Institute of Agricultural Policy and Market Research Chair of Agricultural and Food Market Analysis
MK102 Global Food Markets
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Start time: Thursday, February 17, 2022 at 10:00 am (CET) End time: Friday, February 18, 2022 at 10:00 am (CET)
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Important rules for the assignment
Please carefully read the instructions below. Failure to comply with any of these instructions may result in a failed attempt:
- Cooperation with colleagues and other persons is not allowed. No copy paste!
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- Please be sure to give answers in your own words! Use whole sentences in your answers (no bullet points if not asked for explicitly). Do not copy paste from the lecture slides. Do not copy passages from the Internet or other sources.
- Plagiarism software recognizes text modules that appear online and/or in several student submissions. Therefore, do not share your results with others in order to prevent parts of them from being copied intentionally or unintentionally.
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- You may not use any shared documents, social media groups, etc. and you may not consult any external resources or websites other than those cited in the lecture notes. We will pose questions in a way that additional web searches will be neither helpful nor needed.
3. Questions regarding the assignment can be addressed to firstname.lastname@example.org- giessen.de from 10:00 to 18:00 (CET) on February 17th.
- You must turn in only a single completed Word or PDF file via ILIAS.
- In case you should or want to provide a graph, you may i) draw it directly in Word, or ii) draw it by hand on a separate sheet of paper, take a ‘high-quality’ picture of your graph, and paste this picture into the word document.
- A Take-Home Assignment solution uploaded after February 18h, 2022 at 10:00 am (CET) is not passed and will be graded 5.0, unless you can prove (e.g. by a screenshot showing the date and time) that the upload was impossible or only possible at a later time due to technical problems. Please notify us immediately of any uploading problems by e-mail (email@example.com).
- In case you download the assignment but do not upload a solution to ILIAS, the assignment will be graded 5.0 (failed).
Question 1: Market shocks and food security
You are an analyst with the International Rice Research Institute (IRRI) working in Cambodia. Rice is the main staple food both in rural and urban areas. Rice accounts for 2/3rds of the total dietary energy supply. In October 2020, flash floods triggered by a tropical storm caused severe flooding that destroyed thousands of hectares (acres) of rice just days before harvest.
- Draw a simple supply and demand model that captures the influence of the weather shock on the domestic rice market in Cambodia. Describe the economic effect of the shock in terms of quantity and price changes. (3 points)
- Now assume that because of the Covid-19 pandemic, Cambodia also experiences an economic downturn and a rise in unemployment rates. Add a second demand curve to your graph (label it D2) that captures this situation. Will the price change from the weather shock be smaller or larger with this new demand? (2 points)
- Use the example of the weather shock on the domestic rice market in Cambodia to discuss what role international agri-food trade can play for ensuring food security in Cambodia.
(In your answer, introduce the respective UN Sustainable Development Goal, address the general role of trade, and consider how the pillars of food security are affected). (5 points)
Question 2: Trade theory
- Explain reasons why countries trade and discuss reasons why some countries trade more
with each other. (3 points)
- You and your fellow classmates discuss whether international trade and specialization benefit a country even if it is not ‘competitive’ and whether trade can hurt individuals in a country that engages in international trade.
You remember the Ricardian model of trade. Based on this model, what is your conclusion? Explain your reasoning to your classmates. (4 points)
Question 3: Trade policy
South Africa has a small, but emerging potato industry. Nevertheless, the country currently imports potatoes from the world market at a price of 10$. Its domestic market is illustrated in the figure below:
- In an open economy, how many potatoes are produced and consumed domestically? How much is imported? (1 point)
- What effect would a specific tariff t=10 have on the amount of imports when we assume the nation is a small country? Illustrate and explain the welfare effects of an import tariff (when compared to free trade). Show the changes in domestic consumption, production, and imports (using the graph). Assess changes in producer, consumer and total welfare.
Show the changes in domestic consumption, production, and imports (using the graph) and assess changes in producer, consumer and total welfare (using the table below). (4 points)
|Change in consumer surplus:|
|Change in producer surplus:|
|Change in government revenue:|
|Overall welfare change:|
- South Africa wants to ensure a minimum level of domestic potato production. However, the government is unsure whether it should impose an import tariff or introduce a production subsidy for this purpose. As their agricultural policy advisor, what would you suggest? Your answer should consider producer, consumer and total welfare effects (you may or may not provide a graph; but a detailed verbal explanation is sufficient) (4 points)
- Egypt is a large exporter of raw potatoes, also supplying South Africa. Egypt complains about
the newly introduced import tariff calling it “an unfair measure of trade protectionism”.
How could the government of South Africa defend their introduction of the tariff in front of the WTO? Name and provide a detailed description of two qualified arguments. (4 points)
Question 4: Consumer studies/behavior
Two of your friends, Bob and Andrew, differ in their acceptance of GM food. While Bob consumes GM food, Andrew does not. A third friend of yours, Cathy, is arguing that this is due to differences in their risk preferences. Do you agree with this statement? Please justify/elaborate your answer. (4 points)
Question 5: Food standards/labels and globalized food markets
- The supply chains in Sub-Saharan Africa were historically dominated by tradition value chains. Following the food price crisis in 2007/8, governments implemented policies aiming at upgrading their agri-food value chains. Nigeria was especially successful and new forms of agri- food value chains have emerged.
Describe: how do traditional value chains differ from modern value chains (in terms of actors involved, length, scale, products, buyers, etc.)? (4 points)
- You have a lively discussion with a friend about the topic of food standards. You friend is arguing that stricter food standards always restrict trade and hence are detrimental to producers in exporting countries as well as to total welfare. Drawing from evidence presented in class, what is your opinion on this? (4 points)
Question 6: Seminar reflection
In 150-200 words reflect on a topic presented/discussed in the seminar. In your answer,
1st: provide a description of a finding/result that you found important, interesting or puzzling; 2nd: describe how it relates to theories or issues presented in the lectures;
3rd: express what you learnt and why it matters, e.g., for reaching SDG2. (8 points)
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