Econometric Analysis of Retail Prices of Major Agricultural Food Commodities in Dire Dawa City Administration, Ethiopia

Food commodities prices have increased over the recent decade attracting the attention of market participants and policy makers. The short period between the recent price surges has therefore drawn concerns and raised questions on the causes and future prospects of commodity markets. Instability and variation in food production over years contribute immensely to food insecurity. This study focuses on the objectives include: to explore the trends of prices of selected agricultural food commodities and to examine the short run and long run relationship between the prices of the selected agricultural food commodities. In order to examine the series, the unit root tests (ADF and Phillips-Perron tests), identification of the number of lags and co-integration analyses were conducted. Unit root tests indicate that all series are non-stationary at level and are stationary (first difference) at 5 percent significant level. The Johansen co-integration test suggests that there is at least one co-integration vector, which describes the long run relationship between prices of Rice, white Teff, Maize and Sorghum. The appropriate number of lag identified was two. The VECM analysis findings showed the existence of integration between the prices and revealed that increase in prices of maize and sorghum in the past will decrease price of Rice in the long run. Similarly, the result of VECM showed as prices of white Teff and Rice have positive relationship.