Epsilon Archive for Student Projects

Abstract

Russia’s invasion of Ukraine in February 2022, caused a disruption in global fertilizer markets, raising the question if such input costs shocks transmit to consumer food prices. Using monthly panel data this study examines how the increase in global urea price following Russia’s invasion of Ukraine affected Swedish consumer food prices for four food categories with varying degrees of fertilizer dependency: vegetables, sugar, fruits and tree nuts and pulses.

Three complementary two-way fixed effects modes are estimated to capture whether urea price changes transmitted to Swedish consumer prices and if the increase was greater following the invasion. The first model finds statistically significant positive urea price transmission for fruits and tree nuts, pulses and sugar, indicating that price shocks in the fertilizer market are transmitted to Swedish consumer food prices. However, the effects are small and do not follow the expected fertilizer dependency order, suggesting that other factors affect how fertilizer prices are transmitted. The second and third models found little to no find significant evidence overall or category-specific level that more fertilizer dependent categories experienced grater price increases following the invasion, with only sugar showing a small but significant price shift relative to pulses.

The findings are consistent with the findings of existing literature on price transmission and suggests that urea prices are associated with Swedish consumer food prices, however, the effects are small. Due to a significant placebo test and some variables having high collinearity the findings should be interpreted with caution. The study contributes to the literature by examining fertilizer price transmission for food categories with varying degree of fertilizer dependency and in a high-income economy.