Abstract
The objective of this study is to explore empirical evidence about the quantitative importance of supply, demand, and market shocks for price changes in international food commodity markets. To this end, it distinguishes between root, conditional, and internal drivers of price changes using three empirical models: (1) a price spike model in which monthly food price returns (spikes) are estimated against oil prices, supply and demand shocks, and excessive speculative activity; (2) a volatility model in which annualized monthly variability of food prices is estimated against the same set of variables plus a financial crisis index; and (3) a trigger model that estimates extreme values of price spikes and volatility using quantile regressions. The results point to increasing linkages between food, energy, and financial markets. This explains much of the observed food price spikes and volatility. While financial speculation amplifies short-term price spikes, oil price volatility intensifies medium-term price volatility.
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