Price behaviour of nendran banana in Kerala: an economic analysis

Abstract

India is the leading producer of banana in the world with an annual production of 30 million tons from 0.8 million hectares (2017-18). Nendran is one of the most important commercial varieties of banana grown in Kerala, occupying about 50 per cent of the total area under banana. Wide fluctuations have been observed in the price of Nendran, resulting in income variability of farmers. Hence the present study has been carried out with the objectives of analysing the price behaviour and volatility in prices of Nendran banana in Kerala. The study was mainly based on secondary data collected from the major markets of Kozhikode, Ernakulam, and Thiruvananthapuram. Trend analysis was carried out to understand the growth in area, production and productivity of banana both at national and state levels from 1980-81 to 2017-18. In India, the area, production and productivity of banana showed a significant growth. The area and production in Kerala showed an increasing trend but the productivity was found decreasing. Even with a growth in area of 4.83 per cent, the production increased only by 1.27 per cent due to the negative growth rate of -3.4 per cent in productivity per annum. The price behaviour of Nendran banana in major markets of Kerala viz., Kozhikode, Ernakulam, and Thiruvananthapuram for a duration of 16 years (20032018) was analyzed by decomposing the monthly price data into four components such as secular trend, seasonal variation, cyclical variation and irregular variation assuming a multiplicative model. Prices in all the three markets showed increasing trend. The seasonal variation of Nendran banana price in the markets showed a similar pattern, with peak price in the month of August because of increased demand during Onam season. Price cycles with length varying from six to seven years were noted in the market price.

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Pairwise and multiple co-integration analysis of Nendran banana prices in the above markets were carried out after confirming the stationarity of price series using Augmented Dickey Fuller (ADF) test. The results showed that the markets were integrated, inferring the presence of price association among the markets. In order to provide additional evidence as to whether and in which direction price transmission occurred, Granger causality test was carried out and the existence of unidirectional causality from Kozhikode market to Ernakulam market and from Thiruvananthapuram market to Kozhikode and Ernakulam markets was proved. Correlation co-efficient between monthly market arrivals and prices of Nendran banana in Kozhikode, Ernakulam, and Thiruvananthapuram markets from 2013 to 2018 was computed to evaluate the pattern of association between them. In all the three markets, the prices and quantity of arrivals were found to be negatively correlated implying that prices decreased with increase in arrival of Nendran banana. The variability in Nendran banana arrivals and prices was studied computing the coefficient of variation and maximum variability in arrivals was found in Ernakulam market (42.52 per cent) and maximum variability in prices was found in Thiruvananthapuram market (24.41 per cent). Intra-annual volatility and inter-annual volatility of monthly prices of Nendran banana from 2003 to 2018 were estimated and the prices were found to be highly volatile. The intra-annual volatility showed no distinct pattern in all the three markets. The magnitude of inter-annual volatility was decreasing throughout and the divergence between the volatility of prices were found to be decreasing towards the latter end. Instability in annual prices worked out using suitable indices showed that prices in Thiruvananthapuram market were more volatile than other markets as it was influenced by prices in the markets of Tamil Nadu.

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Major constraints identified in the study area were wide fluctuations in prices, high labour and transportation costs, unavailability of institutional credit and lack of reliable information about prices. Price fluctuations and volatility creates uncertainty in the planting and marketing decisions of the farmer. Unavailability of reliable price information makes marketing difficult and farmers become more vulnerable to price risk. Therefore, suitable strategies for developing market intelligence for Nendran banana including price forecasting and provision to farmers, price stabilization through year round procurement and introduction of support price were suggested as policy interventions.