Price dispersion and domestic banana market response in the Philippines

Abstract

This study investigated the vertical price transmission of banana in the domestic market of the Philippines. Banana, as one of the governments’ priority crops under the Department of Agriculture’s ‘High-value Crops Development Program’, has given priority to sustainability and global competitiveness. However, the domestic banana market consists of several marketing channels. Such complex characteristics of marketing channels can negatively affect market efficiency. In addition to such issues within a banana market, there are other issues that arise outside the market that can also affect market efficiency. This study considered both internal and external factors affecting market efficiency and analysed the price transmission of upstream and downstream banana markets in the Philippines. The nonlinear autoregressive distributed lag (NARDL) model is used to estimate asymmetric relationships among vertical banana markets. Following the NARDL model, the Granger causality test is applied to determine the direction between market prices. Results showed that the price dispersion and response depend on varieties of banana such as Lakatan and Saba, and market levels from farmgate, wholesale and retail. Lakatan banana is less inefficient than Saba banana in the Philippine domestic market. Based on the findings of the study, it is suggested that banana market stakeholders need to develop different strategies depending on the banana variety in order to improve the efficiency of the domestic banana market. To improve the complex distribution structure, the government needs to design medium- and long-term projects.