PR - Price Transmission From Market To Farm Gate: An Irish Dairy Study

This paper explores the vertical transmission between the farm gate price of raw milk in Ireland and World, EU and Irish Dairy Board (IDB) butter and SMP wholesale prices. While a priori it may appear reasonable to assume transmission from individual commodities prices to the farm gate price, the co-integration analysis undertaken here fails to support this hypothesis. This finding results from the fact that Irish farmers are paid for their milk on the basis of the combination of its milk fat and protein content. In contrast the individual commodity prices reflect a value for milk fat in isolation as derived from butter prices or protein in isolation as derived from SMP prices. However by considering a portfolio approach involving composite prices based on a combination of butter and SMP prices, a more accurate reflection of price transmission is presented. This extension shows that price transmission is clearly evident between the composite price series and the farm gate price.