Integration of major Indian maize markets : a cointegration analysis

Abstract

Markets are the link between production and consumption and marketing along with food production is an important means to an end. Integrated markets contribute to price stabilization and assure farmers income as there is transmission of price signals and other information between the markets. Farmers in response to these signals change their cropping pattern and allocation of resources for improving income, which act as risk management strategy against price volatility. As market integration is an approach to achieve the market efficiency, present study is conducted to examine the integration across major maize markets in India. India is the sixth largest producer of maize in world contributing 2 per cent of the global production. In India, it is third most important crop comes after rice and wheat and accounts for 9 per cent of the total food grain production in country. Markets were selected from each states viz., Karnataka, Rajasthan and Uttar Pradesh on the basis of maximum maize arrivals. The wholesale price data of maize were collected from AGMARKNET from January 2005 to May 2016. Market integration was analyzed by using Johansen multivariate cointegration test and speed of price adjustment was calculated by using VECM. The study found that all the markets were well integrated and two cointegrating equations were confirmed by Johansen test. VECM resulted into greater speed of adjustment towards equilibrium in Mainpuri market of Uttar Pradesh with 31 per cent as compared to Udaipur market of Rajasthan with 19 per cent. It is recommended that measures should be adopted to improve dissemination of information which will speed up market integration.