BSB119 – GLOBAL BUSINESS
TUTORIAL 5: TRADE AND INVESTMENT
Next week will be collected
Question 1 and 2 are significantly different
o Question 1 – three specific (ownership, control risk, operation transfer) then micro and macro
o Question 2 - more about economic issues concerned
Question 3 – similar to Question 1 (expand). Consider things which are inferred in the case study eg stability
in exchange rate is a variable. As a result of an un-stable govt, there are severe drops in exchange rate (open
o FACTIVA – type in political risk in FIJI (reference last 7/8 years). Last question is more creative/open
Please read the case “Why are global food prices rising”, the closing case in chapter 3 (pp.96-98) of your textbook
and answer the questions below.
1. How do high food prices impact the developing countries?
Higher food prices impact developing countries in a number of ways:
Consumers are forced to spend a larger proportion of income on food
o This is considerably larger than the wealthy do as the price rises have affected basic food
o This will force an additional 105million people to experience extreme poverty
Consumers face grater food insecurity as more and more staples are re-directed to feed stock and
Low income earners – food is a necessity – many low income earners in under developed countries
(basic food in developed countries in cereals/grains).
o Large population with lots of low income earners who find food expensive.
Purchasing power falls – as food prices rise – poverty line
Add political instability – unrest – what of the impact of food as an import
Natural disasters affect the cost of food 0 these countries then have to import food. Suddenly, the
price of food rises again.
o Generally, it is ideal if countries can be self sufficient.
Poverty = inability to provide food/shelter/warmth for yourself
2. What is the difference between food security and food self-sufficiency?
The term food security refers to the availability of food and one’s ability to access it. A household is
considered food secure where its occupants do not live in hunger or fear of starvation.
Figures from 2003 show that up to 2 billion people face food insecurity due to various levels of
poverty or financial hardship
Security = satisfy population demand for food – domestic production and imports
The term food self-sufficiency refers to the ratio of food consumed daily by people within that country which
is supplied by domestic production. The goal is based on the idea of food security, by which a country should
endeavour to ensure the minimum necessary supply of food in case of poor harvests at home or abroad
caused by such factors as abnormal weather conditions, or in case of an unexpected situation, such as a
state of war.
Self-sufficiency: rely entirely on its own domestic production of food to satisfy the domestic demand. Eg
Australia – chooses to import a significant amount of food. Food would cost more – as the cost of producing
here would be more expensive.
3. What demand and supply factors explain high global food prices?
There are several demand and supply factors which have contributed to rising global food prices: 2
o Demand for staples has been driven by greater food consumption as populations grow
o It is also being impacted by changing consumer preferences in rapid growth countries such
as China and India
For example, increased demand for beef has resulted in increased demand for gains
to feed cattle.
Trade-distorting effects of trade barriers and subsidies – particularly for biofuels.
o Subsidies, tarrifs and barriers distort world trade in agriculture and good
o Farmers in developed nations received subsidies by giant market players such as the US and
US and EU have adopted biofuel subsidies to increase the production of ethanol and
biodiesel to increase energy security and slow global warming
Subsidies create incentive for farmers to plant more crops which can be turned in
biofuels (corn and soybeans). This has resulted in production of these crops for food
being reduced whilst also reducing the land