Ecoscope - Dive Deep Into the Sugar Industry

VOL. 03

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MAY 2019

Ecoscope THE SUGAR INDUSTRY REVEALED

Dive deep into the sugar industry In depth analysis into sugar production and consumption

p. 8 How recent trends and influences have impacted demand for sugar across the globe

TABLE OF CONTENTS EDITOR'S NOTE

06

DEMAND WHAT IS DEMAND?

06

FACTORS OF THE DEMAND OF SUGAR

07

SUPPLY

Image: Sweet sugar cookies.

WHAT ISÂ SUPPLY?

11

FACTORS THAT AFFECT THE SUPPLY OF SUGAR

12

Sweet Sugar Cookies. 2019. Lovethispic.com, 2019, www.lovethispic.com/image/70664/ sweet-sugarcookies. Accessed 6 May 2019.

PRICE ELASTICITY OF DEMAND WHAT IS PRICE ELASTICITY OF DEMAND?

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FACTORS OF PED

16

Image: Sugar; White, Granulated.

White Sugar in Wooden Spoon Resting on Brown Sugar. 15 Apr. 2019.

Msn.com, Microsoft, www.msn.com/en-us/health/health-news/fdas-newsugar-label-can-save-the-us-dollar31b-in-health-care-costs/arBBVXWKG. Accessed 6 May 2019.

PRICE ELASTICITY OF SUPPLY

Image: Donuts.

WHAT IS PRICE ELASTICITY OF SUPPLY?

Rose, Lily. Donuts. 3 Aug. 2017. Thedailymeal.com, Tribune Publishing, www.thedailymeal.com/eat/dunkin-donuts-droppingpart-its-name-california-location/080317. Accessed 6 May 2019.

FACTORS OF PES

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20

BIBLIOGRAPHY

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EDITOR'S NOTE

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A NOTE FROM THE EDITOR Can humans live without sugar? Is sugar essential to our lives? Today, one of the most thriving industries in the world, sugar, plays a major role in our lives. Not only for human consumption, but its effect on the economy in countries across the globe. The first sugar beet production dates back to 1870 in the United States of America, and since then, it has taken off on a flourish. In developing countries, the production of sugar contributes to many sectors such as employment, export earnings, engineering skills, and infrastructure. Its an "agro-industrial" operation that fosters and propels economies. This month's issue is centered on the factors which impact sugar's price, including the factors of supply, demand, and elasticities. As the editor of this article, my goal is for you to attain a vivid insight into the sugar industry.

Statistics on Sugar

- Sugarcane makes up 80% of the worlds total sugar production

The sugar industry, along with sweeteners, hit a market of 97$ billion in 2017. The sugar trade market is immense, and Brazil now controls almost 50% of global sugar exports, due to its booming sugarcane industry.

- Today, more than 130 countries are involved the production of either sugarcane or sugar beet - Brazil is the largest producer of sugarcane in the world, accounting for 38.99 million tonnes and India follows, with 24.79 million tonnes of sugar - The European Union is the largest producer of sugar beet, producing 15.24 million tonnes of sugar

The European Union is the largest sugar beet producer, because sugarcane production requires a more tropical climate. The EU exports approximately 8% of its annual sugar production.

DEMAND

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What is Demand?

Essentially, demand is “The quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period.” The most significant expression is “willingness and ability”. This means that the customer cannot just be willing to buy a good or service at a given price. He or she has to have the ability to purchase it. Thus, “they must have the financial means to buy the product”. This is called effective demand, which is conveyed on a demand curve. It is essential to take into consideration the Law of Demand which states that “as the price of a product falls, the quantity demanded of the product will usually increases Ceteris paribus”. Ceteris paribus is a hypothesis which reasons that when there are many different factors that determine something, only one is changing while the others stay constant. So, if the price of sugar is changing, all the other factors of demand are not changing. A shift in the price of the product causes a movement on the demand curve, as seen in Figure 2. Changes in factors other than the price of the product itself cause a shift in the demand curve, as seen in Figure 1. If the demand curve shifts to the left, it is indicating a decreasing in demand for the product, and if it shifts to the right, it inidicated an increase in the demand for the product.

(Demand and Supply 18, 19).

Figure 1: A graph conveying the possible shifts in a demand curve; shift from D to D1 indicating an increase in demand, and a shift from D to D2 indicating a decrease in demand.

Chand, Smriti. Shift in Demand Curve. 2018. Your Article Library, 2018, www.yourarticlelibrary.com/microeconomics/shift-in-demandcurve-increase-and-decrease-microeconomics/8936. Accessed 27 Mar. 2019.

