Study on Price Transmission of Inputs in the Market of Some Agricultural Commodities

Document Type : Research Paper

Authors

1 Science and Research Branch University of Tehran

2 Islamic Azad University Science and Research Branch

Abstract

The main purpose of this study is to examine the transfer price of agricultural inputs to the prices of some agricultural commodities (tomatoes, potatoes, and onions) using Markov-switching model and quarterly data in the years 1991-2018. The results of BDS test showed the Markov-switching model is more suitable than the linear model. Also, it showed the price index of agricultural commodities are classified into two regimes called low price growth rate regime and high price growth rates regime. The main results showed that there is a significant difference between the coefficients of variables of each regime, which is important sign that the mechanism of transfer price of input to the selected agricultural commodities price is asymmetric. The prices of seeds, fertilizers, and pesticides have impacted agricultural commodities price. Also, for all three product the Probability of stability in the second regime is higher. Therefore, based on the asymmetry of price transfer in this market, an important policy recommendation of this study is that economic policymakers to stabilize prices should take appropriate plan to monitor the supply and storage of agricultural inputs. In addition, they should consider asymmetry transfer price in their policies and plans in the agricultural market.

Keywords

Akbari, Sh., Eshraghi, F. and Julai, R. (2016). Price transfer for agricultural products in the Iranian market. The third national congress on the development of agricultural sciences and natural resources, Faculty of Agriculture, Gorgan University. (In Farsi)

Bakhshodeh, M. (2004). Estimation of seasonal price fluctuations of potatoes and onions. Agriculture Science, 35(2):511-517. (In Farsi)

Beckman, J. and Riche, S. (2015). Changes to the natural gas, corn, and fertilizer price relationships from the biofuels era. Journal of agricultural and applied economics, 47(4): 494-509. DOI: https://doi.org/10.1017/aae.2015.22

Brock, W.A., Dechert, W.D., Scheinkman, J.A. and LeBaron, B. (1996). A test for independence based on the correlation dimension. American Journal of Economic Review (Econ Rev), 15(3): 197-235.

Central Bank of the Islamic Republic of Iran )CBI(. (2021). Economic Report and Balance Sheet. Available at: https://www.cbi.ir/category/EconomicReport_fa.aspx

Elser, J. J., Elser, T. J., Carpenter, S. R. and Brock, W. A. (2014). Regime Shift in Fertilizer Commodities Indicates More Turbulence Ahead for Food Security. PLoS One. 9(5): e93998. Doi: 10.1371/journal.pone.0093998

Etienne, X., Trujillo-Barrera, A. and Wiggins, S. (2016). Price and volatility transmissions between natural gas, fertilizer, and corn markets. Agricultural Finance Review, 76(1): 151-171. https://doi.org/10.1108/AFR-10-2015-0044

Food and Agriculture Organization (FAO). (2021). OECD‑FAO Agricultural Outlook 2021‑2030. Available at: https://www.fao.org/3/cb5332en/cb5332en.pdf

Grassberger, P. and Procaccia, I. (1983). Measuring the strangeness of strange attractors, Physica D: Nonlinear Phenomena, 9(1-2): 189-208.

Hamilton, J.D. (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57(2): 357–384.

Islamic Republic of Iran Customs Administration (IRICA). (2021). Statistic Report, Tehran, Iran. https://www.irica.ir/

Isij, S. and Cemil Ozbugday, F. (2021). The impact of agricultural input costs on food prices in Turkey: A case study. Agricultural Economics- Czech (Agric. Econ.), 67(3): 101-110. https://doi.org/10.17221/260/2020-AGRICECON

Jalaie, S. A., Aazizi, A., Zarei, N. and Mehrabi Basharabadi, H. (2014). Study of the status and role of agriculture in Iran business cycles. Quaterly Journal of Economic Modelling, 8(25):53-65. (In Farsi)

Janda, K. and Kristiufek, L. (2019). The relationship between fuel and food prices: Methods and outcomes. Annual Review of Resource Economics, 11:195-216. https://doi.org/10.1146/annurev-resource-100518-094012

