Analysis of Consumer Demand for Sugar in Kenya (1981 - 2010)

Abstract

This research estimated sugar demand for Kenyan households by using time series data of 1981 – 2010 which is taken from the Kenya sugar board. In this paper, the independent and dependent variables of households’ sugar demand model are chosen based on the literature review and the theory of demand. Utility maximization and expenditure functions have also been used to show that demand for sugar is indeed a function of income and its own price. Sugar demand is then estimated by OLS technique and linear regression. The results of this study are consistent with theory and show that sugar demand in Kenya is associated with the household expenditure, real price of sugar and policy interventions in the sector. With an income elasticity of 0.7 and price elasticity of - 0.07 sugar can therefore be considered as an essential good for Kenyan households and is inelastic to price. However, as indicated by the value of the R – squared, there are other factors apart from the ones considered in this study that also have an effect on the demand for sugar. Such factors might consist of: taste of the consumer, price of an alternative commodity, Political interference in the sector, international treaties, smuggling and hoarding of the commodity. The paper finally recommended that policy makers should formulate policies that would regulate the sub sector so that the amount of sugar demanded by consumers is predictable for planning purposes. To design such policies, it is necessary to take into account the position of the commodity in the basket of households and be familiar with households’ sugar demand or consumption behaviour.