Market Integration in Wholesale Rice Markets in India

Abstract

The level of integration of agricultural markets is a critical determinant of agricultural price policy in developing countries, particularly large ones. If agricultural markets are not integrated, then any local food scarcity will tend to persist, as distant markets (with no scarcity) will not be able to respond to the price signals of such isolated markets (Dreze and Sen, 1995). Lack of integration can often lead to localized food scarcity, even famines (Currey and Hugo, 1985). Testing for such integration is, therefore, central to determining the (geographical) level at which agricultural price policy should be targeted, at least in the short-run. If all agricultural markets were not integrated at the national level then a national agricultural price policy would not be suitable. It would be more appropriate to target a common price policy to a set of integrated markets. In the longer run it would be imperative to enhance market integration across the board in order to reap the advantages of a large market.