Price Dynamics and Extent of Integration in Indian Wholesale and Retail Wheat Markets

Uncertainty in staple food prices places the economy under jeopardy if not managed coherently and markets are not integrated. An attempt was made to analyze the wheat price behavior and extent of integration across selected wholesale and retail markets in India sourcing monthly data from FAO (July ۲۰۰۰-June ۲۰۱۶). Findings indicated that the price in wholesale and retail markets as well as its divergence was lowest in Patna, implying a major production and consumption zone, and highest in Chennai, indicating a negligible production. Monthly price indices exhibited a clear-cut seasonality linking with the arrivals of post-crop harvest. Extent of price integration was examined using Johansen’s approach to know whether markets share a linear deterministic trend followed by testing the Law Of One Price (LOOP). The maximum likelihood test indicated a strong integration in different combinations of markets with some market pairs showing unidirectional-causality, while the rest exhibiting either bidirectional-causality or no-causality. Barring Patna, Delhi, and Mumbai’s retail and wholesale markets, the rest of the market combinations did not confirm the LOOP. The study advocates rational allocation of resources based on the extent of price integration and reducing the market distortion for improving the overall performance.

Keywords:

Allocation of resources , Law of one price , Market integration , Price integration , Seasonal price index.