The three-step estimator of the co-integrated system approach is used
to examine the dynamic transmission of agricultural producer prices th
rough the food marketing system in seven countries of the EU. The resu
lts suggest that even if producer and consumer prices drift apart in t
he short-run, for example when producer price policy changes, market f
orces return them to their long-run equilibrium. Tests do not reject t
he hypothesis of long-run 'perfect' price transmission for two, pigmea
t-pigs and butter-milk, out of five pairs of prices, in six of the sev
en member countries of the EU considered here, the UK being the except
ion. The tests do, however, reject the hypothesis of short-run 'perfec
t' price transmission, even in its less restrictive form, across all p
airs of prices in all countries.