Journal of Agricultural Sciences DOI: 10.

2298/JAS1303195O
Vol. 58, No. 3, 2013 UDC: 631.15(669);339.18:63(669)
Pages 195-207 Original scientific paper

RURAL-URBAN PRICE TRANSMISSION AND MARKET INTEGRATION

OF SELECTED HORTICULTURAL CROPS IN OYO STATE, NIGERIA

Oluwakemi Adeola Obayelu* and Ganiyat Omotayo Alimi

Department of Agricultural Economics, Faculty of Agriculture and Forestry,

University of Ibadan, Nigeria

Abstract: The majority of agricultural markets in African countries are

inefficient and poorly integrated. This study therefore assessed the level of market
integration and the trend analysis of selected vegetable crops in Oyo State. It also
identified the leading market between rural and urban markets in Oyo state.
Secondary data on the prices of fresh tomato, onion, chilli pepper, sweet pepper,
and fresh pepper (20032011) were obtained from Oyo State Agricultural
Development Programme and were analysed using trend analyses, Augmented
Dickey-Fuller (ADF) test, Granger causality test and index of market
concentration. Results showed that the prices of onion, chilli pepper and fresh
pepper were non-stationary in their various level forms but stationary at first
difference; while prices of fresh tomato and sweet pepper in urban markets were
stationary at their level form at probability of 5% respectively. The indices of
market concentration for onion, sweet pepper, fresh pepper, chilli pepper were less
than one suggesting high short-run market integration, whereas fresh tomato
achieved low short-run market integration. Further, urban markets were the leading
markets for onion, chilli pepper and sweet pepper, while rural markets were the
leading markets for fresh tomato and fresh pepper.
Key words: rural, urban, market integration, spices, prices.

Introduction

Efficient food marketing system and its role in food security in Nigeria is
pivotal to a reduction in post harvest losses; ensuring adequate returns to farmers
investment and stimulating an expansion in food production thereby enhancing the
level of food security in Nigeria through adequate information about prices of
agricultural produce (Ladele and Ayoola, 1997). Prices are a measure of
availability because they tend to rise as the supply of food falls in relation to
demand (e.g. poor production, constrained imports of food), and they tend to fall
when supply expands in relation to demand (e.g. a bumper harvest). Agricultural
*
Corresponding author: e-mail: jkemmyade@yahoo.co.uk
196 Oluwakemi Adeola Obayelu and Ganiyat Omotayo Alimi

prices contribute significantly to the pace and direction of agricultural

development. They serve as market signals of the relative scarcity or abundance of
a given product (Akintunde et al., 2012). Prices also serve as a stimulus to direct
the allocation of economic resources and to a large extent they decide the structure
and rate of economic growth. Prices vary almost throughout the year and
understanding the trend of such variations was therefore essential for good
planning by the producers, consumers and policy makers.
Agricultural commodity prices unprecedentedly fluctuated and continuously
increased from 2002 to mid 2008. This resulted in price volatility, food inflation,
poverty and hunger, coupled with inadequate market price transmission. High food
prices increased the levels of food deprivation, food insecurity, worsening
conditions for many who were already food insecure and thus threatening global
long-term food security (Abbott, 2009). This has placed a tremendous pressure on
achieving the millennium development goal (MDG) on hunger by the year 2015
(FAO, 2008). The price volatility of agricultural commodities in Nigeria is
attributable to various factors including variances in bargaining power among
consumers, cyclical income fluctuations among sellers and consumers, natural
shocks and inappropriate response by farmers to price signals (Adebusuyi, 2004;
Udoh and Sunday, 2007). However, short-run fluctuations in agricultural
commodity prices take place between production seasons. During the harvesting
period farmers offer to the market the minimum price for their products while
prices become high during the drought or off-season owing to reduced production
and seasonal changes (Cashin and Pattillo, 2000; Akpan, 2002). The issue of
market integration (co-movement of prices and smooth transmission of price
signals and information across spatially separated markets) is fundamental to many
contemporary debates on market liberation, price policy and parastatal reform in
food market of developing countries. The integration of agricultural commodity
market is therefore a necessity for the effectiveness of agricultural marketing
reform programmes. It ensures the transmission of price signals from food deficit
to food surplus areas and help farmers to increase specialization and harness
comparative advantages and gains from trade (Baulch, 1997). The aim of market
integration analyses therefore is to find the possibility of achieving some gains by
trading across commodity markets, exploiting price movements in one market
(urban) for the prediction of price movements in another market (rural) (Okoh and
Egbon, 2005).
The majority of agricultural markets in African countries are inefficiently and
poorly integrated and agricultural marketing efficiency in Nigeria is dismally low
(Onyuma et al., 2006; Phillip et al., 2008). A major characteristic of agricultural
markets in Oyo State is the inter- and intra-pricing variations among its urban and
rural retail markets due to the forces of demand and supply (Adenegan and
Adeoye, 2011). The majority of farmers and retailers have poor access to credit
 Rural-urban price transmission and market integration of horticultural crops 197

