Efficiency of Benguet [Philippines] vegetable price linkages

The general objective of the lecture is to assess the efficiency of vegetable price linkages across markets. Specifically, the lecture paper aims (1) to describe the market areas served by the two vegetable wholesale markets in Benguet [Philippines]; (2) to determine the connectedness of selected Benguet vegetable markets with respect to their market distinctions; (3) to determine the degree of integration between Benguet markets and their central markets of destinations; and (4) to identify policy directions to improve the efficiency of vegetable price linkages across markets. The degree of market integration is used in this paper to determine whether the vegetable market for cabbage, potatoes and carrots is spatially efficient. It is efficient if prices are fully transmitted between farm-to-wholesale or farm-to-retail levels or if prices change in geographically separated markets move in unison between market levels that prohibit traders from obtaining abnormal profit. Two approaches are used to test for market integration: (1) the Ravillion model, and (2) the cointegration analysis. Two sets of prices are used: the wholesale prices collected in La Trinidad, Baguio Hangar, Urdaneta, Pangasinan, Balintawak and Divisoria [Philippines] markets for the three vegetables for the month of November 2003 sourced from the Department of Agriculture-Cordillera Highland Agricultural Resource Management Project (DA-CHARMP) for testing cointegration and farm, wholesale and retail prices from January 1998 to March 2008 for the Ravillion model. One result of the cointegration analysis revealed that all original price series for the three vegetables are confirmed to be non-stationary and are integrated in the 1st order (has unit root). Generally all prices series are significant which implies that they are directly related to each other. La Trinidad and Baguio vegetable prices are moving closely with the wholesale prices in the reference markets except for carrots and potatoes sold in Urdaneta due to the small volume traded in this market. The outcome of the Ravillion analysis confirmed the above mentioned findings. There is market integration between Benguet vegetable trading centers and their market destinations. Wholesale prices from reference markets were immediately transmitted to wholesale markets in Benguet. Local price history has a significant contribution to the formation of current wholesale prices in low amounts. The market information system and communication facilities had contributed to vegetable market integration in vegetable trading in Benguet and its market destinations. An efficient marketing information system is important to maintain and enhance the connectedness of Benguet markets with its various market destinations. The following recommendations can improve the connectedness between markets: (1) establishment of communication facilities in production areas; (2) adequate budget to be given to the Bureau of Agricultural Statistics (BAS) to ensure the collection and timeliness of needed market information; (3) market reporters to be trained on quality monitoring of prices and other relevant market information; and (4) farmers and traders to be trained on proper postharvest practices and grading. A strict enforcement of a good grading system for vegetables increases the meaningfulness of price quotations reported in market news.