Times Series Analysis of Changes in Prices of Milk in Uganda

Abstract

This study was undertaken to determine the behavior of changes in prices of milk in Uganda for the last 10 years and be able to predict the future prices of milk. Secondary data on milk prices between 2010 to 2019, collected by Uganda Bureau of Statistics was analysed. In this study, the prices of milk were plotted on a line plot and before an appropriate ARIMA model was fitted, Augmented dickey fuller test for stationary of the series. Cumulative Period gram/White noise test of behavior of disturbance term and normality tests were used. Stata and Microsoft Excel software packages were used for data analysis. The analysis was done at four different stage namely; identification stage, estimation stage, diagnostic stage and forecasting stage. In accordance with ARIMA model assumptions of time series; white noise assumes that the residuals have zero mean, constant variance and the autocorrelation of any observations of such sequence is always zero. With the help of the ACF and PACF plots, different models were fit to the data. ARIMA (1, 1, 1) was noted to fit the data well; where the first term represents the Auto Regressive order, the second term represents the level of differencing, and the third term shows the Moving Average order. Further adequacy test on the model also confirmed the validity of the selected model. The model was then used to forecast for monthly prices of milk for the next period. The series continues to show an upward trend. The findings of the study show that milk prices have an upward trend. However, the series are nonstationary though stationary at the 1st differencing, and this is attributed to the fluctuation in quantity of milk supplied. Results also indicate that the milk prices will keep increasing in future since the series had an upward trend. In conclusion, the study recommends that the infrastructure of Uganda be improved to have smooth transportation of milk from the farm to the final consumer and use of modern technology in various stages of milk production for example promoting the use of hay and silage so as the cattle have constant pastures despite the seasonal weather changes. The study also recommends the creation of dairy cooperatives to encourage competitiveness and also formalizing the sector.