Browsing by Subject "dairy sector"

Tiivistelmä – Referat – Abstract The dairy sector in Finland and the EU has experienced several important shocks during the past decade, causing increased instability and dramatic price movements. It has put pressure on different market participants as well as on policy makers while simultaneously driving a growing interest for price transmission studies. However, gaps in the research field persists and this study addresses this void by focusing on the characteristic of Finnish raw milk prices and their relation to the prices of key trading partners, including Sweden, Denmark, Estonia, Germany and France. Considering descriptive statistics and graphical representations, the assumption that Finnish milk prices exhibit relative independence seems plausible. This seemingly independent behavior challenges theoretical foundations related to market equilibrium while prompting questions about market efficiency Employing econometric time series analysis, this study covers the 2013-2023 timeframe and pursues two main objectives: identifying a potential long-run cointegration relationship and studying short-run impacts of other countries' milk prices on Finnish prices. The Engle-Granger two-step framework is used for the cointegration analysis, confirming the hypothesis that Finnish milk prices operate autonomously, lacking a long-run equilibrium with other EU countries. Although some previous papers suggests that milk prices in the EU generally seem interconnected, Finland has not been the focus of such studies. The finding of this paper aligns with literature suggesting weaker cointegration in dairy markets compared to other agricultural sectors in the EU. The paper discusses potential explanations, considering structural characteristics of the dairy sector, dairy trade features, and broader market inefficiencies influencing price transmission. However, additional research is warranted to comprehend practical implications, particularly concerning market efficiency and the competitive status of participants in the domestic dairy sector. Short-run influences are modeled by applying a dynamic ordinary least squares regression with lagged price variables. The outcomes reveal rather unexpected results, with main trading partners such as Sweden, Denmark, and Germany, exerting no significant influence on Finnish prices. In contrast, France and Estonia seem to exhibit considerable influence on Finnish milk prices. Caution is advised in interpreting the short-run impacts, addressing the possible shortcomings of such regression for example regarding potential arbitrariness in the indications of the model. Ultimately, the results of this study point at some general implications, suggesting that price transmission is not solely a consequence of physical trade, and that the intricate characteristics of the dairy sector clearly challenge the direct application of economic theories like the law of one price to agricultural commodities. The need for a nuanced understanding of price dynamics in the dairy market is underscored as an important element of policy and market efficiency considerations.