Global Food Price Rise: Commission Proposes Special Financing Facility for Developing Country Farmers

The fund would be worth €1 billion and would operate for two years, 2008 and 2009. This money would be in addition to existing development funds and would be taken from unused money from the European Union's agricultural budget.

21/07/08 The European Commission has proposed to establish a special "facility for rapid response to soaring food prices in developing countries". The fund would be worth €1 billion and would operate for two years, 2008 and 2009. This money would be in addition to existing development funds and would be taken from unused money from the European Union's agricultural budget. It would be provided to developing countries which are most in need, based on a set of objective criteria. The facility would give priority to supply-side measures, improving access to farm inputs such as fertilisers and seed, possibly through credit, and to safety net measures aimed at improving productive capacity in agriculture. The support would be paid via international organisations, including regional organisations. The proposal falls under the co-decision procedure and the Commission hopes that Council and Parliament can reach agreement by November in order not to lose the unused 2008 money.

José Manuel Barroso, President of the European Commission, said: "The impact of high food prices is particularly severe for the world's poorest populations. It may put at risk our progress towards the Millennium Development Goals and exacerbate tensions in poor countries, namely in Africa. This 1 billion Euro facility aims to generate a strong and rapid agricultural supply response. It is an act of solidarity with the world's poorest but also a responsible measure to promote stability. It is aimed at increasing agricultural production in developing countries to combat the effects of soaring food prices. Such an increase in supply is necessary to fight rising food prices world-wide."

Louis Michel, Commissioner for Development and Humanitarian Aid, commented: "The food price rise has hit farmers and populations in developing countries the hardest. This major cash injection will help raise agricultural production in these countries by providing farmers there with the means, such as more seeds and fertilizers, to make a difference across the medium and long term. This is Europe responding in real-time with effective actions. This is Europe responding with effective solutions to help farmers in Africa and in other developing regions."

Mariann Fischer Boel, Commissioner for Agriculture and Rural Development, said: "It's so important that farmers in the developing world are given the means to help themselves. Higher food prices can stimulate production in these countries. I am very pleased with this concrete example of solidarity from farmer to farmer, which can help to quickly increase production in the developing world."

Rising food prices in 2007 and 2008 have had negative effects on many developing countries and their populations. Poverty has deepened for hundreds of millions of people and recent progress towards achieving the Millennium Development Goals has been put at risk. Rising food prices have resulted in riots, unrest and instability in several countries, risking the gains of years of political, developmental and peacekeeping investments.

However, the new situation could also provide a window of opportunity to stimulate a supply response from farmers in developing countries. It offers new income-generating opportunities to bring rural communities out of poverty by providing incentives for investments and productivity improvements.

At the same time, high agricultural prices have contributed to a reduction of market expenditure in the 2008 EU budget and to lower estimates for the 2009 budget within heading 2 of the financial framework. The Commission believes this provides an exceptional opportunity to provide a temporary facility to help stimulate farming in developing countries.

The Commission expects the positive results of this assistance to include an increase in agricultural production and food security in assisted countries, reduced malnutrition rates and reduced food price inflation.

Eligible countries and the share they should receive will be selected on the basis of transparent criteria. Information provided by the UN Task Force and international organisations (mainly UN agencies like FAO, WFP, World Bank and IMF) will be used, and this may be supplemented by country-specific information obtained from EC Delegations.

While all developing countries are potentially eligible for support, assistance will be provided to those that are severely affected by the food price crisis in socio-economic and political terms, have a need for measures to be taken and which do not have the means or capacity to respond unassisted.

Indicative criteria in selecting countries include reliance on food imports, food price inflation, and social and fiscal vulnerability. Other financing available to the country from the donor community will be taken into account, as well as the country's potential to increase agricultural production. The Facility also allows for regional-level programmes, covering all developing countries of that region. Global initiatives may also be financed when implemented through a regional or international organization.

Assistance channelled through International Organisations could for instance apply to FAO (emergency input delivery programme), IFAD (e.g. rural finance), UNICEF (child nutrition, nutritional safety nets), WFP (humanitarian food assistance, transitional safety nets), the ICRC (food assistance) and the World Bank (market-based risk management, safety nets).

The Commission hopes the co-decision procedure can be completed by November, to allow commitment of funds in 2008 and implementation in early 2009.