The Role of Inventory Adjustments in Quantifying Factors Causing Food Price Inflation

61 Pages Posted: 20 Apr 2016

See all articles by Gal Hochman

Gal Hochman

Rutgers University; University of California, Berkeley

Deepak Rajagopal

University of California, Berkeley - Energy and Resources Group

Govinda R. Timilsina

World Bank - Development Research Group (DECRG)

David Zilberman

University of California, Berkeley - Department of Agricultural & Resource Economics

Date Written: August 1, 2011

Abstract

The food commodity price increases beginning in 2001 and culminating in the food crisis of 2007/08 reflected a combination of several factors, including economic growth, biofuel expansion, exchange rate fluctuations, and energy price inflation. To quantify these influences, the authors developed an empirical model that also included crop inventory adjustments. The study shows that, if inventory effects are not taken into account, the impacts of the various factors on food commodity price inflation would be overestimated. If the analysis ignores crop inventory adjustments, it indicates that prices of corn, soybean, rapeseed, rice, and wheat would have been, respectively, 42, 38, 52, and 45 percent lower than the corresponding observed prices in 2007. If inventories are properly taken into account, the contributions of the above mentioned factors to those commodity prices are 36, 26, 26, and 35 percent, respectively. Those four factors, taken together, explain 70 percent of the price increase for corn, 55 percent for soybean, 54 percent for wheat, and 47 percent for rice during the 2001-2007 period. Other factors, such as speculation, trade policy, and weather shocks, which are not included in the analysis, might be responsible for the remaining contribution to the food commodity price increases.

Keywords: Markets and Market Access, Economic Theory & Research, Food & Beverage Industry, Access to Markets, Currencies and Exchange Rates

Suggested Citation

Hochman, Gal and Rajagopal, Deepak and Timilsina, Govinda R. and Zilberman, David, The Role of Inventory Adjustments in Quantifying Factors Causing Food Price Inflation (August 1, 2011). World Bank Policy Research Working Paper No. 5744. Available at SSRN: https://ssrn.com/abstract=1903503

Gal Hochman

Rutgers University ( email )

New Jersey
United States
(848) 932-9142 (Phone)

HOME PAGE: http://hochman.rutgers.edu

University of California, Berkeley ( email )

340 Giannini Hall
University of California, Berkeley
Berkeley, CA 94720
United States
(510) 289-0907 (Phone)

HOME PAGE: http://nature.berkeley.edu/~ghochman/

Deepak Rajagopal

University of California, Berkeley - Energy and Resources Group ( email )

Berkeley, CA 94720
United States

Govinda R. Timilsina

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

David Zilberman

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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