Abstract
The macroeconomic outcomes of oil price fluctuations have been at the forefront of the debate among economists, financial analysts and policymakers over the last decades. Among others, the oil price–food price nexus has particularly received a great deal of attention. While an abundant body of literature has focused on the linear relationship between oil price and food price, little is known regarding the nonlinear interactions between them. The aim of this paper is to conduct aggregated and disaggregated analyses of the impact of the Brent and West Texas Intermediate (WTI) oil prices on international food prices between January 1990 and October 2017. The empirical investigation is based on the estimation of linear and nonlinear autoregressive distributed lag (ARDL) models. The findings confirm the presence of asymmetries since the overall food price is only affected by positive shocks on oil price in the long-run. While the dairy price index reacts to both positive and negative changes of oil price, the impact of oil price increases is found to be greater. Finally, the asymmetry is present for some other agricultural commodity prices in the short-run, since they respond only to oil price decreases. All in all, the study concludes that studies assuming the presence of a symmetric impact of oil price on food price might be flawed. The findings are important for the undertaking of future studies and the design of international and national policies in the fight against food insecurity.
Highlights
Over the last decades, the international community has faced many challenges regarding food security, perhaps the most prominent of which is the sharp upturn of prices
An empirical methodology based on the use of the linear autoregressive distributed lag (ARDL) model developed by Pesaran et al (2001) and the nonlinear autoregressive distributed lag modeling proposed by Shin et al (2014) to examine the oil price–food price nexus
The analysis considers the overall food price index (FPI) and the price indices of five groups of commodities, namely the meat price index (MPI), the dairy price index (DPI), the cereals price index (CPI), the vegetable oils price index (VOPI) and the sugar price index (SPI)
Summary
The international community has faced many challenges regarding food security, perhaps the most prominent of which is the sharp upturn of prices. According to the Food and Agriculture Organization of the United Nations (hereafter FAO), the international prices of essential foods reached their highest levels for 30 years in June 2008 (FAO 2009). The overall food price index climbed by 27% in 2007 and 25% in 2008. A sharp rise of specific agricultural commodity prices has been observed during the same period. The FAO (2009) estimates suggest that 115 million additional people were pushed into chronic hunger during the 2007–2008 price boom. More recent data suggest that about 124 million people across 51 countries faced food insecurity in 2017 (Food Security Information Network 2018). In February 2011, the FAO Food Price
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