The Linkages between Crude Oil and Food Prices

Abstract

This paper aims to indicate the linkages between crude oil prices and selected food price indexes (dairy, meat, oils, cereals, and sugar) and provide an empirical specification of the direction of the impact. This paper reviews the fuel–food price linkage models with consideration to the time series literature. This study adopts several methods, namely the Augmented Dickey–Fuller test, Granger causality test, the cointegration test, the vector autoregression model, and the vector error correction model, for studying the price transmission among the crude oil and five selected food groups. The data series covers the period between January 1990 and September 2020. The empirical results from the paper indicate that there are long-term relationships between crude oil and meat prices. The linkage of crude oil prices occurred with food, cereal, and oil prices in the short term. Furthermore, the linkages between the analyzed variables increased in 2006–2020.

Keywords

• food prices
• crude oil prices
• cointegration
• vector autoregressive model
• Granger causality