An empirical analysis of U.K. milk contract prices 2004-2016

Milk quotas were introduced in 1984 to the EU dairy market to control the structural surpluses resulting from imbalances between supply and demand for milk encouraged by subsidies to the sector. These quotas were abolished on the 31st of March 2015, leaving the sector to operate closer to free market conditions. Milk in the United Kingdom is marketed through contracts and the purpose of this paper is to analyze, using time series methods, to what extent market factors are driving the observed evolution of U.K. contract prices. The five groups of contracts considered are: retailers’ aligned contracts, standard liquid contracts, A&B contracts, cheese manufacturing contracts, and other manufacturing contracts. Results indicate that, although market factors play a role in influencing all contract prices, their effect is different by type of contract, and quota abolition does not have a significant effect on the time series behavior of contract prices.