Farmers in developing countries will be able to hedge volatile commodity prices thanks to an Agricultural Price Risk Management Tool launched by the World Bank and JP Morgan Chase & Co.
The launch precedes a meeting in Paris this week of G20 agriculture ministers seeking to stabilise food prices and reduce risk for farmers in poorer countries.
Leaders at the conference will discuss transparency of information concerning global grain stocks and food supply, and many are likely to call for tighter regulation of complex derivative markets and easing restrictions on the export of humanitarian aid.
David Garner, Partner at boutique agricultural investment firm DGC Asset Management urged for international leaders to step up and clamp down on speculators.
"We are seeing short term swings in the price of basic commodities such as wheat and corn, where price moves seem to be motivated more by short term market ‘noise’ than basic fundamentals of supply and demand," Garner told a seminar of before the G20 meeting.
The World Bank-backed hedging instrument will make up to $4 billion available to farmers in developing countries, helping them to hedge the sales of their crops when prices rise or fall sharply in the short term, allowing Farmers to plan more effectively based on receiving an assured price for their produce.
“I welcome the introduction of such a tool to aid those who are too small or inefficient to cope with volatile prices, but the real issue is to clamp down of short term speculation driven by aggressive commodity traders who continue to turn huge profits whilst Farmer suffer,” added Garner
Input costs such as fuel and fertilisers are also more expensive in countries with inadequate infrastructure, and a lack of credit keeps Farmers out of international markets.
The World Bank has said that it is communicating with a range of international banks to ensure farmers throughout the developing world had access to the new funding, and although the product is designed for larger food cooperatives, sources say there was scope for smaller agricultural enterprises to access funding through intermediaries.
Mr Garner said that a more lasting solution higher food prices was investing more in agricultural infrastructure by improving storage facilities, research and transport routes for farmers, or by bringing un-cleared land under cultivation and increasing yield through the introduction of western technologies not currently utilised in the developing world.
The World Bank has increased lending by about 50 percent since 2009, and now underwrites some $6 billion annually in an effort to boost agricultural production in developing countries.
Last year a Global Agriculture and Food Security Program launched by G20 nations has received $520 million of some $925 million pledged to boost agricultural investment in developing nations.