Discussion Paper No. 154 of 2013 on Analysis of Price Transmission for Selected Staple Food Commodities in Kenya

Abstract

Markets play a primary role in facilitating forces of demand and supply to interact such as through price adjustments across time and space. In many developing countries such as Kenya, food markets are characterized by high transaction costs, liquidity constraints, information asymmetry, lack of profitable opportunities and inadequate infrastructure that impede traders from taking advantage of the price differences between markets from one period to another. This creates economic inefficiencies and loss of opportunities to improve the economic well being. This study seeks to estimate how the food markets respond to price changes and the implications for food security. Price transmission and market integration of dry maize, green maize and beans were evaluated in two major consumption markets; Nairobi and Mombasa, and two major production markets, Nakuru and Eldoret. Monthly data from January 1995 to May 2011 was used, the vector error correction model (VECM) was applied to examine the relationship between the commodity prices and the markets...