Factors that affect the demand for sugar There are numerous factors that have an impact on the demand for sugar that are not related to the price of sugar itself. These factors cause a shift in the demand curve as opposed to a movement on the demand curve, because they are alterations in factors other than sugar’s price. Considering these factors, it is vital to consider the theory of Ceteris paribus while analysing these factors, which reasons that if one of the factors change, all of the other factors will remain the same. (Demand and Supply 19).

Figure 2: A graph conveying the possible movements in a demand curve, with a change in the price of the product.

Chand, Smriti. Movement along the Demand Curve. 2018. Your Article Library, 2018, www.yourarticlelibrary.com/economics/the-movement-along-thedemand-curve-change-in-quantity-demanded-economics/8926.

Accessed 27 Mar. 2019.

Image: White Sugar Mooney, Delia. White Sugar. 20 Sept. 2016. Tastingtable.com, TDT Media, www.tastingtable.com/cook/national/different-types-of-sugars-white-vs-brown.

Accessed 6 May 2019.

DEMAND

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Price of Substitutes “If products are substitutes of one another, then a change in the price of one of the products will lead to a change in the demand for the other product” (Demand and Supply 19,20).

Figure 3: A chart showing the prices of sugar from 1963 to 2019.

"Sugar Prices - 37 Year Historical Chart." Macrotrends, 25 Mar. 2019, www.macrotrends.net/2537/sugar-prices-historical-chart-data.

Accessed 27 Mar 2019.

Figure 4: A chart showing the prices of honey compared to the wages of workers in Canada.

"Retail Honey Prices." Honey, National Honey Board, 2019, www.honey.com/honey-industry/statistics/retail-honey-price. Accessed 27 Mar 2019.

Another example of a substitute for sugar is artificial sweeteners. Artificial sweeteners are often substitutes for sugar because they contain few or no calories, and are much sweeter than sugar itself (Mayo Clinic Staff).

Many people have the opinion that the are reducing their amount of calorie intake because artificial sweeteners essentially contain no calories, and use it as a common substitute for sugar. In figure 5, the graph is a historical price chart of sugar, conveying “Sweet N Low” is a brand of artificial sweetener, which many people use due to it containing zero calories. In figure 6, the chart conveys that the price of “Sweet N Low” decreased from January 2016 to July 2016 from $19 ro $13. In figure 6, the chart conveys that the price of sugar rose from January to July 2016.

There are several substitutes of sugar such as but not limited to honey, maple syrup, and nectar. Many people use these substitutes with the belief that they have fewer negative effects on the body compared to regular granulated sugar. Honey is a very common substitute for sugar, as it contains vitamins, minerals and several antioxidants. An excessive amount of antioxidants in the blood can lower the risk for disease (Healthline). If there is a rise in the price of honey in an economy, then the demand for sugar will increase and there will be a fall in the demand for honey, which is a substitute for sugar. On the other hand, if there was a fall in the price of maple syrup in an economy, then the demand for sugar would decrease and the demand for maple syrup would increase which is a substitute for sugar. This would cause a shift in the demand curve of sugar, indicating a decrease in the demand for sugar (Demand and Supply 19,20).

In figure 3, the graph conveys that there was a decrease in the price of sugar between January 2011 and August 2015, falling from $0.34 to $0.11.

In figure 4, the graph conveys a constant rise in the rice of honey from 2011 to 2015. Thus, it can be reasoned that the demand for sugar from 2011 to 2015 increased because the price of honey increased, indicating a shift to the right in the demand curve for sugar.

Due to the increase in the sugar price and the decrease in the price of the artificial sweetener, the demand for sugar decreased during this time period, indicating a shift to the left on the demand curve.

DEMAND

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Figure 5: A graph showing the price history of “Sweet N Low” artificial sweetener or sugar substitute; price in $US.

Figure 6: A graph conveying the history of prices of sugar in the United States of America; price in USD centers per pound (lb)

"Sweet N Low, Zero Calorie Sweetener Price History." Camel, Cosmic Shovel, 26 Mar. 2019, camelcamelcamel.com/Sweet-Low-Calorie-SweetenerSubstitute/product/B00KEZPHJU. Accessed 27 Mar 2019.

Trends Demand increases and decreases on trends in several cases. Trends are behaviors that evolve in cultures and groups, or a direction in which something is changing or developing. If there is a new trend for a product, then demand for that product increases, as more people are influenced to purchase it (Economist).

In today’s world, an increasing number of people are getting influenced by others for taking on sugar free diets, of “healthy living”. More and more wealthier people are starting to get involved in consuming healthier foods, and eating less sugar. According to IRI International statistics, 70% of people in Europe (two thirds) are purchasing healthy food with a less amount of sugar, salt, fat and calories. This conveys an increase of 41% of healthy food consumption in the population of Europe in three years (Martucci). Social media influencers have played a major role in the development of the healthy food industry, as they market recipes and healthy lifestyles all over social media.

