RESPONSIVENESS OF SPATIAL PRICE VOLATILITY TO INCREASED GOVERNMENT PARTICIPATION IN MAIZE GRAIN AND MAIZE MEAL MARKETING IN ZAMBIA

The study analyzed the responsiveness of maize grain and maize meal spatial price volatilities to increased government participation in maize grain marketing in Zambia using descriptive statistics and vector auto-regression (VAR). This was achieved by comparing spatial price volatility means and spatial price means for the period under increased government participation with respective means for periods under limited government participation. Also, spatial price volatilities were regressed against own spatial price and cross price means, cross price spatial volatilities, seasonality and arbitrage level. Lastly, the extent of spatial volatility discovery in the two vertical markets (maize grain and maize meal) was discovered from VAR equations. Real monthly price data for January 2003 to May 2011 from 8 major markets were used in the study. Empirical results indicated increased government participation reduced spatial price volatilities for both commodities. The VAR model identified own spatial price mean reduction as the major determinant of spatial price volatility reduction for both commodities compared to other variables. Maize meal spatial price volatility was also determined by one month lagged maize grain spatial price mean. Spatial price volatility for each commodity was higher in months with low prices and lower in months with high prices. Reduced arbitrage exerted more reducing effect on price volatility of maize grain than on maize meal price volatility. Most volatility discovery occured in maize meal market although government intervened in maize grain marketing. The study concluded that increased government participation significantly reduced price volatilities for both commodities. Moderated government intervention to a level that still guarantees arbitrage by many players, especially in the maize meal market, was recommended.