Price linkages in the international skim milk powder market: empirical evidence from nonparametric and time‐varying copulas

The objective of this article is to assess the integration of the international skim milk powder (SMP) market. This is pursued using monthly data over 2001 to 2014 from the three principal SMP‐producing regions (the EU, the USA and Oceania) and nonparametric kernel‐based and time‐varying copulas. The empirical results point to a strong and an increasing degree of overall price co‐movement and to statistically significant probabilities for joint price crashes and booms. While the EU and Oceania have been the regions with the highest degree of integration, the USA has been catching up with them.     

The Value of Dairy Quota under a Commercial Export Milk Program

This paper argues that under a commercial export milk program, the market value of quota will be determined by the spread between the domestic market price and the export price, rather than the conventional wisdom that it is determined by the spread between the domestic milk price and the marginal cost of production. Under this new economy, it is argued that ultimately the market price of dairy quota will be priced independently of firm marginal costs, which implies that low-cost (or high-margin) producers will not hold an economic advantage in bidding for quota over higher-cost producers. Regression results are consistent with the hypothesized positive relationship between quota values and the difference between domestic and export milk price. The average export price has generally increased over time and is approximately equal to the marginal cost for an average producer. The results have implications for a World Trade Organization (WTO) challenge. New Zealand and the United States feel the domestic program acts as an export subsidy by cross-subsidizing production of commercial export milk. The results here suggest that the prices for the filled export contracts are approximately the marginal cost of production for the average producer and not lower, as suggested by the challenge. Export contracts were found to have higher price risk than domestically produced milk. The risk is compounded by the short-term nature of most export contracts. The increase in risk for the commercial export milk program (CEM) implies that it is unlikely many farmers will greatly diversify into CEM contracts unless the uncertainty is reduced.     

产业链视角下乳制品价格溢出效应研究——基于VAR-BEKK-GARCH(1,1)模型

奶业产业链是乳制品价格形成的基础,从产业链着手有助于发现乳制品价格溢出效应的本质特征。本文选取牛奶、酸奶、婴幼儿奶粉、老年奶粉作为乳制品的代表,基于2010年5月至2018年5月乳制品产业链月度价格数据,使用VAR-BEKK-GARCH(1,1)模型分析乳制品产业链各环节间的价格溢出效应。研究发现:婴幼儿奶粉产业链上、中、下游价格间存在显著的单向均值溢出效应,而牛奶、酸奶、老年奶粉产业链的中游对上游、下游对中游价格存在显著的单向均值溢出效应;牛奶、酸奶、婴幼儿奶粉、老年奶粉产业链各环节价格在自身和彼此间具有显著双向波动溢出效应,但从显著性水平来看,牛奶产业链和婴幼儿奶粉产业链各环节间的双向波动溢出效应最为明显。     

Markups,organic agriculture and downstream concentration at the example of European dairy farmers

A competitive environment, highly concentrated processing and retailing sectors as well as increasing decoupling of direct payments from production volumes and the area under cultivation incentivizes farmers to find alternative ways to improve their bargaining position towards downstream companies. This article explores the possibilities of organic agriculture to enhance the bargaining power of farmers along with the role of concentration in downstream industries. Using a dataset with more than 200,000 observations from approximately 40,000 dairy farms, I estimate markups of price over marginal cost in dairy farming as a measure of market power in the EU. The results show that organic farmers achieve a significant markup premium over conventional farmers. With increasing market shares of organic milk in total milk production markups of conventional farmers diminish whereas those of organic farmers are unaffected. Farm-level markups decrease with increasing market shares of medium-sized dairy processors and increase with increasing market shares of large processors. The presence of large multinational retail chains shows an adverse impact on farmers’ markups.     

