Food inflation and geopolitical risks: analyzing European regions amid the Russia-Ukraine war

Abstract

PurposeThe study's objective is to measure the response of the food prices to the aggregate and disaggregate geopolitical risk events, Russia's geopolitical risks and global energy prices in the context of two European regions, i.e. Eastern and Western Europe covering the monthly data from January 2001 to March 2022.Design/methodology/approachThe authors apply a novel and sophisticated econometric method, the cross-quantilogram (CQ) approach, to analyse the authors’ monthly data properties. This method detects the causal relationship between the variables under the bi-variate modelling approach. More importantly, the CQ procedure divulges the bearish and bullish states of the causal association between the variables under short, medium and long memories.FindingsThe authors find that aggregate measures of geopolitical risk reduce food prices in the short term in the Eastern Europe but increases food prices in the Western Europe. Besides, the decomposed measures of geopolitical risk “threats” and “acts” have heterogeneous effects on the food prices. More importantly, Russia's geopolitical risk events and global energy prices enhance the food inflation under long memory.Research limitations/implicationsThe authors provide diverse policy implications for Eastern and Western Europe based on the authors’ findings. First, the European policymakers should take concrete and joint policy measures to tackle the detrimental effects of geopolitical risks to bring stability to the food markets. Second, this region should emphasize utilizing their unused agricultural lands to grow more crops to avoid external dependence on food. Third, the European Union and its partners should begin global initiatives to help smallholder farmers because of their contribution to the resilience of disadvantaged, predominantly rural communities. Fourth, geopolitically affected European countries like Ukraine should deal with a crippled supply chain to safeguard their production infrastructure. Fifth, fuel (oil) scarcity in the European region due to the Russia-Ukraine war should be mitigated by searching for alternative sources (countries) for smooth food transportation for trade. Finally, as Europe and its Allies impose new sanctions in response to the Russia-Ukraine war, it can have immediate and long-run disastrous consequences on the European and the global total food systems. In this case, all European blocks mandate cultivating stratagems to safeguard food security and evade a long-run cataclysm with multitudinous geopolitical magnitudes for European countries and the rest of the world.Originality/valueThis is the maiden study that considers the aggregated and disaggregated measures of the geopolitical risk events, Russia's geopolitical risks and global energy prices and delves into these dynamics' effects on food prices. Notably, linking the context of the Russia-Ukraine war is a significant value addition to the existing piece of food literature.