IDEAS home Printed from https://ideas.repec.org/a/ucp/ecdecc/v56y2008p729-766.html
   My bibliography  Save this article

Price Transmission and Trader Entry in Domestic Commodity Markets

Author

Listed:
  • Marcel Fafchamps
  • Ruth Vargas Hill

Abstract

Using detailed data from three simultaneous surveys of producers, traders, and exporters, this paper examines the transmission of international coffee prices through the domestic value chain in Uganda. We find that producer price fluctuations are inconsistent with constant transaction costs. We investigate three possible explanations for this finding: storage and contango, marketing costs that increase with price, and trader entry that raises search time. We test and reject the storage and marketing costs explanation, but we find some evidence of trader entry in response to a rise in export price. Our findings suggest that small itinerant traders enter in response to an export price increase, probably taking advantage of farmers’ ignorance of the rise in wholesale price.

Suggested Citation

  • Marcel Fafchamps & Ruth Vargas Hill, 2008. "Price Transmission and Trader Entry in Domestic Commodity Markets," Economic Development and Cultural Change, University of Chicago Press, vol. 56(4), pages 729-766, July.
    • Handle: RePEc:ucp:ecdecc:v:56:y:2008:p:729-766
    DOI: 10.1086/588155
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/588155
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/588155?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bruce L. Gardner, 1975. "The Farm-Retail Price Spread in a Competitive Food Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(3), pages 399-409.
    2. Fafchamps, Marcel & Gabre-Madhin, Eleni & Minten, Bart, 2005. "Increasing returns and market efficiency in agricultural trade," Journal of Development Economics, Elsevier, vol. 78(2), pages 406-442, December.
    3. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399.
    4. Deaton, Angus & Miller, Ron, 1996. "International Commodity Prices, Macroeconomic Performance and Politics in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 5(3), pages 99-191, October.
    5. Osborne, Theresa, 2005. "Imperfect competition in agricultural markets: evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 76(2), pages 405-428, April.
    6. Marcel Fafchamps & Ruth Vargas Hill, 2005. "Selling at the Farmgate or Traveling to Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 717-734.
    7. Marcel Fafchamps & Bart Minten, 1999. "Relationships and traders in Madagascar," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 1-35.
    8. Economides, Nicholas & Siow, Aloysius, 1988. "The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities)," American Economic Review, American Economic Association, vol. 78(1), pages 108-121, March.
    9. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
    10. Staatz, John M. & Dione, Josue & Dembele, N. Nango, 1989. "Cereals market liberalization in Mali," World Development, Elsevier, vol. 17(5), pages 703-718, May.
    11. Gerald E. Shively, 1996. "Food Price Variability and Economic Reform: An ARCH Approach for Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 126-136.
    12. Badiane, Ousmane & Shively, Gerald E., 1998. "Spatial integration, transport costs, and the response of local prices to policy changes in Ghana," Journal of Development Economics, Elsevier, vol. 56(2), pages 411-431, August.
    13. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
    14. N.M.Henstridge, 1997. "The reconstruction of a macroeconomic dataset for Uganda," Economics Series Working Papers WPS/1998-03, University of Oxford, Department of Economics.
    15. Stefan Dercon, 1995. "On market integration and liberalisation: Method and application to Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 32(1), pages 112-143.
    16. Roberts Michael J & Key Nigel, 2005. "Losing Under Contract: Transaction-Cost Externalities and Spot Market Disintegration," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(2), pages 1-19, April.
    17. Fafchamps, Marcel & Gavian, Sarah, 1996. "The Spatial Integration of Livestock Markets in Niger," Journal of African Economies, Centre for the Study of African Economies, vol. 5(3), pages 366-405, October.
    18. Coulter, Jonathan & Golob, Peter, 1992. "Cereal marketing liberalization in Tanzania," Food Policy, Elsevier, vol. 17(6), pages 420-430, December.
