BHP Billiton shares drop after Samarco accusations in Brazil


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BHP has been facing negative publicity ever since its dam, containing mining waste, collapsed in Brazil, killing at least 17 people and causing significant social and environmental damage. Shares fell further on Friday (10 June 2016) as Brazilian police accused BHP of prioritising increasing production over safety and environmental sustainability as BHP endeavours to reopen the Samarco project. BHP faces prosecution as well as hefty compensation for damages caused by the dam.

How does this relate to the HSC syllabus?

  • Collapse of BHP’s dam is reflective of the generally negative correlation between production and environmental sustainability (HSC Topic 3 – Economic Issues). BHP’s fixation on maximising profits and maximising growth was a factor in its focus on increasing production at the cost of neglecting to ensure the quality and safety of the dam (Preliminary Topic 2 – Consumers and Business). Damage to the environment is expected to be compensated which ironically damages BHP’s goal in maximising short term profit. Furthermore, BHP has lost its ability to profit from the project itself as Brazilian officials are unlikely to allow the Samarco project to be reopened, thus highlighting the importance of environmental sustainability considerations while planning to maximise profits and growth.
  • Environmental sustainability involves using the natural resources needed to ensure the living standards of the present generation can be improved without sacrificing the living standards of the future generation (HSC Topic 3 – Economic Issues). By neglecting to ensure safety, BHP not only caused the death of at least 17 people but also caused irreversible pollution to a major river which deteriorates the resources available to Brazilians in the area to facilitate economic growth. Given the immense task of cleaning the river, it is also likely that future generations are negatively impacted as a result of BHP’s endeavour to increase its production.
  • While increased profits often lead to higher returns to shareholders in the short term, BHP, in neglecting environmental sustainability has also negatively impacted its shareholders (Preliminary Topic 2 – Consumers and Business). Given that shareholders are increasingly influenced by environmental considerations when investing in shares, BHP’s blatant failure to ensure environmental sustainability has caused investors to sell shares in BHP, which caused shareholders to suffer decreases of 4.1% in the value of their investment in BHP on Friday alone.

Bellamy’s and A2 win from China infant formula changes


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China has imposed registration requirements on infant formula exports in an attempt to increase food safety. These regulations restrict the amount of exporters of infant formula that can access the Chinese market and is expected to eliminate 70 – 80% of the 2000 brands currently sold in the Chinese market. This will negatively impact smaller businesses in particular, as they are less likely to have the manufacturing scale and ability to negotiate with Chinese authorities.

How does this relate to the HSC syllabus?

  • China’s regulations are a barrier to entry on flow of infant formula exports, representing a movement away from free trade (HSC Topic 1 – The Global Economy). The registration requirements restrict the firms allowed to export to the country which closes the market to a majority of exporters. Although this restriction only applies to goods to be sold in the country and not to products bought online and sent by courier from outside the country, it is expected that authorities will gradually tighten these trade channels.
  • These regulations are expected to cause a wave of consolidation in the infant formula industry in China as competitors are removed from the market. This means that there is a possibility that the market may become an oligopoly as only major players are expected to perform in this market given they can offer lower prices as a result of economies of scale (Preliminary Topic 3 – Markets). However, consolidation could have negative implications for Chinese consumers in the future as they have less consumer choice. Furthermore, there is a small possibility that these players would be able to raise their prices simultaneously in the future which means consumers would face higher prices.

Theresa Dang THERESA DANG

Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.

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