Black Sea and World Wheat Market Price Integration Analysis

In 2008–10, Russia and Ukraine together exported an average of 29 million tons of wheat per year, and have become important players in the international wheat market. This research summarizes the short‐ and long‐run wheat price dynamics between Ukraine and Russia, and other major wheat exporters—the United States, European Union (EU), and Canada—from 2004 to 2010. Tests of market price co‐integration (Johansen maximum likelihood test and residual‐based tests) as well as threshold error correction techniques were performed for this purpose. The results suggest that Russian wheat prices were co‐integrated with EU and U.S. wheat prices but not with Canadian wheat prices. Ukrainian wheat prices were found to be co‐integrated with French wheat prices only. The estimated long‐run wheat price transmission elasticities were estimated to be equal to 1.04 between Russian and French (a representative country of the EU) wheat prices, 1.16 between Russian and U.S. wheat prices, and 1.05 between Ukrainian and French wheat prices. We also found the short‐term relationships between the co‐integrated series to be statistically significant. Price adjustments in all co‐integrated prices were found to be symmetric.     

POPULATION DYNAMICS AND MILK SUPPLY RESPONSE IN THE US LAKE STATES

This paper develops a dynamic model of a dairy cow population and of milk supply response. When applied to the US Lake States, the model provides evidence against the Nerlovian model. It suggests that the pattern of dynamic effects of prices on cow numbers varies for different prices. The estimated dynamic supply elasticities provide some useful information on the nature of dairy production adjustments. For example, the response of milk supply to market prices is found to be very inelastic in the short run. It takes at least 7 years of sustained change to obtain an elastic response to milk price. Also, feed price and slaughter cow price are found to have smaller effects on dairy supply than milk price, but larger effects than risk, hay price or capital cost.     

Tracing the evolution of the aggregate U.S. milk supply elasticity using a herd dynamics model

The U.S. dairy sector is characterized by increasing volatility of milk prices, and consolidation in production as evidenced by declining number of dairy farms with an increasingly larger share of milk supplied from a small number of very large farms. Using aggregate national data, we build a mixed‐frequency herd dynamics econometric model of the U.S. milk supply that updates and substantially amends the model first proposed by Chavas and Klemme. We implement a dynamic residual‐based bootstrap technique that can be used in testing for changes in nonmarginal simulated long‐run supply responsiveness, and trace the evolution of long‐run milk supply elasticity from 1975 through 2010. Several papers in the past have suggested that long‐run supply elasticity increases with dairy farm size, which implies that increased importance of large farms would increase aggregate long‐run supply responsiveness. Contrary to this conclusion, we find a declining trend in long‐run supply elasticity from 1975 through 2005. Persistence of such a decline would be a major cause for worry, as ever larger price swings would be needed to equilibrate the market in face of demand shocks. However, we find that milk supply is becoming more responsive since 2005 both to milk and feed price changes. Increasing responsiveness to feed prices further justifies focusing the next generation of the dairy policy instruments on managing dairy profit margins rather than just revenue streams.     

On the market risk of securitized timberlands

Over 10 million acres of timberlands in the United States have been securitized through Real Estate Investment Trusts (REITs) in recent years. Publicly traded timber REITs have better liquidity and tax efficiency than private ownership, but at the same time, they are exposed to higher market risk as public firms. In this study, copula modeling is employed to assess the joint distribution between daily returns of five timber REITs and a stock market index. Both constant and time-varying symmetrized Joe-Clayton copulas are estimated to evaluate the dependence of timber REITs on the equity market from 1994 to 2010. In most cases, there exist lower tail dependence for market stresses, upper tail dependence for market booms, and tail asymmetry between individual firms and the market. On average, the dependence measure becomes larger after a firm is converted into a REIT. Each firm has smaller volatility of tail dependence after the conversion, except for Plum Creek. These findings reveal that the REIT structure has introduced non-diversifiable market risk into its ownership, and thus the diversification benefit of publicly traded timber REITs in a portfolio may be limited.     

