Price Volatility Transmission in the Feeder Markets of Basmati Rice in Pakistan

Abstract

Basmati rice is an important crop that is widely consumed in Pakistan as well as a source of foreign exchange due to its high demand in the world market. It has some unique characteristics which makes it differentiated from other types of rice. The northeast region of Punjab is the main basmati rice producing area where Gujranwala is the most significant and the central market transporting basmati rice to the local and international markets. With the minimal government interference, the market forces determine the price ending into price volatility and its spread into the local and international markets. The interconnection of markets through price linkages is important tool to mitigate the adverse impacts of price volatility. To analyze this, five feeder markets including Gujranwala, Sialkot, Gujrat, M. B. Din and Lalamusa were selected.  The analysis was conducted through MGARCH-BEKK bivariate analysis with a time series data of monthly average price returns from a period of January 2015 till June 2022 to determine the dynamic conditional correlations between these markets. The finding revealed that Gujranwala holds significant influence in the basmati rice-producing area, impacting other markets. The findings further disclosed that higher shocks in Gujranwala significantly impacted Sialkot's, Gujrat’s and M.B. Din’s volatility while it was insignificant in the market of Lalamusa only. The study demonstrated that the volatility of feeder markets in Pakistan is interconnected, which can provide policymakers, investors, and researchers with a valuable insight for further exploration.