The Impact of Biofuel Policies on Food Prices in the European Union
The Impact of Biofuel Policies on Food Prices in the European Union

Summary/Abstract: In the EU, USA and elsewhere in the world a significant amount of public money is being devoted to support of biofuel production. Rising biofuel produc-tion is believed affects agricultural commodity prices as well as fossil fuel prices. The relationship between oil and food prices has been known for a long time. In this article we analyze the statistical relationship among the fuel prices (oil, gasoline, bioethanol) and selected food prices (maize, wheat and sugar). We conduct a series of statistical tests, starting with tests for unit roots, estima-tion of cointegrating relationships among the price series, evaluating the inter-relationship among the variables using Vector Error Correction Model (VECM) and Variance decomposition. According to our results, there is a long-run cointegrating relationship among the selected time series in the later years while the interrelationship among the variables was weaker in earlier period.

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