Price Volatility and Financial Performance: Assessing the Impact of Food Prices on Pakistan’s Industrial Sector

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Food is a necessity for human survival; food price volatility has the potential to affect the household consumption pattern and, as a result, the firms' manufacturing decisions. This study aims to address this dimension of food price volatility, and it examines the impact of food price shocks on the demand and supply of 9 large-scale production industries of Pakistan. The study employs the Structural Vector Autoregressive Model to examine these impacts for monthly data from July 2008 to June 2023. The results of the study revealed that for some industries, like engineering, petroleum, rubber, and textiles, food prices lead to an increase in demand. These results show a contradiction to the general consumer behavior theory. However, for the automobile industry, this theory holds as food price shocks reduce the demand for automobiles. For industries like fertilizers, a positive food price shock boosts the supply mainly due to the use of fertilizer as an input in the food production process. This study addresses a novel dimension of the impact of food price shocks, and it provides a policy guideline to relevant stakeholders for accurate analysis of the impact of these shocks. It will help to address the stability issues of the manufacturing sector of Pakistan and economic development and stability.