Abstract
This paper addresses the assessment of the price transmission of dairy products in Hungary. Monthly prices are used in testing the hypothesis of asymmetric price transmission between farmers and retailers. The magnitude of short- and long-run asymmetric transmission between price levels is measured through a nonlinear autoregressive distributed model (NARDL). The cointegration of variables is validated through bounds test of the NARDL model. The estimated NARDL model proves the existence of long- and short-run asymmetric relationships between producer milk price and most retailer dairy product prices. Furthermore, the model confirms the presence of a significantly positive long-run price asymmetry for butter, buttercream, sour cream, and Trappista cheese. The positive long-run price transmission asymmetry results could be explained by the strong market power of milk processors, which are granted through their concentrations and the absence of competitiveness in the market. The short-run asymmetry of price transmission could be explained by implementing some policy interventions, such as the milk quotas, which limit milk production. Analyzing the asymmetric relationship between the producer milk price and the retailer dairy product prices could give a clear vision of the dairy sector and how prices move between market actors, highlighting the retailers’ purchasing power feature, and its role in determining the market price interaction.
Highlights
The Hungarian milk sector enjoys an important position, compared with other neighboring countries in the European Union (EU) area
Raw milk and milk product prices were measured by Hungarian forint (HUF)/kg.The words between parentheses designate the prices of dairy products, which are displayed in the paper below
The existence of a long-run asymmetric relationship between raw milk and all examined dairy product prices is confirmed, except for in processed cheese and fruit yogurt, which means that a response of the exogenous variables, milk products, from a positive shock of raw milk price is different from the negative shock
Summary
The Hungarian milk sector enjoys an important position, compared with other neighboring countries in the European Union (EU) area. The magnitude and the quickness that price variations follow during their transmission, from one level of commodity supply chain to the other level, could entail an important policy for the general welfare and dynamic of markets, which describes the market power and consumer search costs [2]. The demand and supply elasticity, as well as the demand curve, frame the magnitude of price change transmission [3].The agro-food supply chain, such as in the dairy sector, is always one of the main subjects which should be examined. The importance of different actors of the supply chain lies in the feeding population and in both its social and economic aspects. Food prices have witnessed many fluctuations; these shifts are the main concern of considerable research, and create the investigation of price transmission along the food supply chain
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