Commission Staff Working Document - Analysis of price transmission along the food supply chain in the EU Accompanying document to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - A better functioning food supply chain in Europe {COM(2009) 591 final}
Date: 2009-10-28
Institutions: European Commission
Subjects: agri-foodstuffs, competition, consumer price, food price, foodstuff, impact study, price fluctuation, price of agricultural produce, restriction on competition, supply

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COMMISSION OF THE EUROPEAN 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 COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

A better functioning food supply chain in Europe 

{COM(2009) 591 final} 

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TABLE OF CONTENTS 

1. 

2. 

Introduction .................................................................................................................. 3 

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 transmission 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 sectors within the food supply chain ................ 21 

3.1.1.  Empirical evidence from the milk supply chain in some EU member States............ 22 

3.1.2.  Empirical evidence from the pork supply chain in some EU member States............ 43 

4. 

5. 

6. 

Conclusions ................................................................................................................ 54 

References .................................................................................................................. 58 

Annexes...................................................................................................................... 60 

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COMMISSION STAFF WORKING DOCUMENT 

Analysis of price transmission along the food supply chain in the EU 

1. 

INTRODUCTION 

Agricultural  prices  have  displayed  extreme  fluctuations  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 triggered a slight decline in the consumer price of most food products 
to date. 

The  magnitude,  the  delay  and  asymmetry  in  the  adjustment  of  food  prices  –  which  are 
particularly  marked  in  some  Member  States  –  have  raised  serious  concerns  about  the 
functioning of the EU food supply chain and the distribution of value-added between primary 
producers,  food  processors,  wholesalers  and  retailers.  Ensuring  the  effectiveness  and 
efficiency  of  the  food  supply  chain  is  crucial  to  raise  its  competitiveness  at  the  benefits  of 
both  consumers,  with  lower  prices,  and  stakeholders  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  which  the  changes  in  commodity  prices  were 
transmitted to food consumer prices. It complements 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 chain in Europe", COM(2009) 591. 

Section 2 of the staff working document sets the framework of the overall analysis of price 
transmission  along  the  food  supply  chain  by  providing  an  overview  of  the  main  concepts, 
recent evidence from research as well as the developments in agricultural and food prices at 
aggregated  European-level.  Then,  the  empirical  assessment  of  the  pass-through  of  price 
developments along the dairy and pork 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 States and agri-food sectors, as well as the limited availability 
of reliable data on prices and margins along the chain. 

2. 

PRICE TRANSMISSION ALONG THE FOOD SUPPLY CHAIN 

2.1. 

Theoretical background 

The assessment of price transmission along the food 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 

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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  transmission  thus  helps  to  identify  potential  market 
failures. However investigating the price formation mechanism in the food chain is a complex 
exercise,  mostly  due  to  the  lack  of  comprehensive  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 concepts and definitions related 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 heterogeneous, exhibiting a wide diversity of products, 
enterprises  and  markets.  It  basically  connects  three  main  economic  sectors:  the  agricultural 
sector,  the  food  processing  industry  and  the  distribution  sectors  (wholesale  trade  and  retail 
trade). These sectors are linked through transactions carried 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  nature,  seasonality),  the  market  structure  (e.g. 
intensity of competition at each step of the chain, number of intermediaries in the chain) as 
well  as  the  existing  public  policies.  The  assessment  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 transmitted to the downwards step; 

the speed of the price adjustment, i.e. the pace 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  degree  of  asymmetry  can  thus  contribute  to 
identifying potential market malfunctioning and price stickiness in the food supply chain, i.e. 
the absence or the low level of price transmission 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 problematic at the level of 
the food processors and retailers, hampering any complete measurement of the degree of price 
transmission.  Moreover,  data  on  prices  at  the  wholesale  level  are  virtually  non-existing, 
leading  to  aggregate  the  impact  of  the  distribution  sector  into  the  sole  consumer  price 
indicator. It is thus not possible to distinguish between the effects of the wholesale and retail 
sector in price transmission analysis. 

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2.1.2.  Key determinants of price transmission 

Perfect  transmission  of  price  movements  along  the  food  supply  chain  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  price  for  the  raw  agricultural  materials  are  fully 
passed  on  to  consumers,  primary  agricultural  producer,  food  producer  and  retail  prices  will 
show different percentage changes (other factors being equal) as the cost of raw agricultural 
products represent only a share in the total costs of the final consumer food product. 

Complete  and  immediate  short-run  price  transmission  is  in  fact  difficult  to  find  in  the  real 
world. Yet, it does not necessarily always mean that there is market malfunctioning. Recent 
research  has  identified  the  most  important  factors  that  play  a  role  in  the  degree  of  price 
transmission. These are addressed 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, urbanisation and modern lifestyle), technological and structural 
changes in the production, transport, storage and distribution of agricultural and food products 
(which  in  turn  allowed  a  considerable  reduction  in  the  cost  of  food  production).  Dietary 
patterns in the EU shifted considerably towards more processed food1. 

As a consequence, the structure of the production 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  agricultural  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 widely across product chains and countries. 

The graph below illustrates the various stages of the chain in the dairy sector in Spain. 

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McCullough, Pingali and Stamoulis (2008). 

http://ec.europa.eu/economy_finance/publications/publication_summary15232_en.htm 

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Figure 1:  

Value Chain in milk production 

Milk 
Production in 
Farms 

Collection  

Milk   
    Processing 

and 

 Transport  

Distribution  

 Distribution 

and  

Logistics 

Dairy farm 
Cooperative 
Management 

of 

Transports  
Centre 
gathering  
Imports  of  raw 
material  

Manufacturing  
Marketing 
Management 
industry  

Transports  of 
final product  
Imports of final 
product 

Platform 
Intermediate 
Store  
Transport 
shop 
 Shop 
Foodservice 

to 

C
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s
u
m
p
t
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Consumer 

2.1.2.2.  The competitive structure of the chain 

The food chain is characterised by a wide diversity of market structures, with varying degrees 
of  horizontal  concentration  and/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 contribute to explain the different degree of price 
transmission  between  sectors  and  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 transmission. For example, oligopoly and oligopsony 
market situation  can cause price distortions and lags in price adjustments4. However, recent 
research5 argues that imperfect price transmission 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  enterprise  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 categories and sectors, with direct implications on the degree of 

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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 sectors and stages of the food supply chain. 

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. 

Peltzman, 2000 McCorriston et al., 2001; Weldegebriel (2004); Azzam 1999. 

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bargaining  power  held  by  individual  enterprises.  However,  the  existence  of  strong 
concentration at one level may be counterbalanced 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,  which  is  more  fragmented,  less  organised  with  non-differentiated 
products, is often perceived as facing an unbalanced bargaining power vis-à-vis the rest of the 
chain (although the development of groups in the 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  empirically  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 exhibit 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 disruptions (for certain products 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 changes are linked to temporary phenomenon7; 

–  Perishable  nature  of  some  food  products:  economic  agents  may  not  increase  prices  to 

avoid the risk of being left with spoiled products (Ward, 2008); 

–  Internalisation  of  price  variation:  in  case  of  increasing  input  prices,  economic  agents 
may decide to keep output at constant price: e.g. when there are foreseeable 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 adaptation), 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 retailers 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  closest  market.  This  may  play  a  key  role  for 
important  and  concentrated  retailers  which  organise  their  purchasing  operations  at  EU 
level; 

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Harvey (2007). 

When price changes originate from short-term weather 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. 

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–  Inventory  management:  stock  behaviour  by  retailers  may  create  lags  in  reducing  prices. 
Likewise, the choice of accounting method such as FIFO (first 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  changes  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 added 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 launching a price war may 
make firms more reluctant to lower prices in case of downwards price change; 

–  Public intervention to support producer prices and/or control supply could also cause 
asymmetry in price transmission as agents may 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, the empirical evidence and the theoretical underpinnings of these 
findings remain often mixed and vary widely across markets and countries. 

Most empirical studies find little evidence of systematic imperfect price adjustments along the 
EU  food  chain,  although  this  may  happen  in  the  short  run  in  some  specific  sector/country 
situation.  Furthermore,  it  seems  that  there  is  no  consensus  on  the  explanations  for 
asymmetries in farm-retail price transmission. 

Empirical analyses carried  out in Denmark  (Jensen 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  asymmetries  in  price  transmission  occur  in  the 
retail stage. Furthermore, most asymmetries in price transmission 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 recent years, mainly to the benefit of processors 
(notably  in  the  dairy  sector).  A  study  of  the  milk  supply  chain  in  Belgium  (SPF  Economie, 
2008) concluded that differences in pricing on the 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 within the dairy and pig meat supply chain. 

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Gardner, 1975; Serra and Goodwin (2003); Kinnucan and Forker (1987) 

Secrétariat d'état chargé de la prospective, de l'évaluation des politiques publiques et du développement 
de  l'économie  numérique  (2008);  London  Economics  (2004),  SPF  Economie,  P.M.E.,  Classes 
moyennes  et  Energie  (2008),  Comité  Economique,  Social  et  Environnemental,  (2009);  Jensen  and 
Møller, (2009), DairyCo (2009), Danish Competition Authority (2009). 

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As a result, caution is deemed necessary in drawing firm and far-reaching policy conclusions 
from  these  findings.  These  analyses  point  to  the  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 overview of the aggregated price developments 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  the  retail  industry  (food  consumer  price).  An 
econometric analysis of the transmission mechanism of these prices between each step of the 
chain  is  then  given.  The  recent  period  of  price  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 within the food supply chain in the EU (over more than 5 

years) 

Comparing the respective evolution of price indices in sectors along the chain is insightful for 
the  identification  of  the  main  potential  issues  affecting  the  sector.  Figure  2  compares  the 
evolution of price indices 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:  

– 

– 

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Agricultural  prices  are  volatile:  over  the  time  period  considered,  agricultural 
commodity  price  index  has  experienced  three  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 producer 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  increased  at  a  higher  pace  at  2.7%  per  year, 
alongside overall inflation in Europe (~2.6%)12. 

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. 

For  the  agricultural  sector,  price  evolution  is  measured  by  the  average  agricultural  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. 

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. 

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Figure 2: 

Long-term prices evolution within the food supply chain, EU27 

Q1 2000- Q1 2009; Quarterly price indices (nominal); 2000Q1=100

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130

120

110

100

90

Food consumer prices

Overall inflation

Agricultural commodity 
prices*

Food producer prices

2000Q01

2000Q03

2001Q01

2001Q03

2002Q01

2002Q03

2003Q01

2003Q03

2004Q01

2004Q03

2005Q01

2005Q03

2006Q01

2006Q03

2007Q01

2007Q03

2008Q01

2008Q03

2009Q01

*

Agricultural commodity price index has been extrapolated for 2009Q1 based on price levels of major commodities

Source:

EUROSTAT; AGRIVIEWS

– 

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 producer and food consumer prices since 2007. Moreover, the 
sharp decline in commodity prices since 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: 
consumer price indices in nominal terms (Jan1997-August2009, Jan1997=100) 

Comparative  developments  in  EU  agricultural  market,  retail  food 

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Soft wheat, ex-wholesale

Consumer price retail food

Slaughter pig, free-slaughterhouse

Raw milk, ex-farm gate

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2

/

3
0
6
0
0
2

/

8
0
6
0
0
2

/

1
0
7
0
0
2

/

6
0
7
0
0
2

/

1
1
7
0
0
2

/

4
0
8
0
0
2

/

9
0
8
0
0
2

/

2
0
9
0
0
2

/

7
0
9
0
0
2

EN 

10 

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Moreover  agricultural  prices  have  been  declining  both  in  nominal  and  real  terms:  The 
strong gains in total factor productivity of the farm sector allowed an important expansion of 
the  volume  of  production  which  outpaced  the  slow  development  of  an  inelastic  demand  for 
agricultural and food products. This generated a regular and steep decline in real prices, which 
was  then  reinforced  in  some  sectors  by  the  gradual  shift  from  1993  onwards  from  market 
price support to direct income support in the Common Agricultural Policy. 

One of  the  major features of price transmission along the food supply chain is the apparent 
stability  of  producer  and  consumer  price  changes  compared  to  the  volatility  of  prices  of 
agricultural  inputs.  Agricultural  prices  and  food  prices  exhibit  diverging  trends.  While  food 
prices principally showed relatively continued increase, agricultural producer prices exhibited 
more pronounced seasonal and medium-term fluctuations and tended to decrease in the long 
run,  widening  the  gap  between  agricultural  and  food  prices.  The  food  and  retail  industries 
have played a role in smoothing agricultural price variations for consumers – food consumer 
prices  are  historically  much  more  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 supply chain in the EU (since 2007) 

Price  developments  within  the  food  supply  chain  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 (increase by 9%) and then stabilised until May 2009, 
showing higher  increase  than  overall 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

FOOD PRICE CRISIS

PRODUCERS’ LAG

RETAILERS’ LAG

STABILISATION

Agricultural 
Commodity Prices*

Food Producer Prices

Food Consumer Prices

Overall inflation 
(HICP)

120

115

110

105

100

95

2007M01

2007M02

2007M03

2007M04

2007M05

2007M06

2007M07

2007M08

2007M09

2007M10

2007M11

2007M12

2008M01

2008M02

2008M03

2008M04

2008M05

2008M06

2008M07

2008M08

2008M09

2008M10

2008M11

2008M12

2009M01

2009M02

2009M03

2009M04

2009M05

2009M06

2009M07

*

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; AGRIVIEWS

Four main phases of price evolution can be identified in the considered period: 

EN 

11 

   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 start 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 January 2009) and producer prices start declining 
by 4%). However, food consumer prices are still on the rise in the period 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 detailed in the following Table 1.  

