The Nexus of Crude Oil and Food Prices: Evidence of the Crude Oil Prices Influence on Food Insecurity Problem

Abstract

Food cost is a fundamental factor in reducing world hunger and minimizing the food insecurity problem. Agricultural commodities prices, especially grains, are determinants of food costs. Therefore, studying the behavior of commodity prices responsible for food security on the planet is essential for economic agents, especially for macroeconomic policy decision-makers. Food production and prices are related to energy prices, mainly through biofuels and fertilizers. Among energy sources, crude oil is one of the main ones in the world's energy matrix. Many studies on crude oil and food prices have been carried out relating energy and food or, more specifically, crude oil and agricultural commodity prices. This work examines the dynamic relationship between oil and grain commodity prices: rice, wheat, corn and soybeans. It also verifies the causality and cointegration between each grain and crude oil price return. Besides that, Autoregressive vector models were estimated to infer the impulse response function and the variance decomposition. The sample period corresponds to the interval between the two biggest crises of the century, the subprime financial crisis and the Covid-19 pandemic sanitary crisis. Thus, the data is not impacted by significant abnormal variations caused by these crises. The inferences show an interaction between crude oil prices practiced in the international market and food commodity prices.