We’re giving farmers new tools to mitigate price risk.
In developing countries, the consequences of soaring food prices are devastating. Millions are hungry, malnourished, or forced to spend an increasing share of their income feeding their families. That hardship can destabilize economies and trigger social unrest.
IFC’s response to the food crisis, which began in 2008, targets every link in the agribusiness supply chain—from increasing land productivity and investing in logistics infrastructure to improving water efficiency and increasing economies of scale. We’re also developing financial instruments to help the food sector cope with volatile prices.
Price volatility makes it harder for farmers and agribusiness intermediaries to address the needs of a hungry—and rapidly growing— global population and head off potential crises. Risk-management products, such as futures and options, simply aren’t available or are too costly for most of the developing world’s farmers.
By giving growers new tools to mitigate price risk, IFC is improving access to finance and opening the way for much-needed agricultural investment. The world needs a lot of it: the Food and Agriculture Organization estimates that agricultural investment needs will rise 50 percent to $83 billion a year by 2050.
We’re partnering with JPMorgan Chase to overcome the market constraints that keep banks from underwriting more price-hedging products, an approach we believe will result in an increased use of swaps and forward contracts for corn, wheat, and other commodities. Under a $200 million project, IFC will cover a portion of the credit risk assumed by JPMorgan Chase in hedging instruments.
The project will make more capital available for farmers and ease banks’ country risk and capital constraints, allowing them to meet heavy demand for agricultural-commodity price hedges in emerging markets. Combined, the product will provide up to $4 billion in price protection for farmers, producers, and consumers. It will also demonstrate the role the private sector can play in addressing the food crisis.
Over the past four years, the World Bank Group has increased its annual agriculture investment from $4.1 billion to $5.6 billion, more than a third of which comes from IFC. We are also managing the private sector window of the Global Agriculture and Food Security Program, a Group of 20 effort designed to channel donor funding to public and private initiatives that improve governance, productivity, and competitiveness in agribusiness in developing countries.
But we must do more to address food security. Our work with JPMorgan Chase builds on our strategy to expand our impact in agribusiness through wholesaling operations with financial intermediaries, and with large-scale, efficient producers that can influence supply chains.