Javdan, A., pishbahar, A., Haghighat, J. and Mohammadrezaei, R. (2018). Measuring the pass-through effect of global prices to domestic prices of selected food products in Iran. Quarterly Journal of Agricultural Economics and Development, 25(4): 147-165. (In Farsi)

Karami, A. (2010). Price asymmetry of tomato, onion and potato in Fars province. Agricultural Economics, 4(3): 171-183. (In Farsi)

Kazeroni, A., Asgharpur, H., Mohammadpoor, S. and Bahari, S. (2012). The asymmetric effects of real exchange rate fluctuations on the economic growth of Iran: Markov-Switching approach. Economic Journal Bimonthly Journal of Economic Issues and Policies, 12(7and8): 5-26. (In Farsi)

Kirikkaleli, D. and Darbaz, I. (2021). The Causal Linkage between Energy Price and Food Price. MDPI-Energies, 14(14), 4182. https://doi.org/10.3390/en14144182

Krolzig, H. (1997). Markov-Switching vector autoregressions: Modelling, statistical inference, and application to business cycle analysis. Berlin. Springer.

Ministry of Agriculture - Jahad (MAJ).  (2021). Agricultural Statistics Report. Available at: https://maj.ir/page-amar/FA/65/form/pId11583

Mehdiloo, A., Sadeghi, H. and Assari Arani, A. (2015). Estimation of non-linearity effect of rent-Seeking opportunities on economic growth in Iran: Using Markov-Switching model. Economic Growth and Development research, 5(18):11-30. (In Farsi)

Mir, J. (1994). Price policies in agriculture, topics and suggestions, First Edition, Research Center for Rural Issues, Publications of the Ministry of Jihad Sazandegi. (In Farsi)

Moghaddasi, R. and Bakhsh, A. (2008). Harmonic analysis of price fluctuations of agricultural products (case study of onion and potato). Trade Studies (IJTS), 12(47):205-233. (In Farsi)

Morab, A. And Moghaddasi, R. (2007). Study of price transfer from farm to retail in the crop market (case study of potatoes and tomatoes). The Sixth Iranian Agricultural Economics Conference,1(3): 83-94. (In Farsi)

Moradi, E.  and Afsharmanesh, M. (2017). Inputs Price Shock of Corn Production and its Impact on Corn Prices: Panel Vector Auto Regression Approach. Agricultural Economics & Development, 31(36): 170-178. (In Farsi)

Naraghi, N., Moghaddasi, R. and Mohamadinejad, A. (2021). Nexus between energy consumption and agricultural inflation: An Iranian experience.  International Energy Journal, 21(1): 159-170.

Odionye, N., Saa, D., Laamari, A., Adzawla, W., Koffi, I., Afimia, E., Atakora, W.K., Jemo, M. and Bindraban, P.S. (2020). Determination of fertilizer cost components and their effect on fertilizer prices and the fertilizer value chain in Ghana. IFDC- Fertilizer Research and Responsible Implementation (FERARI) Research Report, No. 4. DOI:10.13140/RG.2.2.21402.26568

Omrani, M., Shahiki Tash, M.N. and Akbari, A. (2017). Examining asymmetric price transmission and market power in Iranian pistachio process market using a mixture approach. Journal of Agricultural Economics Research, 9(33): 1-22. (In Farsi)

Pejman, N. (2012). Investigating the transfer of prices from farm to retail in saffron market: A case study of Fars province. PhD Thesis, Agricultural Economic, Faculty of Agriculture, Islamic Azad University, Marvdasht Branch. (In Farsi)

Pishbahar, E., Bodagh, Sh. And Dashti, Gh. (2019). Forecasting Iran's Agricultural Sector Growth: Using Mixed-frequency Data Sampling (MIDAS) Model. Economic Research, 19 (3) :145-161. (In Farsi)

