Analysis of Market Integration and Price Variation in Rice Marketing in Osun State, Nigeria

Abstract

Aims: The aim of the study was to examine market integration and price variation in local rice marketing in Osun State, Nigeria. Specific issues addressed in the study were the determination of existence of co-integration between the rural and urban markets and the leading market between the rural and urban markets for rice. Study Design: Secondary data were used in this study. The data were sourced from Osun State Agricultural Development Programme. The average monthly retail price (/Kg) of local rice covering the period, January, 2000 to December, 2010 (11years) for Osogbo (urban market), Telemu (rural market) and Erin Ijesa (rural market) were used. • DATA ANALYSIS   Place and Duration of Study: Osun State, South-West Nigeria, between March and July 2011. Methodology: Coefficient of variation and price correlation coefficient were used to examine the behavior of local rice market price in urban and rural areas of Osun State.  The Augmented Dickey-Fuller (ADF) test was used to investigate stationarity in the pairs of prices while the Johansen co-integration technique was used to determine the existence of co-integration between the markets. Results: Augmented Dicker Fuller procedure (ADF) indicated that all the variables (the individual price series for rice) were not stationary at their respective levels, but stationary at their first difference. Both the trace and maximum eigen value statistics indicated the existence of co-integration relation at 5% significant level for the pairs of product prices, implying that rice markets during the study period were linked together and therefore the long-run equilibrium was stable. The results also indicated that urban rice markets did not granger-cause rural rice markets while rural rice markets granger caused urban rice markets at 5% level of significance respectively. The error correction model showed significant causality link between the rural and urban markets, suggesting a clear trend in price leadership. It follows that there could be efficiency in transmission of price information among operators if relative stability is attained in the rural markets of local rice in Nigeria.  Conclusion: The study concluded that rice markets in both urban and rural areas of Osun were co-integrated and had short-run and long-run relationships, with rural rice markets occupying the leadership position in price formation and transmission. The design of appropriate agricultural price policies aimed at efficient and cost effective government market interventions such as price stabilization and food distribution policies must henceforth, take into cognizance, the high degree of co-integration among rice markets in the study area, as established in this study. It was therefore recommended that rice farmers (who are located in these rural areas) be placed at the center of marketing policies so they can determine the direction of price movements.