Market Integration of Poultry Products in Northwest of Iran Jafar Haghighat1 and Babak Abdolahi2* Abstract Although poultry growth have not been much older than a few decades in their industrial form worldwide, they have been able to play an important role to provide the necessary amount of protein in society. Market integration of poultry products has caused an optimized allocation of sources and an increase of efficiency as well as farmers' income by means of caring about price fluctuations. According to the importance of market integration of poultry products, in the present study the following data have been used; Chicken product with weekly prices over the period of 1999-2010 for provinces like Eastern Azerbaijan, Western Azerbaijan, Ardebil and Tehran, egg product with weekly prices over the period of 2006-10 for provinces like Eastern Azerbaijan, Western Azerbaijan and Ardebil. In order to achieve the goals of research, "Johansen" method have been used. The results of the research reveal market integration in chicken and egg products market. The law of one price is only true about egg product. In chicken market no providence are weak exogenous and in egg product market Eastern Azerbaijan is weak exogenous. According to the results, executing various policies in markets of each province for chicken product will only be transferred to other provinces in long term. Keywords: Johansen Method, Market Integration, Northwest of Iran, Poultry Products 1 Department of Agricultural Economics, Collage of Agriculture, Tabriz University, Tabriz, Islamic Republic of Iran. e-mail: [email protected], telephone number: +98 9144171908 2 Department of Agricultural Economics, Collage of Agriculture, Tabriz University, Tabriz, Islamic Republic of Iran. e-mail: [email protected], telephone number: +98 9354510903 Corresponding author 1 Introduction Since agricultural products are voluminous, corruptible and their production and consumption places are separated, spatial markets are considered important for such products. In fact agricultural products’ market is a market in which producers and consumers are not related directly, so such spatial distribution leads to price difference in different areas. Based on Theories, this price difference equals to caring expense only while factors like poor informing, products garbage and lack of transport equipment cause a significant difference in a product’s price in different areas (Rostamian, 2009). One of features agricultural products own is the state of being voluminous and corruptible considering the fact that production and consumption places are widely separated (Zanias, 1999). Another feature of agricultural product is their price fluctuations. Price stability is very important in developing or developed economics. However, it is unlikely to stabilize price of agricultural products and it is involved with price policies. Price fluctuations in agricultural products are due to a number of factors as follows: Seasonal changes (because of climate changes), cyclic changes (because of pause between decision to produce and production by producers), trend changes (because of climate situation, technical changes, demanders’ population and taste change) and unexpectable changes (natural disasters). That’s why, the relation between spatial distributions of prices means effectiveness of price changes from one place to another which happens constantly. The existence of integration in agricultural products’ market provides the opportunity of stable development in such products. Achieving the following goals seems to be possible in case of markets’ stability: A) Increase of Production and agricultural income Generally increase of risk leads to decrease of activities. The fact is more important in Iran’s agriculture because of low risk – taking tendency. Regional fluctuations of price are expected to be much more than fluctuations of the same product’s price in a country. Price fluctuations in dependent markets would be less than independent markets especially if the mentioned relation were influenced by one another. In addition risk of price would decrease, which leads to producers’ better decision and investment increase. These consequences would cause producers’ income increase. B) Improving policy in agricultural affairs In general, an agricultural policy is successful when there is enough information about the position of production, market and marketing (Aboonoori and Mojaverian, 2002). The present study provides valuable information about marketing balance of agricultural products 2 and the necessity of governments’ interfering or not interfering in marketing would be revealed. Checking the integration of agricultural products’ market has always been under researchers’ consideration. Several researches have been done about various products For instance, Mojaverian and Amjadi (1997). The mentioned researchers have studied the integration of market and law of one price in rice market of 5 cities in Iran. They have used monthly data’s of price index of rice retail price for five cities; Rasht, Tehran, Isfahan, Mashad and Tabriz. Ravallinon model has been used in order to achieve the goals of study. The results reveal that none of the markets are independent and there is no short run urgent relation among markets and the existence of a long run relation has also been proved among 13 pairs of markets out of 20 pairs. Nanang (2000), in a research called "A multivariate cointegration test of the law of one price for Canadian soft wood lumber market", studied the integration and the law of one price in Lumber market by means of seasonal data’s collected from 5 local markets of Atlantic, Quebec, Ontario, Prairies and British Columbia in the period of 1981–1997 Data’s used in this research are seasonal sale price index of Lumber in these regions. Results of ADF stationary test show that all series are stationary in the first difference and stationary test was done despite intercept and lack of time trend as well as seasonal dummy variables. The existence of only one convergence vector among series was proved by means of Johnson test and λmax and trace statistics which reveals integration of this product’s market in these regions. For the law of one price in the two regions, Likelihood Ratio test was used which was rejected in all cases of price equality between two regions. Peng and Marchant (2003) studied the spatial integration of price among local markets of beef in China. In order to achieve the goal, they considered monthly prices of beef in the period of 1998-2002 and studied price relation among markets in 13 provinces of China. They used Engel – Granger cointegration method and Error correction model to check market integration of beef. Results show that there are long run relations for most regional markets of beef in China and the existence of short run relation was rejected based on Error correction model. Akbarzadeh (2006) has studied the integration of rice market in two provinces Gilan and Tehran. He has used monthly price index of rice retail price for two types of rice, type one and two in 1997–98 as well as Granger causality method to state market integration. The results demonstrate that the integration is suitable for market integration and there is a long run relation between Tehran and Gilan market, besides rice prices in Gilan are influenced by those in Tehran. Falsafian and Zibaei (2006) have studied market integration and the law of 3 one price in cattle and sheep market collected from five provinces as follows: Eastern Azerbaijan – Khorasan, Khuzestan – Kerman and Khorasan – Isfahan. The results reveal that the mentioned markets are integrated for cattle while the law of one price is not true for any of them and also all mentioned markets are integrated for sheep except Khuzestan – Kerman and the law of one price is not for any of the markets. Shah Vali and Bakhshoodeh (2006), studied integration of main fisheries markets in three important regions. In the research, time series statistics of wholesale prices of fish and shrimp have been used in 1987-2002 and Engel – Granger test has been also used for long run relation among markets and the amount of connections among markets was studied by means of MCI. The findings demonstrated that in spite of long run connection among markets, there is no dependence among them in short run. MCI amounts show that the connection between north and south market is less than the connection between north and Shiraz market. Rostamian (2009) has studied the integration of fish market in seven provinces. He has used monthly data’s of retail price index since the first month of spring 2005 till the end of spring 2007. In order to achieve goals of the research Engel – Granger method, Error Correction and Johansen have been used. The results demonstrate that 9 pairs of markets are integrated out of 21 pairs; also among seven time series price, there are only two convergences vectors and the average balance speed ratio for studied markets equals to -0.37. Method During the 1980s, economists discovered the fact that economic time series were not stationary. In other words usual statistical methods like linear regression are unvalid about non stationary data’s and leads to disappointment or unreliability of methods (Asche et al, 2004). There are two major views for market integration test: Engel and Granger test (1987) and Johansen test (1991). The former test is a two variable method which only studies relations between two series of price. That’s