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

more »

... on would be overestimated. If the analysis ignores crop inventory adjustments, it indicates that prices of corn, soybean, rapeseed, rice, and wheat would have This paper is a product of the Environment and Energy Team, Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at gtimilsina@worldbank.org. 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.