The objective of this study was to investigate the degree of price transmission among markets for fresh milk across geographical regions in Sri Lanka. The model developed by Ravallion (1986) was adopted to assess the degree of market integration between central and regional markets. Models for five distinct geographical regions in 20 administrative districts were econometrically estimated using annual farm-gate prices of milk for the period 1977 to 2006. The results revealed that Anuradhapura, Badulla, Colombo, Nuwara-Eliya, and Kurunegala function as central markets and the prices in these markets significantly influence the price levels in the neighboring regional markets. The price in the central market is transmitted to the regional markets at a degree of 0.24 to 1.02 within a geographical region. Attempts made to establish causal relationships (i) among central markets, (ii) retail vs. international, and (iii) retail vs. farm levels have not been successful indicating lack of strong causal relationships among these levels.
Sri Lankan Journal of Humanities and Social Sciences Vol.1(2) Oct 2009