Spatial and vertical integration of tea markets in Vietnam

The study aimed to analyze the degree of market integration and price asymmetry spatially and vertically and suggest policy directions to enhance the market integration and price transmission in the tea industry of Vietnam. Six tea markets with the two major tea products namely, black and green tea were selected. Integration of the domestic and the world markets was also examined. At farm-gate level, the tea markets were highly integrated with one another. LOP [law of one price] was found in majority of the cointegrated tea market pairs, implying that the prices were fully transmitted between these markets. The integration pattern was also found to be perfect. At processor level, the black tea market pairs were not significantly cointegrated with each other, indicating an inefficient market operation. However, the green tea market pairs were relatively cointegrated. Tea markets at the retail level were highly integrated with one another indicating the efficient tea trade among the markets. LOP was held in majority of the market pairs, implying that the prices were fully transmitted between these markets. The integration pattern was found to be almost perfect. The marketing channels for black tea revealed that prices at farm-gate and processor levels were highly cointegrated while farm-gate prices Granger-caused processor prices, and price transmissions between farm-gate and processor levels in most of the markets were symmetric. In the marketing channels for green tea, retailers played an important role in the market price formation and in the channeling of market price information, while the tea processors did not: Tea retail prices Granger-caused tea processor prices for both black and green tea. Furthermore, the export price for tea was not fully integrated with the world price. To enhance market integration and price transmission among tea markets in Vietnam, the following policy directions are suggested: 1) strengthen the organization and operations of VITAS [Vietnam Tea Association]; 2) establish a tea auction center; 3) formulate and implement a tea marketing strategy for tea products; 4) establish a market information system for the tea industry; 5) improve human capital for the tea industry; 6) privatize SOE [State-owned Enterprise] tea farming and processing enterprises; and 7) improve road conditions in tea producing regions.