HAS THE SUBSTITUTABILITY OF MILK PRODUCTS IN KOREA CHANGED? EVIDENCE FROM THE PRICE ANALYSIS AMONG DOMESTIC FRESH, IMPORTED STERILIZED AND SOYBEAN MILK

Abstract

This study investigates the price relationship between domestic fresh milk, imported sterilized milk and soybean milk in Korea to analyze the possible substitutable relationship among them. We divided the periods into 2012–2017, 2018–2021 and 2012–2021 (total sample) and utilized the Granger causality test and Geweke’s (1982) method to capture the recent increase in milk import trends in Korea. Our results show that the price causal relationship has changed by comparing 2012–2017 and 2018–2021 periods. While we did not find any Granger causal relationship in 2012–2017, our results show that fresh milk prices are directly and indirectly affected by soybean milk and imported sterilized milk prices, respectively. Our results also present bidirectional Granger causation between imported and soybean milk; however, causal dominance exists in the direction of soybean to imported milk prices based on the Geweke (1982) approach. Our findings imply that the consumption substitutability of fresh milk has changed, and the government of Korea should consider this changed substitutability to reconstruct the volume of the milk production quota to support Korean milk farmers.