>>reporter: this week on world business... >>a year into the sovereign debt crisis and there still seems to be no clear path forward for europe. >>it's true that we are facing an unprecedented challenge in the european union because, for the first time, we are facing this issue of sovereign debt inside an monetary union >>reporter: is the west using the need to control carbon emissions to artificially hold back growth in emerging markets? >>you can't tell me in totality that india should produce less pollution than say singapore, i mean is that a joke. >>reporter: and after 20 years pirelli returns to formula 1, but with new rules demanding less durable tyres, is the brand treading a slippery path? >>it's not necessarily the best pr for your tyres. especially when you've got drivers sitting their saying

my tyres went off really quickly. >>reporter: hello and welcome. i'm raya abirached and this is world business, your weekly insight into the global business trends shaping our lives. >>europe's year long sovereign debt crisis is still in the limelight. balance sheets in some corners of the continent are in bad shape and eu politicians, business peopleand investors are all trying to find the answers. yet a convincing route to recovery and escape from the debt trap remains elusive. >>reporter: the dusty fields of extremadura... a region

in central spain, where the pigs are certainly a lot happier than the farmers, that's because there's now a massive glut in acorn fed iberian ham or jamon de bellota. >>martin marti: ham overproduction coinciding with a fall in consumption hasay negatively, because now there is a lot of ham and not much consumption. that makes the prices fall. >>reporter: with more than 25 million pigs, spain vies with germany for the european union's largestporcine population. >>its pig industry will be buoyed by a growing german economy... turning to the spanish ham industry well it's reeling from chronic corporate and household austerity. >>martin marti the farmers lose money with their pig production. so, we have three facts: one, the excess in ham on offer, the fall of the average family's consumption and then the high cost of inputs. >>reporter: the story

of spain's pigs, is one fuelled by years of excess, easy credit, and lax regulations. >>in some ways it's reflective of another crisis among pigs. the derogatory trader's acronym for europe's faltering state. portugal, ireland, greece and spain... >>a crisis well known to one key portuguese politician, speaking just after his country was bailed out to the tune of 78 billion euros. >>barroso: it is true that we are facing an unprecedented challenge in the european union because, for the first time, we are facing the issue of sovereign debt inside an monetary union. and this is unprecedented business, and this is uncharted territory, and so that requires some intellectual humility. >>reporter: acceptance of weaknesses however is only the first step to rebuilding confidence in a fractured

europe. it's going to take more than a face lift of the central grand place, before brussels can function properly again. >>langrish: europe first has to get its debt crisis under control. there seems to be two speeds to the european economy. there's a core that is doing very well and it's very export driven. and there is a periphery that seems to be in constant need of financial assistance from this core. investors want certainty and that is what they're looking for. and europe i think needs to bring forth a littlebit more certainty. >>reporter: undoubtedly this year's european business summit was trying to provide a little more of that. >>if conference goers could see beyond the headlines of flagging greek debt repayments and fallout at the top of the imf, a major e.u. partner, the mood was remarkably upbeat, more so than last year. >>easen: there maybe more optimism here among some of europe's business leaders at this year's summit, but the eurozone debt crisis still looms large, with many

here still soul searching and looking for answers, the only reassurance is that europe is still the world's largest single market that businesses across the globe want to do trade with. >>spelman: it is important to remember that europe is a very significant world player. it is the largest global economy. the single market is critically important it is 27 percent of world gdp. so one key issue is making the single market work better. >>langrish: it is still a market of 500 million wealthy consumers, while growth rates are not particularly high. especially compared to emerging asian powers we are a natural resources based economy when we look at 500 million europeans there's opportunities contained there in. >>reporter: yet it is the growth in asia and other emerging markets that european business leaders are keen to harvest. >>rushforth: asia from china through to india has been a powerhouse for economic development and growth and ultimately european

export. however, i think the more developed asian countries like korea can definitely bring investment as we have in factories in r & d in commercial development into europe, to spark local demand >>gomersall: asia and some of the other developing countries obviously are going to be the big markets of the future. there are big middle classes growing up in south america and the middle east and so forth. and those are big opportunities for europe. >>thomas: make the european diplomats responsible to sell europe in the emerging markets so that wecan attract investments from those high numbers of new multinational companies in india, in china. >>reporter: business leaders may be trying to open doors, but northern european politician's are increasingly keen to shut out weaker countries... >>that's why bureaucrats are now touting more cohesion, more integration in europe, not less, if theunion

