Page 1 of 12

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 10

November 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 511

Causality Analysis of Sugar Productions and

Consumption in Tanzania

Damian Sambuo

Abstract

Scarcity of resources has regularly caused

what is produced to be consumed.

Tremendous increase of the rate of sugar

production in Tanzania has led to the raise of

sugar consumption level the in the country.

This study analyze the relationship between

the amount of sugar produced (SGP) and

sugar consumed (SGC) in Tanzania covering

a period of 1977 to 2014. The series data

were collected from economic survey data of

Tanzania (URT 2012) and Sugar Board of

Tanzania (SBT, 2015). The objective of this

study was to analyses the causality demand

for sugar production and consumption in

Tanzania. The focus was to analyze whether

there is direction causality from SGP to SGC,

from SGC to SGP, bilateral causality or they

are independent from each other. Granger

Causality analysis was used and the order of

integration employed in the Vector

Autoregressive (VAR) was estimated by

seemingly unrelated technique (SUR).

The findings indicated that there is a two way

causality of sugar produced and consumed in

Tanzania by 2014. Therefore, in order to

improve the livelihood of farmers rural the

Government should spend large amount of

money expanding local industries and

providing subsidy on farm inputs and

productions facility that could have income

multiplier effect toward local sugarcane

producers. Interventions should be done on

the sugar import tariffs and duties. The

current low importation taxes affect the price

of sugar produced in the country as it is very

high compare to the price of imported sugar.

Moreover more investors should be invited to

invest on sugarcane production because the

demand is still high.

Key words: Sugar Production, Sugar

Consumption, Granger Causality

1.0 Introduction

The prolonged deficit of sugar production in

Tanzania since back 1989 is doubtful. Sugar

production and consumption by the year

2014 in Tanzania was at 320,000 metric tons

and 480,000 metric tons respectively leaving

a deficit of about 160,000 metric tons yearly

demand (SBT, 2015). Sugar productions has

been influenced by several factors including

production costs, policy against import

permit, cheap imported sugar, inflations or

the rise of demand for sugar consumptions in

Tanzania. Meanwhile sugar consumption is

very high due to the smuggling of the sugar

produced from Tanzania caused by high

demand of sugar by other neighboring

Eastern African countries. The price of sugar

produced in Tanzania is lower compare to

other neighboring countries led to sporadic

price increase in the country. While retailers

in Tanzania are directed to sell a kilo of sugar

at not more than 1,700/- per Kg, the current

sub-whole price stands at between 87,000/-

and 11,000/- per 50-kilo bag and the retail

price at between 2,300/- and 2,500/- per kilo.

In Kenya, a kilo of the item fetches Kshs 210,

which at the current exchange rate is 3,570/-.

Page 2 of 12

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 10

November 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 512

In Uganda, it is Ugsh. 6,000 (equivalent to

3,400/-) and in Burundi it is Burundi Franc

2000 (about to 3,100/-). (Report from

Ministry of Agriculture).However, since the

privatization of the sugar local industries and

sugar estates plantation in Tanzania, sugar

production has consistently increased

(Rabobank, 2013).

Consequently, the objective of this study is to

analyses the causality relationship between

sugar production and consumption in

Tanzania and its impacts on agricultural

economy.

2.0 Review of Related Literatures

2.1 Sugar Production and Consumption in

Tanzania

Sugar production in Tanzania is facilitated by

four main producers: the Tanganyika

Plantation Company (TPC) located in

Kilimanjaro Region; Kilombero Sugar

Company Ltd and Mtibwa Sugar Estates both

are in Morogoro; and Kagera Sugar Ltd in

Kagera region. In 10 years ,the country’s

sugar production has increased from 112,903

tons in 1995/96 to 263,317 tons in 2005/06.

This represents an increase of 134.91 percent.

