Assessing volatility spillover effect between international milk powder and China’s raw milk markets in the context of import growth

Abstract

With the increased opening of China’s dairy industry to the outside world and the cost advantages of imported dairy products, China’s dairy product import trade has grown rapidly in recent years. The rapidly changing global trading system highlights the importance of understanding the dynamics of China’s relationship with the world market as a major global importer of dairy products. In this study, on the basis of analyzing the mechanism of volatility spillover and the structure of China’s milk powder import trade, we selected Global Dairy Trade (GDT)’s milk powder as the representative of international milk powder and investigated the volatility spillover effect between GDT milk powder and China’s raw milk markets by using the Baba-Engle-Kraft-Kroner (BEKK)-generalized autoregressive conditional heteroscedasticity (GARCH) (1,1) model. The results showed that there was a bidirectional volatility spillover effect between GDT whole milk powder and China’s raw milk market; however, there was a unidirectional volatility spillover effect between the GDT skim milk powder and China’s raw milk market. China’s raw milk market had no volatility spillover effect on the GDT skim milk powder market.

Keywords:

• volatility spillover effect
• GDT milk powder
• China’s raw milk
• BEKK-GARCH model

Acknowledgments

Zhejiang University and Zhejiang Sci-Tech University.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Author contributions

Conceptualization, Q.W., W.X.; Data Curation, Q. W., R.C.; Methodology, Q. W., W.X.; Formal Analysis, Q. W.; Writing, Q.W., R.C., W.X.

Notes

1. Unlike the infrequent trading phenomenon that may exist in the stock market, prices in the Chinese raw milk market are based on data from the Ministry of Agriculture’s spot monitoring of 500 county fair markets across the country, and trading volumes are generally stable. Similarly, GDT Events is the leading global auction for trading large volume dairy ingredients and reference price discovery. GDT operate on a worldwide scale with buyer/seller customers and stakeholders spread across more than 70 countries with different interests, languages, cultures, and time zones, trading USD 2–3 billion annually. It can be assumed that trading infrequency phenomenon is largely non-existent in both markets. For the Infrequent trading phenomenon see Fotis and Polemis (2011, 2012).

Additional information

Funding

This research received no external funding.

Notes on contributors

Qianqian Wang

Qianqian Wang is a lecturer at Zhejiang Sci-Tech University with research interests in agricultural market and agricultural policy.

Rongzhu Cheng

Rongzhu Cheng is a Distinguished Associate Professor at Sichuan Agricultural University with research interests in agricultural policy, agricultural trade and food value chain.

Wangfang Xu

Wangfang Xu is a PhD candidate in Zhejiang University. Her research interest includes agricultural trade and digital economy.