Effect of increase in price of sugar on producer and consumers

Categories: Demand Economics Money Price

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`` What is the economic consequence of addition in monetary value of sugar on manufacturer and consumers in Shah Alam? ''

Abstraction

Sugar is necessity in life and hence sugar industry is of import. In add-on, the evolved nutrient processing industry causes sugar industry to spread out. Recently the Malayan Government decided to take or to diminish the sugar subsidy. In the gap of 2010, the authorities started to diminish the sugar subsidy and this causes the monetary value of sugar to increase.

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There is two party who suffers ; the consumers and the nutrient Sellerss.

The research inquiry is `` How did What is the economic consequence of addition in monetary value of sugar affect the nutrient Sellerss in Shah Alam? '' In finishing this research, interviews and studies had been conducted to look into the sentiment of the nutrient Sellerss and the abode which is the consumers in Shah Alam. Besides that, research through cyberspaces and library had besides been carried on to research more about the affair.

When the research had completed, the consequences show that the nutrient Sellerss had to increase the monetary value of their merchandise but non straight because of the monetary value of sugar. The increase of the monetary value is because the monetary value of other merchandises has increased. The remotion of subsidy to the sugar industry by authorities causes the monetary value of the merchandises to increase every bit good as the sugar. The income of nutrient Sellerss had decreased. Shortages happen as industry that uses sugar tend to purchase sugar from the jobbers as the monetary value of sugar is cheaper than purchasing from the sugar industry itself.

Consumers and the nutrient Sellerss are affected from the deficits.

( 245 words )

The Introduction

The consumers in Malaysia have assortment of bill of fares for their day-to-day diet, and sugar is one of the most of import assets to it. Thus the market of sugar is an of import factor to Malaysia 's economic system.

Recently the monetary value of sugar has increased due to the authorities intercession. Government intended to diminish the subsidy. Early 2010, the authorities started to diminish the subsidy by RM0.20. Then late, the authorities take the subsidy to the big industry that uses sugar to fabricate their merchandise. The sugar market in the part was severely affected, and the party that have lost the most due to the authorities surprising action are the nutrient Sellerss and the consumers.

This research was done to look into the burdened caused by the addition in monetary value of sugar to the nutrient Sellerss. I chose to make this research in Shah Alam chiefly because I want to analyze on how the addition in monetary value of sugar affects an industrial country. In Malaysia, there is merely four chief sugar mill ; one of them is in Shah Alam which is Central Sugar Refinery ( CSR ) . The research would be interesting to carry on, since the supply can easy administer to the consumers. This factor, in theory, should hold created a more efficient market for the nutrient industries.

Besides that, increase in monetary value of sugar likely to be happen once more in the future clip as the authorities wants to diminish the sugar subsidy bit by bit. So, by making this research, I can educate the society to fix themselves on the effects that they might confront in the hereafter.

In the beginning of the research, I am anticipating the nutrient Sellerss in Shah Alam to be somewhat affected by the addition in monetary value of sugar. The nutrient Sellerss will increase the monetary value of their merchandise and the demand of their merchandise will diminish.

2.0 The Research

This subdivision of the undertaking paper will explicate further on the inside informations of the research and how it was conducted.

2.1 Aims

This research chief purpose is to analyze the effects of addition in monetary value of sugar to the nutrient retail merchants Shah Alam. Yet, in finishing the probe, this research has a few aims that need to obtain in order to reply the research inquiry.

To happen the alterations in income and gross revenues of the nutrient Sellerss in Shah Alam after the monetary value of sugar has increased in 2010.

To happen out the consumers behavior on the demand of the sugar after the monetary value of sugar has increased.

To happen the status and operation of the market of sugar after 4 months of monetary value of sugar has increased.

To look into the causes of sugar deficits in Shah Alam.

2.2 Hypothesis

A hypothesis had been made as an early illation about the consequence of the research. The hypothesis is:

In the short tally the nutrient Sellerss in Shah Alam were merely somewhat affected by the addition in monetary value of sugar. The nutrient Sellerss will increase the monetary value of their merchandise and the demand of their merchandise will diminish.

2.3 Methods

Three methods had been chosen to be used in this research. Each method was done specifically to obtain the aims that had been set before.

Interview

The first method chosen is through interview. The interview was done to look into the supply-side of the narrative after the monetary value of sugar has increased. It was done for a few times and involved a few nutrient Sellerss and food market retail merchants in Shah Alam. As the sample consequence, 10 nutrient Sellerss, 2 food market retail merchants and 6 bakeshops had been chosen for the interview. The consequence is assumed to stand for the whole country of Shah Alam. The purpose of the interviews is to accomplish the first, 2nd, 3rd and 4th aim ( 2.1.1, 2.1.2, 2.1.3 and 2.1.4 ) . the inquiries asked during the interviews can be referred to in appendix.

