Abstract

Agricultural market liberalisation in Malawi like her other developing counterparts, saw the increase of private sector participation in the agricultural input and output markets. This necessitated the institutionalisation of agricultural market information system so that the market participants must be well informed on relevant market conditions including prices and demand among many things. It was against this background that the government through the Ministry of Agriculture put in place an MIS to facilitate agricultural market efficiency in the new liberalised market environment. More recently, some non-governmental organisations like IDEAA-Malawi and NASFAM have also come in to support government in providing market information to farmers and potential agricultural market participants to enhance market integration. Free flow of market information is expected to influence market efficiency in price transmission and hence market integration. This study was done to determine the extent to which agricultural markets were integrated as an indicator of market efficiency in Malawi. The study used maize as a model crop because of its significance to national food security. It employed bivariate correlation coefficients of maize price levels and price differences and the Engle-Granger cointegration approach to determine the extent of maize market integration. It also used the Granger causality test to determine the causal relationships in prices among spatially distinct maize markets in Malawi. The study also decomposed the maize price series into their seasonal and trend variability characteristics in order to get insights about the general movement of the prices intra- and inter-years. Results of Engle-Granger cointegration test show that markets within regions were well integrated. However price information flows as indicated by the Granger Causality test were more of unidirectional in the Southern Region as opposed to bidirectional flow of information in the Central and Northern Regions. Using correlation of price levels and price differences as measures of market integration, results indicated that within regions, maize markets were integrated regardless of whether there was a maize price band policy or not. However, the correlation coefficients were a bit higher on average when the price band policy was removed. The study results further showed that maize prices varied seasonally peaking between December and March and reaching the lowest between May and July. The prices also portrayed an increasing trend over the study period. From these findings, it is concluded that the maize market in Malawi is efficient in prices and that there is good flow of price information among spatially separated markets except in the Southern Region. It is therefore recommended that government and non governmental organisations should strengthen the current MIS especially in the Southern Region to enhance information flows among markets. Because of the failure (to include transfer and transactions costs) of the method used in this study, it is also recommended that future research in the areas of agricultural market integration to employ models that incorporate these costs such as threshold cointegration or parity bounds model.

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School	: School of Natural and Applied Sciences
Issued Date	: 2008

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