Integration of Sugar Markets between Swaziland and its Major Trading Partners

Sotja G. Dlamini, Abdi-Khalil Edriss, Alexander R. Phiri, Micah B. Masuku


The study was designed to examine the extent of market integration between Swaziland sugar markets and its major trading partners (i.e., South Africa, EU and USA) using monthly export sugar price data from January 2001 to December 2013. Price series were tested for stationarity with the Augmented Dickey-Fuller (ADF) test and it was found that all prices were integrated of order one I (1). Zivot and Andrews test was used to determine the structural break in the price series and it revealed that the Swaziland and USA price break was in August, 2009 while for the EU price break was in October, 2008. Price relationships were examined in one period (entire period) and two sub-periods (before structural break and after structural break). The Johansen’s cointegration test revealed long-run integration for almost all the pairs of sugar markets, except for the USA in the full sample period. The integrations between the markets shows a significant improvement after the structural break. The Vector Error Correction model (VECM) estimates showed that the Swaziland’s  export market prices adjust significantly to the short-run shocks that appeared in the South African’s and EU’s sugar market for the entire period while when the structural breaks period was allowed it adjusts significantly before the break for the South African’s market. Swaziland’s market only adjusts significantly to the EU and USA market shocks after the structural break. The overall coefficient of the adjustment parameter has been very low due to high government interventions in the sugar sector by the Swaziland trading partners which is an impediment to the efficient market functioning. It is therefore suggested that interventions of the respective governments should be reduced for efficient functioning of the markets

Keywords: sugar, trading partners, cointegration, stationarity, structural break

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