Modelling the impact of oil price fluctuations on food price in high and low-income oil exporting countries

https://doi.org/10.17221/197/2020-AGRICECONCitation:

Chen D., Gummi U.M., Lu S.-B., Mu'azu A. (2020): Modelling the impact of oil price fluctuations on food price in high and low-income oil exporting countries. Agric. Econ. – Czech, 66: 458–468.

download PDF

Oil exporting economies were the most hit by the recent oil price shock that spills on the food market in an increasingly volatile macroeconomic environment. This paper examines and compares sub-samples [before crisis
(2000 Q1–2013 Q1) and during crisis (2013 Q2–2019 Q4)] as to the impact of oil price on food prices in high- and low-income oil-exporting countries. We found an inverse relationship between oil and food prices in the long run based on full samples and sub-samples in high-income countries. The story is different during the crisis period: in low-income countries and all the countries combined, oil and food prices co-move in the long run as measured by the Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS). Our findings suggest that economic structure and uncertain events (crises) dictate the behaviour and relationship between food and oil markets. Food and oil prices may drift away in the short-run, but market forces turn them toward equilibrium in the long-run. Moreover, low-income countries are indifferent in both periods due to limited capacity to balance the increasing demand for and supply of food items.

References:
Abbott P.C., Hurt C., Tyner W.E. (2008): What's driving food prices? Farm Foundation: Issue Reports 37951: 39–43.
 
Abbott P.C. Hurt C., Tyner W.E. (2009): What's driving food prices? Farm Foundation. March 2009 Update. Issue Reports 48495: 108–113.
 
Abdlaziz R.A., Khalid A., Adamu P. (2016): Oil and food prices cointegration nexus for Indonesia: A non-linear ARDL analysis. International Journal of Energy Economics and Policy, 6: 82–87.
 
Aleksandrova S. (2016): Impact of oil price on oil-exporting countries in the Caucasus and Central Asia. Economic Alternative, 4: 477–486.
 
Alghalith M. (2010): The interaction between food prices and oil prices. Energy Economics, 32: 1520–1522. https://doi.org/10.1016/j.eneco.2010.08.012
 
Alom F., Ward B.D., Hu B. (2013): Macroeconomic effects of world oil and food price shocks in Asia and Pacific economies: application of SVAR models. OPEC Energy Review, 37: 327–372. https://doi.org/10.1111/opec.12015
 
Aydemir O., Demirhan B. (2017): The relationship between stock price and exchange rates: Evidence from MENA countries. In: Hand Book of Research on Global Enterprise Separations and Opportunities. Pennsylvania, USA. IGI Global Publisher of Timely Knowledge, Hershey. Available at https://www.igi-global.com/chapter/the-relationship-between-stock-prices-and-exchange-rates/180767 (accessed March 2019).
 
Barrett C.B., Li J.R. (2002): Distinguishing between equilibrium and integration in spatial price analysis. American Journal of Agricultural Economics, 84: 292–307. https://doi.org/10.1111/1467-8276.00298
 
Chang T., Su H. (2010): The substitutive effect of biofuels on fossil fuels in the lower and higher crude oil price periods. Energy, 35: 2807–2813. https://doi.org/10.1016/j.energy.2010.03.006
 
Chen D., Gummi U.M., Umar A.S. (2019): The review on the link between food and oil markets in the view of price dynamics. American Journal of Industrial and Business Management, 9: 1890–1900. https://doi.org/10.4236/ajibm.2019.99122
 
FAO (2016): FAO's Food Price and Output Watch Database. FAOSTAT. Available at http://www.fao.org/statistics/databases/en/ (accessed March 16, 2019).
 
FAO (2020): Food Price Index (consumer prices, food indices 2000–2019). FAOSTAT. Available at http://www.fao.org/faostat/en/#data/CP (accessed July 2020).
 
Fowowe B. (2016): Do oil prices drive agricultural commodity prices? Evidence from South Africa. Energy, 104: 149–57. https://doi.org/10.1016/j.energy.2016.03.101
 
Gilbert C.L. (2010): How to understand high food prices. Journal of Agricultural Economics, 61: 398–425. https://doi.org/10.1111/j.1477-9552.2010.00248.x
 
Gilbert C.L., Morgan C.W. (2010): Food price volatility. Philosophical Transactions of the Royal Society B. Biological Sciences, 365: 3023–3034. https://doi.org/10.1098/rstb.2010.0139
 
Granger C.W.J. (1969): Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37: 424–438. https://doi.org/10.2307/1912791
 
Harri A., Nalley L., Hudson D. (2009): The relationship between oil, exchange rates, and commodity prices. Journal of Agricultural and Applied Economics, 41: 501–510.  https://doi.org/10.1017/S1074070800002959
 
Ibrahim M.H. (2015): Oil and food prices in Malaysia: A non-linear ARDL analysis. Agricultural and Food Economics, 3: 28–35. https://doi.org/10.1186/s40100-014-0020-3
 
Im K.S., Pesaran M.H., Shin Y. (2003): Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115: 53–74. https://doi.org/10.1016/S0304-4076(03)00092-7
 
International Monetary Fund (2020): Data Primary Commodities Price System (Oil price: Brent Crude 2009–2018). Available at https://data.imf.org/?sk=471DDDF8-D8A7-499A-81BA-5B332C01F8B9&sId=1390030341854 (accessed July 2020).
 
International Monetary Fund (2020): International Financial Statistics (GDP and Components: 2000–2019): Data on per capita Gross Domestic Product (GDP) Growth Rate. Available at https://data.imf.org/regular.aspx?key=61545852 (accessed July 2020).
 
