Transmission of South African maize prices into Botswana markets: an econometric analysis IJAM Transmission of South African maize prices into Botswana markets: an econometric analysis

Abstract

The international prices of food commodities increased sharply between 2005 and 2008 and continued to rise. Over this period, international maize prices have also increased by 80 percent. Botswana imports majority of food items and has been witnessing unprecedentedly higher prices of food items. Maize is one of the staple foods in Botswana and, mostly imported from South Africa to meet the local demand. Little information is available on the transmission of maize prices from South African market into the Botswana market therefore, this study was conducted. The cointegration techniques and the error correction model (ECM) were employed to analyse the transmission of South African maize prices into the Botswana market. It was concluded that the two markets have a steady relationship and the markets are functioning effectively. Findings revealed that a long-run steady state of equilibrium existed between the South African and Botswana maize prices. It was recommended that local production of not only maize, but also other substitute staple foods such as sorghum should be promoted to reduce imports and, therefore, avoid food insecurity especially when maize price increases in South Africa.