Oil and its Total Impact on the Price of Food. An Input-Output Approach for the United States in 2002 and 2007

Abstract

Being able to understand the decisive features of the 21st century’s boom regarding the price of commodities is vital for Latin America. The relationship between the prices of oil and food has become a controversial issue. Although the impact of the structure of inputs has been acknowledged, the direct and indirect links between fuel imports and the price of food have not been addressed by most research. Thus the aim of this study is to describe the evolution of the structural link between the price of crude oil and the price of food, focusing on agricultural products for the increase from 2002 to 2007 in the United States. In order to achieve it, an input-output price index model based on the Supply and Use Tables for the US economy in 2002 and 2007 was used. The results show that 9% of the food price increase is due to exogenous causes related to the energy inputs. Indirect imports had an incidence rate of between 2.4% and 0.07%. There was a clear process of reverse substitution whose main consequence is less dependence on foreign energy. As a conclusion, a structural part of the food price increase is identified by the methodology used. However, other classic hypotheses such as the effect of the restriction of capacity in areas of lower costs, the net impact of technical changes in the crop and the distributive transformations are left for further research.