119 American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) ISSN (Print) 2313-4410, ISSN (Online) 2313-4402 © Global Society of Scientific Research and Researchers http://asrjetsjournal.org/ The Study of Transmission of Price from Farm to Retail Shops in Saffron Market (Case Study of Estahbanat) Niloofar Pejmana*, Javad Torkamanib, Nematollah Mousavic aNiloofar pejman, University of Marvdasht, Iran bJavad torkamani, University of Marvdasht, Iran cNematollah mousavi, University of marvdasht, Iran aEmail: niloofar.pejman1365@gmail.com bEmail: torkamanijavad@yahoo.com Abstract The market margin presents the difference between the price offered by supplier and consumer and it is very important in supplying agricultural products especially when the effect of supplier offered price increase (reduction) is not symmetric on the price offered by the consumer. The main purpose of this research is to study the procedure of price transfer (symmetric or asymmetric) in saffron market of Estahbanat. The research data have obtained from monthly prices of saffron retail and wholesale during 2005-2010 by the agricultural Jihad organization. The price transfer test, Hook and asymmetric error modification models were used for determining saffron transfer price from wholesale to retail. The tractions obtained from hook method show the effect of price increase and decrease in farms price separately. If the time series variable is convergent but not static, (i.e. there is a balance and long-term relation between the variables), then the Hook method cannot be applied and instead error correction model should be used. In this condition, the acceptance of null hypothesis shows the price transfer symmetry, while non-acceptance shows the asymmetry in price transfer. The results suggest that although the price transfer from supplier to wholesale be asymmetric in short time, this is symmetric in long time. In addition, the price transfer from wholesale to retail is asymmetric in long term. There is a reasonable relation between the supplier price and wholesale price and vice versa. ------------------------------------------------------------------------ * Corresponding author. http://asrjetsjournal.org/ American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 120 Therefore, establishing the supply cooperatives especially agricultural marketing once including farmers, wholesalers, and even dealers is recommended for solving these problems. This results in making closer the relation between the farmers and wholesalers and eliminating unnecessary dealers in one hand and more benefits of final price for the farmers. Keywords: symmetry; asymmetry; price transfer; saffron; Iran. 1. Introduction Considering that agricultural products have a major role in providing the food safety of society and raw materials of industries, they have constantly been in need of policymaker and state planners’ support [12; 14; 15; 16]. One of the factors which influences producers, marketing agents, and consumers of a product’ welfare is the interaction of the price of that particular product in one level of market relative to its price changes in other levels of market (manner of price transmission). For this reason, study of price transmission in the market of agricultural products has been the focus of many economists, and there have been many studies conducted on this subject. transmission of price in the market of a product is under the impact of the structure of the market, in a way that non-competitive structures and the use of market power influences the transmission of prices, producers, and consumers’ welfare [10; 4]. Performance of price and market is under the influence of numerous factors and indicators, which the most important of all is the issue of symmetry of price transmission in different levels of market. Presence of symmetry in market is the sign of complete transmission of price changes in one level of market (increase or decrease) to the other levels. In an asymmetric transmission, the effect of price increase or decrease in a level is not completely transferred to other levels or it may cause the increase of price to happen faster and completely but the decrease of price to happen more slowly and incompletely, or vice versa. Asymmetric transmission of price will drive the profit of price increase to dealers and will increase the margin of market and the final price of a product [13; 11]. 