Volatility Linkages Between Energy and Food Prices

Ehsan Rasoulinezhad (), Farhad Taghizadeh-Hesary () and Naoyuki Yoshino ()
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Ehsan Rasoulinezhad: Faculty of World Studies, University of Tehran
Farhad Taghizadeh-Hesary: School of Global Studies, and the TOKAI Research Institute for Environment and Sustainability (TRIES), Tokai University

Chapter 25 in The Handbook of Energy Policy, 2023, pp 715-738 from Springer

Abstract: Abstract In many countries, food and energy are vital in national security. However, in energy policy, the relationship between the prices of food and energy has been debated. This chapter examines the connection between the prices of these two vital commodities. Hence, we review existing literature and attempt to determine the relationship using a theoretical framework and an empirical test. Our findings revealed that energy price significantly impacts food prices. According to the results of impulse response functions, agricultural food prices respond favorably to any oil price increase. Moreover, variance decomposition demonstrates that oil prices are responsible for the largest amount of agricultural food price volatility. Oil price changes account for 6.95% and 64.17% of the variance in food prices during the second and 20th periods, respectively. Because rising crude oil prices adversely affect food security, one viable strategy involves combining renewable sources and fossil fuels in a way that positively impacts both energy and food security. We observed that biofuel costs account for less than 2% of the variance in food prices. Finally, as global biofuel demand increases, rising global prices for agricultural commodities and, consequently, the growing threat to food security may also increase. This could be even more important for small-economy countries that have been negatively affected by COVID-19.

Keywords: Energy security; Food security; Oil price shock; Food prices; Asian economies; Panel data (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/978-981-19-6778-8_30

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