Analysis of Terminal and Source Dry Maize Grain Market Integration in Kipkelion East and West Sub-Counties, Kericho County, Kenya

Abstract

Price in a market is a key factor in controlling decisions in production, consumption, and marketing over time. A clear picture of markets is critical to finding out the causes of price variations in spatially separated markets. Prices of various products in non integrated markets are distorted and leads to inefficient allocation of resources. However, studies on dry maize grain market integration have not been undertaken fully, especially the terminal and the source markets. Therefore, this study analyzed market integration of dry maize grain in Kipkelion East and Kipkelion West Sub-Counties in Kericho County. The objectives of the study were to determine the extent of dry maize grain market integration in the terminal and source markets, the relationship of prices between the terminal and source markets, and price adjustment time between terminal and source markets of dry maize grain to move halfway back to its threshold. The study was guided by price difference theory, and descriptive and cross-sectional research designs were adopted. The content and face validity of the instruments used were determined by two experts in the department of Agricultural Bio-systems and Economics in the university. The targeted population were 35,500 dry maize grain traders. Data was collected from a sample of 156 maize traders through stratified random sampling procedures. An interview schedule was used to collect primary data, while secondary data and information were collected through literature review. Co-integration, Granger causality, Regression and Correlation and Threshold Autoregressive models were used for data analysis on market integration. Johansen tests results for co-integration returned the trace statistics less than the critical value at 5% level of significance (14.5083<15.41) which depicted non-existence of co-integration in terminal and source markets. The Regression model accounted for approximately 46.6% of the total variation of the market price as predicted by the source market price. Pearson's product-moment correlation results showed a strong positive correlation of 0.83 and the p-value less than 5%, which means that there was a strong positive correlation between terminal and source markets’ prices. Standard Threshold Autoregressive model results indicated a mixed patterns price adjustment transmission, level of transaction costs and adjustment half-lives between the market pairs. On average, prices needed 1.14 months (5 weeks) under lowered costs periods to correct half of the deviations from equilibrium price in response to market shocks as indicated by half-lives of price adjustment, while under the high tariffs period exactly one month was needed to effect similar correction. Therefore, to achieve market integration, the government and private sector need to enact policies that improve marketing infrastructures such as communication facilities and feeder roads. In return, transaction costs will significantly reduce and leads to an improvement in price transmission. Market information needs to reach the producers promptly; this can be achieved through the use of ICT to assist dry maize grains traders establish which markets offer good prices. If this is put in place, the traders will not be in a position to use increased production to decrease earning that the producers should receive, and hence promoting market integration