Demand and Supply of Sugar in Malaysia

    

    Based on the article I have read, from The Star Online written by  Mark Lawrence  'Increase In Sugar Price' on Friday January 1, 2010 , it says that there is  an increase in price of sugar of RM 0.20 cent with the new price being RM1.65 in Peninsular Malaysia and RM1.75 in Sabah and Sarawak. As the price goes up, it will effect the demand and supply. Law of demand says that the higher the price, the lower the quantity demanded and vice versa. This law holds true because as the price of a goods increases the real income with the consumer declines and in order to avoid forgoing consumption of other important goods the consumer decides to consume lesser quantity of the good.  In this case, when the price of sugar goes up relative to income, people will not afford all the things  and they will buy less than they previously bought thus the quantity demanded of sugar decreases. People will only buy a certain amount of sugar to maintain their budget. Therefore when the price of a sugar increase, there will a movement up along the demand curve.

  

      Besides that, they also have to increase the price because of health concerns. The 2006 National Health and Morbidity Survey said that over 40% adults in Malaysia are overweight. That means almost half Malaysian adults are prone to diseases like diabetes and obesity. In the article, Datuk Mohd Zain Mohd Dom said that the Government would withdraw its subsidy on white bread from today and remove it from the price control scheme. The reason for this is because, the effect of subsidy on consumers for bread is not as great as the effect of petrol. Petrol involves a lot more of economic, for example food, electricity and  obviously transportation services. Nevertheless, complement is a good that is used in conjunction with another good. In this scenario, as the price of sugar goes up the quantity demanded of  canned drinks or a cup of tea will go down. An increase in the price of a complement reduces demand. Thus the price of complements have a inverse relationship with the demand of a good.

    Moreover, the demand of sugar will be said as elastic.  There is a lot of sugar substitute out there, and natural ones are the best. If they do not want to buy sugar they can find other alternatives like, the natural ones, Stevia . Stevia is currently the best, natural, non-calorific sweetener in the world. So why not, consider using stevia today? Consumer  will go for Stevia instead of sugar. Thus,  the demand for Stevia will increase and shift to the right because the price of the substitute that is sugar rises. According to the graph below, the demand curve will shift rightwards and when the demand rises, there is a movement up along the supply curve, D1 to D2. The equilibrium will increase from E1 to E2, thus equilibrium price and quantity rises.

   Another factor which influences the elasticity of demand is the quantity of a good which is bought by the consumer of a good. A quantity which is bought regularly will have higher impact of rise in price as compared to that good which is bought in lower quantity. The consumers will still buy sugar because it is an essential needs but they will consume less. Moreover, the producers of sugars are hoarding their products to wait for the price of the sugar to increase. That is why FOMCA, President Datuk N. Marimuthu,  welcomed the increase as a way of reducing artificial shortages through hoarding, and said sugar prices had not been raised for the past 14 years despite the commodity being at a 28-year high. The government will increase the price a little bit so that the illegal suppliers sell their products instead of keeping it to wait for the price to jump higher.

    

   There a few factor that affect the supply. Firstly, as the price of inputs like raw materials increase, the supply curve will shift to the left as producers are less willing or able to sell goods at existing price. Companies like , FRASER & Neave Holdings Bhd (F&N) will reduce the supply because of rise in sugar price that has  increased costs of production. On the other hand, as the population of kids in Malaysia increase, the demand for soft drinks will also rises. Based on the graph below, the demand curve D1 will shift to the right D2 while the supply will shift to the left from S1 to S2 because of rise in price of sugar. Then, an increase in demand and a decrease in supply raises the equilibrium price from E1 to E2. Equilibrium price is when the two forces are balanced, the price will neither increase or decrease they will be stable. This type of equilibrium exists when the price is high enough that the quantity supplied equals the quantity demanded.  This combination of changes in demand and supply raised the price of the soft drink, (F&N) .

     The cost of higher sugar prices will have to be passed on to consumers as  the producers will not be able to absorb the cost impact. Markets will always adjust on their own to create an equilibrium price for goods. . Governments will only place price ceilings on goods and services essential for sustaining life, like in this case, the sugar. In the future, if the sugar price is too high for the people, governments will step in. Governments will place a price ceiling, a maximum price that can be charged for a good or service  on a good to enable all citizens a chance at affording the good. The key here is that the item is available in enough quantity to be served to most people, but is too limited in supply to avoid extreme price mark ups.

   
    In a nutshell, the price of sugar is still cheap despite 20 cent  hike from RM 1.45 per kilograme and  the consumers will not be much affected by the price increase in sugar. Companies that depend on sugar like F&N will be affected. However, not all goods would see an increase in price because not all drinks and food use sweetener. For example, there are teh tarik that use condensed milk instead of sugar. Last but not least consumers should change their eating and drinking habits by consume less sugar and consume healthier product that can replace sugar like Stevia to prevent them from getting disease.

Post by Muhamad Azzamudin