Price transmission between supply and demand markets for cassava-based products: A cointegration analysis for gari in Enugu State, Nigeria

Abstract

The theory of demand and supply implied a positive relationship, or price   information transmission between the supply and demand markets for products.  Using cointegration analysis and weekly data from week 37 in 2004 to week 26 in 2006, a  long-run equilibrium relationship was investigated between the prices for the yellow and white varieties of gari, a granulated dry food product processed from cassava roots, in a typical rural (supply) and urban (demand) markets in Enugu State of south- eastern Nigeria. The Augmented Dickey-Fuller (ADF) test was used to check for stationarity in the pairs of prices while the Engle and Granger two-step procedure was used to test for cointegration of the markets. Results revealed that, although yellow gari sold for relatively higher prices than the white gari in both the rural and urban markets, the market prices were significantly  positively correlated for the two products. The tests for unit roots revealed that the different price series were individually  nonstationarity while the pair of prices for each product was  integrated of order one. The ADF test statistics were calculated as -1.63 and  -1.59  in levels and -9.45 and –8.35 in first differences for yellow gari. The  statistics were also calculated as -1.69 and –1.56 in levels and –10.57 and –9.10 in first  differences for white gari in the studied rural and urban markets. The results revealed further that the rural and urban markets were cointegrated with t-statistics calculated as -4.09 for yellow gari and -4.20 for white gari. Changes in prices in one of the markets reflected similar long-term changes in prices in the other. The error  correction model did not, however, reveal any significant causality link between the peripheral and central markets, suggesting that there were no clear trends in price leadership between the markets. On the whole, the study had established that there could be efficiency in the transmission of price information among the operators of the traditional food markets in Nigeria. The  implication was that the development of the cassava agro-industrial sector might need to generate its own source of raw materials to guarantee food security in Nigeria.

Keywords: Co-Integration, Cassava, Gari, Markets, Prices