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Impact of Energy Price Variability on Global Fertilizer Price: Application of Alternative Volatility Models

Author

Listed:
  • Sanyal, Prabuddha
  • Malczynski, Leonard A.
  • Kaplan, Paul

Abstract

This study evaluates the effects of volatility in crude oil and natural gas prices on fertilizer price variations. Specifically, the study looks at the mean and volatility effects of oil and natural gas prices on both mean and volatility changes in fertilizer prices. Both symmetric models [GARCH (1, 1)] and asymmetric models [GJR (1, 1)] were used to model volatility in fertilizer prices and to evaluate the effects of the volatility over different time periods using Bai-Perron structural break tests. The results show that changes in oil and natural gas prices increased fertilizer prices after the crisis period, during June 2007 to June 2008. Both the ARCH and GARCH had significant effects on fertilizer prices, suggesting that the volatility effects of oil and natural gas prices on fertilizer prices were also significant. Furthermore, the maximum impact of higher energy prices depends on triple superphosphate and diammonium phosphate (DAP) leading to higher production costs and consequent increase in total farm expenditures for crop producers. These higher production costs invariably have a negative effect on farm profitability, thus reducing the investment levels in the farm sector.

Suggested Citation

  • Sanyal, Prabuddha & Malczynski, Leonard A. & Kaplan, Paul, 2015. "Impact of Energy Price Variability on Global Fertilizer Price: Application of Alternative Volatility Models," Sustainable Agriculture Research, Canadian Center of Science and Education, vol. 4(4).
  • Handle: RePEc:ags:ccsesa:230373
    DOI: 10.22004/ag.econ.230373
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    File URL: http://ageconsearch.umn.edu/record/230373/files/P14-p132-147.pdf
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    References listed on IDEAS

    as
    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. Galbraith, Craig, 2010. "An Examination of Factors Influencing Fertilizer Price Adjustment," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61646, Agricultural and Applied Economics Association.
    3. Beckman, Jayson F. & Borchers, Allison & Jones, Carol, 2013. "Agriculture's Supply and Demand for Energy and Energy Products," Economic Information Bulletin 149033, United States Department of Agriculture, Economic Research Service.
    Full references (including those not matched with items on IDEAS)

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