which may reduce their ability to respond to price changes (Okoh and Egbon, 2005).
Consequent to these factors, market service areas covered by traders may overlap with
several sellers operating within the same market or village. Therefore, there exists a
possibility that a price change in one market would result in a series of price responses
that spread throughout contiguous market areas in this case such price changes may not
have discernible effects on more distant markets making the attainment of an integrated
foodstuff market system a mirage (Akintunde et al., 2012).
Vegetable marketing is often characterized mainly by the problem of
seasonality and perishability. The quality and nutritional value of fresh produce
like tomato, fresh pepper, sweet pepper, chilli pepper and onion are affected by
post harvest handling and storage conditions (Sablani et al., 2006). Many
consumers do not have price information on the selected vegetables in various
retail markets which might lead to exploitation due to insufficient price statistics
and a familiar problem is the inter and intra-pricing variations among urban and
rural retail markets due to the forces of demand and supply. There are arrays of
competitive prices on tomato, onion, sweet pepper, fresh pepper, and chilli pepper
within and across the rural and urban markets in the state. This study therefore
evaluates the market integration of the selected vegetables between rural and urban
markets in Oyo state.

Material and Methods

The secondary time series data prices on the selected vegetables were obtained
from Oyo State agricultural development programme. The secondary time series
price data contain monthly retail price per kilogramme of fresh tomato from the
selected rural and urban retail markets of the state from 20032011. The choice of
fresh tomato, fresh pepper, sweet pepper, chilli pepper and onion is due to their
importance in the diet and the daily variation in prices.

Co-integration technique

Co-integration can be regarded as the empirical counterpart of the theoretical

notion of long-run equilibrium relationship. Firstly, variables have to be pre-tested
for stationarity. Stationarity means that the marginal distribution of the process
does not change with time.
Pit= Pt-1+ 1Pt-1+lit (1)
A series is said to be integrated of order d, I(d), if it has to be differenced d
times to produce a stationary series. Once stationarity is obtained, variables are
then tested for co-integration or long-run relationship. Two series are co-integrated
of order (1,1), if the individual series are I(1) and a linear combination of them
called the co-integrating regression is I(0). After getting co-integrated relationship,
198 Oluwakemi Adeola Obayelu and Ganiyat Omotayo Alimi

the residuals from the equilibrium regression can be used to estimate the error
correction model. Two or more variables are said to be co-integrated if each is
individually non-stationary (i.e. has one or more unit roots), but there exists a linear
combination of the variables that is stationary. After the stationarity test, we tested
for co-integration between market price series that exhibited stationarity of the
same order (Johansen, 1988). The Johansen test allows for the existence of more
than one co-integrating relationship (vector) and the speed of modification towards
the long-term equilibrium is easily determined (Bakucs and Ferto, 2005). The two
variable systems were modelled as a vector auto-regression (VAR) as follows:
= + Xt-1+ Xt-k+ (2)
where = an n x 1 vector containing the series of interest (tomato spatial price
series), and = matrices of parameters, k = number of lags, and should be
adequately large enough both to capture the short-run dynamics of the underlying
VAR and to produce normally distributed white noise residuals.

