EN    EN EN 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 28.10.2009 
SEC(2009) 1450 
COMMISSION STAFF WORKING DOCUMENT 
Analysis of price transmission along the food supply chain in the EU  
 
Accompanying document to the 
 
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMI TTEE OF THE REGIONS 
 
A better functioning food supply chain in Europe 
  
{COM(2009) 591 final} 
EN 2   EN TABLE OF CONTENTS 
1. Introduction................................................................................................................ .. 3 
2. Price transmission along the food supply chain........................................................... 3 
2.1. Theoretical background................................................................................................ 3 2.1.1. Definitions/background................................................................................................ 4 2.1.2. Key determinants of price transmission....................................................................... 5 
2.1.3. Recent evidence from research and studies ................................................................. 8 2.2. Price development and transmi ssion along the food supply chain .............................. 9 
2.2.1. Prices evolution along the food supply chain .............................................................. 9 2.2.2. Price transmission along the food supply chain......................................................... 15 
2.2.3. Conclusion.............................................................................................................. .... 20 
3. Empirical investigation for specific s ectors within the food supply chain ................ 21 
3.1.1. Empirical evidence from the milk suppl y chain in some EU member States............ 22 
3.1.2. Empirical evidence from the pork supply chain in some EU member States............ 43 
4. Conclusions................................................................................................................ 5 4 
5. References.................................................................................................................. 58 
6. Annexes..................................................................................................................... . 60 
EN 3   EN COMMISSION STAFF WORKING DOCUMENT 
 
Analysis of price transm ission along the food supply chain in the EU 
1. INTRODUCTION  
Agricultural prices have displayed extreme fl uctuations over the last two years: reaching 
exceptional levels in the second half of 2007 and the first months of 2008, before falling 
sharply in the wake of the economic crisis. Whereas the commodity price surge generated a 
rapid and strong increase in food consumer  prices, the subsequent pronounced fall in 
agricultural prices only triggere d a slight decline in the consum er price of most food products 
to date. 
The magnitude, the delay and asymmetry in th e adjustment of food prices – which are 
particularly marked in some Member States  – have raised serious concerns about the 
functioning of the EU food suppl y chain and the distribution of value-added between primary 
producers, food processors, wholesalers and retailers. Ensuring the effectiveness and 
efficiency of the food supply chai n is crucial to raise its comp etitiveness at the benefits of 
both consumers, with lower prices, and stak eholders of the chain, with a sustainable 
distribution of value added. It is also essential in order to ensure  that the various actors of the 
economy fully benefit from agricultural policy reform towards more market orientation. 
This document aims at analysing the price transmission mechanism in the EU food supply 
chain, based on specific investigations of the pork  and dairy sectors in certain Member States 
and with a specific focus on the extent to wh ich the changes in commodity prices were 
transmitted to food consumer prices. It compleme nts the work undertaken in the framework of 
the roadmap set up in the December 2008 Communication on "Food Prices in Europe", COM(2008) 821 and informs the conclusions laid  out in this year Communication on "A 
better functioning food supply ch ain in Europe", COM(2009) 591. 
Section 2 of the staff working document sets th e framework of the overall analysis of price 
transmission along the food supply chain by pr oviding an overview of the main concepts, 
recent evidence from research as well as the de velopments in agricultural and food prices at 
aggregated European-level. Then, the empiri cal assessment of the pass-through of price 
developments along the dairy and po rk supply chain in a selected set of countries is given in 
section 3. The main findings and conclusions drawn from these empirical analyses are 
summarised in Section 4, with all the necessary caution given the diversity and complexity of 
the food chain across Member Stat es and agri-food sectors, as we ll as the limited availability 
of reliable data on prices and margins along the chain. 
2. P
RICE TRANSMISSION ALONG THE FOOD SUPPLY CHAIN  
2.1. Theoretical background 
The assessment of price transmission along the f ood supply chain, i.e. how much and how fast 
price changes are passed through between the different  stages of the chain, is often used as an 
EN 4   EN indicator of the effectiveness and efficiency of the chain as well as of the degree of 
competition in food processing and distribution. 
The adjustment of the food supply chain to price changes is an important characteristic of the 
functioning of markets as it reflects the nature, structure and organisation of the chain. 
Measuring the degree of vertical price transmi ssion thus helps to identify potential market 
failures. However investigating the price format ion mechanism in the food chain is a complex 
exercise, mostly due to the lack of comprehens ive and reliable data on prices, mark-ups as 
well as on the costs structures at each step of the chain. 
In this section we briefly introduce the main con cepts and definitions rela ted to the analysis of 
price transmission and summarise the main factors that influence the extent, the timing and 
the potential asymmetry of  price adjustments along the supply chain.  
2.1.1.  Definitions/background 
The food supply chain is complex and heterogene ous, exhibiting a wide diversity of products, 
enterprises and markets. It basically connects three main economic sectors: the agricultural 
sector, the food processing indus try and the distribution sector s (wholesale tr ade and retail 
trade). These sectors are linked th rough transactions carr ied out at specific prices between the 
various agents of the chain, e.g. farmers, food  processors, wholesalers, retailers and final 
consumers. 
Price formation in the food supply chain depends on several factors: the intrinsic specificities 
of the product (e.g. storability, perishable natu re, seasonality), the market structure (e.g. 
intensity of competition at each step of the chai n, number of intermediaries in the chain) as 
well as the existing public policies. The assessme nt of price transmission typically aims at 
addressing the following issues:  
– the magnitude of the price adjustment, i.e. how much of the price change at one step 
of the food supply chain is tran smitted to the downwards step; 
– the speed of the price adjustment, i.e. the pa ce at which changes in prices at one level 
of the supply chain are transmitted to the other levels (e.g. are price changes 
transmitted instantaneously or distributed over time?); 
– the asymmetry of the price adjustment, i. e. to what extent price increases and 
decreases are transmitted differently in  terms of magnitude and speed (e.g. are 
increases in input prices transmitted more quickly than decreases in input prices?). 
The analysis of the magnitude, speed and de gree of asymmetry can thus contribute to 
identifying potential market malfunctioning and price stickiness in the food supply chain, i.e. 
the absence or the lo w level of price tran smission along the chain. 
However, it requires relevant and reliable price data. While prices for raw agricultural 
products are in general available and accurate, the situation is more problem atic at the level of 
the food processors and retailers , hampering any complete measur ement of the degree of price 
transmission. Moreover, data on prices at th e wholesale level are virtually non-existing, 
leading to aggregate the impact of the distri bution sector into the sole consumer price 
indicator. It is thus not possibl e to distinguish between the eff ects of the wholes ale and retail 
sector in price transmission analysis. 
EN 5   EN 2.1.2.  Key determinants of price transmission 
Perfect transmission of price movements al ong the food supply chai n would imply that 
changes in prices at a given level of the chain would be fully and instantaneously transmitted 
to the other stages.  
Furthermore, even if the changes in the pric e for the raw agricultural materials are fully 
passed on to consumers, primary agricultural pr oducer, food producer and retail prices will 
show different percentage changes (other factor s being equal) as the co st of raw agricultural 
products represent only a share in the total costs of the final consumer food product. 
Complete and immediate short-ru n price transmission is in fact difficult to find in the real 
world. Yet, it does not n ecessarily always mean that there is market malfunctioning. Recent 
research has identified the most important fact ors that play a role in the degree of price 
transmission. These are addre ssed below in this section. 
2.1.2.1.  The cost structure of food production 
The structure of the food supply chain and the range of food products available to consumers 
have changed dramatically over the last decades  in the European Union. These developments 
have mainly been linked to the sustained rise  in living standards, demographic and social 
trends (e.g. women activities, ur banisation and modern lifestyle),  technological and structural 
changes in the production, transpor t, storage and distribution of  agricultural and food products 
(which in turn allowed a considerable reduc tion in the cost of food production). Dietary 
patterns in the EU shifted consider ably towards more processed food1. 
As a consequence, the structure of the producti on cost changed significantly. Nowadays, the 
costs of food products paid by final consumers are more influenced by costs of labour, energy 
and marketing than by the costs of the raw ag ricultural products. It is estimated that on 
average over the whole food chain, the cost of the agricultural products only make up 
approximately 20% of the final consumer prices2. The other cost components relate to the 
complementary goods and services which are added during the increasing complex 
processing, logistics and marketing stages (e.g.  energy, labour, capital). The importance of 
these costs which do not exhibit such pronounced  short- and medium-term fluctuations as 
prevalent for agricultural goods, vary wi dely across product chains and countries. 
The graph below illustrates the various stages of the chain in the da iry sector in Spain.  
                                                 
1 McCullough, Pingali and Stamoulis (2008). 
2 http://ec.europa.eu/economy_finance/publications/publication_summary15232_en.htm 
EN 6   EN Figure 1:  Value Chain in milk production 
 
Dairy farm 
Cooperative 
Management Transports  
Centre of 
gathering  
Imports of raw 
material  Manufacturing  
Marketing 
Management 
industry  Transports of 
final product  
Imports of final 
product Platform 
Intermediate 
Store  
Transport to 
shop 
 Shop 
Foodservice Consumer 
 Milk 
Production in 
Farms Collection  
 
and 
 
 Transport  Milk   
    Processing Distribution  
and  
Logistics  Distribution Consumption 
 
2.1.2.2.  The competitive structure of the chain 
The food chain is characterised by a wide diversity of market st ructures, with varying degrees 
of horizontal concentration a nd/or vertical integration3, and a large diversity of economic 
actors from independent SMEs to multinational enterprises. This diversity occurs both at 
product and Member State levels and can contribut e to explain the differe nt degree of price 
transmission between sectors a nd countries. Research tends to show that the presence of a 
non-competitive market structure and the exercise of market power are often perceived as the 
main potential cause of imperfect price transm ission. For example, oligopoly and oligopsony 
market situation can cause price distor tions and lags in price adjustments4. However, recent 
research5 argues that imperfect price transmissi on may not automatically imply uncompetitive 
environment and market power. 
Imbalances in bargaining power within the supply chain can also affect the degree and speed 
of price transmission. Imbalances in bargaining  power occur when more powerful enterprises 
are able to impose contractual arrangements on their suppliers/customers, either through 
better prices or through other contractual conditions. An enterp rise with strong bargaining 
power in the chain will thus have the opportunity  to diminish or delay the transmission of 
changes in input prices. 
Consolidation has been taking place throughout the food supply  chain in the EU, though at 
differing pace across product categori es and sectors, with  direct implications  on the degree of 
                                                 
3 A vertical coordination is possible through contract between producers and purchasers. Contracts are 
usually an agreement on price, quality, quantity and/ or time of delivery. The contact permits to share 
risk, benefit and cost. The vertical integration influences both the degree and asymmetry of price 
transmission, but the influence differs between s ectors and stages of the food supply chain. 
4 Wohlgenant, 1985; Schroeter and Azzam, 1991; Goodwin and Holt, 1999; Vavra and Goodwin, 2005; 
von Cramon-Taubadel, 1998; and Meyer and von Cramon-Taubadel, 2004. 
5 Peltzman, 2000 McCorriston et al., 20 01; Weldegebriel (2004); Azzam 1999. 
EN 7   EN bargaining power held by indi vidual enterprises. However, the existence of strong 
concentration at one level may be counterbalan ced by countervailing market power at another 
level of the chain (e.g. through the presence of  a monopolistic seller or similar statutory and 
non statutory price determination mechanisms). Retailers' bargaining power has increased 
significantly in recent decades6, especially in their relations with SMES – e.g. in the case of 
producers of food identified with the supermarkets own label. 
The agricultural sector, whic h is more fragmented, less or ganised with non-differentiated 
products, is often perceived as facing an unbalan ced bargaining power vis-à-vis the rest of the 
chain (although the development of groups in th e production and/or marketing of agricultural 
products has in some sectors improved this situation).  
2.1.2.3.  Other factors 
Several other factors have been  identified theoretically or em pirically that can explain why 
prices changes (e.g. at farm level), are not always fully and quickly transmitted along the 
chain most notably in the short run (e.g. at retail level) and e xhibit some asymmetry, even in a 
competitive environment. They mainly relate to  adjustment constraints and costs such as: 
– Menu costs and price levelling practices , i.e. agents prefer to absorb some of the 
upstream changes in order to minimise the costs associated with frequent changes in retail 
prices (e.g. advertising, labelling), consumer disr uptions (for certain pr oducts such as fresh 
products, consumers are more sensitive to price changes than to price levels) and 
uncertainty over whether the source of the exogenous shock is permanent. This is 
particularly the case when change s are linked to temporary phenomenon7; 
– Perishable nature of some food products : economic agents may not increase prices to 
avoid the risk of being left w ith spoiled products (Ward, 2008); 
– Internalisation of price variation : in case of increasing i nput prices, economic agents 
may decide to keep output at constant price: e.g. when there are fore seeable price variation, 
a price average could be used (like for seasonal products), to fulfil a long-term contract 
(even if there are often clauses for price adaptati on), to keep or increase their market share 
with reduced margins; 
– The number of vertical stages along the chain , linked either to processing, moving or 
marketing, may induce some lags in price transmission and adjustment; 
– Spatial location and dispersion of the food chain : low and asymmetric price 
transmission may occur in cases where retail ers face low competition regarding alternative 
shop outlets at local level. One the other hand, producers remain constrained by the 
purchasers' ability to source from the next cl osest market. This may play a key role for 
important and concentrated retailers which organise their purchas ing operations at EU 
level; 
                                                 
6 Harvey (2007). 
7 When price changes originate from short-term weathe r conditions (e.g. fruits and vegetables), there is 
often little time to achieve full price restoration before  the onset of another price change. The fact that 
prices are not fully restored may thus partly explain the continuing value divergence of some 
agricultural prices. 
EN 8   EN – Inventory management : stock behaviour by retailers may create lags in reducing prices. 
Likewise, t he choice of accounting method such as FIFO (f irst in first out) or LIFO (last in 
first out) could cause a delay in price transmission due to the stock of products. If the 
method is different between agents or change s it is possible to observe an asymmetric 
adjustments to price shocks; 
– Imperfect information with regards to price changes . Firms have imperfect knowledge 
of the current state of the price and value a dded distribution in the food supply chain. They 
gain information by observing the prices set by others. This gives each firm an incentive to 
set its price shortly after other firms set theirs . Yet, the risk of la unching a price war may 
make firms more reluctant to lower pri ces in case of downw ards price change; 
– Public intervention to support producer prices and/or control supply  could also cause 
asymmetry in price transmission as agents ma y anticipate government intervention in case 
of sharp price drops or may face stronger competition to access supply8. 
2.1.3.  Recent evidence from research and studies 
A substantial amount of research and studies has recently been carried out on the assessment 
of price transmission in the EU food supply chain9. Although most research tends to show that 
imperfect and asymmetric price transmission is linked to market imperfections, concentration 
and agent's pricing policies, th e empirical evidence and the theo retical underpinnings of these 
findings remain often mixed and vary widely across markets and countries. 
Most empirical studies find litt le evidence of systematic impe rfect price adjustments along the 
EU food chain, although this may happen in th e short run in some specific sector/country 
situation. Furthermore, it seems that th ere is no consensus on the explanations for 
asymmetries in farm-retail price transmission. 
Empirical analyses carried out in Denmark (J ensen and Møller, 2009) suggest that for most 
commodities, price transmission tends to be upward asymmetric, i.e. stronger impact of 
upward than downward price changes. Most asym metries in price transmission occur in the 
retail stage. Furthermore, most  asymmetries in price transmissi on take place in the short run, 
whereas price transmission is symmetric in the long run in most of cases. Another 
investigation in Denmark (Danish Competition Authority, 2009) also showed changes in 
margins along the supply chain over the most recen t years, mainly to the benefit of processors 
(notably in the dairy sector). A study of th e milk supply chain in Belgium (SPF Economie, 
2008) concluded that differences in pricing on th e short term are not to be necessarily linked 
to any anomaly and no irregularities could be  found at the level of price formation at any 
stage of the chain. Similar conclusions were  drawn by the French Price Observatory 
(FranceAgriMer, 2009) which could not find reasons  for significant concerns in terms of price 
transmission and distribution of margins w ithin the dairy and pig meat supply chain. 
                                                 
8 Gardner, 1975; Serra and Goodwin (2003); Kinnucan and Forker (1987) 
9 Secrétariat d'état chargé de la prospective, de l'évaluation des politiques publiques et du développement 
de l'économie numérique (2008); London Eco nomics (2004), SPF Economie, P.M.E., Classes 
moyennes et Energie (2008), Comité Economique, Soci al et Environnemental, (2009); Jensen and 
Møller, (2009), DairyCo (2009), Da nish Competition Authority (2009). 
EN 9   EN As a result, caution is deemed necessary in drawing firm and far-reaching policy conclusions 
from these findings. These analyses point to th e need for further research, most notably to 
improve the knowledge and understanding of the underlying economic behaviour of the 
agents along the chain10, as well as the measurement of price transmission (with regards to 
both data and statistical techniques). 
2.2. Price development and transmission along the food supply chain 
The section provides an overvie w of the aggregated price de velopments along the food supply 
chain11, i.e. the agricultural sector (commodity price, farm-gate price), the food industry (food 
producer price, factory-gate price) and th e retail industry (food consumer price). An 
econometric analysis of the transmission mechanis m of these prices between each step of the 
chain is then given. The recent period of pric e decline in the European food supply chain 
enables to provide a more complete view of price transmission, since it can be analysed for both upwards and downwards trends.  
2.2.1.  Prices evolution along the food supply chain 
2.2.1.1.  Long-term price evolution with in the food supply chain in the EU (over more than 5 
years) 
Comparing the respective evolution of price indices in sectors al ong the chain is insightful for 
the identification of the main potential issues affecting the sector. Figure 2 compares the evolution of price i ndices along the chain since 2000 in the EU27. 
Three major observations can be derived from Figure 2 concerning price evolution in nominal 
terms within the food supply chain:  
– Agricultural prices are volatile : over the time period considered, agricultural 
commodity price index has experienced thr ee 2-year cycles of price increase and 
price decrease with significant magnitude – the maximum price in the cycle being 
~20% higher than the minimum price. The current cycle, starting in 2006 and 
peaking in 2008Q1, shows the highest price variations (+30% in  increase phase, -
15% in decrease phase to date ) and might not yet be over. 
– Food producer and consumer prices have stable inflation rates : over the same 
period, variations in produ cer and consumer prices have  been much smoother. Food 
producer prices have increased steadily at a ~2% yearly inflation rate between 2000 
and 2007. Food consumer prices have increas ed at a higher pace at 2.7% per year, 
alongside overall infla tion in Europe (~2.6%)
12. 
                                                 
