Market Integration and Price Transmission: A Case Study of Sugar Markets in India

Abstract

The current study analyzed the transmission and spatial integration of sugar prices in different markets (Nagpur, Agra, Bengaluru, Chennai, and Rajkot) from July 2010 to June 2020. The Cuddy Della-Valle index indicated that prices in all the selected markets were relatively stable, and the seasonality index revealed that farmers were receiving prices higher than the average in the majority of markets during this period. Johansen’s cointegration test demonstrated that markets were well integrated in the long run. Bengaluru market was found as a key market, and there was a consistent price transmission pathway from the Bengaluru market to Nagpur and subsequently to Agra. Therefore, the study suggested that a more integrated market enabled better allocation of resources and increases overall efficiency in the agricultural sector. Keywords: Co-integration, Granger causality, instability, variance decomposition. JEL Codes: C22, C32, Q13, Q19.