Dynamic relationships among phosphate rock, fertilisers and agricultural commodity markets: Evidence from a vector error correction model and Directed Acyclic Graphs

Abstract

The finite supply of phosphate rock, as well as rising fertiliser prices, are key topics in the discussion around global food system resilience. Our paper contributes to this discussion by conducting an analysis of the dynamic causal relationships between phosphate rock, fertilisers, and wheat prices to provide insights on how farmers and policymakers might respond to phosphate rock supply shocks for sustainable and resilient food systems. The linkages between 147 monthly price observations spanning from March 2007 to April 2019 were analysed by combining Directed Acyclic Graphs (DAG), a recently developed modelling technique, and a Vector Error Correction Model (VECM). The findings suggest that there are five long-run cointegrating relationships between these three key components of the food supply chain. Price shocks to the phosphate rock market, over a two-year period had a knock-on positive impact on phosphorus fertiliser prices and to a lesser extent on wheat prices. Interestingly, an increase in wheat price had a sizeable impact on both fertiliser and phosphate rock prices, providing empirical evidence that increases in the price of phosphate rock are driven by demand factors, as well as supply factors.