10 The price transmission mechanism along the food supply chain is becoming increasingly blurred by the 
increasingly complex pricing behaviour of retailers based on products cross-subsidisation. 
11 For the agricultural sector, price evolution is m easured by the average agri cultural commodity price 
index and excludes VAT; for the food industry, by the producer price index of food and beverage 
producers (NACE15) and excludes VAT; for the distribution sector, by harmonised consumer price index for food and beverage products (COICOP CP011) and includes VAT. 
12 On a longer term basis (last 30 years) food prices  have decreased in real terms. Since 2000, food 
consumer prices increased faster than inflation only in 2001-2002 and 2006-2007. 
EN 10   EN Figure 2: Long-term prices evolution within the food supply chain, EU27 
Q1 2000- Q1 2009; Quarterly price indices (nominal); 2000Q1=100
* Agricultural commodity price index has been extrapolated for 2009Q1 based on price levels of major commodities
Source: EUROSTAT; AGRIVIEWS90100110120130140
2000Q01
2000Q03 2001Q01
2001Q03
2002Q01 2002Q03
2003Q012003Q03 2004Q01
2004Q032005Q01 2005Q03
2006Q012006Q03
2007Q01
2007Q032008Q01
2008Q03
2009Q01Overall inflationFood consumer prices
Agricultural commodity 
prices*
Food producer prices
 
– The pattern in price evolution has changed since 2007 : the unusually sharp and 
long increase in prices of agricultural commodity products has led to a doubling of 
inflation rates for food produ cer and food consumer prices  since 2007. Moreover, the 
sharp decline in commodity prices si nce 2008Q1 has conducted to an unprecedented 
decline in food producer prices from 2008Q3 on. Consumer prices however have 
kept on increasing until Q1 2009 when they have started to stabilise and slowly 
decline – see Section 2.2.1.2. 
Figure 3: Comparative developments in  EU agricultural market, retail food 
consumer price indices in nomina l terms (Jan1997-August2009, Jan1997=100) 
60708090100110120130140150160170180190
1997/01
1997/061997/111998/041998/091999/021999/071999/122000/05
2000/10
2001/032001/082002/012002/062002/112003/042003/09
2004/02
2004/072004/12
2005/05
2005/102006/032006/082007/012007/062007/112008/042008/09
2009/02
2009/07Soft wheat, ex-wholesale
Consumer price retail food
Slaughter pig, free-slaughterhouseRaw milk, ex-farm gate
 
EN 11   EN Moreover agricultural prices have been decl ining both in nominal and real terms : The 
strong gains in total factor produc tivity of the farm sector allowed an important expansion of 
the volume of production which outpaced the sl ow development of an inelastic demand for 
agricultural and food products. This generated a regular and steep declin e in real prices, which 
was then reinforced in some sectors by the gradual shift from 1993 onwards from market 
price support to direct income suppo rt in the Common Agricultural Policy. 
One of the major features of price transmi ssion along the food supply chain is the apparent 
stability of producer and consum er price changes compared to the volatility of prices of 
agricultural inputs.  Agricultural prices and f ood prices exhibit diverging trends. While food 
prices principally showed relativ ely continued increase, agricultu ral producer prices exhibited 
more pronounced seasonal and medium-term fluc tuations and tended to decrease in the long 
run, widening the gap between agricultural an d food prices. The food and retail industries 
have played a role in smoothing agricultural pr ice variations for consumers – food consumer 
prices are historically much mo re linked to overall inflation than to commodity prices. The 
stickiness of consumer prices since 2007 and the change in transmission pattern 2007 are 
nonetheless striking and demand further analysis. 
2.2.1.2.  Recent price evolution in the food s upply chain in the EU (since 2007) 
Price developments within the food supply ch ain since 2007 are presented in Figure 4. It 
highlights both the sharp increase experienced in commodity prices in the EU27 between May 
2007 and February 2008 (increase by 16%) and the stickiness of food consumer prices. The 
latter have increased until February 2009 (incre ase by 9%) and then stabilised until May 2009, 
showing higher increase than ove rall inflation in the EU over the period. They have in turn 
started to decline from May 2009 on, by 2% as of July 2009. 
Figure 4: Short-term price evolution within the food supply chain, EU27  
January 2007-July 2009; Monthly price indices (nominal); 2007M01=100
* Quarterly data for agricultural commodity price index; from January 2009, the index has been extrapolated based on 
price levels of major commodities available in Agriviews database
Source: EUROSTAT; AGRIVIEWS95100105110115120
2007M01
2007M02
2007M03 2007M04
2007M052007M06
2007M07
2007M08
2007M09
2007M10 2007M11
2007M122008M01
2008M02
2008M03
2008M04
2008M05 2008M06
2008M07 2008M08
2008M092008M10
2008M11
2008M12 2009M01
2009M02 2009M03
2009M042009M05
2009M06
2009M07Overall inflation 
(HICP)Agricultural 
Commodity Prices*FOOD PRICE CRISIS
Food Producer Prices
Food Consumer PricesPRODUCERS’ LAG RETAILERS’ LAG STABILISATION
 
Four main phases of price evolution can be identified in the considered period: 
EN 12   EN • Food price crisis (May 2007-February 2008) : agricultural commodity prices sharply 
increase by 16% in 10 months; consequently, food producer and consumer prices increase 
by respectively 9% and 5%  in the same period. 
• Producers’ lag (March 2008-August 2008) : commodity prices star t declining (-5% in 6 
months) but producer prices and consumer prices  continue to increase in the period, albeit 
at a lower pace of 2%. 
• Retailers’ lag (September 2008-February 2009) : commodity prices continue their sharp 
decline (-10%, with a stabilisation from Janua ry 2009) and producer prices start declining 
by 4%). However, food consumer prices are stil l on the rise in the pe riod and only appear 
to stabilise from March 2009 on and begin to decline in May 2009. 
• Stabilisation (February 2009-July 2009): prices in the chain stabilise and consumer 
prices start to decline in May 2009. 
The magnitudes of price changes are de tailed in the following Table 1.  
Table 1: Magnitude of price variations in the EU27 food supply chain, between 
May 2007 and July 2009 
Price evolution
Phase Begin date End dateAgricultural 
commodityFood    
Producer Food 
consumer Overall prices
Food crisis May 2007 February 2008 16% 9% 5% 2%
Producers' lag February 2008 August 2008 -5% 2% 2% 2%
Retailers' lag August 2008 February 2009 -11%* -3% 2% 0%
Stabilisation February 2009 July 2009 n.a. 0% -1% 1%
* Evolution of agricultural commodity price index based on extrapolated agricultural commodity price levels 
 
The analysis from price variat ions since 2007 enables to iden tify several trends in price 
transmission mechanisms along th e chain. First, variations in producer and consumer prices 
appear to be of a lesser magn itude than variations of commodity prices. Second, significant 
time lags (~6 months from agriculture to food producers, ~6 months from producers to 
retailers) occur along the chain in transmitting price changes downwards – the transmission 
upwards appears to be instantane ous. Last, food consumer prices  present signs of stickiness, 
having only very marginally decreased wherea s all prices upwards in the chain have 
experienced significant declines. 
2.2.1.3.  Differences in price evolution across Member States 
The pattern of prices evoluti on within the food supply chain in  the EU27 has been pervasive 
across a very large majority of Member States . They all have experienced steady increase in 
agricultural commodity prices, l eading to an increase in food producer and consumer prices. 
Most countries have also experienced significa nt lags in food producer and consumer prices 
decline after the very sharp decrease in ag ricultural commodity prices. However, some 
Member States have shown specific price evolut ions, with some experiencing continued price 
increases all along the supply chain since 2007 (MT, RO) or others experiencing delayed 
EN 13   EN decrease in agricultural prices (FI, IT) or even declini ng food producer and consumer prices 
while agricultural commodity prices were  still on the rise (CZ, PT, SK). 
If food price evolutions  patterns have overall been simila r across the EU, the magnitudes of 
price variations, as well as th e duration of the differe nt periods of producers' and retailers' 
lags, have vastly differed across Member Stat es. Figure 5 presents the respective maximum 
food consumer price increases and decreases13 between January 2007 and May 2009 in the 
EU Member States. The maximum food consumer price increase measures the intensity of the 
food crisis in each Member State. However, th e timing of the crisis has differed by Member 
State, and in some the maximum food consumer price increase will have  occur in 6 months 
while in other in only 3. The maximum food consumer price d ecrease provides indications if 
food prices have decreased in  a given Member State.  
Figure 5: Variation of food consumer pr ices by Member States during the food 
crisis (January 2007-May 2009)  
Maximum nominal food consumer price increase and decrease 
between January 2007 and May 2009; %
Source: EUROSTATEU15
New Member States
EU27
MAXIMUM PRICE INCREASE
MAXIMUM PRICE DECREASE
-10%-5%0%5%10%15%20%25%30%35%
PT DE FR IT LU NL ES BE IE EU AT DK SK GR SE CZ FI PL CY RO SI UK EE MT HU LT BG LV
 
Strong discrepancies exist across Member Stat es both for food consumer  price increases and 
decreases. Maximum consumer price increases ra nge from 6% in PT to  33% in LV. Eighteen 
Member States have experienced higher consumer price increases than the EU average of 10%. Differences have occurred as well in c onsumer price decreases,  ranging from 0% (food 
prices haven’t started decreasing in 3 Member States as of May 2009 – IT, PL, HU) to -5% in 
SK.  
The increase in food consumer prices has been more acute in new Member States in nominal 
terms. This confirms the results presented in  last year Communicatio n on "Food prices in 
                                                
 
13 The maximum price increase is the difference in % between the lowest food consumer price before the 
spike (usually in January 2007) and the highest food consumer prices in the period (usually in February 
2009). The maximum price decrease measures the di fference in % between the highest food consumer 
prices and the lowest value in the following months (usually in May 2009). 
EN 14   EN Europe". All new Member States have experi enced higher food consumer price increase than 
the EU average, with 6 of them showing price increase of more than 20%14. In none of the 
EU15 Member States have food pr ice increases reached such le vels; FI and UK have suffered 
from the highest price increase of 15% and 19% respectively. Intere stingly, decreases in 
consumer price also appear to be higher in new Member States than in the EU15. The average 
– simple average over countries – decrease in the EU12 has so far been of -2% vs. -1% in the 
EU15. 
Price transmission mechanisms also differ across Member States in terms of the duration of 
lags between the decrease in commodity prices and the decrease in food consumer prices. The 
duration of these lags are presented in figure 6. Three Member States (CZ, PT SK) haven’t 
experienced any lags in  price transmission. However, in a large majority of Member States, 
food consumer prices have started to decrea se more than 6 months after agricultural 
commodity prices did. Delay in food consumer pr ice decrease has been the most important in 
LU, NL or PL where it has exceeded 15 months. Th e average lag in the EU has lasted 1 year. 
Figure 6: Lags in consumer price decrea se following agricultural commodity 
price decrease by Member States 
Lags in consumer price decrease following agricultural commodity
price decrease; number of months
Source: EUROSTATEU15
New Member States
EU27
-505101520
PT SK CZ EE IE MT BG DE DK FR FI CY ES SI IT UK AT LV RO LT EU SE BE GR HU PL NL LU 
The analysis of price evolution at each step of the food supply chain over the recent period 
provides interesting insights on how prices ar e transmitted along the food supply chain. There 
are long lags in transmission of  price decreases along the chai n (price stickiness): it took 
approximately 6 months for producer price to decrease following the decr ease in agricultural 
commodity prices and another 6 months for c onsumer prices to start declining. Second, the 
increase in commodity prices are transmitte d only partially (by ~60%) to food consumer 
prices. There are also strong differences in the intensity of food price evolution across 
Member States. New Member St ates have experienced higher food consumer price increases. 
                                                 
14 Overall inflation in these countries has also been higher than in the EU15. 
EN 15   EN 2.2.2.  Price transmission along the food supply chain 
The results from the previous section are deepened further by co nducting econometric 
analyses of price changes along the chain in or der to take into account other factors that can 
explain price evolution at each step of the chain, such as va riations in energy prices and 
labour costs. It also enables to distinguish be tween the impact of price increases and price 
decreases15. The econometric analysis has been r un for a long term period (from 2000 to 
2009) but also for two sub periods (from 2000 to 2006 and from 2007 to 2009) to identify if 
there has been a change in price transmission pattern.  
2.2.2.1.  Price transmission from agricultural co mmodity price to food producer price 
Table 2 presents the results of panel data regression relating monthl y variations in food 
producer prices to monthly variations in ag ricultural commodity prices. It shows how 
variations in energy and unit labou r costs and of course variati ons in agricultural commodity 
prices (current and with 3 and 6 months lags) explain the vari ations in food producer prices. 
Table 2: Results from panel data regression of monthly food producer price 
changes with monthly agricult ural commodity price changes  
Food Producer Prices
Panel covera ge: EU27 Member States
Time covera ge: 2000-2009 2000-2006 2007-2009
Coefficient Coefficient Coefficient
Commodity prices (current) 2%*** 1%*** 11%***
Commodity prices (3-month lag) 2%*** 1%** 11%***
Commodity prices (6-month lag) - - 10%***
Energy prices 3%*** 2%* 4%***
Energy prices (3-month lag) 1%* - -
Energy prices (6-month lag) ---
Unit Labour costs ---
Unit Labour costs (3-month lag) -- 3 % * *
Unit Labour costs (6-month lag) ---
Fit of the regression - Adjusted R² 0.25 0.14 0.38
*** Indicates significance at 1% * Indicates significance at 10%
 ** Indicates significance at 5% - Indicates no significance
Source: EUROSTAT price indices, own calculationDependent variable -  
Monthly variations in:
Explanatory variables - 
Monthly variations in:
 
Results for the period 2000-2009 highlight the fact that there is very little link between food 
producer prices variations and agricultural commodity price variations. Only 4% (2% 
instantly and 2% with 3-month la g) of agricultural price variati ons are passed through to food 
producer prices. This is not su rprising given the very strong volatility of agricultural 
commodity prices and the stable inflation experienced by food produc er prices during the 
period: changes in agricultural commodity prices  were not reflected in  producer prices.  
                                                 
15 This section is based on the results of panel data regression in all Member States of the EU between 
output prices (dependent variable – either food cons umer prices or food producer prices) and explaining 
factors (explanatory variables: input prices – either commodity prices or food producer prices, energy 
prices and unit labour costs). Results were controlled with dummy variables for seasonal effect and 
country effect (cf. Annex A.2. for the detailed rela tionship estimated by the panel data regression). 
EN 16   EN However, when the regression is run for th e recent period only (fro m January 2007 to May 
2009), the impact of changes in agricultura l prices on changes in food producer gains 
significance. The instantaneous price transmissi on is 11%, but significa nt lags of 3 and 6 
months of similar magnitude  (respectively 11% a nd 10%) appear as well. Thus, a 10% 
increase in agricultural commodity  prices will translate into a ~3% increase in food producer 
prices after 6 months. This reflects the si gnificant 6 months lag between the decline of 
agricultural commodity pr ices and the start of the decline of food producer pr ices highlighted 
in 2.2.1. 
On the contrary, the relationshi p between producer and agricu ltural prices over the period 
2000-2006 is much weaker. It is hard to identify th e cause of the change in price transmission 
pattern occurring from 2007 on. It may relate to the intensity of agricultural commodity price 
increase that has forced food producer to tran slate their costs increas e into price increases. 
Another explanation might be the implementati on of the CAP reform towards more market 
orientation. 
The overall small magnitude of price transm ission should not be surprising given that 
agricultural commodity prices  are only a part of the food processing industry inputs16. It is 
also found at disaggregated leve l within individual Member St ates and single product supply 
chains. The ever-increasing margin between agricultural market pr ices for bread making 
wheat (0.13 €/kg in April 2009) from retail consum er prices for baguette (3.35 €/kg in April 
2009) in France can illustrate these developments (which are also reflected at manufacturer 
levels for grain mill and bakery and farinaceous products) – see figure 7. 
Similar regressions have been run separately for the EU15 and the EU1217. Results show a 
low impact of agricultural price changes ove r the period 20 00-2009 (respectively 2% in the 
EU15 and 7% in the EU12). Both regions have experienced a strong change in transmission 
patterns from 2007 on, with pass-through reachi ng ~30%. Moreover, price transmission for 
commodity to producer prices appears to be sligh tly faster in the new Member States with an 
instantaneous pass-thro ugh of 14% in EU12 vs. 8% in EU15. 
                                                 
16 For example for Germany, the value share of bread ma king cereals in the value of bread at retail level is 
estimated to have fallen from around 18% in 1977 to around 4% in 2005 (Source: Institut für 
Marktanalyse und Agrarhandelspolitik der Bundesforschungsanstalt). 
17 See Table A.1. for detailed results in Annex. 
EN 17   EN Figure 7 France: Comparative development in  the wholesale price of bread making 
wheat and in the retail price of baguette (in €/kg; Jan1992-Jun2009) 
2.02.53.03.54.04.55.05.56.0
1992/01
1993/01
1994/011995/01
1996/01
1997/01
1998/01
1999/01
2000/012001/012002/01
2003/012004/01
2005/012006/012007/01
2008/01
2009/01Baguette price in €/kg
0.1000.1250.1500.1750.2000.2250.2500.2750.300
Bread making wheat price in €/kg
Retail price baguetteWholesale price bread making wheat
 
2.2.2.2.  Price transmission from food producer  price to food consumer price 
The role of the retail sector  in the food supply chain can be  illustrated by analysing price 
transmission from food producer prices to food consumer prices . Table 3 presen ts the results 
of the panel data regression between food consumer and pr oducer prices over the period 
2000-2009 for the EU27, the EU15 and the EU12.  
The first characteristic s of the relationship between food pr oducer and consumer prices in the 
EU27 is the relatively high total pass-through – compared to the upwards step of the food 
supply chain – of around 50%. A second feature is th at the price transmissi on occurs quite fast 
in the chain with 30% of price changes in food producer prices transmitted instantly to 
consumer prices, and ~20% transmitted with a one-month lag. The pass-through is higher in 
the EU12 (66%) than in the EU15 (39%) and pr ice changes are transmitted much faster in 
new Member States where instantaneous pass- through is 45% and the maximum lag is one 
month. On the contrary, instantaneous price changes are transmitted with a 10% pass-through 
in the EU15 and lags up to 6 month with a similar magnitude of ~10% appear. As for price transmission from agricultural co mmodity prices to producer pri ces, price changes seem to be 
transmitted faster in new Member States than in the EU15. 
Similar regressions were run for the 2000-200 6 and 2007-2009 periods to test if there has 
been a change in price transmission patterns as  was the case between agricultural commodity 
prices and producer prices
18. The total pass-through has increas ed in the EU27, from ~50% to 
~70% – especially in new Member States where it amounts to ~90% since 2007. Another 
noticeable change in price transmission patterns between the 2 periods is the increasing delays 
in price transmission that are visible since 2007. While lags in transmission are limited to 1 
month between 2000 and 2006, they go up to 6 m onths since 2007, reflecting the delay in 
consumer price decrease experienced in most Member States. Thus, price transmission from 
producer to consumer prices have experienced similar changes than price transmission from 
                                                 