Policy Reform in the European Union Dairy Sector: Effects on Markets and Welfare

This paper analyzes the impacts of policy reforms in the EU dairy sector. It is shown that the imple-mentation of GATT agreements leads to a 4% decrease in the milk price. Prices of SMP and WMP decrease more than butter and cheese prices. EU welfare increases marginally, but distributive effects are large. The increase in quotas decided by the Berlin Agreement will cause a dramatic cut in the milk price (?10% to ?15% depending on how EU demand will increase in the future). Moreover, because of the constraints on subsidized exports, the implicit price of protein will decrease much more than the price of fat. Finally, if demand expands sufficiently, then compensatory payments (including national envelopes) will cover about 90% of the loss in producer surplus due to the milk price cut. We also inves-tigate the impact of a two-tiered quota system and show that its impacts are similar to those generated by the implementation of GATT agreements. On étudie les effets de différents scénarios de réforme de la politique laitiére européenne. La mise en oeuvre des accords du GATT implique une réduction du prix du lait de 4%. De plus, les baisses de prix des produits transformés sont plus importantes pour les poudres de lait que pour le beurre ou le fro-mage. L'impact des accords sur le bien-ětre est positif mais faible. Par contre les effets redistributifs sont importants. L'augmentation des quotas décidée lors de l'accord de Berlin entra?nera une baisse importante du prix du lait européen, de l'ordre de 10 %à 15 % selon l'évolution de la consommation intérieure. En raison des contraintes d'exportations qui portent principalement sur les produits pro-téiques, le prix implicite de la protéine de lait diminue beaucoup plus que le prix implicite de la matiére grasse laitiére. Par ailleurs, on montre que si la demande européenne s'accro?t suffisamment, les paiements compensatoires prévus couvriront environ 90 % des pertes de revenus des producteurs liées à la baisse du prix du lait. Enfin, on montre que les effets d'un scénario de double prix double quota sont proches de ceux provoqués par la mise en application des accords du GATT.     

Comovement of dairy product futures and firm value: returns and volatility

This study investigates the exposure of dairy firm stock prices to the prices of dairy product futures, in terms of returns and volatility, from May 2013 to April 2018. Stock price returns are regressed against an index of the futures price returns to four dairy products – milk, cheese, butter and dry whey – to isolate the effects of the dairy futures price returns. Dairy product futures price returns are found to be significant in the regression in the first three years of the sample period, with a mean coefficient of ?0.024. Using the Diebold‐Yilmaz volatility spillover method of forecast error variance decomposition, we show that the volatility of the four dairy product futures accounted for an average of 5.49 per cent of the volatility of dairy stock prices. These results suggest that the prices of dairy firms have minimal exposure to dairy product futures prices. This has implications for dairy firms and investors, who seek to understand volatility and returns in the dairy products and the stocks they trade in, and for policymakers, who seek to control or mitigate undesirable dairy product price volatility.     

Estimating the Degree of Market Integration

Existing tests of spatial market integration are commonly based on statistical criteria without an explicit link to an economic model of price determination. This article proposes new measures of market integration defined directly in terms of a well-known spatial price determination model and develops an econometric methodology for estimating these measures. Due to the intractability of the conditional density function of prices, we use indirect inference to estimate the model parameters and market integration measures. The methodology is illustrated with simulated data and is applied to soybean price data for the United States, Brazil, and the EU.     

