Measuring the Pass-through Effect of Global Prices to Domestic Prices of Selected Food Products in Iran

Document Type : Original Article

Authors

1 PhD Candidate. Agricultural economics. Tabriz University

2 Professor of Economics, University of Tabriz, Tabriz, Iran

3 Associate Professor of Agricultural Economics, University of Tabriz, Tabriz, Iran

Abstract

In the second half of 2010, the severe fluctuation of food prices has increased the number of poor people in the world. Therefore, the food prices have become important matter for many developing countries over the past decade. This study investigates how food commodities global prices are passed on to domestic prices in Iran. For this purpose, the Markov Switching Vector Autoregressive (MS-VAR) method and regime dependent impulse response functions and quarterly data for rice, wheat, sugar and vegetable oils were used.  The results show that the MS-VAR model provides a suitable framework for modeling the price pass-through of these products. According to the findings, there is a considerable difference in the pass-through magnitude between the regimes. The pass-through extent in second regime is much higher than first regime for all products. In other words, the substantial change in the price pass-through mechanism has occurred with global food price crisis. Therefore, it is suggested that the relevant policies such as import tariffs and restrictions implement with respect to world prices and domestic prices reaction.

Keywords

References

  1. Alam, J. M., Buysse, J., McKenzie, A. M., Begum, I. A., Wailes, E. J. and Huylenbroeck, G. V. (2012). The dynamic relationships between world and domestic prices of rice under the regime of agricultural trade liberalization in Bangladesh. Journal of the Asia Pacific Economy, 17(1): 113–126.
  2. Bakhshoodeh, M. (2010). Impacts of world prices transmission to domestic rice markets in rural Iran. Food Policy, 35: 12–19.
  3. Bekkers, E., Brockmeier, M., Francois, J. and Yang, F. (2013). Pass-through, food prices and food security. Available at:  https://www.gtap.agecon. purdue.edu/resources/download/6391.pdf
  4. Benson, T., Minot, N., Pender, J., Robles, M., and von Braun, J. (2008). Global food crises: monitoring and assessing impact to inform policy responses. Washington, D.C.: International Food Policy Research Institute.
  5. Dewbre, J., Giner, C., Thompson, W. and Von Lampe, M. (2008). High food commodity prices: will they stay? Who will pay?. Agricultural Economics, 39: 393–403.
  6. Duma, N. (2008). Pass-Through of external shocks to inflation in Sri Lanka. IMF Working Paper, WP/08/78. 
  7. FAO. 2011. The state of food insecurity in the world, how does international price volatility affect domestic economies and food security?. Food and Agriculture Organization of the United Nations, Rome, 2011.
  8. Ferrucci, G., Jimenez-Rodriguez, R. and Onorante, L. (2010). Food price pass-through in the Euro area: the role of asymmetries and non-linearities. European Central Bank, Working Paper, No. 1168.
  9. Gilbert, C. L. (2010). How to understand high food prices. Journal of Agricultural Economics, 61: 398–425.
  10. Hamilton, J. D. (1990). Analysis of time series subject to changes in regime. Journal of Econometrics, 45: (39-70).
  11. Ivanic, M. and Martin, W. (2008). Implications of higher global food prices for poverty in low-income countries. Agricultural Economics, 39: 405–416.
  12. Jalil, M. and Zea, E. T. (2011). Pass-through of international food prices to domestic inflation during and after the great recession: evidence from a set of Latin American economies. Desarrollo y Sociedad, 67: 135-179.
  13. John, A. (2014). Price relations between international rice markets. Agricultural and Food Economics, 2(1).
  14. Kornher, L. and Kalkuhl, M. (2013). Food price volatility in developing countries and its determinants. Paper Presented at the 53rd Annual Conference of German Agricultural Economists Association, Berlin, Germany, September 25-27.
  15. Krolzig, H. M. (1997). Markov switching vector autoregressions modelling: statistical inference and application to business cycle analysis. Berlin: Springer. 
  16. Krolzig, H. M. (1999). Statistical analysis of cointegrated VAR processes with Markovian regime shifts. Computing in Economics and Finance, Society for Computational Economics, Working Paper No. 1113.   
  17. Krolzig, H. M. (2001). Business cycle measurement in the presence of structural change: international evidence. International Journal of Forecasting, 17: 349–368. 
  18. Layani, Gh., Ghorbanian, E. and Bakhshoodeh, M. (2016). Investigation of cereals world price transmission to Iran domestic markets: application of armington and pass-through elasticities. Journal of Agricultural Economics & Development, 29(4): 334-344. (Persian)  
  19. Minot, N. (2011). Transmission of world food price changes to markets in Sub-Saharan Africa. IFPRI Discussion Paper 01059. International Food Policy Research Institute, Washington, DC.
  20. Ortiz, I., Chai, J. and Cummins, M. (2011). Escalating food prices: the threat to poor households and policies to safeguard a recovery for all. UNICEF working paper.
  21. 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. Journal of Agricultural Economics & Development, 29(1): 55-67. (Persian) 
  22. Yang, F., Bekkers, E., Brockmeier, M. and Francois, J. (2015). Food price pass-through and the role of domestic margin services. Journal of Agricultural Economics, 66(3): 796–811.
  23. Yosofi, H. and Moghadesi, R. (2013). World price transmission to domestic agricultural markets: Case of wheat, barely and rice. Journal of Agricultural Economics Research, 5(17): 81-99. (Persian)   

Files

Share

How to cite

Statistics