Modeling spatial price transmission in the grain markets of Ethiopia with an application of ARDL approach to white teff

Following the agricultural market liberalization policy, there is an emerging grain market structure in Ethiopia in which the central wholesale market exhibits concentration of power and spatial integration with the local markets. Due to this, it is hypothesized that the central wholesale market influences the long-run price movements in the local markets. The relationship can be modeled as spatial price equilibrium with the aim to guide subsequent policy decisions with regard to public intervention in the post-liberalization period. In this study, we modeled the spatial equilibrium relationship between the producer and the wholesale prices of white teff, a major staple in Ethiopia, using the autoregressive distributed lag modeling approach to cointegration analysis. First, the existence of a nonspurious long-run relationship in levels between the producer prices in the local market and the wholesale prices in the central market is confirmed. Second, the long-run relationship and the error correction model for the producer price are estimated. The results reveal that the wholesale price of white teff in the central consumer market is a major short- and long-run determinant of the producer price in the local supply markets. Therefore, the institutional role of the government with the aim of improving producers' marketing margin and the overall performance of the grain markets in the post-liberalization period can be influenced through targeted interventions at the central wholesale market.