Test for causality

Granger-causal relationship exists in a group of co-integrated series (Chirwa,

2000). The causality test is represented by the error correction equation as follows:
Pt= iPl(t-1)+ iPj(t-1)+t (3)
where m and n are numbers of lags determined by Akaike information criterion.
Rejection of the null hypothesis (by a suitable F-test) that h = 0 for h = 1,
2,...n and = 0 indicates that Granger causality runs in both markets and, then prices
are determined by a simultaneous field-back mechanism (SFM). This is the
phenomenon of bi-directional causality. If the Granger causality runs one way, it is
called unidirectional Granger causality and the market which leads the other is
tagged as the exogenous market.

Index of market connection (IMC)

The index of market concentration was used to measure price relationship

between integrated markets. Following Oladapo and Momoh (2007) approach, the
actual rural price is given by the equation below.
= + + ( )+ + (4)

= urban or reference price

= rural price
= lagged price for urban markets
= difference between urban price and its lag
= error term or unexplained term
 R
Rural-urban priice transmissionn and market in
ntegration of hoorticultural cropps 199

= constaant price
= coeffiicient of ruraal lagged pricce
=coefficcient of
= coeffiicient of urbaan lagged priice
IMC = 1/ 3 where 0 IMC
where
IMC < 1 im
mplies high short-run
s marrket integratiion,
IMC > 1 im
mplies low shhort-run markket integratio on,
IMC = immplies no maarket integraation, and
IMC = 1 im
mplies high or o short-run market
m integrration.

Resullts and Discu

ussion

The trend
t analysses for the urban and rural markket prices oof selected
vegetables are presentted in Figurres 1 to 5. Results
R showw that over the period
h tomato were higher thaan the rural
under revieew, the urbaan market prrices of fresh
market priices with thhe maximum m rural marrket price for
f fresh tom mato being
N175.41/kg (2011) annd the minim mum being N43.23/kg.. The maxim mum urban
market pricce was N165.33/kg in 2011,
2 while the minimum m price wass N40.98/kg
in 2004 whhich shows that there wasw a higherr degree of fluctuation
f iin prices of
tomato in rural markeet than in urrban market across the season (Figuure 1). The
maximum rural market price forr onion wass N374.21/kkg in 2005,, while the
minimum rural
r price was
w N26/kg in 2008. Th he maximumm urban markket price of
onion wass N174.01/kkg in 2011 and the minimum m urbban market price was
N54.75/kg indicating that
t rural market
m prices for onion were
w higher than urban
market pricces of onion across the season
s (Figurre 2).

Figure 1. Trend
T in urbann and rural prrices of fresh
h tomato in Oyo
O State (20032011).
200 Oluwaakemi Adeola Obayelu
O and Gaaniyat Omotayoo Alimi

400

350

300

250

200
R
Rural
150
U
Urban
100

50

0
JANO3
JUNEO3
NOVO3

FEBO5

MARO7
AUGO7
JANO8
JUEO8
NOVO8

FEB1O

DEC1O
DECO5
MAYO6

MAYO11
OCT011
APRILO4
SEPTO4

APRILO8

JULY1O
JULYO5

OCT0O6

SEPTO9
Figure 2. Trend
T in urbaan and rural prices
p of onio
on in Oyo Sttate (200320011).

