TOMATO MARKET INTEGRATION: A CASE STUDY OF THE DURBAN AND JOHANNESBURG FRESH PRODUCE MARKETS IN SOUTH AFRICA
Abstract
In a market-driven economy, price indicators guide and regulate production, consumption and marketing decisions over time, form and place. Identifying the causes of price differentials across markets is important for understanding markets. This study analyzes the market price integration of tomato in Durban and Johannesburg fresh produce markets in South Africa, using secondary monthly time series of wholesale price data for the period 2008–2012. Cointegration was tested using the Augmented Engle-Granger (AEG) test, while the direction of causality between Johannesburg and Durban prices was tested using the error correction model (ECM). The results showed that the two markets were integrated. Furthermore, the results also revealed that following a shock to the market that causes disequilibrium, economic agents take about a month to adjust back to equilibrium; the response to the shock is faster in the Durban market than in the Johannesburg market. The high degree of market integration suggests that the South African fresh produce market is quite competitive and provides little justification for government intervention designed to improve competitiveness or to enhance market efficiency. Policy implications for an improved and effective tomato marketing program were also discussed.
Keywords
Market integrations; Fresh produce; Conitegration; Error correction model (ECM)
References
Adeoye, I. B., Dontsop-Nguezet, P. M., Badmus, M. A., Amao, I. O. (2011). Price transmission and market integration of banana and plantain in Oyo State, Nigeria. J. Agric. Biol. Sci., 6(5), 18–24.
Akhter, S. (2016). Market integration between surplus and deficit rice markets during global food crisis period. Aust. J. Agric. Res. Econ., 59, 1–17.
Ardeni, P. G. (1989). Does the Law of One Price really hold for commodity prices? American J. Agric. Econ., 71(3), 661–669.
Artingi-Ego, M., Opoloti, J., Drale, A. S. (2006). Can the benefits of developed country agricultural trade reforms trickle down to the rural agricultural households in least developed countries: Analysis via price transmission in selected agricultural markets in Uganda. IIIS Discussion Paper Series No.159.
Badiane, O. (1999). Market integration and the long run adjustment of local markets to changes in trade and exchange rate regimes. Agrekon, 38(1), 353–382.
Barrett, C. B. (1996). Markets analysis methods: are our enriched tool kits well suited to enlivened markets? Am. J. Agric. Econ., 78, 825–829. Barrett, C. B., Li, J. R. (2002). Distinguishing between equilibrium and integration in spatial price analysis. Am. J. Agric. Econ., 84(2), 292–307
Baulch, R. J. (1994). Spatial price equilibrium and food market integration. Unpublished doctoral dissertation. Stanford: Stanford University.
Baulch, B. J. (1997). Transfer costs, spatial arbitrage and testing for food market integration. Am. J. Agric. Econ., 79, 477–487.
DAFF (2012). Joburg Market Annual Report (2012). Johannesburg Fresh Produce Market. Directorate: Johannesburg, South Africa.
DAFF (2014). Abstract of Agricultural Statistics. Directorate: Pretoria, South Africa. DAFF. 2013. A Profile of the South African Tomato Market Value Chain. Directorate: Pretoria, South Africa.
Dickey, D. A., Fuller, M. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. J. Am. Stat. Assoc., 74, 427–431.
Dickey, D. A., Fuller, M. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49, 1057–1072.
Du Preez, L. (2011). A study on the integration of potato markets in South Africa. Unpublished MSc. Thesis. Department of Agricultural Economics, Faculty of Natural and Agricultural Sciences, University of the Free State Bloemfontein, South Africa.
Engel, R. F., Granger, C. W. J. (1987). Co-integration and error correction: representation and testing. Econometrica, 55, 251–276.
Fackler, P. L., Goodwin, B. K. (2001). Spatial price analysis. In: B. L. Gardner, G. C. Rausser (Eds.), Handbook of agricultural economics (Vol. 1B, pp. 971–1024). Amsterdam: Elsevier.
Fama, E. (1970). Efficient capital markets: a review of theory and empirical work. J. Fin., 28, 383–417.
Faminow, M., Benson, B. (1990). Integration of spatial markets. American Journal of Agricultural Economics, 72(4), 354–362.
Ghoshray, A., Lloyd, T. (2003). Price Linkages in the International Wheat Market. Unpublished Thesis, Discipline of Economics and International Development, University of Bath and University of Nottingham. United Kingdom.
Goletti, F., Ahmed, R., Farid, N. (1995). Structural determinants of market integration: the case study of rice in Bangladesh. Dev. Econ., 33(2), 185–202.
Goodwin, B. K. (1992). Multivariate cointegration tests and the Law of One Price in international wheat markets. Rev. Agric. Econ., 14(1), 117–124.
