Figure 1 illustrates the relationship between sugar trade and domestic sugar consumption. Panel A depicts the impact of trade on a sugar-exporting country, while Panel B presents the corresponding effects on an importing country. In panel A, $D_d$ represents the domestic demand while $S_d$ is the supply of the exporting country. In the absence of trade, the domestic equilibrium price and quantity are denoted as $P_d$ and $q_d$, respectively. When trade is introduced, an exporting country experiences an increase in the domestic price to $P_t$, leading to a reduction in domestic consumption to $q_t$. The higher domestic price reduces consumer surplus by the area $\left(P_{t}be{P}_d\right)$, with the remaining consumer surplus represented by the area $\left(ab{P}_t\right)$. On the other hand, the producer surplus expands to the area $\left(P_{t}de{P}_d\right)$ reflecting the gains accrued by domestic producers as a result of elevated prices in the local market and the possibility of export. These dynamics emphasize the redistributive effects of trade, where producers benefit at the expense of consumers in sugar-exporting economies.

In panel B, $D_f$ represents the domestic demand while $S_f$ is the supply for the sugar importing country. Without trade, the domestic equilibrium price is $P_f$ and quantity imported is $q_f$. Allowing trade pushes the price down to $P_t$ and domestic consumption increases to $q_t$. As a result, consumer surplus increases to $\left(hf{P}_t\right)$ and producer surplus is reduced to $\left(P_{t}go\right)$.

The findings of this model suggest that trade has significant implications for the sugar market and public health in the importing country. Specifically, trade leads to a reduction in the price of sugar especially for importers, making it more affordable and thereby stimulating domestic consumption. This increased sugar consumption, in turn, has potential adverse consequences for public health, particularly by exacerbating the prevalence of diet-related diseases such as obesity and diabetes.

From a theoretical perspective, the price reduction induced by trade can be understood through the standard supply and demand framework. In the absence of trade, domestic producers supply sugar at a higher equilibrium price, which constrains consumption. However, once trade is introduced, the influx of lower-priced imports drives down the domestic market price, increasing consumer surplus while reducing producer surplus. The resulting expansion in sugar consumption is consistent with standard consumer behavior, where lower prices incentivize greater consumption of normal goods, including sugar.

The public health implications of this trade-induced price decline are particularly noteworthy. A growing body of literature in health economics and nutritional epidemiology has documented the strong link between excessive sugar consumption and adverse health outcomes, including obesity, Type 2 diabetes, and cardiovascular diseases. By making sugar more affordable, trade may unintentionally contribute to overconsumption, thereby worsening health in the importing country. These effects are particularly pronounced in economies where dietary habits are already shifting toward higher consumption of processed and sugar-rich foods.

There exists significant heterogeneity in sugar demand within the domestic consumer base of importing countries, particularly along the income spectrum. Specifically, consumer responsiveness to price changes i.e., price elasticity of demand varies notably between high- and low-income groups. The price elasticity of demand of sugar for high-income consumers is inelastic demand for sugar; their consumption patterns remain largely unchanged in response to price fluctuations. In contrast, low-income consumers face a more elastic demand: reductions in sugar prices lead to disproportionately larger increases in consumption among this group. Consequently, as trade liberalization or other policy changes lead to lower domestic sugar prices, the burden of increased sugar intake and its associated health consequences, such as obesity more prevalent among poorer segments of the population. This divergence in price sensitivity offers a potential explanation for the observed socioeconomic gradient in obesity prevalence, wherein lower-income individuals are more adversely affected.

Figure 3 presents a stylized comparison of sugar demand structures between two countries, i.e., country A and country B, highlighting the role of income-based population heterogeneity in shaping aggregate demand. In country A, the population is predominantly composed of low-income (or poor) consumers, whose demand for sugar, denoted by $D_p$, is more price sensitive. A relatively small segment of the population belongs to the high-income group, with their corresponding demand represented as $D_R$. Accordingly, the total demand for sugar in Country A is given by $TD\left(\Sigma \left(D_p+D_R\right)\right)$, reflecting the weighted contributions of these two distinct income groups.

