Impact of Ramadan on Global Raw Sugar Prices

Abstract

The effect of annual religious event of Ramadan on raw sugar prices is the central theme of this research. This research investigates whether incremental demand for sugar due to sugar-based diet in Ramadan influences global raw sugar prices. The impact of Ramadan on global raw sugar price was estimated using a modified seasonal ARIMA model with four dummy and fractional indicator variables separately to represent Ramadan and its intensity. The study used monthly raw sugar price data (ICE contract no. 11) for thirty-four years from January, 1981 to January, 2015 to ensure that the sample size covered beginning of Ramadan on every Gregorian month. The results revealed that there was a significant impact of Ramadan on global monthly raw sugar prices as raw sugar prices grew by approximately 6.06% on account of Ramadan. This was later also supported by an estimated Unobserved-Components Model on raw sugar price series. Growth in monthly raw sugar prices from this model was found to be approximately 6.82% which ensures robustness of results from ARIMA model. These results also revealed price increase to be anticipatory as raw sugar prices began to rise one month prior to Ramadan and continued till the end of Ramadan. However, the rise in monthly average price during Ramadan was dependent on the intensity of Ramadan in a Gregorian calendar month. These results will help policy makers in countries with dense Muslim population to strategize on timing bulk raw sugar procurement for consumption during Ramadan. The results are also useful to sugar refiners and traders who require better visibility on price movements while assessing the needs for availing commodity price derivative products to mitigate commodity price risk. Furthermore, this methodology can act as a framework to assess impact of events such as Ramadan, whose recurrence is not based on Gregorian calendar, on other time series variables such as commodity prices, inflation, exchange rates etc.