18 See Table A.2. for detailed results in Annex. 
EN 18   EN agricultural commodity to produc er – higher pass-through and increased delays in price 
transmission – but to a lower extent. 
Table 3: Results from panel data regres sion of monthly food consumer price 
changes with monthly food producer price changes 
Food Consumer Prices
Panel covera ge: EU27 MS EU15 MS EU12 MS
Time covera ge: 2000-2009
Coefficient Coefficient Coefficient
Food producer prices (current) 31%*** 10%*** 45%***
Food producer prices (1-month lag) 20%*** 12%*** 21%***
Food producer prices (3-month lag) -9 % * *-
Food producer prices (6-month lag) -9 % * *-
Energy prices 1%* - -
Energy prices (3-month lag) 2%* - 5%*
Energy prices (6-month lag) --
Unit Labour costs 5%*** - 7%***
Unit Labour costs (3-month lag) ---
Unit Labour costs (6-month lag) 2%*** -
Fit of the regression - Adjusted R² 0.22 0.18 0.30
*** Indicates significance at 1% * Indicates significance at 10%
 ** Indicates significance at 5% - Indicates no significance
Source: EUROSTAT price indices, own calculationExplanatory variables - 
Monthly variations in:Dependent variable -  
Monthly variations in:
 
2.2.2.3.  Asymmetry in price transmission along the chain 
A major issue in price transmission is to test wh ether output prices reac t similarly to increases 
and decreases in input prices, i.e. to test the symmetry of pr ice transmission. As the first 
review of prices evolution al ong the food supply chain in sec tion 2.2.1. suggests, there seems 
to be an asymmetry in price transmission along the chain from 2007 since food consumer 
prices and producer prices have failed to dec line significantly following the plummeting of 
agricultural commodity prices.  
A recent European Economy Economic Paper19 has investigated asymmetry in price changes 
in the Euro Area for several i ndustry and service sectors. Resu lts specific to the food supply 
chain are detailed in Box 1. In order to as sess potential asymmetry along the food supply 
chain, the same regressions as in Section 3.1 and 3.2 between output and input price changes 
are run separately for input price increases and decreases. This enables to identify both the 
pass-through upwards and downwards – the tran smission is symmetric if both pass-through 
are of similar magnitude, asymmetric otherwise20. 
Box 1: Price rigidity in the Euro Area along the food supply chain 
A recent study on Price Rigidity in the Euro Area has analysed the frequency and magnitude 
of micro-level price ch anges in countries from the Euro  Area based on a set of detailed 
                                                 
19 Dhyne et al. (2009) 
20 See Annex A.2. for the detailed equation of the regression. 
EN 19   EN monthly price data. The study introduces the con cept of price flexibility (how often do prices 
change) and of price rigidity (do prices ch ange when and by how much they should – i.e. 
reflecting variations in input costs). 
A major conclusion of the st udy concerning the food supply ch ain is that prices change 
frequently in the chain, both at the producer and consumer levels . At the consumer level, the 
frequency of unprocessed food price changes is  28%, meaning that 28% of unprocessed food 
prices change each month. The frequency of cha nge is of 14% for processed food whereas the 
average for Euro Area prices is 15% – for serv ices it is 6%, for non-energy industrial goods it 
is 9%. Similarly, producer prices  of food products also change frequently, with an average 
frequency of 27%, compared to an average of 22% for intermediate products. Moreover, price 
decreases are quite as frequent as price increase s in the sector, with 46% of all price changes 
being decreases.  
However, the study also identifies significant ri gidity in food prices at consumer level. 
Although food consumer prices change often, consum er prices for food do not change as often 
as they should given the more frequent ch anges in food producer prices. The study does not 
identify significant asymmetry in upwards and downwards rigidity in food consumer prices. 
Thus the food sector appears counter -intuitively as a quite  rigid sector in terms of price, where 
frequent price changes mask ri gidity in price transmission. 
The symmetry of price transmission at both steps of the chain has been tested over the periods 
2000-2009, 2000-2006 and 2007-200921 – see Figure 8. for simplified results.  
Pass-through of agricultural co mmodity price changes to food producer price changes in the 
EU27 is around 4% for price increases and around 3% for prices decreases. These figures are 
in line with the total pass-thr ough (for all commodity price changes, whether increases or 
decreases) of 4% found in th e previous section This small difference is statistically not 
significant and suggests symmetry in price tran smission between the agricultural sector and 
the food industry. However, since the relationshi p between commodity and producer prices is 
very weak over the period, the notion of  symmetry is of little relevance.  
The same analysis conducted fo r the 2007-2009 period is much more inst ructive, given the 
higher link between commodity price changes a nd producer price changes outlined in Section 
3.1. As expected, pass-through for both price incr eases and decreases in crease significantly 
compared to the 2000-2009 period, respectively  to 53% and 44%. The difference in price 
transmission upwards and downwards become s large at ~10%, suggesting asymmetry along 
the chain. After having faced a strong spike in their input prices during the year 2007, 
producers have tended to reduce price decrease s, even when commodity prices reached a 
lower level than before the crisis. 
The analysis of lags in price transmission upwards and downwards does not show strong 
difference between commodity increases and d ecreases. However, producer prices tend to 
increase slightly faster than  they decrease – instantaneous pass-through is 20% for commodity 
price increase and 14% for commodity price decreases. 
                                                 
21 See Table A.3. for detailed results of the regression. 
EN 20   EN Figure 8: Differences in pass-through for price increases and price decreases in the 
EU along the food supply chain 
Price increases Pass-through of price increases and price decreases 
along the food supply chain in the EU
Price decreases
* Calculating pass-through with 6-month lags is not possible for price decreases over the 2007-2009 period, given the 
lack of occurrence of price decreases over the period; for the other period, the 6-month lagged producer price variation has no significant impact on consumer prices
Source: EUROSTAT; own calculationsPass-through from 
agricultural commodity prices to food producer 
prices –
Up to 6-month lags
Pass-through from food producer prices to food consumer prices –Up to 3-month lags*71% 67% 68%
47%53%
3%4%44%
3% 1%
72%
55%
2007-2009 2000-2009 2000-2006
 
The situation is somewhat different at the producer-retailer interf ace of the chain. The 
magnitude of price transmission from producer pr ices to consumer prices is 72% for price 
increases and 55% for price decreases ove r the period 2000-2009, suggesting significant 
asymmetry in the long run. Moreover, producer pr ice increases are passed  on to the consumer 
slightly faster than decr eases with an instantaneous  pass-through of 40% upwards vs. 30% 
downwards.  
Over the period 2007-2009, the price transmissi on pattern has changed significantly. There 
seems to be more asymmetry in the magnitude of pass-through (71% fo r increase and 47% for 
decrease). However, this  conclusion should be take n with caution since it is possible that price 
transmission of decreases in pr oducer prices occurs with lags  of 6 months since 2007. This 
would mean that the decrease in producer prices  has not yet had the time to have an impact on 
consumer prices in May 2009. These strong de lays in downwards price transmission are 
confirmed by the comparison of lags between 2000-2006 and 2007-2009.  
Over the 2000-2006 period, the maximum lags  are one-month for both increases and 
decreases. Since 2007, there have been lags up to 6 months for increase and decreases are 
only showing an impact after 3 months. Re tailers indeed start passing producer price 
decreases with a 3-month lag whereas price incr eases have been passed on almost completely 
after 1-month. This might explain the current high-level of consumer prices and it will be important to ensure that food consumer prices decline in th e next few months. 
2.2.3.  Conclusion 
An analysis over the long term would tend to suggest that there is a limited link between the 
evolution of agricultural comm odity prices and the evolution of food consumer prices. Two 
combined effects explain this counter-intuitive result: (i) there is virtually no relationship 
EN 21   EN between agricultural commodity prices and f ood producer prices, especially before 2007, (ii) 
the limited (~ 50%) pass-through from food producer  prices to consumer prices mitigates 
price variations for the consumers. This ove rall low price transmi ssion along the food chain 
can be explained by several factors: the lim ited share of agricultural commodities into final 
food prices, inefficiencies in the market structur e of the chain (either linked to imbalances in 
bargaining power and/or anti-competitive practic es), and some adjustments constraints and 
costs (e.g. costs of changing prices for both producers and retailers, the slow price 
transmission due to long-term c ontracts between economic actors). 
However, there has been a significant change in price transmission patt ern in the chain from 
2007 on with the sharp rise and the following plum meting of commodity prices. At each step 
of the chain, the magnitude of price transmissi on has increased and actors  have tried to pass 
on to their customers the unusual increase in thei r input costs. It is ha rd at this point to 
understand what has caused this change, but the acuteness of the agricultural commodity 
crisis has certainly contributed to change pri ce transmission patterns: producers and retailers 
have faced price increases too high to contai n in the long run, and have thus passed on price 
increases.  
Meanwhile, another key feature of price stickiness has emerge d since 2007, with consumer 
prices – and to a lesser extent  producer prices – failing to de crease following the decrease in 
commodity prices. A key feature of this stickine ss is the important lags that occur in price 
transmission along the chain, wher e decreases in agri cultural commodity prices can be passed 
on up to one year later to the consumers. Prices  in the food supply chain have thus followed a 
'rockets and feathers' evolution pattern since 2007, in  which prices are fast to raise and slow to 
decrease. 
Finally, the European food supply chain is characterised by a strong fragmentation across 
Member States in terms of price transmission patterns at each step of the chain. Both 
magnitude and speed of price transmission vary  significantly across Member States, resulting 
in strong differences in consum er food prices evolution. One obvious distinction is between 
the EU12 and the EU15: in the EU 12, prices seem to react faster  and stronger to changes in 
input prices.  
3. EMPIRICAL INVESTIGATION FOR SPECIFIC SECTORS WITHIN THE FOOD SUPPLY CHAIN  
As highlighted in chapter 2, existing empirical  studies have found large variability in the 
degree and asymmetry of price transmission be tween product chains and countries. However, 
most of these studies are base d on price indices at aggregat ed level (e.g. for the category 
“milk, cheese and eggs”) and not on absolute pri ce levels due to the lack of reliable data, in 
particular at consumer level.  The diversity in structure of the food supply chain across 
Member States and between product chains cannot  be entirely reflected by aggregated price 
indices and prevents from draw ing conclusions on the functioni ng of the price transmission 
mechanism in the food supply chain. 
This motivated the undertaking of a specific in-depth enquiry on the dairy and pig meat 
sectors  which have been particularly affected by  the economic crisis and for which a certain 
number of concerns have been raised recently  regarding the functioning of the chain. Based 
on absolute prices, this inves tigation covers eight countries for which data were available 
EN 22   EN (France, United Kingdom, Germany, Austria, Denmark, Czech Republic, Slovenia and 
Lithuania)22. 
A brief overview of the market characteristics and of the policy developments in these two 
sectors is provided in the first part of the sect ion. The most recent price developments through 
the respective supply chains are then assessed. Fi nally, a statistical analysis is carried out to 
assess the degree of price transmission betw een primary producers and consumers. The 
empirical statistical techniques which are regularl y used in recent literature are applied to 1) 
test for causality between producer and consumer  price movements and 2) measure the degree 
and delay in price transmission based on simple and multiple regressions. 
For each country and product chain, a graph summarising the results of the statistical analysis 
is provided for all food products th at have shown significant causal ity with respect to the price 
of the agricultural raw material. The graph is di vided into two sections: one for the pre-price-
spike period (i.e. until 2006) and one fr om 2007 to 2009. For each food product key 
information about the regression statistics is provided: the co efficient of correlation and the 
regression coefficients. These co efficients represent a proxy fo r price transmission indicator: 
for example a coefficient 0.350 for a given product  means that a 10% price variation in farm-
gate milk price has generated on average a 3.5%  change in retail price. More detailed 
information concerning other regression parame ters and indicators (n umber of observations, 
significance levels, and relevant  lags) can be found in annex. 
3.1.1.  Empirical evidence from the milk suppl y chain in some EU member States 
3.1.1.1.  Milk supply chain background 
The EU dairy sector 
Milk is the largest agricultural activity in the EU  representing 14% of total agricultural output. 
For some Member States it forms a very impo rtant part of the agricultural economy. The 
share of milk in total production varies betw een Member States, from 5.8 % to 33.5 %. The 
share tends to be higher in northern Europe and below 10 % in Mediterranean countries. In 
2008 the value of milk output reached about EUR 50 billion at farm level.  
The European dairy industry processes appr oximately 135 million tonnes of raw milk into a 
broad range of products, both fo r direct consumption and for use in the production of many 
food, feed and pharmaceutical products. The ra w milk delivered by the EU27’s 1.6 million 
dairy farmers and processed by the dairy industr y, plays a crucial role in many rural areas. 
The dairy industry represents roughly 15 % of the turnover of the food and drinks industry in 
Europe (employing about 13 % of its total wo rkforce). The EU dairy industry is also 
characterised by a dual structure, with some major groups making more than half of the 
European dairy turnover and with numerous small and medium-sized enterprises (SMEs). 
Economic pressure, technical requirements and g overnance led these groups to concentration 
and specialisation. 
                                                 
22 Since data on consumer prices (aggregated indices ) currently available at Eu rostat do not allow for a 
detailed analysis at food product level, monthly series of absolute consumer prices for a number of dairy products were collected directly from Member States (data were transmitted by FR, UK, DE, DK, 
CZ, SI, AT, LT). This lack of price data along the food supply chain at national level prevented to 
extend the analysis to other products and countries. 
EN 23   EN Within the EU27, the situation of the dairy sector  varies from region to  region. This difference 
is reflected by its diversity in terms of eco nomic importance, with countries or regions 
specialised in dairy production, in terms of system of production, with an average national 
quota by holding ranging between 10 and 900 tonne s, an average yield by cow at NUTS2 
level which varies from 3200 to more than 8000 lit res and a very disparate farm structure, and 
eventually in terms of prices paid to the producers, with a pr ice variability in time and space 
which can reach up to 50% from one year to another and from one country to another. 
EU dairy policy has always had a strong impact on the economics of the dairy sector, in 
particular on the price formation at primary a nd dairy processing level. This policy has rapidly 
and significantly evolved over the past few y ears: it is now increasingly targeted at 
encouraging producers to be more market-oriente d in a context of lowe r price support. Milk 
quotas are scheduled to expire in 2015. 
The prices of dairy products ar e closely interlinked horizontally as dairy processors naturally 
switch raw milk into the most lucrative dairy ma rkets at any point in time. For example, more 
butter and SMP will be produced at the expense of cheese when the returns from processing 
raw milk into butter and SMP are higher than ch eese. The organisation of the dairy chain is 
also strongly influenced by the national an d EU institutional framework (as regards the 
development of cooperatives, the concentration of industries and the contractual relations) 
which plays a fundamental role in the price formation along the chain and therefore in the 
distribution of the value added betwee n the players involved in the chain. 
Market situation 
The dairy market situation has deteriorated dramatically since summer 2008. After a price 
spike in 2007 alongside the general food price su rge, prices dropped substantially, affecting 
significantly dairy producers' income. 
At the level of dairy farmers, the prices for m ilk delivered to the dairy have come down from 
30-40 c/l to an EU27 weighted average of 24 c /l by June 2009, with prices for many primary 
producers at 20-21 c/l or even le ss. As price support ope rates essentially at the level of first 
processing with butter and SMP intervention prices it  is not the price of milk that drives those 
of processed products but rather  the contrary, in particular  in periods of low prices. 
At retail level the price index for the category "milk, cheese and eggs" has followed, to a 
lesser extent and with a certain delay the increase in the price of dairy products (ex-factory). 
Available statistics until August 2009 indicate that consumer pr ices for dairy products have 
been coming down for some months but further d ecline in the next months  would be needed if 
they were to fully reflect the drop in milk and dairy commodity pric es at producer level.
EN 24   EN Figure 9: Developments of producer and consumer price indices in the EU dairy 
sector, 2000 – 2009 (2000 = 100) 
60708090100110120130140150160170
200001
200005
200009
200101
200105
200109
200201
200205200209200301
200305
200309
200401200405200409
200501
200505
200509200601200605
200609
200701
200705200709200801
200805
200809
200901
200905SMP price ex-factory
Butter price ex-factoryCheese (edam) price ex-factory
Consumer price 'milk, cheese, eggs'
Farm gate price raw milkJanuary 2000 = 100
 
