Price Transmission Analysis in Iran Chicken Market

Over the past three decades vertical price transmission analysis has been the subject of considerable attention in applied agricultural economics. It has been argued that the existence of asymmetric price transmission generates rents for marketing and processing agents. Retail prices allegedly move faster upwards than downwards in response to farm level price movements. This is an important issue for many agricultural markets, including the Iranian chicken market. Chicken is an important source of nutrition in Iranian society and many rural households depend on this commodity market as a source of income. The purpose of this paper is to analyze the extent, if any, of asymmetric price transmission in Iran chicken market using the Houck, Error Correction and Threshold models. The analysis is based on weekly chicken price data at farm and retail levels over the period October 2002 to March 2006. The results of tests on all three models show that price transmission in Iranian chicken market is long-run symmetric, but short-run asymmetric. Increases in the farm price transmit immediately to the retail level, while decreases in farm price transmit relatively more slowly to the retail level. We conjecture the asymmetric price transmission in this market is the result of high inflation rates that lead the consumers to expect continual price increases and a different adjustment costs in the upwards direction compared to the downwards direction for the marketing agents and a noncompetitive slaughtering industry and that looking for ways to make this sector of the chicken supply chain more competitive will foster greater price transmission symmetry and lead to welfare gains for both consumers and agricultural producers.