Last updated on June 8, 2012
In food policy debates, people often claim that Chinese economic growth — and thus an increased demand for food in China — is partly to blame for rising food prices.
Up until today, however, I had never seen any empirical evidence to that effect. Here is the abstract of a new article by Nelson Villoria in Agricultural Economics:
This article explores the impacts of China’s growth in the international markets of agricultural products along two dimensions: food price inflation and export growth in other developing countries. China’s food imports of vegetable oils have grown dramatically over the last decade, linking China’s economic growth to the recent increases in global food prices. If China is a source of global food price inflation, exporting countries will benefit whether they sell directly to China or not. These direct and indirect linkages are explored using a short-run, partial-equilibrium model of international trade in agricultural products in which consumer prices and trade costs are derived from bilateral trade flows. China’s effects on food prices and exports are estimated by reducing Chinese food expenditures in 2007 by half, roughly China’s level of expenditures in 1995. Results indicate that food prices as measured by CES price indexes in developing Asia, Africa, and Latin America would have been reduced by 1.27%, 0.32%, and 0.22%, respectively. China has been an important source of growth for exporters selling directly to China. There is no evidence of export growth due to an overall increase in food prices caused by China’s growth.
I am not sure setting China’s food expenditures equal to what they were in 1995 is the right counterfactual, but it is really difficult to establish the right counterfactual in this context. This is especially true given that the “right” counterfactual would be an alternate world in which China would not have experienced all that additional economic growth since 1995.
If you believe the counterfactual, however, it looks as though the effects of Chinese growth on food prices are weak, with increases in food prices ranging from 0.2 to 1.3 percent.
Hopefully, these results can help improve current food policy debates. “We can’t be sure of what actually caused food prices to rise” is a sounder basis for food policy than “Increased demand for food in China and India have caused food prices to rise.”