Agric. Econ. - Czech, 2015, 61(12):564-576 | DOI: 10.17221/6/2015-AGRICECON

World oil prices and agricultural commodity prices: The evidence from ChinaOriginal Paper

Zhengwei MA1, Rui XU2, Xiucheng DONG1
1 School of Business Administration, China University of Petroleum , Beijing, P.R.China
2 Business School, Central University of Finance and Economics, Beijing, P.R.China

It is acknowledged that crude oil prices affect agricultural prices through both direct and indirect transmission schemes (i.e. exchange rate). In China, the matter of energy security may be immediately transmitted to the food security, imposing a pressure to China's macro-economy to a certain extent. This paper examines the long-run and short-run influence caused by the world crude oil prices and the RMB-dollar exchange rate on the five individual agricultural commodity prices (soybean, maize, wheat, colza oil, and japonica rice) in China. In this paper, the Granger causality approach is applied to test the long-run interrelationships with the weekly data from June 2002 to August 2013. In addition, the impulse-response analysis is utilized to study how the agricultural prices react to the sudden shocks in oil prices and exchange rate in the short term. The results reveal that the impulse response curves demonstrate that agricultural prices are not significantly affected by the abrupt changes in either oil prices or the exchange rate. Consistently, agricultural prices are neutral to the changes in oil prices in the long run while the exchange rate only Granger causes the prices of soybean. Ultimately, we present some sound reasons to explain the statistical results and propose some policy suggestions aimed at the China's food and energy security.

Keywords: agricultural commodity, world oil prices, exchange rate, Granger causality test, impulse response analysis

