Abstract
The dairy sector in the European Union (EU) has experienced policy changes and market shocks recently. Using the global vector autoregressive (GVAR) model, this paper explores regional market integration, the feedback between market shocks and price dynamics, and the link between EU’s cheese export markets and energy market. This paper assesses and compares which influencing factors are typically associated with intra-EU and extra-EU cheese export price movement with regards to shocks to crude oil price, farm-gate raw milk price, and consumer price index (CPI) for food and cheese production of six representative EU member states, respectively. Using generalized impulse response functions, this paper finds that EU’s internal cheese export market is not well integrated, while EU’s external market is well integrated, with France as an exception. It also finds that the external cheese export market is vulnerable to shocks from the energy market compared to the internal market. Raw milk prices from the upstream supply chain have strong spill-over effects on EU’s internal cheese export market, yet their impact on extra-EU cheese export prices is relatively less significant. The movement patterns of extra-EU cheese export prices of Ireland and the UK show similar patterns in the long run. It is concluded that the dynamics of cheese export prices in the internal and external markets of the EU are different under market shocks.
Highlights
European Union (EU) dairy policy is subject to the Common Agricultural Policy (CAP) and one of the most important objectives of the CAP is to facilitate agricultural market integration within individual member states as well as at EU level by reinforcing price discovery mechanisms
Tests, the intra-EU export price series of France and cheese production index series for all countries except the Netherlands are stationary, while all other series included in this model do not reject the null hypothesis of non-stationarity and are stationary at the first difference level, they are I (1)
The transmission mechanism of intra-EU cheese export prices implies weak contagion effects in the EU internal market, yet the degree of contagion effects is determined by the trade relationships between member states, which means that the internal market of EU cheese is not well integrated
Summary
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. European Union (EU) dairy policy is subject to the Common Agricultural Policy (CAP) and one of the most important objectives of the CAP is to facilitate agricultural market integration within individual member states as well as at EU level by reinforcing price discovery mechanisms. The EU is heterogeneous, with 28 member states of different economies, industry structures, and trade patterns before 2020. Article 2 of the Lisbon Treaty states the common ideal of the EU member states is to progress by cooperation, :
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