Exogenous Oil Supply Shocks and Global Agricultural Commodity Prices

The Russian invasion of Ukraine on February 24, 2022 dramatically disrupted the global supply of crude oil and agricultural commodities. As a consequence, the prices of oil and agricultural commodities increase substantially and many countries face the problem of high food inflation. Against this background, based on the proxy structural vector autoregressions (SAVR), this paper identifies an oil supply shock that is exogenous to global real economic activity in the impact month, and then examines the impact of this shock on global agricultural commodity price fluctuations. We find unfavorable exogenous oil supply shocks have a delayed and significant positive impact on global agricultural commodity prices. Moreover, the significant positive effect of the unfavorable exogenous oil supply shock on global agricultural commodity prices is primarily attributable to the impact of the shock on the prices of oils and meals and the prices of grains. In particular, the prices of maize and soybeans are greatly affected by the shock. We also find the unfavorable exogenous oil supply shock affects global agricultural commodity prices partly through the biofuel production channel. These findings are very important for policymakers