Assessing volatility spillover effect between international milk powder and China’s raw milk markets in the context of import growth

Abstract

Abstract With the increased opening of China’s dairy industry to the outside world and the cost advantages of imported dairy products, China’s dairy product import trade has grown rapidly in recent years. The rapidly changing global trading system highlights the importance of understanding the dynamics of China’s relationship with the world market as a major global importer of dairy products. In this study, on the basis of analyzing the mechanism of volatility spillover and the structure of China’s milk powder import trade, we selected Global Dairy Trade (GDT)’s milk powder as the representative of international milk powder and investigated the volatility spillover effect between GDT milk powder and China’s raw milk markets by using the Baba-Engle-Kraft-Kroner (BEKK)-generalized autoregressive conditional heteroscedasticity (GARCH) (1,1) model. The results showed that there was a bidirectional volatility spillover effect between GDT whole milk powder and China’s raw milk market; however, there was a unidirectional volatility spillover effect between the GDT skim milk powder and China’s raw milk market. China’s raw milk market had no volatility spillover effect on the GDT skim milk powder market.