Goodwin, B. K., Harper, D. C. (2000). Price transmission, threshold behavior, and asymmetric adjustment in the U.S. pork sector. J. Agric. Appl. Econ., 32(3), 543–553.
Goodwin, B. K., Schroeder, T.C. (1991). Cointegration tests and spatial price linkages in regional cattle markets. Am. J. Agric. Econ., 73(2), 452–464.
Gujarati, D. N., Porter, D. C. (2009). Basic Econometrics. 5th Edition. McGraw-Hill Higher Education, International Edition.
Granger, C. W. J. (1986). Developments in the study of cointegrated economic variables. Oxford Bull. Econ. Stat., 48, 213–228.
Granger, C. W. O., Weiss, A. A. (1983). Time Series Analysis of Error Correction Models. New York: Academic Press.
Kabbiri, R., Dora, M., Elepu, G., Gellynck, X. (2016). AGlobal perspective of food market integration: A review. Agrekon, 55(1–2), 62–80.
McNew, K., Fackler, P. L. (1997). Testing market equilibrium: is cointegration informative? J. Agric. Res. Econ., 22(2), 191–207.
Mushtaq, K., Gafoor, D., Maula, D. (2008). Apple market integration: implications for sustainable agricultural development. Lahore J. Econ., 13(1), 129–138.
Muyatwa, P. V. (2000). The liberalization and integration of regional maize markets in Zambia. Unpublished doctoral dissertation. Winnipeg: University of Manitoba.
Negassa, A., Myers, R., Gabre-Madhin, E. (2003). Analyzing the grain market efficiency in developing countries: Review of existing methods and extensions to the parity bound model. MTID Discussion Paper, No. 63. Washington: International Food Policy Research Institute.
Nkoro, N., Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) cointegration technique: application and interpretation. J. Stat. Economet. Meth., 5(4), 63–91.
Nyange, A. D. (1999). Estimation of inter-regional maize market integration in Tanzania and its determinants. J. Rural Probl., 35(2), 59–71.
Padilla-Bernal, L., Thilmany, D. D., Loureiro, M. L. (2003). An empirical analysis of market integration and efficiency for U.S. fresh tomato markets. J. Agric. Res. Econ., 28, 435–450.
Penzhorn, N., Arndt, C. (2002). Maize markets in Mozambique: testing for market integration. Agrekon, 41(2), 146–159.
Peralta, I. E., Spooner, D. M. (2001). GBSSI gene phylogeny of wild tomatoes. Am. J. Botany, 88, 1988–1902.
Ravallion, M. (1986). Testing market integration. Am. J. Agric. Econ., 68(1), 102–109.
Serra, T., Goodwin, B. K. (2002). Price transmission and asymmetric adjustment in the Spanish Dairy Sector, 2002 AAEA-WAEA Annual Meeting.
Shrestha, R. B., Huang, W., Ghimire, R. (2014). Market price cointegration of tomato: effects to Nepalese farmers. Int. J. Food Agric. Econ., 2(2), 87–96.
Shrestha, R. B., Pandey, S. (2010). Rice marketing practices and constraints in Nepal. Nepal. J. Agric. Econ., 1(1), 66–67.
Tomek, W. G., Robinson, K. L. (1990). Agricultural Product Prices (3rd ed). NewYork, USA: Correll University.
Townsend, R. F. (1998). Econometrics Methodology II: Strengthening Time Series Analysis. Agrekon, 37(1), 83–99.
Tsay, R. S. (1998). Testing and modelling multivariate threshold models. J. Am. Stat. Assoc., 93 (443), 1188–1202.
Uchezuba, D. I. (2005). Measuring Market Integration for Apples on the South African Fresh Produce Market: A Threshold Error Correction Model. Master’s Thesis, University of the Free State.
Vollrath, T. L. (2003). North American Agricultural Market Integration and Its Impact on the Food and Fiber System. Agric. Inf. Bull., 784, Washington, DC.
WFP. (2007). PDPE Market Analysis Tool: Market Integration. Retrieved Nov 18th 2015 from: http://documents. wfp.org/stellent/groups/public/documents/manual_guide_ proced/wfp187901.pdf
Yusuf, S. A., Akanbi, O. A., Ajani, O. I. Y. (2006). Spatial price analysis of cassava and its products in Kwara State, Nigeria (1994–2006). J. Econ. Rural Dev., 15(2), 103–112.
University of KwaZulu-Natal, South Africa South Africa
University of KwaZulu-Natal, South Africa South Africa
University of KwaZulu-Natal, South Africa South Africa
University of KwaZulu-Natal, South Africa South Africa
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
This journal permits and encourages authors to post items submitted to the journal on personal websites or institutional repositories both prior to and after publication, while providing bibliographic details that credit, if applicable, its publication in this journal.
