Australia as the next most significant exporter of sweets on the globe is not really one of the biggest producers. Brazil is one thousand pound guerrillas. Weighed against the sweets industry of Brazil, from overall account, Australia sugar industry has an obvious competitive disadvantage that cannot have the scale result.
Scale impact is also called economies of range, that is, enlarging the scale could bring the economic benefits increasing (John & Scott, 2010). Any development embraces costs, generally including set costs and adjustable costs. To achieve profitability, the sales income must be greater than production costs. As the fixed costs are unchanged, more production will bring the common fixed costs lowering and the common profit increasing. Relating the economics, market of scale comes from the diminishing marginal costs. Therefore, Size effect needs that the production scale should meet or exceed the breakeven point. The next Amount-1 shows the idea of Size effect
Scale result Inverted-U curve
Profit Progress Rate
The comparative size of Australia as a maker of sugar is much less large as the size of Brazil such that it can conclude that Australia glucose industry is much less easy as Brazil sugar industry to attain the scale effect. Then from the awareness of overall economy of range, Australia sweets industry may stocks a higher permanent cost level than Brazil for producing the same quantity of sugars with the assumption that other parameters keep to be a same level. Thus here it can be said Brazil glucose industry has a level competitive advantage compared with Australia sugars industry.
2 The sugar equilibrium price analysis
The equilibrium price of sweets depends upon many factors, the key two of which are the sugar demand variety and the sweets supply quantity on earth market. Before exploring the sugars equilibrium price examination, the release of equilibrium price will be stated the following.
Equilibrium price identifies a item price as the supply curve intersects with the demand curve, that is, the purchase price for product demand number equals the commodity supply amount (Donald, 2010). In market that is competitive in strict economic terms, the demand power of a item interacts to its supply force, and then your commodity market price is commonly the equilibrium price. If the marketplace price is greater than the equilibrium price, excess supplies will be performed and the market price tends to fall; on other hands, if the marketplace price is lower than the equilibrium price, excess needs will be shown and the marketplace price have a tendency to surge to the equilibrium price level. Therefore, it could be said that the marketplace competition drives the equilibrium price to be created. The equilibrium price formation basic principle is shown as the following Body-2.
As to the equilibrium price development, the sugars industry has to consider the sweets demand and the glucose supply. So the level of demand and demand for sugar should be examined for checking out the equilibrium price creation. Sugar, as a kind of life necessity, its demand elasticity is comparatively small, that is, no subject the changes of sugar supplying, folks have a certain level of demanding for sweets. Thus it could be said that the sugar demand is set and rigid. For inspecting the sugar supply, since the cane developing places are located in several countries and sugars manufacturing has a detailed reference to the production technology, the natural environment, the farmers' cultivation, and nationwide polices, etc, it therefore can be said the sweets source elasticity is big, that is, cane supplying will depend on several individual factors and natural factors.
If the cane providing factors, like the manufacturing technology, the natural weather, the farmers' cultivation, and national polices, play an optimistic role on glucose manufacturing, then the sugar supply amount is large. Compared with sugar demand quantity, if the sugar supply number is bigger the demand volume, then the prominent right of forming sugar price lies in the demand aspect; if the sugars supply variety is smaller than the demand number, no matter what size the supply level of sugar is, the dominating right of creating sugar price is based on the supplying part. Then your above in this paragraph is the way the sugar equilibrium price to be produced.
Through deeper analyzing the sweets equilibrium price creation process, the assumption of glucose resource being smaller than its demand can be subdivided specifically. First of all, when sugar source is smaller than its demand and the sugars and cane market a perfect competitive market, generally expressing, individual sugar organization is a price-taker, because the glucose industry is a worldwide industry and the individual sugar firm has to accept the purchase price founded by the pushes of the whole market. Secondly, if the sugars and cane market is not a perfect competitive market but a monopolistic market or policy-orientation market, then the status of individual organization may be transformed, that is, specific sugar firm may not be considered a price-taker nowadays, but a price-maker. If the average person firm has the monopolistic ability to control the sugars price and it adopt monopolistic competition method to suppress its rivals, then it will be the price-maker for sweets; if the host country issued some laws and regulations or regulations to limit the lowest price of sugars for protecting the cane farmer's benefits, the monopolistic firm may be not the price-maker nowadays, but the price-taker.
3 Sugar demand elasticity Analysis
3. 1 Price elasticity of demand
Before speaking about the sweets demand elasticity, this is of Price elasticity of demand will be briefly unveiled here. Price elasticity of demand (PED) is employed to gauge the ratio change in number demanded (Q) which is the effect of a one percent corresponding change in the purchase price changing (P) (Dorothea & Philipp, 2005). Through mathematical description, PED = ( Q/ P) (P/Q). In the event the flawlessly elastic demand curve is horizontal to X axis, then it signifies infinitely elastic; if the properly inelastic demand curve is perpendicular to the X-axis, then it represents zero elasticity; if PED equals one, then demand is unit-elastic; if the PED value is between zero and one, then your demand is inelastic; in case the PED value is bigger than 1, then demand is reported to be elastic. Curves D1 to D4 in the next Number-3 show the several situations of elasticity of demand.
