1. Market Integration and Price Transmission in Tajikistan’s Wheat Markets: Rising like rockets but falling like feathers?
Jarilkasin Ilyasov, Linde Goetz, Kamiljon Akramov, Paul Dorosh and Thomas Glauben
Central Asia Case Study Workshop
2-3 November, 2016
Moscow, Russian Federation
Market integration and price transmission in Central Asian grain markets: The case of Tajikistan.

2. Research rationale
International price shocks/food crises  markets, prices and trade:
Food markets and integration of different markets
Different aspects of price transmission – horizontal/vertical price transmission (Frey and Manera 2007, Listorti and Esposti 2011, etc.)
Trade and development policy effects - e.g. trade bans/restrictions, energy resources and biofuels, etc. (Goetz, Glauben and Brummer 2013, Serra and Zilberman 2013, etc.)
Focusing on different geographical areas – e.g. in Africa, South America, East and South Asia and transitional countries in eastern Europe
However, studies on Central Asian food security from market integration and price transmission is limited:
Brosig and Yahshilikov 2005 (in Kazakhstan), Akramov and Shreedhar 2012, and Abassian 2005 (in Tajikistan)

3. Goal Research questions
Contribute to the understanding of wheat markets in Central Asia, particularly from market integration and price transmission perspectives.
Research questions
How well are wheat markets in Tajikistan integrated with international and regional wheat markets, as well as domestically?
What is the nature of price behavior and relationship between different markets? And, does asymmetric price adjustment (a.k.a “rockets and feathers”) prevail in Tajikistan wheat markets?

4. General profile of the economy (WB 2013):
Introduction 1
Tajikistan is the most food insecure country in Central Asia, despite high economic growth since the early 2000s
Arable land is less than 7% of total area (FAOSTAT 2013)
Highly reliant on food (>50%) and energy (>90%) imports (FAOSTAT, 2013; and EIA, 2013)
Vulnerable to international price shocks.
General profile of the economy (WB 2013):
Population: million (98th)
Territory: 143,100 km2 (96th)
GDP (nominal): 8.5 billion USD (136th)
Agriculture – 27.4%
Industry – 21.7%
Services – 50.8%
Late Summer in Bartang Valley in Tajikistan. Photo by Evgeni Zotov.

5. Allocation of agricultural land between crops in Tajikistan
Introduction 2
Wheat is a major staple crop:
Biggest share of agricultural land (35.5%).
Wheat is also the most important source of calorie intake:
About half (49%) of daily calorie intake;
More than 54% of daily protein supply and 20% of daily fat supply per day in 2011 (FAOSTAT 2014).
Allocation of agricultural land between crops in Tajikistan
Source: TAJSTAT 2013

6. Tajikistan wheat markets and trade 1
Figure 1. Wheat commodity balance
Source: USDA 2013
Wheat production has been increasing since the early 2000s:
0.41 million tons in 2000 and 0.9 million tons in 2013
Considerable dips in production during low rainfall years - rainfall is critical for wheat germination and early growing season even in irrigated lands (Abassian 2005).
Wheat and wheat flour imports have increased:
Minimum: 0.36 million tons in 2003; maximum: 1.17 million tons in 2011
Domestic year-end-stock has been increasing

7. Tajikistan wheat markets and trade 2
Tajikistan wheat imports
Source: The Observatory of Economic Complexity, MIT.
Tajikistan wheat flour imports
Source: The Observatory of Economic Complexity, MIT
Kazakhstan is the main exporter of wheat and wheat flour to Tajikistan:
Almost all of wheat and more than 90% of wheat flour (red area)
Share of Russia is small (violet area)
Share of other countries, mainly US, is even smaller and particularly in the form of food aid (blue area)
Wheat flour import jumped during the 2008 Kazakh wheat export ban + strong remittance flow.
Since 2008, wheat imports continues increasing while wheat flour imports halts as a result of resurrecting local milling industry.

