The Transmission World Price and Exchange Rate to Domestic prices of Livestock’s Major Imported Inputs in Iran

Abstract

The object of the present study examined the market integration and the transmission world prices to the domestic markets of the livestock’s major imported inputs in Iran which are including corn, soybean meal and barley in the country. To address this challenge, the Single Equation Error Correction (SEECM) method was applied by monthly data which gathered from the Central Bank, the F.A.O. database and the State Livestock Affairs Logistics (S.L.A.L) Inc. in period of 2000-2017. However, the Engel- Granger co-integration and error correction model (ECM) was also utilized to compare with the SEECK results. The results indicate that all variables are integrated of order one [i.e. I(1)]. The existence of long-term equilibrium was identified by the Johansson method for domestic prices of three inputs, including corn, soybean meal and barley. The results show that the error correction terms are negatively significant and the largest and smallest effect relate to barley price (-0.25) and corn price (-0.16), respectively. The long-term equilibrium estimated by the SEECM model indicates that for all three inputs, the related world price and the exchange rate have a positive and significant effect on the domestic prices of these inputs. The elasticity of world price transmission for corn were equal to 0.45, soybean meal 0.44 and barley 0.28, and the elasticity of exchange rate transmission on the domestic price of corn, soybean meal and barley were 0.57, 0 and 0.13. With consider to the high volumes of corn and soybean meal imports compared to barley, the calculated elasticity of world prices transmission are in line with expectations, and they are expected that corn and soybean meal would affected highly from their world prices and exchange rates in the nation. The results indicate that the degree of price transmission between these markets was not same so that it depends on amount of domestic production, consumption level and imported volume.