The structural effect of cooperatives on price volatility in the European dairy sector

ABSTRACT

Theoretical models and empirical evidence suggest that high market shares of cooperatives can force investor-oriented firms to pay higher producer prices within a region. In the same vein, cooperatives may force investor-oriented firms to reduce price volatility. We use panel data from 27 European Union member states over the period 2001–2015 to investigate how the market share of cooperatives in a country affects milk price volatility. Our key finding is that a higher market share of cooperatives reduces price volatility at the national level. Volatility is influenced by a number of other variables, such as fluctuation in raw milk production, oil price volatility spillover and the number of dairy processors. Policymakers should consider that the promotion of cooperatives might positively affect price stability in the dairy sector.

KEYWORDS:

• Industrial organization
• panel data
• milk
• competitive yardstick

JEL CLASSIFICATION:

• D23
• L22
• P13
• Q13

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Farm-gate milk prices were retrieved from https://dairy.ahdb.org.uk/market-information/milk-prices-contracts/farmgate-prices/eu-farmgate-milk-prices/

All other variables were taken from EUROSTAT or from Hanisch, Rommel, and Müller (2013).

² A Hausman test (Hausman 1978) does not reject the null hypothesis of nonsystematic differences in coefficients between model (1) and corresponding random effects model (2), i.e. the random effects model provides efficient and unbiased estimates (χ² = 4.55, p = 0.3368, df = 4).

³ We also tested for a policy-induced structural break in price movements after the phase out of the European milk quota regime. We did not find a statistically significant effect. Estimates are available upon request.