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ARIMA Modelling for Forecasting of Rice Production: A Case Study of Pakistan

Article · December 2015

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Lasbela, U. J.Sci. Techl., vol.IV , pp. 117-120, 2015 ISSN 2306-8256
RESEARCH ARTICLE

ARIMA Modelling for Forecasting of Rice Production: A Case

Study of Pakistan

Khalid Khan *1, Gulawar Khan 1, Sarfaraz Ahmed Shaikh2, Abdul Salam Lodhi 3
and Ghulam Jilani4
1
Faculty of SSM&IT, LUAWMS, Uthal, Balochistan
2
School of Economics, Huazhong University of Science and Technology (HUST), Wuhan, China
3
Faculty of Management Sciences, BUITEMS, Quetta
4
Faculty of Agriculture, LUAWMS, Uthal, Balochistan

Abstract:- This paper is based on empirical research which forecasts the rice production in Pakistan
wherein we have applied the Box Jenkins ARIMA methodology for forecasting. For this study, we used time
series data from 1993 to 2015. The diagnostic tests showed that ARIMA set (2, 1, 1) is more suitable
combination for forecasting. This study clearly indicates that forecasting is very useful for policy makers to
anticipate future needs of grain and export. Moreover, this would also prove helpful in shaping the national
policy of economic growth and self-sufficiency in food grain.

Key words: Rice Production; Autoregressive Integrated Moving Average (ARIMA), Forecasting

INTRODUCTION Rice is the second biggest staple grain

Pakistan is an agricultural
country. Agriculture is the backbone of
Pakistan’s economy. For instance, in
2014-15 it (agriculture) accounts 20.9%
of the Gross Domestic Product (GDP)
and 43.5% of the rural households are
directly and indirectly engaged with
agriculture sector.1
Varieties of cash crops are grown in
Pakistan in its versatile weather
throughout the year. Though, rice is one
of the important cash crops of Pakistan
and its contribution to agricultures’ GDP
in the form of value added is 3.2%. It
contributes 0.7% to overall GDP.2
_________________________________
Corresponding author: khalidk82@yahoo.com
1
Economic Survey of Pakistan (ESP), Government of
Pakistan, (GoP) 2014-15
2 3
ESP, Government of Pakistan, 2014-1
crops produced around Pakistan. It is
therefore, Pakistan is one of the biggest
exporters of rice. In the last fiscal year
(from July 2014 to March 2015) the rice
export produced US$ 1.53 billion of
foreign exchange.3 It shows that rice
earned precious foreign exchange for
Pakistan each year.
In 2014-2015 rice was cultivated
on 2891 thousands hectares of land,
which shows the increase of 3.6% in
cultivable land under the rice crop,
consequently this year (2014-2015)
Pakistan produce 7005 thousand tons of
rice, the highest ever production of
Pakistan with 3% of growth (ESP 2014-
15). This vast increase in the rice
production is due to various factors such
as the availability of water and its timely
use. The availability of water also
ESP, Government of Pakistan, 2014-15

117
brought new land under cultivation
including the use of hybrid rice varieties
and optimal use of scares resources.
Rice is one of the main staple
foods of the large portion of the world’s
population. It (rice) plays an important
role to meet the desperate needs of food
demand both in urban and rural areas. A
lot of efforts have been made by the
government of Pakistan to increase the
productivity of rice to meet food demand
and boost export.
Traditionally, forecasting has been
remained the most important part of
structural econometric modeling because
generally it focus on the one-dimensional
time series model known as
Autoregressive Integrated Moving
Average (ARIMA) models (see Box and
Jenkins 1970). This model is widely
applicable for time series forecasting,
simulation and distributions (See Brown,
1959; Holt et al, 1960; and Saeed et al,
2000). Furthermore, it is a generalize
form of values weighted moving average
exponentially.
There are several approaches for
specific cases of ARIMA models
identified by Box Jenkins (1970) and
others. Mees and Geweke (1982) discuss
the methods for univariate models while
others like Jenkins and Watts (1968),
Yule (1926), Quenouille (1949), and
Bartlett (1964) emphasize the application
of ARIMA models.
In this paper we applied the
ARIMA model for the forecasting of rice
production in Pakistan.4 It is a systematic
model and will allow us to predict the rice
production for current year and onward to
4
ARIMA model is one of the common techniques
which make possible forecasting without the help
of independent variables. ARIMA technique
combines the two specifications into one equation
i.e. Autoregressive Process (AR) and Moving
Average Process (MA).
118
2030. As a result, this exercise will allow
the policy makers to predict the future
shortage of food grain in the country and
could take necessary measures in future
to avoid food shortage. Furthermore, the
forecasts of rice production will also
support to save the scares and precious
resources of the country.
MATERIALS AND METHODS
The aim of this study is to project
the future expected values of rice
production by applying ARIMA model.
This study used the annual data of rice
production from 1993 to 2015. There are
a lot of econometrics techniques available
for forecasting like Shryock et al (1973),
Agrawal (2000) and Jan et al (2007).
They used different nonlinear, linear, first
and high degree regression and
exponential logistic regression for the
purpose of forecasting but among them
ARIMA model are widely used and
acceptable.
Therefore, we preferred to use
ARIMA model for forecasting of rice
production. It is because ARIMA model
is one of the common techniques which
make possible forecasting without the
help of independent variables. ARIMA
technique combines the two
specifications into one equation i.e.
Autoregressive Process (AR) and Moving
Average Process (MA).The ARIMA
model based on linear equation
introduced by Box and Jenkins (1970).
The general structure of ARIMA
model is; ARIMA (p, d, q), where ‘p’ and
‘q’ are the order of the autoregressive and
moving average process respectively
while ‘d’ is the order of the stationarity.
Hence, then the mathematical for the
ARIMA (p, d, q) model is:
Zt  C  (F1Zt 1  .....  Fp Zt  p )  (1at 1  .....  qat q )  at different stochastic series are fitted on the
2nd order.
Z t 1.....Z t  p
Where: ‘C’ is the constant,