基于钻石模型的奶粉国际竞争力分析

随着经济社会发展,近年来我国乳品加工业取得较快发展,其中奶粉生产、消费均呈现出更快增长态势。但是,在奶粉贸易市场上,我国进口奶粉却逐渐扩大,出口奶粉处于低位。针对奶粉净进口量呈扩大趋势的热点问题,运用奶粉国际市场占率、贸易竞争指数及竞争优势指数进行测算,结果发现中国奶粉与新西兰、欧盟等世界主要奶业强国在国际竞争上存在较大的差距,且近年来竞争力有继续下降的趋势。新西兰在奶粉竞争力处于一家独大的优势,无论是国际市场占有率、贸易竞争指数及显示性竞争优势指数,均处于领先地位。法国、德国、澳大利亚等国在国际上还保有一定的竞争地位,但由于市场份额被新西兰等国挤占,近年来有逐步下滑态势。面对这一严峻形势,运用波特的钻石竞争理论,从资源因素、需求条件、辅助产业、企业战略及政策带来的机遇、挑战等方面进行比较,对中国奶粉不具有国际竞争力进行原因分析。总的来看,中国奶粉需求增长潜力大,但限于资源紧缺,奶源生产增长压力大,国外奶粉生产国生产成本明显低于国内,奶粉面临国际市场的竞争力较大。最后,提出挖掘奶源生产潜力,根据区域不同资源禀赋,找出适合的养殖模式,充分利用资源,提高生产效率;要重新建立消费信心,通过奶业品牌的建立与质量安全监管,增强消费信心;还要充分利用好"两个市场与两种资源",鼓励奶粉加工企业走出去引进来,从交流合作中提升自身竞争力;同时,要尊重市场规律,把握贸易政策调控等力度;最终实现提高我国奶粉的国际竞争力目的,让中国人的奶瓶子掌握在中国人自己手里。     

Melitz Meets Milk: The Impact of Quota Abolition on EU Dairy Export Competitiveness

Previous studies of EU milk quota abolition usually assume perfect competition (PC) in the dairy industry, despite evidence to the contrary. We use a global computable general equilibrium framework with an imperfectly competitive (IC) model variant, which offers insights into structural change (i.e. scale of output, firm entry/exit) and varietal diversity in the dairy industry. A heterogeneous‐firm Melitz extension enriches our analysis by endogenising the decision‐making process of domestic firms when exporting (or not) to specific foreign markets. The results from a PC CGE model variant are found to be consistent with respected market outlooks and official data. Furthermore, PC and IC variants generate broadly similar trends – a result corroborated in a previous study of Italian dairy firms. Our IC model prediction of a ‘shakeout’ among EU dairy firms is tentatively supported by actual observations. Finally, as an industry characterised by significant product innovation, increased extra‐EU export orientation by remaining dairy firms increases varietal choice, which further boosts EU dairy exports compared with the PC model variant.     

Linkages between Regulated and Unregulated Markets: the Case of Milk Supply in Kenya

Linkages between the regulated and unregulated dairy markets in Kenya were examined using an econometric model of the fluid milk intake for eight processing plants. Counter-intuitive results were obtained: an increase in the regulated price was significant in decreasing intake in the regulated market, indicating that a price increase in the regulated market also increased price and quantity supplied in the unregulated market. Lagged rainfall was a proxy for available feed and was highly significant in explaining milk intake in the regulated market.     

Abolition of Raw Milk Quota in the European Union: A CGE Analysis at the Member Country Level

This paper discusses a generic approach to implementing production quotas in an applied general equilibrium framework. The quota rent is interpreted as additional primary factor payments. We analyse the abolition of the raw milk quota and the elimination of export subsidies for dairy products in the European Union at a member country level. The raw milk output increases in Denmark, Ireland, Italy, Luxembourg, the Netherlands and Spain, while it declines in Germany, Greece, Portugal and Sweden. The EU‐wide effect for raw milk production is an output increase of 3% and a price decline of 22%. To assess the robustness of the critical assumption about the raw milk quota rent we apply Arndt and Pearson's Systematic Sensitivity Analysis.     

Importance of Standardizing Raw Milk Quality for the Enhancement of Croatian Market Competitiveness

In the European Union member states (EU), it is necessary to evaluate hygienic condition of milk in order to determine milk price. Similar requirement was set by the Republic of Croatia in 2000. The Rulebook defines minimal quality criteria that fresh raw milk must have in order to be purchased. Upon completion of analysis, milk is classified into quality classes, each having a defined price. Increased value of somatic cell count (higher than 400,000/ml) and micro ogranism (MO; higher than 100,000/ml) directly decreases the raw milk price, whereas higher content of fat and protein causes its increase. Since the system of market milk price formation was established, producers have been stimulated to produce milk of higher quality: in a total of milk being purchased, the highest quality milk share increased from 23.3% to 34.2%. Referring to a trend of milk purchase price reduction in the EU, and considering the current high milk purchase price in Croatia, Croatian producers have an opportunity to improve conditions in milk industry before the country joins the EU. Current milk production needs to be increased and milk quality also needs to be improved in order to make Croatian milk production more competitive on the European and world market.     

