PART 1

Summary:
This article by S. Kamal Hyder Kazmi is about the global demand and supply of sugar and the
role of Pakistan in it. This article states the issue of excess supply of sugar. Article predict that
the world population is expected to rise by 8% so as the sugar consumption will also grow by
16% globally. The production of sugar is far more than the global demand and thus causing
surplus and decrease in price of sugar. Pakistan sugar industry also urges the government to
provide export subsidy so the excess sugar in the country can be exported. There are around 90
sugar mills in Pakistan. The mills have to pay an indicative price for sugar cane to the
government by which farmers are able to get incentives. In Pakistan the cost of production is too
high and that’s why Pakistan sells expensive sugar in international market. Countries like Sri
Lanka, Bangladesh and African countries are major buyers of sugar produced in Pakistan. The
writer further says that India is a big competitor of Pakistan and their prices are relatively lower.
Some reports also say that India has also removed duty on sugar in order to export more and
compete against Pakistan. On the other hand Pakistan millers in Pakistan doesn’t follow the
given rates by government and which is a loss for the farmers. Government should look after this
matter strictly in order to provide best facilities to the farmers.
 PART 2

(Body: 3 concepts)

Law of supply and demand:

This article explain about the global need of sugar. How much people take sugar in their daily
life and what causes for the demand of sugar to increase and get decrease. Sugar is a basic need
for everyone living. Without sugar it would be very difficult to produce tasty foods and drinks.
Sugar is utilized in every home, family, community etc. people have been using sugar for a long
time now before sugar cane was used to sweeten things. Now as the world is moving on and the
population is increasing, the demand of sugar was seen increasing day by day. To meet the
demand, heavy scale of production is required all over the world. Brazil is considered to be the
biggest producer of sugar in the world. But in last year 2018, it was seen that the demand for
sugar had fallen and was seen to be worst performing commodity. (walsh,s, 2018). There are
several reasons which caused the fallen demand of sugar in some last year. The change in
demand has been seen on a very large scale. The supply of sugar was also increased worldwide.
The price of sugar also started to fall since last year. According to law of demand and supply
when demand decreases and supply increases, it causes to fall in prices. This law perfectly fits on
the situation here as the demand of sugar was decreased and the production was increased, it
caused the prices of sugar to fall globally. The demand decrease is not a shock at all for the sugar
producing countries as there are several reasons for that. In case of Pakistan, sugar is also
supplied more and demanded less and hence the price should be lower. The cost of production is
too high in Pakistan so that’s why the prices in Pakistan are relatively higher than the globally.
Pakistan even exports at higher prices on international platform to cover its cost. The demand
decrease in sugar is seen because people are now more aware of the effects of sugar intake.
People are more concern about their health and that’s why they have started consuming less
sugar now. Doctors have discovered that daily intake of sugar can create many health many
problems. It is one of the major reason for the demand decline for sugar. People now prefer
substitutes of sugar such as brown sugar, stevia, coconut sugar etc. substitutes can be a very good
reason for declining of a demand of a specific product or service. Firms like Pepsi and Coca
Cola have now also announced that amount sugar used in making beverages would be reduced
by reviewing the health effects of sugar. Overall other companies have also started using less
sugar in producing their products which is also a reason of less demand now. It is expected that
in coming years, the demand for sugar will decline more and production would be the same.
Decline in demand is seen when the production of sugar has begun to boom all over the world
and this will cause more price drop for sugar. In 2018 the price remained the lowest due to
increased supply and less demand. The demand curve represents the demand for a specific
product on graph. The shifts in curve represents whether the demand has increased or decreased.
According to this article demand has fallen and supply has increased, so the demand curve would
shift towards left. The supply curve would shift to right size as there is increase in supply of
sugar.

Surplus:
As mentioned above the demand for sugar has fallen to great amount globally, the production of
sugar has increased. When the quantity produced increases from the quantity demanded at
current price, it is called surplus. Surplus means that there is more production of a product than
its demand. When there is a surplus of sugar in market, the seller will have a stocks of sugar but
they won’t able to sell. In this case a 2017 report suggested that sugar production would rise up
to 179 million tons and consumption of around 174 million tons causing a 4 million tons surplus
globally effecting the price to get lowest. (Perez. M.G, 2018). The production of sugar had
increased as per the quantity demanded worldwide which caused the surplus. Stockpile of sugar
has been to the highest of season which caused huge amount of loss to farmers. In case of
Pakistan, there is also a surplus of sugar in the country for which the sugar industry urged the
government to provide subsidy to export sugar. The government has been providing subsidies to
encourage export of sugar and sugar cane in international market to maintain the equilibrium
price. Sugar industry wants the government to provide more subsidy so the surplus sugar can
exported so they can pay wages and salaries to the employees. As the demand of sugar has fallen
in Pakistan and causing surplus which forces to export sugar in high prices. According to survey
Sri Lanka, Bangladesh and African countries were the major buyers of excess sugar. India the
competitor of Pakistan has also experienced surplus of sugar but they have relatively low price
sugar than Pakistan. The government of India has removed duty on exporting sugar to promote
export of sugar on large scale and to avoid loss. The major reason for the lower demand which
caused the surplus is the same as mentioned above that is, people are now more aware of
diseases caused by sugar and hence they have start avoiding unnecessary consumption if sugar.
The food and beverages companies have also started see that there is less consumer demand for
sugar and they have also reduced using sugar for producing their products. In order to remove
surplus, every country try to export the excess amount to other countries so there is no loss for
industry. To overcome surplus, strategies should be used to how to bring the market equilibrium.
Market equilibrium happens when the supply in market is equal to demand in market. In order to
meet equilibrium, countries export the excess. Other way to stop surplus is by stopping
production for some time until the market equilibrium is met or ways should be introduced to
increase the demand by advertising or marketing etc. On graph, surplus is represented above the
equilibrium.

