on intercommodity price transmission should be conducted and the analysis should exploit factors like information on marketing and transfer costs.