International Monetary Fund (2020): Monetary and Financial Statistics (Exchange Rate Selected Indicators: 2000–2019): Data on Real Effective Exchange Rate, Domestic Currency. Available at https://data.imf.org/regular.aspx?key=61545862 (accessed July 2020).
 
Kalkuhl M., von Braun J., Torero M. (2016): Volatile and extreme food prices, food security, and policy: An overview. In: Food Price Volatility and Its Implications for Food Security and Policy. Berlin, Springer International Publishing.
 
Kargbo J.M. (2005): Impact of monetary and macroeconomic variables on food prices in West Africa. Agrekon, 44: 205–224. https://doi.org/10.1080/03031853.2005.9523710
 
Lagi M., Bar-Yam Y., Karla Z.B., Bar-Yam Y. (2015): Accurate market price formation model with both supply-demand and trend-following for global food prices providing policy recommendations. Proceedings of the National Academy of Sciences, 112: E6119–E6128. https://doi.org/10.1073/pnas.1413108112
 
Masih R., Masih M.M. (1996): Stock-Watson Dynamic OLS (DOLS) and Error Correction Modeling approach to estimating long run and short run elasticity in a demand function: New evidence and methodological implications from and application for coal in mainland China. Energy Economics, 18: 315–334. https://doi.org/10.1016/S0140-9883(96)00016-3
 
Minot N. (2014): Food price volatility in sub-Saharan Africa: Has it really increased? Food Policy, 45: 45–56. https://doi.org/10.1016/j.foodpol.2013.12.008
 
Nazlioglu S., Soytas U. (2011): World oil prices and agricultural commodity prices: Evidence from an emerging market. Energy Economics, 33: 488–496. https://doi.org/10.1016/j.eneco.2010.11.012
 
Nazlioglu S., Erdem C., Soytas U. (2013): Volatility spillover between oil and agricultural commodity markets. Energy Economics, 36: 658–665. https://doi.org/10.1016/j.eneco.2012.11.009
 
Olayungbo D., Hassan W. (2016): Effect of oil price on food price in developing oil exporting countries: A panel ARDL. OPEC Energy Review, 40: 397–411. https://doi.org/10.1111/opec.12090
 
Pal D., Mitra K.S. (2017): Time-frequency contained co-movement of crude oil and world food prices: A wavelet-based analysis. Energy Economics, 62: 230–239. https://doi.org/10.1016/j.eneco.2016.12.020
 
Pal D., Mitra K.S. (2018): Interdependence between crude oil and world food prices: A de-trended cross correlation analysis. Physica A: Statistical Mechanics and its Applications, 492: 1032–1044. https://doi.org/10.1016/j.physa.2017.11.033
 
Pedroni P.L. (1999): Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61: 653–670. https://doi.org/10.1111/1468-0084.61.s1.14
 
Pedroni P. (2001): Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics, 83: 727–731. https://doi.org/10.1162/003465301753237803
 
Pedroni P. (2004): Panel cointegration: Asymptotic and finite samples properties of pooled time series tests with an application to the PPP hypothesis. Economic Theory, 20: 597–625.
 
Pieters H., Swinnen J. (2016): Trading-off volatility and distortions? Food policy during price spikes. Food Policy, 61: 27–39. https://doi.org/10.1016/j.foodpol.2016.01.004
 
Phillips P.C.B., Hansen B.E. (1990): Statistical inference in instrumental variables regression with I (1) processes. Review of Economics Studies, 57: 99–125. https://doi.org/10.2307/2297545
 
Salisu A.A., Kazeem O.I., Oluwatomisin J.O., Lateef O.A. (2017):
 
Modeling oil price-inflation nexus: The role of asymmetries. Energy, 125: 97–106. https://doi.org/10.1016/j.energy.2017.02.128
 
Stock J.H., Watson M.W. (1993): A simple estimator of co-integrating vectors in high order integrated systems. Econometrica, 61: 783–820.  https://doi.org/10.2307/2951763
 
Tadesse G., Algieri B., Kalkuhl M., von Braun J. (2016): Drivers and triggers of international food price spikes and volatility. In: Food Price Volatility and Its Implications for Food Security and Policy. New York City, Springer International Publishing: 59–82.
 
Tiwari A.K., Rabeh K., Sakiru A.S., Muhammad S. (2018): Analyzing the time-frequency lead–lag relationship between oil and agricultural commodities. Energy Economics, 76: 470–94. https://doi.org/10.1016/j.eneco.2018.10.037
 
Wong K.S., Shamsudin M.N. (2017): Impact of crude oil price, exchange rates and real GDP on Malaysia's food price fluctuations: Symmetric or asymmetric? International Journal of Economics and Management, 11: 259–275.
 
WDI (2018): Popular Indicators by Countries, GDP and components 2018). Available at https://databank.worldbank.org/indicator/NY.GDP.PCAP.CD/1ff4a498/Popular-Indicators (accessed March 2019).
 
Yang J., Qiu H., Huang J., Rozelle S. (2008): Fighting global food price rises in the developing world: The response of China and its effect on domestic and world markets. Agricultural Economics, 39: 453–464. https://doi.org/10.1111/j.1574-0862.2008.00351.x
 
Zhang Z., Lohr L., Escalante C., Wetzstein M. (2010): Food versus fuel: what do prices tell us? Energy Policy, 38: 445–451. https://doi.org/10.1016/j.enpol.2009.09.034
 
Zmami M., Ben-Salha O. (2019): Does oil price drive world food prices? Evidence from linear and non-linear ARDL modeling. Economies, 7: 1–18. https://doi.org/10.3390/economies7010012
 
download PDF

© 2020 Czech Academy of Agricultural Sciences | Prohlášení o přístupnosti