Facing the food crisis

“We simply don’t have enough food for the future of our world,” says Gilles Mettetal, EBRD Director for Agribusiness. His warning comes after the dramatic price increases during the food crisis in 2007-08 and a recent second hike, which signal a future of severe food price fluctuations.

Demand for food and agricultural products is ever increasing. Global food stocks are at alarmingly low levels and critical natural resources for food production, such as water, are in jeopardy, not least due to climate change which has increased the unpredictability of food supply.

Despite these enormous challenges, the solutions seem simple. According to a new initiative developed jointly by EBRD economists and the Agribusiness team called the Private Sector for Food Security Initiative, existing programmes to tackle the food crisis have put too much emphasis on the demand side and have not paid enough attention to structural support problems. In their view, stimulating more private sector involvement would greatly improve productivity and having better-matching exporting and importing countries would help decrease food losses.

“A lot of grain is lost due to poor transport infrastructure,” stresses Mr Mettetal. The new programme will aim specifically to support the private sector with dedicated investment to address bottlenecks along the whole food value chain and support public-private sector discussions on improving food security.

“Setting the right incentives and creating the right environment for the private sector is the crucial ingredient largely overlooked so far,” says EBRD Senior  Economist, Heike Harmgart. “There is a gap in promoting the private sector and its critical interaction with policy-makers, which we can help to fill.”

Matching importing and exporting countries

The Private Sector for Food Security Initiative also aims to bring together the Bank’s existing countries of operations and its potential new region in the southern and eastern Mediterranean (SEMED) by aiming to match the huge potential for exports in the former area with the massive import needs of the latter, which is the biggest importer of cereals in the world.

“Some of our countries of operations like Russia, Ukraine and Kazakhstan are becoming increasingly important global players with the potential to contribute to rising global food demand,” says Mr Mettetal. “If these countries were to fulfil their potential they could supply almost half of the world’s grain export needs!”

The new initiative also aims to make greater use of the Bank’s expertise in investing along the whole food value chain, especially as improved agricultural trade logistics and better financial and risk management instruments within the sector are crucial to smoothing the flow of products and to reducing food price volatility. Such volatility is potentially damaging, especially to smaller producers and poorer consumers, who are unable to insure themselves against wild price fluctuations.

In this context it will also be critical to step-up activities aimed at more efficient utilisation of both water and energy, with the aim of producing “more food per drop” of water and fertiliser through the Bank’s well-established energy efficiency measures.

The bigger picture

In its traditional region of activity, the EBRD is the largest investor in the agribusiness sector, where it has a portfolio of €2.9 billion and in which it provided funding of €850 million in 2010. Investments are expected to exceed €900 million in 2011.

But to feed the world, global agricultural production needs to increase by 70 per cent over the next 40 years. “There are about 150 million hectares of agricultural land in Russia and Ukraine alone,” says Mr Mettetal. “We need to achieve between US$ 1,000-2,000 per hectare in investments to reach this goal.”

Clearly, no single institution has the capacity to achieve this on its own. The initiative therefore aims to improve international coordination. In particular, it strives to better utilise the collective strength of the Multilateral Development Banks’ (MDB) Working Group on Food and Water Security, through joint projects for strengthening social safety nets, addressing food market volatility, increasing investments in agriculture and improving access to water.

The Bank will also utilise the new programme to scale up collaboration in the EBRD-United Nations Food and Agricultural Organization (FAO) framework for food security and specifically the expansion of the EastAgri network of international financial institutions (IFIs) and banks investing in agribusiness to the SEMED region.

“Donor support will be crucial in making this initiative a success,” stresses Ms Harmgart. “We specifically need their support to enable technical transfer of skills between our traditional and potential new region of operations, to enable training of staff and audits to show each company how they can save on inputs and scarce resources, such as water.”

“Our shareholders can also help us raise the visibility of this initiative and persuade their respective governments to do the right thing.”

By Claire Ricklefs

Last updated 28 November 2011