Asymmetric influence of oil demand and supply shocks on meat commodities

Abstract

We analyze how different types of oil shocks impact the prices of six meat commodities: beef, lamb, pork, poultry, fish, and shrimp. Proceeding in two stages, we first decompose variations in the real oil price into oil supply, aggregate demand, and oil-specific demand shocks using a recursive structural vector autoregression. Then, we examine the asymmetries in the effects of these three types of shocks on meat prices using nonlinear autoregressive distributed lag models. There are three main findings. First, oil supply shocks and oil-specific demand shocks affected meat prices in the short and long run—aggregate demand shocks were largely irrelevant. Second, asymmetries in the effects of oil price shocks were present mainly in the long run; there was limited evidence of these asymmetries in the short run. Third, the effects of the three types of shocks differed between the six meat prices. These findings suggest that the conventional approach to analyzing the response of agricultural prices to oil price shocks will neglect the heterogeneity in these responses to various categories of oil price shocks. While studying the effects of a composite of oil price shocks on agricultural prices is informative, exploring the impacts of various categories of oil price shocks will be more insightful, presenting a more nuanced view of the associations between oil and agricultural prices.