Sugar Historical Price Chart. 2017. Focus Economics, www.focuseconomics.com/commodities/agricultural/sugar. Accessed 27 Mar 2019.

Thus, we can conclude that the demand for sugar decreased due to the preference of healthier options of organic foods, thus the demand curve of sugar will shift to the left, indicating a decrease in the demand for sugar.

Figure 7: graph conveying the total sugar consumption in the United States of America.

Guyenet, Stephan, and Jeremy Landen. "US Sugar Consumption, 1822-2005." Online Stat Book, 2005, onlinestatbook.com/2/case_studies/sugar.html. Accessed 27 Mar 2019.

In figure 7, the graph conveys that the sugar consumption had a period of decrease in the early 21st century in the United States of America. During the same time period, figure 8 conveys that organic food consumption was increasing in the United States of America, from 2006 onwards. Figure 8: A graph conveying the total organic food consumption in the world, in billion US Dollars.

Osborne, Jesse. Worldwide Sales of Organic Food from 1999 to 2014. 2016. Manufacturing.net, www.manufacturing.net/data-focus/2016/03/closer-look-organic-food-sales-growth. Accessed 6 May 2019.

DEMAND

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Size of Population “If the population begins to grow, then is it logical to assume that the demand for most products will increase and that their demand curves will start to shift to the right�. This statement assumes that if the total population in an economy increases, then the demand for sugar will increase as well. Thus, the demand curve for sugar will shift to the right. (Demand and Supply 22). In Figure 9, the graph conveys the growth of the world population from 1950 to a projected population in 2050. In Figure 10, the chart shows that the total sugar consumption in the world has been on a constant rise. These two graphs convey that as the global population increases, the consumption for sugar increases, indicating an increase in the demand curve for sugar.

Figure 9: The graph conveying the total world population growth from 1950 to a projected population in 2050.

Mayo, Doug. "World Population: 1950-2050." University of Florida, Word Press, 4 Mar. 2016, nwdistrict.ifas.ufl.edu/phag/2016/03/04/population-growing-butus-farm-acreage-declining/. Accessed 27 Mar 2019.

Image: Sugarcane plantation.

Figure 10: Graph conveying the sugar consumption in the world

Sugarcane Avenue. 23 May 2016. BBC.com, 23 May 2016, www.bbc.co.uk/programmes/p03vqq5d/p03vqhjp. Accessed 6 May.

"Global Sugar Consumption." Vox, Vox Media, 24 Nov. 2014, www.vox.com/2014/11/24/7274725/sugar-consumption-obesity. Accessed 27 Mar 2019.

Image: Brown Sugar Narwani, Komal. Brown Sugar. 8 Apr. 2019. Organicfacts.net, Organic Information Services, www.organicfacts.net/recipe/brown-sugar.

Accessed 6 May 2019.

DEMAND

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Price of Complements Complements are another factor that affect the demand for products. Complements are products that are often bought together. An example could be DVD players and DVDs. If products are complements to each other, then a change in the price of one of the products will cause a change in demand for the other product (Demand and Supply 21). A very common complement of sugar is tea, as many people put sugar in their tea. After water, it is the most consumed drink in the world; Americans drink 1.42 million pounds of tea everyday (Tea Association of the USA). Tea prices are currently on a constant rise, however, they did experience a decrease in the late 20th century. If the price of tea decreases, then the demand for sugar will increase, as people buy sugar to put in the tea.

Thus, the demand curve for sugar would shift to the right.

Figure 11: A chart conveying the price history of tea in US in cents per kilo.

Tea Price. Pearson Education. Pearson, Pearson Education, pearsonblog.campaignserver.co.uk/higher-tea-prices-brewing/tea-price/.

Accessed 14 Apr 2019.

In Figure 11, the chart conveys a significant drop in the prices of tea from 1988 to 2003. The price decreased by approximately 150 cents, from 325 cents to 175 cents. This reasons that the demand for tea increased, which means that the sugar demand for both white and brown sugar increased during Figure 12: A chart conveying the global sugar consumption over 4 centuries. this period as well. As seen in figure 12, the worldwide sugar consumption is constantly rising. Gunnats, Kris. Sugar Consumption over Time. 2019. Healthline.com,

www.healthline.com/nutrition/11-graphs-that-show-what-is-wrong-withmodern-diet. Accessed 6 May 2019.

Image: Black Tea with Sugar Butler, Natalie. Black Tea with Sugar. 19 May 2017. Medicalnewstoday.com, Healthline Media, www.medicalnewstoday.com/articles/292160.php.

Accessed 6 May 2019.

SUPPLY

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What is Supply?

Supply is defined as “the willingness and the ability to produce a quantity of a good or service at a given price in a given time period” (Demand and Supply 27). For example, a firm could produce 1000 apples a week, at a price of $1 each. Therefore, their supply of apples at a price of $1 would be 1000 units per week (Demand and Supply 27).

