Spatial market integration in the era of high food prices. A case of surplus and deficit maize markets in Kenya

Abstract

Kenya, like most countries in the East Africa Region, has continued to be beleaguered by unabated high and volatile food prices. The government, in an effort to counter these challenges, has instituted various policies aimed at reversing the situation. This paper is aimed at examining spatial maize market integration in the presence of non-constant transaction costs and policies implemented. Findings indicate that market pairs close to each other were integrated, had a lower transaction cost and the price differential across markets were quickly corrected compared to markets further apart. Evaluation of the effects of policies on market integration shows the implementation of policies resulted in market distortion. The price difference between surplus and deficit markets were not corrected hence equilibrium was not achieved. When markets are poorly integrated, the price mechanism does not work and price signals cannot be transmitted thus allowing for efficient exchange of food products across spatial markets. To reduce transaction costs in the maize sector, the government should improve the road infrastructure connecting production areas with the markets and between markets. Harmonisation of the local government levies imposed on maize traversing different local municipalities will help reduce transaction costs. On the fertiliser subsidy, the government needs to collaborate with the private sector as it has a wide distribution network countrywide. This will ensure accessibility of the fertiliser by farmers in remote areas. Market forces should guide participation of the marketing board in the maize market. The board should not succumb to political pressure by purchasing maize at a higher price than the market prices.