WORKING PAPER
BY KIBROM A. ABAY, LINA ALAAELDIN ABDELFATTAH, CLEMENS BREISINGER AND KHALID SIDDIG
This paper evaluates spatial market and price transmission in cereal markets in Sudan, focusing on wheat and sorghum, two major cereal crops. We use comprehensive and long-ranging monthly cereal price data and a multivariate vector of error-correction cointegration models (VECM) to characterize both short-term and long-term price transmissions across local cereal markets. We find that among the 15 local wheat markets and 18 sorghum markets we can only detect significant spatial market integration among 7 wheat and 10 sorghum markets. Despite some strong spatial market integration among a few neighboring markets, there is no market integration between several regions. For example, cereal markets in Darfur are not integrated with cereal markets in the rest of the country. Among integrated markets, we observe significant variations in the strength of price transmission elasticities as well as speed of adjustment to longterm equilibrium, which implies that shocks (and price policies) in some markets can affect only some other markets. Most of the strong price transmission and spatial market dependence follow existing trade flows and road networks, insinuating that infrastructural barriers may be obstructing spatial market integration. We also find that markets in production surplus states are less responsive to price changes in neighboring markets than those located in cereal deficit states. Finally, we also observe relatively stronger spatial integration and short-term adjustment in sorghum markets than wheat markets. Shocks to sorghum prices in sorghum producing markets have permanent impact while shocks to wheat prices in wheat producing markets endure transitory effects. These findings have important policy implications for improving the efficiency of cereal markets in Sudan and other similar settings.
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