Pishbahar, E. and Alizadeh, P. (2017). Vertical price transmission in the market of potato and onion (Case study: Kurdistan province). Iranian Journal of Agricultural Economics and Development Research (Iranian Journal of Agricultural Sciences), 47(3): 533-543. (In Farsi)

Rahmani, F., Ahmadian, M. and Yazdani, S. (2011). Studying the effects of agricultural input subsidy elimination on selected agricultural production in Iran. Agricultural Economics, 5(3): 55-74. (In Farsi)

Samadi, A. and Behpour, S. (2014). The Effect of Oil Price Volatilities on Food Price Index in Iran. Applied Theories of Economics, 1(2): 89-106. (In Farsi)

Sarbijan, M. S., Reisi, Gh. A.  and Shetab Booshehri, N. (2013). Studying Recessions and Booms in Iran Economy by Using Markov Switching Model. Economic Modelling, 23(7): 67-83. (In Farsi)

Shabanzadeh, M., Mahmoodi, A. and Esfanjari Kenari, R. (2015). Examining the effect of world price transfer to domestic markets for sensitive and certain agricultural products in Iran. Agricultural Economics and Development, 29(1): 55-67. (In Farsi)

Shahiki Tash, M. N. and Omrani, M. (2014). Price transmission between domestic and export markets of selected agricultural products and welfare impacts of asymmetric price transmission. Agricultural Economics and Development, 22(1): 177-211. (In Farsi)

Taghizadeh-Hesary, F., Rasoulinezhad, E. and Yoshino, N. (2019). Energy and food security: Linkages through price volatility. Energy policy, 128: 796-806. https://doi.org/10.1016/j.enpol.2018.12.043

Thapa, S. (2011). Impact of rising global fertilizer prices on the Nepalese agriculture sector. Nepalese Journal of fertilizer economics, 4:87-97.

Yingfu, X., Jun, Y. and Bo, R. (2007). A General Autoregressive Model with Markov Switching: Estimation & Consistency. Research Report, Centre of Biostochastics.

Yosofi, H. and Moghaddasi, R. (2013). World price transmission to domestic agricultural markets: Case of wheat, barley and rice. Journal of Agricultural Economics Research, 5(17): 81-99. (In Farsi)

Wang, W., Van Gelder, P.H.A.J.M. and Vrijling, J.K. (2005). Trend and stationarity analysis for stream flow processes of rivers in Western Europe in the 20th century, In Proceedings: International Water Association (IWA), International Conference on Water Economics, Statistics, and Finance Rethymno, Greece: 8-10.

