High price volatility in agricultural food markets
has a greater impact not only on smallholder farmers but also can affect the
incomes and purchasing power of a substantial proportion of the Tanzanian
population and decrease food security,
especially to the lower middle class. This study applies the ARCH-GARCH
and the VAR/VECM models to examine the dynamics and factors influencing price
volatility in the domestic rice market. The results of the price volatility
analysis show that the volatility of rice prices tends to be low and persistent
over the long run. This is supported by the estimation results of factors
affecting price volatility, which showed that supply variables play an
important role in the short and long run in influencing rice price volatility.
The prices in the producing regions (large surplus areas) turned out to be more
volatile than the prices in the main consuming regions (large deficit areas).
This means that producers are exposed to a much higher price risk than
consumers. Thus, a favorable marketing environment for traders and farmers,
transparent trade policies, reliable market information, and organized market
infrastructure are essential to reduce food price volatility which has a wider
impact on economic growth.
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