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NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 1 of 6
Assessment Schedule – 2011
Subject: Explain how market forces affect supply and demand of primary products (90651)
Evidence Statement
Q
ONE
(a)
Evidence
Achievement with Merit
Market forces affecting the supply of primary products
Exchange rate
The explanation for changes to recent
supply could include:
• increased / decreased returns
• increasing production to maintain level
of income
• costs of production
• main export market and the currency
involved.
(b)
Achievement
Price Trends
The prices received by the producer are a
key driver of changing levels or patterns
of supply. The explanation of changes to
supply could include:
• the stability or volatility of price trends
over the long term (3 years)
• the historical short-term variation in
price.
Production may or may not be
significantly affected, depending on:
States the change in
exchange rate (indicates rise
and / or fall) in NZ$ that has
occurred, and explains in
general terms how the
supply of the product (timing,
quantity, etc) has been
affected by the rise and / or
fall.
States the change in
exchange rate (indicates
actual data) in NZ$ that has
occurred, and explains in
detail how the supply of the
product (timing, quantity, etc)
has been affected by the rise
and / or fall.
A
M
Illustrates on the graph a
general price trend.
Illustrates on the graph a
specific price trend (values
included).
Explains how the price
trends illustrated impact on
supply in broad or general
terms.
Explains in detail how the
price trends illustrated
impact on supply in specific
terms.
A
M
• the product
• the ability and willingness of producers
to change to alternative forms of
production
• price trends for alternative forms of
production
• long lead-time required for any changes
(increase or decrease) in production.
Note: All products will exhibit some form
of price trend. A longer-term trend is
usually best for indicating future
production within the next 1–2 years.
(c)
Political intervention
An explanation of how governments
manipulate the quantity of supply and / or
timing. Must include reference to current
tariffs, quotas, subsidies or phytosanitary
restrictions, free trade agreements, etc,
being enforced by named governments.
Explains how political
intervention strategies
impact on supply in broad or
general terms.
Explains, in detail, (with
accurate values), how
political intervention
strategies impact on supply.
A
M
Evidence
(c)
The relative importance of market forces
affecting the supply.
Achievement with Excellence
The justification of one market force over another must
provide evidence of the merits of each market force as they
impact on the supply of the product to the stated specific
market.
Actual data must be stated (trends in prices, exchange rates,
interventions, etc).
E
NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 2 of 6
Q
TWO
Evidence
Achievement with Merit
Market forces affecting the demand for primary products
(a)
Price
(b)
Explanation will discuss what price
change has occurred and what effect
there has been on the demand for the
product, if any.
(c)
Achievement
Explains how a price
change affects demand in
broad / general terms.
Explains in detail, using
some form of data, how the
price change has affected
demand.
A
M
Consumer preference
Explanation should state the actual
trend(s) in consumer preference that have
occurred, and how they have affected the
demand for the product. The preferences
could be within the single product, or
between competing / substitute products.
Changes in demand could be reflected in
the price, quantity or timing of the
demand.
Quantity
Explanation may cover a factor that will
affect the quantity of a product supplied,
and its implications for the quantity
available.
Product quality
Explanations must refer to a named
quality assurance programme operated
on-farm or by processors of the product.
In most cases “quality” will refer to product
attributes and packaging (ie fitness for
purpose of described user / consumer). It
could also refer to the source of the
product via traceability programmes.
Explains how consumer
preference has affected
demand in broad or general
terms.
(May express consumer
preference as quality
requirements.)
A
Explains in detail how
consumer preference has
affected demand, using
some form of data – eg the
trend(s) in consumer
preference, and why they
have occurred.
M
Explains how the quantity
available has affected
demand in broad or general
terms.
Explains in detail, using
some form of data, how the
quantity available has
affected demand.
A
M
Explains how an aspect of
an identified quality
assurance programme
ensures that product is “fit for
purpose” in terms of
customer / consumer
requirements, thereby
maintaining or increasing
demand.
Explains, in detail, (using
data or supplementary
information) how an
identified quality assurance
programme ensures that
product is “fit for purpose” in
terms of customer / consumer
requirements, thereby
maintaining or increasing
demand.
A
M
Reliability of supply
Explanation should state how a reliable
supply from producers is achieved, and
how consumer demand is maintained or
increased as a result of either the
quantity, quality or timing of supply.
Reference could be made to consumer
loyalty, processing requirements, etc.
Promotion
Explanation should include actual
examples from a relevant promotional
campaign, including how the key
message is conveyed and how demand
for the product has increased.
Explains the effect of
reliability of supply on
demand in broad or general
terms.
Explains in detail the effect
of reliability of supply on
demand.
M
A
Explains how relevant
promotion method(s) have
affected demand in broad or
general terms.
Explains in detail, using
some form of data, how
promotion methods have
affected demand.
