IB Economics HL 4.7.1 Sustainable development

[Maximum number: 15]

Read the extracts and answer the questions that follow.
Text D - Overview of Indonesia and palm oil production

(1) Indonesia is the largest economy in Southeast Asia and its gross domestic product (GDP) has grown strongly. The proportion of those living in absolute poverty in Indonesia decreased from 37.4 \% in 1999 to 2.7\% in 2019.

(2) The palm oil industry is a major contributor to the Indonesian economy, accounting for 4.5 % of GDP and providing employment for over three million Indonesians. Palm oil production is technologically simple and profit margins are large. As a low-cost producer, Indonesia produces over 50 % of the world's output. Palm oil is the most widely used vegetable oil in the global market. It is an ingredient in many products (including foods, cosmetics, cleaning products and biofuel) and demand continues to increase.

(3) In 2015, despite a widening budget deficit, the Indonesian government began subsidizing biodiesel (a type of renewable fuel) made from palm oil to make it more price competitive with conventional diesel. The subsidies were aimed at reducing Indonesia's dependence on fossil fuel imports and at increasing exports of high-value refined palm oil products.

(4) In Indonesia, 80\% of the palm oil produced is exported, contributing substantially to export revenue and to government tax revenue. However, palm oil prices are volatile, due to changes in supply, making planning difficult and causing fluctuations in the exchange rate. For example, studies show that, due to the low price elasticity of demand (PED) for primary commodities, an increase in the price of palm oil results in greater export revenue. Consequently, the rupiah (Indonesia's currency) may appreciate.

(5) In 2019, the European Union (EU) decided to impose an 18 % tariff on imports of palm oil based biodiesel from Indonesia, partly due to concerns that palm oil production damages the environment. The EU also claimed the tariff was necessary to offset the effects of the biodiesel subsidy.
Text E - Sustainable Development Goal (SDG) 12 and concerns about palm oil production in Indonesia

(1) In the past, the Indonesian government supported the rapid growth of palm oil production in order to increase GDP and employment. This policy often resulted in an inefficient use of land and high carbon emissions, as a result of deforestation.

(2) Sustainable Development Goal (SDG) 12 (responsible consumption and production) requires resources to be used more efficiently and sustainably through changes in production methods. Unsustainable use of Indonesia's natural resources will probably reduce long-term economic growth. Forests are necessary for food security, fuel, shelter and jobs. They also reduce the carbon in the atmosphere and protect against floods.

(3) Rates of deforestation in Indonesia have decreased recently. The World Bank's Forest Carbon Partnership Facility is providing US$110 million in aid to help reduce deforestation. Protecting forests from agricultural expansion will significantly reduce emissions. Profits will be lower, but the reputation of the palm oil industry will be improved and its long-term future made more secure.

(4) More than 50 multinational companies (MNCs) which use palm oil in their products have pledged to ensure that their suppliers do not contribute to deforestation. Pressure from the MNCs is encouraging Indonesian producers to use natural resources more sustainably.
Text F - Small-scale farmers and the Indonesian Sustainable Palm Oil (ISPO) certificate

(1) Small-scale farmers manage approximately 40 % of Indonesian plantations, but produce only 30 % of Indonesia's palm oil, because of poor farming techniques, low quality seeds, and a weak banking system, which limits their access to finance. In addition, land disputes occur due to a lack of property rights. To make up for their low productivity, farmers sometimes illegally clear more land for planting.

(2) The Indonesian Sustainable Palm Oil (ISPO) certification system requires that palm oil producers only occupy land legally, that they do not plant in areas designated as forest, and that they use sustainable agricultural practices. Initially, only large plantations had to get certification. However, the system was extended in 2020 and now small-scale farmers also have to obtain certification. Participating in the system should improve the productivity of small-scale farmers and reduce deforestation.

