Factors affecting price fluctuation of sugar in Uganda case study of Kakira sugar limited

Abstract

The main objective of this study was to assess the factors that influence price fluctuation of sugar in Uganda, a case study of Kakira Sugar Limited. I investigated whether GDP percapita, interest rate, inflation rate, exchange rate, and crude oil prices had a significant relationship with sugar prices. This is the sugar prices influence sugar price fluctuations. Secondary quarterly data from 2015 to 2020 was used which was collected from internet sources. The analysis using STATA software was done and results about the mean, maximum and minimum, chow test, auto regression integrated moving average, portmanteau test, auto correlation and partial auto correlation coefficient compiled. From the results, for univariate analysis, there was a trend in the prices of sugar in Uganda as observation was made about several increase and decrease in the sugar prices within the different quarters of different years. Crude oil prices, inflation rate and exchange rate have generally been on an increase though with some slight decrease. However, GDP percapita has been generally decreasing while interest rate has been stationarity for most of the time. In the bivariate analysis, exchange rate was the only variable that was statistically significant with the sugar prices (p value = 0.042), an indication that exchange rate has a positive relationship with sugar prices. Inflation rate was nearly significant as it’s (p value = 0.0773) was close to 0.05 with 13.5% of sugar prices explained by the inflation rate. Crude oil prices, GDP percapita and interest rate were not statistically hence, they had no relationship with sugar prices. Furthermore, no structural breaks in the series were observed in any of the series. In the multivariate analysis, exchange rate was the only variable that was statistically significant (p value = 0.038).This implies that there is a positive relationship between exchange rate and sugar prices. The fluctuating currency of Uganda has a direct and strong influence on the sugar prices in both the domestic and the international market. The Portmanteau diagnostic test for white noise for the estimated residuals of GDP percapita, crude oil price, interest rate and inflation rate confirmed presence of white noise as the respective Prob > chi2 of the residuals variables was greater than 0.05 hence statistically significant. The study recommended that for effective improvement in the exchange rate then the government should improve the terms of trade, as it will show greater demand for the country’s xi exports for our case sugar, which will provide increased demand for the country’s currency. More sugar producers and investors should be encouraged to enter the sugar production through provision of incentives such as tax holidays, which is to spark competition in the sugar industry in turn leading to more quality quantities of sugar on the market.