Price Transmission Analysis in Iran Fluid Milk Market

Authors
Y. Rostami 1
S. S. Hosseini 2
R. Moghaddasi 1
1 Department of Agricultural Economics, Science and Research Branch, Islamic Azad University, Tehran, Islamic Republic of Iran.
2 Department of Agricultural Economics, College of Agriculture, University of Tehran, Karaj, Islamic Republic of Iran.
Abstract
This study investigates the price transmission in the Iranian fluid milk market. We applied a Markov-switching vector error correction model on the monthly price data from March 2003 to December 2015 to allow for multiple regime shifts in the relationship between farm and retail prices. According to Granger Causality Test, there is one side causality relation from producer’s price to consumer’s price. Due to the existence of positive price asymmetry in farm-retail price transmission, the retail prices would incline more quickly in response to increases in farm price than to its decreases, implying serious welfare losses to the consumers. Main results show existence of a positive price asymmetry in the market. In the long run, price transmission is perfect, while in the short run, price adjustment between two market levels is asymmetric. On the other hand, retailers benefit from any shock that affects supply or demand conditions.

Keywords

Subjects

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Journal of Agricultural Science and Technology
Volume 20, Issue 5
July and August 2018
Pages 857-867