Question

SUGAR’S BITTER TASTE Sugar prices have slumped to a 20-year low… In the last 5 years, annual supply increased by 3.6 percent, while consumption expanded by a mere 1.5 percent. Stocks of sugar doubled while prices tumbled from 134 cents to 50 cents. Higher incomes increased the demand for sugar but supply increased more. New countries began sugar production, agricultural productivity increased and there was a collapse of the 1989 agreement to place quantity ceilings on exports. For many Third World sugar producers – some of whom get 70 percent of their export revenue from sugar – low prices have been a disaster. The power of multinationals has not helped. In some cases, farmers get only 6% of the retail price in the shops. Nestlé now controls about half the world market for instant sugar. (i). Using a relevant demand and supply diagram, analyse the reasons why the price of sugar tumbled from 134 cents to 50 cents. [5] (ii). Producers’ Associations usually fix minimum prices to encourage production. Analyse the constraints in making minimum price policies successful. Support your answer with relevant examples. [7] (iii). Analyse the reasons why some farmers get only 6% of the retail price in the shops and suggest policy measures which can be adopted to increase the revenue accruing to farmers. [8] 2 (b) The own price elasticity of demand for food is negative. The demand for food is inelastic. A higher food price raises spending on food. Higher food prices imply less is spent on all other goods. The quantity demanded of each of these other goods falls. Discuss each of the above statements, and indicate whether they are correct or incorrect. [10]

Answer 1

1. Since annual supply increased by 3.6 percent, while consumption expanded by a mere 1.5 percent, there has been a glut of sugar supply.

As per the law of supply, the quantity of a good supplied rises as the market price rises (as indicated by the supply curve SS) and falls as the price falls. Conversely, as per the law of demand the quantity of a good demanded falls as the price rises, and vice versa (as indicated by the demand curve DD).The equilibrium price and equilibrium quantity occur where the supply and demand curves cross. In case of excess supply, the prices will fall until they reach the equilibrium price.

This thus explains the fall in prices of sugar.

2. MSP enables ranchers by setting floor to cost if obtainment office buys the item at MSP when the open market value falls underneath the floor cost. Without acquirement, a rancher can decline to agree to a cost beneath MSP in the event that he knows about the help cost for the harvests. In the event that he isn't even mindful of MSP of harvests, merchants and go betweens can turn exploitative and offer cost not exactly MSP.

For MSP to work as security net, there must be an arrangement of acquisition, which should purchase the produce at MSP at whatever point market costs fall beneath help cost for the harvest, and rancher must know about the MSP for the yields developed by him so he can decline to sell his produce at cost underneath MSP.

Indeed, even after over 40 years after its execution in India, under 25 percent of ranchers knows the MSP of harvests they develop. In spite of the fact that MSP is declared for the entire of India, the activity is constrained distinctly to few states where the assigned government organizations obtain the produce from ranchers. Further, ranchers are accounted for of being uninformed about the organization that obtains the sustenance grains at MSP.

Out of small extent of ranchers who knew about MSP, the vast majority of the ranchers have not offered the produce to acquirement offices for reasons including that the Crop pre‐pledged, Poor nature of yield, No nearby buyer, Procurement organization not accessible et all.

3. Corporate houses occupied with agri-business remain to pick up to the detriment of farmers. The processors and retailers secure produces from farmers at shabby costs and offer their items at more expensive rates to harvest tremendous benefits. Indeed, even retailers bundling expenses are paid by farmers. The input suppliers charge high costs from farmers. A definitive gainers are the input suppliers, processors and retailers. The net that comes back to farmers in Canada have declined to negative an incentive in spite of amazing monetary development, prospering exchange, stable business, colossal financial exchange gains and record crop generation in the previous 20 years. There are likewise comparative examinations on European and US ranchers that have perceived a similar issue. The pitiful destiny of African cocoa cultivators is expected to the multinationals in the exchange.

Policy changes which aim to fix a particular share as the minimum return to be recieved by farmers and regulations that penalise the MNCs for not sharing such a minimum sare would be welcome. Further, co-operative societies can provide farmers economies of scale to lower the costs of acquiring inputs or hiring services such as storage and transport.

4. The first law of demand states that as price increases, less quantity is demanded. This is why the demand curve slopes down to the right. Because price and quantity move in opposite directions on the demand curve, the price elasticity of demand is always negative. The own price elasticity of demand for food is negative.

As a rule it is accepted that the interest for necessities is more inelastic than the interest for luxuries. It is on the grounds that the interest for necessities can't be delayed uncertainly or diminished definitely. So changes in their costs are probably not going to bring out much shopper reaction. A higher food price raises spending on food. Higher food prices imply less is spent on all other goods. The quantity demanded of each of these other goods thus falls.