Factory-wise, Kilombero’s has increased

production by 227.91%, TPC by 80.04% and

Mtibwa by 53.13%. Kagera Sugar Ltd which

stopped production in 1999/2000 resumed

production in October 2004 producing

16,703 tons by end of March

2006.Tanzania’s sugar demand was more

than 330,000 tons, in year 2010 while its

production stood at 250,000 tonnes, creating

a deficit of nearly 80,000 tons. The retail cost

of sugar has risen to 2,500/= from 1,700/- per

kilo in retail outlets.With current projected

demand of 501,865 tons, it outstrips current

production by about 48%. The country also

depends on sugar imports to satisfy domestic

requirement (SBT, 2012).

Production theory postulates that, with the

availability of input factors may results to

output factors. The sugar production industry

in Tanzania has some causal factors on the

quality and quantity of the sugar product

including granting duty free for those

importing sugar, high demand comparing to

production capacity, and presence of cartels

for profit margins and lack of clear irrigation

system in the country. Other factors are

related to few hours of sunshine which has

impact on the availability of sucrose, climatic

changes that disturbs the availability of

rainfall to estates that do not use irrigation

and poor block farming system (SBT, 2012;

Sugaronline; 2013 and Rabobank, 2013).

Sugar consumption is very high in Tanzania.

Following the demands, it also needs to be

transported, though not at enough quantity, to

satisfy final consumers. Transport cost

influence its prices to the final consumer,

moreover there is no fixed prices which is set

unless intervened by government officials at

local level (SBT, 2013), otherwise producers

can set their own price. Import tariffs and

duties fixed by the government affects the

prices and thus indirectly the effects are

transferred to consumers. Population increase

at a rate of 3% and annual population grow

by 6% which also leads to the increase of per

capital consumptions (SBT, 2012 and

Rabobank 2013).

Unsecure sugar local market dominated by

greedily middleman has been affecting sugar

consumption in Tanzania to the extent that

they create inadequate availability of sugar in

Page 3 of 12

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 10

November 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 513

the country. Moreover, sometimes poor

timings in importation of sugar has caused

sugar to be overloaded in warehouses. This

has affected sugar production for large scale

producers. As the result, due to

inconveniences, the government licensed

unsold sugar to be sold at European Union,

Uganda and South Sudan. This is an

indication that more sugar can be produced

by the firms within the country and the

markets are available at local and

international level for (SBT, 2013).

Despite the reports issued by SBT, the

strategic plans of country’s sugar industry

expects to largely target export markets by

2016. The SBT expects to implement nine

projects see the country tripling its annual

sugar production from the current estimate of

300,000 metric tons to 910,000 metric tons

by the year 2016.

Several studies have been conducted on the

direction of the causal link between

economic variables such as FDI and

Economic Growth (Kholdy, S. 1995, Ngowi

H.P, 2001, Frimpong J.M and Oteng-Abuyie

E.F, 2008). According these studies, the

characteristics and conditions of a particular

country may affect the causal relationship

between economic variables of our

expectation.

This study developed to find out the causal

relationship between sugar production and

sugar consumption. The aim of this study is

to determine whether the amount of sugar

produced within a country is determined by

the amount of sugar consumed or sugar

consumed in and some exported is

determined by sugar produced in Tanzania

perspective, and if there is a causal

relationship in both direction

2.0 Data

The study used time series data on

domestically sugar produced and consumed

in Tanzania between 1977 and 2008which

which were collected from Tanzania Sugar

Board for.

3.0 METHODOLOGY

3.1 Granger Causality Test

Basing on the axioms that the past and the

present may cause the future but the future

cannot cause the past, and all causal

relationship remain invariant over the period

of analysis then the Granger Causality Test

was used to test these two variables as they

were measured on the yearly basis.

The inquiry was directed toward the

possibility that time series Y(t) causes another

x(t), and the direction of causality is

determined by Granger Causality Test. The

series assumed to have the same time interval

and measured at same units. Granger (1969)

argues that within a bivariate context, the

Granger-type test states that, ‘if a variable x

Granger causes variable y, the Mean Square

Error (MSE) of a forecast y, based on the past

values of both variables is lower than that of

a forecast that uses only past values of y.

Granger test was implemented by running the

following regression:

∆y = α + ∑ βi∆

p

i=1 Yt−1 + ∑ γi∆

p

i=1 Xt−1 + μt....................................(1)