Price Transmission in the German Sugar Market

The German sugar market is governed by the European Union’s common market organization (CMO). In 2006, the CMO was subject to its first major reform. Among others, the administered price for sugar was reduced by 36%. We use a data set with monthly prices for sugar and sugar containing products to perform a cointegration analysis. Results show that the reduction of the institutional price has led to a reduction of wholesale prices and of retail prices for table sugar. Prices for sugar containing products are barely integrated with the sugar price, though. Some are found to be integrated with the CPI for food and soft drinks. In none of the cases where linear cointegration could not be detected, threshold cointegration could be found.