EBRD and FAO Call for Bold Steps to Contain Soaring Food Prices
10/03/08

In the context of soaring world food prices, senior government officials from Eastern Europe and the former Soviet Union are meeting with executives from the private agribusiness sector to seek concrete proposals to boost agricultural investments and unlock unused output potential.

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At a conference in London today organised by the European Bank for Reconstruction and Development (EBRD) and the UN Food and Agriculture Organization (FAO), participants are exploring options to foster better cooperation between the private and public sectors to facilitate this investment.

One of the key messages at the conference: it is crucial to increase investments not only in the primary agricultural sector but also in the whole infrastructure of agriculture, as well as in the processing industry.

Untapped agriculture potential

According to FAO, world food prices rose by almost 40 percent in 2007. Both EBRD and FAO believe that there is significant untapped agricultural production potential in the Eastern Europe and Commonwealth of Independent States (CIS) region, especially in countries such as Kazakhstan, Russia and Ukraine.

In these countries around 23 million hectares of arable land were withdrawn from production in recent years. At least 13 million hectares could be returned to production, with no major environmental cost.

In a speech delivered by Charles Riemenschneider, Director of FAO’s Investment Centre, FAO Director-General Jacques Diouf called for courageous steps to be taken now to help unlock the untapped agricultural production potential, noting that current predictions for CIS grain production point to a rise of seven percent to 159 million tonnes between 2007 and 2016.

“But let us be bolder and imagine the removal of the institutional and financial constraints that limit production in the region. The region’s cereal output and its contribution to world exports would then be well above those projections,” Diouf said.

Urgent need to work together

EBRD President Jean Lemierre said: “There is now an urgent need for both the private and public sectors to work together to create the conditions for sustainable investment that will restore the primacy of this region as a crucial centre of agricultural production.”

Mr Lemierre also welcomed the strong participation of private businesses in the conference. This showed their strong commitment to solving the problem of high food prices and that it was clearly understood that new and increased investments were now urgently needed.

An EBRD paper submitted to the conference noted governments have responded to rising food prices by introducing a series of measures including price controls, increased subsidies, reduced import barriers and restrictions on exports designed to benefit consumers. But it noted that many of these measures, while well-intentioned, could prove to be counterproductive on a long-term basis.

Investment, not government intervention, needed

The EBRD paper encouraged governments to limit interventions that would distort domestic markets or disadvantage producers and traders, arguing that the most effective way to generate a supply response to the rise in global demand is to facilitate investment along the entire agricultural value chain.

Protection of the poorest consumers, it suggested, could be achieved through targeted income support to the most vulnerable segments of the population

The Bank said it would target its own investments to the development of local supply chains to increase production and to the development of new rural financing instruments.

Working to improve communication

In cooperation with FAO, EBRD will also pursue greater policy dialogue to help overcome the lack of communication and effective contact between private sector companies and related authorities in the agricultural sectors across the transition region

In the agribusiness sector alone, EBRD has already committed €4.9 billion in 357 projects across central and Eastern Europe and the CIS.

In its submission to the conference, FAO said ambitious government policies are vital, implying improved use of state budgets to deliver essential public goods and services to the agricultural sector.

“A supportive institutional and regulatory environment is mandatory to attract private investment at all levels of the food chain. To achieve that, improving policy dialogue between private stakeholders and policy-makers will be instrumental,” an FAO paper said.

Areas that need immediate attention

It added that areas of immediate attention for policy-makers included knowledge and human capital development, strengthening of credit systems and financial instruments, regional networking and land markets. In these areas, FAO has been providing technical assistance to governments of the region and is ready to step up its efforts, on its own or in conjunction with international financing institutions.

“Massive investment will be needed in handling, storage and transportation infrastructures. Financial resources will have to be mobilized from both the public and private sectors,” a summary document concluded.

The EBRD, owned by 61 countries and two intergovernmental institutions, aims to foster the transition from centrally planned to market economies from central Europe to central Asia.

FAO, with 191 Member States, one Member Organization and one Associate Member, aims to raise levels of nutrition, improve agricultural productivity, better the lives of rural populations and contribute to the growth of the world economy. Achieving food security for all is at the heart of FAO's efforts - to make sure people have regular access to enough high-quality food to lead active, healthy lives.

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