INTRODUCTION:
The micro economic analysis regarding the article covers the sugar industry of India. The factors covered in the article are about the cost of making, price of, demand for and exports of sugar. This article also covers the problems being faced by the sugar industry of India.
MICRO ECONOMIC ANALYSIS
Cost of sugar:
For a long period of time, Governments have been taking measures to protect the interest of their farmers. Most of the Asian and African countries are making laws to protect their farmers, so that they may earn a justified amount of their harvests. With the cause of protecting the farmers, the governments provide subsidy to farmers on seeds, fertilizers, pesticides etc. Another measure to protect the farmers would be to provide a minimum price for their products.
Governments provide minimum price for sugar canes protects the farmers however, this pressurizes the industrialist to pay higher prices. In making of sugar more than fifty percent of the cost is of buying sugar canes. This increases the overall cost of producing sugar.
Price of sugar:
The price for sugar rises due to the increasing cost of sugar canes and the ultimate burden of these high prices fall on the general public at large. Government intervenes to protect the public from paying high prices. The price of sugar canes has increased by 65% in last five years, which is paid by the entrepreneurs of sugar mills causing these entrepreneurs to charge higher prices of sugar.
The government fixes a maximum price for sugar in the local market so that the public gets sugar at a reasonable price, which makes the entrepreneur to take the burden of lose. Due to government intervention the prices of sugar has gone down by eight percent in last five years. It is a demotivating factor for mill owners to work in this industry. In the current analysis sugar prices received by mill owners were rs.2, 460 per 100kgs which is lowest in last five years.
Supply of sugar:
Since the cost of making sugar has increased and the price of sugar has decreased due to government intervention, therefore it is encouraging the entrepreneurs to produce less so that they can earn more from limiting their output.
Government provides subsidy on exports, which is encouraging the mill owners to export more however,due to low prices in the international market local industrialist are unable to compete in the international market. Last year, the subsidy provided by the government was rs.3,300 per ton and it is proposed to increase the subsidy to rs.4,000per ton this year however,if this proposal is not accepted, then it is expected that the exports will decrease by 50%.
Demand for sugar:
As discussed in the above mentioned paragraph about the price of sugar, due to the increasing price of sugar, the demand for sugar should decrease in normal circumstances but because of government intervention in this case, the prices of sugar are set at a lower rate acceptable to the public at large by the government causing an increase in demand for sugar.
The production capacity of the country in estimated to be 26 million tones increasing the production by 4% on earlier estimate. However, the local demand for sugar is 24.7 million tones, which means that the country is consuming almost 95% of its production. Due to such heavy consumption within the country, the owners of the millare left with a little amount of surplus production making them earn low out of their exports and subsidy provided by the government on exports.Micro Economic Analysis Case Solution
Conclusion:
Due to the government intervention in the sugar industry, the free forces of demand and supply are not working as they normally behave. The supply is reducing due to many factors such as low return on productions, low quality of sugar cane and low yield of sugar cane per hectare of land.
The cost of production has increased due to the use of old machinery and process of production. New ways of production should be adopted by the entrepreneurs to reduce cost of production.The free forces of demand and supply measure the cost and price of sugar in the market so that the industry flourishes.................
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