Historically, there has been a strong positive correlation between oil and food prices, especially in recent years as food production is becoming more and more fuel-dependent. The CEIC World Trend Database provides extensive coverage on commodity prices and their historic developments, as well as up-to-date forecasts until 2020.

There are several channels through which the movements of oil prices affect the food industry. First and foremost, oil is used to fuel farming equipment and the transport vehicles necessary for processing the raw materials and delivering the final output to consumers. Oil is also a component of many agricultural chemicals used widely in the farming industry. Another spillover effect of oil price fluctuations on the food industry is the knock-on effect in terms of demand for biofuels (ethanol and biodiesel). These substitutes for oil are produced from various crops such as sugarcane, wheat, barley, corn and animal fats, among others. Hence, an oil price decline translates into lower demand for biofuels, which negatively affects the demand and prices for their input - the food commodities.

In mid-2014 oil prices started plummeting due to several factors such as increased production of shale gas in the U.S. where fracking has taken off, the slowdown of the global economy (principally the weakening of China’s breathtaking pace of growth) and the firm position of OPEC members, particularly Saudi Arabia, not to decrease supply in response to the slump in prices. Only in February 2015 did average monthly prices start to rebound by 15.8% compared to the previous month. In April, oil prices further increased by 8.7% on a monthly basis to reach USD 57.4/barrel. However, on an annual basis the average price in April 2015 was still 45.3% lower, so prices are nowhere near their last year’s peak.

Several commodity prices have followed the same pattern. Primary non-fuel commodities, which include food, beverages, agricultural raw materials and metals, were heavily affected by the drop in oil prices, decreasing from July 2014. However the fall in prices, unlike oil, has continued for nine consecutive months, with the exception of a slight increase of less than 0.1% in November 2014.