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^1,2,3, Umar Muhammad Gummi^1,4^*, Abdulhamid Sillah Umar⁵

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.

Keywords: Oil Price, Food Price, Price Dynamics, Transmission Mechanisms, Oil Exporting Economies

Cite this paper: Chen, D. , Gummi, U. , Umar, A. (2019) The Review on the Link between Food and Oil Markets in the View of Price Dynamics. American Journal of Industrial and Business Management, 9, 1890-1900. doi: 10.4236/ajibm.2019.99122.

References

[1] Organization of Petroleum Exporting Countries OPEC (2016) World Oil Outlook (WOO) Publication of the OPEC. http://www.opec.org/opec_web/en/publications/340.htm

[2] Aleksandrova, S. (2016) Impact of Oil Price on Oil Exporting Countries in the Caucasus and Central Asia. Economic Alternative, 4, 477-486.
https://www.unwe.bg/uploads/Alternatives/S_A_2016_Issue4_en-5.pdf

[3] Dillon, B.M. and Barret, C.B. (2015) Global Oil Prices and Local Food Prices: Evidence from East Africa. http://barrett.dyson.cornell.edu/files/papers/150131_DillonBarrett_GlobalOilLocalFood.pdf

[4] Ibrahim, M.H. (2015) Oil and Food Prices in Malaysia: A Nonlinear ARDL Analysis. Agriculture Land Food Economics, 3, 28-35. https://doi.org/10.1186/s40100-014-0020-3

[5] Food and Agricultural Organization FAO (2016) FAO’s Food Price and Output Watch Database, FAOSTAT. http://www.fao.org/statistics/databases/en

[6] Chen, S.T., Kua, H.I. and Chen, C.C. (2010) Modelling the Relationship between the Oil Price and Global Food Prices. Applied Energy, 87, 2517-2525.
http://www.sciencedirect.com/science/article/pii/S0306-2619(10)00051-6
https://doi.org/10.1016/j.apenergy.2010.02.020

[7] Wambugu, C.K. and Ngang’a, J. (2017) Relationship between Oil Price, Exchange Rate and Maize Price in Kenya. International Journal of Finance, 1, 88-107.
https://carijournals.org/journals/index.php/IJF/article/view/44/94

[8] Kargbo, J.M. (2005) Impact of Monetary and Macroeconomic Variables on Food Prices in West Africa. Agrekon, 44, 205-224.
https://doi.org/10.1080/03031853.2005.9523710
https://www.tandfonline.com/doi/abs/10.1080/03031853.2005.9523710

[9] Alghalith, M. (2010) The Interaction between Food Prices and Oil Prices. Energy Economics, 32, 1520-1522. https://doi.org/10.1016/j.eneco.2010.08.012

[10] Du, X., Yu, C.L. and Hayes, D.J. (2011) Speculation and Volatility Spillover in the Crude Oil and Agricultural Commodity Markets: A Bayesian Analysis. Energy Economy, 33, 497-503.
https://doi.org/10.1016/j.eneco.2010.12.015
http://www.sciencedirect.com/science/article/pii/S0140-9883(11)00017-X

[11] Kalkuhl, M., Braun, J. and Torero, M. (2016) Volatile and Extreme Food Prices, Food Security, and Policy: An Overview. In: Food Price Volatility and Its Implications for Food Security and Policy, Springer International Publishing, Berlin, 3-31.
https://mpra.ub.uni-muenchen.de/72164/1/MPRA_paper_72164.pdf
https://doi.org/10.1007/978-3-319-28201-5_1

[12] Kimberly, A. (2017) What Is Crude Oil? Prices, Trends and Impact on the Economy.
https://www.thebalance.com/crude-oil-prices-trends-and-impact-on-the-economy-and-you-3305738

[13] Gilbert, C.L. and Morgan, C.W. (2010) Food Price Volatility. Philosophical Transactions of the Royal Society B: Biological Sciences, 365, 3023-3034. https://doi.org/10.1098/rstb.2010.0139

[14] Nazlioglu, S. and Soytas, U. (2012) Oil Price, Agricultural Commodity Prices, and the Dollar: A Panel Cointegration and Causality Analysis. Energy Economics, 34, 1098-1104.
https://doi.org/10.1016/j.eneco.2011.09.008

