Market Integration of Wholesale Chilli Prices of Pakistan

Vegetables hold very important and significant place in our diet, among vegetables chilli ( Capsicum annuum L.) is one of the most important vegetable crop of Pakistan. The vegetable’s market integration is the major problem in Pakistan and symbol of efficiency is integrated markets. The present study was conducted for domestic integration of four major chilli markets of Pakistan by using their monthly wholesale chilli prices of eighteen years (June 2000 to July 2019) by adopting Johan-sane integration approach. The Augmented Dickey Fuller (ADF) test revealed that prices are integrated at first difference and results of pair wise integration showed chilli markets of Pakistan (Hyderabad, Lahore and Quetta) are integrated in the long-run and in short run with strong relationship, except Peshawar market because of long distance, price variation & seasonal effects. The results of Vector Error Correction Model ( VECM) showed significant adjustment of prices in almost three pairs of markets (Hyderabad, Lahore and Quetta) and the finding of Granger causality test showed the bidirectional and unidirectional causality relationship between the chilli markets. Granger causality tests have also indicated that unlike in other market pairs such as Lahore-Peshawar and Quetta-Peshawar have no causality direction on price formation between them. The government should design a network of chilli wholesale markets across the country that are nearly equal distance apart in order to improve market convergence and price transmission to make chilli more profitable.


Introduction
History of global market integration began with the 19 th century, when significant advancements in international market integration and the development of a genuinely global economy were crucial (Sehar et al., 2018).Global market integration is often referred to as the birth of capitalism (Nazli et al., 2012), the degree of price transmission between two markets that are either vertically or geographically connected is known as market integration (Amit et al., 2006).The word "integration" describes a phase in which the consistency of relationships between independent, social units and improvement of markets (Ali et al., 2018), market integration shows the relationship of the firm in market (Sahito, 2015).Integrated marketing is a systematic approach to ensuring that you are aligned with your message in all marketing channels such as wholesaler, retailors, traders, beopari and commission agents (Hossain and Verbeke, 2010).When markets are well integrated, market forces are believed to be functioning well, which means that price increases in one place are predictably linked to price changes in other locations, and market agents are able to communicate across markets (Mukhtar et al., 2007), simultaneously prices are determined in different places and spread from one market to other market (Gonzalez and Helfand, 2001).Beag and Singla (2014) conducted a study to found the markets integration of agricultural product by applying the Engle-Granger test, cointegration technique and Ravallion test by using secondary price data from 1984-2002. Whereas, Zahid et al., (2007) determined long run wheat's market integration between Lahore as a central market and five other markets of Punjab, Pakistan by using the Engle and Granger test for cointegration.Similarly, the monthly wholesale real price of onion from four regional markets of Pakistan was used to examine spatial market integration with the help of errorcorrection model (ECM), and found that the onion regional markets have good price linkages and consequently spatially integrated (Lohano and Mari, 2006).Monthly wholesale price data from 1995 to 2003 of rice (Basmati) markets of Punjab used to estimate the degree of integration with the application of law of one price (LOP) framework and cointegration techniques by Mushtaq et al., (2006).However, Umer et al., 2015 found the four markets of wheat i.e.Hyderabad, Lahore, Multan and Rawalpindi were well integrated except one market (Peshawar).Unit root test used by Sahito, (2015) for the study of cointegration amongst wheat markets of Pakistan.Numerous research undertaken by economists revealed that certain markets were only partially integrated as a result of information gaps, distance, and disparate socioeconomic conditions (Lohano et al., 2005;Fayaz et al., 2014;Ghafoor et al., 2009;Arshad and Hameed, 2009;Ali et al., 2018;Reddy et al., 2012;Sekhar, 2012).Above studies are the evidence, that many researchers were used time series data with the help of different models to examine the market integration of different agricultural commodities, but not a specific empirical evaluation of chilli market integration was carried out in Pakistan until, previous studies have ignored the province wise chilli market linkage and level of integration in the Pakistan.Although, Chilli is economically very important and valuable crop of Pakistan, which is consumed domestically and exported throughout the world (Rais et al. 2021).It is a best resource of vitamins (A, C, E & P) as well as having medicinal properties (Choudhary et al., 2009).To get more profit, the production and marketing mechanism of chilli markets should be better.Therefore, the aim of the present study is to determine the level of integration of wholesale prices between the markets, evaluate the price transmission by using Vector Error Correction Model (VECM) and find out the causality relationship between the selected chilli markets of Pakistan.

