2020 Paper 2 Flashcards
(5 cards)
a) With reference to Figure 1 and Extract A, explain the likely impact of a Fairtrade scheme on agricultural communities. (5)
Figure 1 shows that 45% of finance from this scheme was used to invest in farm equipment, training and funding [Ap]. The median annual income for cocoa farmers in Ivory Coast is just $2,600 US, below the living income of $6,133 [Ap]. A Fairtrade scheme would give cocoa farmers a guaranteed minimum price [K], enabling farmers to increase their incomes [An] so they can grow their businesses and become more productive over time
b) Examine two ways, apart from Fairtrade schemes, in which cocoa farmers could
boost their incomes despite the falling price of cocoa. (8)
The extract states that farmers could
‘diversify into other crops, livestock or non-farm activities’ [Ap]. One way is to expand production into different areas
[K] opening alternative income streams to boost their incomes despite falling cocoa prices [An]
Cocoa farms in the Ivory Coast on average ‘produce only around half of the output that could be achieved’
[Ap]. Another way is to invest in training and capital [K]. Higher productivity will increase yields which would lead to greater sales and higher incomes [An]
However, farmers cannot diversify if they are already working at full capacity [E] and higher yields could lead to lower prices, so the rise in incomes could be less significant than hoped
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)
Ivory Coast’s heavy reliance on cocoa exports (54% of total exports in 2016) makes its economy vulnerable to price fluctuations in global commodity markets [K]. When cocoa prices fall, this reduces export revenues, making it harder for farmers to purchase seeds, fertilisers, and equipment to improve productivity [An]. This lack of investment can limit long-term growth in the agricultural sector and reduce overall economic development [Ap].
Level 3 KAA
However, Ivory Coast has a comparative advantage in cocoa production [E]. Its climate and soil conditions are well-suited for cocoa farming, meaning the country can produce it more efficiently than competitors [E]. This specialisation allows greater efficiency and output, ensuring continued dominance in the global market
Another major problem is that a decline in cocoa prices worsens Ivory Coast’s terms of trade [K]. With over half of its exports dependent on cocoa, a price drop would mean lower export earnings while import prices remain unchanged, making it more expensive to buy capital goods and essential imports [An]. This could lead to a weaker current account position and a reliance on foreign aid or borrowing to cover trade deficits [Ap]. Level 3 KAA
However, initiatives such as Fairtrade and diversification strategies may help reduce these risks [E]. Fairtrade certification ensures cocoa farmers receive a minimum price, offering some stability even when global prices fall [E]. Additionally, Ivory Coast could invest in processing cocoa into higher-value products, helping to capture more value in the supply chain and reduce dependence on raw cocoa exports
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)
One policy would be to increase spending to improve education [K].
Joining the trading bloc would involve
“removing tariffs on 90% of goods and to liberalise services” [Ap]. Having to compete with “other African countries with lower labour costs” [Ap]is a concern. Spending on education would increase the skills of the workforce [An]. This would increase productivity, so Nigerian firms can produce at a lower average cost and therefore compete internationally [An]
Level 3 KAA
However, this will take a long time to impact the workforce [E]. Firms would need to be competitive from the outset but the gains in productivity will only become apparent further into the future [E], by which time Nigerian firms may already be out of business.
Therefore the effectiveness of educational reforms may be limited
Another policy is to invest in infrastructure [K]. There is a “slow recovery of the larger economies” [Ap] so this could boost Nigerian firms who are awarded the infrastructure projects. It would also lead to a multiplier effect that could stimulate spending in the economy as a result of the iniection into the circular flow [An].
The improved infrastructure could reduce costs for Nigerian firms giving them the ability to compete with firms with cheaper labour [An] Level 3 KAA
However, this spending carries an opportunity cost because the money spent by government could be taken away from lower taxes or lower borrowing [E]. It is likely to lead to
“crowding out”, so the infrastructure spending just replaces investment from the private sector which arguably could have been more efficient than the public sector
e) Discuss the likely benefits of increased economic integration for sub‐Saharan African countries. (15)
One benefit of increased economic integration in sub-Saharan Africa is trade creation, where the removal of tariffs leads to increased trade between member countries [K]. The African Continental Free Trade Agreement (AfCFTA) eliminates tariffs on 90% of goods, making imports cheaper and boosting trade flows [Ap].
This allows countries to specialise in goods where they have a comparative advantage, increasing overall output and efficiency [An]. A more integrated market of 1.2 billion people also encourages economies of scale, lowering production costs for businesses
However, integration can lead to trade diversion, where trade shifts to less efficient producers within the bloc instead of lower-cost global suppliers [E]. This could reduce economic efficiency if higher-cost African producers replace more competitive international firms [E]. In the long run, this might raise prices for consumers and reduce potential gains from trade
Another benefit is higher employment and wages. As firms gain access to a larger consumer market, they expand production, leading to more jobs and rising wages [K]. This can improve living standards in sub-Saharan Africa, as workers benefit from higher incomes and greater job security [Ap]. For example, increased exports to neighbouring countries can boost demand for locally produced goods, driving economic growth
However, integration also increases economic vulnerability. The 2015 commodity price collapse and slowdown in Nigeria and South Africa negatively impacted sub-Saharan
Africa [E]. Closer economic ties mean that future recessions in major economies could spread more easily, harming smaller nations reliant on trade with their larger partners
