SUGAR PRICES

Sugar

HistoryA native to southern Asia, sugarcane has

been nourishing man since prehistoric time. It is not certainly known which culture developed the technique of converting sugarcane juice into crystalline sugar, but as earliest known Sanskrit in about 500 B.C in northern India where the sugarcane juice was first rendered in the form of sugar. Within a century sugarcane had reached the shores of eastern Mediterranean and North Africa where the first great economic sugar boom occurred.

Early refining methods involved grinding or pounding the cane in order to extract the juice, and then boiling down the juice or drying it in the sun to yield sugary solids that looked like gravel. The Sanskrit word for "sugar" (sharkara) also means " gravel" or "sand”. Western Europeans as a result of the Crusades only discovered sugar in the 11th Century AD. Crusaders returning home talked of this "new spice" and how pleasant it was. The first sugar was recorded in England in 1099. The subsequent centuries saw a major expansion of western European trade with the East, including the importation of sugar. It is recorded, for instance, that sugar was available in London at "two shillings a pound" in 1319 AD. This equates to about US$100 per kilo at today's prices so it was very much a luxury. By the eighteenth century, all levels of society had become common consumers of the former luxury product. At first, most sugar in Britain went into tea, but later confectionery and chocolates became extremely popular.

Suppliers commonly sold sugar in solid cones and consumers required a sugar nip, a pliers-like tool, to break off pieces.

INTRODUCTIONAs is true in many countries, the Government

of Pakistan is heavily involved in the sugar industry, regulating mill construction, trade and prices, and influencing farmers' crop decisions in various ways. One reason for the large government involvement with sugar is the political importance of the crop. Sugar is also the second most important cash crop in Pakistan after cotton. Self-sufficiency in sugar is a goal, but one that to date has proven illusive. The major sugar crop is sugarcane, but there is a small sugar beet industry in the cooler high elevations of the Northwest Frontier Province.

Pakistan grows about 1 million hectares of sugarcane, more than all other cane producing countries except Brazil, China, Cuba, India and Thailand. Cane is also used for non-centrifugal sugars and seed, so that the amount of land harvested for centrifugal sugar each year is only about two-thirds of the total. Sugar production first rose above 1 million tonnes in 1982. In 1989-1990, output reached 2 million tonnes, and 3 million tonnes in 1994 and 1995 (Table 1). However, production fell to 2.7 million tonnes in 1996 due to a combination of bad weather, lower acreage, and diversion of cane to non-centrifugal sugar production, mostly gur. Production for 1997 is projected at about 3 million tonnes, as farmers respond to the higher prices received the previous year.

We have taken the data about ten years of sugar prices. Our objective is to analyze the impact & the changes in the domestic prices of sugar industry of Pakistan.

 

Time Plot Time plot is the graphical representation of data with respect to time.

ORIt is an illustration of data points at successive time intervals.

BRIEF EXPLANATION OF PLOT

The time plot represents sugar prices in Pakistan for the ten years of monthly data from 1990 to 2000. Collectively, the graph shows cyclical variation as well as seasonality.

The year 1990, a remarkable change in the price of sugar can be seen, the production of sugarcane was increased resulting in a sudden decrease of price. However the next three years has shown seasonal variation that is low price in winter but a little high price in summer. Moreover, for the next couple of years the price has shown a gradual increase in the price.

Afterwards in 1995 the price bounced up. Mainly, due to heavy increase of the price of sugarcane coupled and the price of US Dollar was also increased, the cost of sugar production naturally increased thereby raising sugar price in domestic market. Furthermore, the next few years has shown seasonal variation in prices. For two successive years industry has achieved remarkable sugar production. During these years, government pressure constantly remained on sugar industry to keep the domestic price at lowest.

Finally in year 2000 sugar industry faced severe effect due to drought condition, the economy of Pakistan was badly affected, a huge shortfall in sugar industry occurred so that the price of sugar dramatically increased.

CORRELOGRAM:A graph that shows correlation between

two variables. In the analysis, the correlogram is an image of correlation statistic.

PACF shows oscillation or oscillating decay.However, ACF shows positive exponential decay till lag 20 and after that it shows negative exponential decay.

To test whether our series is stationary at level or not, we applied ADF test of stationary. Testing at level:I. Ho: Series is stationary at level. H1: Series is not stationary at level.II. Level of significance: = 1%, 5%, 10%III. Test statistic: -1.023760IV. Calculation:

ADF Test Statistic

-1.023760 1% Critical Value

-2.5813

5% Critical Value

-1.9423

10% Critical Value

-1.6170

V. Conclusion: As t-statistic>α, so we reject Ho and conclude that series is not stationary at level.

As series is not stationary at level so we take 1st difference.

Testing at 1st difference:

I. Ho: Series is stationary at 1st Difference H1 : Series is not stationary at 1st Difference

II. Level of significance: = 1%, 5%, 10%

III. Test statistic: -8.831441

IV. Calculation:     

   Conclusion:   As our t-statistic<α , So we do not reject Ho

and conclude that our series is stationary.

ADF Test Statistic -8.831441

1% Critical Value

-3.4815

5% Critical Value

-2.8837

10% Critical Value

-2.5784

Correlogram at 1st Difference:

ACF and PACF both shows oscillation or oscillating decay.

Model Selection:The pairs for model selection are given below.(1,1,0)(0,1,1)(1,1,1)(1,1,14)(5,1,1)(5,1,14)(14,1,1)(14,1,14)

According to the criteria of model selection the model (14,1,14) has lowest SBC and AIC values, but when the model with order of MA more than 5 cannot be analyzed so we choose the other lowest value model that is (0,1,1).