Table 1: 
May 2007 and July 2009 

Magnitude  of  price  variations  in  the  EU27  food  supply  chain,  between 

Phase

Begin date

End date

Agricultural 
commodity

Food    
Producer 

Food 
consumer

Overall prices

Price evolution

Food crisis

May 2007

February 2008

Producers' lag

February 2008 August 2008

16%

-5%

Retailers' lag

August 2008

February 2009

-11%*

Stabilisation

February 2009 July 2009

n.a.

9%

2%

-3%

0%

5%

2%

2%

-1%

2%

2%

0%

1%

* Evolution of agricultural commodity price index based on extrapolated agricultural commodity price levels

The  analysis  from  price  variations  since  2007  enables  to  identify  several  trends  in  price 
transmission  mechanisms  along  the chain. First, variations in producer and consumer prices 
appear to be of a lesser magnitude 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 instantaneous. Last, food consumer prices present signs of stickiness, 
having  only  very  marginally  decreased  whereas  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 evolution 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, leading to an increase in food producer and consumer prices. 
Most countries have also experienced significant lags in food producer and consumer prices 
decline  after  the  very  sharp  decrease  in  agricultural  commodity  prices.  However,  some 
Member States have shown specific price evolutions, with some experiencing continued price 
increases  all  along  the  supply  chain  since  2007  (MT,  RO)  or  others  experiencing  delayed 

EN 

12 

   EN 

 
 
decrease in agricultural prices (FI, IT) or even declining 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 similar across the EU, the magnitudes of 
price  variations,  as  well  as  the  duration  of  the  different  periods  of  producers'  and  retailers' 
lags,  have  vastly  differed  across  Member  States.  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, the 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 decrease provides indications if 
food prices have decreased in a given Member State.  

Figure 5: 
crisis (January 2007-May 2009) 

Variation  of  food  consumer  prices  by  Member  States  during  the  food 

Maximum nominal food consumer price increase and decrease 
between January 2007 and May 2009; %

EU15

New Member States

EU27

35%

30%

25%

20%

15%

10%

5%

0%

-5%

-10%

MAXIMUM PRICE INCREASE

MAXIMUM PRICE DECREASE

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

Source:

EUROSTAT

Strong discrepancies exist across Member States both for food consumer price increases and 
decreases. Maximum consumer price increases range 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 consumer 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  Communication  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 difference in % between the highest food consumer 
prices and the lowest value in the following months (usually in May 2009). 

EN 

13 

   EN 

 
                                                 
Europe". All new Member States have experienced 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 price increases reached such levels; FI and UK have suffered 
from  the  highest  price  increase  of  15%  and  19%  respectively.  Interestingly,  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  decrease  more  than  6  months  after  agricultural 
commodity prices did. Delay in food consumer price decrease has been the most important in 
LU, NL or PL where it has exceeded 15 months. The average lag in the EU has lasted 1 year. 

Figure 6:  Lags in consumer price decrease following agricultural commodity 
price decrease by Member States 

Lags in consumer price decrease following agricultural commodity
price decrease; number of months

EU15

New Member States

EU27

20

15

10

5

0

-5

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

Source:

EUROSTAT

The analysis of price evolution at each step of the food supply chain over the recent period 
provides interesting insights on how prices are transmitted along the food supply chain. There 
are  long  lags  in  transmission  of  price  decreases  along  the  chain  (price  stickiness):  it  took 
approximately 6 months for producer price to decrease following the decrease in agricultural 
commodity  prices  and  another  6  months  for  consumer  prices  to  start  declining.  Second,  the 
increase  in  commodity  prices  are  transmitted  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 States have experienced higher food consumer price increases. 

14 

Overall inflation in these countries has also been higher than in the EU15. 

EN 

14 

   EN 

 
                                                 
2.2.2.  Price transmission along the food supply chain 

The  results  from  the  previous  section  are  deepened  further  by  conducting  econometric 
analyses of price changes along the chain in order to take into account other factors that can 
explain  price  evolution  at  each  step  of  the  chain,  such  as  variations  in  energy  prices  and 
labour  costs.  It  also  enables  to  distinguish  between  the  impact  of  price  increases  and  price 
decreases15.  The  econometric  analysis  has  been  run  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 commodity price to food producer price 

Table  2  presents  the  results  of  panel  data  regression  relating  monthly  variations  in  food 
producer  prices  to  monthly  variations  in  agricultural  commodity  prices.  It  shows  how 
variations in energy and unit labour costs and of course variations in agricultural commodity 
prices (current and with 3 and 6 months lags) explain the variations in food producer prices. 

Table 2: 
changes with monthly agricultural commodity price changes 

Results  from  panel  data  regression  of  monthly  food  producer  price 

Dependent variable -  
Monthly variations in:

Panel coverage:

Time coverage:

Explanatory variables - 
Monthly variations in:

Commodity prices (current)
Commodity prices (3-month lag)
Commodity prices (6-month lag)

Energy prices 
Energy prices (3-month lag)
Energy prices (6-month lag)

Unit Labour costs
Unit Labour costs (3-month lag)
Unit Labour costs (6-month lag)

Fit of the regression - Adjusted R²

*** Indicates significance at 1%
 ** Indicates significance at 5%

Food Producer Prices

EU27 Member States

2000-2009

2000-2006

2007-2009

Coefficient

Coefficient

Coefficient

2%***
2%***
-

3%***
1%*
-

-
-
-

0.25

1%***
1%**
-

2%*
-
-

-
-
-

0.14

11%***
11%***
10%***

4%***
-
-

-
3%**
-

0.38

* Indicates significance at 10%
- Indicates no significance

Source: EUROSTAT price indices, own calculation

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 lag) of agricultural price variations are passed through to food 
producer  prices.  This  is  not  surprising  given  the  very  strong  volatility  of  agricultural 
commodity  prices  and  the  stable  inflation  experienced  by  food  producer  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 consumer 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 relationship estimated by the panel data regression). 

EN 

15 

   EN 

 
                                                 
However, when the regression is run for the recent period only (from  January 2007 to  May 
2009),  the  impact  of  changes  in  agricultural  prices  on  changes  in  food  producer  gains 
significance.  The  instantaneous  price  transmission  is  11%,  but  significant  lags  of  3  and  6 
months  of  similar  magnitude  (respectively  11%  and  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  significant  6  months  lag  between  the  decline  of 
agricultural commodity prices and the start of the decline of food producer prices highlighted 
in 2.2.1. 

On  the  contrary,  the  relationship  between  producer  and  agricultural  prices  over  the  period 
2000-2006 is much weaker. It is hard to identify the 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  translate  their  costs  increase  into  price  increases. 
Another  explanation  might  be  the  implementation  of  the  CAP  reform  towards  more  market 
orientation. 

The  overall  small  magnitude  of  price  transmission  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 level within individual Member States and single product supply 
chains.  The  ever-increasing  margin  between  agricultural  market  prices  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 over the period 2000-2009 (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  reaching  ~30%.  Moreover,  price  transmission  for 
commodity to producer prices appears to be slightly faster in the new Member States with an 
instantaneous pass-through of 14% in EU12 vs. 8% in EU15. 

16 

17 

EN 

For example for Germany, the value share of bread making 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). 

See Table A.1. for detailed results in Annex. 

16 

   EN 

                                                 
Figure 7 
wheat and in the retail price of baguette (in €/kg; Jan1992-Jun2009) 

France: Comparative development in the wholesale price of bread making 

g
k
 €/
n

i

e
c
i
r
p
e
t
t
e
u
g
a
B

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

Retail price baguette

Wholesale price bread making wheat

0.300

0.275

0.250

0.225

0.200

0.175

0.150

0.125

0.100

g
k
 €/
n

i

e
c
i
r
p
t
a
e
h
w
g
n
k
a
m
d
a
e
r
B

i

1
0
/
2
9
9
1

1
0
/
3
9
9
1

1
0
/
4
9
9
1

1
0
/
5
9
9
1

1
0
/
6
9
9
1

1
0
/
7
9
9
1

1
0
/
8
9
9
1

1
0
/
9
9
9
1

1
0
/
0
0
0
2

1
0
/
1
0
0
2

1
0
/
2
0
0
2

1
0
/
3
0
0
2

1
0
/
4
0
0
2

1
0
/
5
0
0
2

1
0
/
6
0
0
2

1
0
/
7
0
0
2

1
0
/
8
0
0
2

1
0
/
9
0
0
2

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 presents the results 
of  the  panel  data  regression  between  food  consumer  and  producer  prices  over  the  period 
2000-2009 for the EU27, the EU15 and the EU12.  

The first characteristics of the relationship between food producer 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 that the price transmission 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  price  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 commodity prices to producer prices, price changes seem to be 
transmitted faster in new Member States than in the EU15. 

Similar  regressions  were  run  for  the  2000-2006  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 prices18. The total pass-through has increased 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  months  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 

17 

   EN 

 
 
 
 
 
 
 
                                                 
agricultural  commodity  to  producer  –  higher  pass-through  and  increased  delays  in  price 
transmission – but to a lower extent. 

Table 3: 
changes with monthly food producer price changes 

Results  from  panel  data  regression  of  monthly  food  consumer  price 

Dependent variable -  
Monthly variations in:

Panel coverage:

Time coverage:

Explanatory variables - 
Monthly variations in:

Food producer prices (current)
Food producer prices (1-month lag)
Food producer prices (3-month lag)
Food producer prices (6-month lag)

Energy prices 
Energy prices (3-month lag)
Energy prices (6-month lag)

Unit Labour costs
Unit Labour costs (3-month lag)
Unit Labour costs (6-month lag)

Fit of the regression - Adjusted R²

*** Indicates significance at 1%
 ** Indicates significance at 5%

Food Consumer Prices

EU27 MS

EU15 MS

2000-2009

EU12 MS

Coefficient

Coefficient

Coefficient

31%***
20%***
-
-

1%*
2%*

5%***
-

0.22

10%***
12%***
9%**
9%**

-
-
-

-
-
2%***

0.18

* Indicates significance at 10%
- Indicates no significance

45%***
21%***
-
-

-
5%*
-

7%***
-
-

0.30

Source: EUROSTAT price indices, own calculation

2.2.2.3.  Asymmetry in price transmission along the chain 

A major issue in price transmission is to test whether output prices react similarly to increases 
and  decreases  in  input  prices,  i.e.  to  test  the  symmetry  of  price  transmission.  As  the  first 
review of prices evolution along the food supply chain in section 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  decline  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 industry and service sectors. Results specific to the food supply 
chain  are  detailed  in  Box  1.  In  order  to  assess  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  transmission  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  changes  in  countries  from  the  Euro  Area  based  on  a  set  of  detailed 

19 
20 

EN 

Dhyne et al. (2009) 

See Annex A.2. for the detailed equation of the regression. 

18 

   EN 

 
                                                 
monthly price data. The study introduces the concept of price flexibility (how often do prices 
change)  and  of  price  rigidity  (do  prices  change  when  and  by  how  much  they  should  –  i.e. 
reflecting variations in input costs). 

A  major  conclusion  of  the  study  concerning  the  food  supply  chain  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 change is of 14% for processed food whereas the 
average for Euro Area prices is 15% – for services 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 increases in the sector, with 46% of all price changes 
being decreases.  

However,  the  study  also  identifies  significant  rigidity  in  food  prices  at  consumer  level. 
Although food consumer prices change often, consumer prices for food do not change as often 
as they should given the more frequent changes 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 rigidity 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 commodity 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-through  (for  all  commodity  price  changes,  whether  increases  or 
decreases)  of  4%  found  in  the  previous  section  This  small  difference  is  statistically  not 
significant  and  suggests  symmetry  in  price  transmission  between  the  agricultural  sector  and 
the food industry. However, since the relationship between commodity and producer prices is 
very weak over the period, the notion of symmetry is of little relevance.  

The  same  analysis  conducted  for  the  2007-2009  period  is  much  more  instructive,  given  the 
higher link between commodity price changes and producer price changes outlined in Section 
3.1.  As  expected,  pass-through  for  both  price  increases  and  decreases  increase  significantly 
compared  to  the  2000-2009  period,  respectively  to  53%  and  44%.  The  difference  in  price 
transmission upwards and downwards  becomes  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  decreases,  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  decreases.  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. 

