INTEGRATION AND ASYMMETRIC PRICE TRANSMISSION ANALYSIS IN CORN MARKET VECTOR ERROR CORRECTION MODEL APPROACH: Case Study: Karo District

Abstract

The agricultural sector still plays an important role for the people of Karo Regency, especially corn and rice commodities. The volatility and integration of corn market prices at the level of farmers and traders tend to fluctuate and unstable, which make the price received by farmers does not follow the movement of changes that should occured either vertically or horizontally. This study aims to determine the integration and asymmetric price transmission of corn, case study in Karo District. Using the Vector Error Correction Model approach with series of data from 2010: 01 to 2016: 12. The analysis shows that price integration occurs between traders and corn farmers, but the corn price transmission mechanism is asymmetric. This asymmetryic prices is partly due to cost and market power adjustment factors indicated by low capital controls so that bargaining position at the farm level are very low. Government policies such as cropping pattern adjustment and access to credit are needed.