Does The Recent Spike in Food Prices Have Any Economic Benefit?

Abstract

Over the last decade, there has been an incessant rise in global food prices; this increase in food prices has been associated with the recent discovery of petroleum product substitute ethanol. Since bio-ethanol is mainly produced from food crops such as sugar cane and corn, the increase in the demand for these food crops for ethanol production particularly by emerging markets such as china has imposed enormous pressure on demand for food and food prices. This study investigates the impact of increase in food prices on global economic growth; using food producer price and consumer price index as a proxy, this study examines the gain on the producer side and the loss on consumer side from this increase in food prices and how this gain and loss has impact economic growth. Descriptive analysis and bare bone Solow growth model was use in this study on data from 126 different countries, between year 2000 and 2009 for which data is available and during which there has been increase in food prices to achieve its goal. The result from our findings shows that the increase in food prices; has can be observed from the increase in food producer prices, has a positive impact on economic growth, signifying that the increase in food prices has some benefit on current global economic position. Also, our findings shows that consumer price index has a positive but insignificant relationship with economic growth; implying that the current increase in food consumer price index is not detrimental to global economic growth as one would expect instead there has been global benefit from the hike in food price. (C) 2012 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of the Organising Committee of ICOAE 2012