IMPACT OF BIOFUEL POLICIES ON FOOD PRICES IN THE EUROPEAN UNION

In the EU, USA and elsewhere in the world a significant amount of public money is being devoted to support of biofuel production. It is believed that rising biofuel production 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 the authors analyse the statistical relationship among the fuel prices (oil, gasoline, bioethanol) and selected food prices (maize, wheat and sugar). They conduct a series of statistical tests, starting with tests for unit roots, estimation of co-integrating relationships among the price series, evaluating the inter-relationship among the variables using Vector Error Correction Model (VECM) and Variance decomposition. According to their results, there is a long-run co-integrating relationship among the selected time series in the later years while the interrelationship among the variables was weaker in earlier period.