The purpose of this
paper is to test how producers’ and retailers’ prices are horizontally integrated,
and to show the direction of causality that exists between producers’ price and
retails’ price in Ethiopian milk market. The study was conducted making use of
secondary data extracted from Ethiopian central statistics agency. The data was
time series having 120 observations of monthly recorded price series of producers
and retailers, for the period from January, 2004 to December 2013. For this
purpose, descriptive statistics and time series econometrics approach (Johansen’s
test for co-integration and Vector Error Correction Model) were employed. The
study shows that there is strong long run co-integration between producers’
price and retailers’ price. The policy implication is that the markets are
co-integrated in terms of price transmission. However, the causality test shows
that retailers are dominant over price determination. In other words, producer’s
price is caused by retailers’ price; but producers’ price doesn’t cause
retailers’ price. This shows that the market structure is in favor of
retailers/traders, which can adversely affect the welfare of producers and
Octavio, F., Josef, B. and Jesus, C. (2010) Milking the Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria. Working Papers in Economics and Statistics, No. 2010-21.
Rumankova, L. (2012) Examination of Market Structure in Selected Livestock Agri-Food Chains in the Czech Republic. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 60, 243-258.
Bakucs, Z., Falkowski, J. and Ferto, I. (2012) Does Farm and Processing Industry Structure Matter for Price Transmission? Some Evidence from Transition Countries: A Comparison of Dairy Sectors in Hungary and Poland. Institute of Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
Johansen, S. and Juselius, K. (1990) Maximum Likelihood Estimation and Inference on Co-Integration—with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52, 169-210.