References

Akbari, Sh., Eshraghi, F. and Julai, R. (2016). Price transfer for agricultural products in the Iranian market. The third national congress on the development of agricultural sciences and natural resources, Faculty of Agriculture, Gorgan University. (In Farsi)
Bakhshodeh, M. (2004). Estimation of seasonal price fluctuations of potatoes and onions. Agriculture Science, 35(2):511-517. (In Farsi)
Beckman, J. and Riche, S. (2015). Changes to the natural gas, corn, and fertilizer price relationships from the biofuels era. Journal of agricultural and applied economics, 47(4): 494-509. DOI: https://doi.org/10.1017/aae.2015.22
Brock, W.A., Dechert, W.D., Scheinkman, J.A. and LeBaron, B. (1996). A test for independence based on the correlation dimension. American Journal of Economic Review (Econ Rev), 15(3): 197-235.
Central Bank of the Islamic Republic of Iran )CBI(. (2021). Economic Report and Balance Sheet. Available at: https://www.cbi.ir/category/EconomicReport_fa.aspx
Elser, J. J., Elser, T. J., Carpenter, S. R. and Brock, W. A. (2014). Regime Shift in Fertilizer Commodities Indicates More Turbulence Ahead for Food Security. PLoS One. 9(5): e93998. Doi: 10.1371/journal.pone.0093998
Etienne, X., Trujillo-Barrera, A. and Wiggins, S. (2016). Price and volatility transmissions between natural gas, fertilizer, and corn markets. Agricultural Finance Review, 76(1): 151-171. https://doi.org/10.1108/AFR-10-2015-0044
Food and Agriculture Organization (FAO). (2021). OECD‑FAO Agricultural Outlook 2021‑2030. Available at: https://www.fao.org/3/cb5332en/cb5332en.pdf
Grassberger, P. and Procaccia, I. (1983). Measuring the strangeness of strange attractors, Physica D: Nonlinear Phenomena, 9(1-2): 189-208.
Hamilton, J.D. (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57(2): 357–384.
Islamic Republic of Iran Customs Administration (IRICA). (2021). Statistic Report, Tehran, Iran. https://www.irica.ir/
Isij, S. and Cemil Ozbugday, F. (2021). The impact of agricultural input costs on food prices in Turkey: A case study. Agricultural Economics- Czech (Agric. Econ.), 67(3): 101-110. https://doi.org/10.17221/260/2020-AGRICECON
Jalaie, S. A., Aazizi, A., Zarei, N. and Mehrabi Basharabadi, H. (2014). Study of the status and role of agriculture in Iran business cycles. Quaterly Journal of Economic Modelling, 8(25):53-65. (In Farsi)
Janda, K. and Kristiufek, L. (2019). The relationship between fuel and food prices: Methods and outcomes. Annual Review of Resource Economics, 11:195-216. https://doi.org/10.1146/annurev-resource-100518-094012
Javdan, A., pishbahar, A., Haghighat, J. and Mohammadrezaei, R. (2018). Measuring the pass-through effect of global prices to domestic prices of selected food products in Iran. Quarterly Journal of Agricultural Economics and Development, 25(4): 147-165. (In Farsi)
Karami, A. (2010). Price asymmetry of tomato, onion and potato in Fars province. Agricultural Economics, 4(3): 171-183. (In Farsi)
Kazeroni, A., Asgharpur, H., Mohammadpoor, S. and Bahari, S. (2012). The asymmetric effects of real exchange rate fluctuations on the economic growth of Iran: Markov-Switching approach. Economic Journal Bimonthly Journal of Economic Issues and Policies, 12(7and8): 5-26. (In Farsi)
Kirikkaleli, D. and Darbaz, I. (2021). The Causal Linkage between Energy Price and Food Price. MDPI-Energies, 14(14), 4182. https://doi.org/10.3390/en14144182
Krolzig, H. (1997). Markov-Switching vector autoregressions: Modelling, statistical inference, and application to business cycle analysis. Berlin. Springer.
Ministry of Agriculture - Jahad (MAJ).  (2021). Agricultural Statistics Report. Available at: https://maj.ir/page-amar/FA/65/form/pId11583
Mehdiloo, A., Sadeghi, H. and Assari Arani, A. (2015). Estimation of non-linearity effect of rent-Seeking opportunities on economic growth in Iran: Using Markov-Switching model. Economic Growth and Development research, 5(18):11-30. (In Farsi)
Mir, J. (1994). Price policies in agriculture, topics and suggestions, First Edition, Research Center for Rural Issues, Publications of the Ministry of Jihad Sazandegi. (In Farsi)
Moghaddasi, R. and Bakhsh, A. (2008). Harmonic analysis of price fluctuations of agricultural products (case study of onion and potato). Trade Studies (IJTS), 12(47):205-233. (In Farsi)