A
M
NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 3 of 6
Market trends
Market trends must relate to an aspect of
marketing influencing supply over the last
three years. The trends explained could
be price-based, quantities, attributes,
consumer preferences, etc. Trends may
or may not be highly significant – a stable
trend is a common occurrence.
Explains how a market trend
is able to influence the
quantity supplied.
A
Explains in detail, using
data or supplementary
information, how a market
trend is able to influence the
quantity supplied.
M
The candidate is expected to state actual
figures to support their answer /
explanation.
Evidence
(c)
Achievement with Excellence
The relative importance of market forces
affecting demand.
Example: Lamb
(1) Price
The justification of one market force over another must
provide evidence of the merits of each market force as they
impact on the demand (price or quantity) for the product.
When discussing price, actual prices must be stated.
(2) Promotion
(3) Consumer preference.
E
Judgement Statement
Achievement
Achievement with Merit
Achievement with Excellence
4A
4M
4M
1E
NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 4 of 6
Appendix: Examples of possible answers
Note: Underlined text signifies examples of “detail” for the award of Merit.
Question One – Market forces affecting the supply of primary products
Example answers for parts (a), (b), and (c)
Exchange rate: Wool
The high New Zealand dollar was a significant contributor to a fall in crossbred wool prices in 2009 / 2010, with
international prices for crossbred wool actually improving on the previous year, but returns to wool growers
dropping to $2.50 / kg crossbred wool. The volume of wool produced has continued to decrease, with a further 5%
fall in 2009 to 148,000 tonnes, as the profitability of wool and sheep farming in general has fallen, and producers of
sheepmeat convert to more profitable ventures such as dairying, where there are still profits to be made, even with
an unfavourable exchange rate. In 2010 / 2011, the international wool price has increased rapidly, as has the
exchange rate, which in April 2011 was sitting at around US0.80.
Price: Wool
Wool prices have moved from being at historic lows – $3.20 / kg for crossbred wool, or just 6.2 percent of the
comparative price prevailing at the peak of the Korean War wool boom – to over $6.00 / kg in the space of 18
months. The price of crossbreed wool has some influence on supply, as these farmers have tended to see wool as
a by-product (or even as a cost) of producing sheep meat. Consequently, their focus has changed to specialist
meat breeds and ram selection, rather than dual-purpose meat and wool genetics. Wool supply has fallen and
exports dropped another 5% in 2009 to 148,000 tonnes, due to the profitability of wool and sheep farming in
general falling over recent years.
Political intervention: Potato exports to South Korea
South Korea operates a range of tariffs and quotas on potato imports. Currently an import quota of 18,810 tonnes
is allocated to New Zealand. However, a tariff of 30% in-quota and 304% out of quota, along with very particular
biosecurity regulations, has resulted in only 44 tonnes of processed potatoes being supplied to this market in
2008/9.The supply of imported potatoes (both fresh and processed) has been reduced as growers / exporters
choose more profitable and accessible markets.
Example answer for Question One (d)
Milk
(1) Price.
(2) Exchange rate.
(3) Political intervention.
Recent trends in the price paid to farmers for milksolids have had a greater effect on the supply of milk than either
the exchange rate or political intervention.
Farmers are very responsive to farm gate prices. Dairy farmers have a number of options to quickly increase their
level of production if the outlook appears favourable. The increase in payout over the past few years (Fonterra’s
payout in 2010 / 2011 was $7.90 / kg milksolids) has resulted in large-scale conversions from sheep, beef and
forestry operations. The feeling that this trend will either continue or at least stabilise has resulted in the large
capital investment required for these conversions. This has been a major factor in determining the supply of milk.
Despite the increase in the NZ$, a factor that would normally reduce returns, the rise in price received to $7.90 / kg
milksolids has negated the downside of the exchange rate, encouraging more dairy farm conversions and higher
production volumes.
While the exchange rate can play a large role in determining the payout farmers receive, we have seen in recent
years that despite a strengthening NZ$ (up to $0.80 against the $US in April 2011) the payout received by farmers
has remained favourable. They would not be looking to change their production, as they have committed financially
and physically to this product, and any other product produced would need to be exported and would face the
same unfavourable exchange rate.
Political intervention does impact on the returns for milk products in some markets, eg Taiwan has a tariff of 23%
on all milk powder imports. However, with the development of free trade agreements with many Asian countries,
including China, and the fact that our milk products are exported to more than 70 countries, the effect of political
interventions on the quantity being able to be supplied or the price received by the producer is minimised.
Thus, market trends, in terms of the price paid to farmers for milksolids, remain the most significant factor in
determining the supply of milk on an annual basis and into the medium to long term.
NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 5 of 6
Question Two – Market forces affecting the demand for primary products
Example answers for parts (a), (b), and (c)
Consumer preference: Apples
Changing consumer tastes and expectations regarding keeping qualities have seen consumers change their
preferred choice of apple varieties in recent years. The emergence of new varieties such as Jazz, with its deep red
colour, crisp texture, dense flesh, medium size and “strong” flavour have seen consumers shift their demand to
them, and away from previous favourites such as Braeburn and Royal Gala. Quantities sold have increased
significantly, and in 2010 just under 20,000 tonnes was sold – up from 7,500 tonnes in 2007.
Promotion: Kiwifruit promotion in Vietnam
Fresh Studio's marketing team, under the guidance of marketing director Mrs Sigrid Wertheim-Heck, has launched
an extensive in-store sampling promotional campaign to build awareness of kiwifruit, grow sales, and generate
ZESPRI brand preference. During the 2009 kiwifruit season, the volume of sales to the Vietnamese market has
increased to 212 tonnes – up from 42 tonnes in 2007.
Reliability of supply: Kiwifruit
Zespri wishes to supply its major markets with kiwifruit for 12 months of the year, enabling customers to find Zespri
kiwifruit on the shelves whenever they go to the supermarket. They are able to do this by contracting growers in
northern hemisphere countries such as Italy and France to supply kiwifruit under the Zespri label. Customers will
be more willing to buy Zespri kiwifruit if they are able to purchase fresh fruit year-round, rather than being restricted
to a short season. Volumes purchased have consequently grown steadily from 65 million trays in 2002 to 92 million
trays in 2008.
Product quality: Wool (Wool Testing Authority accreditation)
Less than half of New Zealand's 115,000 tonnes of shorn wool is now sold at auction. All this wool is tested prior to
sale at an accredited testing facility, which provides objective measurements of commercially important
characteristics. This gives New Zealand wool exporters a key competitive advantage, as they can supply wool that
meets buyers' specifications, hence increasing the demand for NZ wool over non-specified competitors’ wool. The
characteristics tested include yield, condition (moisture content), fibre diameter, colour, length, strength, and bulk.
Quantity available: Mandarins
The volume of mandarins exported to Japan is around 7,000 tonnes in April / May. This fluctuates with seasonal
factors, eg a poor spring can lead to late production and the window being missed. There has been a move by the
NZ Citrus Association in recent years to maintain the quantity at the upper limit of 7,000 tonnes of high-quality fruit.
This maintains the level of demand for NZ-grown fruit in this market, with growers continuing to receive premium
prices.
Price: Kiwifruit
A 10% increase in price for kiwifruit in the Japanese market will have no affect on the quantity consumers will buy.
Kiwifruit are a niche product in Japan, where producers receive as much as $2.50 each for large-sized fruit. The
quantity of fruit demanded in Japan has increased in 2009 to 65,000 tonnes, even though this market pays the
highest price per tonne ($3,360 – almost twice what is received in the European market).
Example answer for Question Two (d)
Lamb
(1) Price.
(2) Promotion.
(3) Consumer preference.
Price is the key market force that determines the demand for lamb. While promotion and consumer preferences
have some effect, they are not as significant as price.
Lamb is often priced towards the top of the range of meat options available to consumers. From $10–$15 / kg for
chops and up to $20 / kg for a leg for roasting ($30–$45 per leg), it represents expensive meat when the fat / bone
content is considered. Consumers are very sensitive to the price of meat, and when lamb prices are high (at times
of high export lamb prices) there is a noticeable drop-off in lamb meat sales as consumers switch to alternative
meats, eg chicken at around $15 / kg (skin off breast). TV promotion by sportswomen has, according to Meat and
NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 6 of 6
Wool New Zealand, increased demand for lamb by 5%. However, when the price for lamb rose in 2004, demand
dropped in favour of cheaper meats such as pork and chicken.
Promotion, such as campaigns like the TV ads featuring the Evers-Swindell sisters and Sarah Ulmer, attempts to
target the female / sporty sectors of society and increase demand from those sectors. However, campaigns tend to
be neutralised by high prices.
Consumer preference for lamb as a popular barbeque meat – quick and safe to cook (unlike pork and chicken that
must be cooked fully) – remains, and there are still some traditional roasts being sold. However, these are often
bought as a special once-a-week / month meal, rather than for common day-to-day consumption, due to its cost,
and to its cooking time not fitting into many people’s busy schedules. Even so, it can still often have a higher fat /
bone content than many other meat options.
Price variations have been shown to produce significant shifts in consumer demand, with high prices for lamb
reducing demand, while demand for pork has increased. The promotional activities of Meat and Wool NZ has at
best maintained market share in the meat trade, and while a minor 5% increase in NZ consumption is desirable, it
must be remembered that 90% of lamb is exported. So to greatly influence demand overall, an increased demand
from overseas consumers is vital. Price is the most significant market force in the major export markets, except
during times of major animal disease outbreaks, when consumer preference has had a significant impact on
demand for NZ lamb.