An Assessment Of The Transmission Of International Prices Into Rwanda’s Rice Markets

Abstract

This study evaluated the transmission of international rice market prices to the domestic Rwandan rice market using a vector error correction model that employs monthly time series data for four domestic markets Kigali, Umutara, Ruhengeri and Butare for the 2002 to 2012 period. The need for this study arose primarily because the relationship between world rice prices and Rwanda’s domestic rice prices is not well understood. Thus, there is need to undertake empirical studies such as the current one that that shed light on this issue. The findings of the study indicated that rice markets in Rwanda are integrated to world rice markets. The results also suggest a substantial transmission ranging between 68 to 82 percent of world prices change being transmitted into Rwanda's rice markets. In addition the study results suggest that it takes 4 months for Butare, 3.5 months for Kigali, 5 months for Ruhengeri and 4 months for Umutara rice prices to adjust to the international prices. The high speed of transmission and adjustment could be attributed Rwanda reliance on imports in rice markets. The study recommends that the government should promote strategies that aim to increase self-sufficiency in rice production and in safety programs and rice storage strategies. The government of Rwanda should also promote resilience strategies to higher price transmission in international grain prices by diversifying the staple foods of consumers. Finally, Rwanda needs to invest in rural infrastructure and information systems to enable producers, traders and consumers to rationalize their decision of purchase and sale and the government