are lags and ‘

 i ’ are the parameters of the

equation t a
is the random error.
However, the AR model of order P is:

Z t  C  F1 Z t 1  F2 Z t 2   p at  p  at Table: I. Results of stationarity based

on ADF test
Similarly the MA structure of order q is: AV WT (-1)
TS 3.26 0.66 -3.28*
Zt  at  1at 1  2at  2 .....   p at  p P-Values -0.41 -0.80 -3.6**
Conclusion NST NST ST
RESULTS AND DISCUSSION Note: **p<0.05, * p<0.10, Actual variable (AV), With
Trend (WT), 1st difference (-1), Not stationary (NST),
Stationary (ST), Test Statistics (TS)
We used the annual time series
data of rice production from 1993 to 2015 In addition, we also applied
for forecasting purpose. All the data is different graphical validation techniques
extracted from Agriculture Statistics of i.e. histogram, normal probability plot
Pakistan (2014-15), Government of and residual plots. The ACF indicates the
Pakistan, Statistical Division, Pakistan values of q=1 because the correllogram of
Bureau of Statistics, Islamabad. ACF after lag one drops rapidly,
The forecasting of ARIMA model however, the correllogram of PACF drops
involved different steps such as promptly after lag two, hence the value of
identification of the model or p=2. Thus, the recommended
specification of the model. Firstly, we parsimonious ARIMA model for the rice
checked the date for stationary and data is ARIMA (2,1,1) whereas: p=1, d=1
examine the Autocorrelation Function and q=1.
(ACF) and Partial Autocorrelation Table II contains the estimated
Function (PACF) of the model. Secondly, parameters of ARIMA model (2,1,1) and
we used the estimation process of the its goodness of fit tests. The brief results
model. Thirdly, we checked the data are as under
diagnostically and come up with
forecasting. The Augmented Dickey Table:II. Estimated results of ARIMA
Fuller (ADF) test was applied to test the Model
data for stationarity. The table I offer the Type Parameters S.D TV
results of the ADF test, which indicates AR(1) -0.0513 0.1623 -0.3160
that the rice productivity is stationary at AR(2) -0.5408 0.1321 4.0936
fist difference i.e. I (1), therefore, for MA(1) 0.6100 0.1803 3.3830
ARIMA model, d=1’. N 27
Adjusted Box and Pierce  statistics
After the stationarity analysis, for 2
the identification of the model; we also
construct different plots of ACF and Lag 12 24 36
PACF.Hence, after the model 2 17.12(6) 29.21(17) 37.2(32)
identification the ARIMA model of
119
 Note: S.D standard deviation, T-value (TV), Number of ARIMA (2, 1, 1). Hence, we did
observation (N)
forecasting for next 15 years on the basis
In table II row number seven reported the of this model. The forecasted values of
test statistics of adjusted Box and Pierce ARIMA (2, 1, 1) model shows that in
(1970) for rice production. The value of future the rice productivity will lead to
the test statistics is 17.8 for lag 12 while increase 40% till 2030 as compare to
the corresponding p-value is 0.7197 2015. Thus, the results of the study help
which indicates that it is insignificant at 5 the policy makers, ministry of agriculture
% level of significance. as well as chamber of commerce for
By means of ARIMA (2,1,1) the future planning and optimal use of scare
forecasted values of 15 years for rice resources.
production, with 95% of confidence
interval are reported in table II. REFERENCES
Bartlett, M.S., 1964. “On The Theoretical Specification
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CONCLUSION
Yule, G.U., 1926. “Why Do We Sometimes Get
Nonsence-corrleations Between Times Series.
The study recommended that the A study in Sampling and the Nature of
most suitable and parsimonious model for Series”. J. Roy. Stat. Soc., 89: 1–69.
rice forecasting in case of Pakistan is
Received on 3rd March 2015, Accepted 25th Jun 2015
Manuscript can be viewed online on www.luawms.edu.pk

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