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Destabilizing intervention in EU dairy markets

Author

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  • Olipra, Jakub

Abstract

Butter and skimmed milk powder (SMP) are considered to be primary dairy commodities as they enable storage of fat and protein. The spread between butter and SMP prices in the European Union (EU) has been stable for many years. However, in 2016, butter prices suddenly increased to reach extremely high levels while SMP prices remained low. As a consequence, the price spread between milk fat and protein has surged, leading to severe imbalance in the EU dairy market. Some professionals argue that the main reason for this occurrence are large intervention stocks of SMP accumulated by the European Commission (EC) which weigh on prices. Nevertheless, no one has yet proved the existence of a causal relationship between the intervention stocks accumulated by the EC and the butter/SMP price spread. Hence, the purpose of this paper is to test that hypothesis. The causality between the EC intervention stocks and the butter/SMP price spread was tested using the Granger causality approach. The results show that the difference between butter and SMP intervention stocks accumulated by the EC Granger-causes the butter/SMP price spread while there is no causality in the opposite direction, which supports the hypothesis tested.

Suggested Citation

  • Olipra, Jakub, 2020. "Destabilizing intervention in EU dairy markets," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 55(1), January.
    • Handle: RePEc:ags:pojard:356077
    DOI: 10.22004/ag.econ.356077
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