Table 3: Economic data for Indonesia

Table 4: Development data for Indonesia

Table 5: National income statistics for Indonesia

Using information from the texts/data and your knowledge of economics, discuss whether there is a conflict between meeting Sustainable Development Goal 12 (responsible consumption and production) and the objective of economic growth in Indonesia.

, (responsible consumption and production), and the objective of economic growth in Indonesia.

Level

Marks

0

- The work does not meet a standard described by the descriptors below.

1

- The response indicates little understanding of the specific demands of the question.

- Economic theory is stated but it is not relevant.

- Economic terms are stated but they are not relevant.

- The response contains no evidence of synthesis or evaluation.

- The response contains no use of text/data.

1-3

2

- The response indicates some understanding of the specific demands of the question.

- Relevant economic theory is described.

- Some relevant economic terms are included.

- The response contains evidence of superficial synthesis or evaluation.

- The response contains limited use of text/data.

4-6

3

- The response indicates understanding of the specific demands of the question, but these demands are only partially addressed.

- Relevant economic theory is partly explained.

- Some relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included.

- The response contains evidence of appropriate synthesis or evaluation but lacks balance.

- The response includes some relevant information from the text/data.

7-9

4

- The specific demands of the question are understood and addressed.

- Relevant economic theory is explained.

- Relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included and explained.

- The response contains evidence of appropriate synthesis or evaluation that is mostly balanced.

- The use of information from the text/data is generally appropriate, relevant, and applied correctly.

10-12

5

- The specific demands of the question are understood and addressed.

- Relevant economic theory is fully explained.

- Relevant economic terms are used appropriately throughout the response.

- Where appropriate, relevant diagram(s) are included and fully explained.

- The response contains evidence of effective and balanced synthesis or evaluation.

- The use of information from the text/data is appropriate, relevant, and is used to formulate a reasoned argument supported by analysis/evaluation.

13-15

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:
- definition of growth
- definition of consumption
- definition of production
- definition of responsible/sustainable
- an externalities diagram
- a PPC diagram
- an AD/AS diagram.

Ways in which Indonesia is not meeting the SDG because of growth (ie there is a conflict):
- negative production externalities of palm oil production (Text E, paragraph 1 or 2)
- negative consumption externalities of using palm oil based diesel (Text D, paragraph 3 or 5)
- planning production/government expenditure is difficult, because exporting a commodity with low PED and PES leads to volatile prices and uncertainty (Text D, paragraph 4)
- exports may not be sustained if importing countries become more concerned about environmental damage (Text D, paragraph 5)
- small-scale farmers use resources inefficiently/unsustainably (Text F)
- small-scale farmers' lack of property rights leads to disputes and uncertainty (Text F, paragraph 1)
- inequality has not been lessened and has increased (Table 3)
- deforestation still occurring, even if reducing
- illegal clearing of land due to lack of property rights
- still poor production techniques in small scale farming-only very recently extended ISPO certification scheme
- demand still rising for palm oil in many product areas.

Ways in which Indonesia is meeting the SDG while achieving growth (i.e. there is not a conflict):
- manufacturing palm oil based diesel, which will be better for the environment (Text D, paragraph 3)
- palm oil production provides jobs and has probably contributed to the sustained growth and the lower absolute poverty levels (Text D, paragraph 1; Table 4)
- palm oil production provides export revenue which will be useful for buying capital imports etc for production of secondary goods, rather than relying on primary exports (Text D, paragraph 2; Table 3)
- the tax revenue provides the government with funds, which it can use to improve development and which will help with reducing the widening budget deficit (Text D, paragraph 4, Table 3)
- MNCs' pressure to stop deforestation is successfully exerting pressure on Indonesia (Text E, paragraph 4)
- the establishment of property rights will help both objectives (Text F, paragraph 1)
- Indonesia is extending the IPSO certification system to small-scale farmers, which may encourage both a more sustainable use of resources and economic growth (Text F, paragraph 2).

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

IB Economics HL 4.7.1 Sustainable development Question Bank

Exam points

4.7.1—Sustainable development question 1