Non-technical summary 

Research Question

Global food commodity prices fluctuate significantly, and these fluctuations play a key role in shaping inflation and economic activity. Against this backdrop, it is of great interest to policymakers to understand the drivers of such price fluctuations. In this context, we examine how global seasonal temperature shocks affect these prices. 

Contribution

Based on data from 1961 to 2023, we analyze the extent to which seasonal temperature shocks, i.e., deviations of the global average temperature from its seasonal mean of previous years, have a significant impact on global food commodity prices and the quantities of food produced. In contrast to the existing literature, which focuses on the relationship between local temperature deviations and local food price fluctuations, we consider this relationship in a global context. Since many food commodities are traded on global markets, empirical frameworks based on local variation may underestimate the effects of temperature shocks.

Results

According to our results, a global seasonal temperature shock of 0.4°C during the summer months, roughly equal to the largest shock we observe in our sample, is associated with an increase in global food commodity prices by approximately 10 percent within 12 months. The impact is particularly strong on the prices of grains and vegetable oils. Furthermore, we find that high global temperature deviations lead to a significant reduction in the quantities of food produced, indicating that temperature shocks operate as supply shocks.