Global Oil Prices and Local Food Prices: Evidence from East Africa

Abstract

It is widely believed that oil prices impact food prices in developing countries. Yet rigorous evidence on this relationship is scarce. Using maize and petrol price data from east Africa, we show that global oil prices do affect food prices but primarily through transport costs, rather than through biofuel or production cost channels. We find that global oil prices transmit much more rapidly to the pump and then to local maize prices than do global maize prices, suggesting that the immediate effects of correlated commodity price shocks on local food prices are driven more by transport costs than by the prices of the grains themselves. Furthermore, we present suggestive evidence that, for markets furthest inland, changes in world oil prices have larger effects on local maize prices than do changes in world maize prices.

Impact of oil price changes on domestic price inflation at disaggregated levels: Evidence from linear and nonlinear ARDL modeling

“…Other studies (Ibrahim, 2015;Zhang et al, 2010;Hansman et al, 2014) found a significant effect of oil prices on domestic prices/inflation at disaggregated levels. Most of these works reported a significant pass-through effect of oil priced on domestic inflation in the food/agricultural sector (e.g., Ibrahim, 2015;Dillon and Barrett, 2013;Zhang et al, 2010) and the transportation sector (Hansman et al, 2014;Ibrahim and Said, 2012). The effect of oil price changes may also transmit into food price inflation through transport costs (Dillon and Barrett, 2013).…”

“…Most of these works reported a significant pass-through effect of oil priced on domestic inflation in the food/agricultural sector (e.g., Ibrahim, 2015;Dillon and Barrett, 2013;Zhang et al, 2010) and the transportation sector (Hansman et al, 2014;Ibrahim and Said, 2012). The effect of oil price changes may also transmit into food price inflation through transport costs (Dillon and Barrett, 2013). Most of the above-mentioned studies showed the role of energy intensity, which leads to the different impacts of oil prices on domestic prices/inflation across industries/sectors.…”

Are Shocks Transitory or Permanent? An Inquiry into Agricultural Commodity Prices

“…Williams and Wright, 1991;Deaton and Laroque, 1992) while a large volume of empirical studies have broadly concluded that shocks to commodity prices are permanent (e.g. Myers et al, 2014;Gutierrez et al, 2015;Baffes and Haniotis, 2016;Dillon and Barrett, 2016). The crucial question is how can we reconcile this contradiction between theory and empirics?…”

Asymmetric effects of rainfall on food crop prices: evidence from Rwanda

“…Moreover, the global economic crisis between 2005 and 2007 and the subsequent food price spikes on the international market in late 2008 until early 2011 have raised concerns among the policymakers on issue of food shortage and unpredictability of climate change. For instance, wheat prices went up by 70% and rice prices by 20%, while the price of powder milk and maize was 90% and 70% higher, respectively (Dillon & Barrett, 2015;Ivanic & Martin, 2008).…”

“…The aim of this study is to complement the existing literature in investigating the driving forces and the vulnerability of food prices to weather shocks in developing countries ( Although some studies consider non-linear effects of rainfall on food prices (Dillon & Barrett, 2015;Mitra, 2014), the majority of the existing studies assume a linear relationship. The present study advanced this strand of literature by considering possible non-linear and asymmetric effects.…”