Management of market risk through market integration: Study of price volatility in domestic market of onion in Gujarat

The analysis of prices and market arrivals over time is important for formulating a sound agricultural price policy. Fluctuations in market arrivals largely contribute to the price instability of onion in the state. This paper conducts robust tests for price volatility and market integration in wholesale onion markets in Gujarat. The study confirmed that market price linkage and the interrelationship among the spatial markets are important in economic analysis. Inter-market price linkages and speed of adjustment to shocks showed that transportation cost has impact in determining the speed and degree of the integration The data used in the price volatility and co-integration analysis consists of monthly wholesale prices of five onion dominated markets of Gujarat for the period from 2005 to 2017. The results of the Augmented Dickey-Fuller (ADF) unit root test for onion showed All the stationary series which is obvious from the fact that calculated values (−5.461770 to-5.783407) for all the markets were less than the critical value (−4.018748) and were free from the consequence of unit root. Johansen's co-integration test for onion indicated the presence of at least three co-integrating equation at 5 percent level of significance. Hence markets were having long run equilibrium relationship. The results of Granger Causality Test depicted that most of the markets had bidirectional as well as unidirectional influences on onion prices. These markets affected by prices of each other. The high volatility in price of onion was observed in all selected market. Therefore, in order to continue the present system of market integration, there is need to establish cells to generate market information and market intelligence which would provide a better platform for guiding the farmers in marketing their produce.