Investigating price transmission in the Finnish dairy sector: an asymmetric NARDL approach

Abstract

The nonlinear ARDL model is applied to monthly price data to analyse vertical price transmission among farm and retail markets for a variety of dairy products in Finland. The results support the presence of long-run asymmetry for non-fat and low-fat milk as well as for blue and Emmental cheese; of short-run asymmetry for Edam cheese; and of short- and long-run asymmetry for processed and cottage cheese as well as yoghurt. Furthermore, results indicate the presence of a positive degree of long-run price asymmetry for non-fat milk of about 46%; for low-fat milk of 64%; for blue cheese of 5.2%; for Emmental cheese of 12.4%; for processed cheese of 11.6%; for cottage cheese of 9.9%; and for yoghurt of 8.9%. The positive long-run price transmission asymmetry findings of the present paper can be attributed to the strong market power of the Finnish food retailers, while short-run asymmetric price transmission can be caused, in addition to market power, by factors such as adjustment and menu costs, search costs, inventory management strategies and policy intervention via the milk quotas.