The impact of oil price shocks on the agricultural commodity prices

• Published date: 01 September 2023
• Author: Ozge Kandemir Kocaaslan
• Date: 01 September 2023
• DOI: http://doi.org/10.1111/opec.12281

OPEC Energy Rev. 2023;47:239–252.

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INTRODUCTION

There is an extensive economic literature which has investigated how oil prices affect the prices of agricultural commod-

ities. The dramatic increase in oil and agricultural commodity prices between the years 2006 and 2008 has also led to a

rise in empirical studies addressing the relation between agricultural commodity prices and real oil prices (see among

others, Chatziantoniou et al.,2021; Chiou- Wei et al.,2019; Du & McPhail,2012; Harri et al.,2009). To explain the positive

co- movement between agricultural commodity prices and oil, some studies focused on the substitutive effect between

fossil fuels and biofuels. That is, an increase in oil prices might result in a rise in the prices of corn and soybean used in

the production of bioethanol and biodiesel which are considered as the substitutes of crude oil. Moreover, the increase in

the prices of corn and soybean inevitably leads to a rise in the prices of other agricultural commodities for the planting

acreage cannot be expanded quickly. In the related empirical literature, the exchange rate (see Nazlioglu & Soytas,2012)

and the rise in the production costs of agricultural commodities due to higher oil prices (Mitchell,2008; Nazlioglu,2011),

are also listed as other possible factors explaining the positive co- movement between crude oil and agricultural commod-

ity prices.

However, some other studies indicate that the change in real economic activity is the major reason for rising

agricultural commodity prices. According to this strand of literature, the increasing demand of growing economies

leads to an increase in agricultural commodity prices. For instance, Radetzki(2006) argues that the demand shocks

have been the main trigger in driving the hikes in commodity prices. In addition, Erten and Ocampo(2013) and

Radetzki(2006) attribute the commodity price rise in the early 21st century to the increasing demand and global out-

put accelerations of major developing countries. Hamilton(2009a, 2009b), Kilian(2009), and Kilian and Hicks(2013)

also consider that high demand and the unexpected growth in emerging economies are the most prominent factors

behind the dramatic increase in real crude oil prices between 2003 and mid- 2008. Put differently, the realised co-

movement between the agricultural commodity prices and the real crude oil prices may have occurred because of

DOI: 10.1111/opec.12281

ORIGINAL ARTICLE

The impact of oil price shocks on the agricultural

commodity prices

OzgeKandemirKocaaslan

Department of Economics, Hacettepe

University, Ankara, Turkey

Correspondence

Ozge Kandemir Kocaaslan, Department

of Economics, Hacettepe University,

Ankara, Turkey.

Email: ozge.kandemir@hacettepe.edu.tr

Abstract

In this study, we empirically examine the effects of oil- related shocks on the

prices of nine agricultural commodities for the period 1974:01– 2022:02. We de-

compose real oil prices into three independent parts: oil supply shocks; global

demand shocks; demand shocks that are specific to the crude oil market apply-

ing a symmetric VAR model. Then, we assess the effects of these three shocks

on the prices of nine major agricultural commodities individually. Based on our

findings, we reveal that the responses of agricultural commodity prices to an oil

price change depend significantly on the timing and the driver of the underlying

oil price change.

© 2023 Organization of the Petroleum Exporting Countries.