An assessment of the transmission of South African maize prices to Botswana markets

Abstract

The international prices of most food commodities increased sharply between 2005 and 2008 and continued to rise thereafter. Over this period, international maize prices increased by 80 percent. Since 2008, Botswana, a net food importer, has been witnessing unprecedented high food prices. However, little information is available on the transmission of international maize prices into the Botswana market. This study evaluates the transmission of South African maize prices into the Botswana market. The study employed cointegration techniques and an error correction model (ECM) on wholesale monthly price data for the 2000-2013 period collected from Botswana Agricultural Marketing Board (BAMB) and FAO GIEWS. The study found a long-run steady state equilibrium exists between the South African and Botswana maize prices. The long-run elasticity of price transmission was estimated at 0.86 implying that 86 percent of the changes in the South African maize prices are transmitted to the Botswana market. The speed of adjustment was estimated at -0.07 implying that it takes 13 months for the maize price changes in South Africa to be fully transmitted fully to the Botswana market. The study recommends that the government of Botswana should minimise the involvement of BAMB in grain trade through the reduction of the maize domestic procurement requirements which are currently set at 60 percent and finally invest in development of infrastructure mainly roads and warehouses. Further research can focus on analysing the transmission of maize prices within the value chain in the Botswana market