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How Strong Do Global Commodity Prices Influence Domestic Food Prices? A Global Price Transmission Analysis

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  • Kalkuhl, Matthias

Abstract

This paper analyzes the transmission from global commodity to domestic food prices for a large set of countries. First, a theoretical model is developed to explain price transmission for different trade regimes. Drawing from the competitive storage model under rational expectations, it is shown that domestic prices can respond instantaneously to global prices even if no trade takes place but future trade is expected. Using a global database on food prices, we construct national and international grain price indices. With an autoregressive distributed lag model, we empirically detect countries in which food prices are influenced by global commodity prices, including futures prices. Mapping transmission elasticities with the size of the population below the poverty line which spends typically a large share of its income on food, we are able to estimate the size of vulnerable population. Our empirical analysis reveals that 90 percent of the global poor (income below 1.25$/day) live in countries where domestic food prices respond to international prices - but the extent of transmission varies substantially. For 360 million poor people, international prices transmit to their country at rates of 30 percent or higher within three months.

Suggested Citation

  • Kalkuhl, Matthias, 2014. "How Strong Do Global Commodity Prices Influence Domestic Food Prices? A Global Price Transmission Analysis," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169798, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:169798
    DOI: 10.22004/ag.econ.169798
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    Cited by:

    1. Iqbal, Md Zabid & Babcock, Bruce, 2016. "Transmission of Global Commodity Prices to Domestic Producer Prices: A Comprehensive Analysis," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236285, Agricultural and Applied Economics Association.
    2. Elleby, Christian, 2014. "Poverty and Price Transmission," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182722, European Association of Agricultural Economists.
    3. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    4. Buschmann, Christoph & Lotze-Campen, Hermann & Rolinski, Susanne & Biewald, Anne, 2015. "A model-based economic assessment of future climate variability impacts on global agricultural markets," 2015 Conference, August 9-14, 2015, Milan, Italy 211377, International Association of Agricultural Economists.
    5. Lukas Kornher & Matthias Kalkuhl, 2015. "A Typology for Price-related Food and Nutrition Risks and Policy Responses," FOODSECURE Technical papers 5, LEI Wageningen UR.
    6. Matthias Kalkuhl & Mekbib Haile & Lukas Kornher & Marta Kozicka, 2015. "Cost-benefit framework for policy action to navigate food price spikes. FOODSECURE Working Paper No 33," FOODSECURE Working papers 33, LEI Wageningen UR.

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    Keywords

    Demand and Price Analysis; Food Security and Poverty; International Relations/Trade;
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