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Figure 8: 
EU along the food supply chain 

Differences in pass-through for price increases and price decreases in the 

Pass-through of price increases and price decreases 
along the food supply chain in the EU

Pass-through from 
agricultural commodity 
prices to food producer 
prices –
Up to 6-month lags

Price increases

Price decreases

53%

44%

4%

3%

1%

3%

Pass-through from food 
producer prices to food 
consumer prices –
Up to 3-month lags*

72%

55%

68%

67%

71%

47%

2000-2009

2000-2006

2007-2009

*

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 calculations

The  situation  is  somewhat  different  at  the  producer-retailer  interface  of  the  chain.  The 
magnitude  of  price  transmission  from  producer  prices  to  consumer  prices  is  72%  for  price 
increases  and  55%  for  price  decreases  over  the  period  2000-2009,  suggesting  significant 
asymmetry in the long run. Moreover, producer price increases are passed on to the consumer 
slightly  faster  than  decreases  with  an  instantaneous  pass-through  of  40%  upwards  vs.  30% 
downwards.  

Over  the  period  2007-2009,  the  price  transmission  pattern  has  changed  significantly.  There 
seems to be more asymmetry in the magnitude of pass-through (71% for increase and 47% for 
decrease). However, this conclusion should be taken with caution since it is possible that price 
transmission  of  decreases  in  producer  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  delays  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.  Retailers  indeed  start  passing  producer  price 
decreases with a 3-month lag whereas price increases 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 the 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  commodity prices and the evolution of food consumer prices. Two 
combined  effects  explain  this  counter-intuitive  result:  (i)  there  is  virtually  no  relationship 

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between agricultural commodity prices and food 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 overall low price transmission along the food chain 
can  be  explained  by  several  factors:  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  and/or  anti-competitive  practices),  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 contracts between economic actors). 

However, there has been a significant change in price transmission pattern in the chain from 
2007 on with the sharp rise and the following plummeting of commodity prices. At each step 
of the chain, the magnitude of price transmission has increased and actors have tried to pass 
on  to  their  customers  the  unusual  increase  in  their  input  costs.  It  is  hard  at  this  point  to 
understand  what  has  caused  this  change,  but  the  acuteness  of  the  agricultural  commodity 
crisis has certainly contributed to change price transmission patterns: producers and retailers 
have faced price increases too high to contain in the long run, and have thus passed on price 
increases.  

Meanwhile,  another  key  feature  of  price  stickiness  has  emerged  since  2007,  with  consumer 
prices – and to a lesser extent producer prices – failing to decrease following the decrease in 
commodity  prices.  A  key  feature  of  this  stickiness  is  the  important  lags  that  occur  in  price 
transmission along the chain, where decreases in agricultural 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 consumer food prices evolution. One obvious distinction is between 
the EU12 and the EU15: in the EU12, 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 between product chains and countries. However, 
most  of  these  studies  are  based  on  price  indices  at  aggregated  level  (e.g.  for  the  category 
“milk, cheese and eggs”) and not on absolute price 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  drawing  conclusions  on  the  functioning  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  investigation  covers  eight  countries  for  which  data  were  available 

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(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 section. The most recent price developments through 
the respective supply chains are then assessed. Finally, a statistical analysis is carried out to 
assess  the  degree  of  price  transmission  between  primary  producers  and  consumers.  The 
empirical statistical techniques which are regularly 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 that have shown significant causality with respect to the price 
of the agricultural raw material. The graph is divided into two sections: one for the pre-price-
spike  period  (i.e.  until  2006)  and  one  from  2007  to  2009.  For  each  food  product  key 
information  about  the  regression statistics  is  provided:  the  coefficient  of  correlation  and  the 
regression coefficients. These coefficients represent a proxy for 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  parameters  and  indicators  (number  of  observations, 
significance levels, and relevant lags) can be found in annex. 

3.1.1.  Empirical evidence from the milk supply 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  important  part  of  the  agricultural  economy.  The 
share of milk in total production varies between 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 approximately 135 million tonnes of raw milk into a 
broad range of products, both for direct consumption and for use in the production of many 
food,  feed  and  pharmaceutical  products.  The  raw  milk  delivered  by  the  EU27’s  1.6 million 
dairy  farmers  and  processed  by  the  dairy  industry,  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  workforce).  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 governance led these groups to concentration 
and specialisation. 

22 

Since  data  on consumer  prices  (aggregated  indices)  currently  available  at  Eurostat  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. 

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Within the EU27, the situation of the dairy sector varies from region to region. This difference 
is  reflected  by  its  diversity  in  terms  of  economic  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  tonnes,  an  average  yield  by  cow  at  NUTS2 
level which varies from 3200 to more than 8000 litres and a very disparate farm structure, and 
eventually in terms of prices paid to the producers, with a price 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 and dairy processing level. This policy has rapidly 
and  significantly  evolved  over  the  past  few  years:  it  is  now  increasingly  targeted  at 
encouraging producers to be more market-oriented in a context of lower price support. Milk 
quotas are scheduled to expire in 2015. 

The prices of dairy products are closely interlinked horizontally as dairy processors naturally 
switch raw milk into the most lucrative dairy markets 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 cheese. The organisation of the dairy chain is 
also  strongly  influenced  by  the  national  and  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 between 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 surge, prices dropped substantially, affecting 
significantly dairy producers' income. 

At the level of dairy farmers, the prices for milk 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 less. As price support operates 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  prices  for  dairy  products  have 
been coming down for some months but further decline in the next months would be needed if 
they  were  to  fully  reflect  the  drop  in  milk  and  dairy  commodity  prices  at  producer  level.

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Figure 9: 
sector, 2000 – 2009 (2000 = 100) 

Developments  of  producer  and  consumer  price  indices  in  the  EU  dairy 

170

160

150

140

130

120

110

100

90

80

70

60

January 2000 = 100

Cheese (edam) price ex-factory

SMP price ex-factory

Consumer price 'milk, cheese, eggs'

Farm gate price raw milk

Butter price ex-factory

1
0
0
0
0
2

5
0
0
0
0
2

9
0
0
0
0
2

1
0
1
0
0
2

5
0
1
0
0
2

9
0
1
0
0
2

1
0
2
0
0
2

5
0
2
0
0
2

9
0
2
0
0
2

1
0
3
0
0
2

5
0
3
0
0
2

9
0
3
0
0
2

1
0
4
0
0
2

5
0
4
0
0
2

9
0
4
0
0
2

1
0
5
0
0
2

5
0
5
0
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2

9
0
5
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1
0
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0
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5
0
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0
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2

9
0
6
0
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1
0
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0
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5
0
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9
0
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1
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5
0
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0
0
2

9
0
8
0
0
2

1
0
9
0
0
2

5
0
9
0
0
2

In some Member States prices at retail level ("milk, cheese and egg" index) have come down 
faster and to a larger extent that in others.  

Figure 10:  Consumer  price  index  for  "Milk,  cheese  and  eggs",  1996  –  2009  (2005= 
100)  

135

125

115

105

95

85

75

/

1
0
6
9
9
1

/

6
0
6
9
9
1

/

1
1
6
9
9
1

/

4
0
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9
9
1

/

9
0
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9
9
1

/

2
0
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9
9
1

/

7
0
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1

/

2
1
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1

/

5
0
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/

0
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9
9
1

/

3
0
0
0
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2

/

8
0
0
0
0
2

/

1
0
1
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2

/

6
0
1
0
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2

/

1
1
1
0
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2

/

4
0
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0
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/

9
0
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/

2
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/

7
0
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2
1
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/

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/

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/

2
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/

7
0
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/

2
1
8
0
0
2

/

5
0
9
0
0
2

Germany

Spain

United Kingdom

Netherlands

France

3.1.1.2.  Main findings of statistical analysis on milk and dairy products 

An examination of the price developments over the 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 data provide some insights concerning changes in 
margins at the processors/retailers level. They also reveal the specific marketing and pricing 
strategies  of  the  downstream  sector  (processor/retailer),  where  e.g.  some  dairy  products  at 

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retail level seem to fully reflect the drop in farm-gate milk prices whereas others would tend 
to show an increase in their margin. 

Table 4: 
and selected dairy products at retail level (in national currency) 

Price change between May 2009 and May 2007 for milk at the farm gate 

Germany France

Kingdom Denmark Austria Slovenia

Republic Lithuania

United 

Czech 

Farm gate price
Retail prices

-13%

-4%

18%

-13%

Fresh whole milk
UHT semi-skim milk
Butter
Cheese - Gouda
Cheese - Emmentaler 
Cheese - Cheddar
Cheese - Brie
Cheese semi hard
Cheese - Camenbert
Buttermilk
Double cream
Crème fraîche
Natural yogurt
Yogurt with fruit

-1%
0%
-17%
25%
24%

15%
7%

6%

63%

74%

74%

0%

5%
9%
19%

9%
17%

11%
2%
4%

2%

-8%

-18%

-22%

44%
27%
40%

40%

12%
8%
-6%

8%
5%
19%

0%

2%

1%
17%
19%

25%

7%
10%

24%

13%
15%

20%

Source: European Commission based on information 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 dairy products and countries studied, most 
notably over the last two years24. The distribution of these higher gross margins between the 
processing and retail sectors is difficult to assess precisely on the basis of the data available 
which only provide a partial picture of the recent 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 Competition Authority, 2009; FranceAgriMer, 2009) 
shows that there has been a clear trend lately towards 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 the diversity in the competitive structure and 

23 

24 

25 

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. 

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. 

Data series were first tested to detect the presence 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 regressions 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 this exercise other potential explanatory variables like 
energy costs, labour costs etc were not included. All prices are deflated and taken to the log. 

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the functioning of the chain in each country as well as differences in the price formation 
mechanism.  This  does  not  mean  that  the  whole  analysis  is  inconclusive.  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  statistical  information  provided  by  Member  States  to 
Eurostat. 

–  Causality  tests  show  that  for  around  40%  of  the  observed  dairy  products  the  degree  of 
statistical causality between the agricultural raw material price movements and that of the 
corresponding consumer products is low or even null. Though this result seems rather high 
in terms of lack of causality linkage between producer and consumer prices, it remains in 
line  with  the  findings  obtained  in  other  studies  (AgraCeas,  2003).  Furthermore,  weak 
causality  was  also  detected  for  some  dairy  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 for 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 shows that only approximately 20% exhibited a 
substantial price transmission26, 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 State 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 degree of price transmission was detected for 
relatively  unprocessed  products  like  butter,  bulk  cheese  and  liquid  milk.  More  processed 
and/or  differentiated  products  showed  lower  degree  of  price  transmission,  reflecting  the 
higher importance of other cost components and margins. 

–  Speed of transmission: the delay in price response seems 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 detected for butter, with a lag often below one 
month. Price transmission appears to have taken place at significantly faster pace than what 
the  evidence  obtained  at  aggregate  level  tended  to  indicate.  However,  this  rapid 
transmission  of  price  changes  only  concerns  dairy  products  whose  price  developments 
were  found  to  be  closely  linked  to  those  of  milk  producer  prices.  When  examining  the 
whole spectrum of dairy products, it becomes clear that changes in the consumer price of 
many dairy products which are not closely linked to changes 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  taken  place  after  a  given  number  of 
months,  it  does  not  necessarily  provide  information  concerning  its  completeness.  The 
transmission  of  price  changes  between  the  primary  and  the  downstream  sectors  seems  to 
have taken place at very different pace across 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. 

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the competitive structure of the supply chain and the production/marketing strategies put in 
place. 

Figure 11: 
dairy sector 

Frequency  of  substantial,  moderate,  low  price  transmission  results  in  the 

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

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  indication  of  asymmetric  behaviour  across  the  dairy  chain  where 
dairy  consumer  prices  have  been  fast  to  increase,  but  slow  to  decline  in  the  wake  of  the 
sharp drop in milk producer prices (e.g. Slovenia, United Kingdom, Denmark, Lithuania). 

–  Price  transmission  over  time:  the  statistical  analysis  shows  that  in  all  the  countries 
studied the price transmission pattern has significantly strengthened since the commodity 
price  surge  in  2007:  in  many  countries,  the  importance  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 transmission slightly declined for many dairy 
products). 

The  overall  rather  low  price  transmission  between  the  agricultural  producer  stage  and  the 
consumer stage may be linked to several factors: the steadily declining share of the milk raw 
materials  into  the  consumer  price  of  dairy  products,  potential  inefficiencies  in  the  market 
structure of the chain (either linked to imbalances in bargaining power and/or anti-competitive 
practices), some specific adjustments constraints and costs (e.g. long-term contracts between 
economic  actors)  and  pricing/marketing  strategies  in  the  downstream  sectors.  Furthermore, 
the role of dairies in the price formation mechanism 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  the  analysis  of  price  transmission  along  the  dairy  supply  chain 
(as producers may receive dividends and/or price 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 structure and functioning of the dairy supply chain 
and  the  domestic  consumption  pattern,  which  can  often  explain  certain  price  developments 
and differences between Member States.  

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27 

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3.1.1.3.  France 

The  French  dairy  sector  has  shown  a  significant  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  sold  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  consumption  is  dominated  by  cheese  which  absorbs 
almost 50% of the total household 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  (FranceAgriMer,  2009)  shows  that  the  cost  of  raw 
materials to produce cheese (i.e. the main ingredient like fat, proteins and lactose) represents 
between  27  and  38%  of  the  cheese  consumer  price  (Emmental  in  this  case).  The  prices  of 
cheese  products  ex-factory  and  at  consumer  level  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  any  pricing-cost.  The  gross  margin  (including  all 
costs)  of  the  dairy  industry  varies  between  32  and  35%  of  the  final  retail  price  over  the 
observed  period.  Prices  at  retail  level  have  broadly  followed  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  value  added  and,  on  the  contrary, 
indicates some stability in gross margins on average over the last few years. 

