NJC H1 ECONS P1 QP

This document consists of 11 printed pages. NATIONAL JUNIOR COLLEGE Economics Department [Turn Over © NJC 2015 ECONOMICS 8819/01 Paper 1 14 September 2015 3 hour Additional Materials: Answer Paper, Cover Pages READ THESE INSTRUCTIONS FIRST Write your name and subject class on all the work you hand in. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs. Do not use staples, paper clips, glue or correction fluid. DO NOT WRITE IN ANY OF THE MARGINS. Section A: Case Study Questions Answer ALL questions. You are advised to spend some time reading through the data before you begin writing your answers. Section B: Essay Questions Answer ONE question. Start each question on a new piece of paper. Fill in the necessary information on the cover pages. At the end of the examination, fasten all your work securely with the cover pages given. 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 1

2 © NJC 2015 8819/01/Sep/15 Section A Answer all questions. Question 1 Palm Oil Market in Indonesia Figure 1: Global price of palm oil Source: World Bank Extract 1: Palm oil prices set for a volatile 2013 Palm oil prices are set to start 2013 on a sour note as record high stocks and rising output in Southeast Asia overwhelm already weak demand, while regulatory uncertainty in top buyers India and China adds to the gloomy outlook. Analysts and traders at an industry meeting in Bali expect the world's biggest palm oil producers, Indonesia and Malaysia, to boost supplies next year, barring any weather disruptions. While lower prices will attract food demand, appetite could be curbed by possible regulations by China and India. India, the world's biggest buyer, may set higher taxes on edible oil imports to protect oilseed farmers, and China launches strict quality curbs for imports on 1st of January 2013. Indonesia is also considering increasing tax incentives to encourage palm oil companies to set up refineries as it develops its downstream sector to compete with Malaysia and draw in more export earnings. Source: Adapted from Reuters, 30 Nov 2012 Extract 2: South-East Asia Haze: What is slash-and-burn? Slash-and-burn is arguably the easiest and cheapest way to clear patches of land for plantation. Some farmers are clearing the forest to plant crops. But the big concern is that many of these fires may have been started to burn rainforests so big corporations can plant oil palm plantations. An extremely versatile commodity that's cheaper and more efficient to produce than other vegetable oils, palm oil is currently used in half of all consumer goods from biscuits, to shampoos, to cosmetics and biofuels. In 2003, an European Union directive went into effect that mandated that by 2010 member countries would have to replace 5.75 percent of all transportantion fuels with biofuels. The surge in demand means that there is need for extra land for palm oil plantations.

3 © NJC 2015 8819/01/Sep/15 Singapore and parts of Malaysia and Indonesia have been shrouded in a dense, pungent smog in recent days caused by fires in Indonesia. Pollution levels have hit record high. This haze is largely due to the slash-and-burn technique of clearing the land in Indonesia. Under this practise, farmers cut down part of the vegetation on a patch of land and then set fire to the remainder. When started on peats, the fire is extremely difficult to control or stop. These fires produce a thick smog and release a huge volume of greenhouse gases. The current haze is being caused by fires in Sumatra in Indonesia, much of which is a giant peat bog. Indonesia's government has outlawed the use of fire to clear land. Source: Adapted from The BBC News, 24 June 2013 Extract 3: The fires problem persists In early March 2014, forest and peat fires in Indonesia spiked again. But while we can determine the extent of the fires and where they are happening, there's still a lot we don't know. For one, Indonesia's government fails to release the most timely, updated information on where oil palm, pulpwood, and logging companies are operating. Second, further investigation on the ground is an urgent priority, including in-depth research and surveying to better understand the proportion of burning done by large companies versus medium-sized operations. Certainly, poor farmers lack alternatives to the use of fire when clearing their land. They may also use fire to deliberately damage or claim land controlled by larger companies. Such land conflict is common across Indonesia. The governments of Indonesia and Singapore, as well as the wider ASEAN grouping, are taking efforts to reduce the risk of fires. Fire detection and combat efforts have been stepped up, and Indonesian law enforcement has made a significant number of arrests. Governments of the ASEAN community agreed in October to collaborate and share data on fires and land use, though unfortunately this information will not be made public. And further, many companies have publicly announced "no burn" policies, and are investing in their own fire monitoring and control systems. But as the unprecedented number of fire alerts in Indonesia shows us, these efforts are falling far short of what's needed to curb the crisis. Source: The Guardian, 14 March 2014 Extract 4: Falling commodity prices a blessing in disguise for Indonesia – World Bank Falling commodity prices have dealt a hard blow to Indonesia, one of the world’s largest suppliers of minerals and agricultural commodities. But there’s a silver lining: It may drive investment into other sectors, the World Bank says. “Lower commodity prices should increase the relative profitability and attractiveness of manufacturing and help Indonesia develop its industrial base,” the World Bank argued. Declining commodity prices over the past two years have led to a deterioration in Indonesia’s current account, which contributed to the massive exit from Indonesian assets during last summer’s taper-related crisis. Rapidly rising wages in China present Indonesia with a potential opening to regain a comparative advantage in labour-intensive export sectors. Appreciation in the Chinese yuan – which has seen its real effective exchange rate rise 30% since 2005 — is further eroding China’s competitiveness in manufactured goods. These pressures, combined with slower overall economic growth, are prompting firms to look beyond Chinese coastal areas as a manufacturing base. Some of that investment is now flowing to Southeast Asia. “These

4 © NJC 2015 8819/01/Sep/15 dynamics offer ASEAN countries, including Indonesia, an opportunity to attract more investment in their manufacturing industries,” the World Bank said. Indonesia has been attracting investment in recent years in the automotive and consumer-goods sectors, both for export and to meet growing demand domestically. But maximizing its present opportunity will require reforms, the World Bank said, highlighting the need to improve labour productivity, infrastructure and the legal system. “In light of ongoing economic risks and Indonesia’s ambitious development agenda, laying the groundwork for future reforms, minimizing policy uncertainty and making continued reform progress in some areas should remain a priority,” the report said. Source: The Wall Street Journal, 18 March 2014 Questions: (a) (i) Using Table 1, compare the overall change in global palm oil prices between 2009 and 2011 with that between 2012 and 2015. [2] (ii) Using demand and supply analysis, account for the change identified in (a)(i). [4] (b) Explain why the government in India may want to set a higher tax on edible oil imports from Indonesia. [2] (c) (i) With