Seasonal and cyclical behaviour of farm gate milk prices
Abstract
Purpose
The purpose of this paper is to analyze how the German, Irish and average EU farm gate milk prices have changed after the common agricultural policy (CAP) reform in 2003. In addition the dynamics of these prices are compared to a US farm gate price.
Design/methodology/approach
These milk price time series are divided into two time periods, pre and post the CAP 2003 reform, and decomposed into their trend, seasonal and cyclical components. For the decomposition a state space model is used following the approach of Harvey (1989).
Findings
The results show that the dynamics of the EU, German and Irish series converged after the CAP 2003 reform were implemented and that a three-year cycle is underlying the European milk prices which is comparable with the cycle length of the US milk price. In addition it is shown that most of the observed price variation in recent times is attributed to the cyclical component.
Research limitations/implications
The division of the milk price time series into periods pre and post the CAP 2003 reform is somewhat subjective because not all measures were immediately applied after the reform. It is also possible that other factors may have contributed to the changed dynamics which have been observed. In addition this leads to a short data sample.
Practical implications
The results show that policy makers should consider counter cyclical policy measures given the importance of the cyclical component. Also most models used to evaluate policies do not account for cycles which may lead to wrong conclusions. In addition farmer should be aware of the cyclical nature of milk prices as they budget and plan for the future.
Originality/value
No previous decomposition studies of European milk prices exist.
Keywords
Acknowledgements
The authors are grateful to Charles Nicholson and two anonymous referees for comments on an early version of the paper. Declan O’Connor gratefully acknowledges the support received through the Stimulus Fund of the Irish Department of Agriculture and Food for this research.
Citation
Bergmann, D., O’Connor, D. and Thümmel, A. (2015), "Seasonal and cyclical behaviour of farm gate milk prices", British Food Journal, Vol. 117 No. 12, pp. 2899-2913. https://doi.org/10.1108/BFJ-08-2014-0294
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited