Rome, 15 April 2002. - The UN Food and Agricultural Organization (FAO) and the European Bank for Reconstruction and Development (EBRD) feel that the agriculture and agribusiness sector remain severely underfunded in Central and Eastern Europe and the Commonwealth of Independent States (CIS) (*). This conclusion was underlined at a recent forum in Budapest of senior managers from major international financing institutions, development agencies and private banks operating in the region, including - among others - the EBRD, the World Bank Group, the European Commission, the OECD, the European Investment Bank, Crédit Agricole, Rabobank and Raiffeissen Bank.

For more than ten years, the FAO and the EBRD have been working hand in hand to help the many millions of people in Central and Eastern Europe and the Commonwealth of Independent States (CIS) whose livelihoods depend on farming. Together, these two institutions have mobilized funds and technical expertise for agribusiness investment in the region, through 35 projects as diverse as promoting grain storage in the Russian Federation or building agricultural wholesale markets in Poland.

These joint activities only partially reflect the commitment of the two institutions to agricultural investment in the region. Since its creation in 1991, the EBRD has invested over US$2.2 billion (EUR 2.5 billion) in more than 150 agribusiness projects in the region, focusing mainly on private agro-industrial ventures.

During the same period, FAO has formulated, with other international financial partners, mainly the World Bank, agricultural development projects worth US$1.6 billion.

The Budapest forum, chaired by David Hexter, Deputy vice-president of EBRD's Banking Department, was primarily designed to foster improved coordination between major world financial institutions in the field of agricultural financing. It was conceived as an important precursor to the World Food Summit: five years later, scheduled to take place in Rome from 10 to 13 June 2002.

Beyond its substantial contribution to GDP, agriculture is a major source of employment in Central and Eastern Europe and the CIS, while prospects in other sectors are slow to emerge. Poland is a good illustration of this, as its agricultural labour force is still 22 percent of the total labour force, while agriculture's contribution to GDP is only 5%.

"The forum participants recognized that the importance of agricultural investment in the region is manifold: it has strong social implications in terms of rural poverty reduction and employment, but it can also be a powerful engine for economic growth, " FAO Economist Emmanuel Hidier says.

David Forbes Watt, Director of the FAO Investment Centre, emphasized that "although agriculture is generally perceived as risky, careful investment in this sector can be financially successful, as demonstrated by the performance of the agribusiness portfolio of our EBRD partners." He points out that FAO, the EBRD and other multilateral institutions should continue to promote agricultural investment in their own area of excellence, while drawing more systematically from experiences of others.

"Foreign direct investment and official development aid figures show that there is plenty of room for everybody to play a more active role: aid agencies focussing on the development of better policy options and public investment, financial institutions like the EBRD which facilitates private investment, and the private investors themselves," according to Mr Forbes Watt.

"The experience of the EBRD in agribusiness financing is rich. The funds that the Bank has injected in private agro-industrial companies of the region have had a very positive impact on the income of many farmers. In Ukraine alone, our investments in the edible oil sector provide secure markets for one third of the sunflower seeds production of the country. However, we believe that the performance of our own agribusiness investments could be further improved if we worked more closely with other financial players that have developed capacity in complementary areas: rural credit, public investment or the promotion of better policy options, to mention a few," says Hans Christian Jacobsen, Director of the Agribusiness team of the EBRD.

The participants to the Budapest forum unanimously agreed to reinforce exchanges of information and experience between their institutions, through the creation of an informal network of professionals working in agricultural and agribusiness financing in the region. FAO will act as the main facilitator of this new network.

According to the EBRD, the total annual flows of private foreign direct investment (FDI) to its 27 countries of operation are low. They amounted US$21 billion on average between 1995 and 1999. They are comparable to half the FDI flows to China alone (US$ 41 billion). While 70% of these flows are directed to only four countries: the Czech Republic, Hungary, Poland and the Russian Federation, only a modest portion is injected into the agricultural sector, not more than a few percent.

As far as official development aid (ODA) to agriculture is concerned, annual flows are even more limited: between 1995 and 1999, they averaged US$600 million for the entire region, i.e. less than US$1.5 per capita per year. This amount includes grants from bilateral and multilateral sources as well as loans from development banks.

The EBRD was established in 1991 to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in the countries of Central and Eastern Europe and the CIS.

The Investment Centre of FAO was created in 1964 to assist governments of FAO's member countries and development banks to formulate agricultural investment projects.

(*) Central and Eastern Europe includes the Balkans (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia and Montenegro and Slovenia), the Baltic States (Estonia, Latvia and Lithuania) and Central Europe (Czech Republic, Hungary, Poland and Slovakia). The CIS includes Armenia, Azerbaijan, Belarus, Georgia, Kazakstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.