Improving risk management to cope with food price volatility and by 9HPw81g

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									   Improving risk management
   to cope with food price
   volatility and promote
   agricultural development
               Pierre Jacquet
G20 mission on addressing the effects of price
                  volatility
 Interim recommendations – May 12, 2011
Two broad issues
 Price shocks carry huge costs for poor developing
     countries and vulnerable populations
             Access to food (notably in urban areas)
             Increase in poverty (in cities, in producing areas)
             Social and political unrest
             Balance-of-payment problems (foreign exchange
              shortage, export bills)
 Farm price volatility creates income uncertainty
    Penalizes investment and production
    Small producers are the most vulnerable within the
     food and agricultural value chain

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Some lessons from the crisis
 Lack of preparedness
    Uncoordinated, short term reactions
    Lack of immediate access to compensatory resources
 Major uncertainty on the evolution of the supply/demand
     balance
             Crucial importance of supporting production and productivity
              gains in agriculture
 Agricultural development implies a capacity to manage a whole
     range of risks, new and old, short-term and long-term.
             Macroeconomy, exchange rates, “normal” price fluctuations,
              climate change, weather events and catastrophes, pests,
              damage to environment, geopolitical risks…
 Mainstream risk management in agricultural development
     programes
             As a contribution to crisis prevention and preparedness
             As a way to address price and income uncertainty

12 May 2011                     P.Jacquet - interim G20 recommendations      3
  Six (interactive) recommendations
                                                                           Price and income
Policy scope\issue addressed         Price shocks                               uncertainty
                               1. Support comprehensive, country-owned approaches to
                                    agricultural policies (incl. ex-ante risk management):
                                                      ex. CAADP/NEPAD
                               2. Develop risk management advisory and intermediation
Global framework for risk           services for food security: risk-mapping, toolbox of
   management                         targeted hedging instruments, training, advice,
                                                       intermediation
                                    3. Multi-stakeholder (Public-private) dialogue and
                                    partnership on risk management for food security and
                                                   agricultural development
                                   4. Improve WFP
                                        effectiveness
                                      through hedging
                                      5. Provide a
                                      macroeconomic                      6. Facilitation of contract
Specific initiatives
                                        shock facility                                farming
                                         through an
                                        extension of
                                    countercyclical debt
                                        instruments
  12 May 2011                  P.Jacquet - interim G20 recommendations                                 4
1. Integrated approach to agricultural
development
 Country agricultural development programs to
  include risk assessment and management
  strategies
 Donors and other international organizations to
  support and commit to such strategies.
 Proposed pilot (to be discussed): NEPAD might
  identify (in partnership with donors) countries or
  regions to build on and strengthen the CAADP
  programs to include risk assessment and
  management strategies that would be formally
  monitored as part of the CAADP.

12 May 2011        P.Jacquet - interim G20 recommendations   5
2. Provide agricultural risk advisory
services for developing countries
 Invite multilateral, regional and bilateral
  development banks to collectively structure the
  provision of risk management advisory and
  intermediation services to developing country
  clients
 Create a small multidonor office dedicated to that
  task.
 Interested multilateral, bilateral and regional donors,
  might be invited to launch a joint initiative setting up
  such a risk management advisory office around a few
  pilot cases, elaborated on the basis of expressed
  interests by developing country clients.

12 May 2011         P.Jacquet - interim G20 recommendations   6
3. Public-private partnership for food
security
 Launch a formal multi-stakeholder dialogue and
     partnership on risk management for food security
     and agricultural development (building on, and
     interacting with other multilateral initiatives s.t. the Committee on
     World Food Security, the principles for responsible investment…).
 A multi-stakeholder workshop will be held in Paris on
     June 6, 2011 to discuss the contribution of the private
     sector to agricultural development and risk
     management, the potential for value-creating public-
     private partnerships, and the interest for the formal
     pursuit of such a dialogue and the adoption of
     principles and commitments.
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4. Enhance the financial effectiveness
of WFP
 Expand the WFP forward facility pilot to
  include risk hedging at the WFP.
 Ask the WFP to prepare a hedging strategy
  paper presenting the broad principles of a
  hedging strategy (including forward
  purchases and the choice of instruments),
  detailing its organizational and operational
  costs, and proposing a detailed two-year
  pilot.

12 May 2011      P.Jacquet - interim G20 recommendations   8
5. Promote innovative finance
 Recommend the use of “countercyclical” development
  loans that would build on the innovation introduced by the
  AFD in including deferred repayment options in case of
  external shocks, including food price surges or collapses.
 AFD has already developed a few pilots (5 countries, €200
  million). Support for such countercyclical instruments was
  received by the CFA Zone Finance ministers at their April 2011
  annual meeting in N’djamena. Support of the G20 would help
  encouraging other donors to develop new pilots
 Invite a reflection on a longer term reform of development
  finance, including innovations that introduce risk sharing in
  development finance to better take into account the
  vulnerability of developing countries to commodity price
  volatility.


12 May 2011           P.Jacquet - interim G20 recommendations   9
6. Promoting contract farming
 Explore the possibility of developing
  instruments (e.g. guarantees) and
  approaches (capacity-building)
  specifically designed to facilitate contract
  farming (locally and internationally).
 A study exploring the interest and feasibility of
  such a “de-risking” facility could be
  commissioned and serve as a basis for
  developing potential pilots.

12 May 2011      P.Jacquet - interim G20 recommendations   10
                            Country food and agriculture development program
                           to include risk assessment and management strategy
                                             Recommendation 1



  Risk management
                                                                                                Multi-stakeholder dialogue
  advisory, intermediation,
  and training services                                                                         to include private sector
                                                          Conception and                         Recommendation 3
  (development banks)
   Recommendation 2                                      implementation




                                                                                                  Objective 2
                         Objective 1                                                       Managing price risk…
                    Managing price risk…                                    To increase security and predictability of agricultural
To prevent or mitigate exogenous price shocks and food crises             income (hence investment, productivity gains, quality and
      To develop a toolbox of macro-economic risk coverage                               sustainability, scaling-up)
      and         price       stabilization      instruments                    To develop a toolbox of instruments covering major
      (subset of Recommendation 2)                                              production risks (e.g. pull mechanisms/research for inputs,
                                                                                weather insurance, commodity/input price) (subset of
      To develop a macroeconomic shock facility through an                     Recommendation 2)
      extension of countercyclical debt instruments and to
      promote risk-sharing development finance.                                 To negotiate a Global Agricultural Compact (subset of
                                                                                Recommendation 3)
       Recommendation 5
                                                                                To facilitate contract farming and promote private price
      To improve WFP effectiveness through hedging                             stabilization mechanisms within value chains

       Recommendation 4
         12 May 2011                                                                Recommendation 6
                                                      P.Jacquet - interim G20 recommendations                                       11

								
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