In some Member States prices at retail level ("milk, cheese a nd egg" index) have come down 
faster and to a larger ex tent that in others.  
Figure 10: Consumer price index for "Mil k, cheese and eggs", 1996 – 2009 (2005= 
100)  
758595105115125135
1996/01
1996/06
1996/111997/041997/091998/02
1998/07
1998/12
1999/05
1999/10
2000/03
2000/08
2001/01
2001/062001/112002/04
2002/09
2003/022003/072003/122004/05
2004/10
2005/03
2005/08
2006/01
2006/06
2006/11
2007/04
2007/092008/022008/07
2008/12
2009/05Germany Spain United Kingdom Netherlands France 
3.1.1.2.  Main findings of statistical anal ysis on milk and dairy products 
An examination of the price developments over th e last two years (cf. Table 4) illustrates the 
differences in market situation  along the dairy supply chain in the EU. The following table 
summarises the change in prices over the last two years for milk at the farm gate and for 
selected dairy products at retail level. These da ta provide some insights concerning changes in 
margins at the processors/retailers level. They  also reveal the specific marketing and pricing 
strategies of the downstream s ector (processor/reta iler), where e.g. some dairy products at 
EN 25   EN retail level seem to fully reflect the drop in fa rm-gate milk prices whereas others would tend 
to show an increase in their margin. 
Table 4: Price change between May 2009 and May 2007 for milk at the farm gate 
and selected dairy products at retail level (in national currency) 
Germany FranceUnited 
Kingdom Denmark Austria SloveniaCzech 
Republic Lithuania
Farm gate price -13% -4% 18% -13% 0% -8% -18% -22%
Retail prices
Fresh whole milk -1% 63% 5% 2% 44% 12%
UHT semi-skim milk 0% 15% 9% 27% 8% 8%
Butter -17% 7% 74% 19% 1% 40% -6% 5%
Cheese - Gouda 25% 17% 19%
Cheese - Emmentaler 24% 6% 19% 40%
Cheese - Cheddar 74%
Cheese - Brie 9%
Cheese semi hard 17%
Cheese - Camenbert 25%
Buttermilk 11%
Double cream 2%
Crème fraîche 4%
Natural yogurt 0% 7% 24% 13% 20%
Yogurt with fruit 2% 10% 15% 
Source: European Commission based on inform ation sent by selected Member States 
The trends in milk producer prices and dairy consumer prices tend to show a widening in the 
gross margin23 of the downstream sectors for most dair y products and countr ies studied, most 
notably over the last two years24. The distribution of these high er gross margins between the 
processing and retail sectors is difficult to asse ss precisely on the basis of the data available 
which only provide a partial picture of the recen t developments in prices and margins along 
the dairy chain (in terms of country, product and stages of the chain covered). However, 
evidence from national studies (Danish Comp etition Authority, 2009; FranceAgriMer, 2009) 
shows that there has been a clear trend lately to wards an increase in the level of gross margins 
at processing level for some dairy products (e.g. UHT milk and yogurt in France, and liquid 
milk and butter in Denmark). 
The statistical analysis25 of price transmission shows that: 
– There are wide differences  of results between similar products across countries and 
between products in each country, reflecting th e diversity in the competitive structure and 
                                                 
23 It is important to differentiate gross margins (i.e. output prices minus the cost of agricultural or food 
inputs) from net (operational) margins (which correspond to the gross margin less all the costs incurred). As a result, an increase in gross margins does not necessarily imply an increase in profit 
levels. 
24 This tends to confirm earlier results from AgraCeas (2007) which shows that there has been a general 
further widening of producer-consumer margins over the period analysed in the milk and dairy product 
chain. 
25 Data series were first tested to detect the presen ce of causality between producer and consumer prices. 
Simple and multiple regression analyses were then carried out to identify the magnitude of and the 
relevant time lags at which price transmission takes place. In the regr essions the retail price of the given 
dairy product is considered as the dependent variable while farm-gate milk price, without or with one or 
more lags, represents the explanatory variable. In th is exercise other potential explanatory variables like 
energy costs, labour costs etc were not included . All prices are deflated and taken to the log. 
EN 26   EN the functioning of the chain in  each country as well as diff erences in the price formation 
mechanism. This does not mean that the whole analysis is inconclusi ve. On the contrary 
this supports the view that the identification of potential  malfunctioning along the food 
supply chain needs a level of analysis which goes beyond the level of detail that is 
currently allowed by the available statistica l information provided by Member States to 
Eurostat. 
– Causality tests  show that for around 40% of the obs erved dairy products the degree of 
statistical causality between th e agricultural raw material pri ce movements and that of the 
corresponding consumer products is  low or even null. Though th is result seems rather high 
in terms of lack of causality linkage between producer and consumer prices, it remains in line with the findings obtaine d in other studies (AgraCea s, 2003). Furthermore, weak 
causality was also detected for some dair y products whereas the mere observation of 
producer and consumer price developments did not raise particular concern of imperfect 
price transmission (e.g ; weak causality was detected fo r French natural yogurt even though 
the price developments in the last couple of  years have closely followed farm-gate milk 
price movements). This weak causality could be explained by factors such as the limited share of raw material in final product and/ or the pricing strategy of processors and 
retailers. 
– For the dairy products which demonstrate a significant degree of causality between 
producer and consumer prices, the analysis sh ows that only approximately 20% exhibited a 
substantial price transmission
26, 30% showed moderate price transmission while slightly 
more than 50% of the products indicated a low degree of price transmission between 
producer and consumer prices. At Member Stat e level, evidence tends to show higher price 
transmission in the new Member States (CZ, SI and LT) than in the old Member States. 
Among the dairy products analysed, a higher degr ee of price transmission was detected for 
relatively unprocessed products  like butter, bulk ch eese and liquid milk. More processed 
and/or differentiated products showed lower degree of price transm ission, reflecting the 
higher importance of other co st components and margins. 
– Speed of transmission : the delay in price response seem s to be higher in the EU-12 than 
in the EU-15. At EU-27 average price response at consumer level takes place with a delay 
of around one month. Fastest response was detect ed for butter, with a lag often below one 
month. Price transmission appears to have take n place at significantly faster pace than what 
the evidence obtained at aggregate level tended to indicate. However, this rapid 
transmission of price change s only concerns dairy products  whose price developments 
were found to be closely linke d to those of milk producer prices. When examining the 
whole spectrum of dairy products, it becomes cl ear that changes in the consumer price of 
many dairy products which are not closely linke d to changes at produc er levels took place 
at much slower speed (at least after a 12 mont h-delay). Furthermore, when the statistical 
analysis indicates that some price transmi ssion has taken place after a given number of 
months, it does not necessarily provide info rmation concerning its completeness. The 
transmission of price changes between the primary and the downstream sectors seems to 
have taken place at very different pace acros s product chains and countries depending on 
                                                 
26 The notation "substantial", "moderate" and "low" degree of price transmission is used here to 
summarise both the degree of correlation between time series and the statistical significance of 
parameters. 
EN 27   EN the competitive structure of the supply chain and the production/marketing strategies put in 
place. 
Figure 11: Frequency of substantial, modera te, low price transmission results in the 
dairy sector 
– 0%10%20%30%40%50%60%70%80%90%
All selected EU27 countries EU15 (FR, UK, DE, DK, AT) EU12 (CZ, SI, LT)
substantial moderate low 
– Price asymmetry : the analysis of price developments  and the statistical tests on price 
transmission provide indicati on of asymmetric behaviour across the dairy chain where 
dairy consumer prices have been fast to incr ease, but slow to decline in the wake of the 
sharp drop in milk producer prices (e.g. Sl ovenia, United Kingdom, Denmark, Lithuania). 
– Price transmission over time : the statistical analysis shows that in all the countries 
studied the price transmission pattern has si gnificantly strengthened since the commodity 
price surge in 2007: in many countries, the im portance of the changes in milk price at 
producer level in explaining the changes in dairy consumer  prices has substantially 
augmented (although the magnitude of price tran smission slightly declined for many dairy 
products). 
The overall rather low price transmission be tween the agricultural producer stage and the 
consumer stage may be linked to several factors: the steadily d eclining share of the milk raw 
materials into the consumer pr ice of dairy products, potential in efficiencies in the market 
structure of the chain (either li nked to imbalances in bargaining  power and/or anti-competitive 
practices), some specific adjustments constrai nts and costs (e.g. long-t erm contracts between 
economic actors) and pricing/marketing strategies  in the downstream sectors. Furthermore, 
the role of dairies in the price formation m echanism may significantly alter the causality and 
degree of price transmission between the milk producer prices and dairy consumer prices. 
Finally, the importance of producer organisations  in the dairy sector in many countries may 
mask some developments in th e analysis of price transmissi on along the dairy supply chain 
(as producers may receive dividends and/or pri ce bonuses in addition to the observed price of 
milk). 
In the following sections, the situation in selected Member States will be assessed, putting the 
statistical analysis in perspective with the st ructure and functioning of the dairy supply chain 
and the domestic consumption pattern, which can  often explain certain price developments 
and differences between Member States.  
EN 28   EN 3.1.1.3.  France 
The French dairy sector has shown a significa nt restructuring and consolidation over the 
recent years. The top 10 French dairies now  process 70% of the milk produced and the 
supermarkets sell the major part  of the production of the dairy industry (specialised retailers 
such as " crèmerie-fromager " sell only 8%). The consumer prices for dairy products can 
generally be differentiated between  3 types of products: the "first price" or "discounter price", 
the own brands of retailers and the quality products or processor brands. 
The graph below illustrates this differentiation by  showing that for a similar price of raw milk 
material at 0.36 €/litre, the "p rocessor brand" UHT milk is so ld 1.05 €/litre, whereas the 
retailer brand is sold at 0.76 €/litre. However liquid milk is not very representative of the dairy supply chain in France as dairy consum ption is dominated by cheese which absorbs 
almost 50% of the total househol d expenditure on dairy products. 
Figure 12: Price and margin for liquid milk in France  
 
Source: Comité Economique, Social et  Environnemental, France (2009) 
Recent analysis carried out in France (FranceA griMer, 2009) shows that the cost of raw 
materials to produce cheese (i.e. the main ingredie nt like fat, proteins an d lactose) represents 
between 27 and 38% of the cheese consumer pri ce (Emmental in this case). The prices of 
cheese products ex-factory and at consumer le vel are more stable than that of their raw 
materials, as the seasonal changes in milk  prices, which are known and foreseeable, are 
internalised in the chain in order to avoid an y pricing-cost. The gros s margin (including all 
costs) of the dairy industry varies between 32 and 35% of the final retail price over the 
observed period. Prices at reta il level have broadly followe d the developments at food 
processing level, with more stable margins at  about 30% of the final price. The evidence 
produced in this analysis carried out by the French Price Observatory does not show major reason of concern for cheese in  terms of sharing of the va lue added and, on the contrary, 
indicates some stability in gross margins on average over the last few years. 
By contrast, the French Price Observatory sh ows that the gross margins of the industry on 
UHT milk sharply increased since the beginni ng of 2005 from 34.1% to 52% in the second 
quarter of 2009. The share of the producer price and of the retail gross margin in the final 
EN 29   EN consumer price dropped over the same pe riod from 32 % and 28% to 26% and 17% 
respectively (cf. figure 13). A similar pattern was found for hi gher value added product such 
as yogurts where the share of the retail margin in the final consumer price fell from 40% to 34% over the 2005-2009 period whilst that of the milk producer and industry rose by 2 and 4 
percentage points respectively. Evidence for butter was more mi xed and irregular with an 
increase in the retail shar e in the beginning of 2009.  
The availability of data on absolute monthly pr ices for milk at the farm-gate and for some 
dairy products at retail level enables to make produc t-specific considerations concerning the 
price linkages from producers to consumers. Considering the period from January 2001 to 
August 2007, i.e. before the surge in milk prices , the milk price trend at  farm gate decreased 
slightly in the wake of the dairy support price cuts adopted in the context of the 2003 dairy 
policy reform. On the other hand the consumer prices of liquid  milk, Emmental and butter, 
after having gone slightly up at the beginning of  2001, remained rather stable until the second 
half of 2007. By contrast, the trend was clearly decreasing for yogurt prices. 
Figure 13: Prices in the French UHT milk supply chain in €/kg of final product, 2005-
2009 
 
Source: FranceAgriMer, Observ atoire des Prix et des Marges – Filière Laitière, (2009) 
When milk producer prices sharply increased by more than 50% in the autumn of 2007, dairy 
consumer prices followed within 2 months on average. However, when the milk producer 
prices started to decrease, down -4% against their pre-spike level in May 2007, the consumer 
prices of most dairy products remained stable at high level for some time before starting to 
decline in Spring 200927. For example while the yogurt prices at retail level came back to their 
May 2007 levels, cheese and butter prices remained around 7% hi gher and in th e case of UHT 
milk prices in April 2009 were sti ll 15% higher than two years earlier. 
                                                 
27 Although available data until April 2009 do not enable to draw conclusions about the full extent of the 
decline in retail prices, it can be observed that most of these prices have so far stabilised a higher level 
than before the price rise. 
EN 30   EN The statistical analysis of price transmission sh ows that a substantial causality link could only 
be found for UHT semi-skimmed milk and for bulk  cheese, both relative to  the price paid to 
milk producers. Camembert cheese and natu ral yogurt showed only a weak degree of 
causality between milk producer pr ices and their consumer prices28. Price transmission was 
tested for the dairy products s howing substantial causality link over a long-term time series of 
monthly price (from 1996 to 2009) but also for the period before the extreme price 
movements (1996-2006, when prices were more stable) and for the more recent period 2007-
2009. 
Figure 14: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, France 
Correlation R2              Price transmission coefficient
0.3910.4830.0160.15
0.160.3090.0350.117
Bulk cheeseUHT semi-
skimmed milkBulk cheeseUHT semi-
skimmed milk2007-2009 1996-2006
 
 
For UHT semi skim milk and bulk cheese produc ts the degree of price transmission was 
higher during the most recent years than duri ng the decade 1996-2006. This may be explained 
by the relative price stability that prevaile d during the decade ending in 2006 for farm-gate 
prices. Furthermore, as dairies play a central role in the price formation mechanism for dairy 
products, the low causality and de gree of price transmission fr om the milk producers to the 
consumers may not fully reflec t the price transmission dynamics29. During the period 2007-
2009 statistical indicators improved: the correl ation index for UHT milk (related to milk 
producer price) increased threef old and remained slightly belo w the average level found in the 
other observed Member States. In the case of bulk cheese the correlatio n with milk producer 
                                                 
28 The whole statistical analysis was not carried out for butter and camembert as the retail price 
information was only available for a shorter period (while for the rest of the products data availability starts in 1996). 
29 However a statistical investiga tion was carried out to assess the link between price movements at 
processors level and those at the farm-gate and at retail level. For France, before 2007, little link was 
found between monthly changes in bulk commodities prices (butter and SMP) and milk producers' 
prices. Since 2007 the linkage has improved although the correlation and the price transmission 
coefficients remain low. Reasons for such a low linkage may have to be found in the specificity of the 
price setting mechanism between producers and processo rs. Moreover, when the sector is dominated by 
producer organisations, e.g. cooperatives, price transmission may be masked by dividends and/or price bonuses milk producers may receive in addition to  the price of milk. Similarly the link between 
processor and retail price improved since 2007 but remains rather weak. For example ex-factory butter 
price changes explain only a small part (2.4%) of butter retail price changes. 
EN 31   EN price is higher in France than in other coun tries. Price transmission coefficients were 
particularly low especially for bulk cheese wh ile for consumption milk (at least in the 2007-
2009 period) they reached 0.3 (i.e . a 10% increase in milk pr oducer prices generated on 
average a 3% increase in consumer prices for UHT milk). The observed retail prices seem to 
have responded with little delay (within the same  month or with a month delay) to changes in 
milk producer prices. 
3.1.1.4.  United Kingdom 
The majority (more than 50%) of raw milk pr oduced in the UK goes into the production of 
liquid milk and approximately 20% is used fo r the production of Cheddar cheese. Liquid milk 
seems to be the main dairy product for which the largest British retailers have made arrangements to secure the stab ility of the supply chain, as the UK is not self sufficient overall 
and liquid milk is not easily tradable. 
In order to reduce storage costs and to ensure cash flow, processing raw milk into liquid milk 
is often the favoured option of processors in the United Kingdom.  This results in increased 
competition, lower prices and consequently lower margins on contracts that are negotiated frequently such as those with some food service and wholesalers. 
As a reaction to the economic downturn, and in an attempt to attract consumers back from 
shopping at ‘discounters’, most of the major multip le retailers also now sell a ‘discount’ brand 
or type of milk. 
An important income stream for liquid milk processors comes from the sale of surplus cream, 
as the majority of liquid milk sold is not whole milk but semi-skimmed or skimmed. This 
cream goes into a number of end uses includin g the production of butter. This gives liquid 
milk processors a direct financial exposure to  one of the basic commodity markets which have 
fallen significantly in the past year.  
Figure 15: Liquid milk margins in pe nce/litre, United Kingdom, 1994 - 2009  
01020304050607080
1994/01
1994/07
1995/01
1995/071996/01
1996/07
1997/01
1997/07
1998/011998/07
1999/01
1999/07
2000/012000/07
2001/01
2001/07
2002/01
2002/072003/01
2003/07
2004/01
2004/07
2005/01
2005/07
2006/012006/07
2007/01
2007/07
2008/01
2008/07
2009/01 Farmgate Price Processor Gross Margin Retail Gross Margin 
Source: Milk Development Council (in pence/litre)  
The fall in cream income to li quid processors observed in 2008 is likely to have put liquid 
milk processors’ margins under strong pressure si nce processor gross marg in has to cover all 
EN 32   EN processor costs (apart from the purchase of milk ), including transport,  bottling and financing 
costs. It seems that liquid milk processors were  absorbing this volatility  before the farm-gate 
price cuts seen at the beginning of 2009, notably to ma intain the price at which they purchase 
milk at competitive level with cheese processors. 
The low returns from selling whey powder, when added to the low gross margins from 
processing Cheddar, are expected to have resulted in signifi cantly lower overall margins for 
cheese producers in 2008/09. 
Figures 15 and 16 show retail price developments for dairy products with respect to the price 
of milk paid to the agricultural producers. Ex change rate movements have somewhat levelled 
out the sharp drop in prices at EU and world level since the second se mester of 2008. While 
farm-gate prices (in British pound terms) in Ma y 2009 remained 18% above their level before 
the price spike in May 2007, most retail pr ices of dairy products only showed minor 
reductions after the price peak reached by th e end of 2007. In spring 2009 they still stood 
some 63% (fresh milk), 74% (butter) and 74% (cheddar) higher than before the milk price 
increase two years earlier.  
Figure 16: Indices for the farm-gate milk pr ice and the retail price of several dairy 
products, United Kingdom (Jan 1995 = 1)  
0.60.811.21.41.61.822.2
1995/01 1996/01 1997/01 1998/01 1999/01 2000/01 2001/01 2002/ 01 2003/01 2004/01 2005/01 2006/01 2007/01 2008/01 2009/01Farm gate milk price Butter: Home produced Butter: Imported Milk pasteurised Cheese: Cheddar type  
The statistical analysis of price transmission for the UK detected a substantial causality link 
for butter and cheddar cheese rela tive to the price paid  to milk producers. Furthermore retail 
prices seem to have responded w ith little delay (within the same month)  to changes in milk 
producer prices. This could also mean that farm -gate and retail prices have changed with the 
same lag to changes in ex-factory prices30. 
                                                 