By  contrast,  the  French  Price  Observatory  shows  that  the  gross  margins  of  the  industry  on 
UHT milk sharply increased since the beginning 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 

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28 

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consumer  price  dropped  over  the  same  period  from  32  %  and  28%  to  26%  and  17% 
respectively (cf. figure 13). A similar pattern was found for higher 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  mixed  and  irregular  with  an 
increase in the retail share in the beginning of 2009.  

The  availability  of  data  on  absolute  monthly  prices  for  milk  at  the  farm-gate  and  for  some 
dairy products at retail level enables to make product-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: 
2009 

Prices in the French UHT milk supply chain in €/kg of final product, 2005-

Source: FranceAgriMer, Observatoire 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% higher and in the case of UHT 
milk prices in April 2009 were still 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. 

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29 

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The statistical analysis of price transmission shows 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  natural  yogurt  showed  only  a  weak  degree  of 
causality  between  milk  producer  prices  and  their  consumer  prices28.  Price  transmission  was 
tested for the dairy products showing 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: 
transmission: dairy sector, France 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

6
0
0
2
-
6
9
9
1

9
0
0
2
-
7
0
0
2

UHT semi-
skimmed milk

0.15

0.117

Bulk cheese

0.016

0.035

UHT semi-
skimmed milk

0.483

0.309

Bulk cheese

0.391

0.16

For  UHT  semi  skim  milk  and  bulk  cheese  products  the  degree  of  price  transmission  was 
higher during the most recent years than during the decade 1996-2006. This may be explained 
by  the  relative  price  stability  that  prevailed  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 degree of price transmission from  the  milk  producers  to  the 
consumers may not fully reflect the price transmission dynamics29. During the period 2007-
2009  statistical  indicators  improved:  the  correlation  index  for  UHT  milk  (related  to  milk 
producer price) increased threefold and remained slightly below the average level found in the 
other observed Member States. In the case of bulk cheese the correlation with milk producer 

28 

29 

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). 

However  a  statistical  investigation  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 processors. 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. 

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30 

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price  is  higher  in  France  than  in  other  countries.  Price  transmission  coefficients  were 
particularly low especially for bulk cheese while for consumption milk (at least in the 2007-
2009  period)  they  reached  0.3  (i.e.  a  10%  increase  in  milk  producer  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 produced in the UK goes into the production of 
liquid milk and approximately 20% is used for 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 stability 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 multiple 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  including  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 pence/litre, United Kingdom, 1994 - 2009 

80

70

60

50

40

30

20

10

0

/

1
0
4
9
9
1

/

7
0
4
9
9
1

/

1
0
5
9
9
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/

7
0
5
9
9
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/

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6
9
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/

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/

1
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9
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/

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8
0
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/

7
0
8
0
0
2

/

1
0
9
0
0
2

Farmgate Price

Processor Gross Margin

Retail Gross Margin

Source: Milk Development Council (in pence/litre) 

The  fall  in  cream  income  to  liquid  processors  observed  in  2008  is  likely  to  have  put  liquid 
milk processors’ margins under strong pressure since processor gross margin has to cover all 

EN 

31 

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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 maintain 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 significantly 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. Exchange rate movements have somewhat levelled 
out the sharp drop in prices at EU and world level since the second semester of 2008. While 
farm-gate prices (in British pound terms) in May 2009 remained 18% above their level before 
the  price  spike  in  May  2007,  most  retail  prices  of  dairy  products  only  showed  minor 
reductions  after  the  price  peak  reached  by  the  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: 
products, United Kingdom (Jan 1995 = 1) 

Indices  for  the  farm-gate  milk  price  and  the  retail  price  of  several  dairy 

2.2

2

1.8

1.6

1.4

1.2

1

0.8

0.6

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 2009/01

Farm 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 relative to the price paid to milk producers. Furthermore retail 
prices seem to have responded with 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  established,  especially  in  more  recent  years,  with  positive  correlation 
and  price  transmission  coefficients  (R2  0.56  and  price  transmission  coefficient  of  55%  with  a  three 
months delay). Similarly in the case of butter the link 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 

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32 

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Figure 17: 
transmission: dairy sector, United Kingdom 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

Cheddar

0.168

0.2

Butter

0.372

0.649

Cheddar

0.385

0.152

Butter

0.806

0.649

6
0
0
2
-
9
9
9
1

9
0
0
2
-
7
0
0
2

Here again for both butter and cheddar cheese the importance of the milk producer price in 
explaining  changes  in  dairy  consumer  price  levels  was  higher  during  the  most  recent  years 
than during the decade 1999-2006. Price transmission coefficients on the other hand remained 
comparable over the two sub-periods, but were relatively high compared to other countries, in 
particular for butter. 

All these statistical indicators show that strong causality, high correlation 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 upwards price movements than for price declines) 
and  may  be  linked  to  factors  such  as  imbalanced  bargaining  power  along  the  dairy  chain 
and/or pricing strategies in the downstream sectors.  

3.1.1.5.  Denmark 

The  Danish  dairy  industry  consists  essentially  of  the  international  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 introducing German milk to the Danish consumers: 
attempts by Aldi some years ago 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  found  that  in  the  case  of  cheese  this  link  has  been 
deteriorating over time. 

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A  recent  investigation  in  Denmark  (Danish  Competition  Authority,  2009)  showed  that  the 
distribution  of  the  margins  along  the  dairy  supply  chain  has  changed  over  the  most  recent 
years, mainly to the benefit of processors. 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 currency) 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 the consumer prices for most dairy products have 
already come  down after  the  price spike in 2007/2008, but by May 2009 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: 
products, Denmark (Jan2000 = 1) 

Indices  for  the  farm-gate  milk  price  and  the  retail  price  of  several  dairy 

1.40

1.30

1.20

1.10

1.00

0.90

0.80

0.70

1
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/
0
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2

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9
0
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2

Semi-skimmed milk; low-fat milk

Double cream

Cheese, 45%

Butter

Cheese: Brie, 60%

Farm-Gate

The  statistical  analysis  of  price  transmission  for  Denmark  exhibited  a  substantial  causality 
link  for  7  out  of  13  dairy  products  as  shown  in  figure  19.  The  causality  tests  for  fresh  and 
UHT  non-organic  types  of  milk  and  cream  surprisingly  showed  only  a  weak  link  between 
milk  producer  and  the  consumer  prices  of  these  dairy  products.  The  correlation  indicators 
remain rather low, suggesting the presence of other explanatory variables 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 was 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  price  transmission  coefficients  have  been 
slightly lower over the last few years. This asymmetric price transmission 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. 

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Figure 19: 
transmission: dairy sector, Denmark 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

Butter

0.024

Cheese

0.015

Brie

0.237

0.245

0.307

0.328

Yogurt with fruits

0.096

0.205

Double crème

0.351

0.778

Fresh semi-skimmed organic milk

0.096

Fresh whole organic milk

0.024

0.091

0.119

Butter

Cheese

Brie

0.232

0.118

0.581

0.49

0.227

0.101

Yogurt with fruits

0.5

0.212

Double crème

0.653

0.286

Fresh semi-skimmed organic milk

0.511

Fresh whole organic milk

0.262

0.231

0.136

6
0
0
2
-
0
0
0
2

9
0
0
2
-
7
0
0
2

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  largest  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 turnover of more than 23 billion euros per annum. 
About  half  of  the  total  milk  delivered  is  processed  into  cheese  and  a  third  into  fresh  dairy 
products.  These  proportions  have  been  increasing  for  years.  Germany  is  one  of  the  most 
important exporters of milk products, in particular of cheese, milk powder, condensed milk, 
but also of butter and liquid milk.  

The following graph shows how the sharp  price increase 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.  

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35 

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Figure 20: 
(€ per litre, unless otherwise specified) 

Farm-gate milk price and retail price of several dairy products, Germany, 

1,8

1,6

1,4

1,2

1

0,8

0,6

0,4

0,2

0

/

1
0
5
0
0
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1
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9
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/

3
0
9
0
0
2

Farm-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 decline 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  available  only  one,  Gouda 
cheese,  showed  some  causality  linkage  with  milk  producer  prices31.  For  this  product  the 
regression  showed  moderate  correlation32.  This  empirical  evidence  tends  to  indicate  an 
absence  of  price  transmission  from  the  milk  producer  level  to  the  consumer  level  for  most 
dairy products. This may be linked to many factors, including the high degree of processing in 
the dairy chain, pricing and marketing strategies of the downstream 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 upstream to the dairy farmers and downstream to 
the  retailers.  As  a  result,  focusing  the  analysis  on  the  link  between  the  farm-gate  and  the 
consumer levels may not be sufficient to fully evaluate the price transmission mechanism33.  

3.1.1.7.  Slovenia  

With a dairy herd of 130 000 animals and around 20 000 holdings, the Slovenian dairy sector 
is  a  typically  small  scale  family  business.  The  sector  went  through  a  significant  structural 

31 

32 

33 

The other products observed, fresh and UHT milk, butter and emmentaler showed only weak causality 
between farm-gate and retail prices. 

Regression results for Gouda cheese prices with respect to farm-gate milk prices are presented in annex, 
table A.7. 

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 

36 

   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 all 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 rapidly  risen  almost in parallel with 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: 
Slovenia, 2001-2009 (€ per litre,

 unless otherwise specified) 

Farm-gate  price  of  milk  and  retail  prices  of  several  dairy  products, 

3

2.5

2

1.5

1

0.5

0

/

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1
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2

Yoghurt, up to 300 g, cup, 3.2% milk fat
Long-life milk, 1.4-1.6% milk fat, tetra pack
Fresh milk, 3.5% milk fat, tetrapack

Butter, 250 g 
Ementaler, 500gr
Milk Farm gate

The  statistical  analysis  (causality  test  and  regression)  indicates  that  price  transmission 
between  milk  producer  prices  and  the  consumer  prices  of  dairy  products  was  significant. 
Regression  coefficients  are  also  rather  high,  suggesting  a  high  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 

37 

   EN 

 
Figure 22: 
transmission: dairy sector, Slovenia  

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

UHT semi-skim milk

0.87

0.861

Correlation R2              Price transmission coefficient

6
0
0
2
-
4
0
0
2

9
0
0
2
-
7
0
0
2

Butter

0.343

Natural Yogurt

0.006

Fresh whole milk

0.164

UHT semi-skim milk

Butter

Natural Yogurt

0.579

Fresh whole milk

0.792

0.765

0.776

0.309

0.051

0.169

1.216

1.334

0.722

1.561

Dairy  retail  prices  respond  with  within  a  lag  of  0  and  3  months  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% increase in milk prices during the 2007-2009 period 
resulted on average in an increase of 7% of the price of natural yogurt. For other products the 
sum of two coefficients for two significant lags goes largely beyond 1, suggesting a more than 
full  price  transmission.  Given  the  precise  technical  content  of  dairy  products  in  milk 
components  (e.g.  in  terms  of  fat,  protein,  lactose,  etc),  it  appears  that  only  parts  of  the 
observed  increases  in  the  retail  prices  of  some  dairy  products  observed  in  Slovenia  can  be 
attributed to the rise in the raw milk materials. 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.  The  fact  that  retail  prices  for  most  dairy 
product remain high while farm-gate price have declined tends to demonstrate an asymmetric 
price  response  (i.e.  higher  price  transmission  of  upwards  price  movements  than  for  price 
declines)  which  may  be  due  to  pricing  strategies  in  the  downstream  sector  and  imbalanced 
bargaining power. 

3.1.1.8.  Austria 

In spite of the small size of its holdings, the dairy 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 products broadly followed the developments in the milk producer 
prices  and  are  now  back  to  the  levels  of  May  2007  for  fresh  milk,  butter  and,  to  a  lesser 
extent,  yogurt.  Cheese  retail  prices  on  the  other  hand  tend  to  remain  higher  than  before  the 
2007 price surge: by May 2009 they still stood some 20% higher than two years earlier. 

EN 

38 

   EN 

 
 
The statistical (causality) tests show that price transmission between milk producer and dairy 
consumer  prices  functioned  for  4  out  of  7  dairy  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 transmission coefficients are 
more substantial, except for cheese where they remain particularly low. 

Figure 23: 
transmission: dairy sector, Austria 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

Yogurth

0.266

1.395

6
0
0
2
-
0
0
0
2

9
0
0
2
-
7
0
0
2

Whole UHT milk 

0.038

Camembert

0.02

Gouda

0.037

Yogurth

Whole UHT milk 

Camembert

0.097

Gouda

0.085

0

0.024

0.038

0.717

0.638

0.372

0.352

0.098

0.109

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  consumer  prices  for  most  dairy  products  have  come 
down  after  the  price  spike  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 for which retail prices have fallen below pre-
spike levels (-6% in April 2009 compared to two years earlier). 

