JPJC H2 Prelim 2024 P1 QP

JURONGPIONEERJUNIORCOLLEGEJC2PreliminaryExamination2024 ECONOMICS 9570/01Higher 2 26August2024 Paper1 2hours30mins Additional Materials:AnswerBooklets READTHESEINSTRUCTIONSFIRST Two answer booklets will beprovidedwiththis questionpaper. Youshouldfollowtheinstructions onthe front cover of the answer booklet. If you need additional answer paper ask theinvigilator for acontinuationbooklet. Answer allquestions. Thenumberofmarksisgiveninbrackets[]attheendofeachquestionorpartquestion. Iftherearepartquestionsyoudidnotattempt,pleasewritethequestionnumberandpartinThemarginsbeforeyousubmityouranswers.(i.e.ifdidnotcomplete2b,indicate2binthemarginoftheanswerscriptthatyousubmitforquestion2.) Thisdocumentconsistsof 7printedpagesand1blankpage.

2 Answer allquestions. Question1: Winnersandlosersinthecoffeemarket Table1: Summaryof worldcoffeebeanmarket ('00060kgbags) Source:Statisa.com Extract 1: Thewinnersof thecoffeebeanpricespike Since 2016, coffeebeanpriceshavedropped30%belowtheaveragefor thepast decade,according to the International Coffee Organisation, a body representing 49 membercountries which export and import coffee bean. Arabica coffee bean prices inMarchwereabove$1.12per pound, afar cryfromthepeakofover$3.00perpoundaround2011.Manyof the 25 million coffee bean farmers worldwide struggle to cover their operating costsasinput prices continue to rise. These coffee bean price drops are mostlyfelt bysmall-scalefarmersincountriesthat dependhighlyoncoffeebeanexportsasasourceofincome,suchas Burundi, Uganda, andHonduras, wherelowpricescoupledwithhigher productioncostshaveresultedinlossesandforcedthemtoexitthemarket. But prices of Arabica, the world's most commonly produced coffee bean, rose last monthdue to concerns over its availability fromthepandemic, saidtheICO. ArabicacoffeebeanfromBrazil, the world's largest producer, jumped 10%in March as comparedtoFebruary.The current coronavirus pandemic has led to supply disruptions —frommanufacturing totransportation to retail — as lockdowns were imposed around the world. There is alsoevidence that countries are bringing forward coffee bean purchases on anticipation aboutfuturesupplydisruption. AccordingtoaReutersreport,coffeebeanimportersinsomeofthelargest consumingcountriesarestockpilingandbringingforwardordersbyuptoamonthasthey fear prices will rise further. On the global situation overall, currently consumption ofcoffee bean is estimated to exceed production further increasing the price of coffeebean.That is good news for farmers in key coffee bean producing regions, who have beenstrugglingascoffeebeanpriceskept slumpingfor thepast fewyears. Thisalsomeansthatcoffee bean farmers can start to grow more coffee crops. Coffee bean farmers could bewinnersascoffeebeanpricesspike. Source:adaptedfromCNBC,20April 2020 Extract 2: Thesustainabilityproblemspercolatinginthecoffeesupplychain From intimate, family-owned coffee shops to popular franchises with clogged drive-thrulanes, people certainly love their coffee, consuming about 450 million cups every day.AccordingtotheNational CoffeeAssociation, thatequatestomorethan400billioncupsperyear, generating more than $225 billion in revenue. Unfortunately, this rapid consumptioncreates a huge environmental impact involving much more thanthewastegeneratedfromubiquitous‘to-go’ cups. About 1/3 of the world’s land is forests, but every year we are losing an average of 134million hectares. Most of the deforestation is happening in Africa and South America, themain geographies where coffee bean is grown. There are two methods of growing coffee 2017 2018 2019 2020 2021 2022Production 167569 169887 168390 170876 168485 171268Consumption 165637 170876 167593 168569 175605 178534Balance 1932 -989 797 2307 -7210 -7266

