Abstract
Biofuel as an alternative fuel which in recent years has become the world's demand for renewable energy fuels and is a major factor underlying the increase in prices of agricultural commodities, especially corn as the main commodity for biofuels in the US. The purpose of this study is to examine the volatility of several world food commodities, namely rice, wheat, corn, and soybeans and to analyze the impact of biofuel development on the price volatility of some world food commodities. This research uses coefficient of variation and volatility analysis with the ARCH GARCH method. Based on the results, the price of food commodities is more volatile after the adoption of the Renewable Fuel Standard 2 (RFS) policy in 2007. The results of the study show that development of biofuels (from corn and soybeans) have a higher level of volatility than the other two commodities (rice and wheat) due to the variance of rice and wheat was lower than corn and soybeans. It means that the greater the relevance of a commodity to the development of biofuels, the higher the price volatility of the commodity. Meanwhile, the expansion of biofuels also made US reduce the amount corn and soybean exports, of course this is what makes the supply of US corn and soybeans decreased and makes the price will increase.
Highlights
Crude oil prices are increasingly unpredictable and continue to fluctuate from 2002 to 2017, the price of crude oil is very volatile
The coefficient of variation is done by comparing the standard deviation value with the average value which is expressed in percent
Based on an analysis of world food price volatility in the range of 1960 to 2017, the development of biofuels tends to cause an increase in price volatility in food commodities
Summary
Crude oil prices are increasingly unpredictable and continue to fluctuate from 2002 to 2017, the price of crude oil is very volatile. The highest point in 2007 was 120 dollars per barrel, and soon in 2014, under 40 dollars per barrel (World Bank, 2018). This is caused by factors that influence the level of this fluctuation, both in terms of supply and demand. The uncertainty of crude oil prices has caused many countries in the world to start switching to alternative energy sources, namely biofuels. Various policies in each country are made to develop renewable energy sources. The development of biofuels is intended to reduce dependence on crude oil, as well as to meet the high demand for fuel
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