Macro Section B Mock Flashcards
With reference to Figure 1 and Extract A, explain the likely impact of a Fairtrade scheme on agricultural communities.
(5)
Fairtrade scheme is where producers are paid a fair price for their work, and is used to administer aid to those in developing countries who tend to be exploited by TNCs.
Often this will be a minimum price, which means farmers will receive a higher price for their crops and thus may see increased profit and annual income, more than the $2600 for cocoa farmers in the Ivory Coast. 45% of Fairtrade premium spent on investing in farm equipment, training and funding
(b) Examine two ways, apart from Fairtrade schemes, in which cocoa farmers could boost their incomes despite the falling price of cocoa.
(8)
‘World cocoa prices plunged by more than 1/3 in 2017’.
One way could be diversification into producing other goods and crops so less affected by cocoa prices fluctuating, such as ‘World cocoa prices plunged by more than 1/3 in 2017’. The farmers could use cocoa to produce goods such as chocolate.
However, cost of diversification may be great and revenue from new products may not exceed this
Second way could be investing in technology that can increase production yield of cocoa. ‘Average cocoa farm yields only half of what could be achieved’. Farmers could buy machinery and other capital goods which could speed up harvesting and improve yield.
However, increased production of cocoa will increase supply, which may further reduce price of cocoa (DRAW LEFTWARDS SHIFT)
(c) Discuss the problems for the Ivory Coast of dependency on cocoa for a large proportion of their exports. Refer to Figure 2 in your answer.
(12)
Primary product dependency is where a country relies heavily on one good as a large percentage of exports.
‘54% of IC exports are cocoa products’. One issue is that AD may heavily be affected by fluctuations in cocoa prices or bad harvests(C+I+G+[X-M]), known as Demand-Side Shocks Shocks. Exports may reduce if demand falls for cocoa. DRAW LRAS AND AD LEFTWARDS SHIFT DIAGRAM, results in fall in GDP to Y1, which can affect government spending.
However, depends on buffer stock schemes run by IC. DRAW BUFFER STOCK DIAGRAM, this would reduce the effect of bad harvests.
Comparative advantage can change over time. IC has comparative advantage now, but in the future costs may increase and cocoa from the country becomes uncompetitive. This could heavily affect LT growth. This would be a further issue as primary product dependency often means gov spending focuses on that item, ignoring other important areas such as education. Moreover, there may be structural unemployment due to lack of transferrable skills - seen this in the coal mines in UK 1980s, Port Talbot still afffected.
However, primary product exports can be useful as they can attract FDI. We have seen China invest heavily in central africa to gain access to raw materials, such as in Zambia for Copper, this has led to infrastructure being built, greater employment etc.
In judgement, primary product dependency is largely negative. It can be beneficial when profits are reinested into the economy to stimulate long-term growth, but issues in sub-saharan Africa like corruption are rife which may prevent this. We have also seen this in Angola, where over 90% of exports are oil, and a fall in price in 2009 led to $15bn in delayed payments.
(d) Nigeria is considering joining the African Continental Free Trade Agreement.
Assess policies the Nigerian government could use in response to the concerns of the country’s ‘manufacturers and trade unions’ (Extract B paragraph 3) if they join this trading bloc.
(10)
Def - Free Trade Agreement is where member states have no tariffs or quotas on each others exports, free to set their own on non-members e.g. NAFTA
Nigeria could subsidise domestic goods. DRAW SUBSIDY V OTHER COUNTRY DIAGRAM. This would allow the Nigerian goods to be more internationally competitive, reducing the negative impacts of trade creation through joining the FTA.
However, requires increased government spending, which has high opportunity cost and increases fiscal deficit. Neoclassical economists would state that government intervention should not be used, instead letting the inefficient firms drop out of the market.
Could use demand-side policies like monetary policy by reducing corp. tax. This would increase supernormal profits for firms, which could be reinvested in R&D resulting in dynamic efficiency, becoming more innovative or increasing productivity through greater quality capital goods like machinery. Thus would become more competitive through lower total costs, thus more room to reduce prices of exports.
However, this would reduce government revenue, which could reduce spending and thus quality of life. Firms may also choose to give SNP to shareholders through dividends, and increased profits may just be taken out of the country by TNCs such as Shell in Nigeria
(e) Discuss the likely benefits of increased economic integration for sub‑Saharan African countries (15)
u
