Identification of instability in natural rubber prices in Sri Lanka

Abstract

Instability of Natural Rubber (NR) prices is a key economic issue in the NR industry. A few studies have been conducted to investigate this issue especially giving more attention on the seasonal variations in NR prices. However, a little attention has been paid on studying the changes in long term trend and volatility in NR prices. Consequently, this study aims to undertake an in-depth analysis on the instability of NR prices giving more emphasis on both short run and long run price variations. During this study, we recognized that the long term price trends, succumb to frequent changes that affect long term investments and the policy setup in the NR industry. Stochastic volatility of random shocks in RSS prices was identified as a serious issue which especially affects the rubber smallholder sector. Further, it was noticed that the usual seasonal variations in NR prices are overwhelmed by the frequent changes in long term trends and random shocks of NR prices. Moreover, we identified that seasonal stochastic time series models are more efficient than the decomposition time series techniques for modeling NR prices in the presence of the above mentioned issues persistent in NR price series.