An assessment of dry beans market integration in selected markets in Kenya

Abstract

The agriculture sector in Kenya has put in place several strategies to ensure availability and access to food by all people. Market efficiency is one of the strategies that ensure effective movement of food commodities from surplus to deficit regions through market integration. This study assessed dry beans movement across Nairobi, Nakuru, Eldoret and Kitale markets. The main objective of the study was to contribute to knowledge towards monitoring prices of food staples between surplus and deficit areas and assess how well price movements in any one of the markets translate into price changes in other markets. Unit root test was used to test for stationarity, co-integration to test for the relationship between the markets, while Granger causality was used to test for causality across the markets and Threshold Autoregressive error correction model was applied to analyze time lags and the speed of market price adjustment. The study utilized deflated and seasonally adjusted monthly average price data over 216 months (1994 to 2011) and was analyzed using STATA and SPSS statistical softwares. This study was aimed at providing price information towards identification and improvement of efficient bean marketing chain that would lead to reduced transaction costs giving room for more competitive pricing for Kenya’s dry beans in the staple food market. Results showed that all the markets were integrated of order zero before differencing and the data was stationary. Co-integration test revealed that all the markets were co-integrated while granger causality test revealed independent causality with only one market link showing bidirectional causality leading to symmetric price adjustment between Kitale and Nairobi markets. Results from the TAR model revealed that, in Nairobi and Kitale market links which granger caused each other, it took approximately 3 weeks for a shock in one market to be transmitted to the other market thus prices returning to their parity bound equilibrium. This implies that, if price transmission is symmetrical across markets, then, price differences between the markets will only be equal to transaction costs between them. The study concluded that, the government can give farmers incentives to produce dry beans in high production areas, improve marketing infrastructure like roads and communication facilities which can greatly reduce transaction costs and improve price transmission. Market information should be availed in information banks in various parts of the country so that farmers can access information on which markets offer remunerative prices for their dry beans. These will prevent traders from taking advantage of increased production to lower prices of dry beans, the end result being enhancing the degree of market integration.