Commodity Food Prices: Review and Empirics

Table 1

Selection of studies aimed at investigating fundamental drivers for food price spikes.

Potential driver	Economic rationale	References
Supply side factors
Shocks in production	Production shortfalls caused by adverse weather conditions result in lower levels of global supply and stocks	[32]
Energy and fertilizer prices	High input prices increase agricultural production and transportation costs	[3, 4, 33]
Export policies	Some of the net exporting countries introduced restrictive trade policies aimed at isolating their economies and controlling the pass-through mechanism	[4]
Low level of global inventories	A consequence of production shortfalls and political decisions	[34, 35]
Neglected investment in R&D and infrastructure	A limit to the growth in agricultural productivity	[33]
Demand side factors
Emerging economies and structural change in global demand	Economic growth in BRIC raises individual welfare as well as urban population with a consequent shift in consumption patterns towards an increasing global demand for superior agricultural products. Effect on food prices is indirect via demand for crude oil	[36]
High oil prices	Reduction in price advantage of fossil fuels relative to biofuels and consequent increase in demand for competitive renewable energies	[33]
Global biofuels production	Increase in demand for crops used as input factors in biofuels production; driving prices of other crops through substitution effects in food utilization and through competition in the use of agricultural land	[3, 33, 34, 36, 37]
Import policies	Some of the importing countries lift import restrictions and taxes in order to alleviate domestic consumption; no decrease in aggregated global trade despite food inflation	[34, 37]
Macroeconomic factors and market conditions
Depreciation of USD	On the international level grains are traded in USD; due to the USD’s depreciation price increases less in other countries’ currencies relative to U.S. prices and import remained constant	[3, 4, 33]
Inelastic markets	Due to prevailing market conditions neither supply nor demand responded to price incentives; no expansion of supply or reduction of global demand	[37]