Market Integration and Efficiency in the Presence of Cross-border Trade Restrictions: Evidence from selected Maize Markets in Southern Africa

This study evaluates the extent to which regional trade might be relied upon as a policy strategy in achieving food security in southern Africa. The logic is that if significant diversities exist in production expertise and capacities for countries within the region, in the presence of integrated marketing systems, free trade can improve both supply and trade efficiency. Two components of the debate are analyzed: revealed competitiveness in production and export of the main staple – maize; and for a selected set of major markets, the nature of market interactions within the current regional trade policy framework. The analyses employ mainly non-parametric assessments, including such measures as revealed comparative advantage, price difference and transfer costs trends, and cumulative distributions of arbitrage returns, supported by econometric measures of integration and efficiency including parity bounds analyses. Results indicate substantial regional bias in maize trade among southern African countries, although competitiveness in maize production is restricted to a few countries that possess the capacity to supply significant quantities. Price and transfer costs trends, as well as the parametric market integration and efficiency tests, frequently fail to reject the null hypothesis of ‘integration’ in a selected set of markets in close proximity, regardless of country location, suggesting fairly consistent price movements, tradability of commodities and/or contestability of such markets across borders. For those markets, however, efficiency appears weak, as trade often fails to exhaust arbitrage profits. Markets not linked through trade tend to have a higher frequency of efficiency, so that the lack of trade often is justified by the lack of positive arbitrage returns. In those cases, market segmentation appears driven more by restrictive transport costs than tariffs or taxes on cross-border trade. These results suggest that the dominant forms of inefficiency in the markets considered in this study are (1) insufficient arbitrage resulting from supply side constraints, and other non-cost trade restrictions and (2) restrictive transport costs. Border administered tariffs and other forms of taxes on imports seem to account for a relatively low proportion of transfer costs, and generally reduce arbitrage returns marginally. Therefore policy interventions addressing both food supply and access are necessary to ensure meaningful food security benefits from trade.