The effect of the EU accession on the Hungarian beef market: a price transmission analysis
description
Transcript of The effect of the EU accession on the Hungarian beef market: a price transmission analysis
THE EFFECT OF THE EU ACCESSION ON THE HUNGARIAN BEEF MARKET: A PRICE TRANSMISSION ANALYSISSupervisor: Prof. Dr. José Maria Gil Roig
Presented by: Sándor Dembrovszki
OUTLINE OF THE PRESENTATION
1. Background2. Description of the sector3. Dataset4. Methodology5. Results6. Conclusion
BACKGROUND
The adjustment of price shocks along the food chain from producer to retail levels
Research questions:o Are the producer and retailer prices
cointegrated?o Are the changes in one market level perfectly
transmitted to the other level?o Have the EU accession triggered any significant
changes in the beef sector?o Which one is the dominant market level, which
price’s move the prices of the other market level in both short-and long run?
DESCRIPTION OF THE SECTOR
General facts:
Hungary is well endowed with high quality pasture and grazing landhigh quality extensive cattle breeding
Completely GMO free governmental regulation against GMO crop plantation
BSE free no recorded case of infected cattle born within the country
DESCRIPTION OF THE SECTOR – CATTLE STOCK
• Within 20 years the stock reduced by almost 50%
DESCRIPTION OF THE SECTOR – TRADE PATTERNS (LIVESTOCK)
Main export destination: TurkeyMain import destinations: France, Czech Republic, Romania
DESCRIPTION OF THE SECTOR – TRADE PATTERNS (BEEF)
Main export destinations: the Netherlands, AustriaMain import destination: Austria
DESCRIPTION OF THE SECTOR – CONSUMPTION HABITS
• Popp and Potori (2009) reveal that the barrier of quality beef consumption was the relatively low purchasing power
• The ratio of beef consumption from total meat consumption is around 5% while pork and poultry together count for almos 90%
DATASET
Secondary data from the Hungarian Central Statistical Office
Monthly prices from 2002 January until 2011 December
Farm gate prices (cattle for slaughter) and retail prices (sirloin) given in Hungarian Forint and are referring to one kilogram product
EVOLUTION OF SECTORAL PRICES
METHODOLOGY
Unit root test : Augmented Dickey-Fuller (1979) and DF-GLS test (1996)
Cointegration test: Johansen
Vector Error Correction Model
Impulse Response Function
VECTOR ERROR CORRECTION MODEL
Where: Δ indicates first differences; β is the parameter of the cointegration vector, ε is the error correction term. The α are all dynamic parameters where αp1 and αp2 indicating the speed of adjustment
RESULTS – UNIT ROOT
In level, both time series are non-stationary the null hypothesis can not be rejected, while in case of first difference both are stationary and integrated of order one I(1)
RESULTS - COINTEGRATION
• Both the Akaike information criterion and the Schwarz criterion suggest using 2 lags.
•Null hypothesis of there is no cointegration between the two time series can be rejected
•The series are cointegrated of order one
RESULTS - COINTEGRATION
• Normalized cointegration coefficients derived from Johansen test suggests that an increase (decrease) in retail prices on the order of 10 % will be followed by an increase (decrease) in producer prices by 2.04%.
• According to the beta value (-0.204) price changes are not perfectly transmitted and one can assume that the price transmission is assymetric
•Cointegrating parameters only allow to estimate the long-run relationship between prices while the Vector Error Correction Model assess both the short-and long-run dynamics of the series.
RESULTS – VECTOR ERROR CORRECTION MODEL
• The lagged error correction term ECTt-1 parameter is statistically significant in the retailer equation while it is not in the producer equation
• This implies that only retailer prices adjust to deviations from long-run parity, while producer prices are weakly exogenous. It means that producers have enough market power to influence retail prices and thus the price transmission is cost push driven.
RESULTS – STUDY MADE IN THIS FIELD
This result is compatible with the final conclusion of Fertő&Bakucs (2006)
The authors are focusing on the Hungarian beef market on the transition period
They also find that causality runs from producer to the retailer prices
In their case the price transmission was symmetric while in this thesis the results suggest that the transition is assymetric and the shocks are not perfectly transmitted between the two levels
CONCLUSION According to the Johansen cointegration test and the
VECM both in the short- and long-run the prices cointegrated and tend to move together over time
Given the beta value the price transmission is not perfect, price changes are not perfectly transmitted
The EU accession did not trigger any significant changes according to the price transmission analysis (beside the increasing amount of export and import volumes)
According to the analysis, in Hungary the producer prices move the retail prices over time, the information flows from farm to retail level.
Thank you for your attention!