30 A statistical investigation to assess the link between  price movements at processors level and those at 
the farm-gate and at retail level has been carried out which, for the United Kingdom, produced mixed 
results. A substantial link between monthly changes in bulk commodities prices (butter and SMP) and 
milk producers' prices could be es tablished, especially in more r ecent years, with positive correlation 
and price transmission coefficients (R2 0.56 and price transmission co efficient of 55% with a three 
months delay). Similarly in the case of butter the lin k between processor and retail price is remarkable 
and improved since 2007 (with a correlation coefficient R2 of 0.52 and price transmission of 22% for 
EN 33   EN Figure 17: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, United Kingdom  
Correlation R2              Price transmission coefficient
0.8060.3850.3720.168
0.6490.1520.6490.2
ButterCheddarButterCheddar2007-2009 1999-2006
 
 
Here again for both butter and cheddar cheese the importance of the milk producer price in explaining changes in dairy consumer price le vels was higher during the most recent years 
than during the decade 1999-2006. Price transmissi on coefficients on the other hand remained 
comparable over the two sub-periods , but were relatively high comp ared to other countries, in 
particular for butter. 
All these statistical indicators show that str ong causality, high correlati on and substantial price 
transmission took place in the UK dairy supply chain. The fact that retail prices for most dairy product remain high while farm-gate price dropped  tends to demonstrate an asymmetric price 
response (i.e. higher price transmission of upwar ds price movements than  for price declines) 
and may be linked to factors such as imba lanced bargaining power along the dairy chain 
and/or pricing stra tegies in the downstream sectors.  
3.1.1.5.  Denmark 
The Danish dairy industry consis ts essentially of the intern ational dairy group Arla Foods, 
which processed more than 91% of Danish milk and 37 smaller dairy companies, together processing 4.5 million tons of milk. The number  of drinking milk producers is very limited 
and around 1/3 of all drinking milk is organic.  
The retail chains have had difficulties in intr oducing German milk to the Danish consumers: 
attempts by Aldi some years a go stimulated Arla to introduce a discount type of milk. Despite 
renewed attempts in 2009 the market share of foreign milk remains modest. Like the 
processing sector, the Danish milk producers have  seen an important structural change, with 
production now resting on a few large farms. More than 2/3 of the total Danish milk goes into 
export products. 
                                                                                                                                                        
 
lag 2 and 22% for lag 4). On the other hand it is fo und that in the case of cheese this link has been 
deteriorating over time. 
EN 34   EN A recent investigation in Denmark (Danish Co mpetition Authority, 2009) showed that the 
distribution of the margins al ong the dairy supply chain has changed over the most recent 
years, mainly to the benefit of pr ocessors. However, it should be noted that this increase in the 
margin generated by the dairy industry should in turn benefit milk producers as the industry is 
dominated by a farmer cooperative. 
The farm-gate prices of milk (in national curr ency) rose by 38% during the price hike of 2007 
but came back sharply in the second half of 2008, down -13% compared to pre-spike levels. 
Available price data at retail level show that th e consumer prices for most dairy products have 
already come down after the price spike in  2007/2008, but by May 200 9 all observed retail 
prices remained above their pre-crisis levels  (+5% for liquid milk, +2%for yogurt, and up to 
+17% for cheese and +19% for butter).  
Figure 18: Indices for the farm-gate milk pr ice and the retail price of several dairy 
products, Denmark (Jan2000 = 1)  
0.700.800.901.001.101.201.301.40
2000/01
2000/052000/09
2001/01
2001/05
2001/092002/01
2002/05
2002/09
2003/01
2003/05
2003/092004/01
2004/05
2004/09
2005/012005/052005/09
2006/01
2006/05
2006/09
2007/012007/052007/09
2008/01
2008/05
2008/09
2009/012009/05Semi-skimmed milk; low-fat milk Double cream Cheese: Brie, 60%
Cheese, 45% Butter Farm-Gate 
The statistical analysis of price transmission for Denmark exhibited a substantial causality 
link for 7 out of 13 dairy product s as shown in figure 19. The causality tests for fresh and 
UHT non-organic types of milk and cream surp risingly showed only a weak link between 
milk producer and the consumer prices of th ese dairy products. Th e correlation indicators 
remain rather low, suggesting the presence of other explanatory variab les more important in 
the dairy price formation at consumer level than  the milk price paid to the farm producers. 
Retail prices are reactive to producer price movements with little or very low delay (i.e. one month). By contrast to what wa s observed in other countries, price transmission seems to be 
higher for more processed products, in  particular over the 2000-2006 period. 
For most products the importance of the milk price in explaining the changes in consumer 
prices and the degree of price transmission has been higher during the most recent years than 
during the decade 2000-2006. On the other hand pr ice transmission coefficients have been 
slightly lower over the last few years. This asymmetric price transm ission may be explained 
by the fact that the available retail prices (until April 2009) may have not yet completed their decline following the sharp drop in farm-gate prices. 
EN 35   EN Figure 19: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, Denmark 
Correlation R2              Price transmission coefficient
0.1180.0240.024
0.015
0.237
0.096
0.351
0.096
0.581
0.232
0.2620.5110.6530.50.1010.2270.490.1190.0910.7780.2050.3280.3070.245
0.1360.2310.2860.212
Fresh whole organic milkFresh semi-skimmed organic milkDouble crèmeYogurt with fruitsBrieCheeseButterFresh whole organic milkFresh semi-skimmed organic milkDouble crèmeYogurt with fruitsBrieCheeseButter2007-2009 2000-2006
 
 
3.1.1.6.  Germany 
With around 30 million tons of cow milk produced  annually Germany is the 6th largest milk 
producer worldwide and the larg est milk producer in the EU with 20% of EU production. 
German dairy factories process the second largest amount  of milk in the world after those in 
the United States. Milk processing has a turnov er of more than 23 billion euros per annum. 
About half of the total milk de livered is processed into cheese  and a third into fresh dairy 
products. These proportions have been increasi ng for years. Germany is one of the most 
important exporters of milk products, in partic ular of cheese, milk powder, condensed milk, 
but also of butter and liquid milk.  
The following graph shows how the sharp price in crease in farm-gate milk prices (reaching 
more than 40 € cents in October 2007) and d ecrease in the second half of 2008 (down -13% 
compared to pre-spike levels) is reflected in the retail prices of dairy products.  
EN 36   EN Figure 20: Farm-gate milk pri ce and retail price of severa l dairy products, Germany, 
(€ per litre, unless otherwise specified) 
00,20,40,60,811,21,41,61,8
2005/01
2005/03
2005/052005/07
2005/092005/112006/01
2006/03
2006/052006/07
2006/09
2006/112007/01
2007/032007/05
2007/07
2007/092007/11
2008/01
2008/032008/05
2008/072008/09
2008/11
2009/012009/03Farm-gate price Fresh whole milk UHT semi-skim milk Butter 125 g Gouda 250 g Emmentaler 250 g 
While retail prices for butter show a marked d ecline below pre-price spike levels (-17%), the 
price of cheeses declined only marginally, at  least until April 2009 where it still stood some 
25% higher than before the price increase of 2007.  
Out of the five dairy products for which retail  price series were av ailable only one, Gouda 
cheese, showed some causality lin kage with milk producer prices31. For this product the 
regression showed mo derate correlation32. This empirical evidence tends to indicate an 
absence of price transmission from the milk pr oducer level to the consumer level for most 
dairy products. This may be linked to many factor s, including the high de gree of processing in 
the dairy chain, pricing and market ing strategies of the downstr eam sectors. Furthermore, the 
role of support prices for butter and SMP (as well as the export refunds granted only to 
processed dairy products) may result in price formation mechanism that, from the price ex-
factory for key dairy products is transmitted ups tream to the dairy farmers and downstream to 
the retailers. As a result, focusing the anal ysis on the link between the farm-gate and the 
consumer levels may not be sufficient to fu lly evaluate the price transmission mechanism33.  
3.1.1.7.  Slovenia  
With a dairy herd of 130 000 animals and ar ound 20 000 holdings, the Slovenian dairy sector 
is a typically small scale family business. Th e sector went through a significant structural 
                                                 
31 The other products observed, fresh and UHT milk, butter and emmentaler showed only weak causality 
between farm-gate and retail prices. 
32 Regression results for Gouda cheese prices with respect  to farm-gate milk prices are presented in annex, 
table A.7. 
33 The link between price movements at processors level and those at the farm-gate and at retail level was 
also investigated. For Germany, the linkage before  2007 was stronger than in France and the UK, 
except for cheese where the linkage is  comparable in the two periods.  
EN 37   EN change, illustrated by the rather  rapid decrease of the number  of dairy holdings since 1997. 
Slovenia counts only few milk processing companies. Most of the milk is sold to these dairies 
through agricultural cooperatives. Nearly a ll farmers are member of a cooperative.  
Compared to the other Member States who joined the EU in 2004, Slovenia experienced 
prices comparable to the EU15 already before accession. The graph below shows that retail prices of dairy products have ra pidly risen almost in parallel wi th the farm-gate milk prices 
during the summer 2007. The increase in milk producer price reached +50% in just a few 
months while most dairy products exhibited slower increases in their consumer price 
(between 12% for emmentaler to 45% for fresh pasteurised whole milk). Available price data 
until May 2009 show that, while milk producer prices have come down substantially (8% 
below pre-price-spike levels), the retail prices of the main dairy products have stabilised at close to peak levels, i.e. largely above the level of  prices before the increase in milk prices in 
May 2007 (ranging from +24% for yogurt to more than 40% in the case of  butter, cheese and 
fresh milk).  
Figure 21: Farm-gate price of milk and ret ail prices of several dairy products, 
Slovenia, 2001-2009 (€ per litre,  unless otherwise specified)  
00.511.522.53
2001/01
2001/052001/09
2002/012002/052002/09
2003/01
2003/05
2003/092004/01
2004/05
2004/09
2005/01
2005/052005/09
2006/01
2006/05
2006/09
2007/012007/05
2007/09
2008/01
2008/05
2008/09
2009/01 Yoghurt, up to 300 g, cup, 3.2% milk fat Butter, 250 g 
Long-life milk, 1.4-1.6% milk fat, tetra pack Ementaler, 500gr
Fresh milk, 3.5% milk fat, tetrapack Milk Farm gate 
The statistical analysis (causa lity test and regression) indicates that price transmission 
between milk producer prices and the consumer  prices of dairy products was significant. 
Regression coefficients are al so rather high, suggesting a hi gh level of pass-through from 
producer to retail prices. 
For most products the importance of the milk price in explaining the changes in consumer 
prices and the degree of price transmission was higher during the most recent years than 
during the 2004-2006 period. 
EN 38   EN Figure 22: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, Slovenia  
Correlation R2              Price transmission coefficient
0.87
0.1640.343
0.006
0.792
0.765
0.579
0.7760.861
0.309
0.1690.051
1.216
1.334
0.722
1.561 Fresh whole milkNatural YogurtButterUHT  semi-skim milkFresh whole milkNatural YogurtButterUHT  semi-skim milk2007-2009 2004-2006
 
 
Dairy retail prices respond with  within a lag of 0 and 3 m onths to milk producer price 
changes. Other lags were tested but coefficients  were not significantly different from zero. In 
some cases the price-transmission coefficient is  estimated to be very high: the statistical 
analysis shows for example that a 10% increas e in milk prices du ring the 2007-2009 period 
resulted on average in an incr ease of 7% of the price of natu ral yogurt. For othe r products the 
sum of two coefficients for two significant la gs goes largely beyond 1, suggesting a more than 
full price transmission. Given th e precise technical content of dairy products in milk 
components (e.g. in terms of fa t, protein, lactose, etc), it a ppears that only  parts of the 
observed increases in the retail prices of so me dairy products obser ved in Slovenia can be 
attributed to the rise in the raw milk material s. Hence, the main causes of the consumer price 
rise in question are to be found in  other sectors than agriculture. 
Statistical indicators show that strong causality , high correlation and high price transmission 
took place in the Slovenian dairy supply chain. Th e fact that retail prices for most dairy 
product remain high while farm-gate price have d eclined tends to demonstrate an asymmetric 
price response (i.e. higher price transmissi on of upwards price movements than for price 
declines) which may be due to pricing strategi es in the downstream sector and imbalanced 
bargaining power. 
3.1.1.8.  Austria 
In spite of the small size of its holdings, the dair y sector represents an important sector of the 
Austrian agri-food industry, with a turnover of about 2 billion €. Farm-gate milk prices rose 
by 44% in a few months in 2007 but have since dropped back to pre-spike levels. The retail 
prices of the observed dairy pr oducts broadly followed the deve lopments in the milk producer 
prices and are now back to the levels of Ma y 2007 for fresh milk, butte r and, to a lesser 
extent, yogurt. Cheese retail pric es on the other hand tend to re main higher than before the 
2007 price surge: by May 2009 they still stood so me 20% higher than two years earlier. 
EN 39   EN The statistical (causality) tests show that price transmission between milk producer and dairy 
consumer prices functioned for 4 out of 7 da iry product chains, though with a rather low 
degree of correlation. Delays in price transmission ranged from instantaneous transmission for 
liquid milk and yogurt to up to six months  for cheese. The two other products studied 
(Emmental cheese, yogurt with fruit) showed no significant link between changes in their 
consumer price and changes in milk producer price. 
For all 4 products, the importance of the milk price in explaining the changes in consumer 
prices and the degree of price transmission is higher during the most recent years than during 
the period 2000-2006. However, the degree of correlation remains very low compared to that 
measured in other EU Member States. On the other hand price transmi ssion coefficients are 
more substantial, except for cheese wh ere they remain particularly low. 
Figure 23: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, Austria 
Correlation R2              Price transmission coefficient
0.020.0380.266
0.0850.0970.6380.7170.0371.395
0.0240
0.1090.0980.3520.3720.038
GoudaCamembertWhole UHT milk YogurthGoudaCamembertWhole UHT milk Yogurth2007-2009 2000-2006
 
 
3.1.1.9.  Czech Republic 
The farm-gate prices of milk rose by 44% during the price hike of 2007 but came back 
sharply in the second half of 2008, down to -18%  compared to pre-spike levels. Available 
price data at retail level show that the consum er prices for most dairy products have come 
down after the price spik e in 2007/2008. However, most of the observed retail  prices still 
stood above pre-crisis levels by April 2009 (+12% for fresh milk, +8% for UHT milk, 
+13/15% for yogurt). Butter is the only product fo r which retail prices have fallen below pre-
spike levels (-6% in April 2009 co mpared to two years earlier). 
EN 40   EN Figure 24: Retail price level of several da iry products, Czech Republic, 2007-2009 (€ 
per litre, unless otherwise specified) 
00.20.40.60.811.21.41.6
2007/01
2007/022007/032007/042007/05
2007/06
2007/072007/082007/09
2007/10
2007/112007/12
2008/01
2008/02
2008/03
2008/042008/052008/062008/07
2008/08
2008/092008/102008/11
2008/12
2009/01
2009/02
2009/032009/04Farm-gate price UHT whole milk Yogurt 250 g Butter 250 g 
As retail prices were only available for the most  recent years, the statistical analysis was only 
carried out for the period 2007-2009. Whereas the retail price of fres h whole milk showed 
weak causality with the milk producer price, the consumer prices of semi-skim milk, yogurt 
and butter exhibited low to mode rate correlation with milk produc er prices, and with little 
delay. Price transmission coefficients vary  between 0.15 for natural yogurt and 0.772 for 
butter. 
Figure 25: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, Czech Republic  
Correlation R2              Price transmission coefficient
0.831
0.335
0.162
0.649
0.3580.772
0.272
0.149
0.674
0.393Fresh milk,
semi skimmed
1.5% fatMilk UHT, semi
skimmed 1.5%
fatYogurthYogurth with
fruitsButter2007-2009
 
 
 
EN 41   EN 3.1.1.10.  Lithuania 
The farm-gate prices of milk rose by 57% during the price hike of 2007 but came back 
sharply in 2008, down to -22% compared to pre- spike levels. Available price data at retail 
level show that the consumer prices for most  dairy products have come down after the price 
spike in 2007/2008. However, by May 2009, most of  the observed retail prices still stood 
above pre-crisis levels (+5% for butter, +8% for sterilised UHT milk, +19% for yogurt and 
+20% for Gouda cheese).  
Figure 26: Retail price level of several dairy products, Lithuania, 2007-2009 (LTL per 
unit) 
0123456
2005:09
2005:11
2006:01
2006:03
2006:05
2006:07
2006:09
2006:11
2007:01
2007:03
2007:05
2007:07
2007:09
2007:11
2008:01
2008:03
2008:052008:07
2008:09
2008:11
2009:01
2009:03
2009:05
Farm-gate (1 litre) UHT semi-skim milk (1 litre) Natural Yogurt (500 g) Butter (200 g) Gouda cheese (250 g) 
Retail price for all observed dairy exhibited mode rate to substantial causality link with respect 
to farm-gate price movements. For three out of four products, the importa nce of the milk price 
in explaining the changes in consumer prices  and the degree of pri ce transmission is higher 
during the most recent years than during the period 2005-2006 (zero price transmission in the 
period 2007-2009 can be explained by the opposite  price developments observed since the 
beginning of 2009, with yogurt prices rising while milk producer prices decline markedly). 
Retail prices are reactive to producer price movements with little or very low delay (i.e. one 
month). Only in the case of yogurt a longer time lag was detected (4 months). 
EN 42   EN Figure 27: Summary of the main results of the statistical analysis of price 
transmission: dairy sector, Lithuania  
Correlation R2              Price transmission coefficient
0.3270.3320.2920.289
0.4440.430.8310.4580.1760.130.1210.152
0.17900.4660.263
UHT semi-skim milkNatural yogurtButterGouda cheeseUHT semi-skim milkNatural yogurtButterGouda cheese2007-2009 2005-2006
 
