Testing the central market hypothesis for food markets in the highlands of Central Kenya

Following extensive market liberalisation efforts in many developing countries, interest in food markets has grown tremendously. With the increase in participation of small traders to replace government controlled parastatals, it is important to assess whether liberalization policies have enhanced the efficiency of food markets. Maize is the main staple food in Kenya while beans are the most important pulse. An error correction model was used to test for bivariate causality between markets and examine the occurrence of central markets. The study used monthly retail prices of maize and beans in nine markets for a period of 15 years. The data was compiled from the sub counties ministry of agriculture annual reports. The results reveal the existence of central markets in the highlands of central Kenya. This shows a tendency of a more organised marketing system which is an indicator of market efficiency. The prices are determined in the low production zones meaning that demand markets are important in price formation. The central markets can be used by the government to effect desired policy changes especially price stabilization