Agricultural Prices of Pork at the Regional Level and the Law of One Price

Farmers earn their main income from selling agricultural commodities. Stabilityas well as the level of income are determined by the amount of production and marketprices. Prices and price policies on the agricultural market could have a great impact onthe success of programmes themselves. This paper focuses on research of relationshipsbetween prices at the regional level. The aim of this paper is to evaluate the relationshipbetween prices at the regional level for selected regions of Bohemia and try to confi rmthat the Law of One Price is valid there. Agricultural prices for pork producers were usedfor the analysis. The data set has 157 observations in total. The fi rst observation is from27th June 2002 and the last observation is from 27th December 2008. No data have beenpublished by the State Agricultural Intervention Fund since 2009. The investigated groupsof regions are the Central Bohemian (CB), North-Eastern (N_E) and North-Western (N_W)regions of the Czech Republic. Econometric methods are used, and the primary tools forresearch are the ADF test, KPSS test, Johansen cointegration test and Vector Error Correc-tion Model (VECM). On the basis of the VECM model, it was found that prices in the North-Eastern regions have an effect on prices in Central Bohemia. It was also discovered thatprices in the Central Bohemian and North-Western regions have a mutual effect. The Lawof One Price is valid with a high probability in the investigated regions. Prices in the longrun are identical with a high probability. The results were elaborated as part of the researchproject MSM 6046070906 “Economics of resources of Czech agriculture and their effi cientuse in frame of multifunctional agri-food systems”.