EN 

39 

   EN 

 
 
Figure 24:  Retail price level of several dairy products, Czech Republic, 2007-2009 (€ 
per litre, unless otherwise specified) 

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

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Farm-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  fresh  whole  milk  showed 
weak causality with the milk producer price, the consumer prices of semi-skim milk, yogurt 
and  butter  exhibited  low  to  moderate  correlation  with  milk  producer  prices,  and  with  little 
delay.  Price  transmission  coefficients  vary  between  0.15  for  natural  yogurt  and  0.772  for 
butter. 

Figure 25: 
transmission: dairy sector, Czech Republic 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

Butter

0.831

0.772

Yogurth with
fruits

0.335

0.272

Yogurth

0.162

0.149

9
0
0
2
-
7
0
0
2

Milk UHT, semi
skimmed 1.5%
fat

Fresh milk,
semi skimmed
1.5%  fat

0.649

0.674

0.358

0.393

EN 

40 

   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) 

6

5

4

3

2

1

0

9
0
:
5
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1
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5
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:
9
0
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2

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 moderate to substantial causality link with respect 
to farm-gate price movements. For three out of four 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 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 

41 

   EN 

 
Figure 27: 
transmission: dairy sector, Lithuania 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

Gouda cheese

Butter

Natural yogurt

UHT semi-skim milk

Gouda cheese

Butter

Natural yogurt

6
0
0
2
-
5
0
0
2

9
0
0
2
-
7
0
0
2

0.289

0.292

0.332

0.327

0.458

0.831

0.43

0.152

0.121

0.13

0.176

0.263

0.466

0

UHT semi-skim milk

0.444

0.179

3.1.1.11. Spain 

Most of milk produced in Spain (around 90%) is delivered to dairies for 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  characterized  by  an  overall  lack  of  marketing 
contracts and a relative scarcity of farmer cooperatives. While only 30% of the milk in Spain 
is  marketed  through  cooperatives,  this  proportion  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 should 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 mergers and acquisitions in the 1990s, especially 
in the liquid milk chain, yielding higher levels of industry concentration. Concentration in the 
dairy industry varies among sectors, 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 leading to higher concentration levels. 

Only limited statistical information was available in the case of Spain. However the Spanish 
Price  Observatory  has  recently  published  some  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  retail  price.  The  food  industry  margins  (which 
include  all  other  costs)  represent  approximately  31%  of  the  retail  price  while  the  retailing 
sector adds some 30% of the final price paid by the consumer (cf. annex). 

EN 

42 

   EN 

 
Figure 28:  Developments  of  producer  and  consumer  price  indices  in  the  Spanish 
dairy sector, 2006-2009 (Jan 2006=100) 

150

140

130

120

110

100

90

80

2006m01

Producer price raw milk

Consumer price 'milk, cheese, eggs'

2006m03

2006m05

2006m07

2006m09

2006m11

2007m01

2007m03

2007m05

2007m07

2007m09

2007m11

2008m01

2008m03

2008m05

2008m07

2008m09

2008m11

2009m01

2009m03

2009m05

2009m07

Like in other Member States farm-gate milk prices have increased by more than 50% in the 
second half of 2007 and dropped subsequently below pre-price surge levels. Consumer prices 
for the category "milk, cheese and eggs" (the only 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 two 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 consumption in the EU, pork is the most consumed 
meat  in  Europe.  In  the  framework  of  a  relatively  light  market  organisation  within  the 
Common  Agricultural  Policy  (with  import  protection  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 rather low producer prices have recently provoked a 
contraction in sector output. This contraction implied an acceleration of the already intensive 
process of structural change prevailing 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  and  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 raw product value share at agricultural producer 
level in the final pork product value at consumer level has been decreasing continuously.  

EN 

43 

   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 reached 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 'retail driven supply chain rationalisation'36, 
characterised by slowly growing pork consumption and continuous growth in discount market 
channels,  which  increasingly  deliver  processed  meat  and  industrially  packed  fresh  meat 
(preferably under own retail brands) to consumers.  

Market situation 

The  pig  meat  market  situation  has  been  difficult  over  the  past  few  years  as  rising  feed  and 
energy costs combined with stagnating demand in the wake of the economic crisis.  

Figure 29:  Developments of producer and consumer price indices in the EU pig meat 
sector, 1997-2009 (Jan 1997=100) 

190

180

170

160

150

140

130

120

110

100

90

80

70

60

Soft wheat, ex-wholesale

Consumer price meats

1
0
/
7
9
9
1

5
0
/
7
9
9
1

9
0
/
7
9
9
1

1
0
/
8
9
9
1

5
0
/
8
9
9
1

9
0
/
8
9
9
1

1
0
/
9
9
9
1

5
0
/
9
9
9
1

9
0
/
9
9
9
1

1
0
/
0
0
0
2

5
0
/
0
0
0
2

9
0
/
0
0
0
2

1
0
/
1
0
0
2

5
0
/
1
0
0
2

9
0
/
1
0
0
2

1
0
/
2
0
0
2

5
0
/
2
0
0
2

9
0
/
2
0
0
2

1
0
/
3
0
0
2

5
0
/
3
0
0
2

9
0
/
3
0
0
2

1
0
/
4
0
0
2

5
0
/
4
0
0
2

9
0
/
4
0
0
2

1
0
/
5
0
0
2

5
0
/
5
0
0
2

9
0
/
5
0
0
2

1
0
/
6
0
0
2

5
0
/
6
0
0
2

9
0
/
6
0
0
2

1
0
/
7
0
0
2

5
0
/
7
0
0
2

9
0
/
7
0
0
2

1
0
/
8
0
0
2

5
0
/
8
0
0
2

9
0
/
8
0
0
2

1
0
/
9
0
0
2

5
0
/
9
0
0
2

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. Compared 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 processors and retailers.  

34 
35 

36 

EN 

Gira (2006, 2007, 2008). 

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. 

Gira (2006, 2007, 2008). 

44 

   EN 

 
                                                 
3.1.2.2.  Main findings of statistical analysis on pork products 

The  following  table  summarises  the  change  in  prices  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 margins at the processors and retailers levels. They also reveal 
specific marketing and pricing strategies of the downstream sector.  

Table 5: 
gate and for selected pork products at retail level (in national currency) 

Price change between April 2009 and May 2007 for pig meat at the farm 

Farm gate price
Retail prices
Cutlets
Tenderloin
Roasted pork
Shoulder, neck
Chopped pork
Minced pork
Pork loins
Pork belly
Bacon, back
Bacon, gammon
Ham
Sausage

United 
Kingdom
37%

39%

13%

Denmark Austria Slovenia

3%

9%

3%

18%

6%

-3%

-5%

Czech 
Republic
18%

10%
8%

Lithuania

19%

41%
20%

19%

36%

10%

Germany France

2%

4%
-8%

7%

8%

4%

4%

5%

18%
7%
18%
8%

9%
Source: European Commission based on information sent by selected Member States 

5%

37%

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 situation in the dairy sector, we can 
observe  that  in  some  countries  and  for  some  specific  pork  products  (e.g.  tenderloin  in 
Denmark  and  Germany),  retail  prices  in  the  pork  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 recent 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 the diversity in the competitive structure and 
the functioning of the chain in each country as well as differences in the price formation 
mechanism.  As  for  the  dairy  sector,  this  does  not  mean  that  the  whole  analysis  is 

37 

38 

39 

The identification of potential malfunctioning along the food supply chain requires 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. 

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. 

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 

45 

   EN 

 
                                                 
inconclusive.  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 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 agricultural raw material price movements and 
that of the corresponding consumer products is low or even null. Weak causality was also 
detected when the observation of producer and consumer price developments did not raise 
particular concern of imperfect price transmission (for example in France where consumer 
prices  for  the  examined  pork  products  have  followed  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 the pricing strategy of processors/retailers. 

–  An  analysis  of  the  pork  products  which  demonstrate  a  significant  degree  of  causality 
between  producer  and  consumer  prices,  shows  that  only  approximately  10%  exhibited  a 
substantial  price  transmission,  45%  showed  moderate  price  transmission  while  around 
45% of the pork products indicated a low degree of price transmission 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  which  showed  below  average  price  transmission 
coefficients. The delay in price response seems to be higher in the EU12 than in the EU15. 
At EU-27 level, the average price response at consumer level takes place with a delay of 
one  month.  Among  the  observed  products  loins  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 significantly faster pace than what the evidence obtained at aggregate 
level tended to indicate. However, the rapid transmission  of  price changes only  concerns 
relatively  unprocessed  pig  meat  products  subject  of  this  analysis  and  whose  price 
developments were found to be closely linked to those of farm-gate pig meat prices. When 
examining the whole spectrum of pig meat products, 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  speed  (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 across 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 observed for the dairy sector and at aggregated 
agricultural level) as well as the existence of asymmetric behaviour. 

The low price transmission found between the agricultural producer stage and the consumer 
stage in most countries (apart from the United 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  transmission  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 

46 

   EN 

Figure 30: 
pig meat sector 

Frequency of substantial, moderate, low price transmission results for the 

60%

50%

40%

30%

20%

10%

0%

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 some 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 increasing piglet  and slaughter animal  imports,  mainly from 
Denmark  and  the  Netherlands,  due  to  a  more  competitive  German  slaughter/processing 
industry.  There  was  a  strong  concentration  move  in  the  pig  slaughtering  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  processing  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  than  50%),  they  deliver  however  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 share is decreasing, as more and 
more fresh meat is sold in hard discounters. Around 18% of total consumption of unprocessed 
meat  in  Germany  is  served  through  the  food  service  sector.  The  share  of  the  food  service 
sector  is  much  higher  for  processed  pork  products  like  sausages,  escalope,  meat  balls  etc. 
Regarding processed pork products, hard discounters hold market shares of up to 50% for 'fast 
moving'  products  like  certain  cold  cuts  (sliced  pork  sausage,  salami,  cooked  ham)  (GIRA, 
2006, 2007, 2008). 

An examination of the actual price developments along the German pork supply chain shows 
that  average  retail  prices  have  hardly  fallen  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 

47 

   EN 

 
                                                 
entry of the latter into the fresh meat segment (cf. graphs below). The margins realised within 
the non-agricultural downward supply chain tend to increase slightly. Retail prices appear to 
have increased more in the processed meat than in the fresh meat sector. According to (ISN, 
2009),  the  agricultural  pig  producer  received  in  January  2009  around  18%  of  the  consumer 
expenditure for pig meat41. 

Figure 31: 
for fresh pig meat products (Jan 2004 - Jun 2009) 

Price  developments  (in  absolute  terms)  within  the  German  supply  chain 

i

/

t
h
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t
c
u
d
o
r
p
s
s
a
c
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a
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g 
k
n €/
e
c
i
r
P

i

11

10

9

8

7

6

5

4

3

2

1

0

Retail price pork fillet

Retail price pork cutlet

Retail price minced pork

Slaughter pig, free slaughterhouse

1
0
/
4
0
0
2

3
0
/
4
0
0
2

5
0
/
4
0
0
2

7
0
/
4
0
0
2

9
0
/
4
0
0
2

1
1
/
4
0
0
2

1
0
/
5
0
0
2

3
0
/
5
0
0
2

5
0
/
5
0
0
2

7
0
/
5
0
0
2

9
0
/
5
0
0
2

1
1
/
5
0
0
2

1
0
/
6
0
0
2

3
0
/
6
0
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2

5
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/
6
0
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2

7
0
/
6
0
0
2

9
0
/
6
0
0
2

1
1
/
6
0
0
2

1
0
/
7
0
0
2

3
0
/
7
0
0
2

5
0
/
7
0
0
2

7
0
/
7
0
0
2

9
0
/
7
0
0
2

1
1
/
7
0
0
2

1
0
/
8
0
0
2

3
0
/
8
0
0
2

5
0
/
8
0
0
2

7
0
/
8
0
0
2

9
0
/
8
0
0
2

1
1
/
8
0
0
2

1
0
/
9
0
0
2

3
0
/
9
0
0
2

5
0
/
9
0
0
2

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  producers  had  difficulties  to  transmit  the  increasing  production 
costs (e. g. feed, energy) to the food industry. Pig meat prices at producer level increased by 
34%  between  May  2007  and  August  2008,  before  falling  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  years  earlier.  In  the  case  of  tenderloins,  retail  prices  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  changes  in  consumer  prices  is  rather  low:  for 
loin/tenderloin it is below the average correlation 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 correlation with the price of the raw material has been stronger and higher over 
the last couple of years. The transmission coefficients 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 

48 

   EN 

 
 
 
                                                 
Figure 32: 
for processed pig meat products (Jan 2004 – Jun 2009) 

Price  developments  (in  absolute  terms)  within  the  German  supply  chain 

i

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t
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u
d
o
r
p
s
s
a
c
r
a
c
g 
k
n €/
e
c
i
r
P

i

Retail price salami, sliced

Retail price boiled ham, sliced

Retail price Wiener sausage

Slaughter pig, free slaughterhouse

12

11

10

9

8

7

6

5

4

3

2

1

0

1
0
/
4
0
0
2

4
0
/
4
0
0
2

7
0
/
4
0
0
2

0
1
/
4
0
0
2

1
0
/
5
0
0
2

4
0
/
5
0
0
2

7
0
/
5
0
0
2

0
1
/
5
0
0
2

1
0
/
6
0
0
2

4
0
/
6
0
0
2

7
0
/
6
0
0
2

0
1
/
6
0
0
2

1
0
/
7
0
0
2

4
0
/
7
0
0
2

7
0
/
7
0
0
2

0
1
/
7
0
0
2

1
0
/
8
0
0
2

4
0
/
8
0
0
2

7
0
/
8
0
0
2

0
1
/
8
0
0
2

1
0
/
9
0
0
2

4
0
/
9
0
0
2

Source: DG AGRI, BMVEL/AMI. 

