Price transmission in tomato markets of Limpopo Province, South Africa

Abstract

The Limpopo Province is home to South Africa’s major tomato producer, who is also the largest producer of the commodity in the Southern Hemisphere. Regardless of its importance in the tomato industry of the country, there are few studies analysing the mechanism through which prices of tomatoes are determined and transmitted from the farm gate in Limpopo to the various provincial, local and international markets. This study attempts to fill the knowledge gap on the performance of Limpopo Province’s tomato markets by examining vertical price linkages amongst successive marketing levels. With the aid of both surveys and document analysis, daily tomato prices were collected at three levels that reflect the marketing chain of Limpopo produced tomatoes. Through marketing margin analysis, it was established that the farmers’ portion of the consumer’s Rand is low. About 85.1% of the consumer’s Rand goes to pay for marketing margins. Granger causality tests show that both the wholesale and retail prices are caused by farm gate prices, whereas an independent causal relationship was found between wholesale prices and retail prices. The study also found a long run cointegration relationship between farm gate prices and retail level prices, and not the same for the relationship between farm gate and wholesale prices. Furthermore, it was found that retailers are quick to react to increases in farm gate prices and slow in adjusting to price decreases. On the other hand, wholesale prices were found to be symmetrical to farm gate prices. These results suggest that the transmission of price information is more efficient between the farm and wholesale markets than between the farm and retail markets. Nonetheless, there is scope for increasing efficiency of tomato marketing in the province.

Key words: Price transmission, marketing margins, vertical price linkage, market dominance, tomato markets, Limpopo Province