| Date | November 2021 | Marks available | 2 | Reference code | 21N.2.SL.TZ0.3 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | List | Question number | 3 | Adapted from | N/A |
Question
Coffee production in Honduras
- Coffee farmers in Honduras, Central America, are struggling to earn enough revenue to cover production costs. Some have left their farms and migrated to the United States (US). Many remaining families depend on remittances (money sent by a foreign worker to their home country) from relatives in the US.
- The agricultural sector, which employs about 28 % of the labour force in Honduras and accounts for 45 % of gross domestic product (GDP), has always faced difficulties and has had very little government support. Fluctuations in international commodity prices are also a problem. The average global price of a 60 kg bag of coffee beans dropped from US$140 in 2017 to US$62 in 2019, because countries such as Vietnam, Indonesia and Ethiopia increased their exports.
- Scientists say that the greatest threat to crops comes from global warming. The World Bank has estimated that over the next 30 years climate change could force around 1.4 million people to leave Central America for the US. Meanwhile, global warming is partly blamed on the US continuing to operate coal-fired power plants, which account for about 30 % of its electricity generation.
- Rising temperatures and uncertain weather have affected plant growth, ruined harvests and led to pests and diseases. The amount of land suitable for growing coffee, which is Honduras’s most important agricultural export, will probably fall by over 40 % before 2050. Already, the number of coffee producers has declined by 25 % in some areas. Furthermore, reduced yields of subsistence crops like corn and beans could significantly increase malnutrition.
- Foreign aid from the US includes humanitarian aid and grants to non-governmental organizations (NGOs) that have projects helping farmers adapt to climate change. However, the US administration has threatened to stop all foreign aid to Central America, claiming that its governments are failing to reduce the flow of migrants to the US. Between 2016 and 2019, the total annual aid budget for Central America had already dropped from US$750 million to US$530 million. The biggest reductions were in projects assisting rural economies and agriculture, while there was a small increase in funds for drug control and border enforcement, in order to reduce the number of migrants to the US.
- There is concern among local coffee growers that if aid is stopped there will be more unemployment, leading to more migration and abandoned farms.
- NGOs are helping coffee farmers to cope better with droughts and to diversify into other crops, such as avocados or timber. Global coffee sellers, including Starbucks, are supporting some projects in the hope that they can ensure the future supply of coffee. However, coffee farming in Honduras may never be profitable again.
Table 2: Personal remittances (debits and credits) in the
Honduras balance of payments (US$ million)
Figure 2: Foreign aid flows from the United States to Honduras (US$ million)
[Source: Financial Times, 2018. Honduran Farmers Flee the Effects of Climate Change [online] Available at: https://www.
ft.com/content/adc270e2-fd72-11e8-aebf-99e208d3e521 [Accessed 29 September 2020] Used under licence from
the Financial Times. All Rights Reserved.
McDonnell, T., 2019. Trump Froze Aid To Guatemala. Now Programs Are Shutting Down [online] Available at: https://
www.npr.org/sections/goatsandsoda/2019/09/17/761266169/trump-froze-aid-to-guatemala-now-programs-are-shutting-
down?t=1601386752458 [Accessed 29 September 2020] Source adapted.]
List two functions of the World Bank (paragraph [3]).
Define the term unemployment indicated in bold in the text (paragraph [6]).
Using a demand and supply diagram, explain why the global price of coffee beans dropped when “countries such as Vietnam, Indonesia and Ethiopia increased their exports” (paragraph [2]).
Using an externalities diagram, explain how coal-fired power plants in the US might be causing market failure (paragraphs [3] and [4]).
Using information from the text/data and your knowledge of economics, discuss the extent to which foreign aid from the US may assist economic development in Honduras.
Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For a demand and supply diagram, the vertical axis should be price or p. The horizontal axis should be quantity or q. A title is not necessary.
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The y axis may be labelled price, but could be costs or benefits, and the x axis is labelled quantity. P and Q are sufficient. A title is not necessary.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Command term
“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.
Answers may include:
- definitions of aid, ODA (official development assistance), development.
Benefits of aid may include:
- needed for development because the government is not providing enough support (paragraph [2])
- EMDCs should provide aid because the impact of climate change (for which they are mainly responsible) falls more heavily on ELDCs and hampers their development (paragraph [3] or [4])
- can provide help in adapting to climate change (paragraph [5])
- project aid can increase employment/incomes and reduce the number of migrants (paragraph [6])
- humanitarian aid helps to prevent malnutrition which lowers productivity (paragraph [4] or [5])
- joint projects with NGOs and/or private sector firms can be effective (paragraph [5] or [7])
- funds from aid can break the poverty cycle
- loans are usually concessional and therefore repayments are less which means that there is more government expenditure available for development projects.
Limitations of aid may include:
- aid flows can be volatile and unreliable (Figure 2)
- aid is influenced by political considerations (paragraph [5])
- aid (tied) is sometimes directed towards military and policing projects rather than to reducing poverty (paragraph [5])
- remittances from migrants are much larger and can be of more direct use to families (Table 2, paragraph [1])
- assistance from NGOs may be more effective and reliable (paragraph [7])
- the coffee processors and retailers such as Starbucks may provide more useful assistance (paragraph [7])
- aid funds may be misused if there is not good governance (paragraph [2]).
Any reasonable discussion.
Examiners report
Listing the functions of the World Bank posed more problems to candidates with many confusing the functions of the World Bank with those of the IMF or even of a central bank.
Most candidates could define unemployment accurately. A few used the word ‘unemployed’ instead of ‘without a job’ and this meant the mark was capped to L1.
This question did not seem to pose candidates any problem. The majority could establish that the supply curve would increase, leading to lower prices.
Some candidates had issues with the labelling of curves (reversed MSC and MPC or confused MPB/MSB with MPC/MSC) but otherwise most did well for this question.
Unfortunately, there were not many good answers to this question. The impact of foreign aid on development in Honduras was seldom precisely explained. Many responses were a general description of the text with very limited value added or provided theoretical costs and benefits of foreign aid. Those who established links between aid and development concepts/issues such as the poverty cycle, a lack of diversification and a narrow range of exports were often awarded L3.
