H2 VJC 2024 Prelims

2024 JC2 H2 Economics TJC T4 ERP 2024 VJC Prelims 1 STRICTLY FOR INTERNAL CIRCULATION Adapted from 2024 VJC Prelims Paper 1 Question 1: Food! We need it but can we pay for it? Figure 1: Food prices and supermarket profits in Australia, 2018 – 2022 (2018 = 100) Year Source: Australia Bureau of Statistics Extract 1: Is your trolley getting lighter? It is no surprise that the cost of filling up your trolley costs more in 2022 than it did three years ago. According to official numbers from the Consumer Price Index, the prices of groceries have risen by 4.2 per cent between December 2019 and December 2021 alone. The chairman of SPC – one of Australia’s biggest food manufacturers – also warned that the cost of all supermarket products would increase by 10 to 20 per cent. He said the price increases were due to a “double whammy” of disrupted global supply chain issues, as well as food production and rising oil costs. “You’ve got the war between Russia and Ukraine, which impacted the oil, and means the oil price has gone up … and impacted the food because Ukraine used to produce a lot of the food that went into Europe” he continued. “In a globalised economy, when you have a war in Europe like this, it is bound to have an impact on the rest of the planet.” Source: www.news.com.au, 4 April 2022 Extract 2: Breaking the breadbasket Ukraine has long been a land of natural bounty, not just for its own population but also for people around the world. Products made from its wheat, corn and sunflowers can be found in markets and kitchens from Estonia to Egypt. Its farmland is cheaper to run than that in Europe and the US, and its deep seaports have given it easy access to international markets. The combination has allowed Ukraine to become a key exporter of agricultural commodities, and to be described as the breadbasket of Europe.

2024 JC2 H2 Economics TJC T4 ERP 2024 VJC Prelims 2 STRICTLY FOR INTERNAL CIRCULATION Now the basket has been overturned. With swaths of farmland turning into battlefields and Ukraine’s road and port infrastructure being attacked by Russian missiles and bombs, the country’s food supply chain has stalled. The war has also left a global supply gap. Ukraine accounts for 8 per cent of global wheat exports, 13 per cent of corn flows, and more than one third of the sunflower oil trade. Normally the country exports 40 to 50 million tonnes of cereals every year, but Russia’s invasion has meant export volumes in March were a quarter of those in February, according to the agriculture ministry. Source: The Financial Times, 27 April 2022 Extract 3: Two titans down under Coles and Woolworths are household supermarket names in Australia. Over the years, this concentrated supermarket sector has faced criticism and scrutiny, and it has been reaching fever pitch again in recent months, with a number of investigations underway into their business practices during the current cost-of-living crisis. Starting in the 1950s, Coles and Woolworths began to buy up the competition, in an intense period of growth leading to a combined share of 31 per cent of the grocery market in the 1960s, peaking at 65 per cent in 2022. In 2008, the Australian Competition a nd Consumer Commission had an inquiry into the competitiveness of retail prices for standard groceries. It found that grocery retailing in Australia was workably competitive. But there were several factors that were limiting the level of price competition. One of these was the exclusive lease agreements that Coles and Woolworths were able to obtain in shopping centres, which was making it very hard for new players to secure sites. German chain Kaufland backed out of their plans to open stores at the last minute. One of the reasons Kaufland pulled out was because major suppliers – especially in fresh food – refused to supply them. Source: Adapted from Australian Broadcasting Corporation, 22 February 2024 Extract 4: Your prices are too high! Supermarkets like Coles and Woolworths have not only used the pandemic and recent inflationary period to sell more goods, but also profit more from each sale, expanding their margins. While the problem may exist across industries, it is exacerbated in sect ors with muted competition, such as supermarkets, because they have fewer rivals ready to undercut them. When products and services rise in price by amounts outpacing any additional costs businesses face, there is a good chance that profiteering – the practice of making or seeking to make an excessive or unfair profit – is happening. This is especially concer ning in uncompetitive sectors, such as supermarkets, where there is no increased demand for a particular product or service. Rod Sims, the former head of the competition watchdog, said Australia’s big supermarkets have likely taken advantage of limited competition and used their market power to increase prices higher than necessary. Coles and Woolworths deny they are profiteering, and say it is actually improved productivity that has led to bigger profits. Specifically, Coles cited cost savings such as faster checkouts and distribution centre improvements, while Woolworths has said it improved the way it manages stock loss, referring to markdowns and items it cannot sell. Profiteering is not illegal, although there are regulations designed to prevent companies misleading consumers about the reasons for price rises.

2024 JC2 H2 Economics TJC T4 ERP 2024 VJC Prelims 3 STRICTLY FOR INTERNAL CIRCULATION Supermarkets are not the only ones expanding profit margins. Qantas has dramatically increased its air fares from pre -pandemic levels, citing rising costs such as jet fuel, after its revenue was curtailed during border closures. It has not significantly dr opped prices even after jet fuel prices halved. A key difference between airlines and supermarkets, however, is that companies such as Qantas could argue they are taking advantage of pent-up travel demand to maximise profit. When it comes to supermarkets, there is no surge in demand; it is just that people need to eat. Source: The Guardian, 27 July 2023 Extract 5: Supporting innovation in the agrifood sector According to the Economic Outlook 2023 report, the rising price of food is the main contributing factor to Malaysia’s higher inflation, from 2.2 per cent in March 2022 to 4.7 per cent in August 2022. In response, the government implemented short -term measures to reduce the impact of food inflation including price controls, additional subsidies and cash assistance. The report noted that the projected consumption subsidies, which include subsidies for fuel, cooking oil, flour, electricity, chicken and eggs, have increased from RM5.2 billion to reach RM52 billion. Accordingly, the government would have provided subsidies and social assistance of an estimated RM80 billion in 2022 – the largest in Malaysia’s history. But the Economic Outlook 2023 report also noted that increased subsidies came at an expense to allocat ions to the country’s productive capacity such as in developing public infrastructure, especially in the health and education sectors. For longer-term sustainability, the report said the government was cognisant of undertaking reforms to strengthen food security. “Efforts to increase productivity will be undertaken to ensure producers have the ability and competitiveness to produce their products in the local market, as well as on a global scale, while helping to stabilise supply. “In this regard, the government will support the agrifood business in enhancing its productivity through the adoption of Fourth Industrial Revolution technologies such as precision farming drones and smart algorithms,” the report said. Source: Adapted from The Star, 8 October 2022

2024 JC2 H2 Economics TJC T4 ERP 2024 VJC Prelims 4 STRICTLY FO