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COURSEWORK - Questions




Individual : 25%
Group : 25%

JAN 2014
Individual/Group :
FEB 2014

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A 10% deduction per day of total coursework marks (excluding weekends and
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Late submission between 5 to 10 days, results in a 50% deduction of total
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student will be barred from the final examination.

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Students must submit all materials supporting their coursework listed in the deliverable

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are unclear about them, please consult your program coordinator/lecturer.
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The coursework should exhibit formal research skills i.e. with a table of content,
proper citations, references, and appendixes.

The coursework write up must be able to demonstrate critical analysis and

application of both theory and practical issues to the company that you have

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Your coursework should not be more than 2000 words / 10 pages.

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COURSEWORK - Questions
COURSEWORK (25%) Individual Assignment
Trends in Agricultural Commodity Prices
Read the attached articles before answering the questions.
1. Using a supply and demand model (with appropriate diagrams), explain what factors lie
behind the rise in wheat, corn and other agricultural prices from mid-2012.
2. How are prices likely to have been affected by each of the following the activities of
speculators in the commodity markets
3. Although volumes (i.e. output in tons) are down in America, farm incomes are up
(Article 2). What does this imply about the nature of the demand for wheat and similar
products? Explain your answer, making use of the relevant economic concepts.
4. Discuss what factors are likely to determine food prices in the long-run
PRESENTATION (25%) Group Assignment
You are required to work in groups of 5, comprising people from your seminar class and form
a presentation on the question listed below:
As a group, choose your favorite monopolistic firm and observe their strategies used in the
operation. Discuss the strategies used by the firm to compete with other rival in term of nonprice competition. Then forms the basis of a presentation that you will make to the rest of
your seminar class.
You are encouraged to speak for 10 - 15 minutes as a group and be prepared to answer
question afterwards.

ability to find and use relevant references and data;

the extent to which you use and apply logical, insightful and convincing analysis to the

the structure and effectiveness of arguments deployed and their presentation;

the correct sourcing of material and the quality of referencing in your references

Article 1: US drought will lead to inflation and higher food prices.

Larry Elliott, The Guardian, Monday 20 August 2102

America's worst drought in half a century will push up inflation and put a fresh obstacle in
the path of the struggling global economy, one of the UK's leading banks has warned.
Blistering heat in the US has destroyed 45% of the corn and 35% of the soya bean crop in the
worst harvest since 1988. Russia and Ukraine have also had poor crop yields. Ward said
higher food prices would result.
According to the HSBC report, relatively high stocks of grain could be run down to meet
demand until new harvests were reaped in unaffected parts of the world. "But much depends
on government behaviour. With memories of Haiti's 2008 food riots and the Arab spring
(where high food prices played a part) still fresh, panic buying by governments and/or export
bans would only exacerbate the problem and may cause social unrest."

Article 2: Is it ethical to bet on food prices?

Patrick Collinson, The Guardian, Friday 31 August 2012 23.01 BST

As crops wither in the Midwest and Ukraine and the price of staples soars, speculators are
rubbing their hands in glee. America's worst drought in half a century, poor harvests in Russia
and Ukraine, and Britain's washout early summer will all push up the costs of basic staple
foods such as bread and pasta, while rising animal feed prices will send the price of meat
soaring, experts are warning. Shoppers are already feeling the pinch, according to, which compares prices at the major retailers. It said minced beef is up
19% over the past year, while peas, carrots and potatoes are up by 4%-8% though some of
this is due to seasonal factors. Overall, global food prices rose by 6% in July, according to the
UN. America's searing summer, which has seen temperatures hit 43C (110F) day after day,
has left the once-rich cornfields of the Midwest brown and shrivelled. The worst-hit farmers
are reporting corn harvests of just a 10th of the previous year. It is estimated that, in total,
45% of the corn and 35% of the soya bean crop has been destroyed.
But while the crops are withering, speculators are rubbing their hands. At Glencore, the
world's biggest commodities trader, the head of its food trading business said this month that
the US drought will be "good for Glencore" because it will lead to opportunities to exploit
soaring prices. The Swiss and Jersey-based dealer in wheat, corn, oil and copper, made a
profit of $2.3bn (1.5bn) in the first half of 2012.
It's not just big traders that have jumped on the food price bandwagon. Small investors are
being encouraged to use exchange traded funds (ETFs) that track the price of individual
commodities, and where minimum investments are as low as 2. Trawl the internet and
you'll find articles such as "How to invest for the global food crisis" by Seeking Alpha, which
claims it is home to "savvy and inquisitive investors". At InvestorDaily, the headline is "Food
stocks whet investors' appetites", while over at Nasdaq it's "Six agriculture ETFs on a roll".
So far this year the ETF for soya beans is up 44%, wheat is ahead 34% and corn is up 25%.