The Impact of the Berlin Accord and European Enlargement on Dairy Markets

Journal paper No. J-18684 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa, Project No. 3566, and supported by Hatch Act and State of Iowa funds. Using a world agricultural model, we analyze the impact on dairy markets of the Berlin Accord on the European Union (EU) Common Agricultural Policy (CAP) Reforms. We also investigate the consequences of enlargement of the EU to include the Czech Republic, Hungary and Poland for the same markets. We produce a market outlook up to 2010 for these two scenarios. The Berlin Accord induces lower EU milk and dairy prices. A change in relative prices between cheese and butter-skim milk powder (SMP) occurs after 2005 and induces an expansion of cheese production, consumption and exports at the expense of the butter–SMP sector. Accession of the three central and eastern European countries (CEECs) leads to a permanent but moderate decrease in EU prices of milk and dairy products. For the three acceding CEECs, domestic prices increase dramatically. Their final consumption of milk decreases and dairy product consumption drops considerably. The derived demand of milk in dairy production increases, however, because of the higher prices for dairy products, benefiting dairy producers in these CEECs. Dairy exports of the three acceding countries to the EU–15 increase by one to three orders of magnitude, despite building large inventories. The impact of accession on world markets is small. À l'aide d'un modèle agricole à l'échelle mondiale, nous analysons l'impact des accords de Berlin sur la réforme de la Politique agricole commune (PAC) de l'Union Européenne, en ce qui touche les marchés laitiers. Nous examinons aussi les conséquences éventuelles de l'élargissement de l'Union Européenne à la République Tchèque, à la Hongrie et à la Pologne. Ces deux scénarios nous ont servi de base d‘élaboration de perspectives du marché jusqu'en 2010. Les accords de Berlin déclenchent une hausse duprix du lait et desproduits laitiers dans l'UE. Selon nos prédictions, on assiste après 2005 à un changement du prix relatif du fromage par rapport à celui de la poudre de lait écremé (PLE). II s‘ensuit une expansion de la production et de la consommation et des exportations defromage aux dépens du segment de la PLE. L'entrée des trois pays de l'Europe, du centre et de l'est (PECE) conduit à une baisse permanente, encore que modeste, des prix du lait et des produits laitiers dans l'UE. Chez les trois nouveaux arrivés, les prix intérieurs grimpent de façon spectaculaire, ce qui entraîne une chute de la consommation du lait particulièrement de celle des produits laitiers transformés. En revanche, la demande de lait industriel augmente à cause des prix plus élevés des produits dérivés, ce qui profite aux producteurs laitiers des trois pays. Les exportations laitières de ces pays augmentent de 1 à 3 ordres de grandeur, ce qui n'empèche pas la constitution de stocks importants. L'impact de l'accession sur leur marchés mondiaux devrait être de peu d'importance.     

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

Given the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.     

