PRICE TRANSMISSION BETWEEN IMPORTED AND LOCAL RICE MARKETS IN A LIBERALISED ECONOMY: ARE GHANA’S RICE WARS JUST MUCH I DO ABOUT NOTHING ?

Abstract

The effect of the reduction in import tariffs and liberalisation of marketing channels on price transmission between agricultural commodity markets in developing countries, like Ghana has been a source of a notional trade conflict since the mid 1990s. The conflict is based on the view that import trade liberalisation destroyed the domestic markets of import substitutes. One of Ghana’s import substitutes whose marketability, price and production are believed to be adversely affected by import liberalisation is rice. To understand what role liberalisation plays in this regard, we examine the transmission of price signals between imported and local wholesale rice prices from 2006 to 2011 in Ghana. The results reveal the existence of long-run equilibrium relationships and partial transmission of price shocks from local to imported rice prices, but the latter do not dominate prices of the local rice. Thus banning rice imports or slapping imports with high tariffs in line with public opinion in Ghana might not be an option to consider. Rather, encouraging quality improvement of local rice through modern processing techniques and enhancing competition between the two grades of rice at the domestic scene has to be a key concern of government.