This paper studies the effect of structural shocks in the crude oil, gasoline, and ethanol markets on U.S. retail food prices while accounting for the change in the U.S. biofuel policies around May 2006. We estimate a structural vector autoregressive model using data on aggregate and disaggregate real food prices. First, we find that positive oil-specific demand shocks and positive ethanol demand shocks trigger a significant increase in the real aggregate retail price of food in the post-May 2006 sample. Second, focusing on the period following the inception of the biofuel policies in 2006, we find that both aggregate demand shocks and oil-specific demand shocks lead to significant increases in the prices of some of the major disaggregate food expenditures, whereas a positive ethanol demand shock generates significant increases in the real prices of all disaggregate food expenditures. Third, we examine the transmission of energy price shocks to real food prices by comparing how corn differs from other grain prices. Moreover, we study the effect of energy price shocks on the prices received and paid by U.S. farmers. Furthermore, we assess how unexpected increases in energy prices affect the food marketing cost. Our findings clearly stress on the fact that the source behind the increase in oil, gasoline, and ethanol prices matters for evaluating the impact of energy price shocks on retail food prices. We also find ample evidence that increases in the food marketing cost are primarily caused by unexpected increases in gasoline prices.Keywords: oil prices; gasoline prices; ethanol prices; food prices, supply and demand.JEL: Q41, Q42, Q43, Q11, E31.

The U.S. food system provides many benefits, not the least of which is a safe, nutritious and consistent food supply. However, the same system also creates significant environmental, public health, and other costs that generally are not recognized and not accounted for in the retail price of food. These include greenhouse gas (GHG) emissions, soil erosion, air pollution, and their environmental consequences, the transfer of antibiotic resistance from food animals to human, and other human health outcomes, including foodborne illnesses and chronic disease. Some external costs which are also known as externalities are accounted for in ways that do not involve increasing the price of food. But many are not. They are borne involuntarily by society at large. A better understanding of external costs would help decision makers at all stages of the life cycle to expand the benefits of the U.S. food system even further. The Institute of Medicine (IOM) and the National Research Council (NRC) with support from the U.S. Centers for Disease Control and Prevention (CDC) convened a public workshop on April 23-23, 2012, to explore the external costs of food, methodologies for quantifying those costs, and the limitations of the methodologies. The workshop was intended to be an information-gathering activity only. Given the complexity of the issues and the broad areas of expertise involved, workshop presentations and discussions represent only a small portion of the current knowledge and are by no means comprehensive. The focus was on the environmental and health impacts of food, using externalities as a basis for discussion and animal products as a case study. The intention was not to quantify costs or benefits, but rather to lay the groundwork for doing so. A major goal of the workshop was to identify information sources and methodologies required to recognize and estimate the costs and benefits of environmental and public health consequences associated with the U.S. food system. It was anticipated that the workshop would provide the basis for a follow-up consensus study of the subject and that a central task of the consensus study will be to develop a framework for a full-scale accounting of the environmental and public health effects for all food products of the U.S. food system. Exploring Health and Environmental Costs of Food: Workshop Summary provides the basis for a follow-up planning discussion involving members of the IOM Food and Nutrition Board and the NRC Board on Agriculture and Natural Resources and others to develop the scope and areas of expertise needed for a larger-scale, consensus study of the subject.

This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.

U.S. retail food price increases in recent years may seem large in nominal terms, but after adjusting for inflation have been quite modest even after the change in U.S. biofuel policies in 2006. In contrast, increases in the real prices of corn, soybeans, wheat and rice received by U.S. farmers have been more substantial and can be linked in part to increases in the real price of oil. That link, however, appears largely driven by common macroeconomic determinants of the prices of oil and agricultural commodities rather than the pass-through from higher oil prices. We show that there is no evidence that corn ethanol mandates have created a tight link between oil and agricultural markets. Rather increases in food commodity prices not associated with changes in global real activity appear to reflect a wide range of idiosyncratic shocks ranging from changes in biofuel policies to poor harvests. Increases in agricultural commodity prices in turn contribute little to U.S. retail food price increases, because of the small cost share of agricultural products in food prices. There is no evidence that oil price shocks have caused more than a negligible increase in retail food prices in recent years. Nor is there evidence for the prevailing wisdom that oil-price driven increases in the cost of food processing, packaging, transportation and distribution are responsible for higher retail food prices. Finally, there is no evidence that oil-market specific events or for that matter U.S. biofuel policies help explain the evolution of the real price of rice, which is perhaps the single most important food commodity for many developing countries.

Abstract: The primary causes of food price rises in this decade have been agricultural commodity shortages caused by bad weather and increased food marketing costs, especially labor costs, spurred by inflation. Lack of sufficient data makes it difficult to determine why food prices do not fall when farm prices fall. Government and food industry's roles in the food system could be improved to lower price levels or slow the rate of increase. Recommendations given are based on results of studies which indicate food prices reflect increase food industry cost.s. Government could assist in controlling price increases through 1) modifications of transportation regulations; 2) increased efficiency to reduce marketing costs; 3) increase consumer information and protection. Food industry may decrease cost through 1) computerized checkout system expansion; 2) reducing food loss; and 3) moving toward standardization of primary and secondary containers to package and transport food.