of nations is to survive. >>de buck: and that has to be secured once for ever, because what we cannot allow to happen is that the euro zone falls apart, not for a single country, because if it starts then it is over. so we have to secure our future also of the eurozone. >>orb n: so the political challenge probably looks now more difficult in my mind then the economic challenge to the businessman...it's obvious that if we would like to survive we have to think together or we will sink separately. >>reporter: yet talk in brussels is increasingly of a two tier europe split between its northern powerhouses and its southern economic laggards. >>strong growth at the core could be bad news for the periphery, meaning more divergence not less. >>langrish: so it needs to be calmed, and it needs stability and it needs certainty, that is the thing that europe needs to focus on now. and they need to nip this thing in the bud, allowing it to continue

on and on and on. the longer this thing goes on the more uncertainty it sort of creates in terms of global markets. >>reporter: certainly the world is watching, not just the pigs, but the whole european union. >>get the formula right and the whole region will bounce back. get it wrong and it could be fractured forever. >>reporter: as the economies of developing countries strengthen and living standards rise, so too docarbon emissions and pollution and the great challenge is in balancing the two. however there is an increasing feeling among many in emerging markets, that green arguments are being used as a form of eco imperialism by a stagnating western world to maintain its dominance over developing countries. >>reporter: in downtown bangalore a hindu priest performs a ritual blessing known as a puja to protect a parade of new cars. every

day the queue of cars grows longer as increasing numbers of india's booming middle class take to the roads. >>ghosh: india's relationship with the car really started i would imagine with the maharajas becausethey were the first people that sort of imported cars from england, much later from the us. rolls royce used to be the maharajas car so the love affair with cars really started with the maharajas. and like all luxury products in the world it sort of seeped down. >>reporter: a mercedes costs between sixty five and five hundred and fifty thousand us dollars. in acountry where an estimated 300 million people live on less than a dollar a day. yet this dealershipin the punjab still sells several hundred cars a year >>ghosh: so if you look at the bottom of the pyramid cars are basically instruments of mobility but layered on top of that it still is a signal to the fact that i am doing well in life, recognise me

by the car that i drive. so why would you for example want to drive a 600 series mercedes benz at 4kmper hour in a city like bangalore, basically to allow people to look at you and say wow. >>raj jain: i would say as far as the comfort, the silence, the convenience and the safety and otherfactors which persuaded me to buy one. so not only one i have three now but i love driving an e class the most. when you are driving and when you are riding and the comfort you get and the performance of the car is such that you feel that you are different from others. >>reporter: but spiralling demand for all forms of motor vehicles means the country's roads especially in major cities, are clogged with cars and motorbikes. last year alone 9 million two wheelers were sold in india and nearly

2 million cars. many motorcyclists also want to upgrade to a car as it's a much safer way to travel on the country'streacherous roads. >>the barrier has always been cost. >>but industrial giant tata has opened up a whole new market with its small car, the nano, costing around 3300 us dollars. >>but some question the logic of what india is doing. >>sauven: india is a country where you've got 1.2 / 1.4 billion people or whatever it is. you've gothuge mega cities, you are not really going to be able to transport people around those cities in private cars it's just physically not possible i mean apart from the environmental consequences of it. so what you really want to do is to design and put in place a really good infrastructure for mass transit systems and i think that would be actually a much better investment and a much better industryfor india to develop than go down the route of the private car.

>>reporter: the plans for the new car attracted immediate media criticism in the west which questioned its environmental impact and claiming that they could prove to be a trigger for environmental headaches across the globe. >>for men such as rahul bajaj there is more than a whiff of hypocrisy from the west, having created their own their own wealth during a period of a heavily polluting industrial expansion, they're now criticising the developing world's desire for growth. >>bajaj: per capita we produce pollution which is not even one tenth of what the us produces. and our prime minister made a commitment that india will not produce pollution per capita which will exceed ever that of the united states and that's what matters. you can't tell me in totality that india should produce less pollution than say singapore, i mean is that a joke. so yes in totality because we are over a billion people and china is over a billion people and we are growing which they did fora hundred

