Quantifying the impact of Ramadan on global raw sugar prices

Kazi Abrar, Hossain and Syed Abul, Basher and A.K. Enamul, Haque (2017): Quantifying the impact of Ramadan on global raw sugar prices.

Abstract

Each year during the month of Ramadan (Muslim fasting month) consumption of sugar increased dramatically across the globe as Muslims traditionally break their fast with some sweet drinks or products. Since Muslims use lunar calendar, the months are not fully aligned with the Gregorian calendar or with the seasonal calendar for agricultural crops. In this paper, we quantify the impact of Ramadan on both the price and its growth of global raw sugar price. To set the stage for the empirical work that follows, we employ a dummy and a fractional variable to capture Ramadan in order to overcome the asynchronicity of time between Ramadan fasting (which is based on Islamic lunar calendar) and movement in prices (which follows the Gregorian solar calendar). In order to capture seasonality of production in sugar production, data on sugar price spans over thirty-four years so that the Islamic calendar makes a complete cycle of the Gregorian calendar. Using ARIMA and UCM models, we find strong evidence that monthly raw sugar prices in the global market increases by roughly 6.06% (or $17.78 per metric ton) every year ahead of Ramadan.

• Item Type: MPRA Paper
• Language: English
• Keywords: Raw Sugar Price, Ramadan, ARIMA, Unobserved-components model.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q02 - Commodity Markets; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z12 - Religion

References

Abbott, E. (2011) Sugar: A Bittersweet History. The Overlook Press: New York.

Akmal, M. and Abbasi, M.U. (2011) Ramadan Effect on Price Movements: Evidence from Pakistan. Working Paper No. 32, State Bank of Pakistan: Karachi.

Bell, W.R. and Hillmer, S.C. (1983) Modeling Time Series with Calendar Variation. Journal of the American Statistical Association 78: 526-534.

Chen, B. and Saghaian, S. (2015) The Relationship among Ethanol, Sugar and Oil Prices in Brazil: Cointegration Analysis with Structural Breaks. Annual Meeting, January 31 – February 3, 2015, Southern Agricultural Economics Association Atlanta.

Devadoss, S. and Kropf, J. (1996) Impacts of Trade Liberalizations under the Uruguay Round on the World Sugar Market. Agricultural Economics 15: 83-96.

Elliott, G., Rothenberg, T.J. and Stock, J.H. (1996) Efficient Tests for an Autoregressive Unit Root. Econometrica 64: 813-836.

Gibson, R. and Schwartz, E.S. (1990) Stochastic Convenience Yield and the Pricing of Oil Contingent Claims. Journal of Finance 45: 959-976.

Harvey, A. (1989) Forecasting, Structural Time Series Models and the Kalman Filter. Cambridge University Press: Cambridge.

Harvey, A. (2006) Forecasting with Unobserved Components Time Series Models. Chapter 7 in Handbook of Economic Forecasting (A. Timmermann, G. Elliott, Ed.), Vol. 1, North-Holland, 327-412.

Hylleberg, S., Engle, R.F., Granger, C.W.J. and Yoo, B.S. (1990) Seasonal Integration and Cointegration. Journal of Econometrics 44, 215-238.

Leiper, J.B., Molla, A.M. (2003) Effects on Health of Fluid Restriction during Fasting. European Journal of Clinical Nutrition 57 (Suppl 2): S30-S38.

Lin, J.-L. and Liu, T.-S. (2002) Modeling Lunar Calendar Holiday Effects in Taiwan. Taiwan Economic Forecast and Policy, 1-37.

Rakicioğlu, N., Samur, G., Topçu, A. and Topçu, A. (20060 The Effect of Ramadan on Maternal Nutrition and Composition of Breast Milk. Pediatrics International 48: 278-283.

Ng, S. and Perron, P. (2001) Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power. Econometrica 69: 1519-1554.

Nolte, S., Buysse, J. and Van Huylenbroeck, G. (2012). Modeling the Effects of an Abolition of the EU Sugar Quotas on Internal Prices, Production and Imports. European Review of Agricultural Economics 39: 75-94.

Oxford University Press. (2007) A Dictionary of Chemistry. Oxford University Press: Oxford.

Pellegrini, S., Ruiz, E. and Espasa, A. (2007) The Relationship between ARIMA-GARCH and Unobserved Component Models with GARCH Disturbances. Working Paper 07-27. Universidad Carlos III, Spain.

Pereira, L.M., Ribeiro, C. and Securato, J.R. (2012) Agricultural Commodities Pricing Model Applied to the Brazilian Sugar Market. Australian Journal of Agricultural and Resource Economics 56: 542-557.

Pew Research Center. (2015) Pew Research Center. April 02. Accessed May 05, 2015. http://www.pewforum.org/2015/04/02/religious-projections-2010-2050/pf_15-04-02_projectionstables8/.

Poonyth, D., Westhoff, P., Womack, A. and Adams, G. (2000) Impacts of WTO Restrictions on Subsidized EU Sugar Exports. Agricultural Economics 22: 233-245.

Reitz, S. and Westerhoff, F. (2007) Commodity Price Cycles and Heterogenous Speculators: A STAR-GARCH Model. Empirical Economics 33: 231-244.

Riazuddin, R. and Khan, M. (2005) Detection and Forecasting of Islamic Calendar Effects in Time Series Data. SBP-Research Bulletin I.

Ribeiro, C.O. and Oliveira, S.M. (2011) A Hybrid Commodity Price-Forecasting Model Applied to the Sugar-Alcohol Sector. Australian Journal of Agricultural and Resource Economics 55, 180-198.

Roky, R., Aadil, N., Houdi, I. and Benaji, B. (2005) Daytime Distribution of Mood During Ramadan Intermittent Fasting. In Causes, Role, and Influence of Mood States (A.V. Clark, Ed.). Nova Publishers: Morocco, Chapter 8, 153-167.

Sakr, AH. (1975). Fasting in Islam. Journal of Americal Dietic Association 67: 17-21.

Takruri, H.R. (1989) Effect of Fasting in Ramadan on Body Weight. Saudi Medical Journal 10: 491-494.

Yucel, E.M. (2005) Does Ramadan Have any Effect on Food Prices: A Dual-Calendar Perspective on the Turkish Data. Istanbul, Turkey: Central Bank of the Republic of Turkey.