    19. Jones, Stephen, 1995. "Food market reform: the changing role of the state," Food Policy, Elsevier, vol. 20(6), pages 551-560, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brian Dillon & Chelsey Dambro, 2017. "How Competitive Are Crop Markets in Sub-Saharan Africa?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(5), pages 1344-1361.
    2. Fafchamps, Marcel & Gabre-Madhin, Eleni & Minten, Bart, 2005. "Increasing returns and market efficiency in agricultural trade," Journal of Development Economics, Elsevier, vol. 78(2), pages 406-442, December.
    3. Van Campenhout, Bjorn, 2007. "Modelling trends in food market integration: Method and an application to Tanzanian maize markets," Food Policy, Elsevier, vol. 32(1), pages 112-127, February.
    4. Abdulai, Awudu, 2000. "Spatial price transmission and asymmetry in the Ghanaian maize market," Journal of Development Economics, Elsevier, vol. 63(2), pages 327-349, December.
    5. Rahman, Mohammad Chhiddikur, 2020. "Welfare Impact of Asymmetric Price Transmission on Bangladesh Rice Consumers," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 242248, July.
    6. Rahman, Mohammad Chhiddikur, 2018. "Welfare Impact of Asymmetric Price Transmission on Bangladesh Rice Consumers," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 251114, July.
    7. Gerald Shively & Ganesh Thapa, 2017. "Markets, Transportation Infrastructure, and Food Prices in Nepal," American Journal of Agricultural Economics, John Wiley & Sons, vol. 99(3), pages 660-682, April.
    8. Shilpi, Forhad & Umali-Deininger, Dina, 2007. "Where to sell ? market facilities and agricultural marketing," Policy Research Working Paper Series 4455, The World Bank.
    9. Fekadu Gelaw & Stijn Speelman & Guido Huylenbroeck, 2017. "Impacts of Institutional Intervention on Price Transmissions: The Case of the Ethiopian Commodity Exchange," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 88-106, November.
    10. Fafchamps, Marcel & Gabre-Madhin, Eleni Z., 2006. "Agricultural markets in Benin and Malawi," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 1(1), pages 1-28, November.
    11. Marks, Daan, 2010. "Unity or diversity? On the integration and efficiency of rice markets in Indonesia, c. 1920-2006," Explorations in Economic History, Elsevier, vol. 47(3), pages 310-324, July.
    12. Claudio Araujo & Catherine Araujo Bonjean & Jean-Louis Combes & Pascale Combes Motel, 2005. "Devaluation and Cattle Market Integration in Burkina Faso," Journal of African Economies, Centre for the Study of African Economies, vol. 14(3), pages 359-384, September.
    13. James O. Bukenya & Walter C. Labys, 2005. "Price Convergence on World Commodity Markets: Fact or Fiction?," International Regional Science Review, , vol. 28(3), pages 302-329, July.
    14. Jayasuriya, Sisira & Kim, Jae H. & Kumar, Parmod, 2007. "International and Internal Market Integration in Indian agriculture: A study of the Indian Rice Market," 106th Seminar, October 25-27, 2007, Montpellier, France 7935, European Association of Agricultural Economists.
    15. Montalbano, P. & Pietrelli, R. & Salvatici, L., 2018. "Participation in the market chain and food security: The case of the Ugandan maize farmers," Food Policy, Elsevier, vol. 76(C), pages 81-98.
    16. Quattri, Maria A., 2012. "On trade efficiency in the Ethiopian agricultural markets," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122512, European Association of Agricultural Economists.
    17. Kwon, Daye & Liverpool-Tasie, Saweda & Reardon, Thomas A., 2023. "Market Channel and Heterogeneous Storage Behavior in response to Multiple Risks: The Case of Nigerian Maize Traders," 2023 Annual Meeting, July 23-25, Washington D.C. 335810, Agricultural and Applied Economics Association.
    18. Yao, Richard T. & Shively, Gerald E. & Masters, William J., 2005. "How Successful Are Government Interventions In Food Markets? Insights From The Philippine Rice Market," 2005 Annual meeting, July 24-27, Providence, RI 19263, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    19. Porteous, Obie, 2017. "Empirical effects of short-term export bans: The case of African maize," Food Policy, Elsevier, vol. 71(C), pages 17-26.
    20. Robinson, Amanda Lea, 2016. "Internal Borders: Ethnic-Based Market Segmentation in Malawi," World Development, Elsevier, vol. 87(C), pages 371-384.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:ecdecc:v:56:y:2008:p:729-766. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/EDCC .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.