Transmission of Global Food Prices to Domestic Prices: Evidence from Sri Lanka

Abstract

Food prices have been increasing sharply since 2003. In the globalized world, the transmission of global food price increases to domestic market determines the decision of economic agents and policy makers of a domestic economy. The recent growth of global food prices affects the welfare of poor consumers and producers. In Sri Lanka, large segment of the population spends more than 50 percent of their income on food. Thus, this study investigates and assesses how international food price surge affects domestic inflation process in Sri Lanka. The empirical statistical results are derived by using a battery of parametric and non-parametric econometric techniques using monthly data of price series for the period from 2003M1 to 2013M12. The co-integration analysis results confirm that global food prices, domestic prices are co-integrated. Therefore, Sri Lankan government needs to develop a safety net program for the poor and a longer term poverty reduction strategy. Policy attention needs to shift towards efforts to increase food production. The results of this study have various policy implications for monetary policy, food and agricultural policy and trade policy for Sri Lanka.

The impact of macroeconomic factors on food price inflation: an evidence from India

“…It suggests that a 1% surge in global food price upsurges food price inflation by 0.13%. This result is consistent with Selliah et al [41] for Sri Lanka, Holtemöller and Mallick [17] for India, and Huria and Pathania [18] for India. However, Rajmal and Mishra [37] and Baltzer [4] pointed out a limited transmission of prices from international food prices to domestic prices in India.…”

“…Lee and Park [27] confirmed that the lagged values of global food price inflation are positively impacted food price inflation in 72 countries. Selliah et al [41] revealed that an increase in global food price increases domestic food prices in both the short and long run in Sri Lanka. Similarly, Holtemöller and Mallick [17], Bhattacharya and Sen Gupta [6], and Huria and Pathania [18] also documented that global food price shocks have a significant and positive inflationary trend on food inflation in India.…”

Analysis of Indonesian Rice Price Transmission in The ASEAN Economic Community (AEC) Framework

“…price cause another price to change. The mechanism of transmission of global food prices is a way in which changes in food prices affect economic activity and inflation in several ways(Selliah et al 2015).Price transmission is differentiated into spatial price transmission and vertical price transmission. Meyer andTaubadel (2004) explained that spatial price transmission occured when changes in product prices at a level are transmitted to product prices at the same level in the market chain but at different locations.Then, Taubadel (1998) explained that vertical price transmission is the response of prices at a level to changes in prices at other levels in the market chain, both changes in the form of price increasing or price decreasing Vavra and Goodwin (2005).…”