3.1.1.11.  Spain 
Most of milk produced in Spain (around 90%) is delivered to dairies fo r industrial processing. 
An important part (up to 60%) of the milk collected by the industry is earmarked for the 
production of liquid milk, a low value-added product. Although Spanish milk production is 
quite atomized at the level of agricultural holdings, the processing industry is more 
concentrated. The Spanish milk sector is char acterized by an overall lack of marketing 
contracts and a relative s carcity of farmer cooperatives. Wh ile only 30% of the milk in Spain 
is marketed through cooperatives, this propor tion reaches 68% on average in the EU (Foro 
Agrario, 2000). 
As a result, prices are established by direct negotiation between the dairy industry and the 
farmer for a high proportion of the collected milk. This implies that the farm price is mainly 
determined by the industry, owing to the low bargaining power of the farmers relative to the dairy industry (Foro Agrario, 2000). However, it s hould also be noted that the implementation 
of the milk quota system after the Spanish accession to the EU has somewhat contributed to 
improve the balance of bargaining power between farmers and the industry by stimulating competition within the food industry to  have access to the raw material. 
The Spanish dairy industry underwent many merger s and acquisitions in the 1990s, especially 
in the liquid milk chain, yielding higher levels of industry con centration. Concentration in the 
dairy industry varies among sect ors, being rather low in the cheese sector, high for yogurt and 
dairy desserts and average for liquid milk. Despite  the active restructuring process, Spanish 
dairy industries continue to be relatively small in comparison to most retail firms, which also 
went through important changes leadi ng to higher concentration levels. 
Only limited statistical information was available in the case of Spain. However the Spanish 
Price Observatory has recently published so me detailed information concerning the 
distribution of value added in the supply chain for liquid milk. It shows that raw material 
represents between around 39% of the final re tail price. The food industry margins (which 
include all other costs) repres ent approximately 31% of the retail price while the retailing 
sector adds some 30% of the final price paid by the consumer (cf. annex). 
EN 43   EN Figure 28: Developments of producer and consumer price indices in the Spanish 
dairy sector, 2006-2009 (Jan 2006=100) 
8090100110120130140150
2006m01 2006m03
2006m05 2006m07
2006m09 2006m11
2007m01 2007m03
2007m052007m07
2007m092007m11 2008m01
2008m03 2008m05
2008m07 2008m09
2008m11 2009m01
2009m032009m05
2009m07Producer price raw milk
Consumer price 'milk, cheese, eggs'
 
Like in other Member States farm-gate milk prices have increased by more than 50% in the 
second half of 2007 and dropped su bsequently below pre-price su rge levels. Consumer prices 
for the category "milk, cheese and eggs" (the onl y source of information on consumer prices 
currently available at Eurostat) experienced a steep increase (+15%) in the last three months 
of 2007. They have declined since the beginning  of 2009. However, in August 2009 they still 
stood some 9% higher than tw o years earlier in August 2009. 
3.1.2.  Empirical evidence from the pork supply chain in some EU member States 
3.1.2.1.  Pork supply chain background 
The EU pig meat sector 
With a share of around 50% of total meat consum ption in the EU, pork is the most consumed 
meat in Europe. In the fram ework of a relatively light ma rket organisation within the 
Common Agricultural Policy (with import pr otection and occasional export support and 
private storage aid as major elements), the EU agricultural pig meat sector increased both its output and its exports over  the last few years. 
Increased costs, such as feed costs, and rath er low producer prices have recently provoked a 
contraction in sector output. This contraction im plied an acceleration of the already intensive 
process of structural change pr evailing in the sector. For example, in Germany, the biggest pig 
meat producer in the EU in terms of output quantities, the number of pig holding farms 
decreased by more than 60% between 1996 a nd 2008, and the decrease in the number of 
holders recently amounted to 16.7% in just one year (in 2008 as compared to 2007), while the 
overall number of pigs decreased by just 1.5% (according to November/December 2007 and 
2008 livestock survey results). 
This structural adjustment helped the EU pig production sector to achieve remarkable 
efficiency gains over the last decades. In an environment of intensive competition on the agricultural supply side, the corresponding cost reductions have been transmitted to the 
downward supply chain. Over the years, the ra w product value share at agricultural producer 
level in the final pork product value at consumer level has be en decreasing continuously.  
EN 44   EN Despite ongoing structural change, the number of  pig farmers in the EU competing for access 
to the pig product distribution channels remains rather important as compared to the number 
of actors involved and the degree of concentration reac hed in the first and second stage meat 
processing, wholesale, and retail sectors. The top 15 EU27 meat primary processors make up 
a market share of around 25%34, and the top 30 European food retailers account for a market 
share of around 55%35. It is often referred to as a 'ret ail driven supply chain rationalisation'36, 
characterised by slowly growing pork consumpti on and continuous growth in discount market 
channels, which increasingly deliver processe d meat and industrially packed fresh meat 
(preferably under own retail brands) to consumers.  
Market situation 
The pig meat market situation has been difficu lt over the past few years as rising feed and 
energy costs combined with stagnating dema nd in the wake of the economic crisis.  
Figure 29: Developments of producer and co nsumer price indices in the EU pig meat 
sector, 1997-2009 (Jan 1997=100) 
60708090100110120130140150160170180190
1997/01
1997/05
1997/09
1998/01
1998/05
1998/091999/01
1999/05
1999/092000/01
2000/05
2000/092001/01
2001/05
2001/09
2002/01
2002/05
2002/09
2003/012003/05
2003/09
2004/012004/05
2004/09
2005/012005/05
2005/09
2006/01
2006/05
2006/09
2007/012007/05
2007/09
2008/012008/052008/09
2009/01
2009/05Soft wheat, ex-wholesale
Consumer price meats
Slaughter pig, free-slaughterhouse
 
This resulted in a deterioration of pig producer's  margins that in turn generated a contraction 
in output and increased structural change. Comp ared to other sectors, like the poultry sector, 
pig farmers were not able to fully transmit the increase in the production costs for feed, 
energy and labour to the pr ocessors and retailers.  
                                                 
34 Gira (2006, 2007, 2008). 
35 Der Lebensmittelhandel in Europa 2007. Unternehmen, Strukturen, Entwicklungen. Deutscher 
Fachverlag, Lebensmittelzeitung. The delimitation of Europe refers to West-, Central- and Eastern Europe (excluding Turkey, including Russia) – more concrete definition available within the 
publication. 
36 Gira (2006, 2007, 2008). 
EN 45   EN 3.1.2.2.  Main findings of statistical  analysis on pork products 
The following table summarises the change in pric es for pig meat at the farm gate and for 
selected pork products at retail  level over the last two years37. These data illustrate the 
diversity of market situation  along the food supply chain in the EU and provide some 
insights concerning changes in marg ins at the processors and retaile rs levels. They also reveal 
specific marketing and pricing strate gies of the downstream sector.  
Table 5: Price change between April 2009 and May 2007 for pig meat at the farm 
gate and for selected pork products at  retail level (in national currency) 
Germany FranceUnited 
KingdomDenmark Austria SloveniaCzech 
RepublicLithuania
Farm gate price 2% 8% 37% 6% 3% 3% 18% 19%
Retail prices
Cutlets 4% 4% 9% 41%
Tenderloin -8% -3% 18% 20%Roasted pork 4% 10%Shoulder, neck 39% 8% 19%Chopped pork -5%Minced pork 7% 36%Pork loins 13%Pork belly 10%Bacon, back 18%Bacon, gammon 7%Ham 5% 18% 5% 37%
Sausage 8% 9%
 
Source: European Commission based on inform ation sent by selected Member States 
The trends in pig meat producer prices and the consumer prices for pork-based products tend 
to show a widening in the gross margin38 of the downstream sectors for most pork products 
and countries studied39. However, when compared to the s ituation in the dairy sector, we can 
observe that in some countries and for so me specific pork produ cts (e.g. tenderloin in 
Denmark and Germany), retail prices in the po rk chain have come down in line with and 
sometimes in excess of pig farm-gate prices over the last two years. Price developments in the 
UK are strongly influenced by the recen t exchange rate fluctuations.  
The statistical analysis of price transmission shows that: – There are wide differences  of results between similar products across countries and 
between products in each country, reflecting th e diversity in the competitive structure and 
the functioning of the chain in  each country as well as diff erences in the price formation 
mechanism. As for the dairy sector, this does not mean that the whole analysis is 
                                                
 
37 The identification of potential malfunctioning along th e food supply chain requires a level of analysis 
which goes beyond the level of detail that is curren tly allowed by the available statistical information 
provided by Member States to Eurostat. 
38 It is important to differentiate gross margins (i.e. output prices minus the cost of agricultural or food 
inputs) from net (operational) margins (which correspond to the gross margin less all the costs 
incurred). As a result, an increase in gross margins does not necessarily imply an increase in profit 
levels. 
39 In contrast to results from AgraCeas (2007) which shows that there has been a general further 
narrowing of producer-consumer margins over the period analysed in the pork product chain. 
EN 46   EN inconclusive. On the contrary this supports the view that the iden tification of potential 
malfunctioning along the food supply chain need s a level of analysis which goes beyond 
the level of detail that is currently allowed by the available statistical information provided by Member States to Eurostat. 
– Causality tests  show that for around 40% of the observed pork-based food products the 
degree of statistical causality between the ag ricultural raw material price movements and 
that of the corresponding consum er products is low or even null. Weak causality was also 
detected when the observation of producer an d consumer price develo pments did not raise 
particular concern of imperfect  price transmission (for example in France where consumer 
prices for the examined pork products have foll owed a similar path to pig meat price at 
producer level). This weak causality could be  explained by factors such as the limited 
share of raw material in final product and th e pricing strategy of processors/retailers. 
– An analysis of the pork products which de monstrate a significant degree of causality 
between producer and consumer prices, show s that only approximate ly 10% exhibited a 
substantial price transmission , 45% showed moderate pri ce transmission while around 
45% of the pork products indicated a low degr ee of price transmi ssion between producer 
and consumer prices. 
– Speed of transmission : Price transmission was found to  be higher for ham and boneless 
shoulders than for loins and tenderloins whic h showed below average price transmission 
coefficients. The delay in price response seem s to be higher in the EU12 than in the EU15. 
At EU-27 level, the average pr ice response at consumer level takes place with a delay of 
one month. Among the observed products loin s and tenderloins showed a longer price 
response, up to 4 and 5 months (in the case of Slovenia and Germany respectively). Similar 
to the results of the empirical analysis for the dairy sector, price transmission appears to 
have taken place at significantl y faster pace than what the ev idence obtained at aggregate 
level tended to indicate. However, the rapid transmission of price changes only concerns 
relatively unprocessed pig meat products su bject of this analys is and whose price 
developments were found to be closely linked to  those of farm-gate pi g meat prices. When 
examining the whole spectrum of pig meat produc ts, it becomes clear that changes in the 
consumer price of many pig meat products which are not closely linked to changes at 
producer levels took place at much slower sp eed (at least after a 12 month-delay). The 
transmission of price changes between the primary and the downstream sectors seems to 
have taken place at very different pace acros s product chains and countries depending on 
the competitive structure of the supply chain and the production/marketing strategies put in 
place. 
– Price asymmetry and price transmission over time : the statistical analysis does not 
enable to draw firm conclusions regarding the strengthening of the price transmission 
pattern over the most recent months (as was obs erved for the dairy sector and at aggregated 
agricultural level) as well as the existence of asymmetric behaviour. 
The low price transmission found between the ag ricultural producer stage and the consumer 
stage in most countries (apart from the Unite d Kingdom) tends to indicate that only a limited 
part of the changes in pork retail prices was generated by price changes at the farm gate. As 
shown by AgraCeas (2003), price transmissi on may be stronger from the retail and/or 
processing stage to the producer level (depending  on the country, the net trade position and/or 
the relative strength of the downstream sectors). 
EN 47   EN Figure 30: Frequency of substantial, modera te, low price transmission results for the 
pig meat sector 
0%10%20%30%40%50%60%
All selected EU27 countries EU15 (FR, UK, DE, DK, AT) EU12 (CZ, SI, LT)
substantial moderate low 
In the following sections, a detailed statistical analysis of the pork supply chain is presented 
for three of the largest pork producing and consuming Member States (Germany, the UK and France). Results for other countries for which so me data were provided are also summarised.  
3.1.2.3.  Germany 
The German pig slaughter industry recently reached new output records, though this 
development was not driven by substantial additional indigenous pig production activity 
within Germany but by rapidly in creasing piglet and slaughter animal imports, mainly from 
Denmark and the Netherlands, due to a more competitive German slaughter/processing 
industry. There was a strong con centration move in the pig sl aughtering industry in recent 
years. The top three pig slaughter companies in Germany accounted for more than 50% of 
total pig slaughter in 2007.  
The share of pig meat used for further proc essing is relatively high in Germany at around 
65%
40. Wholesalers play an important role in pig meat exports (30%) and as suppliers of the 
food service industry (more th an 50%), they deliver howe ver only 14% of the product 
amounts demanded by the food retail sector. Butchers  hold a market share of less than 20% in 
total unprocessed pig meat sales in  food retail. However their shar e is decreasing, as more and 
more fresh meat is sold in hard discounters. Around 18% of total cons umption of unprocessed 
meat in Germany is served through the food service sector. The shar e of the food service 
sector is much higher for processed pork produc ts like sausages, escalope, meat balls etc. 
Regarding processed pork products, hard discounters hold market sh ares of up to 50% for 'fast 
moving' products like certain co ld cuts (sliced pork sausage,  salami, cooked ham) (GIRA, 
2006, 2007, 2008). 
An examination of the actual price developm ents along the German pork supply chain shows 
that average retail prices have hardly fa llen since 2004, despite stagnating agricultural 
producer prices and despite the increased market  share of hard-discounters and the recent 
                                                 
40 ZMP Marktstudie 2006: Warenstromanalyse Fleisch. 
EN 48   EN entry of the latter into the fres h meat segment (cf. graphs belo w). The margins realised within 
the non-agricultural downward supply chain tend to increase slight ly. Retail prices appear to 
have increased more in the processed meat than  in the fresh meat sector. According to (ISN, 
2009), the agricultural pig produc er received in January 200 9 around 18% of the consumer 
expenditure for pig meat41. 
Figure 31: Price developments (in absolute  terms) within the German supply chain 
for fresh pig meat products (Jan 2004 - Jun 2009) 
01234567891011
2004/01
2004/03
2004/05
2004/07
2004/09
2004/11
2005/01
2005/03
2005/05
2005/07
2005/09
2005/11
2006/01
2006/032006/052006/07
2006/09
2006/112007/012007/03
2007/05
2007/072007/092007/11
2008/01
2008/03
2008/05
2008/07
2008/09
2008/11
2009/01
2009/03
2009/05Price in €/kg carcass/product weight
Slaughter pig, free slaughterhouseRetail price minced porkRetail price pork cutletRetail price pork fillet
 
Source: DG AGRI, BMVEL/AMI. 
Compared to milk, German farm -gate pig prices increased to a lesser extent during the food 
price hike of 2007/2008 as produc ers had difficulties to transmit the increasing production 
costs (e. g. feed, energy) to the food industry. Pi g meat prices at produc er level increased by 
34% between May 2007 and August 2008, before fa lling close to pre price-spike levels by 
April 2009. Retail prices for the main pig meat cuts followed broadly, but less sharply, the 
same path: prices for cutlets and minced pork were in April 2009 only slightly higher 
compared to the situation two ye ars earlier. In the case of tenderl oins, retail pr ices in April 
2009 were 8% lower than before the price spike.  
The statistical analysis found weak causality in  the case of pork cutlets and ham prices. The 
importance of the pig price in explaining the cha nges in consumer prices  is rather low: for 
loin/tenderloin it is below the average correlatio n observed in selected Member States and it is 
lower during the most recent years than in the period 2004-2006. For minced pork on the 
other hand the correlatio n with the price of the raw material  has been stronger and higher over 
the last couple of years. The transmission coeffi cients appear rather low as well indicating that 
only a limited part of retail price changes was generated by price changes at the farm gate. 
                                                 
41 ISN press release of 12/01/2009. 
EN 49   EN Figure 32: Price developments (in absolute  terms) within the German supply chain 
for processed pig meat products (Jan 2004 – Jun 2009) 
0123456789101112
2004/01
2004/04
2004/07
2004/102005/01
2005/04
2005/07
2005/102006/012006/04
2006/07
2006/10
2007/01
2007/04
2007/072007/10
2008/01
2008/04
2008/072008/102009/01
2009/04Price in €/kg carcass/product weight
Slaughter pig, free slaughterhouseRetail price Wiener sausageRetail price boiled ham, slicedRetail price salami, sliced
 
Source: DG AGRI, BMVEL/AMI. 
Figure 33: Summary of the main results of the statistical analysis of price 
transmission: pig meat sector, Germany  
Correlation R2              Price transmission coefficient
0.3080.0030.1120.156
0.20500.1310.17
Pork mincedPork
tenderloinPork mincedPork
tenderloin2007-2009 2004-2006
 
3.1.2.4.  United Kingdom 
The UK pig farming sector has shown a remarkab le decline over the last years and undergone 
a continued move towards larger specialised pro duction units (specialised either into breeding 
or fattening, and also vertically  aligned to specific slaughtere rs). The industry has been faced 
with permanent pricing pressures, further rein forced by major import flows in the framework 
of the EU Single Market (pork imports are estimated to make up for around 62% of UK 
domestic pig meat consumption, with Denmar k and the Netherlands as main sources of 
supply).  
EN 50   EN The pig slaughtering sector is continuing to rati onalise and consolidate, with the five largest 
slaughterers now accounting for around 80% of  the UK's pig meat production. The total 
number of industrial abattoirs amounted to 180 in 2006.  
Figure 34: Price developments (in absolute  terms) within the UK supply chain for 
fresh pig meat products (Jan 1999 – Jun 2009) 
050100150200250300350400450500550600650
1999/01
1999/051999/09
2000/01
2000/05
2000/09
2001/01
2001/05
2001/09
2002/01
2002/05
2002/09
2003/01
2003/05
2003/09
2004/01
2004/05
2004/09
2005/01
2005/05
2005/09
2006/01
2006/05
2006/09
2007/01
2007/05
2007/092008/01
2008/05
2008/09
2009/01
2009/05Price in British Pence/kg carcass/product weightSlaughter pig, free slaughterhouseRetail price pork, home-killed, boneless shoulderRetail price pork, home-killed, loin (with bone)
 
Source: DG AGRI; National Office of Statistics, UK. 
The demand for pig meat in th e UK concentrates on meat for pr ocessing into bacon, sausages 
and cooked meats, with retail consumption of fresh pig meat representing only around 16% of 
total pig meat consumption. Some 85% of fresh pig meat in retail is being supplied by pre-
packed through specialist retail packing ope rations (GIRA, 2006). A lthough the consumption 
of bacon had declined markedly  since the 1970s, the overall pig meat consumption, preferably 
in the form of further proce ssed product (around 64% of to tal pig meat supply – excluding 
pork to be processed for the cat ering sector – is further pro cessed), is estimated to have 
remained stable.  
As shown in Graphs 34 and 35, the margins rea lised within the non-agricultural part of the 
fresh and processed pig meat s upply chains have been increasi ng continuously, with a strong 
further push during over the most recent months. 
During the food price hike of 2007/2008 UK farm-g ate pig prices increas ed gradually by 37% 
between May 2007 and April 2009. The retail prices for the main pig meat cuts experienced 
only a limited increase followed by a slight dec line in the first months of 2009. Retail prices 
only increased at the same rate as farm-gate pr ices for boneless pork shoulders. Interestingly 
fresh products increased at a faster  pace than more processed products.
EN 51   EN Figure 35: Price developments (in absolute  terms) within the UK supply chain for 
processed pig meat products (Jan 1999 – Jun 2009)  
01002003004005006007008009001000
1999/01
1999/051999/09
2000/01
2000/05
2000/09
2001/012001/052001/092002/01
2002/05
2002/092003/012003/052003/092004/01
2004/05
2004/092005/012005/052005/09
2006/01
2006/052006/09
2007/01
2007/05
2007/09
2008/012008/052008/092009/01
2009/05Price in British Pence/kg of carcass/poduct weight
Slaughter pig, free slaughterhouseRetail price ham (not shoulder)Retail price pork sausagesRetail price bacon, gammonRetail price bacon, back 
 
