European%20Bank%20for%20Reconstruction%20and%20Development%20%20Recent%20Trends%20in%20Food%20Prices%20

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European Bank for Reconstruction and Development
Recent Trends in Food Prices EBRD
Approach Agro-invest Conference Astana23-24
October 2008Mehmet IlkinPrincipal
BankerEuropean Bank for Reconstruction and
Development
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Outline of the presentation

• Short term and the long term views
• What is the EBRD role ?
• What can be done in the future ?

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Categories of factors contributing to higher food
commodity prices in the last few years

• Continuation of long-term trends

Temporary factors

• Structural changes

• Questionable future impact

• Adverse
• weather
• Trade policies
• by exporters
• and importers
• Aggressive
• buying by
• importers

• Rapid economic
• growth in many
• developing
• countries
• Population growth
• in developing
• countries
• Increasing
• consumption per
• capita

• High oil
• prices
• Biofuels
• production
• High agri
• production
• costs

• Further dollar
• depreciation
• Slower growth
• in ag productivity
• Financial Crisis

HOWEVER
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Food prices were rising dramatically but have
recently declined from their peaks
Selected international cereal prices

• Prices rising due to supply and demand factors
• Drought and disease the main temporary supply
  constraints
• Shift into bio-fuels also affects demand for
  grain and food supply
• Demand increasing due to fast growth in emerging
  markets
• Recent price decreases because of bumper harvests
  and global financial turmoil including decreasing
  crude oil prices

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Prices have declined from their peaks(as of
October 22, 2008)
Commodity Down Since peak in
Wheat 52 Early March
Corn 43 End of June
Soybeans 45 Early July
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CORN PRICES
YEARLY
MONTHLY
7
WHEAT
YEARLY
MONTHLY
8
SOYBEANS
YEARLY
MONTHLY
9
DRY MILK
YEARLY
MONTHLY
10
RICE
YEARLY
MONTHLY
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The EBRD region has a substantial agricultural
production potential
Illustrative example - wheat production

• CIS countries account for 13-14 of the worlds
  arable land, but only for 6 of the global crops
  and 3 of the worlds meat production.
• More than 13 million hectares of abandoned land
  could be returned into production
• High quality soils and yield improvements could
  lead to a substantial increase in grain
  production.
• Production potential higher agricultural
  commodity prices not only represent a threat, but
  also an unique opportunity to improve farmers
  incomes and to stimulate investments in
  agriculture in the EBRD region.

Avg. real production 2004-06 (m t)
Max productionPotential (m t)
64
103
107
Increasing production through higher yields and
returning of unused farm land (Source IKAR, FAO)
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The right answer? Soaring agricultural commodity
prices triggered a boom in farm investments in
the region
Downsides
Land investments

• Social and environmental issues
• Neo-colonialism and speculative elements (land
  appreciation)
• Agriholdings and substantial land banks (gt
  100,000ha) have uncontrollable social and
  environmental impacts (effects on small farmers
  rural societies, irrigation)
• Weaknesses in business rationale
• Still weak policy/legal frameworks (e.g. land
  rights) jeopardising investment security
• Volatility in yields and commodity prices is
  still considerable (recent price decreases)
• Lack of skilled labour and human capital is
  hampering efficient farming activities

• Arable land has become an attractive investment
  opportunity for farmers, strategic investors and
  financial investors.
• Business rationale
• New investors bring in needed financing, know-how
  and professional standards resulting in
  substantial yield improvements.
• Investors expect to benefit from increases in
  yields and land appreciation.

• EBRD is selective towards financing of land and
  primary agriculture
• Projects should be linked to a vertically
  integrated approach with sustainable long-term
  growth strategies

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EBRD is following a vertical approach as strategy
to bring out the untapped production potential
Agribusiness
Agribusiness Strategy

• The EBRD has invested EUR 4.8 billion in 326
  projects in the Agribusiness sector
• 2007 40 projects signed with EUR 517 million
  committed investments
• One of the largest sector teams within the EBRD
  with 30 bankers London and Resident Offices
  accounting for around 40 of the projects in the
  EBRDs corporate sector portfolio.
• Client network of leading global and regional
  players
• Indirect support to smaller farmers and food
  enterprises via SME credit lines

Downstream
Upstream

• All activities along the food and drink
  production chain are included and rather focused
  on increasing demand than supply
• Vertical approach addresses specific risks and
  features attached to agribusiness ventures
• Downstream investments are mainly in vertical
  integrated companies with positive spill-over
  effects to primary agriculture
• As a result, EBRD has a conservative approach
  towards direct land investments

Primary secondary processing
Agricultural inputs production
Packaging distribution
Retail Food Service
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Important to maximise supply potential and
identify bottlenecks along the entire food value
chain
Investments along the value chain
Food retailers Distributors Caterers Wholesale
Markets
Edible oil Millers Malters Grain Handling
Grains Oilseeds Livestock Dairy Fish
Glass Bottles/Jars PET Bottles Cans Carton
Containers
Seeds Farm Machinery Agricultural
Chemicals Bio-tech Distributors/Services
Meats/Poultry Baked Goods Confectionery/Snacks Be
verages/Beer/Water Dairy/UHT/Cheeses Frozen
Foods Fish Pet Food
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EBRDs investments in the beer sector illustrate
its vertical approach along the entire food chain
Case study beer sector
Russian consumer
Local farmers
Breweries
Packaging
Retail
Malt sector

• USD 16m loan in 2007 to Agro Rus (Soufflets
  subsidiary in Russia)

• Efes, a leading Turkish brewery Loans of ca. USD
  50m and equity of USD 6m
• Vena (Baltic Beverages Holding - BBH) EUR 82 m
  syndicated loan

• Sisecam (a worldwide leading glass-packaging
  firm) syndicated loans of over USD 168m between
  2004-2007 to

• Lenta, one of the fastest growing food retail
  chains in Russia USD 125m equity and USD 30m
  loan
• Globus, a German food retailer EUR 135m
  syndicated loan in Russia

Benefits through higher product quality and
increased range of products at lower prices

• Working capital loan of up to USD 30m for
  Desnagrain in Ukraine to supply farms with
  necessary inputs and technology

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The EBRD has initiated short-term responses to
the food price crises by bringing together
private sector and policy makers

• Conference on Fighting food inflation through
  sustainable investment in cooperation with the
  Food and Agriculture Organization of the United
  Nations bringing private sector and public
  sector together to discuss possible responses on
  the food crises (London 10 March 2008)
• Follow-up meeting at the Agribusiness Forum at
  the EBRDs annual meeting focus on concrete
  measures to realise the regions agricultural
  potential (Kiev 20 May 2008)
• Agribusiness conference in cooperation with the
  Russian Agricultural Ministry and in coordination
  with the FAO involve private sector in a policy
  dialogue initiative and explore opportunities to
  improve agricultural production and strengthening
  Russia's position as a key exporter of
  agricultural products (Moscow 21 October 2008)