Impact of the international milk market on the domestic milk price: a cointegration analysis

In this study, cointegration analysis and vector error correction (VCE)model were applied to analyze the influence of the international milkmarket on the domestic milk prices paid to producers and milk receptionby plants. The VCE model allows the identification of the long termrelations among cointegrated variables and how fast the system adjuststo changes within the system. Two VCE specifications were estimated.The first included the variables average national price, national milkreception, CIF price, and exchange rate; the second specificationincluded the variables X th Region price, Metropolitan Region price,CIF price, and exchange rate. The results obtained indicated thatconfronted with disequilibrium, the national variables adjusted toreturn the long run equilibrium of the system. Concretely, the pricepaid to producers reacted to changes in CIF prices and receptionreacted to changes in CIF and the exchange rate. On the other hand, nosignificant difference in price behavior in the X th Region and theMetropolitan Region were observed with respect to changes in CIF price.