THE FUEL – MAIZE PRICE NEXUS AND SPATIAL PRICE TRANSMISSION BETWEEN MAIZE MARKETS IN GHANA

Abstract

Stable and affordable food commodity prices are important for food security. Higher food prices reduce a family‟s expenditure on other life sustaining expenditures such as health and education. In 2007/8, the world experienced an unexpected rise in both food commodity prices and fuel (petroleum products) prices, which drew the attention of world leaders and researchers. The effect of this continues increases in gasoline prices on the price of maize have implications for Ghanaians and food/ agricultural policies. This effect is further influenced by price transmission mechanism that exists among major maize markets in the country. This thesis seeks to determine the dynamics and extent of maize price transmission and responses to fuel pricing in different markets of Ghana. To achieve this, data on monthly maize prices was collected from MOFA for the period, January 2000 to December 2015. Monthly data on gasoline prices was also collected from ACEP for the same period. Models used are trend analysis, and cointegration, threshold autoregressive model (TAR) and impulse response function analysis. Generally maize prices in all four markets under study moved in the same direction as gasoline prices over the years and months. Prices in all markets were integrated with significant thresholds above which prices responded to. Also prices in all markets over the years studied experienced an immediate sharp rise in maize prices when gasoline prices are raised. This effect, the study realized is permanent and never leads to a nominal fall in maize prices. It is therefore recommended that policies on fuel pricing should be sensitive to its effect on maize pricing. Also MOFA and all actors in the agricultural sector should provide transportation infrastructure to lessen the effect of gasoline prices on maize prices.