Statistical Analysis of Price Transmission in the European Union

The three‐step estimator of the co‐integrated system approach is used to examine the dynamic transmission of agricultural producer prices through the food marketing system in seven countries of the EU. The results suggest that even if producer and consumer prices drift apart in the short‐run, for example when producer price policy changes, market forces return them to their long‐run equilibrium. Tests do not reject the hypothesis of long‐run ‘perfect’ price transmission for two, pigmeat‐pigs and butter‐milk, out of five pairs of prices, in six of the seven member countries of the EU considered here, the UK being the exception. The tests do, however, reject the hypothesis of short‐run ‘perfect’ price transmission, even in its less restrictive form, across all pairs of prices in all countries.