Burden of a sugar tax with very elastic supply and very inelastic demand

Short answer. Consumers bear most of the tax and producers very little. The price buyers pay rises by almost the whole tax, and the price sellers keep falls only slightly.

Why elasticity decides the burden. A tax drives a wedge between the price buyers pay and the price sellers keep, and both sides share the burden whichever of them hands the tax to the government. How it is shared depends on the elasticities of demand and supply, not on who is legally liable: the burden falls more heavily on the side that is less elastic. In ratio form,

(burden on sellers) / (burden on buyers) = Ed / Es.

Elasticity measures how easily a side can respond by changing its quantity when the price moves. The side that can respond easily escapes much of the tax, and the side that cannot is left with it.

The sugar market.

• Very inelastic demand (Ed small). The question gives demand for sugar as very inelastic: buyers cut their purchases very little when its price rises. Relatively inelastic demand leaves most of the burden on buyers.
• Very elastic supply (Es large). If the price sugar producers receive falls even slightly, they sharply reduce the quantity they offer, so the price they keep cannot fall much.
• Result. With Ed small and Es large, the ratio Ed / Es is small, so the sellers' share is a small fraction of the buyers' share. The market price rises by nearly the full tax, and the quantity sold falls only a little.

Conclusion. The burden falls mainly on sugar consumers, with producers bearing only a small part. This holds whether the tax is collected from producers or from consumers.