Didier Y. Alia

Price transmission analysis using threshold models: an application to local rice markets in Benin and Mali

In most African countries, spatial dispersion of production and consumption often results in high transaction costs that prevent farmers from accessing markets and causes asymmetry in price transmission. The objective of this study was to provide the baseline information on local rice price transmission between paired producer and consumer markets in Benin and Mali. To achieve this, we used Enders and Siklos’s threshold models on monthly price series from 2000 to 2010 to examine the nature of price transmission between selected markets in the surplus zones and the nearest important consumption markets. The results for Benin indicated that price transmission between markets in the surplus zone and the consumption markets was asymmetric, probably because of the prevalence of high transaction costs. These results showed that increases in price in the surplus-zone market were more quickly transmitted to the consumer market than decreases in price. Conversely, the results for Mali indicated symmetric price transmission between the market in the surplus zone and the consumer market, suggesting the prevalence of lower transaction costs. These results highlight the need for policies aiming to lower transaction costs observed in selected local rice markets in Benin. Specific policies, such as investment in public infrastructure, e.g. roads, could promote the vertical integration of local rice production with marketing. This would be crucial to achieving rice farmers’ food security and hence their wellbeing.

Transmission of Rice Prices from Thailand into West African Markets: The Case of Benin, Mali, and Senegal

ABSTRACT The integration of West African rice market to the world market is assessed in order to derive the implication for food security. To this end, the transmission of rice price changes on the world market to selected markets in West Africa was examined to test for the presence of transaction costs. Using the two-regime threshold cointegration procedure on monthly price data, evidence in support of the hypothesis of asymmetric price transmission was found between Thailand and some West African markets. Price increases on the world market were more quickly transmitted to domestic price than were price decreases in Benin and Mali, suggesting short-run dynamic inefficiencies and the presence of transaction costs. In Senegal, the adjustment was linear, suggesting greater integration with the world rice market. The results suggest that West African governments should design and implement adequate policies to develop the domestic rice sector, improve market infrastructures in order to reduce their country dependency to international markets and ensure food security.