Investment Could Moderate Skyrocketing World Food Prices

At a conference Monday in London organized by the European Bank for Reconstruction and Development, officials of both organizations said there is "significant untapped agricultural production potential" in Eastern Europe and Kazakhstan, Russia and Ukraine.

"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 center of agricultural production," said Jean Lemierre, president of the European Bank for Reconstruction and Development, EBRD.

In these countries around 23 million hectares of arable land were withdrawn from production in recent years.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, according to the UN food agency.

Jean Lemierre is president of the European Bank for Reconstruction and Development. (Photo courtesy EBRD)

Lemierre welcomed the participation of private businesses in the conference, saying this shows their commitment to solving the problem of high food prices. He said business clearly understands that "new and increased investments are now urgently needed."

Governments have responded to rising food prices by introducing price controls, increased subsidies, reduced import barriers and restrictions on exports designed to benefit consumers.

But an EBRD paper submitted to the conference warned that many of these measures, while well-intentioned, could prove to be counterproductive in the longer term.

The EBRD paper encouraged governments to limit interventions that would distort domestic markets or disadvantage producers and traders. Instead, it maintains 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 suggests, can 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.

In the agribusiness sector alone, EBRD has already committed €4.9 billion (US$7.6 billion) in 357 projects across central and Eastern Europe and the Commonwealth of Independent States, CIS.

In cooperation with UN food agency, the EBRD paper says the bank will 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

Dr. Jacques Diouf, director-general of the UN Food and Agriculture Organization, while not at the conference, delivered remarks that were read by Charles Riemenschneider, director of the UN agency's investment center.

Diouf called for "courageous steps to be taken now to help unlock the untapped agricultural production potential."

Current predictions for grain production across the region point to a rise of seven percent between 2007 and 2016, said Diouf.

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

Vegetable field in the Kazakhstan's Kerbulak oblast (Photo by Susan Schoenian)

"Ambitious government policies are vital," the UN agency said in a paper submitted at the conference, implying improved use of state budgets to deliver essential public goods and services to the agricultural sector.

It recommends creating a more supportive institutional and regulatory environment to attract private investment at all levels of the food chain and a improved policy dialogue between private stakeholders and policy-makers.

Policy-makers should turn their attention to knowledge and human capital development, strengthening of credit systems and financial instruments, regional networking and land markets, the UN agency recommends.

In these areas, the UN Food and Agriculture Organization has been providing technical assistance to governments of the region and is ready to step up its efforts, either alone or in conjunction with international financing institutions.

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

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.

The UN Food and Agriculture Organization, with 191 member governments, aims to raise levels of nutrition, improve agricultural productivity, and achieve food security for all.

Copyright Environment News Service (ENS) 2008. All rights reserved.