Price transmission on the Slovak dairy market

There are problems in the functioning of the food supply chain related to price transmission and value-added distribution. Vertical price transmission analysis is an important research area in the aspect of the assessment of impact on the welfare at the producer, processor and retailer levels. The paper investigates vertical price transmission along the whole milk supply chain after the end of European Union milk quotas in the Slovak market using a vector error correction model. Monthly farm-gate, processor and retail prices in the Slovak Republic covering the period from 2010 to 2016 were used in the analysis. Using the Johansen co-integration technique, empirical evidence has been found for two co-integration equations between farm-gate, processor and retail prices. We show that short-term and long-term bilateral causal relationships exist between prices at different market stages. The estimation of the price transmission elasticity supports the assumption that price changes are not transmitted efficiently from one level to another. However, symmetric price transmission exists between farm-gate and processor prices for whole milk in the long term. The perfect price transmission may also be due to recently emerging and strengthening the producer organisations that enable producers support their bargaining position in the supply chain.