H2 Prelims Paper 1 Q1_Suggested Answers.docx

Answerallquestions. Question 1: The Nitrogen Fertilizers Crisis Table 1: Employment and consumption data on fertilisers 2015 2016 2017 2018 2019Number of workersemployed in US fertilizersindustry 19 133 19 580 20 058 20 837 22 179 Fertilizers consumed inUS (in million tons) 22.46 23.14 23.44 21.68 22.40 Fertilizers consumedglobally (in million tons) 213.27 215.13 217.42 213.77 215.37 Sources:IBISWorldand ourworldindata.org Extract 1: The US fertilizer production industry Fertilizers are critical input for crop production and represent a major variable cost forseveral US crops. Farmers represent the end users inthefertilizers’ supplychain, andthepricestheypayforfertilizersdependonseveral factorsincludinglocal demand,producttype,retailer mark-ups, and transportation costs. The US fertilizers sector has undergone substantial changes. Between the 1980s andmid-2000s, the combination of lower fertilizersdemandandhigher input costsfor fertilizersproduction caused the fertilizers sector to contract from59 to 22 production facilities. Theassumptionisthat highlyconcentratedindustriesaresynonymouswithmarketpower,whichcan be detrimental to the society. Whether that will happeninrealityrelyonmanyfactors,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 Americanfarmersbyincreasingthefertilizersproductionsoastoaddressitsrisingcosts. It isofferinga$250millionnewgrantto encourage greater production of fertilizers. Additionally, toaddressgrowingcompetitionconcernsintheagricultural supplychain,USDAwill launch a public inquiry, seeking information regarding agricultural fertilizers and theimpact of concentration and market power on agriculture farmers. The inquiry aims toenhance fairness and competition across America’s economy. “Concentrated market structures and potentially anti-competitive practices leave America’sfarmers, businesses, and consumers facing higher costs, fewer choices and less controlabout where tobuyandsell, andreducedinnovation—ultimatelymakingit harder for thosewho grow our food to survive,” said Agriculture Secretary of the United States. Source:US Department of Agriculture, 11 March 2022 ©ACJC2022 Preliminary Exam 9757/01

2 Extract 3: Fertilizer costs: what is driving the increase? Significant increase in the cost of fertilizersover thepast year hascausedalot of concernamong farmers in the United States. Given that the cost of fertilizers now account forapproximately 15-20%of total costs for corn production, fertilizer pricesanditsavailabilityare a major concern for farmers planning for the 2022 growing season. Farmers in someareasarereportingpricesmorethan300%higherthanlastwinter,anddeliverytimesseemstobeanyone’sguess. Thepriceincreasewasdrivenbystrongdomesticandglobal demandfor crops, low fertilizers inventories, and very slow adjustment