Modelling Onion Price Volatility and Market Interdependencies: Insights from Indian Markets

Onion is one of the most market-sensitive agricultural commodities in India, with price fluctuations affecting both producers and consumers. This study examined the volatility and price transmission mechanisms in nine Indian onion markets using monthly data from January 2010 to December 2020. Through Johansen cointegration tests, the analysis focused a long-term co-movement of prices across these markets. Additionally, the multivariate GARCH model highlighted significant conditional volatility and strong, time-varying positive price connections, with the Delhi market being the most influential. Any price disruption in Delhi rapidly spreads to other markets. These findings emphasized the need for policymakers to understand price dynamics better and design effective measures to prevent market inefficiencies, such as artificial price inflation due to hoarding or collusion. The study offered valuable insights into market interdependencies and volatility, helping to inform policy decisions and improve forecasting in onion production systems, particularly following unusual volatility events like that of December 2010.

Keywords: Multivariate GARCH, spillover effect, volatile price. JEL Codes: C52, C53, Q13, Q18.