Sugar Subsidies and Diabetics

          According to the news which published at The Star (http://thestar.com.my/news/story.asp?file=/2012/9/28/budget/20120928194432&sec=budget) Malaysia budget 2013 was published on 28^th September 2012, there is a lot of policy financial position changed, the decrease in sugar subsidy is one of the contestable changing that I’m going to discuss. Subsidy is the payment of a good that government made for producer it also means that the government enter the market and making effect to it. Before discussing the said article, we have to know the relationship among the supply, demand and price of sugar that was not affect by subsidy. Below is the supply and demand relation chart that illustrated before government entered.

           The red line is representing the demand of sugar, it is more inclined toward vertical which express sugar is an inelastic goods, as sugar is a necessity to consumer. The blue line is representing the sugar’s supply. The green line representing the equilibrium price and quantity which both consumer and supplier are satisfy with. As we known, the definition of demand is involve the ability to buy it, so there may a huge number of people can’t afford the price and decided to decrease the using of it, this is the phenomenon of the falling of a country. As a result government provided subsidy to improve the supply and try to decrease the market price. Below is the chart after the government provided subsidy.

            Different from the first chart, the supply curve moved rightward as the cost of production had been shared with government and the demand curve remaining the same. The new equilibrium price is lower than before government provided subsidy, so the price will be lower and the quantity of demand increase, or we can see that, more national is able to bear the price of sugar and sugar producer can produce more sugar with a lower cost, from government vision is the development of a country, both producer and national get the benefit from subsidy.

          However, is the sugar subsidy really benefited to our country? Promulgate of a subsidy given is actually encouraging national to have more sugar, this can also cause the increasing of diabetes rate which is harmful for our country. According to the Euromonitor International report, 5.9% of 100,000 Malaysians have suffering in diabetes. Euromonitor International from International Labour Organisation also reported that, before subsidy decrease which is remained 54cents per kilogramme, the cost of producing a kilogramme of sugar is RM1.6, and the retail price is RM2.30 per kilogramme, government shared 54cents of cost of production, sugar supplier has only cover RM1.06 per kilogramme. From the vision of supplier, every kilogramme may bring another more 54cents revenue than before, as human behaviour, supplier may provide more sugar in market to maximize their benefit. As a result, in the Malaysia Budget’ 2013 the decrease of the subsidy of sugar is because our government try to decrease the diabetes rate by dropped sugar’s quantity of demand and supply in the market. 

        Yet, does the decrease of sugar subsidy really help in the diabetes? From chart 3 we are able to understand the effect of a decrease of subsidy. Different from chart 2, a decrease of subsidy forced the supply move leftward as the cost of production increased, supplier less willing to produce more sugar, and as the new equilibrium price increased, the quantity of demand decreased. But if we take notice that, the proportion of the changing in price and quantity of demand, we can found that, the price is highly increased but the quantity of demand had only decreased by a few. From the new chart, we can also make a conclude that, if the decreasing of sugar subsidy is point at against for the diabetes, it may not be so efficiently, it doesn’t means it doesn’t work at all, it just doesn’t work efficiently

            As we known, sugar is a necessity that we are taking every single day, so its property of elastic is definitely inelastic. As an inelastic goods, prices are not the main issue to effect the quantity of demand, even the price raise until RM8 per kilogram, people are still purchasing on it, because people are surviving on it. So, government may drop the diabetes rate by other way which is more efficiently than raising the price of sugar. 

            Moreover, at the side of relative good supply, an increasing of the sugar’s price will also causes the cost of producing confectionery to be increased too. As a result, confectionery producers have to raise the price to cover the new cost of production. But, before the new budget process, confectionery supplier knew the future price of production must be increased, and sugar is the good that can be stored, they will purchase or even hide more sugar to maintain the cost of production. After budget processed, the price of confectionery product raised, those producers who stocked sugar with earlier price will get the higher revenue in the end. For example, A producer has 2tons of sugar inventories, they decided to postpone the supply after budget processed, A can sell his product with a higher price and with a lower cost. As a result, the demand of sugar will increase in a short-term until the budget processed, and the confectionery supply in the future market will remain the same even higher, that means the source to cause diabetes will increase in a short term.

      However, it may also influence the overproduction to confectionery. Once confectionery supplier decided to product more, the confectionery in the market may over the quantity of demand, as a result it may occur “deadweight loss” which is a social loss.

       When the quantity of supply is too high, supplier may drop the price to increase the market occupancy to ensure the benefit. When the price get lower, the quantity of demand will increase which is the effect of equilibrium, people take more confectionery than before as they think the price fall. At a certain point, controlling of diabetes became counterproductive.

        In a nutshell, decreasing of sugar subsidy may not the efficiency way to drop the rate of diabetes. In my opinion, government can control diabetes rate by other way which is more efficiency such as provide the relative information/knowledge by education, advertising or creating campaign to national or from commencer way is straight control the amount of sugar/confectionery in the market, the decreasing of sugar subsidy is increase burden to national rather than dropping of diabetes rate.