Morab, A. And Moghaddasi, R. (2007). Study of price transfer from farm to retail in the crop market (case study of potatoes and tomatoes). The Sixth Iranian Agricultural Economics Conference,1(3): 83-94. (In Farsi)
Moradi, E.  and Afsharmanesh, M. (2017). Inputs Price Shock of Corn Production and its Impact on Corn Prices: Panel Vector Auto Regression Approach. Agricultural Economics & Development, 31(36): 170-178. (In Farsi)
Naraghi, N., Moghaddasi, R. and Mohamadinejad, A. (2021). Nexus between energy consumption and agricultural inflation: An Iranian experience.  International Energy Journal, 21(1): 159-170.
Odionye, N., Saa, D., Laamari, A., Adzawla, W., Koffi, I., Afimia, E., Atakora, W.K., Jemo, M. and Bindraban, P.S. (2020). Determination of fertilizer cost components and their effect on fertilizer prices and the fertilizer value chain in Ghana. IFDC- Fertilizer Research and Responsible Implementation (FERARI) Research Report, No. 4. DOI:10.13140/RG.2.2.21402.26568
Omrani, M., Shahiki Tash, M.N. and Akbari, A. (2017). Examining asymmetric price transmission and market power in Iranian pistachio process market using a mixture approach. Journal of Agricultural Economics Research, 9(33): 1-22. (In Farsi)
Pejman, N. (2012). Investigating the transfer of prices from farm to retail in saffron market: A case study of Fars province. PhD Thesis, Agricultural Economic, Faculty of Agriculture, Islamic Azad University, Marvdasht Branch. (In Farsi)
Pishbahar, E., Bodagh, Sh. And Dashti, Gh. (2019). Forecasting Iran's Agricultural Sector Growth: Using Mixed-frequency Data Sampling (MIDAS) Model. Economic Research, 19 (3) :145-161. (In Farsi)
Pishbahar, E. and Alizadeh, P. (2017). Vertical price transmission in the market of potato and onion (Case study: Kurdistan province). Iranian Journal of Agricultural Economics and Development Research (Iranian Journal of Agricultural Sciences), 47(3): 533-543. (In Farsi)
Rahmani, F., Ahmadian, M. and Yazdani, S. (2011). Studying the effects of agricultural input subsidy elimination on selected agricultural production in Iran. Agricultural Economics, 5(3): 55-74. (In Farsi)
Samadi, A. and Behpour, S. (2014). The Effect of Oil Price Volatilities on Food Price Index in Iran. Applied Theories of Economics, 1(2): 89-106. (In Farsi)
Sarbijan, M. S., Reisi, Gh. A.  and Shetab Booshehri, N. (2013). Studying Recessions and Booms in Iran Economy by Using Markov Switching Model. Economic Modelling, 23(7): 67-83. (In Farsi)
Shabanzadeh, M., Mahmoodi, A. and Esfanjari Kenari, R. (2015). Examining the effect of world price transfer to domestic markets for sensitive and certain agricultural products in Iran. Agricultural Economics and Development, 29(1): 55-67. (In Farsi)
Shahiki Tash, M. N. and Omrani, M. (2014). Price transmission between domestic and export markets of selected agricultural products and welfare impacts of asymmetric price transmission. Agricultural Economics and Development, 22(1): 177-211. (In Farsi)
Taghizadeh-Hesary, F., Rasoulinezhad, E. and Yoshino, N. (2019). Energy and food security: Linkages through price volatility. Energy policy, 128: 796-806. https://doi.org/10.1016/j.enpol.2018.12.043
Thapa, S. (2011). Impact of rising global fertilizer prices on the Nepalese agriculture sector. Nepalese Journal of fertilizer economics, 4:87-97.
Yingfu, X., Jun, Y. and Bo, R. (2007). A General Autoregressive Model with Markov Switching: Estimation & Consistency. Research Report, Centre of Biostochastics.
Yosofi, H. and Moghaddasi, R. (2013). World price transmission to domestic agricultural markets: Case of wheat, barley and rice. Journal of Agricultural Economics Research, 5(17): 81-99. (In Farsi)
Wang, W., Van Gelder, P.H.A.J.M. and Vrijling, J.K. (2005). Trend and stationarity analysis for stream flow processes of rivers in Western Europe in the 20th century, In Proceedings: International Water Association (IWA), International Conference on Water Economics, Statistics, and Finance Rethymno, Greece: 8-10.
Agricultural Economics
Volume 16, Issue 3 - Serial Number 3
November 2022
Pages 55-79

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