HELPING FOOD PRODUCERS WEATHER THE STORM / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( VERY HIGHLY RECOMMENDED READING )

June 22, 2011 11:29 pm

Helping food producers weather the storm

By Thomas Mirow

Group of 20 agricultural ministers, under the French presidency, are holding their first meeting to discuss global food security. The Paris talks are timely. We have experienced a second major food price rise in less than three years. Agricultural commodity prices may temporarily ease from their recent record peaks, but on current trends demand will consistently outstrip supply for a long period ahead.


The 29 countries where the European Bank for Reconstruction and Development operates, and especially the big three grain producers of Russia, Ukraine and Kazakhstan, have some of the greatest potential to increase food production globally. Our estimates show that grain yields alone could rise as much as 75 per cent within the next 10 years. Some 40m-60m hectares of extra land could also be brought into play.


What is needed to achieve this? If supply is to match rising demand, substantial investment is needed to increase productivity. Most of this can come only from the private sector. But G20 leaders and international organisations can help by increasing investment and technical assistance, co-ordinating policy, supporting the transfer of technology, and new methods of financing, and providing training.


There are three areas in which governments should take action. First, they should create a predictable policy framework that fosters private sector investment by all market participants – from smallholders to large multinationals.

There must be market-based pricing: in the long run, general and large subsidies, widespread price controls and export quotas or bans discourage investment and constrain supply. In some countries, decades of price controls have led to a vicious circle of underinvestment, low productivity and high fiscal costs. If a segment of the population needs protecting from price hikes, the best way is to provide well-targeted subsidies to this group. This both protects the poor and avoids the kind of widespread intervention that limits supply.


In addition to market-based pricing, food producers need more options to access finance through instruments such as weather-indexed insurance, using warehouses and crop receipts as collateral, as well as leasing and guarantee schemes. Governments from the Group of 20 leading industrial and developing economies must also invest more in agriculture and trade-related infrastructure to increase access to markets and, with the private sector, in research into water and energy-efficient food production.


Second, governments should promote market transparency and better risk management technology. This includes supporting national and regional commodity exchanges to increase price transparency and establishing insurance-based risk management tools and a range of other possible risk hedges for food producers of all sizes.


Finally, there should be greater public-private policy co-ordination – both nationally and globally. This will mean improving trade policies at a global as well as regional and national level. Beyond the urgent need to finalise the World Trade Organisation Doha round, platforms for public-private dialogue are needed to help make policy more predictable; to pool and share data on the availability, stocks, demand, price and quality of agricultural commodities; and to co-ordinate emergency food reserve policies.


These three policy elements are mutually reinforcing. Taking the example of Ukraine, the EBRD started by financing private sector investments with a focus on grain infrastructure. In parallel, we have supported the development of legislation and institutions that would allow farmers to use the grain stored in these silos as collateral to get bank credit. But the food crises of 2008 showed this was not enough: there is a need for better national and global policy co-ordination. The EBRD has teamed up with other international bodies such as the UN Food and Agriculture Organisation and established a platform for private sector players with agriculture ministries. Since the beginning of 2011 this has provided a basis for discussion on issues ranging from export restrictions to better crop information. This is now starting to show results. A key lesson is that all the above three elements are needed to increase private sector-led supply and to start to make a difference in food security.

The writer is president of the European Bank for Reconstruction and Development
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Copyright The Financial Times Limited 2011