ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE Spatial Integration of livestock markets in Ethiopia: sheep, goats, cocks, bulls and oxen Fantu Nisrane Bachewe and SeneshawTamiru International Food Policy Research Institute (IFPRI) (Ethiopia Strategy Support Program, ESSP-II) 9th International Conference on the Ethiopian Economy, Ethiopian Economic Association (EEA) Addis Ababa July 21-23 2011 1
Objectives Research Objectives: Study whether regional livestock markets are integrated with each other and/or with the central (Addis Ababa) market. Check the level and speed of integration, if they are integrated. Methodology employed Threshold Autoregressive (TAR) model
The TAR Model Ө estimated by a grid search Assumes constant threshold/transaction cost (Ө) TCs (Ө) could vary depending on season, direction of trade, quality of roads and fuel prices
The TAR Model Following Van Campenhout (2007) The thresholds and adjustment parameters to vary with time, t.
What to expect If ρ = -1 perfect integration (100 % deviation transferred)
adjustment is instant
If ρ=0 no integration infinite half-life The closer ρ is to -1
the higher degree of integration and
the lower the half-life.
If ρ is positive,
markets are drifting apart
Results of Analysis Out of over 116 for bulls and 117 for oxen we chose some markets using three criterion, number non-missing data unit-root tests, stationary price series dropped a reapplication of the first criteria in regions where closely situated markets are involved. 40 bulls and oxen markets selected, 780 market pairs, Only a limited number presented and discussed, Integration with regional capitals Integration with Addis Ababa Amhara and Oromia have two bulls and oxen market clusters,
14 Results of market integration analysis: Sheep, Goats, and COCKS markets.
Generally, sheep markets are well integrated Amhara, Gambella, and Harari showing better integration Markets in Tigray and Oromiya Regions are less integrated Generally, transaction costs (as percentage of average price) declined over time
Generally, modest sheep market integration . Harari and Amhara showed relatively less intra-region sheep integration Markets in Gambella, Benishangul and Afar sowed relatively better integration Transaction cost between the Initial and Last period declined significantly
Generally, very week goat market integration between Addis Ababa and regional markets Markets in Afar, Somali, and SNNPR showed weaker integration with Addis; while Gambella and Benishangul showing No Integration
Unlike their integration with Addis Ababa, most of the regional markets are well integrated to their regional Capital and/to others in the region Relatively weak integration in Afar, with Tigray and Oromiya showing fair level of integration Markets in Amhara didn’t show evidence of Integration
Moderate degree of Cock market integration between regional markets and Addis Ababa Transaction costs (as a %age of average price) declined significantly between the Initial and Last period
Generally, strong degree of intra-region Cock integration Market pairs in Tigray and Harari showed lesser degree of integration Transaction costs (as %age of average price) declined between the beginning and end
Summary Sheep markets are well integrated with Addis Ababa. The speed of adjustment is fast (for most of the markets considered). Goat markets especially markets in Afar, Somali, and SNNPR showed weaker integration with Addis; while Gambella and Benishangul showing No Integration. The transaction costs are fairly high. Though there is strong within region goat market integration Cock markets are well integrated with a relatively high transaction costs. Generally, Bull and Oxen markets are very well integrated both to Addis Ababa and within region. Generally, transaction costs (as percentage of average price of market pairs) considerably declined over the beginning and end of the study period.
24 Results of market integration analysis: Bulls and oxen markets.
Summary of market integration analysis: Bulls Integration with regional capital Most selected markets integrated with respective regional capitals, Regions with larger rate of integration had relatively smaller initial thresholds (relative to average bulls price) Among integrated markets, on average, price adjustments were instantaneous, except in two regions, Among integrated markets of Oromia and SNNP beginning thresholds exceed average bulls price, End period thresholds considerably lower, by 68 percent, relative to beginning thresholds,
May have resulted from improved infrastructure: roads and rate of information dissemination,
Distance based explanation only partly applicable.
Summary of market integration analysis: Bulls Integration with Addis Ababa Less than a third of selected markets integrated with Addis Ababa, Only 2 out of 7 in Amhara & 3 out of 10 in Oromia integrated with Addis Ababa When integrated speed of adjustment instantaneous, but Beginning threshold considerably larger than average price, End of period thresholds lower on average by 76 percent, Many large population markets integrated with Addis Ababa, irrespective of their distance
Common factors affecting formation and co-movement of prices,
No market in pastoralist Afar, Somali, & Negele integrated with Addis A. Non integrated are farther away, but integration can not be fully explained by distance or trade route.
Summary of market integration analysis: Oxen Relatively large integration with regional capitals than with AA Prices adjust relatively fast if markets are integrated with regional capital, Relatively smaller beginning thresholds among integrated with regional capitals, End of period thresholds were on average 70 and 75 percent lower among those integrated with regional and national capitals, resp.
36 Summary and Key findings
Summary and Key findings Similarity between bulls and oxen markets: Better integration with regional capitals than with Addis Ababa, Simultaneous adjustment and larger beginning threshold if market is integrated in both cattle markets, Differences between bulls and oxen markets Among integrated with regional capitals large proportion integrated in both cattle market while among those integrated with Addis Ababa larger proportion integrated in only oxen markets, Similar with bulls markets except that speed of price adjustment is relatively fast between regional markets than with Addis Ababa Oxen market relatively more integrated with both regional capitals and Addis Ababa.