Market Integration and Price Transmission in India's Major Paddy Markets: An Econometric Introspection

Abstract

This study investigates the integration dynamics of five major wholesale paddy markets in India, each representing distinct zonal councils: Kota (Rajasthan), Attabira (Odisha), Sindhanur (Karnataka), Dahod (Gujarat), and Bhatapara (Chhattisgarh). Unlike prior research, which primarily focuses on localized short-term market integration, this study addresses a critical gap by employing long-term market integration analysis using structural break techniques. By utilizing a 15-year dataset (2009–2023), we systematically examine price linkages, structural shifts, and the speed of price adjustments across markets. A robust econometric framework was applied to assess market efficiency, incorporating the Augmented Dickey-Fuller test, Johansen's Co-integration Test, Structural Break Analysis, and the Vector Error Correction Model (VECM). The findings confirm long-term price integration, with the structural break analysis identifying critical market disruptions. The VECM results indicate that price adjustments occur at varying speeds—Kota (32.5%), Sindhanur (35.4%), and Dahod (19.56%)—highlighting asymmetries in market efficiency. In the short-run, adjustments are significant between Attabira and both Dahod and Sindhanur markets, suggesting localized transmission effects. Furthermore, Granger causality tests reveal unidirectional price leadership in select market pairs. These insights underscore the need for targeted policy interventions to enhance market efficiency. Improved market oversight, digital price dissemination, and enhanced storage and transport infrastructure can facilitate smoother price transmission and minimize volatility. Additionally, strengthening farmer awareness programs on price trends and inter-market linkages can help optimize market participation and price realization.