SRJC H2 ECON P1

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2 © SRJC 9732/01/JC2PreliminaryExam/11 [Turn over Answer all questions. Question 1 Recession and Prices Extract 1: Food prices to stay high, volatile: FAO Food commodities prices are likely to stay high and volatile in the medium term, while a repeat of the 2007-2008 price spikes is seen as a realistic possibility, the U.N. Food and Agriculture Organisation (FAO) said on Monday. By mid-2008, food prices on international markets reached their highest level in nearly 30 years. Graphics published in the report showed prices for commodities such as rice, oilseeds, raw and refined sugar were expected to hold above pre-2006 levels through to 2018. FAO said the global food commodities market was also likely to remain volatile "in the foreseeable future" and a new surge in prices like the one seen in 2007-08 was a "realistic possibility." Insufficient investment in productive capacity, and further demand growth for biofuels were some factors that could keep prices firm in the medium term. Source: Silvia Aloisi, Reuters, 12 October 2009 Extract 2: Expect flour prices to go up, says importer The effects of a Russian ban on wheat exports will soon ripple through Singapore: Prima Limited, the largest importer of the grain here, is planning to hike flour prices, a move that will impact a wide variety of industries, from bakeries to noodle-makers, as well as consumers. Prima, the main supplier of flour to businesses here, declined to say when prices would rise, or by how much. But its executive director, Mr Lewis Cheng, told The Straits Times yesterday that the recent surge in global wheat prices had a 'definite impact' on the company. “With this huge jump in material costs, we have no choice but to increase our flour prices,” he said, adding that prices will go up gradually, and in phases. Industry players, such as Singapore Food Manufacturers' Association president Wong Mong Hong, think the increase will be 'substantial'. “F lour is totally made from wheat,” he said. “The increase in the price of wheat will have a direct and significant impact on flour prices. The increase is unlikely to be small.” In Singapore, businesses are bracing themselves for the aftershocks of Prima's impending price hike, and said they would have little choice but to raise their prices too once this happens. The chairman of the Singapore Bakery & Confectionery Trade Association, Mr Liow Kian Huat, said the grouping's 150 members are unlikely to be able to absorb more than a 10% increase. “Any more than that and it gets difficult. There is nothing we can do about it. We cannot hoard flour now because it will just go bad,” said the baker in Mandarin, adding that he currently pays about $27 for a 25kg bag of Prima's flour. Mr Leong Han Hin, the owner of Hung Wen Noodle Manufacturer, agrees. He supplies noodles to hawker centres and coffee shops around Singapore. “If prices go up, what can we do? We will try to absorb until we can't,” he said.

3 © SRJC 9732/01/JC2PreliminaryExam/11 [Turn over Prima is Singapore's only flour mill, and accounts for more than 95% of the wheat imported into Singapore. Industry players say that more than half of all the flour used here is from Prima. The rest is imported from countries like Malaysia and Indonesia. Source: Jessica Lim, The Straits Times, 7 August 2010 Extract 3: Asian consumers go back to basics in downturn Forget about bells and whistles. Asians have gone back to basics in the economic slowdown and are opting for no-frills, lower-priced products rather than brand names and items with fancy features that rarely get used. From laptops without standard accessories such as CD- roms, to rice cookers with minimal functi ons, brands such as Samsung and LG Electronics are quickly introducing basic items that can be sold at lower price points. It's all about surviving the slowdown which has dealt a severe blow to Asia's export- dependent economies such as South Korea which saw exports drop 25% in the first quarter of the year alone. Buoyant sales from these products are providing relief, and much needed cash flow, to companies that posted heavy profit falls or swung to quarterly losses early this year such as Samsung Electronics. Some companies such as LG Electronics are introducing new products to capture market share during a time of uncertainty. Late last year, it introduced the Cookie, a smart phone that sells for 590,000 won (US$475) 20-40% c heaper than other smart phones with price tags of US$600-US$800. "Our Cookie phone is designed to fit in the recession environment," Skott Ahn, President and CEO of LG Electronics' Mobile Communications unit. Doing away with redundancies in functions and rationalising product line-ups help companies cut back on costs. "It is a matter of efficiency," Park Jean, an analyst for Woori Investment & Securities in Seoul said. "Mass production of a few core products can lower production costs rather than producing a variety of models on a small scale." Making profits is tough in a difficult economy with the International Monetary Fund predicting that private consumption in Asia will remain subdued as long as rising unemployment, weak confidence and low asset prices weigh on household spending. Kim Rando, a consumer science professor at Seoul National University, said the trick is to differentiate products and cut production costs by designing easy-to-use products that retain the functions that consumers most want and need. Streamlined products may be the rage for some time if consumer preferences for simple, easy-to-use products prevail once Asian economies begin to accelerate again, he said. "If the divergence trend is more about removing redundancies and simpler but stylish design than about lowering prices, it then would last even after the economy rebounds," he said. Source: Kim Yeon-hee, Reuters, 17 May 2009

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