In this study we have analysed price differences on 56 food and beverage products in the EU. Price differences between 23 cities in the period 1990 to 2002 are examined in order to measure food market integration, with a special focus on the new EU members Sweden, Finland and Austria.
The Single Market Programme is expected to have narrowed price differences between all member countries. However, price convergence between “new” and “old” members is expected to be more manifested as many food sectors in the new member countries were protected from foreign competition prior to the membership. Also, with the EU membership, the new member countries implemented CAP, which should have a price levelling effect as well.
We find that price differences are larger between countries than within countries, when controlling for geographic distance, differences in VAT rates and labour costs. In other words, we find that a border effect prevails despite the actions made to promote economic integration. We do find, however, that the border effect has decreased for some (ten) products, and has increased for a few products.
Price differences between the new and old member countries have narrowed. In particular, prices have converged to an EU level for primary products, such as dairy products and beef products (which are strictly regulated in CAP) and for high-value added products. For fruit and vegetables the price differences persist during the period.