H2 NYJC 2024 Prelims

2024 JC2 H2 Economics TJC T4 ERP 2024 NYJC Prelims 1 STRICTLY FOR INTERNAL CIRCULATION Adapted from 2024 NYJC Prelims Paper 1 Question 1: Impact of Russia-Ukraine War on Various Industries Extract 1: Effects of war on the fertiliser industry The effects of the Russia -Ukraine war may reverberate through the global fertiliser industry for years to come. Post-COVID supply-chain disruptions had already pushed fertiliser prices to cyclical highs in 2021. Russia's invasion of Ukraine in February, an d the sanctions and trade supply disruptions that followed then pushed prices even higher, grain prices also increased, reaching a peak in May 2022 . Russia is a major producer of the three main types of fertilisers - nitrogen, phosphate, and potash (NPK), and a major exporter of key raw materials for fertiliser production elsewhere in the world. High fertiliser prices have boosted earnings and profitability of the 12 global fertiliser companies rated by S&P Global Ratings. This is boosting fertiliser companies' profits and credit quality for now. But this has also destroyed demand from farmers who are unable to afford fertilisers and, in turn, increased food insecurity worldwide. It also highlights the need to reduce dependence on Russia, the world's largest fertiliser exporter. Yet, investment required to end dependence on Russian and Belarussian fertilisers is being hampered by high inflation, supply shortages, and in the case of nitrogen fertilisers, uncertainties over the shape of further regulation to decarbonize the industry. Figure 1: Comparison between fertiliser and grains prices from 2021 to 2022 Adapted from USDA, Economic Research Service Department of Agriculture, 2022 and World Bank, 2022 Extract 2: Pollution generated from the use of fertilisers Farmers apply nutrients on their fields in the form of chemical fertilisers and animal manure, which provide crops with the nitrogen and phosphorus necessary to grow and produce the food we eat. However, when nitrogen and phosphorus are not fully utilised by the growing plants, they can be lost from the farm fields and negatively impact air and downstream water quality. This excess nitrogen and phosphorus can be washed from farm fields and into waterways during rain events and when snow melts and can also leach through the soil and into groundwater over time. High levels of nitrogen and phosphorus can cause eutrophication of water bodies. Eutrophication can lead to hypoxia (“dead zones”), causing fish kills and a decrease in aquatic life.

2024 JC2 H2 Economics TJC T4 ERP 2024 NYJC Prelims 2 STRICTLY FOR INTERNAL CIRCULATION Excess nutrients can cause harmful algal blooms (HABs) in freshwater systems, which not only disrupt wildlife but can also produce toxins harmful to humans. Fertilized soils, as well as livestock operations, are also vulnerable to nutrient losses to the air. Nitrogen can be lost from farm fields in the form of gaseous, nitrogen -based compounds, like ammonia and nitrogen oxides. Ammonia can be harmful to aquatic life if large amounts are deposited from the atmosphere to surface waters. Nitrous oxide is a potent greenhouse gas. There are many ways that farmers can reduce nutrient losses from their operations, including, but not limited to Adopting Nutrient Management Techniques: Farmers can improve nutrient management practices by applying nutrients (fertiliser and manure) in the right amount, at the right time of year, with the right method and with the right placement. This would likely increase their operating cost of production but would hopefully reduce the negative impacts on others. Source: Environmental Protection Agency, 2022 Extract 3: Rethinking the use of nitrogen fertiliser Governments can start by promoting more responsible and efficient uses for nitrogen fertilisers. In this regard, they might consider promoting the principles enshrined in the International Code of Conduct for the Sustainable Use and Management of Fertilisers. This Fertiliser Code was designed to support the implementation of the Voluntary Guidelines for Sustainable Soil Management produced by the Global Soil Partnership to promote practices to reduce the overuse and misuse of fertilisers. The Fertiliser Code includes recommendations for government regulations related to the sale, distribution, and labelling of fertiliser products. Second, governments can promote greater use of organic fertilisers such as manure, compost, peat, seaweed, or guano, where conditions permit. These fertilisers do have their limitations: they are often more expensive, slower in releasing nutrients, often l imited to moist and warmer soils, and insufficient to meet the food demands of a growing world population. Yet they can still offer an additional tool to improve soil structure in an environmentally friendly way until there are more effective solutions available. These options, while useful in the short term, do not offer a satisfactory alternative to our long - standing reliance on nitrogen fertilisers, especially when considering current projections of population growth through 2050. What other options do governmen ts have to reduce reliance on nitrogen fertilisers in the medium to long term? There are promising scientific developments underway for alternative fertilisers, but many of these approaches need further development. For example, scientists are working to perfect a process known as “biological nitrogen fixation”, where legumes such as peas, beans, or lentils, by using a particular type of soil bacteria called rhizobia, “reduce” or “fix” nitrogen from the atmosphere into a form that crops can use as a fertiliser. If further developed, scientific experts say this could be a viable alternative to nitrogen fertilisers that rely on natural gas. However, research and development on fertilisers based on biological nitrogen fixation are still at a very early stage. Government support that currently goes to chemical fertilisers could go instead to supporting further research and development of alternative fertilisers, including this one. Not only would repurposing farm subsidies in this way help the environment by red ucing nitrogen pollution and supporting cleaner marine and freshwater ecosystems, but it would help secure greater crop yields for farmers, with related benefits for global food security. This government support for research and development to fertiliser alternatives could also be matched by private investment. Under any scenario, both public and private efforts would be essential for rethinking the use of nitrogen fertilisers in agriculture to ensure sufficient, safe, and nutritious food for everyone with

2024 JC2 H2 Economics TJC T4 ERP 2024 NYJC Prelims 3 STRICTLY FOR INTERNAL CIRCULATION minimal environmental harm. As the current crisis has reminded us, we need to start making changes now both to address our current hunger and food security challenges while also ensuring we are better able to withstand other shocks in the future. Source: International Institute for Sustainable Development, 24 March 2022 Extract 4: European industry braced for pain from latest surge in oil and gas prices The latest surge in oil and gas prices as the west responds to Russia’s invasion of Ukraine is threatening a sharp rise in costs for European industry, severely hurting sectors from steel and aluminium to fertilisers and transport. That means yet more pain for airlines, shipping companies, carmakers and other energy -intensive industries, which had already called on governments to address “unbearably high energy prices” before the current crisis. Airline Companies Higher oil prices sent shares in airline groups lower on Monday, with a more than 7 per cent fall at Ryanair taking monthly losses to 30 per cent. Higher crude prices feed through to jet fuel