The Future of Smallholder Farming in Eastern Africa - Uganda ...

Migori
Awendo
Postliberalization 1,626 684 1,113* 273 0.25
Preliberalization 950 230 602 238 0.40
Postliberalization 2,120 400 1,020* 414 0.41
Preliberalization 1,052 280 532 227 0.43
Postliberalization 1,535 480 1,079* 295 0.27
Source: Authors’ survey, 2001.
* Significantly different (1%) from the corresponding preliberalization figure.
a CV = coefficient of variation.
An attempt to study trends in price spreads by considering prices in the surplus and deficit
markets was unsuccessful, as the difference between the two does not constitute current
marketing costs. It was found that in some cases prices in surplus areas were higher than
those in deficit areas. This finding suggests the occurrence of interseasonal commodity flow
reversals. Instead, to gain some understanding of how prices in different markets were
related, an assessment of the degree of market integration was carried out.
3.2 Effects of Liberalization on Market Integration
3.2.1 Correlation Analysis
As indicated earlier, several models were employed for the purpose of analyzing market
integration. The first step involved computing simple correlation coefficients for pairs of
price series. The results of correlation analysis of price levels are presented in Tables 4a and
4b. The simple correlation coefficients are quite high, ranging between 0.718 and 0.987 in
the preliberalization period and between 0.522 and 0.899 in the postliberalization period. An
interesting observation is that all the correlation coefficients in the preliberalization period are
greater than the corresponding coefficients in the postliberalization period. Markets close to
each other, such as Kiritiri and Siakago, show higher correlation coefficients, as do markets
that are connected by better transport infrastructure, such as between Nairobi and most of the
other markets. The results seem to support the generally accepted notion that shorter
distances and improved infrastructure among markets lead to lower transaction costs, making
arbitrage profitable and thereby enhancing integration of such markets.
Table 4a--Correlation matrix of price levels in the preliberalization era
Kiritiri Siakago Kitale Nairobi Migori Awendo
Kiritiri 1.000
Siakago 0.987 1.000
Kitale 0.718 0.749 1.000
Nairobi 0.849 0.846 0.877 1.000
Migori 0.750 0.760 0.829 0.891 1.000
Awendo 0.795 0.760 0.719 0.874 0.747 1.000
Table 4b--Correlation matrix of price levels in the postliberalization era
Kiritiri Siakago Kitale Nairobi Migori Awendo
Kiritiri 1.000
Siakago 0.835 1.000
Kitale 0.600 0.616 1.000
Nairobi 0.765 0.832 0.899 1.000