But Friends of the Earth Europe is calling for a ban on institutional speculation in food
commodity derivatives and commodity ETFs. "The hunger of people must come before the
hunger of financial in stitutions," it says.
A German lobby group, Foodwatch, last month claimed success in its campaign against
speculation after Commerzbank removed agricultural products from its ETF offering.
"It is reacting to the debate about a series of studies which show that investment in this type
of commodity fund pushes food prices upwards and so contributes to the hunger crisis in
many parts of the world," Foodwatch says. Last year, Deutsche Bank also said it would
"refrain from launching new staples-based exchange traded products this year."
But Fidelity Investments, the biggest fund manager, says investors should be looking at
agribusiness stocks, such as fertiliser companies and farm machinery makers, as the solution
to the world's food challenges. In a recent research note "Food: from crisis to crisis", Fidelity
highlighted World Bank estimates that demand will rise by 50% by 2030. Much of that will
be driven by population growth and a big shift in Asian diets to more meat and dairy
products. This has a significant knock-on effect on grain demand as it takes 7 kilos to produce
1 kilo of meat. Fidelity reckons there could be a "second green revolution" as increased
fertiliser usage improves yields in Africa and Asia. It tips fertiliser companies such as Potash
Corp, Uralkali and Mosaic as potentially star stocks.
Currently, British investors have a number of specialist agricultural funds to choose from
including Allianz RCM Global Agricultural Trends, Baring Global Agriculture, Eclectica
Agriculture, First State Global Agribusiness and Sarasin Agrisar. James Govan, manager of
the 132m Baring Global Agriculture fund, says: "The things we are investing in are about
expanding food supply, such as fertilisers, drought-resistant seed, irrigation equipment and so
Although volumes are down in America, farm incomes are up because of rising prices, which
has sparked an investment boom. It's one reason why Govan is a holder of stocks such as
tractor maker John Deere, whose share price has more than doubled over the past three years.
2012 Guardian News and Media Limited or its affiliated companies. All rights reserved.

Article 3: Russia opts for market forces over export ban

Javier Blas (adapted from the Financial Times, The Commodities Note).

The Kremlin has let the market to do its job. Russian wheat exports have slowed down to a
trickle this month after prices in the port of Novorossiysk, the countrys major export
terminal in the Black Sea, surged to a 20-year high recently. The rally came after a drought
that devastated the cereal crop. The Kremlin, which in 2010-11 imposed a brutal export ban
that triggered a large rally in agricultural commodities prices globally, has this time let the
market work, allowing domestic Russian wheat prices to increase significantly.
The Kremlin has so far refrained from intervening, allowing the price to rise to the point in
which the cost is the main export restriction. Due to skyrocketing domestic grain prices,
Russian wheat is becoming less competitive in world markets, and this is expected to result in
a slowdown in wheat exports in October, said the US agricultural attach based in Moscow
in a recent report. This grain export slowdown will be exacerbated in November and through

the winter months due to continued tightening stocks and seasonal weather-caused logistical
problems at Russian ports, the attach added.
The question is whether Russia would continue to allow market forces to dictate export flows
after neighbouring Ukraine, another top wheat exporter, last week decided to impose a de
facto export ban from mid-November. Russia will this year harvest its lowest wheat crop in
nearly a decade due to the drought. The US Department of Agriculture puts the countrys
wheat harvest at 38m tonnes, the lowest since 2003-04 and 40 per cent below the record of
63.7m tonnes in 2008-09. In a normal year, Russia is the worlds third-largest wheat exporter,
playing a crucial role in supplying food-deficit countries of the Middle East and north Africa
such as Egypt, the worlds largest wheat importer. The shortage pushed benchmark wheat
prices in Novorossiysk in late September to $355 a tonne, putting the commodity about $20
above cheaper origins.
Article 4: Could grain prices get another leg up?
Jamie Chisholm (adapted from the Financial Times, The Commodities Note).

The worst US drought in a generation saw grain prices rally sharply in just over a month of
frantic trading this summer. Corn hit a record high, jumping 28 per cent in July alone.
Soyabeans and wheat joined in. So whats next? The first point to make is that prices have
been relatively stable since the end of July. That is quite unusual for commodities after such a
surge and speaks to the strength of the underlying supply worries that forced prices higher.

Article 5: OECD-FAO Agricultural Outlook 2012-21

Recent OECD-FAO Agricultural Outlook reports have focused on high and
volatile agricultural commodity prices, stressing that prices would come
down as markets respond but would remain on a higher plateau
underpinned by continuing strong demand and rising costs for some
inputs. As anticipated, prices have started to ease but remain at relatively
high levels. Food price inflation at the retail level has fallen significantly
from its peak in 2008 and its contribution to overall inflation has
moderated. Nevertheless, food price inflation remains high in many
developing countries and is still outpacing overall inflation in the majority
of countries examined.

