Price Transmission in Vertical Markets: An Empirical Analysis of Red Gram

Abstract

Price transmission provides insight into vertical and horizontal integration of agricultural markets this will help in producer and consumer welfare. We have examined price transmission process between wholesale and retail markets by adopting Error correction model (ECM). This study has taken case of Red gram (Cajanuscajan) wholesale and retail markets in Bengaluru and Mumbai respectively It has used wholesale and retail prices data from secondary sources. The results revealed that retail price does not react completely to changes in producer price within one month. Dal price responds differently to seed price in its increasing and decreasing phases. Decreasing phase of seed price is associated with one lag, implying dal price to adjust slowly to seed price, say in a month’s time period. The estimated results were 0.98 in Bengaluru and 0.97 in Mumbai  in the rising phase (ECT+) and 0.58 and 0.64  respectively in these markets in the falling phase (ECT-), suggesting that the positive deviations of price from long-run equilibrium are reduced faster in a month’s time period than the negative deviations in Bengaluru. Both values are significant but ECT+ induces a greater change in the tur dal than ECT- in Bengaluru. Where as in Mumbai values of ECT+ and ECT- are also showing faster changes almost. This clearly explains the asymmetry in red gram seed to dal price transmission in Bengaluru and Mumbai.