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Keywords:

  • price stabilization;
  • market integration;
  • causality;
  • Ethiopia

Abstract

Unprecedented food crop price spikes in recent years prompted the Ethiopian government to impose grain export ban and to distribute grain stocks as price stabilization strategies. Successful price stabilization and size of public spending for such programs depend, to a large extent, on the choice and targeting of stabilization strategies. In a situation where a single commodity plays a leadership role in the price dynamics of other crops, targeting intervention at such a commodity would provide a useful mechanism to reduce policy cost of price stabilization while achieving commodity-wide stabilization objectives. Using multiple cointegration analysis techniques to generate knowledge useful in targeting price stabilization intervention, this study investigates whether there is a single food crop in Ethiopia, among the three major ones (teff, wheat, and maize), with an exclusive price leadership role in the price formation process of the rest. The results show that maize price plays a leadership role in the dynamics of teff and wheat prices at all markets studied, except that of Addis Ababa teff market. Given the major evidence of a price leadership role of maize, it might be possible to achieve commodity-wide price stabilization objectives through targeting intervention on maize. Such targeted intervention may also prove efficiency in terms of reducing policy cost and public spending. Copyright © 2008 John Wiley & Sons, Ltd.