Price of Sugars in Malaysia

Introductions 

The sugar industry in Malaysia is classified by the rapid increase in the domestic demand of sugar due to the equally enormous enlargement of food processing industry, and the small production base that is not easy to expand on the supply side. In order to meet the demand, demands for imported sugars have increased in the recent years. The productions of sugars are mostly concentrated in the Northwest hemisphere of Peninsular Malaysia in the states of Perlis and Kedah (FAO, 1997).

http://thestar.com.my/news/story.asp?file=/2012/9/29/budget/12101183&sec=budget

Summary:

Subsidy is a benefit implemented by the government to their citizens usually in the form of cash or reduction of tax. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public. There are several forms of subsidies given out by the government, including welfare payments, housing loans, student loans, farm subsidies and liquor & cigar subsidies (Investopedia, n.d). From the articles above, it is telling us that the Malaysian Government has proposed a reduction of sugar subsidies by 0.20 sen per kilogram. This is because it has been forecasted that by 2020, the demand for sugar is said to increase by 36%, which is a high percentage and this will cause an increase in obesity rates in Malaysia due to unhealthy eating habits by Malaysians (Jin Hun, 2011). In order for Malaysia Citizens to practice a healthy habit, the Government implemented an increase in the price of sugar by reducing the subsidies given.

Opinions:

           

            Malaysia is now crowned as the “fattest” country in South-East Asia with the increasing rate of obesity happening. This title is nothing for us as a Malaysian to be proud of because if our country’s obesity rate is high, this proves that Malaysians are not living in a healthy lifestyle. The obesity rate in Malaysia is very high that over 2.6 million of adults were obese which over 477,000 children in the age of below 18 were facing an overweight situation. One of the reasons that cause the obesity rates to increase in Malaysia is the consumption of sugars by Malaysian Citizens. In order to reduce the obesity rate or prevent it from increasing, the government has to control the consumption of sugars by the citizens. Therefore, a reduction of subsidies had taken place in order for the price of the sugar to increase and citizen will tend to reduce on their consumptions of sugars.

            In my opinion, the article above approved to the concept of Law of Demand. The law of demand states that when the price of goods increases, the quantity demanded decreases. The reasons why this occurs as some people are poorer; they will not be able to afford so much of the good as they are having financial problems. In other words, this situation is called the income effect where the purchasing power of their income has weakened. Besides that, as the price of the goods are increasing, people tend to switch to other alternative or substitute goods and this is called the substitution effect (Sloman, Wride, and Garatt, 2012). Another concept that the article approved is the Law of Supply. The law of supply states that when the price of a good increases, the quantity of the goods offered by the supplier will tend to increase provided all other factors are being equal (Investopedia, n.d).

There are several factors that affect the changes in demand for sugar. One of the factors is that when consumers expected that the future price of the sugar would increase, consumers will tend to buy more of the sugars before the day of the rise of the price of the sugars in order to protect their own benefit. Therefore, the demand for the goods will increase before the rise of the price of the goods. While the demand for the good increases, supplier tends to reduce the production of sugars and this causes a change in the demand and supply. In other words, the demand and supply curve will either shift to the right or left influence by the factor. For example, when the price of the sugar is said to be increased, suppliers will reduce their supplies of sugar and therefore, their supply curve will shift leftwards while the demand curve will shift rightwards as consumers are demanding for more sugars before the rise of the price of the sugar. The demand and supply curve is shown below:

      

  

Another factor is that when the price of the sugar is increasing, the demands for the sugar will eventually decreases provided all other factors remained unchanged. As the price of the sugar increases, the willingness for people to purchase the goods has decreased and therefore it causes the demand to decrease. It is an elastic relationship between the price and quantity demanded for sugars. Based on the graph below, consumers are not willing to buy more sugars when the price is increased. In other words, the quantity demanded for sugars has decreased. Besides that, due to the decrease of demand of sugars, suppliers are more willing to increase their outputs of sugars when the price is higher because suppliers can increase their profit earned from it. Unfortunately, when the supply of sugar is higher than the demand, the supplier at some point of the supply and demand curve will show a surplus. When surplus exists, this tells us that, the buyers will have an oversupply of sugar and therefore they would have to pay lesser for the sugars. On the other hand, the sellers would have to compete with other suppliers for the customers and this will cause their prices to fall in order to achieve their sales target. The supply and demand curve is shown below:

The third factor of sugar price that will affect the demand and supply of sugar is the price elasticity of demand for sugar. Price elasticity of demand measures the responsiveness of quantity demanded to a change in the good’s price. There are three types of elastic demands, which are perfectly inelastic demand, unit elastic demand and inelastic demand (Graham, n.d). Sugar is an inelastic demand. There are several reasons why sugar is inelastic. Firstly, the complementary goods for sugar. For example, when the price of the sugar increases, the demand for its complementary goods such as coffee will tend to decrease. It is a negative relationship between price of the sugar and the demand of the coffee as coffee is a complementary goods for sugar and they need each other at the same time. Besides that, the closeness of substitute for sugar is one of the reasons why it is an inelastic demand for sugar. Sugar is a necessity goods for everyone and it has a weak substitutes therefore it is an inelastic demand. Lastly, the time elapsed since price change is on of the reason why the price of sugar is an inelastic demand. Sugar is inelastic and therefore, its elasticity of demand is higher. For example, consumers will find a substitute for sugar, as they currently have no choice on the prices that have been set.

 

            In conclusion, the government uses the price floor concept to control the sugar price in the market. Obesity rate in Malaysia is increasing day by day and this is caused by the intakes of sugar, so the government wanted to control the consumptions of sugar by the people in Malaysia. When the government sets a price floor for sugar, sellers will not be able to sell it in a lower price than the price floor set, because it is illegal to do so. In other words, the price of sugar will be pull up by the government and therefore, the quantity demanded will decrease. There might be some people who cannot afford to buy as much as they do previously, so it causes the quantity demanded for sugar falls.