Who will feed the world?

This summer’s dramatic drought in parts of eastern Europe has forced the issue of food supply and food prices back onto the global policy agenda. It has also shown the key role eastern Europe has gained in this: Global grain prices, wheat in particular, soared, after Russia imposed a grain export ban until 2011 and Ukraine introduced export quotas.

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President Thomas Mirow on the challenges in the Agribusiness sector
Agribusiness Director Gilles Mettetal on the EBRD's important role

These measures were ostensibly required to protect the local population from the adverse effects of falling production. In the long term, however, they will do more harm than good. Export quotas stifle the development of a modern agricultural sector as they discourage investment by creating uncertainty about the stability of the legal and regulatory framework.

The good news is that the crisis has highlighted the agricultural potential that countries like Russia and Ukraine have, and their growing global importance.

But the bad news is that this potential, despite an increase in production in recent years, still remains largely untapped: While grain production in the EU-15 is 5.3 tonnes per hectare, it is only 3 tonnes per hectare in Ukraine, 2.2 tonnes in Russia and 1.1 tonnes in Kazakhstan.

Lack of investments in animal husbandry pushed these countries to export grain and import meat rather than to keep it for feed. In Ukraine, a country with some of the most fertile soil in the world, it makes more sense today for a farmer to slaughter a cow and sell the meat than to use the animal for milk production.

Given this situation, the challenge is to create the conditions for the successful and sustainable development of the agricultural sector in the region. Unsatisfactory yields leave no doubt that modernisation is overdue. Investment – both domestic and foreign – has a major role to play here. Not only would it bring much-needed funds, but also critical know-how and expertise.

To be attractive for this kind of long-term commitment, a stable, transparent and predictable legal framework is of the utmost importance. For example, unresolved issues regarding land ownership are still a serious impediment in Ukraine. One key to development is land ownership classification, allowing farmers to use land as collateral, or a system of crop receipts, enabling producers to use their future crop as security for financing. Countries like Brazil are leading the way here.

Integrating the agricultural sector of eastern Europe into world markets will also lead to substantial improvements in quality standards as a precondition to compete on global markets. This covers all aspects from the production process to the actual output. For this chain to function efficiently the public and private sectors need to pool their resources to improve the transportation infrastructure linking production to processing, trade and retail.

Achieving internationally accepted quality standards is a key element in making the region’s produce attractive and accessible for retail investors, who tend to prefer to procure locally provided conditions are right.

Economic integration will also create new opportunities for local producers, because the demand for eastern Europe’s agricultural produce is certainly there. This has been demonstrated not only by the rapid increase of grain exports from the region after the food price crisis of 2007-08, but also by other products gaining a foothold in external markets.

Exports generate additional income which can alleviate domestic pressures and also allow for additional investments toward further progress. Thus a virtuous cycle could start for mutual benefit, not least of consumers and agricultural producers.

This points towards another important issue: The successful development of agriculture (as any other business) is only possible if the sector is attractive for people to work in. Eastern Europe has witnessed a massive rural exodus over the past 20 years which is not only threatening long-standing traditions and ways of life, but is also leading to an acute loss of inherited knowledge and skills.

A recent EBRD/FAO study finds that improving agricultural education is a key step towards increasing the quality of production. A thriving agricultural sector is an important way to improve livelihoods in the vast rural areas of the region.

By no means does this mean or advocate an enforced conformity of agricultural production in eastern or south-eastern Europe with unified Western standards. Quite the reverse: To succeed on world markets it is crucial to preserve the distinctiveness and uniqueness of the local produce. If anything, the world already has too many flavourless greenhouse tomatoes and cucumbers, and anyone who has ever had the opportunity to try a cucumber in Azerbaijan or to taste a fresh tomato in Georgia will never forget (and forgive) the difference.

Eastern Europe’s potential in the agricultural sector could be translated into considerable power over importers one day and already there is occasional talk of a “Grain OPEC”. However, power is best deployed wisely and grain is not oil. Therefore such developments would ultimately benefit no one. It is with the right set of reforms and continued trade integration, including fair market access, and adequate consideration of environmental and social issues that eastern Europe will be able to play out its potential in feeding the world.

Recent event: 

The EBRD hosted representatives from the UN's Food and Agriculture Organisation (FAO) and senior representatives from the largest global and local companies in the grains and oilseeds industry to discuss the region's challenges. A joint statement was issued after the event.

Read event statement (15KB - PDF)

Pусский (103KB - PDF)

More about the EBRD and Agribusiness

Last updated 26 October 2010