producers and consumers Price Relations Analysis in Iran Milk Market

This study investigates the price relations between producer and consumer level in the Iran fluid milk market. We applied a Markov-switching vector error correction model on the monthly price data from March 2003 to December 2015 to allow for multiple regime shifts in the relationship between farm and retail prices. A model with two regimes with three lags has finally been chosen and estimated. According Granger Causality Test there is one side causality relation from producer’s price to consumer’s price. Results show that second model, points to data that relates to 2003 until 2006 and also, 2013 to 2015; whereas, those following first model, refer to 2007 till end of 2012. Thus the type of relationship between two series is different depend on policy actions that government adopts during the times. Main results show existence of a positive price asymmetry in the market. In the long run price transmission is perfect, while in the short run price adjustment between two market levels is asymmetric. On the other hand, retailers benefit from any shock that affects supply or demand conditions.