2. Types of asymmetric transmission There are two types of asymmetric transmission (long-term and short-term). Short-term asymmetric transmission happens when the rate of immediate effect of price increase or decrease of the producer is not the same for the price of retail, but its long-term effect is the same. Long- term asymmetric transmission happens when an increase in the price of a producer in short time relative to price decrease in long time (after the complete period of adjustment), has a different effect [4]. Saffron as the most valuable agricultural and pharmaceutical product in the world has a unique place between industrial and exportable products in Iran. Currently Iran is the biggest producer and exporter of saffron in the world. Overall, Iran is responsible for more than 65% of world production of saffron. Agriculture section in Fars province, which possess a major share in national raw production, has one of the most important production, employment, and food safety roles, and Estahban, Bovanat, Abadeh, Safa Shahr, and Marvdasht are among major towns where produce saffron in Fars province. Estahban is the center of saffron production in Fars province where due to its perfect climate more than 80% of saffron of Fars province is produced there. Under American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 121 cultivation area of saffron in Estahban is around 250-300 hectares. The present study is trying to determine the way of transmission of price from farm to retail shops in the saffron market of Fars province. 3. According to the mentioned points, the goals of this study are: • Estimation of the price transmission pattern in saffron market. • Study of price transmission elasticity in different levels of market. • Determination of the price causative relation in two levels of wholesale and retail in the market of the product. 4. Assumptions of this study are that price transmission from farm to retail is as the followings Price fluctuations in wholesale level are symmetrically transferred to retail level. Increase of the price in wholesale is transferred completely to retail. Price decrease transmission to retail does not happen completely. 5. A review on the conducted studies Table 8 Writer Subject Model Description Moghaddasi and Ardekani (2007) Study of the way of price transmission in the market of egg and chicken in Iran Hook and error correction model Price fluctuations in wholesale level are transferred symmetrically to retail level Torkamani (1999) Study of technical performance of saffron planters and marketing margin Using stochastic frontier function and the price difference between retail and farm method Using some of production institutions in saffron planting is not in the optimized range Faraj Zadeh and Esmaeeli (2010) Study of price transmission in the world market of pistachio Using input stipulate model and error correction pattern Results suggest the long-term symmetric price transmission pattern in both domestic and world pistachio market and also short-term asymmetric transmission was evaluated Taheri (2008) Study of market structure and price transmission of corn Focus indicators Price transmission from the world market to the domestic market in long time is symmetric but in a short time is asymmetric American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 122 6. Data and statistics sources Used data in estimation are in the