years, so we do produce the pollution as they did. >>toulmin: i think that what we have to do is to help them see that by following the same path as uswe collectively stand to lose a lot because it will generate too many greenhouse gases for the atmosphere to be able to cope. >>reporter: the problem is that traditional petrol and diesel driven vehicles have now become hugelyimportant economically to india and other developing economies. >>ghosh: if you look at the entire automobile industry it's probably one of the biggest industries, it is one of the biggest employers, it's the biggest guzzler of resources, it's the biggest employerin terms of talent, in terms of engineering. so automobile is an important industry for any growingor developed economy. >>reporter: bajaj autos makes virtually all the familiar yellow topped auto rickshaws on india's roads. their chairman claims that the developing world cannot afford not to go for growth, and that it's now time

for the richer world to put its money where its environmental mouth is and share its new and cleaner technologies with the emerging markets. >>bajaj: without growth you will have nothing else that why we say poverty is the biggest polluter, do you want me to go to stone age? we don't want charity, india has never wanted charity and we don't need charity. but the developed world, they want a clean world, then they must give technologies to the emerging markets especially those who are growing very fast, anybody in fact who needs it on comparative, reasonable terms. that's where the funding has to come from, not money but technology. >>reporter: the carbon emissions created by the west, fuelled huge leaps in living standards, from the industrial revolution onwards. now as the emerging world develops and demands equality, should it too be given a hundred and fifty years of leeway? >>reporter: still to come on world business... >>from cappuccino to cup 'o

china, the burgeoning coffee growing business brewing up in the country. >>pirelli tyres are back on track, but is returning to formula 1 such a good idea? >>brilliant branding or burnout... and the rest in just a moment on world business... >>reporter: china may be a country more traditionally known for sipping tea, but the last few years has seen a marked expansion in coffee growing in south west china, as producers seek to satisfy the growing demand for a caffeine buzz. >>reporter: the zhou (pronounced joe) family tend a soccer field sized plot some 90 km from china's border with myanmar. they switched

from growing sugar cane to coffee seven years ago, and in doing so, doubled their income. at today's commodity price, this household of four makes around two and a half thousand us dollars annually. >>erluan: it doesn't take a lot of work, even the children and oldfolk here do it. and the income, well, it's quite nice. >>reporter: of course, the word nice is relative. but for the 40,000 coffee growing families across yunnan, one of china's poorest provinces, only tending tobacco pays as well. it for export. but its output hardly registers on the world stage. the total coffee growing area covers just 280 sq km, or around one sixtieth the size of beijing. >>reporter: brazil is the world's biggest coffee producer with over 39 million

bags in 2009, more than double the combined harvest of latin america's other big players.>>in africa, the beverage's birthplace, ethiopia and uganda lead the continent.while india and indonesia are serious asia producers.vietnam, with an 18 million bag harvest in 2009, is ranked second. >>and this dwarfs china's output, though it's set to double production to 1.5 million bags by 2015, by doubling the area under cultivation. >>lu: china makes up one fifth of the world's population. so, its potential share of today'sglobal coffee consumption could be a hundred billion dollars. but at present, the chinese consume just around 4 billion dollars of coffee products. so there's good potential. >>reporter: and that's why the yunnan government says it's prepared to invest 450 million dollars in the industry, which is regards as a sure fire way to boost rural incomes.>>mackie:

the government's calculations rely on coffee having a widespread appeal, not just among the country's urban middle class.that said, the big brands are getting involved with the authorities to help develop the industry, with starbucks planning to operate a base farm, research and production facilities plus offer training to local farmers. and domestic coffee producers intend to move up the value chain as the industry expands. >>reporter: dehong hogood is evolving from being a bean supplier to nestle to developing its own brand of powdered instant coffee. a state of the art 10,000 ton annual capacity production line should be fully operational in 2012. the company is now preparing to become china's first listed coffee producer, so as to fund further expansion. >>xiangru: japan and south korea have long held tea culture traditions.

but their coffee consumptionis also remarkable. so we do believe that in future, china, like japan and korea, will have a market for a coffee culture combined with its tea culture. >>reporter: this local company also believes profits are to be made competing elsewhere, mainly in asia. over the coming five years, china could start to bother other producers in the region, notably indonesia and india. as for the growers, they're banking on the expanding ranks of middle class urban families to keep adding coffee to their shopping lists.this way, as china's supply grows, growing demand should maintain a worthwhile commodity price for all. >>reporter: every year formula one brings in new rules and regulations. this year is no exception and the introduction of movable

rear wings, along with the return of an energy retention system have been among the major changes. however the most significant rule change involves the tyres. for the company charged with providing those tyres, that's not just an enormous challenge, but a sizeable risk. >>reporter: a new season for formula one....with a new tyre supplier....working to a radical new brief.... vereynolds: over the past few seen have been races where there's been a lot of tyre degradation, so we have lots of pit stops and increase strategy and intrigue for the spectators. >>reporter: with the main competition coming from michelin, pirelli won the 3 year sole provider contract...and was told to provide tyres far less durable than the ones bridgestone had supplied over the past 4 seasons.... >>boiocchi: we got the window to have in between 15 and 25 laps, not more.