Materials and Methods
For present study the four regional chilli markets of Pakistan were selected i.e Hyderabad, Lahore, Peshawar and Quetta.For market relationships, the monthly wholesale chilli prices in rupee (PKR) from June, 2000 to July, 2019 were used as secondary data (GOP, 2020).Augmented Ducky-fuller (ADF) unit root test applied on secondary chilli prices data to prevent spurious regression, followed by the Johansane cointegration test, VECM (Vector Error Correction Model) and GCT (Granger Causality Test).These methods were used by; Sahito (2015); Hossain and Verbeke (2010); Ghafoor et al. (2009); Zahid et al. (2007) and Lohano et al. (2005).Market integration test: Following basic relationship is widely used to monitor for the presence of market integration when studying the price relationship between two markets.
=  0 +  1   +   Therefore,   = chilli prices in  ℎ market   = chilli prices in  ℎ market  = is the residual term  0 = Represent cost For the identification of stationary or non-stationary results, in 1981, unit root tests was used by Dickey and Fuller.The Akaike Information Criteria were used to choose the lag time .The test is based on the t-statistic of  1 , which is given by the equation below.

Vector Error Correction Model (VECM):
The VECM was used to model the short-term relationship between the country's chilli markets.The following is a description of a bivariate VECM model: Where: MP1 = Series of prices in one chilli market and MP2 = Series of prices in other chilli market ∅  = long-term market reaction to disequilibrium   = Parameter adjustments for lagged (short-run dynamics) If the two markets are co-integrated then ∅ 1 < 0  ∅ 2 > 0 are the results.
Granger Causality Test: In 1987, Granger and Engle introduced GC test (Granger causality) within a bivariate context, to investigate the causality direction among different markets.The model is as follows:

Results and Discussion
Trends of wholesale prices of chilli in Pakistan: The results of trends of wholesale prices of chilli shows that the prices in different markets of Pakistan change at same time.Similarly, marketing system of Sindh also shows inefficiencies and prices fluctuations were observed.Tendency of wholesale chilli prices showed that the highest price in Quetta market and lowest price at Hyderabad was recorded, as compared to other chilli markets of the Pakistan during the year 2011-2013 (Figure 1).Results are agreed with Ismail (2015), Ghafoor et al. (2009) and Marri, (2010), found some spatial variations between the district market prices as well as some seasonal variations.Lohano and Mari, (2006); Mukhtar and Tariq (2008); Ghafoor et al. (2009) and Umar et al. (2015).On the basis of unit root test results, we moved for the cointegration test to examine a long-run relationship between different market prices.
Pairwise co-integration test: Result of long-run equilibrium relationship between three pairs of regional chilli markets are presented in table 03.Trace statistics and maximum Eigen value statistics recommend a cointegration relation in three pairs of four markets except only one pair of chilli market.Peshawar markets partially integrated because of long distance, price variation & seasonal effects, Mushtaq et al. (2006) and Ghafoor et al. (2009) also found overall integration in grain and fruits markets.Numerous empirical research carried out by Francesca et al. (2004), offer economic and statistical proof of integration or segmentation at the country level.The results of joint co-integration indicates that the trace statistics as well as the maximum eigenvalue statistics shows that three markets are co-integrated except Peshawar market.Sahito (2015) used application of Johansen co-integration tested for analyze long-run market integration between five markets of wheat of Pakistan and found wheat markets of Pakistan are very well integrated in the long run.Fayaz & Naresh (2014) determined overall cointegration test have indicated that different wholesale apple markets in the country are wellintegrated and have long-run price association across them (Table 4).

Vector error correction model results:
The results of table 5 shows the significant adjustment of prices in almost all the pairs of markets except the Peshawar market.Mukhtar and Tariq (2008); Ghafoor et al., (2009); Umer et al., (2015) also found significant adjustment of prices in different markets.
Table 5. Vector error correction model results of chilli crop markets of Pakistan.
Granger causality test: Granger-causality test are used to analyse cause effect relationship between two markets, the results in table 6 indicate the price in Hyderabad Market Granger-causes the price in Lahore and Quetta.Hyderabad dominates price formation with these regional markets except Peshawar market due to long distance.We found unidirectional and bidirectional causality in the chilli markets of Pakistan.Umer et al. (2015) also found unidirectional causality running from Peshawar-Karachi -Lahore among wheat markets.Similarly, Ghafoor et al. (2009) applied Causality test; result shows that the Karachi market has bidirectional causality with Lahore-Faisalabad-Multan-Hyderabad and Sukkur and a unidirectional relationship with the rest.Also, current research findings are in agreement with Zahid et al. (2007).

Table 1 .
Descriptive statistics of monthly wholesale prices for chilli in selected markets from June, 2019.In current research, Augmented Dickey-Fuller (ADF) test was used on four wholesale price series of chilli markets to determine the integration.The existence of unit root is refused at 1% level of significance for all price series after their first difference (Table02).Unit root test result provides the evidence that whole price series are found non-stationary at level but stationary at first difference during ADF test, the results are in agreement with

Table 3 .
Pairwise co-integration test results (logged chilli market prices).

Table 4 .
Joint cointegration test results logged chilli market prices.