form of time series and contain producer, wholesale, and retail’s monthly prices of saffron during 2005 to 2010, which have been obtained from Agricultural Jihad organization of Fars province. All the estimation steps and conduction of the related tests have been done by EVIEWS5, and MICROFIT4.1 software packages, and to conduct different levels, MICROSOFT EXCEL software has been used. 7. Method To study the way of price transmission we have used unit root, to test the presence of long-term balancing relation we have used the convergence technique of Johansen-Juselius, two-step method of Engle-Granger has been used to determine causality direction, and the error correction model of Engle-Granger (ECM-EG) and hook model have been used in studying the symmetry in the saffron market. Hook model: 𝑃𝑃𝑃𝑃𝑡𝑡 − 𝑃𝑃𝑃𝑃0 = 𝛼𝛼0𝑡𝑡 + 𝛼𝛼1� ∆𝑃𝑃 𝑀𝑀𝑖𝑖 𝑖𝑖=0 𝑓𝑓𝑡𝑡−𝑖𝑖+ + 𝛼𝛼2� ∆𝑃𝑃 𝑀𝑀2 𝑖𝑖=0 𝑓𝑓𝑡𝑡−𝑖𝑖− + 𝑒𝑒1 (1) In which Pr is the logarithm of retail price, Pf is the logarithm of farm price, ∆Pf+ is the increase in farm prices, and ∆Pf- is the decrease in farm prices, and M2, M1 are the duration of interval. Engle-Granger causality test: ∆𝐿𝐿𝑃𝑃𝑅𝑅 = 𝜇𝜇1 + �𝛼𝛼𝑃𝑃𝑅𝑅∆𝐿𝐿𝑃𝑃𝑅𝑅 + �𝛼𝛼𝑃𝑃𝑤𝑤∆𝐿𝐿𝑃𝑃𝑤𝑤 − 𝜋𝜋1𝐿𝐿1𝑡𝑡−1 + 𝑒𝑒1𝑡𝑡 (2) ∆𝐿𝐿𝑃𝑃𝑤𝑤 = 𝜇𝜇2 + �𝛽𝛽𝑃𝑃𝑅𝑅∆𝐿𝐿𝑃𝑃𝑅𝑅 + �𝛽𝛽𝑃𝑃𝑤𝑤∆𝐿𝐿𝑃𝑃𝑤𝑤 − 𝜋𝜋2𝐿𝐿2𝑡𝑡−1 + 𝑒𝑒2𝑡𝑡 In which n1 , n2 are the duration of intervals, PR and Pw are retail prices index and wholesale prices index in the cycle of t respectively, Z1t 1  PR 0 1Pw and Z2t 1  Pw 0 1PR are the error correction interval components. Engle-Granger error correction model (ECM-EG): This model is formed based on Hawk model (1977) which its first form is brought in equation number 3; ∆𝐿𝐿𝑃𝑃𝑤𝑤1 = 𝜇𝜇 + �𝛼𝛼𝑃𝑃𝑝𝑝 − ∆𝐿𝐿𝑃𝑃𝑅𝑅 + �𝛼𝛼𝑃𝑃𝑝𝑝 + ∆𝐿𝐿𝑃𝑃𝑅𝑅 + 𝜀𝜀𝑡𝑡 (3) American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 123 In which PP  shows the producer’s price decrease effect and PP  shows the producer’s price increase effect on the consumer’s price. If PR and Pw are convergent, then the equation 4 will be like the following: ∆𝐿𝐿𝑃𝑃𝑤𝑤 = 𝜇𝜇1 + �𝛼𝛼𝑃𝑃𝑅𝑅∆𝐿𝐿𝑃𝑃𝑅𝑅 + 𝜋𝜋1 𝑍𝑍𝑡𝑡−1 + �𝛼𝛼𝑃𝑃𝑅𝑅∆𝐿𝐿𝑃𝑃𝑤𝑤 + �𝛼𝛼𝑃𝑃_𝑅𝑅 ∆𝐿𝐿𝑃𝑃_𝑤𝑤 + 𝜀𝜀𝑡𝑡 (4) In this equation, Zt 1  Pw 0 PR which is derived from the convergent relation of PR and Pw . Granger (1989) has shown the equation number 5 as the following by the division of the error correction component into two positive and negative components: ∆𝐿𝐿𝑃𝑃𝑤𝑤 = 𝜇𝜇1 + �𝛼𝛼𝑃𝑃𝑅𝑅∆𝐿𝐿𝑃𝑃𝑅𝑅 + 𝜋𝜋1 𝑍𝑍𝑡𝑡−1 + 𝜋𝜋1 − 𝑍𝑍𝑡𝑡−1 + �𝛼𝛼𝑃𝑃𝑅𝑅∆𝐿𝐿𝑃𝑃𝑤𝑤 + �𝛼𝛼𝑃𝑃𝑅𝑅 ∆𝐿𝐿𝑃𝑃𝑤𝑤 + �𝛼𝛼𝑃𝑃𝑃𝑃 ∆𝐿𝐿𝑃𝑃𝑅𝑅 + 𝜀𝜀𝑡𝑡 (5) 8. Conclusion and Discussion Figure 1: saffron wholesale monthly prices during 2005 to 2010 Figure 2: saffron retail monthly prices during 2005 to 2010 American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 124 Table 1: Unit root test to determine the stagnation of saffron price variable Price y-intercept position Meaningful level Critical values Static in level data Static in first order difference Producer y-intercept with trend 1 -4.09 -1.49 -6.28*** 5 -3.47 10 -3.16 Wholesale y-intercept with trend 1 -4.09 -0.51 -8.36*** 5 -3.47 10 -3.16 Retail y-intercept with trend 1 -4.09 0.67 -8.58*** 5 -3.47 10 -3.16 Producer y-intercept with trend 1 -4.09 -1.14 -6.29*** 5 -3.47 10 -3.16 Wholesale y-intercept with trend 1 -3.52 -1.6 -8.28*** 5 -2.4 10 -2.59 Retail y-intercept and trend 1 -3.52 -1.4 -8.79*** 5 -2.4 10 -2.59 Producer Without y-intercept and trend 1 -3.52 0.47 -6.32*** 5 -2.4 10 -2.59 Wholesale Without y-intercept and trend 1 -3.52 +2.14 -4.15*** 5 -2.4 10 -2.59 Retail Without y-intercept and trend 1 -3.52 +1.96 -2.8*** 5 -2.4 10 -2.59 Figures 1 and 2 respectively show the trend of retail and wholesale monthly prices index of saffron in Fars province during the years 2005 t0 2010. As it is shown, retail and wholesale prices index of saffron until late 2006 had almost had an invariant trend, but since 2007, saffron price in two levels of retail and wholesale has had an ascending trend, American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 125 and since March 2010 price trends have been descending. 