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Research ESRIG - Energy and Sustainability Research Institute Groningen Events

ESRIG-EES colloquium: Sumiran Rastogi, MSc EES student

When:Tu 05-03-2019 16:00 - 16:30
Where:5159.0110, Energy Academy, Nijenborgh 6.

Title: The Effect of Crude oil prices on Agricultural Prices: Agro-economic and Financial Market Analysis of Wheat Production in USA, India and Australia.

By: Sumiran Rastogi, MSc EES student.

The economic affordability of agricultural produce is pivotal in ensuring food security around the world. The commodity boom of 2005-2008 prevailed with a surge in oil prices along with an all-round increase in prices of non-energy commodities. The price of prominent agricultural commodities like rice and wheat increased by 170 and 127 percent respectively (FAO, 2008). This abrupt simultaneous increase in energy and non-energy commodities led researchers to investigate whether oil prices have some explanatory power over agricultural prices. An inter-relation such as this, is integral especially in a scenario where transition towards a fossil-free economy is the prerogative of most countries. This study, therefore, tries to investigate the nature of the price-relationship between oil prices and agricultural prices. The study hypothesizes that if a relationship does exist then it can either be – direct or indirect. The former suggests that oil prices directly influences agricultural prices due to their contribution in production process. The latter asserts that the growing popularity and size of financial markets, primarily Futures market (for agricultural commodities) serves an indirect channel through oil prices affect agricultural prices.

Differentiating from previously done studies, this research makes use of a Bottom-up methodology supplemented with Top-down approach. Wheat production systems in USA, India and Australia have been considered spanning from 1999 until 2015. The first part tabulates the fossil-requirement in production prcoess in the three countries using reported farm data and literature values. The second part uses this calculated data and converts it into cost terms, thus evaluating the fiscal burden of cultivating wheat. The calculated cost was then compared with real prices of wheat, wheat futures and crude oil prices to analyze the price developments in the recent past. Correlation test was then used to further scrutinize the existence of a price relation.