Surveies

Aside than the interview, a study was done besides to accomplish the 2nd aim ( 2.1.2 ) . The study was in the signifier of questionnaires and involved occupants around Shah Alam which were chosen indiscriminately. 50 sets of the questionnaires were distributed and the consequences represent the whole community of the Shah Alam territory.

Secondary research

The last method chosen through the secondary research ; which were through cyberspace and library research. This method was conducted to accomplish the 4th aim ( 2.1.4 ) .

3.0 Data Collection and Processing

The undermentioned consequences obtained from the research done. The consequences are based on the studies and interviews that represent the whole community of nutrient Sellerss and bakers in Shah Alam.

3.1 The supply side of the nutrient market sold by the nutrient Sellerss

The supply curve for the nutrient

Supply is the willingness and ability of manufacturers to bring forth a measure of a good or service at a given monetary value in a given clip period[ 1 ]. Supply refers to the sum of nutrient that the nutrient Sellerss had sold after the monetary value of sugar addition. In 2010, there are two times when the monetary value of sugar had increased. The first clip was on 1st January and the 2nd clip was on 16th July. The consequences show that the supply of nutrient or the sum of gross revenues lessenings after the monetary value of sugar had increased on 1st January, but had increased after 4 months. Then when the monetary value of sugar additions by RM0.25 on 16th July, the supply decreases once more but had increased after 1 month.

Effect increase of monetary value of sugar on 1st January to the supply of nutrient:

Average monetary value of nutrient ( RM )

Phosphorus

0 Q2 10 % Q1 Average measure of nutrient

Graph 1

Average monetary value of nutrient ( RM )

Phosphorus

Q2 10 % Q3 Average measure of nutrient

Graph 2

Graph 1 shows the supply curve of nutrient in Shah Alam after the monetary value of sugar had increased on 1st January. The supply curve had shifted to left, which was caused the take downing supply of nutrient by the nutrient Sellerss in Shah Alam. The decrease was approximated to be 10 % . However, there are 10 % increases in the supply of nutrient after 4 months shown by Graph 2.

Average monetary value of nutrient, RMEffect increase of monetary value of sugar on 16th July to the supply of nutrient:

Phosphorus

Q4 25 % Q5 Average measure of nutrient

Graph 3

Graph 3 shows the supply curve of nutrient in Shah Alam after the monetary value of sugar had increased on 16th July. The supply curve had shifted to compensate, which was caused the increment supply of nutrient by the nutrient Sellerss in Shah Alam. The increase was approximated to be 25 % .

The monetary value of nutrient.

To take the monetary value of nutrient as illustration could be hard because no specific nutrient is stated here. Hence I will 'teh tarik ' as illustration. 'Teh tarik ' is a type of drink that is popular in Malaysia. It is really a type of tea that is made by particular technique by Malayan and being drink by all races in Malaysia.

Time period of clip

Before the monetary value of sugar was non increase

After the monetary value of sugar had increased on 1st January

After the monetary value of sugar had increased on 16th July

Monetary value of 'teh tarik ' , RM per glass

1.20

1.50

Table 1: The addition in monetary value of nutrient

Harmonizing to the Law of Supply, as the monetary value of a merchandise rises, the measure supplied of the merchandise will normally increase, ceteris paribus[ 2 ]. However, due to the addition in the cost of production per unit good, the supply of the merchandise has decreased. Another ground for this scenario will be evaluated in the following portion of the research.

Income of the nutrient Sellerss

Due to the badness of the state of affairs in the market during the addition in monetary value of sugar, all the income of the nutrient Sellerss has decreased. The mean decrease in income faced by the them was 20 % after the monetary value of sugar had increased on 1st January. After 4 months, the mean increase in income is 20 % back to the equilibrium. Then when the monetary value of sugar increased once more on 16th July, the mean decrease in income was 30 % . After 1 month, the mean increase in income is 20 % . The mean increase and decrease in income after the monetary value of sugar had increased is shown by Graph 4.

The costs of production.

From the interview, all samples reported an increase in the costs of production. The costs had increased for 13.8 % after the monetary value of sugar had increased on 1st January and the increment shown by Graph 5. When the monetary value of sugar increased in 16th July, the cost increased to 10.1 % from the old cost. This cost is variable cost. Variable cost is entire costs that do vary with the sum of end product produced. The market is considered as a short tally as the consequence if we could see affects merely in short tally. Graph 5 shows the mean variable cost of the production when the monetary value of sugar had increased.

