MALAWI AGRICULTURAL COMMODITY EXCHANGE AND SPATIAL RICE MARKET INTEGRATION

There has been a growing debate regarding the role of the government and the effects of agricultural policies and interventions on agricultural markets. This therefore prompted this study to analyse the role of Malawi Agricultural Commodity Exchange (MACE) project as a market-enhancing intervention on aggregate market performance in Malawi using cointegration methods. MACE was introduced to improve agricultural market functioning through market information system. The study specifically examined the extent of spatial rice market integration, causality relationships among spatially separated markets and the dynamic adjustments of rice price series. The study used monthly price series data from 1994 to 2007 obtained from the ministry of agriculture. The data was divided into three sets; full sample, Pre-MACE and Post-MACE. Stationarity tests were done and it was noted that Salima and Bangula for full sample and Chitipa for Pre and Post-MACE price series were stationary in levels implying that these markets did not share the long-term trend with the major urban centres in Malawi in their respective samples. Cointegration results have shown that spatial rice market integration in Malawi is on average marginally improving. Compared to Pre-MACE period, cointegration and interdependence among markets appeared to be increasing during the Post-MACE era. Cointegration has also revealed that rice markets have been operating as a unified market system over the period of study. However, the study left out other factors affecting market integration due to financial and time constraints hence this improvement can not be fully accredited to MACE intervention. Nevertheless, since the aggregate picture observed in this study is an improvement of market integration the study recommends a promotion of MACE intervention to reach even more remote areas. The project needs to consider collecting and disseminating other market information such as trade flows, transaction costs and transfer costs. The study also recommends that further studies on market integration should take care of other structural determinants of market integration such as marketing infrastructure e.g. transportation, government policies and should consider application of the threshold autoregressive models (catering for transaction costs)