Rice Price Volatility And Transmission: Implications For Food Security In Ghana

Abstract

ABSTRACT This thesis presents analysis of price volatility and transmission in rice markets and their implications for availability, accessibility and stability of imported rice in Ghana. Using monthly imported rice price data over the period of 2013 – 2018, the study examines the relationship between World and domestic markets to ensure availability of imported rice, the extent of price transmission and symmetry in ensuring accessibility of rice and the effect of rice price fluctuation on the stability of imported rice in Ghana. The study deploys Johansen cointegration test, Granger causality test and Error Correction Model (ECM) to examine the price transmission in the various markets to ensure availability of imported rice. The asymmetric vector error correction model is used to compute the long-run adjustment in price to ascertain whether there is symmetry in the various markets to ensure accessibility of imported rice. Again, the study employs the ARCH/GARCH model to capture the conditional volatility in the various market to help understand their impact on the stability of imported rice in Ghana. By testing for Unit-Root, the study finds the data to exhibit non-stationarity at levels but stationary after first difference at 1% significant levels. Cointegration is established between the World market and Accra (Local) market, where inter-market prices adjust to achieve long-run market equilibrium which enhance trade thereby ensuring availability of imported in Ghana. The speed of adjustment and half-live from the vector error correction model shows that monthly, 15.05% of the disequilibrium between the short-run and long-run estimates are corrected back to equilibrium in 4.25 months. In the long-run, an increase in the world price for rice is likely to increase the price of imported rice in Accra by 27.38% thereby reducing its access. Again, all the local market pairs under consideration are cointegrated. The evidence of price causation and leadership by Granger causality test shows Accra as price leaders. The findings emanating from the studies also indicate that imported rice markets in Ghana are well integrated to ensure accessibility of rice. The asymmetric vector error correction model (AVECM) indicates that positive shocks in market pairs are corrected faster than negative shocks. The speed of adjustment in the Accra – Techiman market is the fastest when compared to the other market pairs. Likewise, the adjustment mechanism for these markets after a shock was characterized by symmetry thereby removing arbitrage in the markets and ensure accessibility of imported rice. Results from the estimates (ARCH-GARCH) shows that at the world level, volatility is highly influenced by the fluctuations of the last month (17%) and also by the errors squared of last month at (46.3%). In the domestic market, results for Accra, Tamale, Bolgatanga and Kumasi shows that volatility is influenced by the fluctuations of last month (0.171%, 0.55%, 0.11% and 0.05%) and error squared of previous month (0.77, 0.11, 0.44 and 0.94). Thus, in most cases, the price of imported rice depends on the condition prevailing in the market at that point in time. The result from Accra, Kumasi, Techiman, Tamale and Bolgatanga shows that volatilities in these markets are high, affecting the stability of imported rice. The study concludes that there is a well-integrated market with a stable long-run relationship which ensures availability of rice and market accessibility to imported rice. There is high fluctuation/volatility in prices, implying that prices of imported rice are not stable across all markets. The study, therefore, recommends that Government strengthens trade policies and other bilateral agreements with the countries where we import rice in order to maintain symmetry in market and other benefits that come with it. Also, Government and other stakeholders along the imported rice value chain should increase investment in building better infrastructure and increase rice production to reduce excessive volatility in the rice market to ensure consumer access and stability of rice. Likewise, to ensure timeliness and cost-effectiveness of intervention, policies should be directed to the Accra markets (leader) since most price changes will be transferred efficiently to follower markets.