H2 Prelims Paper 1 Q1_Suggested Answers

©ACJC2022 Preliminary Exam 9757/01 Answer all questions. Question 1: The Nitrogen Fertilizers Crisis Table 1: Employment and consumption data on fertilisers 2015 2016 2017 2018 2019 Number of workers employed in US fertilizers industry 19 133 19 580 20 058 20 837 22 179 Fertilizers consumed in US (in million tons) 22.46 23.14 23.44 21.68 22.40 Fertilizers consumed globally (in million tons) 213.27 215.13 217.42 213.77 215.37 Sources: IBISWorld and ourworldindata.org Extract 1: The US fertilizer production industry Fertilizers are critical input for crop production and represent a major variable cost for several US crops. Farmers represent the end users in the fertilizers’ supply chain, and the prices they pay for fertilizer s depend on several fac tors including local demand, product type, retailer mark-ups, and transportation costs. The US fertilizers sector has undergone substantial changes. Between the 1980s and mid - 2000s, the combination of lower fertilizer s demand and higher input costs for fertilizers production caused the fertilizers sector to contract from 59 to 22 production facilities. The assumption is that highly concentrated industries are synonymous with market power , which can be detrimental to the society. Whether that will happen in reality rely on many factors, one of which is the level of government regulation in the fertilizers market. Source: Choices and the Agricultural & Applied Economics Association, 2020 Extract 2: USDA announces plan to support US farmers The US Department of Agriculture (USDA) will support American farmers by increasing the fertilizers production so as to address its rising costs. It is offering a $250 million new grant to encourage greater production of fertilizers. Additionally, to address growing competition concerns in the agricultural supply chain, USDA will launch a public inquiry, seeking information regarding agricultural fertilizers and the impact of concentration and market power on agriculture farmers. The inquiry aims to enhance fairness and competition across America’s economy. “Concentrated market structures and potentially anti -competitive practices leave America’s farmers, businesses, and consumers facing higher costs, fewer choices and less control about where to buy and sell, and reduced innovation—ultimately making it harder for those who grow our food to survive,” said Agriculture Secretary of the United States. Source: US Department of Agriculture, 11 March 2022

2 ©ACJC2022 Preliminary Exam 9757/01 Extract 3: Fertilizer costs: what is driving the increase? Significant increase in the cost of fertilizer s over the past year has caused a lot of concern among farmers in the United States. Given that the cost of fertilizers now account for approximately 15-20% of total costs for corn production, fertilizer prices and its availability are a major concern for farmers planning for the 2022 growing sea