eli5 Why is the end product sugar cheaper than the base ingredients or waste products from it’s production?
In: Economics
All of what was said about the economics of undercutting prices. Also supposing we’re talking about sugar cane as opposed to beets(which also undercut the price of sugar since it can also be grown outside the tropics) there are secondary markets for the molasses and other byproducts for ingredients in things like rum, so why package and export your molasses for sale when you can send it down the road to be used by the truck load.
If you buy the ingredients in massive amounts in order to manufacture sugar, you will be paying much less than what you are paying now as a consumer.
Imagine you open a lemonade stand on your street. It costs you $2 a jug to make, and a jug gives you 10 cups, so you sell it at 50c a cup to make 30c profit from every cup.
Then the rich bitch Jennie across the street steals your idea, and so does the next 5 neighborhood kids. Everyone starts cutting their price to undercut the next kid, and suddenly you’re selling each cup at 20c or less.
Fuck you Jennie.
Because there’s a massive supply chain in place for delivering large quantities of sugar. Not only does that increase the supply available (lowering the price), but it also means that it’s less expensive per capita to ship.
This is an economic issue rather than a scientific issue so it will depend where you live, but basically more people want processed sugar, which increased the demand, which increased the number of suppliers willing to sell it, which decreased the price. In order for a plant to remain profitable when selling an item with low profit like processed sugar they need to sell a lot of it. For base ingredients, since less is sold the profit margins need to be higher to achieve a similar revenue. There are also certain countries that restrict what parts can grow “raw sugar” and may require specific designation.
Latest Answers