3. 2 The sugar demand elasticity analysis
Since glucose is a kind of life need, it cannot be substituted by a great many other commodities, and people' common expenses on sugar does not account for a huge percentage of their total expenditures, we can say that the sugar demand elasticity is infinite small, around zero, which is manifested by a similar form of D1 curve in the Amount 3. However, there also exit exceptional conditions that can transform the purchase price elasticity of sugars demand, if a new substitute is created and used to replace the sugar, then the sugar demand elasticity may be considered be higher; under that assumption, the sugar will never be life necessity any longer.
4 Competitive edge analyses of Brazilian sugars producers.
Brazil is a country with thousand pound guerrillas on agriculture. Its sugars production occupies the number one status all round the world. And if compare the Australia sugars development to Brazilian sugar production, it will be clear that the Brazil established the shade for the worldwide sugars market because the sugars productivity in Brazil is much larger than other countries, even the second major country Australia. Brazil sweets industry has its special competitive benefits than Australia sugar industry.
Firstly, Brazil sweets industry has integrated creation systems so that there is complete possession from the field, through transfer, through the manufacturer and down to the slots, while Australia doesn't have such integrated production systems. The designed development systems can help Brazilian sweets producers effectively reduce the transformational cost of glucose manufacturing process; the critical information can be shared and various parties of sweets produce can be cooperated better within the systems, thus the management cost can be diminished. The reduced costs will definitely bring Brazilian sugars manufacturers a competitive price advantages.
Secondly, Brazil glucose producers have cheap labor, which is quite very important to a farming industry development. Labor cost, as a main component of Changing Cost, has a huge influencing role on the overall cost. Under the assumption that resolved cost is stable, lower labor cost definitely bring lower overall cost. Compared with Brazil, Australian agriculture labors are comparatively scarce, therefore the Australia sugar production cannot count on lessening labor cost to decrease the overall cost. Then this is another gain that Brazilian sugars industry has over Australian sugars industry.
Thirdly, Brazil has the advantage of establishing the tone for the worldwide sugars market, which is similar with a type of monopoly benefits. The export output of Brazilian sugar is large enough to directly hinder the sweets price creation; through the interference, the worldwide sweets price may be made for the great things about Brazilian sweets producers. This is a horrible competitive benefit of Brazil sugar producers in the Australian sugars producers, that could be called monopolistic competition, and it is harmful to the world economy development and should be restricted and punished.
5 Competitive gain analyses of Australian glucose producers
Even though Brazil has its competitive benefit of cheap labor and built-in systems, Australia has other competitive advantages over Brazil. Through summarizing Australia competitive advantages, I believe at least two types of advantages exist, which is stated as follows.
5. 1 Educated work force
Australia has advanced technology of farming, processing, and cropping canes. To work with these advanced technology, educated work pushes are needed. Though modern advanced technologies adopted and handled by educated work pushes, the production end result of cane and glucose can be achieved to be always a higher level. Then the income can get enlarged. Beneath the assumption that the worldwide sugars cost is stable, no doubt this is a competitive edge over Brazil, because the Brazilian sugars producers hire the cheap labors that cannot take up and make use of the modern advanced technologies.
5. 2 Integrating the harvesting of transport
The other advantages Australia has over Brazil on the glucose competition is the fact that Australia is proficient at integrating the harvesting of move. Australia has got the sweets mills and own railway lines that bring cane to the mills. The railway lines bring more through the crushing season than Queensland Railway and this travel system gets cane to the mill in double quick time. Therefore, it can be said that Australia gets productive mechanical harvesting, successful transport, efficient growing, useful mills and a well integrated marketing system. All those efficiencies help Australia improve the sugar production management. And combined with the management efficiency improvement is the diminishment of total cost. Certainly this is another competitive benefit of Australian sweets producers.
5. 3 The federal government support
Since Australian cane growing area has held been reduced over the number of earlier years (Ben, 2009), which means the range of cane creation is reduced and this is not helpful for the market competition, Australian governments plan to issue some plans that are involved in enlarging the cane growing size. This can promote the Australian sweets industry development (http://www. 21food. cn/html/market/2009-7-14/1010470. htm). So getting the government support is another competitive advantage of Australian sugars producers.
Though contrasting the sugars industry distinctions between Brazil and Australia, studying the glucose equilibrium price formation process and the characteristics of glucose demand elasticity, this essay demonstrate the competitive benefits of both Brazil sweets industry and Australian sugar industry. Brazil sweets industry has competitive benefits of scale effect, cheap labor costs, and involved development systems, while Australian sugar industry has features of modern technology, informed workforce, and the built in harvesting of transportation.
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