Do Food Prices Track Oil Prices?

Not necessarily, argues Kay McDonald on the basis of a recent OECD report:

While it is partly true in the industrial agricultural system that “food equals oil,” there are many other factors which affect food prices, including the definition of “food” used in making the comparison. Below, I’ve listed some of them.

  • The dollar’s value compared to currencies of other food exporting and importing nations.
  • Supply and demand.
  • Amount of food used for biofuel production.
  • Available infrastructure in transport and storage of food.
  • The price of natural gas.
  • Economic health of each nation.
  • The amount of global meat consumption.
  • Weather.
  • Population growth.
  • The percent of food wasted.
  • Transport prices (not always the same as oil prices, as, for example, currently we have excess bulk shipping capacity which has lowered shipping rates).
  • Government Ag policies and price support programs.
  • Trade agreements.
  • Geopolitics.

In her post, Kay also discusses how the OECD report finds no support for the claim that food price volatility has increased  significantly over the last few years when compared to the last 50 years.

More generally, if you have any interest in food policy, Kay’s blog, Big Picture Agriculture, is a must-follow.