Exploring the relationship between energy prices and food prices

This study seeks to explore the relationship between energy prices and food prices from 2000 to 2016 by using a panel vector autoregression model in the case of eight Asian economies. Our main results revealed that energy prices have a significant impact on food prices. The results of impulse response functions show that agricultural food prices respond positively to any shock from oil prices. Furthermore, the findings from variance decomposition reveal that the shares of oil prices in agricultural food price volatilities are the largest. Oil price movements explain 6.95 percent of food price variance in the second period, and 64.17 percent in the twentieth period. Since oil price inflation is harmful for food security, it is necessary to diversify energy consumption in this sector, from overreliance on fossil fuels to an optimal combination of renewable and nonrenewable energy resources that will favour not only energy security but also food security. In addition, we found that the impact of biofuel prices on food prices is statistically significant but explains less than 2 percent of the food price variance. Nevertheless, there should be greater concern about the global increase in agricultural commodity prices due to the increasing demand for biofuel and resulting endangerment of food security, especially in vulnerable economies.