Do biofuel production and financial speculation in agricultural commodities influence African food prices? New evidence from a TVP-VAR extended joint connectedness approach

Abstract

Many African countries experienced social disorder and subsequent political instability as a result of global commodity price inflation in 2007–2008, which reaffirmed the importance of overseas factors such as biofuel production, international food and energy prices, and financial speculation. Biofuel, in particular, is often placed at the center of the debate around identifying potential determinants of food price hikes. We apply a time-varying parameter vector autoregressive (TVP-VAR) extended joint connectedness approach to uncover the dynamic connectivity of African food prices, US biofuel production, global energy and food prices, and financial speculation. The key findings are; 1) the results of averaged connectedness suggest that US biofuel production and financial speculation in agricultural commodities significantly influence African food prices; 2) the hefty surges in the dynamic connectedness between African food prices and four cross-border factors are triggered by global events like the 2000 dot-com bubble, the 2008 global commodity boom, and the 2020 COVID-19 pandemic; 3) arbitrage transactions transmitted intense shocks to African food prices between 2001 and 2012, while biofuel production constantly affected African food prices between 2001 and 2021. We draw pragmatic policy implications to prevent or mitigate market shock transmissions to African food markets.