[15] Minot, N. (2014) Food Price Volatility in Sub-Saharan Africa: Has It Really Increased? Food Policy, 45, 45-56. https://doi.org/10.1016/j.foodpol.2013.12.008

[16] Tadasse, G., Algieri, B., Kalkuhl, M. and von Braun, J. (2016) Drivers and Triggers of International Food Price Spikes and Volatility. In: Food Price Volatility and Its Implications for Food Security and Policy, Springer International Publishing, Berlin, 59-82.
https://mpra.ub.uni-muenchen.de/72164/1/MPRA_paper_72164.pdf
https://doi.org/10.1007/978-3-319-28201-5_3

[17] Olayungbo, D. and Hassan, W. (2016) Effect of Oil Price on Food Price in Developing Oil Exporting Countries: A Panel Autoregressive Distributed Lag Analysis. OPEC Energy Review, 40, 397-411. https://doi.org/10.1111/opec.12090

[18] Wong, S.K. and Shamsudin, N.M. (2017) Impact of Crude Oil Price, Exchange Rate and Real GDP on Malaysia’s Food Price Fluctuations: Symmetric or Asymmetric? International Journal of Economics and Management, 11, 259-273.
http://psasir.upm.edu.my/id/eprint/56379/1/%2814%29-Paper%2014%20Fnal-IJEM%2011%281%29%2C2017_Food%20price%20and%20oil%20price%20%281%29.pdf

[19] Nazlioglu, S., Erdem, C. and Soytas, U. (2013) Volatility Spillover between Oil and Agricultural Commodity Markets. Energy Economics, 36, 658-665.
https://doi.org/10.1016/j.eneco.2012.11.009

[20] Serra, T., Zilberman, D., Gil, J.M. and Goodwin, B.K. (2011) Nonlinearities in the U.S. Corn-Ethanol-Oil-Gasoline Price System. Agriculture Economics, 42, 35-45.
https://ageconsearch.umn.edu/bitstream/6512/2/464896.pdf
https://doi.org/10.1111/j.1574-0862.2010.00464.x

[21] Pieters, H. and Swinnen, J. (2016) Trading-off Volatility and Distortions? Food Policy during Price Spikes. Food Policy, 61, 27-39. https://doi.org/10.1016/j.foodpol.2016.01.004

[22] Jebabli, I., Arouri, M. and Teulon, F. (2014) On the Effects of World Stock Market and Oil Price Shocks on Food Prices: An Empirical Investigation Based on TVP-VAR Models with Stochastic Volatility. Energy Economics, 45, 66-98.
https://doi.org/10.1016/j.eneco.2014.06.008

[23] Alom, F., Ward, B.D. and Hu, B. (2013) Macroeconomic Effects of World Oil and Food Price Shocks in Asia and Pacific Economies: Application of SVAR Models. OPEC Energy Review, 37, 327-372.
https://doi.org/10.1111/opec.12015
https://onlinelibrary.wiley.com/doi/abs/10.1111/opec.12015

[24] Kristoufek, L., Janda, K. and Zilberman, D. (2012) Correlations between Biofuels and Related Commodities before and during the Good Crisis: A Taxonomy Perspective. University of California Center for Energy and Environmental Economics, Working Paper.

[25] Sasmal, J. (2015) Food Price Inflation in India: The Growing Economy with Sluggish Agriculture. Journal of Economics, Finance and Administrative Science, 20, 30-40.
https://doi.org/10.1016/j.jefas.2015.01.005

[26] Zhang, Z., Lohr, L., Escalante, C. and Wetzstein, M. (2010) Food versus Fuel: What Do Prices Tell Us? Energy Policy, 38, 445-451.
https://doi.org/10.1016/j.enpol.2009.09.034
http://www.sciencedirect.com/science/article/pii/S0301-4215(09)00717-4

[27] Oswald, Y. (2016) The Effect of Oil Prices on Food Prices: A Global Perspective. Seminar Paper Presentation on Agriculture and Food Security, Teri University, New Delhi, 29 October 2016.

[28] Corden, W.M. and Neary, J.P. (1982) Small Open Economy. The Economic Journal, 92, 825-848.
https://doi.org/10.2307/2232670