Analysing the relationship between crude oil prices and food prices in South Africa between 2010 and 2021

Abstract

This study analysed “the relationship between crude oil prices and food prices in” South Africa. Data for crude oil prices were sourced from the United States (U.S.) Energy Information Administration (EIA), while data for food prices were obtained from the Food and Agricultural Organisation (FAO) for food prices. The analysis was segmented into three periods to account for structural breaks caused by global events: before March 2014, the 2014–2016 Oil Price Collapse, and the onset of the COVID-19 pandemic in February 2020. The bound “co-integration test revealed a long-term relationship between crude oil and” food prices across all segments, achieving the first objective of the study. “The ARDL model was employed to estimate” both “the short-term and long-term” effects of crude oil prices on food prices, fulfilling the second objective. The results showed differential effects of crude oil prices on food prices, with high oil-intensive commodities like meat and dairy showing significant effects. In contrast, low oil-intensive categories like cereal, sugar, and vegetable oil exhibited minimal or delayed effects. The Toda-Yamamoto Granger causality test was applied to determine the causal relationship between crude oil prices and food prices, achieving the third objective. Differential causality was found, with unidirectional causality for sugar, cereal, and meat, and bidirectional causality for vegetable oil during the pandemic period. No significant causal relationship was found for dairy in any segment, despite its high oil intensity, suggesting other mitigating factors in the dairy sector. Overall, the results highlight the varied impact of crude oil prices on different food categories over time, with notable distinctions between high and low oil-intensive food categories. Therefore, policy interventions should focus on managing food price inflation, ensuring energy security, and implementing commodity-specific measures to mitigate the impacts of oil price volatility.