Source: DG AGRI; National Office of Statistics, UK. 
Figure 36: Summary of the main results of the statistical analysis of price 
transmission: pig meat sector, United Kingdom  
Correlation R2              Price transmission coefficient
0.6590.5150.4740.4610.3440.4330.0680.265
0.352
0.394
0.615
0.4120.8781.1650.3650.5630.3290.4510.2310.321
0.869
1.202
0.907
0.951 Pork loinPork shoulder bonelessPork bacon, gammonPork bacon, backPork hamPork sausagePork loinPork shoulder bonelessPork bacon, gammonPork bacon, backPork hamPork sausage2007-2009 1999-2006
 
The statistical analysis (causality tests) shows that there is a close link (with a high level of 
correlation and the transmission coefficients) be tween changes in producer pig prices and 
changes in pork-based products at retail level. The regressions were able to explain a large 
EN 52   EN part of the variability for all pr oducts, with price transmission co efficients that in some cases 
stood above 1 (e.g. bacon, gammon and sausag e) over the past couple of years. 
3.1.2.5.  France 
The French pig farming sector has been stagnati ng over the recent years. Pig meat is the most 
widely consumed meat in France, given its extensive use in processed products. Increased 
price pressure originates from pig meat imports from Spain, w ith competitively priced meat 
being used for further processing (mainly hams).  
French pig farming is heavily concentrated in Brittany, and pr imarily involves medium size 
farms. The dominant activity is farrow-to-fini sh, which represents ar ound 86% of the French 
pigs. The largest establishments are groups of  independent producers.  Producer prices in 
France are formed by auctions at  the Marché du Porc Breton.  
The top five slaughter groups in France account  for around 52% of total national production. 
The total number of industria l abattoirs amounted  to 182 in 2006. De velopments in pig 
slaughtering have been characterised by an increasing downstream involvement (in cutting 
and processing) of the slaughter ers, while processed meat manu facturers are not engaged in 
any slaughter activities. Acco rdingly, slaughterers (like COOPERL, BERNARD, SOCOPA 
and KERMENE) carry out more than 70% of all pork cutting in France.  
Figure 37: Price developments (in absolute terms) within the F rench supply chain for 
longe de porc (2000-2009) , €/kg 
 
Around 65% of pork is consumed in the form of  processed products (cooked ham, sausages) 
in France. Consumers usually consider fresh pig meat as a low price, basic product. Fresh pig 
meat is therefore mainly bought in modern reta il outlets (and often in  discount outlets).  
An examination of price developments along the French pig meat supply chain shows that the 
margins generated by the non-agr icultural part of the supply chain have been slightly 
EN 53   EN increasing over the last years (representing around 46% of the final price, in the case of fresh 
pork loins). 
Farm-gate French pig prices increased by 28% between May 2007 and August 2008, before a 
sharp drop that brought prices down by more th an 25 €cents per kg in just three months. 
Retail prices for main pig meat cuts have followed a similar but less spectacular development with prices increasing by between 5 to 7% dur ing the surge in commodity prices. Price came 
down somewhat and by April 2009 stood 4% higher than before the price increase two years 
earlier. This moderate retail price increase compared to May 2007 can easily be explained by 
the relative increase in the price of raw mate rial (+8%) and by the increase in other costs 
throughout the food chain and therefore does not ra ise particular concern in terms of price 
transmission. 
Figure 38: Price developments (in absolute terms) within the F rench supply chain for 
fresh and processed pig meat products (Jan 1992 – Jun 2009) 
0,51,52,53,54,55,56,57,58,59,510,511,512,513,514,5
1992/01
1993/01
1994/011995/011996/01
1997/01
1998/011999/01
2000/01
2001/012002/01
2003/01
2004/012005/01
2006/01
2007/012008/012009/01Price in €/kg carcass/product weightRetail price pork, échine avec os (côtes dans l'échine)
Slaughter pig, free slaughterhouseRetail price pork, rôti dans le filetRetail price pork, jambon supérieur
 
Source: DG AG RI, Insee. 
The two retail pig meat prices show only a weak  causality with respect to farm-gate price and 
therefore the results of the regre ssion analysis are not shown here.  
3.1.2.6.  Other observed countries 
The following section summarises the main results  of the statistical an alysis based on data 
received from Denmark, Austria, Cz ech Republic, Slovenia and Lithuania.  
Out of these five countries and a total of 15 products for which data was available only six are 
presented below. Weak causality is detected in Austria and Czech Republic where two out of 
three retail prices are dismissed because of  weak causality (boneless and bone-in cutlets in 
Austria and roasted pork and por k shoulder in Czech Republic). The two examined Slovenian 
products, namely sausages and tenderloin, show both substantial causality but in the case of 
sausages the regression analysis suggests that th e farm-gate prices barely explain changes in 
retail prices. For Lithuania two out of five produc ts showed weak causality  with respect to the 
price of the raw material  (pork nexk and cutlets). 
EN 54   EN Table 6: Summary of the main results of the statistical analysis of price 
transmission: pig meat sector, Austria, Czech Republic, Slovenia  
Product Country Correlation (R2) Price transmission Lag
SI 0.066 0.189 4
LT 0.219 0.342 0
Minced pork LT 0.022 0.118 0
CZ 0.379 0.28 0-1
LT 0.181 0.403 1
Belly AT 0.011 0.035 0HamLoins/tenderloins
 
In the case of Denmark weak causality was detect ed for pork tenderloin retail prices with 
respect to pig meat producer prices. For chopped pork, the ot her product for which retail 
prices were available, causal ity link was established but regression results were extremely 
poor (very low correlation indicator and low significance transmission coefficients). 
Therefore no results are shown in the case of Danish pig meat. 
4. CONCLUSIONS  
The price transmission mechanism in the food  supply chain has been analysed both at 
aggregated level across the EU and for the por k and dairy sectors for some Member States, 
with a specific focus on the extent to which th e changes in commodity prices were transmitted 
to food consumer prices. 
On the basis of the analysis at aggregated EU level, it appears that there is a very limited link 
between the evolution of agricultural commodity  prices and the evolution of food consumer 
prices. This can be explained by the weak relations hip between agricultural commodity and 
food producer price indices, especially before 2007. This overall low price transmission along 
the food chain can be explained by several f actors: the limited share of agricultural 
commodities into final food prices, inefficiencies in the market structure of the chain (either 
linked to imbalances in bargaining power an d/or anti-competitive practices), and some 
adjustments constraints and costs (e.g. cost s of changing prices for both producers and 
retailers, the slow price transm ission due to long-term contr acts between economic actors). 
There has been a significant change in the pr ice transmission patter n along the chain from 
2007 onwards with the sharp rise and the follo wing plummeting of commodity prices. At each 
step of the chain, the magnitude of price tran smission has increased a nd actors have tried to 
pass on to their customers the unusual increase in  their input costs. Fu rthermore, since 2007, 
consumer prices – and to a lesser extent food pr oducer prices – have failed to decrease in line 
with the decrease in agricultural commodity prices, exhibiting a 'rockets and feathers' 
evolution pattern in which prices are fast to  raise and slow to d ecrease. The decline in 
agricultural commodity prices has been passed on up to one year later to the consumers. 
The European food supply chain appears signif icantly fragmented across Member States in 
terms of price transmission pattern at each step  of the chain. Both magnitude and speed of 
price transmission vary significan tly across Member States, resul ting in strong differences in 
consumer food prices evolution. This large variability in the degree, speed and asymmetry of 
price transmission between product  chains and countries reflect s the wide diversity in the 
competitive structure and the functioning of the food supply chain. This motivated the 
undertaking of a spec ific in-depth enqui ry on the dairy and pig meat  sectors which have been 
EN 55   EN particularly affected by the economic crisis a nd for which a certain number of concerns have 
been raised recently regarding the functioning of the chains. 
In the dairy and pork supply chains, an examination of the price developments illustrates the 
differences in market situation across the EU  and provides some insi ghts concerning changes 
in margins at the processors/retailers leve l. Although available statistics until August 2009 
indicate that consumer pri ces for dairy products have b een coming down recently, further 
decline in the next few months would be needed if  they were to fully reflect the drop in milk 
and dairy commodity prices at pr oducer level. The trends in milk producer prices and dairy 
consumer prices tend to show a widening in the gross margin of the downstream sectors for 
most dairy products and countri es studied, most notably ove r the last two years. The 
distribution of these higher gro ss margins between the processing and retail sectors is difficult 
to assess precisely on the basis of  the data available which only pr ovide a partial picture of the 
recent developments in prices and margins al ong the dairy chain (in terms of country, product 
and stages of the chain covered). However, ev idence from national studies shows that there 
has been a clear trend lately towards an increas e in the level of gross margins at processing 
level for some dairy products in some count ries (e.g. UHT milk and yogurt in France, and 
liquid milk and butter in Denmark)42. Evidence of a trend towards a widening in the gross 
margin of the downstream sectors was also found for the pork chain, but to a much lesser 
extent. 
The statistical analysis of price transmissi on in the dairy and pork sectors shows that: 
– There are wide differences  of results between similar dair y/pork products across countries 
and between dairy/pork products in each country, reflecting the diversity in the competitive 
structure and the functioning of the dairy/pork chain in each c ountry as well as differences 
in the price formation mechanism. This do es not mean that the whole analysis is 
inconclusive. On the contrary this supports the view that the iden tification of potential 
malfunctioning along the food supply chain need s a level of analysis which goes beyond 
the level of detail that is currently allowed by the available statistical information provided 
by Member States to Eurostat. 
– Causality tests  show that for around 40% of the observed dairy and pork products the 
degree of statistical causality between the ag ricultural raw material price movements and 
that of the corresponding consum er products is low or even nu ll. Though this result seems 
rather high in terms of lack of causality linka ge between producer and consumer prices, it 
remains in line with the findings obtained in other studies. Furtherm ore, weak causality 
was also detected for some dairy and pork products whereas  the mere observation of 
producer and consumer price developments did not raise particular concern of imperfect 
price transmission (e.g ; weak causality was detected fo r French natural yogurt even though 
the price developments in the last couple of  years have closely followed farm-gate milk 
price movements). This weak causality could be explained by factors such as the limited share of raw material in fina l product and/or the pricing stra tegy of processors/retailers. 
                                                
 
42 These findings appear to be br oadly consistent with the analysis of the evolution of value-added 
repartition and profit margin across the overall EU fo od supply chain over the last few years (cf. 
Commission Staff Working Document "The evolution of value-added repartition along European food 
supply chain" accompanying the Co mmunication "A better functioning f ood supply chain in Europe", 
COM(2009) 591). 
EN 56   EN – For the dairy and pork products which dem onstrate a significant degree of causality 
between producer and consumer prices, the an alysis shows that on ly approximately 20% 
and 10% respectively exhibited a substantial price transmission, 30% and 45% respectively 
showed moderate price transmission while ar ound half of the produc ts indicated a low 
degree of price transmission between producer  and consumer prices. At Member State 
level, evidence tends to show higher price tran smission in the new Member States (CZ, SI 
and LT) than in the old Member States. Among the dairy products  analysed, a higher 
degree of price transmission wa s detected for relatively unp rocessed products like butter, 
bulk cheese and liquid milk. Mo re processed and/or differen tiated products showed lower 
degree of price transmission, reflecting the hi gher importance of other cost components 
and margins. 
– Speed of transmission: the delay in price res ponse seems to be highe r in the EU12 than in 
the EU15. At EU27 average price response at c onsumer level takes place with a delay of 
around one month, i.e. at significantly faster  pace than what the evidence obtained at 
aggregate level tended to indicat e. However, this rapid tran smission of price changes only 
concerns dairy/pork products w hose price developments were found to be closely linked to 
those of milk/pig meat producer prices. Wh en examining the whole spectrum of dairy/ 
pork products, it becomes clear that changes in the consumer price of many dairy/pork 
products which are not closely linked to chan ges at producer levels took place at much 
slower speed (at least after a 12 month-delay). Furthermore, when the statistical analysis 
indicates that some price transmission has ta ken place after a given number of months, it 
does not necessarily provide information co ncerning its completeness. Finally, the 
transmission of price changes between the primary and the downstr eam sectors seems to 
have taken place at very different pace acr oss dairy/pork product chains and countries. 
– The analysis of price developments and the statistical tests on pric e transmission provide 
indication of asymmetric behaviour across th e dairy chain where da iry consumer prices 
have been fast to increase, but slow to d ecline in the wake of the sharp drop in milk 
producer prices (e.g. Slovenia, United Ki ngdom, Denmark, Lithuania). Furthermore the 
price transmission pattern in the dairy sect or has significantly strengthened since the 
commodity price surge in 2007. By contrast, the analytical evidence for the pork supply 
chain does not enable to draw any firm conc lusions regarding asymmetric behaviour and 
the degree of price transmission. 
The overall rather low price transmission be tween the agricultural producer stage and the 
consumer stage in the two sectors of milk a nd pork may be linked to several factors: the 
steadily declining share of the agricultural raw ma terials into the consumer price of dairy and 
pork products, potential imperfections in the comp etitive structure of th e chain (either linked 
to imbalances in bargaining power and/or anti-competitive practices), some specific adjustments constraints and co sts (e.g. long-term contracts between economic actors) and 
pricing/marketing strategies in the downstream sectors. 
In the case of the dairy chain, the specificities of the pric e formation mechanism and the 
importance of producer organisations in many countries may also contribute to water down 
the causality and degree of price transmissi on between the milk producer prices and dairy 
consumer prices. On the other hand, the pri ce transmission in the pork supply chain may be 
stronger from the retail and/or processing st age to the producer level (depending on the 
country, the net trade position and/or the rela tive strength of the downstream sectors). 
EN 57   EN However, caution is deemed necessary in draw ing firm analytical conclusions from the 
measurement and interpretation of the functioni ng of the price transmission mechanism owing 
to the wide diversity of the f ood supply chain in the EU across and within Member States and 
product chains. Furthermore, these analyses str ongly rely on the availability and quality of 
price and margin information. 
EN 58   EN  
5. REFERENCES  
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European Commission. 
AgraCeas, (2007), "The gap betw een producer prices and the pr ices paid by the consumers", 
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Journal of Agricultural Economics , 81, 525-533. 
Comité Economique, Social et Environnemental (2009), "Les modalités de formation des prix 
alimentaires: du producteur au cons ommateur", Avis et rapports. 
DairyCo, (2009), "Ensuring a sust ainable dairy supply chain". 
DairyCo, (2009), Who made what in the dairy industry and how  it has changed Dairy Supply 
Chain Margins 2005 – 2006 and 2007 Margins evolution. 
Danish Competition Authority (2009), "Food pri ces: price developments for milk, butter and 
bread". 
Dhyne, E., Konieczny, J., Rumler, F.  and Sevestre, P. (2009), Price Rigidity in the Euro Area 
– An Assessment, European Economy Economic Paper 380  
Foro Agrario, (2000) La reforma de la PAC de  la Agenda 2000 y la Agricultura Española. Ed. 
Mundi-Prensa.  Madrid. 
FranceAgriMer, (2009) "Observatoire des Prix et des Marges – Filière Porc" 
FranceAgriMer, (2009) "Observatoire des Pr ix et des Marges – Filière Laitière" 
Gardner, B. L. (1975). "The Farm-Retail Pr ice Spread in a Competitive Food Industry", 
American Journal of Agricultural Economics 57, 383-406. 
GIRA, (2006), "Meat in Retail: EU-25 Winners and Losers". 
GIRA, (2007), "The Gira EU M eat Company Panorama 2006/07-2011". 
GIRA, (2008), "Strategies and Opportunities for the next tem years in EU Processed Meat 
markets". 
Goodwin, B. K. and M. T. Holt.  (1999). "Asymmetric Adjustme nt and Price Transmission in 
the U.S. Beef Sector," American Journal of Agricultural Economics, 79: 630-637 . 
Harvey, M. (2007), "The rise of Supermarke ts and asymmetries of Economic Power",  
Interessengemeinschaft der Schweinehalter  Deutschlands e.V., Press Release, 2009 
EN 59   EN Jensen, J.D. and Møller, A.S., (2009), Vertical price transmission in the Danish food 
marketing Chain  
Kinucan, H.W. and O.D. Forker, (1987). "Asymm etry in Farm-Retain Price Transmission for 
Major Dairy Products", American Journal of Agricultural Economics,  69 : 307-328.  
London Economics, (2003), "Investigation of the de terminants of farm-retail price spreads", 
Report for Defra. 
McCorriston, S., Morgan, C.W. and Rayner, A.J.  (2001). "Price transmission: the interaction 
between market power and returns to scale", European Review of Agricultural Economics, 28, 
143-159. 
McCullough, E.B., Pingali, P.L. and Stamoulis, K.G. (2008), "The transformation of Agri-
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466-502. 
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EN 60   EN  
6. ANNEXES  
Figure A.1.: Pass-through from agricultural co mmodity prices to food consumer prices 
between January 2007 and May 2009 by Member States 
Source: EUROSTATContribution of producer to consumer 
prices pass-through Maximum increase in agricultural commodities prices 
over maximum increase in food consumer prices (pass-
through) between January 2007 and May 2009; %Contribution of agricultural commodity 
to producer prices pass-through
Stripes indicate pass-through value over 100%
0%20%40%60%80%100%120%140%
FR CZLU DEPT CYES IEDK UK
EU15ATSE
EU27GRSK ITRO SI
HUNL
EU10FI
BGPL BE LT
 
Annex A.2.: Detailed equation of price transmission relationship estimated by panel data 
regression 
The equation estimated by the regression is: 
 c P P P Pit
Labour
iiit
Energy
iiit
Input
iit
Output +∆+∆+∆=∆−
=−
=−
=∑ ∑ ∑
6.3.0 6.3.0 6.3.0γ β α
 