9. The results of determining the optimal interval Table (1-2): The results of determining the optimal interval for Johansen method (Producer to wholesale) Interval duration HQ SBC AIC 0 -1.37 -1.33 -1.40 1 -6.33 -6.21 -6.41 2 -6.46 -6.26 -6.59 3 -6.30 -6.02 -6.49 4 -6.25 -5.89 -6.49 5 -6.25 -5.81 -6.54 Table (2-2): The results of determining the optimal interval for Johansen method (Wholesale to retail) Interval duration HQ SBC AIC 0 -5.127416 -5.087646 -5.153458 1 -9.169635 -9.050326 -9.247761 2 -9.010738 -8.811889 -9.140947 3 -9.008378 -8.729989 -9.190671 4 -8.989754 -8.621825 -9.224131 5 -8.846731 -8.909263 -9.133191 Table (3-1): The results of statistics of maximum specific amount and effect in Johansen method (Producer to wholesale) Condition (b) Condition (c) Condition (d) Hypothesis Ziro Interaction Hypothesis Calculated amount Critical amount Calculated amount Effect amount Calculated amount Effect amount Effect test R=0 R>1 23.23 20.26 19.76 15.49 33.79 25.87 R>1 R>2 4.64 9.16 1.53 3.84 2.82 12.51 Maximum specific amount test R=0 R=1 18.58 15.89 18.23 14.26 30.96 19.38 R>1 R=2 4.64 9.16 1.53 3.84 2.82 12.51 American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 126 To utilize Johansen technique, we need to calculate the number of intervals of endogenous variables in the model. According to the results of table (1-2), all the Akaike criterions (AIC), Schwartz Bayesian (SBC) and Hanan Queen (HQ) suggest that the optimal interval equal to 2, so to utilize Johansen method the optimal interval is considered 2 and as we can see, in table (2-2), all the three criterions suggest the optimal interval equal to 1. Table (3-2): The results of statistics of maximum specific amount and effect in Johansen method (Wholesale to retail) Condition (b) Condition (c) Condition (d) Hypothesis Zero Interaction Hypothesis Calculated amount Critical amount Calculated amount Effect amount Calculated amount Effect amount Effect test R=0 R>1 39.55** 20.26182 34.94*** 15.494 3.10** 25.872 R>1 R>2 5.96 9.164546 1.470 3.841 1.473 12.517 Maximum specific amount test R=0 R=1 33.58*** 15.892 33.47*** 14.264 33.62** 19.387 R>1 R=2 5.96 9.164 1.470 3.841 1.473 12.517 Table (4-1): The results of causality test of two-step Granger model Producer to wholesale) Dependent variable Short term causality test Long term causality 𝛼𝛼𝑝𝑝𝑝𝑝 𝛼𝛼𝑝𝑝𝑤𝑤 𝑧𝑧𝑡𝑡−1 𝑧𝑧2𝑡𝑡−11 ∆𝐿𝐿𝑝𝑝𝑤𝑤 0.145 0.155*** ∆𝐿𝐿𝑝𝑝𝑝𝑝 -0.40 0.539*** Table (4-2): The results of causality test of two-step Granger model (Wholesale to retail) Dependent variable Short term causality test Long term causality 𝛼𝛼𝑝𝑝𝑝𝑝 𝛼𝛼𝑝𝑝𝑤𝑤 𝑧𝑧𝑡𝑡−1 𝑧𝑧2𝑡𝑡−11 ∆𝐿𝐿𝑝𝑝𝑤𝑤 -0.106 -0.38 ∆𝐿𝐿𝑝𝑝𝑝𝑝 0.152 0.78* American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 127 10. The results of the number of optimal interval Table (5-1): The number of optimal interval (Price transmission from producer to wholesale) Interval duration Akaike statistics Schwartz statistics 0 -22.63* -22.47* 1 -22.56 -22.34 2 -22.50 -22.21 3 -22.43 -22.07 4 -22.38 -21.95 Table (5-2): The number of optimal interval (Price transmission from wholesale to retail) Interval duration Akaike statistics Schwartz statistics 0 -5.79* -5.66* 1 -5.74 -5.51 2 -5.77 -5.48 3 -5.73 -5.38 4 -5.71 -5.28 Table (6-1): The results of symmetry in price test using ECM-EG (Producer to wholesale) Variable Elasticity Criterion error Statistic t y-intercept -5.18*10-7 6.10*10-7 -0.8488 Producer’s price 1.05*** 1.38*10-5 722.14 decrease series Producer’s price 0.99*** 6.78*10-6 145.03 increase series Negative interval -4.39*10-5 5.47*10-5 -0.801 amounts part of disruption of long- term equilibrium relation Non-negative 4.66*10-5 5.47*10-5 0.852 interval amounts part of disruption of long-term relation American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 128 Table (6-2): The results of symmetry in price test using ECM-EG (Wholesale to retail) Variable Elasticity Criterion error Statistic