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.

Bibliographic Details

Main Authors:	Dennis, Allen, Baffes, John
Language:	English en_US
Published:	World Bank, Washington, DC 2013-05
Subjects:	AGGREGATE DEMAND, AGRICULTURAL COMMODITIES, AGRICULTURAL DEVELOPMENT, AGRICULTURAL ECONOMICS, AGRICULTURAL PRICES, AGRICULTURE, ANIMAL PRODUCTS, APPROACH, AVERAGE PRICE, BIOMASS, CENTRAL BANKS, CEREAL PRICES, CEREALS, CLIMATE, CLIMATE CHANGE, COCOA, COMMODITIES, COMMODITY, COMMODITY MARKETS, COMMODITY PRICE, COMMODITY PRICES, CONSUMPTION OF COMMODITIES, CRUDE OIL, CRUDE OIL CONSUMPTION, CRUDE OIL PRICE, CURRENCY, DEBT, DEMAND FOR FOOD, DEMAND GROWTH, DEVELOPING COUNTRY, DEVELOPMENT ECONOMICS, ECONOMIC ACTIVITY, ECONOMIC ANALYSIS, ECONOMIC GROWTH, EDIBLE OILS, EFFICIENCY IMPROVEMENT, EMERGING ECONOMIES, ENERGY DEMAND, ENERGY ECONOMICS, ENERGY MARKETS, ENERGY POLICY, ENERGY PRICE, ENERGY PRICES, ENERGY SECURITY, EQUILIBRIUM PRICE, ETHANOL, ETHANOL PRICES, EXCHANGE RATE, EXCHANGE RATE MOVEMENT, EXCHANGE RATE MOVEMENTS, EXCHANGE RATES, EXOGENOUS SHOCK, EXPORT MARKET, FEDERAL RESERVE, FINANCIAL INSTITUTIONS, FINANCING FACILITY, FISCAL POLICY, FOOD CONSUMPTION, FOOD POLICY, FOOD POLICY RESEARCH, FOOD PRICE, FOOD PRICE INFLATION, FOOD PRICES, FOOD RESERVES, FOOD SECURITY, FUEL, FUEL CONSUMPTION, FUTURES, GENERAL EQUILIBRIUM MODEL, GLOBAL ECONOMIC PROSPECTS, GLOBAL ECONOMY, GLOBAL EXPORTS, GLOBAL FOOD SECURITY, GRAIN RESERVES, GRAINS, GROSS DOMESTIC PRODUCT, GROWTH RATES, IFPRI, IMPORTS, INCOME, INCOMES, INFLATION, INFLATIONARY PRESSURES, INFORMATION SYSTEM, INPUT PRICES, INSURANCE, INSURANCE MECHANISMS, INTEREST RATE, INTEREST RATES, INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, INVENTORY, MAIZE, MARKET CONCENTRATION, MARKET FAILURE, MARKETING, MEAL, MIDDLE-INCOME COUNTRIES, MONETARY FUND, MONETARY POLICIES, OIL CONSUMPTION, OIL CRISES, OIL PRICE, OIL PRICES, OIL SECTOR, OIL SPILLS, PADDY, PALM OIL, PARTICULAR COUNTRY, POLICY ANALYSIS, POLICY IMPLICATIONS, POLICY MAKERS, PORTFOLIOS, POWER PARITY, PRICE CHANGES, PRICE ELASTICITY, PRICE FLUCTUATIONS, PRICE INCREASES, PRICE INDEX, PRICE INDEXES, PRICE INFLATION, PRICE MOVEMENTS, PRICE OF OIL, PRICE STABILIZATION, PRICE TRENDS, PRICE VOLATILITY, PRICES OF ENERGY, PRODUCER PRICES, PROTEIN, PURCHASING, PURCHASING POWER, RATE OF RETURN, RAW MATERIALS, RELATIVE PRICE, RESERVE BANK, RESOURCE ECONOMICS, RICE MARKETING, SOURCE OF ENERGY, SOYBEAN, SOYBEAN OIL, SOYBEANS, STOCKS, SUBSTITUTES, SUGARCANE, SUPPLY SCHEDULE, SUPPLY SCHEDULES, SUPPLY SHOCKS, SUPPLY SIDE, TOTAL CONSUMPTION, TREASURY, TREASURY BILL, VOLATILE INTERNATIONAL, WHEAT, WORLD DEVELOPMENT INDICATORS, WORLD TRADE,
Online Access:	http://documents.worldbank.org/curated/en/2013/05/17739333/long-term-drivers-food-prices https://hdl.handle.net/10986/15594
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