Global Journal of Quantitative Science Vol. 1. No.4. December 2014 Issue. Pp.16- 23 SPATIAL PRICE RELATIONSHIP AMONG THE SELECTED RICE MARKETS IN BANGLADESH MD. FARID DEWAN 1 Abstract The study was conducted to analyze the spatial price relationships among selected rice markets in Bangladesh. To conduct the study secondary data (weekly wholesale price of rice per quintal for the selected districts) were collected from Department of Agricultural Marketing (DAM). The selected districts were Dinajpur, Sherpur, Dhaka, Chittagong, Feni, Narayangong and Faridpur. The selected variety was boro and aman because they are the prominent crops in Bangladesh. For analyzing the price relationships between the spatially separated markets, Engle and Granger co-integration test were used and also Error correction Mechanism (ECM) was used to see the speed of price adjustment in the long-run equilibrium. It was observed that, rice market is efficient in terms of spatial price movements as most of the selected markets were spatially price integrated. When boro rice was traded from Dinajpur to Chittagong and Faridpur, then the prices of Dinajpur influenced the prices of Chittagong and Faridpur and vice-versa. In case of aman paddy, when rice was traded from other districts to Dhaka then the prices of other districts influenced the prices of Dhaka and Dhaka then forms a new price that are followed across the country. The speed ( į) of price adjustment ranges from 45.1% to 53.3% for boro rice and 19.9% to 76.2% for aman rice indicating that the price adjustment takes around 3 to 4 days for boro rice and 1 to 5 days for aman rice in transmitting information from one market to the other markets. The highest percentage speed of adjustment was found between the rice price of Faridpur to Sherpur market for boro rice and Sherpur to Faridpur market for aman rice. Besides this it was revealed that, in case of rice marketing, Dhaka did not act as the central market. Key words: Co-integration, spatial price relationship, unit-root test, stationarity, error correction mechanism. Background Rice is the dominant staple food in Bangladesh and the annual per capita consumption is 160 kgs. (IRRI, 2009). Bangladesh is the sixth largest rice producing country in the world after China, India, Indonesia, Vietnam and Thailand (Source: Wikipedia). Bangladesh was struggling with food price inflation from the beginning of 2010 and the chief concern was the rapid rise in the price of rice, the country's staple grain which was started at the last quarter of 2007 (Source: Bangladesh Agribusiness Report, February 2010). In Bangladesh, 26% of the total population are living below the poverty line [Source: Wikipedia] and we know that, an increase in the price of staple foods can have an adverse impact on food security, especially for rural population who are living below the poverty line. At present the prices of different categories of rice are very much fluctuating and the minimum prices of per kg rice is BDT Tk. 34 which is coarse in nature and still now price is increasing. Many economists and specialists are saying that market is not efficient or not well integrated. According to them, the middlemen make more profits than their costs and by inspecting the present market situation and international prices, they anticipate the future prices and are interested in hoarding and make an unreasonable profits which makes the market unstable.We know that, if the marketing system is not efficient, price signals arising at the consumers’ level are not adequately transmitted to the producers. As a result, farmers do not get fair price incentive to increase the production of the commodities. Thus, inefficient marketing systems adversely affect the living standard of both the producers and the consumers. On the other hand, markets function efficiently when these are integrated in price relationships. We further know that, the main objective of the price policy is to safeguard the interests of producers and consumers. The producer’s interest can best be safeguarded if he is paid appropriate prices for his product. He gets fair prices if markets are well integrated. In well integrated markets, middlemen’s share should be reasonable and consumers get produce at fair prices. More specifically, two markets were said spatially integrated, whenever trade takes between them and if the price differential for a particular commodity equals the transfer costs involved in moving that commodity between them. So it is very important to understand whether the rice market functions efficiently or not. That’s why the study was undertaken. 1 Lecturer, Department of Economics and Poverty Studies, Noakhali Science and Technology University, Noakhali, Bangladesh. Phone: +8801717386048, E-mail: farid87.bau@gmail.com