Browsing by Author "Vatka, Ilari"

When Finland joined the European Union in 1995 the national agricultural policy was quickly replaced with Common Agricultural Policy (CAP). The new policy requires geographical integration amongst member states, including efficient transmission of the production costs. Due to Finland’s difficult geographical location, production costs are substantially higher in the country and farmers are depending on the direct payments provided by CAP which complicates the integration with the competitive production costs and prices within the European Union. Removal of the trade barriers, insufficiency in production and exporting of goods open the gate for import companies to enter the market with similar products and lower prices. The study has been conducted in cooperation Finland’s largest import company in the meat sector, PNM-Pan Nordic Meat Ltd. and examines the price dynamics between the purchase price of the imported goods and their end consumer price in Finland. Two categories of the meat sector are taken into consideration: cattle and poultry. The main purpose of this study is to examine whether the purchase price of the imported goods is affecting the general price levels for the end consumers. The relationship of these two prices is being examined through cointegration tests and the asymmetric error correction model. The study introduces the theoretical background of each tested approach, after which they are conducted with R-software that offers tools for time series econometrics. Previous studies show that beef prices in Finland are mostly shaped by the domestic consumption but are rather sensitive e to major shocks coming from outside of Finland. Poultry markets are steered off from being affected by changes outside of Finland due to heavily contracted production but can still be predicted based on the price development within the European Union. The results showed that, for both products, the time-series appear to be nonstationary on the level form and Johansen’s and Engle-Granger approaches both confirmed the cointegration between the prices. In the short term, beef prices seem to be evolving rather independently whereas the end consumer price of chicken is dependent on the purchase price. In the long term, the purchase price of beef was found to be exogenous and the end consumer price endogenous which implies that the purchase price is setting the end consumer price. Chicken prices rather revealed that, on the long-term, the end consumer price is exogenous and the purchase price, in turn, endogenous. However, the Granger causality test for chicken revealed that purchase price is Granger causing the end consumer price. Thus, based on the price information received from other EU countries, it is possible to predict the price levels in Finland. Yet the price development of these two products is still heavily constructed by the domestic demand and supply but we can see that the trend is following the changes happening outside Finland. It seems that even though the price levels in Finland are mainly the result of domestic factors, they are sensitive to changes within the European Union through the import markets.