Analysing onion market integration in major South African fresh produce markets, 2009-2019

Abstract

Onion is the third most important staple vegetable in South Africa, due to the gross value of vegetable production and export revenues. Almost all of South Africa's provinces grow onions, but the Western Cape (Ceres), Northern Cape, Free State, North West, and Limpopo provinces are the main producers. Fresh Produce Markets (FPMs) are the primary distribution channel for onions. Onion producers are concerned about the high degree of onion price variations in the FPMs. Markets are essential for the delivery of fresh goods as well as for price development and discovery. The study aims to analyse onion market integration in Cape Town, Bloemfontein, Durban and Johannesburg Fresh Produce Markets. The study investigated spatial market integration among geographically separated onion markets in South Africa using average monthly prices from January 2009 to December 2019. The Augmented Engle-Granger Cointegration and Error Correction Model (ECM) were employed to examine the presence of market integration among the onion producing and onion consuming markets in the country. The time series analysis revealed that average monthly onion prices in Johannesburg move in together with those in Cape Town, Durban, and Bloemfontein over time, indicating the existence of a cointegration relationship. The ECM findings show that after a shock that causes disequilibrium, it takes economic agents around a month to get back to equilibrium. Price signals are transmitted within a month, which suggests that certain onion markets are well integrated.