INITIATIvEFOODSECURITyAnnual Report 2012

PRIvATE SECTOR FOR

Annual Report 2012

The dramatic price rises and volatility witnessed in food markets during the 2007- 2008 food crises, in 2010-2011, and again in the summer of 2012, can no longer be viewed as a temporary phenomenon. Projections indicate that to feed the world in these challenging circumstances, global agricultural production needs to increase by 50 per cent over the next 40 years.

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Private Sector for Food Security Initiative

contentsIntroduction .......................................................................................................................................... 4

Background .......................................................................................................................................... 5

Progress in the first year ...................................................................................................................... 6

Responding to price volatility through improved access to finance, risk management, insurance and hedging mechanisms ........................................................... 6

Improving policy transparency through public private platforms ............................................... 6

Matching exporters and importers to enhance global supply and demand chain .................... 7

Increasing water and energy efficiency along the food value chain .......................................... 7

Improving coordination among International Financial Institutions .......................................... 7

Building capacity for agribusinesses ........................................................................................... 8

Partners ................................................................................................................................................ 8

Scaling up the EBRD-FAO collaboration on food security........................................................... 8

Communication and visibility ............................................................................................................... 10

Donor funding ...................................................................................................................................... 10

The way forward .................................................................................................................................... 11

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Annual Report 2012

The dramatic price rises and volatility witnessed in food markets during the 2007- 2008 food crises, in 2010-2011 and again in the summer of 2012 can no longer be viewed as a temporary phenomenon. Projections indicate that to feed the world in these challenging circumstances, global agricultural production needs to increase by 50 per cent over the next 40 years. Recent events in global food markets together with the projected production needs have only amplified the need to ensure sufficient food supply to achieve worldwide food security. In this context, private sector involvement is key to ensuring a sustainable long-term approach to tackling food security concerns and to realising the substantial investments that are needed to satisfy future global demand for food.

Global responses to the food crisis have traditionally focused more on market demand than on supply and kept the focus on public sector stakeholders. The EBRD Private Sector for Food Security Initiative strives to foster private sector involvement in addressing the long-term food security challenge with the view that food production is first and foremost a private sector activity. The Initiative focuses on setting the right incentives by supporting transparent, predictable and coordinated public policies and creating the right environment for the private sector to grow. This initiative is complimentary to the agribusiness portfolio. Alongside, public support is needed to improve the policy environment and the business climate.

Introduction

The EBRD supported

region has enormous potential to meet this rising global food demand. Russia, Ukraine and Kazakhstan alone have the potential to supply almost half of the world’s grain export needs

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Private Sector for Food Security Initiative

Background With a portfolio of over €3 billion invested in the sector and an extensive network of international and local private sector clients, the EBRD is particularly well experienced in addressing the financing challenges that result from the particular risk profiles of investments along the food chain. The EBRD supported region – ranging from central Europe to central Asia – includes a number of key global grain exporters such as Russia, Ukraine and Kazakhstan with the potential to contribute to meeting rising global food demand. Other countries of operation, some of which are net food importers from the southern and eastern Mediterranean (SEMED) region, are particularly vulnerable to food price volatility. Given its unique expertise the EBRD can play a constructive role in leveraging its investor position to engage in policy dialogue, inducing regulatory and institutional change in areas such as the collateralisation of soft commodities, the improvement of commodity trading, risk management and quality standards.

Giving voice to private sector

needs through policy dialogue and technical assistance across the EBRD region

chain in the Bank’s countries of operations.

In its first year of operation, the Initiative was designed around six main areas where demand from the private sector was felt most strongly. These are: (i) responding to price volatility through improved access to finance, risk management, insurance and hedging mechanisms; (ii) improving policy transparency through public private platforms; (iii) matching exporters and importers to enhance total supply and demand chain; (iv) increasing water efficiency along the value chain; and (v) improving coordination among International Financial Institutions. Given the strong demand, especially from SEMED countries, the Initiative also included (vi) building capacity for agribusinesses.

Activities have been led by the EBRD Agribusiness Department and the Office of the Chief Economist with technical support from the Legal Transition Team, the Small Business Support Team and the Energy Efficiency Team.

