Impacts of Market Reform on Spatial Volatility of Maize Prices in Tanzania

Abstract

Maize is one of the major staples and cash crops for many Tanzanians. Excessive volatility of maize prices destabilises farm income in maize-growing regions and is likely to jeopardise nutrition and investment in many poor rural communities. This study investigates whether market reform policies in Tanzania have increased the volatility of maize prices, and identifies regional characteristics that can be attributed to the spatial price volatility. To achieve the objectives, an autoregressive conditional heteroskedasticity in mean (ARCH-M) model is developed and estimated in this study. Results show that the reforms have increased farm-gate prices and overall price volatility. Maize prices are lower in surplus and less developed regions than those in deficit and developed regions. Results also show that the developed and maize-deficit regions, and regions bordering other countries have experienced less volatile prices than less developed, maize-surplus and non-bordering regions. Our findings indicate that investments in communication and transportation infrastructures from government and donor countries are likely to increase inter-regional and international trade, thereby reducing the spatial price volatility in Tanzanian maize prices in the long run