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The role of inventory adjustments in quantifying factors causing food price inflation

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  • Hochman, Gal
  • Rajagopal, Deepak
  • Timilsina, Govinda
  • Zilberman, David

Abstract

The food commodity price increases beginning in 2001 and culminating in the food crisis of 2007/08 reflected a combination of several factors, including economic growth, biofuel expansion, exchange rate fluctuations, and energy price inflation. To quantify these influences, the authors developed an empirical model that also included crop inventory adjustments. The study shows that, if inventory effects are not taken into account, the impacts of the various factors on food commodity price inflation would be overestimated. If the analysis ignores crop inventory adjustments, it indicates that prices of corn, soybean, rapeseed, rice, and wheat would have been, respectively, 42, 38, 52, and 45 percent lower than the corresponding observed prices in 2007. If inventories are properly taken into account, the contributions of the above mentioned factors to those commodity prices are 36, 26, 26, and 35 percent, respectively. Those four factors, taken together, explain 70 percent of the price increase for corn, 55 percent for soybean, 54 percent for wheat, and 47 percent for rice during the 2001-2007 period. Other factors, such as speculation, trade policy, and weather shocks, which are not included in the analysis, might be responsible for the remaining contribution to the food commodity price increases.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5744.

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Date of creation: 01 Aug 2011
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Handle: RePEc:wbk:wbrwps:5744

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Keywords: Markets and Market Access; Economic Theory&Research; Food&Beverage Industry; Access to Markets; Currencies and Exchange Rates;

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Citations

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Cited by:
  1. Rausser, Gordon C. & de Gorter, Harry, 2013. "US policy contributions to agricultural commodity price fluctuations, 2006.12," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Cororaton, Caesar B. & Timilsina, Govinda R., 2012. "Impacts of large-scale expansion of biofuels on global poverty and income distribution," Policy Research Working Paper Series 6078, The World Bank.
  3. Baffes, John & Dennis, Allen, 2013. "Long-term drivers of food prices," Policy Research Working Paper Series 6455, The World Bank.
  4. Drabik, Dusan, 2011. "The Theory of Biofuel Policy and Food Grain Prices," Working Papers, Cornell University, Department of Applied Economics and Management 126615, Cornell University, Department of Applied Economics and Management.
  5. Leucci, A. C. & Ghinoi, S. & Sgargi, D. & Wesz, V. J., Jr., 2013. "Variation and links among food and energy international prices. An analysis through VAR models from 2000 to 2012," 2013 Second Congress, June 6-7, 2013, Parma, Italy, Italian Association of Agricultural and Applied Economics (AIEAA) 149923, Italian Association of Agricultural and Applied Economics (AIEAA).
  6. Gutierrez, L. & Piras, F., 2013. "A Global Wheat Market Model (GLOWMM) for the Analysis of Wheat Export Prices," 2013 Second Congress, June 6-7, 2013, Parma, Italy, Italian Association of Agricultural and Applied Economics (AIEAA) 149760, Italian Association of Agricultural and Applied Economics (AIEAA).
  7. John Baffes & Damir Cosic, 2014. "Global Economic Prospects : Commodity Markets Outlook, January 2014," World Bank Publications, The World Bank, number 18996, August.
  8. Gal Hochman & Scott Kaplan & Deepak Rajagopal & David Zilberman, 2012. "Biofuel and Food-Commodity Prices," Agriculture, MDPI, Open Access Journal, vol. 2(3), pages 272-281, September.
  9. Barrows, Geoffrey & Sexton, Steven & Zilberman, David, 2013. "The Impact of Agricultural Biotechnology on Supply and Land-Use," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt3rg0c0fz, Department of Agricultural & Resource Economics, UC Berkeley.
  10. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, Elsevier, vol. 37(C), pages 141-151.
  11. Gbadebo Oladosu & Siwa Msangi, 2013. "Biofuel-Food Market Interactions: A Review of Modeling Approaches and Findings," Agriculture, MDPI, Open Access Journal, vol. 3(1), pages 53-71, February.

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