>>gori: we accepted these because to come back to formula one for us was so important. >>reporter: after a 20 year absence...the lure of an f1 return for the world's fifth largest tyre company is understandably strong. last year around 1.9b viewers watched f1...the highest number since 2006....and it remains second only to the nfl in annual viewership.... >>geach: over the last few years we've seen the levels return to the late 90's....early 2000's ....since the last year against previous year we've seen an increase of 10 percent in viewership. >>reporter: pirelli's dipped in and out of f1's world championship since 1950. but now it's having to play catch up. 5 other tyre manufacturers have claimed more f1 victories than the milan based company which made its first foray into motor racing in 1907....

>>jong: pirelli's hq is actually built around this lovely old country house. it's been here since the 15th century...long time. but the time period between pirelli winning the f1 contract and the first race of the 2011 season; not very long at all, just 9 months. >>gori: it was awful...awful. we got the green light end of june and then we were on the test track in august. >>boiocchi: the 19th of august i will remember for all my life...the first tires on the circuit in mugello. >>reporter: the brief was to provide a range of 6 tyres that would degrade at various rates...but testing was plagued by bad weather....and while the tyre supplier gets detailed information on the different surfaces, speeds and temperatures offered up by f1's 20 tracks...it is impossible to replicate race conditions..... >>boiocchi: what is another

variable is the number of car running altogether that are making also sort of rubberizing surface. during friday, saturday and sunday races. this is possible only during the races. >>reporter: initially at least....approval from certain drivers has been somewhat guarded... >>webber: they wear pretty quickly. so they degrade.... you have no grip, so you got to be careful of that. >>reynolds: drivers never like it when their tyres go off and they have a lack of grip. it just slows them down. >>reporter: with the season now underway...the tyres, which shed around 20% of their weight in a racing stint...have had a dramatic effect... >>reynolds: in malaysia we saw a high number of tyre stops...we saw 56 tyre changes in all, which isa huge number for a formula 1 race. >>reporter: meanwhile...there were 63 passing manoeuvres at the chinese grand prix...reportedly the highest number in 20 years for f1 in dry conditions...but an istanbul grand prix delivering over 80 pitstops fuelled concerns that tyres are artificially creating race conditions that are gimmicky,

and confusing for both spectators and teams.... >>webber: they may be not understanding someone going back then coming up again, going back. it's going to be interesting even from the cockpit side. it's going to be hard to know who is where. >>boiocchi: it's too confusing for the people that have not understood how to manage and how to profit about this situation. >>reynolds: you can say it's artificial but really every sport has elements of things that are brought in to add to the excitement. it's a more natural way of doing it than perhaps say the movable rear wing which is artificially increasing overtaking. >>reporter: 50 staff will deliver around 1800 tyres to each grand prix...and unlike in the past...where tyre manufacturers paid to be f1 suppliers...every team will pay pirelli 1.25m euros a season.... >>gori: it is basically bringing to zero the variable

expenses over the year. >>reporter: however...exactly how the tyres will perform on each circuit is still unknown...and so the deal remains a risky proposition for a company chasing the fast developing premium markets that f1 specialises in reaching... >>geach: with the emerging nations such as china, india, russia, the middle east there is a huge potential in developing high performance tyres. the beauty of f1 is that it actually transcends all those different demographics. >>reporter: and despite an exciting start to the season...given that...the lion's share of the company's car tyres are sold in the premium market...some still question the public relations wisdom of showcasing a fast wearing product...... >>reynolds: it's not necessarily the best pr for your tires. especially when you've got drivers sitting their saying my tires went off really quickly. >>reporter: and in a sport that since its earliest days has striven to reinvent itself every year...this extreme performance means no one's quite sure who's going to be

the real winner...when it comesto changing tyres.... >>webber: they're proving the biggest challenge is suppose to get used to and that's going to be thebiggest difference to years gone by. >>that's it for this week's world business. thanks for watching. we'll see you again at the same time next week.

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