Developing risk management tools will be part of the plans to be discussed by G-20 agriculture ministers at their meeting in Paris this week.
The World Bank Group (WB) on Tuesday announced a new risk management product to provide up to an initial USD 4 bln in protection from volatile food prices for farmers, food producers, and consumers in developing countries, addressing a key issue that will be discussed later this week by Group of 20 (G-20) ministers, a press release remitted to Nine O’Clock informs. WB’s study says since June last year, rising and volatile food prices have led to an estimated 44 million more people living in poverty – under USD 1.25 a day. There are close to one billion hungry people worldwide – or one in seven people on the globe.
This first-of-its-kind product will also protect buyers from price rises in food-related commodities such as wheat, sugar, cocoa, milk, live cattle, corn, soybean, and rice, said World Bank Group President Robert B. Zoellick. “This tool shows what sensible financial engineering can do: make lives better for the poor.”
The Agriculture Price Risk Management (APRM) product will initially be rolled out by International Finance Corporation (IFC), the World Bank Group’s private sector arm, and J.P. Morgan. IFC hopes to roll out the product with other banks in due course. In the debut facility with J.P. Morgan, IFC will commit up to USD 200 M in credit exposure to clients that use specific price hedging products, while J.P. Morgan will take on at least an equal amount of exposure to them.
Price’s balance, vital element for producers
Price stability is vital to help producers obtain finance needed to expand operations as well as increase farm production, and to assure reasonable access to food supplies for consumers.
While price risk management products are routinely used in agriculture in developed countries, hedging instruments cannot be obtained directly by smaller emerging market producers and consumers because of high upfront costs and margin requirements. Furthermore, many financial institutions in emerging markets are not yet experienced with these risk management services, and do not offer them to local clients.
G20 meeting to improve transparency in agriculture
Aside from promoting the use of risk management instruments, Zoellick said the G20 agriculture ministers could take a major step forward this week to address high and volatile food prices by agreeing to improve transparency in agriculture, with an information system to increase public access to information on the quality and quantity of grain stocks. Speaking ahead of the meeting, Zoellick said he was also hopeful G20 agricultural ministers would take the first steps in agreeing to exempt humanitarian food aid from export bans, so food aid can get to hungry people in time to save lives.
The World Bank President said greater transparency on food stocks around the globe sends a powerful signal and would help reduce food price volatility by reassuring markets and helping calm panic induced price spikes. Zoellick said greater investment in agricultural research was needed as food production must rise by 70 percent in order to feed an expected global population of more than nine billion people by the year 2050.