Abstract
Our study examines the asymmetric responses of food prices to oil prices in Indonesia as a net oil and food-importing country. We apply non-linear autoregressive distributed lag to investigate the responses of food prices to oil prices. Due to the different impacts of oil price on sub-component of the food price index, this study decomposes the general food prices index into 11 sub-components food price indices. The oil prices asymmetrically affect food prices but incomplete pass-through except the preserved fish prices. The highest impact of oil price is on beans and nuts prices, followed by cereals, roots, and their product prices. More interestingly, the response of food price to an increase in oil price is higher than the response of food price to a decrease in oil price known as rockets and feathers phenomenon for general food prices, cereals, roots, and their product prices, meat and its product prices, eggs, milk, and their product prices, bean and nuts prices, fruit prices, and fats and oil prices.
Highlights
The world food crisis has been starting since 2004, marked by soaring food prices in the world
Food groups that rely on natural conditions such as the weather are relatively high with an average above 0.5 such as vegetables, fruit, and preserved fish
It is interesting to analyze the relationship between world oil prices and domestic food prices in both net oil and food- importing countries such as Indonesia as an emerging market
Summary
The world food crisis has been starting since 2004, marked by soaring food prices in the world. The world food price index increased sharply from 161.4 in 2007 to 201.4 in 2008. The world food price index declined in 2009 and 2010, but it experienced to reach a peak of 229.9 in 2011. Other foods such as meat, dairy, cereals, vegetable oil, and sugar increased in line with rising world food prices since 2004. The meat price index reached the highest peak of 198.3 in 2014. The dairy price index experienced the highest price of 242.7 in 2013. The cereals price index and vegetable price index experienced price crises much earlier in 2011 with 240.9 and 254.5. The sugar price index experienced the most severe crisis with a price index of 368.9 in 2011
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