Market integration and price transmission in Ethiopian banana supply chain

Abstract Local banana market prices in surplus areas are asymmetrically integrated and transmitted with that in central banana market prices or deficit areas due to geographic distance between markets, market power, and high transportation costs. As the result, the banana marketing margin is high due to high transport costs and transaction costs. Although the policy relevance of degree of vertical and spatial price transmission in banana supply chain, in Ethiopia is largely unknown, and this study assists to bridge the existing gap. The study investigates degree of spatial and vertical market integration and price transmission of banana supply chain in Ethiopia. ARDL co-integration bound tests and Granger causality tests are employed to examine vertical and horizontal price transmissions in banana supply chain using 10 years average monthly banana prices. The study finds relatively a higher degree of price transmission from central wholesale banana market to surplus banana market. Central wholesaler price has a significant effect on both banana producer and retailer prices in both long-run and short‐run. The result indicates that Granger causality is running from central wholesale market to local markets. There may be high transaction cost may reflect the vertical and spatial asymmetric price transmissions in banana supply chain. Policy interventions in banana supply chains could facilitate a faster and substantial degree of price transmission between actors in banana supply chain.