The Role of Inventory Adjustments in Quantifying Factors Causing Food Price Inflation

The food commodity price increases beginning in 2001 and culminating in the food crisis of 2007/08 reflected a combination of several factors, including economic growth, biofuel expansion, exchange rate fluctuations, and energy price inflation. To quantify these influences, the authors developed an empirical model that also included crop inventory adjustments. The study shows that, if inventory effects are not taken into account, the impacts of the various factors on food commodity price inflation would be overestimated. If the analysis ignores crop inventory adjustments, it indicates that prices of corn, soybean, rapeseed, rice, and wheat would have been, respectively, 42, 38, 52, and 45 percent lower than the corresponding observed prices in 2007. If inventories are properly taken into account, the contributions of the above mentioned factors to those commodity prices are 36, 26, 26, and 35 percent, respectively. Those four factors, taken together, explain 70 percent of the price increase for corn, 55 percent for soybean, 54 percent for wheat, and 47 percent for rice during the 2001-2007 period. Other factors, such as speculation, trade policy, and weather shocks, which are not included in the analysis, might be responsible for the remaining contribution to the food commodity price increases.

Bibliographic Details

Main Authors:	Hochman, Gal, Rajagopal, Deepak, Timilsina, Govinda, Zilberman, David
Language:	English
Published:	2011-08-01
Subjects:	ABSOLUTE VALUE, AGGREGATE DEMAND, AGGREGATE DEMAND CURVE, AGGREGATE SUPPLY, AGRICULTURAL OUTPUT, AGRICULTURAL POLICY, AGRICULTURAL PRICES, AGRICULTURAL PRODUCTION, AGRICULTURE, ANALYSIS OF VARIANCE, ANNUAL EXCHANGE RATE, BALANCE OF PAYMENTS, BASE YEAR, BUFFER, CAPITAL FLOWS, CEREALS, COMMODITY MARKETS, COMMODITY PRICE, COMMODITY PRICES, COMPETITIVE EQUILIBRIUM, CONSUMER PRICE, CONSUMER PRICE INDEX, CONSUMER SURPLUS, CONSUMERS, CONSUMPTION DEMAND, CONSUMPTION EXPENDITURES, CONSUMPTION INCREASES, CORN, CORN PRICE, CORN PRICES, CORRELATION COEFFICIENT, CURRENCY, DAIRY, DEMAND CURVE, DEMAND FOR FOOD, DEMAND FUNCTION, DEMAND FUNCTIONS, DEMAND GROWTH, DEPRECIATION, DESCRIPTIVE STATISTICS, DEVELOPMENT POLICY, DISPOSABLE INCOME, DOMESTIC CONSUMPTION, DOMESTIC DEMAND, DOMESTIC PRICE, DOMESTIC PRICES, DUMMY VARIABLES, ECONOMIC EQUILIBRIUM, ECONOMIC GROWTH, ELASTICITY, EMERGING MARKETS, ENERGY DEMAND, ENERGY PRICE, ENERGY PRICES, EQUILIBRIUM ANALYSIS, EQUILIBRIUM CONDITION, EQUILIBRIUM LEVEL, EXCESS DEMAND, EXCESS SUPPLY, EXCHANGE RATE, EXCHANGE RATE FLUCTUATIONS, EXCHANGE RATE SHOCK, EXCHANGE RATE SHOCKS, EXCHANGE RATES, EXPENDITURE, EXPENDITURES, EXPORTS, EXTREME POVERTY, FACTOR PRICES, FEDERAL RESERVE, FOOD CONSUMPTION, FOOD CROPS, FOOD DEMAND, FOOD EXPORT, FOOD EXPORTS, FOOD MARKETS, FOOD POLICY, FOOD POLICY RESEARCH, FOOD PRICE, FOOD PRICE INFLATION, FOOD PRICES, FOOD PRODUCTION, FOOD SECURITY, FOOD SUBSIDIES, FOODS, FREE TRADE, GDP, GDP PER CAPITA, GENERAL EQUILIBRIUM, GENERAL EQUILIBRIUM MODEL, GENERAL EQUILIBRIUM MODELS, GLOBAL DEMAND, GLOBAL FOOD SUPPLY, GLOBALIZATION, GNP, GRAINS, GROSS DOMESTIC PRODUCT, GROSS DOMESTIC PRODUCT PER CAPITA, GROWTH RATE, GROWTH RATES, HIGH-INCOME COUNTRIES, IFPRI, IMPACT OF SHOCKS, IMPORT, IMPORT BARRIERS, IMPORT TARIFFS, IMPORTS, INCOME, INCOME EFFECT, INCOME EFFECTS, INCOME ELASTICITIES, INCOME ELASTICITY, INCOME ELASTICITY OF DEMAND, INCOME GROWTH, INPUT PRICES, INSTRUMENTAL VARIABLE, INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, INTERNATIONAL PRICE, INVENTORIES, INVENTORY, LOCAL CURRENCY, LONG-TERM EQUILIBRIUM, LOW-INCOME COUNTRIES, M1, MACROECONOMIC INDICATORS, MAIZE, MAJOR CURRENCIES, MAJOR WORLD CURRENCIES, MARKET ANALYSIS, MARKET EQUILIBRIUM, MARKET POWER, MARKETING, MEAT, MEATS, MILK POWDER, OIL PRICES, OIL SUPPLIES, OPPORTUNITY COSTS, PATENTS, PER CAPITA INCOME, PER CAPITA INCOMES, PETROLEUM PRICES, POPULATION GROWTH, PORK, PRICE CHANGE, PRICE CHANGES, PRICE CONTROLS, PRICE DYNAMICS, PRICE EFFECT, PRICE ELASTICITIES, PRICE ELASTICITY, PRICE ELASTICITY OF DEMAND, PRICE ELASTICITY OF SUPPLY, PRICE FLUCTUATION, PRICE FLUCTUATIONS, PRICE INCREASE, PRICE INCREASES, PRICE INDICES, PRICE INFLATION, PRICE LEVEL, PRICE STABILITY, PRICE TRENDS, PRICE VOLATILITY, PRIMARY COMMODITIES, PRIMARY COMMODITY, PROCESSED FOODS, PRODUCTION COSTS, PRODUCTION FUNCTION, PRODUCTIVITY, PRODUCTIVITY GROWTH, PROTEIN, RANDOM WALK, RAPID GROWTH, RATE OF GROWTH, REFINERIES, REGULATORY FRAMEWORK, RESTAURANTS, RETAIL, SLOWDOWN, SOYBEAN, SOYBEANS, STANDARD DEVIATION, STAPLE FOODS, STOCKS, STRONG DEMAND, SUBSTITUTE, SUBSTITUTES, SUGAR, SUGARCANE, SUPERMARKETS, SUPPLIERS, SUPPLY CHAIN, SUPPLY CURVES, SUPPLY FUNCTION, SUPPLY SHOCKS, SUPPLY SIDE, SUPPLY-SIDE, SURPLUS, TARIFF REDUCTIONS, TOTAL EXPORTS, TOTAL IMPORTS, TRADE POLICIES, TRADE POLICY, TRADE RESTRICTIONS, UPWARD PRESSURE, URUGUAY ROUND, VEGETABLE OILS, WHEAT, WORLD DEMAND, WORLD PRICE, WORLD PRICES,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110801103735 https://hdl.handle.net/10986/3506
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