EU Food price inflation amid global market turbulences during the COVID-19 pandemic and the Russia-Ukraine War

Kornher, Lukas and Balezentis, Tomas and Santeramo, Fabio Gaetano (2024): EU Food price inflation amid global market turbulences during the COVID-19 pandemic and the Russia-Ukraine War.

Abstract

Since the Covid-19 pandemic and the Russia-Ukraine War, global food markets have been in turmoil. Agricultural input and energy prices doubled between 2020 and 2022, with immediate consequences on food accessibility. We examine the drivers of the EU food inflation patterns, and how trade integration shapes these dynamics. We find that food price inflation has been mainly driven by surges in agricultural production costs and, to a lesser extent, by global food price increases. Trade openness has not exacerbated the inflating dynamics during this period.

• Item Type: MPRA Paper
• Language: English
• Keywords: Europe, food price inflation, Russia–Ukraine War, trade policy uncertainty, geopolitical risk
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy

References

Adjemian, M. K., Arita, S., Meyer, S. and Salin, D. (2023). “Factors affecting recent food price inflation in the United States.” Applied Economic Perspectives and Policy 1–29. https://doi.org/10.1002/aepp.13378

Ahn, S. and Steinbach, S. (2023). “The impact of COVID-19 trade measures on agricultural and food trade.” Applied Economic Perspectitve Policy, 45, 911-927. https://doi.org/10.1002/aepp.13286

Akter, S. (2020). “The impact of COVID-19 related ‘stay-at-home’ restrictions on food prices in Europe: findings from a preliminary analysis.” Food Security. 12, 719–725. https://doi.org/10.1007/s12571-020-01082-3

Algieri, B., Kornher, L. and von Braun, J. (2024). “The changing drivers of food inflation – macroeconomics, inflation, and war.” ZEF Discussion Papers on Development Policy No. 339, Center for Development Research (ZEF). http://dx.doi.org/10.2139/ssrn.4748639

Baquedano, F., Jelliffe, J., Beckman, J., Ivanic, M., Zereyesus, Y., and Johnson, M. (2022). “ Food security implications for low- and middle-income countries under agricultural input reduction: The case of the European Union's farm to fork and biodiversity strategies.” Applied Economic Perspectives and Policy 44(4): 1942–1954. https://doi.org/10.1002/aepp.13236

Bekkers, E., Brockmeier, M., Francois, J., and Yang, F. (2017). “Local food prices and international price transmission” World Development, 96, 216-230. https://doi.org/10.1016/j.worlddev.2017.03.008

Bouoiyour, J., Selmi, R., Hammoudeh, S., and Wohar, M.E. (2019). “What are the categories of geopolitical risks that could drive oil prices higher? Acts or threats?” Energy Economics, 84, 104523. https://doi.org/10.1016/j.eneco.2019.104523

Brander, M., Bernauer, T. and Huss, M. (2023). “Trade policy announcements can increase price volatility in global food commodity markets.” Nature Food 4, 331–340. https://doi.org/10.1038/s43016-023-00729-6

Caldara, Dario and Matteo Iacoviello (2022), “Measuring Geopolitical Risk,” American Economic Review, 112(4), 1194-1225. https://doi.org/10.1257/aer.20191823

Consoli S, Egas Yerovi J.J., Machiorlatti M., and Morales Opazo, C. (2023). “Real-time monitoring of food price policy interventions during the first two years of COVID-19.” Food Policy 102405. https://doi.org/10.1016/j.foodpol.2023.102405

Dietrich, S., Giuffrida, V., Martorano, B. and Schmerzeck, G. (2022). “COVID-19 policy responses, mobility, and food prices.” American Journal of Agricultural Economics 104(2), 569– 588. https://doi.org/10.1111/ajae.12278

EU Commission (2019). “Fertilisers in the EU”. EU Agricultural Markets Briefs, 15, European Comission, Brussels.

EUROSTAT (2023). Statistical Office of the European Commission, Luxemburg, URL https://ec.europa.eu/eurostat/web/main/data/database

Fackler, P. L. and Goodwin, B. K. (2001). “Spatial price analysis.”, ch. 17, 971-1024 in Gardner, B. L. and Rausser, G. C. eds., Handbook of Agricultural Economics, vol. 1, Part 2, Elsevier.

