Extent of Market Integration and Price Discovery in Major Castor Markets of India

Abstract

This study explored the integration and price discovery processes among major castor markets in India, a critical factor for enhancing marketing efficiency and providing reliable price signals. This attempt focussed on five major castor wholesale markets, viz., Kurnool, Thara, Patan, Sumerpur, and Adoni, alongside national spot and futures markets.  The daily prices data pertaining to the selected markets were sourced from AGMARKNET and NCDEX, spanning from April 2015 to March 2024, and for the analysis, the daily data converted to average monthly prices. To examine the relationship among these markets, a series of econometric techniques including Augmented Dickey-Fuller (ADF) test, Johansen cointegration, Vector Error Correction Model (VECM), and Granger causality tests were employed. All the markets were found to be stationary upon first differencing (I=1), with the lag order selection of one. The long run integration among the markets was confirmed with five co-integrating equations. It is also revealed that all the markets, even after demonstrating short-run deviations, are self-correcting, with prices consistently reverting to their original long-run equilibrium within one month to the extent of 40 per cent in Kurnool and 12 per cent each in Adoni and spot markets. In terms of price discovery, though bidirectional causality was acutely absent, unidirectional effect was observed among ten market pairs. Overall, the study revealed that the castor markets of Thara and Adoni as the role of price leader, while Kurnool market emerged as a price taker.  The study will be of immense help to farmers and policymakers as the emerging price signals among the integrated markets can help in enhancing farmers’ decision-making besides accelerating overall market efficiency.