For supply to occur, the essential part is the “willingness and ability”; is it not enough for producers to have the will to produce a good or service. They must be able to produce it. This means that they have to have the financial means to make a supply of the product. This is called effective supply, and is portrayed on a supply curve. (Demand and Supply 27).

Figure 13: supply curve conveying a movement in a supply curve, indicating a change in the price of the product.

"Movement along the Supply Curve." Investopedia.com, Dotdash, 2019, www.investopedia.com/university/economics/economics 3.asp. Accessed 6 May 2019.

The most important factor of supply is the price of the product (good or service). The Law of Supply states that “as the price of a product rises, the quantity supplied of the product will usually increase, ceteris paribus”. This happens because higher prices make way for more profits, so the producer will increase production. When the price of a product changes, it leads to a change in the quantity supplied of the product, causing a movement along the supply curve (Demand and Supply 27). In figure 13, there is a movement along the supply curve, indicating that there is a change in the price of the product.

Figure 14: supply curve conveying a shift in both directions, increasing and decreasing supply.

Kenton, Will. Supply Curve. 2018. Investopedia.com, Dotdash, www.investopedia.com/terms/s/supplycurve.asp. Accessed 6 May 2019.

In addition to price, there are numerous other non-price factors that affect supply. The non-price factors of the supply of sugar include the cost of the factors of production, the state of technology, expectation of future prices, and other products that firms could produce. These factors affect the supply of sugar, when the price remains unchanged. This causes a shift in the supply curve (Demand and Supply 27). In figure 14, the chart conveys how a nonprice factor of supply affects the supply of a product; a change in that non-price factor causes a shift in the supply curve. A shift to the left indicates a decrease in supply, while a shift to the right indicates an increase in supply (Demand and Supply 27).

Image: Sugar Production Factory Sugar Production Factory. 2019. Energyventures.in, www.energyventures.in/sugar.php. Accessed 6 May 2019.

SUPPLY

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Cost of Factors of Production

Figure 15: chart conveying the historical average monthly wages in Thailand.

"Thailand Average Monthly Wages." Trading Economics, tradingeconomics.com/thailand/wages. Accessed 14 Apr 2019.

The four fundamental factors of production are land, labor, capital, and entrepreneurship. These factors are information and data used in the production of goods and services to make an economic profit (Kenton). If the cost of a factor of production increases, then it will cause a decrease in the quantity of sugar supplied, because the firm producing the sugar will have higher production costs, thus the firm will supply less sugar. For a decrease in the cost of a factor of production, the opposite situation would occur, so there would be an increase in the quantity of sugar supplied, as the firm producing the sugar will have lower production costs (Demand and Supply 28).

Figure 16: list conveying the average monthly wages of countries around the world Average Income around the World." Worlddata.info, 2019, www.worlddata.info/averageincome.php. Accessed 6 May 2019.

The two types of sugar produced are sugarcane and sugar beet. Sugarcane is used for approximately 80% of the sugar production, the most important factors of production being the climate, and the labor and land costs. Sugarcane is largely produced in China, India, Thailand, and Brazil, because of the tropical climate, furnishing a nine month production period (per year), which is much longer than sugar beet. Sugar beet is predominantly produced in Europe and the United States. In addition, the cost of labor, or wages in the sugarcane producing countries are significantly lower than in the sugar beet producing countries (International Sugar Ogranization). In figure 15, the chart conveys the average monthly wages in Thailand as of 2019 is 14,048.44 THB/Month, which is equivalent to $443.12 (US Dollar) per month. In figure 16, the list conveys that the average monthly income in the U.S is $4,856, significantly higher than the wages in Thailand. Thus, because of the lower cost of labor, the quantity supplied of sugarcane in Thailand is much greater than the U.S, and the supply curve would shift to the right indicating an increase in the supply of sugar.

SUPPLY

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State of Technology

Image: Sugar Production Factory Controlling of Devices in Sugar Factory. 2019. Shutterstock.com, www.shutterstock.com/video/clip-3382256-man-working-factorycontrolling-devices-sugar. Accessed 6 May 2019.

Developments and advancements in the state of technology in a company of industry should cause an increase in the supply of a product, and thus, the supply curve would shift to the right (Demand and Supply 29). Technology is an essential element of the supply of all products. This is because in general, technology continues to advance and improve as time passes, which leads to an increase in production of goods and services. The production of sugar comes from two types, sugarcane and sugar beet. 80% of the world's sugar production is from sugarcane, while the rest is sugar beet.

