Co-Integration and Causal Relationships in Paddy Prices: A Multi-State Analysis in India

This study examines the spatial price transmission and price discovery mechanisms in wholesale paddy markets across Karnataka, Kerala, and Punjab, the three states representing distinct institutional and structural contexts within India’s agricultural marketing landscape. Using monthly price data from 2011 to 2023 across 12 major markets, the study employs a suite of time series econometric tools, including Augmented Dickey-Fuller tests, Vector Autoregression model, Johansen’s Cointegration Test, Vector Error Correction Models (VECM), Granger causality tests, and Impulse Response Functions (IRFs) to assess market integration and the directionality of price influence. The results reveal strong intra-state price dynamics in Karnataka, with Davanagere emerging as a central market influencing price formation across the region. In Punjab, Ferozepur and Ludhiana serve as primary price transmitters, while Amritsar primarily acts as a passive recipient. Kerala markets exhibited limited internal and inter-state integration, with only Wayanad and Kasaragod displaying a significant bidirectional linkage. Johansen’s cointegration test confirmed the existence of long-run relationships among Karnataka markets, but not among those in Kerala. VECM results highlight short-run adjustments and long-run equilibrium, particularly in Mysore and Davanagere. IRF analysis confirmed statistically significant, sustained price shocks only in Punjab markets, particularly emanating from Firozpur. Overall, the findings highlight regional heterogeneity in market efficiency and integration, which is shaped by procurement intensity, digital market reforms, and production-consumption balances. These insights have important implications for refining Minimum Support Price policies, enhancing inter-market connectivity, and improving price stabilisation efforts.