Price Transmission Asymmetry in Spatial Grain Markets in Ethiopia

Kifle Wondemu

African Development Review, 2015, vol. 27, issue 2, 106-116

Abstract: Acknowledging the link between competitive and efficient spatial agricultural markets and farm productivity, the government of Ethiopia has implemented various market enhancing policy and institutional measures. The effectiveness of these measures to achieve their policy goals, among others, depends on the degree of symmetry prices transmit across spatial markets as well as on the efficiency of spatial arbitrage. We tested the presence of asymmetric price adjustment in the spatial grain markets in Ethiopia. The result provided clear evidence of asymmetric price adjustment for teff crops, but not for maize. For teff crops, prices adjust quickly to shocks that increase price than shocks that reduce prices. The analysis on the efficiency of the grain markets also showed that the spatial markets are characterized by a significant level of inefficiency. Although further research is necessary to establish the real causes for the observed asymmetric price transmission and market inefficiency, the finding suggests that departure from perfectly competitive settings are partly to be blamed for the recent food crops price hikes. In addition to their undesirable redistributional consequences, price transmissions asymmetry and inefficiency are expected to entail efficiency loss. Future empirical work in this area should strive to explain the underlying reasons for the observed asymmetric price transmission and market inefficiency.

Date: 2015
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