When estimating price transmission from ag ricultural commodity prices to food producer 
prices, output prices are food pr oducer prices and input prices are commodity prices. When 
estimating price transmission at the retail level, output prices are food consumer prices and 
input prices are food producer  prices. The coefficients α indicate the magnitude of the price 
transmission. A change of 10% in input prices translates into a α*10% change in output 
prices. Variations of energy prices are proxied  by the variation of producer prices of the 
energy sector and labour costs variations are the variations in unit labour costs for each 
relevant sector ( i.e. manufacturing labour costs for pric e transmission from commodity to 
food producer, and trade services labour costs fo r price transmission fr om food producer to 
retailers.) 
EN 61   EN Table A.1.: Results from panel data regression of food producer monthly price 
variation with agricultural comm odity monthly price variations 
Food Producer Prices Food Producer Prices
Panel covera ge: EU15 Member States EU12 Member States
Time covera ge: 2000-2009 2000-2006 2007-2009 2000-2009 2000-2006 2007-2009
Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient
Commodity prices (current) 1%*** 1%* 8%*** 4%*** 2%*** 14%***
Commodity prices (3-month lag) 1%** - 14%*** 3%*** 1%** 9%***
Commodity prices (6-month lag) - - 10%*** - - 9%**
Energy prices 3%*** - 6%*** 4%** 6%** -
Energy prices (3-month lag) 2 % * * * - ----
Energy prices (6-month lag) - - ----
Unit Labour costs - - ----
Unit Labour costs (3-month lag) - -1%** - - - 6%**
Unit Labour costs (6-month lag) - - ----
Fit of the regression - Adjusted R² 0.19 0.08 0.37 0.33 0.28 0.45
*** Indicates significance at 1% * Indicates significance at 10%
 ** Indicates significance at 5% - Indicates no significance
Source: EUROSTAT price indices, own calculationDependent variable -  
Monthly variations in:
Explanatory variables - 
Monthly variations in:
 
Table A.2.: Results from panel data reg ression of food consumer monthly price 
variation with food producer monthly price variations 
Food Consumer Prices
Panel covera ge: EU27 MS EU15 MS EU12 MS
Time covera ge: 2000-2006 2007-2009 2000-2006 2007-2009 2000-2006 2007-2009
Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient
Food producer prices (current) 32%*** 26%*** - 9%** 42%*** 41%**
Food producer prices (1-month lag) 20%*** 17%*** - 20%*** 33%*** -
Food producer prices (3-month lag) - 14%** - 10%* - 25%***
Food producer prices (6-month lag) - 13%* 11%*** - - 24%**
Energy prices - - - 2%* 5%* 5%**
Energy prices (3-month lag) 2 % *- - - 4 % *-
Energy prices (6-month lag) -- - 3 % * * --
Unit Labour costs 6%*** - - - - 10%**
Unit Labour costs (3-month lag) -- -- --
Unit Labour costs (6-month lag) -3%*** - 2%** - -9%*** -
Fit of the regression - Adjusted R² 0.20 0.31 0.17 0.27 0.31 0.37
*** Indicates significance at 1% * Indicates significance at 10%
 ** Indicates significance at 5% - Indicates no significance
Source: EUROSTAT price indices, own calculationDependent variable -  
Monthly variations in:
Explanatory variables - 
Monthly variations in:
 
Annex A.5.: Detailed equation of price tran smission relationship to test symmetry 
The equation estimated by the regression to test for asymmetry is the following: 
 c P P P a P a Pit
Labour
iiit
Energy
iiit
Input
iiiit
Input
iiit
Output +∆+∆+∆ ∆ =∆−
=−
=−
=− −
=+∑ ∑ ∑ ∑
6.3.0 6.3.0 6.3.0 6.3.0γ β α α
 
Where 
 1 if 0
0 if 0ti
Input
i ti
InputPaP−
−⎧∆≥ ⎪=⎨∆< ⎪⎩  
Price transmission will then be symmetric if we have a significant probability that:  
 ∑∑
=−
=+=
6.3.0 6.3.0 ii
iiαα
 
EN 62   EN Table A.3.: Results from panel data regre ssion testing asymmetry along the food 
supply chain 
Food producer prices
Panel covera ge: EU27 Member States
Time covera ge: 2000-2009 2000-2006 2007-2009
Coefficient for 
commodity price increaseCoefficient for 
commodity price decreaseCoefficient for 
commodity price increaseCoefficient for 
commodity price decreaseCoefficient for 
commodity price increaseCoefficient for 
commodity price decrease
Commodity price (current) 3%*** 2%*** 1%*** 2%** 20%*** 14%***
Commmodity price (1-month lag) 2%*** 2%*** - 2%*** 17%*** 16%***
Commodity price (6-month lag) - - - - 16%*** 14%***
Energy prices 3%*** 3%*** 2%* - 4%*** 6%***
Energy prices (3-months lag) 1%* 1%* - - - -
Energy prices (6-months lag) -- -- --
Unit Labour costs -- -- --
Unit Labour costs (3-months lag) -- -- - 3 % * *
Unit Labour costs (6-months lag) -- -- --
Fit of the regression - Adjusted R² 0.25 0.24 0.13 0.13 0.40 0.32
*** Indicates significance at 1% * Indicates significance at 10%
 ** Indicates significance at 5% - Indicates no significance
Source: EUROSTAT price indices, own calculationDependent variable -  
Monthly variations in:
Explanatory variables - 
Monthly variations in:
 
Food consumer prices
Panel covera ge: EU27 Member States
Time covera ge: 2000-2009 2000-2006 2007-2009
Coefficient for 
producer price increaseCoefficient for 
producer price decreaseCoefficient for 
producer price increaseCoefficient for 
producer price decreaseCoefficient for 
producer price increaseCoefficient for 
producer price decrease
Producer price (current) 40%*** 30%*** 42%*** 36%*** 34%*** -
Producer price (1-month lag) 24%*** 25%** 26%*** 31%*** 21%*** -
Producer price (3-month lag) 8%* - - - 14%** 47%**
Producer price (6-month lag) - - - - 13%* n.a.
Energy prices 2%* 2%*** - - 2%* 5%***
Energy prices (3-months lag) 2%* 2%** 2%* 2%* - -
Energy prices (6-months lag) -- -- --
Unit Labour costs 6%*** 6%*** 6%*** 6%*** - -
Unit Labour costs (3-months lag) -- -- --
Unit Labour costs (6-months lag) -2%* -2%* -3%*** -3%*** - -
Fit of the regression - Adjusted R² 0.23 0.16 0.20 0.16 0.32 0.20
*** Indicates significance at 1% * Indicates significance at 10%
 ** Indicates significance at 5% - Indicates no significance
Source: EUROSTAT price indices, own calculationDependent variable -  
Monthly variations in:
Explanatory variables - 
Monthly variations in:
 
Figure A.2: Household expenditure for dairy products in France  
Liquid Milk
Yogurt and 
milk dessert
ButterCheeseIce cream 
and others
 
EN 63   EN Figure A.3: Price level of several dairy pro ducts at consumer level (except from milk 
at farm-gate level), Fr ance, 2001 - 2009 (€ per unit)  
00.10.20.30.40.50.60.70.80.91
2009/04
2008/12
2008/08
2008/04
2007/12
2007/082007/04
2006/12
2006/08
2006/04
2005/122005/08
2005/04
2004/12
2004/08
2004/04
2003/12
2003/08
2003/04
2002/122002/08
2002/04
2001/12
2001/08
2001/04Price 100gr Emmental Butter price 125gr Price 500gr yoghurt
Consumer liquid milk price Milk price at farm level 
Figure A.4: Price level of several dairy pr oducts, at consumer level, United Kingdom, 
1999 - 2009 (£pence)  
020406080100120
1999/01
1999/07
2000/01
2000/072001/01
2001/07
2002/01
2002/07
2003/012003/07
2004/01
2004/07
2005/01
2005/072006/01
2006/07
2007/01
2007/07
2008/01
2008/07
2009/01 Farm gate milk price Butter: Home produced per 250g Butter: Imported per 250g
Milk pasteurised per pint Cheese: Cheddar type per 100gr 
EN 64   EN Figure A.5: Farm-gate milk pr ice and retail price of severa l dairy products, Denmark, 
2000-2009 (DKK per unit)  
00.511.522.53
2000/01 2000/10 2001/07 2002/04 2003/01 2003/10 2004/07 2005/04 2006/01 2006/10 2007/07 2008/04 2009/01
Whole milk / full-cream milk Crème fraîche, 18% Cheese: Brie, 60% Butter Farm Gates €/kg 
Table A4: Summary of the results of the st atistical analysis of  price transmission: 
dairy sector, France  
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
1996-2009 Bulk cheese 158 1 0,065 *** 0,071
UHT semi-
skim milk158 0
10,209 !
**0.049
0.110
1996-2006 Bulk cheese 131 1 0,016 ! 0,035
UHT semi-
skim milk 1310
1 0,15!
!0.074
0.043
2007-2009 Bulk cheese 26 1 0,391 *** 0,16
UHT semi-
skim milk 260
1 0,483!
**0.014
0.295
! = significance of F lower than 5%  
Table A5 Summary of the results of the st atistical analysis of  price transmission: 
dairy sector, United Kingdom 
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
1999-2009 Butter 123 0 0,407 *** 0,645
Cheddar 123 0 0,151 *** 0,183
1999-2006 Butter 96 0 0,372 *** 0,649
Cheddar 96 0 0,168 *** 0,2
2007-2009 Butter 27 0 0,806 *** 0,649
Chedda r 27 0 0,385 *** 0,152 
Table A6 Summary of the results of the st atistical analysis of  price transmission: 
dairy sector, Denmark 
EN 65   EN PeriodDependent 
Variable Obs LAGCentered
 R2 Significance F Coefficients
2000-2009 Fresh whole organic milk 99 0 0.023 ! 0.101
Fesh semi-skim organic milk 99 1 0.104 ** * 0.126
Double crème 1100
10.284!
!0.327
0.287
Yogurt with fruit 111 0 0.162 *** 0.238
Brie 111 0 0.114 *** 0.201
Cheese 111 0 0.009 ! 0.196
Butter 110 1 0.06 ** 0.324
2000-2006 Fresh whole organic milk 72 0 0.024 ! 0.119
Fesh semi-skim organic milk 72 1 0.096 ** 0.091
Double crème 830
10.351***
!1.727
-0.949
Yogurt with fruit 84 0 0.096 *** 0.205
Brie 84 0 0.237 *** 0.328
Cheese 84 0 0.015 ! 0.307
Butter 83 1 0.024 ! 0.245
2007-2009 Fresh whole organic milk 27 0 0.262 *** 0.136
Fesh semi-skim organic milk 26 1 0.511 *** 0.231
Double crème 260
10.653!
***-0.104
0.390
Yogurt with fruit 27 0 0.5 *** 0.212
Brie 27 0 0.118 ! 0.101
Cheese 27 0 0.232 ** 0.227
Butter 26 1 0.581 *** 0.49
! = significance of F lower than 5% 
Table A7 Summary of the results of the st atistical analysis of  price transmission: 
dairy sector, Germany 
PeriodDependent 
Variable Obs LAG Centered R2 Significance % Coefficients
2004-2009 51 0 0.377 *** 0.584
2004-2006 Cheese Gouda 24 0 0.032 ! -0.044
2007-2009 27 0 0.328 *** 0.444 
EN 66   EN Table A8 Summary of the results of the st atistical analysis of price transmission: 
dairy sector, Slovenia 
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
2004-2009 Fresh whole milk 560
30.596***
***0.768
0.731
Natural Yogurt 56 3 0.333 *** 0.906
Butter 560
30.6***
***0.713
0.664
UHT semi-skim milk 560
30.69***
***0.826
0.702
2004-2006 Fresh whole milk 290
30.164!
!-0.016
0.185
Natural Yogurt 29 3 0.006 ! 0.051
Butter 290
30.343**
!0.276
0.033
UHT semi-skim milk 290
30.87***
***0.387
0.474
2007-2009 Fresh whole milk 240
30.776***
***0.701
0.860
Natural Yogurt 24 3 0.579 *** 0.722
Butter 240
30.765***
***0.546
0.788
UHT semi-skim milk 240
30.792***
***0.615
0.601
! = significance of F lower than 5% 
Table A9 Summary of the results of the st atistical analysis of price transmission: 
dairy sector, Austria 
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
2000-2009 Gouda 105 6 0,143 *** 0,316
Camenbert 105 6 0,155 *** 0,267
UHT whole mil k 111 0 0,122 *** 0,3
Natural yogurt 111 0 0,064 *** 0,6
2000-2006 Gouda 78 6 0,037 ! 0,038
Camenbert 78 6 0,02 ! 0,024
UHT whole mil k 84 0 0,038 ! -0,07
Natural yogurt 84 0 0,266 *** 1,395
2007-2009 Gouda 21 6 0,085 ! 0,109
Camenbert 21 6 0,097 ! 0,098
UHT whole mil k 27 0 0,638 *** 0,352
Natural yogur t 27 0 0,717 *** 0,372
! = significance of F lower than 5%  
EN 67   EN Table A10 Summary of the results of the st atistical analysis of  price transmission: 
dairy sector, Czech Republic 
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
2007-2009 Fresh semi-skim milk 27 0 0,358 *** 0,393
UHT semi-skim milk 27 0 0,649 *** 0,674
Natural yogurt 27 0 0,162 ** 0,149Yogurt with fruits 26 1 0,335 *** 0,272
Butter 27 0 0,831 *** 0,772
 
Table A11 Summary of the results of the st atistical analysis of  price transmission: 
pork sector, Germany 
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
2004-2009 Minced pork 62 1 0,183 *** 0,152
Loin 58 5 0,088 ** 0,108
2004-2006 Minced pork 35 1 0,112 * 0,131
Loin 31 5 0,156 ** 0,17
2007-2009 Minced pork 26 1 0,308 *** 0,205
Loin 22 5 0,003 ! -0,015
! = significance of F lower than 5%  
Table A12 Summary of the results of the st atistical analysis of  price transmission: 
pork sector, United Kingdom 
PeriodDependent 
Variable Obs LAGCentered 
R2 Significance F Coefficients
Loin 123 0 0,431 *** 0,519
Shoulder 123 0 0,514 *** 0,677
Bacon back 123 0 0,339 *** 0,49
Bacon gammon 123 0 0,444 *** 0,535
Ham 123 0 0,049 ** 0,196
Sausage 123 0 0,331 *** 0,492
1999-2006 Loin 96 0 0,474 *** 0,365
Shoulder 96 0 0,461 *** 0,563Bacon back 96 0 0,344 *** 0,329
Bacon gammon 96 0 0,433 *** 0,451
Ham 96 0 0,068 ** 0,231Sausage 96 0 0,265 *** 0,321
2007-2009 Loin 27 0 0,412 *** 0,951
Shoulder 27 0 0,615 *** 0,907Bacon back 27 0 0,394 *** 1,202Bacon gammon 27 0 0,352 *** 0,869Ham 27 0 0,659 *** 0,878
Sausage 27 0 0,515 *** 1,165
 
EN 68   EN  
ESTUDIO DE LA CADENA DE VALOR Y FORMACIÓN DE PRECIOS DE LA LECHE LÍQUIDA ENVASADA 13
0.744 / 1.076 TOTAL CON IVA0.029 / 0.041 IVA (4%)100 0.715 / 1.035 TOTAL (SIN IVA)Coste de la tienda (personal, mermas, 
amortizaciones, alquileres, seguros, gestión medioambiental, vigilancia, etc.) 14.7/22.2 0.105 / 0.230 TiendaCoste de plataforma o almacén 
intermedio, coste transporte  plataforma/almacén, costes transporte a tienda/HORECA 11.8/13.5 0.085 / 0.140 Logística de distribuciónCostes envases y embalajes , costes de 
fábrica, costes comerciales/marketing25.2/26.1 0.180 / 0.270Transformación, 
comercialización y gestión 
industrialCoste transporte , trazabilidad y control 2.8/2.9 0.020 / 0.030 Logística de recogidaCostes de alimentación , amortizaciones, 
genética/ veterinaria, mantenimiento, coste 
oportunidad45.5/35.3 0.325 / 0.365 Logística en campoFACTORES CRÍTICOS/DE 
INFLUENCIA(%)INCREMENTO DE 
PRECIO RESPECTO A 
LA FASE ANTERIOR 
(€/l)AREAS DE ACTIVIDADAGREGACIONES DE COSTES Y FACTORES CRÍTICOS EN LAS GRANDES ÁREAS 
DE ACTIVIDAD DE LA CADENA DE VALOR DE LA LECHE LÍQUIDA ENVASADA3.- ESTRUCTURA DE COSTES Y PRECIOS
3.2.- Análisis de la estructura de costes y precios
 
 
ESTUDIO DE LA CADENA DE VALOR Y FORMACIÓN DE PRECIOS DE LA LECHE LÍQUIDA ENVASADA 11
3.- ESTRUCTURA DE COSTES Y PRECIOS
3.1.- Esquema de la estructura de costes y precios
37,91%29,89%28,35%
Precio 
pagado al ganaderoPrecio pagado al 
fabricante
0,540 – 0,695 €/lPVP sin IVA
Horquillas 
de costes 
en €/l
Tipo de 
coste por etapasCOMERCIALIZACIÓN EN 
DESTINOINDUSTRIA LÁCTEA PRODUCCIÓN
0,715 – 1,035 €/lPVP con IVA 
(4%)
0,744 – 1,076 €/l
Coste de campoCoste producción lecheCoste fijosOtros costesCoste oportunidad + beneficio explotaciónCoste logística recogidaCoste fabricaciónEnvases, embalajes y afinesCostes comercialización y marketing e I+D+iCoste logística distr. fábricaCoste plataforma o almacén intermedioCoste transporte a tiendaCoste tienda
Beneficio neto (1,4%)Beneficio neto (1,4% - 1,99%)
0,030 – 0,0400,160 – 0,1650,040 – 0,0500,050 – 0,0600,080 – 0,090Ingresos totalesIngresos distintos leche
(0,360 – 0,405)(0,035 – 0,040)0,020 – 0,0300,070 – 0,0900,090 – 0,1100,015 – 0,0600,015 – 0,0300,005 – 0,0100,040 – 0,0600,030 – 0,0500,095 – 0,2100,010 – 0,020
0,325 –0,365 €/lPorcentaje de 
costes + 
beneficio neto 
sobre el PVPDatos Campaña 2008 
(2º semestre)