Published: December 31, 2015  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Zhengwei M, Rui X, DONG X. World oil prices and agricultural commodity prices: The evidence from China. Agric. Econ. - Czech. 2015;61(12):564-576. doi: 10.17221/6/2015-AGRICECON.
Share...
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Abbott P.C., Hurt C., Tyner W.E. (2008): What's Driving Food Prices? Farm Foundation Issue Reports, July 2008. Available at http://ageconsearch.umn.edu/bitstream/37951/2/FINAL%20WDFP%20REPORT%207-28-08.pdf
    2. Babula R.A., Ruppel F.J., Bessler D.A. (1995): U.S. corn exports: the role of the exchange rate. Agricultural Economics, 13: 75-88. Go to original source...
    3. Baffes J. (2007): Oil spills on other commodities. Access and Download Statistics, 32: 126-134. Go to original source...
    4. Batten D.S., Belongia M.T. (1984): The recent decline in agricultural exports: is the exchange rate the culprit? Federal Reserve Bank of St. Louis Review, 66: 5-14. Go to original source...
    5. Batten D.S., Belongia M.T. (1986): Monetary policy, real exchange rates, and U.S. agricultural exports. American Journal of Agricultural Economics, 68: 422-427. Go to original source...
    6. Bessler D.A. (1984): Relative prices and money: a vector autoregression on Brazilian data. American Journal of Agricultural Economics, 66: 25-30. Go to original source...
    7. Campiche, J.L., Bryant, H.L., Richardson, J.W. and Outlaw, J.L. (2007). Examining the Evolving Correspondence Between Petroleum Prices and Agricultural Commodity Prices. In: Proceeding of the AAEA Meeting, Portland, OR, July 29-August 1.
    8. Chambers R.G. (1984): Agricultural and financial market interdependence in the short run. American Journal of Agricultural Economics, 66: 12-24. Go to original source...
    9. Chambers R.G., Just R.E. (1979): A critique of exchange rate treatment in agricultural trade models. American Journal of Agricultural Economics, 61: 249-257. Go to original source...
    10. Chambers R.G., Just R.E. (1981): Effects of exchange rate changes on U.S. agriculture: a dynamic analysis. American Journal of Agricultural Economics, 63: 32-46. Go to original source...
    11. Chambers R.G., Just R.E. (1989): Estimating multioutput technologies. American Journal of Agricultural Economics, 71: 980-995. Go to original source...
    12. Collins K.J., Meyers W.H., Bredahl M.E. (1980): Multiple exchange rate changes and U.S. agricultural commodity prices. American Journal of Agricultural Economics, 62: 656-665. Go to original source...
    13. Du X., Hayes D.J., Yu C. (2011): Dynamics of biofuel stock prices: A Bayesian approach. American Journal of Agricultural Economics, 93: 418-425. Go to original source...
    14. Engle R.F., Granger C.W.J. (1987): Co-integration and Error correction: representation, estimation, and testing. Econometrica, 55: 251-276. Go to original source...
    15. Esmaeili A., Shokoohi Z. (2011): Assessing the effect of oil price on world food prices: Application of principal component analysis. Energy Policy, 39: 1022-1025. Go to original source...
    16. FAOSTAT: Food and Agriculture Organization of the United Nations [DB/OL]. Available at www.faostat.org
    17. Hanson K., Robinson S., Schluter G. (1993): Sectoral effects of a world oil price shock: economy wide linkages to the agricultural sector. Journal of Agricultural and Resource Economics, 18: 96-115.
    18. Harri A., Nalley L.L., Hudson D. (2009): The relationship between oil, exchange rates, and commodity prices. Journal of Agricultural and Applied Economics, 41: 501-510. Go to original source...
    19. Henry G., Peterson E.W.F., Bessler D., Farris D. (1993): A time-series analysis of the effects of government policies on the U.S. beef cattle industry. Journal of Policy Modeling, 15: 117-139. Go to original source...
    20. Johansen S. (1988): Statistical analysis of co-integration vectors. Journal of Economic Dynamics and Control, 12: 231-254. Go to original source...
    21. Johnson P.R., Grennes T., Thursby M. (1977): Devaluation, foreign trade controls, and domestic wheat prices. American Journal of Agricultural Economics, 59: 619-627. Go to original source...
    22. Keith C. (2008): The role of Recent Developments with a Focus on Feed Grain Markets and Market Prospects: A Review of Recent Development with a Focus on Feed Grain Markets and Market Prospects. Supporting material for a review conducted by Kraft Foods Global, Inc. of the current situation in farm and food markets, June19, 2008.
    23. Kost, W.E. Effects of an exchange rate change on agricultural trade. Agricultural Economics Research, 28: 99-106.
    24. KPMG (2013): Global reach of China luxury. A KPMG study, kpmg.com/cn
    25. Kwon D., Koo W.W. (2009): Price transmission channels of energy and exchange rate on food sector: A disaggregated approach based on stage of process. In: Agricultural & Applied Economics Association 2009 AAEA & ACCI Joint Annual Meeting, Milwaukee, Wisconsin, July 26-29, 2009.
    26. Nazlioglu S. (2011): World oil and agricultural commodity prices: Evidence from nonlinear causality. Energy Policy, 39: 2935-2943. Go to original source...
    27. Orden D., Fackler P.L. (1989): Identifying monetary impacts on agricultural prices in VAR models. American Journal of Agricultural Economics, 71: 495-502. Go to original source...
    28. Roache S.K. (2012): China's Impact on World Commodity Markets. IMF Working Paper WP/12/115, International Monetary Fund. Go to original source...
    29. Robertson J.C., Orden D. (1990): Monetary impacts on prices in the short and long run: some evidence from New Zealand. American Journal of Agricultural Economics, 72: 160-171. Go to original source...
    30. Schuh G.E. (1974): The exchange rate and U.S. agriculture. American Journal of Agricultural Economics, 57: 1-13. Go to original source...
    31. The Chinese Luxury Traveler White Paper 2013 (2013). Hurun Research Institute, ILTM Asia.
    32. The State Statistical Bureau. Available at http://www.stats. gov.cn/
    33. Toda H.Y., Yamamoto T. (1995): Statistical inference in vector autoregressions with possibly integrated processe. Journal of Econometrics, 166: 225-250. Go to original source...
    34. U.S. Department of Energy [DB/OL]. Available at http://www.energy.gov/energysources/bioenergy.htm.
    35. Vellianitis-Fidas A. (1976): The impact of devaluation on U.S. agricultural exports. Agricultural Economics Research, 28: 107-116.
    36. Von Braun J. (2008): Rising food prices: what should be done? Eurochoices, 7: 30-35. Go to original source...
    37. Wang Y., Wu C., Yang L. (2014): Oil price shocks and agricultural commodity prices. Energy Economics, 44: 22-35. Go to original source...
    38. Yu T., Bessler D.A., Fuller S.W. (2006): Cointegration and Causality Analysis of World Vegetable Oil and Crude Oil Prices. In: American Agricultural Economics Association 2006, Annual meeting, July 23-26, Long Beach, CA
    39. Zhang Q., Reed M.R. (2008): Examining the Impact of the World Crude Oil Price on China's Agricultural Commodity Prices: The Case of Corn, Soybean, and Pork. In: 2008 Annual Meeting, Feb 2-6, 2008, Dallas, Texas.

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY NC 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content