Fatouh, M., Giansante, S., & Ongena, S. (2021). “Economic support during the COVID crisis. Quantitative easing and lending support schemes in the UK.” Economics letters, 209, 110138. https://doi.org/10.1016/j.econlet.2021.110138

FAO (2023a). Food and Agriculture Organization (FAO) Food Price Index (FFPI, URL

FAO (2023b). Food and Agriculture Organization (FAO) - Agricultural Stress Index System (ASIS), URL

FAOSTAT (2023). Food and Agriculture Organization (FAO) Statistical Database. Rome, URL https://www.fao.org/faostat/en/#data

Felbermayr, G., Kirilakha, A., Syropoulos, C. Yalcin, E. and Yotov, Y.V. (2020). “The Global Sanctions Data Base.” European Economic Review, 129. 103561. https://doi.org/10.1016/j.euroecorev.2020.103561

Ferrucci, G., Jiménez-Rodríguez, R. and Onorantea, L. (2012). “Food Price Pass-Through in the Euro Area: Non-Linearities and the Role of the Common Agricultural Policy.” International Journal of Central Banking, 8(1), 179-218.

Fiankor, D. D. and Santeramo, F. G. (2023). “Revisiting the impact of per‐unit duties on agricultural export prices.” Applied Economic Perspectives and Policy 45(3): 1472–1492. https://doi.org/10.1002/aepp.13368

Flachsbarth, I. and Garrdio, A. (2014). “The effect of agricultural trade openness on food price transmission in Latin American countries.” Spanish Journal of Agricultural Research, 12(4), 927-940. https://doi.org/10.5424/sjar/2014124-6292

Freier, M. and Ricci, M. (2023), “How fiscal policy offset the negative welfare effect of euro area inflation”, VoxEU, 25th October 2023.

García-Germán, S., Bardají, I. and Garrido, A. (2016). “Evaluating price transmission between global agricultural markets and consumer food price indices in the European Union.” Agricultural Economics, 47, 59-70. https://doi.org/10.1111/agec.12209

Glauber, J. and Laborde, D. (2022). “How sanctions on Russia and Belarus are impacting exports of agricultural products and fertilizer?” IFPRI Blog. November 9, 2022,

GTA (2023). “Global Trade Alert”,

Hale, T., Angrist, N., Goldszmidt, R. et al. (2021). “A global panel database of pandemic policies (Oxford COVID-19Government Response Tracker).” Nat Hum Behav 5, 529–538. https://doi.org/10.1038/s41562-021-01079-8

IMF (2023). Global Price Index of All Commodities [PALLFNFINDEXQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PALLFNFINDEXQ, July 21, 2023.

Israeli, O. (2007). “A Shapley-based decomposition of the R-square of a linear regression.” The Journal of Economic Inequality, 5, 199-212. https://doi.org/10.1007/s10888-006-9036-6

Jafari, Y., Engemann, H., and Zimmermann, A. (2023). "Food trade and regional trade agreements – A network perspective," Food Policy, 119(C). https://doi.org/10.1016/j.foodpol.2023.102516

Kirikkaleli, D., and Darbaz, I. (2022). “New insights into an old issue: modelling the US food prices.” Letters in Spatial and Resource Sciences, 15(3), 675-689. https://doi.org/10.1007/s12076-022-00319-3

Kirilakha, A., Felbermayr, G., Syropoulos, C, Yalcin, E. and Yotov, Y.V. (2021). The Global Sanctions Data Base: An Update that Includes the Years of the Trump Presidency, in The Research Handbook on Economic Sanctions. Edited by Peter A.G. van Bergeijk.

Kornher, L., Kalkuhl, M. and Mujahid, I. (2017). “Food price volatility in developing countries the role of trade policies and storage.” FOODSECURE Working Paper 57, LEI Wageningen UR..

Kornher, L., and von Braun, J. (2024). “Global food crisis and implications for actions in the context of war and pandemic shocks.” In Food and Humanitarian Crises: Science and Policies for Prevention and Mitigation, Proceedings of the workshop. Editor J. von Braun, Scripta Varia 147 | Vatican City, forthcoming.