The Private Sector for Food Security Initiative, launched in November 2011, is supported through the Bank’s long-established relationship with the Food and Agricultural Organization of the United Nations (FAO). The institutions signed a Memorandum of Understanding in 1994. This collaboration allows both institutions to leverage each other’s expertise and comparative advantage to engage in targeted policy dialogue and technical assistance across all EBRD countries - addressing institutional and regulatory bottlenecks and improving transparency and efficiency along the whole food value-

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Annual Report 2012

Responding to price volatility through improved access to finance, risk management insurance and hedging instrumentsAccess to finance is one of the key constraints for farmers engaged in primary agriculture, often because they lack the required collateral. Insufficient collateral leads to underinvestment in the agriculture sector, hampering farmers’ access to working capital (for example high quality inputs which would boost land productivity); or ability to invest in fixed assets (for example tractors). By supporting collateralisation options in the form of pre- and post-harvest financing, such as warehouse and crop receipt systems, the Bank strives to facilitate more financing in primary agriculture. With the aim of strengthening the overall financial sector, the Bank has been promoting the introduction of warehouse receipt systems in Bulgaria, Slovakia, Lithuania, Kazakhstan and Ukraine. In Serbia and Russia, the implementation of warehouse receipts is currently on-going, with continuous support from the EBRD; this has encouraged foreign-owned and local banks to extend financing to local

Sustainable policy dialogue in the grain sectorThe EBRD, in cooperation with the FAO and the Ukrainian Ministry of Agrarian Policy and Food, joined forces to improve the investment climate in the Ukrainian grain sector through better cooperation between the private and public stakeholders also establishing the Ukraine Grain working group. Positive outcomes of the joint work in 2012 included: increased policy transparency; increased investor confidence; policy advice on the adverse impact of grain export quotas on investment; policy advice on preventing a state purchasing monopoly; and guidance and support for an automated system to facilitate grain supply and demand balance sheet preparation. The EBRD-FAO financing in support of the working group is expected to terminate at the end of 2013. However, recognising the importance of this process, the Ukrainian Grain Association (UGA) expressed its interest in assuming the leadership of the working group and to ensure sustainability of the platform.

agribusinesses. The Bank has also joined forces with the FAO to help draft dedicated crop receipts legislation in Serbia, which will make it possible for future crops to be accepted as collateral against loans. Serbia is the first country expected to submit the EBRD-advised legislation to government.

Improving policy transparency through Private Public PlatformsThe EBRD aims to create opportunities to bring the public and the private sectors together to tackle key policy challenges related to agriculture and food security. Private public platforms are intended to increase the effectiveness of the business processes in EBRD countries, giving voice to private sector needs while advancing standards for public governance in the region. The private public Platforms are industry driven. For example, the Bank sponsored private public sector roundtables in Ukraine, resulting in a memorandum establishing core principles of transparency in the grain market and the creation of the Ukraine Grain working group. In 2012 the working group convened four times, while the Bank also launched

Progress in the first year

a Technical Cooperation project to support Ukraine’s accession to the Agricultural Market Information System (a G20-initiated information system to improve cereal price transparency).

Matching exporters and importers to enhance global supply and demand chainAs part of Food Security in the SEMED Region, supported by the SEMED MDA, the Bank and the FAO organised a successful, high-level conference on Private sector for Food Security - Promoting Private Agricultural Investment and Trade from the Black Sea to the Mediterranean, matching exporters and importers. The conference, which was the first major meeting of the private sector to discuss global food security and investments in food production in the region, was attended by around 100 companies at CEO level, along with high level representation from

Donors contributed €6.5m of which

€4.2m was committed in the first year

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Private Sector for Food Security Initiative

Innovative formats to communicate private sector messages directly to policy makersA high-level conference in Istanbul offered an unprecedented format for identifying key areas where private sector investment could make a difference in boosting agricultural production and trade. Private sector participants were given a platform to share experiences across regions and convey messages directly to policy makers. Key areas of discussion included: improving regional trade routes, with specific case studies on Morocco and Russia; developing storage and commodity-backed financing, with examples from Bulgaria, Egypt, and Kazakhstan; developing farming through vertical integration, showcasing the experience of Jordan, Serbia and Turkey; and fostering private-public dialogue, with the example from Tunisia and Ukraine. The conference aimed to highlight areas in which the private sector could be more closely associated with future policy-making processes.

different Ministries of Agriculture from the transition and the SEMED region.

Increasing water and energy efficiency along the food value chainConcerns about rising food prices and food security, coupled with increasing water scarcity, climate change and the high proportion of water used in agriculture, prompted the EBRD to conduct targeted analysis on the role of the private sector in contributing to water and resource-efficient food production through enhanced technology and improved policies.

As a result, the Private Sector Food Security Initiative has identified – as one of its key elements – the objective of improving resource efficiency along the food value chain. Through a number of pilot countries – that are representative in terms of the challenges in water efficiency across the transition region and the SEMED region – in the next two years the EBRD and FAO will be looking at water usage on specific food value chains in Ukraine, Turkey, Kyrgyz Republic and Jordan.

Maximising synergies for greater policy impactIn 2013 the EBRD is planning to support its countries of operations in several aspects in which food production can impact global water scarcity through more efficient usage of water and energy, as well as through innovative water efficient technologies. This work will be carried out in close cooperation with the EBRD’s Resource Efficiency Team to maximise synergies and to make sure that the EBRD’s financing and technical assistance better contributes to market-based policies across sectors.

