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Analysis of Price Forecasting and Spatial Co-integration of Banana in Bangladesh

Md. Imran Omar
Scientific officer
Agricultural Economics Division, Bangladesh Agricultural Research Institute, Joydevpur, Gazipur-1701, Bangladesh

Md. Farid Dewan
Agricultural Economics Division, Bangladesh Agricultural Research Institute, Joydevpur, Gazipur-1701, Bangladesh

Mohammad Shamsul Hoq
Agricultural Economics Division, Bangladesh Agricultural Research Institute, Joydevpur, Gazipur-1701, Bangladesh

Abstract/ Executive Summary:

The study was conducted for understanding the present situation of the marketing system of bananas in different hilly regions of Bangladesh. The objectives of the study were to estimate costs and margins, to test market integration, and price forecasting of bananas. Secondary data was used for this study. So the farmers of Bangladesh who are still suffering from indecision about the future prices of bananas should come forward to fruit farming as the analysis provides a positive insight for fruits cultivation. Engle-Granger co-integration test was used to examine the market integration. Analysis of market integration shows that banana market in Bangladesh was well integrated except the hilly region of Bangladesh it’s due to lack of well transportation and communication systems in hilly region. The study identified some problems related to transportation facilities, lack of agro-processing industries, low prices and natural calamities aspects and suggested some measures for solving these problems.

Keywords: ARIMA model, Engle Granger co-integration, Price forecasting, Market integration, Banana.

Location: In Bangladesh

Start Date:

End Date:

Program Area: Socio-economic and Policy

Commodity: Banana

Objectives:

To understand the present situation of production, processing and marketing system of major fruits in different hill regions of Bangladesh with the following objectives:
i. To analyze the market integration of banana and
ii. To examine price forecasting of banana

Methodology:

Data sources The present study is based on secondary data. Secondary data were accumulated from BBS, FAO publications, official records, books, journals and from the various statistical yearbooks. The weekly average wholesale prices of Banana of various markets like Dhaka, Chittagong, Sylhet, Bandarban, Rangamati, Lasha and Cox’sbazar during 1983 to 2012 were collected from the Department of Agricultural Marketing (DAM). Latter it was converted into monthly figures. Analytical Techniques The following techniques were used for the analysis. i. Determination of market integration through Engle and Granger co-integration method ii. Price forecasting analysis by using ARIMA model In addition, for analysis of important socio-economic criteria, descriptive statistical tools like, mean, percentage was used whenever necessary. Market Integration: The main objective of price policy is to safeguard the interests of producers and consumers. The producer’s interest can best be safeguarded if he is paid an appropriate price for his product. He gets fair prices if markets are well integrated. The basic idea behind the measurement of market integration is to understand the interaction among prices in spatially separated markets (Goletti and Babu, 1994, pp. 311-325). Thus integrated markets are defined as markets in which prices of differentiated products do not behave independently (Monke and Petzel, 1984, pp. 401-487). If price movement of a commodity in one market is completely irrelevant to forecast price movements of the same commodity in other markets, the markets are characterized as segmented (Kumar and Sharma 2003, p. 203). In well integrated markets, middlemen’s share should be reasonable and consumers get produce at fair price. So it is very important to understand whether commodity markets function efficiently. Markets function efficiently when these are integrated in price relationships and it is also imperative to see whether infrastructural and technological development in communication system has improved the functioning of commodity markets. Measurement of Market Integration by Co-integration Method: The bulk of econometric theories have been based on the assumption that the underlying data process is stationary a) stochastic process is said to be stationary if its mean and variance are constant over time and the value of covariance between two time periods depends only on the distance or gap or lag between the two time periods and not the actual time at which the covariance is computed (Gujarati, 2003, p.797). In practice, most economic time series are non-stationary. Applying regression models to non-stationary data may arise the problem of “spurious or nonsense” correlation. If the time-series data like prices, which are non-stationary, are used, it usually would yield a high R2 and ‘t’ ratios which are biased towards rejecting the null hypothesis of no relationship between the variables concerned. To overcome such problems, the concept of co-integration was used because it offers a means of identifying and hence avoiding the spurious. The procedure of price forecasting of fruits discussed above by the researcher assumes that no extraordinary events occur in the production process. Furthermore, the forecasts are based on total production of fruit products, consumption, price, and exchange rate about currency in the world fruit market

Source of Information: European Journal of Business and Management, Vol.6, No.7, 2014; ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)

Article Link (Online Journal): www.iiste.org

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The banana growers were bound to sell major part of this produce at advance selling due to immediate cash need. High price gap was found between producers and consumers level due to an inefficient marketing system. It discourages the producers to produce more banana fruits in future. On the other hand price forecasting indicates that the next two year price will increasing trend between 5% to 25% which will be encouraging the farmer for more banana production. Transportation and communication and storage facilities were the barriers for market integration in the hilly areas. Nevertheless, both farmers and traders encountered various problems during the marketing of bananas. Most of the farmers mentioned that poor knowledge about banana production technology and lack of irrigation water was the major problems of banana production.

Knowledge Management: Journal