NJC 2025 H2 EC Prelims Paper 1 (QP)

ECONOMICS 9570/01 Paper 1 2 hours 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. This document consists of 9 printed pages and 3 blank pages. N ATIONAL J UNIOR C OLLEGE Economics Department © NJC 2025 9570/01/Aug/25

2 Answer all questions. Question 1: Global markets for cocoa and chocolate Extract 1: Small confectioners move away from just selling chocolates as global cocoa shortage hits hard A recent surge in cocoa prices has caused some small confectioneries in Singapore to branch out from simply selling chocolates in order to save costs and increase revenue. These smaller retailers, which have been hit much harder in terms of profit margins compared with larger stores, are now offering experiential services like chocolate-making workshops. The price of cocoa – the base ingredient of chocolate – has skyrocketed over the past one to two years due to a global supply shortage. Its key producers, Ghana and the Ivory Coast, have been hit by climate change and disease outbreaks. Decades of underinvestment in cocoa plantations as well as investor speculation have also driven prices up. Singapore-based artisan chocolatier AnjaliChocolat is one retailer that has switched its business model amid such market challenges. It has a physical store in Tanglin Mall and sells its sweet treats online as well. ‘The recent increase in cocoa prices has been unprecedented and it’s definitely given us a curveball,’ she said. ‘If we were to break even, then we would have to increase our prices by about 30%.’ Another boutique chocolatier, Embrace Chocolate, is paying double the price for raw cocoa beans now compared with the start of the year. Founder Namita Gupta said her shop may have to pass on the cost to consumers by S$0.50 to S$1. ‘If people want to continue eating good chocolate, they might have to pay a little more,’ she said. New cocoa trees take as long as three to four years to produce beans, according to the International Cocoa Organisation, which also estimates that global production of cocoa could drop by 10% this year. Still, with growing affluence, economists said demand for chocolate is unlikely to be deterred. Mr Song Seng Wun, economic advisor at CGS-CIMB Securities, said such demand depends on the global labour market and whether people are still earning enough to spend on less essential items like chocolate. Source: Adapted from Channelnewsasia.com, 1 May 2024 Extract 2: The chocolate price spike – what’s happening to global cocoa production? Cocoa prices are going through the roof. In the last week, they have surged more than US$10,000 per tonne. The world produces nearly 6 million tonnes of cocoa beans each year. Almost two-thirds of this come from West Africa. Most of the rest is produced in South America and Asia. Within West Africa, the Ivory Coast produces around 38% and Ghana 19% of the world’s cocoa beans. That’s almost 60% combined. Bad weather and disease outbreaks have hit cocoa production in West Africa. West Africa experienced extreme wet conditions late last year, driving an outbreak of the ‘Black pod disease’. This is a fungal disease which tends to spike just after the wet season. If not treated, it can destroy an entire harvest. This extreme rain was followed by extremely dry conditions, which has helped the spread of another disease: the ‘Swollen shoot virus’. The International Cocoa Organisation and cocoa traders estimate that global production could drop by around half a million tonnes this year. That’s around 10% of the world’s usual harvest. The skyrocketing price of cocoa should be good for farmers. Those who have seen a reduced yield this year should be able to top up their income with higher returns on the harvest they did get. This © NJC 2025 9570/01/Aug/25

3 is not happening. Governments in these West African countries set cocoa prices based on sales from the previous year. In Côte d’Ivoire and Ghana, government agencies such as the Coffee and Cocoa Council (CCC) and the Ghana Cocoa Board (COCOBOD) set a guaranteed price at the start of the growing season to protect farmers from global price swings. If farmers cannot sell through private buyers at the guaranteed price, the government agencies promise to buy all cocoa offered at the guaranteed price, and ‘farmers receive exactly the guaranteed price we set’. In 2024, the global price is above US$10,000 per tonne, but farmers are receiving a fixed (guaranteed) price between US$1,600 and US$1,800 per tonne. While this guarantee provides a fixed price for farmers, they lose out when prices are high. It’s farmers in other more open markets such as Brazil, Peru, Ecuador and Indonesia that are benefitting from the spike. What might the future of cocoa look like? Most of the world’s cocoa is produced in West Africa which are highly susceptible to extreme and cyclical weather and crop diseases. This is likely to get worse with climate change. And farmers do not earn enough to properly invest in pest management and more productive crops. One obvious solution at a global level is to diversify cocoa supplies. That means larger markets in South America and Asia, so the global market is less sensitive to shortfalls from West Africa, where ‘Black pod disease’ and ‘Swollen shoot virus’ are concentrated. Farmers in other regions – seeing the recent high prices – might be investing in more cocoa production already. It would not be surprising to see countries such as Ecuador, Peru and Brazil becoming the dominant producers in the next decade or two. But that does not address the root of the problem for farmers in Ghana and the Ivory Coast. They do not have the money to invest in more resilient or protected crops. In the short term, the governments in these countries could lift the fixed price and pay more to farmers. But if we want