Are Price Changes in the World Market Transmitted to Markets in Less Developed Countries? A Case Study of Sugar, Cotton, Wheat, and Rice in Tanzania

Abstract

This paper investigates the extent to which world market price changes are transmitted through changes in border prices into local producer prices for four agricultural product markets in Tanzania: sugar, cotton, wheat and rice. The changes in the marketing channels for each of these products resulting from market liberalization are described. The statistical analysis finds that, in general, Tanzanian border and world market prices for these products do not move closely together, although there is evidence that border prices are influenced by world market price levels but not vice versa. The absence of monthly price data at producer level for these products did not permit a detailed examination of the relationship between farmgate prices and either border prices or world market prices. However, the qualitative discussion suggests that the extent of price transmission is likely to be imperfect. These results have implications for the interpretation of simulation results modelling the potential impact of trade policy changes on Tanzanian producers and consumers. They also underline the need for concerted efforts by policy makers to reduce the extent of monopoly power in these marketing chains and to improve the degree of price transmission.

Keywords: Agricultural trade, price transmission, developing countries

JEL Classification: Q13, Q17