Abstract
Increasing food prices in the world caused a global food crisis. Some Asian countries are also affected by rising world food prices, including Indonesia. Using Vector Error Correction Model (VECM) method, the researchers intend to analyze the long-term relationship between world oil price and exchange rate to agricultural commodity price (rice, corn and soybean) in Indonesia and test whether there is an existing causality. This analysis is based upon the data set covering the monthly period of January 2010 to June 2017. The empirical results show that there is a long-term equilibrium relationship between world oil prices and exchange rate against three of agricultural commodity prices and there is only unindirectional causality of the world oil price against rice price. Nevertheless, this study confirms the hypothesis from world oil price to agricultural commodity price. While exchange rate did not show the pattern of causality relationship either one or two direction to each agricultural commodity price under study. According to Impulse Response Function (IRF), the study results show that the rice price negatively responds to shock of world oil prices in the short term while responding positively to shock of world oil prices in the long term. But response of corn and soybean prices is not significant. Meanwhile, shock of exchange rate is responded positively by rice and soybean prices. Conversely, shock of exchange rate on corn prices shows relatively weak and negative responses. To controlling surging prices of agricultural commodities (food), it is suggested that government policies directed at stabilizing food prices policies and exchange rate and also anticipate the exogenous impact of changes in world oil prices that could affect rice price.
Highlights
In the last few years the international world and including Indonesia are facing key issues discussed in Sustainable Development Goals (SDGs) such as poverty; hunger; public health; education; gender equality; clean water and sanitation; energy; decent work and economic growth; industry, innovation and infrastructure; inequality; sustainable cities and communities; consumption and production; climate change; marine resources; terrestrial ecosystems; peace, justice and effective institutions; and global partnerships
The specification of the Vector Error Correction Model (VECM) model used to analyze the relationship between world oil prices and exchange rate to food commodity prices in Indonesia refers to a model developed by Obadi and Korcek (2014)
EMPIRICAL RESULTS Several stages are used in estimating Vector Autoregression (VAR) / VECM included stationarity of data test by using
Summary
In the last few years the international world and including Indonesia are facing key issues discussed in Sustainable Development Goals (SDGs) such as poverty; hunger; public health; education; gender equality; clean water and sanitation; energy; decent work and economic growth; industry, innovation and infrastructure; inequality; sustainable cities and communities; consumption and production; climate change; marine resources; terrestrial ecosystems; peace, justice and effective institutions; and global partnerships. Indonesia as an agricultural country with the agricultural sector plays a strategic role in the provision of food to provide the nutritional needs of 245 million Indonesians and empirically able to reduce food crisis (Ministry of Commerce, 2016). The availability of supply and demand for food commodities should be considered in meeting basic human needs. The availability of food and agricultural commodities is greatly affected by disturbances in both natural conditions in climate, limitation and conversion of agricultural land and international geopolitical conditions. This will result in disruption of agricultural commodity supply (Sujai, 2011). That means the delay in food fulfillment can trigger rising food prices so will be difficult to control the price and causing decline in public welfare (Nurhemi, 2014)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: International Journal of Academic Research in Business and Social Sciences
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.