The maximum
m ruural market price of chilli
c pepperr was N 8992.93/kg in
December 2011 and thhe minimum rural markett price was N69.47
N in Auugust 2004,
while the maximum
m urbban market price
p was N9929.51/kg in December 2011 and the
minimum urban
u markett price was N73.48/kg
N n August 2004 (Figure 3)..
in

Figure 3. Trend
T O State (20032011).
in urbann and rural prrices of chillii pepper in Oyo

The trrend analysiis shows thaat urban priices of chillli pepper were slightly
higher thann rural pricees except in July 2010 and a in 2011 when rural prices rose
higher thann the urban market
m pricess of chilli pep
pper. Likewiise, urban m
market prices
 R
Rural-urban priice transmissionn and market in
ntegration of hoorticultural cropps 201

of sweet pepper were much higherr than its ru ural market prices
p acrosss the season
with the maximum
m ruural market price
p being N374.21/kgg in June 20005 and the
minimum rural
r market price was N26/kg
N in Auugust 2008. However,
H thee maximum
urban markket price waas N427.80/kkg in Decem mber 2004 and a the minim mum urban
market pricce was N68.772/kg in Januuary 2008 (F Figure 4). Thhe rural markket price for
fresh peppeer was the hiighest (N2488.03/kg) in March
M 2011 and
a the loweest (N25/kg)
in Septembber 2006, whilew the maximum
m urb
ban market price was N N450/kg in
January 2006 and the minimum
m urbban market price
p was N500/kg in Septeember 2006
depicting fluctuation
f inn prices acrosss the seasonn. This couldd be attributedd to the fact
that there was
w a high degree
d in the demand of fresh pepperr in urban m market in the
year 2006 (Figure
( 5).

Rural
Urb
ban

Figure 4. Trend
T in urbann and rural prrices of sweeet pepper in Oyo
O State (200032011).

500
450
400
350
300
250
200 R
Rural
150
U
Urban
100
50
0
JANO3
JUNEO3
NOVO3

FEBO5

AUGO7
JANO8

FEB1O

DEC1O
DECO5
MAYO6

MARO7

JUEO8
NOVO8

MAYO11
OCT011
APRILO4
SEPTO4

APRILO8

JULY1O
JULYO5

OCT0O6

SEPTO9

Figure 5. Trend
T in urbann and rural prrices of fresh
h pepper in Oyo
O State (200032011).
202 Oluwakemi Adeola Obayelu and Ganiyat Omotayo Alimi

Stationarity tests of the selected vegetables

The findings revealed that the acceptance of the null hypothesis of non-
stationarity could be achieved at the probability of one percent level of significance
(Table 1). Although the null hypotheses of non-stationarity were accepted for the
prices of onion, chilli pepper and fresh pepper in their level form for rural markets,
they were rejected at first difference. This conforms with the findings of Chirwa
(2001), Yusuf et al. (2006) and Adeoye et al. (2011) that commodity prices could
be stationary at first difference. However, urban market prices of fresh tomato and
sweet pepper were stationary in their level form. Therefore, the test of co-
integration was applied to fresh tomato and sweet pepper price series data which
were integrated in the same order I(1) and did not have a unit root.

Table 1. Results of the Augmented Dickey-Fuller (ADF) test for the selected
vegetables in Oyo State.

ADF ADF
Market Remark Remark
(level form) (first differences)
Rural tomato market -3.45 Non-stationary -7.59** Stationary
Urban tomato market -2.89* Stationary -13.71** Stationary
Rural onion market -3.14 Non-stationary -10.38** Stationary
Urban onion market -1.49 Non-stationary -11.01** Stationary
Rural chilli pepper market -0.62 Non-stationary -8.83** Stationary
Urban chilli pepper market -1.01 Non-stationary -9.31** Stationary
Rural sweet pepper market -3.37 Non-stationary -10.32** Stationary
Urban sweet pepper market -4.01* Stationary -7.98** Stationary
Rural fresh pepper market -3.39 Non-stationary -11.83** Stationary
Urban fresh pepper market -3.78 Non-stationary -11.03** Stationary
**
1% level of significance, * 5% level of significance.

Co-integration test for the prices of the selected vegetables

The co-integration tests for market integration are to test whether there is a
statistical significant linear relationship between different series data. The maximum
Eigen values revealed that all five market pairs investigated were co-integrated at
five percent level of significance. The null hypotheses of co-integration relationships
were rejected at five percent significance level for all the selected vegetables in their
various market pairs but sweet pepper (p<0.01) (Table 2). The trace test showed that
the market pairs for all the selected vegetables were co-integrated in order (1,1) at
five percent level of significance. This suggests that there is a linear long-run
relationship between the rural and urban price series.
 Rural-urban price transmission and market integration of horticultural crops 203

Table 2. Results of Johansen maximum likelihood test for the rural and urban
markets of the selected vegetables in Oyo State.

