Intraregional and Interregional Price Transmission in Ethiopia’s Staple Food Market: Evidence from Asymmetric Vector Error Correction Modeling

Abstract

This study is undertaken to find out the presence short and long run relationship among producer and consumer prices and analyze the asymmetric nature of price transmission in staple food cereals namely: Teff, Wheat, and Maize in Ethiopia.  Twenty years monthly producer and consumer price data were used in the analysis. Central Statistical Agency of Ethiopia was the primary sources of the data and it was collected from representative zones of three regional states and one city administrations of the country. Results from Asymmetric Vector Error correction model revealed that there are both short and long run two way price transmissions in consumer and producer prices.  It is proved that there is asymmetric price transmission from consumer to producer in all sampled regions. But the speed and magnitude in producer price is much pronounced than the consumer prices that supports upward stickiness of producer prices because of asymmetric price transmission. The implication is that price shock in one region affects another region regardless of their differences. Therefore, price stabilization policies during time of disaster and food shortage in different regions need to consider unaffected regions in the country.  More importantly, producers are found to be victims of price decreases but not beneficiaries of an increasing price. Therefore, an intervention trough availing market information instantly helps to prevent upward stickiness of producer prices in agricultural products.

Keywords: Price transmission, Staple food, agriculture