Agri Business

World Bank launches price risk mechanism to hedge against volatile food prices

Mony K. Mathew Kozhikode | Updated on June 22, 2011




The World Bank has launched a new risk management instrument to provide protection to agricultural producers and consumers in developing countries from volatile food prices.

The Agriculture Price Risk Management (APRM) tool, which is being initially launched by IFC, an arm of the World Bank, and J.P. Morgan, is meant to increase access of producers and consumers to hedging instruments to shield themselves against the volatility of prices. IFC is planning to join hands with other banks in due course to widen the coverage of the product.

In the initial phase, IFC will commit up to $200 million in credit exposure to clients who use specific hedging products and J.P. Morgan will provide an equal amount of exposure to them. The combined exposures are expected to enable up to $4 billion in price protection for agricultural producers and buyers in emerging markets, according to a release from the World Bank.

The initiative is part of a nine-point plan recommended by the World Bank President, Mr Robert B. Zoellick, in January to tackle the high and volatile food prices. The developing of risk management tools will also be part of the discussions of G-20 agricultural ministers in Paris this week.

The release quoted Mr Zoellick as saying that the annual growth in rice and wheat yields in developing countries has dropped from three per cent in 1970s to just one per cent today. The developing countries account for four-fifths of the world population.

The agriculture sector is also under the threat of climate change and unless strong adaptation measures are introduced, the yield could come down by 16 per cent worldwide and 28 per cent in Africa alone over the coming half century. On the other hand, the food production must go up by 70 per cent in order to feed an expected global population of more than nine billion by 2050.

The rising and volatile food prices have, since June last year, pushed around 44 million more people into poverty with income of less than $1.25 a day. There are now close to one billion, or one in seven, hungry people in the world, says a World Bank report.

Published on June 22, 2011

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