Legrand, N. (2023). "War in Ukraine: The rational “wait‐and‐see” mode of global food markets." Applied Economic Perspectives and Policy 45(2), 626-644. https://doi.org/10.1002/aepp.13335

Lence, S. H., Moschini, G., and Santeramo, F. G. (2018). “Threshold cointegration and spatial price transmission when expectations matter.” Agricultural Economics, 49(1), 25-39. https://doi.org/10.1111/agec.12393

Martínez-García, M. Á., Ramos-Carvajal, C., and Cámara, Á. (2023). "Consequences of the energy measures derived from the war in Ukraine on the level of prices of EU countries," Resources Policy, 86(B), 104114.

Matthews, A. (2023). “Food price situation in Europe.” Studies in Agricultural Economics 125, 60-68. https://doi.org/10.7896/j.2563

Maurer, R. (2023). “The Divergence of Price Levels in the European Union.” Intereconomics Review of European Economic Policy 58 (6), 342-346. https://doi.org/10.2478/ie-2023-0069

Menyhert, B. (2022). “The effect of rising energy and consumer prices on household finances, poverty and social exclusion in the EU.” EUR 31257 EN, Publications Office of the European Union, Luxembourg.

Peersman, G. (2022). “International food commodity prices and missing (dis)inflation in the Euro area.” The Review of Economics and Statistics 104(1), 85-100. https://doi.org/10.1162/rest_a_00939

Rabbi, M.F., Ben Hassen, T., El Bilali, H., Raheem, D., and Raposo, A. (2023). “Food Security Challenges in Europe in the Context of the Prolonged Russian–Ukrainian Conflict.” Sustainability, 15, 4745. https://doi.org/10.3390/su15064745

Rezitis, A. N. and Tsionas, M. (2019). “Modeling asymmetric price transmission in the European food market.” Economic Modelling, 76(C), 216-230. https://doi.org/10.1016/j.econmod.2018.08.004

Roodman, D. (2009). “How to do xtabond2: An introduction to difference and system GMM in Stata.” The Stata Journal, 9(1), 86-136. https://doi.org/10.1177/1536867X0900900106

Rose, A., Chen, Z., and W., Dan (2023). “The Economic Impacts of Russia–Ukraine War Export Disruptions of Grain Commodities.” Applied Economic Perspectives and Policy 45(2), 645– 665. https://doi.org/10.1002/aepp.13351

Saâdaoui, F., Ben Jabeur, B., S., and Goodell, J.W. (2022). "Causality of geopolitical risk on food prices: Considering the Russo–Ukrainian conflict," Finance Research Letters, Elsevier, vol. 49(C). https://doi.org/10.1016/j.frl.2022.103103

Santeramo, F. G. (2015). “Price transmission in the European tomatoes and cauliflowers sectors.” Agribusiness, 31(3), 399-413. https://doi.org/10.1002/agr.21421

Santeramo, F. G., and Dominguez, I. P. (2021). On the effects of the COVID epidemic on global and local food access and availability of strategic sectors: Role of trade and implications for policymakers (No. 938-2021-378).

Santeramo, F. G., & Lamonaca, E. (2022). “Standards and regulatory cooperation in regional trade agreements: What the effects on trade?.” Applied Economic Perspectives and Policy, 44(4), 1682-1701. https://doi.org/10.1002/aepp.13276

Sun, T.-T. and Su, C.W. (2024). "How is geopolitical risk associated with food prices?", International Journal of Emerging Markets, forthcoming, https://doi.org/10.1108/IJOEM-01-2023-0004

Syropoulos, C., Felbermayr, G., Kirilakha, A., Yalcin, E., & Yotov, Y. V. (2024). “The global sanctions data base–Release 3: COVID-19, Russia, and multilateral sanctions.” Review of International Economics, 32(1), 12–48. https://doi.org/10.1111/roie.12691

Wieck, C., Dries, L., Martinez-Gomez, V., Kareem, O. I., Rudloff, B., Santeramo, F. G., Sliwinska, M., and Sliwinski, R. (2021). European and Member State Policy Responses and Economic Impacts on AgriFood Markets due to the COVID-19 Pandemic (No. 938-2021-1067).

World Bank (2023). “World Bank Commodities Price Data (The Pink Sheet)”,