Price Signal Transmission In Ethiopia For The Case Of Major Grain Commodities: Are Retail And Producer Prices Cointegrated

Abstract

This study was conducted to investigate major grain price co-integration between producers and consumers and examine the price transmissions in Ethiopia. To achieve the objectives of the study secondary time series data on monthly prices of major grain such as wheat, teff and maize for period of September 2010 to March 2022 were collected from Ethiopian Statistical Service (ESS). Data obtained from different sources were analyzed using the descriptive analysis, and econometrics models. Granger causality and Johnson co-integration were used to determine long-run co-integration and direction of causality respectively. Vector Error Correction Model (VECM) is applied to examine the long-term co-integration between producer price and consumer price. From the descriptive analysis average price of producer is less than average price of retail for teff, wheat and maize. The pair wise Granger causality test result revealed that for white teff there is bidirectional causality between producer and retail price at surplus areas and major towns. For wheat Granger causality test show that there is bidirectional causality between producer price and retail price almost all area except at national level. For maize there is a unidirectional causality between producer price and retail price of maize at all area. The study finds perfect price transmission between retail and producer price and there is bidirectional and unidirectional price transmission from retail to producer for all commodities under the study but not from the producer to retail for some commodities. For all commodities under the study at national level, producer price does not granger cause retail price, but the retail price granger cause the producer price. The Johansen co-integration result shows that, long-run price co-integration for teff, wheat and maize. The results of Granger causality, Johnson co-integration, and the vector error correction model indicate that there is both short and long-term causality between Addis Ababa, deficit, surplus, and major towns, indicating that the market is highly integrated. The findings suggest that policy interventions can improve grain marketing efficiency in the short and long run by controlling Addis Ababa price, by improving market information systems.