DOES COBWEB PHENOMENON EXIST IN RICE MARKET OF PAKISTAN? A TIME SERIES ANALYSIS

K. Mehmood ¹, M. ul. Hasan² and A. Khan^1,*

¹Adaptive Research Farm, Sargodha, Directorate General Agriculture (Extension and Adaptive Research), Government of Punjab, Pakistan

²Department of Economics, University of Sargodha, Sargodha, Pakistan

*Corresponding Author’s Email: ammaras94@yahoo.com

ABSTRACT

This study investigates the rice price dynamics and their impacts on demand and supply over the time in agricultural markets of Pakistan. Time series data on production and prices for the period 1984-2018 were used to study the cobweb phenomenon in local rice markets. Linear demand and supply models were used to examine the unstable rice-market. Price dynamics were examined through identifying the time path of difference equation derived from demand and supply functions. The results inferred that market prices of rice have remained unstable in agricultural markets of Pakistan over the history. Furthermore, rice prices exhibited damped oscillations towards stable market equilibrium over last three decades in Pakistan. It is suggested that the government may respond promptly to the instability of rice markets by formulating the appropriate agricultural policies, developing state-of-the-art storage facilities and ensuring the steady transmission of market information across the national as well as international rice markets. The study provides deep insights into understanding the on-going and future trends of price fluctuations with respect to demand and supply shocks in rice market of Pakistan. It would greatly help the stakeholders and policy makers in forecasting and stabilizing the rice markets, and alleviating the food insecurity.