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Long-term drivers of food prices

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  • Baffes, John
  • Dennis, Allen

Abstract

It is becoming increasingly apparent that the post-2004, across-the-board, commodity price increases, which initially appeared to be a spike similar to the ones experienced during the early 1950s (Korean War) and the 1970s (oil crises), have a more permanent character. From 1997-2004 to 2005-12 nominal prices of energy, fertilizers, and precious metals tripled, metal prices went up by more than 150 percent, and most food prices doubled. Such price increases, especially in food commodities, not only fueled a debate on their key causes, but also alarmed government officials, leading to calls for coordinated policy actions. This paper examines the relative contribution of various sector and macroeconomic drivers to price changes of five food commodities (maize, wheat, rice, soybeans, and palm oil) by applying a reduced-form econometric model on 1960-2012 annual data. The drivers include stock-to-use ratios, crude oil and manufacturing prices, the United States dollar exchange rate, interest rate, and income. Based on long-run elasticity estimates (approximately -0.25 for the stock-to-use ratios, 0.25 for the oil price, -1.25 for the exchange rate, and much less for others), the paper estimates the contribution of these drivers to food price increases from 1997-2004 to 2005-12. It concludes that most of the price increases are accounted for by crude oil prices (more than 50 percent), followed by stock-to-use ratios and exchange rate movements, which are estimated at about 15 percent each. Crude oil prices mattered most during the recent boom period because they experienced the largest increase.

Suggested Citation

  • Baffes, John & Dennis, Allen, 2013. "Long-term drivers of food prices," Policy Research Working Paper Series 6455, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6455
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    References listed on IDEAS

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    Cited by:

    1. Rosiak, Ewa & Łopaciuk, Wiesław & Szajner, Piotr & Grochowska, Renata, 2014. "Global production of biofuels in the context of food security," Multiannual Program Reports 206005, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    2. Minh Ha-Duong & Dominique Finon, 2013. "La recherche controversée d'énergies " propres "," Post-Print hal-01025894, HAL.
    3. West, Kenneth D. & Wong, Ka-Fu, 2014. "A factor model for co-movements of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 289-309.
    4. World Bank, 2014. "Malaysia Economic Monitor, June 2014 : Boosting Trade Competitiveness," World Bank Other Operational Studies 19303, The World Bank.
    5. Rizgar Abdlkarim Abdlaziz & Khalid Abdul Rahim & Peter Adamu, 2016. "Oil and Food Prices Co-integration Nexus for Indonesia: A Non-linear Autoregressive Distributed Lag Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 6(1), pages 82-87.
    6. Frederico Gil Sander & Intan Nadia Jalil & Rabia Ali, 2013. "Malaysia Economic Monitor, December 2013 : High-Performing Education," World Bank Other Operational Studies 16705, The World Bank.

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    Keywords

    Markets and Market Access; Emerging Markets; Food&Beverage Industry; Climate Change Economics; Energy Production and Transportation;

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