Assessment of Vertical Price Transmission in Rice Markets in Nairobi City County, Kenya
Letting, Irene Cherono
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Sub-Saharan Africa (SSA) agricultural commodity markets have been liberalised since the 1980s through Structural Adjustment Programs (SAPs). The aim was to foster market integration and efficiency. Liberalisation of markets allows free flow of goods and services from areas with excesses to those with a deficit. But most Sub-Saharan countries, Kenya included, has associated liberalisation with failure and unsustainable food markets though agriculture is the mainstay of the economy. Price information is a conduit connecting and integrating different market locations and levels. Thus, this study assessed the degree of market integration and direction of price influence between the wholesale and retail rice market levels in Nairobi City County. Besides, the research examined the role of market structure and conduct in vertical market integration and Granger causality. The Eastern African Grain Council (EAGC) provided the weekly wholesale and retail price data from January to December of the year 2016. Data analysis was done in E-views 9. Primary data were randomly gathered from 80 rice traders in Nyamakima and Toi markets through questionnaires. The data consisted of socioeconomic aspects, market structure, and market conduct of rice wholesalers and retailers. This data was analysed using SPSS 20. Johansen cointegration method revealed the absence of cointegration between the wholesale and retail rice markets. Further, wholesale and retail prices exhibited independent Granger causality. The assessment of socioeconomic characteristics showed the dominance of female retailers. Further, most retailers were in their productive ages while most wholesalers were old. Also, wholesalers were more educated than retailers, and retailers possessed more experience than wholesalers. The assessment of market structure showed a high concentration in the wholesale market (HHI of 0.33) while the retail market had a moderate concentration (HHI 0.21). The examination of market conduct showed a majority of both wholesalers and retailers shared a similar source of rice supplies (brokers). Besides, the word of mouth provided most of the market information. The study concluded the rice market in Nairobi City County were not integrated and inefficient. It links this to the presence of market power at wholesale and retail market levels, minimal price interaction, and unreliable market information. Policies that favour a formal centralised information system can improve market integration. Adoption of Information and Communication Technologies (ICTs) can also enhance reliability of information and access to formal financial services.