HCI H1 ECON P1

HWA CHONG INSTITUTION JC2 Preliminary Examinations Higher 1 CANDIDATE NAME CT GROUP 10A/S CENTRE NUMBER INDEX NUMBER ECONOMICS Paper 1 Additional Materials: Answer Paper 8819/01 12 September 2011 3 hours INSTRUCTIONS TO CANDIDATES Write your name and CT class clearly in the spaces at the top of this page and on very page you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid and tape. Section A Answer all questions. Section B Answer one out of 2 questions. Begin your answer to each question on a fresh sheet of writing paper. At the end of the examination, fasten the answer scripts to Section A: Questions 1, 2 and Section B separately with the cover pages provided. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 9 printed pages. [Turn over

© Hwa Chong Institution 2011 8819/ 01 / JC2 Prelim 2011 2 Section A Answer all questions. Question 1: The market for Olive Oil Extract 1: The expanding olive oil market As the world begins to explore alternative uses of vegetable oils, especially those that held promises to be redeveloped as “Biodiesel”, olive oil has been spared from this oil hungry world. In an unexpected spin-off from the Eurozone contagion hitting the Mediterranean countries in 2011, Greek producers being uncertain of the future of the debt-laden state, are now hoarding stocks of olive oil rather than selling them on the open market. It is reported in The Grocer magazine in 2011 that there would be further increase s in the price of the olive oil that is widely used in UK for frying and as a salad dressing sinc e Greece is the world's third-largest olive oil producer, after Spain and Italy. Figure 1: World Price of Olive Oil World Price of Olive oil ( US $) 2,500.00 3,000.00 3,500.00 4,000.00 4,500.00 5,000.00 5,500.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 World Price of Olive oil ( US $) Source: International Monetary Fund Yet, we are seeing a continuous increase in production by the three main producer countries, Spain, Greece and Italy. The main reason is due to an increase of the field productivity which resulted from better crop and harvest practices, the use of irrigation and the disappearance of marginal fields. This is with the exception for the effects of El Nino which peaked in the middle of the decade. El Nino causes extreme weather (such as floods and droughts) in many regions of the world. Developing countries dependent upon agriculture and fishing are the most affected.

© Hwa Chong Institution 2011 8819/ 01 / JC2 Prelim 2011 3 Olive oil is considered a healthier and important ingredient in the traditional Mediterranean diet. The recent acceptance of olive oil by its new Asian markets is due to nutrition and health properties. Scientific studies of biological pr operties for olive oil have increased consumers awareness and interest in this product. Olive oil c ontains a wide variety of valuable antioxidants that are not found in other oils. Antioxidant compound in olives is believed to play a significant role in the many health benefits attributed to oliv e oil. Studies also sugges t that olive oil has a protective effect against certain malignant tumors in the breast, prostate and digestive tract. The studies also suggest that a higher proportion of monounsaturated fats in the diet are linked to a reduction in the risk of coronary heart disease. Source: Adapted from www.independent.co.uk, 17 July 2011 Extract 2: Environmental effects of olive production in the EU Soil erosion is cited in numerous publications as one of the principal environmental problems associated with olive farming in Mediterranean regions. Soil erosion has various environmental impacts, notably the loss of productive capacity, leading to the need for increased external inputs and ultimately to desertification. Down-stream effects of run-off like excessive use of fertilizers and herbicides being washed into water courses and groundwater are also felt by the communities as their water sources become contaminated. Olive farms in the EU range from the very small (<0.5ha) to the very large (>500ha) and from the traditional, low-intensity grove to the intensive, highly mechanized plantation. Overall, three broad types of plantations were identified: Low-input traditional plantations and scattered trees, often with ancient trees and typically planted on terraces, which are managed with few or no chemical inputs, but with a high labour input. Intensified traditional plantations which to some extent follow traditional patterns but are under more intensive management making systematic use of artificial fertilizers and pesticides and with more intensive weed control and soil management. There is a tendency to intensify further by means of irrigation, increased tree density and mechanical harvesting. Intensive modern plantations of smaller tree varieties planted at high densities and managed under an intensive and highly mechanized system, usually with irrigation. As a result of their particular plantation characteristics and farming practices, the low input traditional plantations have the least negative effects on the environment. These plantations are also the least viable in economic terms and hence most vulnerable to abandonment. The intensified traditional and modern intensive systems are inherently having the greatest negative environmental impacts. Source: Adapted from Olive Oil Production in EU, 2008

© Hwa Chong Institution 2011 8819/ 01 / JC2 Prelim 2011 4 Extract 3: Proposal for good agricultural and environmental practice in olive farming The EU constitutional rights allow the Member States to take various environmental measures in relation to agriculture, when they consider these to be appropriate. These measures may include specifying environmental requirements. Member States can decide on the appropriate financial penalties for not obeying the legal environmental requirements of EU. At the same time, it is important to establish the type of environmental conditions which are considered as appropriate. Member states can give support payments for its environmental friendly production. For example, farmers in a area with highly erodible crop land were required to draw up and implement a soil-conservation plan in order to be eligible for crop support payments. These plans could include options such as conservation tillage, contouring and the construction of terraces. However, it would be difficult to value the gains objectively. A plantation in a rural area might have less benefits reaped compared to one where there are communities. Problems also arise when there is a need to determine whether the correct plan has been used. For example, in Spain, soil erosion is widely cited as the prin cipal environmental problem associated with olive plantations. Yet in Italy, it is the intensive exploitation of the land through the continuous tillage or spraying of residual herbicides to control weeds that had caused an impoverishment of the soil. Source: Adapted from The Enviromental Impact of Irrigation in the EU, 2009 Questions (a) (i) Describe the trend in the world price of olive oil between 2001 and 2010. [2] (ii) Account for the trend in the world price of olive oil between 2001 and 2010. [