Archive | March 2015

Sugar prices fall for four years in a row “Producers simply cannot go on selling sugar below cost forever”

The global excess supply of sugar is partly due to higher harvests around the world and is causing hardship to producers everywhere …..India, Brazil, Thailand, Mexico, Ukraine (where the problem is exacerbated by falling domestic demand), China etc

Falling crude oil prices also add to the problem, because it is expected that there will be less demand for ethanol (the substitute for oil made out of sugar). Thus the price falls due to both increases in supply and decreases in demand.

Sugar producers cannot expect demand to increase even if incomes increase (the income elasticity of demand is low or negative) and the quantity demanded will not increase significantly even with the fall in price (PED is also low).  There are attempts, by, for example, the Indian government,  to set minimum (floor) prices or to provide subsidies for sugar exports. Economic models of price controls and of the effect of subsidies on the supply curve reveal why these short term approaches to the problem will not work in the long term.

Therefore the only solution is to cut supply through  lower levels of replanting and maintenance. But that will take a long time.

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