Pricing Efficiency of the Vegetable Market in Malaysia
Pricing inefficiency has been blamed as one of the causes for the decline in domestic vegetable production. Structural differences, system of consignment and close price discovery mechanism increase the market power of intermediaries, especially the wholesalers. Hence, changes in the wholesale pr...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English English |
| Published: |
1994
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| Online Access: | http://psasir.upm.edu.my/id/eprint/8049/1/FEP_1994_2_A.pdf http://psasir.upm.edu.my/id/eprint/8049/ |
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| Summary: | Pricing inefficiency has been blamed as one of the causes for the decline
in domestic vegetable production. Structural differences, system of consignment
and close price discovery mechanism increase the market power of intermediaries,
especially the wholesalers. Hence, changes in the wholesale price are not
transmitted to farm level in a similar manner when it increases and decreases.
Farm price is more responsive to decreases rather than increases in the wholesale
price. Any rise in production cost which does not commensurate with prices
received by farmers attract them to switch to more profitable crops or industries
which then affects vegetable production.
This study provides empirical evidence to prove that asymmetric price
transmission occurs in the vegetable market. Such evidence provides proof to the
government that wholesalers use their market power to employ pricing strategies
which result in complete and rigid pass-through of cost increases but slower and
less complete transmission of cost savings to the farmers. This problem requires
effective measures in the effort to enhance the development of the vegetable industry in the country. The univariate residual cross-correlation approach by
Haugh (1972, 1976) and Pierce (1977) and Granger's test of causality were used
to ascertain relationships between market levels in price fonnation. Improved
Wolffram's asymmetry procedure with a distributed lag model was adopted and
estimated for a subset of fresh vegetables. Time series data on prices consisting
of 204 weekly observations were utilized for the purpose. Each series represents
the average of five main market centres in the country.
The results obtained show that the wholesale market tends to be a major
node for pricing. Both retail and farm prices generally lag wholesale price
changes. For the eleven most popular vegetables studied, the evidence clearly
indicates that price changes are not transmitted throughout the vertical system.
Retail prices tend to adjust quickly to increases in wholesale prices. In contrast,
farm prices tend to reflect more fully decreases in wholesale price relative to
increases. Thus fluctuations in wholesale prices are not beneficial to both parties.
Improvements in the marketing system geared toward a more competitive
market and open pricing mechanism, supported by improvements in production
technology are essential to sustain production of vegetables. Any government
development programmes such as setting up auction market ,should be critically
planned and implemented with the co-operation of all related agencies. The
programmes should also be geared towards effective monitoring, collecting and
dissemination of market information among market particl.}jants. |
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