Outline of the presentation

1. European Bank for Reconstruction and Development Recent Trends in Food Prices & EBRD Approach Agro-invest Conference Astana23-24 October 2008Mehmet İlkinPrincipal BankerEuropean Bank for Reconstruction and Development

2. Outline of the presentation • Short term and the long term views • What is the EBRD role ? • What can be done in the future ?

3. Categories of factors contributing to higher food commodity prices in the last few years Temporary factors: Continuation of long-term trends: Structural changes: Questionable future impact: • Adverse weather • Trade policies by exporters and importers • Aggressive buying by importers • Rapid economic growth in many developing countries • Population growth in developing countries • Increasing consumption per capita • High oil prices • Biofuels production • High agri production costs • Further dollar depreciation • Slower growth in ag productivity • Financial Crisis HOWEVER… 3

4. Food prices were rising dramatically but have recently declined from their peaks Selected international cereal prices • Prices rising due to supply and demand factors • Drought and disease the main temporary supply constraints • Shift into bio-fuels also affects demand for grain and food supply • Demand increasing due to fast growth in emerging markets • Recent price decreases because of bumper harvests and global financial turmoil including decreasing crude oil prices

5. Prices have declined from their peaks(as of October 22, 2008) 5

6. CORN PRICES YEARLY MONTHLY

7. WHEAT YEARLY MONTHLY

8. SOYBEANS YEARLY MONTHLY

9. DRY MILK YEARLY MONTHLY

10. RICE YEARLY MONTHLY

11. The EBRD region has a substantial agricultural production potential Illustrative example - wheat production • CIS countries account for 13-14% of the world’s arable land, but only for 6% of the global crops and 3% of the world’s meat production. • More than 13 million hectares of abandoned land could be returned into production • High quality soilsand yield improvements could lead to a substantial increase in grain production. • Production potential: higher agricultural commodity prices not only represent a threat, but also an unique opportunity to improve farmers’ incomes and to stimulate investments in agriculture in the EBRD region. Avg. real production 2004-06 (m t) Max productionPotential* (m t) +64% +103% +107% * Increasing production through higher yields and returning of unused farm land (Source: IKAR, FAO)

12. The right answer? Soaring agricultural commodity prices triggered a boom in farm investments in the region Land investments Downsides Social and environmental issues: • “Neo-colonialism” and speculative elements (land appreciation) • Agriholdings and substantial land banks (> 100,000ha) have uncontrollable social and environmental impacts (effects on small farmers & rural societies, irrigation) Weaknesses in business rationale: • Still weak policy/legal frameworks (e.g. land rights) jeopardising investment security • Volatility in yields and commodity prices is still considerable (recent price decreases) • Lack of skilled labour and human capital is hampering efficient farming activities • Arable land has become an attractive investment opportunity for farmers, strategic investors and financial investors. Business rationale: • New investors bring in needed financing, know-how and professional standards resulting in substantial yield improvements. • Investors expect to benefit from increases in yields and land appreciation. • EBRD is selective towards financing of land and primary agriculture • Projects should be linked to a vertically integrated approach with sustainable long-term growth strategies

13. EBRD is following a vertical approach as strategy to bring out the untapped production potential Agribusiness Agribusiness Strategy • The EBRD has invested EUR 4.8 billion in 326 projects in the Agribusiness sector • 2007: 40 projects signed with EUR 517 million committed investments • One of the largest sector teams within the EBRD with 30 bankers London and Resident Offices accounting for around 40% of the projects in the EBRD’s corporate sector portfolio. • Client network of leading global and regional players • Indirect support to smaller farmers and food enterprises via SME credit lines Downstream Upstream • All activities along the food and drink production chain are included and rather focused on increasing demand than supply • Vertical approach addresses specific risks and features attached to agribusiness ventures • Downstream investments are mainly in vertical integrated companies with positive spill-over effects to primary agriculture • As a result, EBRD has a conservative approach towards direct land investments Agricultural inputs& production Primary & secondary processing Retail &Food Service Packaging & distribution

14. Consumer Distribution Foodservice Packaging Production Food Processors Primary Processing Production Agricultural Inputs Important to maximise supply potential and identify bottlenecks along the entire food value chain Investments along the value chain Food retailers Distributors Caterers Wholesale Markets Edible oil Millers Malters Grain Handling Grains Oilseeds Livestock Dairy Fish Glass Bottles/Jars PET Bottles Cans Carton Containers Seeds Farm Machinery Agricultural Chemicals Bio-tech Distributors/Services Meats/Poultry Baked Goods Confectionery/Snacks Beverages/Beer/Water Dairy/UHT/Cheeses Frozen Foods Fish Pet Food

15. EBRD’s investments in the beer sector illustrate its vertical approach along the entire food chain Case study: beer sector Local farmers Russian consumer Malt sector Breweries Packaging Retail • USD 16m loan in 2007 to Agro Rus (Soufflet’s subsidiary in Russia) • Efes, a leading Turkish brewery: Loans of ca. USD 50m and equity of USD 6m • Vena (Baltic Beverages Holding - BBH): EUR 82 m syndicated loan • Sisecam (a worldwide leading glass-packaging firm): syndicated loans of over USD 168m between 2004-2007 to • Lenta, one of the fastest growing food retail chains in Russia: USD 125m equity and USD 30m loan • Globus, a German food retailer: EUR 135m syndicated loan in Russia Benefits through higher product quality and increased range of products at lower prices • Working capital loan of up to USD 30m for Desnagrain in Ukraine to supply farms with necessary inputs and technology

16. The EBRD has initiated short-term responses to the food price crises by bringing together private sector and policy makers • Conference on “Fighting food inflation through sustainable investment” in cooperation with the Food and Agriculture Organization of the United Nations: bringing private sector and public sector together to discuss possible responses on the food crises (London – 10 March 2008) • Follow-up meeting at the Agribusiness Forum at the EBRD’s annual meeting: focus on concrete measures to realise the region’s agricultural potential (Kiev – 20 May 2008) • Agribusiness conference in cooperation with the Russian Agricultural Ministry and in coordination with the FAO: involve private sector in a policy dialogue initiative and explore opportunities to improve agricultural production and strengthening Russia's position as a key exporter of agricultural products (Moscow – 21 October 2008)