Food Insecurity, Comparative Advantage and Trade Policy (Ukraine War)

Answers

(a)(i) [1]

There is a positive relationship: as the real food price index rises between 2014 and 2022, global food insecurity (the number of undernourished people) rises as well.

(a)(ii) [2]

A likely reason is that food prices rose faster than nominal incomes, lowering households’ real purchasing power. With food less affordable, consumption falls and the number of undernourished people rises — hence the positive co-movement of the two variables.

(b) [5]

The theory of comparative advantage holds that a country should specialise in goods it produces at relatively lower opportunity cost and trade for those it produces at relatively higher opportunity cost.

Yes — comparative disadvantage in wheat. Comparative advantage partly accounts for Bangladesh being a net importer of wheat, because it has a comparative disadvantage in wheat production. Extract 4 notes that climate change and adverse weather — to which Bangladesh is especially vulnerable — heavily damaged crop production. These supply shocks degraded its factor endowments of arable land and soil, raising the opportunity cost of growing wheat (the damaged land could be put to alternative crops), so its comparative disadvantage in wheat intensified, consistent with imports rising from 24% to 82% of consumption.

But other (demand-side) reasons also apply. Comparative advantage is not the whole story. Demand-side factors raise import needs independently: Extract 4 states wheat demand grows yearly with rising population — wheat being a survival staple — and with a change in tastes toward wheat owing to growing awareness of its health benefits. Either factor raises domestic demand faster than domestic supply, driving imports.

Judgement. Both supply-side comparative disadvantage and demand-side growth contribute; comparative advantage explains why Bangladesh imports rather than produces, but rising domestic demand explains the scale of the rising import dependence.

(c) [4]

How an export ban lowers domestic prices. To reduce domestic inflation, a country imposes an export ban or restriction on a commodity such as wheat. With less of domestic output sold abroad, domestic supply rises; at the prevailing price a surplus emerges, exerting downward pressure on the domestic price of the commodity.

Why it is “misguided”. The attempt is counterproductive at the global level. As Extract 4 explains, many countries impose such restrictions simultaneously. When other food-exporting countries restrict their exports, the supply of food traded internationally falls, driving world prices higher. A country that bans wheat exports to keep its own wheat cheap still faces dearer imported rice or other foods as other exporters restrict theirs — so the cycle of restrictions raises overall imported food prices, defeating the goal of curbing inflation.

(d) [8]

The problem of food insecurity is that high food prices reduce affordability, hitting low-income consumers hardest. Inclusive growth is growth that is sustained, broad-based across sectors, and creates productive employment for the majority. My thesis is that tariff reduction effectively tackles short-run food insecurity and inflation, but is insufficient alone for inclusive growth.

Thesis — tariff reduction helps. Reducing tariffs on rice, pork and corn lowers the price of imports.

Tariff reduction: the world-price-plus-tariff line falls from P_w+tariff toward the lower world price P_w, raising imports and lowering the domestic price. Consumer surplus rises as the affected commodities become more affordable (lower price) and accessible (higher quantity consumed) — addressing food insecurity.

Lower import prices raise the volume of imports from more efficient producers, improving affordability and accessibility for low-income households — directly easing food insecurity. Cheaper food inputs also lower firms’ costs, raising aggregate supply, easing cost-push inflation and lifting real output and employment, including in food-related industries that employ lower-skilled workers — supporting inclusive growth.

Anti-thesis — tariff reduction harms inclusivity. Cheaper imports expose domestic farmers to competition: Extract 5 notes rice farmers cannot compete and are driven into poverty. Without alternative employment, their incomes stagnate or fall, widening income inequality — the opposite of inclusive growth. Moreover, higher import volumes lower net exports, worsening the trade balance (Extract 5) and, ceteris paribus, lowering AD and real income through the reverse multiplier, with adverse effects on growth and employment.

Judgement. Tariff reduction is largely effective at the short-run food-security and inflation challenge, since cheaper imports immediately ease shortages and dampen prices. But it is ineffective for inclusive growth alone, because it harms local producers’ incomes. As Extract 5 stresses, it must be complemented by long-term measures that raise farmers’ productivity and incomes — investment in irrigation, logistics and climate adaptation. Only the combination achieves equitable, sustainable, inclusive growth.

(e) [10]

The Ukraine war posed two challenges for Singapore: (1) disrupted supply chains raised energy, import and input prices — import-induced cost-push inflation; and (2) lost business confidence and weaker partner income lowered investment and exports, raising cyclical unemployment and slowing growth. I assess the policies on effectiveness, desirability, feasibility and sustainability.

Diversifying import sources. Diversifying and procuring from alternatives (iron ore from Brazil, copper from Chile) reduces dependence on any single region, lowering and stabilising input costs. This raises AS, easing inflation and mitigating the output fall — effective against import-induced inflation.

Limitation. Ineffective in the short run, since finding quality-matched suppliers takes time; and more distant suppliers raise transport costs, partly offsetting the price gain, while they too may face their own cost shocks.

Supply-side policy — domestic production via R&D grants. Subsidising R&D (process innovation, automation) lets Singapore produce more intermediate goods domestically, reducing import reliance. Higher productivity lowers unit costs and raises capacity, shifting AS rightward — easing cost-push inflation and supporting output and employment.

Limitation. R&D has long lags, so it gives no immediate relief; and its high cost carries an opportunity cost, since funds could fund education and training instead.

CDC vouchers — expansionary fiscal support. Transfer payments supplement household purchasing power, helping families afford essentials despite higher prices — easing the cost-of-living impact. By raising domestic consumption, vouchers also lift AD and, via the multiplier, raise real income and the derived demand for labour, mitigating the growth slowdown.

CDC vouchers: higher household consumption shifts AD₀ to AD₁, with the multiplier producing the larger final shift — raising real national income from Y₀ to Y₁ and the derived demand for labour.

Limitation. Because the inflation is import-induced, vouchers — focused on domestic spending — do not address its root cause; worse, raising AD near full employment can worsen inflation. A fixed voucher amount is also inequitable across households of differing size and need.

Judgement. Each policy is appropriate to a different facet and time horizon, and none suffices alone. CDC vouchers give immediate cost-of-living relief but do not solve import-induced inflation; diversification stabilises prices in the short-to-medium run; supply-side R&D builds long-run resilience but is slow and costly. The most appropriate response combines them — vouchers and diversification for near-term relief, supply-side investment for durable resilience — balancing short-term stabilisation against long-term competitiveness for a small, open economy structurally exposed to external shocks.