8. Markets in the case study
Rouen
(International wheat
export port in France – “closest” major wheat market to the Black Sea grain market (Goychuk and Meyers 2014))
Saryagash
(Kazakhstan border
point with Uzbek.)
Dushanbe
(Capital City)
Khujand
(“Trade hub”)
Kurgan-Tyube (“Bread basket”)
Gharm
(small and isolated
market)

9. Theoretical framework and method:
Data and Methods
Data:
Monthly data from January 2002 till December 2013
144 observations
Data sources:
Tajikistan wheat prices WFP market prices database
Kazakhstan export (Saryagash) price - “Kazakh-Zerno” IA
International (Rouen) price HGCA market database
Theoretical framework and method:
“Weak” Law of One Price (LOP) (Fackler and Goodwin, 2001)
Spatial arbitrage:
𝑝 𝑡 𝐷 − 𝑝 𝑡 𝐸 ≤ 𝑐 𝐷𝐸
Spatial/Horizontal price transmission approach (Fackler and Goodwin, 2001)
Error correction model (ECM) (Engle and Granger, 1987)
Threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) model (Enders and Siklos, 2001)
AHDB-HGCA: Agriculture and Horticulture Development Board (AHDB) was established in 2008 on basis of 5 agencies including Home-Grown Cereals Authority (HGCA)

12. Co-integration analysis
Long-run price transmission (degree of cointegration):
Overall, 1 percentage change in price in an independent market price results in 0.96 percentage change in a dependent market price
… in par with and average long-run price transmission figure form European wheat markets (0.94), which is highest in the world (Gillson and Fouad eds. 2015)
Long-run equation estimates
Rouen
Saryagash
Dushanbe
Gharm
Khujand
Kurgan-Tyube
Dushanbea
.858***
(.0315)
.729***
(.0304) 1
.689***
(.0210)
.694***
(.0213)
.835***
(.0218)
1.120***
(.0515)
.930***
(.0509)
1.282***
(.0391)
.920***
(.0344)
1.114***
(.0357)
1.155***
(.0438)
.966***
(.0445)
1.271***
.907***
(.0339)
1.109***
(.0348)
.994***
(.0334)
.842***
(.0333)
1.092***
(.0285)
.783***
(.0251)
.791***
(.0249)
*Significant at 10%; **Significant at 5%; ***Significant at 1%
a Regression equation: e.g. ln PRouen,t = a+b*ln PSaryAgash,t + et
Independent
variable
Dependent
variable
Note:
Co-integrating coefficients in blue circles are not statistically significantly different from 1.0 (at a 95% confidence level), i.e. perfect degree of co-movement of prices cannot be rejected.

13. Asymmetric Error Correction Model
Dynamic price relationship reveals:
Asymmetric price relationship is more prevalent than symmetric relationship, except for Dushanbe and Kurgan-Tyube (“bread basket”)
Domestic market prices adjust more quickly to price increases in other wheat markets (positive asymmetry)  more substantial in peripheral Gharm market
Contrary to other Tajik markets, Kurgan-Tyube wheat prices adjust faster to price decreases in other local markets (negative asymmetry)  exploiting locally available resources and stocks?
Rouen
Saryagash
Dushanbe
Gharm
Khujand
Kurgan-Tyube
Dushanbea
Symmetric
Positive -
No significant adjustmentb
No significant adjustment
Negative
a Regression equation takes the form of Asymmetric Error Correction Model.
b Not significant at 0.05 significance level
Independent
variable
Dependent
variable

14. Discussion and Conclusions
Estimations strongly support that wheat prices in all four markets in Tajikistan are co-integrated…
…with one another;
…with regional export market price in Kazakhstan and international wheat market.
However, adjustment towards price changes is more asymmetric than symmetric.
Careful consideration of the nature of price transmission is important.
Asymmetric price transmission of staple foods such as wheat:
jeopardizes food availability particularly in peripheral markets such as Gharm,
increases price gaps between food dependent and food producing regions,
puts more pressure on the poorest households particularly during price hikes, etc.
Further investigations and analysis could be useful:
To understand the effect of transaction/transportation costs (e.g. through oil prices) on food markets in food and oil import dependent countries such as Tajikistan,
To understand the effects on welfare particularly in marginalized communities,
To explore possible reasons of APT such as market power, adjustment costs, asymmetric flow of market information, etc.
To understand the effect of transaction/transportation costs (e.g. through oil prices) on food market integration and price transmission in food and oil import dependent countries such as Tajikistan

15. Thank you!
Photo by M.DeFreese, CIMMYT, 2012.