Determinants of Domestic Food Price Differentials:

Abstract

The paper estimates the determinants of price differentials across 79 districts in Uganda. In the framework of the law of one price, we examine the hypothesis that the spatial price differentials are at least partly influenced by transportation and other transaction costs, infrastructural constraints, productivity and commodity output shocks and the purchasing power of households. The study notes the wide range of price differences across the country, which to a large extent can be attributed to the interaction between remoteness and the quality of physical infrastructure. The effect of income per capita on price differentials is relatively uniform across commodities. The findings point towards the importance of strengthening the capacities of farmers and their productivity as a means to improve their livelihoods and foster more efficient markets with faster supply responses to changes in prices. The findings further emphasize the significance of spatial dimension and infrastructure conditions in Uganda, suggesting that infrastructural development must be a core area to reduce price differences in the country.