An investigation into the price transmission between producers and retailers within the UK milk market

The main aim of this article is to investigate the price transmission of milk between the producers and the retailers within the UK to understand the influence of large retailers on the market. In recent times smaller dairy farms have been forced to close down because they believe that prices are not being conveyed from retailers to producers. The research interlinks well established econometric tests, which are frequently used within vertical price transmission research to gain an understanding of the transmission from producer to retailer. These are unit root tests, cointegration tests and causality test. The main findings were that there is a unidirectional transmission of milk prices in the UK between producers and retailers. The Granger causality test shows that causality runs from the retailer to the producer and but not from the producer to the retailer. There was a significant break in 1994, which is when the MMB disbanded and has provided a new research gap. The direction of causality means that when producers are losing out to large retailers. The ECM results indicate that the prices are slow in recovering to a new equilibrium after a shock has occurred. Research specifically on the UK milk market is limited and therefore this research is a basis for future studies, which will help policy makers when moving forward post brexit