Cost, RM

10.1 % AVC3

13.8 % AVC2

AVC1

Graph 5 Average measure of nutrient

The item on the cost is shown in Appendix

3.1.5 Measures taken by nutrient Sellerss to get the better of the job.

The steps taken by the nutrient Sellerss to get the better of the cost experienced are: -

Increase the monetary value of the merchandise

Decrease the measure of merchandise being sold

Decrease the sum of sugar in the merchandise

Extent the gross revenues clip

3.2 The demand side of the nutrient market

The demand shows the significance consequence of addition in monetary value of sugar to the nutrient market and the sugar market itself.

3.2.1 The demand for sugar when the monetary value of sugar increased.

The demand for sugar had increased when the monetary value of sugar increased on 1st January. Even though, the monetary value of sugar addition once more in 16th January, the demand for sugar continue to increased. Hence the demand curve shifted to the right for both state of affairss.

Monetary value of sugar, RM/kg

Phosphorus

D1 D2

0 Q1 30 % Q2 Quantity of sugar, kilogram

Graph 7: The demand for sugar when the monetary value of sugar increased from RM1.45 to RM1.65 on 1st January.

Monetary value of sugar, RM/kg

D2 D3

0 Q2 10 % Q3 Quantity of sugar, kilogram

Graph 8: The demand for sugar when the monetary value of sugar increased from RM1.65 to RM1.90 on 16th July.

3.2.2 The demand of nutrient after the sugar monetary value had addition

Average monetary value of nutrient Average monetary value of nutrient

P P

D2 D1 D2 D3

0 Q2 10 % Q1 0 Q2 10 % Q3

Average measure of nutrient Average measure of nutrient

Graph 9 and 10: The demand of nutrient after the monetary value of sugar had increased on 1st January and the demand after 4 months.

When the monetary value of sugar increased on 16th July, the demand of nutrient increased by 15 % .

4.0 Evaluation

In this subdivision, we will look into the behavior of the demand and supply and how precisely it had affected the nutrient retail merchants and bakers in Shah Alam when the monetary value of sugar increased.

4.1 The market mechanism of sugar when the monetary value of sugar had increased

From the jurisprudence of demand, it states that the higher the monetary value of the goods, the lower the demand for it, ceteris paribus and frailty versa. However, when the monetary value of sugar had increased on 1st January and 16th July, the demand of sugar continues to increase. Hence the jurisprudence of demand can non be used.

To analyze the demand of sugar, we need to happen the snap of demand of sugar. Elasticity is a step of reactivity. Elasticity of demand is a step of how much the demand for a merchandise alterations when there is a alteration in one of the factors that determine demand. In this state of affairs we will see the monetary value snap of demand ( PED ) . PED is a step of how much the measure demanded of a merchandise alterations when there is a alteration in the monetary value of the merchandise. To cipher PED, we need to utilize the undermentioned expression:

In this, state of affairs there are two computations because there are two alterations in the monetary value of sugar. The first state of affairs the monetary value of 1 kilogram of sugar increased from RM1.45 to RM1.65. From the information processing, we take 30 % as the per centum increased in measure demanded of the merchandise. This per centum is gained from the norm of addition in demand of sugar in food markets store around Shah Alam. Using the information gained, we can cipher the PED.

From the computation above, we could see that the value of PED is bigger than one and does non make eternity, hence we can reason that in this state of affairs, sugar has elastic demand which when there is a alteration in the monetary value of sugar leads to greater than proportionate alteration in the measure demanded of sugar.

How approximately in the 2nd state of affairs? Is the demand of sugar still elastic? To look into this, we need to cipher the value of PED in the 2nd addition of sugar monetary value from the last monetary value. In the 2nd increase, the sugar monetary value increased from RM1.65 to RM1.90. The per centum increased in measure demanded is 10 % .

From the 2nd increase, we could see that the value of PED is between nothing and one, therefore we could state that sugar has inelastic demand. Then a alteration in the monetary value of sugar leads to proportionately smaller alteration in the measure demanded of sugar. Hence we can do a decision that, even when the monetary value of sugar is raised, the measure demanded will non fall excessively much or it may even increased but still non excessively much by comparing. The entire gross gained besides will increase if the monetary value of sugar increased.

