The Rise of Sugar Price

The article, “Malaysia’s sugar demand to increase 36% by 2020” written by Chong Jin Hun in The Edge Financial Daily, May 20 2011, stated that the demand for sugar in Malaysia is expected to increase from 1.4 million tonnes to 1.9 million tonnes in year 2020 due to the increasing population and economy growth.

After reading the article, I agreed to what Chong said regarding the sugar demand and its price. The author has listed the main factors that caused the sugar demand to increase was the increasing population and the economy growth. The increasing population will cause the demand of sugar to increase because when there are more people in the country, the food consumption of the country will increase. The rapid growth in sugar consumption comes with the equally fast growing food processing industry. For example, foods and beverage such as soft drink, ice-cream, and chocolates contains high sugar level. In the economics term, these goods are complementary goods. The more foods you produce, the more sugar you need; therefore, the sugar consumption in the country will increase. This caused the demand curve to shift right (from D to D1), as illustrated in Diagram 1.

Another factor that stated by the author was the positive economy growth. When the economy is doing well, the income of people will naturally increase as well. When the income increases while other things remain, people will have more purchasing power. Here, we must consider what type of goods we are referring to. In this case, we are referring to necessity goods which are goods that people consume in daily life no matter what the price is. When people have more purchasing power, they will buy more sugar or any foods that contain sugar than they previously brought. This will cause the sugar consumption to increase and so does the sugar demand.

Other than population and economy growth, I believe that consumer preference is also affecting the sugar demand.  The daily food consumption pattern of Malaysian adults which aged 18 to 59 years old consist of local kuih, sweetened condensed milk, chocolate-based drinks and cordial syrup. All these foods and beverages are relatively high sugar. In fact, 40% of the ingredients in sweetened condensed milk are sugar. Besides, 43% of Malaysian men and 28% of Malaysian women consumed condensed milk daily. This figures shows that, Malaysian people prefer to consume sugar based products which will eventually lead to increment of sugar demand.

The author stressed that the price of sugar will increase as the demand increase. This is because the price of raw commodity on the world market increase. When the global sugar demand increase, the suppliers are not willing to supply the amount of sugar demanded by consumer if the price remain constant. This can be explained using the market equilibrium. When the sugar demand increase (demand curve shift right, D to D₁) but suppliers are unwilling to produce, this will cause shortage in the sugar market (between Q₁ and Q₃). In order to curd this shortage, buyers must be willing and able to pay suppliers a higher price so that the suppliers can produce more (from P₁ to P₂). However, when the price increased, the sugar demand will decrease slightly because people will buy less. Thus, form a new equilibrium price where both buyers and suppliers are willing and able to buy and produce, which is the point (Q_2, P₂), as illustrated in Diagram 2.  

I think that the increment of sugar price can affect consumer positively and negatively. It is positive effect because as the price increase, the demand decrease and so do the sugar consumption. Consuming too much sugar is bad for health. The prevalence of overweight and obesity in Malaysia has been upward trend, even children have been reported to be obese for the past few years. For example, US government imposed restriction on sugar price to US consumer. This allows US people to buy sugar at a cheaper price and caused them to consume large amount of sugar per year which total up to 150 pound in average. They not only have to suffer from health burden but also the financial burden that used for medical treatment. In contrast, the negative effect of sugar increment is that consumer expenditure will increase. This is because consumer will has to spend more money in buying sugar as well as its complementary goods such as sweetened condensed milk and soft drinks.

            In conclusion, the increment of sugar demand can be caused by population, income and consumer preference on food consumption. The change in sugar price is due to the market force that pushes the price higher to meet the equilibrium price and equilibrium quantity that can satisfy both buyers and sellers. In addition, the increment of sugar price assists people in controlling their sugar consumption by lowering their sugar intake. However, high sugar price gives consumer burdens by increasing their expenditure in term of food expenditure.

Source from :  http://www.theedgemalaysia.com/in-the-financial-daily/186872-malaysias-sugar-demand-to-increase-36-by-2020.html
Written by: Chong Li Min