Effects of Diesel Price on Changes in Agricultural Commodity Prices in Bulgaria

Abstract

The aim of this article is to supply the first empirical research inspecting how changes in diesel prices influence the prices of four agricultural commodities in Bulgaria. For this purpose, using a VECM and monthly agricultural commodity prices between January 2011 and July 2022, we estimated short-run and long-run changes in producer and retail prices of cow’s milk, chicken eggs, greenhouse tomatoes and cucumbers due to the change in average monthly diesel prices. The Granger causality test indicates that diesel prices cannot be used to forecast the behavior of producer and retail prices in the four markets considered. Diesel prices can be used to forecast the behavior of producer prices in only the cow’s milk market, and the diesel price predicts retail prices in the chicken egg and greenhouse cucumber markets. The results of the response of the researched prices of agricultural commodities to diesel price shocks indicate a positive response of both upstream and downstream prices of cow’s milk and chicken egg markets and upstream prices of the greenhouse tomato market despite the initial negative shock.