Sugar is a necessity merchandise and there is no replacement for sugar, therefore the demand for it elastic. However, the market of sugar does non follow the jurisprudence of demand. To explicate the ground of the increase of demand of sugar even the monetary value is raised is because the state of affairs in Shah Alam even around Malaysia. The consumers are afraid that authorities will raised the monetary value of sugar once more. Therefore in the first state of affairs, the demand is inelastic, nevertheless when the monetary value of sugar increased once more, the market of sugar shows it is somewhat back to normal although it is still non follow the jurisprudence of demand.

The 2nd ground is because the consumers are afraid of sugar deficits. Malaysia provides subsidies for their sugar but non state around it. Therefore smuggling of sugar occurred in Malaysia. The 3rd ground is because gay season. In the 2nd state of affairs, the consumers are acquiring ready to hold Hari Raya Aidilfitri which is one of the chief gay seasons in Malaysia celebrated by all Malayan people even though is a jubilation for Muslims. Thus a batch of sugar used for readying in this jubilation causes the demand of sugar increased although the monetary value of sugar is increased.4.2 The market mechanism of nutrient when the monetary value of sugar increased in short tally.

Average monetary value of nutrient, RM

S1 S2

Average measure of nutrient, Q

10 %

Graph 11

Graph 11 shows the mean demand and mean supply of the market of nutrient when the monetary value of sugar increased on 1st January. E1 was the equilibrium of the market of nutrient when the monetary value of sugar is non increased while E2 and E3 shows the new equilibrium when the monetary value of sugar increased.

The motion of D1 and S1 looks undistinguished ; nevertheless the decrease is large plenty to do the income of the nutrient retail merchants to diminish significantly. There was 10 % decrease for both supply and demand. This was caused by three factors which are replacements, existent income and authorities intercession ( run ) .

Average monetary value of nutrient, RM There are broad scope types of nutrients ; hence there are a batch of replacements. When the monetary value of nutrient additions, consumers tend to happen other replacements doing the demand curve to switch to the left from D1 to D2. The 2nd factor is existent income of consumers decrease. When the monetary value of sugar lessenings, many goods increase their monetary value due to production cost increased. Therefore existent income of consumer decreased and they choose to diminish the sum of ready nutrient to purchase and instead cook by themselves ( Appendix ) . The 3rd factor is authorities intercession which is the run. One of the chief aims of authorities to increase the monetary value of sugar is to make consciousness among consumer to diminish the sum of sugar consumed. This is besides the aims of 5M run which to diminish the sum of sugar and oil consumed. From this run, the consumer avoid from purchasing ready nutrient because the nutrient sold contains a batch of oil, sugar and it is non healthy.

Graph 12

Average measure of nutrient, Q

15 %

25 %

Graph 12 shows the demand and supply side of nutrient when the monetary value of sugar increased on 16th July. The graph shows that the demand and supply curve displacement to the right. The supply increased by 25 % while the demand increased by 15 % . This is due to gay season stated earlier. The consumer had to increase their demand for nutrient as it were necessity for them. Aware of this state of affairs, the nutrient retail merchants increased the nutrient supply to bring forth more income.

From the studies conducted the populace are cognizant of the increase in the monetary value of sugar and of class the monetary value of nutrient. All people being asked admit that they are cognizant of this state of affairs. Most of them decreased ready nutrient because there are a batch of picks in Shah Alam. There are many wet markets, supermarkets and hyper markets. The consumer can purchase natural stuffs and cook their nutrient themselves and salvage their money.

However, when the gay season came, there are traditions in Malaysia where there are markets that sell assortment of ready nutrients in this season. Therefore many consumers increased their ingestion of ready nutrients because of the gay season.

4.3 The loads that increased monetary value of sugar had caused to the nutrient retail merchants.

From the interviews conducted, the increased monetary value of sugar affects the income of the nutrient retail merchants and increases the cost of productions.

Graph 13 shows the income of the nutrient retail merchants. To cipher the income of a house, the expression being used is:

Average monetary value of nutrient, RM

Average measure of nutrient, Q

At the beginning, the income of the nutrient retail merchants was P1E1Q1. This was the equilibrium degree of income of the nutrient retail merchants. At this degree, the nutrient retail merchants can back up all type of costs. The nutrient retail merchants live a comfy life until their income decreased to P1E2Q2. The gray country is the loss that the retail merchants had to face which is around 20 % per centum loss from the existent income.

The loss faced caused the retail merchants a large burdened. They had to diminish their outgo because of less income. Not even the monetary value of sugar had increased but other stuffs that needed for production of nutrient besides increased. The retail merchants need to diminish their life disbursals to fall back the loss income. They besides might necessitate to utilize their nest eggs particularly the retail merchants that handle little concern. They will confront large impact as they did non derive a batch of income compared to larger concern.