Working together to achieve more tangible outcomes In preparation for the World Bank Tokyo Annual Meetings in 2012, the MDB working group presented a common state of play position paper. The group renewed its willingness to move to more tangible outcomes, also piloting joint operations between two MDBs at the country level. In this context the MDB working group identified the EBRD Water Along the Food Chain project as an ideal pilot. ADB has offered to replicate the same analysis for one or more additional central Asian countries, starting with Tajikistan.

Improving coordination among International Financial InstitutionsIn October 2010 a special Multilateral Development Banks (MDBs) working group on food and water security was formed to improve coordination and maximise synergies across MDBs. Co-chaired by the EBRD and the Asian Development Bank (ADB), the working group includes the African Development Bank, Asian Development Bank, the Inter-American Development Bank (IADB), the Islamic Development Bank (IsDB) and the World Bank Group. In 2011, the MDBs joined forces to develop and implement an action plan for food and water security that aims at leveraging the MDBs’ collective strengths and resources to help governments of developing member countries and the private sector frame robust responses to the emerging challenges of steadily worsening food and water security.

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Annual Report 2012

Building capacity for agribusinessesThe Bank has also taken a direct approach to tackling value chain inefficiencies at the level of individual companies. In 2012, the Agribusiness and Small Business Support teams launched a technical assistance programme in SEMED, funded by the EU Neighbourhood Investment Facility and SEMED MDA, with a focus on making companies more competitive by improving productivity, enhancing efficiency and quality controls, as well as bringing financial reporting and corporate governance up to international standards. These capacity building measures will ultimately unlock capacity constraints, enabling agribusinesses to produce more food sustainably. In 2012, five projects started under the programme.

PartnersScaling up the EBRD-FAO collaboration on food security

In 2011, the collaboration between the EBRD and the FAO Investment Centre expanded, and now forms the backbone of the Private Sector Food Security Initiative. It draws on the expertise of both organisations – the FAO‘s cutting-edge knowledge in the field of agriculture, food security and policy advice, and the EBRD’s expertise in investing along the whole food value chain. The collaboration also helps to promote complementarity in the approach taken to food security concerns and to avoid any duplication of activities.

Stimulating supply linking emerging businesses to local providers The EBRD provides assistance to local suppliers, retailers and distributors of its current and potential clients in order to stimulate increased agricultural production and link opportunities along the value chain. The knowledge gained through Technical Cooperation projects forms part of a wider transfer of expertise that can strengthen markets and stimulate increased agricultural supply from private sector companies of different sizes.

Analysis of SEMED key food chains In order to position its future agribusiness investments in the SEMED region, the EBRD and FAO are conducting a series of studies on the agrifood sector in the four SEMED countries. The objective is to assess the existing sources of finance for the agrifood sector and carry out in-depth analyses of a selected food chain in each country. In 2012, a study was conducted on the Morocco oilseeds sector study and another one has started on the Tunisian olive oil sector.

Food production needs to increase by 50 per

cent in the next 40 years

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Private Sector for Food Security Initiative

Promoting a supply response

through greater private sector involvement

Analysis to inform our policy dialogue, EBRD–FAO flagship reportsFood security and the transition region (November 2011): Motivated by the need to understand the domestic and global food market bottlenecks that are preventing the transition region from fulfilling its potential, the report analyses the key impediments to improving productivity along the whole food value chain. The report also assesses the impact of recent public policy measures on food prices and suggests ways in which international organisations such as the EBRD can contribute to food security. These include their role in promoting overall economic growth and development, improving the policy environment, promoting investment in the agricultural/food industry and enhancing public investment in infrastructure and education.

Innovative agricultural finance and risk management: strengthening food production and trade in the transition region (May 2012): The report identifies effective ways for international financing institutions to adjust their investment portfolio to support the creation and development of agricultural finance and risk management products, mechanisms and institutions. These include pre- and post-harvest financing instruments, price risk management and the development of trading platforms. It highlights the challenges to develop successful exchanges and the constraints that are yet to be addressed in transition countries such as the legal and regulatory framework, which is often ambiguous, incomplete or even counterproductive. Possible policy actions include institution-building, legal and regulatory improvement and support for the development of more tailored instruments.

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Annual Report 2012

Communication and visibility The Private Sector for Food Security Initiative is only a year old. The initiative was presented to a wider audience in September 2012 in Istanbul and in seminars and workshops in different countries in the region. In order to enhance visibility of the initiative with external audiences, including public and private sector stakeholders and to give voice to private sector needs the Bank is in the process of developing a dedicated website, which will provide details of activities and achievements, case studies and lessons learned, and will host research and analytical data on food security issues.

