Biodiesel and vegetable oil market in European Union: some evidences from threshold cointegration analysis

In this paper we analyse the long-run relationships between vegetable oils prices and conventional diesel price in EU during the period 2005- 2007. We utilise recent developments on threshold cointegration approach to investigate if asymmetric dynamic adjusting processes exist among rapeseed oil, sunflower oil, soybean oil and diesel prices. The results suggest that the two-regime threshold cointegration model exist only in favour of rapeseed oil-diesel price pair. Therefore, this vegetable oil price adjusts rapidly to its long run equilibrium, determined by fossil diesel prices, in an asymmetric manner when the divergence between the two prices is above a critical threshold. Consequently, rapeseed oil seems to be particularly exposed to exogenous shocks deriving from global political scenarios, suggesting to redefine the high quota (80%) of EU biodiesel produced by this vegetable oil through a sustainable development of international trade