Figure 33: 
transmission: pig meat sector, Germany 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

6
0
0
2
-
4
0
0
2

9
0
0
2
-
7
0
0
2

Pork
tenderloin

0.156

Pork minced

0.112

0.17

0.131

Pork
tenderloin

0.003

0

Pork minced

0.308

0.205

3.1.2.4.  United Kingdom 

The UK pig farming sector has shown a remarkable decline over the last years and undergone 
a continued move towards larger specialised production units (specialised either into breeding 
or fattening, and also vertically aligned to specific slaughterers). The industry has been faced 
with permanent pricing pressures, further reinforced 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  Denmark  and  the  Netherlands  as  main  sources  of 
supply).  

EN 

49 

   EN 

 
 
 
 
The pig slaughtering sector is continuing to rationalise 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: 
fresh pig meat products (Jan 1999 – Jun 2009) 

Price  developments  (in  absolute  terms)  within  the  UK  supply  chain  for 

t
h
g
i
e
w

t
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/
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s
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/
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P
h
s
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B
n

i
e
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i
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P

650

600

550

500

450

400

350

300

250

200

150

100

50

0

Retail price pork, home-killed, loin (with bone)

Retail price pork, home-killed, boneless shoulder

Slaughter pig, free slaughterhouse

1
0
/
9
9
9
1

5
0
/
9
9
9
1

9
0
/
9
9
9
1

1
0
/
0
0
0
2

5
0
/
0
0
0
2

9
0
/
0
0
0
2

1
0
/
1
0
0
2

5
0
/
1
0
0
2

9
0
/
1
0
0
2

1
0
/
2
0
0
2

5
0
/
2
0
0
2

9
0
/
2
0
0
2

1
0
/
3
0
0
2

5
0
/
3
0
0
2

9
0
/
3
0
0
2

1
0
/
4
0
0
2

5
0
/
4
0
0
2

9
0
/
4
0
0
2

1
0
/
5
0
0
2

5
0
/
5
0
0
2

9
0
/
5
0
0
2

1
0
/
6
0
0
2

5
0
/
6
0
0
2

9
0
/
6
0
0
2

1
0
/
7
0
0
2

5
0
/
7
0
0
2

9
0
/
7
0
0
2

1
0
/
8
0
0
2

5
0
/
8
0
0
2

9
0
/
8
0
0
2

1
0
/
9
0
0
2

5
0
/
9
0
0
2

Source: DG AGRI; National Office of Statistics, UK. 

The demand for pig meat in the UK concentrates on meat for processing 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 operations (GIRA, 2006). Although the consumption 
of bacon had declined markedly since the 1970s, the overall pig meat consumption, preferably 
in  the  form  of  further  processed  product  (around  64%  of  total  pig  meat  supply  –  excluding 
pork  to  be  processed  for  the  catering  sector  –  is  further  processed),  is  estimated  to  have 
remained stable.  

As  shown  in  Graphs  34  and  35,  the  margins  realised  within  the  non-agricultural  part  of  the 
fresh and processed pig meat supply chains have been increasing continuously, with a strong 
further push during over the most recent months. 

During the food price hike of 2007/2008 UK farm-gate pig prices increased 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 decline in the first months of 2009. Retail prices 
only increased at the same rate as farm-gate prices for boneless pork shoulders. Interestingly 
than  more  processed  products.
faster  pace 
fresh  products 

increased 

at 

a 

EN 

50 

   EN 

 
 
 
 
 
 
Figure 35: 
processed pig meat products (Jan 1999 – Jun 2009) 

Price  developments  (in  absolute  terms)  within  the  UK  supply  chain  for 

i

/

t
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h 
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n 
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/

1000

900

800

700

600

500

400

300

200

100

0

Retail price bacon, back 

Retail price bacon, gammon

Retail price pork sausages

Retail price ham (not shoulder)

Slaughter pig, free slaughterhouse

1
0
/
9
9
9
1

5
0
/
9
9
9
1

9
0
/
9
9
9
1

1
0
/
0
0
0
2

5
0
/
0
0
0
2

9
0
/
0
0
0
2

1
0
/
1
0
0
2

5
0
/
1
0
0
2

9
0
/
1
0
0
2

1
0
/
2
0
0
2

5
0
/
2
0
0
2

9
0
/
2
0
0
2

1
0
/
3
0
0
2

5
0
/
3
0
0
2

9
0
/
3
0
0
2

1
0
/
4
0
0
2

5
0
/
4
0
0
2

9
0
/
4
0
0
2

1
0
/
5
0
0
2

5
0
/
5
0
0
2

9
0
/
5
0
0
2

1
0
/
6
0
0
2

5
0
/
6
0
0
2

9
0
/
6
0
0
2

1
0
/
7
0
0
2

5
0
/
7
0
0
2

9
0
/
7
0
0
2

1
0
/
8
0
0
2

5
0
/
8
0
0
2

9
0
/
8
0
0
2

1
0
/
9
0
0
2

5
0
/
9
0
0
2

Source: DG AGRI; National Office of Statistics, UK. 

Figure 36: 
transmission: pig meat sector, United Kingdom 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Correlation R2              Price transmission coefficient

Pork sausage

0.265

Pork ham

0.068

6
0
0
2
-
9
9
9
1

9
0
0
2
-
7
0
0
2

Pork bacon, back

Pork bacon, gammon

Pork shoulder boneless

Pork loin

Pork sausage

Pork ham

0.433

0.344

0.461

0.474

0.515

0.659

Pork bacon, back

Pork bacon, gammon

0.352

0.394

Pork shoulder boneless

0.615

Pork loin

0.412

0.321

0.231

0.451

0.329

0.563

0.365

1.165

0.878

0.869

1.202

0.907

0.951

The statistical analysis (causality tests) shows that there is a close link (with a high level of 
correlation  and  the  transmission  coefficients)  between  changes  in  producer  pig  prices  and 
changes  in  pork-based  products  at  retail  level.  The  regressions  were  able  to  explain  a  large 

EN 

51 

   EN 

 
 
 
 
 
part of the variability for all products, with price transmission coefficients that in some cases 
stood above 1 (e.g. bacon, gammon and sausage) over the past couple of years. 

3.1.2.5.  France 

The French pig farming sector has been stagnating 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, with competitively priced meat 
being used for further processing (mainly hams).  

French pig farming is heavily concentrated in Brittany, and primarily involves medium size 
farms. The dominant activity is farrow-to-finish, which represents around 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  industrial  abattoirs  amounted  to  182  in  2006.  Developments  in  pig 
slaughtering  have  been  characterised  by  an  increasing  downstream  involvement  (in  cutting 
and processing) of  the slaughterers, while processed meat manufacturers are not engaged in 
any  slaughter  activities.  Accordingly,  slaughterers  (like  COOPERL,  BERNARD,  SOCOPA 
and KERMENE) carry out more than 70% of all pork cutting in France.  

Figure 37: 
longe de porc (2000-2009), €/kg  

Price developments (in absolute terms) within the French supply chain for 

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 retail 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-agricultural  part  of  the  supply  chain  have  been  slightly 

EN 

52 

   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  than  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% during 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  material  (+8%)  and  by  the  increase  in  other  costs 
throughout  the  food  chain  and  therefore  does  not  raise  particular  concern  in  terms  of  price 
transmission. 

Figure 38: 
fresh and processed pig meat products (Jan 1992 – Jun 2009) 

Price developments (in absolute terms) within the French supply chain for 

i

/

t
h
g
e
w
t
c
u
d
o
r
p
s
s
a
c
r
a
c
g 
k
n €/
e
c
i
r
P

i

14,5

13,5

12,5

11,5

10,5

9,5

8,5

7,5

6,5

5,5

4,5

3,5

2,5

1,5

0,5

Retail price pork, rôti dans le filet

Retail price pork, jambon supérieur

Retail price pork, échine avec os (côtes dans l'échine)

Slaughter pig, free slaughterhouse

1
0
/
2
9
9
1

1
0
/
3
9
9
1

1
0
/
4
9
9
1

1
0
/
5
9
9
1

1
0
/
6
9
9
1

1
0
/
7
9
9
1

1
0
/
8
9
9
1

1
0
/
9
9
9
1

1
0
/
0
0
0
2

1
0
/
1
0
0
2

1
0
/
2
0
0
2

1
0
/
3
0
0
2

1
0
/
4
0
0
2

1
0
/
5
0
0
2

1
0
/
6
0
0
2

1
0
/
7
0
0
2

1
0
/
8
0
0
2

1
0
/
9
0
0
2

Source: DG AGRI, Insee. 

The two retail pig meat prices show only a weak causality with respect to farm-gate price and 
therefore the results of the regression analysis are not shown here.  

3.1.2.6.  Other observed countries 

The  following  section  summarises  the  main  results  of  the  statistical  analysis  based  on  data 
received from Denmark, Austria, Czech 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 pork 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 the farm-gate prices barely explain changes in 
retail prices. For Lithuania two out of five products showed weak causality with respect to the 
price of the raw material (pork nexk and cutlets). 

EN 

53 

   EN 

 
 
 
Table 6: 
transmission: pig meat sector, Austria, Czech Republic, Slovenia 

Summary  of  the  main  results  of  the  statistical  analysis  of  price 

Product

Country Correlation (R2) Price transmission

Loins/tenderloins

Minced pork

Ham

Belly

SI
LT
LT
CZ
LT
AT

0.066
0.219
0.022
0.379
0.181
0.011

0.189
0.342
0.118
0.28
0.403
0.035

Lag
4
0
0
0-1
1
0

In  the  case  of  Denmark  weak  causality  was  detected  for  pork  tenderloin  retail  prices  with 
respect  to  pig  meat  producer  prices.  For  chopped  pork,  the  other  product  for  which  retail 
prices  were  available,  causality  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 pork and dairy sectors for some Member States, 
with a specific focus on the extent to which the 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 relationship 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  factors:  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  and/or  anti-competitive  practices),  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 contracts between economic actors). 

There  has  been  a  significant  change  in  the  price  transmission  pattern  along  the  chain  from 
2007 onwards with the sharp rise and the following plummeting of commodity prices. At each 
step of the chain, the magnitude of price transmission has increased and actors have tried to 
pass on to their customers the unusual increase in their input costs. Furthermore, since 2007, 
consumer prices – and to a lesser extent food producer 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  decrease.  The  decline  in 
agricultural commodity prices has been passed on up to one year later to the consumers. 

The  European  food  supply  chain  appears  significantly  fragmented  across  Member  States  in 
terms  of  price  transmission  pattern  at  each  step  of  the  chain.  Both  magnitude  and  speed  of 
price transmission vary significantly across Member States, resulting 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  reflects  the  wide  diversity  in  the 
competitive  structure  and  the  functioning  of  the  food  supply  chain.  This  motivated  the 
undertaking of a specific in-depth enquiry on the dairy and pig meat sectors which have been 

EN 

54 

   EN 

 
particularly affected by the economic crisis and 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 insights concerning changes 
in  margins  at  the  processors/retailers  level.  Although  available  statistics  until  August  2009 
indicate  that  consumer  prices  for  dairy  products  have  been  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 producer 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  countries  studied,  most  notably  over  the  last  two  years.  The 
distribution of these higher gross margins between the processing and retail sectors is difficult 
to assess precisely on the basis of the data available which only provide a partial picture of the 
recent 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 shows that  there 
has been a clear trend lately towards an increase in the level of gross margins at processing 
level  for  some  dairy  products  in  some  countries  (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 transmission in the dairy and pork sectors shows that: 

–  There are wide differences of results between similar dairy/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 country as well as differences 
in  the  price  formation  mechanism.  This  does  not  mean  that  the  whole  analysis  is 
inconclusive.  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 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 agricultural raw material price movements and 
that of the corresponding consumer products is low or even null. Though this result seems 
rather high in terms of lack of causality linkage between producer and consumer prices, it 
remains  in  line  with  the  findings  obtained  in  other  studies.  Furthermore,  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 for 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/retailers. 

42 

These  findings  appear  to  be  broadly  consistent  with  the  analysis  of  the  evolution  of  value-added 
repartition  and  profit  margin  across  the  overall  EU  food  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 Communication "A better functioning food supply chain in Europe", 
COM(2009) 591). 

EN 

55 

   EN 

                                                 
–  For  the  dairy  and  pork  products  which  demonstrate  a  significant  degree  of  causality 
between  producer  and  consumer  prices,  the  analysis  shows  that  only  approximately  20% 
and 10% respectively exhibited a substantial price transmission, 30% and 45% respectively 
showed  moderate  price  transmission  while  around  half  of  the  products  indicated  a  low 
degree  of  price  transmission  between  producer  and  consumer  prices.  At  Member  State 
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 
degree of price transmission was detected for relatively unprocessed products like butter, 
bulk cheese and liquid milk. More processed and/or differentiated products showed lower 
degree  of  price  transmission,  reflecting  the  higher  importance  of  other  cost  components 
and margins. 