Donor funding Donors’ generous support enabled the Initiative to expand in 2012. As of end-January 2013, donors have provided approximately €6.5 million for the Private Sector for Food Security Initiative, of which the Bank has already committed approximately €4.2 million. Funding needs for 2013 amount to €6.45 million, out of which approximately €4.3 million is sought to finance projects in Russia. Major contributors include the EU Neighbourhood Investment Facility (NIF), the SEMED Multi Donor Account (MDA), EBRD Shareholders’ Special Fund (SSF), Early Transition Countries (ETC) Fund, the Central European Initiative (CEI) and Luxembourg.

Figure 2: The geography of the Private Sector for Food Security Initiative

other countries where the EBRD operates

> 5 projects

1 project

2-4 projects

27% SEMED MDA SSF EU/NIF Luxembourg CEI ETC FUND

9%5%

7%

31% 21%

Figure 1: Donor contributions since November 2011 to end-January 2013 (share of a total €6.5 million).

Expanding networks to increase opportunities Launched at the Istanbul conference in September 2012, the EBRD and the FAO expanded their successful agribusiness stakeholder network, EastAgri (currently operating in 30 countries of central and eastern Europe and central Asia), to the SEMED region to form MedAgri. The network aims at creating a platform for discussion and knowledge exchange among private, public and IFI stakeholders active in the SEMED region on a systematic basis.

Key

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Private Sector for Food Security Initiative

In 2013 the Bank will focus on implementing ongoing projects and expanding the Initiative:

On collateralization options In 2013, the Bank aims to intensify its efforts to facilitate more liquidity in primary agriculture. In terms of crop receipts, the Bank is currently piloting the crop receipt programme in Serbia and plans to support its implementation. In Ukraine, where the legislation for crop receipts has already been passed, the Bank intends to assist with its implementation. As part of an on going project and with Russian Ministry of Agriculture’s support, the Bank and the Ministry have decided to start working on the introduction of crop receipts in Russia, in parallel to finishing the work on warehouse receipts. On the warehouse receipts front, in addition to the above, the Bank intends to support implementation in Turkey, Egypt and potentially re-engage in Ukraine. The Bank would also like to launch a feasibility study to assess the ways in which the EBRD could add value and create a more liquid market by increasing lending with agricultural land as a security.

On private-public platforms to improve policy transparency EBRD/FAO-led roundtable discussions have proven to be an outstanding opportunity for the private and public sector representatives to openly discuss sector issues, assess possible solutions to the current challenges and to discuss investment prospects. In 2013, the Bank is considering to replicate this model in other countries, including Russia, given funding availability.

Global food supply and demand Following the encouraging success of the Istanbul conference, the Egyptian Ministry of Agriculture has expressed interest in the organization of a similar workshop in Egypt, which is planned in 2013. A similar event is also planned for Q4 in Jordan as part of the SEMED MDA-funded Food Security in the SEMED Region programme.

Capacity building for agribusinesses Further projects are planned in the SEMED region in 2013. With donor support, the Bank is going to replicate this model to other regions, starting with seven Early Transition Countries (ETCs), in a programme funded by the EBRD SSF and ETC Fund. In addition, the Bank will focus on the development of backward linkages with local suppliers, retailers and distributors of the EBRD’s current and potential clients. In Serbia, the Bank will launch a project supporting the introduction of Geographical Indicators (GIs), which will aim at increasing consumer awareness of Serbia’s GIs in domestic and niche export markets.

Resource efficiency, especially water and energy, is anticipated to become a crucial component of the Private Sector for Food Security Initiative in 2013. The EBRD will assist its clients to find technical solutions and policy options to successfully adapt to the changing global context. Furthermore, the Bank plans to hold a resource efficiency and waste-to-energy conference in London in March for existing and potential clients.

The way forward Strengthening private sector

to tackle future challenges

Global responses to the food crisis have traditionally focused more on market demand

than on supply and kept the focus on public sector stakeholders. The EBRD Private Sector

for Food Security Initiative strives to foster private sector involvement in addressing

the long-term food security challenge with the view that food production is first and

foremost a private sector activity.

Agribusiness TeamGilles Mettetal, Director

Email: mettetag@ebrd.com

Marta Bruska, Technical Cooperation Analyst Email: bruskam@ebrd.com

Office of the Chief EconomistHeike Harmgart, Senior Economist

Email: harmgarh@ebrd.com

Iride Ceccacci, Food Security AnalystEmail: ceccacci@ebrd.com

Project Enquires/proposals

Email: agribusiness@ebrd.comWeb site: www.ebrd.com/agribusiness

EastAgriWeb site: www.eastagri.org

European Bank for Reconstruction and Development One Exchange Square London EC2A 2JN United Kingdom

Tel: +44 20 7338 6000 Fax: +44 20 7338 6100

www.ebrd.com

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