Abstract
The main purpose of this paper is to evaluate the effect of crude oil price on global fertilizer prices in both the mean and volatility. The endogenous structural breakpoint unit root test, ARDL model, and alternative volatility models, including GARCH, EGARCH, and GJR models, are used to investigate the relationship between crude oil price and six global fertilizer prices. The empirical results from ARDL show that most fertilizer prices are significantly affected by the crude oil price while the volatility of global fertilizer prices and crude oil price from March to December 2008 are higher than in other periods.
Highlights
The world population in 2000 was more than 6 billion, and is expected to reach 8 billion in 2025, based on projections by United Nation Population Division
The empirical results for the unit root tests, which are given in Table 2, generally indicate that the Augmented Dickey-Fuller (ADF) test does not reject the null hypothesis of a unit root
MAP, Urea, and ROCK reject the null hypothesis at the 1% significance level, which is consistent with no unit root for these prices, as shown in Table 3, for the minimum Lagrange Multiplier (LM) unit root test with two breaks (see Lee and Strazicich (2003))
Summary
The world population in 2000 was more than 6 billion, and is expected to reach 8 billion in 2025, based on projections by United Nation Population Division. The derived demand for energy crops has been increased significantly due to the development of bio-fuel. Such development can lead to food shortages and increasing international food prices, which will encourage farmers to expand planted acreage. This predicament has increased the derived demand for global fertilizers and increased fertilizer prices. As most of the world’s phosphate for fertilizer is mined, and is non-renewable, over the last decade the prices of phosphate and potash fertilizers have risen more steeply than the price of nitrogen-based urea.
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