–  Speed of transmission: the delay in price response seems to be higher in the EU12 than in 
the EU15. At EU27 average price response at consumer 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 indicate. However, this rapid transmission of price changes only 
concerns dairy/pork products whose price developments were found to be closely linked to 
those  of  milk/pig  meat  producer  prices.  When  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  changes  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 taken place after a given number of months, it 
does  not  necessarily  provide  information  concerning  its  completeness.  Finally,  the 
transmission  of  price  changes  between  the  primary  and  the  downstream  sectors  seems  to 
have taken place at very different pace across dairy/pork product chains and countries. 

–  The analysis of price developments and the statistical tests on price transmission provide 
indication  of  asymmetric  behaviour  across  the  dairy  chain  where  dairy  consumer  prices 
have  been  fast  to  increase,  but  slow  to  decline  in  the  wake  of  the  sharp  drop  in  milk 
producer  prices  (e.g.  Slovenia,  United  Kingdom,  Denmark,  Lithuania).  Furthermore  the 
price  transmission  pattern  in  the  dairy  sector  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 conclusions regarding asymmetric behaviour and 
the degree of price transmission. 

The  overall  rather  low  price  transmission  between  the  agricultural  producer  stage  and  the 
consumer  stage  in  the  two  sectors  of  milk  and  pork  may  be  linked  to  several  factors:  the 
steadily declining share of the agricultural raw materials into the consumer price of dairy and 
pork products, potential imperfections in the competitive structure of the chain (either linked 
to  imbalances  in  bargaining  power  and/or  anti-competitive  practices),  some  specific 
adjustments  constraints  and  costs  (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  price  formation  mechanism  and  the 
importance  of  producer  organisations  in  many  countries  may  also  contribute  to  water  down 
the  causality  and  degree  of  price  transmission  between  the  milk  producer  prices  and  dairy 
consumer prices. On the other hand, the price transmission in the pork supply chain 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 

56 

   EN 

However,  caution  is  deemed  necessary  in  drawing  firm  analytical  conclusions  from  the 
measurement and interpretation of the functioning of the price transmission mechanism owing 
to the wide diversity of the food supply chain in the EU across and within Member States and 
product  chains.  Furthermore,  these  analyses  strongly  rely  on  the  availability  and  quality  of 
price and margin information. 

EN 

57 

   EN 

5.  REFERENCES 

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European Commission. 

AgraCeas, (2007), "The gap between producer prices and the prices paid by the consumers", 
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Azzam,  A.  M.  (1999).  "Asymmetry  in  rigidity  in  farm-retail  price  transmission",  American 
Journal of Agricultural Economics, 81, 525-533. 

Comité Economique, Social et Environnemental (2009), "Les modalités de formation des prix 
alimentaires: du producteur au consommateur", Avis et rapports. 

DairyCo, (2009), "Ensuring a sustainable dairy supply chain". 

DairyCo, (2009), Who made what in the dairy industry and how it has changed Dairy Supply 
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Danish Competition Authority (2009), "Food prices: price developments for milk, butter and 
bread". 

Dhyne, E., Konieczny, J., Rumler, F. and Sevestre, P. (2009), Price Rigidity in the Euro Area 
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Foro Agrario, (2000) La reforma de la PAC de la Agenda 2000 y la Agricultura Española. Ed. 
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FranceAgriMer, (2009) "Observatoire des Prix et des Marges – Filière Porc" 

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Gardner,  B.  L.  (1975).  "The  Farm-Retail  Price  Spread  in  a  Competitive  Food  Industry", 
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GIRA, (2006), "Meat in Retail: EU-25 Winners and Losers". 

GIRA, (2007), "The Gira EU Meat 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 Adjustment and Price Transmission in 
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Harvey, M. (2007), "The rise of Supermarkets and asymmetries of Economic Power",  

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Jensen,  J.D.  and  Møller,  A.S.,  (2009),  Vertical  price  transmission  in  the  Danish  food 
marketing Chain 

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London Economics, (2003), "Investigation of the determinants of farm-retail price spreads", 
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McCorriston, S., Morgan, C.W. and Rayner, A.J. (2001). "Price transmission: the interaction 
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McCullough,  E.B.,  Pingali,  P.L.  and  Stamoulis,  K.G.  (2008),  "The  transformation  of  Agri-
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Journal of Agricultural Economics. 55: 581-611. 

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Serra, T. and Goodwin, B.K. (2003), "Price Transmission and Asymmetric Adjustment in the 
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développement de l'économie numérique, (2008), "Formation des Prix Alimentaires" 

SPF Economie, P.M.E., Classes moyennes et Energie, (2008), "Développements Récents dans 
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Von Cramon-Taubadel, S (1998). "Estimating Asymmetric Price Transmission with the Error 
Correction Representation: An Application to the German Pork Market," European Review of 
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Ward, RW. “Asymmetry in retail, wholesale, and shipping point pricing for fresh vegetables.” 
American Journal of Agricultural Economics 62 (1982): 205-212. 

Weldegebriel,  H.T.  (2004).  "Imperfect  Price  Transmission:  Is  Market  Power  Really  to 
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59 

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6.  ANNEXES 

Figure A.1.:  Pass-through from agricultural commodity prices to food consumer prices 
between January 2007 and May 2009 by Member States 

Maximum increase in agricultural commodities prices 
over maximum increase in food consumer prices (pass-
through) between January 2007 and May 2009; %

Contribution of producer to consumer 
prices pass-through 

Contribution of agricultural commodity 
to producer prices pass-through

Stripes indicate pass-through value over 100%

140%

120%

100%

80%

60%

40%

20%

0%

FR CZ LU DE PT CY ES IE DK UK

EU15 AT SE

EU27 GR SK IT RO SI

HU NL

EU10 FI

BG PL BE LT

Source:

EUROSTAT

Annex A.2.:  Detailed  equation  of  price  transmission  relationship  estimated  by  panel  data 
regression 

The equation estimated by the regression is: 

∆

t
P
Output

=

i

∑

α
i

=

6.3.0

∆

P

i
t
−
Input

+

i

β
i

∆

P

i
t
−
Energy

∑

=

6.3.0

+

i

∑

γ
i
6.3.0

=

∆

P

−

t
i
Labour

+

c

When  estimating  price  transmission  from  agricultural  commodity  prices  to  food  producer 
prices, output  prices  are  food  producer 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  price  transmission  from  commodity  to 
food  producer,  and  trade  services  labour  costs  for  price  transmission  from  food  producer  to 
retailers.) 

EN 

60 

   EN 

 
 
 
 
Table A.1.:  Results  from  panel  data  regression  of  food  producer  monthly  price 
variation with agricultural commodity monthly price variations 

Dependent variable -  
Monthly variations in:

Panel coverage:

Time coverage:

Explanatory variables - 
Monthly variations in:

Commodity prices (current)
Commodity prices (3-month lag)
Commodity prices (6-month lag)

Energy prices 
Energy prices (3-month lag)
Energy prices (6-month lag)

Unit Labour costs
Unit Labour costs (3-month lag)
Unit Labour costs (6-month lag)

Food Producer Prices

Food Producer Prices

EU15 Member States

EU12 Member States

2000-2009

2000-2006

2007-2009

2000-2009

2000-2006

2007-2009

Coefficient

Coefficient

Coefficient

Coefficient

Coefficient

Coefficient

1%***
1%**
-

3%***
2%***
-

-
-
-

1%*
-
-

-
-
-

-
-1%**
-

0.08

8%***
14%***
10%***

6%***
-
-

-
-
-

4%***
3%***
-

4%**
-
-

-
-
-

2%***
1%**
-

6%**
-
-

-
-
-

0.37

0.33

0.28

14%***
9%***
9%**

-
-
-

-
6%**
-

0.45

Fit of the regression - Adjusted R²

0.19

*** Indicates significance at 1%
 ** Indicates significance at 5%

* Indicates significance at 10%
- Indicates no significance

Source: EUROSTAT price indices, own calculation

Table A.2.:  Results  from  panel  data  regression  of  food  consumer  monthly  price 
variation with food producer monthly price variations 

Dependent variable -  
Monthly variations in:

Panel coverage:

Time coverage:

Explanatory variables - 
Monthly variations in:

Food producer prices (current)
Food producer prices (1-month lag)
Food producer prices (3-month lag)
Food producer prices (6-month lag)

Energy prices 
Energy prices (3-month lag)
Energy prices (6-month lag)

Unit Labour costs
Unit Labour costs (3-month lag)
Unit Labour costs (6-month lag)

Fit of the regression - Adjusted R²

*** Indicates significance at 1%
 ** Indicates significance at 5%

Source: EUROSTAT price indices, own calculation

Food Consumer Prices

EU27 MS

EU15 MS

EU12 MS

2000-2006

2007-2009

2000-2006

2007-2009

2000-2006

2007-2009

Coefficient

Coefficient

Coefficient

Coefficient

Coefficient

Coefficient

32%***
20%***
-
-

-
2%*
-

6%***
-
-3%***

0.20

26%***
17%***
14%**
13%*

-
-
-

-
-
-

0.31

* Indicates significance at 10%
- Indicates no significance

-
-
-
11%***

-
-
-

-
-
2%**

0.17

9%**
20%***
10%*
-

2%*
-
3%**

-
-
-

0.27

42%***
33%***
-
-

5%*
4%*
-

-
-
-9%***

0.31

41%**
-
25%***
24%**

5%**
-
-

10%**
-
-

0.37

Annex A.5.:  Detailed equation of price transmission relationship to test symmetry 

The equation estimated by the regression to test for asymmetry is the following: 

∆

t
P
Output

=

i

∑

a
6.3.0

=

+
α
i
i

∆

P

i
t
−
Input

∑

a
6.3.0

=

i

−
α
i
i

∆

P

t
i
−
Input

+

i

Where 

β
i

∆

P

i
t
−
Energy

∑

=

6.3.0

+

i

∑

γ
i
6.3.0

=

∆

P

−

i
t
Labour

+

c

a
i

⎧
⎪
= ⎨
⎪⎩

1 if 

∆

0 if 

∆

t
i
−
P
Input
t
i
−
P
Input

≥

0

<

0

Price transmission will then be symmetric if we have a significant probability that:  
∑

+ =
α
i

∑

−
α
i

i

=

6.3.0

i

=

6.3.0

EN 

61 

   EN 

 
 
 
 
 
 
 
 
Table A.3.:  Results  from  panel  data  regression  testing  asymmetry  along  the  food 
supply chain 

Dependent variable -  
Monthly variations in:

Panel coverage:

Time coverage:

Explanatory variables - 
Monthly variations in:

Food producer prices

EU27 Member States

2000-2009

2000-2006

2007-2009

Coefficient for 
commodity 
price increase

Coefficient for 
commodity 
price decrease

Coefficient for 
commodity 
price increase

Coefficient for 
commodity 
price decrease

Coefficient for 
commodity 
price increase

Coefficient for 
commodity 
price decrease

Commodity price (current)
Commmodity price (1-month lag)
Commodity price (6-month lag)

Energy prices 
Energy prices (3-months lag)
Energy prices (6-months lag)

Unit Labour costs
Unit Labour costs (3-months lag)
Unit Labour costs (6-months lag)

3%***
2%***
-

3%***
1%*
-

-
-
-

2%***
2%***
-

3%***
1%*
-

-
-
-

1%***
-
-

2%*
-
-

-
-
-

2%**
2%***
-

-
-
-

-
-
-

20%***
17%***
16%***

4%***
-
-

-
-
-

Fit of the regression - Adjusted R²

0.25

0.24

0.13

0.13

0.40

14%***
16%***
14%***

6%***
-
-

-
3%**
-

0.32

*** Indicates significance at 1%
 ** Indicates significance at 5%

* Indicates significance at 10%
- Indicates no significance

Source: EUROSTAT price indices, own calculation

Dependent variable -  
Monthly variations in:

Panel coverage:

Time coverage:

Explanatory variables - 
Monthly variations in:

Food consumer prices

EU27 Member States

2000-2009

2000-2006

2007-2009

Coefficient for 
producer price 
increase

Coefficient for 
producer price 
decrease

Coefficient for 
producer price 
increase

Coefficient for 
producer price 
decrease

Coefficient for 
producer price 
increase

Coefficient for 
producer price 
decrease

Producer price (current)
Producer price (1-month lag)
Producer price (3-month lag)
Producer price (6-month lag)

Energy prices 
Energy prices (3-months lag)
Energy prices (6-months lag)

Unit Labour costs
Unit Labour costs (3-months lag)
Unit Labour costs (6-months lag)

Fit of the regression - Adjusted R²

40%***
24%***
8%*
-

2%*
2%*
-

6%***
-
-2%*

0.23

30%***
25%**
-
-

2%***
2%**
-

6%***
-
-2%*

0.16

*** Indicates significance at 1%
 ** Indicates significance at 5%

* Indicates significance at 10%
- Indicates no significance

Source: EUROSTAT price indices, own calculation

42%***
26%***
-
-

-
2%*
-

6%***
-
-3%***

0.20

36%***
31%***
-
-

-
2%*
-

6%***
-
-3%***

0.16

34%***
21%***
14%**
13%*

2%*
-
-

-
-
-

0.32

-
-
47%**
n.a.

