(2008) argued that the upward pressure on grain prices is due to the growing number of people in emerging economies, especially China, who are becoming wealthy enough to emulate Western diets. Likewise, Wolf (2008) argued that strong income growth by China, India, and other emerging economies, which boosted demand for food commodities, was the key factor behind the post-2007 increases in food prices. The role of demand has been highlighted by Hochman and others (2011) as well.

The results on income growth in the present analysis, which are in sharp contrast to what has been assumed in the above cited (and other) literature, should not be surprising. In the context of the present model, it was noted earlier that income affects prices indirectly through the lagged _S/U_ ratio, because higher income leads to higher consumption. Therefore, the inclusion of income as a separate variable would capture only the contemporaneous effect; hence the insignificant parameter estimate implies that, if income affects prices, it does so with lags. Indeed, most empirical models that have explicitly used the income variable have not found a significant direct impact (for example, Ai, Chatrath and Song 2006).

More important, there is no evidence that grain consumption by emerging economies has experienced growth rates that are either high by historical standards or comparable to their income growth rates. For example, Alexandratos (2008, p. 673) concluded that China’s and India’s combined average annual increment in grain consumption—in terms of both growth rates and absolute increments—was lower in 2002-08 than in 1995-2001. In a similar vein, FAO (2008, p. 12) noted the following: _China and India have usually been cited as the main contributors to this sudden change [in cereal prices] because of the size of their populations and the high rates of economic growth they have achieved. However, since 1980, the imports of cereals in these two countries have been trending down, on average by 4 percent per year, from an average of 14.4 million tonnes in the early 1980s to 6.3 million tonnes over the past three years. Moreover, mainland China has been a net exporter of cereals since the late-1990s, with one exception in the 2004-2005 season. Similarly, India has been a net importer of these commodities only once, in the 2006-07 season, since the beginning of the twenty-first century._ Numerous other studies have reported similar findings, including Alexandratos and Bruinsma (2012), Sarris (2010), Baffes and Haniotis (2010), FAO (2009), and Lustig (2008). In fact, Deaton and Drèze (2008), based on household survey data in India found that, despite growing incomes, there has been a downward trend in calorie intake since the early 1990s. They added that although the reasons behind this trend are not clear, one likely explanation may be that calorie requirements have declined as a result of better health and lower physical activity levels.

It is important to note, however, that demand growth by emerging economies, especially China, has played a key role in the post-2004 evolution of most industrial commodity prices, notably, metals and energy (Baffes 2012). For example, during the — 9 —