Spatial market integration and price transmission of selected groundnuts markets in Zambia

Abstract

With increasing population in the main consumption regions of Zambia, there is a persistent shortage in the supply of groundnuts especially in Lusaka and the Copperbelt regions. This is despite the major producing areas of Eastern and Northern regions having significant surpluses. This is a clear indication of market failure to stimulate groundnut production and distribution in addition to excessive price volatility, information asymmetry, and lack of organized and consistent markets. Knowing about the extent of market integration and price transmission in groundnut markets is important for agricultural policy decisions. The general objective of the study is to investigate the degree of integration and price transmission among geographically separated groundnut markets in Zambia in order to enhance the flow of market information among groundnut market participants. The specific objectives of the study are to characterize the spatial price differentials of groundnuts between deficit and surplus areas, to determine the extent of market integration between the deficit and surplus areas and lastly, determine the speed of adjustment in the retail prices between the surplus and deficit areas. The study analyzed monthly average retail price data covering the period from January 2001 to March 2017. Descriptive statistics revealed that consumption regions had the highest nominal mean prices with Lusaka and Kitwe recording K12.32 and K8.82 per Kg respectively while the producing regions recorded the lowest mean groundnuts prices. The Augmented Dickey-Fuller (ADF) and Kwiatkowski Philips Schmidt Shin (KPSS) tests were both used to test for stationarity, Johansen Co-integration test was used to test for long-run relationships among the variables while the Vector Error Correction Model was used to ascertain the speed of adjustment between the deficit and surplus areas. Both the ADF and KPSS showed that Chipata, Chadiza, Petauke and Kasama markets were non-stationary at level, meaning that the prices in these markets had a unit root process, but Lusaka and Kitwe prices were stationary at their original levels. However, after the first difference, all the markets were stationary and significant at 1 percent level. After establishing that there was Stationarity among the variables, Johansen Co-integration test showed the existence of co-integration at 5 percent level of significance. Furthermore, granger causality showed bi-directional causality between Kitwe and Chadiza markets. The VECM showed that after exogenous shocks, most of the corrections were made by the urban markets which are the deficits markets. The study recommends that policy makers or private and public development practitioners should consider development and constant use of market infrastructures in order to enhance efficiency in the groundnut markets.