Tomato Market Integration: A Case Study of the Durban and Johannesburg Fresh Produce Markets in South Africa
In a market-driven economy, price indicators guide and regulate production, consumption and marketing decisions over time, form and place. Identifying the causes of price differentials across markets is important for understanding markets. This study analyzes the market price integration of tomato in Durban and Johannesburg fresh produce markets in South Africa, using secondary monthly time series of wholesale price data for the period 2008-2012. Cointegration was tested using the Augmented Engle-Granger (AEG) test, while the direction of causality between Johannesburg and Durban prices was tested using the error correction model (ECM). The results showed that the two markets were integrated. Furthermore, the results also revealed that following a shock to the market that causes disequilibrium, economic agents take about a month to adjust back to equilibrium; the response to the shock is faster in the Durban market than in the Johannesburg market. The high degree of market integration suggests that the South African fresh produce market is quite competitive and provides little justification for government intervention designed to improve competitiveness or to enhance market efficiency. Policy implications for an improved and effective tomato marketing program were also discussed. (original abstract)
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