Embeddedness of Hungarian pig prices in the European pork market: a volatility spillover and partial wavelet coherence study

Compared to most of the agricultural commodity markets in the European Union (EU), the pig market is less regulated and EU pig prices can be regarded as free market prices. It is thus an ideal economic research opportunity to investigate agricultural market integration and spatial price transmission mechanisms in the EU in the different Member States (MS). Depending on the geographical location, the decoupling of production costs from prices paid to pig farmers can jeopardise the fragile market balance between producers and processors. To retrospectively identify price setting trends, this paper examines how price return trends in the Hungarian pig sector are reflected in dynamic Diebold–Yilmaz spillover indices between 2007 and 2021. The results show that Hungary was mostly a net spillover receiver throughout the investigated period. Pairwise comparison of price spillovers to and from other MSs indicated that the German pig market had the strongest effect on the price forecast error variance in the Hungarian market, but transient interaction with other MS markets was also detected. To obtain a detailed time domain representation of the multivariate relationship between different MS’s price returns, our method considers an improved partial wavelet coherence (pwc) approach, which – to our knowledge – has not yet been used for analysing agricultural commodity prices. It was concluded that despite similarities, the German price and the EU average price affected the Hungarian market at distinct time scales. Collectively, our results indicate that the Hungarian pig producer prices underwent markedly different market regimes in the last decade due to shifting patterns of intra-European spatial connectedness of pig markets, which shall provide a reference for future modelling studies.