The process of harvesting sugarcanes began centuries ago, with the use of sugar plantations and in some parts of the world, many people were enslaved, and forced to harvest sugarcanes. Today, in the United States, most sugarcanes are harvested through machines, but some states still use man made harvesting methods (Silverman). In the rest of the world, most harvesting is done by machines bases in the sugar plantations. In figure 17, the chart conveys a constant rise in the production of sugar worldwide, and this is due to the constant technological advancements made to the machines to become more efficient and quicker over time.

Price of other products which the producer could produce instead of sugar

Figure 17: chart conveying the global sugar production by year Cordier, James. World Sugar Production. 2011. Seeking Alpha, seekingalpha.com/article/301173-sugar-market-ripe-for-call-sellers. Accessed 14 Apr 2019.

In some cases, firms have the option of choosing the product they want to produce. In terms of the supply of sugar, firms could choose to produce coconut sugar, which is a common substitute for regular brown or white sugar.

This could be done with very little alterations to the facilities used for current normal sugar production. Coconut sugar comes from the nectar of the flower buds from coconut palms.

People regularly substitute this for sugar as it is made up of several vitamins and minerals such as magnesium, iron, and zinc.

SUPPLY

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Coconut sugar is significantly more expensive than regular granulated sugar. It costs approximately 20 euros per kilo (Healthline) compared to regular sugar which costs 0.26 euros per kilogram. If the price of coconut sugar falls due to a lack of demand, then the producer would be drawn to the higher prices of regular sugar, and supply more regular sugar than coconut sugar.

Thus, there would be a movement on the supply curve of coconut sugar, and a shift to the right in the supply curve of regular sugar, indicating an increase in the quantity supplied of regular sugar.

Image of coconut sugar Gunnars, Kris. Coconut Sugar. 25 May 2018.

Healthline, www.healthline.com/nutrition/coconutsugar#section1. Accessed 14 Apr 2019.

Image of regular granulated sugar Spiegel, Alison. Granulated Sugar. 12 Feb. 2015. HuffPost, www.huffpost.com/entry/types-of-sugar_n_1415571. Accessed 14 Apr. 2019.

Expectations of future prices For all goods and services available in the market today, the producers of these products have to make their decisions for their supply based on current prices, and based on the expectations of future prices (Demand and Supply 29). For example, if a firm producing handbags expected the price to have a major increase in the future, then they could increase their current raw manufacture, but suppress their current market supply. This could be due to their expectancy of more profits at an increased price. Therefore, this is an example of the expectation of higher future prices leading to a decrease in the current quantity supplied of the product in the market (Khan Academy).

In figure 19, the chart conveys a forecast of sugar prices in 2019. “Südzucker” is a company from Germany, and it is the largest producer of sugar in Europe; its yearly production is approximately 4.8 million tons of sugar. Based on figure 18, if Südzucker makes a prediction that the sugar prices will continue to rise, and will be much higher in the future, then they could continue to increase their raw production of sugar in their factories and warehouses, but suppress their supply of sugar in the market. Thus, there would be a decrease in the quantity of sugar supplied, and the supply curve would shift to the left.

Figure 18: chart conveying the forecast of sugar prices in the next days and weeks of April 2019.

Sugar Forecast, Short-Term "SB" Commodity Prediction for Next Days and Weeks. Wallet Investor, 2019. Wallet Investor, walletinvestor.com/commodity-forecast/sugar-prediction. Accessed 14 Apr 2019.

PRICE ELASTICITY OF DEMAND

15

What is Price Elasticity of Demand?

The Price Elasticity of Demand is “a measure of how much the quantity demanded for a product changes when there is a change the product’s price” (Elasticity 46). PED is generally calculated using the equation shown below, however, usually the answers are negative so the absolute value of the answer is always used when calculating PED.

If there is a PED between 0 and 1 indicates that the product is inelastic. When a product is inelastic, it means that the demand for the product goes through a small change when the price of the product changes. If the price is increased, the quantity of the product demanded will not decrease significantly (Elasticity 48). In figure 19, a graph conveying inelastic demand is shown.

Figure 20: A graph depicting the elastic demand for a product.

Elastic Demand Curve. 2019. Investopedia.com, Dotdash, www.investopedia.com/university/economics/economics 4.asp. Accessed 6 May 2019.

When the value of PED is equal to one, the product has a unit elastic demand. This means that if the price of the product changes, the quantity demanded will have a “proportionate, opposite change”. If the price is increased by a specific percentage then the demand will decrease by the same percentage (Elasticity 49,50). In figure 21, a graph conveying unit elastic demand is shown.

Figure 19: A graph depicting the inelastic demand for a product.

Inelastic Demand Curve. 2019. Investopedia.com, Dotdash, www.investopedia.com/university/economics/econ omics4.asp. Accessed 6 May 2019.

On the other hand, a PED higher than 1 indicates that the product is elastic, thus with a change in the price, the demand for the product has a greater change. If the price is increased, the quantity demanded for the product will decrease more significantly (Elasticity 49). In figure 20, a graph conveying elastic demand is shown.

