Project title: Assessing Market Integration of Major Agricultural Commodities in India

Project leader: Dr. Shiv Kumar

Project team: Dr. P. S. Birthal

Background:

Lack of market integration may lead to localized food scarcity, even famines.  If agricultural markets are not integrated at the national level then a national agricultural price policy has limited applicability. Enhancing market integration enables reaping advantages of a large market in the long run.  Testing the extent of market integration is central to identifying impediments to arbitrage trade and design of an appropriate policy.                                                       

Objectives:

1.    To study inter- temporal and spatial agricultural market integration.

2.    To study horizontal and vertical market integration

3.    To study the extent, direction and pattern of both symmetric and asymetric price transmission among markets.

Study area:

All major agricultural Commodities in major Indian markets.

Methodology:

1. ADF Test for testing non-stationarity of price series.

2. Johanson Cointegration test for finding out cointegrating relationships.

3. Vector error correction model for short run adjustments.

Key findings:

1. Study on integration of major Indian milk market showed wholesale prices of. Chennai, Delhi, Kanpur, Kolkata and Mumbai milk markets are cointegrated with one long run equilibrium relationship.

2. Chennai, Delhi and Kanpur milk markets are weakly exogenous markets, more stable and less prone to external shocks in the short run.

3. Wholesale milk prices in Kolkata and Mumbai markets are sensitive to changes in prices in all other markets.

4. The long run equilibrium in Indian milk markets if disturbed by any exogenous shocks would primarily be reinstated by corrective measures in Mumbai and Kolkata markets.

Funding agency: NAIP