Eigen Trace Critical value Hypothesized no. of

Market pairs Probability
value statistics (5%) co-integrating equation
0.16 22.06 15.49* 0.00 None*
RMPFT-UMPFT
0.03 3.58 3.84 0.06 At most 1
0.15 18.11 15.49* 0.02 None*
RMPO-UMPO
0.01 1.31 3.84 0.25 At most 1
0.13 15.96 15.49* 0.04 None*
RMPCP-UMPCP
0.00 0.59 3.84 0.44 At most 1
0.14 20.78 15.49* 0.01 None*
RMPSP-UMPSP
0.04 4.28 3.84 0.03 At most 1*
0.31 42.26 15.49* 0.00 None*
RMPFP-UMPFP
0.02 2.97 3.84 0.08 At most 1
*
Represents the rejection of null hypothesis at 5% significance level.
RMPFT - Rural market price of fresh tomato, UMPPFT - Urban market price of fresh tomato;
RMPO - Rural market price of onion, UMPO - Urban market price of onion;
RMPCP - Rural market price of chilli pepper, UMPCP - Urban market price of chilli pepper;
RMPSP - Rural market price of sweet pepper, UMPSP - Urban market price of sweet pepper;
RMPFP - Rural market price of fresh pepper, UMPFP - Urban market price of fresh pepper.

Granger causality test for the selected vegetables

Five market links accepted their respective null hypothesis of no Granger

causality while five other market links exhibited bi-directional Granger causality or
a simultaneous feedback relationship (Table 3).

Table 3. Granger causality test for the selected vegetable prices in Oyo state.

Variables Observation F-statistics Probability

Urban fresh tomato does not Granger cause rural fresh tomato. 106 1.71153 0.18579
Rural fresh tomato does not Granger cause urban fresh tomato 106 3.40943 0.03691*
Urban onion does not Granger cause rural onion 106 4.84647 0.00978**
Rural onion does not Granger cause urban onion 106 1.81693 0.16780
Urban chilli pepper does not Granger cause rural chilli pepper 106 7.50741 0.00091**
Rural chilli pepper does not Granger cause urban chilli pepper 106 1.39276 0.25312
Urban sweet pepper does not Granger cause rural sweet pepper 106 6.78939 0.00171**
Rural sweet pepper does not Granger cause urban sweet pepper 106 1.19340 0.30743
Urban fresh pepper does not Granger cause rural fresh pepper 106 1.05844 0.35081
Rural fresh pepper does not Granger cause urban fresh pepper 106 14.5939 2.7E-06**
Source: Authors computation of secondary data collected from OYSADEP (20032011).
**
1% significant, * 5% significant.
204 Oluwakemi Adeola Obayelu and Ganiyat Omotayo Alimi

Urban markets for onions, chilli pepper and sweet pepper had strong
exogeneity over their respective rural markets. On the other hand, rural markets for
fresh tomatoes and fresh pepper had strong exogeneity over urban markets for fresh
tomatoes and fresh pepper. Thus, the markets were spatially linked by trade with
urban markets being the leading markets for onion, chilli pepper and sweet pepper,
while rural markets were the leading markets for fresh tomato and fresh pepper.
Therefore, there was market integration between rural and urban market of the
selected vegetables suggesting that price changes in one market exhibit identical
price response in the other market. There was also an adequate free flow of goods
between the rural and urban markets and they are linked by efficient arbitrage.

