Will the subsidies of sugar reduced lead to lower sugar intake for people?

As stated in 29 September 2012 The Star in Malaysia, the budget 2013 the government proposed to reduce sugar subsidy by 20 sen per kilo. This means that the payment that the government going to pay to the producer will be reduced in the budget 2013. If the sugar subsidies going to be reduced by the government, therefore the producer will decrease their production because their cost of production is going to be more expensive.
Since the Malaysia government have already set a price ceiling for fine granulated white sugar to RM 2.50 per kg and coarse granulated white sugar to RM2.60 per kg thus, the producers for all these sugar are not allow to sell above the given price. This will bring a huge waste for producer because they have to pay more for their cost of production and are not allow to mark-up the price of their sugar due to the price ceiling that have already been set up by the government. When the suppliers starting to supply lesser sugar to the market it would lead a high demand for sugar from everyone because there are no enough sugar for everyone which it creates scarcity for sugar. Penang Consumers Protection Association president Koristan Karuppiah supports the government decision and he say “sugar is bad for our health. We should not have any sugar and oil subsidies”. When the government already reduced subsidies on sugar therefore there will be a shortage for sugar in the market because producer will produce lesser for the supplies. The government warned all the food traders and retailers to make sure they are not taking any advantages to increase the price of their product because many goods are complementary goods to sugar. Example when we drink a coffee we need a pack of sugar to match up with the coffee. It is said  "Those found taking advantage of the reduced subsidy by charging exorbitant prices will be penalized under the Price Control and Anti Profiteering Act 2010," Domestic Trade, Cooperatives and Consumerism Deputy Minister Datuk Tan Lian Hoe told reporters at the Dewan Rakyat here on Tuesday.

Whenever they are having this situation in an opposite way, which means they will be facing a surplus. The graphs (a) above illustrate two types of surplus consumer and producer. Whenever there is the excess of benefit received from a good over the amount paid for it is known as consumer surplus and the excess amount received from sales of a good over the cost of producing it is known as producer surplus. By having the both of the consumer surplus and producer surplus efficiency equilibrium which mean that the quantity demanded equals to the quantity supplied. But when the market failure occurs due to the inconsistency to achieve an efficient outcome will lead to market failure. This meant by too little of an item is produced that could lead to underproduction or too much of an item is produced that is overproduction. Underproduction occurs when there are too little quantity of a goods produce and the consumer are willing to pay higher price compare to the original because its consider as limited. Example of an underproduction is when the efficient quantity is 30,000 packs of sugar a day and when the inefficient quantity that restrict the quantity drop from 30,000 to only 10,000 a day. Thus, there will be a shortage of sugar and consumers are willing to pay for a higher price because there is a very limited sugar in the market. As for overproduction which means that they are having too much quantity and ended up consumer only wants to pay for a cheaper price because they don’t really have to fight or argue for the limited quantity of sugar. Sugar doesn’t have any substitutes. Sugar can be optional elastic or inelastic it depends on individuals. We don’t have a choice whenever the price of sugar rises. For the poor they only can try not to buy so many sugar-made products due to their low purchasing power and as for the rich they are able to buy sugar since they have high purchasing power therefore it’s inelastic for those that have a high purchasing power.

As mention earlier by Domestic Trade, Cooperatives and Consumerism Deputy Minister Datuk Tan Lian Hoe  those producer or retailer that raise their price higher than they the price ceiling will be penalized if they got caught. The action of putting the price above the price ceiling is called a black market. A black market is an illegal market that operates alongside a legal market in which a price ceiling or other restriction has been imposed. A black market arises due to a shortage of sugar therefore there are some illegal arrangement made between producer and retailers of how much price of sugar are they going to charge the consumer which is above the market price.

So is the decision of sugar subsidy reduced in Malaysia the right thing to do? The subsidy of the sugar have been drop from 54 sens to 34 sens but many people still have to buy it because there are no substitutes for sugar. Therefore sugar is also very inelastic because people got no choice but still have to produce even the price is high or low. This would only cost a shortage or surplus of sugar in the market.

                                                            

Johnson.N