Volatile World Milk Prices and Its Affect to National Market- Case of Serbian Milk Market

International milk market is created by 7% of world production volume. Volatile world milk prices in recent 6 years caused different forms of its transmission to national levels. In the paper this phenomena is investigated on two levels. First, on macro level how world milk price affects national markets in case of New Zealand as leading world exporter, Germany with growing net export, and Serbia with self-sufficient production. Second, it is analysed vertical price transmission in Serbian milk supply chain, according its magnitude, speed, nature and direction in period January 2007 to May 2013. Results improved understanding how world milk price influence milk price in Serbia and how price shocks are transmitted through milk supply chain for several most important kinds of milk products.Applied vector error correction model in horizontal milk price transmission indicates asymmetry in price transmission from world to Serbian milk market. Milk prices in Serbia respond to price signals from German and world market, but with significant time lags and increasing magnitude over time. From first to fourth month delay, milk prices from German market positively influence Serbian market, and from fifth to tenth month further increasing influence of world milk prices are presented. Nature of spatial asymmetry is positive. Results of threshold vector error correction model applied on dairy supply chain, suggests similar conclusionsfor all four major dairy products on Serbian market. Retail prices react mostly on raw milk price changes, with constant response to processor’s prices. Price shocks are originate at the processor level and are passed to farmers and to retailers. Blurred relationship between processing and retail sector permits more accurate analysis.