NJC H2 Economics Prelim P1 QP

This document consists of 8 printed pages. NATIONAL JUNIOR COLLEGE Economics Department © NJC 2023 9570/01/Aug/23 [Turn over ECONOMICS 9570/01 Paper 1 22 August 202 3 2 hour 30 minutes No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. NATIONAL JUNIOR COLLEGE SH2 Preliminary Examinations for General Certificate of Education Advanced Level Higher 2

2 © NJC 2023 9570/01/Aug/23 Answer all questions. Question 1: Changes in the coffee market Extract 1: Coffee beans price slump as consumers stay home over coronavirus fears The effects of the coronavirus (COVID-19) have spread to the world's coffee growers as consumers shun coffee shops and stay home. China is the biggest importer of coffee beans f rom Brazil, the world's largest producer and exporter of various coffee beans varieties including arabica and robusta. But the COVID-19 outbreak has caused a dramatic fall in demand, with Starbucks closing more than 2,000 outlets in China late January. The decision ‘will lead to a decline China's coffee consumption’, said a Japanese trader. Chinese consumers have warmed to coffee-drinking in recent years, with Starbucks opening outlets throughout the country and homegrown rival Luckin Coffee becoming increasingly popular . But the spread of COVID-19 is beginning to hinder that growth. ‘People have refrained from nonessential dining out due to COVID-19, resulting in a sharp decline in coffee consumption at cafes and restaurants.’ said Shiro Ozawa, adviser for Tokyo-based specialty coffee trader Wataru & Co. While coffee consumption is expected to decline globally, coffee-producing countries are forecast to have a record crop year due to favourable weather. Many research companies expect that Brazil will produce coffee beans that would exceed the record of 64.8 million bags of coff ee beans. Vietnam, the world's second largest producer and exporter of coffee beans varieties including arabica and robusta, is also expected to yield a healthy cr op in that period with the planting of new high yield varieties. Source: Nikkei Asia, 12 March 2020 Extract 2: Vietnam’s coffee farmers fear profit squeeze Almost all of the coffee grown in Vietnam is robusta, the bitter-tasting bean used in instant coffee, of which the Southeast Asian country accounts for about 40% of global output. Unli ke in Brazil – the second-biggest grower of robusta – most of Vietnamese producers are small scale farmers with farms in the Central Highlands – the country’s primary coffee growing area. Small scale farmers account for 95% of Vietnam’s coffee beans produc e, have limited access to capital and technology and little power to influence prices set in the internat ional market for coffee beans. When faced with falling prices, these farmers diversified into mo re profitable crops such as durians. Coffee beans crop yield has fallen on average, in part due to poorer soil quality brought about by soil erosion caused by rising temperatures and erratic rainfall, the effects of climate change. As fertiliser costs continue to rise, heaping high production costs on farmers amid their stifled income, this makes the cultivation of the coffee crop unattractive. Source: Financial Times, 21 August 2018 Extract 3: Opportunities for Foreign Investors in Vietnam’s Coffee Industry Despite the COVID-19 pandemic, Vietnam’s coffee industry saw over US$3 bi llion worth in coffee export revenue in 2021, which accounted for 3% of the country’s Gross Domestic Product (GDP) and

3 © NJC 2023 9570/01/Aug/23 [Turn over 10% of its agricultural exports. As the country looks to step up i ts coffee production industry, total exports are expected to reach US$6 billion by 2030. While this growth has made a significant contribution to the Vietnamese economy, it has not come without cost. Maintaining high levels of production for the many farms located in Central Highlands have generated a series of environmental challenges including deforestation and groundwater depleti on. The continuation of old-fashioned but outdated irrigation as the primary method by s mall scale farmers caused inefficiency in water usage; some crops get more water while some crops get less. Rising temperatures meant that water evaporates quickly leading to farmers watering their coffee trees more often, depleting water levels in underground wells. Vietnam’s dry months have also led some farmers to adopt the practice of migrating to higher altitudes to access suitable conditions to grow their coffee trees. However, such migration has increased deforestation. Vietnam's coffee industry is at a crossroad. With Vietnam among the most affected coffee-growing country if predictions of a 2-degree Celsius temperature rise by 2050 hold t rue, total arable land for coffee cultivation is predicted to fall from 32,558 square miles by almost half to 17,943 square miles. At the same time agriculture land is increasingly under pressure fro m rapid urbanisation and industrialisation as Vietnam transits from a largely agricultural based economy towards manufacturing and services powered by a young and growing youthful population where 98.3% aged 25 years old and above have completed primary school education while 58.1% completed upper secondary school education. The government is looking to embrace the concept of sustainability and is reaching out to foreign businesses to improve coffee crop yields and make it more resilient. Japanes e beverage company Kirin Holdings is one company who responded, stepping up support for small scale farmers as it looks to cash in on growing consumer demand for sustainable products. The company i s training farmers in sustainable production methods including soil management, water conservation, protecting rivers from pollution and introduce better cultivation methods, and in the process helping small scale coffee farmers obtain agriculture sustainability certification. Environmentalists on the other hand are calling for taxes as an immediate action to reduce the detrimental effects of coffee farmers practices. Source: Asean Briefing, 17 March 2022 Table 1: Coffee greenhouse gas emissions measured in carbon emissions-equivalents (CO2-eq) per kilogram, 2018 The different stages of coffee production CO2-eq per kg, 2018 land use 3.82kg farming 10.75kg processing 0.61kg transport 0.13kg retail 0.05kg packaging 1.69kg Source : Ourworldindata.org, accessed 22 June 2023

4 © NJC 2023 9570/01/Aug/23 Extract 4: Starbucks gave China a taste for coffee, now must brew growth in pandemic-altered market where rivals smell opportunity China is one of the biggest markets for coffee consumption by volume. Starbucks opened its 6000th coffee shop in September since its arrival in 1999, setting the industry benc hmark for pricing and products to include an expansive tea menu and food items. Starbucks offers a c ozy environment – comfortable chairs and art – where people can stay and socialise after ordering t heir handcrafted beverage such as common offerings cappuccino and caramel macchiato to seasonal brews professionals say. After two decades, the global giant coffee shop now faces ferocious competition. Starbucks accounts for 4.4% of coffee shops in China, behind global rival KFC’s