22nd June 2011
The deal, struck with investment bank JPMorgan, comes as countries such as China and India weather a second surge in agricultural commodities prices following the 2007-08 food crisis, says the report.
However, the move, timed to coincide with the first G20 meeting of agricultural ministers, may prove controversial as lawmakers around the world try to clamp down on what they describe as excessive speculation in commodities derivatives.
Robert Zoellick, World Bank president, is quoted in the Financial Times (paywall) as saying on Tuesday the "agriculture price risk management" tool showed what "sensible financial engineering" could do. "Make lives better for the poor."
He added: "We have been in a period of extraordinary volatility in food prices, which poses a real danger of irreparable harm to the most vulnerable nations."
Food prices were "the single gravest threat" facing developing countries, he added.
Alex Brummer comments on This is Money: "The World Bank's effort to set up a new $4bn agricultural hedging tool, designed to mitigate volatility, looks like an excellent idea.
"Interestingly, its partner in this venture is JP Morgan Chase which over the last few years has been building a major commodity business."
The facility will target the private sectors of developing nations, including farming co-operatives and food processing companies, with JPM offering simple hedging instruments.
The World Bank will underwrite $200m in credit risk under the initiative while JPM, one of the largest dealers in commodities in Wall Street, will take on a similar amount.
G20 agriculture ministers are set to agree at their Paris meeting that hedging "would provide an important contribution" to agriculture.
More about food prices on Mindful Money
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