3 beanplants: shade-grownmethodwhichismoreenvironmentallysustainablebutcostlyandsun-grownmethodthatdepletesthenutrientsinthesoil resultinginmoreclearingofland.Ascompanies look for ways to reduce costs in thefaceof increaseddemandfor inexpensivecoffee, it becomes more economically advantageous to use the sun-grown method. Thismeans to abandon the plantation and clear new areas of forests - which is anenvironmentallycatastrophicmodel. Source:adaptedfromForbes,29February2022 Extract 3: Coffee bean farmers would not be ready to comply with EUdeforestationlaw Most global coffeeroasterswill not bereadytocomplywiththeEuropeanUnion’snewlawpreventing imports of commodities linked to deforestation. Deforestation is responsible forabout 10 per cent of global greenhouse gas emissions that drive climatechange, andthelaw aims to tackle the EU’s contribution to this. The EUlandmark law, which comes intoeffect at end-2024, requires importers of commodities like coffee bean, cocoa, beef, soy,rubber and palm oil to produce a due diligence statement proving their goods are notcontributing to the destruction of forests - a major source of climatechange- or riskheftyfines. Coffee bean is produced by an estimated 12.5 million coffee bean farmers in roughly 70countries, 5of them- Brazil, Vietnam, Colombia, IndonesiaandHonduras- produce85percent of the world’s coffee bean. The remaining 15 percent is produced by 9.6 millionsmall-scale coffeebeanfarmersincountrieslikeEthiopia, Uganda, Tanzania, Kenya, Peru,Guatemala, Nicaragua, El Salvador, Costa Rica and Mexico. These countries haveinadequate infrastructure and low levels of traceability and the farmers tend to usesun-grown cultivation methods. Thesegroupof small farmersmaysuffer consequently. EUdeforestation law might prompt coffee roasters to shift buying coffee from farmers thatcomesfromthemoredevelopedregionslikeBrazil whichhavebettertraceability,leavingthemillions of small-scale coffee bean farmers in the lurch. In suchascenario, thesefarmersmay expand into forested areas to increase output to make ends meet worsening thesituation of deforestation. These farmers would then sell to regions with less stringentenvironmental rules,negatingtheintendedimpactofthelaw. Source:TheBusinessTimes,14September2023 Extract 4: Aresmall coffeeroaster firmsdoomedtofail? Coffee roaster is the process that transforms raw, green coffee beans into the aromatic,flavorful coffeebeansweusetobrewcoffee.Thecoffeeroastermarketishighlycompetitive,with a fewlarge companies and their value chains dominating whichallowsthesefirmstodetermineafavourablepricefor thecoffeetheybuyfromcoffeefarmers.Currently,Lavazzais the world’s sixth-largest coffee roaster firm by sales and volume. The Italian roasterformed part of the top ten list, which includes the likes of Nestlé, Starbucks, and MelittaGroup. Betweenthem, theyareresponsiblefor roasting35%of theworld’scoffee. Andthetrendisshowingfewsignsofslowing.LavazzaacquiredFrenchcoffeecompanyMaxiCoffeein November. Nestlé added Seattle’s Best Coffee to its bulging portfolio in October. AndMelittaGroupdroppedaneight-figuresumtoacquireacontrollingstakeinCaffèCorsini latelastyear. Horizontal integration – the purchase of related companies – has been themost commonformofacquisitionandmergerseeninthecoffeeroasteringindustry.Assuch,theindustryis

4 now characterised by what’s known as an oligopoly: a market structure dominated by ahandful of large buyers where barriers to entry are high. However, it can also giverisetoseveral problems. The rising market dominance of a fewlarge roastering companies candrive down prices in theshort term. Asthishappens, newentrants–or anyotherswithoutthebulkbuyingpoweroflarge-scaleroasters–finditincreasinglydifficulttocompete. Attemptingtocompeteonpriceisalargelyfutileexercisefor newentrants. Bigplayersareabletopaywhat isknownasa‘pricemarkdown’ ineconomics.Inthiscontext,thepricefallsbelowthe value of coffee beans. Market newcomers whohavetriedtotaketodosohaveeitherfallenatthewaysideorburntthrough. However, therearewaysbeyondpricethatenablesmallercoffeeroastingcompaniestostaycompetitive in the face of buyer market power. One of themost powerful isdifferentiation,whether on quality, branding, or the stories companies