Long-term drivers of food prices
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.
|Date of creation:||01 May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eduardo Borensztein & Carmen M. Reinhart, 1994.
"The Macroeconomic Determinants of Commodity Prices,"
IMF Staff Papers,
Palgrave Macmillan, vol. 41(2), pages 236-261, June.
- Reinhart, Carmen & Borensztein, Eduardo, 1994. "The determinants of commodity prices," MPRA Paper 13870, University Library of Munich, Germany.
- Reinhart, Carmen & Borensztein, Eduardo, 1994. "The Macroeconomic Determinants of Commodity Prices," MPRA Paper 6979, University Library of Munich, Germany.
- Pedroni, Peter, 2004.
"Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis,"
Cambridge University Press, vol. 20(03), pages 597-625, June.
- Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
- Hanson, Kenneth & Robinson, Sherman & Schluter, Gerald E., 1993. "Sectoral Effects Of A World Oil Price Shock: Economywide Linkages To The Agricultural Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
- D. Sapsford & P. Sarkar & H. W. Singer, 1992. "The prebisch‐singer terms of trade controversy revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(3), pages 315-332, 05.
- Martin, Will & Anderson, Kym, 2011.
"Export restrictions and price insulation during commodity price booms,"
Policy Research Working Paper Series
5645, The World Bank.
- Will Martin & Kym Anderson, 2012. "Export Restrictions and Price Insulation During Commodity Price Booms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 422-427.
- Anderson, Kym & Martin, Will, 2011. "Export Restrictions and Price Insulation During Commodity Price Booms," CEPR Discussion Papers 8494, C.E.P.R. Discussion Papers.
- Webster, Mort & Paltsev, Sergey & Reilly, John, 2008. "Autonomous efficiency improvement or income elasticity of energy demand: Does it matter?," Energy Economics, Elsevier, vol. 30(6), pages 2785-2798, November.
- Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-84, September.
- Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.
- World Bank, 2009. "Global Economic Prospects 2009 : Commodities at the Crossroads," World Bank Publications, The World Bank, number 2581.
- Mendoza Ronald U, 2009. "A Proposal for an Asian Rice Insurance Mechanism," Global Economy Journal, De Gruyter, vol. 9(1), pages 1-33, March.
- Carmen M. Reinhart, 1991.
"Fiscal Policy, the Real Exchange Rate, and Commodity Prices,"
IMF Staff Papers,
Palgrave Macmillan, vol. 38(3), pages 506-524, September.
- Reinhart, Carmen, 1991. "Fiscal Policy, the Real Exchange Rate, and Commodity Prices," MPRA Paper 8197, University Library of Munich, Germany.
- Reinhart, Carmen, 1990. "Fiscal policy, the real exchange rate and commodity prices: A global framework," MPRA Paper 14102, University Library of Munich, Germany.
- Brian D. Wright, 2012.
"International Grain Reserves And Other Instruments to Address Volatility in Grain Markets,"
World Bank Research Observer,
World Bank Group, vol. 27(2), pages 222-260, August.
- Wright, Brian, 2009. "International grain reserves and other instruments to address volatility in grain markets," Policy Research Working Paper Series 5028, The World Bank.
- Reboredo, Juan C., 2012. "Do food and oil prices co-move?," Energy Policy, Elsevier, vol. 49(C), pages 456-467.
- Saghaian, Sayed H., 2010. "The Impact of the Oil Sector on Commodity Prices: Correlation or Causation?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(03), August.
- Sjaastad, Larry A., 2008.
"The price of gold and the exchange rates: Once again,"
Elsevier, vol. 33(2), pages 118-124, June.
- Larry A. Sjaastad, 2007. "The Price of Gold and the Exchange Rates: Once Again," Economics Discussion / Working Papers 07-20, The University of Western Australia, Department of Economics.
- Hochman, Gal & Rajagopal, Deepak & Timilsina, Govinda & Zilberman, David, 2011. "The role of inventory adjustments in quantifying factors causing food price inflation," Policy Research Working Paper Series 5744, The World Bank.
- Lutz Kilian, 2009.
"Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market,"
American Economic Review,
American Economic Association, vol. 99(3), pages 1053-69, June.
- Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers 5994, C.E.P.R. Discussion Papers.
- Stamoulis, Kostas G. & Rausser, Gordon C., 1987.
"Overshooting of agricultural prices,"
CUDARE Working Paper Series
493, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Stamoulis, Kostas G. & Rausser, Gordon C., 1987. "Overshooting of agricultural prices," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt83060269, Department of Agricultural & Resource Economics, UC Berkeley.
- John Baffes, 1997. "Explaining stationary variables with non-stationary regressors," Applied Economics Letters, Taylor & Francis Journals, vol. 4(1), pages 69-75.
- Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425.
- Zhang, Zibin & Lohr, Luanne & Escalante, Cesar & Wetzstein, Michael, 2010. "Food versus fuel: What do prices tell us?," Energy Policy, Elsevier, vol. 38(1), pages 445-451, January.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6455. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.