Volatility Spillovers and Market Integration in South Africa’s Fresh Produce Markets

Price volatility in the South African fresh produce market poses significant risks to the entire value chain. This study examines the extent of price volatility and spillover effects in these markets to improve price risk management and enhance market stability. Using weekly price data for eight major vegetables (cabbages, carrots, garlic, onions, potatoes, sweet potatoes, spinach, and tomatoes) collected from 19 regional fresh produce markets, volatility patterns were initially assessed with descriptive statistics. Time-varying volatility persistence was modelled using ARCH and GARCH frameworks. The DCC-GARCH framework was used to evaluate spillover effects between markets, and cointegration analysis is employed to determine both short- and long-run interdependencies. The results confirm the existence of spillover effects and patterns of price volatility in the fresh produce markets. We found volatility spillovers between key regional markets. For example, Johannesburg and Tshwane fresh produce markets (large central markets) transmit to several smaller markets, as indicated by significant DCC-GARCH spillover coefficients. Cointegration results show the partial integration of fresh produce markets, suggesting that price movements and volatility are interconnected across regions. This empirical result underscores the importance of understanding price risk management strategies in fresh produce markets and helps value chain decision makers better understand, anticipate, or test the possible effects of price volatility in fresh produce markets at any given time. Policy makers and other stakeholders in the value chain are equipped with knowledge of how best to serve society.