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Abstract

Seongju is the largest oriental melon producing district in Korea. This study aims to analyze price causality and short- and long-term equilibrium between the Seongju farmgate market and the Garakdong wholesale market in Seoul using Johansen cointegration test and variance decomposition based on VECM (vector error correlation model) for oriental melon. The two market prices have each unit root and a strong cointegration relationship. The prices confirmed that the farmgate price might quickly recover from an external shock and its price stability was stronger than that of the wholesale price. Also, the dynamic causality relationship analysis shows that the farmgate price strongly leads the wholesale price at the lag intervals of 5, 7 and 9 months. And variance decompositions indicate that in the case of the farmgate price, the local market itself has a price influencing power of 81.5 percent while the Garakdong wholesale market influences the farmgate price by 18.5%. But in the case of the wholesale price, the wholesale market itself has a price influencing power of 17.1% while the farmgate market influences the wholesale price by 82.9 percent. It seems that the Seongju farmgate price has a significant effect on the wholesale price.

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