ESSAYS ON DYNAMICS OF CATTLE PRICES IN THREE DEVELOPING COUNTRIES OF MALI, KENYA, AND TANZANIA A Dissertation By JEAN-CLAUDE BIZIMANA Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY May 2012 Major Subject: Agricultural Economics Essays on Dynamics of Cattle Prices in Three Developing Countries of Mali, Kenya, and Tanzania Copyright 2012 Jean-Claude Bizimana ESSAYS ON DYNAMICS OF CATTLE PRICES IN THREE DEVELOPING COUNTRIES OF MALI, KENYA, AND TANZANIA A Dissertation By JEAN-CLAUDE BIZIMANA Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Approved by: Chair of Committee, David A. Bessler Committee Members, Victoria Salin James W. Mjelde Urs Kreuter Jay P. Angerer Head of Department, John P. Nichols May 2012 Major Subject: Agricultural Economics iii ABSTRACT Essays on Dynamics of Cattle Prices in Three Developing Countries of Mali, Kenya, and Tanzania. (May 2012) Jean-Claude Bizimana, B.S., National University of Rwanda, Butare; M.S., Michigan State University, East Lansing Chair of Advisory Committee: Dr. David A. Bessler One of the growing agricultural subsectors in developing countries is livestock. Livestock and livestock products account for a third of the agricultural gross output. However, the lack of viable livestock market information systems to increase efficiency of markets and support the decision making of traders, pastoralists, and policy makers are still an obstacle for a full development of this subsector. It is along these lines that the USAID, through the Global Livestock-Collaborative Research Support Program, supported the introduction of livestock market information systems in Kenya and Tanzania in 2003, and later in Mali in 2007. The overall objective of the dissertation is to test for cattle markets integration in three African developing countries of Mali, Kenya, and Tanzania. One way of assessing the efficiency of market and the impacts of liberalization policies is to test for market integration and price transmission. We also analyzed price leadership among the markets in each of the three case studies. iv Autoregressive models (vector autoregressive models and error correction model) were used to determine the level of cattle market integration. The results show a low level of cattle markets integration in Mali. The cattle markets in Mali are more-or-less independent with regard to price transmission among markets. Kenya cattle markets showed a good level of integration among the markets. Chepareria market in the Rift Valley region (west) seemed to lead other markets in price signal transmission. Tanzanian cattle markets exhibited a higher level of integration with Pugu market, in Dar es Salaam, leading other cattle markets in price signal transmission. In conclusion, the cattle markets in Tanzania and Kenya appeared to have a relatively higher level of market integration compared to the cattle markets in Mali. There is a reasonable belief that the time the livestock market information system has been in place, in each country, played a role in the market integration process. More time and better communications seem to have allowed the market actors to learn arbitrage skills and strengthen their trade relationships that ultimately led to the market integration. v DEDICATION “Be strong and take heart, all you who hope in the LORD” (Ps 31:24 NIV) To: My wife Ignacie My children Jayden and Keagan In loving memory of my sister Claudine vi ACKNOWLEDGEMENTS I would not have achieved this milestone without the guidance and support of a number of people. I am deeply indebted to my committee chair Dr. David A. Bessler for his patience, encouragement and guidance. I appreciate the support that you showed me from the very beginning of this journey. To my committee members, I want to thank Dr. James W. Mjelde for his insightful comments and suggestions to reorganize my dissertation. His deep and detailed comments improved significantly the quality of the dissertation. To Dr. Urs Kreuter thank you for your suggestion to add Kenya and Tanzania case studies to my original proposal and all other pertinent comments you made on the proposal and dissertation. My sincere thanks to Dr. Vicky Salin for her involvement and advice during my PhD program specifically the time she spent searching for possible funding for my program. I want to thank as well Dr. Richard Conner for accepting, on a short notice, to substitute for Dr. Vicky Salin who was unable to attend my defense due to schedule conflict. Very special thanks to Dr. Jay P. Angerer for the opportunity he gave me to fulfil this dream at a very difficult and challenging time. I would not have accomplished much withouth the financial support from the USAID/GL-CRSP/MLPI project under Dr. Jay P. Angerer leadership. I am sincerely grateful to Dr Jay P. Angerer and to the USAID for the financial support. Dr. Richard Conner, who was instrumental in connecting me with the USAID/GL-CRSP/MLPI project, is also greatly appreciated here. vii Thanks also go to my friends and colleagues (specifically Ruth A. Aisabokhae, Rajorshi Sen Gupta, and Justus Lotade-Manje) and the department faculty and staff for making my time at Texas A&M University a great experience. I want to thank Mr Leonard Fox, a good friend of mine, for his great support in very challenging period at the beginning of my PhD program and for teaching me how to keep hope in God. I also want to extend my gratitude to the MLPI team in Mali, specifically to Dr. Aly Dial and Mr. Francis Keita for making my several trips to Mali enjoyable and productive. I would not forget my contact persons in Kenya, Mr. Gatarwa Kariuki and in Tanzania, Mr. Julian Gutta, for the valuable information they provided me. Last but not least, I would like to thank my wife Ignacie for her support in this journey. I can not forget the beautiful smiles of my two young children (Jayden and Keagan); thank you for making my days bright! My extended family is as well appreciated for guiding my first steps in school. viii NOMENCLATURE ADB African Development Bank Group ADF African Development Fund ASAL Arid to Semi-Arid Lands CATS Co-integration Analysis for Time Series CPI Consumer Price Index CV Coefficient of Variation DAG Directed Acyclic Graph DNPIA Direction Nationale des Productions et des Industries Animales ECM Error Correction Model ERS Elliot, Rothemberg and Stock test FAO Food and Agriculture Organization FEVD Forecast Error Variance Decomposition GDP Gross Domestic Product GL-CRSP Global Livestock- Collaborative Research Support Program HQ Hannan Quinn IGAD Intergovernmental Authority for Development IMF International Mometary Fund IRF Impulse Response Function ILRI International Livestock Research Institute KNBS Kenya National Bureau of Statistics ix LEWS Livestock Early Warning System LINKS Livestock Information Network and Knowledge System LMIS Livestock Market Information System LOP Law of One Price MLPI Mali Livestock and Pastoralist Initiative OLS Ordinary Least Square OMA Observatoire du Marche Agricole RATS Regression Analysis for Time Series RMSE Root Mean Square Error SAP Structural Adjustment Program SL Schwartz Loss SMS Short Message Service USAID United State Agency for International Development VAR Vector Autoregression VMA Vector Moving Average WB World Bank x TABLE OF CONTENTS Page ABSTRACT..................................................................................................................... iii DEDICATION ...................................................................................................................v ACKNOWLEDGEMENTS ..............................................................................................vi NOMENCLATURE....................................................................................................... viii TABLE OF CONTENTS...................................................................................................x LIST OF FIGURES..........................................................................................................xii LIST OF TABLES ...........................................................................................................xv CHAPTER I INTRODUCTION .......................................................................................1 1.1 Livestock and markets in developing countries ......................................................1 1.1.1 Livestock commodities ....................................................................................1 1.1.2 Agricultural markets in developing countries ..................................................2 1.2 Objective and research questions ............................................................................6 1.3 Theoretical background...........................................................................................8 1.3.1 Competitive market and equilibrium................................................................8 1.3.2 Role of information in economics..................................................................10 1.3.3 Spatial equilibrium and the law of one price..................................................12 1.4 Methodological approach......................................................................................16 1.4.1 Background on methods.................................................................................16 1.4.2