How to reduce sugar consumption of Malaysian

 “One in seven Malaysians is diabetics, and the total number of diabetic patients has increased two-fold from 1.5 million in 2006 to three million in 2011.” Sugar is one of the major causes of diabetes. The high sugar consumption diet and affordable sugar pricing contribute to the high rate of diabetics. In economic point of view, increase the price of sugar is able to reduce the demand for sugar of Malaysians.

The current of price of sugar per kilogram is maintained at RM2.30 and the government has spent more than 567m on sugar subsidy every year. In addition, one over five of health care cost is used in curing diabetics. A cut in subsidy of sugar can save up more than 1 billion of tax payers’ money.

Up to date, the price of sugar per kg for our neighborhood countries like Thailand is RM2.31, Singapore RM3.61, Indonesia RM3.80, and Philippines RM4.50. The average price of ASEAN neighboring countries is RM3.00. Compare to Malaysia’s sugar price RM2.30, the price difference of RM0.70 will be profitable to the black market. Initially, the subsidy is to make sugar more affordable to Malaysian, but it also encourages the smuggling of sugar to neighboring countries.

A subsidy is assistance paid to a business or economic sector or producers. A subsidy encourages the supplier to produce more of sugar and thus the supply of sugar in the market is increased

Currently the equilibrium point is at Es whereby the government has subsidized rm0.63 per kg. If the subsidy is taken out, the supply curve will shift leftward. Since there is no incentive to produce, the quantity supplied will decrease from point Qs to Qe, the sugar price will raise from Ps to Pe. The demand curve will remain constant, but the quantity demanded will decrease. A new equilibrium is obtained whereby it is at higher price and lower quantity. This is an efficient market price whereby there is no interference by government.

The ancient Chinese philosopher Lao-Tzu said: “govern by doing nothing that goes against nature”. When the subsidy is eliminated, the problem of high rate diabetics and smuggling problems would also be gone.

However, the action of taking out subsidy is just to let the sugar price back to a normal level which follows the float of market. Since consuming high sugar will lead to bad health, we can treat it as a sinful good like tobacco and alcohol then we may impose a sin tax on it or so call fat tax.

With the effort of government and society promoting healthy diet, it is believed that Malaysians are aware of not taking too much sugar, therefore the elasticity of sugar demand is greater than 1. I suggest imposing a certain portion of tax on sugar to make the supply curve shift further to left, the price will increase from Pe to Pi, the quantity demanded will decrease from point Qe to Qi and the new equilibrium point Ei is obtained with higher price and lesser quantity.

Despite the objection from the discrimination of obesity people, Denmark had decided to impose fax tax in hoping to reduce the obesity problem in the nation start from 2011. It claims that it is not fair to a fit body man to pay the same tax as a obesity man, because the latter spend more health care cost on the average. The tax is a complex one, in which rates will correspond with the percentage of fat in a product. The value of the tax is about $3.00 for every 2.2 pounds of saturated fat

Whereas in Japan which has the highest average span of people in the world, it also introduced a waist-measurement on organizations. The employees of organizations who failed to meet the “healthy” waist-size requirement, a financial penalty will be charged on that particular organization. Hence, an organization of Japan is now responsible for its employees’ fitness.

As a conclusion, I think that removing subsidy and imposing tax on sugar are effective to tackle diabetes. It doesn’t even need a spending of one ringgit but it can save billion of ringgit.

2013 budget was launched when I was writing this article. The government realized that the subsidy doesn’t really benefit the people but it causing more problems. In the 2013 budget, PM Datuk Seri Najib announced the government will cut down 20cents of subsidy which will make the sugar price rise to RM2.50 per kg. It is believed that government reduces the subsidy in small amount periodically to let the people to adapt the less sugar diet.