The Review on the Link between Food and Oil Markets in the View of Price Dynamics

Ding Chen,Umar Muhammad Gummi,Abdulhamid Sillah Umar

doi:10.4236/ajibm.2019.99122

Ding Chen, Umar Muhammad Gummi + Show 1 more

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https://doi.org/10.4236/ajibm.2019.99122

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Abstract

The long established link between food and oil prices in the global market is still uncertain in cross-country, regional and domestic analyses. In this paper, we review theoretical and empirical submissions on the nexus between food and oil market. Qualitative content analysis was used to critically analyze concepts and theories based on the past empirical evidences. The analysis shows that there is hardly a consistent and generalized submission on the direction of the relationship between oil price and agricultural commodity prices, as against the popular notion of co-movement between food and oil prices among researchers. However, studies on cross country analysis are scarce and among them, very few are related to oil exporting countries, hence the need to revisit the unending debate on the relationship between the two important markets based on economic structure (oil exporting/importing economy), capacity of an economy (high/low income economy) and the causes and nature of crisis in the markets.

Highlights

The global oil market was hit hard by yet another price shock, from an average of $100 per barrel between the years 2012 and 2013 to $38 per barrel in the third quarter of 2014 and continued to decline until the end of 2015, reaching a new record low of $28 per barrel in January 2016 (OPEC, 2016) [1]
Few studies were conducted on cross country analysis and very few were conducted on oil exporting countries as in Alghalith (2010) [9]; Kargbo (2005) [8]; Olayungbo and Hassan (2016) [17]
Even for oil exporting countries, there are variations from the empirical findings. This signals to the fact that based on reliable data, economic structure, capacity of the economy in question and the nature and cause of the crisis in either market play a significant role in determining the relationship between food and oil prices

Summary

Introduction

The global oil market was hit hard by yet another price shock, from an average of $100 per barrel between the years 2012 and 2013 to $38 per barrel in the third quarter of 2014 and continued to decline until the end of 2015, reaching a new record low of $28 per barrel in January 2016 (OPEC, 2016) [1]. Incidences of high prices are not new in agricultural markets which are strongly linked to and influenced by the oil market. What distinguishes the current state of agricultural markets is the hike in prices of a selected few crops but most major food and feed commodities (Dillion and Barret, 2015) [3], see Figure 1

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