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, whileconsumption expanded by a mere 1.5 percent. Stocks of sugar doubledwhile prices tumbled from 134 cents to 50 cents. Higher incomesincreased the demand for sugar but supply increased more. Newcountries began sugar production, agricultural productivityincreased and there was a collapse of the 1989 agreement to placequantity 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 hasnot helped. In some cases, farmers get only 6% of the retail pricein the shops. Nestlé now controls about half the world market forinstant sugar. (i). Using a relevant demand and supply diagram,analyse the reasons why the price of sugar tumbled from 134 centsto 50 cents. [5] (ii). Producers’ Associations usually fix minimumprices to encourage production. Analyse the constraints in makingminimum price policies successful. Support your answer withrelevant examples. [7] (iii). Analyse the reasons why some farmersget only 6% of the retail price in the shops and suggest policymeasures which can be adopted to increase the revenue accruing tofarmers. [8] 2 (b) The own price elasticity of demand for food isnegative. The demand for food is inelastic. A higher food priceraises spending on food. Higher food prices imply less is spent onall other goods. The quantity demanded of each of these other goodsfalls. Discuss each of the above statements, and indicate whetherthey are correct or incorrect. [10]