Market Integration in Mozambique - International Food Policy ...

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we then re-estimate the TAR model to get an update value of the adjustment speed. This process is repeated until a certain criterion is met. We illustrate our method using price data for maize in five markets in Mozambique. Unsurprisingly, we find that markets that are closer to each other seem to be better integrated. For instance, the least integrated market pair SUMMARY is the Maputo- | APRIL 2010 Lichinga trade route. More in general, we find that Lichinga is less integrated with the rest of Mozambique. Nampula seems to be rather well integrated, particularly with other markets in the North and the East. Our results also confirm that Maputo is more integrated with South Africa, while nearby Maxixe is better integrated with the hinterland. Even so, there is substantial room for improvement. A first way to improve market integration is to better physically link markets to each other. The rehabilitation of the EN1, which is supposed to link the North to the South is a major step in the right direction. However, the government should also invest in secondary roads that link Eastern and Western locations to the EN1. For good like maize, with a relatively low value to weight ratio, railways are often a cheaper way of transportation. The railroads that are presently operating in Mozambique run through three different trade corridors (North from Nacala to Malawi, Center from Beira to Malawi and South from Maputo to South Africa). Maritime transport is hindered by the fact that only 2 ports are capable of handling large vessels. (Cirera and Arndt, 2008) Secondly, but at least equally important, is to increase the flow of information between different markets. Arbitrage involves the ex-ante comparison of prices from one market to prices from several other markets. Based upon that information, traders can start moving goods from low priced markets to high price markets. These search costs are thus entirely part of the transaction cost. In addition, the speed at which information travels will also affect how quickly arbitrage happens. So, the speed at which information (price, road conditions, quality requirements, etc.) travels will also influence the adjustment speed. The mobile phone revolution is certainly contributing to increased market integration. A classic study by Jensen (2007) finds that the adoption of mobile phones by Indian fishermen and wholesalers was associated with a dramatic reduction in price dispersion, the complete elimination of waste, and near-perfect adherence to the Law of One Price. Similarly, Aker (2010) finds the introduction of mobile phone service in Niger between 2001 and 2006 explains a 10 to 16 percent reduction in grain price dispersion. Thirdly, a core assumption in the spatial equilibrium model is that all markets are sufficiently competitive. If there is too little competition amongst traders, these traders will be able to engage in monopolistic price setting. While information and rural infrastructure will increase the number of traders operating in remote areas, there are a host of other policies that can increase competition amongst middlemen. Examples would be providing appropriate insurance instruments for traders. Also, arbitrage is often regarded as a somewhat shady activity (Hayami, 1996). Governments should appreciate the important role played by a sufficiently competitive trade sector for food security and agricultural development and encourage institutions that cater for their interests. 11
REFERENCES Aker, J.C. 2010. “Information from Markets Near and Far: Mobile Phones and Agricultural Markets in Niger”, American Economic Journal: Applied Economics, pp. 46—59. SUMMARY | APRIL 2010 Alemu, Z.G., Biacuana, G.R. 2006, “Measuring Market Integration in Mozambican Maize Markets: A Threshold Vector Error Correction Approach”, Contributed paper prepared for presentation at the International Association of Agricultural Economists Conference, Gold Cost, Australia, August 12-18, 2006 Alemu, Z.G., Van Schalkwyk, H.D. 2009. Market Integration in Mozambican Maize Markets. Organisation for Social Science Research in Eastern and Southern Africa (OSSREA), 2009. Alexander, C., Wyeth, J. 1994. “Cointegration and Market Integration: An Application to the Indonesian Rice Market”, Journal of Development Studies, pp. 303—328. Ardeni, P.G. 1989: “Does the Law of One Price Really Hold for Commodity Prices”, American Journal of Agricultural Economics, pp. 661—669. Baulch, B. 1997. “Transfer costs, spatial arbitrage, and testing for food market integration”, American Journal of Agricultural Economics, pp. 477—487. Blyn, G. 1973. “Price Series Correlation as a Measure of Market Integration”, Indian Journal of Agricultural Economics, pp. 56—59. Cirera, X. Channing Arndt, C. 2008. “Measuring the impact of road rehabilitation on spatial market efficiency in maize markets in Mozambique”, Agricultural Economics, pp. 17—28. Dercon, S. 1995. “On market integration and liberalisation: method and application to Ethiopia”, The Journal of Development Studies, pp. 112—143. Fackler, P.L., Goodwin, B.K. 2001. Spatial price analysis in Marketing, Distribution and Consumers (Gardner, B.L. & Rausser, G.C., eds.). Elsevier. Fackler, P.L., Goodwin, B.K. 2001: Spatial price analysis in Handbook of Agricultural Economics (Gardner, B.L. & Rausser, G.C., eds.). Elsevier. Goodwin, B.K., Piggott, N.E. 2001 “Spatial Market Integration in the Presence of Threshold Effects”, Journal of Agricultural Economics, pp. 302—317. Goodwin, B.K., Schroeder, T.C. 1991 “Cointegration Tests and Spatial Price Linkages in Regional Cattle Markets”, American Journal of Agricultural Economics, pp. 452—464. Hayami, Y. 1996. “The Peasant in Economic Modernization”, American Journal of Agricultural Economics, pp. 1157—1167. Jensen, R. 2007. “The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector”, The Quarterly Journal of Economics, pp. 879—924. Krishna, A. 2004. “Escaping poverty and becoming poor: who gains, who loses, and why?”, World Development, pp. 121— 136. Mkenda, B.K, Van Campenhout, B. 2011. ”Estimating Transaction Costs in Tanzanian Supply Chains”, International Growth Centre Working Paper 11/0898. Negassa, A., Myers, R.J. 2007. “Estimating policy effects on spatial market efficiency: An extension to the parity bounds model”, American Journal of Agricultural Economics, pp. 338—352. Palaskas, T.B., Harriss-White, B. 1993. “Testing Market Integration: New Approaches with Case Material from the West Bengal Food Economy”, Journal of Development studies, pp. 1—57. Penzhorn, N., Arndt, C. 2002. “Maize markets in Mozambique: Testing for market integration”, Agrekon, pp. 147—160. Ravallion, M. 1986. “Testing market integration”, American Journal of Agricultural Economics, pp. 102—109. 12
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