The Causal Relationship Between Temperature Change And Food Indices In The World

Abstract

The effects of temperature change on different sectors have been one of the most essential problems in the last decades. Agricultural sector is definitely the most fragile sector of all, not only production of food causes temperature change but also temperature change led to the instability of production and prices. The objective of this study was to analyse the relationship between temperature change and production or price indices in the world for the period of 1990-2016. The time series of temperature change, Food Price Index and Gross Production Index for foods were obtained from the database of the Food and Agriculture Organization of the United Nations. Johansen cointegration and Granger causality analysis were used to evaluate relations between the indicators in the short and long runs. The results of the study indicated that temperature change, Food Price Index and Gross Production Index for foods were cointegrated and so they move together in the long run. On the other hand, Granger causality analysis highlighted that there is unidirectional causality runs from temperature change to both Food Price Index and Gross Production Index for foods and at the same time from Gross Production Index for foods to Food Price Index. This research concluded that temperature has an essential effect both on agricultural production and prices, whereas food prices are sensitive to production. Therefore, the environmentally friendly technologies should be developed and applied in agricultural sector. However, the food prices could be regulated via production controls which take temperature change into consideration.