Market Integration and Price Causality in the Myanmar Rice Market

In Myanmar, rice is an invaluable commodity both as a staple food and a source of high foreign exchange earnings through export. The country's agricultural economy has been transitioning from a planned economy to a market system since the late 1980s; however, the government has yet to engage in full-scale rice export deregulation. Therefore, Myanmar's rice marketing system works within the boundaries and limitations of a halfway-liberalized economy, inevitably eliciting questions about its performance. Using the Engle and Granger two-step co-integration method and the restructured Ravallion model of unrestricted vector auto-regression (VAR) error correction form, three surplus markets, three deficit markets, and Thai rice price series were tested to determine market integration and price causality. All price series were monthly data in both nominal and real values from 2001 to 2004. Results revealed that in the domestic market, integration was weak in real value of rice price, and the supply side eventually depended on the demand side. Price co-integration did not exist between Myanmar and Thai rice prices in real value, reflecting market segmentation. Consequently, accurate price information from international rice market price over time was unavailable for Myanmar rice price movement. Looking at the direction of rice price causality, deficit market prices were driving the consumer price index (CPI), and the CPI was forcing the surplus rice market price. Hence, deficit markets are the prime movers in rice price changes in Myanmar. Market integration suggests that the government should focus on managing inflationary pressure instead of being directly involved in the rice marketing sector in order to control the domestic rice price stability in the long run. Government monopoly in rice export has caused segmentation between domestic and international markets. If private rice export was permitted via trade policies, the marketing system would be able to transfer correct price signals from the world market to the producers, consumers, market participants, and finally, the government. Only then will Myanmar's rice market not be isolated from the international market and get the right price co-integration that may push the efficient market-oriented economy to move faster.