Lithuanian carrot market: production, foreign trade, and price transmission issues

Introduction. The paper aims to analyse the situation in Lithuanian carrot market and focus on the changes of agricultural production, structure of foreign trade, and vertical price transmission along the supply chain over the period of 2011-2017. Materials and methods. Methods of comparative and graphical analysis of the main indicators of carrot production and foreign trade development rely on the secondary data of Statistics Lithuania. The research on the vertical price transmission along the supply chain of domestic carrots relies on price series collected by SE 'Agricultural Information and Rural Business Centre' and employs unit root tests, cointegration, causality and asymmetry tests. Results and discussion. The conducted research evidences that over the analysed seven years carrot production in Lithuania has shrank. Harvested area dropped from 2,400 to 1,800 ha, while the harvest reduced by more than 1/3. The key driving forces behind the negative development trends were prolonged unfavourable weather conditions and the Russian import ban of 2014. The transformation of the export structure took place during the unsuccessful harvesting years and contributed to the worsening of farmers' welfare. The analysis of the farm-retail prices shows that the examined series are integrated of I(1). Thus, we found a significant structural break in April 2015, which has been included as a dummy variable in the cointegration approaches. The Engle-Granger cointegration test confirms the presence of the long-run relationship between the analysed price series. The Granger causality test shows that the causality is running from retail to farm prices. Finally, there is a strong evidence of symmetric price behaviour, i.e. positive and negative shocks are transmitted from retailers to farmers with the same intensity. Conclusions. The study shows that the prolonged unfavourable weather conditions and the Russian import ban were among the main contributors determining price fluctuations on the Lithuanian carrot market in 2011-2017. The analysis of vertical price transmission of domestic carrots indicates that retailers may experience some market power.