In contrast, Country B exhibits a different demographic composition, characterized by a larger proportion of high-income consumers. In this case, the sugar demand of poor and rich individuals is denoted by ${D^{\prime }}_P$ and ${D^{\prime }}_R$ respectively. Consequently, total sugar demand in Country B is represented by $T{D}^{\prime }\left(\Sigma \left({D^{\prime }}_p+{D^{\prime }}_R\right)\right)$. The structure and magnitude of domestic demand $TD$ differ markedly from that of $T{D}^{\prime }$ due to the differing price elasticities and consumption behaviors inherent in each income group.

As illustrated in Figure 3 , the aggregate quantity of sugar demanded in Country A exceeds that of Country B, primarily due to the dominance of poor consumers in Country A who tend to consume larger quantities of staple commodities like sugar due to their preference. This differential behavior emphasizes the critical role of income distribution in determining the structure and level of commodity demand at the national level.

The left panel of Figure 4 illustrates the domestic demand $\left(D_X\right)$ and supply $\left(S_X\right)$ curves for sugar in the exporting country, where the equilibrium price in the domestic market is denoted by $P_X$, and the corresponding equilibrium quantity is $Q_X$. $D_M$ is the domestic demand and $S_M$ is the domestic supply in an importing country, as shown in the right panel. The equilibrium price in importing country is $P_I$ and equilibrium quantity is $Q_M$.

Under free trade conditions, the domestic price in the exporting country rises to $P_f$. Domestic consumers demand a quantity $q_{f3}$ at this elevated price level, while domestic producers supply a greater quantity $Q_{f4}$. The resulting surplus, which is defined as the difference between domestic supply and domestic demand at the free trade price, is allocated to international markets in the form of exports.

Conversely, in the importing country, free trade leads to a decline in the domestic market price. This price reduction stimulates an increase in domestic demand to $Q_{f1}$, while domestic producers respond by supplying a lower quantity ( $Q_{f2}$), at the new market price. The resulting shortfall between domestic demand and supply is met through imports sourced from abroad.

When the government introduces a price support policy at a level $P_s$ (where $P_s>P_f$), it encourages higher domestic production of sugar in the exporting country due to price incentives. As a result, the market-clearing sugar price becomes $P_c$, where quantity demanded matches with external sector. This intervention affects consumer and producer surplus in both the exporting and importing countries. When we account for heterogeneity in domestic demand structures, the distribution of gains from trade, particularly consumer surplus, can vary significantly. The consumer surplus in exporting country is $\left(P_f{P}_{c}dc\right)$ while the consumer surplus in the importing country is $\left(P_{f}ab{P}_c\right)$. The consumer surplus in importing country $\left(P_{f}ab{P}_c\right)$ is much higher than the consumer surplus in the exporting country $\left(P_f{P}_{c}dc\right)$. The greater consumer surplus in the importing country reflects the enhanced access to cheaper sugar. Conversely, the consumer surplus in the exporting country is smaller as more sugar is diverted toward the export market and less is available for domestic consumption at the supported price. The producer surplus in exporting country increases to $\left(P_{s}0h\right)$ while the producer surplus in the importing country reduces to $\left(P_{c}j0\right).$

The analysis highlights the role of price support policies not only in enhancing domestic production and exports but also in redistributing welfare between consumers and producers, and across trading partners. The magnitude and direction of these welfare effects are intricately tied to the relative slopes and shifts in domestic and foreign demand, the elasticities of supply and demand, and the degree of market integration. In this context, policymakers should evaluate both aggregate welfare effects and distributional outcomes across the countries to ensure effective and relative gains from trade. This analysis also holds for almost all agricultural commodities that receive price support ( Emran & Schmitz, 2023 ).