Russia and Ukraine, where drought-hit harvests this year sent world grain prices soaring, could massively boost output with the right reforms, according to the European Bank for Reconstruction and Development (EBRD).
One key to development is land ownership classification, for example, allowing farmers to use land as collateral, or a system of crop receipts, as common in Brazil, enabling producers to use their future crop as security for financing, said Gilles Mettetal, director of the EBRD’s agribusiness unit.
The EBRD is the largest single investor in agribusiness in Eastern Europe and Central Asia and expects to invest around 800 million euros ($1.11 billion) in the region this year, building on investment of around 700 million euros in 2009, as it seeks to help the sector meet rising food needs.
Since a 2007-08 food crisis, in which soaring prices sparked riots and panic buying, there has been huge interest from investors in the agribusiness sector, including sovereign investor funds making a strategic investment, Mettetal said.
“Russia, Ukraine and Kazakhstan have a very strong unrealized potential. They could double production, meaning that in the future their impact and their ability to influence global prices might be even larger.
“The Balkans and Turkey also have very strong potential, which you see in the quality of the soils, the climatic conditions and the workforce. With adequate policies you could achieve a lot.”
Russia this summer imposed a grain export ban due to last until 2011 after its worst drought in 100 years, while Ukraine imposed export quotas in a move described by the EBRD as “a shock and a disappointment.”
“Attempts by governments to control prices by closing borders have not resulted in any positive changes. In Ukraine grain was rotting in the silos once they imposed the export bans because there was enough, farmers couldn’t get as much as they could have done for it on global markets, and quotas gave rise to corruption,” Mettetal said.
Besides supporting producers the EBRD has also invested in the food chain, by supporting retail companies venturing into the region.
“There is no point investing in agriculture if you don’t have a network for selling, and you need to start where the consumer is. The development of modern retail has been a big incentive in Eastern Europe for raising standards, as retailers want to source food locally.”
Mettetal said the rise in beer drinking in Russia for example had helped improve the local barley, as locals raised standards to supply the malting business.
Speaking on the sidelines of an EBRD agribusiness conference in Istanbul, Mettetal said Turkey was a new market for the bank but the country faced similar problems to Eastern Europe, and also had a large informal market with quality issues.
“Turkey is the leader in a number of niche markets like nuts and dried foods… the bad news is that one of their competitors is China, which could cause problems.”