CAP Reform in the Dairy Sector: Remove Export Subsidies and Retain Milk Quota

CAP Reform in the Dairy Sector: Remove Export Subsidies and Retain Milk Quota The reforms of the Common Agricultural Policy of June 2003 introduced major policy changes, In the dairy sector the aim is to decrease price distortions between the EU and world dairy markets through successive reductions in milk intervention prices. However, the milk quota system is still in place and successive increases in milk quotas are planned. The question is whether these dairy reforms are going in the right direction given the three main characteristics of the EU dairy sector. First the price inelasticity of both milk supply (due to quota) and domestic demand means that price distortion mainly affects the distribution of economic surplus between consumers and producers but does not generate significant net losses in economic welfare. Second, the ‘large country’ position of the EU on the world market means that the EU should remove all export subsidies, which will reduce EU exports and increase world prices. Third, the projected increase in EU aggregate demand for milk favours a reduction in all subsidies. The CAP is going in the right direction in the dairy sector. But to reduce price distortions all subsidies should be removed as soon as possible and the milk production quota should be retained. La réforme de la PAC laitiére: supprimer les subventions aux exportations et conserver les quotas La réforme de la PAC en juin 2003 est un changement majeur. En ce qui concerne le secteur laitier, l'idée consiste à diminuer les distorsions entre les prix européens et ceux du marché mondial par une série de réductions progressives du prix d'intervention. En même temps, le système des quotas reste en place et des accroissements progressifs sont envisageés pour les droits à produire. La question. est alors de savoir si une telle politique est bien orientée, compte tenu des trois caractéristiques principales du secteur laitier européen. En premier lieu, la faible élasticité-prix aussi bien de l'offre (à cause des quotas) que de la demande, implique que les distorsions, si elies affectent la répartition des bénéfices entre producteurs et consommateurs, ne génèrent pas de très grandes pertes sociales au niveau du bien-être global. Ensuite, l'importance de l'Union européenne sur les marchés mondiaux implique que l'UE doive réduire ses subventions à l'exportation, ce qui diminuera le volume des exportations et en fera remonter le prix, Enfin, l'accroissement prévisible de la demande globale européenne en produits laitiers devrait conduire G une réduction des subventions de toute sorte. La PAC est done sur la bonne voie en matière laitière. Mais pour réduire les distorsions, il faut le plus vite possible supprimer les subventions et conserver les quotas laitiers. Reform der GAP im Milchsektor: Abschaffung der Exportsubventionen und Beibehaltung der Milchquoten Die Reform der Gemeinsamen Agrarpolitik vom Juni 2003 führt zu erheblichen Politikänderungen. Im Milchsektor ist das Ziel, die Preisverzerrungen zwischen der EU und den Weltmärkten für Milchprodukte durch eine sukzessive Reduzierung der Milchinterventionspreise zu verringern. Das Milchquotensystem bleibt jedoch weiter bestehen und sukzessive Erhöhungen der Milchquoten sind geplant. Es ergibt sich die Frage, ob die Reform bei den vorhandenen drei Charakteristika im EU Milchsektor in die richtige Richtung geht. Erstens bedeuten das gegebene preisunelastische Angebot von Milch (wegen der Quotierung) und die Nachfrage im Inland, dass die Preisverzerrung sich vomehmlich auf die Verteilung der ökonomischen Rente zwischen Konsumenten und Produzenten auswirkt, nicht aber zu bedeutenden Wohlfahrtsverlusten führt. Zweitens fuhrt die Abschaffung aller Exporterstattungen für Milch und Milchprodukte dazu, dass die EU Exporte sinken und damit wegen der EU als relative großes Land die Weltmarktpreise für Milch steigen werden. Drittens begünstigt die vorausgesagte Zunahme in der aggregierten Milchnachfrage in der EU eine Reduzierung aller Subventionen. Die GAP entwickelt sich im Milchsektor in die richtige Richtung. Es sollten aber alle Subventionen so schnell wie möglich abgebaut und die Milchquote sollte aufrechterhalten werden, um Preisverzerrungen zu reduzieren.     

Droughts and farms’ financial performance: a farm‐level study in New Zealand

We quantify the impacts of droughts in New Zealand on the profitability of dairy, sheep and beef farms using a comprehensive administrative database of all farms in New Zealand. For dairy farms, we found that drought events have positive impacts on dairy farms’ revenue and profit in the year of the drought. This effect is most likely attributable to drought‐induced increases in the export price of milk solids, as New Zealand is the market maker in this global market and almost all domestic dairy production is exported. All of these quantified impacts, however, are not very large, suggesting that, at this point in time, droughts have a fairly moderate impact on New Zealand dairy and sheep–beef businesses.