The World Bank announced a new risk management product earlier this week that aims to provide up to $4 billion (R27bn) in protection from volatile food prices for farmers, food producers and consumers in developing countries.
The Agriculture Price Risk Management (APRM) product hoped to improve access to hedging instruments, which would shield consumers and producers of agricultural commodities from price volatility, the World Bank said.
According to the bank, the product will also protect buyers from food price increases in commodities such as wheat, coca, sugar, live cattle, milk, maize, soybean and rice.
“The APRM will initially be rolled out by International Finance Corporation (IFC), the World Bank’s private sector arm, and JP Morgan. The IFC hopes to roll out the product with other banks in due course,” the statement read.
Robert Zoellick, the group president of the World Bank, said: “With this new tool, we can help farmers, food producers and consumers protect themselves against price swings, strengthen their credit position and increase their access to finance.”
The World Bank revealed that since June last year, rising and volatile food prices had led to an estimated 44 million more people living in poverty – under $1.25 a day. There are close to 1 billion hungry people worldwide – one in seven people on the globe.
The bank boosted its support for agriculture with spending up annually from around $4.1bn in 2006-08 to between $6.2bn and $8.3bn a year in 2010-12.
Potential clients for the APRM product may include agricultural producers, consumers, aggregators, co-operatives and local banks, as well as others that meet pre-determined requirements.
The IFC said it would would commit up to $200 million in credit exposure to clients that used specific price hedging products, while JP Morgan would take on at least an equal amount of exposure.
“Since the exposure associated with risk management operations is typically smaller than the principal amount of hedges made available to clients, these combined credit exposures should enable up to $4bn in price protection to be arranged by JP Morgan for emerging markets’ agricultural producers and buyers,” the bank said.
Zoellick said greater investment in agricultural research was needed as food production had to rise by 70 percent in order to feed an expected global population of more than 9 billion people by the year 2050.
The new APRM product would enable “producers and consumers in developing countries to access agricultural price risk management”, he said.
“JP Morgan and other banks will work with clients in emerging markets to appropriately hedge price risk associated with their business. IFC facilitates this by sharing in the credit risk of these customers.” - Ayanda Mdluli