Indices of market concentration (IMC) for the selected vegetables

Results revealed that the indices of market concentration (IMC) for onion,
chilli pepper, sweet pepper and fresh pepper were less than one indicating high
short-run market integration (Table 4). Therefore, changes in rural market price
caused immediate changes in urban market price for all the selected items except
for fresh tomato (IMC = 1.37). The low short-run market integration of tomato
markets suggests that rural market prices of fresh tomato did not account for
immediate changes in urban market price of fresh tomato.

Table 4. Indices of market concentration (IMC).

Selected 2 Adjusted IMC

Market pairs R 2 Level of classification
vegetable R value
Rural and urban market Fresh tomato 0.76 0.75 1.37 Low short-run market integration
Rural and urban market Onion 0.22 0.20 0.54 High short-run market integration
Rural and urban market Chilli pepper 0.78 0.77 0.15 High short-run market integration
Rural and urban market Sweet pepper 0.14 0.12 0.86 High short-run market integration
Rural and urban market Fresh pepper 0.63 0.62 -1.16 High short-run market integration
Source: Authors computation of secondary data collected from OYSADEP (20032011).

Conclusion

This study assessed the price behaviour of the selected vegetables in their
various rural and urban markets respectively. Results showed that market
integration existed between rural and urban market of the selected vegetables with
the urban markets being the leading markets. It is expedient for the government to
establish market information centres that will help to facilitate adequate
communication and transmission of information for rural fresh pepper market, rural
 Rural-urban price transmission and market integration of horticultural crops 205

fresh tomato market, urban chilli pepper market, urban onion market and urban
sweet pepper market. The study also showed that rural and urban tomato markets
were not integrated in the short-run with the exception of fresh tomato indicating
that rural market prices of fresh tomato were not accountable for short-run changes
in urban market price of fresh tomato. Thus, there is the need to solve problems
that could cause an immediate increase in urban market prices such as poor
transportation and the activities of middlemen.

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Received: August 5, 2013

Accepted: October 14, 2013
 Rural-urban price transmission and market integration of horticultural crops 207

TRANSMISIJA CENA I TRINA INTERGRACIJA ODABRANIH

HORTIKULTURNIH BILJAKA U SELU I GRADU
U DRAVI OJO U NIGERIJI

Oluwakemi Adeola Obayelu* i Ganiyat Omotayo Alimi

Odsek za agroekonomiju, Fakultet za poljoprivredu i umarstvo,

Univerzitet u Ibadanu, Nigerija

Rezime

Veina poljoprivrednih trista u afrikim dravama je neefikasna i slabo

integrisana. Stoga, ovo istraivanje ocenjuje nivo integracije trita i analizu
trendova odabranih povrtarskih kultura u dravi Ojo. Takoe, ono identifikuje
vodee trite izmeu ruralnih i urbanih trita u dravi Ojo. Sekundarni podaci o
cenama sveeg paradajza, crnog luka, ljute paprike, slatke paprike i svee paprike
(20032011) su dobijeni iz Programa poljoprivrednog razvoja drave Ojo i
analizirani su primenom analiza trendova, proirenog Dickey-Fuller-ovog (ADF)
testa, Grejnderovog testa uzronosti i indeksa koncentracije trita. Rezultati su
pokazali da su cene crnog luka, ljute paprike i svee paprike nestabilne u svojim
razliitim oblicima, ali stabilne u prvoj razlici; dok su cene sveeg paradajza,
odnosno slatke paprike na urbanim tritima bile stabilne u svom obliku pri
verovatnoi od 5%. Pokazatelji koncentracije trita za crni luk, slatku papriku,
sveu papriku i ljutu papriku su bili manji od jedan, sugeriui visoku kratkoronu
integraciju trita, dok je svei paradajz postigao nisku kratkoronu trinu
integraciju. Dalje, urbana trita su bila vodea trita za crni luk, ljutu papriku i
slatku papriku, dok su ruralna trita bila vodea za svei paradajz i sveu papriku.
Kljune rei: ruralan, urban, integracija trita, zaini, cene.

Primljeno: 5. avgusta 2013.

Odobreno: 14. oktobra 2013.

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Autor za kontakt: e-mail: jkemmyade@yahoo.co.uk