The retail merchants reported that they did non hold by the determination of the authorities particularly when the monetary value of sugar increased, the demand for it increased as the consumer are afraid of deficits. This besides affects them as they can non happen the supply of sugar. For little retail merchants who used to purchase sugar at mini market had to go to happen other providers as deficits of sugar happened. Even at the hypermarket, sugar supply is limited and each people restricted to purchase merely 2kg of sugar. This has increased the cost of production and besides affects their emotion and the productiveness.

They had to take few steps to mend this state of affairs. Among the steps taken, they had to widen the gross revenues times and this really burdened them as the labour cost increased. When they follow the authorities run to diminish the sum of sugar, this alteration the gustatory sensation of the merchandise and caused the gustatory sensation of the consumer changed excessively.

Largely the steps taken do non assist them but since nutrient is a necessity and due to gay season, the demand increased. After four months, the demand increased heading towards equilibrium and so does the supply curve. The income increased as it was nil happen. Fortunately, gay season came and the demand for nutrient increased significantly. This helps the nutrient retail merchants to derive back their loss net income.

Aside from that, 50 % of the consumer did non hold that by increasing the monetary value of sugar, the citizen will diminish the ingestion of sugar while the other half agree that by increasing the monetary value of sugar, ingestion of sugar will decreased.

Not many consumers are cognizant that authorities decrease the subsidy to take the shortage faced even though this research being carried at capital metropolis of Selangor which popular with mill industry. This shows that populace is incognizant of the state 's state of affairs and hence authorities intercessions are needed to make consciousness so that the populace could assist the state to increased the GDP.

5.0 Decision

Clearly this research has answered the research inquiry. The nutrient retail merchants did see a batch of jobs when the monetary value of sugar increased.

Even though Shah Alam is the capital metropolis and there is a sugar mill, the nutrient retail merchants still faced sugar deficits. The cost of production increased the income are lowered. Their emotion are besides affected but merely in short tally. The life disbursals being reduced and their manner of life changed.

Although, there are few steps taken, it still can non mend the jobs. Fortunately, the market of nutrient had recovered by itself and fixed the jobs faced. The demand increased and the income of nutrient retail merchants increased. The loss is recovered.

Government should be cognizant of the impact that could do the nutrient retail merchants and should give consciousness to the consumer the jobs faced by the state. The consumer should understand the load faced by the nutrient retail merchants and do non fault them when the monetary value of their merchandise increased. Possibly the consumer could diminish the ingestion of import good and increase the ingestion of local good alternatively to assist the state. With this, the authorities does non necessitate to diminish the subsidy.

APPENDIX A: Interview Question

How many per centum did your gross revenues ( measure ) have decreased when the monetary value of sugar has increased?

1 JAN 2010

16 JULY 2010

Make you increase the monetary value of your merchandise after the monetary value of sugar has increased? ( YES/NO )

By how much per centums did your cost of production additions?

Why is your cost of production additions? It is merely because of sugar or ( and ) any of the grounds stated below? If there are by how much per centums for each?

Labor cost ( e.g rewards )

Kos pekerja ( cth upah atau gaji )

Deficit of providers

Kekurangan pembekal Gula

Cost of addition in the monetary value of other merchandises

Kenaikan harga bahan lain

Others

Lain-lain

Did you see any loss due to the addition in monetary value of sugar? If YES by how much per centums?

Can you acquire the supply of sugar easy merely like before the monetary value of sugar has non increase yet? If no how make you get the better of this job?

What are the steps that you take to better the gross revenues or to get the better of the addition on the cost of production? Please click any replies.

Lower the monetary value of your merchandise

Extent gross revenues clip

Decrease the measure of your merchandise being sold

Decrease the sum of sugar in your merchandise

Others ( delight province )

Make you hold that the addition in monetary value of sugar can advance healthier life style? Why do you believe that manner?

Make you cognize about state shortage? ( loss ) Do you hold that by diminishing the subsidy can repair this job? Why?

Make you hold with the remotion of the subsidy by the authorities?

What is your sentiment? Is at that place other ways to pull off the shortage ( loss ) that Malaysia faced? If at that place, can you province what are they?

APPENDIX B: SURVEYS QUESTIONS

1. How many battalion of sugar do you purchase in a month before the monetary value of sugar is non increase?

( ) 1-2

( ) 3-5

( ) more than 5

2. Make you diminish the sum of sugar ingestion when the monetary value of sugar has increase?

( ) Yes

( ) No

3. Make you cognize the effects of over ingestion of sugar to your wellness?

A A A A ( ) Yes

( ) No

( ) A A A Not certain