Figure 21: A graph depicting the unit elastic demand for a product.

Unit Elastic Demand Curve. 2019. Khanacademy.org, www.khanacademy.org/economics-financedomain/microeconomics/elasticity-tutorial/price-elasticitytutorial/a/price-elasticity-of-demand-and-price-elasticity-of-supplycnx. Accessed 6 May 2019.

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PRICE ELASTICITY OF DEMAND

Determinants of PED

Important Note in Sugar and its PED factors

There are five main determinants of Price Elasticity of Demand, which come in the form of an acronym, S.P.L.A.T. In relevance to Sugar, the main factors of PED are the number and closeness of substitutes, the proportion of income spent, whether it is a luxury or necessity, and the addictiveness (Elasticity 50-52).

Whether sugar is inelastic or elastic can be debated for many reasons. As the following analyses states, sugar is relatively inelastic, but it could be presented on an elastic graph, thus the steepness of the line would be more inelastic than a car for example, which consumers spend a much higher portion of their income on. However, sugar is more inelastic in some areas, such as regarding its number of substitutes, and its necessity in society.

Number and closness of substitues and time period considered The number and closeness of substitutes is the most significant factor that affects the PED of an economic product. The reason for this is because when a product has more substitutes, the consumers will not have a constant demand for that product. Furthermore, if the substitutes available are closer, the demand will more more elastic (Elasticity 50). For example, there are several different brands of cars available in the market, so if the price of one brand increases, the customers would shift their demands to a different brand. Therefore, cars have a relatively elastic demand. An example of a product with very little substitutes is gasoline, because even if the price of gasoline increases, the demand will not decrease because there are not a lot of close substitutes for gasoline, and consumers are inclined to buy it.

For sugar, there appear to be a number of substitutes available, such as honey, maple syrup, nectar, and artificial sweeteners (McDonell). However, these substitutes do not have the same market price as sugar, and do not have the same level of incorporation in our society today. Thus, there is a low amount of substitutes for sugar available. In figure 22, a graph depicting the historical price of sugar is shown.

When analyzing a time period of 4 years from 1993 to 1997, the price of granulated sugar went up by 15 pence. In figure 23, the chart depicts the consumption of sugar in the United States of America, and it only decreased by about 7 pounds from 1993 to 2000, from 100lb to about 93lb. This conveys that sugar is highly inelastic in longer time periods when its price changes.

Figure 22: A chart showing the prices of sugar from 1963 to 2019.

"Sugar Prices - 37 Year Historical Chart." Macrotrends, 25 Mar. 2019, www.macrotrends.net/2537/sugar-prices-historical-chartdata. Accessed 27 Mar 2019.Â

Figure 23: graph conveying the total sugar consumption in the United States of America.

Guyenet, Stephan, and Jeremy Landen. "US Sugar Consumption, 1822-2005." Online Stat Book, 2005, onlinestatbook.com/2/case_studies/sugar.html. Accessed 27 Mar 2019.

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PRICE ELASTICITY OF DEMAND

Proportion of income spent Another factor of PED is the proportion of the consumer’s income spent on purchasing the product. Goods and services which consume a high proportion of a consumer’s income are more elastic, because a change in the price of the product will change the quantity demanded at a more significant amount. For example, if the price of jewelry increases by a large amount, then the demand for jewelry would significantly decrease.

On the other hand, if the price of salt changed, the demand would not have a significant change as salt consumes a small proportion of consumers’ income.

In terms of sugar, it generally consumes a smaller proportion of consumers’ income, as seen in figure 23, the price not being extremely expensive. The average price of sugar was in between 0.01$ to 0.60$ (US$) from 1965 to present-day. Therefore, if there was to be a change in the price of sugar, the quantity demanded would not have a major change, as it takes up a relatively small proportion of income. Thus, it can be said that sugar is inelastic due to it consuming a minor proportion of income in general.

Is sugar a luxury or a necessity?

Whether a product is a luxury or a necessity has a major impact on its PED. Products, or goods that are essential in our lives, such as water and food have an inelastic demand. This is because no matter how much the price changes, even if it increases, these goods will be purchased by consumers because they are a necessity for humans to survive. Products which are considered luxuries, such as cars or automobiles are much more elastic compared to food and water, as they are not essential to our lives. A change in the price of automobiles causes a more significant change in the quantity demanded (Elasticity 51).

Sugar is considered a necessity, as we need it to survive biologically and it is highly used in everyday lifestyles.

Sugar is in many foods, such as fruits which we need in order for the sugar to break down into glucose, or blood sugar. However, granulated sugar is not highly essential, as there are negatives to added sugar, such as developing diabetes or heart disease. But, sugar is used in everyday lives of majority of the population, such as in tea, baked goods, and processed foods such as peanut butter, and jam. So sugar plays a unique role when it comes to this question, but it is still a relatively inelastic product, as consumers will purchase it for food consumption.

