World Bank unveils hedging tool to aid poor farmers

WASHINGTON Tue Jun 21, 2011 2:22pm EDT

Farmers prepare their land for crops at the northern city of Ocotal June 20,2011. REUTERS/Oswaldo Rivas

Farmers prepare their land for crops at the northern city of Ocotal June 20,2011.

Credit: Reuters/Oswaldo Rivas

WASHINGTON (Reuters) - The World Bank on Tuesday launched a new agricultural hedging tool to help farmers in developing countries curb increasing food price volatility.

The launch of the Agricultural Price Risk Management facility together with JP Morgan Chase & Co precedes a June 22-23 meeting in Paris of G20 agriculture ministers seeking a deal on improving global food security amid increasing global commodity prices.

Among proposals are more transparency on food supplies, calls for more regulation of derivative markets and limits on export restrictions for humanitarian aid.

World Bank President Robert Zoellick urged the G20 "to step up now" to help the world's poorest and to adopt measures that would exempt humanitarian food aid purchases by international agencies from food export bans.

"Complacency and inaction don't buy the poor time," Zoellick told a conference call before the G20 meeting.

He said the new World Bank-backed instrument would make available up to $4 billion to help farmers in developing countries hedge the sales of their products in cases where prices rise or fall sharply. Food price volatility is disruptive to farmers because they cannot plan appropriately.

Farmers in poorer countries also face high up-front costs and limited or no access to financing, which keeps them out of international markets.

Zoellick said the World Bank it was in talks with other banks to ensure farmers throughout the developing world had access to the instrument .

"I hope this tool will show what sensible financial engineering can do" to help the poor, Zoellick said, adding: "Most of these are rather plain-vanilla hedges but we're trying to make them accessible," he added.

While the product is tailored for larger food cooperatives, Zoellick said there was scope for individual small farmers to work through intermediaries to access the funding.

He said a more lasting solution to curb higher food prices was investing more in agriculture by improving storage facilities, research and transport routes for farmers.

World Bank lending to boost agricultural production in developing countries increased by 50 percent since 2008 to about $6 billion a year.

A Global Agriculture and Food Security Program launch last year by international donor countries, at the request of G20 leaders, has received $520 million of some $925 million pledged to boost agricultural investment in developing nations.

A dozen poor countries have qualified to receive funding from the program and further donor pledges are needed to meet funding needs of another dozen or so countries.

(Reporting by Lesley Wroughton; editing by Andrew Hay)

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