Modeling Interconnections within Food, Biofuel, and Fossil Fuel Markets

The interconnections within food, biofuel and fossil fuel markets are first described in the context of biofuels technologies and economic policy framework. Consequently, the econometric analysis consisting of Johansen cointegration, error correction model, vector autoregression and Granger causality is applied to price series of 12 biofuel related commodities. While a number of equilibrium relationships are found across the examined markets suggesting their interconnection, we do not obtain a persuasive confirmation of the thesis that biofuels clearly lead to food shortages via the increase in prices of basic food commodities used in the production of biofuels.