A simple price monitoring tool to assess monthly changes in food prices

Abstract

Food prices have always been volatile, but they may become even more volatile in the future given the new linkages between oil and grain prices. These new linkages are due to several factors that have converged in the past few years. While technologies that can convert grains to fuel have existed for some time, it is only recently that they have become profitable enough to create a stronger link between oil and grain prices than has existed in the past. In addition to improvements in biofuel tec hnologies, policies in several developed countries (e.g. mandates, tariffs) have also played a key role by lowering the level of oil prices at which this linkage becomes operable. Finally, developments in supply and demand in world oil markets also play a role: if oil prices are at a relatively high level in the medium term due to continued economic growth in developing countries and increased difficulties in finding new cheap sources of supply, this makes it easier for grains to be competitive as a source of fuel, providing yet another reason why there are likely to be stronger linkages between grain prices and oil prices.