5%***
-
-

-
-
-

0.20

Figure A.2:  Household expenditure for dairy products in France  

Ice cream 
and others

Liquid Milk

Cheese

Yogurt and 
milk dessert

Butter

EN 

62 

   EN 

 
 
 
Figure A.3:  Price level of several dairy products at consumer level (except from milk 
at farm-gate level), France, 2001 - 2009 (€ per unit)  

1

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

/

4
0
9
0
0
2

/

2
1
8
0
0
2

/

8
0
8
0
0
2

/

4
0
8
0
0
2

/

2
1
7
0
0
2

/

8
0
7
0
0
2

/

4
0
7
0
0
2

/

2
1
6
0
0
2

/

8
0
6
0
0
2

/

4
0
6
0
0
2

/

2
1
5
0
0
2

/

8
0
5
0
0
2

/

4
0
5
0
0
2

/

2
1
4
0
0
2

/

8
0
4
0
0
2

/

4
0
4
0
0
2

/

2
1
3
0
0
2

/

8
0
3
0
0
2

/

4
0
3
0
0
2

/

2
1
2
0
0
2

/

8
0
2
0
0
2

/

4
0
2
0
0
2

/

2
1
1
0
0
2

/

8
0
1
0
0
2

/

4
0
1
0
0
2

Price 100gr Emmental
Consumer liquid milk price

Butter price 125gr 
Milk price at farm level

Price 500gr yoghurt

Figure A.4:  Price level of several dairy products, at consumer level, United Kingdom, 
1999 - 2009 (£pence) 

120

100

80

60

40

20

0

1
0
/
9
9
9
1

7
0
/
9
9
9
1

1
0
/
0
0
0
2

7
0
/
0
0
0
2

1
0
/
1
0
0
2

7
0
/
1
0
0
2

1
0
/
2
0
0
2

7
0
/
2
0
0
2

1
0
/
3
0
0
2

7
0
/
3
0
0
2

1
0
/
4
0
0
2

7
0
/
4
0
0
2

1
0
/
5
0
0
2

7
0
/
5
0
0
2

1
0
/
6
0
0
2

7
0
/
6
0
0
2

1
0
/
7
0
0
2

7
0
/
7
0
0
2

1
0
/
8
0
0
2

7
0
/
8
0
0
2

1
0
/
9
0
0
2

Farm gate milk price
Milk pasteurised per pint

Butter: Home produced per 250g
Cheese: Cheddar type per 100gr

Butter: Imported per 250g

EN 

63 

   EN 

 
 
Figure A.5:  Farm-gate milk price and retail price of several dairy products, Denmark, 
2000-2009 (DKK per unit) 

3

2.5

2

1.5

1

0.5

0
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: 
dairy sector, France 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Period

Dependent 
Variable
1996-2009 Bulk cheese
UHT semi-
skim milk

1996-2006 Bulk cheese
UHT semi-
skim milk

2007-2009 Bulk cheese
UHT semi-
skim milk
! = significance of F lower than 5%

26

Obs
158
158

131

131
26

LAG
1
0
1
1
0
1
1
0
1

Centered 
R2
0,065
0,209

0,016

0,15
0,391

0,483

Significance F Coefficients

***
!
**
!
!
!
***
!
**

0,071
0.049
0.110
0,035
0.074
0.043
0,16
0.014
0.295

Table A5 
dairy sector, United Kingdom 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Period

Dependent 
Variable

1999-2009 Butter

Cheddar

1999-2006 Butter

Cheddar

2007-2009 Butter

Cheddar

Obs
123
123
96
96
27
27

LAG
0
0
0
0
0
0

Centered 
R2
0,407
0,151
0,372
0,168
0,806
0,385

Significance F Coefficients

***
***
***
***
***
***

0,645
0,183
0,649
0,2
0,649
0,152

Table A6 
dairy sector, Denmark 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

EN 

64 

   EN 

 
 
 
Period

Dependent 
Variable

Obs

LAG

Centered
 R2

2000-2009 Fresh whole organic milk

Fesh semi-skim organic milk

Double crème

Yogurt with fruit
Brie
Cheese
Butter

2000-2006 Fresh whole organic milk

Fesh semi-skim organic milk

Double crème

Yogurt with fruit
Brie
Cheese
Butter

2007-2009 Fresh whole organic milk

Fesh semi-skim organic milk

Double crème

Yogurt with fruit
Brie
Cheese
Butter

! = significance of F lower than 5%

99
99

110

111
111
111
110
72
72

83

84
84
84
83
27
26

26

27
27
27
26

0
1
0
1
0
0
0
1
0
1
0
1
0
0
0
1
0
1
0
1
0
0
0
1

0.023
0.104

0.284

0.162
0.114
0.009
0.06
0.024
0.096

0.351

0.096
0.237
0.015
0.024
0.262
0.511

0.653

0.5
0.118
0.232
0.581

Significance F Coefficients
!
***
!
!
***
***
!
**
!
**
***
!
***
***
!
!
***
***
!
***
***
!
**
***

0.101
0.126
0.327
0.287
0.238
0.201
0.196
0.324
0.119
0.091
1.727
-0.949
0.205
0.328
0.307
0.245
0.136
0.231
-0.104
0.390
0.212
0.101
0.227
0.49

Table A7 
dairy sector, Germany 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Dependent 
Variable

Period
2004-2009
2004-2006 Cheese Gouda
2007-2009

Obs

LAG

Centered R2 Significance % Coefficients

51
24
27

0
0
0

0.377
0.032
0.328

***
!
***

0.584
-0.044
0.444  

EN 

65 

   EN 

 
Table A8 
dairy sector, Slovenia 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Period

Dependent 
Variable

2004-2009 Fresh whole milk

Natural Yogurt

Butter

UHT semi-skim milk

2004-2006 Fresh whole milk

Natural Yogurt

Butter

UHT semi-skim milk

2007-2009 Fresh whole milk

Natural Yogurt

Butter

UHT semi-skim milk

! = significance of F lower than 5%

Obs

LAG

Centered 
R2

Significance F Coefficients

56

56

56

56

29

29

29

29

24

24

24

24

0
3
3
0
3
0
3
0
3
3
0
3
0
3
0
3
3
0
3
0
3

0.596

0.333

0.6

0.69

0.164

0.006

0.343

0.87

0.776

0.579

0.765

0.792

***
***
***
***
***
***
***
!
!
!
**
!
***
***
***
***
***
***
***
***
***

0.768
0.731
0.906
0.713
0.664
0.826
0.702
-0.016
0.185
0.051
0.276
0.033
0.387
0.474
0.701
0.860
0.722
0.546
0.788
0.615
0.601

Table A9 
dairy sector, Austria 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Period

Dependent 
Variable

2000-2009 Gouda

Camenbert
UHT whole milk
Natural yogurt

2000-2006 Gouda

Camenbert
UHT whole milk
Natural yogurt

2007-2009 Gouda

Camenbert
UHT whole milk
Natural yogurt

Obs
105
105
111
111
78
78
84
84
21
21
27
27

! = significance of F lower than 5%

LAG
6
6
0
0
6
6
0
0
6
6
0
0

Centered 
R2
0,143
0,155
0,122
0,064
0,037
0,02
0,038
0,266
0,085
0,097
0,638
0,717

Significance F Coefficients

***
***
***
***
!
!
!
***
!
!
***
***

0,316
0,267
0,3
0,6
0,038
0,024
-0,07
1,395
0,109
0,098
0,352
0,372

EN 

66 

   EN 

 
 
Table A10 
dairy sector, Czech Republic 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Period

Dependent 
Variable

2007-2009 Fresh semi-skim milk
UHT semi-skim milk
Natural yogurt
Yogurt with fruits
Butter

Obs
27
27
27
26
27

LAG
0
0
0
1
0

Centered 
R2
0,358
0,649
0,162
0,335
0,831

Significance F Coefficients

***
***
**
***
***

0,393
0,674
0,149
0,272
0,772

Table A11 
pork sector, Germany 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Loin

Period

Dependent 
Variable
2004-2009 Minced pork

Obs
62
58
35
31
26
22
! = significance of F lower than 5%

2004-2006 Minced pork

2007-2009 Minced pork

Loin

Loin

LAG
1
5
1
5
1
5

Centered 
R2
0,183
0,088
0,112
0,156
0,308
0,003

Significance F Coefficients

***
**
*
**
***
!

0,152
0,108
0,131
0,17
0,205
-0,015

Table A12 
pork sector, United Kingdom 

Summary  of  the  results  of  the  statistical  analysis  of  price  transmission: 

Period

Dependent 
Variable

Loin
Shoulder 
Bacon back
Bacon gammon
Ham
Sausage 

1999-2006 Loin

Shoulder 
Bacon back
Bacon gammon
Ham
Sausage 

2007-2009 Loin

Shoulder 
Bacon back
Bacon gammon
Ham
Sausage 

Obs
123
123
123
123
123
123
96
96
96
96
96
96
27
27
27
27
27
27

LAG
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Centered 
R2
0,431
0,514
0,339
0,444
0,049
0,331
0,474
0,461
0,344
0,433
0,068
0,265
0,412
0,615
0,394
0,352
0,659
0,515

Significance F Coefficients

***
***
***
***
**
***
***
***
***
***
**
***
***
***
***
***
***
***

0,519
0,677
0,49
0,535
0,196
0,492
0,365
0,563
0,329
0,451
0,231
0,321
0,951
0,907
1,202
0,869
0,878
1,165

EN 

67 

   EN 

 
 
 
3.- ESTRUCTURA DE COSTES Y PRECIOS

3.2.- Análisis de la estructura de costes y precios

AGREGACIONES DE COSTES Y FACTORES CRÍTICOS EN LAS GRANDES ÁREAS 
DE ACTIVIDAD DE LA CADENA DE VALOR DE LA LECHE LÍQUIDA ENVASADA

AREAS DE ACTIVIDAD

INCREMENTO DE 
PRECIO RESPECTO A 
LA FASE ANTERIOR 
(€/l)

(%)

FACTORES CRÍTICOS/DE 

INFLUENCIA

Logística en campo

0.325 / 0.365

45.5/35.3

Costes de alimentación, amortizaciones, 
genética/ veterinaria, mantenimiento, coste 
oportunidad

Logística de recogida

0.020 / 0.030

2.8/2.9

Coste transporte, trazabilidad y control

Transformación, 
comercialización y gestión 
industrial

0.180 / 0.270

25.2/26.1

Costes envases y embalajes, costes de 
fábrica, costes comerciales/marketing

Logística de distribución

0.085 / 0.140

11.8/13.5

Tienda

0.105 / 0.230

14.7/22.2

TOTAL (SIN IVA)

0.715 / 1.035

100

Coste de plataforma o almacén 
intermedio, coste transporte  
plataforma/almacén, costes transporte a 
tienda/HORECA
Coste de la tienda (personal, mermas, 
amortizaciones, alquileres, seguros, 
gestión medioambiental, vigilancia, etc.)

IVA (4%)

0.029 / 0.041

TOTAL CON IVA

0.744 / 1.076

ESTUDIO DE LA CADENA DE VALOR Y FORMACIÓN DE PRECIOS DE LA LECHE LÍQUIDA ENVASADA

13

3.- ESTRUCTURA DE COSTES Y PRECIOS

3.1.- Esquema de la estructura de costes y precios

Horquillas 
de costes 
en €/l

8
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0
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PRODUCCIÓN

INDUSTRIA LÁCTEA

COMERCIALIZACIÓN EN 
DESTINO

PVP sin IVA

PVP con IVA 
(4%)

0,715 – 1,035 €/l

0,744 – 1,076 €/l

28,35%

0,010 – 0,020

Beneficio neto (1,4% - 1,99%)

0,095 – 0,210

Coste tienda

0,030 – 0,050

Coste transporte a tienda

0,040 – 0,060

Coste plataforma o almacén intermedio

Porcentaje de 
costes + 
beneficio neto 
sobre el PVP

Precio pagado al 
fabricante

0,540 – 0,695 €/l

Precio 
pagado al 
ganadero

0,325 – 0,365 €

/l

29,89%

0,005 – 0,010

Beneficio neto (1,4%)

0,015 – 0,030

Coste logística distr. fábrica

0,015 – 0,060

Costes comercialización y marketing e I+D+i

0,090 – 0,110

Envases, embalajes y afines

0,070 – 0,090

Coste fabricación

0,020 – 0,030

Coste logística recogida

37,91%

(0,035 – 0,040)

Ingresos distintos leche

(0,360 – 0,405)

Ingresos totales

0,080 – 0,090

Coste oportunidad + beneficio explotación

0,050 – 0,060

Otros costes

0,040 – 0,050

Coste fijos

0,160 – 0,165

Coste producción leche

0,030 – 0,040

Coste de campo

ESTUDIO DE LA CADENA DE VALOR Y FORMACIÓN DE PRECIOS DE LA LECHE LÍQUIDA ENVASADA

Tipo de 
coste por 
etapas

11

EN 

68 

   EN