What is Market Integration?
The existence of one price in two markets indicates the degree of price transmission and the speed at which information travels between two markets. Well integrated markets have very similar prices the difference being just the cost of transportation of the commodity from one market to another. If markets are integrated, they ideally have the following features:
- Information travels quickly.
- Demand and supply in the two markets adjust very quickly due to efficient mobility of goods.
- Price adjustment in the two markets also takes place freely and quickly.
There will be some difference in the prices, no doubt, but changes in the price in the two markets will again be similar and in the same direction, that determines the degree of integration. On the other hand, a segmented market is one where the terms of transaction are influenced by the location of the buyer and the seller, much more than the transportation costs of moving the goods from one market to another.
The differences in the market arrivals and pried are of two types: Temporal and Spatial Variation. Temporal variations take place over time and comprise of cyclical, seasonal and sonic irregular changes. The most important is the seasonal one which takes place once a year, as we see prices fall at the time of harvest and rise in the off season.
The consumers and producers must know about the seasonal and cyclical variations, so that they can plan sale and purchase accordingly. With the help of storage facility, the farmers can avoid selling the farm products at the time of harvest, when their prices mostly fall.
Temporal Variations refer to the variations in different physically separate markets, differences being due to location of the production center and the market. The prices in different markets are dependent upon the nature and degree of competition, dissemination of market information and attitude of the market functionaries.
In an efficient market system, the wholesale prices in different markets are closely related. Such analyses help us to understand the efficiency of the marketing-system and form the policy to improve the marketing system’s efficiency and achieve market. integration.
In India, the transportation system is good and it is found that the different markets in the country are well linked, the differences in prices being due to the high transportation costs, distribution margins, etc. The commodity markets and state markets do show spatial market integration, even though prices differ. Better market integration can be achieved by the following policy initiatives:
- Removal of taxes like the octroi and other indirect taxes.
- To minimize the fluctuations in prices and hedging risks by enlarging the futures market.
- Phase out the subsidies on goods and PDS as they distort the market prices and to see that the Fair Price shops sell at full market price to ensure economic viability.
- States must be free to set up public or joint venture companies to procure food, for transportation and distribution of food at commercially viable markets.
- Encourage private agencies in area of food procurement.
- Make rail transport cheaper and better by removing the distortions in tariff policy for freight movement.
- Allow FDI in retailing so that competition, economies of scale and improved efficiency in supply chain would lower prices.
- Government to make policy for universal access of commercial fuel at affordable rates.