Improving risk management
to cope with food price
volatility and promote
agricultural development
Pierre Jacquet
G20 mission on addressing the effects of price
volatility
Interim recommendations – May 12, 2011
Two broad issues
 Price shocks carry huge costs for poor developing
countries and vulnerable populations
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Access to food (notably in urban areas)
Increase in poverty (in cities, in producing areas)
Social and political unrest
Balance-of-payment problems (foreign exchange
shortage, export bills)
 Farm price volatility creates income uncertainty
 Penalizes investment and production
 Small producers are the most vulnerable within the
food and agricultural value chain
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Some lessons from the crisis
 Lack of preparedness
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Uncoordinated, short term reactions
Lack of immediate access to compensatory resources
 Major uncertainty on the evolution of the supply/demand
balance
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Crucial importance of supporting production and productivity
gains in agriculture
 Agricultural development implies a capacity to manage a whole
range of risks, new and old, short-term and long-term.

Macroeconomy, exchange rates, “normal” price fluctuations,
climate change, weather events and catastrophes, pests,
damage to environment, geopolitical risks…
 Mainstream risk management in agricultural development
programes
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12 May 2011
As a contribution to crisis prevention and preparedness
As a way to address price and income uncertainty
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Six (interactive) recommendations
Policy scope\issue addressed
Price shocks
Price and income
uncertainty
1. Support comprehensive, country-owned approaches to
agricultural policies (incl. ex-ante risk management):
ex. CAADP/NEPAD
Global framework for risk
management
2. Develop risk management advisory and intermediation
services for food security: risk-mapping, toolbox of
targeted hedging instruments, training, advice,
intermediation
3. Multi-stakeholder (Public-private) dialogue and
partnership on risk management for food security and
agricultural development
4. Improve WFP
effectiveness
through hedging
Specific initiatives
12 May 2011
5. Provide a
macroeconomic
shock facility
through an
extension of
countercyclical debt
instruments
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6. Facilitation of contract
farming
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1. Integrated approach to agricultural
development
 Country agricultural development programs to
include risk assessment and management
strategies
 Donors and other international organizations to
support and commit to such strategies.
 Proposed pilot (to be discussed): NEPAD might
identify (in partnership with donors) countries or
regions to build on and strengthen the CAADP
programs to include risk assessment and
management strategies that would be formally
monitored as part of the CAADP.
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2. Provide agricultural risk advisory
services for developing countries
 Invite multilateral, regional and bilateral
development banks to collectively structure the
provision of risk management advisory and
intermediation services to developing country
clients
 Create a small multidonor office dedicated to that
task.
 Interested multilateral, bilateral and regional donors,
might be invited to launch a joint initiative setting up
such a risk management advisory office around a few
pilot cases, elaborated on the basis of expressed
interests by developing country clients.
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3. Public-private partnership for food
security
 Launch a formal multi-stakeholder dialogue and
partnership on risk management for food security
and agricultural development (building on, and
interacting with other multilateral initiatives s.t. the Committee on
World Food Security, the principles for responsible investment…).
 A multi-stakeholder workshop will be held in Paris on
June 6, 2011 to discuss the contribution of the private
sector to agricultural development and risk
management, the potential for value-creating publicprivate partnerships, and the interest for the formal
pursuit of such a dialogue and the adoption of
principles and commitments.
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4. Enhance the financial effectiveness
of WFP
 Expand the WFP forward facility pilot to
include risk hedging at the WFP.
 Ask the WFP to prepare a hedging strategy
paper presenting the broad principles of a
hedging strategy (including forward
purchases and the choice of instruments),
detailing its organizational and operational
costs, and proposing a detailed two-year
pilot.
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5. Promote innovative finance
 Recommend the use of “countercyclical” development
loans that would build on the innovation introduced by the
AFD in including deferred repayment options in case of
external shocks, including food price surges or collapses.
 AFD has already developed a few pilots (5 countries, €200
million). Support for such countercyclical instruments was
received by the CFA Zone Finance ministers at their April 2011
annual meeting in N’djamena. Support of the G20 would help
encouraging other donors to develop new pilots
 Invite a reflection on a longer term reform of development
finance, including innovations that introduce risk sharing in
development finance to better take into account the
vulnerability of developing countries to commodity price
volatility.
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6. Promoting contract farming
 Explore the possibility of developing
instruments (e.g. guarantees) and
approaches (capacity-building)
specifically designed to facilitate contract
farming (locally and internationally).
 A study exploring the interest and feasibility of
such a “de-risking” facility could be
commissioned and serve as a basis for
developing potential pilots.
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Country food and agriculture development program
to include risk assessment and management strategy
Recommendation 1
Risk management
advisory, intermediation,
and training services
(development banks)
 Recommendation 2
Conception and
implementation
Objective 1
Managing price risk…
To prevent or mitigate exogenous price shocks and food crises
To develop a toolbox of macro-economic risk coverage
and
price
stabilization
instruments
(subset of Recommendation 2)
To develop a macroeconomic shock facility through an
extension of countercyclical debt instruments and to
promote risk-sharing development finance.
 Recommendation 5
To improve WFP effectiveness through hedging
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 Recommendation
4
Multi-stakeholder dialogue
to include private sector
 Recommendation 3
Objective 2
Managing price risk…
To increase security and predictability of agricultural
income (hence investment, productivity gains, quality and
sustainability, scaling-up)
To develop a toolbox of instruments covering major
production risks (e.g. pull mechanisms/research for inputs,
weather insurance, commodity/input price) (subset of
Recommendation 2)
To negotiate a Global Agricultural Compact (subset of
Recommendation 3)
To facilitate contract farming and promote private price
stabilization mechanisms within value chains
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 Recommendation 6
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