Level 3 Agricultural and Horticultural Science (90651) 2011

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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                       Evidence                              Achievement                   Achievement with Merit
ONE    Market forces affecting the supply of primary products
 (a)   Exchange rate                                   States the change in              States the change in
       The explanation for changes to recent           exchange rate (indicates rise     exchange rate (indicates
       supply could include:                           and / or fall) in NZ$ that has    actual data) in NZ$ that has
                                                       occurred, and explains in         occurred, and explains in
        increased / decreased returns
                                                       general terms how the             detail how the supply of the
        increasing production to maintain level       supply of the product (timing,    product (timing, quantity, etc)
         of income                                     quantity, etc) has been           has been affected by the rise
        costs of production                           affected by the rise and / or     and / or fall.
        main export market and the currency           fall.
         involved.                                     A                                 M
 (b)   Price Trends                                    Illustrates on the graph a        Illustrates on the graph a
       The prices received by the producer are a       general price trend.              specific price trend (values
       key driver of changing levels or patterns       Explains how the price            included).
       of supply. The explanation of changes to        trends illustrated impact on      Explains in detail how the
       supply could include:                           supply in broad or general        price trends illustrated
        the stability or volatility of price trends   terms.                            impact on supply in specific
         over the long term (3 years)                                                    terms.
        the historical short-term variation in        A
         price.                                                                          M
       Production may or may not be
       significantly affected, depending on:
        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                          Explains how political            Explains, in detail, (with
       An explanation of how governments               intervention strategies           accurate values), how
       manipulate the quantity of supply and / or      impact on supply in broad or      political intervention
       timing. Must include reference to current       general terms.                    strategies impact on supply.
       tariffs, quotas, subsidies or phytosanitary
       restrictions, free trade agreements, etc,
                                                       A                                 M
       being enforced by named governments.
                         Evidence                                      Achievement with Excellence
 (c)   The relative importance of market forces        The justification of one market force over another must
       affecting the supply.                           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                      Evidence                              Achievement                    Achievement with Merit
TWO   Market forces affecting the demand for primary products
(a)   Price                                           Explains how a price               Explains in detail, using
(b)   Explanation will discuss what price             change affects demand in           some form of data, how the
      change has occurred and what effect             broad / general terms.             price change has affected
(c)
      there has been on the demand for the                                               demand.
      product, if any.
                                                      A
                                                                                         M
      Consumer preference                             Explains how consumer              Explains in detail how
                                                      preference has affected            consumer preference has
      Explanation should state the actual
                                                      demand in broad or general         affected demand, using
      trend(s) in consumer preference that have
                                                      terms.                             some form of data – eg the
      occurred, and how they have affected the
                                                                                         trend(s) in consumer
      demand for the product. The preferences         (May express consumer
                                                                                         preference, and why they
      could be within the single product, or          preference as quality
                                                                                         have occurred.
      between competing / substitute products.        requirements.)
      Changes in demand could be reflected in
      the price, quantity or timing of the                                               M
                                                      A
      demand.
      Quantity                                        Explains how the quantity          Explains in detail, using
      Explanation may cover a factor that will        available has affected             some form of data, how the
      affect the quantity of a product supplied,      demand in broad or general         quantity available has
      and its implications for the quantity           terms.                             affected demand.
      available.
                                                      A                                  M
      Product quality                                 Explains how an aspect of          Explains, in detail, (using
      Explanations must refer to a named              an identified quality              data or supplementary
      quality assurance programme operated            assurance programme                information) how an
      on-farm or by processors of the product.        ensures that product is “fit for   identified quality assurance
      In most cases “quality” will refer to product   purpose” in terms of               programme ensures that
      attributes and packaging (ie fitness for        customer / consumer                product is “fit for purpose” in
      purpose of described user / consumer). It       requirements, thereby              terms of customer / consumer
      could also refer to the source of the           maintaining or increasing          requirements, thereby
      product via traceability programmes.            demand.                            maintaining or increasing
                                                                                         demand.

                                                      A
                                                                                         M
      Reliability of supply                           Explains the effect of             Explains in detail the effect
      Explanation should state how a reliable         reliability of supply on           of reliability of supply on
      supply from producers is achieved, and          demand in broad or general         demand.
      how consumer demand is maintained or            terms.
      increased as a result of either the
                                                                                         M
      quantity, quality or timing of supply.
                                                      A
      Reference could be made to consumer
      loyalty, processing requirements, etc.
      Promotion                                       Explains how relevant              Explains in detail, using
      Explanation should include actual               promotion method(s) have           some form of data, how
      examples from a relevant promotional            affected demand in broad or        promotion methods have
      campaign, including how the key                 general terms.                     affected demand.
      message is conveyed and how demand
      for the product has increased.
                                                      A                                  M
                   NCEA Level 3 Agricultural and Horticultural Science (90651) 2011 — page 3 of 6


       Market trends                                  Explains how a market trend       Explains in detail, using
       Market trends must relate to an aspect of      is able to influence the          data or supplementary
       marketing influencing supply over the last     quantity supplied.                information, how a market
       three years. The trends explained could                                          trend is able to influence the
       be price-based, quantities, attributes,                                          quantity supplied.
                                                      A
       consumer preferences, etc. Trends may
       or may not be highly significant – a stable
                                                                                        M
       trend is a common occurrence.
       The candidate is expected to state actual
       figures to support their answer /
       explanation.
                       Evidence                                       Achievement with Excellence
 (c)   The relative importance of market forces       The justification of one market force over another must
       affecting demand.                              provide evidence of the merits of each market force as they
                                                      impact on the demand (price or quantity) for the product.
       Example: Lamb
                                                      When discussing price, actual prices must be stated.
       (1) Price
       (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.

				
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