COMPETITION BETWEEN AGRICULTURAL FOODS AND BIOFUELS: REFEREES’ RESPONSE TO “THE NONLINEAR RELATION BETWEEN BIOFUELS AND FOOD PRICES”

COMPETITION BETWEEN AGRICULTURAL FOODS AND BIOFUELS: REFEREES’ RESPONSE TO “THE NONLINEAR RELATION BETWEEN BIOFUELS AND FOOD PRICES” 3456 2304 Soporte

ABSTRACT. In reviewing the paper “The nonlinear relation between biofuels and food prices”, written by Cruz Ake (2017), several issues were left out by the author: 1) a comparison of the paper’s results with traditional non-linear econometric analysis, as Markov switching regime models; 2) a comparative analysis of the king-run relationship between biofuels (bioethanol and biodiesel) consumption and its demand determinants, namely, competitive goods, their prices, world’s GDP (economic activity) and climate phenomena, and 3) an explanation for the volatility regarding non linearities in the biofuels consumption and its determinants. Under this framework to complement Cruz Ake’s (2017) work, we perform a traditional cointegration analysis to assess the impact of the long -run components of the biofuel demand. We find a significative statistical consistency in the three cointegration equa- tions from a six-equation system. Moreover, we find two volatility regi- mes of the biofuel consumption, wich is also consistent with the empirical evidence from Cruz Ake’s (2017) paper. Although Cruz Ake (2017) contributes to the current discussion on the subject matter, it remains to consider, more carefully, other essential issues that invitied us to a deeper academic debate: 1) the distribution of innovations that drives the biofuel consumption and its price may not be Student’s t nor a Generalize Extreme Value (GEv) distribution; 2) the stochastic process that guides the biofuels consumption and its price may not be stable over time, and 3) the cointegration analysis may be done by assuming fractional cointegration. Finally, it is worth noticing that Cruz Ake’s (2017) paper may be extended in different ways such as: 1) the long-run sustainability of the biofuels consumption; 2) the effect of the agricultural foods and fuel prices volatilities on the economic welfare, and 3) the effect of changes in agricultural foods and energy prices on poor people. Needless to say, all the above stated points encourage to a wider and deeper debate.

Ver en el repositorio institucional SCRIPTA:
http://scripta.up.edu.mx/xmlui/handle/123456789/872

Dr. Francisco Ortiz Arango
Escuela de Ciencias Económicas y Empresariales