Structural breaks, cointegration and the farm-retail price spread for lamb

This paper examines the farm—retail price spread for lamb from monthly UK data for 1979–1993. Using cointegration, it examines seasonal patterns in producer and retail prices and seeks to identify a long-run relationship between them. Results show that a long-run relationship exists, and that the direction of Granger-causality is from retail to producer prices. Lamb prices are therefore set in the retail market. Results also show that there is a structural break in the relationship in January 1990 when the price increases; this coincides exactly with a change in policy.