Cointegration analysis and granger casualty test of garlic for major markets of Maharashtra

Abstract

Garlic is one of the important commercial spice crop belonging to the family Alliaceous. India is one of the leading Garlic producing country. Spices account for 2.2% of total agricultural produce in India. Huge fluctuations in prices of farm produce were observed during past few years. Prices show considerable volatility that could pose considerable risk to different stakeholders. For study purpose the data related to monthly average prices and arrivals of Garlic were collected for major markets of Maharashtra viz. Ahmednagar, Karad, Pune and Nagpur for the period 2005 to 2016. Johansen multiple cointegration trace test was applied for indicating the long-run relationship between the price series of selected markets. Co-integration is used instead of regular regression method because of its capacity in dealing with non-stationary series. The results of Co-integration test showed two co-integration equations were significant at 5% level of significance which implied that there existed cointegration among the markets. Granger Causality Test is a statistical tool which used F-test to know the cause and effect relationship between the two time series and this technique is employed to know the relationship between the prices of selected Garlic markets. It was observed that there is bidirectional causality in Garlic prices between Pune and Ahmednagar. The prices of Ahmednagar market exhibited unidirectional causality and affects the prices of Karad and Nagpur market respectively. Pune market also showing the unidirectional causality and affected the prices of Karad and Nagpur markets. Karad market showing unidirectional causality and affected the prices of Nagpur market.