The Barrier-entry Level in Sugarcane Business Model

Published: 2021-09-04 00:40:15
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Category: Strategy, Industry

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Price elasticity of demand is the responsiveness of buyers to a change in price. This shows how much more or less of a good buyer will buy when the price of the good changes. Globally, most countries are unaffected by the India sugarcane surplus as they do not have a commercially important product relying on sugarcane. These countries are unresponsive to the price change of sugarcane, therefore they are price inelastic to India sugarcane surplus. However, Brazil’s ethanol industry heavily relies on sugarcane and therefore is highly responsive to the change in price. When the price of sugarcane went down from surplus, Brazil increased their import of sugarcane from India to create more ethanol. In the case of Brazil, they are price elastic and highly responsive to the price change, The sugarcane industry generally resembles a perfect competition. For most countries, entering into the industry is easy as all the farmers need is a fertile land with sufficient water supply. Harvesting season usually takes around 12 months and farmers usually need to provide water and weed the crops regularly. Getting the resources is relatively easy as they can get the resources from other farmers. This makes entering the market easy.
Barriers to entry are almost non-existent as the only barrier that may restrict someone from planting sugarcane is either due to the climate of the person staying or the government requiring people to own a license to plant it.The ease of entry thus makes the number of sellers in the market to be very vast since farmers who are planting other crops can easily change their production to planting sugarcane.
Buying of sugarcane from any farmer or market is usually the same as the sugarcane provided do not have a distinct difference in taste or look.
There is a high level of information in the market for sugarcane due to the vast number of sellers. Buyers can simply compare the prices of sugarcane with the other sellers and access whether the price reflects the economic fundamentals or not.
Sugarcane can be converted to other resources which make it a rather versatile and valuable crop to grow. With the ever-increasing demand for it, this lucrative industry will constantly attract people to the industry with many buyers importing it for further uses.
For this market structure, the farmers in this industry will break even and only earn zero profit in the long run. This is due to how easy it is for the farmers to leave and enter the market. In the long run, farmers are able to leave the market when the price of sugarcane is less than the average variable cost to produce sugarcane and come back to the industry when the price of sugarcane is more than the average variable cost. This allows the farmers to minimise loss from planting sugarcane but however losing the surplus due to such a structure.

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