Vertical price transmission along the diary supply chain in Russia

Abstract

Many studies have analysed vertical price transmission using time-series econometric methods but vertical price transmission in the milk market in Russia has not been investigated. This paper studies vertical price transmission along the whole milk supply chain in the Russian market using the autoregressive distributed lags model. Monthly farm-gate and retail prices in Voronezh Oblast, a historically large agrarian region located to the south of Moscow, covering the period from 2002 to 2014 were used in the analysis. When estimating the vertical price transmission in the dairy market, seasonality should be taken into account. Using a cointegration technique, no empirical evidence is found for cointegration between farm-gate and retail prices. There is unidirectional Granger causality from retail to farm prices and not vice versa. The results support the assumption that price changes are not transmitted efficiently from one level to another and support the view that Russian retailers have more market power than farmers.