Food price volatility and its consequences: introduction

Commodity prices are in the news. Oil prices have dropped 65% since June 2014. Metal prices are also down substantially, albeit they have declined more gradually since 2011 on account of slower growth from emerging markets that account for more than half of global metal consumption. In this special issue, we focus on food prices, which have in many ways a wider impact than oil prices. While international food prices are also down (see Fig. 1 ), this might not be all good news for consumers. One key difference between food and other commodities is that the share of food production that is effectively exported is relatively small. In other words, most food production is consumed domestically. This implies that international food prices may not translate closely into domestic food prices. ... Just how important are the links between international and domestic prices is a central theme in this special issue. Several papers in the issue deal with this question by documenting the ‘weak links’ between international and domestic food prices. For example, Furceri et al. present econometric evidence of very limited pass-through both in advanced and emerging markets. The median long-term pass-through of a 1% food price shock to domestic food prices is 0.18% in advanced economies and 0.34% in emerging economies. They argue that as a significant fraction of domestic food production is consumed domestically, it is domestic agricultural and weather conditions that are the more influential, rather than global market developments. Other factors behind the incomplete pass-through include the significant local component in the production of food, including market structure, taxes, and subsidies.