Define the term productivity rate.

Explain how each of the two external threats arising from the STEEPLE analysis would have impacted on farmers’ incomes in the developing world.

Explain one cost and one benefit to Pedro of conducting extensive research and development.

Examine Pedro’s proposal to create an agricultural cooperative in his community rather than continuing to operate as a sole trader.

Productivity rate is a relative measure of how efficiently inputs are converted into output/the ratio of outputs to inputs during production in percentage. A productivity rate gives an indication of how well resources are used in the
production process.

eg $\frac{\text{Total out in a given time period}}{\text{Total workers employed}}\times 100=\frac{\text{Output}}{\text{Capital employed}}$

Do not credit students who define the term as level of production or capacity utilization.

Formula is given so please do not credit the presentation of the formula

Accept any other relevant definition.
N.B. no application required. Do not credit examples.

Award [1] for a basic definition that conveys partial knowledge and understanding. Possibly without mentioning the measurement in percentage.

Award [2] for a full definition that conveys knowledge and understanding similar to the answer above. For [2] there should be some indication that the organization converts inputs into outputs effectively or efficiently measured in percentage/ rate.

The question is about the process of the external factors. If orange producers from the developed communities employ new technology with higher productivity rates, the prices of oranges are likely to fall for the customer. Developing communities will likely experience a decrease in demand for their oranges and thus, even if prices of oranges do not change, will see a reduction in income.

A sustained and severe drought affecting the level of orange production in developing countries will likely lead to a shortage of oranges and thus higher prices for Pedro’s stock. Customers are unlikely to purchase from higher price
producers and coupled with the falling prices from the developed producers who are competitors, the developing farmers’ incomes are likely to fall further.

Mark as 2 + 2.

• For an identification or a description of an impact / external threat with or without application [1].
• For explanation of the impact of/ one external threat with no application [1].
• For explanation of the impact of one external threat and application [2].

Explicit reference to the demand and supply of oranges is not expected.

The question is essentially about researching and developing new technology rather than market research of customers’ opinions etc.

Costs

Harvesting in the developing community is labour intensive, children will need supervising and the internet is unreliable. Pedro may not have the time and the resources to carry out research and development into new technology. The time taken to undertake research and development will lead to significant expenses for
Pedro. Moreover, the opportunity costs in terms of not working in the field could be considerable for Pedro.

As the technology is untested, the poorer community can ill afford for this technology not to work as they have limited funds. There are significant risks/costs of failure for the developing communities at a time when incomes
are falling.

Accept any other relevant/ applicable cost

Benefits
The potential benefits for the community of research and development are the productivity benefits allowing developing communities a more level playing field with respect to competition with the developed farmers. Unit costs could fall, and therefore prices to customers, increasing the demand for oranges. Perhaps it is a risk worth taking in terms of time and resources.

By conducting research and development, Pedro could attract an angel investor/innovator who for marketing or ethical reasons may be willing to allow Pedro to try new, untested technology at a deep discount or even for free as a public relations exercise. This could benefit Pedro and other community members especially if the cooperative is formed.

Accept any other relevant cost/benefit.
Mark as 2 + 2.

For an identification or a description of one benefit/ cost with or without application [1].

• For explanation of one benefit/ cost with no application [1].
• For explanation of one benefit/ cost and application [2].

Application must refer to researching technology.

There are a few issues that the candidates can cover and evaluate. Issues could include the advantages of being a sole trader in terms of control over decision making, for example, as opposed to operating as a cooperative. It is expected that the candidates show understanding of, if not explicit explanation as to what a cooperative is/relevant reference to cooperative, not just to the name. Creation of a cooperative is much more than just pooling resources, etc. While a cooperative is a for-profit organization, it will have the much-needed social objective to solve the problem of child labour, lack of education and poverty. Something that each individual sole trader is clearly unable to do given the information in the case study. One may judge the above as a very strong argument in favour of the creation of cooperative as the issue of poverty and children working in the fields are acute.

It should be noted that creating a cooperative could enable Pedro and the other farmers to raise the much-needed finance as well as diversifying and engaging in secondary sector activity.

Being a sole trader, Pedro (and the other farmers) experience a lack of financial power and engage in a high-risk operation due to the nature of the business and living in a harsh environment. The stimulus indicates that these farmers are experiencing a high level of uncertainty, low income and even poverty, with little or no opportunity to improve. With no support, all can be lost as each farmer is facing unlimited liability.

By creating an agriculture/producers’ cooperative, the farmers will pool resources together in order to raise the finance needed for investment in new technology, market their products to compete with international competitors and possibly diversify and produce an orange juice drink. Pedro, and the other farmers in the cooperative, through a division of labour, shared responsibility and mutual support might be able to negotiate better loans, better prices for crops and reduce the reliance on basic primary, unpredictable weather dependent crops if they diversify in the medium to long term. If the option of diversification is pursued it will guarantee a higher and steady income rather than a seasonal income. One may judge this issue as highly significant given the current harsh conditions and external threats.

Moreover, the farmers might be more motivated due to their ability to collaborate and make decisions in a democratic manner. The quality of the decision making may be better.

The financial gain will also be transferred into a social gain, which the community needs. Priority can be given to the children’s education instead of the children supporting each sole trader in the fields. One may judge this issue/benefit as highly significant.

While there are theoretical and practical disadvantages of operating as cooperatives, like some disincentives to work due to low wages, slower and dependent decision-making processes compared to independent and fast
decision making by Pedro and the other farmers. The main disadvantage is the cultural and linguistic differences among the farmers that might create some misunderstanding and possibly a clash as well as the long decision-making process in the short term. Moreover, the movement into the secondary sector might be too difficult for the farmers. Lots of training will be needed in terms of production and marketing and investment in different technology. This operational shift might be a hindrance but the farmers can decide that short term investment in farming methods is of the highest priority and perhaps in the longer term, when farming methods are more efficient, they can move into the secondary sector.

Some judgment:

Still, in this case, one may judge that the arguments for the proposal are more significant and outweigh the arguments against. Linguistic and cultural differences with training and wider community support can be overcome in the medium to long term, especially if profit is made and can be further invested into some social projects. Remaining as sole traders will leave the farmers with little or no power at all. Decision making power is highly theoretical here given the level of poverty.

Pedro should seriously consider creating the cooperative.

Accept any other relevant issue.

Accept any other relevant examination.

A conclusion with judgment is expected.

A balanced response is one that covers at least two arguments for and at least two arguments against.

Marks should be allocated according to the Paper 2 markbands for May 2016 forward with further guidance below.

For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].

Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.

Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.

Candidates cannot reach the top marks if there is no relevant reference/ application to the nature of a cooperative and its social context/relevance to the current life of the farming community.