Factors of production:
Factors of production plays the major role in everything. Factor of production is an economic
term which describes the input used in production in order to make profit. The factors of
production includes land, labor, capital and entrepreneurship. In case of sugar the factors are also
very important. First comes the land, it is a natural resource which is used to grow sugar cane.
Land is under government or may be bought for business purposes. To grow sugar cane, huge
amount of land is needed. Then comes the labor, labor is the effort put by every individual in
producing sugar and the making available in market. Labor are paid for their time and effort in
wages which depends in their skill. In case of sugar, labor is farmers who grow and cultivate
crops. This is one of the toughest job and strong man power is required to fulfill it. The labor is
recognized as human capital. The third factor is capital, capital is investment did for the business.
Capital is used to buy such as machinery, vehicles etc. in sugar industry, capital can be the
investment on mills which is used to convert sugar cane into sugar. Machinery used in farming is
also an example of investment which is used by farmers. Commercial vehicle to transport
produced sugar into markets is considered as capital. The last one in entrepreneurship which is
the most important. Entrepreneurship is someone who wants to start business by investing his
time and money. They have the ability organize all he factors of production and transform into
business. In sugar industry, entrepreneur is usually government authorities who monitor the
production and provide them to the public. Government usually carries these types of business.
These are 4 factors of production which is necessary for every business. As mentioned in article
that world faces surplus in supply of sugar, by having stockpile of sugar the sugar industry won’t
be able to provide wages to their employees and if it happens continuously, the labor will not
work anymore and the business would stop. In Pakistan millers don’t pay wages as directed by
government. Pakistan government should take strict actions for this to enhance the production.
When all the factors mix together it helps to run a business. In Pakistan the price of sugar is
relatively high because the cost production is high in Pakistan. The electricity, water and other
resources are all expensive in Pakistan that’s why the price of sugar sold in international market
is also relatively high.

References:

 Walsh, S., 2018. Sugar: The worst performing commodity of 2018 to date. Agriland.ie. Available
at: https://www.agriland.ie/farming-news/sugar-the-worst-performing-commodity-of-2018-so-
far/ [Accessed February 10, 2019].

 Perez, M.G., Slowing demand growth for sugar sees stockpiles grow and prices
drop. BusinessLIVE. Available at: https://www.businesslive.co.za/bd/world/2018-07-10-slowing-
demand-growth-for-sugar-sees-stockpiles-grow-and-prices-drop/ [Accessed February 10, 2019].

 Anon, Industrial Sugar Market Analysis 2018 – Global Demand, Size, Share, Trend, Top Key
Players, Research Methodology, Gross Margin and Forecast to 2022. Erie News Now. Available
at: http://www.erienewsnow.com/story/39318705/industrial-sugar-market-analysis-2018-
global-demand-size-share-trend-top-key-players-research-methodology-gross-margin-and-
forecast-to-2022 [Accessed February 10, 2019].

 Anon, 2018. A Global Sugar Surplus: Causes and Consequences. So Nourished. Available at:
https://www.sonourished.com/news/a-global-sugar-surplus-causes-and-consequences/
[Accessed February 10, 2019].
 PART 3

Appendix

Law of supply and demand:

Price D1
D2

P1

P2

Q2 Q2 Q1 Q1 Quantity
This graph represents the shift in demand to of sugar as mentioned above in part B. the demand
curve shift to left when it decreases. The demand of sugar was decreased and increase in supply
was seen. Here in the graph Q2 represents the quantity demanded of sugar after the demand fall
and Q1 shows the demand before the fall. P1 and P2 shows different price at different demands.
D1 represents the demand curve before the fall of demand of sugar and D2 shows the curve after
the demand was decreased. When the curve shifts to right, then it means the demand has
increased.

Demand Supply
Surplus
Price

Equilibrium

Surplus:
Shortage

Quantity

As mentioned in article, there is surplus of sugar worldwide. This economic diagram perfectly
relate the concept of surplus. Surplus happens when quantity supplied increases from the
quantity demanded. Sugar has a surplus of around 4 million tons as demand went down in recent
some years. Surplus is shown above from equilibrium in the graph as represented above. The
market price is above the equilibrium price, it causes surplus. The equilibrium is the stage when
quantity demanded and quantity supplied is same. The intersection point is shown as
equilibrium. When the market price in less than below equilibrium price, it creates shortage
which is quantity demanded more than the supplied. Shortage is shown under the below
equilibrium in the graph.

ARTICLE LINK:

http://www.pakistaneconomist.com/2018/03/26/per-global-demand-pakistan-needs-enhance-sugar-
production/