Farm Production Costs, Producer Prices and Retail Food Prices: A Cointegration Analysis

The relationship between farm production costs, producer prices and retail food prices is frequently the subject of research. This study examines the existence of cointegrating relationships between the above variables and their direction of causality. Data used refer to price indices of farm inputs and outputs, for crop and livestock production and retail price indices for food and non alcoholic beverages. They are quarterly covering the period 2000-2012 and their source is the Greek Statistical Authority. The stationarity of time series is examined using alternative econometric tests, followed by cointegration analysis while the issue of the correct specification for the cointegrating relationship is also considered. Short and long run causality relationships between the variables are also analyzed. Econometric results lead to the conclusion that there is a long run equilibrium relationship between the variables which are estimated and that production costs and producer prices influence retail food prices in the short and long run.