IFC Agribusiness DepartmentStrategic Response to Rising Global Food Prices

November 12, 2008

IFC and Agribusiness

IFC Investment in the Agribusiness Value Chain Exceeded US$1.3 Billion in FY 2008

IFC’s Goal: Deliver development impact along the global agri-supply chain,

through investments and advisory services with the private sector, to create opportunities and improve peoples’ lives

FinancialInstitutions

Market Infrastructure

Farm

ProductionInputs Agri.

Marketing

Processing Marketing

Distribution

Risk Sharing Facilities

Pre-Harvest Finance Trade Finance

Fertilizers and other Chemicals

Land

Project/Corporate Finance

Retail

Infrastructure/Logistics

CIT – Access to Markets

Note: The aggregated amounts listed next to categories above denote potential IFC investment size, subject to approvals

Agribusiness Committed Portfolio

By Sector

$2.2 Billion Committed Portfolio As Of June 30, 2008

By Region

Beverages10.2%

Sugar15.8%

Other8.6%

Other Food14.2%

Fruits & Vegetables

6.1%

Dairy Products

4.3%

Grains & Milling7.4%

Veg Fats & Oils

13.1%

Animal Processing

20.4%

S.Europe/ Cent. Asia

9.6%

Africa5.9%

South Asia6.5%

Mid. East/ N. Africa

1.9%

South America37.7%

Cent. America

6.7%

East Asia16.4%

Cent. & East.

Europe15.6%

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Agribusiness Investment Approach

Corporate & Project Finance

• Provide long term financing – equity and loans – that is not otherwise available

• Create long term partnerships with emerging industry leaders

• Promote IFC’s brand through best practice for corporate governance, sustainability, Environment & Social standards, etc.

• Implement “further reach” programs to support individual farmers, distribution companies, etc.

• Provide Technical Assistance as “added value” in IFC’s financing package

Technical Assistance (TA) and Advisory Services

• Project specific for farmers, SME development, supply chain linkages, infrastructure• Market development of local supply to meet quality and quantity requirements• Corporate governance and business transparency advisory services

Wholesaling through Traders and Financial Institutions (FIs)

• Majority of farms/SMEs are too small for IFC reach but are essential to the sector

• Field advantage of local intermediaries

(regulations, business customs, client/ supplier reputations)

• Channel financial and technical assistance to end users via intermediary

• Develop and promote sustainability best practices through the intermediary

• Instruments: Long Term finance, partial credit guarantees, risk sharing, etc.

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Strategic Response to Rising Food Prices

Agribusiness Action Plan for Rising Food Prices

Main drivers of food price inflation

Food prices have risen substantially over past year

Fundamentals -Supply and

Demand

Financial Markets Supply and Demand

Source: FAO, April 2008

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• INCREASING DEMAND (food demand from emerging markets; diet changes; biofuel mandates)

• LOWER SUPPLY (low stock to use ratio due to shortfalls in grain production; disappearance of reserve stocks; rising production costs – fuel, fertilizer, seeds, chemicals; competition for land from biofuels)

• DECLINING DOLLAR • SPECULATION AND INFLATION HEDGE

IFC’s Multi-Channel Response

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Indirect Investments Wholesaling via Financial

Intermediaries (Debt/Equity)

Portfolio risk sharing

T.A. for the FI and borrowers

Direct Investments Investment in productive

assets

Linkages: Supply Chain value

Capacity building for farmers

Land Funds

Partnering with World Bank Improving Investment Climate

(FIAS)

Legal / regulatory environment

TA projects in land titling reforms

FIAS/PEP-Africa warehouse receipts

Working Capital Facilities

Traders

Producers

Processors

IFC is Well Positioned to Provide Interventions in the Short Term

• Strengthen Supply Chain Coordination and Increase Liquidity via Working Capital Facilities

Prevent disruption of prefinancing Ensure continued provision of essential inputs (seeds,

fertilizers, chemicals, fuels). Processors and traders in good standing eligible Wings (Indonesia), Ecom (Africa/Asia), Noble (Argentina)

• Increase rural credit through Wholesaling Facilities with Financial Institutions

Reach a new class of smaller clients (farmers, MSMEs) Channel technical assistance to financial institutions

(agribusiness credit analysis) and clients (environment and social, linkages, etc)

Agrofinanzas (Mexico), TSB (Tajikistan), Aval Bank (Ukraine)

Short Term Response

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IFC is Well Positioned to Provide Interventions that Address Long-Term Imbalances

1. Productive land strategy• Bring land into sustainable production (CIS, Africa, Brazil)• Introduce better agronomic practices• Improve productivity (seeds, fertilizer, chemicals access)• Regional focus on countries with upside potential:

Argentina, Brazil, Russia, Ukraine Investment Funds (Atera, Bulgaria), Input distribution (Rise, Ukraine), Farming (Rise,

Ukraine; BGK, Russia; Salala, Liberia; GOPDC, Ghana)

2. Vertically integrated Agri Supply Chain Infrastructure• Strengthen and support the development of

– Bulk ports and Terminals (Timbues, Aguirre)– Land, Rail and Sea Trasport (UABL, TransAmerica)– Logistics and Warehousing (Merec, Trio, Pronaca)– Modern retail (Rubliovskiy, ErroTech, Agrokor)

3. Water Efficiency and Irrigation Infrastructure (especially through PPPs and Municipalities)

4. Wholesaling Facilities with Financial Institutions, Processors and Traders to increase rural credit to farmers and MSMEs.

5. Explore the systematic development of Financial Instruments related to Agiculture that deepen the markets and allow for efficient intermediation of financing and risk management in the sector (e.g. warehouse receipts, weather-index insurance)

Fundamentals Of Supply

Financial Markets

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Response to 2008 Global Food Prices Crisis: IFC Agribusiness Development Plan

Short Term Response

Medium Term Response

Long Term Response

• Immediate budget increase for most impacted industry departments and advisory services business lines

• Provide liquidity throughout the value chain

• Trade finance

• Working capital

• Wholesaling finance

• Supply side responses through global agricommodity players

• Trade finance

• Productive land

• Improve supply chain infrastructure

• Agribusiness development in Africa

• Technical programs on the ground: productivity, access to finance

• Standard setting

• Improve logistics, product-to-market efficiencies

• Reform agenda: regulatory / land / trade policy

• Drive integration of small farmers to global agrisupply chain

• Rural finance

• IFC has already scaled up its activities and will continue to do so, to effectively provide financial and advisory services to its private sector clients and partners

• Early results indicate that supply side, market driven responses to rising food prices will deliver results on the ground

Chris RichardsAdviserIFC Agribusiness Departmente: crichards@ifc.orgp: 202-473-6230