Price transmission and trader entry in domestic commodity markets

A study was conducted on African agricultural commodity to examine the price transmission process in Uganda by which changes in international commodity prices are reflected in domestic prices. The analysis is based on the data collected on all coffee exporters and on the random representative samples of coffee traders and producers. The study showed that an increase in the international price is readily reflected in export and wholesale prices, but the producers receive a less share of the international price when it increases. A negative search externality encourages trader entry, which dissipates the pure profits without bidding the farm-gate price up, as excess entry increases the search time of traders, buying directly from producers. The study also revealed that marketing costs, such as transport, handling, storage, and processing do not increase with price, while it also found that the number of traders increases with the increase in price.