Market integration of agricultural products

Abstract

The study aims to investigate the relationship between the prices of agricultural products at the producer level with the prices of the same products at the consumer level in South Sumatera, Indonesia with a case study on the production and consumption of rice as the most important agricultural product in Indonesia. The analytical approach is linear regression modelling with Ordinary Least Squares (OLS), and the Approach of Index Market Connection model (IMC). The findings of the study indicated integration between the price of rice at the producer level and the price of rice at the consumer level. In addition, the three sample regions have IMC value less than 1, meaning that both markets have vertical integration in the short run. Another finding of this study is that the high price difference at the local market level is due to the long distribution of rice commodities in South Sumatera. Government intervention is particularly needed at the local market-level on pricing policy by shortening the distribution channels.