EFFECTS OF RICE IMPORTATION ON THE PRICING OF DOMESTIC RICE IN NORTHERN REGION OF GHANA

Abstract

The agricultural sector plays a major role in Ghana's economy, contributing 21.5% to the Gross Domestic Product [GDP], employing about 69% of the labour force and serving as a source of income and food security to the poor. Given the importance of the agricultural sector in the economy, if governments and policy makers are to take adequate measures to ensure food security, they need to have a good understanding of the functioning of their markets (price transmission). This research analysed secondary data of two categories of rice prices (imported and domestic) at the same district market in eight selected districts of Northern region of Ghana collected from the Ghana Ministry of Food and Agriculture (MoFA) to analyse the price dynamics of the two rice brands. The first chapter explained rice importation, domestic rice marketing and its effects. The methodology applied to this work starts from the verification of co-integration property between the two prices using Johansen method after applying Augmented Dickey-Fuller (ADF), Phillip Peron (PP) and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) tests of stationarity. Granger causality is applied to find the causal relationship between imported rice prices in Tamale market as the regional market and domestic rice prices of other district markets. Finally, Vector error correction model (VECM) applied to determine the speed of adjustment of the two prices when equilibrium is to restore. The application of the above mentioned models proved that prices of the two rice brand co-move in the long run, and that, imported rice has significant effect on the marketing of domestic rice and vice versa. The VECM results show a bi-respond to price shocks. To know the time duration that 50% of deviations from equilibrium will be corrected, half-lives are calculated from the speed of adjustment and the Tamale market appears to correct one-half of deviations from equilibrium in a shorter time period relatively. The results are presented in both quantitative and qualitative forms.