Price volatility remains a concern, with weather-related yield variability the

main threat as long as stocks remain low. The key issue facing global
agriculture is how to increase productivity in a more sustainable way to
meet the rising demand for food, feed, fuel and fibre.
Nominal prices of commodities are expected to trend upwards over the
next ten years and are projected to average 10%-30% above those of the
previous decade. Global agriculture is increasingly linked to energy
markets. Oil price projections are on average about USD 25 above those
used last year (ranging from USD 110 to USD 140 per barrel over the
outlook period). These higher oil prices are a fundamental factor behind
the higher agricultural commodity price projections, affecting not only oilrelated costs of production but also increasing the demand for biofuels
and the agricultural feedstocks used in their production.
Despite strong prices, slower production growth is anticipated. Growth in
global agricultural production has been above 2% p.a. over the past
several decades, but is projected to slow to 1.7% p.a. over the next
decade (see Figure 2). Growing resource constraints, environmental
pressures, and higher costs for some inputs are anticipated to inhibit
supply response in virtually all regions.
Based on their greater potential to increase land devoted to agriculture
and to improve productivity, developing countries will provide the main
source of global production growth to 2021. Annual production growth in
developing countries is projected to average 1.9% p.a. compared to 1.2%
p.a. in developed countries. An additional 680 million people are expected
to inhabit the planet by 2021 with the fastest population growth rates in
Africa and India. Rising incomes and urbanisation will lead to changes in
diets that shift consumption to more processed foods, fats and animal
protein. This will favour higher value meats and dairy products, and drive
the indirect demand for coarse grains and oilseeds for livestock feed (see
Figure 3).
Commodity highlights
Global production of bio-ethanol and bio-diesel is projected to almost
double by 2021, heavily concentrated in Brazil, the United States, and the
European Union. Biofuels are based mainly on agricultural feedstocks and
are expected to consume a growing share of the global production of
sugarcane (34%), vegetable oil (16%), and coarse grains (14%) by 2021.
In response to government mandates, biofuel trade between the United
States and Brazil is expected to increase. This Outlook anticipates that the
United States would import sugarcane-based ethanol mainly from Brazil to
help meet domestic demand created by its mandate for advanced
biofuels, while Brazil would import lower priced maize-based ethanol

principally from the United States to satisfy the demand from its large
fleet of flex-fuel vehicles.
Cereal stock-to-use ratios will remain below historical averages, posing
the risk of future price volatility. The Russian Federation, Ukraine and
Kazakhstan are expected to become much more important sources of
wheat exports by 2021, but high production variability in this region may
have implications for global trade and world price volatility.
Oilseeds production and exports continue to be dominated by the
traditional players, but emerging exporters like Ukraine and Paraguay are
expected to increasingly contribute to global export growth. China, the
dominant importer, will account for more than half of total world imports.
Brazils oilseed production growth is expected to slow from 4.9% to less
than 2% p.a. over the outlook period.
Food and ethanol demand for sugar crops will be sustained over the
medium term, maintaining high sugar prices. Production cycles will
continue to characterise sugar markets in Asia, leading to occasional large
trade fluctuations and price volatility. Because of Brazils dominant
position in the sugar market, the allocation of its sugarcane crop between
ethanol and sugar production remains a key market driver.
Increased demand for meats will mostly stem from large economies in
Asia, crude oil exporting countries and Latin America, where income gains
are expected to be significant. Poultry meat will lead this anticipated
growth as the cheapest and most accessible source of meat protein,
overtaking pig meat as the largest meat sector by the end of the outlook
A modest increase in consumption of dairy products is expected in
developed countries with the exception of cheese and fresh dairy
products, while in developing regions consumption of all products is
expected to increase about 30% by 2021. Developing countries are
projected to overtake developed countries in milk production by 2013,
with large increases in China and India.
A time for change - longer term perspectives
Agricultural production needs to increase by 60% over the next 40 years
to meet the rising demand for food. This translates into an additional 1
billion tonnes of cereals and 200 million tonnes of meat a year by 2050
compared with 2005/07 levels. Additional production will also be
necessary to provide feedstock for expanding biofuel production.
Globally, the scope for area expansion is limited. Total arable land is
projected to increase by only 69 million hectares (less than 5%) by 2050.
Additional production will need to come from increased productivity in the

same way as it has for the past 50 years. Increasing productivity will be
central to containing food prices in a context of rising resource constraints
and will be a key factor in reducing global food insecurity. Productivity
gains in the medium-term may come primarily from reducing the
productivity gap in developing countries, but a stylised scenario suggests
that a significant share of the increased output of crops, used as
feedstocks, could be expected to go into biofuel production. At the same
time, there is a growing need to improve the sustainable use of available
land, water, marine ecosystems, fish stocks, forests, and biodiversity.
Some 25% of all agricultural land is highly degraded. Critical water
scarcity in agriculture is a fact for many countries. Many fish stocks are
overexploited, or in risk of being over-exploited. There is a growing
consensus that climate change and extreme weather events will increase.
Encouraging better agronomic practices, creating the right commercial,
technical and regulatory environment, and strengthening agricultural
innovation systems (e.g. research, education, extension, infrastructure),
including measures addressing the specific needs of smallholders, are
essential policy challenges identified in this report. Measures to reduce
food loss and waste are also key to meeting rising demand and improving