t y-intercept -0.003 0.003 -1.27 Producer’s price decrease series +0.719*** 0.093 7.70 Producer’s price increase series +0.983*** 0.054 18.00 Negative interval amounts except disruption of long term equilibrium relation -1.05*** 0.236 -4.43 Non-negative interval amounts except disruption of long term relation -0.85*** 0.234 -3.64 Table (7-1): The results of the symmetry of price transmission study (Producer to holesale) Wald test Rejection or acceptance of hypothesis zero Short-term symmetry 1.48*10+10*** Assumption rejected (asymmetric) Long-term symmetry 0.43 Assumption not rejected (symmetric) Table (7-2): The results of the symmetry of price transmission study (Wholesale to retail) Wald test Rejection or acceptance of hypothesis zero Short-term symmetry 4.5*** Assumption rejected (asymmetric) Long-term symmetry 0.23 Assumption not rejected (symmetric) American Scientific Research Journal for Engineering, Technology, and Sciences (ASRJETS) (2017) Volume 32, No 1, pp 119-131 129 The results of the table (7-1) show that hypothesis zero based on producer and wholesale’s price symmetry is rejected, since the Wald test calculated statistic (1.48*10+10***) is meaningful. However according to Wald test statistic not being meaningful in a long time (0.43), we cannot reject the hypothesis zero based on symmetry in price transmission. Based on this fact, however the price transmission in a short time from the producer to wholesale is asymmetric, in a long time the price transmission from the producer’s level to wholesale’s level is symmetric. The results of the table (7-2) show that hypothesis zero based on wholesale and retail’s price symmetry in a short time is rejected, since the Wald test calculated statistic (4.5) is meaningful. However according to Wald test statistic not being meaningful in a long time (0.23), we cannot reject the hypothesis zero based on symmetry in price transmission. Based on this fact, however the price transmission in a short time from the wholesale to retail is asymmetric; in a long time the price transmission from the wholesale’s level to retail’s level is symmetric. 11. Conclusion The study’s findings show that the price transmission from the producer’s market to retail’s market is in the form of producer wholesale retail. In other words, any policy, which cause changes in the producer’s prices will have an effect on the retail’s market prices as well. In addition, policies, which influence the saffron market in wholesale, will be transmitted to the retail market as well. According to this part of the study’s findings, it is suggested that it is important to always pay attention to the probable effects of implementing policies in producer’s market on the both wholesale and retail’s market as well. The findings showed that price transmission from producer to wholesale are asymmetric in a short time and price decrease is transferred to the wholesale’ market more completely. In other words, wholesalers have more powers against producers and it can be said that wholesalers’ community has a more organized society compared to producer’s community, so based on this fact it is suggested to pay more attention to products supply among producer’s community via cooperatives consisted of producers. References [1] Aguiar, D. R. D. and Santana J. A. (2002), Asymmetry in farm to retail price transmission: evidence from Brazil, Agribusiness, 18(1): 37-48. [2] Aguiar, D.R.D. and Cornor, J.M. (1997), the effects of changes in regulatory and trade policies on the structure, conduct in regulatory and trade policies on the structure, conduct and performance of the Brazilian dairy processing industry. [3] Akbari M, Mousavi SN, rezaei P.2009. Water crisis and the need to pay attention to water efficiency in areas experiencing drought; a case study: the plain National Conference-Farooq seyyedan, water crisis, Isfahan. 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