Analyzing and Comparing the Spillover Effects of Exchange Rate Fluctuations on the Price of Protein Products in Urban and Rural Areas of Iran

Necessary access to protein products plays a very important role in ensuring the health and food security of the society. Therefore, due to the importance of food security, adequate, sufficient and cheap access to protein products has always been one of the main goals of agricultural development programs in Iran. The payment of various foreign currency and IRI rials subsidies in the field of market regulation, price control and periodical supervision are among the most important policies in supporting the consumption of protein products in Iran. Nevertheless, a review of long-term statistics shows that the per capita consumption of many protein products in Iran has decreased. Naturally, one of the most important reasons for people's lack of stable access to food and agricultural products, including protein products, should be sought in the repeated price fluctuations associated with these products. In such a way that, with the increase in the price of these products, it becomes difficult for the households to provide them with the desired and suitable products, and the level of welfare of the consumers is reduced. Exchange rate volatility is a problem that plays a significant role in the price fluctuations of food products in developing countries, especially countries where a significant part of their food supply is dependent on foreign countries. Therefore, in this study, the spillover analysis of exchange rate fluctuations on the price of protein products in urban and rural areas of Iran was analyzed. The occurrence of fluctuation or variance of conditional heteroskedasticity over time is one of the characteristics of the price in all types of financial markets. Fluctuation spillover also means that there may be a connection between fluctuations in different markets so that existing fluctuations can be transferred from one market to another. In conventional econometric models, it is assumed that the variance is a component of disturbance in the whole sample; but usually, many economic time series go through some periods with large fluctuations and periods with little changes. Therefore, under these conditions, the assumption of constant variance or homoscedasticity variance does not seem very logical. On the other hand, in many cases, predicting the conditional variance of a series of data will be of special importance. Therefore, the use of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models, especially the multivariate GARCH (MVGARCH) approach, has become common in this regard. Therefore, in this study, the MVGARCH approach and time series data from May 2002 to December 2021 by separate urban and rural areas were used for the desired analysis.  The study results showed that the occurrence of a shock in the currency market in any period would only lead to current fluctuations in the market of milk, cheese and eggs in urban areas and would not affect the current fluctuations in the markets of red and white meat and seafood in these areas; in addition, the fluctuation in the currency market in each period would significantly spill over to the protein products market in the cities in the next period. According to the results, the spillover of the fluctuation of the currency market to the protein products market in urban areas is more effective in the red and white meat market and the aquatic products market rather than the milk, cheese and eggs market. The results also showed that the volatility spillover among the three protein markets in urban areas is not significant. Regarding the rural areas, the results showed that the occurrence of a shock in the currency market, despite having an effect on the market fluctuations of the milk, cheese and eggs market and the seafood market, would not have a significant effect on the price fluctuations of the red and white meat market; in addition, the occurrence of a shock in the currency market, despite having an effect on the fluctuations of milk, cheese and eggs market and seafood market, would not have a significant effect on the price fluctuations of the red and white meat market; also, among the three protein markets, the red and white meat market is not affected by the fluctuations of the currency market. In addition, the results showed that unlike the urban areas, in the rural areas, the spillover fluctuation among the triple markets of protein products would mainly occur in an indirect direction. The analysis of the study results showed that the shock and fluctuation of the exchange rate to a large extent would spill over into the markets of protein products in the urban and rural areas; however, there would be differences between the markets and their susceptibility to volatility and currency shocks, among which the difference in the effectiveness of red and white meat from exchange rate fluctuation could be mentioned, which would not happen in the rural areas, unlike the urban areas, where exchange rate fluctuation overflows. Another difference is that there is no spillover between the protein product markets in the cities, while in rural areas, the fluctuations are indirect and reversed. Therefore, it is inferred that if any factor, including exchange rate fluctuations, causes price fluctuations in one of the protein product markets, this fluctuation does not accumulate in the urban areas between markets. At the same time, in the rural areas, the intensity of fluctuations between markets is reduced to a great extent. In justifying these differences, it can be said that mainly in the cities, the management policies of the protein products market are done by controlling the price and monitoring the market, spending a lot of money and energy, while in the villages, the relative abundance of the supply of products, on the one hand, and the limited income of the rural residents, on another hand, prevent the price fluctuations to some extent. Therefore, as a recommendation, the study emphasized the relative adjustment of policies, shifting from consumer protection policies towards producer protection policies aiming at increasing the supply and regulating the price of protein products.