Image: Different types of powdered sugar.

Different Types of Powdered Sugar. 2019. Sugar.org, Sugar Association, www.sugar.org/sugar/types/. Accessed 6 May 2019.

Image: White, granulated sugar.

Granulated Sugar. 2019. Finecooking.com, Taunton Press, www.finecooking.com/ingredient/granulated-sugar. Accessed 6 May 2019.

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PRICE ELASTICITY OF DEMAND

Addictiveness

Image: Different types of candy filled with high levels of sugar.

Sugar Candies. 11 May 2017. Confectionarynews.com, William Reed Business Media, www.confectionerynews.com/Article/2017/05/12/Chocolate -and-candy-tax-proposed-in-the-UK. Accessed 6 May 2019.

The addictiveness of products also has a major impact on a products PED. A highly addictive product will have an inelastic demand, as it will be purchased, even if the price changes. Some examples include cigarettes or alcohol, as they are extremely addictive, and consumers will continue to purchase them even if prices go up. A less addictive good such as a Porsche car, will have a more significant change in the quantity demanded as people can stop purchasing it if the price increases.

Sugar is highly addictive, and is considered as addictive as cigarettes. People can consume it in large amounts daily, and may eat constantly to battle boredom, and to become very hyper and energized. Also, there could be emotional reasons to a sugar addiction, such as stress, or to have emotional relief (Addiction Center).

Therefore, since sugar is addictive, it is highly inelastic. Even if the price increases, the consumers will still purchase it, as they are addicted to it and must consume it. Thus, the demand will not have a significant change, as the addiction will cause sugar to be consumed no matter what the price change is.

Image: Mini sugar candies.

Sessoms, Gail. Mini Sugar Candies. 2019. Livestrong.com, Leaf Group, www.livestrong.com/article/ 553391-what-aresome-low-sugar-candies-on-the-market/. Accessed 6 May 2019.

Some facts about sugar addiction....

Sugar can become almost as addictive as alcohol and cigarettes, which many people underestimate.

When sugar enters a person's body, dopamine is let out into the body by the activation of the brain.

Even just the thought of sugar in a person's mind releases dopamine (it is a neurotransmitter).

Scientists have found that our sugar consumption's harm stems mostly from what drinks we consume, not what foods we eat. One can of soda a day is already going over the maximum advised amount of sugar per day. For treatment regarding sugar addictions, detox is reccomended as it is safe and takes a long period of time, which is better than rushing it and starting back at square one. Many side effects take place during sugar withdrawal, such as cravings, anxiety, headaches, insomnia, muscle pains, lethargy, chills, and nausea. Sugar addiction can be dangerous to health, as it can lead to diabetes, and heart disease. Obesity is also a major health problem which affects numerous people around the world due to the over consumption of sugar (Addiction Resource)

19

PRICE ELASTICITY OF SUPPLY

What is Price Elasticity of Supply?

Price elasticity of supply is "the measure of how much the amount of supply of a product changes when the price of the product changes" (Elasticity 56). Generally, PES is calcualted using the equation below.

If there is a PES between 0 and 1 indicates that the product has an inelastic supply. When a product has inelastic supply, it means that when the price of the product changes, it has a "less than proportionate change" in the quantity of its supply (Elasticity 58).

Figure 25: Elastic Supply Curve Pattinger, Tejvan. Elastic Supply. 2019. Economicshelp.org, www.economicshelp.org/microessays/equilibrium/elasticitysupply/. Accessed 6 May 2019.Â

If there is a PES which equals one, then the product has a unit elastic supply. A unit elastic supply is when the price of the product changes and the product has a "proportionate change" in the quantity supplied of it, so the PES calculates to one (Elasticity 58).

Figure 24: Inelastic Supply Curve.

Pattinger, Tejvan. Inelastic Supply. 2019. Economicshelp.org, www.economicshelp.org/microessays/equilibrium/elasticity-supply/.

Accessed 6 May 2019.Â

If there is a PES between 1 and infinity, it indicated that the product as an elastic supply. When a product has elastic supply, it means that when the price of the product changes, it has a "greater than proportionate change" in the quantity of its supply (Elasticity 58).

Figure 26: Unit Elastic Supply Curve Unit Elastic Supply. 2019. Economicsonline.com, www.economicsonline.co.uk/Competitive_markets/Pri ce_elasticity_of_supply.html. Accessed 6 May 2019.

There are many determinants of PES, the most important ones being how much costs rise as output is increased, the time period considered, and the ability to store stocks (Elasticity 58,59).

