Acreage supply response of sugarcane out-growers in Tanzania: A vector error correction model (VECM) approach

Abstract

Sugarcane plays an important role in the government of Tanzania’s aim of becoming sugar-sufficient; however, sugar production remains low in the country despite numerous interventions undertaken by successive governments. The study adopted the vector error correction model (VECM) to examine the acreage supply response of sugarcane out-growers to changes in price and non-price factors using time-series data spanning 30 years. Results from the study showed that a percentage increase in the price of sugarcane leads to a 0.870% and 2.887% increase in the acreage of sugarcane in the short-run and long-run, respectively. A percentage increase in the price of rice on the other hand reduced acreage allotment by 0.383% and 1.875% in the short-run and long-run, respectively. A percentage increase in other factors such as rainfall and technological innovations leads to a 5.241% and 0.030% increase in the area under sugarcane in the long-run. The price of sugarcane is an essential determining factor of sugar production in Tanzania due to its implications for the area under sugarcane production. The study recommends the deregulation of sugarcane prices by the sugar estates to ensure that sugarcane out-growers can benefit from improved prices given that sugarcane prices significantly influenced farmers’ acreage supply response.