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Abstract

Larger price volatility in agricultural markets and decreasing subsidy levels have increased the market risks in Finnish hog production. One option for the Finnish government to strengthen risk management in the pig sector is to introduce an income stabilisation tool (IST). An IST was included as part of rural development legislation in the reform of the Common Agricultural Policy (CAP) of the EU in 2014. In this paper, we introduce a gross margin index for the Finnish pig sector on which the IST could be based and empirically evaluate the index itself and individual time series composing the index. The results reveal that the volatility of the pig meat price was the most significant factor in the volatility of the pig gross margin. The results also indicate that the pig meat price series is persistent and thus has a long memory. The obtained results have major implications for the design and simulation of an IST scheme in Finland.

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