The Painful Double-Knock on Food Prices: 2008 Financial Crises and COVID-19 Pandemic

Abstract

Food supply and demand chains are susceptible to global shocks. Unstable and sudden food price hikes cause serious malnutrition problems and increase the number of food-insecure people, especially in developing countries. Using the FAO Food Price Index (FFPI), this study makes one of the first attempts to utilize monthly observations of the FFPI in dynamic time series ARDL and ARX settings to identify the effects of food prices on COVID-19 infection rates and the 2008 global financial crisis. Our empirical findings confirm that the financial crisis significantly increased the FFPI, although its effects decreased as markets equilibrated between 2007 and 2009. The pandemic has had a mild impact on food prices in the short run compared to the 2008 crisis, but in the long run, the COVID-19 outbreak has a larger impact, with 1 million new COVID-19 infections associated with an increase of between 0.0464 and 0.0509 points in the FFPI. Food price volatility and hikes, even if short-term, increase poverty, malnutrition, and food insecurity, foster social unrest, and lower people’s living standards. This research implies that food prices are globally sensitive to both pandemics and financial crises, and the severity of the pandemic can drive global food prices higher, depending on the number of infections. Over the long run, the impact of the outbreak surpasses that of the financial crisis. The latter tends to have a major impact on food prices in the short run but subsequently declines as markets begin to equilibrate, reflecting asymmetries between the two phenomena in their effects on food prices. Overall, the results indicate that the financial crisis and the COVID-19 pandemic had a short-run, immediate, augmenting impact on food prices. However, while the 2008 crisis affected the supply side only, COVID-19 had impacts on both the demand and supply sides.