20

PRICE ELASTICITY OF SUPPLY

How much costs rise as output is increased One of the most important factors of PES is how much total costs rise as the supply is increased. If the price of the product rises, then the producer will attempt to increase the supply of the product, in order to make profits. Nevertheless, this depends on the rise of the cost of production, so if there is not a significant increase in the costs, then the producer can increase the supply with more ease, and this will lead to an increased PES. However, is the costs increased significantly, then the producer would be advised against increasing supply, and this would lead to an inelastic supply of the product (Elasticity 58,59) The two most important determinants that impact how much cost rises as supply is increased are the existence of unused capacity and the mobility of the factors of production. The existence of unused capacity is the amount of productive resources that are not being used completely. Some examples include machines and factory space. If a firm has a large amount of unused capacity, then it could increase supply without difficulties and without substantial rises of cost. If a firm is using all of its productive resources, then it would be much more difficult to increase output because there would need to be an increase in productive resources, which would be a lot more expensive.

This would lead to an inelastic supply of the product.

With regard to sugar, in majority of the major sugar production countries in the world, they use almost 100% of their productive resources, if not always. For example, in figure 27, the table conveys that between 1975 and 1991, almost 100% of resources were being used to product sugar supply. Going back to figure 22, the world sugar price chart shows that sugar prices were on a constant rise. Thus, this conveys that sugar has in elastic supply, as it uses almost 100% of its resources to produce output.

Figure 27: Graph depicting the utilization of resources in the Indian sugar industry.

Kumar, Sunil, and Nitin Arora. Figure 3: Trends of Capacity Utilization in Indian Sugar Industry. 2018. Ejbe.org, Ala-Too International University, www.ejbe.org/EJBE2009Vol02No04p01KUMARARORA.pdf. Accessed 6 May 2019.Â

Another factor which impacts how much cost rises as output is increased is the mobility of the factors of production. If the factors of production can be easily adapted to a change in order to produce supply, the PES of the product will be reasonably elastic. However, if the factors of production are not easily adaptable, the product would have an inelastic supply (Elasticity 59).

For sugar, the mobility of the factors of production are relatively low. Sugar is mainly produced in large sugar factories (sugarcane), and if the price of sugar increased, it would be extremely difficult to shift its output. Sugar factories have the purpose or producing granulated sugar, or different types of sugar but they all stem from sugarcane of sugar beet, which will not change as the foundation of where sugar comes from. Thus, the mobility of the factors of production of sugar is at a low level, indicating that sugar has an inelastic supply.

PRICE ELASTICITY OF SUPPLY

21

Time period considered Another determinant of the price elasticity of supply is the timer period considered. The time period in which PES is measured will affect its market value.

If a firm cannot increase it supply in an immediate time period, if the price of the product increases, then the product would have an inelastic supply. This is because the firm will not be able to increase its factors of production that they can take on (Elasticity 59).

In a shorter time period, although the firm could increase some of its factors of production, such as raw material or labor, it will not be able to increase all of the factors.T The product would have a more elastic supply than the immediate time period.

However, in a longer time period, the firm could increase all of its factors of production, leading to an elastic supply of its product (Elasticity 59).

Regarding sugar, the supply is more inelastic in a shorter time period, and more elastic in a longer time period. In an immediate time frame, it would be extremely difficult to increase its factors of production, including land which would be factories with large machines, labor which would be human resources, and capital as well. Thus, sugar has an extremely inelastic supply in a shorter time period.

However, when looking at much longer time periods, such as decades and centuries, it can be said that sugar has a more elastic supply. Over several decades, sugar production has increased significantly, due to more factories being built, and more employment of human resources because of the constant rice of the global sugar price.

Image: Sugar Stocks Sugar Stocks. 17 Oct. 2018. Dailymirror.lk, Wijeya Newspapers, www.dailymirror.lk/156977/ President-grants-Rs-Customs-Tax-to-releasesugar-stock-at-Port. Accessed 6 May 2019.

The ability to store stock Another determinant of the price elasticity of supply is the ability to store stock. If a firm can store extremely high levels of stock of the product, they can easily increase supply if the price increases.

This means that the product would have an elastic supply (Elasticity 59).

However, if a firm cannot store very high levels of stock for its product, it will not be able to have a quick response to an increase in price, as it would not have the means to increase supply of its product. This leads to the product having an inelastic supply (Elasticity 59).

Regarding sugar, it is expected that it would be relatively elastic in this case, as firms can have extremely high amounts of stocks of sugar. Sugar production is constantly on the rise in countries such as Brazil, India, and Thailand (some of the main sugar cane producing countries), so firms would assumably have a large amount of stock.

So, if the sugar price were to have a sudden increase, they would be prepared to increase supply, as they would be having a countless stock of sugar. Thus, sugar is relatively elastic in this case, which is the ability to store stock.

22

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24

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