Transcript Slide 1
European Bank for Reconstruction and Development Recent Trends in Food Prices & EBRD Approach Agro-invest Conference Astana 23-24 October 2008 Mehmet İlkin Principal Banker European Bank for Reconstruction and Development Outline of the presentation Short term and the long term views What is the EBRD role ? What can be done in the future ? Categories of factors contributing to higher food commodity prices in the last few years Temporary factors: Structural changes: Adverse weather High oil prices Trade policies by exporters and importers Biofuels production Aggressive buying by importers High agri production costs Continuation of long-term trends: Questionable future impact: Rapid economic growth in many developing countries Further dollar depreciation Population growth in developing countries Slower growth in ag productivity Financial Crisis Increasing consumption per capita HOWEVER… 3 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 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 5 CORN PRICES YEARLY MONTHLY WHEAT YEARLY MONTHLY SOYBEANS YEARLY MONTHLY DRY MILK YEARLY MONTHLY RICE YEARLY MONTHLY The EBRD region has a substantial agricultural production potential Illustrative example - wheat production CIS countries account for 13-14% of the Avg. real production world’s arable land, but only for 6% of the 2004-06 (m t) 126 global crops and 3% of the world’s meat production. More than 13 million hectares of +64% abandoned land could be returned into production 77 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. Max production Potential* (m t) 75 +103% 37 29 +107% 14 Russia Ukraine Kazakhstan * Increasing production through higher yields and returning of unused farm land (Source: IKAR, FAO) The right answer? Soaring agricultural commodity prices triggered a boom in farm investments in the region Land investments 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. Downsides Social and environmental issues: “Neo-colonialism” and speculative elements (land appreciation) Agriholdings and substantial land banks (> 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 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 EBRD is following a vertical approach as strategy to bring out the untapped production potential Agribusiness 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 Agribusiness Strategy Downstream Agricultural inputs & production Upstream Primary & secondary processing Retail & Packaging & distribution Food Service All activities along the food and drink production chain are included and rather focused on increasing demand than supply the EBRD with 30 bankers London Vertical approach addresses specific risks and and Resident Offices accounting for features attached to agribusiness ventures around 40% of the projects in the Downstream investments are mainly in vertical EBRD’s corporate sector portfolio. integrated companies with positive spill-over Client network of leading global and effects to primary agriculture regional players As a result, EBRD has a conservative Indirect support to smaller farmers and approach towards direct land investments food enterprises via SME credit lines One of the largest sector teams within Important to maximise supply potential and identify bottlenecks along the entire food value chain Investments along the value chain Consumer Distribution Foodservice Seeds Farm Machinery Agricultural Chemicals Bio-tech Distributors/ Services Agricultural Inputs Grains Oilseeds Livestock Dairy Fish Production Edible oil Millers Malters Grain Handling Primary Processing Packaging Production Food Processors Food retailers Distributors Caterers Wholesale Markets Glass Bottles/ Jars PET Bottles Cans Carton Containers Meats/Poultry Baked Goods Confectionery/ Snacks Beverages/Beer/Water Dairy/UHT/Cheeses Frozen Foods Fish Pet Food EBRD’s investments in the beer sector illustrate its vertical approach along the entire food chain Case study: beer sector Local farmers Malt sector Working capital USD 16m loan loan of up to USD 30m for Desnagrain in Ukraine to supply farms with necessary inputs and technology in 2007 to Agro Rus (Soufflet’s subsidiary in Russia) Breweries 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 Packaging Sisecam (a Retail Lenta, one of worldwide leading glasspackaging firm): syndicated loans of over USD 168m between 2004-2007 to 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 Russian consumer Benefits through higher product quality and increased range of products at lower prices 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 EBRD’s annual meeting: focus on concrete measures to realise the region’s 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)