Abstract:

This study aims to forecast the different features of price transmission and its target is to test the hypothesis of price transmission asymmetry from producer price of row milk to retail price of dairy products (i.e.butter, butter cream, cottage cheese, kefir, sour cream, yoghurt natural, yoghurt fruit, processed cheese and trapista cheese) in Hungary using monthly time series from January 2004 to August 2019. To capture  the short and long run  asymmetric  relationship  between  different market prices,  known  as  nonlinear  autoregressive  distributed  lags  (NARDL). NARDL model is applied to monthly price data to analyze vertical price transmission among farm and retail markets for a variety of dairy products in Hungary.  The bounds test of the NARDL specification suggests the presence of co integration among the variables. Furthermore, results confirm the presence of a positive magnitude of long-run price asymmetry for kefir of about 39%; for butter of 74%; for butter cream of 39%; for sour cream of 65% and for yoghurt natural of 41%. The positive long run price transmission asymmetry results of the present paper can be explained by the strength of market power of the Hungarian food retailer sector. The short run asymmetry of price transmission could be affected by some policy intervention such as the milk quotas.